-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
KWG5irGRmRQeRhamOVBzHDqVf104QkX9rGQa7pAm+8tW1D/TihhhEJ8eHEfUSHXo
yTMyuWCsnEl10HMzdaHajQ==
0001104659-05-018062.txt : 20050426
0001104659-05-018062.hdr.sgml : 20050426
20050426121819
ACCESSION NUMBER: 0001104659-05-018062
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 14
CONFORMED PERIOD OF REPORT: 20041231
FILED AS OF DATE: 20050426
DATE AS OF CHANGE: 20050426
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INTERLEUKIN GENETICS INC
CENTRAL INDEX KEY: 0001037649
STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835]
IRS NUMBER: 943123681
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-23413
FILM NUMBER: 05772135
BUSINESS ADDRESS:
STREET 1: 135 BEAVER ST
CITY: WATHAM
STATE: MA
ZIP: 02452
BUSINESS PHONE: 1-781-398-0700
MAIL ADDRESS:
STREET 1: 135 BEAVER ST
CITY: WATHAM
STATE: MA
ZIP: 02452
FORMER COMPANY:
FORMER CONFORMED NAME: MEDICAL SCIENCE SYSTEMS INC
DATE OF NAME CHANGE: 19971003
10-K
1
a05-1938_210k.htm
10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
For
the fiscal year ended December 31, 2004
Commission
File Number: 0-23413
INTERLEUKIN GENETICS, INC.
(Name of Registrant in its
Charter)
Delaware
|
|
94-3123681
|
(State or other
jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
135 Beaver Street, Waltham, MA
|
|
02452
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
Registrants Telephone
Number: (781) 398-0700
Securities registered
pursuant to Section 12(b) of the Exchange Act:
Common Stock, $0.001 par value per share
|
|
Boston
Stock Exchange
|
Securities registered
pursuant to Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value per share
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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. YES x NO o
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained in this form and
will not be contained, to the best of the Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K x.
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o.
The aggregate market value of the registrants voting
and non-voting common stock held by non-affiliates of the registrant (without
admitting that any person whose shares are not included in such calculation is
an affiliate) computed by reference to the price at which the common stock was
last sold as of the last business day of the registrants most recently
completed second fiscal quarter was $101,873,276.
As of April 19, 2005, there were 23,636,527
shares of the Registrants Common Stock and 5,000,000 shares of the Registrants
Series A Preferred Stock, issued and outstanding.
Documents
Incorporated By Reference
Portions of the Registrants
Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders to be
held on or about June 21, 2005, are incorporated by reference in Part III
hereof.
Forward Looking Statements
This report on Form 10-K and the documents
incorporated by reference within this document contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E
of the Securities Exchange Act. Statements contained in this report that are
not statements of historical fact may be deemed to be forward-looking
statements. Words or phrases such as will likely result, expect, will
continue, anticipate, estimate, intend, plan, project, outlook, or
similar expressions are intended to identify forward-looking statements. Forward-looking
statements address or may address the following subjects:
· The
sufficiency of our current cash resources, together with additional research
agreements, anticipated revenue from product launches and other arrangements to
fund operations through mid-2006;
· Our
expectation that we will receive at least $5.0 million in funding over the twenty-four
month period ending March 2007 from an affiliate of Alticor under the
terms of various research agreements with this affiliate;
· Our
expectation that we will receive royalty payments and/or genetic risk
assessment test processing revenue under the terms of a License Agreement and a
Distribution Agreement with affiliates of Alticor;
· Our
expectation that we may sign additional research agreements with affiliates of
Alticor, or other third parties;
· Our
expectation of the benefits that will result from the ongoing research programs
that outside parties are conducting on our behalf;
· Any
expectation we may have regarding the success of developing products, the
timing of releasing products for sale or the success of these products when
they are released;
· Any
expectation we may have of attracting business partners to assist in
developing, marketing or distribution of our products;
· Any
expectation that certain healthcare related trends will emerge or continue that
will support our business model;
· Our
expectation that our total research and development costs will be between $4.0 million
and $5.0 million for the year ended December 31, 2005;
· Our
expectation that we might derive benefit from our patented intellectual
property; and
· Our
expectation that we will continue to experience losses until our genetic risk
assessment testing revenue grows substantially from current levels.
Actual results may
vary materially from those expressed in forward-looking statements. Factors
that could cause actual results to differ from expectations include but are not
limited to; risks related to market acceptance of genetic risk assessment tests
in general and our products in particular, risks related to technology and
product obsolescence, delays in development of products, dependence on third
parties, our ability to fund operations through mid-2006, competitive
risks and those risks set forth within the section titled Certain Factors That
May Affect Future Results of Operations or the Market for Our Common Stock
beginning on page 19 within this report. We cannot be certain that our
results will not be adversely affected by one or more of these factors or by
other factors not currently anticipated. All information set forth in this Form 10-K
is as of the date of this Form 10-K. Unless required by law we
accept no responsibility to update this information.
2
PART I
Item 1. Business
Overview
Interleukin
Genetics, Inc. is a Delaware corporation. We are a personalized healthcare
company focused on the role that genetically determined variation in the
inflammatory response has on health and disease. Our mission is to develop
tests and products that can help individuals improve and maintain their health
through preventive measures. We hope to achieve our objective by developing:
· genetic
tests;
· preventive
products for those individuals at risk; and
· therapeutic
products that are personalized based upon an individuals genetic makeup.
We hope to establish a leadership position in the
personalized healthcare sector. We believe that by identifying individuals at
risk for certain diseases and combining this knowledge with personalized
interventions, we can help individuals improve their health outcomes. We have a
growing portfolio of patents covering the influence of certain gene variations
on risk for a number of common chronic diseases and conditions.
We believe that one of the great challenges
confronting medicine today is to find the key to understanding why some people
are more prone than others to developing serious chronic diseases and why some
people respond to treatments for those diseases differently than others. Until
doctors are able to understand the underlying causes for such variability, the
practice of medicine will remain largely constrained to the current approach of
prescribing therapies based on broad, sweeping recommendations in which very
different individuals receive the same treatment. This approach to medicine is
quite impersonal and often ineffective.
Until now, scientific study of chronic diseases has
largely focused on identifying factors that cause a disease. Common examples
of such factors include cholesterol in the case of heart disease, bacteria of
the mouth in the case of periodontal disease and reduced estrogen levels in the
case of osteoporosis. However, the mere presence of these initiating factors
does not necessarily mean a person will develop a disease. For example,
everyone with a cholesterol level considered high does not develop heart
disease, nor does everyone with a normal cholesterol level avoid heart disease.
Rather, the common diseases as we know them only develop when our bodies
respond to the initiating factors in a certain way. We believe that
personalized health profiles should replace the impersonal reliance on
generalized markers of health status.
In March 2003, we entered into a broad strategic
alliance with several affiliates of the Alticor Inc. family of companies to
develop and market personalized nutritional and skin care products. For the
purpose of clarity, in this document we will refer to Alticor and all of its
wholly-owned subsidiaries, including Access Business Group, Pyxis Innovations
and Quixtar as Alticor. The alliance utilizes our intellectual property and
expertise in genomics to develop personalized consumer products. Alticor has a
long history of manufacturing and distributing high quality nutritional supplements
and skin care products to a worldwide market.
We are devoting most of our resources to the support
of the strategic collaboration with Alticor which includes the development of
our genetic risk assessment tests to be sold in combination with Alticors
products. A portion of our resources is also devoted to the development of a
new product for the periodontal market. Thus far, our revenue has consisted
primarily of research payments from Alticor and minimal royalties from our
periodontitis genetic risk assessment test known as PSTÒ.
We expect to continue incurring losses as we continue to develop our new tests
and products.
4
The tremendous expansion
of our understanding of the human genome will change the face of healthcare,
including approaches to prevention and treatment of diseases. The ability to
obtain detailed knowledge of an individuals genetic information, the recent
developments in the understanding of inflammation, and an aging baby boomer
generation have converged to create an opportunity for us to leverage our core
technology into a new approach in healthcare called personalized wellness.
Inflammation
One of the many benefits
of the Human Genome Project is our new understanding of the role of single
nucleotide polymorphisms (SNPs). Once used as a tool to help scientists
decipher the human genome, SNP analysis now is the principal instrument used to
dig much more deeply into the relevance of genetic variations for the benefit
of human health. SNPs have been used to establish correlation between the
presence or absence and risk or susceptibility to certain disease conditions. A
variation in a common SNP may cause a gene to make a variant protein leading to
a discernible physiological impact. We have focused on the SNP variations associated
with inflammation and have conducted clinical studies involving over 20,000
individuals. Working with the University of Sheffield (Sheffield) in the United
Kingdom, we have identified the function of several SNP variations that exert
important influences on the bodys inflammatory response.
Inflammation is the overt
expression of the bodys protective mechanism in response to a challenge. Over
the last dozen years, understanding of the role of inflammation in several
diseases has increased. It is now accepted that many chronic inflammatory
diseases begin with a challenge to the tissues of the body and that the
inflammatory response system of an individual mediates the clinical
manifestation of the disease. The diagram below reflects some of the diseases
that are thought to be significantly influenced by inflammation. It is now
known that SNP variations in the genes that influence the inflammatory process
can, in fact, predict a persons risk/trajectory of a disease or a persons
response to certain medications.
![](g19382daimage002.gif)
Inflammation is the first organized response to any
injurious challenge to the body, such as a bacterial infection. It is a
well-defined process that involves the migration and activation of leukocytes
from the
5
blood to the site of
challenge. The objective of inflammation is to localize and destroy the
deleterious agent. If the deleterious agent cannot be cleared, the inflammation
becomes chronic.
There are classic inflammatory diseases, such as
rheumatoid arthritis, but in recent years inflammation has been found to
underlie several major diseases. For example, it is now known that inflammation
is a major component of the process that leads to acute heart attacks.
If an individual has a
strong inflammatory response, he may be more successful in clearing a bacterial
infection than an individual with a less robust response. However, an
individual with a strong response may be at increased risk for a more severe
course in one or more of the chronic diseases of mid to later life, such as
cardiovascular disease, osteoporosis, and Alzheimers disease.
Core Technology
Our intellectual property is highly focused on the
discoveries that link genetic variation in key inflammation genes to risk for
disease. Since the IL-1 and TNFa
genes appear to be two of the strongest control points for the development and
severity of inflammation, we have focused our efforts on them.
We have patents issued on single SNPs and SNP patterns
in the IL-1 gene cluster as they relate to use for identifying
individuals on the rapid path to chronic disease complications. We believe
these patents are controlling relative to IL-1 SNP patterns that would be
used for genetic risk assessment tests. We also have issued claims and filed
applications that focus on the use of IL-1 and TNFa
SNPs to screen for nutritional compounds that block inflammatory mechanisms in
individuals with certain genetic patterns.
Although the biology of inflammation is complex, among
the first genes activated with any injurious challenge are the genes for IL-1
and TNFa. These chemicals
then activate multiple biochemical cascades that lead to the cellular and
molecular mechanisms that constitute inflammation. In the early 1990s we
developed innovative computer modeling approaches to explore how complex
biological systems were regulated. This led to the issuance of several patents.
Using computer models, and clinical and laboratory data, we determined that IL-1
and TNFa were at critical biological leverage points, and
we initiated research programs to determine if variations in expression of IL-1
and TNFa were clinically important. Our work in this area
was sufficiently early to allow us to acquire a patent portfolio with broad
coverage for the use of variations in IL-1 genes for predictive medicine,
selection of appropriate therapeutics, and development of preventive and
therapeutic agents.
In the early 1990s, at the same time that we were
beginning to focus on the importance of IL-1, Dr. Gordon Duff in the
United Kingdom identified the first SNPs in the IL-1 genes, and he and
other investigators demonstrated that individuals with some of those variations
produced higher levels of IL-1.
In 1993, we initiated research collaborations with Dr. Duff,
and in 1994, we initiated a joint venture agreement with him and Sheffield to
investigate and patent the clinical use of variations in the genes that control
inflammation.
Groups of IL-1 SNPs are often inherited together
as patterns called haplotypes. We have a patent issued on haplotypes in the IL-1
gene cluster and their biological and clinical significance.
Studies by us and
others have now shown that individuals who have certain IL-1 gene
variations or patterns of variations:
· tend
to have increased levels of IL-1; and
· tend
to have increased levels of other inflammatory mediators that are downstream of
IL-1.
Individuals with a particular IL-1 genotype have
significantly higher levels of IL-1 and other inflammatory mediators. Individuals
with another specific genotype pattern tend to have lower levels of
inflammatory mediators. It is also important to note that the IL-1 gene
variations, on which we are
6
focused, are highly
prevalent in the population, with 8-10% of the Caucasian population being
homozygous (i.e., the individual has two copies of the variant) for the less
frequent variant.
We have laboratory
and human research systems for screening drug and nutrient compounds for their
differential effects on people with different genetic variations. Patent
applications have been filed on this technology. These systems are also used
for discovering biomarkers, i.e., biological chemicals that are indicative of
a disease process. The goals of our Functional Genetics screening systems and
biomarker programs are as follows:
· create
IL-1 genotype/haplotype specific human cell lines for high throughput
screening of nutritional products designed for the modulation of the
inflammatory response; and
· identify novel and
proprietary biomarkers that allow one to monitor nutrient effects on the
inflammatory response in individuals with certain genetic patterns.
Genetics of weight
gain and loss
We have recently expanded
our genetics intellectual property to include gene variations, or genotypes, that
regulate one important mechanism involved in fat metabolism. When an individual
consumes more calories than they burn, the excess energy is stored in fat cells
as lipid droplets. One of the key chemicals that regulates the mobilization of
fat from the lipid droplet to be burned as energy is called perilipin.
Investigators at Tufts University Medical School and Tufts Human Nutrition and
Research Center have identified variations in the perilipin gene that appear to
regulate fat metabolism and body weight. Studies have been completed on several
thousand individuals that show that women with one specific perilipin genotype
weigh an average of 22 pounds more than women with another perilipin genotype.
The first paper on these findings was published in 2004 in Clinical
Genetics by Qi, Corella, Greenberg, Ordovas, and co-workers
entitled: Genetic variation at the perilipin (PLIN) locus is associated with
obesity-related phenotypes in White women. We have licensed all rights to the
use of this genetic test for weight management and for the use of this genetic
information to develop nutritional products to facilitate weight management in
individuals who have certain perilipin gene variations. Additional studies are
in progress.
Biomarker discovery
and development systems
In addition to determining which gene variations
assess which individuals may be more likely to develop earlier and more severe
disease, we are discovering the specific SNPs that actually control the biology
to cause the disease differences. These functional SNPs guide the
identification of novel biomarkers for monitoring an individuals disease
status before the individual develops symptoms of disease or to monitor
response to preventive or therapeutic agents to control the disease
development. In addition, the functional SNPs provide targets for refining
drug and nutrient benefits on a specific individual, also known as pharmacogenetics
or nutrigenetics.
In the screening systems
described above, we are working to identify which biomarkers are influenced by
the differences in IL-1 functional SNPs. This information will be used to
then screen nutritional and drug compounds that have the potential to modify
the response to health challenges in people with a specific genetic variation.
Business Strategy
We are in the
business of personalized healthcare. We are currently developing tests and plan
to develop products that can help individuals improve and maintain their health
through preventive measures. As highlighted in the diagram below, we plan to
develop the following types of products:
· genetic
risk assessment tests;
· preventive
nutritional products (foods and nutritionals developed to prevent disease
onset); and
7
· personalized
therapeutics that treat an individual with existing disease and use genetic
information to expedite drug development and to target the drug use to
individuals most likely to respond favorably.
We will use our
intellectual property and expertise to develop products or acquire additional
intellectual property that can be leveraged, through collaboration with
partners, to address unmet market needs.
Product
Development Approach
![](g19382daimage004.gif)
As reflected in the
diagram below, our current commercial strategy is to partner with companies
with formulation and manufacturing capabilities and those that have sales and
marketing capabilities to distribute our products. We currently have no plans
to develop our own sales force. The first of these strategic partnerships is the
partnership we have with Alticor. The details of this partnership are described
within the section titled Strategic Alliances and Collaborations beginning on
page 14.
Critical Components to Our Commercialization
Strategy
![](g19382daimage006.gif)
Our revenue model consists
of: 1) charging a fee for processing a
genetic risk assessment test and generating a personalized risk assessment
report; and 2) receiving a royalty from sales of products developed with a partner,
or profit sharing from product sales. Furthermore, we plan to collaborate with
other companies in research and development. In these collaborations, we expect
to receive a certain
8
amount
of research funding from the partner covering labor, material, overhead and a
small amount of profit.
Products
Product Available for Sale
Our first genetic risk assessment test, PSTÒ,
identifies patients at risk for rapid progression of periodontitis.
Periodontitis is a bacterially induced chronic inflammation that destroys the
collagen fibers and bone that surround and support the teeth. Untreated,
periodontitis will eventually result in tooth loss. Individuals who test
positive for this genotype will normally be placed on a more frequent recall
program with their dental provider, and would be candidates for more aggressive
treatment with available therapeutics.
PSTÒ
was the result of the discovery of an association between specific IL-1
SNPs and severe periodontal disease. IL-1 is a cytokine protein that is
known to play a role in inflammation and the expression of periodontal disease.
Patients with this specific genotype have been found to progress more rapidly
towards severe periodontal disease. It has also been determined that cells with
this genotype produce as much as four times more IL-1 in response to the
same bacterial challenge. Prevention or therapeutic intervention aimed at
reducing the bacterial challenge should decrease the stimulus for IL-1
production and could thereby protect the patient against the potentially
destructive effects of this genotype. Based on clinical trials we have
conducted, we estimate that approximately 30% of the Caucasian population will
test positive for this genotype.
We developed PSTÒ
under the terms of a project agreement with Sheffield. In November 1997, a
patent related to the detection of genetic predisposition to periodontal
disease was issued to us. We initiated commercial sales of PSTÒ
in October 1997 and the revenue derived from it to date has been minimal. We
are currently marketing PSTÒ, through various
distributors in the U.S. and Europe. We are currently modifying PSTÒ
and planning to replace it with a new product that could be marketed together
with a preventive nutritional product for periodontal disease.
Products in Development
We plan to develop
three categories of products:
1. Genetic Risk
Assessment Tests those that combine a genetic test with other
disease-specific risk factors and produce a disease-specific personalized risk
assessment. The information gathered from the genetic test and other sources is
processed through a proprietary disease-specific algorithm to produce a
personalized report. These products will be combined with a complementary
product or service that provides a preventive or therapeutic solution to the
problem. A strategic partner may provide these complementary products and
services. Revenue from these products will be in the form of a processing fee
charged to the strategic partner together with a minimal royalty from the
complementary product sales.
2. Preventive
Nutritional Products foods or nutritional products that are developed under a
medical food regulatory pathway to assist in the therapy and management of a
specific disease. These products will be sold through a strategic alliance with
a distribution partner directly to physicians and medical professionals. Revenue
from these products will either be a royalty on product sales or a profit
sharing resulting from product sales.
3. Personalized
Therapeutics - compounds effective in the treatment of persons with a specific
genetic variation that determines their response to the drug. These compounds
may come from several sources, including, (i) off-patent drugs that can be
re-patented as a treatment for a person who has a specific genotype disease, (ii) drugs
that were discontinued during development but
9
shown to be safe in humans
which might gain approval if we were able to identify the specific patients for
whom they will work, and (iii) drugs being developed, or recently launched
for a specific indication that could also be developed for a different disease.
Revenue from these products will consist of a processing fee for the test and
royalties and milestone payments from product sales.
As of December 31,
2004, the following products were in our development pipeline:
Genetic Risk Assessment Tests
Cardiovascular
Products (CUG-001, CJG-001, CKG-001)
The causes and mechanisms of atherosclerotic
cardiovascular disease (CVD) are complex and not completely understood.
Consequently, prediction, diagnosis and treatment of coronary artery disease
has focused on the development of a set of risk factors that help to identify
those individuals who are most at risk.
Medical treatment and nutritional
counseling focuses on modulation of any recognized risk factors that can be
modified. The traditional CVD risk
factors, such as high cholesterol, diabetes and smoking, account for slightly
over half of first CVD events, such as heart attack. When this fact is
considered together with the enormous cost to the healthcare system of treating
all high-risk individuals with cholesterol lowering prescription drugs to
prevent CVD, it is easy to understand why there is great interest in developing
new tests to stratify individuals risk. Likewise, there is already a bewildering
array of products confronting consumers who wish to enhance their own
cardiovascular health through non-prescription dietary and nutritional
approaches. We believe the rapid explosion in knowledge about variation in the
human genome holds great promise for providing the scientific basis for tests
that can help the healthcare practitioner and consumer better understand
individual risk and make more informed decisions among medical and nutritional
products.
Chronic inflammation is now a well-recognized risk
factor in the development of CVD and for subsequent heart attacks. We have
conducted studies that demonstrate certain variations (SNPs) in the IL-1
genes contribute to a pro-inflammatory state. One pattern of IL-1 SNPs
leads to increased levels of inflammation and an increased risk of an acute
myocardial infarction (heart attack). A second pattern of IL-1 SNPs leads
to qualitative differences in inflammation and is associated with an increased
risk of clogged heart arteries that produce pain on exercise (angina). Since
the IL-1 SNPs that an individual is born with do not change, they may be
used to predict risk for specific types of heart disease and to guide
preventive therapies.
We are developing this
product to be marketed with one of Alticors personalized nutritional products.
The development of the genetic test is nearly complete, while the nutritional
product is in late-stage development. Versions of this product are being
developed for other regions outside of North America.
Osteoporosis
Products (OUG-001, OJG-001, OKG-001)
Osteoporosis, the most common age-related bone
disease, results in a decrease in the strength of the bone that leaves the
affected individual more susceptible to fractures. According to the National
Institute of Health, 10 million Americans suffer from the disease and another
34 million have low bone mass, placing them at increased risk for the disease.
Although osteoporosis occurs in both men and women, it begins earlier and
progresses more rapidly in women after menopause. The consequences of
osteoporosis can be both physical and financial. Hip and vertebral fractures,
which are commonly associated with osteoporosis, have a profound impact on
quality of life. The National Institute of Health estimated that, as of 2003,
direct financial expenditures (hospitals and nursing homes) for osteoporosis
and related fractures are estimated to be $14 billion annually.
10
We have conducted several research projects with major
osteoporosis centers. Results of these studies have indicated that a number of
small variations in the IL-1 gene cluster, referred to as polymorphisms, are
associated with a more rapid rate of bone loss and an increased risk of
vertebral fracture in post-menopausal Caucasian women. A genetic predisposition
test could identify women at elevated risk for developing osteoporosis-related
vertebral fracture early in the course of the disease and allow these women and
their physicians to practice preventive medicine. This would enable nutritional
or therapeutic intervention or recommendations for changes in lifestyle or diet
at an early stage, so that bone loss and fractures are minimized or prevented.
This product will combine the IL-1 SNPs with other
SNPs in other genes known to be associated with bone loss to form a genetic
panel. Once the development of the test panel is completed, we will begin the
development of the algorithm that will incorporate other risk factors to
generate a personalized risk assessment.
We are developing this
product to be marketed with one of Alticors personalized nutritional products.
Versions of this product are also being developed for other regions outside of
North America.
Weight Management
Product (WUG-001, WJG-001)
According to the 1999-2003
National Health and Nutrition Examination Survey (NHANES), an estimated 65% of
adults in the U.S. are overweight (Body Mass Index > 25). Overweight and obese individuals are at
increased risk for many diseases including heart disease, type II diabetes, and
some types of cancer. This product is in Clinical Phase of development. The
objective is to identify individuals with specific genetic variations that
affect how people gain and maintain weight. Another version of this product is
being developed for a country outside of North America.
Preventive Nutritional Product
Periodontal Disease
(PUN-001)
This product is in Early Research
Phase of development. It consists of nutritional ingredients that will be
formulated to be efficacious as part of the therapy and management of
periodontal disease. We expect this product to be co-developed with a marketing
partner with a presence in the dental market and with a manufacturing partner.
The product is designed for patients who currently have severe periodontal
disease or who have mild disease plus one of the risk factors for severe
disease, including smoking, diabetes, or are positive for a genetic test for
periodontal disease.
Personalized Therapeutic Products
Endometriosis
(EUT-001)
This product is also in Early
Research Phase of development. We considered multiple potential inflammatory
disease targets and chose to do preliminary studies in endometriosis. We are
doing a pre-clinical study in which we will be implanting genotype-specific
human endometrial tissues into mice and treating them with various
anti-inflammatory compounds. This study will lead us to the selection of the
appropriate therapeutic compound to advance to the next development phase.
Product
Development and Commercialization Phases
Early Research
A product is in Early
Research Phase when it is just a concept being investigated in our research
laboratory or with an academic partner. The experiments being conducted are
usually in vitro using our
genotype-specific cell lines. The experiments may also be in vivo using our Human Test System at
Boston
11
University
or the University of Arkansas. The results of these investigative experiments
will determine whether or not the product proceeds to the next phase.
Clinical
Development
As an internal procedural
standard, we conduct three categories of clinical trials in conjunction with
our genetic risk assessment tests. The first trial is called a proof of concept
trial, used to prove a laboratory finding. The results of this trial are
utilized to support the initial patent application and therefore the trial
needs to be completed before the patent application can be filed. The second
trial is a confirmatory trial. The purpose of the confirmatory trial is to
independently confirm the results of the proof of concept trial. The third
trial relates to clinical utility. The clinical utility trial is conducted to
learn what is the most effective utilization of the test in actual clinical
practice.
Product Development
Following confirmatory studies, additional trials are
completed on larger populations to help develop broad scientific evidence
supporting the clinical utility of each of our tests. Such additional trials
not only strengthen the support for each tests known use (e.g., detecting
genetic susceptibility) but also lead to additional practical uses of the
genetic risk assessment tests (e.g., use of the genetic risk assessment tests
to determine a patients responsiveness to a given drug).
During this phase, the
algorithm, for risk assessment products, is also being developed for testing in
the clinical environment. Also during this phase, a business development effort
gets underway to find a marketing and distribution partner and preliminary
market research is launched.
Commercialization
At this phase, a partner is in place for the marketing
and distribution of the product. We usually develop a scientific credibility
program to obtain the support of thought-leaders in the disease area. The
educational programs are put in place and training begins. In some instances,
there may already be a firm order in place for a minimum number of genetic risk
assessment tests.
During this phase, a brand
name is developed for the product and, if necessary, a pilot launch of the
product takes place to test receptivity and market adoption. A product can
still be dropped at this phase if the pilot launch fails to meet expectations.
12
Product Pipeline
Summary
The
table below summarizes the current stage of development of the products
described above.
![](g19382dcimage002.gif)
We expect the market launch of our cardiovascular risk
assessment test to occur in the first quarter of 2006. However, we have no
guarantee that the complementary product from our partner will be successfully
developed by that time or that the test and the nutritional product will be
adopted by the target population when introduced to the market.
We have spent $4.1
million, $3.5 million and $3.1 million on research and development during the
years ended December 31, 2004, 2003 and 2002, respectively. We expect to
spend between $4.0 million and $5.0 million in 2005. These research and
development expenses include research funded by Alticor.
Laboratory Testing Procedure
Each of our genetic risk assessment tests requires
consumers, dentists or physicians to follow a specific protocol. To conduct a
genetic risk assessment test, the doctor, dentist or consumer collects cells
from inside the cheek on a brush and submits it to our laboratory. Our clinical
laboratory then performs the test following our specific protocol and informs
the dentist/physician or consumer of the results.
During 2004, we completed
the construction of our state-of-the-art genetic testing laboratory (for which
we will shortly seek approval under the Clinical Laboratory Improvement Act of
1988 (CLIA)) to process all the test samples resulting from the expected
product launches. The regulatory requirements associated with a clinical
laboratory are addressed under the section titled Government Regulation
beginning on page 18. The capacity of the laboratory is approximately
1,000,000 tests per year with a full complement of equipment and personnel. We
plan to partner with a number of reference laboratories to provide backup
support should we receive samples beyond our capacity.
13
Marketing
and Distribution Strategy
We will market and
distribute our products through strategic partnerships. The type of sales and
marketing partner will differ based on the type of products.
Genetic Risk
Assessment Tests
Our marketing partner for these products will likely
be a consumer product company with nutritional products that can mitigate the
risk assessed by our tests. The nutritional products are likely to be
personalized (based on the individuals genetics). Alticor is one such partner.
We expect the market launch of our cardiovascular risk assessment test, the
first of our tests to be distributed in Alticors multi-level marketing
channel, to occur in the first quarter of 2006.
Another type of marketing
partner for these products could be a specialty health/wellness company with a
large membership of individuals motivated to maintain wellness. These companies
could be regionally or nationally located.
Preventive
Nutritional Products
Our sales and marketing
partner for these products will most likely either be a consumer or a
pharmaceutical product company with a sales force that call on medical/dental
professionals. Although the sales representatives may detail the medical/dental
professionals, access to the product by patients may or may not require a
prescription. The partner is likely to have national or worldwide distribution
capabilities.
Personalized
Therapeutic Products
Our sales and marketing
partner for these products will likely be a pharmaceutical company that is a
late entry in a particular disease market and is seeking a product with a
differentiating feature. The partner is likely to be progressive in genomics
technology and have appreciation for the value of personalized medicine.
Reimbursement
The availability and levels of reimbursement by
governmental and other third-party payers affect the market for any healthcare
service. These third-party payers continually attempt to contain or reduce the
costs of healthcare by challenging the prices charged for medical products and
services. We believe that the extent of third-party payer reimbursement will
heavily influence physicians and dentists decisions to recommend genetic risk
assessment tests, as well as patients elections to pursue testing.
We expect consumers to pay
out-of-pocket for their personalized risk reports. Further, our distribution
agreement with Alticor entered into in early 2004 calls for us to invoice
Alticor directly for the processed tests and, therefore we will not be subject
to third-party reimbursement. We have some products under development that may
require third-party reimbursement. To the extent that some of our products are
sold through the medical channel, our ability to successfully commercialize
these products will depend on obtaining adequate reimbursement from third-party
payers.
Strategic
Alliances and Collaborations
Our strategy is to develop
products for research and clinical use and commercialize such products through
strategic alliances. We have followed a strategy of working with strategic
partners at the fundamental discovery stage in product development and in sales
and marketing. This strategy has given us access to discoveries while reducing
up-front research expenses and will give us access to markets without
committing to the high costs of selling and advertising.
14
Alticor
In March 2003, we entered into a broad strategic
alliance with Alticor to develop and market novel nutritional and skin care
products. The alliance utilizes our intellectual property and expertise in
genomics to develop personalized consumer products. Alticor has a long history
of manufacturing and distributing high quality nutritional supplements and skin
care products to a worldwide market through the multi-level marketing channel.
The alliance has included an equity investment,
multi-year research and development agreements, a licensing agreement with
royalties on marketed products, the deferment of outstanding loan repayment and
the refinancing of bridge financing obligations. The financial elements of this
alliance are described in greater detail in the section titled Liquidity and Capital Resources beginning
on page 32.
In broad terms, we expect
that this alliance will open our research and development products to our
partners proven marketing and distribution channels. We believe that the
benefits derived from nutritional products that are being developed by Alticor
will be greatly enhanced by applying our deeper understanding of the underlying
human genetics. Further, Alticor and we share a belief that the future of
personalized nutritional supplementation and skin care will be based on an
individuals genetic makeup. This alliance will focus on developing genetic
risk assessment tests to determine a genetic profile of an individual and
developing nutritional supplements and skin care products that will benefit
individuals of that genetic profile.
University of Sheffield
We have followed a strategy of working with partners
at the fundamental discovery stage. This strategy has given us access to
discoveries while reducing up-front research expenses. Since 1994, we have had
an alliance with Sheffield. Under this alliance, Sheffield has conducted
fundamental discovery and genetic analysis, and we have focused on product
development, including clinical trials, and the commercialization of these
discoveries.
In 1999, we entered into a
new arrangement with Sheffield and its investigators replacing the research and
development agreement that had been in place with Sheffield since 1996.
Pursuant to that arrangement, we issued an aggregate of 475,000 shares of our
common stock to Sheffield and certain of its investigators in exchange for the
relinquishment by Sheffield of its interests under certain previous agreements
with us. In addition, that agreement required us to issue to Sheffield and
certain of its investigators options to purchase an aggregate of 50,000 shares
of stock at the current market price each June 30th during the period of
time the arrangement was in place. Sheffield was entitled to additional options
to purchase 10,000 shares of stock at the current market price each June 30th
for each patent that was filed on our behalf during the previous twelve months.
The agreements with Sheffield and certain of its investigators expired in June 2004.
We renegotiated the agreement with a Sheffield investigator to include a
retainer and travel expenses but included no stock options through September 30,
2005 with an annual automatic renewal unless sooner terminated.
Other
Academic Research Collaborations
In addition to our
collaborations with Sheffield, we have active research collaborations at the
following academic institutions:
Tufts University
We have licensed genetic
technology from Tufts University related to the control of fat metabolism, body
weight, and metabolic syndrome. We have active research agreements with Tufts
that are focused on
15
the
genetics of body weight and on the development of products that alter fat
metabolism and body weight. These studies are under the direction of Drs. Jose
Ordovas and Andrew Greenberg at Tufts.
Mayo Clinic
We previously funded and
conducted a clinical study of genetics and cardiovascular disease at the Mayo
Clinic. Although the clinical phase of this project is completed, further
research on the clinical data and on the patients DNA continues in
collaboration with Dr. Peter Berger who was the principal investigator at
Mayo but is now Head of Interventional Cardiology at Duke University.
University of
California in San Francisco (UCSF)
We have studies with UCSF in late stages that are
focused on the genetics of osteoporosis and the genetics of cardiovascular
disease.
These studies are under
the direction of Drs. Stephen Cummings and Katherine Stone.
Boston University
We have funded research at
Boston University Medical Center to determine the influence of IL-1 gene
variations on biochemical factors involved in various inflammatory diseases
that are the targets for drug development by multiple companies. This
information will be used to develop pharmacogenetic tests.
University of
Arkansas
In March 2002, we
entered into a collaboration with the University of Arkansas for Medical
Sciences College of Medicine to study how genetic variations in inflammatory
genes influenced risk for Alzheimers Disease and to identify potential drug
targets for that disorder. The collaboration is ongoing. In addition, we have
recently completed studies at the University of Arkansas on the influence of
genetic variations on muscle function with aging and in response to exercise.
