UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________ to ______________
Commission file number 000-50614
ORAGENICS, INC.
(Name of small business issuer in its charter)
FLORIDA 59-3410522
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
13700 PROGESS BLVD., ALACHUA, FLORIDA 32615
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(Address of Principal Executive Offices) (Zip Code)
(386) 418-4018
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $.001 per share
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.001 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]
The revenues of registrant for the fiscal year ended December 31, 2004
were $196,210.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 4, 2005 was approximately $15,692,932 based upon a
last sales price of $2.38 as reported by the American Stock Exchange.
As of March 4, 2005 there were 14,597,224 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Definitive Proxy Statement for its 2005
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-KSB Report except with respect to information specifically
incorporated by reference in this Form 10-KSB Report, the Definitive Proxy
Statement is not deemed to be filed as a part hereof.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
TABLE OF CONTENTS
PART I
PAGE
Item 1. Description of Business.......................................... 3
Item 2. Description of Property...........................................16
Item 3. Legal Proceedings.................................................17
Item 4. Submission of Matters to a Vote of Security Holders...............17
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..........18
Item 6. Management's Discussion and Analysis or Plan of Operation.........21
Item 7. Financial Statements..............................................37
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................37
Item 8A Controls and Procedures...........................................37
Item 8B Other Information.................................................37
PART III
Item 9. Directors and Executive Officers of the Registrant................38
Item 10. Executive Compensation............................................38
Item 11. Security Ownership of Certain Beneficial Owners and Management....38
Item 12. Certain Relationships and Related Transactions....................38
Item 13. Exhibits and Reports on Form 8-K..................................39
Item 14. Principal Accountant Fees and Services............................39
Signatures..................................................................57
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This description contains certain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
the results discussed in the forward-looking statements as a result of certain
of the risks set forth herein and elsewhere in this Form 10-KSB. We assume no
obligation to update any forward-looking statements contained herein.
OVERVIEW
We are an early-stage biotechnology company focused on the acquisition
and development of novel technologies and products to address significant, unmet
medical needs. Our strategy is to in-license and to develop products through
human proof-of-concept studies (Phase I and II clinical trials of the U.S. Food
and Drug Administration's regulatory process) prior to partnering with major
pharmaceutical, biotechnology or healthcare product firms for advanced clinical
development and commercialization. Our most advanced product, which we refer to
as replacement therapy, is a one-time topical treatment to prevent tooth decay.
The FDA has approved our Investigational New Drug application ("IND") for
replacement therapy and we plan to begin Phase I trials in 2005.
Since inception, we have funded a significant portion of our operations
from the public and private sales of our securities. We have generated no
significant revenues from operations during the last two years. All of our
revenues have been from a sponsored research agreement and Small Business
Innovation Research ("SBIR") grants which have expired. We have not generated
revenues from sales of products.
We are currently developing several products, each of which addresses
large market opportunities:
o REPLACEMENT THERAPY is a single, painless, one-time topical
treatment that has the potential to offer lifelong protection
against dental caries (tooth decay). Replacement therapy refers to a
process which permanently replaces bacteria normally present in the
mouth which are strongly associated with tooth decay with a
genetically altered strain of bacteria that has been modified so
that it no longer contributes to the disease. Present in the normal
flora of the mouth, Streptococcus mutans converts dietary sugar to
lactic acid; the lactic acid, in turn, causes the erosion of tooth
enamel that results in the destruction of the tooth surface and
eventually the entire tooth. Replacement therapy permanently
replaces resident acid-producing Streptococcus mutans with a
patented, genetically engineered strain of Streptococcus mutans that
does not produce lactic acid. Applied topically to tooth surfaces
with a swab, the therapy requires only one application. We plan to
begin Phase I clinical trials in early 2005 and partner with a major
healthcare products or pharmaceutical company prior to initiating
later stages of clinical testing.
o PROBIOTICS are live microorganisms that confer health benefits to
the host when administered in adequate amounts; the use of yogurt
containing live Lactobacillus cultures is an example of a probiotic
application. We have identified three natural strains of bacteria
that provide significant protection against the causative organisms
of periodontal disease and dental caries. We are developing a
formulation and method of delivery of these beneficial bacteria that
we plan to commercialize as a dental care probiotic. Because
probiotic treatments may be marketed as "health supplements" without
the need for extensive regulatory oversight, we believe that we may
achieve commercialization of our probiotic product in certain
markets in 2006. If successfully developed, our oral probiotic
product will be one of the first probiotics to be marketed for the
maintenance of oral health.
o MUTACIN 1140 is a highly potent bactericidal peptide produced by
Streptococcus mutans. This proprietary peptide was discovered by our
researchers during the course of developing replacement therapy and
is a novel antibiotic that has broad-spectrum antimicrobial activity
against essentially all Gram-positive bacteria including
vancomycin-resistant Staphylococcus aureus. The antibiotic currently
is in preclinical stages of development. We currently plan to begin
animal studies in 2005.
3
o IVIAT AND CMAT are technologies we licensed from iviGene Corporation
(a company related to us by common ownership). These technologies
enable the simple, fast identification of novel and potentially
important gene targets associated with the natural onset and
progression of infections, cancers and other diseases in humans and
other living organisms, including plants. This licensed technology
offers us the potential to generate and develop a number of product
candidates for future out-licensing to corporate partners,
particularly in the area of cancer and tuberculosis, as well as
agricultural and other non-human uses.
We were founded in 1996, became operational in 1999 and currently
employ 18 full-time employees. Our registered office is located at
4730 S.W. 103rd Way, Gainesville, Florida 32608, and our
headquarters are located at 13700 Progress Boulevard, Alachua,
Florida 32615.
OUR BUSINESS STRATEGY
Our strategy is to develop novel technologies through human
proof-of-concept studies (Phase I or II clinical trials) prior to partnering
with major pharmaceutical, biotechnology or health care product firms for
advanced clinical development and commercialization. Upon successful completion
of proof-of-concept studies, we intend to consider sublicensing our licensed,
patented technologies to one or more strategic partners that would be
responsible for advanced clinical development, completing the U.S. Food and Drug
Administration's ("FDA") approval process, and manufacturing and marketing our
products. We plan to structure our agreements with strategic partners
sublicensing our technology to include an upfront licensing fee upon execution
of the agreement, milestone payments upon achievement of specific product
development goals and royalties from product sales.
In pursuing this strategy, we expect to avoid the high cost of later
stage clinical trials and generate revenues in the form of license fees from our
technologies sooner than if we were to complete the lengthy FDA approval-process
ourselves. Once one or more of our technologies are successfully licensed, we
plan to license additional promising technologies within our field of expertise
from leading academic institutions and other biotechnology companies. There can
be no assurance that we will be able to enter into such sublicenses.
OUR TECHNOLOGIES
REPLACEMENT THERAPY
Dental caries (tooth decay) is a worldwide epidemic that affects the
majority of populations in industrialized and developing countries. According to
the World Health Organization, tooth decay is the most prevalent infectious
disease, affecting approximately 5 billion people. Much of the tooth decay in
low-income countries remains untreated until the teeth are extracted.
Tooth decay is characterized by the dissolution of enamel and dentin
which eventually results in the destruction of the entire tooth. The immediate
cause of tooth decay is organic acid produced by microorganisms on the tooth
surface. Studies suggest that of the 400 to 500 microbial species in the mouth,
Streptococcus mutans, a common bacterium found in virtually all humans, is the
principal causative agent in the development of tooth decay. Residing within
dental plaque, Streptococcus mutans derives its energy from carbohydrate
metabolism as it converts dietary sugar to lactic acid which, in turn, erodes
the tooth enamel.
Our replacement therapy technology employs a genetically modified
strain of Streptococcus mutans that does not produce lactic acid. When applied
to the teeth, this non acid-producing organism displaces and permanently
replaces the indigenous acid-producing strains of Streptococcus mutans, thereby
potentially providing lifelong protection against most forms of tooth decay.
Replacement therapy is suitable for use by the general population. The
ideal application would be to treat infants at the onset of tooth eruption when
initial bacterial colonization of the tooth surfaces is occurring. Replacement
therapy requires only a single 5-minute application. Applied topically to the
teeth with a swab, the therapy can be administered by dentists to patients
during routine office visits.
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We submitted an IND for replacement therapy to the FDA in 1998 seeking
permission to begin Phase I clinical trials. In March 2003, we submitted a new
IND. In November 2004, the FDA approved our clinical design and protocol for the
Phase I clinical trial. In March 2005, we initiated enrollment in the clinical
trial.
TECHNICAL BACKGROUND
Replacement therapy represents a novel approach to preventing
bacterial infections by capitalizing on interactions between different species
of bacteria inhabiting the same ecosystem. This approach involves permanently
implanting a harmless strain of bacteria in the host's microflora. Once
established, the harmless strain prevents the colonization and outgrowth of a
potential pathogen. In the case of dental caries, beneficial bacteria are
implanted in the mouth of the host to prevent colonization of the harmful
bacteria that cause tooth decay.
Our replacement therapy involves replacing the naturally occurring,
acid-producing strains of Streptococcus mutans with a genetically engineered
strain of Streptococcus mutans that does not produce lactic acid. Our
researchers discovered a strain of Streptococcus mutans that did not produce the
decay-causing lactic acid. This strain, however, could not permanently replace
the acid-producing strains of Streptococcus mutans naturally occurring in the
normal flora of the mouth. Thus, it was first necessary to find a strain of
Streptococcus mutans that could permanently replace the naturally occurring
decay-causing strains of Streptococcus mutans.
Through extensive scientific research, we eventually found a rare
strain of Streptococcus mutans, present in only 1% of the population, which
secretes a natural antibiotic capable of killing virtually all other strains of
Streptococcus mutans. We believe this natural antibiotic, referred to as mutacin
1140, enables the bacteria to persistently and preemptively colonize the oral
cavity, displace pre-existing strains and gain dominance in its ecosystem,
dental plaque.
Using clinical isolates of this rare strain as the starting strain, we
then employed recombinant DNA technology to delete the gene encoding for lactate
dehydrogenase. Our research revealed the gene deletion eliminated the strain's
ability to produce lactic acid; however, it also caused a metabolic imbalance
that prevented the strain from growing. So as to correct the imbalance, an
auxiliary gene for alcohol dehydrogenase was inserted which restored the
strain's growth. Instead of lactic acid, the strain produced ethanol and acetoin
which are the normal end products of metabolism in many other microorganisms
colonizing the oral cavity. We named this strain BCS3-L1, and filed for
composition of matter intellectual property protection for the strain.
REGULATORY STATUS
We submitted an Investigational New Drug application for our
replacement therapy to the U.S. Food and Drug Administration in 1998 seeking
permission to begin clinical trials. Subsequent to review by the Office of
Vaccines Research and Review Division of Vaccines and Related Products
Application at the Center for Biologics Evaluation and Research (CBER), the FDA
placed the application on clinical hold pending the development of a recall
mechanism to completely eradicate the organism from human subjects, should it be
necessary, until complete safety could be experimentally established in the
Phase I clinical trials.
In response to this requirement, we genetically engineered a second
strain of Streptococcus mutans (A2JM) identical in every aspect to the original
strain (BCS3-L1) except that it requires exogenous D-alanine for survival.
d-alanine was selected because the nutrient is not normally found in human
diets; humans do not produce it; and it can be easily administered via a mouth
rinse. With D-alanine nutrient supplementation, the organism lives; without
nutrient supplementation, the organism cannot survive. Therefore, the organism
can be completely eradicated from human subjects by withdrawing D-alanine
nutrient supplementation.
In the initial studies to assess product safety (Phase I clinical
trials) beginning in March 2005, the genetically altered strain of Streptococcus
mutans requiring D-alanine supplementation will be administered to study
subjects in conjunction with a twice daily dose of a D-alanine mouth rinse. Once
safety is experimentally established, the replacement therapy to be
commercialized will consist of the original effector strain which does not
require d-alanine to maintain colonization.
5
The initial study will be conducted in eleven couples and an additional
four unattached males at Hill Top Research in West Palm Beach, Florida and will
look at the safety of Replacement Therapy and the potential for horizontal
transmission of the Replacement Therapy organism to the non-treated member of
each couple. All of the participants in the trial must be without teeth, with
full sets of dentures, and under the age of 55. The study will involve four days
of pretreatment with an antibiotic (chlorhexidine) to kill resident S. mutants
in each participant's mouth. Male study subjects will then receive Replacement
Therapy. The non-treated member of each couple will be tested repeatedly to see
if there is any horizontal transmission of the Replacement Therapy organism from
one person to another. The investigators will determine the genetic stability of
the Replacement Therapy organism over time. Seven days after treatment, the
subjects will undergo an eradication phase of the study for one month, using the
same antibiotic and the withholding of a D-alanine amino acid supplement that
the Replacement Therapy organism requires for its survival. The investigators
will subsequently follow each study participant for three months to ensure that
the eradication was effective.
PRECLINICAL STUDIES
From 1976 to 2002, our researchers and others have conducted several
animal studies on replacement therapy for dental caries. We believe these
studies support our belief in the ability of our novel technology to prevent
tooth decay. Additionally, we believe these studies demonstrate the ability of
our genetically engineered strain of Streptococcus mutans to persistently and
preemptively colonize the oral cavity and aggressively displace the indigenous
wild-type strain, filling its bacterial niche in all respects except for the
production of lactic acid.
In the most recent animal study, our patented effector strain (BCS3-L1)
and the wild-type strain were both grown in culture in the presence of sugar.
The wild-type strain produced mostly lactic acid from the metabolism of sugar;
it also produced small amounts of other acids as well as the non-acidic
compounds, ethanol and acetoin. By contrast, our genetically modified strain
produced mostly the non-acidic compounds, ethanol and acetoin, from the
metabolism of sugar. No lactic acid was detectable. Two identical groups of
conventional rats were then infected with either the wild-type strain or the
genetically modified strain. A third identical group was not infected and served
as the control group.
In both preemptive colonization and aggressive displacement rat model
studies, the genetically engineered effector strain performed well and was able
to occupy the niche normally occupied by wild-type Streptococcus mutans. The
mutacin 1140 produced by the effector strain appeared to provide a selective
advantage in colonization suitable for use in replacement therapy for dental
caries.
A six-month study was also conducted to evaluate possible toxic effects
of exposure to the genetically modified effector strain. No adverse gross or
histological side effects were observed in conventional rats. Sufficient amounts
of mutacin 1140 have not yet been purified to be able to directly test its
toxicity but it belongs to the same class of antibiotics as nisin, which has
very low toxicity and is used as a food preservative worldwide.
In summary, we believe the preclinical studies demonstrate that our
genetically modified strain of Streptococcus mutans:
o Does not cause significant tooth decay in rats;
o Persistently and preemptively colonizes the tooth surfaces of rats;
o Displaces other strains of Streptococcus mutans;
o Is genetically stable in the laboratory and in rats;
o Shows no toxicity in acute and chronic tests; and
o Does not disrupt the normal flora of the mouth
INTELLECTUAL PROPERTY
We have exclusively licensed the intellectual property for our
replacement therapy from the University of Florida Research Foundation, Inc. The
license is dated August 4, 1998 and was amended on September 15, 2000, July 10,
2002, September 25, 2002 and March 17, 2003. The agreement provides us with an
exclusive worldwide license to make, use and sell products and processes covered
by Patent No. 5,607,672, which is dated March 4, 1997 and will expire on March
3, 2014. Our license is for the period of the patent, subject to the performance
of terms and conditions contained therein. The patent covers the genetically
6
altered strain of Streptococcus mutans which does not produce lactic acid, a
pharmaceutical composition for administering the genetically altered strain and
the method of preventing tooth decay by administering the strain. The University
of Florida Research Foundation, Inc. has reserved for itself and the University
of Florida the right to use and sell such products and services for research
purposes only. Our license also provides the University of Florida Research
Foundation, Inc. with a license, for research purposes only, to any improvements
that we make to the products and processes covered by the patent.
Under the terms of the license, we have entered into an Equity
Agreement with the University of Florida Research Foundation, Inc. under which
we issued 599,940 shares of our common stock as partial consideration for the
license. We are obligated to pay 5% of the selling price of any products
developed from the licensed technology to the University of Florida Research
Foundation, Inc. and, if we sublicense the license, we are obligated to pay 20%
of all amounts received from the sublicensee. On December 31, 2005 and each year
thereafter we are obligated to make a minimum royalty payment of $50,000. We
spent in excess of $600,000 in 2003 and $1,000,000 in 2004 which were the
minimum amounts required under our license in order to maintain it. In each
future calendar year, we are obligated to spend, or cause to be spent, an
aggregate of $1,000,000 on the research, development and regulatory prosecution
of our replacement therapy and mutacin 1140 technologies combined, until a
product which is covered wholly or partially by the claims of the patent, or is
manufactured using a process which is covered wholly or partially by the claims
of the patent, is sold commercially. If we fail to make these minimum
expenditures, the University of Florida Research Foundation, Inc. may terminate
our license.
