sec 10-KSB $, KUBOTA!
On July 9, 1998, the company entered into a letter agreement with R.P. Scherer
North America (followed by a definitive contract in October 1998) that
established Scherer as the exclusive marketing and distribution agent for the
BioFIT(TM) certification program in the dietary supplement and OTC market
segments in North America. The agreement provided for several different methods
of compensation to Paracelsian. First, Paracelsian will receive $50,000 in
development fees for each of the first five customers accepting the program. The
initial payment under this section was received in January 1999 and the balance
of the $250,000 is expected to be received not later than June 30, 1999. In
addition, Paracelsian will receive an additional $50,000 payment per product for
the development of five additional products beyond the original five provided
under the agreement. These payments are to be made upon acceptance of the new
products by at least two of Scherer's customers for the BioFIT products. The
first portion of the first payment has already been received and the balance of
the $250,000 is payable by the end of calendar year 1999. Scherer also agreed to
pay Paracelsian $15,000 for the BioFIT Certification of a second set of five
products. These payments, totaling $75,000, are expected by the end of calendar
year 1999 as well. In addition, Scherer agreed to pay Paracelsian $350 for the
certification of each production batch of each BioFIT product produced under the
program. Payments for batch to batch certification are expected to commence by
August 1999. Finally, Scherer agreed to pay Paracelsian a royalty of 2% of
Scherer's net sales of BioFIT products until Paracelsian receives patent
approval of its process. Upon patent approval, the royalty rate increases to 3%
of Scherer's net sales. In the initial 18 months following initial shipment,
Scherer must pay a minimum of $400,000 in royalties to Paracelsian in order to
maintain its exclusivity of the BioFIT Program. After this initial period,
Scherer must guarantee Paracelsian a minimum of $700,000 in royalty payments in
the subsequent 12 month period to maintain exclusivity. There is a 3% escalation
required each year over royalties paid in the prior 12 month period for Scherer
to maintain ongoing exclusivity. Payments under this section of the agreement
are expected to commence in the third quarter of calendar year 1999.
On March 1, 1999, Paracelsian entered into a second agreement with R.P. Scherer
Limited of Swindon, England under which Paracelsian grants exclusive
distribution rights to Scherer for the BioFIT program in Europe, Scandinavia,
the Middle East and Africa. Under the agreement, Scherer agrees to pay
Paracelsian a total of $30,000 for each of the first five products offered, said
payment to occur on the basis of $20,000 per product upon submission for
regulatory approval and $10,000 upon receipt of approval for each product.
Scherer then has an exclusivity period of 24 months for each product from the
date of regulatory approval. Scherer agrees to provide a schedule for regulatory
submission with initial submissions expected to be filed by June 1999. Revenue
of $100,000 is expected under this section of the agreement in 1999. Within six
months of the expiration of exclusivity for the first product, the parties agree
to negotiate a further agreement which is to include revenue guarantees to
Paracelsian. Scherer also agrees to pay a $25,000 development fee to Paracelsian
for each product not developed concurrently with R.P. Scherer North America.
Paracelsian expects payment of $75,000 in calendar year 1999 for such
development fees. Scherer paid Paracelsian $50,000 on March 29, 1999
representing an advance against these future royalty payments. Scherer will also
pay Paracelsian $15,000 for each certification not already provided under the
North American Agreement and $350.00 for the certification of each batch of
product produced that is not certified under the North American Agreement.
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Finally, Paracelsian is in discussions with the R.P. Scherer Division serving
the Pacific Rim, Australia and New Zealand, and the Division serving South
America. Agreements similar to those in North America and Europe are anticipated
not later than by the end of calendar year 1999.
In addition to the Scherer Agreement, Paracelsian has begun the initial phase of
a collaboration with Kubota Corporation of Osaka, Japan to further develop and
implement the use of Paracelsian's patented dioxin testing system know as the Ah
IMMUNOASSAY(TM). Under this collaboration, Paracelsian will develop an advanced
sample preparation system which will facilitate the widespread use of the assay
to monitor the levels of dioxin in the smoke and ash of municipal waste
incinerators operated by Kubota and others. An initial payment of $38,000 was
received by Paracelsian in March 1999. Payments for the balance of the clean up
development program are expected to be approximately $300,000 and are
anticipated to be received by September 1999. Paracelsian and Kubota have begun
negotiations for a more comprehensive agreement under which Kubota would pay
Paracelsian a license fee for the use and distribution of the Ah Immunoassay.
Under this arrangement, Paracelsian would receive both an initial license fee
and an ongoing payment for each use or sale of the assay, with a minimum annual
payment required under the agreement to maintain exclusivity.
Paracelsian's management is confident that all payments under the Scherer
agreements will be made on a timely basis and is confident that the
implementation strategy developed collaboratively by the two companies will
result in widespread acceptance in the marketplace for BioFIT products in all
areas into which they are introduced. In addition, Paracelsian is confident that
the Kubota agreement will provide substantial revenues in 1999 and continuing in
2000. |