PSTÒ Commercial Partnerships
Hain Diagnostika/ADS
GmbH and Laboral International
In December 2000, we
entered into an exclusive seven-year license agreement with Hain
Diagnostika/ADS GmbH (Hain) for the marketing, distribution and processing of
PSTÒ in all countries outside of North America and
Japan. In May 2003, we amended the agreement with Hain to a non-exclusive
license limited to the European Territory. Since then we added Laboral
International as a non-exclusive PSTÒ distributor in
Europe. Revenue from Hain and Laboral International was minimal in 2004 and
2003.
Kimball Genetics, Inc.
In September 2000, we
entered into a 5-year agreement with Kimball Genetics, Inc. to
process PSTÒ tests and market
the product in the United States on a non-exclusive basis. Since December 2001,
Kimball has been our sole marketing partner within the United States. We
receive a royalty from Kimball for every PSTÒ
test processed. Revenue from Kimball was minimal in 2004 and 2003.
Intellectual Property
Our commercial success may depend at least in part on
our ability to obtain appropriate patent protection on our drug discovery and
diagnostic products and methods. We currently own exclusive rights in twenty
issued U.S. patents, which have expiration dates between 2015 and 2020, and
have twenty
16
additional U.S. patent
applications pending, which are based on novel genes or novel associations
between particular gene sequences and certain inflammatory diseases, and
disorders. Of the twenty issued patents, sixteen relate to genetic tests for
periodontal disease, osteoporosis, asthma, coronary artery disease, sepsis and
disease associated with IL-1 inflammatory haplotypes, three relate to
BioFusion, our biologic modeling software, and one relates to a transgenic
mouse model.
We have been granted a number of corresponding foreign
patents and have a number of foreign counterparts of our U.S. patents and
patent applications pending.
We have received trademark
protection for PSTÒ, our periodontal
genetic risk assessment test. Our proprietary technology is subject to numerous
risks, which we discuss in Certain Factors That May Affect Future Results of Operations
or the Market for Our Common Stock beginning on page 19 of this report.
Competition
The competition in the field of Personalized Health is
not well defined due to lack of an established market and customer base. The
concept is new and requires consumers to do things differently, hence it is a disruptive
technology. Adoption of such technologies typically requires substantial
market development and customer prospecting. There are a few companies offering
predisposition tests and product recommendations but we believe they neither
have the intellectual property nor the scientific credibility required to
provide leadership or present a real competitive obstacle to us. We intend to
lead the Personalized Health sector with products that meet a specific market
need in a targeted segment so as to facilitate adoption of the technology.
There are a number of companies involved in
identifying and commercializing genetic markers in the form of a genetic test;
however, the companies differ in product end points and target customers. The
companies in the industry break down into four sectors, including, 1)
Predictive Medicine Companies, 2) SNP Discovery Companies, 3) Personalized
Health Companies, and 4) Technology Platform Companies.
Our potential competitors in the United States and
abroad are numerous and include, among others, major pharmaceutical and
diagnostic companies, specialized biotechnology firms, universities and other
research institutions. Many of our potential competitors have considerably
greater financial, technical, marketing and other resources than we have, which
may allow these competitors to discover important genes or successfully
commercialize these discoveries before us. If we do not discover
disease-predisposing genes, characterize their functions, develop genetic tests
and related information services based on such discoveries, obtain regulatory
and other approvals, and launch these services or products before competitors,
we could be adversely affected. Additionally, some of our competitors receive
data and funding from government agencies. To the extent our competitors
receive data and funding from those agencies at no cost to them, they may have a
competitive advantage over us.
In the case of newly introduced products requiring change
of behavior (such as genetic risk assessment tests), multiple competitors may
accelerate market acceptance and penetration through increasing awareness.
Moreover, two different genetic risk assessment tests for the same disease may
in fact test or measure different components, and thus, actually be
complementary when given in parallel as an overall assessment of risk, rather
than being competitive with each other.
Furthermore, the primary
focus of most companies in the field is performing gene-identification research
for pharmaceutical companies for therapeutic purposes, with genetic risk
assessment testing being a secondary goal. In contrast, our primary business focus
is developing and commercializing genetic risk assessment tests for common
diseases and forward-integrating these tests with additional products and
services. We anticipate only an ancillary drug discovery program, if any.
17
Government Regulation
The sampling of blood, saliva or cheek scrapings from
patients and subsequent analysis in a central clinical laboratory does not, at
the present time, require Federal Drug Administration (FDA) or regulatory
authority approval inside the U.S. for either the sampling procedure or the
analysis itself. The samples are collected using standard materials previously
approved as medical devices, such as sterile lancets and swabs. The testing
procedure itself is performed in one or more registered, certified clinical
laboratories under CLIA, administered by the Health Care Financing
Administration. The federal regulations governing approval of the laboratory
facilities and applicable state and local regulations governing the operation
of clinical laboratories would also apply to the laboratories performing tests
for us. Changes in such regulatory schemes could require advance regulatory
approval of genetic risk assessment tests sometime in the future and could have
a material adverse effect on our business. In addition, certain billing
practices require that we, or a subsidiary, be licensed and regulated under
CLIA.
In addition, while our main focus is on genetic risk
assessment testing, we may, in the future, endeavor to partner with pharmaceutical
companies in the area of drug development. Any drug products developed by us or
our future collaborative partners, prior to marketing in the United States,
would be required to undergo an extensive regulatory approval process by the
FDA. The regulatory process, which includes preclinical testing and clinical
trials of each therapeutic product in order to establish its safety and
efficacy, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory agency approval. In addition, delays or rejections may be
encountered during the period of therapeutic development, including delays
during the period of review of any application. Delays in obtaining regulatory
approvals could adversely affect the marketing of any therapeutics developed by
us or our collaborative partners, impose costly procedures upon us and our
collaborative partners activities, diminish any competitive advantages that we
and our collaborative partners may attain and adversely affect our ability to
receive royalties.
Once regulatory approval
of a product is granted, the approval may impose limitations on the indicated
uses for which it may be marketed. Further, even if such regulatory approval is
obtained, a marketed product and its manufacturer are subject to continuing
review. The discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or manufacturer. Such
restriction could include withdrawal of the product from the market.
Other Information
Our executive offices are
located at 135 Beaver Street, Waltham, Massachusetts 02452, and our telephone
number is 781/398-0700. We were incorporated in Texas in 1986 and we
re-incorporated in Delaware in March 2000. We maintain a website at
www.ilgenetics.com. Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and
all amendments to such reports are available to you free of charge through the
Investor Relations Section of our website as soon as practicable after
such materials have been electronically filed with, or furnished to, the
Securities and Exchange Commission. The information contained on our website is
not incorporated by reference into this Form 10-K. We have included
our website address only as an inactive textual reference and do not intend it
to be an active link to our website.
Employees
As of April 19, 2005,
we had eighteen full-time and part-time employees. Of our employees, ten were
engaged primarily in the research, development and commercialization of tests
and eight were engaged primarily in administrative or managerial activities.
Our employees are not covered by a collective bargaining agreement, and we
consider our relations with our employees to be good.
18
Certain
Factors That May Affect Future Results of Operations or
the Market for Our Common Stock
We have a history
of operating losses and expect these losses to continue in the future.
We have experienced
significant operating losses since our inception and expect these losses to
continue for some time. We incurred losses from operations of $5.1 million in
2002, $5.9 million in 2003 and $6.7 million in 2004. As of December 31,
2004, our accumulated deficit was $54.6 million. Our losses result
primarily from research and development, general and administrative expenses.
We have not generated significant revenue from product sales, and we do not
know if we will ever generate sufficient revenue from product sales to cover
our operating expenses. We will need to generate significant revenue to
continue our research and development programs and achieve profitability. We
cannot predict when, if ever, we will achieve profitability.
The market for
genetic risk assessment tests is unproven.
The market for genetic
risk assessment tests is at an early stage of development and may not continue
to grow. The general scientific community, including us, has only a limited
understanding of the role of genes in predicting disease. When we identify a
gene or genetic marker that may predict disease, we conduct clinical trials to
confirm the initial scientific discovery and to establish the scientific
discoverys clinical utility in the marketplace. The results of these clinical
trials could limit or delay our ability to bring the test to market, reduce the
tests acceptance by our customers or cause us to cancel the program, any of
which limit or delay sales and cause additional losses. The only genetic risk
assessment test we currently market is PST®, and it has produced only minimal
revenue to date. The marketplace may never accept our products, and we may
never be able to sell our products at a profit. We may not complete development
of or commercialize our other genetic risk assessment tests.
The success of our genetic
risk assessment tests will depend upon their acceptance as medically useful and
cost-effective by patients, physicians, dentists, other members of the medical
and dental community and by third-party payers, such as insurance companies and
the government. We can achieve broad market acceptance only with substantial
education about the benefits and limitations of genetic risk assessment tests.
Our tests may not gain market acceptance on a timely basis, if at all. If
patients, dentists and physicians do not accept our tests, or take a longer
time to accept them than we anticipate, then it will reduce our anticipated
sales, resulting in additional losses.
The market for
personalized healthcare is unproven.
The competition in the
field of Personalized Health is not well defined due to a lack of an
established market and customer base. The concept is new and requires consumers
to do things differently, hence may be considered a disruptive technology. Adoption
of such technology requires substantial market development and customer
prospecting. There are a few companies offering predisposition tests or health
risk assessments and product recommendations based upon these assessments. Activities
in these areas remain small and the overall market is unproven. While both
Alticor and we have done some initial market research regarding the
marketability of these products, there can be no assurance that these products
will be successful upon launch or that they can be sold at sufficient margins
to make them profitable to our partners or us. If customers do not accept our
tests, or take a longer time to accept them than we anticipate, then it will
reduce our anticipated sales, resulting in additional losses.
We rely heavily on
third parties to perform sales, marketing and distribution functions on our
behalf, which could limit our efforts to successfully market products.
We have limited experience
and capabilities with respect to distributing, marketing and selling genetic
risk assessment tests. We have relied and plan to continue to rely
significantly on sales, marketing and distribution arrangements with third
parties, over which we have limited influence. If these third parties do
19
not
successfully market our products, it will reduce our anticipated sales and
increase our losses. If we are unable to negotiate acceptable marketing and
distribution agreements with future third parties, or if in the future we elect
to perform sales, marketing and distribution functions ourselves, we will incur
significant costs and face a number of additional risks, including the need to
recruit experienced marketing and sales personnel. In March 2003, we
entered into a strategic alliance with Alticor. As part of this alliance,
Alticor will conduct sales, marketing and distribution functions on our behalf.
In February 2004, we received a purchase order from Alticor for a firm
minimum order of genetic risk assessment tests to be delivered during the first
year of product launch. While Alticor
has far more experience and success in marketing, selling and distributing
products than we do, we could become very dependent upon their success and
their failure to successfully market our products could reduce our anticipated
sales and increase our losses.
If we fail to
obtain additional capital, or obtain it on unfavorable terms, then we may have
to end our research and development programs and other operations.
We anticipate that our current and anticipated
financial resources are adequate to maintain our current and planned operations
through mid-2006. If we are not generating sufficient cash or cannot
raise additional capital prior to that date, we will be unable to fund our
business operations and will be required to seek other strategic alternatives.
Our future capital needs
depend on many factors. We will need capital for the commercial launch of
additional genetic tests, continued research and development efforts, obtaining
and protecting patents and administrative expenses. Additional financing may
not be available when needed, or, if available, it may not be available on
favorable terms. If we cannot obtain additional funding on acceptable terms
when needed, we may have to discontinue operations, or, at a minimum, curtail
one or more of our research and development programs.
Because a single
shareholder has a controlling percentage of our voting power, other
stockholders voting power is limited.
As of December 31,
2004, a single stockholder owned, or had rights to own approximately 57.7% of
our outstanding common stock. Accordingly, this stockholder will be able to
determine the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our
Certificate of Incorporation or By-Laws and the approval of certain mergers and
other significant corporate transactions, including a sale of substantially all
of our assets. This stockholder may make decisions that are adverse to other
stockholders or warrantholders interests. This ownership concentration may
also adversely affect the market price of our common stock. Three of our four
directors are individuals chosen by this single stockholder. These directors
might pursue policies in the interest of this single stockholder to the
detriment of our other stockholders.
The Series A
Preferred Stock has certain rights which are senior to common shareholder
rights and this may reduce the value of the common stock.
The Series A Preferred Stock, which was issued to
Alticor in March 2003, accrues dividends at the rate of 8% of the original
purchase price per year, payable only when, as and if declared by the Board of
Directors and are non-cumulative. If we declare a distribution, with certain exceptions, payable in
securities of other persons, evidences of indebtedness issued by us or other
persons, assets (excluding cash dividends) or options or rights to purchase any
such securities or evidences of indebtedness, then, in each such case the
holders of the Series A Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the Series A
Preferred Stock were the holders of the number of shares of our common stock
into which their respective shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
our common stock entitled to receive such distribution.
20
In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of our assets or surplus funds to the
holders of our common stock by reason of their ownership thereof, the amount of
two times the then-effective purchase price per share, as adjusted for any
stock dividends, combinations or splits with respect to such shares, plus all
declared but unpaid dividends on such share for each share of Series A
Preferred Stock then held by them. After receiving this amount, the holders of
the Series A Preferred Stock shall participate on an as-converted basis
with the holders of common stock in any of our remaining assets.
The preferential treatment
accorded the Series A Preferred Stock might reduce the value of the common
stock.
If we are
unsuccessful in establishing additional strategic alliances, our ability to
develop and market products and services will be damaged.
Entering into strategic
alliances for the development and commercialization of products and services
based on our discoveries is an important element of our business strategy. We
anticipate entering into additional collaborative arrangements with Alticor and
other parties in the future. We face significant competition in seeking
appropriate collaborators. In addition, these alliance arrangements are complex
to negotiate and time-consuming to document. If we fail to maintain existing
alliances or establish additional strategic alliances or other alternative
arrangements, then our ability to develop and market products and services will
be damaged. In addition, the terms of any future strategic alliances may be
unfavorable to us or these strategic alliances may be unsuccessful.
If we fail to
obtain an adequate level of reimbursement for our products or services by
third-party payers, then our products and services will not be commercially
viable.
The availability and
levels of reimbursement by governmental and other third-party payers affect the
market for any healthcare service. These third-party payers continually attempt
to contain or reduce the costs of healthcare by challenging the prices charged
for medical products and services. To the extent that our products are sold
through the medical channel, our ability to successfully commercialize our
existing genetic risk assessment test and others that we may develop depends on
obtaining adequate reimbursement from third-party payers. The extent of
third-party payer reimbursement will likely heavily influence physicians and
dentists decisions to recommend genetic risk assessment tests, as well as
patients elections to pursue testing. If reimbursement is unavailable or
limited in scope or amount, then we cannot sell our products and services
profitably. In particular, third-party payers tend to deny reimbursement for
services which they determine to be investigational in nature or which are not
considered reasonable and necessary for diagnosis or treatment. To date, few
third-party payers have agreed to reimburse patients for genetic risk
assessment tests, and we do not know if third-party payers will, in the future,
provide full reimbursement coverage for these genetic tests. If third-party
payers do not provide adequate reimbursement coverage, then individuals may
choose to directly pay for the test. If both third-party payers and individuals
are unwilling to pay for the tests, then the number of tests we can sell will
be significantly decreased, resulting in reduced revenue and additional losses.
If we fail to
obtain patent protection for our products and preserve our trade secrets, then
competitors may develop competing products and services, which will decrease
our sales and market share.
Our success will partly depend on our ability to
obtain patent protection, in the United States and in other countries, for our
products and services. In addition, our success will also depend upon our
ability to preserve our trade secrets and to operate without infringing upon
the proprietary rights of third parties.
We own exclusive
rights in twenty issued U.S. patents and have a number of additional U.S.
patent applications pending. We have also been granted a number of
corresponding foreign patents and have a
21
number
of foreign counterparts of our U.S patents and patent applications pending. Our
patent positions, and those of other pharmaceutical and biotechnology
companies, are generally uncertain and involve complex legal, scientific and
factual questions. Our ability to develop and commercialize products and
services depends on our ability to:
· Obtain
patents;
· Obtain
licenses to the proprietary rights of others;
· Prevent
others from infringing on our proprietary rights; and
· Protect
trade secrets.
Our pending patent applications may not result in
issued patents or any issued patents may never afford meaningful protection for
our technology or products. Further, others may develop competing products,
which avoid legally infringing upon, or conflicting with, our patents. In
addition, competitors may challenge any patents issued to us, and these patents
may subsequently be narrowed, invalidated or circumvented.
We also rely on trade
secrets and proprietary know-how that we seek to protect, in part, by
confidentiality agreements. The third parties we contract with may breach these
agreements, and we might not have adequate remedies for any breach.
Additionally, our competitors may discover or independently develop our trade
secrets.
Third parties may
own or control patents or patent applications and require us to seek licenses,
which could increase our costs or prevent us from developing or marketing our
products or services.
We may not have rights under patents or patent
applications that are related to our current or proposed products. Third
parties may own or control these patents and patent applications in the United
States and abroad. Therefore, in some cases, to develop or sell any proposed
products or services, with patent rights controlled by third parties, our
collaborators or we may seek, or may be required to seek, licenses under
third-party patents and patent applications. If this occurs, we will pay
license fees or royalties or both to the licensor. If licenses are not
available to us on acceptable terms, our collaborators or we may be prohibited
from developing or selling our products or services.
If third parties believe
our products or services infringe upon their patents, they could bring legal
proceedings against us seeking damages or seeking to enjoin us from testing,
manufacturing or marketing our products or services. Any litigation could
result in substantial expenses to us and significant diversion of attention by
our technical and management personnel. Even if we prevail, the time, cost and
diversion of resources of patent litigation would likely damage our business.
If the other parties in any patent litigation brought against us are
successful, in addition to any liability for damages, we may have to cease the
infringing activity or obtain a license.
Technological changes
may cause our products and services to become obsolete.
Our competitors may
develop risk assessment tests that are more effective than our technologies or
that make our technologies obsolete. Innovations in the treatment of the
diseases in which we have products or product candidates could make our
products obsolete. These innovations could prevent us from selling, and
significantly reduce or eliminate the markets for, our products.
We may be
prohibited from fully using our net operating loss carryforwards, which could
affect our financial performance.
As a result of the losses
incurred since inception, we have not recorded a federal income tax provision
and have recorded a valuation allowance against all future tax benefits. As of December 31,
2004, we had
22
net
operating loss carryforwards of approximately $39.5 million for federal and
state income tax purposes, expiring in varying amounts through the year 2024.
We also had a research tax credit of approximately $761,000 at December 31,
2004 that expires in varying amounts through the year 2024. Our ability to use
these net operating loss and credit carryforwards is subject to restrictions
contained in the Internal Revenue Code which provide for limitations on our
utilization of our net operating loss and credit carryforwards following a
greater than 50% ownership change during the prescribed testing period. We have
experienced two such ownership changes. One change arose in March 2003 and
the other was in June 1999. As a result, all of our net operating loss
carryforwards will be limited in utilization. The annual limitation may result
in the expiration of the carryforwards prior to utilization. In addition, in
order to realize the future tax benefits of our net operating loss and tax
credit carryforwards, we must generate taxable income, of which there is no
assurance.
We are subject to
intense competition from other companies, which may damage our business.
Our industry is highly
competitive. Our competitors in the United States and abroad are numerous and
include major pharmaceutical and diagnostic companies, specialized
biotechnology firms, universities and other research institutions, including
those receiving funding from the Human Genome Project. Many of our competitors
have considerably greater financial resources, research and development staffs,
facilities, technical personnel, marketing and other resources than we do.
Furthermore, many of these competitors are more experienced than we are in
discovering, commercializing and marketing products. These greater resources
may allow our competitors to discover important genes or genetic markers before
we do. If we do not discover disease predisposing genes and commercialize these
discoveries before our competitors, then our ability to generate sales and revenue
will be reduced or eliminated, and could make our products obsolete. We expect
competition to intensify in our industry as technical advances are made and
become more widely known.
We are subject to
government regulation which may significantly increase our costs and delay
introduction of future products.
The sale, performance or
analyses of our genetic tests do not currently require FDA or other federal
regulatory authority approval. Changes in existing regulations could require
advance regulatory approval of genetic risk assessment tests, resulting in a
substantial curtailment or even prohibition of our activities without
regulatory approval. If our genetic tests ever require regulatory approval, on
either a state or federal level, then the costs of introduction will increase
and marketing and sales of products may be significantly delayed. We anticipate
that the testing procedure itself will be performed primarily in our own
genetic testing laboratory which will need to be certified under the auspices
of the Clinical Laboratory Improvement Act of 1988 (CLIA), administered by the
Health Care Financing Administration. We anticipate there will also be
additional state and local regulations governing the operation of this
laboratory. A delay in receiving CLIA certification or any applicable state or
local certification would reduce our revenue and increase our net losses.
We may be subject
to product liability claims that are costly to defend and that could limit our
ability to use some technologies in the future.
The design, development,
manufacture and use of our genetic risk assessment tests involve an inherent
risk of product liability claims and associated adverse publicity. Producers of
medical products face substantial liability for damages in the event of product
failure or allegations that the product caused harm. We currently maintain
product liability insurance, but it is expensive and difficult to obtain, may
not be available in the future on economically acceptable terms and may not be
adequate to fully protect us against all claims. We may become subject to
product liability claims that, even if they are without merit, could result in
significant legal defense costs. We could be held liable for damages in excess
of the limits of our insurance coverage, and any claim or resulting product
recall could create significant adverse publicity.
23
Ethical, legal and
social issues related to genetic testing may reduce demand for our products.
Genetic testing has raised
issues regarding the appropriate utilization and the confidentiality of
information provided by genetic testing. Genetic tests for assessing a persons
likelihood of developing a chronic disease have focused public attention on the
need to protect the privacy of genetic assessment medical information. For
example, concerns have been expressed that insurance carriers and employers may
use these tests to discriminate on the basis of genetic information, resulting
in barriers to the acceptance of genetic tests by consumers. This could lead to
governmental authorities prohibiting genetic testing or calling for limits on
or regulating the use of genetic testing, particularly for diseases for which
there is no known cure. Any of these scenarios would decrease demand for our
products and result in substantial losses.
Our failure to
timely assess and report on the effectiveness of our internal control over
financial reporting in accordance with U.S. federal securities laws and the
resulting disclaimer from our independent registered public accounting firm may
expose us to regulatory sanctions and cause a loss of investor confidence in
our internal controls, and adversely affect the trading price of our shares.
As of December 31,
2003, we were not an accelerated filer (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended) and, therefore, did not expect to
be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002
until the fiscal year ending December 31, 2005. However, because our public
common float exceeded $75 million on June 30, 2004, we became obligated to
comply with Section 404 for the fiscal year ended December 31, 2004.
Section 404 requires an annual management assessment of the effectiveness
of our internal control over financial reporting as of our most recent fiscal
year end and a report by our independent registered public accounting firm of
their opinions on our assessment. Management has selected the framework set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in its Internal Control-Integrated
Framework. Management did not complete its work related to the year
ended December 31, 2004. Because of this, Grant Thornton LLP was unable
to, and did not, express an opinion on managements assessment of its internal
control over financial reporting for our fiscal year ended December 31,
2004. Our failure to timely implement an evaluation framework and complete our
assessment of our internal control over financial reporting, identify and
remediate any material weaknesses that may exist, and our auditors inability
to provide an opinion on managements assessment, could expose us to regulatory
sanctions or cause a loss of investor confidence in our internal controls, and
in turn might adversely affect the market price of our common stock.
Our dependence on
key executives and scientists could adversely impact the development and
management of our business.
Our success substantially
depends on the ability, experience and performance of our senior management and
other key personnel. If we lose one or more of the members of our senior
management or other key employees, it could damage our development programs and
our business. In addition, our success depends on our ability to continue to
hire, train, retain and motivate skilled managerial and scientific personnel.
The pool of personnel with the skill that we require is limited. Competition to
hire from this limited pool is intense. We compete with numerous pharmaceutical
and healthcare companies, as well as universities and nonprofit research
organizations in the highly competitive Boston, Massachusettss business area.
Loss of the services of Dr. Philip R. Reilly, our Chief Executive Officer,
Dr. Kenneth Kornman, our President and Chief Scientific Officer, or Mr. Fenel
M. Eloi, our Chief Operating Officer and Chief Financial Officer, could delay
our research and development programs or otherwise damage our business. In March 2003,
we entered into employment agreements with three-year terms with Dr. Reilly,
Dr. Kornman and Mr. Eloi. Each of these employees can terminate his
employment upon 30 days notice. We do not maintain key man life insurance on
any of our personnel.
24
In a circumstance
in which Alticor enters a business in competition with our own, our Directors
might have a conflict of interest.
In conjunction with our strategic alliance with
Alticor, we have agreed to certain terms for allocating opportunities as
permitted under Section 122(17) of the Delaware General Corporation Law.
This agreement, as set forth in the Purchase Agreement, regulates and defines
the conduct of certain of our affairs as they may involve Alticor as our
majority stockholder and its affiliates, and the powers, rights, duties and
liabilities of us and our officers and directors in connection with corporate
opportunities.
Except under certain circumstances, Alticor and its
affiliates have the right to engage in the same or similar activities or lines
of business or have an interest in the same classes or categories of corporate
opportunities as we do. If Alticor or one of our directors appointed by
Alticor, and its affiliates acquire knowledge of a potential transaction or
matter that may be a corporate opportunity for both Alticor and its affiliates
and us, to the fullest extent permitted by law, Alticor and its affiliates will
not have a duty to inform us about the corporate opportunity or be liable to us
or to you for breach of any fiduciary duty as a stockholder of ours for not
informing us of the corporate opportunity, keeping it for its own account, or
referring it to another person.
Additionally, except under limited circumstances, if
an officer or employee of Alticor who is also one of our directors is offered a
corporate opportunity, such opportunity shall not belong to us. In addition, we
agreed that such director will have satisfied his duties to us and not be
liable to us or to you in connection with such opportunity.
The terms of this
agreement will terminate on the date that no person who is a director, officer
or employee of ours is also a director, officer, or employee of Alticor or an
affiliate.
We do not expect to
pay dividends for the foreseeable future and you should not expect to receive
any funds without selling your shares of common stock, which you may only be
able to do at a loss.
We have never declared or
paid any cash dividends on our capital stock. We currently intend to retain any
earnings for use in the operation and expansion of our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Therefore, you should not expect to receive any funds without selling
your shares, which you may only be able to do at a loss.
Item 2. Properties
Our offices and
laboratories are located at 135 Beaver Street. In February 2004, we
entered into a new lease expanding our space to approximately 19,000 square
feet and extended the term of the lease through March 2009.
Item 3. Legal Proceedings
We are not currently a
party to any material legal proceedings and management is not aware of any
contemplated proceedings by any governmental authority against us.
Item
4. Submission of Matters to a
Vote of Security Holders
No matters were submitted to a vote of security
holders during the fourth quarter of the year ended December 31, 2004.
25
PART II
Item
5. Market for Registrants Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our
common stock began trading on The Nasdaq SmallCap Market on November 26,
1997 under the symbol MSSI and on the Boston Stock Exchange under the symbol MSI.
In August 1999, our common stock symbol changed to ILGN on the Nasdaq
SmallCap Market and ILG on the Boston Stock Exchange. On December 10,
2002, our common stock was delisted from the Nasdaq SmallCap Market and began
trading on the OTC Bulletin Board under the symbol ILGN.OB. The common stock
currently trades on the OTC Bulletin Board and the Boston Stock Exchange. Prior
to November 1997, there was no established trading market for the common
stock. The following table sets forth, for the periods indicated, the high and
low sales prices for the common stock, as reported by the OTC Bulletin Board.
|
|
High
|
|
Low
|
|
2004:
|
|
|
|
|
|
First Quarter
|
|
$
|
5.00
|
|
$
|
3.75
|
|
Second Quarter
|
|
$
|
5.01
|
|
$
|
4.05
|
|
Third Quarter
|
|
$
|
4.93
|
|
$
|
2.76
|
|
Fourth Quarter
|
|
$
|
4.59
|
|
$
|
2.70
|
|
|
|
High
|
|
Low
|
|
2003:
|
|
|
|
|
|
First Quarter
|
|
$
|
1.73
|
|
$
|
0.48
|
|
Second Quarter
|
|
$
|
3.34
|
|
$
|
1.70
|
|
Third Quarter
|
|
$
|
3.27
|
|
$
|
2.10
|
|
Fourth Quarter
|
|
$
|
5.13
|
|
$
|
3.10
|
|
Stockholders
As of April 19, 2005,
there were approximately 119 stockholders of record and according to our
estimates, 2,100 beneficial owners of our common stock.
Dividends
We have not declared any
dividends to date and do not plan to declare any dividends on our common stock
in the foreseeable future.
Sale of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
None.
26
Item 6. Selected Financial Data
The
following table sets forth our financial data as of and for each of the five
years ended December 31, 2004. The selected financial data as of and for
each of the five years ended December 31, 2004 has been derived from our
financial statements. Our financial statements and the related reports as of December 31,
2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 are
included elsewhere in this Annual Report on Form 10-K. The information
below should be read in conjunction with the financial statements and
Managements Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7.
|
|
Year Ended December 31,
|
|
|
|
2004
|
|
2003(1)
|
|
2002
|
|
2001
|
|
2000
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
34,671
|
|
$
|
54,105
|
|
$
|
289,908
|
|
$
|
202,942
|
|
$
|
256,387
|
|
Cost of revenue
|
|
351
|
|
20,658
|
|
484
|
|
48,674
|
|
183,833
|
|
Gross profit
|
|
34,320
|
|
33,447
|
|
289,424
|
|
154,268
|
|
72,554
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
4,078,316
|
|
3,457,861
|
|
3,082,484
|
|
2,686,621
|
|
2,167,409
|
|
Selling, general and administrative
|
|
2,658,037
|
|
2,443,219
|
|
2,333,314
|
|
2,244,274
|
|
3,093,379
|
|
Total operating expenses
|
|
6,736,353
|
|
5,901,080
|
|
5,415,798
|
|
4,930,895
|
|
5,260,788
|
|
Loss from
operations
|
|
(6,702,033
|
)
|
(5,867,633
|
)
|
(5,126,374
|
)
|
(4,776,627
|
)
|
(5,188,234
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
58,115
|
|
48,535
|
|
26,784
|
|
263,435
|
|
280,298
|
|
Interest expense
|
|
(140,410
|
)
|
(144,804
|
)
|
(71,894
|
)
|
(9,818
|
)
|
(22,514
|
)
|
Amortization of note discount
|
|
(461,874
|
)
|
(595,014
|
)
|
(150,082
|
)
|
|
|
|
|
Other income (expense)
|
|
|
|
2
|
|
15,447
|
|
304
|
|
(48,377
|
)
|
Net loss
|
|
$
|
(7,246,202
|
)
|
$
|
(6,558,914
|
)
|
$
|
(5,306,119
|
)
|
$
|
(4,522,706
|
)
|
$
|
(4,978,827
|
)
|
Accretion of convertible preferred stock discount
|
|
|
|
(8,094,727
|
)
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(7,246,202
|
)
|
$
|
(14,653,641
|
)
|
$
|
(5,306,119
|
)
|
$
|
(4,522,706
|
)
|
$
|
(4,978,827
|
)
|
Basic and diluted
net loss per common share
|
|
$
|
(0.31
|
)
|
$
|
(0.63
|
)
|
$
|
(0.24
|
)
|
$
|
(0.21
|
)
|
$
|
(0.27
|
)
|
Weighted average common
shares outstanding
|
|
23,482,642
|
|
23,193,195
|
|
21,713,432
|
|
21,049,437
|
|
18,315,320
|
|
|
|
As of December 31,
|
|
|
|
2004
|
|
2003(1)
|
|
2002
|
|
2001
|
|
2000
|
|
Selected
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents and marketable securities
|
|
$
|
4,528,425
|
|
$
|
4,759,453
|
|
$
|
733,848
|
|
$
|
3,922,736
|
|
$
|
5,390,601
|
|
Working capital
|
|
$
|
3,276,072
|
|
$
|
4,216,466
|
|
$
|
(279,029
|
)
|
$
|
3,270,667
|
|
$
|
4,457,828
|
|
Total assets
|
|
$
|
6,185,501
|
|
$
|
5,340,604
|
|
$
|
1,249,779
|
|
$
|
4,393,126
|
|
$
|
5,694,511
|
|
Long term debt and
capital lease obligations, less current portion
|
|
$
|
1,212,691
|
|
$
|
765,129
|
|
$
|
1,518,322
|
|
$
|
11,091
|
|
$
|
46,989
|
|
Stockholders equity
(deficit)
|
|
$
|
3,527,507
|
|
$
|
3,912,371
|
|
$
|
(1,384,560
|
)
|
$
|
3,550,548
|
|
$
|
4,493,805
|
|
(1) As
restated, see Note 2 to the consolidated financial statements included in
Item 8.
27
Item
7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
General Overview
We are in the business of personalized health. We are developing
tests and products that can help individuals improve and maintain their health
through preventive measures. We plan to develop the following types of
products: 1) genetic risk assessment products, 2) preventive nutritional
products (foods and nutritionals developed to prevent disease onset), and 3)
personalized therapeutics that treat an individual with existing disease and
use genetic information to expedite drug development and to target the drug use
to individuals most likely to respond favorably. We will use our intellectual
property and expertise to develop products or acquire additional intellectual
property that can be leveraged, through collaboration with partners, to address
unmet market needs. We are currently developing a number of genetic risk
assessment tests to be distributed by Alticor in their multi-level marketing
channel, the first of which the market launch is expected to occur in the first
quarter of 2006.
Our current commercial strategy is to partner with
companies that have sales and marketing capabilities and products or services
that complement our own products. We currently have no plans to develop our own
sales force; we plan to rely on our strategic partners to promote and
distribute our products. The first of these strategic partnerships is the
partnership we have with Alticor and its affiliates. The details of this
affiliation are described within the section titled Strategic Alliance and
Collaborations beginning on page 14.