We must also pay all patent costs and expenses incurred by the
University of Florida Research Foundation, Inc. for the preparation, filing,
prosecution, issuance and maintenance of the patents beyond $105,000. We have
paid $100,000 to the University of Florida Research Foundation, Inc. for patent
expenses already incurred. We have agreed to indemnify and hold the University
of Florida Research Foundation, Inc. harmless from any damages caused as a
result of the production, manufacture, sale, use, lease, consumption or
advertisement of the product. Further, we are required to maintain liability
insurance coverage appropriate to the risk involved in marketing the products,
for which we obtained liability insurance in the amount of $2,000,000 that
expires in August, 2005. There is no assurance that we can obtain continued
coverage on reasonable terms.
We received notification from B.C. International Corporation on July
29, 2002 that a gene utilized in its licensed, patented strain of Streptococcus
mutans infringes a patent which it holds under a license. Their notification did
not state that they intended to pursue legal remedies. We do not believe that
the gene in question infringes that patent and we sent them correspondence
setting out our position. We have received no further communication from them.
MANUFACTURING, MARKETING AND DISTRIBUTION
The manufacturing methods for producing our genetically engineered
strain of Streptococcus mutans are standard fermentation methods. These methods
involve culturing bacteria in large vessels and harvesting them when mature by
centrifuge or filtration. The cells are then suspended in a pharmaceutical
medium appropriate for application in the human mouth. These manufacturing
methods are commonplace and readily available within the pharmaceutical
industry.
Upon successful completion of Phase I clinical trials, we intend to
consider sublicensing our replacement therapy technology to one or more
strategic partners that would be responsible for advanced clinical development
and commercialization including product manufacturing, marketing and
distribution.
MARKET OPPORTUNITY
Despite the introduction of fluorides in public water systems,
fluoridated toothpastes, fluoride treatments in the dental office and dental
sealants, tooth decay still affects the majority of children and adults. There
are a number of factors that are likely to increase the incidence and frequency
of tooth decay which include:
o increasing consumption of dietary sugar;
o increasing consumption of bottled water, which generally does not
contain fluoride; and
o increasing age of the population.
During the last 20 years, sugar consumption has increased. Higher
dietary intake of sugar predisposes individuals to higher rates of tooth decay.
Moreover, according to the Beverage Marketing Corporation, by 2005 consumers
will drink more bottled water than any other alcoholic or non-alcoholic
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beverage, with the exception of carbonated soft drinks. Since bottled water
generally does not contain fluoride, the protective effects of fluoridated
public water systems are lost. With the aging of the population, the incidence
and frequency of tooth decay is likely to further increase as most of the baby
boomers upon reaching retirement age will have a relatively intact dentition
unlike previous generations. Teeth lose density with age and become more
susceptible to decay. Therefore, more teeth will be at risk for tooth decay.
Replacement therapy represents a novel approach to preventing tooth
decay. The technology confers potentially lifelong protection against tooth
decay with one treatment, is suitable for use by the general population and
involves minimal patient education and compliance.
COMPETITION
We are not aware of any direct competitors with respect to our
licensed, patented replacement therapy technology. However, there may be several
ways to disable or eradicate Streptococcus mutans. We know that certain
companies and several academic and research institutions are developing and
testing caries vaccines aimed at eradicating Streptococcus mutans. An
alternative approach involves topical application of adhesion-blocking synthetic
peptides that prevent Streptococcus mutans from attaching to the tooth surface.
Products that result in the elimination of Streptococcus mutans from the natural
ecosystem would require major studies to determine whether such eradication of a
naturally occurring bacteria might not create serious, unintended consequences.
The problem with eradicating Streptococcus mutans is that it disrupts the
natural ecosystem leaving a void for another pathogen potentially more harmful
than Streptococcus mutans to dominate.
Academic institutions, government agencies and other public and private
research organizations may conduct research, seek patent protection and
establish collaborative arrangements for discovery, research and clinical
development of technologies and products that are similar to our replacement
therapy technology. Also many of the potential competitors have research and
development capabilities that may allow them to develop new or improved products
that may compete with products based on our technologies.
Any product based on our replacement therapy technology will compete
against traditional oral care products used to combat tooth decay. These
products include fluoride-based toothpastes as well as fluoride treatments and
tooth sealants administered by dentists. These competitors could include, among
others, Colgate; Procter & Gamble; Unilever; GlaxoSmithKline; and Dentsply. All
of these companies are much larger and have far greater technical and financial
resources than us.
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PROBIOTICS
Probiotics are live microorganisms that confer a health benefit to
their host when administered in adequate amounts. In probiotic therapy,
beneficial microorganisms are colonized in areas normally colonized by
pathogens. By being better adapted to their ecosystem than the pathogens, these
beneficial bacteria crowd out harmful bacteria and inhibit colonization and
growth of the disease-causing pathogens. Examples of common probiotic
applications are the use of yogurt containing live cultures to improve
digestion, immune system response, and vaginal and urinary tract health.
The oral cavity provides an ecological niche for 400 -500 bacterial
species, some of which are responsible for periodontal disease (gum disease) and
dental caries (tooth decay). Of all of the bacteria normally residing in a
person's mouth, only about half a dozen are the primary cause of periodontal
disease and dental caries. Our oral rinse probiotics' technology employs three
natural strains of beneficial bacteria which promote oral health and inhibit the
growth of harmful bacteria that cause periodontal disease and tooth decay.
TECHNICAL BACKGROUND
Through our research, we have developed a probiotic product containing
three natural strains of beneficial bacteria that promote oral health. The three
bacterial strains are Streptococcus oralis and Streptococcus uberis for the
maintenance of periodontal health and Streptococcus rattus for the maintenance
of dental health.
Streptococcus oralis and Streptococcus uberis are among several hundred
bacterial species of bacteria that constitute normal dental plaque. These
bacteria, by virtue of their ability to produce hydrogen peroxide, appear to
promote periodontal health by keeping the number of potentially pathogenic
organisms below the threshold level necessary to initiate disease. These
bacteria have demonstrated an ability to inhibit bacteria implicated in
periodontal disease in both laboratory and animal studies. Human studies have
correlated presence of these bacteria with the absence of periodontal pathogens.
Probiotics containing these bacteria applied frequently can provide significant
protection against causative organisms of periodontal disease.
Similarly, we have identified a bacterial strain closely related to
Streptococcus mutans, Streptococcus rattus, which is naturally deficient in its
ability to produce lactic acid. Studies have shown that daily treatment with
this strain results in decreased numbers of Streptococcus mutans, most likely by
competition for essential nutrients or attachment sites on the tooth surfaces.
Daily application of this strain is likely to provide significant protection
against tooth decay.
PRECLINICAL STUDIES
We believe preclinical studies have demonstrated the ability of our
probiotic to maintain a healthy oral environment. The probiotic creates a
healthful balance of total bacteria by reducing the numbers of bacteria that are
causative agents of periodontal disease and dental caries.
Periodontal disease. We believe research conducted by our scientists
and others has shown that certain types of natural bacteria normally present in
dental plaque can prevent the growth of bacteria that are widely believed to be
responsible for periodontal disease. Streptococcus oralis and Streptococcus
uberis have been shown in studies to inhibit the growth of disease-causing
bacteria both in laboratory and animal models of infection. Data indicate that
the presence of Streptococcus oralis and Streptococcus uberis provides a good
indication of the health of the periodontium (gums). In healthy periodontal
sites, Streptococcus oralis and Streptococcus uberis are commonly found in
significant amounts while levels of the pathogenic bacteria are usually low. In
diseased periodontal sites, the opposite situation prevails; Streptococcus
oralis and Streptococcus uberis are usually undetectable. When these bacteria
are absent from sites in the periodontium, the sites are much more prone to
disease.
Dental caries. We believe probiotics can also be used to suppress
levels of Streptococcus mutans, the principal cause of tooth decay.
Streptococcus mutans converts dietary refined sugar to lactic acid. The lactic
acid, in turn, erodes the mineral in enamel and dentin, which weakens the tooth
9
resulting in tooth decay. Research conducted by our scientists have led to the
discovery of a close relative of Streptococcus mutans, a strain of Streptococcus
rattus,which is naturally deficient in its ability to produce lactic acid and
thus unable to cause tooth decay. Because Streptococcus rattus is very closely
related to Streptococcus mutans, Streptococcus rattus reduces the number of
Streptococcus mutans by competing for nutrients, attachment sites, and other
important colonization factors. As animal studies have revealed, daily treatment
with this beneficial strain can promote dental health by significantly reducing
the numbers of dental caries-causing Streptococcus mutans.
We are currently performing acute and chronic toxicity tests of our
probiotic technology in laboratory rats. Further work will involve studies to
determine an appropriate and stable delivery system, and to determine the
optimum dosage levels to be used in human clinical trials.
REGULATORY STATUS
Probiotic products that claim to confer a health benefit are generally
able to enter the market without the need for extensive regulatory filings and
clinical testing. This avenue is available for products that do not make any
claim that they treat, prevent, or cure a disease, which are considered to be
drug claims. We intend to market our probiotic product without any drug claims.
In the European Union, regulatory approval is not required for commercialization
of the product.
INTELLECTUAL PROPERTY
In August 2003, we filed a patent application for our probiotic
technology for use in developing oral care products for the maintenance of
dental and periodontal health. We own the patent rights to this technology.
MANUFACTURING, MARKETING AND DISTRIBUTION
Manufacturing methods used to produce probiotic strains are the
standard fermentation methods which involve culturing bacteria in large vessels
and harvesting them when mature by centrifuge or filtration. These methods are
relatively commonplace and readily available within the pharmaceutical industry.
We intend to seek one or more strategic partners for the manufacturing,
marketing and distribution of our oral probiotic technology in Asia and Europe.
Product launch in select markets is currently expected to occur in 2006 and
2007.
MARKET OPPORTUNITY
Probiotics are relatively common in Japan and are being adopted with
increasing frequency in Europe. The probiotics market in the U.S. is still in a
nascent state and we expect the U.S. market will develop slowly. If successfully
developed, we expect our technology will be one of the first probiotics to be
marketed for the promotion of oral health.
COMPETITION
Many companies sell probiotics that are principally designed for
digestive health, vaginal and urinary tract health, and immune system support.
Our product will not compete directly with the products of these companies.
Recently, researchers at the University of Hiroshima have published studies
indicating that Lactobacillus reuteri aids in the prevention of tooth decay.
Lactobacillus reuteri is widely used as a probiotic for other indications and
may be used in the future for dental health. We are not aware of any product on
the market today that is targeted to maintain periodontal health.
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MUTACIN 1140
Most clinical isolates of Streptococcus mutans secrete peptides, called
mutacins, which exhibit antimicrobial activity against closely related
streptococcal species and other Gram-positive bacteria. Research suggests that
these mutacins play a key role in enabling Streptococcus mutans to effectively
colonize the oral cavity.
Two types of mutacins have been characterized at the molecular level:
lantibiotics and non-lantibiotics. Scientists have identified approximately 20
lantibiotics to date, including nisin, a substance used as a food preservative
that has been given status as "GRAS" or "generally recognized as safe" by
regulatory authorities. In general, lantibiotics have a wider spectrum of
activity than the non-lantibiotic bacteriocins.
TECHNICAL BACKGROUND
Mutacin 1140 was discovered by our researchers in the course of their
research on our core replacement therapy technology; it is the mutacin produced
by our genetically engineered effector strain of Streptococcus mutans. Mutacin
1140 is a lantibiotic, a class of lanthionine-containing antibiotic, which we
believe has the potential to treat a wide variety of infectious diseases.
Extensive in vitro studies we have conducted demonstrate its effectiveness
against all tested Gram-positive bacteria, including such commercially relevant
pathogens as Staphylococcus aureus, Streptococcus pneumoniae, Enterococcus
faecalis and Listeria monocytogenes. To date, our research has not identified
any pathogen resistance to mutacin 1140.
Currently, mutacin 1140 is in the early stages of preclinical
development and we have not yet filed an Investigational New Drug application
with the FDA, however, such filing is expected after successful completion of
animal studies that are currently expected to begin in 2005.
PRECLINICAL STUDIES
Our researchers and others have conducted laboratory studies on mutacin
1140 to determine its efficacy as an antibacterial agent. To test mutacin 1140's
ability to kill bacteria, standard microbiological testing methods were
employed. Mutacin 1140 was purified and incorporated into growth medium at
different concentrations. The medium was then inoculated with the bacterium
under study, and its ability to grow in the presence of mutacin 1140 was
observed. The minimal inhibitory concentration (MIC), which is defined as the
lowest concentration of mutacin 1140 observed to inhibit growth of the test
bacterium, was recorded.
We believe the results of our laboratory studies demonstrate that
mutacin 1140 is effective at killing a broad spectrum of bacteria, including the
streptococci that cause pharyngitis ("strep throat"), the predominant type of
pneumonia, and bacterial endocarditis. The antibiotic has also been shown to be
effective against vancomycin-resistant Staphylococcus aureus and Enterococcus
faecalis infections, both of which are rapidly growing problems within the
medical community. Mutacin 1140 was found to kill all Gram-positive bacteria
tested at concentrations comparable to many therapeutically effective
antibiotics. A particularly interesting feature of mutacin 1140 is that none of
the sensitive species of bacteria tested was able to acquire genetically stable
resistance to purified mutacin 1140.
REGULATORY STATUS
Mutacin 1140 currently is in preliminary stages of development. We
currently plan to initiate animal studies in 2005. Upon completion of the animal
studies, we will submit an Investigational New Drug application for mutacin 1140
to the FDA.
INTELLECTUAL PROPERTY
We have exclusively licensed the intellectual property for our mutacin
1140 technology from the University of Florida Research Foundation, Inc. See the
discussion regarding our license in the Intellectual Property section under our
Replacement Therapy technology.
MANUFACTURING, MARKETING AND DISTRIBUTION
Once we are able to establish large-scale production capabilities, we
currently plan to begin animal studies in 2005. Upon successful completion of
animal studies, we will file an IND application for mutacin 1140 with the FDA.
11
Once the FDA has approved an IND and we have completed Phase I clinical trials,
we would expect to seek a strategic partner for further clinical development and
commercialization.
MARKET OPPORTUNITY
The need for novel antibiotics is increasing as a result of the growing
resistance of target pathogens. The Center for Disease Control estimates that
bacteria resistant to known antibiotics cause 44% of hospital infections.
Vancomycin, introduced in 1956, serves as the last line of defense against
certain life-threatening infections. Unfortunately, certain bacteria have
developed strains which resist even vancomycin.
Our antibiotic, mutacin 1140, is a new broad-spectrum antibiotic that
has demonstrated effectiveness against a wide variety of disease-causing
bacteria. Moreover, we believe there is no evidence of pathogen resistance to
mutacin 1140. In light of the fact that pathogen resistance has become a major
problem associated with the six leading classes of antibiotics in use today,
mutacin 1140 offers the potential to fulfill a significant medical need.
COMPETITION
Mutacin 1140 competes directly with antibiotic drugs such as
vancomycin. Given the growing resistance of target pathogens to many
antibiotics, even vancomycin, we believe that there is ample room in the
marketplace for new antibiotics. We are aware of a mutacin peptide similar to
mutacin 1140 patented by the University of Laval. Successful development of that
technology would constitute major competition for mutacin 1140.
Many of our competitors are taking approaches to drug development
differing from our approach. These approaches include traditional screening of
natural products, genomics to identify new targets and combinatorial chemistry
to generate new chemical structures. Competition in the pharmaceutical industry
is based on drug safety, efficacy, ease of use, patient compliance, price,
marketing and distribution. Commercial success of mutacin 1140 technology will
depend on our ability and the ability of our sublicensees to compete effectively
in all of these areas. There can be no assurance that competitors will not
succeed in developing products that are more effective than mutacin 1140 or
would render mutacin 1140 obsolete and non-competitive.
Any products based on the mutacin 1140 technology will compete against
a large number of prescription antibiotics currently on the market, and against
new antibiotic products that will enter the market over the next several years.
Producers of antibiotic products include many large, international
pharmaceutical companies, all of which have much greater financial and technical
resources than us. We intend to compete in the market for antibiotic products by
obtaining a strategic partner with an established sales force calling on doctors
and hospitals. There can be no assurance that we will be able to obtain any such
partner. If not, we will be obliged to develop our own channels of distribution
for products based on the mutacin 1140 technology. There can be no assurance
that we will be able to do so.
12
IVIAT AND CMAT
In March 2004, we licensed from iviGene Corporation, a company whose
major shareholders also own a significant number of shares of our common stock,
applications of a novel technology that enables the simple, fast identification
of novel and potentially important gene targets associated with the natural
onset and progression of cancers and other diseases in humans and other living
organisms, including plants. This licensed technology will offer us the
potential to generate and develop a number of product candidates for future
out-licensing to corporate partners, particularly in the area of cancer.
