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(f) a research and development agreement.
These agreements are in the early stages of development and no final
determination as to structure has been made. Accordingly, we have not determined
Core Biotech's capitalization, pro forma financial information, management or
inter-company transactions. We believe that, except for the initial
capitalization of Core Biotech, the transfer of any other assets and liabilities
would have no significant affect on our financial position. The initial
capitalization could be up to $5,000,000 and could negatively effect the amount
of cash we have at the time of the spin-off. The results of operations for Core
Biotech were not significant for the year ended December 31, 1998.
Recent Developments
Chronic Fatigue Syndrome was given official recognition by the U.S.
social Security Administration rendering affected patients eligible for
disability benefits. In July 1999, the U.S. Centers for Disease Control
reconfirmed its research commitment to Chronic Fatigue following an audit by the
U.S. Government Accounting Office. Also, a competitor of ours, Shire
Pharmaceuticals announced that its drug galartamine failed a Phase II test in
the treatment of Chronic Fatigue.
Litigation
On September 14, 1998, VMW, Inc. filed a complaint against us in the
United States District Court, Southern District of New York. The complaint
alleges that we failed to fulfill our financial obligations to VMW, Inc. with
respect to a certain letter agreement pertaining to marketing services rendered.
The parties have entered into a settlement agreement dated May 7, 1999. The
settlement does not have a material effect on our statement of operations or
financial position.
Ell and Co., and the Northern Trust Company, as Trustee of the AT&T
Master Pension Trust filed a complaint against us in the Court of Chancery of
the State of Delaware in and for New Castle County on September 23, 1998. This
complaint alleges that we breached our contractual obligations as set forth in
our Certificate of Powers, Designations, Preferences and Rights of the Series E
Convertible Stock. The plaintiff seeks to enforce its rights to convert 1,500
shares of Series E Preferred Stock into 750,000 shares of freely traded common
stock and to recover damages for its inability to convert the preferred stock
when it requested to do so. We do not believe that the complaint will have a
material effect on our results of operations or our financial position.
Although we maintain that the 1,500 shares of Series E Preferred Stock
had been properly redeemed and, therefore, the plaintiff was not contractually
able to effect a proper conversion into common shares, we agreed, in December
1998, to convert the plaintiff's preferred stock into common stock. Currently,
the claim is still in litigation.
We filed a complaint against Manual P. Asensio, Asensio and Company,
Inc. and others in the United States District Court for the Eastern District of
Pennsylvania on September
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30, 1998. We allege the unlawful manipulation and short selling by defendants of
our common stock on the American Stock Exchange on or about September 15, 1998
through the present. We allege, among other things, that the defendants
distributed materially false information concerning us to the public, thereby
damaging us and our shareholder equity.
Certain of the defendants have entered motions to dismiss all or part
of the case. On March 12, 1999, the Court issued a memorandum decision
dismissing four of the six counts on jurisdictional grounds. Currently, the case
is in the discovery phase.
The Offering
Selling Stockholder Agreement
Certain selling stockholders have entered into an agreement with us
whereby, for a period of one year from the date of this prospectus, we, or an
agent designated by us, may purchase and sell that selling stockholder's
warrants and the shares of common stock underlying their warrants on a "best
efforts" basis at prices set by that selling stockholder. The purchase price set
by each selling stockholder shall be discounted 10%, representing the commission
to the agent so designated by us. We will not receive any commission on any
sales by us of the selling stockholders' securities.
After the expiration of the one year period, the selling stockholders
may sell their securities from time to time in one or more transactions on the
American Stock Exchange, in foreign markets, special offerings, exchange
distributions, secondary distributions, negotiated transactions, or a
combination of these transactions.
We will not receive any of the proceeds from the sale by any selling
stockholder of the warrants or the underlying common stock.
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Use of Proceeds
We will not receive proceeds from the sale of selling stockholders'
securities. We will receive proceeds from the sale of the 265,854 shares of
common stock we own and we will receive approximately $6,900,000 when the
warrants are exercised, assuming all of the warrants are exercised. We intend to
use these proceeds for general corporate purposes. Pending use of the proceeds,
they will be invested in short term, interest bearing securities or money market
funds.
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Risk Factors
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in shares of common
stock. This prospectus contains forward-looking statements which can be
identified by the use of words such as "intend," "anticipate," "believe,"
"estimate," "project," or "expect" or other similar statements. These statements
discuss future expectations, contain projections of results of operations or of
financial condition, or state other "forward-looking" information. When
considering these statements, you should keep in mind the risk factors described
below and other cautionary statements in this prospectus. The risk factors
described below and other factors noted throughout this prospectus, including
certain risks and uncertainties, could cause our actual results to differ
materially from those contained in any forward-looking statement.
1. We may continue to incur substantial losses and our future
profitability is uncertain.
We began operations in 1966 and last reported net profit from 1985
through 1987. Since 1987, we have incurred substantial operating losses and as
of June 30, 1999 our accumulated deficit was approximately $67,170,352. We have
not yet generated significant revenues from our products and may incur
substantial and increased losses in the future. We cannot assure you that we
will ever achieve significant revenues from product sales or become profitable.
We require and will continue to require the commitment of substantial resources
to develop our products. In addition, substantial funding may be required to
spin-off Core Biotech Corp. We cannot assure you that our product development
efforts will be successfully completed or that required regulatory approvals
will be obtained or that any products will be manufactured and marketed
successfully, or profitability.
2. We do not expect to be profitable unless we receive final regulatory
approval for Ampligen and it is successfully commercialized.
Our principal development efforts are currently focused on Ampligen
which has not been approved for commercial use in the U.S. or elsewhere. We do
not expect to be profitable unless we receive final regulatory approval and can
successfully commercialize Ampligen or one of our other products. Our products,
including Ampligen, are subject to extensive regulation by numerous governmental
authorities in the U.S. and other countries, including, but not limited to, the
Food and Drug Administration in the U.S., the Health Protection Branch of
Canada's Department of Health and Welfare, a federal regulatory agency in
Canada, and the European Medical Evaluation Agency in Europe. Obtaining
regulatory approvals is a rigorous and lengthy process and requires the
expenditure of substantial resources. In order to obtain final regulatory
approval of a new drug, we must demonstrate to the satisfaction of the
regulatory agency that the product is safe and effective for its intended uses
and that we are capable of manufacturing the product to the applicable
regulatory standards. We require
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