Our revenue model consists of : 1) charging a fee for
processing a genetic risk assessment test and generating a personalized risk
assessment report; and 2) receiving a royalty from sales of products developed
with a partner, or profit sharing from product sales. Furthermore, we plan to
collaborate with other companies in research and development. In these
collaborations, we expect to receive a certain amount of research funding from
the partner covering labor, material, overhead and a small amount of profit. Our
first such collaboration is with Alticor for the development of personalized
nutritional and skincare products.
In March 2003, we entered into a broad strategic
alliance with several affiliates of Alticor to develop and market personalized nutritional
and skin care products. The alliance utilizes our intellectual property and
expertise in genomics to develop personalized consumer products. Alticor has a
long history of manufacturing and distributing high quality nutritional
supplements and skin care products to a worldwide market through the
multi-level marketing channel.
We are devoting most of our resources to the support
of the strategic collaboration with Alticor which includes the development of
our genetic risk assessment tests to be sold in combination with Alticors
products. A portion of our resources is also devoted to the development of a
new product for the periodontal market. Our funding has consisted primarily of
research payments from Alticor and trivial royalties from PST®. Additionally,
we expect to continue incurring losses as we continue to develop our new tests
and products.
The alliance has included an equity investment,
multi-year research and development agreements, a licensing agreement with
royalties on marketed products, the deferment of outstanding loan repayment and
the refinancing of bridge financing obligations. The financial elements of this
alliance are described in greater detail in the section titled Liquidity and Capital Resources
beginning on page 32.
Sufficiency of working
capital remains our greatest challenge. The amount of cash generated from
research collaborations with Alticor is not adequate to fund our operations,
thus, resulting in an annual cash burn. The situation is, however, improving as
discussed in the Liquidity and
Capital Resources section beginning on page 32. Our current cash
resources, together with additional research agreements, anticipated revenue
from product launches, and other arrangements are adequate to fund operations
through mid-2006.
28
Critical Accounting Policies
Our significant accounting
policies are described in Note 3 to the consolidated financial statements
included in this report. We believe our most critical accounting policies are
in the areas of our strategic alliance with Alticor, stock-based compensation
and income taxes. We do not include the value of stock options issued to
employees or our Directors as an expense. Had we expensed our stock-based
compensation using the Black-Scholes option-pricing model described below, our
losses would have increased $875,000 in 2004 (or $0.04 per common share),
$1,145,000 in 2003 (or $0.05 per common share) and $752,000 in 2002 (or $0.04
per common share).
Strategic alliance
with Alticor:
We account for our
strategic alliance with Alticor in accordance with Emerging Issues Task Force
(EITF) No. 01-1, Accounting for Convertible Instruments
Granted or Issued to a Nonemployee for Goods or Services or a Combination of
Goods or Services and Cash (EITF No. 01-1). Under EITF No. 01-1, the
proceeds received from Alticor in connection with the March 5, 2003 transaction
must first be allocated to the fair value of the convertible instruments
issued. As of March 5, 2003, the fair value of the convertible instruments
issued was $23.7 million; therefore any proceeds received from Alticor in
connection with the March 5, 2003 transaction, up to $23.7 million, will be
recorded as equity.
Stock-based
compensation:
We
account for our stock-based compensation plans under Accounting Principles
Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB
No. 25). Under APB No. 25, no
stock-based compensation is reflected in net income, as all options granted
under the plans had an exercise price equal to the market value of the
underlying common stock on the date of grant and the related number of shares
granted is fixed at that point in time. The following table illustrates the
effect on net loss and loss per common share if we had applied the fair value
recognitions provisions of Statement of Financial Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure, issued in December 2002.
The stock compensation expense in the below table recognizes the expense over
the vesting period of the stock options.
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
(As Restated)
|
|
|
|
Net loss attributable
to common stockholders:
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(7,246,202
|
)
|
$
|
(14,653,641
|
)
|
$
|
(5,306,119
|
)
|
Stock-based employee compensation expense
|
|
874,847
|
|
1,145,079
|
|
752,134
|
|
Pro forma
|
|
$
|
(8,121,049
|
)
|
$
|
(15,798,720
|
)
|
$
|
(6,058,253
|
)
|
Basic and diluted
net loss per common share:
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.31
|
)
|
$
|
(0.63
|
)
|
$
|
(0.24
|
)
|
Pro forma
|
|
$
|
(0.35
|
)
|
$
|
(0.68
|
)
|
$
|
(0.28
|
)
|
29
The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the weighted-average assumptions listed
in the table below for a stock that does not pay dividends.
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
Risk-free
interest rate
|
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
Expected life
|
|
7 years
|
|
7 years
|
|
7 years
|
|
Expected volatility
|
|
80
|
%
|
80
|
%
|
100
|
%
|
The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options. Our employee
stock options have characteristics significantly different from those of traded
options such as extremely limited transferability and, in most cases, vesting
restrictions. In addition, the assumptions used in option valuation models (see
above) are based upon historical averages that may not predict future results,
particularly the expected stock price volatility of the underlying stock.
Because changes in these input assumptions can materially affect the fair value
estimate, in managements opinion, existing valuation models do not provide a
reliable, single measure of the fair value of our employee stock options.
In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised
2004) Share-Based Payment (SFAS No. 123R). SFAS No. 123R addresses
all forms of share-based payment (SBP) awards, including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. SFAS No. 123R will require us to expense SBP awards
with compensation cost for SBP transactions measured at fair value. The FASB
originally stated a preference for a lattice model because it believed that a
lattice model more fully captures the unique characteristics of employee stock
options in the estimate of fair value, as compared to the Black-Scholes model
which we currently use for our footnote disclosure. The FASB decided to remove
its explicit preference for a lattice model and not require a single valuation
methodology. SFAS No. 123R requires us to adopt the new accounting
provisions beginning in 2006. We currently account for our stock-based
compensation plans in accordance with APB No 25. Therefore, the adoption of
this statement is likely to have a material effect on our consolidated
financial results.
Income taxes:
The preparation of our consolidated financial
statements requires us to estimate our income taxes in each of the
jurisdictions in which we operate, including those outside the United States,
which may be subject to certain risks that ordinarily would not be expected in
the United States. The income tax accounting process involves estimating our
actual current exposure together with assessing temporary differences resulting
from differing treatment of items, such as deferred revenue, for tax and
accounting purposes. These differences result in the recognition of deferred
tax assets and liabilities. We must then record a valuation allowance to reduce
our deferred tax assets to the amount that is more likely than not to be
realized.
Significant management
judgment is required in determining our provision for income taxes, our
deferred tax assets and liabilities and any valuation allowance recorded
against deferred tax assets. We have recorded a full valuation allowance against
our deferred tax assets of $15.2 million as of December 31, 2004, due to
uncertainties related to our ability to utilize these assets. The valuation
allowance is based on our estimates of taxable income by jurisdiction in which
we operate and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these estimates or we
adjust these estimates in future periods we may need to adjust our valuation
allowance which could materially impact our financial position and results of
operations.
30
Results of Operations
Comparison of Year Ended December 31, 2004 to
Year Ended December 31, 2003
Revenue for the year ended December 31, 2004 was
$35,000 compared to $54,000 for the year ended December 31, 2003, a decrease of
$19,000 or 36%. Royalties on PST® sales were $18,000 (1,719 tests) and $21,000
(1,803 tests) for 2004 and 2003, respectively. Both years include licensing
revenue of $16,000. Revenue of $17,000 associated with a one-time funded study
was included for the year ended December 31, 2003.
Research and development expenses were $4.1 million
for the year ended December 31, 2004 compared to $3.5 million for the year
ended December 31, 2003, an increase of $620,000 or 18%.
Funded research and development expenses were $2.7
million for the year ended December 31, 2004 compared to $1.4 million for the
year ended December 31, 2003, an increase of $1.3 million or 89%. In March
2003, we entered into a research agreement with Alticor to develop genetic
tests and software to assess personalized risk and develop and use screening
technologies to validate the effectiveness of the nutrigenomic consumables
Alticor is developing. Additionally, we will play a key role in enhancing and
maintaining scientific credibility in academic and medical communities. After
our initial focus in developing products for the United States and Canada, we
expect that we will expand our focus to include developing nutrigenomic
products for sale overseas and developing products in the United States and
overseas in other area of wellness and skin care. Research and development
expenses associated with this agreement were $1.9 million and $1.4 million for the
years ended December 31, 2004 and 2003, respectively. In June 2004, we entered
into another research agreement with Alticor to conduct research into the
development of a test to identify individuals with specific genetic variations
that affect how people gain and maintain weight. Research and development
expenses associated with this agreement were $673,000 for the year ended
December 31, 2004. In addition, during 2004 and 2003, we conducted genotyping
tests for Alticor for research purposes. The costs associated with these tests were
$90,000 for the year ended December 31, 2004 and $52,000 for the same period in
2003.
Unfunded research and development expenses were $1.4
million for the year ended December 31, 2004 compared to $2.0 million for the
year ended December 31, 2003, a decrease of $645,000 or 32%. The decrease in
unfunded research and development expenses reflects a re-allocation of internal
resources from internally funded projects to the funded research projects. This
decrease was partially offset by expenses associated with developing our
clinical genetic testing laboratory.
Selling, general and administrative expenses were $2.7
million for the year ended December 31, 2004 compared to $2.4 million for
the prior year, an increase of $215,000 or 9%. This increase is primarily the
result of adding the appropriate infrastructure in our efforts to develop other
markets for our products.
Interest income was $58,000 for the year ended December 31,
2004 compared to $49,000 for 2003. Interest expense of $140,000 was incurred
during the year ended December 31, 2004, compared to $145,000 in 2003. The
decrease is primarily due to the lower interest rate as a result of the
refinancing transaction with Alticor completed in July 2003 offset by a
slight increase in the Banks prime rate over the two periods.
We recorded amortization
of note discount of $462,000 for the year ended December 31, 2004 in comparison
to $595,000 in 2003. Of the $462,000 expense in 2004, $311,000 is due to the
amortization of the $1.5 million of discount resulting from the beneficial
conversion feature of the convertible debt issued in March 2003 and $151,000 is
due to the amortization of the $732,000 of discount associated with the below
market stated interest rate on the same debt. Of the $545,000 expense in 2003,
$259,000 is due to the amortization of the $1.5 million of discount resulting
from the beneficial conversion feature of the convertible debt issued in March
2003, $126,000 is due to the amortization of the $732,000 of discount
associated with the below market stated interest rate on the same debt and
$210,000 is due to the
31
amortization
of the value of the warrants issued in connection with certain promissory notes
in August 2002, which were retired in July 2003.
Comparison of Year Ended December 31, 2003 to
Year Ended December 31, 2002
Revenue for the year ended December 31, 2003 was
$54,000 compared to $290,000 for the year ended December 31, 2002, a decrease
of $236,000 or 81%. Royalties on PST® sales were $21,000 (1,803 tests) and
$27,000 (1,704 tests) for 2003 and 2002, respectively. Licensing revenue was
$16,000 and $13,000 for 2003 and 2002, respectively. Revenue of $17,000
associated with a one-time funded study was included for the year ended
December 31, 2003. Revenue for the year ended December 31, 2002, included a
one-time fee of $250,000 from Pyxis Innovations, Inc.
Research and development expenses were $3.5 million
for the year ended December 31, 2003 compared to $3.1 million for the year
ended December 31, 2002, an increase of $370,000 or 12%.
Funded research and development expenses were $1.4 million
for the year ended December 31, 2003. There were no funded research and
development expenses in 2002. In March 2003, we entered into a research
agreement with Alticor to develop genetic tests and software to assess
personalized risk and develop and use screening technologies to validate the
effectiveness of the nutrigenomic consumables Alticor is developing.
Additionally, we will play a key role in enhancing and maintaining scientific
credibility in academic and medical communities. After our initial focus in
developing products for the United States and Canada, we expect that we will
expand our focus to include developing nutrigenomic products for sale overseas
and developing products in the United States and overseas in other area of
wellness and skin care. Research and development expenses associated with this
agreement were $1.4 million for the year ended December 31, 2003. In
addition, during 2003, we conducted genotyping tests for Alticor for research
purposes. The costs associated with these tests were $52,000.
Unfunded research and development expenses were $2.0
million for the year ended December 31, 2003 compared to $3.1 million for the
year ended December 31, 2002, a decrease of $1.1 million or 34%. The decrease
in unfunded research and development expenses reflects a re-allocation of
internal resources from internally funded projects to the funded research
projects.
Selling, general and
administrative expenses were $2.4 million for the year ended December 31, 2003
compared to $2.3 million for the year ended December 31, 2002, an increase of
$110,000 or 5%.
Interest income during
2003 was $49,000 compared to $27,000 during 2002, an increase of $22,000 or 81%.
This increase was due to the higher cash balances we held during 2003,
resulting from the sale of equity to Alticor. Interest expense of $145,000 was
incurred during the year ended December 31, 2003, compared to $72,000
during 2002. This increase was due to interest expense related to our long-term
debt to Alticor and the term promissory notes sold in August 2002, which
were refinanced by Alticor in 2003.
We recorded amortization
of note discount of $595,000 for the year ended December 31, 2003 in comparison
to $150,000 in 2002. Of the $595,000 expense in 2003, $259,000 is due to the
amortization of the $1.5 million of discount resulting from the beneficial
conversion feature of the convertible debt issued in March 2003, $126,000 is
due to the amortization of the $732,000 of discount associated with the below
market stated interest rate on the same debt and $210,000 is due to the
amortization of the value of the warrants issued in connection with certain
promissory notes in August 2002 which were retired in July 2003. The $150,000
expense in 2002 was solely due to the amortization of the value of the
warrants.
Liquidity and Capital Resources
Cash is one of the key
financial performance indicators for us. As of December 31, 2004, we had
cash and cash equivalents of $4.5 million. Net cash used in operating
activities was $5.9 million during the years ended December 31, 2004 and
2003. Cash was used primarily to fund operations.
32
Investing activities used
cash of $1.1 million in 2004 and $123,000 in 2003. During 2004 cash was used to
purchase fixed assets and to fund the development of intellectual property. Specifically,
we completed the construction of our clinical genetic testing laboratory to
process the tests from our product launches.
Financing activities
provided cash of $6.8 million for the year ended December 31, 2004 compared
to $10.1 million for the year ended December 31, 2003. During 2004, we
received $6.2 million from our strategic alliance with Alticor and $707,000
from the exercise of stock options and stock purchases through the employee
stock purchase plan. During 2003, we received $9.4 million from our strategic
alliance with Alticor. We also received $1.1 million in proceeds from the
issuance of notes payable, $595,000 of which was used to repay an outstanding
bridge loan including accrued interest.
We currently do not have
any commitments for any material capital expenditures. Our obligations at December 31,
2004 for capital lease payments totaled $18,000. These capital lease
obligations mature through March 2006 at various interest rates.
A
summary of our contractual obligations as of December 31, 2004 is included
in the table below:
|
|
Payments Due By Period
|
|
Contractual Obligations
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
|
Long-Term Debt
Obligations
|
|
$
|
2,595,336
|
|
$
|
|
|
$
|
|
|
$
|
2,595,336
|
|
|
$
|
|
|
|
Capital Lease
Obligations
|
|
18,076
|
|
15,059
|
|
3,017
|
|
|
|
|
|
|
|
Operating Lease
Obligations
|
|
1,870,131
|
|
443,436
|
|
880,440
|
|
546,255
|
|
|
|
|
|
TOTAL
|
|
$
|
4,483,543
|
|
$
|
458,495
|
|
$
|
883,457
|
|
$
|
3,141,591
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2003, we
entered into a broad strategic alliance with several affiliates of the Alticor, Inc.
family of companies to develop and market personalized nutritional and skin
care products. As part of the strategic alliance, we entered into a research
agreement (Research Agreement I) with Alticor, governing the terms of
developing and validating nutrigenomic and dermagenomic tests and products. Alticor
provided us with $5.0 million during the twenty-four months ending March 2005,
to conduct certain research projects.
In June 2004, we entered into a research
agreement (Research Agreement II) with Alticor, valued at $2.2 million, as
amended, to conduct research into the development of a test to identify
individuals with specific genetic variations that affect how people gain and
maintain weight. During the first phase of the agreement, we received $1.4
million in research funding over a period of six months beginning on July 1,
2004. If Alticor determines, in its sole discretion, that it has a reasonable
likelihood of commercializing weight management nutritional products, we will
be eligible to receive, during the second phase of the agreement, an additional
$820,000 in funding over a six-month period.
In March 2005, we entered into an agreement with
Alticor to expand the research being performed under Research Agreement I
(Research Agreement III) to provide additional funding of $2.7 million over the
two years beginning April 1, 2005. Also in March 2005, we entered
into an additional research agreement (Research Agreement IV) with Alticor for
exploratory research valued at $2.3 million over a two-year period commencing April 1,
2005. These research agreements are expected to provide us with a total of $5.0
million during the two-year period ending March 2007.
In addition, in April 2005,
Alticor paid us, upon achieving a certain milestone, $2.0 million as an advance
payment for genetic risk assessment tests to be processed under the terms of
the Distribution Agreement. Further, Alticor agreed to extend the drawdown period
of the $1.5 million working capital credit line through 2007.
We believe our current
cash resources, together with additional research agreements, anticipated
revenue from product launches, and other arrangements are adequate to fund
operations through mid-2006.
33
Item
7A. Quantitative and Qualitative Disclosure about
Market Risk
As of December 31,
2004, the only financial instruments we carried were cash and cash equivalents.
We believe the market risk arising from holding these financial instruments is
immaterial.
Some of our sales and some
of our costs occur outside the United States and are transacted in foreign
currencies. Accordingly, we are subject to exposure from adverse movements in
foreign currency exchange rates. At this time we do not believe this risk is
material and we do not currently use derivative financial instruments to manage
foreign currency fluctuation risk. However, if foreign sales increase and the
risk of foreign currency exchange rate fluctuation increases, we may in the
future consider utilizing derivative instruments to mitigate these risks.
Item
8. Financial Statements and Supplementary Data
The Consolidated Financial
Statements of the Company, together with the Independent Auditors Reports, see
the Index to Financial Statements on page F-1 of this report.
Item
9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of
Disclosure Controls and Procedures. Our
principal executive officer and principal financial officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end
of the period covered by this Annual Report on Form 10-K, have
concluded that, based on such evaluation, our disclosure controls and
procedures were adequate and effective to ensure that material information
relating to us, including our consolidated subsidiaries, was made known to them
by others within those entities, particularly during the period in which this
Annual Report on Form 10-K was being prepared.
In designing and
evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management necessarily is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
(b) Changes in
Internal Controls. There
were no changes in our internal control over financial reporting, identified in
connection with the evaluation of such internal control that occurred during
our last fiscal quarter, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Managements
Report of Internal Control Over Financial Reporting
Management is responsible
for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended, as
a process designed by, or under the supervision of, the companys principal
executive and principal financial officers and effected by the companys board
of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.
The
companys internal control over financial reporting includes those policies and
procedures that:
· pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
34
· provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and
· provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
As of December 31,
2003, the company was not an accelerated filer (as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) and, therefore, did not
expect to be required to comply with Section 404 of the Sarbanes-Oxley Act
of 2002 until the fiscal year ending December 31, 2005. However, because
the companys public common float exceeded $75 million on June 30, 2004,
it became obligated to comply with Section 404 for the fiscal year ended December 31,
2004.
Management endeavored to
assess the effectiveness of the companys internal control over financial
reporting as of December 31, 2004. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Management did not complete its work
as of December 31, 2004. Management continued its efforts and in March 2005,
retained consultants to assist in its assessment of internal control over
financial reporting. Although substantial progress has been made as of March 31,
2005, management was unable to complete its assessment as of that date. Management
recognizes the need to address compliance with Section 404, and expects to
do so during 2005. As a result, the companys independent registered public
accounting firm, Grant Thornton LLP, has issued a disclaimer opinion included
in Item 8 of this Form 10-K.
The disclaimer opinion
issued by the independent auditors identifies a material weakness in the
companys internal control over financial reporting. A material weakness is a
significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected.
Based on managements work
to date, it acknowledges the above mentioned weakness in the design control
related to lack of segregation of duties. This is due to the small number of
employees within the financial and administrative functions of the company. However,
management believes that its extensive oversight mitigates the risks associated
with such lack of segregation. Management will continue to evaluate the
employees involved and the control procedures in place to determine whether the
potential benefits of adding employees to clearly segregate duties justifies
the expense associated with such increases.
Item 9B. Other Information
Not applicable.
35
PART III
Item
10. Directors and Executive Officers of the Registrant
Information required under
this Item will be contained in our Proxy Statement for the 2005 Annual Meeting,
which is incorporated herein by reference under the sections entitled Management,
Compliance with 16(a) of the Securities Exchange Act of 1934, and Code
of Conduct and Ethics.
Item 11. Executive Compensation
Information required under
this Item will be contained in our Proxy Statement for the 2005 Annual Meeting,
which is incorporated herein by reference under the section entitled Executive
Compensation.
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Information required under
this Item will be contained in our Proxy Statement for the 2005 Annual Meeting,
which is incorporated herein by reference under sections entitled Security
Ownership of Certain Beneficial Owners and Management and Equity Compensation
Plan Information.
Item
13. Certain Relationships and Related Transactions
Information required under
this Item will be contained in our Proxy Statement for the 2005 Annual Meeting,
which is incorporated herein by reference under the section entitled Certain
Relationships and Related Transactions.
Item
14. Principal Accountant Fees and Services
Information required under this Item will be contained
in our Proxy Statement for the 2005 Annual Meeting, which is incorporated
herein by reference under the section entitled Ratification of Appointment of
Independent Public Accountants.
36
PART IV
Item
15. Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of
Report
1. Financial
Statements:
The Consolidated
Financial Statements of the Company and the related report of the Companys
independent registered public accounting firm thereon have been filed under
Item 8 hereof.
2. Financial
Statement Schedules:
The information
required by this item is not applicable.
3. Exhibits:
The
exhibits listed below are filed as part of or incorporated by reference in this
report. Where such filing is incorporated by reference to a previously filed
document, such document is identified in parentheses.
Exhibit No.
|
|
Identification of Exhibit
|
3.1
|
|
Articles of
Incorporation of the Company, as amended (incorporated herein by reference to
Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q filed
August 14, 2000)
|
3.2
|
|
Bylaws of the Company,
as adopted on June 5, 2000 (incorporated herein by reference to
Exhibit 3.2 of the Companys Quarterly Report on Form 10-Q filed
August 14, 2000)
|
3.3
|
|
Certificate of
Designations, Preferences and Rights of Series A Preferred Stock
(incorporated herein by reference to Exhibit 3.1 of the Companys
Current Report filed on Form 8-K on March 5, 2003)
|
3.4
|
|
Certificate of Amendment
to Certificate of Incorporation, as filed with the Delaware Secretary of
State on August 5, 2003 (incorporated herein by reference to
Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q filed on
November 12, 2003)
|
4.1
|
|
Form of Stock
Certificate representing Common Stock, $0.001 par value, of the Company
(incorporated herein by reference to Exhibit 4.1 of the Companys
Quarterly Report on Form 10-Q filed August 14, 2000)
|
10.1@
|
|
Interleukin
Genetics, Inc. 1996 Equity Incentive Plan (incorporated herein by
reference to Exhibit 10.17 of the Companys Registration Statement
No. 333-37441 on Form SB-2 filed October 8, 1997)
|
10.2@
|
|
Amendment to the
Interleukin Genetics, Inc. 1996 Equity Incentive Plan (incorporated
herein by reference to Exhibit 10.18 of the Companys Registration
Statement No. 333 37441 on Form SB-2 filed October 8, 1997)
|
10.3@
|
|
Form of Stock
Option Agreement (incorporated herein by reference to Exhibit 10.19 of
the Companys Registration Statement No. 333-37441 on Form SB-2
filed October 8, 1997)
|
10.4@
|
|
Stock Option Exercise
Agreement (incorporated herein by reference to Exhibit 10.20 of the
Companys Registration Statement No. 333-37441 on Form SB-2 filed
October 8, 1997)
|
10.5@
|
|
Non-Qualified Stock
Option Agreement dated June 1, 1999, between the Company and Philip R.
Reilly (incorporated herein by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-QSB filed August 16, 1999)
|
10.6+
|
|
Research and Technology
Transfer Agreement dated effective July 1, 1999, between the Company and
the University of Sheffield (incorporated herein by reference to
Exhibit 10.1 of the Companys Quarterly Report on Form 10-QSB filed
November 15, 1999)
|
37
10.7+
|
|
Research Support
Agreement dated effective July 1, 1999, between the Company and the
University of Sheffield (incorporated herein by reference to
Exhibit 10.2 of the Companys Quarterly Report on Form 10-QSB filed
November 15, 1999)
|
10.8+
|
|
Consulting Agreement
dated effective July 1, 1999, between the Company and Gordon
Duff, PhD, FRCP (incorporated herein by reference to Exhibit 10.3
of the Companys Quarterly Report on Form 10-QSB filed November 15,
1999)
|
10.9@
|
|
Non-Qualified Stock
Option Agreement dated November 30, 1999 between the Company and Philip
R. Reilly (incorporated herein by reference to Exhibit 4.5 of the
Companys Registration Statement No. 333-32538 on Form S-8 filed
March 15, 2000)
|
10.10@
|
|
Employment Agreement
dated December 1, 1999 between the Company and Kenneth S. Kornman.
(incorporated herein by reference to Exhibit 10.25 of the Companys
Annual Report on Form 10-K filed April 15, 2000)
|
10.11@
|
|
Employment Agreement
dated April 1, 2000 between the Company and Philip R. Reilly.
(incorporated herein by reference to Exhibit 10.26 of the Companys
Annual Report on Form 10-K filed on April 15, 2000)
|
10.12@
|
|
2000 Employee Stock
Compensation Plan for the Company (incorporated herein by reference to
Exhibit 10.3 of the Companys Quarterly Report on Form 10-Q filed
August 14, 2000)
|
10.13@
|
|
Form of
Nonqualified Stock Option Grant (incorporated herein by reference to
Exhibit 10.4 of the Companys Quarterly Report on Form 10-Q filed
August 14, 2000)
|
10.14@
|
|
Form of Incentive
Stock Option Grant (incorporated herein by reference to Exhibit 10.5 of
the Companys Quarterly Report on Form 10-Q filed August 14, 2000)
|
10.15@
|
|
Employment Agreement
dated June 18, 2000 between the Company and Fenel Eloi (incorporated
herein by reference to Exhibit 10.6 of the Companys Quarterly Report on
Form 10-Q filed August 14, 2000)
|
10.16
|
|
Note Purchase Agreement
between the Company and Pyxis Innovations, Inc. dated October 22,
2002 (incorporated herein by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on October 28, 2002)
|
10.17
|
|
Security Agreement
between the Company and Pyxis Innovations, Inc dated October 22, 2002
(incorporated herein by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed on October 28, 2002)
|
10.18
|
|
Form of Common
Stock Purchase Warrant (incorporated herein by reference to Exhibit 10.3
of the Companys Quarterly Report on Form 10-Q filed on November 7,
2002)
|
10.19
|
|
Registration Rights
Agreement dated August 9, 2002 (incorporated herein by reference to
Exhibit 10.4 of the Companys Quarterly Report on Form 10-Q filed
on November 7, 2002)
|
10.20
|
|
Stock Purchase Agreement
between the Company and Pyxis Innovations, Inc dated March 5, 2003
(incorporated herein by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on March 5, 2003)
|
10.21
|
|
Amendment No. 3 to
Note Purchase Agreement between the Company and Pyxis Innovations, Inc, dated
March 5, 2003 (incorporated herein by reference to Exhibit 10.2 of
the Companys Current Report on Form 8-K filed on March 5, 2003)
|
10.22
|
|
Amendment No. 2 to
the Security Agreement between the Company and Pyxis Innovations, Inc.,
dated March 5, 2003 (incorporated herein by reference to
Exhibit 10.3 of the Companys Current Report on Form 8-K filed on
March 5, 2003)
|
38
10.23
|
|
Form of Amended and
Restated Promissory Note (incorporated herein by reference to
Exhibit 10.4 of the Companys Current Report on Form 8-K filed on
March 5, 2003)
|
10.24
|
|
Amendment No. 2 to
Note Purchase Agreement between the Company and Pyxis Innovations, Inc.
(incorporated herein by reference to Exhibit 10.5 of the Companys
Current Report on Form 8-K filed on March 5, 2003)
|
10.25+
|
|
Research Agreement
between the Company and Access Business Group dated March 5, 2003
(incorporated herein by reference to Exhibit 10.6 of the Companys
Current Report on Form 8-K filed on March 5, 2003)
|
10.26+
|
|
Exclusive License
Agreement between the Company and Access Business Group dated March 5,
2003 (incorporated herein by reference to Exhibit 10.7 of the Companys
Current Report on Form 8-K filed on March 5, 2003)
|
10.27
|
|
Registration Rights
Agreement between the Company and Pyxis Innovations, Inc. dated
March 5, 2003 (incorporated herein by reference to Exhibit 10.8 of
the Companys Current Report on Form 8-K filed on March 5, 2003)
|
10.28@
|
|
Amendment No. 1 to
the Employment Agreement with Philip R. Reilly (incorporated herein by
reference to Exhibit 10.9 of the Companys Current Report on
Form 8-K filed on March 5, 2003)
|
10.29@
|
|
Amendment to the
Employment Agreement with Fenel Eloi (incorporated herein by reference to
Exhibit 10.10 of the Companys Current Report on Form 8-K filed on
March 5, 2003)
|
10.30@
|
|
Amendment to the
Employment Agreement with Kenneth Kornman (incorporated herein by reference
to Exhibit 10.11 of the Companys Current Report on Form 8-K filed
on March 5, 2003)
|
10.31@
|
|
Form of Directors
Indemnity Agreement dated March 5, 2003 (incorporated herein by
reference to Exhibit 10.13 of the Companys Current Report on
Form 8-K filed on March 5, 2003)
|
10.32@
|
|
Amendment 2 to the
Employment Agreement with Fenel M. Eloi, dated December 11, 2003 (incorporated
herein by reference to Exhibit 10.43 of the Companys Annual Report on
Form 10-K filed on March 29, 2004)
|
10.33
|
|
Commercial Lease
Agreement between the Company and Clematis LLC dated February 13, 2004
(incorporated herein by reference to Exhibit 10.44 of the Companys
Annual Report on Form 10-K filed on March 29, 2004)
|
10.34+
|
|
Distribution Agreement
with the Company and Access Business Group International LLC, dated
February 26, 2004 (incorporated herein by reference to
Exhibit 10.45 of the Companys Annual Report on Form 10-K filed on
March 29, 2004)
|
10.35+
|
|
Research Agreement by
and between the Company and Access Business Group LLC dated June 17,
2004 (incorporated by reference to Exhibit 10.1 of the Companys
Quarterly Report on Form 10-Q filed on August 10, 2004)
|
10.36
|
|
Interleukin
Genetics, Inc. 2004 Employee, Director and Consultant Stock Plan
(incorporated by reference to Exhibit 99.1 of the Companys Registration
Statement No. 333-118551 on Form S-8 filed on August 25, 2004)
|
10.37+
|
|
Amendment #1 to Research
Agreement by and between the Company and Access Business Group LLC dated
June 17, 2004 (incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q filed on November 3, 2004)
|
39
10.38*++
|
|
Research Agreement by
and between the Company and Access Business Group LLC dated March 5,
2005
|
10.39*++
|
|
Research Agreement by
and between the Company and Access Business Group LLC dated March 5,
2005
|
10.40*
|
|
First Amendment to
Distribution Agreement with the Company and Access Business Group
International LLC, dated February 28, 2005
|
10.41*
|
|
Second Amendment to
Stock Purchase Agreement between the Company and Pyxis Innovations, Inc dated
February 28, 2005
|
21.1*
|
|
Subsidiaries of the
Company
|
23.1*
|
|
Consent of Grant
Thornton LLP
|
31.1*
|
|
Certification of Chief
Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
|
31.2*
|
|
Certification of Chief
Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
|
32*
|
|
Certification pursuant
to Section 906 of Sarbanes-Oxley Act of 2002
|
* Filed
herewith.
+ The Securities and
Exchange Commission with respect to certain portions of this exhibit has previously
granted confidential treatment. Omitted portions have been filed separately
with the Securities and Exchange Commission.
++ Confidential treatment
requested as to certain portions of the document, which portions have been
omitted and filed separately with the Securities and Exchange Commission.
@ Management contract
or compensatory plan, contract or arrangement
40
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
INTERLEUKIN GENETICS, INC.
|
|
|
By:
|
/s/
FENEL M. ELOI
|
|
|
|
Fenel M. Eloi
|
|
|
|
Chief
Operating Officer, Chief
Financial Officer, Secretary and Treasurer
|
Date: April 25, 2005
In
accordance with 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 date indicated.
|
Signatures
|
|
|
|
Title
|
|
|
|
Date Signed
|
|
/s/
PHILIP R. REILLY
|
|
Chairman of the Board of
Directors and
|
|
|
Philip R. Reilly
|
|
Chief Executive Officer (Principal Executive
|
|
April 25, 2005
|
|
|
Officer)
|
|
|
/s/
FENEL M. ELOI
|
|
Chief Financial Officer,
Secretary &
|
|
|
Fenel M. Eloi
|
|
Treasurer (Principal Financial and
|
|
April 25, 2005
|
|
|
Accounting officer)
|
|
|
/s/
GEORGE CALVERT
|
|
Director
|
|
April 25, 2005
|
George Calvert
|
|
|
/s/
THOMAS R. CURRAN, JR.
|
|
Director
|
|
April 25, 2005
|
Thomas R.
Curran, Jr.
|
|
|
/s/
WILLIAM J. VIVEEN, JR.
|
|
Director
|
|
April 25, 2005
|
William J.
Viveen, Jr.
|
|
|
41
Report
of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Interleukin Genetics, Inc.
We have audited the accompanying consolidated balance
sheets of Interleukin Genetics, Inc. (the Company) (a Delaware
corporation), as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders equity (deficit) and
comprehensive loss, and cash flows for each of the years in the three year
period ended December 31, 2004. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Interleukin Genetics, Inc. as of December 31, 2004 and
2003, and the results of their operations and their cash flows for each of the
years in the three year period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2, the accompanying fiscal 2003
consolidated financial statements have been restated.