To support the research for this technology in 2004, we received a
$100,000 Phase I SBIR Grant from the National Institute of Allergy and
Infections Diseases (NIAID) of the National Institutes of Health (NIH). This
grant supported initial research to help us identify genes of Mycobacterium
tuberculosis that are specifically induced during human infections with that
pathogen. This licensed technology is in its early stages and will require
further development which will require additional capital.
TECHNICAL BACKGROUND
This technology platform was developed by our founder and chief
scientific officer, Jeffrey D. Hillman, and University of Florida scientists. It
is called in vivo induced antigen technology (IVIAT). IVIAT can quickly and
easily identify in vivo induced genes in human infections without the use of
animal models, facilitating the discovery of new targets for the development of
vaccines, antimicrobials and diagnostics. Dr. Hillman and his collaborators have
further developed methods based on this approach to create Change Mediated
Antigen Technology (CMAT). CMAT can be used to identify gene targets associated
with the onset and progression of cancerous processes and autoimmune diseases.
It can also be used to identify novel genes in plant diseases, including genes
expressed by the pathogen when it causes the disease and genes expressed by the
plant in response to the disease.
INTELLECTUAL PROPERTY
Our license provides us with exclusive worldwide rights to this broad
platform technology in the areas of cancer and tuberculosis, as well as
agricultural and other non-human uses. In return, we will pay royalties on
revenues we are able to generate from any products developed using the
technology, including royalties on sublicense fees, milestone payments and
future product sales. Under the terms of our license with iviGene we are not
obligated to make any payments to iviGene until we have achieved certain
milestone or royalty payments. However, we are required to pay all
patent-related expenses and commit two full-time staff or spend at least
$200,000 toward product development annually to maintain our license.
13
FEDERAL FOOD AND DRUG ADMINISTRATION (FDA) REGULATION
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of drugs. These agencies and
other federal, state and local entities regulate research and development
activities and the testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record-keeping, approval, advertising and protection of most
products we may develop.
GENERAL
The steps required before a new drug may be produced and marketed in
the United States are:
1. Preclinical laboratory and animal tests
2. Investigational new drug application
3. Clinical trials (Phases I, II and III)
4. New drug application (review and approval)
5. Post-marketing surveys
The testing and approval procedures require substantial time, effort
and financial resources and we cannot assure you that any approval will be
timely granted, or at all.
PRECLINICAL TRIALS AND INVESTIGATIONAL NEW DRUG APPLICATION
Preclinical tests are conducted in the laboratory, and usually involve
animals. They are done to evaluate the safety and efficacy of the potential
product. The results of the preclinical tests are submitted as part of the
investigational new drug application and are fully reviewed by the FDA prior to
granting the applicant permission to commence clinical trials in humans.
Submission of an investigational new drug application may not result in FDA
approval to commence clinical trials.
CLINICAL TRIALS
Clinical trials are conducted in three phases, normally involving
progressively larger numbers of patients.
PHASE I
Phase I clinical trials consist of administering the drug and testing
for safety and tolerated dosages as well as preliminary evidence of efficacy in
humans. They are concerned primarily with learning more about the safety of the
drug, though they may also provide some information about effectiveness. Phase I
testing is normally performed on healthy volunteers. The test subjects are paid
to submit to a variety of tests to learn what happens to a drug in the human
body; how it is absorbed, metabolized and excreted, what effect it has on
various organs and tissues; and what side effects occur as the dosages are
increased. The principal objective is to determine the drug's toxicity.
PHASE II
Assuming the results of Phase I testing present no toxicity or
unacceptable safety problems, Phase II trials may begin. In many cases Phase II
trials may commence before all the Phase I trials are completely evaluated if
the disease is life threatening and preliminary toxicity data in Phase I shows
no toxic side effects. In life threatening disease, Phase I and Phase II trials
are sometimes combined to show initial toxicity and efficacy in a shorter period
of time. Phase II trials involve a study to evaluate the effectiveness of the
drug for a particular indication and to determine optimal dosages and dose
interval and to identify possible adverse side effects and risks in a larger
patient group. The primary objective of this stage of clinical testing is to
show whether the drug is effective in treating the disease or condition for
which it is intended. Phase II studies may take several months or longer and
involve a few hundred patients in randomized controlled trials that also attempt
to disclose short-term side effects and risks in people whose health is
14
impaired. A number of patients with the disease or illness will receive the
treatment while a control group will receive a placebo. At the conclusion of
Phase II trials, we and the FDA will have a clear understanding of the
short-term safety and effectiveness of our technologies and their optimal dosage
levels.
PHASE III
Phase III clinical trials will generally begin after the results of
Phase II are evaluated. If a product is found to be effective in Phase II, it is
then evaluated in Phase III clinical trials. The objective of Phase III is to
develop information that will allow the drug to be marketed and used safely.
Phase III trials consist of expanded multi-location testing for efficacy and
safety to evaluate the overall benefit or risk index of the investigational drug
in relation to the disease treated. Phase III trials will involve thousands of
people with the objective of expanding on the clinical evidence.
Some objectives of Phase III trials are to discover optimum dose rates
and schedules, less common or even rare side effects, adverse reactions, and to
generate information that will be incorporated into the drug's professional
labeling and the FDA-approved guidelines to physicians and others about how to
properly use the drug.
PHARMACEUTICAL DEVELOPMENT
The method of formulation and manufacture may affect the efficacy and
safety of a drug. Therefore, information on manufacturing methods and standards
and the stability of the drug substance and dosage form must be presented to the
FDA and other regulatory authorities. This is to ensure that a product that may
eventually be sold to the public has the same composition as that determined to
be effective and safe in the clinical studies. Production methods and quality
control procedures must be in place to ensure a relatively pure compound,
essentially free of contamination and uniform with respect to all quality
aspects.
NEW DRUG APPLICATION
The fourth step that is necessary prior to marketing a new drug is the
new drug application submission and approval. In this step, all the information
generated by the preclinical and human clinical trials, as well as manufacturing
information for the drug, will be submitted to the FDA and, if successful, the
drug will be approved for marketing.
POST MARKETING SURVEYS
The final step is the random surveillance or surveys of patients being
treated with the drug to determine its long-term effects. This has no effect on
the marketing of the drug unless highly toxic conditions are found.
The required testing, data collection, analysis and compilation of an
investigational new drug application and a new drug application are labor
intensive and costly and may take a great deal of time. Tests may have to be
redone or new tests performed in order to comply with FDA requirements.
Therefore, we cannot estimate with any certainty the length or the costs of the
approval process. We can offer no assurance that we will ever receive FDA
approval of products derived from our licensed, patented technologies.
COMPETITION
Industry. The pharmaceutical and biotechnology industries are
characterized by intense competition, rapid product development and
technological change. Competition is intense among manufacturers of dental
therapeutics and prescription pharmaceuticals. Most of our potential competitors
are large, well established pharmaceutical, chemical or healthcare companies
with considerably greater financial, marketing, sales and technological
resources than are available to us. Academic institutions, government agencies
and other public and private research organizations may also conduct research,
seek patent protection and establish collaborative arrangements for discovery,
research and clinical development of technologies and products similar to ours.
15
Many of our potential competitors have research and development capabilities
that may allow them to develop new or improved products that may compete with
products based on our technologies. Products developed from our technologies
could be rendered obsolete or made uneconomical by the development of new
products to treat the conditions to be treated by products developed from our
technologies, technological advances affecting the cost of production, or
marketing or pricing actions by our potential competitors. This could materially
affect our business, financial condition and results of operations. We cannot
assure you that we will be able to compete successfully.
Personnel. Competition among biotechnology and biopharmaceutical
companies for qualified employees is intense, and there can be no assurance we
will be able to attract and retain qualified individuals. If we fail to do so,
this would have a material, adverse effect on the results of our operations.
We do not maintain any life insurance on the lives of any of our
officers and directors. We are highly dependent on the services of our directors
and officers, particularly on those of Jeffrey Hillman and Mento Soponis. If one
or all of our officers or directors die or otherwise become incapacitated, our
operations could be interrupted or terminated.
RESEARCH AND DEVELOPMENT COSTS
We have spent $1,990,979 and $929,355 on research and development of
our technologies in 2004 and 2003, respectively.
COSTS OF ENFORCING OUR LICENSES
We have licenses to sell products made using the replacement therapy
and mutacin 1140 technologies. The licenses were granted to us by the University
of Florida Research Foundation, Inc., which owns the patents to these
technologies. There is no assurance, however, that third parties will not
infringe on our licenses or their patents. In order to protect our license
rights and their patents, we or the University of Florida Research Foundation,
Inc. may have to file lawsuits and obtain injunctions. If we do that, we will
have to spend large sums of money for attorney fees in order to obtain the
injunctions. Even if we do obtain the injunctions, there is no assurance that
those infringing on our licenses or the University of Florida Research
Foundation's patents will comply with the injunctions. Further, we may not have
adequate funds available to prosecute actions to protect or to defend the
licenses and patents, in which case those infringing on the licenses and patents
could continue to do so in the future.
OUR EMPLOYEES
We are an early-stage biotechnology research and development company
and currently have 18 full-time employees, none of whom is represented by a
labor union. We believe that our relationship with our employees is excellent.
AVAILABLE INFORMATION
Our website is www.oragenics.com. On our website we make available at
no cost our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K and amendments to those reports filed or furnished
as soon as reasonably practicable after we electronically file such material
with, or furnish them to, the United States Securities and Exchange Commission
("SEC"). The information contained on our website is not a part of this annual
report on Form 10-KSB.
ITEM 2. DESCRIPTION OF PROPERTY.
Our administrative office and laboratory facilities are located at
13700 Progress Boulevard, Alachua, Florida 32615. We began leasing this property
pursuant to a five-year operating lease in November 2004. The facility is
approximately 5,300 square feet of which approximately 60% is laboratory space
16
and the remainder is office space and common areas. The twelve months rental
will be $76,850, net of insurance, taxes and utilities that are paid by us.
Lease payments in subsequent years escalate by 3% annually. In 2004, we paid
approximately $469,000 for leasehold improvements to outfit this facility. Such
improvements included equipping the building with sufficient air-handling and
building laboratory stations. We believe our facilities are sufficient for our
current needs, however, we expect to purchase an additional $700,000 of
equipment for use in the laboratories and offices in 2005.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, we are not a party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of the fiscal year covered by this
report.
17
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock began trading on the American Stock Exchange under the
symbol ONI on May 20, 2004. Previously it was traded on the TSX Venture Exchange
under the symbol ORA.U. We voluntarily de-listed from the TSX Venture Exchange
on October 12, 2004. The following sets forth the high and low closing bid
prices for the common stock on the TSX Venture Exchange from the beginning of
2004 through May 19, 2004 and on the American Stock Exchange from May 20, 2004
through the end of 2004. Such prices represent prices between dealers without
adjustment for retail mark ups, mark downs, or commissions and may not
necessarily represent actual transactions.
--------------------------------------- ------------------------
2004 2003
--------------------------------------- ------------------------
High Low High Low
----------------------------- --------- ------------- ----------
COMMON STOCK
----------------------------- --------- ------------- ----------
First quarter $4.35 $3.20 N/A N/A
----------------------------- --------- ------------- ----------
Second quarter $4.40 $2.80 $2.30 $1.80
----------------------------- --------- ------------- ----------
Third quarter $3.75 $2.00 $4.45 $2.62
----------------------------- --------- ------------- ----------
Fourth quarter $4.45 $2.65 $4.40 $3.50
----------------------------- --------- ------------- ----------
On March 4, 2005, the closing bid price of the common stock, as
reported by the American Stock Exchange, was $2.38. As of March 4, 2005, there
were approximately 19 record holders of our common stock according to our
transfer agent. The number of record holders does not reflect the number of
beneficial owners of the common stock for whom shares are held by banks,
brokerage firms and others.
EQUITY COMPENSATION PLAN INFORMATION
The Company has reserved an aggregate of 1,500,000 shares of the
Company's common stock for issuance pursuant to its 2002 Stock Option and
Incentive Plan. The per share exercise price of each stock option or similar
award granted under these plans must be at least equal to the closing fair
market value of the stock on the date of grant. The following table represents
the number of shares issuable upon exercise and reserved for future issuance
under these plans as of December 31, 2004.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, EXERCISE PRICE OF PLANS (EXCLUDING
WARRANTS AND RIGHTS OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS COLUMN (a))
------------- ------------------- -----------
(a) (b) (c)
- ---------------------------- -------------------------- -------------------------- --------------------------
EQUITY COMPENSATION
PLANS APPROVED BY 1,070,000 $2.52 430,000
SECURITY HOLDERS
- ---------------------------- -------------------------- -------------------------- --------------------------
EQUITY COMPENSATION
PLANS NOT APPROVED BY 276,180(1) 1.25 --
SECURITY HOLDERS 37,500(2) 3.00 --
- ---------------------------- -------------------------- -------------------------- --------------------------
TOTAL 1,383,680 $2.28 430,000
- ---------------------------- -------------------------- -------------------------- --------------------------
18
- ---------
(1) Represents outstanding underwriter warrants issued in connection with the
Company's initial public offering to acquire shares of common stock at an
exercise price of $1.25. See Note 5 to the Company's Financial Statements.
(2) Represents warrants issued to the placement agent in connection with the
initial closing of the Company's recent private placement to acquire
25,000 shares of common stock at an exercise price of $2.75, subject to
adjustment and 12,500 shares of common stock at an exercise price of
$3.50, subject to adjustment based upon the following formula: NEP = OEP x
[OB + X] / OA, where NEP = the New Exercise Price; OEP = the existing
Exercise Price immediately before the new Issue ("Old Exercise Price"); OB
= the total outstanding shares of Common Stock immediately before the new
issue; X = number of shares issuable at the Old Exercise Price (applicable
to the Warrant Shares as to which the calculation is being made) for the
total consideration to be received for the new issue; OA = the total
outstanding shares of Common Stock immediately after the new issue.
DIVIDENDS
To date, we have neither declared nor paid any dividends on our common
stock nor do we anticipate that such dividends will be paid in the foreseeable
future. Rather, we intend to retain any earnings to finance the growth and
development of our business. Any payment of cash dividends on our common stock
in the future will be dependent, among other things, upon our earnings,
financial condition, capital requirements and other factors which the board of
directors deems relevant. In addition, restrictive covenants contained in any
financing agreements entered into in the future may preclude payment of
dividends.
RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 2004, we issued a total of 250,000 shares of our common
stock and warrants to purchase 162,500 shares of our common stock in a private
placement to three accredited investors and a placement agent. The issuance of
the shares of common stock and warrants was made pursuant to the exemptions from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. We received gross proceeds of $687,500 in the private
placement and incurred costs of approximately $142,500 resulting in net proceeds
of approximately $545,000. Warrants representing 125,000 shares of common stock
are exercisable by the three accredited investors over a four-year period at a
price of $3.50 per share. The placement agent received warrants exercisable over
a four-year period to purchase 25,000 and 12,500 shares of common stock at
prices of $2.75 and $3.50 per share, respectively.
The subscription agreements we entered into with the investors in
connection with the above referenced private placement grant certain resale
registration rights to the investors. In the event a registration statement for
resale of the shares issued to the investors is not filed within 30 days of
closing, is not declared effective within 120 days of the closing, or in certain
other events of default, the terms of the subscription agreements provide that
each investor (pro rated on a daily basis) is entitled to compensatory payment
from us of an amount equal to one percent of the amount invested by that
investor, and thereafter one percent for each successive month or any portion of
that month until the registration statement is effective or we have cured the
other events of default. The subscription agreement also provides that
compensatory payments may be made in cash or in stock, at our option, and shall
be paid no later than the fifth business day following the month in which such
registration default occurred. The payment of any compensatory amounts does not,
however, relieve us of our obligation to register the shares. If the
compensatory payments are made in stock, such stock is also required to be
included in a subsequently filed registration statement. The subscription
agreement further provides that if a compensatory payment is not timely made, we
will also be obligated to pay the investor interest at the rate of 12% per
annum, or the highest rate permitted by law, if less, until such amounts have
been paid in full. To date, we have not filed a registration statement nor have
we made any compensatory payments to any investors under the subscription
agreements.
We are permitted to suspend the use of the registration statement
on no more than two occasions for a period not more than 30 consecutive calendar
days (or a total of not more than seventy-five (75) calendar days in any twelve
month period) under certain circumstances relating to pending corporate
developments, public filings with the SEC and similar events. We will pay all
the expenses in connection with the filing of the registration statement, other
than underwriting commissions and discounts of the selling shareholders. The
19
selling shareholders will not pay any of the expenses that are incurred in
connection with the registration of the shares, but will pay all commissions,
discounts, and any other compensation to any securities broker-dealers through
whom they sell any of the shares.
USE OF PROCEEDS
On June 24, 2003, we completed an initial public offering (IPO) of our
common stock. The managing underwriter for our initial public offering was
Haywood Securities Inc. The shares of common stock sold in the offering were
registered under the Securities Act of 1933 on a registration statement (File
No. 333-100568) that was declared effective by the Securities and Exchange
Commission on June 11, 2003. Under the registration statement, we registered
2,400,000 units at a price of $1.25 per unit. All 2,400,000 units were sold in
the offering that provided gross proceeds of $3,000,000 and net proceeds to us
of $2,282,612 after deducting $717,388 in commissions paid to the underwriter
and other expenses incurred in connection with the offering.
Each unit consisted of one share of common stock, one half of one
non-transferable Series A Common Stock Purchase Warrant and one half of one
non-transferable Series B Common Stock Purchase Warrant. One whole Series A
warrant was exercisable on or before December 24, 2003 to acquire one share of
common stock at a price of $2.00 per share. All Series A warrants were exercised
on or prior to December 24, 2003 providing proceeds of $2,400,000. One whole
Series B warrant was exercisable on or before March 24, 2004 to acquire one
share of common stock at a price of $3.00 per share. A total of 995,400 Series B
warrants were exercised on or before March 24, 2004 providing proceeds of
$2,986,200 and the remaining 204,600 Series B warrants expired unexercised on
March 24, 2004. In addition to receiving a cash commission for each share sold,
the underwriting agent for the IPO received 100,000 shares of our common stock
and warrants to purchase 500,000 shares of our common stock at $1.25 per share
until June 24, 2005. As of December 31, 2004, 223,820 underwriter warrants were
exercised providing proceeds to us of $279,775. With respect to the remaining
276,180 unexercised underwriter warrants which expire in June 2005, we maintain
an effective registration statement for the resale of shares of common stock
underlying the warrants. The costs associated with maintaining this registration
statement totaling $62,421 through December 31, 2004 are netted against proceeds
and recorded as a component of stockholders' equity.
Through December 31, 2004 we have applied a total of $4,982,411 of the
$7,886,166 in net proceeds from our initial public offering as follows:
Payment of notes payable and accrued interest
thereon to directors and officers:
Brian McAlister (Cornet Capital Corp.) $ 179,757
Robert Zahradnik 88,477
Jeffrey Hillman 15,429
Deferred compensation payable to officers 189,302
Patent expenses paid to University of Florida 100,000
Regulatory consulting fees 237,540
Mutacin 1140 production research 444,345
Pre-clinical research 1,532,409
General and administration costs 1,480,105
Purchase of computer and laboratory equipment 715,047
------------
$ 4,982,411
============
Other than normal and recurring compensation, the deferred compensation
payments and payments on notes payable, there were no other payments, directly
or indirectly, to any of our officers or directors or any of their associates,
or to any persons owning ten percent or more of our outstanding common stock
from the proceeds of this offering. Unexpended proceeds are held in two
financial institutions and invested overnight in U. S. Government securities. We
believe we have used, and continue to use, the net proceeds from the offering
consistent with our business strategy.
20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this Form
10-KSB. This discussion contains certain forward-looking statements that involve
risks and uncertainties. Our actual results and the timing of certain events
could differ materially from those discussed in these forward-looking statements
as a result of certain factors, including, but not limited to, those set forth
herein and elsewhere in this Form 10-KSB.
OVERVIEW
We are an emerging, early-stage biotechnology company aimed at
adding value to novel technologies and products sourced from innovative research
at the University of Florida and other academic centers. Our strategy is to
in-license and to develop products through human proof-of-concept studies (Phase
I and II clinical trials of the U.S. Food and Drug Administration's regulatory
process) prior to partnering with major pharmaceutical, biotechnology or
healthcare product firms for advanced clinical development and
commercialization. Since inception, we have funded a significant portion of our
operations from the public and private sales of our securities. We have
generated no significant revenues from operations during the last two years. All
of our revenues have been from a sponsored research agreement and SBIR grants
which have expired. We have not generated revenues from sales of products.
We are currently developing several products, each of which addresses
large market opportunities:
REPLACEMENT THERAPY is a single, painless one-time topical
treatment that has the potential to offer lifelong protection against
dental caries (tooth decay). The therapy is based on genetically altering
the bacterium, Streptococcus mutans, which is the primary etiologic agent
in tooth decay. Present in the normal flora of the mouth, Streptococcus
mutans converts dietary sugar to lactic acid; the lactic acid, in turn,
causes the erosion of tooth enamel that results in the destruction of the
tooth surface and eventually the entire tooth. Replacement therapy
permanently replaces resident acid-producing Streptococcus mutans with a
patented, genetically engineered strain of Streptococcus mutans that does
not produce lactic acid. Applied topically to tooth surfaces with a swab,
the therapy requires only one application. We plan to begin Phase I
clinical trials in 2005 and partner with a major healthcare products or
pharmaceutical company prior to initiating later stages of clinical
testing.
PROBIOTICS are live microorganisms that confer health benefits to
the host when administered in adequate amounts; the use of yogurt
containing live Lactobacillus cultures is an example of a probiotic
application. We have identified three natural strains of bacteria that
provide significant protection against the causative organisms of
periodontal disease and dental caries. Because probiotic treatments may be
marketed as "health supplements" without the need for extensive regulatory
oversight, we believe that we may achieve commercialization of our
probiotic product in certain markets in 2006. If successfully developed,
our oral rinse product will be one of the first probiotics to be marketed
for the maintenance of oral health.
MUTACIN 1140 is a highly potent bactericidal peptide that is
produced by our strain of streptococcus mutans. Our proprietary mutacin
bacteria was discovered by our researchers during the course of developing
replacement therapy and is a novel antibiotic that has broad-spectrum
antimicrobial activity against essentially all Gram-positive bacteria
including vancomycin-resistant Staphylococcus aureus. The antibiotic
currently is in preclinical stages of development. We currently plan to
begin animal studies in 2005.
IVIAT AND CMAT are technologies we licensed from iviGene
Corporation, a company related to us by common ownership. These
technologies enable the simple, fast identification of novel and
potentially important gene targets associated with the natural onset and
progression of infections, cancers and other diseases in humans and other
living organisms, including plants. This licensed technology offers us the
potential to generate and develop a number of product candidates for future
out-licensing to corporate partners, particularly in the area of cancer and
tuberculosis, as well as agricultural and other non-human uses.
A more detailed discussion of our technologies is provided in Item 1
above beginning on page 4.
21
BUSINESS OBJECTIVES AND MILESTONES
The specific goal of our business is to successfully develop,
clinically test and obtain FDA approval for sales of products based on our
licensed, patented technologies. Our strategy is to develop novel technologies
through human proof-of-concept studies (Phase I or II clinical trials) prior to
partnering with major pharmaceutical, biotechnology or health care product firms
for advanced clinical development and commercialization. Upon successful
completion of proof-of-concept studies, we intend to consider sublicensing our
licensed, patented technologies to one or more strategic partners that would be
responsible for advanced clinical development, completing the U.S. Food and Drug
Administration's approval process, and manufacturing and marketing our products.
In order to accomplish these objectives, we must take the following actions:
REPLACEMENT THERAPY
1. Successfully complete Phase I clinical trials.
2. Obtain FDA approval for a pivotal trial.
MUTACIN 1140
1. Develop a suitable production method for mutacin 1140.
2. Complete preclinical studies, including animal toxicity and
efficacy, required for an investigational new drug application
submission.
3. Submit an investigational new drug application to the FDA.
PROBIOTIC TECHNOLOGY
1. Develop appropriate manufacturing and packaging systems.
2. Complete one human study.
IVIAT AND CMAT
1. Begin program with CMAT on cancer targets.
These actions, both individually and in the aggregate, are expected to
be costly and will require additional capital to undertake and complete. To the
extent our current capital limits our ability to pursue all of our technologies
under development concurrently, we would expect to concentrate our available
resources on replacement therapy and oral probiotics in the near-term. We
currently believe that we will be able to begin to generate ongoing revenue from
our development efforts with our oral probiotics technology sometime in the next
eighteen to twenty-four months. This time period could change depending on the
progress of our development efforts and our ability to negotiate a partnering
arrangement, as well as our efforts to raise additional capital.
22
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in accordance with Accounting Principles
Generally Accepted in the United States requires us to make estimates and
assumptions that affect reported amounts and related disclosures. We consider an
accounting estimate to be critical if it requires assumptions to be made that
were uncertain at the time the estimate was made; and changes in the estimate or
different estimates that could have been made could have a material impact on
our results of operations or financial condition. Our financial statements do
not include any significant estimates that would have a material impact on our
results of operations or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment ("Statement
123(R)"), a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash
Flows. Statement 123(R), which we expect to adopt in the first quarter of 2006,
is generally similar to Statement 123, however, it will require all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. Thus, pro
forma disclosure will no longer be an alternative to financial statement
recognition. We do not believe the adoption of Statement 123(R) will have a
material impact on our results of operations or financial position.
23
RESULTS OF OPERATIONS
Operating Results Summary
THREE MONTHS ENDED DECEMBER 31
2004 2003
------------------------------
Revenue $ 33,333 $ --
Operating expenses:
Research and development 742,557 333,150
General and administration 565,181 296,036
------------------------------
Total operating expenses 1,307,738 629,186
------------------------------
Loss from operations (1,274,405) (629,186)
Other income (expense):
Interest income 15,831 3,599
Interest expense (442) (1,884)
------------------------------
Total other income, net 15,389 1,715
------------------------------
Loss before income taxes (1,259,016) (627,471)
Income tax benefit -- --
------------------------------
Net loss $(1,259,016) $ (627,471)
==============================
YEARS ENDED DECEMBER 31
2004 2003
------------------------------
Revenue $ 196,210 $ --
Operating expenses:
Research and development 1,990,979 929,355
General and administration 1,329,983 738,596
------------------------------
Total operating expenses 3,320,962 1,667,951
------------------------------
Loss from operations (3,124,752) (1,667,951)
Other income (expense):
Interest income 47,306 7,874
Interest expense (442) (12,877)
------------------------------
Total other income (expense), net 46,864 (5,003)
------------------------------
Loss before income taxes (3,077,888) (1,672,954)
Income tax benefit -- --
------------------------------
Net loss $(3,077,888) $(1,672,954)
==============================
24
FOR THE QUARTERS ENDED DECEMBER 31, 2004 AND 2003
We had revenues of $33,333 in the three months ended December 31, 2004
and no revenues in the same period in 2003. The increase is a result of having a
Small Business Innovation Research ("SBIR") Grant from the National Institute of
Health in 2004. Our operating expenses increased 108% to $1,307,738 in the three
months ended December 31, 2004 from $629,186 in same period in 2003. Research
and development expenses increased 123% to $742,557 in the three months ended
December 31, 2004 from $333,150 in the same period in 2003, reflecting the
hiring of additional research personnel, expensing of stock option compensation,
payments to research consultants and increased consumption of laboratory
supplies. General and administration expenses increased 91% to $565,181 in the
three months ended December 31, 2004 from $296,036 in same period in 2003. This
increase reflects additions to personnel, expensing of stock option
compensation, increased coverage in directors' and officers' liability insurance
and higher facility costs related to moving to our new location.
Interest income increased 340% to $15,831 in the three months ended
December 31, 2004 from $3,599 in the same period in 2003 as a result of higher
cash balances and interest rates in 2004. Interest expense decreased 77% to $442
in the three months ended December 31, 2004 from $1,884 during the same period
in 2003, reflecting the pay-off of shareholder notes in December 2003.
Our net loss increased 101% to $1,259,016 during the three months ended
December 31, 2004 from $627,471 in the same period in 2003. The increase in our
net loss was principally caused by the hiring of additional personnel, expensing
of stock option compensation, increased fees paid to outside professionals,
increased use of supplies and higher facility costs.
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
We had revenues of $196,210 in the year ended December 31, 2004 and no
revenues in 2003. This is a result of having a two Small Business Innovation
Research Grants for our Mutacin 1140 and IVIAT technologies in 2004. Our
operating expenses increased 99% to $3,320,962 in the year ended December 31,
2004 from $1,667,951in 2003. Research and development expenses increased 114% to
$1,990,979 in 2004 from $929,355 in 2003, reflecting the hiring of research
personnel, increased consumption of laboratory supplies and the costs associated
with preparing for human clinical trials. General and administration expenses
increased 80% to $1,329,983 in 2004 from $738,596 in 2003, reflecting the hiring
of personnel, the hiring of outside professionals for investor and public
relations, costs associated with public entity filings and increased coverage in
directors' and officers' liability insurance.
Interest income increased 501% to $47,306 in the year ended December
31, 2004 from $7,874 in 2003, which was a result of the higher interest rates
and higher average cash balances maintained in 2004 due to the exercise of
Series A and Series B common stock warrants in December 2003 and March 2004,
respectively. Interest expense decreased 97% to $442 in the year ended December
31, 2004 from $12,877 in 2003 as a result of the pay-off of shareholder notes in
December 2003.
Our net loss increased 84% to $3,077,888 in the year ended December 31,
2004 from $1,672,954 in 2003. The increase in our net loss was principally
caused by the hiring of additional personnel, increased fees paid to outside
professionals for clinical trial preparation and public entity filings, and the
increased use of supplies.
25
LIQUIDITY AND CAPITAL RESOURCES
Our operating activities used cash of $2,745,243 for the twelve months
ended December 31, 2004 and $1,218,910 for the twelve months ended December 31,
2003. Our working capital was $3,345,512 as of December 31, 2004. Cash used by
operations in the twelve months ended December 31, 2004 resulted primarily from
operating losses from operations of $3,077,888.
Our investing activities used cash of $690,548 for the twelve months
ended December 31, 2004 for the acquisition of property and equipment.
Our financing activities provided $3,518,278 in cash for the twelve
months ended December 31, 2004, which consists primarily of $3,035,788 in
proceeds from exercised warrants. On November 30, we issued a total of 250,000
shares of our common stock and warrants to purchase 125,000 shares of our common
stock pursuant to a subscription agreement between us and three investors. We
received gross proceeds of $687,500, and incurred offering costs of
approximately $142,500 resulting in net proceeds of approximately $545,000.
Westminster Securities Corp., a member of the National Association of Securities
Dealers, Inc. and a registered broker-dealer, acted as the placement agent in
connection with this private placement transaction. The private placement
agreement and offering was terminated by mutual assent of the Company and the
placement agent because a sufficient level of funding was not being achieved.
Each warrant is exercisable on or before November 30, 2008 to acquire one share
of common stock at a price of $3.50 per share. The issuance of the shares of
common stock and warrants was made pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act. Each investor is accredited
under the Securities Act and the securities were sold without any general
solicitation. As the placement agent, Westminster received (i) $35,000 (ii)
commission of 8% on the gross proceeds to us, and (iii) a warrant to purchase
25,000 shares of common stock at a purchase price of $2.75 per share and a
warrant to purchase 12,500 shares of common stock at 3.50. In addition to
Westminster's fee and commission, we incurred further expenses in connection
with the offering of approximately $52,500.We anticipate that direct costs in
2005 associated with preparing for and conducting clinical testing on our
replacement therapy technology will be approximately $1,700,000. Such costs are
expected to consist of approximately $875,000 for manufacturing clinical
materials, $475,000 for conducting the clinical trials and $350,000 for employee
salaries, fringe benefits, supplies and other related direct costs. We also
anticipate spending approximately $525,000 performing animal studies on our
mutacin 1140 technology. Such costs are expected to consist of approximately
$175,000 for contract research, $200,000 for employee salaries and fringe
benefits and $150,000 for laboratory supplies and other related direct costs.
We anticipate that our capital expenditures in 2005 will be less than
$700,000 for the acquisition of laboratory and business equipment. This amount
is subject to change, however, depending upon the nature and the amount of the
development of our technologies and capital raising efforts. On February 24,
2005, we entered into a Business Loan Agreement with a bank that will fund
approximately $615,000 of laboratory equipment purchases. The loan has a term of
37 months with the first month payment of interest only and the remaining
monthly payments of principal and interest of approximately $18,900 per month.
Interest will be calculated at the prime rate as published in the Wall Street
Journal (currently 5.5%) plus 1.00%. Interest can never be below 5.75% or above
17.5%. The loan is collateralized by the equipment being purchased, as well as
all equipment currently owned by us.
Our business is based on commercializing entirely new and unique
technologies, and our current business plan contains a variety of assumptions
and expectations that are subject to uncertainty, including assumptions and
expectations about manufacturing capabilities, clinical testing cost and
pricing, continuing technology improvements, strategic licensing relationships
and other relevant matters. These assumptions take into account recent
financings, as well as expected but currently unidentified additional
financings. We have experienced losses from continuing operations during the
last two fiscal years and have an accumulated deficit of $5,471,984 as of
December 31, 2004. Cash used in continuing operations for the years ended
December 31, 2004 and December 31, 2003 was $2,745,243 and $1,218,910,
respectively, and cash flow from continuing operations was negative throughout
2004. At December 31, 2004, our principal source of liquidity was $3,666,244 of
cash and cash equivalents. These operating results occurred while we are
developing and attempting to commercialize and manufacture products from
entirely new and unique technologies. Our business plan requires significant
spending related to start-up costs and clinical testing expenditures. These
26
factors place a significant strain on our limited financial resources and
adversely affect our ability to continue as a going concern. Our ultimate
success depends on our ability to continue to raise capital for our operations.