We were also engaged to
audit, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal
control over financial reporting as of December 31, 2004, based on the
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Since
management was unable to complete its assessment on internal control over
financial reporting as of December 31, 2004, and therefore we were unable
to apply other procedures to satisfy ourselves as to the effectiveness of the
Companys internal control over financial reporting, the scope of our work was
not sufficient to enable us to express, and we did not express, an opinion
either on managements assessment or on the effectiveness of the Companys
internal control over financial reporting in our report dated April 22,
2005.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
April 22, 2005
F-2
Report of Independent Registered Public Accounting
Firm
Shareholders and Board of Directors
Interleukin Genetics, Inc.
We were engaged to audit managements assessment
included in the accompanying Management Report of Internal Control Over
Financial Reporting that Interleukin Genetics, Inc. maintained effective
internal control over financial reporting as of December 31, 2004 based on
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting.
Management did not complete their evaluation of design
effectiveness of internal control as of December 31, 2004. Based on the
limited procedures we performed we noted what we believe to be a material
weakness relating to limited segregation of duties. A material weakness is a
control deficiency, or combination of control deficiencies, that results in
more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. We have
identified the following material weakness that has not been identified as a
material weakness in managements assessment: the Company does not maintain an
appropriate segregation of duties for the functions of initiating, authorizing,
recording, and reconciling transactions. This material weakness was considered
in determining the nature, timing, and extent of audit tests applied in our
audit of the 2004 financial statements, and this report does not affect our
report dated April 22, 2005 on those financial statements.
A Companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A Companys
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Since management was unable to complete its assessment
on internal control over financial reporting and we were unable to apply other
procedures to satisfy ourselves as to the effectiveness of the Companys
internal control over financial reporting, the scope of our work was not
sufficient to enable us to express, and we do not express, an opinion either on
managements assessment or on the effectiveness of the Companys internal
control over financial reporting.
F-3
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Interleukin Genetics, Inc. as of December 31, 2004 and 2003 and the
related consolidated statements of operations, stockholders equity (deficit)
and comprehensive loss, and cash flows for each of the years in the three year period ended December 31,
2004 and our report dated April 22, 2005 expressed an unqualified opinion.
/s/ GRANT THORNTON
LLP
Boston,
Massachusetts
April 22, 2005
F-4
INTERLEUKIN
GENETICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
(As Restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,528,425
|
|
|
$
|
4,759,453
|
|
|
Accounts receivable, net of allowance for doubtful
accounts of $0 in 2004 and 2003
|
|
10,131
|
|
|
5,598
|
|
|
Prepaid expenses and other current assets
|
|
182,819
|
|
|
114,519
|
|
|
Total current assets
|
|
4,721,375
|
|
|
4,879,570
|
|
|
Fixed assets, net
|
|
1,142,087
|
|
|
271,669
|
|
|
Other assets
|
|
322,039
|
|
|
189,365
|
|
|
Total Assets
|
|
$
|
6,185,501
|
|
|
$
|
5,340,604
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
94,780
|
|
|
$
|
69,807
|
|
|
Accrued expenses
|
|
914,907
|
|
|
538,191
|
|
|
Deferred revenue
|
|
12,760
|
|
|
28,760
|
|
|
Commitments for funded research and development
projects
|
|
408,544
|
|
|
|
|
|
Current portion of capital lease obligations
|
|
14,312
|
|
|
26,346
|
|
|
Total current liabilities
|
|
1,445,303
|
|
|
663,104
|
|
|
Long-term notes payable
|
|
1,209,713
|
|
|
747,839
|
|
|
Capital
lease obligations, less current portion
|
|
2,978
|
|
|
17,290
|
|
|
Total liabilities
|
|
2,657,994
|
|
|
1,428,233
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
Convertible preferred stock, Series A $0.001
par value6,000,000
shares authorized; 5,000,000 issued and outstanding at December 31, 2004
and 2003; aggregate liquidation preference of $18,000,000 at
December 31, 2004
|
|
5,000
|
|
|
5,000
|
|
|
Common stock, $0.001 par value75,000,000
shares authorized; 23,594,337 and 23,262,588 shares issued and outstanding at
December 31, 2004 and 2003, respectively
|
|
23,595
|
|
|
23,263
|
|
|
Additional paid-in capital
|
|
58,123,868
|
|
|
51,262,862
|
|
|
Accumulated deficit
|
|
(54,624,956
|
)
|
|
(47,378,754
|
)
|
|
Total stockholders equity
|
|
3,527,507
|
|
|
3,912,371
|
|
|
Total
liabilities and stockholders equity
|
|
$
|
6,185,501
|
|
|
$
|
5,340,604
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
INTERLEUKIN
GENETICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(As Restated)
|
|
Revenue
|
|
$
|
34,671
|
|
$
|
54,105
|
|
$
|
289,908
|
|
Cost of revenue
|
|
351
|
|
20,658
|
|
484
|
|
Gross profit
|
|
34,320
|
|
33,447
|
|
289,424
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Research and development
|
|
4,078,316
|
|
3,457,861
|
|
3,082,484
|
|
Selling, general and administrative
|
|
2,658,037
|
|
2,443,219
|
|
2,333,314
|
|
Total operating expenses
|
|
6,736,353
|
|
5,901,080
|
|
5,415,798
|
|
Loss from operations
|
|
(6,702,033
|
)
|
(5,867,633
|
)
|
(5,126,374
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest income
|
|
58,115
|
|
48,535
|
|
26,784
|
|
Interest expense
|
|
(140,410
|
)
|
(144,804
|
)
|
(71,894
|
)
|
Amortization of note discount
|
|
(461,874
|
)
|
(595,014
|
)
|
(150,082
|
)
|
Other income (expense), net
|
|
|
|
2
|
|
15,447
|
|
Total other income (expense)
|
|
(544,169
|
)
|
(691,281
|
)
|
(179,745
|
)
|
Net loss
|
|
$
|
(7,246,202
|
)
|
$
|
(6,558,914
|
)
|
$
|
(5,306,119
|
)
|
Accretion of convertible preferred stock discount
|
|
|
|
(8,094,727
|
)
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(7,246,202
|
)
|
$
|
(14,653,641
|
)
|
$
|
(5,306,119
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.31
|
)
|
$
|
(0.63
|
)
|
$
|
(0.24
|
)
|
Weighted
average common shares outstanding
|
|
23,482,642
|
|
23,193,195
|
|
21,713,432
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
INTERLEUKIN
GENETICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2004, 2003 and 2002
|
|
Convertible
Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
$0.001
par value
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Income
(Loss)
|
|
Total
|
|
Balance
as of December 31, 2001
|
|
|
|
|
$
|
|
|
|
21,427,699
|
|
|
$
|
21,428
|
|
|
$
|
39,042,841
|
|
$
|
(35,513,721
|
)
|
|
$
|
|
|
|
$
|
3,550,548
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,306,119
|
)
|
|
|
|
|
(5,306,119
|
)
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
employee stock options
|
|
|
|
|
|
|
|
4,437
|
|
|
4
|
|
|
3,323
|
|
|
|
|
|
|
|
3,327
|
|
Employee stock
purchase plan
|
|
|
|
|
|
|
|
9,855
|
|
|
10
|
|
|
5,270
|
|
|
|
|
|
|
|
5,280
|
|
Stock options
issued to non-employees for services rendered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,203
|
|
|
|
|
|
|
|
2,203
|
|
Warrants issued in
connection with interim financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360,201
|
|
|
|
|
|
|
|
360,201
|
|
Stock issued to
private placement holders in consideration of the waiver of certain rights
|
|
|
|
|
|
|
|
1,676,258
|
|
|
1,677
|
|
|
(1,677
|
)
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2002
|
|
|
|
|
|
|
|
23,118,249
|
|
|
23,119
|
|
|
39,412,161
|
|
(40,819,840
|
)
|
|
|
|
|
(1,384,560
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,558,914
|
)
|
|
|
|
|
(6,558,914
|
)
|
Investment by Alticor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred
stock
|
|
5,000,000
|
|
|
5,000
|
|
|
|
|
|
|
|
|
6,845,225
|
|
|
|
|
|
|
|
6,850,225
|
|
Beneficial
conversion feature on Series A preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,094,727
|
|
|
|
|
|
|
|
8.094.727
|
|
Accretion of Series
A preferred stock discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,094,727
|
)
|
|
|
|
|
|
|
(8,094,727
|
)
|
Beneficial
conversion feature on convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,609
|
|
|
|
|
|
|
|
1,500,609
|
|
Below market
stated interest rate on convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,783
|
|
|
|
|
|
|
|
731,783
|
|
Research funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
2,500,000
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
9,000
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
|
|
|
|
|
135,931
|
|
|
136
|
|
|
140,462
|
|
|
|
|
|
|
|
140,598
|
|
Employee stock
purchase plan
|
|
|
|
|
|
|
|
8,408
|
|
|
8
|
|
|
12,042
|
|
|
|
|
|
|
|
12,050
|
|
Stock options
issued to non-employees for services rendered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,580
|
|
|
|
|
|
|
|
111,580
|
|
Balance
as of December 31, 2003 (As Restated)
|
|
5,000,000
|
|
|
5,000
|
|
|
23,262,588
|
|
|
23,263
|
|
|
51,262,862
|
|
(47,378,754
|
)
|
|
|
|
|
3,912,371
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,246,202
|
)
|
|
|
|
|
(7,246,202
|
)
|
Investment by
Altocor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
2,000,000
|
|
Research funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,880,000
|
|
|
|
|
|
|
|
3,880,000
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274,088
|
|
|
|
|
|
|
|
274,088
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
|
|
|
|
|
320,751
|
|
|
321
|
|
|
674,026
|
|
|
|
|
|
|
|
674,347
|
|
Employee stock
purchase plan
|
|
|
|
|
|
|
|
10,998
|
|
|
11
|
|
|
32,892
|
|
|
|
|
|
|
|
32,903
|
|
Balance
as of December 31, 2004
|
|
5,000,000
|
|
|
$
|
5,000
|
|
|
23,594,337
|
|
|
$
|
23,595
|
|
|
$
|
58,123,868
|
|
$
|
(54,624,956
|
)
|
|
$
|
|
|
|
$
|
3,527,507
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
INTERLEUKIN
GENETICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
(As Restated)
|
|
|
|
Net loss
|
|
$
|
(7,246,202
|
)
|
$
|
(6,558,914
|
)
|
$
|
(5,306,119
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
123,566
|
|
107,528
|
|
81,281
|
|
Amortization of note discount
|
|
461,874
|
|
595,014
|
|
150,082
|
|
Issuance of stock options to non-employees for
services
rendered
|
|
|
|
111,580
|
|
2,203
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
(4,533
|
)
|
(2,354
|
)
|
72,739
|
|
Prepaid expenses and other current assets
|
|
(68,300
|
)
|
(14,623
|
)
|
3,540
|
|
Accounts payable
|
|
24,973
|
|
(198,427
|
)
|
86,680
|
|
Accrued expenses
|
|
376,716
|
|
75,220
|
|
(14,399
|
)
|
Deferred revenue
|
|
(16,000
|
)
|
(16,599
|
)
|
(96,989
|
)
|
Commitments for funded research and development
projects
|
|
408,544
|
|
|
|
|
|
Net cash used in operating activities
|
|
(5,939,362
|
)
|
(5,901,575
|
)
|
(5,020,982
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
(971,991
|
)
|
(19,817
|
)
|
(180,706
|
)
|
(Increase) decrease in other assets
|
|
(154,667
|
)
|
(103,558
|
)
|
19,843
|
|
Net cash used in investing activities
|
|
(1,126,658
|
)
|
(123,375
|
)
|
(160,863
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from investment by Alticor
|
|
6,154,088
|
|
9,359,225
|
|
|
|
Proceeds from exercises of warrants and stock options
|
|
674,347
|
|
140,598
|
|
3,327
|
|
Proceeds from employee stock purchase plan
|
|
32,903
|
|
12,050
|
|
5,280
|
|
Increases in notes payable
|
|
|
|
1,095,336
|
|
2,025,000
|
|
Repayment of bridge loans
|
|
|
|
(525,000
|
)
|
|
|
Principal payments of capital lease obligations, net
|
|
(26,346
|
)
|
(31,654
|
)
|
(40,650
|
)
|
Net cash provided by financing activities
|
|
6,834,992
|
|
10,050,555
|
|
1,992,957
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(231,028
|
)
|
4,025,605
|
|
(3,188,888
|
)
|
Cash and cash equivalents, beginning of year
|
|
4,759,453
|
|
733,848
|
|
3,922,736
|
|
Cash and cash equivalents, end of year
|
|
$
|
4,528,425
|
|
$
|
4,759,453
|
|
$
|
733,848
|
|
Supplemental disclosures of cash flow
information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
140,410
|
|
$
|
205,151
|
|
$
|
11,547
|
|
Cash paid for income taxes
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Supplemental disclosure on noncash investing and
financing
activity:
|
|
|
|
|
|
|
|
Acquisition of fixed assets under capital leases
|
|
$
|
|
|
$
|
32,395
|
|
$
|
42,238
|
|
Accretion of
convertible preferred stock discount
|
|
$
|
|
|
$
|
8,094,727
|
|
$
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
INTERLEUKIN
GENETICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1Company Background and Uncertainties
Organization and Line of Business
The Company develops
genetic risk assessment tests and provides research services to collaborative
partners. As of December 31, 2004, the Company has commercially introduced
one genetic test and is in various stages of development for several others.
Additionally, the Company provides research services under contract to
collaborative partners.
Commercial success of
genetic risk assessment tests will depend upon their acceptance as medically
useful and cost-effective by patients, physicians, dentists, other members of
the medical and dental community, and third-party payers. It is uncertain
whether current genetic risk assessment tests or others that the Company may
develop will gain commercial acceptance on a timely basis, if at all.
Research in the field of
disease predisposing genes and genetic markers is intense and highly
competitive. The Company has many competitors in the United States and abroad
that have considerably greater financial, technical, marketing, and other
resources available. If the Company does not discover disease predisposing
genes or genetic markers and develop genetic risk assessment tests and launch
such services or products before their competitors, then revenues may be
reduced or eliminated.
The Companys ability to
successfully commercialize genetic risk assessment tests depends on obtaining
adequate reimbursement for such products and related treatment from government
and private healthcare insurers and other third-party payers. Doctors
decisions to recommend genetic risk assessment tests will be influenced by the
scope and reimbursement for such tests by third-party payers. If both
third-party payers and individuals are unwilling to pay for the test, then the
number of tests performed will significantly decrease, therefore resulting in a
reduction of revenue.
The Company was
incorporated in Texas in 1986 and re-incorporated in Delaware in March 2000.
Note 2Restatement of Consolidated Financial
Statements
The accompanying consolidated
financial statements as of and for the year ended December 31, 2003, and the
quarterly periods presented in Note 17, have been restated to properly account
for the transaction entered into with Alticor, Inc and its affiliates on March 5,
2003.
In a private
placement on March 5, 2003, the Company entered into a Stock Purchase
Agreement with Pyxis Innovations, Inc., a subsidiary of Alticor, pursuant
to which Pyxis purchased from the Company 5,000,000 of the Companys Series A
Preferred Stock, $0.001 per share, for $7,000,000 in cash and $2,000,000 in
cash to be paid, if at all, upon the Company reaching a milestone pursuant to
the terms of the Stock Purchase Agreement. The Series A Preferred Stock
issued in the private placement were initially convertible into 28,157,683
shares of the Companys Common Stock at the purchasers discretion. Pursuant to
the terms of the Stock Purchase Agreement, Pyxis agreed to refinance, in the
form of convertible debt, certain of the Companys indebtedness in the form of
previously issued promissory notes that were held by Pyxis and certain
individuals. This ultimately amounted to $2,595,336 in debt refinanced and was
initially convertible into 5,219,903 shares of the Companys Common Stock. Concurrent
with the closing of the Stock Purchase Agreement, the Company entered into a
research agreement with an affiliate of Pyxis that would provide additional
funding of $5,000,000 to be paid quarterly over a two-year period.
In accordance with
Emerging Issues Task Force (EITF) No. 01-1, Accounting
for Convertible Instruments Granted or Issued to a Nonemployee for Goods or
Services or a Combination of Goods or Services and Cash (EITF No. 01-1),
the terms of both the agreement for goods or services provided and the
F-9
convertible instrument
should be evaluated to determine whether their separately stated pricing is
equal to the fair value of the goods or services provided and the convertible
instrument. If that is not the case, the terms of the respective transactions
should be adjusted. The convertible instrument should be recognized at its fair
value with a corresponding increase or decrease in the sales price of the goods
or services.
On March 5,
2003, the Company was obligated to issue up to 33,377,586 shares of its common
stock underlying the convertible preferred stock and the convertible debt
issued. Based on a last reported trade price of $0.71 per common share of the
Companys common stock on March 5, 2003, the convertible instruments had a
fair value of $23,698,086 on the date of issuance. Based on the fair value of
the convertible instruments and the guidance provided by EITF 01-1, the
Company will recognize the fair value of the convertible instruments, to the
extent of proceeds received, with a corresponding decrease to the sales price
of the goods and services provided. Therefore, at March 5, 2003, the
Company will treat the $5,000,000 committed research funding as an equity
investment rather than revenue and any costs of performing the research
services under the agreement will be classified as research and development
expenses. Any subsequent proceeds that the Company will receive from Alticor
that are linked to the March 2003 transaction, will be considered equity
rather than revenue to the extent of the fair value of the convertible
instruments at March 5, 2003. During 2003, the Company received various
purchase orders from Alticor valued at $139,000 to conduct genotyping tests for
research purposes. These purchase orders are deemed to be linked to the March
2003 transaction, and accordingly will be treated as equity rather than
revenue. The effect of this treatment resulted in an increase to net loss
attributable to common stockholders for the year ended December 31, 2003
of $2,001,838, or $0.09 per common share. As of December 31, 2003, there was
$11,593,750 of unrecognized fair value of the convertible instruments.
In accordance with
EITF No. 00-27, Application of Issue No. 98-5
to Certain Convertible Instruments (EITF No. 00-27), the
Company determined that the convertible preferred stock and the convertible
debt issued on March 5, 2003 each contained a beneficial conversion
feature.
Based on the effective
conversion price (which was determined by allocating the proceeds received on
March 5, 2003 of $9,595,336 based on the relative fair value of the convertible
securities issued, or $8,094,727 to the convertible preferred stock and
$1,500,609 to the convertible debt) of the convertible preferred stock of $0.2875
and the market value per share of $0.71 at March 5, 2003, the intrinsic
value was calculated to be $11,897,228; however, in accordance with EITF No. 00-27,
the amount of the discount allocated to the beneficial conversion feature is
limited to the amount of proceeds allocated to the instrument. The beneficial
conversion feature resulted in a discount of the convertible preferred stock of
$8,094,727 at March 5, 2003. The Company accreted this discount on March 5,
2003, the earliest date the preferred stock could be converted, which resulted
in an increase to net loss attributable to common stockholders for the year
ended December 31, 2003 of $8,094,727, or $0.35 per common share.
Based on the effective
conversion price of the convertible debt of $0.2875 and the market value per
share of $0.71 at March 5, 2003, the intrinsic value was calculated to be
$2,205,522; however in accordance with EITF No. 00-27, the amount of the
discount allocated to the beneficial conversion feature is limited to the
amount of the proceeds allocated to the instrument. The beneficial conversion
feature resulted in a discount of the convertible debt of $1,500,609 at March
5, 2003. The amount of the discount allocated to the beneficial conversion
feature of the convertible debt is amortized from the date of issuance to the
earlier of maturity or the actual conversion date. Therefore, the Company
charged $258,726 to amortization of note discount for the year ended December 31,
2003 which resulted in an increase to net loss attributable to common
stockholders for the year ended December 31, 2003 of $258,726, or $0.01 per
common share.
F-10
In addition, the
convertible debt has a stated interest rate of prime plus 1%. However, the
promissory notes, which were refinanced with the convertible debt, originally
had a stated interest rate of 15%. Therefore, the Company determined the fair
value of the convertible debt, using an interest rate comparable to that of the
refinanced promissory notes, at $1,863,553. The resulting discount of $731,783
is amortized from the date of issuance to the earlier of maturity or conversion
date. Therefore, the Company charged $126,169 to amortization of note discount
for the year ended December 31, 2003 which resulted in an increase to net
loss attributable to common stockholders for the year ended December 31, 2003
of $126,169, or less than $0.01 per common share.
The following table
presents the financial statement adjustments on the Companys previously
reported consolidated statement of operations for the year ended December 31,
2003.
|
|
As Reported
|
|
As Restated
|
|
Revenue
|
|
$
|
2,055,943
|
|
$
|
54,105
|
|
Cost of
revenue
|
|
1,625,063
|
|
20,658
|
|
Gross
profit
|
|
430,880
|
|
33,447
|
|
Operating
expenses:
|
|
|
|
|
|
Research and
development
|
|
2,030,704
|
|
3,457,861
|
|
Selling, general
and administrative
|
|
2,265,971
|
|
2,443,219
|
|
Total operating
expenses
|
|
4,296,675
|
|
5,901,080
|
|
Loss
from operations
|
|
(3,865,795
|
)
|
(5,867,633
|
)
|
Other
income (expense):
|
|
|
|
|
|
Interest income
|
|
48,535
|
|
48,535
|
|
Interest expense
|
|
(144,804
|
)
|
(144,804
|
)
|
Amortization of
note discount
|
|
(210,119
|
)
|
(595,014
|
)
|
Other
|
|
2
|
|
2
|
|
Total other
incom(expense)
|
|
(306,386
|
)
|
(691,281
|
)
|
Net
loss
|
|
$
|
(4,172,181
|
)
|
$
|
(6,558,914
|
)
|
Accretion of
convertible preferred stock discount
|
|
|
|
(8,094,727
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(4,172,181
|
)
|
$
|
(14,653,641
|
)
|
Basic
and diluted net loss per common share
|
|
$
|
(0.18
|
)
|
$
|
(0.63
|
)
|
Weighted
average common shares outstanding
|
|
23,193,195
|
|
23,193,195
|
|
F-11
The following is a
summary of the impact of the adjustments on the Companys previously reported
consolidated balance sheet as of December 31, 2003.
|
|
As Reported
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
4,759,453
|
|
$
|
4,759,453
|
|
Accounts
receivable
|
|
123,436
|
|
5,598
|
|
Prepaid expenses
and other current assets
|
|
114,519
|
|
114,519
|
|
Total current
assets
|
|
4,997,408
|
|
4,879,570
|
|
Fixed
assets, net
|
|
271,669
|
|
271,669
|
|
Other
assets
|
|
189,365
|
|
189,365
|
|
Total
assets
|
|
$
|
5,458,442
|
|
$
|
5,340,604
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
69,807
|
|
$
|
69,807
|
|
Accrued expenses
|
|
538,191
|
|
538,191
|
|
Deferred revenue
|
|
653,760
|
|
28,760
|
|
Current portion
of capital lease obligations
|
|
26,346
|
|
26,346
|
|
Total current
liabilities
|
|
1,288,104
|
|
663,104
|
|
Long-term notes
payable
|
|
2,595,336
|
|
747,839
|
|
Capital lease
obligations, less current obligations
|
|
17,290
|
|
17,290
|
|
Total liabilities
|
|
3,900,730
|
|
1,428,233
|
|
Stockholders
equity:
|
|
|
|
|
|
Convertible
preferred stock
|
|
5,000
|
|
5,000
|
|
Common Stock
|
|
23,263
|
|
23,263
|
|
Additional
paid-in capital
|
|
46,521,470
|
|
51,262,862
|
|
Accumulated
deficit
|
|
(44,992,021
|
)
|
(47,378,754
|
)
|
Total
stockholders equity
|
|
1,557,712
|
|
3,912,371
|
|
Total
liabilities and stockholders equity
|
|
$
|
5,458,442
|
|
$
|
5,340,604
|
|
Note 3Summary of Significant Accounting Policies
Principles of
Consolidation
The consolidated financial
statements include the accounts of Interleukin Genetics, Inc., and its
wholly-owned subsidiary, Interleukin Genetics Laboratory Services, Inc. All
intercompany accounts and transactions have been eliminated.
Management
Estimates
The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expenses during the
reported periods. Actual results could differ from those estimates. The Companys
most critical accounting policies are in the areas of its strategic alliance
with Alticor, stock-based compensation, income taxes, long-lived assets,
intellectual property and beneficial conversion feature of convertible
instruments. These critical accounting policies are more fully discussed in
these notes to financial statements.
F-12
Strategic Alliance with Alticor
In a private placement on March 5, 2003, the
Company entered into a Stock Purchase Agreement with Pyxis Innovations, Inc.,
a subsidiary of Alticor, pursuant to which Pyxis purchased from the Company
5,000,000 of the Companys Series A Preferred Stock, $0.001 per share, for
$7,000,000 in cash and $2,000,000 in cash to be paid, if at all, upon the
Company reaching a milestone pursuant to the terms of the Stock Purchase
Agreement. The Series A Preferred Stock issued in the private placement
were initially convertible into 28,157,683 shares of the Companys Common Stock
at the purchasers discretion. Pursuant to the terms of the Stock Purchase
Agreement, Pyxis agreed to refinance, in the form of convertible debt, certain
of the Companys indebtedness in the form of previously issued promissory notes
that were held by Pyxis and certain individuals. This ultimately amounted to
$2,595,336 in debt refinanced and was initially convertible into 5,219,903
shares of the Companys Common Stock. Concurrent with the closing of the Stock
Purchase Agreement, the Company entered into a research agreement with an
affiliate of Pyxis that would provide additional funding of $5,000,000 to be
paid quarterly over a two-year period.
In accordance with EITF No. 01-1, the terms
of both the agreement for goods or services provided and the convertible
instrument should be evaluated to determine whether their separately stated
pricing is equal to the fair value of the goods or services provided and the
convertible instrument. If that is not the case, the terms of the respective
transactions should be adjusted. The convertible instrument should be
recognized at its fair value with a corresponding increase or decrease in the
sales price of the goods or services.
On March 5, 2003, the
Company was obligated to issue up to 33,377,586 shares of its common stock
underlying the convertible preferred stock and the convertible debt issued. Based
on a last reported trade price of $0.71 per common share of the Companys
common stock on March 5, 2003, the convertible instruments had a fair
value of $23,698,086 on the date of issuance. Based on the fair value of the
convertible instruments and the guidance provided by EITF 01-1, the
Company will recognize the fair value of the convertible instruments, to the
extent of proceeds received, with a corresponding decrease to the sales price
of the goods and services provided. Therefore, at March 5, 2003, the
Company will treat the $5,000,000 committed research funding as an equity
investment rather than revenue and any costs of performing the research
services under the agreement will be classified as research and development
expenses. Any subsequent proceeds that the Company will receive from Alticor
that are linked to the March 2003 transaction, will be considered equity
rather than revenue to the extent of the fair value of the convertible
instruments at March 5, 2003. In June 2004, the Company entered into
another research agreement with Alticor for potential funding of up to
$2,200,000. In addition, since March 5, 2003, the Company received various
purchase orders from Alticor valued at $441,800 to conduct genotyping tests for
research purposes. These purchase orders, together with the research agreement
entered into in June 2004, are deemed to be linked to the March 2003
transaction and accordingly will be treated as equity rather than revenue. As
of December 31, 2004, proceeds received from Alticor, or its affiliates, which
were recorded as consideration for the fair value of the convertible
instruments issued in March 2003, amounted to $18,258,424. As of December 31,
2004, there was $5,439,662 of unrecognized fair value of the convertible
instruments.
Stock-Based Compensation
Stock options issued to
employees under the Companys stock option and stock purchase plans are
accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25).
All stock-based awards to non-employees are accounted for at their fair value
in accordance with Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), and EITF Issue No. 96-18,
Accounting for Equity Instruments that are Issued
to Other than Employees.
F-13
The Company applies the disclosure-only alternative of
SFAS No. 123, which defines a fair-value-based method of accounting for
employee stock options or similar equity instruments. Under the
fair-value-based method, compensation cost is measured at the grant date based
on the value of the award and is recognized over the service period of the
award, which is usually the vesting period. However, SFAS No. 123 also
allows entities to continue to measure compensation costs for employee stock
compensation plans using the intrinsic value method of accounting prescribed in
APB No. 25. The Company has elected to continue to follow the accounting
prescribed by APB No. 25 and has made the required disclosures prescribed
by SFAS No. 123.
Had
compensation cost for the Companys employee stock awards been determined
consistent with SFAS No. 123, the Companys net loss applicable to common
stock and net loss per share would have been as follows:
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
(As Restated)
|
|
|
|
Net loss attributable
to common stockholders:
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(7,246,202
|
)
|
$
|
(14,653,641
|
)
|
$
|
(5,306,119
|
)
|
Stock-based employee compensation
|
|
874,847
|
|
1,145,079
|
|
752,134
|
|
Pro forma
|
|
$
|
(8,121,049
|
)
|
$(15,798,720
|
)
|
$
|
(6,058,253
|
)
|
Basic and diluted
net loss per common share:
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.31
|
)
|
$
|
(0.63
|
)
|
$
|
(0.24
|
)
|
Pro forma
|
|
$
|
(0.35
|
)
|
$
|
(0.68
|
)
|
$
|
(0.28
|
)
|
The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, for a stock that does not pay dividends
with the following assumptions.
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
Risk-free
interest rate
|
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
Expected life
|
|
7 years
|
|
7 years
|
|
7 years
|
|
Expected volatility
|
|
80
|
%
|
80
|
%
|
100
|
%
|
Using these assumptions,
the weighted average grant date fair value of options granted in 2004, 2003 and
2002 was $2.97, $2.69 and $0.58, respectively.
Income Taxes
The preparation of its
consolidated financial statements requires the Company to estimate its income
taxes in each of the jurisdictions in which it operates, including those outside
the United States, which may be subject to certain risks that ordinarily would
not be expected in the United States. The income tax accounting process
involves estimating its actual current exposure together with assessing
temporary differences resulting from differing treatment of items, such as
deferred revenue, for tax and accounting purposes. These differences result in
the recognition of deferred tax assets and liabilities. The Company must then
record a valuation allowance to reduce its deferred tax assets to the amount
that is more likely than not to be realized.
Significant management
judgment is required in determining the Companys provision for income taxes,
its deferred tax assets and liabilities and any valuation allowance recorded
against deferred tax assets. The Company has recorded a full valuation
allowance against its deferred tax assets of $15.2 million as of December 31,
2004, due to uncertainties related to its ability to utilize these assets. The
valuation allowance is based on managements estimates of taxable income by
jurisdiction in which the Company operates and the period over which the
deferred tax assets will be recoverable. In the event that actual
F-14
results
differ from these estimates or management adjusts these estimates in future
periods, the Company may need to adjust its valuation allowance which could
materially impact its financial position and results of operations.
Research and Development
Research and development
costs are expensed as incurred.
Basic and Diluted Net Loss per Common Share
The
Company applies SFAS No. 128, Earnings per Share (SFAS
No. 128), which establishes standards for computing and presenting
earnings per share. Basic and diluted net loss per share was determined by
dividing net loss applicable to common stockholders by the weighted average
number of shares of common stock outstanding during the period. Diluted loss
per share is the same as basic loss per share for all the periods presented, as
the effect of the potential common stock equivalents is anti-dilutive due to
the loss in each period. Potential common stock excluded from the calculation
of diluted net loss per share consists of stock options, warrants, convertible preferred
stock and convertible debt as described in the table below:
|
|
2004
|
|
2003
|
|
2002
|
|
Options
outstanding
|
|
2,985,474
|
|
3,180,133
|
|
2,873,652
|
|
Warrants
outstanding
|
|
525,000
|
|
525,000
|
|
525,000
|
|
Convertible preferred
stock
|
|
28,160,200
|
|
28,157,683
|
|
|
|
Convertible debt
|
|
4,060,288
|
|
4,060,288
|
|
|
|
Total
|
|
35,730,962
|
|
35,923,104
|
|
3,398,652
|
|
Comprehensive Income (Loss)
Comprehensive income
(loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. During the years ended December 31, 2004, 2003 and 2002, there
were no items other than net loss included in the comprehensive loss. Comprehensive
income (loss) is disclosed in the accompanying consolidated statements of
stockholders equity (deficit) and comprehensive loss.
Fair Value of Financial Instruments
The Company, using
available market information, has determined the estimated fair values of
financial instruments. The estimated fair values of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the
short-term nature of these instruments. The carrying amounts of the Companys
capital lease obligations also approximate fair value. The carrying amounts of
borrowings under short-term agreements approximate their fair value as
the rates applicable to the financial instruments reflect changes in
overall market interest rates.
The fair value
of long-term debt is estimated using discounted cash flow analysis, based
on the Companys current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amount of borrowing of the Companys
long-term debt at December 31, 2004 approximates fair value.
Cash Equivalents
Cash equivalents consist
of short-term, highly liquid investments purchased with original maturities of
90 days or less.
Fixed Assets
Fixed assets are stated at
cost, less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over estimated useful
lives of three to five years.
F-15
Leasehold
improvements are amortized over the life of the lease, or the estimated useful
life of the asset, whichever is shorter.
Long-Lived Assets
The Company applies the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 requires that the Company evaluate its
long-lived assets for impairment whenever events or changes in circumstances
indicate that carrying amounts of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the future undiscounted net cash flows expected
to be generated by the asset. Any write-downs, based on fair value, are to be
treated as permanent reductions in the carrying amount of the assets. The Company
believes that no impairment exists related to the Companys long-lived assets
at December 31, 2004.
Intellectual
Property
Prior to March 2003,
costs incurred in connection with patents were expensed as incurred due to the
possibility that the Company would never be able to derive any benefits from
its patents. The Company has exclusive rights (subject to rights granted to an
affiliate of Alticor within the fields of dermagenomics and nutrigenomics) in
twenty issued U.S. patents and has a number of U.S. patent applications pending.
The Company has also been granted a number of corresponding foreign patents and
a number of foreign counterparts of its U.S. patents and patent applications
pending. Since inception the Company has expensed approximately $2.8 million in
the effort to obtain patent protection for its intellectual property. Due to
the alliance with Alticor Inc. that was entered into on March 5, 2003, the
Company began capitalizing certain costs of patents for which the prospect of
deriving benefits had become more certain. As of December 31, 2004 and 2003,
the Company has capitalized $311,466 and $128,356, respectively, in patent
costs and is included in other assets on the accompanying consolidated balance
sheets. The Company amortizes these costs over the shorter of the life of the
patent or ten years, their expected useful life. Accumulated amortization of
capitalized patent costs was $28,410 and $6,418 at December 31, 2004 and
2003, respectively.