Our capital requirements during the next twelve months will depend on
numerous factors, including the success of our research and development, the
resources we devote to develop and support our technologies, and the success of
pursuing strategic licensing and funded product development relationships with
external partners. We expect to incur substantial expenditures to further
develop each of our technologies including continued increases in personnel and
costs related to research, preclinical testing and clinical studies, as well as
significant costs associated with being a public company. We believe our working
capital at December 31, 2004 will not be sufficient to meet our business
objectives as presently structured beyond September 2005. We will require
substantial funds to conduct research and development and preclinical and Phase
I clinical testing of our licensed, patented technologies and to develop
sublicensing relationships for the Phase II and III clinical testing and
manufacture and marketing of any products that are approved for commercial sale.
We recognize that we must generate additional capital resources or consider
modifications to our technology development plans to enable us to continue as a
going concern. Our plans include seeking financing, alliances or other
partnership agreements with entities interested in our technologies, or other
business transactions that would generate sufficient resources to assure
continuation of our operations and research and development programs.
We intend to seek additional funding through sublicensing arrangements,
joint venturing or partnering, sales of rights to technology, government grants
and through public or private financings. During 2004, we conducted a private
placement to raise capital. In February 2005, we entered into an agreement with
an investment advisory firm to assist us in raising additional capital by acting
as a financial advisor and placement agent. There can be no assurance that
additional financing will be available to us on acceptable terms, or at all. Our
future success depends on our ability to raise capital and ultimately generate
revenue and attain profitability. We cannot be certain that additional capital,
whether through selling additional debt or equity securities or obtaining a line
of credit or other loan, will be available to us or, if available, will be on
terms acceptable to us. If we issue additional securities to raise funds, these
securities may have rights, preferences, or privileges senior to those of our
common stock, and our current stockholders may experience dilution. If we are
unable to obtain funds when needed or on acceptable terms, we may be required to
curtail our current development programs, cut operating costs and forego future
development and other opportunities. Without sufficient capital to fund our
operations, we will be unable to continue as a going concern.
27
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision in our securities. These risk factors are effective as of
the date of this Form 10-KSB and shall be deemed to be modified or superseded to
the extent that a statement contained in our future filings incorporated herein
by reference modifies or replaces such statement. All of these risks may impair
our business operations. The forward-looking statements in this Form 10-KSB and
in the documents incorporated herein by reference involve risks and
uncertainties and actual results may differ materially from the results we
discuss in the forward-looking statements. If any of the following risks
actually occur, our business, financial condition or results of operations could
be materially adversely affected. In that case, the trading price of our stock
could decline, and you may lose all or part of your investment.
RISKS ASSOCIATED WITH OUR COMPANY
WE HAVE EXPERIENCED A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES. WE
HAVE GENERATED EXTREMELY LIMITED REVENUE FROM OUR OPERATIONS, AND NO REVENUE
FROM SALES. OUR INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS HAVE
EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN. WE
MUST CONTINUE TO RAISE MONEY FROM INVESTORS AND SEEK PARTNERS AND/OR
SUB-LICENSORS WITH WHOM TO COLLABORATE IN OUR RESEARCH AND DEVELOPMENT EFFORTS
SO AS TO FUND OUR OPERATIONS. IF WE ARE UNABLE TO FUND OUR OPERATIONS, WE MAY
CEASE DOING BUSINESS.
We have recorded minimal revenue to date and we have incurred a
cumulative operating loss of approximately $5,465,000 through December 31, 2004.
Since inception, we have substantially funded our operations from the public and
private sales of our securities. Our losses have resulted principally from costs
incurred in research and development activities related to our efforts to
develop our technologies and from the associated administrative costs. We expect
to incur significant operating losses and negative cash flows over the next
several years due to the costs of expanded research and development efforts and
preclinical and clinical trials and hiring additional personnel. We will need to
generate significant revenues in order to achieve and maintain profitability. We
may not be able to generate these revenues or achieve profitability in the
future. Even if we do achieve profitability, we may not be able to sustain or
increase profitability. We have limited capital resources and it is likely that
we will require additional capital to meet our future capital requirements. At
December 31, 2004 we had approximately $3,346,000 in available working capital
and our budgeted expenditures for 2005 currently exceed our available working
capital. We believe, absent any additional funds, our existing cash will be
sufficient to enable us to continue in operation until September 2005.
Thereafter, we anticipate that we will need additional financing to continue our
operations. There is no assurance that such capital will be available to us or,
if available, will be on terms acceptable to us. To the extent we are unable to
raise additional capital and our operating losses continue, we will need to take
actions to reduce our costs of operations, which may adversely impact future
operations, employee morale, business relations and other aspects of our
business. In addition, if adequate funds are not available we may be required to
delay, scale back or eliminate the development of one or more of our products
which could harm our business. An increase in capital resulting from a capital
raising transaction under adverse business circumstances could result in
substantial dilution to existing holders of our common stock and adversely
impact our stock price. We will be unable to continue as a going concern without
sufficient capital to fund our operations.
WE MUST SPEND AT LEAST $1 MILLION ANNUALLY ON DEVELOPMENT OF OUR REPLACEMENT
THERAPY AND MUTACIN 1140 TECHNOLOGIES UNDER OUR LICENSE AGREEMENTS WITH THE
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. WE MUST ALSO COMPLY WITH CERTAIN
OTHER CONDITIONS OF OUR LICENSES. IF WE DO NOT, OUR LICENSES TO THESE
TECHNOLOGIES MAY BE TERMINATED, AND WE MAY HAVE TO CEASE OPERATIONS.
We hold our replacement therapy and Mutacin 1140 technologies under
licenses from the University of Florida Research Foundation, Inc. Under the
terms of the licenses, we must spend at least $1 million per year on development
of those technologies before the first commercial sale of products derived from
those technologies. If we do not, our licenses could be terminated. Until
commercial sales of such products take place, we will not be earning revenues
from the sale of products and will, therefore, have to raise the money we must
spend on development of our technologies by other means, such as the sale of our
common stock. There is no assurance we will be able to raise the financing
necessary to meet our obligations under our licenses. If we cannot, we may lose
our licenses to these technologies and have to cease operations.
The University of Florida Research Foundation, Inc. may terminate our
licenses in respect of our replacement therapy technology and our Mutacin 1140
technology if we breach our obligations to timely pay monies to it, submit
development reports to it or commit any other breach of the covenants contained
in the license agreement. There is no assurance that we will be able to comply
28
with these conditions. If we cannot, and if our license is terminated, our
investment in development of our replacement therapy and Mutacin 1140
technologies will become valueless and we may have to cease operations.
IF WE ARE UNABLE TO MAINTAIN REGULATORY CLEARANCE OR OBTAIN APPROVAL FOR OUR
TECHNOLOGIES, WE WILL BE UNABLE TO GENERATE REVENUES AND MAY HAVE TO CEASE
OPERATIONS.
Only our replacement therapy technology has been granted clearance to
begin Phase 1 human clinical trials by the FDA. Clinical trials on our
replacement therapy are expected to take 4-5 years to fully complete. Our other
technologies have not been cleared for testing in humans. Our technologies have
not been cleared for marketing by the FDA or foreign regulatory authorities and
they will not be able to be commercially distributed in the United States or any
international markets until such clearances are obtained. Before regulatory
approvals can be obtained, our technologies will be subject to extensive
preclinical and clinical testing. These processes are lengthy and expensive. We
cannot assure that such trials will demonstrate the safety or effectiveness of
our technologies. There is a possibility that our technologies may be found to
be unsafe or ineffective or otherwise fail to satisfy regulatory requirements.
If we are unable to resolve the FDA's concerns, we will not be able to proceed
further to obtain regulatory approval for that technology. If we fail to
maintain regulatory clearance for our replacement therapy or fail to obtain FDA
clearance for our other technologies, we may have to cease operations.
OUR PRODUCT CANDIDATES ARE IN THE PRELIMINARY DEVELOPMENT STAGE, AND MAY NOT BE
EFFECTIVE AT A LEVEL SUFFICIENT TO SUPPORT A PROFITABLE BUSINESS VENTURE. IF
THEY ARE NOT, WE WILL BE UNABLE TO CREATE MARKETABLE PRODUCTS, AND WE MAY HAVE
TO CEASE OPERATIONS.
All of our product candidates are in the preliminary development state.
Although we have current data which indicates the promise of the concept of our
replacement therapy and Mutacin 1140 technologies, we can offer you no assurance
that the technologies will be effective at a level sufficient to support a
profitable business venture. If they are not, we will be unable to create
marketable products, we will not generate revenues from our operations, and we
may have to cease operations. The science on which our replacement therapy and
Mutacin 1140 technologies are based may also fail due to flaws or inaccuracies
on which the data are based, or because the data is totally or partially
incorrect, or not predictive of future results. If our science proves to be
flawed, incorrect or otherwise fails, we will not be able to create a marketable
product or generate revenues and we may have to cease operations.
THE SUCCESS OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES IS UNCERTAIN. IF THEY DO
NOT SUCCEED, WE WILL BE UNABLE TO GENERATE REVENUES FROM OUR OPERATIONS AND WE
WILL HAVE TO CEASE DOING BUSINESS.
We intend to continue with research and development of our technologies
for the purpose of obtaining regulatory approval to manufacture and market them.
Research and development activities, by their nature, preclude definitive
statements as to the time required and costs involved in reaching certain
objectives. Actual costs may exceed the amounts we have budgeted and actual time
may exceed our expectations. If research and development requires more funding
than we anticipate, then we may have to reduce technological development efforts
or seek additional financing. There can be no assurance that we will be able to
secure any necessary additional financing or that such financing would be
available on favorable terms. Additional financings could result in substantial
dilution to existing shareholders. We anticipate we will remain engaged in
research and development for a considerable period of time, and there can be no
assurance that we will be able to generate adequate revenue from operations.
29
WE RELY ON THE SIGNIFICANT EXPERIENCE AND SPECIALIZED EXPERTISE OF OUR SENIOR
MANAGEMENT AND MUST RETAIN AND ATTRACT QUALIFIED SCIENTISTS AND OTHER HIGHLY
SKILLED PERSONNEL IN A HIGHLY COMPETITIVE JOB ENVIRONMENT TO MAINTAIN AND GROW
OUR BUSINESS.
Our performance is substantially dependent on the continued services
and on the performance of our senior management and our team of research
scientists, who have many years of experience and specialized expertise in our
business. Our performance also depends on our ability to retain and motivate our
other executive officers and key employees. The loss of the services of our
Chief Executive Officer, Mento A. Soponis and our Chief Scientific Officer, Dr.
Jeffrey D. Hillman, and any of our other executive officers or of our
researchers could harm our ability to develop and commercialize our
technologies. We have no "key man" life insurance policies. We have three year
employment agreements with Mr. Soponis and Dr. Hillman, which automatically
renew for one-year terms unless 90 days written notice is given by either party.
Our future success also depends on our ability to identify, attract,
hire, train, retain and motivate highly skilled technical, managerial and
research personnel. If we fail to attract, integrate and retain the necessary
personnel, our ability to maintain and build our business could suffer
significantly.
IT IS POSSIBLE THAT OUR REPLACEMENT THERAPY AND ORAL PROBIOTIC TECHNOLOGIES WILL
BE LESS EFFECTIVE IN HUMANS THAN THEY HAVE BEEN SHOWN TO BE IN ANIMALS. IT IS
POSSIBLE OUR MUTACIN 1140 TECHNOLOGY WILL BE SHOWN TO BE INEFFECTIVE OR HARMFUL
IN HUMANS. IF ANY OF THESE TECHNOLOGIES ARE SHOWN TO BE INEFFECTIVE OR HARMFUL
IN HUMANS, WE WILL BE UNABLE TO GENERATE REVENUES FROM THEM, AND WE MAY HAVE TO
CEASE OPERATIONS.
To date the testing of our replacement therapy technology has been
undertaken solely in animals. Those studies have proven our genetically altered
strain of Streptococcus mutans ("S. mutans") to be effective in preventing tooth
decay. It is possible that our strain of S. mutans will be shown to be less
effective in preventing tooth decay in humans in clinical trials. If our
replacement therapy technology is shown to be ineffective in preventing tooth
decay in humans, we will be unable to commercialize and generate revenues from
this technology. To date the testing of our oral probiotic technology has been
undertaken solely in animals. Those studies have shown our technology to be
effective at helping to reduce certain bacteria that are believed to cause
periodontal disease. It is possible that our probiotic technology will not be
effective in reducing those bacteria and will not improve periodontal health. If
our oral probiotic technology is shown to be ineffective or harmful to humans,
we will be unable to commercialize it and generate revenues from sales. To date
the testing of the antibiotic substance, Mutacin 1140, has been undertaken
solely in the laboratory. We have not yet conducted animal or human studies of
Mutacin 1140. It is possible that when these studies are conducted, they will
show that Mutacin 1140 is ineffective or harmful. If Mutacin 1140 is shown to be
ineffective or harmful, we will be unable to commercialize it and generate
revenues from sales of Mutacin 1140. If we are unable to generate revenues from
our technologies, we may have to cease operations.
IT IS POSSIBLE WE WILL BE UNABLE TO FIND A METHOD TO PRODUCE MUTACIN 1140 IN
LARGE-SCALE COMMERCIAL QUANTITIES. IF WE CANNOT, WE WILL BE UNABLE TO UNDERTAKE
THE PRECLINICAL AND CLINICAL TRIALS THAT ARE REQUIRED IN ORDER TO OBTAIN FDA
PERMISSION TO SELL IT, WE WILL BE UNABLE TO GENERATE REVENUES FROM PRODUCT
SALES, AND WE MAY HAVE TO CEASE OPERATIONS.
Our antibiotic technology, Mutacin 1140, is a substance produced by our
genetically altered strain of S. mutans. To date, it has been produced only in
laboratory cultures. In order for us to conduct the preclinical and Phase I
clinical studies that we must complete in order to find a partner who will
sub-license this technology from us and finance the Phase II and III clinical
studies we must complete in order to obtain FDA approvals necessary to sell
products based on this technology, we must demonstrate a method of producing
commercial quantities of this substance economically. To date we have not found
such a method and it is possible we will be unable to find one. If we are not
able to find such a method, we will be unable to generate revenues from this
technology and we may have to cease operations.
30
IF CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE UNSUCCESSFUL OR DELAYED, WE
WILL BE UNABLE TO MEET OUR ANTICIPATED DEVELOPMENT AND COMMERCIALIZATION
TIMELINES, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE AND WE MAY HAVE TO CEASE
OPERATIONS.
Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our products are safe and effective for use in humans. Conducting clinical
trials is a lengthy, time-consuming and expensive process.
Completion of clinical trials may take several years. Commencement and
rate of completion of clinical trials may be delayed by many factors, including:
o lack of efficacy during the clinical trials;
o unforeseen safety issues;
o slower than expected patient recruitment; and
o government or regulatory delays.
Results from preclinical testing and early clinical trials are often
not predictive of results obtained in later clinical trials. A number of new
products have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including perceived defects in the
design of the clinical trials and changes in regulatory policy during the period
of product development. Any delays in, or termination of, our clinical trials
will materially and adversely affect our development and commercialization
timelines, which would adversely affect our business and cause our stock price
to decline and may cause us to cease operations.
WE INTEND TO CONSIDER RELYING ON THIRD PARTIES TO PAY THE MAJORITY OF COSTS
RELATING TO REGULATORY APPROVALS NECESSARY TO MANUFACTURE AND SELL PRODUCTS
USING OUR TECHNOLOGIES. IF WE ARE UNABLE TO OBTAIN AGREEMENTS WITH THIRD PARTIES
TO FUND SUCH COSTS, WE WILL HAVE TO FUND THE COSTS OURSELVES. WE MAY BE UNABLE
TO DO SO, AND IF WE ARE NOT, WE MAY HAVE TO CEASE OPERATIONS.
We intend to consider sublicensing our technologies to strategic
partners prior to commercialization. If we do so, our sublicensees will pay the
costs of any remaining clinical trials, and manufacturing and marketing of our
technologies. If we are unable to sublicense our technologies, we will have to
pay for the costs of Phase II and III trials and new drug applications to the
FDA ourselves. We would also have to set up our own manufacturing facilities and
find our own distribution channels. This would greatly increase our future
capital requirements and we cannot be assured we would be able to obtain the
necessary financing. If we cannot obtain financing, we may have to cease
operations.
IF OUR EXPECTED COLLABORATIVE PARTNERSHIPS DO NOT MATERIALIZE OR FAIL TO PERFORM
AS EXPECTED, WE WILL BE UNABLE TO DEVELOP OUR PRODUCTS AS ANTICIPATED.
We expect to enter into collaborative arrangements with third parties
to develop certain products. We cannot assure you that we will be able to enter
into these collaborations or that, if entered, they will produce successful
products. If we fail to maintain our existing collaborative arrangements or fail
to enter into additional collaborative arrangements, the number of products from
which we could receive future revenues would decline.
Our dependence on collaborative arrangements with third parties
subjects us to a number of risks. These collaborative arrangements may not be on
terms favorable to us. Agreements with collaborative partners typically allow
partners significant discretion in electing whether or not to pursue any of the
planned activities. We cannot control the amount and timing of resources our
collaborative partners may devote to products based on the collaboration, and
our partners may choose to pursue alternative products. Our partners may not
perform their obligations as expected. Business combinations or significant
changes in a collaborative partner's business strategy may adversely affect a
31
partner's willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our partners,
which could lead to delays or termination of the collaborations and
time-consuming and expensive litigation or arbitration. Even if we fulfill our
obligations under a collaborative agreement, our partner can terminate the
agreement under certain circumstances. If any collaborative partner were to
terminate or breach our agreement with it, or otherwise fail to complete its
obligations in a timely manner, our chances of successfully commercializing
products would be materially and adversely affected.
IF OUR INTELLECTUAL PROPERTY RIGHTS DO NOT ADEQUATELY PROTECT OUR PRODUCTS OR
TECHNOLOGIES, OTHERS COULD COMPETE AGAINST US MORE DIRECTLY, WHICH WOULD HURT
OUR PROFITABILITY.
Our success depends in part on our ability to obtain patents or rights
to patents, protect trade secrets, operate without infringing upon the
proprietary rights of others, and prevent others from infringing on our patents,
trademarks and other intellectual property rights. We will be able to protect
our intellectual property from unauthorized use by third parties only to the
extent that it is covered by valid and enforceable patents, trademarks and
licenses. Patent protection generally involves complex legal and factual
questions and, therefore, enforceability of patent rights cannot be predicted
with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that we own or license from others may not
provide adequate protection against competitors. In addition, any future patent
applications may fail to result in patents being issued. Also, those patents
that are issued may not provide us with adequate proprietary protection or
competitive advantages against competitors with similar technologies. Moreover,
the laws of certain foreign countries do not protect intellectual property
rights to the same extent as do the laws of the United States.
In addition to patents and trademarks, we rely on trade secrets and
proprietary know-how. We seek protection of these rights, in part, through
confidentiality and proprietary information agreements. These agreements may not
provide meaningful protection or adequate remedies for violation of our rights
in the event of unauthorized use or disclosure of confidential and proprietary
information. Failure to protect our proprietary rights could seriously impair
our competitive position.
IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE
COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM
MARKETING OUR PRODUCTS.
Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of others. However,
regardless of our intent, our technologies may infringe the patents or violate
other proprietary rights of third parties. In the event of such infringement or
violation, we may face litigation and may be prevented from pursuing product
development or commercialization. We may receive in the future, notice of claims
of infringement of other parties' proprietary rights. Infringement or other
claims could be asserted or prosecuted against us in the future and it is
possible that past or future assertions or prosecutions could harm our business.
We received notification from B.C. International Corporation on July 29, 2002
that a gene utilized in our licensed, patented strain of S. mutans infringes a
patent which it holds under a license. Their notification did not state that
they intended to pursue legal remedies. Our management does not believe the gene
in question infringes that patent. We have sent them correspondence setting out
our position and we have not heard anything further from them. If necessary, we
are prepared to assert our rights vigorously with respect to such matter. If
litigation should ensue and we are unsuccessful in that litigation, we could be
enjoined for a period of time from marketing products which infringe any valid
patent rights held or licensed by B.C. International Corporation and/or we could
owe substantial damages. If we become involved in any claims, litigation,
interference or other administrative proceedings, we may incur substantial
expense and the efforts of our technical and management personnel may be
significantly diverted. Any future claims or adverse determinations with respect
to our intellectual property rights may subject us to loss of our proprietary
position or to significant liabilities, may require us to seek licenses from
third parties, cause delays in the development and release of new products or
services and/or may restrict or prevent us from manufacturing and selling
certain of our products. If we are required to seek licenses from third parties,
costs associated with these arrangements may be substantial and may include
ongoing royalties. Furthermore, we may not be able to obtain the necessary
licenses on satisfactory terms, if at all.
32
WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION, WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS.
The production and marketing of products which may be developed from
our technologies and our ongoing research and development, preclinical testing
and clinical trial activities are subject to extensive regulation and review by
numerous governmental authorities. Most of the technologies we are developing
must undergo rigorous preclinical and clinical testing and an extensive
regulatory approval process before they can be marketed. This process makes it
longer, harder and more costly to bring products which may be developed from our
technologies to market, and we cannot guarantee that any of such products will
be approved. The pre-marketing approval process can be particularly expensive,
uncertain and lengthy, and a number of products for which FDA approval has been
sought by other companies have never been approved for marketing. In addition to
testing and approval procedures, extensive regulations also govern marketing,
manufacturing, distribution, labeling, and record-keeping procedures. If we do
not comply with applicable regulatory requirements, such violations could result
in warning letters, non-approval, suspensions of regulatory approvals, civil
penalties and criminal fines, product seizures and recalls, operating
restrictions, injunctions, and criminal prosecution.
Delays in or rejection of FDA or other government entity approval of
our technologies may also adversely affect our business. Such delays or
rejection may be encountered due to, among other reasons, government or
regulatory delays, lack of efficacy during clinical trials, unforeseen safety
issues, slower than expected rate of patient recruitment for clinical trials,
inability to follow patients after treatment in clinical trials, inconsistencies
between early clinical trial results and results obtained in later clinical
trials, varying interpretations of data generated by clinical trials, or changes
in regulatory policy during the period of product development in the United
States. In the United States more stringent FDA oversight in product clearance
and enforcement activities could result in our experiencing longer approval
cycles, more uncertainty, greater risk, and higher expenses. Even if regulatory
approval of a product is granted, this approval may entail limitations on uses
for which the product may be labeled and promoted. It is possible, for example,
that we may not receive FDA approval to market products based on our licensed,
patented technologies for broader or different applications or to market updated
products that represent extensions of our basic technologies. In addition, we
may not receive FDA approval to export our products based on our licensed,
patented technologies in the future, and countries to which products are to be
exported may not approve them for import.
Any manufacturing facilities would also be subject to continual review
and inspection. The FDA has stated publicly that compliance with manufacturing
regulations will be scrutinized more strictly. A governmental authority may
challenge our compliance with applicable federal, state and foreign regulations.
In addition, any discovery of previously unknown problems with one of our
products or facilities may result in restrictions on the product or the
facility, including withdrawal of the product from the market or other
enforcement actions.
From time to time, legislative or regulatory proposals are introduced
that could alter the review and approval process relating to our technologies.
It is possible that the FDA will issue additional regulations further
restricting the sale of our proposed products. Any change in legislation or
regulations that govern the review and approval process relating to our future
technologies could make it more difficult and costly to obtain approval for new
products based on our technologies, or to produce, market, and distribute such
products if approved.
WE CAN OFFER YOU NO ASSURANCE THE GOVERNMENT AND THE PUBLIC WILL ACCEPT OUR
LICENSED PATENTED TECHNOLOGIES. IF THEY DO NOT, WE WILL BE UNABLE TO GENERATE
SUFFICIENT REVENUES FROM OUR TECHNOLOGIES, WHICH MAY CAUSE US TO CEASE
OPERATIONS.
The commercial success of our replacement therapy, oral probiotics and
Mutacin 1140 technologies will depend in part on government and public
acceptance of their production, distribution and use. Biotechnology has enjoyed
and continues to enjoy substantial support from the scientific community,
regulatory agencies and many governmental officials in the United States and
around the world. Future scientific developments, media coverage and political
events may diminish such support. Public attitudes may be influenced by claims
that health products based on biotechnology are unsafe for consumption or pose
unknown risks to the environment or to traditional social or economic practices.
Securing governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. The market
success of technologies developed through biotechnology such as ours could be
delayed or impaired in certain geographical areas because of such factors.
33
Products based on our technologies may compete with a number of traditional
dental therapies and drugs manufactured and marketed by major pharmaceutical
companies and other biotechnology companies. Market acceptance of products based
on our technologies will depend on a number of factors including potential
advantage over alternative treatment methods. We can offer you no assurance that
dentists, physicians, patients or the medical and dental communities in general
will accept and utilize products developed from our technologies. If they do
not, we may be unable to generate sufficient revenues from our technologies,
which may cause us to have to cease operations.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS IF PRODUCTS BASED ON OUR
TECHNOLOGIES ARE MARKETED AND SOLD. BECAUSE OUR LIABILITY INSURANCE COVERAGE
WILL HAVE LIMITATIONS, IF A JUDGMENT IS RENDERED AGAINST US IN EXCESS OF THE
AMOUNT OF OUR COVERAGE, WE MAY HAVE TO CEASE OPERATIONS.
Because we are testing new technologies, and will be involved either
directly or indirectly in the manufacturing and distribution of the
technologies, we are exposed to the financial risk of liability claims in the
event that the use of the technologies results in personal injury or death.
There can be no assurance that we will not experience losses due to product
liability claims in the future, or that adequate insurance will be available in
sufficient amounts, at an acceptable cost, or at all. A product liability claim,
product recall or other claim, or claims for uninsured liabilities or in excess
of insured liabilities, may have a material adverse effect on our business,
financial condition and results of operations. Although we currently carry
$2,000,000 in general liability insurance, such insurance may not be sufficient
to cover any potential liability. We could be sued for a large sum of money and
held liable in excess of our liability coverage. If we cannot pay the judgment,
we may have to cease operations.
THERE IS UNCERTAINTY RELATING TO FAVORABLE THIRD-PARTY REIMBURSEMENT IN THE
UNITED STATES. IF WE CAN'T OBTAIN THIRD PARTY REIMBURSEMENT FOR PRODUCTS BASED
ON OUR TECHNOLOGIES, IT COULD LIMIT OUR REVENUE.
In the United States, success in obtaining payment for a new product
from third parties such as insurers depends greatly on the ability to present
data which demonstrates positive outcomes and reduced utilization of other
products or services as well as cost data which shows that treatment costs using
the new product are equal to or less than what is currently covered for other
products. If we are unable to obtain favorable third party reimbursement and
patients are unwilling or unable to pay for our products out-of-pocket, it could
limit our revenue and harm our business.
OUR STOCK PRICE HISTORICALLY HAS BEEN VOLATILE AND OUR STOCK'S TRADING VOLUME
HAS BEEN LOW.
Although our common stock began trading on the American Stock Exchange
under the symbol "ONI" in May, 2004, the trading price of our common stock has
been, and may be, subject to wide fluctuations in response to a number of
factors, many of which are beyond our control. These factors include:
o quarter-to-quarter variations in our operating results;
o the results of testing, technological innovations, or new
commercial products by us or our competitors;
o governmental regulations, rules, and orders;
o general conditions in the healthcare, dentistry, or biotechnology
industries;
o comments and/or earnings estimates by securities analysts;
o developments concerning patents or other intellectual property
rights;
o litigation or public concern about the safety of our products;
o announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o additions or departures of key personnel;
o release of escrow or other transfer restrictions on our
outstanding shares of common stock or sales of additional shares
of common stock;
o potential litigation;
o adverse announcements by our competitors; and
o the additional sale of common stock by us in a capital raising
transaction.
34
Historically, the daily trading volume of our common stock has been
relatively low. We cannot guarantee that an active public market for our common
stock will be sustained or that the average trading volume will remain at
present levels or increase. In addition, the stock market in general, has
experienced significant price and volume fluctuations. Volatility in the market
price for particular companies has often been unrelated or disproportionate to
the operating performance of those companies. Broad market factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In addition, securities class action litigation has often been
initiated following periods of volatility in the market price of a company's
securities. A securities class action suit against us could result in
substantial costs, potential liabilities, and the diversion of management's
attention and resources. Since our initial public offering and through December
31, 2004 our stock price has fluctuated from $4.50 to $1.69 per share. To the
extent our stock price fluctuates and/or remains low, it could impair our
ability to raise capital through the offering of additional equity securities.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales
of substantial amounts of our common stock in the public market, or the
perception that these sales could occur. In addition, these factors could make
it more difficult for us to raise funds through future offerings of common
stock. As of December 31, 2004, there were 14,594,924 shares of our common stock
outstanding, with another 276,180 shares of common stock issuable upon exercise
of our underwriter warrants, 1,070,000 shares issuable upon exercise of options
issued and an additional 430,000 shares available for issuance under our stock
option plans. The issuance of our stock underlying these options is covered by
an S-8 registration statement we filed with the SEC and may be resold into the
market. We had approximately 3,960,317 shares of common stock held in escrow
pursuant to Canadian law and underwriter requirements in connection with our
initial public offering pursuant to escrow agreements. These shares are released
from escrow periodically in three- and six -month increments and are subject to
the limitations of the respective escrow agreements. Of these shares 3,690,344
are held by principals of the Company and 269,973 are held by the University of
Florida Research Foundation, Inc. Through December 31, 2004, approximately
4,510,421 shares held by principals (including a former director) and 329,967
shares held by the University of Florida Research Foundation, Inc. were released
from escrow. The released shares held by the principals (excluding the former
director) may now be resold into the market under Rule 144. This could cause the
market price of our common stock to drop significantly. The shares held by the
University of Florida Research Foundation, Inc. are eligible for resale without
restriction.
WE MAY BE UNABLE TO MAINTAIN THE LISTING OF OUR COMMON STOCK ON THE AMERICAN
STOCK EXCHANGE AND THAT WOULD MAKE IT MORE DIFFICULT FOR SHAREHOLDERS TO DISPOSE
OF THEIR COMMON STOCK.
Our common stock is listed on the American Stock Exchange. We cannot
guarantee that it will always be listed. The American Stock Exchange rules for
continual listing include minimum market capitalization and other requirements,
which we may not meet in the future, particularly if the price of our common
stock declines.
If our common stock is de-listed from the American Stock Exchange,
trading in our common stock would be conducted, if at all, on the NASD's OTC
Bulletin Board in the United States. This would make it more difficult for
shareholders to dispose of their common stock and more difficult to obtain
accurate quotations on our common stock. This could have an adverse effect on
the price of our common stock.
WE MUST MAINTAIN A CURRENT PROSPECTUS AND REGISTRATION STATEMENT IN CONNECTION
WITH SHARES AND WARRANTS ISSUED IN CONNECTION WITH OUR PRIVATE PLACEMENT.
We may need to meet state registration requirements for sales of
securities in states where an exemption from registration is not otherwise
available. There are currently 276,180 shares of common stock issuable upon
exercise of the underwriter warrants at $1.25 per share that were issued in
connection with our initial public offering and expire on June 24, 2005. In
addition, there are 162,500 shares of common stock issuable upon exercise of
warrants issued in connection with our private placement, 25,000 at an exercise
price of $2.75 and 137,500 at an exercise price of $3.50 expiring November 30,
2008. We are obligated to maintain an effective registration statement in
connection with the resale of shares issued and acquired upon exercise of
warrants issued in connection with our private placement. It is possible that we
may be unable to cause a registration statement covering the common stock
underlying these shares and shares issuable upon exercise of the warrants to be
35
effective or to maintain the effectiveness of such registration. There can be no
assurance that we will be able to maintain an effective registration statement
relating to the resale of our common stock. If we are unable to maintain an
effective registration for the resale of common stock issued in connection with
our private placement and upon exercise of the warrants, we may be subject to
claims by the holders of such shares and warrants.
WE HAVE LIMITED RESOURCES WHICH EXPOSES US TO POTENTIAL RISKS RESULTING FROM NEW
INTERNAL CONTROL REQUIREMENTS UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF
2002.
We are evaluating our internal controls in order to allow management to
report on, and our independent registered certified public accounting firm to
attest to, our internal controls, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. We may encounter unexpected delays in implementing
the requirements relating to internal controls, therefore, we cannot be certain
about the timing of completion of our evaluation, testing and remediation
actions or the impact that these activities will have on our operations since
there is no precedent available by which to measure the adequacy of our
compliance. We also expect to incur additional expenses and diversion of
management's time as a result of performing the system and process evaluation,
testing and remediation required in order to comply with the management
certification and auditor attestation requirements. We are a small company with
limited resources that will make it difficult for us to timely comply with the
requirements of Section 404. If we are not able to timely comply with the
requirements set forth in Section 404, we might be subject to sanctions or
investigation by regulatory authorities. Any such action could adversely affect
our business and financial results. The requirement to comply with Section 404
of the Sarbanes-Oxley Act of 2002 will become effective for our fiscal year
ending December 31, 2006.
In addition, in our system of internal controls we may rely on the
internal controls of third parties such as payroll service providers. In our
evaluation of our internal controls, we will consider the implication of our
reliance on the internal controls of third parties. Until we have completed our
evaluation, we are unable to determine the extent of our reliance on those
controls, the extent and nature of the testing of those controls, and
remediation actions necessary where that reliance cannot be adequately evaluated
and tested.