Beneficial
Conversion Feature of Convertible Instruments
Based on EITF No. 00-27,
which provides guidance on the calculation of a beneficial conversion feature of
a convertible instrument, the Company has determined that the convertible
preferred stock and the convertible debt issued on March 5, 2003 each contained
a beneficial conversion feature.
Based on the effective conversion
price (which was determined by allocating the proceeds received on March 5,
2003 of $9,595,336 based on the relative fair value of the convertible
securities issued, or $8,094,727 to the convertible preferred stock and
$1,500,609 to the convertible debt) of the convertible preferred stock of $0.2875
and the market value per share of $0.71 at March 5, 2003, the intrinsic
value was calculated to be $11,897,228; however, in accordance with EITF No.
00-27, the amount of the discount allocated to the beneficial conversion
feature is limited to the amount of the proceeds allocated to the instrument.
This beneficial conversion feature resulted in a discount of the preferred
stock of $8,094,727 at March 5, 2003. The Company accreted this discount on
March 5, 2003, the earliest date the stock could be converted.
Based on the effective conversion
price of the convertible debt of $0.2875 and the market value per share of
$0.71 at March 5, 2003, the intrinsic value was calculated to be $2,205,522;
however in accordance with EITF No. 00-27, the amount of the discount allocated
to the beneficial conversion feature is limited to the amount of the proceeds
allocated to the instrument. The beneficial conversion feature resulted in a discount
of the convertible debt of $1,500,609 at March 5, 2003. The amount of the
discount allocated to the beneficial conversion feature of the convertible debt
is amortized from the date of issuance to the
F-16
earlier
of the maturity or conversion date. Therefore, the Company charged $310,471 and
$258,726 to amortization of note discount for the years ended December 31,
2004 and 2003, respectively.
Recent Accounting
Pronouncements
In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised
2004) Share-Based Payment (SFAS No. 123R). SFAS No. 123R addresses
all forms of share-based payment (SBP) awards, including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. SFAS No. 123R will require the Company to expense SBP
awards with compensation cost for SBP transactions measured at fair value. The
FASB originally stated a preference for a lattice model because it believed
that a lattice model more fully captures the unique characteristics of employee
stock options in the estimate of fair value, as compared to the Black-Scholes
model which the Company currently uses for its footnote disclosure. The FASB
decided to remove its explicit preference for a lattice model and not require a
single valuation methodology. SFAS No. 123R requires the Company to adopt
the new accounting provisions beginning in 2006.
The Company currently
accounts for its stock-based compensation plans in accordance with APB No. 25.
Therefore, the adoption of this statement is likely to have a material effect
on the Companys consolidated financial statements.
Note 4Strategic
Alliance with Alticor Inc.
On March 5, 2003, the
Company entered into a broad strategic alliance with several affiliates of the
Alticor family of companies to develop and market novel nutritional and skin
care products. The alliance utilizes Interleukin Genetics intellectual
property and expertise in genomics to develop personalized consumer products. Alticor
has a long history of manufacturing and distributing high quality nutritional
supplements and skin care products to a worldwide market.
The
alliance initially included an equity investment, a multi-year research and
development agreement, a licensing agreement with royalties on marketed
products, the deferment of outstanding loan repayment and the refinancing of
bridge financing obligations. The major elements of the initial alliance were:
· The
purchase by Alticor of $7,000,000 of equity in the form of 5 million shares of Series A
Preferred Stock for $1.40 per share. These were convertible into 28,157,683
shares of common stock at a stated conversion price equal to $0.2486 per share.
On March 11, 2004, upon achievement of a defined milestone, Alticor
contributed an additional $2,000,000 to the Company for a total equity funding
of $9,000,000 and a new stated conversion price of $0.3196 per share, or
28,160,200 shares of common stock.
· The
right of the Series A holders to nominate and elect four directors to a
five person board.
· A
research and development agreement (Research Agreement I) providing the Company
with funding of $5.0 million, payable over the twenty-four month period from April 2003
through March 2005, to conduct certain research projects with a royalty on
resulting products.
· Credit
facilities in favor of Interleukin, as follows:
· $1,500,000
working capital credit line to initiate selected research agreements with third
party entities approved by the board of directors of Interleukin;
· $2,000,000
refinancing of notes previously held by Pyxis, extending the maturity date and
reducing the interest rate; and
· $595,336
refinancing on July 1, 2003 of bridge financing notes previously held by
third parties, extending the maturity date and reducing the interest rate.
As of December 31,
2004, there was $2,595,336 outstanding under the terms of these credit
facilities. The credit facilities will mature in December 2007, bear
interest at 1% over the prime rate,
F-17
are
collateralized by a security interest in Interleukins intellectual property,
and are convertible at the election of Alticor into 4,060,288 shares of common
stock at a stated conversion price equal to $0.6392 per share.
On June 17, 2004, the
Company entered into another research agreement (Research Agreement II), valued
at $2.2 million, as amended, with Alticor to conduct research into the
development of a test to identify individuals with specific genetic variations
that affect how people gain and maintain weight. During the first phase of the
agreement, the Company received $1,380,000 in research funding over a period of
six months beginning on July 1, 2004. If Alticor determines, in its sole
discretion, that it has a reasonable likelihood of commercializing weight
management nutritional products, the Company will be eligible to receive,
during the second phase of the agreement, an additional $820,000 in funding
over a six-month period.
On March 5, 2005, the
Company entered into an agreement with Alticor to expand the research being
performed under Research Agreement I (Research Agreement III) to provide
additional funding of $2.7 million over the two years beginning April 1,
2005. Also on March 5, 2005, the Company entered into an additional research
agreement (Research Agreement IV) with Alticor for exploratory research valued
at $2.3 million over a two-year period commencing April 1, 2005. These
research agreements are expected to provide the Company with a total of $5.0
million during the two years ending March 2007.
Also on April 18, 2005,
Alticor paid the Company, upon achieving a certain milestone, $2.0 million as
an advance payment for genetic risk assessment tests to be processed under the
terms of the Distribution Agreement. Further, Alticor agreed to extend the draw
down period of the $1.5 million working capital credit line through 2007.
Note 5Research
Agreements
In July 1999, the
Company entered into an agreement (the Research and Technology Transfer
Agreement) with The University of Sheffield (Sheffield), whereby it undertook
the development and commercialization of certain discoveries resulting from
Sheffields research. For certain of the discoveries, the parties reached a
specific non-cancelable agreement of development and commercialization.
The Research and
Technology Transfer Agreement was a five-year agreement with an automatic
yearly renewal. In 1999, in accordance with this agreement, the Company issued
275,000 shares of common stock to Sheffield for transferring all rights and
title of certain patents. The value of the common stock of $653,125 was charged
to research and development expenses in 1999. Additionally, each year beginning
July 1, 2000, Sheffield received 25,000 fully vested options to purchase
common stock at the then current market price, plus 10,000 fully vested options to purchase common stock for
each new patent application filed in the previous 12 months. During the year
ended December 31, 2004, no options were granted under this agreement. During
the years ended December 31, 2003 and 2002, 45,000 and 35,000 fully vested
options to purchase common stock, respectively, were granted under this
agreement and the Company charged $69,272 and $2,149, respectively, to research
and development expenses based upon the fair value of the options determined
using the Black-Scholes option-pricing model. These options have a five-year
exercise period. In 1999, the Company entered into another research agreement
with Sheffield (the Research Support Agreement) that automatically renews in
one-year increments. This agreement requires the Company to pay the cost of
agreed upon research projects conducted at Sheffield. For the year ended December 31,
2004, 2003 and 2002, the Company expensed approximately $294,000 for research
conducted at Sheffield. This includes funding to Sheffield and to collaborators at Sheffield. Both, the Research and Technology Transfer
Agreement and the Research Support Agreement expired in June 2004. The
Company elected to discontinue the Research and Technology Transfer Agreement
because its discovery research is being performed at its functional genomics
laboratory in Waltham, Massachusetts but extended the Research Agreement
through June 2005 to continue ongoing and planned research projects at
Sheffield. The Research Agreement with Sheffield can be canceled if a certain
key collaborator leaves Sheffield.
F-18
In 1999, a five-year
consulting agreement was entered into with Sheffields key collaborator. In
accordance with the consulting agreement, the key collaborator received 200,000
shares of common stock for relinquishing interests in previous research
agreements. The value of the common stock of $475,000 was charged to research
and development expenses in 1999. The key collaborator was also eligible to receive
1% of the first $4 million of net sales under the PSTÒ
Technology and 2% for sales above $4 million. Since 2002, this collaborator
received no significant royalty payments for sales of PSTÒ.
During the year ended December 31, 2004, no options were granted under
this agreement. During the years ended December 31, 2003 and 2002, in
consideration for future services, the key collaborator received 25,000 fully
vested options to purchase common stock at the then current market price. These
options have a five-year exercise period from the date of grant. During the
years ended December 31, 2003 and 2002, the Company charged to research
and development expenses $38,485 and $296 related to the issuance of these
options based upon the fair value determined using the Black-Scholes
option-pricing model. This agreement expired in June 2004 but was extended
until September 30, 2004. Effective October 1, 2004, the Company
entered into a new agreement with this collaborator to include a retainer and
travel expenses but included no stock options through September 30, 2005
with an annual automatic renewal unless sooner terminated.
Note 6Accounts
Receivable
The
changes in the allowance for doubtful accounts consisted of the following:
|
|
Year Ended December 31,
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
Beginning of year
|
|
$
|
|
|
$
|
18,000
|
|
$
|
14,000
|
|
Provision charged
to expense
|
|
|
|
|
|
5,000
|
|
Accounts written
off, net of recoveries
|
|
|
|
(18,000
|
)
|
(1,000
|
)
|
End of year
|
|
$
|
|
|
$
|
|
|
$
|
18,000
|
|
Note 7Fixed Assets
The
fixed assets useful lives and balances at December 31, 2004 and 2003
consisted of the following:
|
|
Useful Life
|
|
2004
|
|
2003
|
|
Computer and
office equipment
|
|
3
years
|
|
$
|
105,819
|
|
$
|
97,139
|
|
R&D lab
equipment
|
|
5
years
|
|
373,429
|
|
373,429
|
|
Genetic testing
lab and equipment
|
|
5
years
|
|
866,664
|
|
|
|
Furniture and
fixtures
|
|
5
years
|
|
37,087
|
|
6,250
|
|
Leasehold
improvements
|
|
5
years
|
|
58,621
|
|
20,857
|
|
Equipment under
capital leases
|
|
3 to
5 years
|
|
63,390
|
|
136,373
|
|
|
|
|
|
1,505,010
|
|
634,048
|
|
LessAccumulated
depreciation and amortization
|
|
|
|
362,923
|
|
362,379
|
|
Total
|
|
|
|
$
|
1,142,087
|
|
$
|
271,669
|
|
Note 8Income Taxes
The Company accounts for
income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which requires the recognition of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in the financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets is based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated.
For the years ended December 31,
2004, 2003 and 2002, there is no provision for income taxes included in the
Consolidated Statement of Operations. The Companys federal statutory income
tax rate
F-19
for 2004
and 2003 was 34% and 40%, respectively. The Company has incurred losses from
operations but has not recorded an income tax benefit for 2004 or 2003 as the
Company has recorded a valuation allowance against its net operating losses and
other net deferred tax assets due to uncertainties related to the realizability
of these tax assets.
Deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax bases using enacted tax rates in effect for the
year in which the differences are expected to reverse. As of December 31,
2004 and 2003, the approximate income tax effect of the Companys deferred tax
assets (liabilities) consisted of the following:
|
|
2004
|
|
2003
|
|
Net operating
loss carryforwards
|
|
$
|
13,500,000
|
|
$
|
12,770,000
|
|
Research tax
credit carryforwards
|
|
761,000
|
|
621,000
|
|
Accrual to cash
adjustments
|
|
795,000
|
|
410,000
|
|
Disqualifying
dispositions and non-qualified stock option exercises
|
|
274,000
|
|
147,000
|
|
Charitable
contributions carryforward
|
|
2,000
|
|
|
|
Depreciation
|
|
3,000
|
|
4,000
|
|
Patents
|
|
(96,000
|
)
|
|
|
Total deferred tax assets
|
|
15,239,000
|
|
13,952,000
|
|
Valuation
allowance
|
|
(15,239,000
|
)
|
(13,952,000
|
)
|
Net deferred tax assets
|
|
$
|
|
|
$
|
|
|
Funds received from Alticor for research and other
agreements are reflected as equity in the financial statements but are reported
as revenue for tax purposes and included in the calculation of the net
operating loss carryforward for the years ended December 31, 2004 and 2003
in the amounts of $3,609,429 and $2,001,838, respectively.
As of December 31, 2004,
the Company had net operating loss (NOL) and research tax credit carryforwards
of approximately $39,500,000 and $761,000, respectively, for federal and state
income tax purposes, expiring in varying amounts through the year 2024. The
Companys ability to use its NOL and tax credit carryforwards to reduce future
taxes is subject to the restrictions provided by Section 382 of the Internal
Revenue Code of 1986. These restrictions provide for limitations on the
Companys utilization of its NOL and tax credit carryforwards following a
greater than 50% ownership change during the prescribed testing period. On
March 5, 2003, the Company has had such a change. As a result, all of the
Companys NOL carryforwards are limited in utilization. The annual limitation
may result in the expiration of certain of the carryforwards prior to
utilization.
Note 9Capital
Stock
Authorized Common and Preferred Stock
At December 31, 2004,
the Company had authorized 6,000,000 shares of Preferred Stock and designated
5,000,000 of those as Series A Preferred Stock of which all 5,000,000 were
issued and outstanding. At December 31, 2004, the Company had authorized
75,000,000 shares of $0.001 par value common stock of which 61,960,825 shares
were outstanding or reserved for issuance. Of those, 23,594,337 shares were
outstanding, 28,160,200 shares were reserved for the conversion of the Series A
Preferred to common stock, 4,060,288 shares were reserved for the conversion of
approximately $2.6 million of debt, 5,157,646 shares were reserved for the
exercise of authorized and outstanding stock options, 525,000 shares were
reserved for the exercise of outstanding warrants to purchase common stock and
463,354 shares were reserved for the exercise of rights held under the Employee
Stock Purchase Plan.
F-20
Series A
Preferred Stock
On March 5, 2003, the Company entered into a
Purchase Agreement with Pyxis, pursuant to which Pyxis purchased from the
Company Series A Preferred Stock for $7,000,000 in cash on that date, and
an additional $2,000,000 in cash that was paid, as a result of the Company
achieving a certain milestone, on March 11, 2004.
The Series A Preferred Stock accrues dividends at
the rate of 8% of the original purchase price per year, payable only when, as
and if declared by the Board of Directors and are non-cumulative. To date, no
dividends have been declared on these shares. If the Company declares a distribution, with
certain exceptions, payable in securities of other persons, evidences of
indebtedness issued by us or other persons, assets (excluding cash dividends)
or options or rights to purchase any such securities or evidences of
indebtedness, then, in each such case the holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of the Series A Preferred Stock were
the holders of the number of shares of the Companys Common Stock into which
their respective shares of Series A Preferred Stock are convertible as of
the record date fixed for the determination of the holders of its Common Stock
entitled to receive such distribution.
In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the Companys assets or surplus funds
to the holders of its Common Stock by reason of their ownership thereof, the
amount of two times the then-effective purchase price per share, as adjusted
for any stock dividends, combinations or splits with respect to such shares,
plus all declared but unpaid dividends on such share for each share of Series A
Preferred Stock then held by them. The liquidation preference at December 31,
2004 was $18,000,000. After receiving this amount, the holders of the Series A
Preferred Stock shall participate on an as-converted basis with the holders of
common stock in any of the remaining assets.
Each share of Series A Preferred Stock is
convertible at any time at the option of the holder into a number of shares of
the Companys common stock determined by dividing the then-effective purchase
price ($1.80, and subject to further adjustment) by the conversion price in
effect on the date the certificate is surrendered for conversion. As of December
31, 2004, the Series A Preferred Stock is convertible into 28,160,200
shares of Common Stock reflecting a conversion price of $.3196 per share.
Each holder of Series A
Preferred Stock is entitled to vote its shares of Series A Preferred Stock
on an as-converted basis with the holders of Common Stock as a single class on
all matters submitted to a vote of the stockholders, except as otherwise
required by applicable law. This means that each share of Series A
Preferred Stock will be entitled to a number of votes equal to the number of
shares of Common Stock into which it is convertible on the applicable record
date.
Private Placements
of Common Stock
In January 2001, the Company sold in a private
placement 1.2 million shares of common stock for $2.50 per share. The
purchasers of common stock also received warrants to purchase 600,000 shares of
common stock exercisable at $3.00 per share. The Company generated net proceeds
of approximately $2.9 million from this transaction. Under the terms of this
private placement, the Company is required to adjust the price per share paid
in this offering, by issuing additional shares, to match any offering price
paid, if lower, in subsequent offerings prior to May 23, 2003.
F-21
In December 2000, the Company sold in a private
placement 542,373 shares of common stock for $3.69 per share. The purchasers of
common stock also received warrants to purchase 135,593 shares of common stock
exercisable at $4.83 per share. The Company generated net proceeds of
approximately $2.0 million from this transaction. Under the terms of this
private placement, the Company is required to adjust the price per share paid
in this offering, by issuing additional shares, to match any offering price
paid, if lower, in subsequent offerings prior to February 9, 2003.
Following the January 2001 offering described above, the Company issued an
additional 257,627 shares of common stock to the purchasers in the December 2000
private placement, and a new warrant to purchase 264,407 shares of common stock
exercisable at a price of $3.13 to replace the previously issued warrant to buy
135,593 shares of common stock at a price of $4.83 per share.
On October 22, 2002,
as a condition for an interim financing agreement with Pyxis that is discussed
further in Note 10, the Company entered into separate agreements with the
purchasers in the December 2000 and January 2001 private placements
to waive certain provisions of these private placement agreements.
Specifically, the purchasers waived their right to receive cash payments of up
to $100,000 per month when the Companys common stock is delisted from the
Nasdaq SmallCap Market. Also waived was the purchasers right to receive
additional shares of the Companys common stock for no additional consideration
if the Company issues shares of its common stock at a price below $2.50 per
share. Under these agreements, the purchasers have also agreed to cancel
warrants to purchase an aggregate of 864,407 shares of common stock. In exchange,
the Company issued an aggregate of 1,676,258 shares of its common stock to the
purchasers for no additional cash consideration.
Employee Stock
Purchase Plan
Effective October 14,
1998, the Companys Board of Directors approved an Employee Stock Purchase Plan
for qualified employees of the Company. Under the terms of the Employee Stock
Purchase Plan, an employee may purchase up to $25,000 per calendar year of the
Companys stock at a price equal to 85% of the fair market value of the stock
(as quoted on the companys listing exchange) on either the first or last day
of a calendar quarter. The Company has reserved 500,000 shares of common stock
for purchases to be made under the Employee Stock Purchase Plan. During the
years ended December 31, 2004, 2003 and 2002, 10,998, 8,408 and 9,855
shares, respectively, were purchased under the Employee Stock Purchase Plan at
an average purchase price of approximately $2.99, $1.43 and $0.54 per share,
respectively.
NASDAQ Delisting
On October 9, 2002
the Company received a letter from NASDAQ stating that it did not meet the
criteria for the continued listing of its common stock on the NASDAQ SmallCap
Market. The letter stated that Interleukins common stock was not in compliance
with the $1 minimum bid price, that stockholders equity did not meet the $2.5
million minimum requirement, and that the NASDAQ Staff rejected the Companys
plan to regain compliance with those listing criteria. The Company appealed the
ruling and an appeals hearing was held on November 14, 2002. On December 10,
2002, the Company received notification from the NASDAQ Listing Qualifications
Panel that the panel had denied the Companys request for continued listing on
the NASDAQ SmallCap market. The Company was delisted from NASDAQ on that date. Since
December 10, 2002, the Companys common stock has traded on the
Over-the-Counter-Bulletin-Board (OTCBB) under the symbol ILGN. It is not known
when or if the common stock will again trade on the NASDAQ SmallCap market.
Note 10Debt
On August 9, 2002 the Company received
approximately $475,000 in net proceeds from the sale of term promissory notes
with an original aggregate principal amount of $525,000. These notes paid
interest at a rate of 15% and had an original maturity of August 9, 2003. The
purchasers of the promissory notes received warrants to purchase one share of
the Companys common stock at a purchase price of $2.50 for
F-22
every dollar invested in
the promissory notes. In total, warrants to purchase 525,000 shares of common
stock were issued. These warrants are immediately exercisable and expire ten
years from the date of issuance. As of December 31, 2004, none of these
warrants had been exercised. Amortization expense related to the discount of
notes was approximately $210,000 and $150,000 for the years ended December 31,
2003 and 2002, respectively. These notes and $70,336 in accrued interest were
repaid on July 1, 2003 using proceeds provided by Pyxis under terms of a
credit facility with Pyxis (see Note 3).
On October 23, 2002, the Company entered into an
interim financing agreement with Pyxis Innovations, Inc. that provided
debt financing of $2.0 million. The financing was in the form of four $500,000
promissory notes, which closed on October 23, 2002, November 15,
2002, December 16, 2002 and January 30, 2003. These notes had an
original maturity date of December 31, 2003 and accrued interest at a rate
of 15%. The outstanding principal amount and all accrued interest were to be
paid upon maturity. These notes are collateralized by all of the Companys
intellectual property except intellectual property relating to periodontal
disease and sepsis. These notes were amended as part of the strategic alliance
with Alticor Inc. (See below).
On March 5,
2003 as part of its strategic alliance with Alticor Inc., the Company was
granted credit facilities as follows:
· $1,500,000
working capital credit line to initiate selected research agreements with third
party entities approved by the board of directors of Interleukin;
· $2,000,000
refinancing of notes previously held by Pyxis, extending the maturity date and
reducing the interest rate; and
· $595,336
refinancing on July 1, 2003 of bridge financing notes previously held by
third parties, extending the maturity date and reducing the interest rate.
As of December 31,
2004 there was $2,595,336 outstanding under the terms of these credit
facilities. The credit facilities will mature in December 2007, bear
interest at 1% over the prime rate (6.25% at December 31, 2004), are
collateralized by a security interest in the Companys intellectual property
(except intellectual property related to periodontal disease and sepsis), and
are convertible at the election of Alticor into 4,060,288 shares of common
stock at a stated conversion price equal to $0.6392 per share.
Note
11Equity Interest in Molecular SkinCare Limited
In October 2003, the
Company acquired 12,014 ordinary shares (representing approximately 5% of the
outstanding equity) of Molecular SkinCare Limited, a start-up biotechnology
company located in Sheffield, England. The transaction was in exchange for
granting rights to Molecular SkinCare and Asterion Limited, a company also
located in Sheffield, England, in certain intellectual property licensed to the
company. Management determined that the fair value of the shares received was
not determinable within reasonable limits because Molecular SkinCare Limited is
a private entity and there was major uncertainty about the realizability of the
value that would be assigned to this asset received in a non-monetary
transaction and therefore assigned a nominal value of $1 to the shares. On February 1,
2005, York Pharma acquired all of the outstanding shares of Molecular SkinCare
and will issue its ordinary shares to the shareholders of Molecular SkinCare as
consideration.
Note 12Stock Option Plans
In June 1996, the Companys shareholders approved
the adoption of the 1996 Equity Incentive Plan (the 1996 Plan). The 1996 Plan
provides for the award of nonqualified and incentive stock options, restricted
stock and stock bonuses to employees, directors, officers and consultants of
the Company. A total of 1,300,000 shares of the Companys common stock have
been reserved for award under the 1996 Plan of which 294,714 remained unissued
at December 31, 2004. This plan no longer complies with the current
Securities Exchange Act and, consequently, was terminated with respect to new
grants.
F-23
In June 2000, the Companys shareholders approved
the adoption of the Interleukin Genetics, Inc. 2000 Employee Stock
Compensation Plan (the 2000 Plan). The 2000 Plan provides for the award of
nonqualified and incentive stock options, restricted stock, and stock awards to
employees, directors, officers, and consultants of the Company. A total of
2,000,000 shares of the Companys common stock have been reserved for award
under the 2000 Plan of which 115 were available for future issuance at December 31,
2004.
In June 2004, the Companys shareholders approved
the adoption of the Interleukin Genetics, Inc. 2004 Employee Stock
Compensation Plan (the 2004 Plan). The 2004 Plan provides for the award of
nonqualified and incentive stock options, restricted stock, and stock awards to
employees, directors, officers, and consultants of the Company. A total of
2,000,000 shares of the Companys common stock have been reserved for award
under the 2004 Plan of which 1,877,343 were available for future issuance at December 31,
2004.
Nonqualified and incentive stock options with a life
of 10 years are generally granted at exercise prices equal to the fair market
value of the common stock on the date of grant. Options generally vest over a
period of three to four years.
A summary of the status of the Companys stock
options, issued both under the 1996, 2000 and 2004 Plans and outside of these
plans, at December 31, 2004, 2003 and 2002, and changes during these years
is presented in the tables below:
The
following table details all stock option activity:
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
Shares
|
|
Weighted Avg
Exercise Price
|
|
Shares
|
|
Weighted Avg
Exercise Price
|
|
Shares
|
|
Weighted Avg
Exercise Price
|
|
Outstanding,
beginning of year
|
|
3,180,133
|
|
|
$
|
2.65
|
|
|
2,873,652
|
|
|
$
|
2.29
|
|
|
2,652,069
|
|
|
$
|
2.47
|
|
|
Granted
|
|
342,707
|
|
|
3.97
|
|
|
852,000
|
|
|
3.70
|
|
|
338,600
|
|
|
0.84
|
|
|
Exercised
|
|
(320,751
|
)
|
|
2.10
|
|
|
(135,931
|
)
|
|
1.06
|
|
|
(4,437
|
)
|
|
0.75
|
|
|
Canceled
|
|
(216,615
|
)
|
|
3.47
|
|
|
(409,588
|
)
|
|
2.95
|
|
|
(112,580
|
)
|
|
2.14
|
|
|
Outstanding, end
of year
|
|
2,985,474
|
|
|
$
|
2.81
|
|
|
3,180,133
|
|
|
$
|
2.65
|
|
|
2,873,652
|
|
|
$
|
2.29
|
|
|
Exercisable, end of year
|
|
2,243,465
|
|
|
$
|
2.44
|
|
|
2,220,971
|
|
|
$
|
2.28
|
|
|
2,032,774
|
|
|
$
|
2.41
|
|
|
These totals include 70,000 and 60,000 nonqualified
stock options issued to non-employees in 2003 and 2002 respectively for which
expenses of $111,580 and $2,203 was recorded respectively during those years. No
stock options were issued to non-employees in 2004.
The following table
details further information regarding stock options outstanding and exercisable
at December 31, 2004:
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
|
Range of Exercise Price:
|
|
|
|
Shares
|
|
Weighted Avg
remaining
contractual life
(years)
|
|
Weighted Avg
Exercise Price
|
|
Shares
|
|
Weighted Avg
Exercise Price
|
|
$0.50 - $0.99
|
|
385,527
|
|
|
5.15
|
|
|
|
$
|
0.64
|
|
|
375,859
|
|
|
$
|
0.64
|
|
|
$1.00 - $1.49
|
|
416,000
|
|
|
6.17
|
|
|
|
1.22
|
|
|
416,000
|
|
|
1.22
|
|
|
$1.50 - $1.99
|
|
169,965
|
|
|
5.57
|
|
|
|
1.72
|
|
|
169,965
|
|
|
1.72
|
|
|
$2.00 - $2.49
|
|
105,500
|
|
|
6.87
|
|
|
|
2.28
|
|
|
47,250
|
|
|
2.21
|
|
|
$2.50 - $2.99
|
|
795,775
|
|
|
4.35
|
|
|
|
2.80
|
|
|
784,525
|
|
|
2.80
|
|
|
$3.50 - $3.99
|
|
292,135
|
|
|
8.26
|
|
|
|
3.68
|
|
|
200,828
|
|
|
3.70
|
|
|
$4.00 - $4.49
|
|
176,400
|
|
|
6.26
|
|
|
|
4.27
|
|
|
71,200
|
|
|
4.42
|
|
|
$4.50 - and up
|
|
644,172
|
|
|
8.44
|
|
|
|
4.70
|
|
|
277,838
|
|
|
4.71
|
|
|
|
|
2,985,474
|
|
|
6.24
|
|
|
|
$
|
2.81
|
|
|
2,343,465
|
|
|
$
|
2.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Note 13Employee Benefit Plan
In 1998, the Company
adopted a profit sharing plan covering substantially all of its employees.
Under the profit sharing plan, the Company may, at the discretion of the Board
of Directors, contribute a portion of the Companys current or accumulated
earnings. In September 1998, the Company amended and restated the profit
sharing plan to include provisions for Section 401(k) of the Internal
Revenue Code, which allowed for pre-tax employee contributions to the plan.
Under the amended and restated plan, the Company may, at the discretion of the
Board of Directors, match a portion of the participant contributions. The
Company currently contributes 15% of any amount employees contribute, up to a
maximum of $1,000 per participant per calendar year. Company contributions, if
any, are credited to the participants accounts and vest over a period of four
years based on the participants initial service date with the Company. During
the years ended December 31, 2004, 2003 and 2002, $20,151, $936 and
$20,690 was contributed to the plan, respectively.
Note
14Commitments and Contingencies
The Company leases its office and laboratory space
under a non-cancelable operating lease expiring March 2009.
The Company also leases certain office equipment under
lease obligations. Future minimum lease commitments under lease agreements with
initial or remaining terms of one year or more at December 31, 2004, are
as follows:
Year Ending December 31,
|
|
|
|
Operating
Leases
|
|
Capital
Leases
|
|
2005
|
|
443,436
|
|
15,059
|
|
2006
|
|
443,436
|
|
3,017
|
|
2007
|
|
437,004
|
|
|
|
2008
|
|
437,004
|
|
|
|
2009
|
|
109,251
|
|
|
|
|
|
$
|
1,870,131
|
|
18,076
|
|
LessAmount
representing interest
|
|
|
|
786
|
|
LessCurrent
portion
|
|
|
|
14,312
|
|
Long-term portion
|
|
|
|
$
|
2,978
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $389,351,
$272,112 and $265,363 for the years ended December 31, 2004, 2003 and
2002, respectively.
Acquisition of Data Bases
In connection with the
research agreement with Alticor dated March 5, 2003, the Company is
obligated to purchase two clinical databases. As of June 30, 2004, the
Company determined that this obligation met the criteria of SFAS No. 5, Accounting for Contingencies, and
estimated the cost of these two databases at $450,000. Accordingly, the Company
recorded a liability and charged research and development expenses of $450,000
at that time. As of December 31, 2004, the Company had negotiated the
acquisition of the first of the two databases. The Company believes that the
acquisition of the databases will not exceed the amount that the Company has
estimated, however actual amounts could differ.
Sponsored Research Agreements
In connection with the
research agreement with Alticor dated June 17, 2004, the Company entered into a
sponsored research agreement with Tufts University to conduct a clinical study.
The sponsored research agreement is for an amount not to exceed $662,000 and is
payable upon achievement of certain milestones. As of December 31, 2004,
Tufts University had achieved two of the four milestone payments
F-25
valued
at $350,000. However, as of December 31, 2004, the Company has only made
payments of $100,000 and the remaining $250,000 is included in accrued expenses.
The remaining commitment on this agreement is $312,000. As, and if, Tufts
University completes the other milestones associated with this sponsored
research agreement, the Company will record these costs as research and
development expenses.
Employment Agreements
The Company has entered
into employment agreements with certain key employees of the Company, which
range from one to three years and provide for severance ranging from three
months to one year upon termination of employment.
Note 15Segment
Information
The Company follows SFAS No. 131,
Disclosures about Segments of an Enterprise
and Related Information (SFAS No. 131) which establishes
standards for reporting information about operating segments in annual and
interim financial statements, and requires that companies report financial and
descriptive information about its reportable segments based on a management
approach. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. In applying
the requirements of this statement, each of the Companys geographic areas
described below was determined to be an operating segment as defined by the
statement, but have been aggregated as allowed by the statement for reporting
purposes. As a result, the Company continues to have one reportable segment,
which is the development of genetic risk assessment tests and therapeutic
targets for common diseases.
The Company has no
operations outside of the United States. During 2004, 2003 and 2002, the
Company had minimal royalty income derived from distributors outside the United
States, minimal expenses derived from research partners outside the United
States and minimal assets outside of the United States. The Company does not
believe this risk is material and does not use derivative financial instruments
to manage foreign currency fluctuation risk.