FORWARD-LOOKING STATEMENTS
Certain oral statements made by management from time to time and
certain statements contained herein and in documents incorporated herein by
reference that are not historical facts are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and, because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. The terms "Oragenics," "Company,"
"we," "our," and "us" refer to Oragenics, Inc. The words "expect," "believe,"
"goal," "plan," "intend," "anticipate," "estimate," "will" and similar
expressions and variations thereof if used, are intended to specifically
identify forward-looking statements. Forward-looking statements are statements
regarding the intent, belief or current expectations, estimates or projections
of Oragenics, our directors or our officers about Oragenics and the industry in
which we operate, and assumptions made by management, and include among other
items, (i) our strategies regarding growth, including our intention to develop
and market our products; (ii) our financing plans; (iii) trends affecting our
financial condition or results of operations; (iv) our ability to continue to
control costs and to meet our liquidity and other financing needs; (v) our
ability to respond to and meet regulatory demands; and (vi) our expectation with
respect to generating near-term revenue from our oral probiotic technology.
These statements are not guarantees of future performance and are subject to a
number of known and unknown risks, uncertainties, and other factors, including
those discussed above and elsewhere in this report, that could cause actual
results to differ materially from future results, performances, or achievements
expressed or implied by such forward-looking statements. Consequently, undue
reliance should not be placed on these forward-looking statements. Although we
believe our expectations are based on reasonable assumptions, we can give no
assurance that the anticipated results will occur. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
36
ITEM 7. FINANCIAL STATEMENTS.
Incorporated by reference to pages F-1 to F-17 at the end of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, we carried out an
evaluation (the "Evaluation"), under the supervision and with the participation
of our President and Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), of the effectiveness of the design and operation of our disclosure
controls and procedures ("Disclosure Controls"). Based on the Evaluation, our
CEO and CFO concluded that, subject to the limitations noted below, our
Disclosure Controls are effective in timely alerting them to material
information required to be included in our periodic SEC reports.
CHANGES IN INTERNAL CONTROLS
We have also evaluated our internal controls for financial reporting,
and there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Our management, including our CEO and CFO, does not expect that our
Disclosure Controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management or
board override of the control.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
CEO AND CFO CERTIFICATIONS
Appearing immediately following the Signatures section of this report
there are Certifications of the CEO and the CFO. The Certifications are required
in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section
302 Certifications). This Item of this report, which you are currently reading
is the information concerning the Evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.
ITEM 8B. OTHER INFORMATION.
None.
37
PART III
Certain information required by Part III is omitted from this Report in
that we expect to file a definitive proxy statement with the Securities and
Exchange Commission (the "Commission") within 120 days after the end of its
fiscal year pursuant to Regulation 14A, as promulgated by the Commission, for
our 2005 annual meeting of shareholders (the "Proxy Statement"), and certain
information included in the Proxy Statement will be incorporated herein by
reference.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 9 with respect to identification
of our directors will be included under the captions "Proposal I Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated herein by reference to our Proxy Statement. We have adopted a Code
of Business Conduct and Ethics (the "Code") that applies to all of our
Directors, officers and employees, including our principal executive officer and
principal financial officer. The Code is posted on our website at
www.oragenics.com. We intend to disclose any amendments to the Code by posting
such amendments on our website. In addition, any waivers of the Code for
Directors or executive officers of the Company will be disclosed in a report on
Form 8-K.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 with respect to management
remuneration and transactions is incorporated herein by reference to our Proxy
Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 with respect to the security
ownership of certain beneficial owners and management is incorporated herein by
reference to our Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 with respect to transactions
between us and certain related entities is incorporated herein by reference to
our Proxy Statement under the heading "Certain Relationships and Related
Transactions."
38
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Incorporated by reference to the Exhibit Index immediately following
the signature page.
(b) Reports on Form 8-K:
We filed Form 8-K's on October 7, 2004, October 13, 2004, November 30,
2004 and December 1, 2004, relating to (i) our de-listing from the TSX Venture
Exchange; (ii) our presentation at the Rodman and Renshaw Techvest 6th Annual
Healthcare Conference; (iii) FDA lifting its clinical hold for our technology
for the prevention of dental caries; and, (iv) the closing on a private
financing raising $687,500 and the disclosure of financial estimates used in the
financing document.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item 14 is incorporated herein by
reference to our Proxy Statement under the heading "Principal Accountant Fees
and Services."
39
Oragenics, Inc.
Financial Statements
Years ended December 31, 2004 and 2003
CONTENTS
Index to Financial Statements................................................F-1
Report of Independent Registered Certified Public Accounting Firm on
Financial Statements.........................................................F-2
Audited Financial Statements
Balance Sheet...........................................................F-3
Statements of Operations................................................F-4
Statements of Changes in Stockholders' Equity (Deficit).................F-5
Statements of Cash Flows................................................F-6
Notes to Financial Statements...........................................F-7
F-1
Report of Independent Registered Certified Public Accounting Firm on Financial
Statements
The Board of Directors and Shareholders of
Oragenics, Inc.
We have audited the accompanying balance sheet of Oragenics, Inc. as of December
31, 2004, and the related statements of operations, changes in stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2004. 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 consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and 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 Oragenics, Inc. at December 31,
2004, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Oragenics, Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, negative operating
cash flows and has an accumulated deficit. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The 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 may result from the outcome of this
uncertainty.
January 28, 2005 except for Note 11, as to
which the date is February 24, 2005
Tampa, Florida Certified Public Accountants
F-2
Oragenics, Inc.
Balance Sheet
December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents $ 3,666,244
Prepaid expenses and other current assets 108,895
-----------
Total current assets 3,775,139
Property and equipment, net 690,932
-----------
Total assets $ 4,466,071
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 429,627
-----------
Total current liabilities 429,627
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized;
none issued and outstanding --
Common stock, $0.001 par value; 100,000,000 shares authorized;
14,594,924 shares issued and outstanding 14,595
Additional paid in capital 9,493,833
Accumulated deficit (5,471,984)
-----------
Total stockholders' equity 4,036,444
-----------
Total liabilities and stockholders' equity $ 4,466,071
===========
See accompanying notes.
F-3
Oragenics, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31
2004 2003
-----------------------------
Revenue $ 196,210 $ --
Operating expenses:
Research and development 1,990,979 929,355
General and administration 1,329,983 738,596
-----------------------------
Total operating expenses 3,320,962 1,667,951
-----------------------------
Loss from operations (3,124,752) (1,667,951)
Other income (expense):
Interest income 47,306 7,874
Interest expense (442) (12,877)
-----------------------------
Total other income (expense), net 46,864 (5,003)
-----------------------------
Loss before income taxes (3,077,888) (1,672,954)
Income tax benefit -- --
-----------------------------
Net loss $ (3,077,888) $ (1,672,954)
=============================
Basic and diluted net loss per share $ (0.22) $ (0.15)
=============================
Shares used to compute basic and diluted net loss per share 14,118,129 10,814,198
=============================
See accompanying notes.
F-4
Oragenics, Inc.
Statements of Changes in Stockholders' Equity (Deficit)
COMMON STOCK ADDITIONAL TOTAL
-------------------------- PAID IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------------------------------------------------------------------------
Balance at December 31, 2002 9,425,704 $ 9,426 $ 628,234 $ (721,142) $ (83,482)
Issuance of common stock and warrants 2,500,000 2,500 2,280,112 -- 2,282,612
Exercise of common stock warrants 1,370,500 1,370 2,628,817 -- 2,630,187
Compensation expense relating to option
issuances -- -- 283,534 -- 283,534
Net loss -- -- -- (1,672,954) (1,672,954)
-------------------------------------------------------------------------
Balance at December 31, 2003 13,296,204 13,296 5,820,697 (2,394,096) 3,439,897
Exercise of common stock warrants 1,048,720 1,049 3,034,724 -- 3,035,773
Costs associated with filing initial
public offering post effective
amendment -- -- (62,421) -- (62,421)
Issuance of common stock and warrants 250,000 250 544,676 -- 544,926
Compensation expense relating to option
issuances -- -- 156,157 -- 156,157
Net loss -- -- -- (3,077,888) (3,077,888)
-------------------------------------------------------------------------
Balance at December 31, 2004 14,594,924 $ 14,595 $ 9,493,833 $(5,471,984) $ 4,036,444
=========================================================================
See accompanying notes.
F-5
Oragenics, Inc.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
2004 2003
---------------------------
OPERATING ACTIVITIES
Net loss $(3,077,888) $(1,672,954)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 41,987 12,545
Non-cash issuance of common stock and common stock options -- 54,000
Stock-based compensation expense 156,157 229,534
Changes in operating assets and liabilities:
Costs associated with initial public offering -- 271,937
Prepaid expenses and other current assets (84,258) (15,896)
Accounts payable and accrued expenses 289,013 (92,197)
Accrued interest (25,582) 8,120
Deferred compensation (44,672) (13,999)
---------------------------
Net cash used in operating activities (2,745,243) (1,218,910)
INVESTING ACTIVITY
Purchases of property and equipment (690,548) (50,258)
---------------------------
Net cash used in investing activity (690,548) (50,258)
FINANCING ACTIVITIES
Proceeds from notes payable to stockholders -- 175,000
Payment of notes payable to stockholders -- (260,454)
Net proceeds from issuance of common stock 3,518,278 4,912,799
---------------------------
Net cash provided by financing activities 3,518,278 4,827,345
---------------------------
Net increase in cash and cash equivalents 82,487 3,558,177
Cash and cash equivalents at beginning of year 3,583,757 25,580
---------------------------
Cash and cash equivalents at end of year $ 3,666,244 $ 3,583,757
===========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Common stock and common stock options issued in
connection with investment bank and
related financing services $ -- $ 54,000
===========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 26,024 $ 4,757
===========================
See accompanying notes.
F-6
Oragenics, Inc.
Notes to Financial Statements
December 31, 2004
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Oragenics, Inc. is dedicated to developing technologies associated with oral
health, broad spectrum antibiotics and other general health benefits. The
Company has licensed two unique technologies from the University of Florida:
replacement therapy for the prevention of tooth decay and mutacin 1140, a novel
antibiotic. The Company has also developed a probiotics technology to provide
protection against the causative organisms of periodontal disease and has
licensed two related platform technologies that enable the simple, fast
identification of gene targets associated with the natural onset and progression
of infections, cancers and other diseases.
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States including the
assumption of a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company incurred a net loss of $3,077,888 for the year ended
December 31, 2004 and as of that date had an accumulated deficit of $5,471,984.
Cash used in operations for the years ended December 31, 2004 and December 31,
2003 was $2,745,243 and $1,218,910, respectively, and cash flow from operations
was negative throughout 2004. The Company expects to incur substantial
expenditures to further develop each of its technologies. The Company believes
the working capital at December 31, 2004 will be insufficient to meet the
business objectives as presently structured. Management recognizes that the
Company must generate additional capital resources or consider modifications to
its technology development plans to enable it to continue as a going concern.
Management's plans include seeking financing, alliances or other partnership
agreements with entities interested in the Company's technologies, or other
business transactions that would generate sufficient resources to assure
continuation of the Company's operations and research and development programs.
The Company intends to seek additional funding through sublicensing
arrangements, joint venturing or partnering, sales of rights to technology,
government grants and public or private financings. During 2004 the Company
conducted a private placement to raise capital. During 2005 the Company expects
to raise additional capital through selling additional debt or equity securities
on terms acceptable to the Company. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all. The
Company's future success depends on its ability to raise capital and ultimately
generate revenue and attain profitability. The Company cannot be certain that
additional capital, whether through selling additional debt or equity securities
or obtaining a line of credit or other loan, will be available to it or, if
available, will be on terms acceptable to the Company. If the Company issues
additional securities to raise funds, these securities may have rights,
preferences, or privileges senior to those of its common stock, and the
Company's current stockholders may experience dilution. If the Company is unable
to obtain funds when needed or on acceptable terms, the Company may be required
to curtail their current development programs, cut operating costs and forego
future development and other opportunities. Without sufficient capital to fund
their operations, the Company will be unable to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
CONCENTRATIONS OF CREDIT RISK
The Company's cash and cash equivalents are deposited in two financial
institutions and consist of demand deposits and overnight repurchase agreement
investments.
F-7
Oragenics, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash and cash equivalents, accounts payable and
accrued expenses approximate their carrying values due to their short-term
nature.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets (three to seven years). Leasehold
improvements are amortized over the shorter of the estimated useful life or the
lease term of the related asset (five years).
BUSINESS SEGMENTS
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosure About Segments of a Business Enterprise and Related Information, the
Company is required to report segment information. As the Company only operates
principally in one business segment, no additional reporting is required.
STOCK-BASED COMPENSATION
The Company has a stock-based employee compensation plan, which is described
more fully in Note 5. The Company accounts for the plan under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. The following table illustrates the
effect on net loss per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.
F-8
Oragenics, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31
2004 2003
--------------------------------
Net loss, as reported $ (3,077,888) $ (1,672,954)
Add: Total stock-based employee compensation expense
reported in net loss 156,157 229,534
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards (152,545) (44,371)
-------------- --------------
Pro forma net loss $ (3,074,276) $ (1,487,791)
============== ==============
Loss per share:
Basic and diluted - as reported $(0.22) $(0.15)
Basic and diluted - pro forma $(0.22) $(0.14)
Shares used to compute basic and diluted net loss per
share 14,118,129 10,814,198
NET LOSS PER SHARE
During all periods presented, the Company had securities outstanding that could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share, as their effect would have
been antidilutive. Because the Company reported a net loss for all periods
presented, shares associated with the stock options and warrants are not
included because they are antidilutive. Basic and diluted net loss per share
amounts are the same for the periods presented.
REVENUE RECOGNITION
Grant revenues are recognized as the reimbursable expenses are incurred over the
life of the related grant.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews their long-lived assets for impairment and reduces the
carrying value to fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. There were no
impairment losses recorded during the years ended December 31, 2004 and 2003.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research and development are expensed as incurred. The majority
of the Company's activities are research and development related.
F-9
Oragenics, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in operations in the period that includes the enactment date.
Deferred tax assets are reduced to estimated amounts expected to be realized by
the use of a valuation allowance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004) "Share Based Payment" ("FAS 123(R)"), which is a revision
of FASB Statement No. 123 "Accounting for Stock Based Compensation" ("Statement
123"). This statement supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("Opinion 25") which allowed companies to use the intrinsic
value method of valuing share-based payment transactions and amends FAS
Statement No. 95, "Statement of Cash Flows". FAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. The Company expects to adopt Statement
123 (R) on January 1, 2006.
FAS 123(R) permits public companies to adopt its requirements using one of two
methods. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
FAS 123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of Statement 123 for all awards granted to employees
prior to the effective date of FAS 123(R) that remain unvested on the effective
date. A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption. The Company will determine which
method to adopt prior to the effective date of FAS 123(R).
The impact of adoption of FAS 123(R) cannot be accurately predicted at this time
since it will depend on levels of share-based payments granted in the future.
However, had the Company adopted FAS 123(R) in prior periods, the impact of the
standard would have approximated the impact of FAS 123 as described in the
disclosure of pro forma net loss and loss per share in Note 1 to the financial
statements. Statement 123(R) also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot estimate what those
amounts will be in the future (because they depend on, among other things, when
employees exercise stock options), there were no amounts of operating cash flows
recognized in prior periods for such excess tax deductions in 2003 and 2004.
As permitted by Statement 123, the Company currently accounts for share-based
payments using Opinion 25's intrinsic value method and, as such, generally
recognizes no compensation cost for employee stock options.
F-10
Oragenics, Inc.
Notes to Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2004:
Leasehold improvements $ 469,327
Laboratory equipment 226,070
Office and computer equipment 54,127
-----------
749,524
Accumulated depreciation (58,592)
-----------
$ 690,932
===========
Depreciation expense for 2004 and 2003 was $41,987 and $12,545, respectively.
3. OBLIGATIONS TO STOCKHOLDERS
The Company issued promissory notes for cash to two stockholders in the amounts
of $69,604 and $15,000 in 2001 and 1999, respectively. These notes were payable
upon demand and accrued interest at 7% per year. The principal portion of the
notes was repaid in December 2003 and related accrued interest totaling $18,452
was paid in January 2004.
In 2003, the Company issued two demand promissory notes to a stockholder in the
amounts of $100,000 and $75,000 bearing interest at 10% per annum. Both notes
and interest totaling $4,757 were repaid in June 2003.
At December 31, 2004 and 2003, $75,000 was owed and included in accounts payable
and accrued expenses for consulting services provided by a stockholder of the
Company in prior years. In January 2005, $20,000 was paid on this obligation. No
interest is being accrued on this outstanding debt.