Note 16Accrued Expenses
Accrued
expenses consist of the following:
|
|
December 31,
|
|
|
|
2004
|
|
2003
|
|
Legal
|
|
$
|
50,000
|
|
$
|
60,000
|
|
Vacation
|
|
96,040
|
|
98,544
|
|
Bonuses
|
|
87,500
|
|
50,000
|
|
Research
|
|
580,975
|
|
282,818
|
|
Other
|
|
100,392
|
|
46,829
|
|
Total
|
|
$
|
914,907
|
|
$
|
538,191
|
|
F-26
Note 17Selected Quarterly Financial Data (Unaudited)
The following are selected
quarterly financial data for the years ended December 31, 2004 and 2003
|
|
Quarter Ended
|
|
|
|
March 31,
2004
|
|
June 30,
2004
|
|
September 30,
2004
|
|
December 31,
2004
|
|
|
|
(As Restated)
|
|
(As Restated)
|
|
(As Restated)
|
|
(As Restated)
|
|
Revenue
|
|
$
|
8,343
|
|
$
|
9,977
|
|
|
$
|
8,216
|
|
|
$
|
8,135
|
|
Gross profit
|
|
$
|
8,288
|
|
$
|
9,934
|
|
|
$
|
7,965
|
|
|
$
|
8,134
|
|
Loss from
operations
|
|
$
|
(1,541,425
|
)
|
$
|
(2,004,794
|
)
|
|
$
|
(1,594,254
|
)
|
|
$
|
(1,561,560
|
)
|
Net loss
|
|
$
|
(1,681,031
|
)
|
$(2,140,005
|
)
|
|
$(1,729,836
|
)
|
|
$(1,695,330
|
)
|
Net loss
attributable to common stockholders
|
|
$(1,681,031
|
)
|
$
|
(2,140,005
|
)
|
|
$
|
(1,729,836
|
)
|
|
$
|
(1,695,330
|
)
|
Basic and diluted
net loss per common share
|
|
$
|
(0.07
|
)
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
|
Quarter Ended
|
|
|
|
March 31,
2003
|
|
June 30,
2003
|
|
September 30,
2003
|
|
December 31,
2003
|
|
|
|
(As Restated)
|
|
(As Restated)
|
|
(As Restated)
|
|
(As Restated)
|
|
Revenues
|
|
$
|
28,738
|
|
$
|
7,909
|
|
|
$
|
7,985
|
|
|
$
|
9,473
|
|
Gross profit
|
|
$
|
11,856
|
|
$
|
4,211
|
|
|
$
|
7,946
|
|
|
$
|
9,434
|
|
Loss from
operations
|
|
$
|
(1,553,295
|
)
|
$
|
(1,453,862
|
)
|
|
$
|
(1,341,885
|
)
|
|
$
|
(1,518,591
|
)
|
Net loss
|
|
$(1,704,099
|
)
|
$
|
(1,688,604
|
)
|
|
$
|
(1,508,561
|
)
|
|
$(1,657,650
|
)
|
Net loss
attributable to common stockholders
|
|
$(9,798,826
|
)
|
$
|
(1,688,604
|
)
|
|
$
|
(1,508,561
|
)
|
|
$(1,657,650
|
)
|
Basic and diluted net
loss per common share
|
|
$
|
(0.42
|
)
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
As discussed in Note 2, the
quarterly periods have been restated. The following are selected quarterly
financial data as had been previously reported.
|
|
Quarter Ended
|
|
|
|
March 31,
2004
|
|
June 30,
2004
|
|
September 30,
2004
|
|
December 31,
2004
|
|
|
|
(As Reported)
|
|
(As Reported)
|
|
(As Reported)
|
|
(As Reported)
|
|
Revenue
|
|
|
$
|
644,943
|
|
|
|
$
|
663,977
|
|
|
$
|
1,400,066
|
|
|
$
|
935,114
|
|
|
Gross profit
|
|
|
$
|
159,813
|
|
|
|
$
|
202,462
|
|
|
$
|
570,878
|
|
|
$
|
79,100
|
|
|
Loss from
operations
|
|
|
$
|
(904,825
|
)
|
|
|
$
|
(900,794
|
)
|
|
$
|
(352,404
|
)
|
|
$
|
(784,581
|
)
|
|
Net loss
|
|
|
$
|
(928,962
|
)
|
|
|
$
|
(920,536
|
)
|
|
$
|
(372,517
|
)
|
|
$
|
(802,884
|
)
|
|
Net loss
attributable to common stockholders
|
|
|
$
|
(928,962
|
)
|
|
|
$
|
(920,536
|
)
|
|
$
|
(372,517
|
)
|
|
$
|
(802,884
|
)
|
|
Basic and diluted
net loss per common share
|
|
|
$
|
(0.04
|
)
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
2003
|
|
June 30,
2003
|
|
September 30,
2003
|
|
December 31,
2003
|
|
|
|
(As Reported)
|
|
(As Reported)
|
|
(As Reported)
|
|
(As Reported)
|
|
Revenue
|
|
$
|
28,738
|
|
|
$
|
632,909
|
|
|
|
$
|
633,785
|
|
|
|
$
|
760,511
|
|
|
Gross profit
|
|
$
|
11,856
|
|
|
$
|
250,454
|
|
|
|
$
|
140,212
|
|
|
|
$
|
28,358
|
|
|
Loss from
operations
|
|
$
|
(1,553,295
|
)
|
|
$
|
(828,862
|
)
|
|
|
$
|
(716,085
|
)
|
|
|
$
|
(767,553
|
)
|
|
Net loss
|
|
$
|
(1,665,609
|
)
|
|
$
|
(948,136
|
)
|
|
|
$
|
(767,292
|
)
|
|
|
$
|
(791,144
|
)
|
|
Net loss
attributable to common stockholders
|
|
$
|
(1,665,609
|
)
|
|
$
|
(948,136
|
)
|
|
|
$
|
(767,292
|
)
|
|
|
$
|
(791,144
|
)
|
|
Basic and diluted net
loss per common share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
|
|
$
|
(0.03
|
)
|
|
|
$
|
(0.03
|
)
|
|
F-27
Note 18Subsequent
Events
On February 1, 2005, York Pharma acquired all of
the outstanding shares of Molecular SkinCare and will issue its ordinary shares
to the shareholders of Molecular SkinCare as consideration.
On March 5, 2005, the Company entered into an
agreement with Alticor to expand the research being performed under Research
Agreement I (Research Agreement III) to provide additional funding of $2.7
million over two years beginning April 1, 2005. Also on March 5,
2005, the Company entered into an additional research agreement (Research
Agreement IV) with Alticor for exploratory research valued at $2.3 million over
two years commencing April 1, 2005. These research agreements are expected
to provide the Company with a total of $5.0 million during the two years ending
March 2007.
Also on April 18, 2005,
Alticor paid the Company, upon achieving a certain milestone, $2.0 million
advance payment for genetic risk assessment tests to be processed under the
terms of the Distribution Agreement. Further, Alticor agreed to extend the draw
down period of the $1.5 million working capital credit line through 2007.
F-28
EX-10.38
2
a05-1938_2ex10d38.htm
EX-10.38
EXHIBIT 10.38
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
RESEARCH AGREEMENT
This RESEARCH AGREEMENT (this Agreement) is entered into as of March 5,
2005 (the Effective Date) by and between Interleukin Genetics, Inc., a
Delaware corporation having its principal office at 135 Beaver Street, Waltham,
MA 02452 (IG) and Access Business Group LLC, having its principal office at
7575 Fulton Street, East, Ada, Michigan 49355-0001 (Access). Each of IG and Access is sometimes referred
to individually herein as a Party and collectively as the Parties.
WHEREAS, Access, together with its Affiliates, has expertise and
experience in the development, commercialization and marketing of nutritional
supplements and skin care products and IG has expertise and experience in
analyzing the effect of variations in genes related to inflammation, including
the effect of such variations on the risk for [ * ] and [
* * ], and
determining, through genetic profiling, individuals who may benefit from
specific interventions to promote health;
WHEREAS, Access and IG entered into a Research Agreement, having an
effective date of March 5, 2003, providing for IG to perform certain research
during a term two years from such effective date;
WHEREAS, Access desires that IG perform additional research on the
terms and subject to the conditions set forth in this Agreement and the Parties
desire to obtain certain rights to inventions arising out of such research; and
WHEREAS, IG is willing to perform such additional research and the
Parties are willing to grant each other such rights as described herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the Parties hereby agree
as follows:
1. DEFINITIONS
Whenever used in this Agreement with an initial capital letter, the
terms defined in this Section 1 shall have the meanings specified.
1.1. Affiliate means any corporation, firm,
partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a Party to this Agreement. For purposes of this definition, control
means ownership, directly or through one or more Affiliates, of fifty percent
(50%) or more of the shares of stock entitled to vote for the election of
directors, in the case of a corporation, fifty percent (50%) or more of the
equity interests in the case of any other type of legal entity, status as a general
partner in any partnership, or any other arrangement whereby a Party controls
or has the right to control the Board of Directors or equivalent governing body
of a corporation or other entity. For
purposes of this Agreement, Access, Alticor Inc. and subsidiaries of Alticor
Inc., on the one hand, and IG, on the other hand, will not be deemed to be
Affiliates of each other.
1.2. Access Patent Rights means any Patent Rights with
respect to Access Technology.
1.3. Access Proprietary Materials means any Proprietary
Materials of Access that are used by Access, or provided by Access for use, in
the Research Program.
1.4. Access Technology means any Technology
Controlled by Access as of the Effective Date and during the Term that is used
by Access, or provided by Access for use, in the Research Program.
1.5. [ * ] Test
means an analytic test performed on a [
* * ] or [
* ] to [ *
* * *
] to the use of a Program Consumable.
1.6. Confidential Information means, as regards a Party (the
Receiving Party), (i) all information produced or discovered by either Party
under the Research Program (including without limitation, compilations, data,
formulae, models, patent disclosures, procedures, processes, projections, protocols,
results of experimentation and testing, specifications, strategies and
techniques), and all tangible and intangible embodiments thereof of any kind
whatsoever (including, without limitation, apparatus, biological or chemical
materials, animals, cells, compositions, documents, drawings, machinery, patent
applications, records and reports) and (ii) all other information (including
but not limited to information about any element of Technology or a Partys
business) which is disclosed, whether in writing and marked as confidential at
the time of disclosure to the Receiving Party or customarily considered to be
confidential information or by oral disclosure reduced to a writing, by the
other Party (the Disclosing Party) to the Receiving Party or to any of its
employees, consultants, Affiliates, licensees and sublicensees hereunder except
to the extent that the information described in this subsection (ii) (a)
as of the date of disclosure is demonstrably known to, or in the possession of,
the Receiving Party or its Affiliates, as shown by written documentation, other
than by virtue of a prior confidential disclosure by the Disclosing Party or
its Affiliates; (b) as of the date of disclosure is in, or subsequently enters,
the public domain, through no fault or omission of the Receiving Party or its
Affiliates; (c) as of the date of disclosure or thereafter is obtained by the
Receiving Party or its Affiliates from a Third Party free from any obligation
of confidentiality to the Disclosing Party and rightfully in possession of such
information or (d) is independently developed by or for the Receiving Party or
its Affiliates without reference to or in reliance upon any of the foregoing
information as demonstrated by competent written records.
1.7. Control or Controlled
means (a) with respect to Technology (other than Proprietary Materials) and/or
Patent Rights, the possession by a party of the ability to grant a license or
sublicense of such Technology and/or Patent Rights as provided herein without
violating the terms of any agreement or arrangement between such party and any
Third Party and (b) with respect to Proprietary Materials, the possession by a
party of the ability to supply such Proprietary Materials to the other party as
provided herein without violating the terms of any agreement or arrangement
between such party and any Third Party.
1.8. IG Patent Rights means any Patent Rights with
respect to IG Technology.
2
1.9. IG Technology means any Technology
Controlled by IG as of the Effective Date and during the Term that is used by
IG, or provided by IG, or provided by IG for use, in the Research Program.
1.10. Joint Science Committee or JSC shall have the meaning set
forth in Section 5.1 hereof.
1.11. License Agreement means the License Agreement dated March 5,
2003, between the Parties, as the same may be amended, restated or supplemented
from time to time.
1.12. Patent Rights means the rights and interests
in and to issued patents and pending patent applications in any country,
including all substitutions, continuations, continuations-in-part, divisionals,
supplementary protection certificates, renewals, all letters patent granted
thereon, and all reissues, reexaminations, extensions, confirmations,
revalidations, registrations and patents of addition thereof.
1.13. Party or Parties
has the meaning set forth in the first paragraph of this Agreement.
1.14. Program Consumable
means any nutritional supplement, nutraceutical compound, skin care product, or
delivery system for a nutritional supplement, nutraceutical compound, or skin
care product, [ * *
* * *
* * *
] designed to produce a positive health benefit and/or a positive
appearance of skin (i) the manufacture, use or sale of which would, absent the
license or ownership rights granted to ABG hereunder and under the License
Agreement, infringe any claim included in the Program Patent Rights or the IG
Patent Rights, or (ii) which makes a claim or claims of efficacy or utility
based upon the research conducted hereunder or upon the use or results of a
Program Test.
1.15. Program Invention means any Technology, whether
or not patentable, which is conceived and/or first reduced to practice by
employees of, or consultants to, either Party, or jointly by both Parties, in
the conduct of the Research Program.
1.16. Program Patent Rights means all Patent Rights
claiming any Program Invention.
1.17. Program Product means
a Program Consumable or a Program Test.
1.18. Program Test means
any nucleic acid test used to determine appropriate recipients of a Program
Consumable (i) the manufacture, use or sale of which would, absent the license
or ownership rights granted to ABG hereunder and under the License Agreement,
infringe any claim included in the Program Patent Rights or the IG Patent
Rights, or (ii) which was developed, modified or improved hereunder.
1.19. Proprietary Materials means any tangible chemical,
biological or physical research materials, including but not limited to gene
sequences, gene fragment sequences, primers, probes, nucleic acids and nucleic
acid libraries, plasmids, vectors, expression systems, cells, cell lines,
organisms, antibodies, biological substances (and any constituents, progeny,
3
mutants, derivatives or replications thereof
or therefrom), reagents or chemical compounds that are furnished by or on
behalf of one Party to the other Party, in connection with this Agreement or
the License Agreement, that are proprietary to the transferring Party through
patent protection, trade secret, or other method of intellectual property
protection, regardless of whether such materials are specifically designated as
proprietary by the transferring Party.
1.20. Protocol means the written protocol
describing the activities to be carried out under the Research Program pursuant
to this Agreement to be agreed upon by the JSC based on the outline attached
hereto as Appendix A.
1.21. Research Program means the program to be
conducted by the Parties as described in this Agreement and in the Protocol to
develop [ * *
* * ] which will be Program Products.
1.22. Technology means and includes all
inventions, discoveries, know-how, trade secrets, improvements and Proprietary
Materials, whether or not patentable, including but not limited to, structural
and functional information and other data, formulations and techniques.
1.23. Term has the meaning set forth in Section 7.1.
1.24. Territory means worldwide.
1.25. Third Party means any entity other than
IG, Access or their respective Affiliates.
2. RESEARCH PROGRAM
2.1. Implementation of Research
Program. The Research Program shall be conducted by
the Parties in accordance with the Protocol and in compliance with all
applicable laws and regulations. The
parties shall use commercially reasonable efforts to perform the activities to
be performed by them under the Research Program, as described more fully in the
Protocol and in the timeline (the Timeline) which the JSC shall agree upon in
writing, based upon the outline attached hereto as Appendix A, as
promptly as practicable following the execution hereof. The Protocol and/or the Timeline may be
modified from time to time after the Effective Date by the JSC pursuant to Section 5.1
hereof.
2.2. Supply of Proprietary Materials.
From
time to time during the Term of this Agreement, one Party may supply the other
Party with its Proprietary Materials for use in the Research Program. In connection therewith, the recipient Party
hereby agrees that (a) it shall not use Proprietary Materials for any purpose
other than exercising any rights granted to it or reserved by it hereunder; (b)
it shall use the Proprietary Materials only in compliance with all applicable
federal, state, and local laws and regulations; (c) it shall not transfer any
Proprietary Materials to any Third Party without the prior written consent of
the transferor, except as expressly permitted hereby; (d) the transferring
Party shall retain full ownership of all such Proprietary Materials; and (e)
upon the expiration or termination of this Agreement, the recipient Party shall
at the instruction of the transferring Party either destroy or return any
unused Proprietary Materials which are not the subject of the grant of a
continuing license hereunder.
4
2.3. Consideration. In consideration of IG conducting the
Research Program described herein, Access shall pay to IG as follows:
2.3.1. Access shall pay to IG an
aggregate sum of Two Million Seven Hundred Sixteen Thousand One Hundred
Fifty-One Dollars ($2,716,151) payable as follows:
Payment Date
|
|
Payment Amount
|
|
|
|
|
|
April 15,
2005
|
|
$
|
564,534
|
|
July 5,
2005
|
|
558,234
|
|
October 5,
2005
|
|
516,642
|
|
January 5,
2006
|
|
337,059
|
|
April 5,
2006
|
|
337,059
|
|
July 5,
2006
|
|
215,123
|
|
October 5,
2006
|
|
143,750
|
|
January 5,
2007
|
|
43,750
|
|
|
|
|
|
|
Such payments shall cover all work to be
performed by IG management, research staff and other employees under this
Agreement, and all expenses incurred by IG in connection therewith, including
travel, equipment and supplies, subject, however, to the following paragraph
with respect to Third Party Services as defined below.
2.3.2. Access shall pay, or shall
reimburse IG for, all expenses incurred in obtaining from Third Parties the
additional services described on Appendix B hereto (Third Party
Services), on the following terms and conditions:
(a) The
payments specified in Section 2.3.1 above include amounts estimated by the
Parties as the costs to be incurred by IG for Third Party Services, plus an
amount equal to 15% of such estimated costs, according to the budget set forth
on Appendix B.
(b) IG
agrees that it shall not incur costs for any Third Party Service in excess of
105% of the amount set forth on Appendix B for the specified Third Party
Service (excluding the 15% markup), without the prior written approval of the
JSC.
(c) Within
30 days after March 31 of each year, IG shall submit to Access an itemized
accounting, together with supporting documentation in reasonable detail, of the
aggregate actual costs incurred by IG for Third Party Services during the
12-month period ending on March 31 (excluding any markup). If such aggregate actual costs exceed the
aggregate amount budgeted for such costs for such 12-month period as set forth
on Appendix B (excluding the 15% markup), Access shall pay to IG,
within 30 days after Access receives such accounting and supporting documentation,
an amount equal to 115% of such excess.
5
(d) If
the aggregate documented, actual costs incurred by IG for Third Party Services
during any 12-month period ending on March 31 are less than the aggregate
amount budgeted for such costs for 12-month period as set forth on Appendix
B (including the 15% markup), then 57.5% of such difference shall be
applied as a credit against the payment obligations of Access under Section 2.3.1
above for the following 12-month period.
If any such credit balance in favor of Access shall remain outstanding
at the expiration or other termination of this Agreement, IG shall promptly
refund to Access an amount equal to such outstanding credit balance.
2.4. Supporting Documentation. Upon request by Access, IG agrees to provide
Access with supporting documentation in reasonable detail of the actual costs
incurred by IG for Third Party Services.
3. RESEARCH LICENSES
3.1. License to IG. Subject to the terms and conditions of this
Agreement, Access hereby grants to IG a non-exclusive, worldwide, royalty-free
license, under the Access Technology, Access Patent Rights, Program Inventions
and Program Patent Rights for the sole purpose of performing the Research
Program.
3.2. License to Access. Subject to the terms and conditions of this
Agreement and the License Agreement, IG hereby grants to Access a
non-exclusive, worldwide, royalty-free license, under the IG Technology, IG
Patent Rights, Program Inventions and Program Patent Rights for the sole
purpose of performing the Research Program.
4. TREATMENT OF CONFIDENTIAL INFORMATION; PUBLICITY
4.1. Confidentiality.
4.1.1. Confidentiality Obligations. Access and IG each recognize that the
Confidential Information of the other Party constitutes highly valuable and
proprietary confidential information.
Access and IG each agrees that during the Term and for five (5) years
thereafter, it will keep confidential, and will cause its employees,
consultants, Affiliates and sublicensees to keep confidential, all of the
Confidential Information of the other Party.
Neither Access nor IG nor any of their respective employees,
consultants, Affiliates and sublicensees shall use the Confidential Information
of the other Party for any purpose except as expressly permitted in this
Agreement.
4.1.2. Limited Disclosure of
Confidential Information. Access and IG each agree that any disclosure
of the Confidential Information to any of its employees, consultants,
Affiliates or sublicensees shall be made only if and to the extent necessary to
carry out its rights and responsibilities under this Agreement, shall be
limited to the maximum extent possible consistent with such rights and
responsibilities and shall only be made to persons who are bound by written
confidentiality obligations to maintain the confidentiality thereof and not to
use such Confidential Information except as expressly permitted by this
Agreement. Access and IG each agree not
to disclose the Confidential Information to any Third Party under any
circumstance
6
without prior written approval from the other
Party, except as otherwise required by law, and except as otherwise expressly
permitted by this Agreement. Each Party
shall take such action, and shall cause its Affiliates and sublicensees to take
such action, to preserve the confidentiality of the Confidential Information as
it would customarily take to preserve the confidentiality of its own
confidential materials, which shall not, in any event, be less than reasonable
care. Each Party, upon the others
request, will return all the Confidential Information disclosed to it by the
other Party pursuant to this Agreement, including all copies and extracts of
documents, within sixty (60) days of the request following the termination of
this Agreement; provided, that, a Party may retain Confidential Information of
the other Party relating to any license or right to use Technology which
survives such termination and one copy of all other Confidential Information
may be retained in inactive archives solely for the purpose of establishing the
contents thereof.
4.2. Publicity. Neither Party may publicly disclose the terms
of this Agreement or the status or content of the Research Program without the
prior written consent of the other Party; provided, however, that either Party
may make such a disclosure (a) to the extent required by law or by the
requirements of any nationally recognized securities exchange, quotation system
or over-the-counter market on which such Party has its securities listed or
traded or (b) to any actual or prospective acquirors, real estate or equipment
lessors, investors, lenders and other potential financing sources who are
obligated to keep such information confidential. In the event that such disclosure is required
by the foregoing clause (a), the disclosing Party shall make reasonable efforts
to provide the other Party with notice beforehand and to coordinate with the
other Party to the maximum extent possible with respect to the wording and
timing of any such disclosure. The
Parties shall mutually agree on a press release announcing the execution of
this Agreement to be issued immediately following the execution hereof. If either Party wishes to issue any further
press release regarding the Research Program, it shall furnish a copy to the
other Party, which shall review such press release and provide any comments
within two (2) business days. Once any
written statement is approved for public disclosure by both Parties, either
Party may make subsequent public disclosure of the contents of such statement
without the further approval of the other Party.
5. JOINT SCIENCE COMMITTEE
5.1. Formation. The Joint Science Committee (the JSC)
established by IG and Access pursuant to the Research Agreement, dated
effective as of March 5, 2003, shall oversee and coordinate the Parties
conduct of the Research Program. During
the Term, the JSC will exchange information in anticipation of developing
mutually beneficial business opportunities pursuant to the subject matter
hereof. The JSC shall keep written
minutes of its meetings and all actions taken or approved by the JSC. The members of the JSC designated by each
Party shall be responsible for keeping that Party informed as to the progress
of the Research Program. The JSC shall
recommend to the Parties amendments and/or modifications to the Protocol and
Timeline and the scope of the Research Program and make recommendations to the
Parties as to the mutually beneficial prosecution of IG Patent Rights and
Program Patent Rights. The JSC shall
have no power to amend, modify or waive compliance with this Agreement and
shall have only such powers as are specifically delegated to it hereunder.
7
5.2. JSC Governance.
5.2.1. Membership. The JSC is composed of two representatives of
IG and two representatives of Access.
These representatives are as follows:
IG Representatives:
Kenneth Kornman, DDS, Ph.D.
Philip R. Reilly, M.D., J.D.
Access Representatives:
Robin Dykhouse
Daniel Beio
Either Party
may designate substitutes for its JSC representatives to participate if one or
more of such Partys designated representatives is unable to be present at a
meeting. A Party may replace its
representatives serving on the JSC from time to time by written notice to the
other Party specifying the prior representative(s) to be replaced and the
replacement(s) therefor.
6. INTELLECTUAL PROPERTY RIGHTS
6.1. Ownership.
6.1.1. Access Intellectual Property
Rights. Subject to IGs rights as described in Section 3
of this Agreement, Access shall have sole and exclusive ownership of all right,
title and interest [ * *
* * ] in and to all Access Technology and Access
Patent Rights, and all Program Inventions and Program Patent Rights relating to
Program Consumables, with full rights to license or sublicense; provided,
however, that in consideration of the performance of the Research Program by
IG, the manufacture, use or sale of all Program Consumables shall be subject to
the payment of royalties by Access to IG in accordance with the License
Agreement.
6.1.2. IG Intellectual Property Rights. Subject to Accesss rights as described in Section 3
of this Agreement and subject to the terms of the License Agreement, IG shall
have sole and exclusive ownership of all right, title and interest [
* * *
* ] in and to all IG Technology,
IG Patent Rights and all Program Inventions and Program Patent Rights relating
to Program Tests, with full rights to license or sublicense.
6.1.3. Intellectual Property Rights for
[ * ] Tests. Subject to the
rights of the Parties described in Section 3 of this Agreement, Access and
IG shall have equal joint ownership of all right, title and interest [
* * *
* ] in and to all Program
Inventions and Program Patent Rights not covered by Sections 6.1.1 or 6.1.2
above, including all Program Inventions and Program Patent Rights relating to
[ *
] Tests; provided, however, that Access shall have the exclusive right
to sell and grant licenses for [ *
] Tests covered by such Program Inventions and Program Patent Rights in
the channels of distribution utilized by Access and its Affiliates (the Access
Channels) and IG shall have the exclusive right to sell and grant licenses
for [
* ] Tests covered by such
Program Inventions and Program Patent Rights outside the Access Channels.
8
6.2. Patent Filing,
Prosecution and Maintenance. During the Term
with respect to any Patent Rights arising hereunder:
6.2.1. Program Consumables. Access shall bear the cost associated with
the filing, prosecution, issuance and maintenance of all Program Patent Rights
relating to Program Consumables and shall control prosecution of all such
Program Patent Rights, including, but not limited to, having the right to
choose the patent attorney(s) or agent(s) who will prosecute the applications,
having the right to inspect, review and provide substantive comments to all
correspondence with any patent office or patent agent, and having the right to
select the countries in which or treaties under which the patent applications
will be filed.
6.2.2. Program Tests. IG shall bear the cost associated with the
filing, prosecution, issuance and maintenance of all Program Patent Rights
relating to Program Tests and shall control prosecution of all such Program
Patent Rights, including, but not limited to, having the right to choose the patent
attorney(s) or agent(s) who will prosecute the applications, having the right
to inspect, review and provide substantive comments to all correspondence with
any patent office or patent agent, and having the right to select the countries
in which or treaties under which the patent applications will be filed.
6.2.3. [ *
] Tests. The Parties shall jointly bear the cost
associated with the filing, prosecution, issuance and maintenance of all other
Program Patent Rights (including Program Patent Rights relating to [ *
] Tests) and shall jointly control prosecution of all such Program
Patent Rights, including, but not limited to, having the right to choose the
patent attorney(s) or agent(s) who will prosecute the applications, having the
right to inspect, review and provide substantive comments to all correspondence
with any patent office or patent agent, and having the right to select the
countries in which or treaties under which the patent applications will be
filed. In the event that the parties
cannot agree on the filing and/or maintenance of Program Patent Rights
hereunder, then each Party shall have the right to proceed at its own costs
with such filing and/or maintenance. If
one Party proceeds in filing and/or maintaining Program Patent Rights
hereunder, then the other Party agrees to assign or otherwise take any action
necessary to assist the cost-bearing Party in achieving the filing or
maintenance of such Program Patent Rights.
6.2.4. Provisions with Respect to 11
U.S.C. § 365(n). With respect to each license granted by
either Party to the other Party hereunder, the Parties agree that, for purposes
of 11 U.S.C. § 365(n), this Agreement shall be deemed to be an executory
contract under which the Party granting such license is a licensor and the
Party to whom such license is granted is the licensee. With respect to all other provisions of this
Agreement, the Parties agree that, for purposes of 11 U.S.C. § 365(n),
this Agreement shall be deemed to be an agreement supplementary to such
executory contract.
7. TERM; TERMINATION
7.1. Term. This Agreement shall commence on the
Effective Date and continue for a period of two (2) years, unless extended or
sooner terminated as set forth in this Section 7 (the Term). At least six (6) months prior to the end of
the initial Term and any extension thereof,
9
the JSC shall advise the Parties as to
whether the JSC believes that the Research Program should be extended or
expanded, but any extension or expansion shall require the agreement of the
parties.
7.2. Termination.
7.2.1. Termination for Breach. In the event that either Party defaults or
breaches any material term of this Agreement on its part to be performed or
observed, the other Party shall have the right to terminate this Agreement (a)
by giving thirty (30) days written notice to the defaulting Party in the case
of a breach of any payment term of this Agreement and (b) by giving sixty (60)
days written notice to the defaulting Party in the case of any other breach;
provided, however, that in the case of a default or breach capable of being
cured, if the said defaulting Party shall cure the said default or breach
within such notice period after the said notice shall have been given, then the
said notice shall not be effective.
7.2.2. Termination for Bankruptcy. In the event that either Party files for
protection under bankruptcy laws, makes an assignment for the benefit of
creditors, appoints or suffers appointment of a receiver or trustee over its
property, files a petition under any bankruptcy or insolvency act or has any
such petition filed against it which is not discharged within sixty (60) days
of the filing thereof, then the other Party shall have the right, but not the
obligation, to terminate this Agreement effective immediately upon written
notice to such Party.
7.2.3. Termination by Access Without
Cause. Access shall have the right to terminate this
Agreement and the Research Program, without cause, on not less than three months
written notice to IG. In the event that
Access terminates this Agreement and the Research Program without cause under
this paragraph, Access shall pay to IG (i) all installment payments due under Section 2.3.1
above through the effective date of such termination, with the final
installment pro-rated from the previous payment to the date of termination; and
(ii) all fixed, non-cancelable costs or expenses actually incurred by IG as
required to perform the Research Program.
7.3. Surviving Provisions. Termination of this Agreement for any reason
shall be without prejudice to rights which expressly survive termination in
accordance with the terms of this Agreement, including without limitation, the
rights and obligations of the Parties provided in Sections 3, 4, 6, 7.2.3, 7.3,
8 and 9, all of which shall survive such termination.
8. REPRESENTATIONS AND WARRANTIES
8.1. Mutual Representations. Access and IG each represents and warrants to
the other Party as follows:
8.1.1. Organization. It is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of
organization, is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the performance of its obligations
hereunder requires such qualification.
10
8.1.2. Authorization. The execution, delivery and performance by it
of this Agreement have been duly authorized by all necessary corporate action
and do not and will not violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to it or any provision of its charter documents.
8.1.3. Binding Agreement. This Agreement is a legal, valid and binding
obligation of it enforceable against it in accordance with its terms and
conditions.
8.1.4. No Inconsistent Obligation. It is not under any obligation to any person,
or entity, contractual or otherwise, that is conflicting or inconsistent in any
respect with the terms of this Agreement or that would impede the diligent and
complete fulfillment of its obligations.
8.2. Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY
TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
8.3. Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS
AGREEMENT OR OTHERWISE, NEITHER ACCESS NOR IG WILL BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS OR (II) COST OF PROCUREMENT
OF SUBSTITUTE GOODS OR TECHNOLOGY.
9. MISCELLANEOUS
9.1. Dispute Resolution. The Parties recognize that disputes may from
time to time arise between the Parties during the term of this Agreement. It is the objective of the Parties to
establish procedures to facilitate the resolution of disputes arising under
this Agreement, including, without limitation, disputes concerning the definitions
of terms used in this Agreement, in an expedient manner by mutual cooperation
and without resort to litigation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in this Section 9.1 to resolve any dispute arising under this
Agreement. In the event of such a
dispute between the Parties, either Party, by written notice to the other
Party, shall have such dispute referred to the Parties respective executive
officers designated below or their successors, for attempted resolution by good
faith negotiations within thirty (30) days after such notice is received. Said designated officers are as follows:
For IG:
|
|
Chief
Executive Officer
|
|
|
|
For Access:
|
|
Vice
President, Research & Development
|
11
In the event
the designated executive officers are not able to resolve such dispute after
such thirty (30) day period, then the Parties shall resolve such dispute by
arbitration under the Commercial Rules of the American Arbitration Association
(the AAA). Three arbitrators shall be
selected. IG and Access shall each
select one arbitrator and the two chosen arbitrators shall select the third
arbitrator, or failing agreement on the selection of the third arbitrator, the
AAA shall select the third arbitrator.
Unless otherwise agreed by IG and Access, arbitration will take place in
Boston, Massachusetts.
9.2. Notices. All notices shall be in writing mailed via
certified mail, return receipt requested or courier providing evidence of
delivery, addressed as follows, or to such other address as may be designated
from time to time:
If to IG:
|
|
If to Access:
|
|
|
|
135 Beaver Street
|
|
7575 Fulton St. East
|
Waltham, MA 02452
|
|
Ada, MI 49355-0001
|
Attention: Chief Executive Officer
|
|
Attention: George Calvert
|
|
|
|
With a copy to:
|
|
|
|
|
|
Mintz, Levin, Cohn, Ferris,
|
|
7575 Fulton St. East.
|
Glovsky and
Popeo, P.C.
|
|
Ada, MI 49355-0001
|
One Financial Center
|
|
Attention: Thomas R. Curran
|
Boston, MA 02111
|
|
Chief Legal Officer
|
Attention: Ford Goldman, Esquire
|
|
|
9.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without regard
to the application of principles of conflicts of law.
9.4. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective legal representatives,
successors and permitted assigns.
9.5. Headings. Section and subsection headings are
inserted for convenience of reference only and do not form a part of this Agreement.
9.6. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original.
9.7. Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms may be waived, only by a written
instrument executed by each Party or, in the case of waiver, by the Party or
Parties waiving compliance, provided, that in the case of IG, such amendment
must be approved by a majority of the members of IGs Board of Directors who
are not selected by or affiliated with Access.
The delay or failure of any Party at any time or times to require
performance of any provisions shall in no manner affect the rights at a later
time to enforce the same. No waiver by
any Party of any condition or of the breach of any
12
term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.
9.8. No Agency or Partnership. Nothing contained in this Agreement shall
give either Party the right to bind the other, or be deemed to constitute the
Parties as agents for the other or as partners with each other or any Third
Party.
9.9. Assignment and Successors. This Agreement may not be assigned by either
Party without the written consent of the other which shall not be unreasonably
withheld, except that each Party may assign this Agreement and the rights,
obligations and interests of such Party to any purchaser of all or
substantially all of its assets to which this Agreement relates or to any
successor corporation resulting from any merger or consolidation of such Party
with or into such corporation.
9.10. Force Majeure. Neither IG nor Access shall be liable for
failure of or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or delay
is due to natural disasters or any causes beyond the reasonable control of IG
or Access. In event of such force
majeure, the Party affected thereby shall use reasonable efforts to cure or
overcome the same and resume performance of its obligations hereunder.
9.11. Interpretation. The Parties hereto acknowledge and agree
that: (i) each Party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the
rule of construction to the effect that any ambiguities are resolved against
the drafting Party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all Parties hereto and not in a favor of or against any
Party, regardless of which Party was generally responsible for the preparation
of this Agreement.