4. DEFERRED COMPENSATION
During 2000, the Company entered into a two-year employment agreement with an
officer and shareholder. The agreement provided for the deferral of compensation
until a certain level of investment funding was received and required the
Company to accrue interest on the deferred balance at 7% per year. Beginning
July 1, 2001, the agreement was amended whereby the deferral of compensation
ceased. No compensation expense was recognized in 2004 or 2003 and interest
expense relating to the employment agreement for the years ended December 31,
2004 and 2003 was $0 and $2,409, respectively. In January 2004, payments
totaling $41,539 were made in settlement of this obligation.
Between December 2002 and June 2003, compensation payments totaling $149,263 to
three officers of the Company were deferred due to limited cash flow of the
Company. As of December 31, 2003, payments of $139,000 were made and the balance
of $10,263 was paid in January 2004. There was no provision to pay interest on
these deferred compensation payments.
F-11
Oragenics, Inc.
Notes to Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
COMMON STOCK
On June 24, 2003, the Company completed the filing of 2,400,000 units at $1.25
per unit as an initial public offering (IPO) for gross proceeds of $3,000,000.
Each unit consisted of one share of the Company's common stock, one-half Series
A Common Share Purchase Warrant and one-half Series B Common Share Purchase
Warrant. One whole Series A warrant allowed the holder to purchase a share of
the Company's stock at $2.00 per share until December 24, 2003. All Series A
warrants were exercised before the expiration date providing proceeds to the
Company of $2,400,000. One whole Series B warrant allowed the holder to purchase
a share of the Company's stock at $3.00 per share until March 24, 2004. A total
of 995,400 Series B warrants were exercised on or before March 24, 2004
providing proceeds of $2,986,200 and the remaining 204,600 Series B warrants
expired unexercised on March 24, 2004. In addition to receiving a cash
commission for each share sold, the underwriting agent for the IPO received
100,000 shares of common stock of the Company and warrants to purchase 500,000
shares of common stock of the Company at $1.25 per share until June 24, 2005. As
of December 31, 2004, 223,820 underwriter warrants were exercised providing
proceeds to the Company of $279,775. The cost of the IPO, including the filing
of a post effective amended registration statement in October 2004, was $779,809
including the agent's commission.
On November 30, 2004, the Company completed a private placement of its stock
through an underwriter selling 25 units at $27,500 per unit totaling $687,500.
Each unit consisted of 10,000 shares of common stock and 5,000 warrants to
purchase common stock at a price of $3.50 per share until November 30, 2008. The
total cost associated with this financing was approximately $142,500 including
the underwriter's commission.
STOCK COMPENSATION PLAN
The Company's 2002 Stock Option and Incentive Plan (the Plan) was adopted by the
Board of Directors (the Board). The purpose is to advance the interests of the
Company by affording certain employees and directors of the Company and key
consultants and advisors an opportunity to acquire or increase their proprietary
interests in the Company. The Plan authorizes the grant of stock options
(incentive and non-statutory), stock appreciation rights and restricted stock.
As of December 31, 2004, the Company had not awarded stock appreciation rights
or restricted stock under the Plan. The Company has reserved an aggregate of
1,500,000 shares of common stock for grants under the Plan, of which 430,000
shares are available for future grants as of December 31, 2004. The exercise
price of each option shall be determined by the Board and an option's maximum
term is five years.
In September 2002, the Company issued 195,000 options that were re-priced upon
the change in the initial public offering price. As a result, these options were
subjected to variable accounting treatment. In accordance with Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation (FIN 44), stock options must be
accounted for as variable under such circumstances. Variable accounting requires
companies to re-measure compensation costs for the variable options until the
options are exercised, cancelled, or forfeited without replacement. Compensation
is dependent on fluctuations in the quoted stock prices for the Company's common
stock. Such compensation costs will be recognized over a three-year vesting
schedule until the options are fully vested, exercised, cancelled, or forfeited,
after which time the compensation will be recognized immediately at each
reporting period. During 2004 and 2003, the Company recognized compensation
expense of $156,157 and $229,534, respectively.
F-12
Oragenics, Inc.
Notes to Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's outstanding stock options, including
employee stock options discussed above, as of December 31, 2004 and 2003 and
changes during the periods ending on those dates is presented below:
WEIGHTED
AVERAGE
OPTION PRICE EXERCISE
OPTIONS PER SHARE PRICE
----------------------------------------
Outstanding at January 1, 2003 315,000 $ 1.25 $ 1.25
Granted 285,000 $ 2.65 - 4.00 $ 3.29
----------------------------------------
Outstanding at December 31, 2003 600,000 1.25 - 4.00 2.22
Forfeited (20,000) 2.65 2.65
Granted 175,000 3.30 - 4.25 3.83
Granted 315,000 2.25 - 2.65 2.38
----------------------------------------
Outstanding at December 31, 2004 1,070,000 1.25 - 4.25 $ 2.52
========================================
Exercisable at end of year 246,667 $ 1.25 - 4.00 $ 1.89
========================================
The range of exercise price is $1.25 to $4.25 per share. The weighted-average
per option fair value of options granted during 2004 and 2003 was $1.48 and
$1.26, respectively, and the weighted average remaining contractual life of
those options is 4.3 years. Options vest over a period of three to four years
from respective grant dates and the options expire 5 years after the date of
grant. The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: weighted average risk-free interest rate of 1.00-2.87%; dividend
yields of 0%; weighted-average volatility factors of the expected market price
of the Company's common stock of 55%; and an expected life of the option of four
years.
6. LICENSES
The Company has two license agreements with the University of Florida Research
Foundation, Inc. ("UFRF") for their technologies. The Company issued 599,940
shares of common stock as partial consideration. The license agreements provide
for, among other things, the Company to make minimum annual research
expenditures of $600,000 in 2003 and $1,000,000 thereafter, to adhere to
specific milestones and pay royalties on product sales, which beginning December
31, 2005 will be a minimum of $50,000 annually per agreement. The agreement also
required the Company to pay $100,000 to UFRF as reimbursement for patent filing
costs upon the closing of any financing in excess of $1,000,000. If the Company
fails to perform certain of its obligations, UFRF may terminate the license
agreements. Upon completion of the initial public offering in June 2003, the
Company paid UFRF $100,000.
F-13
Oragenics, Inc.
Notes to Financial Statements (continued)
6. LICENSES (CONTINUED)
In March 2004, the Company licensed from iviGene Corporation, a company whose
major shareholders also own a significant number of shares of the Company's
common stock, applications of two novel technologies referred to as IVIAT and
CMAT. Our license provides us with exclusive worldwide rights to this broad
platform technology in the areas of cancer and tuberculosis, as well as
agricultural and other non-human uses. In return, we will pay royalties on
revenues we are able to generate from any products developed using the
technology, including royalties on sublicense fees, milestone payments and
future product sales. Under the terms of our license with iviGene we are not
obligated to make any payments to iviGene until we have achieved certain
milestone or royalty payments, however, we are required to spend up to $200,000
annually on these technologies to maintain our license. To support the research
for this technology in 2004, we received a Phase I Small Business Innovation
Research Grant from the National Institute of Allergy and Infections Diseases
(NIAID) of the National Institutes of Health (NIH) that paid to us $96,210.
7. RETIREMENT PLAN
In January 2004, the Company established a defined contribution retirement plan,
replacing the previous plan that had been established in 2001. The new plan
covers all employees and provides for a Company match of up to 3% of all
employee contributions to the plan. During 2004, employee contributions are
limited to $9,000 except for individuals 50 years or older for which the
contribution limitation is $10,500. Total matching contributions made by the
Company in 2004 were $28,315. There were no contributions made under the prior
plan in 2003.
8. INCOME TAXES
At December 31, 2004, the Company had temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and their
respective income tax bases, as measured by enacted state and federal tax rates,
as follows:
Deferred tax assets:
Net operating loss carryforward $ 1,833,321
Consulting services 28,223
Non qualified stock options 64,977
Tax credits 129,275
--------------
Total deferred tax assets 2,055,796
Less valuation allowance (2,055,796)
--------------
Total net deferred taxes $ --
==============
F-14
Oragenics, Inc.
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The following is a reconciliation of tax computed at the statutory federal rate
to the income tax benefit in the statements of operations for the years ended
December 31, 2004 and 2003:
YEAR ENDED DECEMBER 31
2004 2003
---------------------------
Income tax benefit computed at statutory
federal rate of 34% $(1,046,482) $ (568,804)
State income tax benefits, net of federal
expense/benefit (111,727) (60,728)
Change in valuation allowance 1,178,040 596,049
Non-deductible expenses 60,721 60,303
Research and development credit (80,552) (32,512)
Other -- 5,692
---------------------------
Total $ -- $ --
===========================
SFAS No. 109, Accounting for Income Taxes, requires a valuation allowance to
reduce the deferred tax assets reported if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. After consideration of all of the evidence, both positive
and negative, management has determined that a valuation allowance of $2,055,796
at December 31, 2004 is necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized. The change in the valuation
allowance for the year ended December 31, 2004 was $1,178,040. At December 31,
2004, the Company has available net operating loss carryforwards of $4,871,968
that begin to expire in 2022.
In connection with the initial public offering, it is possible that the Company
experienced a change in control within the meaning of Section 382 of the
Internal Revenue Code. If so, the ability of the Company to use its net
operating losses may be limited and subject to annual limitation that could
result in the expiration of some net operating losses prior to utilization.
F-15
Oragenics, Inc.
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES
The Company leased its laboratory and office space, as well certain equipment,
under a 12-month cancelable operating lease with annual renewal options. Total
rent expense under this lease was $47,376 and $33,583 for the years ended
December 31, 2004 and 2003, respectively. The lease agreement ended in November
2004 when the Company moved into its new facility that is being leased from a
real estate developer for a term of five years subject to renewal provisions.
This operating lease agreement required the Company to pay a deposit of $6,400
and provides for monthly lease payments of $6,400, exclusive of utilities,
insurance, sales taxes and real estate taxes. Total rent expense under this
lease was $10,184 for the year ended December 31, 2004.
In addition, the Company has entered into certain operating leases for office
equipment. Future annual minimum payments under all noncancelable operating
leases are approximately as follows:
Year ended:
2005 $ 84,200
2006 86,600
2007 88,600
2008 87,800
2009 82,600
Thereafter --
----------
$ 429,800
==========
10. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The quarterly interim financial information shown below has been prepared by the
Company's management and is unaudited. It should be read in conjunction with the
audited financial statements appearing herein.
2004
--------------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- -----------
Revenue ................... $ -- $ 44,235 $ 118,642 $ 33,333
Total operating expenses .. 544,461 723,202 745,561 1,307,738
Net loss .................. (537,440) (667,662) (613,770) (1,259,016)
Loss per share:
Basic and Diluted ......... $ 0.04 $ 0.05 $ 0.04 $ 0.09
2003
--------------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- -----------
Total operating expenses .. $ 207,899 $ 432,440 $ 398,426 $ 629,186
Net loss .................. (211,442) (437,319) (396,722) (627,471)
Loss per share:
Basic and Diluted ......... $ 0.02 $ 0.05 $ 0.03 $ 0.05
F-16
Oragenics, Inc.
Notes to Financial Statements (continued)
11. SUBSEQUENT EVENT
On February 24, 2005, the Company entered into a Business Loan Agreement with a
bank that will fund approximately $615,000 of laboratory equipment purchases.
The loan has a term of 37 months with the first month payment of interest only
and the remaining monthly payments of principal and interest of approximately
$18,900 per month. Interest will be calculated at the prime rate as published in
the Wall Street Journal (currently 5.5%) plus 1.00%. Interest can never be below
5.75% or above 17.5%. The loan is collateralized by the equipment being
purchased, as well as all equipment currently owned by the Company.
F-17
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 11, 2005
ORAGENICS, INC.
(Registrant)
By: /s/ Mento A. Soponis
----------------------------------------
Mento A. Soponis, Chief Executive
Officer and President
By: /s/ Paul A. Hassie
----------------------------------------
Paul A. Hassie, Chief Financial Officer,
Secretary and Treasurer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mento A. Soponis Chief Executive Officer March 11, 2005
- ------------------------- and President
Mento A. Soponis
/s/ Paul A. Hassie Chief Financial Officer March 11, 2005
- -------------------------
Paul A. Hassie
/s David J. Gury Chairman March 11, 2005
- -------------------------
David J. Gury
/s/ Brian Anderson Director March 11, 2005
- -------------------------
Brian Anderson
/s/ Jeffrey D. Hillman Director March 11, 2005
- -------------------------
Jeffrey D. Hillman
/s/ Robert T. Zahradnik Director March 11, 2005
- -------------------------
Robert T. Zahradnik
57
EXHIBIT INDEX
INCORPORATED BY REFERENCE ----------- -------------- ---------- -----------
EXHIBIT FILING FILED
NUMBER EXHIBIT DESCRIPTION FORM FILE NO EXHIBIT DATE HEREWITH
- ------ ------------------- ---- ------- ------- ---- --------
3.1 Amended and Restated Articles of SB-2 333-100568 3.3 10/16/02
Incorporation
3.2 Bylaws SB-2 333-100568 3.2 10/16/02
4.1 Specimen Stock Certificate SB-2 333-100568 4.1 10/16/02
4.2 Specimen initial public offering SB-2 333-100568 4.4 10/16/02
underwriter's warrant certificate
4.3 Form of private placement warrant X
4.4 Form of private placement Subscription X
Agreement (including registration rights)
10.1 License Agreement between the Company and SB-2 333-100568 10.1 10/16/02
the University of Florida Research
Foundation, Inc. effective August 4, 1998
for Replacement Therapy for Dental Caries
(the "Replacement Therapy License
Agreement")
10.2 First Amendment to Replacement Therapy SB-2 333-100568 10.2 10/16/02
License Agreement dated September 15, 2000
10.3 Second Amendment to Replacement Therapy SB-2 333-100568 10.3 10/16/02
License Agreement dated June 2002
10.4 Third Amendment to Replacement Therapy SB-2 333-100568 10.4 10/16/02
License Agreement dated September 25, 2002
10.5 Fourth Amendment to Replacement Therapy SB-2/A-3 333-100568 10.36 4/9/03
License Agreement and Mutacin 1140 License
Agreement dated March 2003
10.6 License Agreement between the Company and SB-2 333-100568 10.5 10/16/02
the University of Florida Research
Foundation, Inc. effective June 22, 2000
(the "Mutacin 1140 License Agreement")
10.7 First Amendment to the Mutacin 1140 License SB-2 333-100568 10.6 10/16/02
Agreement dated September 15, 2000
10.8 Second Amendment to the Mutacin 1140 SB-2 333-100568 10.7 10/16/02
License Agreement dated June 10, 2002
10.9 Third Amendment to the Mutacin 1140 License
Agreement dated September 25, 2002
10.10 Equity Agreement between the Company and SB-2/A-2 333-100568 10.8 2/10/03
the University of Florida Research
Foundation dated August 4, 1998 (including
registration rights)
10.11 Escrow Agreement between our principals, SB-2 333-100568 99.10 10/16/02
ourselves and Computershare Trust Company
EXHIBIT FILING FILED
NUMBER EXHIBIT DESCRIPTION FORM FILE NO EXHIBIT DATE HEREWITH
- ------ ------------------- ---- ------- ------- ---- --------
10.12 Value Escrow Agreement between ourselves, SB-2 333-100568 99.11 10/16/02
the University of Florida Research
Foundation, Inc. and Computershare Trust
Company
10.20+ 2002 Stock Option and Incentive Plan SB-2 333-100568 99.16 10/16/02
10.21+ Amendment No. 1 to the 2002 Stock Option DEF 14A 333-100568 App. E 4/22/04
and Incentive Plan
10.22 Warrant Agent and Registrar Agreement SB-2/A-1 333-100568 10.28 12/23/02
between the Company and Computershare Trust
Company
10.31 Proprietary Information Agreements between SB-2 333-100568 99.23 10/16/02
ourselves and Brian Anderson, Brian
McAlister, Robert Zahradnik, Howard
Kuramitsu, and Steven Projan
10.32* Proprietary Information and Invention SB-2 333-100568 99.4 10/16/02
Agreement between the Company and Jeffrey
D. Hillman
10.42* Employment agreement of Mento Soponis 10-KSB 000-50614 10.42 3/17/04
10.43* Employment agreement of Jeffrey Hillman 10-KSB 000-50614 10.43 3/17/04
10.44* Employment agreement of Paul Hassie 10-KSB 000-50614 10.44 3/17/04
10.45 Memorandum of Agreement - License Agreement 10-QSB 000-50614 10.1 8/11/04
between iviGene Corporation and the Company
10.46 Lease Agreement between the Company and X
Hawley-Wiggins LLC dated January 28, 2004;
Subordination Agreement dated April 14,
2004; and First Amendment dated November
15, 2004
23.1 Consent of Ernst & Young LLP X
31.1 Rule 13a-14(a)/15d-14(a) Certification X
31.2 Rule 13a-14(a)/15d-14(a) Certification X
32.1 Section 1350 Certifications X
32.2 Section 1350 Certifications X
- ---------
* management contract
+ compensatory plan or arrangement