9.12. Integration; Severability. This Agreement, together with the License
Agreement, is the sole agreement with respect to the subject matter hereof and
supersedes all other agreements and understandings between the Parties with
respect to same. The provisions of this
Agreement shall be interpreted, if possible, so as to be valid, legal and enforceable. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be construed
or is otherwise held to be invalid, illegal or unenforceable by a court or
arbitration panel with jurisdiction over the parties to this Agreement, such
provision shall be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and the
remainder of this Agreement shall remain in full force and effect.
13
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives.
|
INTERLEUKIN
GENETICS, INC.
|
|
|
|
|
|
By:
|
/s/ Philip R. Reilly
|
|
|
|
Philip R. Reilly
|
|
|
Chief Executive Officer
|
|
|
|
|
|
ACCESS
BUSINESS GROUP LLC
|
|
|
|
|
|
|
|
By:
|
/s/ George Calvert
|
|
|
|
George Calvert
|
|
|
Vice President Research & Development
|
14
APPENDIX A
DESCRIPTION OF RESEARCH PROGRAM AND
DELIVERABLES
[ * * *
Appendix A contains confidential material and has been omitted in its
entirety. * * *]
15
APPENDIX B
AGGREGATE
BUDGET FOR THIRD-PARTY SERVICES
(includes
15% markup)
$898,500
16
EX-10.39
3
a05-1938_2ex10d39.htm
EX-10.39
EXHIBIT 10.39
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
RESEARCH
AGREEMENT
This RESEARCH AGREEMENT (this Agreement) is entered into as of March 5,
2005 (the Effective Date) by and between Interleukin Genetics, Inc., a
Delaware corporation having its principal office at 135 Beaver Street, Waltham,
MA 02452 (IG) and Access Business Group LLC, having its principal office at
7575 Fulton Street, East, Ada, Michigan 49355-0001 (Access). Each of IG and Access is sometimes referred
to individually herein as a Party and collectively as the Parties.
WHEREAS, Access, together with its Affiliates, has expertise and
experience in the development, commercialization and marketing of nutritional
supplements and personal care products and IG has expertise and experience in
seeking and analyzing scientific opportunities that would support development
of nutritional supplements and personal care products and determining the credibility
of such opportunities;
WHEREAS, Access desires that IG perform research on the terms and
subject to the conditions set forth in this Agreement and the Parties desire to
obtain certain rights to inventions arising out of such research;
WHEREAS, IG is willing to perform such research and the Parties are
willing to grant each other such rights as described herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the Parties hereby agree
as follows:
1. DEFINITIONS
Whenever used in this Agreement with an initial capital letter, the
terms defined in this Section 1 shall have the meanings specified.
1.1. Affiliate means any corporation, firm,
partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a Party to this Agreement. For purposes of this definition, control
means ownership, directly or through one or more Affiliates, of fifty percent
(50%) or more of the shares of stock entitled to vote for the election of
directors, in the case of a corporation, fifty percent (50%) or more of the
equity interests in the case of any other type of legal entity, status as a
general partner in any partnership, or any other arrangement whereby a Party
controls or has the right to control the Board of Directors or equivalent
governing body of a corporation or other entity. For purposes of this Agreement, Access,
Alticor Inc. and subsidiaries of Alticor Inc., on the one hand, and IG, on the
other hand, will not be deemed to be Affiliates of each other.
1.2. Access Patent Rights means any Patent Rights with
respect to Access Technology.
1.3. Access Proprietary Materials means any Proprietary
Materials of Access that are used by Access, or provided by Access for use, in
the Research Program.
1.4. Access Technology means any Technology
Controlled by Access as of the Effective Date and during the Term that is used
by Access, or provided by Access for use, in the Research Program.
1.5. Confidential Information means, as regards a Party (the
Receiving Party), (i) all information produced or discovered by either Party
under the Research Program (including without limitation, compilations, data,
formulae, models, patent disclosures, procedures, processes, projections,
protocols, results of experimentation and testing, specifications, strategies
and techniques), and all tangible and intangible embodiments thereof of any
kind whatsoever (including, without limitation, apparatus, biological or
chemical materials, animals, cells, compositions, documents, drawings,
machinery, patent applications, records and reports) and (ii) all other
information (including but not limited to information about any element of
Technology or a Partys business) which is disclosed, whether in writing and
marked as confidential at the time of disclosure to the Receiving Party or
customarily considered to be confidential information or by oral disclosure
reduced to a writing, by the other Party (the Disclosing Party) to the
Receiving Party or to any of its employees, consultants, Affiliates, licensees
and sublicensees hereunder except to the extent that the information described
in this subsection (ii) (a) as of the date of disclosure is demonstrably
known to, or in the possession of, the Receiving Party or its Affiliates, as
shown by written documentation, other than by virtue of a prior confidential
disclosure by the Disclosing Party or its Affiliates; (b) as of the date of
disclosure is in, or subsequently enters, the public domain, through no fault
or omission of the Receiving Party or its Affiliates; (c) as of the date of
disclosure or thereafter is obtained by the Receiving Party or its Affiliates
from a Third Party free from any obligation of confidentiality to the
Disclosing Party and rightfully in possession of such information or (d) is
independently developed by or for the Receiving Party or its Affiliates without
reference to or in reliance upon any of the foregoing information as
demonstrated by competent written records.
1.6. Control or Controlled
means (a) with respect to Technology (other than Proprietary Materials) and/or
Patent Rights, the possession by a party of the ability to grant a license or
sublicense of such Technology and/or Patent Rights as provided herein without
violating the terms of any agreement or arrangement between such party and any
Third Party and (b) with respect to Proprietary Materials, the possession by a
party of the ability to supply such Proprietary Materials to the other party as
provided herein without violating the terms of any agreement or arrangement
between such party and any Third Party.
1.7. IG Patent Rights means any Patent Rights with
respect to IG Technology.
1.8. IG Technology means any Technology
Controlled by IG as of the Effective Date and during the Term that is used by
IG, or provided by IG, or provided by IG for use, in the Research Program.
1.9. Joint Science Committee or JSC shall have the meaning set
forth in Section 5.1 hereof.
1.10. Patent Rights means the rights and interests
in and to issued patents and pending patent applications in any country,
including all substitutions, continuations,
2
continuations-in-part, divisionals,
supplementary protection certificates, renewals, all letters patent granted
thereon, and all reissues, reexaminations, extensions, confirmations,
revalidations, registrations and patents of addition thereof.
1.11. Party or Parties
has the meaning set forth in the first paragraph of this Agreement.
1.12. Program Invention means any Technology, whether
or not patentable, which is conceived and/or first reduced to practice by
employees of, or consultants to, either Party, or jointly by both Parties, in
the conduct of the Research Program.
1.13. Program Patent Rights means all Patent Rights
claiming any Program Invention.
1.14. Proprietary Materials means any tangible chemical,
biological or physical research materials, including but not limited to gene
sequences, gene fragment sequences, primers, probes, nucleic acids and nucleic
acid libraries, plasmids, vectors, expression systems, cells, cell lines,
organisms, antibodies, biological substances (and any constituents, progeny,
mutants, derivatives or replications thereof or therefrom), reagents or
chemical compounds that are furnished by or on behalf of one Party to the other
Party, in connection with this Agreement, that are proprietary to the
transferring Party through patent protection, trade secret, or other method of
intellectual property protection, regardless of whether such materials are
specifically designated as proprietary by the transferring Party.
1.15. Protocol means the written protocol
describing the activities to be carried out under the Research Program pursuant
to this Agreement to be agreed upon by the JSC based on the outline attached
hereto as Appendix A.
1.16. Research Program means the program to be conducted by IG
with respect to seeking, identifying and analyzing scientific opportunities for
Access, as more fully described in Appendix A hereto.
1.17. Technology means and includes all
inventions, discoveries, know-how, trade secrets, improvements and Proprietary
Materials, whether or not patentable, including but not limited to, structural
and functional information and other data, formulations and techniques.
1.18. Term has the meaning set forth in Section 7.1.
1.19. Territory means worldwide.
1.20. Third Party means any entity other than
IG, Access or their respective Affiliates.
2. RESEARCH PROGRAM
2.1. Implementation of Research
Program. The Research Program shall be conducted by
the Parties in accordance with the Protocol and in compliance with all
applicable
3
laws and regulations. IG shall use commercially reasonable efforts
to perform the activities to be performed by it under the Research Program, as
described more fully in the Protocol and in the timeline (the Timeline) which
the JSC shall agree upon in writing, based upon the outline attached hereto as Appendix
A, as promptly as practicable following the execution hereof. The Protocol and/or the Timeline may be
modified from time to time after the Effective Date by the JSC pursuant to Section 5.1
hereof.
2.2. Supply of Proprietary Materials.
From
time to time during the Term of this Agreement, one Party may supply the other
Party with its Proprietary Materials for use in the Research Program. In connection therewith, the recipient Party
hereby agrees that (a) it shall not use Proprietary Materials for any purpose
other than exercising any rights granted to it or reserved by it hereunder; (b)
it shall use the Proprietary Materials only in compliance with all applicable
federal, state, and local laws and regulations; (c) it shall not transfer any
Proprietary Materials to any Third Party without the prior written consent of
the transferor, except as expressly permitted hereby; (d) the transferring
Party shall retain full ownership of all such Proprietary Materials; and (e)
upon the expiration or termination of this Agreement, the recipient Party shall
at the instruction of the transferring Party either destroy or return any
unused Proprietary Materials which are not the subject of the grant of a continuing
license hereunder.
2.3. Consideration.
In
consideration of IG conducting the Research Program described herein, Access
shall pay to IG as follows:
2.3.1. Access shall pay to IG an
aggregate sum of Two Million Three Hundred Forty-One Thousand Five Hundred
Dollars ($2,341,500) payable in eight (8) equal quarterly installments of Two
Hundred Ninety-Two Thousand Six Hundred Eighty-Eight Hundred Dollars ($292,688)
each. The first such installment shall
be due and payable on April 1, 2005 and each of the remaining seven (7)
installments shall be due and payable on the first business day of each
calendar quarter thereafter. Such
payments shall cover all work to be performed by IG management, research staff
and other employees under this Agreement, and all expenses incurred by IG in
connection therewith, including travel, equipment and supplies, subject,
however, to the following paragraph with respect to Third Party Services.
2.3.2. Access shall pay, or shall
reimburse IG for, all expenses incurred in obtaining from Third Parties the
additional services described on Appendix B hereto (Third Party
Services), on the following terms and conditions:
(a) The
payments specified in Section 2.3.1 above include amounts estimated by the
Parties as the costs to be incurred by IG for Third Party Services, plus an
amount equal to 15% of such estimated costs, according to the budget set forth
on Appendix B.
(b) IG
agrees that it shall not incur costs for any Third Party Service in excess of
105% of the amount set forth on Appendix B for the specified Third Party
Service (excluding the 15% markup), without the prior written approval of the
JSC.
4
(c) Within
30 days after March 31 of each year, IG shall submit to Access an itemized
accounting, together with supporting documentation in reasonable detail, of the
aggregate actual costs incurred by IG for Third Party Services during the
12-month period ending on March 31 (excluding any markup). If such aggregate actual costs exceed the
aggregate amount budgeted for such costs for such 12-month period as set forth
on Appendix B (excluding the 15% markup), Access shall pay to IG,
within 30 days after Access receives such accounting and supporting
documentation, an amount equal to 115% of such excess.
(d) If
the aggregate documented, actual costs incurred by IG for Third Party Services
during any 12-month period ending on March 31 are less than the aggregate
amount budgeted for such costs for 12-month period as set forth on Appendix
B (including the 15% markup), then 57.5% of such difference shall be
applied as a credit against the payment obligations of Access under Section 2.3.1
above for the following 12-month period.
If any such credit balance in favor of Access shall remain outstanding
at the expiration or other termination of this Agreement, IG shall promptly
refund to Access an amount equal to such outstanding credit balance.
2.4. Supporting
Documentation. Upon request by Access, IG agrees to provide
Access with supporting documentation in reasonable detail of the actual costs
incurred by IG for Third Party Services.
2.5. No Brokers
Commission or Finders Fee. IG agrees that the
consideration expressly provided herein is the sole and exclusive consideration
to which IG shall be entitled for carrying out the Research Program, and that
Access shall have no obligation to pay any amount to IG or any of its
Affiliates, in the nature of a brokers commission, finders fee, or other
amount for acting as the agent or representative of Access, or of any other
Third Party, in connection with any product development opportunity identified
by IG hereunder or for any other transaction contemplated by this Agreement.
3. RESEARCH LICENSES
3.1. License to IG. Subject to the terms and conditions of this
Agreement, Access hereby grants to IG a non-exclusive, worldwide, royalty-free
license, under the Access Technology, Access Patent Rights, Program Inventions
and Program Patent Rights for the sole purpose of performing the Research
Program.
3.2. License to Access. Subject to the terms and conditions of this
Agreement and the License Agreement, IG hereby grants to Access a
non-exclusive, worldwide, royalty-free license, under the IG Technology, IG
Patent Rights, Program Inventions and Program Patent Rights for the sole
purpose of performing the Research Program.
5
4. TREATMENT OF CONFIDENTIAL INFORMATION; PUBLICITY
4.1. Confidentiality.
4.1.1. Confidentiality Obligations. Access and IG each recognize that the
Confidential Information of the other Party constitutes highly valuable and
proprietary confidential information.
Access and IG each agrees that during the Term and for five (5) years thereafter,
it will keep confidential, and will cause its employees, consultants,
Affiliates and sublicensees to keep confidential, all of the Confidential
Information of the other Party. Neither
Access nor IG nor any of their respective employees, consultants, Affiliates
and sublicensees shall use the Confidential Information of the other Party for
any purpose except as expressly permitted in this Agreement.
4.1.2. Limited Disclosure of
Confidential Information. Subject to Section 4.1.3 below, Access
and IG each agree that any disclosure of the Confidential Information to any of
its employees, consultants, Affiliates or sublicensees shall be made only if
and to the extent necessary to carry out its rights and responsibilities under
this Agreement, shall be limited to the maximum extent possible consistent with
such rights and responsibilities and shall only be made to persons who are
bound by written confidentiality obligations to maintain the confidentiality
thereof and not to use such Confidential Information except as expressly
permitted by this Agreement. Access and
IG each agree not to disclose the Confidential Information to any Third Party
under any circumstance without prior written approval from the other Party,
except as otherwise required by law, and except as otherwise expressly permitted
by this Agreement. Each Party shall take
such action, and shall cause its Affiliates and sublicensees to take such
action, to preserve the confidentiality of the Confidential Information as it
would customarily take to preserve the confidentiality of its own confidential
materials, which shall not, in any event, be less than reasonable care. Each Party, upon the others request, will
return all the Confidential Information disclosed to it by the other Party
pursuant to this Agreement, including all copies and extracts of documents,
within sixty (60) days of the request following the termination of this
Agreement; provided, that, a Party may retain Confidential Information of the
other Party relating to any license or right to use Technology which survives
such termination and one copy of all other Confidential Information may be
retained in inactive archives solely for the purpose of establishing the
contents thereof.
4.1.3. Identification of Access. In carrying out the Research Program as
described in Appendix A, including without limitation the New Technology
Opportunities program described therein, IG agrees that, prior to disclosing to
any Third Party that a technology may be considered by Access for product
development, IG will obtain the prior written consent of Access in each
case. Access may make such approval
contingent upon the satisfaction of specified conditions, including without
limitation the execution of written confidentiality obligations to maintain the
confidentiality of such disclosure and to restrict the use thereof.
4.2. Publicity. Neither Party may publicly disclose the terms
of this Agreement or the status or content of the Research Program without the
prior written consent of the other Party; provided, however, that either Party
may make such a disclosure (a) to the extent required by law
6
or by the requirements of any nationally
recognized securities exchange, quotation system or over-the-counter market on
which such Party has its securities listed or traded or (b) to any actual or
prospective acquirors, real estate or equipment lessors, investors, lenders and
other potential financing sources who are obligated to keep such information
confidential. In the event that such disclosure
is required by the foregoing clause (a), the disclosing Party shall make
reasonable efforts to provide the other Party with notice beforehand and to
coordinate with the other Party to the maximum extent possible with respect to
the wording and timing of any such disclosure.
The Parties shall mutually agree on a press release announcing the
execution of this Agreement to be issued immediately following the execution
hereof. If either Party wishes to issue
any further press release regarding the Research Program, it shall furnish a
copy to the other Party, which shall review such press release and provide any
comments within two (2) business days.
Once any written statement is approved for public disclosure by both
Parties, either Party may make subsequent public disclosure of the contents of
such statement without the further approval of the other Party.
5. JOINT SCIENCE COMMITTEE
5.1. Formation. The Joint Science Committee (the JSC)
established by IG and Access pursuant to the Research Agreement, dated
effective as of March 5, 2003, shall oversee and coordinate the Parties
conduct of the Research Program. During
the Term, the JSC will exchange information in anticipation of developing
mutually beneficial business opportunities pursuant to the subject matter
hereof. The JSC shall keep written
minutes of its meetings and all actions taken or approved by the JSC. The members of the JSC designated by each
Party shall be responsible for keeping that Party informed as to the progress
of the Research Program. The JSC shall
recommend to the Parties amendments and/or modifications to the Protocol and
Timeline and the scope of the Research Program and make recommendations to the
Parties as to the mutually beneficial prosecution of IG Patent Rights and
Program Patent Rights. The JSC shall
have no power to amend, modify or waive compliance with this Agreement and
shall have only such powers as are specifically delegated to it hereunder.
5.2. JSC Governance.
5.2.1. Membership. The JSC is composed of two representatives of
IG and two representatives of Access.
These representatives are as follows:
IG Representatives:
Kenneth Kornman, DDS, Ph.D.
Philip R. Reilly, M.D., J.D.
Access Representatives:
Robin Dykhouse
Daniel Beio
7
Either Party
may designate substitutes for its JSC representatives to participate if one or
more of such Partys designated representatives is unable to be present at a
meeting. A Party may replace its
representatives serving on the JSC from time to time by written notice to the
other Party specifying the prior representative(s) to be replaced and the
replacement(s) therefor.
6. INTELLECTUAL PROPERTY RIGHTS
6.1. Access
Intellectual Property Rights. Subject to IGs rights as described in Section 3
of this Agreement, Access shall have sole and exclusive ownership of all right,
title and interest on a worldwide basis in and to all Access Technology and
Access Patent Rights, and all Program Inventions and Program Patent Rights, with
full rights to license or sublicense.
6.2. IG Intellectual
Property Rights. Subject to Accesss rights as described in Section 3
of this Agreement and subject to the terms of the License Agreement, IG shall
have sole and exclusive ownership of all right, title and interest on a
worldwide basis in and to all IG Technology and IG Patent Rights.
6.3. Provisions with
Respect to 11 U.S.C. § 365(n). With respect to
each license granted by either Party to the other Party hereunder, the Parties
agree that, for purposes of 11 U.S.C. § 365(n), this Agreement shall be
deemed to be an executory contract under which the Party granting such license
is a licensor and the Party to whom such license is granted is the licensee. With respect to all other provisions of this
Agreement, the Parties agree that, for purposes of 11 U.S.C. § 365(n),
this Agreement shall be deemed to be an agreement supplementary to such
executory contract.
7. TERM; TERMINATION
7.1. Term. This Agreement shall commence on the
Effective Date and continue for a period of two (2) years, unless extended or
sooner terminated as set forth in this Section 7 (the Term). At least six (6) months prior to the end of
the initial Term and any extension thereof, the JSC shall advise the Parties as
to whether the JSC believes that the Research Program should be extended or
expanded, but any extension or expansion shall require the agreement of the
parties.
7.2. Termination.
7.2.1. Termination for Breach. In the event that either Party defaults or breaches
any material term of this Agreement on its part to be performed or observed,
the other Party shall have the right to terminate this Agreement (a) by giving
thirty (30) days written notice to the defaulting Party in the case of a
breach of any payment term of this Agreement and (b) by giving sixty (60) days
written notice to the defaulting Party in the case of any other breach;
provided, however, that in the case of a default or breach capable of being
cured, if the said defaulting Party shall cure the said default or breach
within such notice period after the said notice shall have been given, then the
said notice shall not be effective.
7.2.2. Termination for Bankruptcy. In the event that either Party files for
protection under bankruptcy laws, makes an assignment for the benefit of
creditors, appoints or
8
suffers appointment of a receiver or trustee
over its property, files a petition under any bankruptcy or insolvency act or
has any such petition filed against it which is not discharged within sixty
(60) days of the filing thereof, then the other Party shall have the right, but
not the obligation, to terminate this Agreement effective immediately upon
written notice to such Party.
7.2.3. Termination by Access Without
Cause. Access shall have the right to terminate this
Agreement and the Research Program, without cause, on not less than three
months written notice to IG. In the
event that Access terminates this Agreement and the Research Program without
cause under this paragraph, Access shall pay to IG (i) all installment payments
due under Section 2.3.1 above through the effective date of such
termination, with the final installment pro-rated from the previous payment to
the date of termination; and (ii) all fixed, non-cancelable costs or expenses
actually incurred by IG as required to perform the Research Program.
7.3. Surviving Provisions. Termination of this Agreement for any reason
shall be without prejudice to rights which expressly survive termination in
accordance with the terms of this Agreement, including without limitation, the
rights and obligations of the Parties provided in Sections 3, 4, 6, 7.2.3, 7.3,
8 and 9, all of which shall survive such termination.
8. REPRESENTATIONS AND WARRANTIES
8.1. Mutual Representations. Access and IG each represents and warrants to
the other Party as follows:
8.1.1. Organization. It is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of organization,
is qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the performance of its obligations hereunder
requires such qualification.
8.1.2. Authorization. The execution, delivery and performance by it
of this Agreement have been duly authorized by all necessary corporate action
and do not and will not violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to it or any provision of its charter documents.
8.1.3. Binding Agreement. This Agreement is a legal, valid and binding
obligation of it enforceable against it in accordance with its terms and
conditions.
8.1.4. No Inconsistent Obligation. It is not under any obligation to any person,
or entity, contractual or otherwise, that is conflicting or inconsistent in any
respect with the terms of this Agreement or that would impede the diligent and
complete fulfillment of its obligations.
8.2. Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY
TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS WARRANTIES OF
9
MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
8.3. Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS
AGREEMENT OR OTHERWISE, NEITHER ACCESS NOR IG WILL BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS OR (II) COST OF PROCUREMENT
OF SUBSTITUTE GOODS OR TECHNOLOGY.
9. MISCELLANEOUS
9.1. Dispute Resolution. The Parties recognize that disputes may from
time to time arise between the Parties during the term of this Agreement. It is the objective of the Parties to establish
procedures to facilitate the resolution of disputes arising under this
Agreement, including, without limitation, disputes concerning the definitions
of terms used in this Agreement, in an expedient manner by mutual cooperation
and without resort to litigation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in this Section 9.1 to resolve any dispute arising under this
Agreement. In the event of such a
dispute between the Parties, either Party, by written notice to the other
Party, shall have such dispute referred to the Parties respective executive
officers designated below or their successors, for attempted resolution by good
faith negotiations within thirty (30) days after such notice is received. Said designated officers are as follows:
For IG:
|
|
Chief
Executive Officer
|
|
|
|
For Access:
|
|
Vice
President, Research & Development
|
In the event
the designated executive officers are not able to resolve such dispute after
such thirty (30) day period, then the Parties shall resolve such dispute by
arbitration under the Commercial Rules of the American Arbitration Association
(the AAA). Three arbitrators shall be
selected. IG and Access shall each
select one arbitrator and the two chosen arbitrators shall select the third
arbitrator, or failing agreement on the selection of the third arbitrator, the
AAA shall select the third arbitrator.
Unless otherwise agreed by IG and Access, arbitration will take place in
Boston, Massachusetts.
9.2. Notices. All notices shall be in writing mailed via
certified mail, return receipt requested or courier providing evidence of
delivery, addressed as follows, or to such other address as may be designated
from time to time:
If to IG:
|
|
If to Access:
|
|
|
|
135 Beaver Street
|
|
7575 Fulton St. East
|
Waltham, MA 02452
|
|
Ada, MI 49355-0001
|
Attention: Chief Executive Officer
|
|
Attention: George Calvert
|
10
With a copy to:
|
|
|
|
|
|
Mintz, Levin, Cohn, Ferris,
|
|
7575 Fulton St. East
|
Glovsky and
Popeo, P.C.
|
|
Ada, MI 49355-0001
|
One Financial Center
|
|
Attention: Thomas R. Curran
|
Boston, MA 02111
|
|
Chief Legal Officer
|
Attention: Ford Goldman, Esquire
|
|
|
9.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without regard
to the application of principles of conflicts of law.
9.4. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective legal representatives,
successors and permitted assigns.
9.5. Headings. Section and subsection headings are
inserted for convenience of reference only and do not form a part of this
Agreement.
9.6. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original.
9.7. Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms may be waived, only by a written
instrument executed by each Party or, in the case of waiver, by the Party or
Parties waiving compliance, provided, that in the case of IG, such amendment
must be approved by a majority of the members of IGs Board of Directors who
are not selected by or affiliated with Access.
The delay or failure of any Party at any time or times to require
performance of any provisions shall in no manner affect the rights at a later
time to enforce the same. No waiver by
any Party of any condition or of the breach of any term contained in this
Agreement, whether by conduct, or otherwise, in any one or more instances,
shall be deemed to be, or considered as, a further or continuing waiver of any
such condition or of the breach of such term or any other term of this
Agreement.
9.8. No Agency or Partnership. Nothing contained in this Agreement shall
give either Party the right to bind the other, or be deemed to constitute the
Parties as agents for the other or as partners with each other or any Third
Party.
9.9. Assignment and Successors. This Agreement may not be assigned by either
Party without the written consent of the other which shall not be unreasonably
withheld, except that each Party may assign this Agreement and the rights,
obligations and interests of such Party to any purchaser of all or
substantially all of its assets to which this Agreement relates or to any
successor corporation resulting from any merger or consolidation of such Party
with or into such corporation.
9.10. Force Majeure. Neither IG nor Access shall be liable for
failure of or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or delay
is due to natural disasters or any causes beyond the
11
reasonable control of IG or Access. In event of such force majeure, the Party
affected thereby shall use reasonable efforts to cure or overcome the same and
resume performance of its obligations hereunder.
9.11. Interpretation. The Parties hereto acknowledge and agree
that: (i) each Party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the
rule of construction to the effect that any ambiguities are resolved against
the drafting Party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all Parties hereto and not in a favor of or against any
Party, regardless of which Party was generally responsible for the preparation
of this Agreement.
9.12. Integration; Severability. This Agreement, together with the License
Agreement, is the sole agreement with respect to the subject matter hereof and
supersedes all other agreements and understandings between the Parties with
respect to same. The provisions of this
Agreement shall be interpreted, if possible, so as to be valid, legal and
enforceable. In the event that any
provision of this Agreement conflicts with the law under which this Agreement
is to be construed or is otherwise held to be invalid, illegal or unenforceable
by a court or arbitration panel with jurisdiction over the parties to this
Agreement, such provision shall be deemed to be restated to reflect as nearly
as possible the original intentions of the parties in accordance with
applicable law, and the remainder of this Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives.
|
INTERLEUKIN
GENETICS, INC.
|
|
|
|
|
|
By:
|
/s/ Philip R. Reilly
|
|
|
|
Philip R. Reilly
|
|
|
Chief Executive Officer
|
|
|
|
|
|
ACCESS
BUSINESS GROUP LLC
|
|
|
|
|
|
By:
|
/s/ George Calvert
|
|
|
|
George Calvert
|
|
|
Vice PresidentResearch & Development
|
12
APPENDIX A
DESCRIPTION OF RESEARCH PROGRAM AND
DELIVERABLES
[ * * *
Appendix A contains confidential material and has been omitted in its
entirety. * * *]
13
APPENDIX B
AGGREGATE
BUDGET FOR THIRD-PARTY SERVICES
(includes
15% markup)
$801,500
14
EX-10.40
4
a05-1938_2ex10d40.htm
EX-10.40
EXHIBIT 10.40
FIRST AMENDMENT
TO
DISTRIBUTION AGREEMENT
THIS
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT (the Amendment) is made and entered
as of March 5, 2005, between ACCESS BUSINESS GROUP INTERNATIONAL LLC, a
Michigan limited liability company, with its principal place of business at
7575 East Fulton Road, Ada, Michigan 49355 (Access) and INTERLEUKIN GENETICS
INC., a Delaware corporation with its principal place of business at 135 Beaver
Street, Waltham, Massachusetts 02452 (Seller).
WHEREAS,
Access and Seller are parties to that certain Distribution Agreement effective February 26,
2004, whereby Seller agreed to supply Genetic Tests (as defined in such
agreement) to Access for resale to third parties; and
WHEREAS,
Access desires to prepay Seller for certain of the Genetic Tests;
NOW,
THEREFORE, the parties agree as follows:
1. Notwithstanding
Section 3 of the Distribution Agreement, Access shall pay to Seller within
fifteen (15) days of Sellers receipt of a registration number as required under
the Clinical Laboratory Improvement Act of 1988, as amended, Two Million
Dollars ($2,000,000.00) as an advance payment (the Payment) for Genetic Tests
to be shipped to it upon submission of purchase orders to Seller at a later
date in compliance with the Distribution Agreement. Seller shall credit the Payment in full
toward purchases of Genetic Tests. The
payment terms for all purchases in excess of the Payment shall be in accordance
with Section 3 of the Distribution Agreement.
2. Section 2
of the Distribution Agreement shall be amended and restated in its entirety to
read as follows:
2. Conditions to Purchase.
The obligations of Access under Section 1 shall be subject to the
receipt by Access of evidence to its reasonable satisfaction that (a) the
Genetic Tests will be performed in a clinical laboratory that has obtained a
registration number as required (the Required Certifications) under the
Clinical Laboratory Improvement Act of 1988, as amended (CLIA), (b) Seller,
such laboratory, and the Genetic Tests
to be provided by Seller in such laboratory are each in full compliance
with all applicable industry standards and applicable laws, regulations, and
standards and (c) the distribution of Genetic Tests by Access or its affiliates
shall not, in Access reasonable determination, subject Access to a material
risk with respect to product liability.
Access agrees and acknowledges that, at certain volumes, Seller may
subcontract the Genetic Tests to other laboratories (Reference Labs), provided
that any such Reference
Lab
meet the Required Certifications under CLIA, and Seller provides such
documentation to Access at least thirty (30) days prior to the effectiveness of
any subcontract.
3. This
Amendment does not alter the Distribution Agreement in any other aspect and it
remains in full force and effect.
4. This
Amendment may be executed in any number of counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF,
the parties have entered into this Amendment as of the date first set forth
above.
|
ACCESS BUSINESS
GROUP
INTERNATIONAL LLC
|
|
|
|
|
|
By:
|
/s/ Jay Ertl
|
|
|
|
Jay Ertl
|
|
|
Vice President, Product Supply
|
|
|
|
|
|
|
|
INTERLEUKIN
GENETICS INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Fenel Eloi
|
|
|
|
Fenel Eloi
|
|
|
Chief Operating Officer
|
2
EX-10.41
5
a05-1938_2ex10d41.htm
EX-10.41
EXHIBIT 10.41
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (the Amendment) is made and
entered as of March 5, 2005, between PYXIS INNOVATIONS INC., a Delaware
corporation (Investor), and INTERLEUKIN GENETICS INC., a Delaware corporation
(the Company).
RECITALS
A. Investor
and the Company are parties to that certain Stock Purchase Agreement (herein so
called) made as of March 5, 2003, as amended May 20, 2003, whereby
Investor acquired a controlling equity interest in, and amended existing and
extended additional working capital credit facilities to, the Company, to
enhance the Companys capabilities for growth and strategic success.
B. Investor
desires to extend the term of a working capital facility made available to the
Company, which would otherwise expire on March 5, 2005.
C. The
parties desire to extend the term of the restriction on transfer of the
Preferred Stock or any Conversion Shares (as those terms are defined in the
Stock Purchase Agreement) acquired by Investor.
The
parties agree as follows:
1. Section 2.5.1
of the Stock Purchase Agreement shall be amended and restated in its entirety
as follows:
2.5.1 Strategic Relationships.
At any time prior to the fourth anniversary of the date of this
Agreement, upon the request of the Company, Investor shall loan to the Company
up to $1.5 million (in the aggregate); provided that such request may only be
made following the board-approved payment of monies by the Company in
connection with the entry of a new or expanded strategic partnership or
research collaboration with one or more universities, health organizations, or
other thought leaders in genomics.
2. Section 5.2
of the Stock Purchase Agreement shall be amended and restated in its entirety
as follows:
5.2 Restrictions on Transfer.
In addition to restrictions imposed upon Investor under the Registration
Rights Agreement, for a period of four years following the date of the Closing,
Investor will not sell or otherwise transfer its Preferred Stock or any
Conversion Shares to any Person who is not an Affiliate of Investor.
3. This
Amendment does not alter the Stock Purchase Agreement in any other aspect and
it remains in full force and effect.
4. This
Amendment may be executed in any number of counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
IN WITNESS
WHEREOF, the parties have executed this Second Amendment to Stock Purchase
Agreement as of the date first set forth above.
|
PYXIS
INNOVATIONS INC.
|
|
|
|
|
|
By:
|
/s/ Kim S. Mitchell
|
|
|
|
Kim S. Mitchell
|
|
|
Assistant Secretary
|
|
|
|
|
|
|
|
INTERLEUKIN
GENETICS INC.
|
|
|
|
|
|
By:
|
/s/ Philip R. Reilly
|
|
|
|
Philip R. Reilly
|
|
|
Chief Executive Officer
|
2
EX-21.1
6
a05-1938_2ex21d1.htm
EX-21.1
Exhibit 21.1
Subsidiaries of the
Company
Name
|
|
|
|
Incorporated
|
|
Names Under
Which Subsidiary
does Business
|
|
Interleukin
Genetics Laboratory Services, Inc
|
|
Delaware
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
EX-23.1
7
a05-1938_2ex23d1.htm
EX-23.1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We have issued our reports
dated April 22, 2005, accompanying the consolidated balance sheets of
Interleukin Genetics, Inc. and subsidiary as of December 31, 2004 and
2003, and the related consolidated statements of operations, shareholders
equity (deficit) and comprehensive loss, and cash flows for each of the years
in the three year period ended December 31, 2004, and managements
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2004 which appear in the December 31, 2004 Annual Report
of Interleukin Genetics, Inc. on Form 10-K. We hereby consent
to the incorporation by reference of said report in the registration statements
on Form S-3 (Nos. 333-83631, 333-53558, 333-56558,
333-101088, and 333-107782) and on Form S-8 (Nos. 333-37343,
333-67147, 333-32538, 333-62638 and 333-118551) of Interleukin
Genetics, Inc. and subsidiary.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
April 22, 2005
EX-31.1
8
a05-1938_2ex31d1.htm
EX-31.1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Philip R.
Reilly, certify that:
1. I have
reviewed this annual report of Interleukin Genetics, Inc.;
2. Based on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on
my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrants other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and we have:
a) designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated
the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report,
based on such evaluation; and
d) disclosed
in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The
registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors:
a) all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: April 25, 2005
|
|
|
|
/s/ PHILIP R.
REILLY
|
|
Philip R. Reilly
|
|
Chief Executive Officer
|
|
EX-31.2
9
a05-1938_2ex31d2.htm
EX-31.2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Fenel M. Eloi,
certify that:
1. I have
reviewed this annual report of Interleukin Genetics, Inc.;
2. Based on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on
my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrants other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and we have:
a) designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated
the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report, based on such evaluation; and
d) disclosed
in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The
registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors:
a) all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: April 25, 2005
|
|
|
|
/s/ FENEL M.
ELOI
|
|
Fenel M. Eloi
|
|
Chief Financial Officer
|
|
EX-32
10
a05-1938_2ex32.htm
EX-32
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18 United States
Code), each of the undersigned officers of Interleukin Genetics, Inc., a
Delaware corporation (the Company), does hereby certify, to such officers
knowledge, that:
The Annual Report of Form 10-K for
the year ended December 31, 2004 (the Form 10-K) of the Company fully
complies with the requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934, and the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: April 25, 2005
|
/s/ PHILIP R. REILLY
|
|
Philip R.
Reilly
|
|
Chief
Executive Officer
|
Dated: April 25, 2005
|
/s/ FENEL M. ELOI
|
|
Fenel M.
Eloi
|
|
Chief
Financial Officer
|
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission of its staff
upon request.
GRAPHIC
11
g19382daimage002.gif
GRAPHIC
begin 644 g19382daimage002.gif
M1TE&.#EAWP%H`7<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y
M!`$`````+`````#?`6@!AP```````````P``!P``#```$0``%0``&@``'@``
M(P``)P``*P``+P``,P``-P``.P``/P``0P``1@``2@``3@``40``50``6```
M7```8```8@``90``:```;```;@``<@``=0``>```>P``?0``@```@P``A0``
MB0``BP``C@``D```D@``E0``E@``F0``FP``G@``H```H@``I```I@``J```
MJ@``K0``K@``L0``L@``M```M0``MP``N0``NP``O```O@``OP``P0``PP``
MQ```Q0``QP``R0``R@`!S``!S0`!SP`"T``"T0`#T@`#U``#U0`$U@`$UP`%
MV0`%V@`%VP`&W``&W0`&W@$'WP`'WP$'X`$(X@$'X@$(XP()Y`((Y`()Y@,)
MYP,*Z`,*Z00+ZP0*ZP0+[`0+[04,[@4,[P4,\`8-\04-\04,\08-\@<.]`8.
M]`8-]`<.]08.]0]@<.]@@/]P^`@/^0^0@0^@@/^@D0^P@0^P@0_`D1
M_0D0_0D0_@H1_PD1_PH2_T#$VW-S/($.*'$FRI,F3*%.J7,FRI//JW/'D"-+GDRYLN7+F#-KWLRYL^?/H$.+'DVZM.G3EPFH7LVZM>O7L&/+GDV[
MMNW;N'/KWLV[M^_?P(,+'TZ\N'';!9(K7\Z\N?/GT*-+GTZ]NO7KV+-KW\Z]
MN_?OX,.+_Q]/OKSY\^C3JU_/OKW[]_#CRY]NH+[]^_CSZ]_/O[___P`&*."`
M!!9HX($()JC@@@PVZ."#$$88X`$45FCAA1AFJ.&&'';HX8<@ABCBB"26:.*)
M**:HXHHLMNCBBS""B,",--9HXXTXYJCCCCSVZ../0`8IY)!$%FGDD4@FJ>22
M3#;IY)-01BGEE%16:>656&:IY99<]IC`EV"&*>:89)9IYIEHIJGFFFRVZ>:;
M<,8IYYQTUFGGG7CFJ>>>:RK@YY^`!BKHH(06:NBAB":JZ**,-NKHHY!&*NFD
ME%9JZ:689JJIH@MTZNFGH(8JZJBDEFKJJ:BFJNJJK+;JZJNPQO\JZZRTUFKK
MK;CFJNNNO/;JZZ_`!BOLL,06:^RI#"2K[++,-NOLL]!&*^VTU%9K[;789JOM
MMMQVZ^VWX(8K[KCDEEMM`^BFJ^ZZ[+;K[KOPQBOOO/36:^^]^.:K[[[\]NOO
MOP`'+/#`!-/KP,$()ZSPP@PW[/##$$L\LHLM^SRRS!'_,#,--=L\\TXYZSSSCSW[///0`M]=9<=^WUUV"'+?;89)=M]MEHIZWV
MVFRW[;;7$<0M]]QTUVWWW7CGK??>?/?_[???@`N^=X2=.[YYZ"'+OKHI)=N^NFHIZ[ZZJRW[OKKL,O_/+,-^_\\]!'+_WTU%=O
M_?78(T_!]MQW[_WWX(BGK_[Z[+?O_OOPQR___/37;__]^.>O
M__[\]^___P`,H``'2,#R5>"`"$R@`A?(P`8Z\($0C*`$)TC!"EKP@AC,H`8W
MR,$.>O"#(`RA"$]\C'
M/OKQCX`,I"`'2O*3H`RE*$=)RE*:\I2H3*4J5\E*3FK@E;",I2QG2MKSGN?D@#[WR?_/?OKS
MGP`-J$`'2M""&O2@"$VH0A?*T(8Z]*$0C:A$)TK1BEK4H!W(J$8WRM&.>O2C
M(`VI2$=*TI*:]*0H3:E*5\K2EKKTI3"-J4QG2M.:VO2F.,VI3G?*TY[Z]*=`
M#:I01^J!HAKUJ$A-JE*7RM2F.O6I4(VJ5*=*U:I:]:I8S:I6M\K5KGKUJV`-
M:U0_0-:RFO6L:$VK6M?*UK:Z]:UPC:M^^O6O@(4K
M"`9+V,(:]K"(3:QB%\O8QCKVL9"-K&0G2]G*6O:RF,VL9C?+VYT(VN=*=+W>I:][K8S:YVM\O=[GKWN^`-KWC'
M2][RFO>\Z$VO>K4[@O:Z][WPC:]\YTO?^MKWOOC-KW[WR]_^^O>_``ZP@`=,
MX`(;^,`(3K""%\S@!COXP1".L(0G3.$*6_B^),BPAC?,X0Y[^,,@#K&(1TSB
M$IOXQ"A.L8I7S.(6N_C%,(ZQC&=,XQJ7N`0XSK&.=\SC'OOXQT`.LI"'3.0B
M&_G(2$ZRDI?,Y"8[^_G+8`ZSF,=,YC*;
M^E*6_K2F,ZTIC?-Z4Y[^M./1H&H1TWJ4IOZ
MU*A.M:I7S>I6N_K5L(ZUK&=-ZUK;^M:XSK6N=\WK7OO:U2D(MK"'3>QB&_O8
MR$ZVLI?-[&8[^]G0CK:TITWM:EO[VMC.MK:WS>UN-UL%X`ZWN,=-[G*;^]SH
M3K>ZU\WN=KO[W?".M[SG3>]ZV_O>^,ZWOO?-[W[[^]\`#[C`!T[P@AO\X`A/
MN+I7P/"&.]SACWC$PQL><8E7?`41GSC#+YYQC7N'G.,EK[G.=SYQ%OC\YT`'>L2#_O.*L\#H0R?Z
MT8>>=*4[W>_WK8`^[V,=.]J)'?>F/*+O:
MU_[T%KC][7"'>\1;$'6Z1[WB;K_[S>T>\KSO_>UXEWO?^?X(PA=^\'^/N^(7
MS_C&._[QD(^\Y"=/^^@#S_G28W[N>D^]X?6^
M^L,GOO6?3_W=#6_ZVMO^]KC/O>YWSWO!%W[UL!?]WF5/^MY;W@7(3[[RE1]Q
M%U3<^3>'_B.@+_WG6W_ZUP^Y])E/?.Q'/^K(U_O_\L=/_O*;__SH3[_ZU\_^
M]KO__?"/O_SG3__R/[_ZW<=_]YM___K[?_DO$(`".(`#&'$O4'$'>',)^`@)
MN(`(^(`,"($AMX`%V'T-6($3Z(`&2(`^($@&((B.((D6((F>((HF((J
MN((LV((?B(`:&($3N'\:&(,,Z((XR($PL(,\V(,]&'$P4'%!>'-#^`A#6(1"
MF(1&J(0A5X0_"(0\&'5'>(12B(10Z(-8F(5:N(5^(5@&(9B.(9D6(9F
M>(9HF(9:*(16N']$Z(97J(9R2(9`R(1V6(=OF(=+B(=-&(5Q*(6`F'I..(>$
M6(B&>(B(F(B*N(@^>'=M_RA[C]A]C(B&,5")EGB)EQAQ,5!QFWASG1ARG\B)
M4?>)I#B*ELB)ISB*GBA[I(B)KOB*L!B+LCB+M%B+MGB+N)B+NKB+O-B+OOB+
ML6B*HKB*H+A_H?@(P)B,L"@#S-B,SNB,/`!F0`CF0!%F0!GF0")F0"KF0#-F0#OF0$!F1`>F/^RB1%GF1&&F0
M_YB1'-F1]DB1(!F2(CF2)*EW'GF2*)F2$DD#+-F2+OF2,!F3,CF3-%F3-GF3
M./^9DSJ9DXY0DC[YDT`9E'JWDT19E$9YE$B9E#A9`TS9E$[YE%`9E5(YE519
ME59YE5B9E5J)E8[0DT+YE6`9EORXE619EF9YEFB9EEAI`VS9EF[YEG`9EW(Y
MEW19EW9YEWB9EWIYEUWIE6+YEX`9F#>WEX19F(9YF(B9F(JYF(S9F([YF&S9
MEUTIF)19F6`)F9B9F9KIF#?0F9[YF:`9FJ(YFJ19FJ9YFJB9FJJYFJ4IF9-I
MF;#YEX`9GLW_F0/D69[F>9[HF9[J
MN9[LV9[N^9[P&9_RJ9[2.9W5>9\EF9W968WSV9_^^9\`&J`".J`$6J`&>J`&
M6I_VB9\,&HWZ^:#:28T(.J$46J$5J@,8FJ$:JJ&)T*$>^J$@&J(B.J(D6J(F
M>J(HNJ$JNJ(LVJ(9JJ!^V:`R"I(06IO3Z*(XFJ,J6W&8U1NJ5<6J1+^J5@&J8=
MVJ5DR@-F>J9F*J9JNJ8^BJ9N^J9P&J=Q.J556J?]>*72**=ZNJ<\X*,5YZ$1
MEPB!RJ:`.J@]&JA_:J)\NJAQ_TJHCOJH'\JHDBJG=&JGEGIS6(JG<#BIDNJG
MAHJHCP"IB7JHH3JJ),JI<=H#JKJJJ@JIKDJHK!JKLCJKM$JKE7JIN+I_F@J'
MM=JKOMH#I/JGLB>H;DBLB1IRQFJLI2JLS'ISRBJBOQJM/C"MU#JMKWJM8EJM
MVKJMW-JMW7JKN7JIF:J?TNBMYGJN/A"LH$J9RDJ-(8JN\/H#\CJO\HJM]KJD
M])JO^KJO_,JOX!JN`(NIY$J-_5JP!OL#/-JLQ+JP[1IUR:IW"PN'#`NJ[9JL
M('JP&,NO][JQ0)JQ'MNO_RI[`A&PL#FNM%F-'^NQ">NP%-NPSMJL$%NL$[NL
M%6NJ'?^:LOP*!#J[LSH;IB]KJ")JLVHJM"3*LT9[M$B;M$D;LJDWLA7GM!$'
MM8]P$$];$%4KM5$;`'=GM57;M5X[$"$GM5H;MF-[I]?ICTJ;MFH+!"@JL\3G
MLOW8H2S[MB"ZMG8;!'B;MW@+IL-*HD0+HG_KMT!KHGI;N(9[N(B+N$RK=V(+
MM8W+M5,+N9";M5M+$&3KM90+MI>+N9$[C9G:CXD;NJ(;!&W[J7[P*&HW5J[7,^[^6>[71J[W8
MV[BI?&/EG(
MFKS)10"D@PK%)_K'#&NOG%S*A(R[OTNS)#FSI\NC=IP(IAS+=GS(!TS)*KS(
M".RXE9S+9SS&MUS&!LS%J?>Y("G+L>S)K@O*'VJJISNXKVK,A&P$TCS-TBRF
M3\S*O?NLV@R\IIO,SDRBT^RAU#S.Y%S.YBS-M$RRE/F@07G.[ES.'1K./_K)
M].S->RR_VI%%FHJ>O']RR-)8K1)"W02'#2*'W2!VW0*/VA*?W2
M,!W3,HT$$?\MT6"YJSXYTSJMTB":TLCLC\M,S_7+CR6ZTT:MTRL-QS[MH4?=
MU"A=TS8ME!1]MOWHU"T]HDO-T>[*S$+MDT5MU3*=!&(]UF*=U&],UB!*UFJ]
MUFS-UE`=DKU,LE@:E&W=UB:*UO-LSQ++U1_MU21:UX"]UDHPV(0]V&8MQ(6M
M!"":V(S=V(X]V&]-D0;QPE]LRP*\RXQ,P+U,QA4WU1&ZCX^=V"3=742-W'3=C7+<';W=A+,-_T/=_OS;'U7=\?FM_\W=_^W=W5
MJ,L*?-GEO=F:;=F5^]TAA],BZ=\.3J+Y?=_X[>`4GM],<.$8?N$2?JT9WN$8
M_J$>'N(BGN$`3HV:"\DH_MN4S-F*+,R4+7OIS;W4..(B/J(>ON$<3N,Z[N%-
MT.,^WN,X3J@_/N1$W@0@6N1(GN0E/HV6F^*_[,LN3MXVS,MB#.,U.I))7N0D
M2N1!+N19_N5@'N9B/N9D7N9F?N9&_J%H[N-+SN21',..C,B]+`'NB"'N9.4.B&?NB(_Y[HBK[HC-[HCO[HD![IC@ZBDJ[H
M;1[@48V?D4[IA=ZAE?[IH![JHC[JH?X$IG[JJ)[JJK[JK-[JKO[JL![KL@[K
M(#KKJG[IF6[3LOZAJ9X(MO[KP![LPC[LP0X%QG[LR)[LRK[LS-[LSO[LT![M
MTA[M'SKMRH[KN:[.U%[MUM[MWO[MX![NXF[M74ZHV]ZAX([MV1ZPT`ZBX%[N
M;#KNQAX%]%[O]@[OCVKO^G[O'[KO_K[OZK[NX?KO]0ZB!/_O^.ZH![_P]BX%
M#O_P#I_PCPKQ%$_Q(%KQ&$_Q`2_PN)KQ$?^A'H_Q$N^H(5_R$#\%*)_R*#_R
MA*KR+O_R(/KR,O^O\AO/\98Z\U,0\S@O\RS/ICO_\T!/J*T:;VLMMVLTLRDAJ]V7_H8!_]0JJ
M"(9_^(B?^(J_^(S?^([_^)`?^9(_^91?^99O^&\O^(-/]G,OIIL?]U40^J(?
M^G@?F$LZ^JB?^J(/HJJO^O5Y^;`?^[(_^[1?^Y??^JS?^KI/^IT/IKO_^\!?
M^MTWLWP_U*A[^L"?^KG_^])I^\[__-`?_=)O^+C_HO^U;_T/W>
MW_UX3_3YS,HAS<]%WZ/?G_[JG_X@NO[I+YG3'__R/__TC_CNW_[NG__?GZ3.
M&K3G_ZH`\4A@(H(%#1XD:$7A0H8-'3*\$E%B1(05+5X4F%'CQHT$.2;B&/*1
MQY$731*RW\"5TS:UO'0R
M9;5['>4%'5KT:-(R]_;=S+DJ5<5E72]^_?BU_^N3J?UFP9T;=V;>4,7VOJA;
M^'#B60X6SU):^7+FS6_GSZZ`W6QY]?_W[^_?W_!S!``0>D[R`"YZL.K<(&PTPL]ASL
M#K:/?K/H0/.VP#!##.'[R"GV#G(/OJ4TS#`1$D\\\2`45V2Q11=?A#%&&6>D
ML48;:T3H1A0#HRVL[WYL[<<0<]3110X[Y"["",=2+TB2TDJ1(!H-*K)**Z_$
M,DLM7U0Q2QXG%-+')`4+4LB3KN0B3373/'(J"1=DC,$DX00/JC79+.A./?4T
M:$\__P0T4$$')730C?\*131111,]:-$U\\3S2\A8([-2)F5S?P4VV%]I
M#;8B4D6T;$ADEQ(V5B^>A?994[-#E4)5/\0TK6BE/6A;;[?M]EMQQR6W7'//
M19?JMZ5][TO(NSVC=[I+-.J+Y%B-UX\T4X886W
M77=AAQ^FUR!]YXWX7HOK=?@+C3?6^,A^^TT59!^I[30PCCE&Z&253SYH99=?
MACEFF6>F^>6-:L8Y9YUG;KGFI5B^.&@1=U89#*./-MICZQ[T%SM/Y?3TR<#_
MD*:Z(JJO1MH@K+?FNFNOOP8[;*XW$KMLL\_^^J"S3;I::+>!0_OJ,.:F>^ZW
MA<:VJKKW#J,BOO^VNR#`!R>\<,,/1SSQC1)GO'''"T?H\8OXOKORP!Y'W'*+
M*4T+\L@//PAST4_%2T<]]<\=M^AOS5^'"G4Q9J=]=MAOOZAVW6FO:'??
MQ3CH=^&')[YXXX\W?B/DEV>^>>$1$`"N@\A8Q"@^?QWMP56T((7Q.``&UB__X)DT(,*3.`'1,;80I5>$`RM-"%+X1A#&4X0QK6T(8WQ&$.=>A"A.30(#L$8A"%",2-#-&(
M1Z3A082H1!@F`HE/A&(4I3A%*E;1BCCLX0V9>$4N"K&(700C&;:XPS&&T8QG
MA&(9U+A&-K;1C6^$8QSE.$^$9SS/*21YUM.>\3R(/=-YSV\NZS?*4I:'+,9/?(K3;00E9T7<
MF4^$-M2AZOS10R4*3X;*LZ((]2>8!+H>5M5+HF@`:4A!:E"WB=2D)T6I2"N2
MTI`>A*4OA6E,93I3E'Z'IC?%J4Q=2E.$Y!2E&1W9>_ZI)-9PKC<^G2E)A8;4
MG_;TI3ME:E2E6M/73-6J,86J3K,:5:"J1TQS^EA``W/5IBK58F0=Z59/NM5$
MH-6M,:WJ6]WJ5*T:A*Q=Q=2JP$*AS,@UK6:]UUOIFE*[MK2M?D5L2%V3V*L.
M%J;_CI4J7K_*M+)D2T1634-F-9O9S8E)E)L%;6A%.]HT((2TG"U(:5-[6M:V
MUK6O)6U98#M;VK+6M*^];6U)*]FP4A9.(1-88'2+VWKM-;BX&VYKV!Z'N9H$J,KU.%C[354-XQ1O>>Q7UM]Z-6MX",U[VMM>]
M[Q4O0N"KAHO,U[[WQ6]^YQL2_?;7O_.5+WX#_-_[;O2
M4XS_19O,M-C&-\9QCFV,$!R;1,<_!G*0A3SD%6^$R$=&__*/#S)D'A,Y*BU&
ML<62C&,V5-G*57[PC'N;5R!EYLI?!G.8Q0QFA'QY*6-&U'C-OJWO_\M$G""%[S@%2$XP@W>;T:DV^$/AWC$)>[M
M@R^,;;<)*#]QH\IQXV<"<;X1F+/-J)T'C*W;!REJ_\W\MJ.@O%]'.+V+UJAN]Y8F0.=AWWO.>"]WL9T=[M[G^]8.L/>914;J\`88=DM=[
MKR;7\I_=OO,W]-WO?<>ZB/X^>,!;A/"'1[S?$:+X1"1^\&0O>]HE/WF)._[P
MB[<\XJ.2>*G8G;O&'?:U[MXAPV<^\W!`?>I1'WCXJ-[UJK_(ZV4_^]4?!`X&
MH7WJ(1__>^]HG(O9[=^=246=^8DQ"?.H7G_7`
MJ?[M+9)]V4\_][OG_>_%/_[J#Y_[VC=_Z@N2?+>%&G?GY_[UL1__],,?_?5_
M/?A]/G[^^Y[Z^/\_`%R]X'L;][L=^RL_^>,-^#,^^VM`V=.__I-`RB,^A`
M[4-`!>P-!'2]./#`#_1`#0P,$"3!$C3!.+B($U3!$+2(%8S`"83!LUM!%#R(
M&2S!%+3!%13!$,PC9\N#,\
M"##$0C.DPSJTPSO$PSG0PSWDPS[TPS\$Q$`4Q$$DQ$(TQ$,<1(M(Q*4(1#9T
MPT$Q5B413VD@UJTQ5O$Q5S4Q5WDQ5[TQ5\$QF`4QF"\"&"TB%T\Q514
M1FW#Q8HPQF,4QW`$OW'$1V9L1H(XQX.(1W=\1ZC@QCH@R((D
MR(","H-4R(5DR(942(M@R()P2(44Q_]\=,.(G,B#A,B,Y,B.1,B$[,B,M(.1
M),F1_,BE*,F45,F59,F5M(B4+(B63,F*M,@HE$F6O(B;U,F=),F31$F>E,D[
M$,JA%$J?-`FB1,JD5,JE7,J+*$J#8$JBI,F:C,&H5$JGM,JLU,JAS(P%:X^3
M6[;.,T"HW,JRY$JCM`BS5,NKC(JLG$JJG,"RQ,JUI,NSY+.IVQ23",MGJY.]
MG,NZC$JT3$O`K,NVC,JWA,O^T\J_),RU[$I3PLV8!NYI_,*SL2#[P3/[RPUYI.:CRD3R]15=YRT$)+#V/UUE-%5H+XUG$E
MUU&]B&)MUEI]UENM5BBD5F<-NG*5UU0UB6+U532-T9.KBGG]UG!-!'X%V%ZM
M"&]-5UN%5F<]V&B%5VC=MH15UX5-6&VKUO^#E5B&G5AX-5B*_;:`Y5B+\-9[
M1=)\A0^.I==P)=F`18AQ+5B'9=F,S5B&?5F655B91=B(I=AWU=B6];:3Y=>4
M[5<^3=&0G3#@X%EE1=:BG5=6)=>5I5F+E=66;=JGC=J*O5FGG5F;U5EN0]IR
M5=IQ)=4'#
MZ:7>S_7=ZNW<5<7>[;W!XQ5?NU5>YH5>O"W?UX58=9U=[G5?VT76
M]\U>M)1?[O7>[\U1;EO=XJ5;F0W?O]W?J#7?JZU:]FW71;#>^JU?S53@!G;@
M!X9@ZH4*SP5?XRU?]!W?Y>5;A]U@T@7<]?4VZRV("";A$C;A$T;A%%9AW)6*
MT*U@\L59#`9@#;9:Y(W=F&U8$.ZVS+6(%?;A'_;A/A#B(2;B(C;B(T;B)%;B
M)6;B)G;B)X9B)*X*)NY43X6X(CZ)*-;B+>;B+O;B+P;C,!;C,2;C,G[B_RSN
M@X-HXBJV8H<[XJ4PXSB6XSFF8S#6S#F&XR$V""=FXS9&MR2&BCH^XSNF8V2-
M8S0V8H)XXC[V8W-CXCP6Y$0V9#GV5S*&Y#>&8D9N9'%SXD".Y#2N9##V@U$F
MY5'VUU)&Y516Y5(^B55VY59'!3Y41P9:B`Y5S69>/$RZ_$'5T&YE0^
MY6"N99,@YF*VY526Y5GV-F$F"%A>BF,^9E[N98-0SF61YF`>YFQN96ZN"%5>
M9F;F-F#6.AS=N:&5AK/TVA?
M*QG>0&A2_H.0%NF0[BS*C*211NF1/HF49NF6_H.E<.EPCFB6M@B73FFH0&F#
ML&F5ADW/NK?*HKMKKNF=)FJ7+NDFF2";ANFBWNF5;FF9UF>C1@BF)FFH.JPKNH7"VKSM,QA!8Z6=FJQENJA?FJ(CFBA4^JI%NO`
MR.J>AK:2*VB?[NC,8&NJ5K9."3G53.N:%NF*0.RJ2.Q]
M>5(E$2AA^]6^M@S$1FE`\.S/]NS`-J_4Y%;>`.W0KHC35NW59NW3/HG6]FS&
M9F;5+@C03FW8;FVIP&W_W<7MWH;MH`'0`RMMTZ;MVO;MXW;MUX9MV9[EY#9N
MU#X(Y%YMJ/AM?Y7NZP;NT1;NX;:,Z4Z$Z\9NA``$@^AMYMYDVQ;OS[YM\%9O
MY?9NO%ZP2JT>]CYNO%$05A'9WJ#O_;8(Z/YNW#;O1G;NY_9O`@=OZG[OC%Z:
MQCVNOKR7_0;M0)#P"9=P^V9P)W'<:I8*"N?P#O?P#P?Q0*@(#B<("B_Q#@]P
M/^YPA%AQ%@]Q$(\*#^>MND-2TM;7&'_Q'(?Q<-7Q'L_Q$5_Q"B\(#T_Q-I;Q
M@VAQ)/=Q(;^(%Y_Q@`E:SP*.):=R?Z7R*Y]P(#_R(2=RN(YKH/MP%S=Q,>]Q
M_X.X\B]`ZM[`\C+G\3;W<2U/
M\CX/<2LG="?G\RRWB`\OKU'GK*`BMBE4G\3>G]5#G\D@7]5$GNU(W
M.T17\EH/]EMG=;-2T\`@=EP/4V*7')G]T+]]H.`=X0W]WC_=W_7W?^&A_A5A?A]MPB*K_AU
MCW9I=[B$?W>.+PAY9_B)!WD\%?F(1\N2MWB%UW=UQW@[U_B?\_A$<'>5)_>!
M1WEP%\R;U_F=Y_F>]_E_M_F1[WB#H/>"C].9__B8EWFA3_J?=_JGA_JHE_JI
MI_J=#WJA/_BE;WE2?_F)J_FFSWJB9_J.K_JR-_NS1_NT5_NK9WIXK_?=0X2X
ME_NYI_NZM_N[Q_N\U_N]Y_N^M_N%!_MTIWFD'WRU-_S#1_S$5WRV!WRR_W?(
M\_O(E_S)I_S*KWN!#WR`+WS"SWS%]_S/Y_>(1`('"BIH\*#!
M@0H7(FRX\"%$@8\F4GR4:&+$C!H74H38<2#&C0P;DBQI,J'(E"I7LFR9\63!
MB#!)CCSXO%99IH7;]2_@
MORV9@LZ-BR9PMMR_KQUZ*W15/%7/GRT]^:.5M5K1MTR]$6-:HVGM)Y
MZ>6$'8(-:WOW==K:M_=M79WF8>PJE?L>/E>X>B.I%E"(A$-%X(XXG+I1CBC/R^".0
M00HY))%%&GDDCCOF^%"13"896$8?^;:1:?(]!%U&2-Y8"/^777:Y(E*9N8A7
MB\"=%Z.+&7G)Y4)KNODFFPK!Z:6<<;08JJ)\#O0DE
MHHFJ!"B?8(K9GXAD2O4HFN1%Y*:AC#Z$IZ"9,OHIJ*&*.NJ@`MVY*:F%*`J2
M=-%%URJ67*5Z*&]WB;D9KE-U%AROEIFI)J:@$CJGG5_.>BRRR:8Z+*;,"KOJ
ME`I-ZE&:T"H;9ZV32IKKMF=Z6R9EE\[J;+.F7GLNNNGN2>Z7Q8H*;8ZM%=O^$YUW[Z]WGK?B*B2RBZ=[JI[,,+I&ERNN>^N&N^+W<:ZDKW06KSJ
ML@LSG$C"'7NL+,'8-OQLHL&!&W'_P%U5?#'+@0VL,<,?RSSSJ"&K"G.?#X]9
MV:VZ]DJORM>V//1?->-?3/4>3NNM,T"%XHXY>(:7CGFC>?,-^.:/_YYQVFS$ZTXZZR[OCNRHNO>KNUQJQO\T"_#3KKGO"M_
M>?)(-X\\\18O/[W1G(]./?::6O][]MU[K_#JQW\__I^+7T\^^NEKGSOWZJL?
MOOCNRS]__YZ2]QT__?G#_WS^CT??\N;PY[S^$9!L>F)6V>[W/^G5;H'6:IH`
M@<>_`KIO?V5+G@-OQ[P,7@R"$]0;!4,HP00JD&,+XZ`&DX5"`-;O=^T3X?@L
M>,(5LNQU-,38WB((0AB*\'J6&^%1/`,TH'&$<"MQFT9L>,-$Y?"#G2,A#RDH
M0Z?]18A5&B*KI"41+191.D9M
M[,I6AU2(J%\3F;E-87NW@OU&@2.HST8!X?6<"0`?)K*_^2(]4BY:V\
M@)*(DNQD:L)5Q%R&DCFD)(TM87>^)ZH2C7Z<)$0">41"5@V.)_.B+L&HPE'&
ML7RC)&0IW6@F:T;3
M?L?48RK#N4H7>DJ1BDHD+VEIM6J&R4,>:A'/@#7`;^KSD?4?-J
M`\5/.BN)S7TI](^3:V=#TPA29"+JD.P4'BZIM*V,_FUJ^;JDC+JY/G"&5*0T
MC6@5=[5`@*I4EMF4Y\\2^L9@WC1F-77H,'':E1!1K:G<
M:@;1*BO5.1*N<:7I7)M9UT_N=9H2K1=?W^K7/K9OKC!MF]H0:]C#3O2C15WL
M7[^ZL=-H=+#U+"Q>*;N5F6H6LU+D9]J@"C"(U8<^;56K:*5IV=*:EH#GB^TB
M)XO;M,ZVMOKTX6Y'"]O@=A25OFWH%(D[-]TJMZON5.QQ,UO:YG*R@=2][`BC
MB]SM73>9VD584K]+O_"*M[PDQ:YYR??0]++WE.TU9E_?>USRRA=]]*VO4J][
MP/OBUWL"^VIWBQO:`*\WN_WE8YN$26#G'BM;>L5JY8S30N@>&)+V7+!4&[Q,
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M%LVV9(O-V;HZ>=;5W;9I`^OD;X-;V]5.[3:!;;4PMP3=OKTSH?%H;(AQ&8Z#
M"[>]_8KO^#:QI/Q>J;!Q?>*`'W7@%-;QN#E3[F<"G.$-=SAM9=?M:OJJS1S-
MK<6=C7%&8SCD`A]YK;MKYPDB\XYA>?>A&/SK2DZ[TI3.]Z4Y_.M2C+O6I4[WJ5K\ZUK.N]:USO>M>_SK8
MPR[VL9.][&8_.]K3KO:UL[WM;G\[W.,N][G3O>YVOSO>\Z[WO?.][W[_.^`#
M+WB:&:+PAC\\XA.O^,4SOO&.?SSD(R_YR5,HOO*6OSSF"P^`S7.^\Y[_/.A#
8+_K1D[[TIC\]ZE.O^M6SOO6N1WU````[
`
end
GRAPHIC
12
g19382daimage004.gif
GRAPHIC
begin 644 g19382daimage004.gif
M1TE&.#EAC0'S`'<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y
M!`$`````+`$``P",`?``@@````````@("!#_`!G_B_?\F@$"`P$"`P/_"+K<
M&C!&,)V]K.*]-&_>9T%.*)YHJJZG29%LG`7RYM8X.FEP?E.M7NH7+`ES2`X-
MU$*&:,0D\R6=+477:FP'.^*\CZQ2K",GP5KI$0TRL];AM,U=9;?E';LU#@RO
M*SQ=4#T2+R:%AA*#BWR*B6**)(B15DN%DX*2D5R6G)MYF7Z.B*"/G1Z;A)F,
MCZ6ICHEM@)Z@@X:BEU%#I&.C<:@/5)K"O,2V,\3&QL.>L*;,HG?,7,_"N)2:
MGW_7MM/(KZUYU\^CJ:W>LU33)X82HBG5+
MVJ)RYKJIF\8N7C]MRK)X(RC0W3]!`!-V:QE
M)-Y`:[*.B5/5D<^R:#']C*L4"^.P>PX!LEQ5:5\ZCT21G0-I<*',.R.9?MQ&
M$`^6FH0R!)PU[Z=+D4Y9;<1E\RL06M^@+.5J#=;$GD^5W6J7-JS%1B`M.9T*
M;V*V8$B-XOQ)F)I)JS9I`LO&>*-$?[7J*7;\46E4KQ<-8U-;>)D_4O@<8S9'
M[HK*QG8Q;<9'=F;GT*&7(FY2ME@NHJ3GVE9MNC=CE*B:"??-CA9"V'!SZT:M
M'+;*R.!ND^;=^&!.X'G'<74VN[MW/(>_BQ\_/OP6.N33JU^OC[W[]^#1^Y`/
MO[Y]-;KNZ]\_[TS^_?\`!BC@@`06:."!"":HX((,-NC@@Q!&*&$O\]'W77C4
MZ-3?A"59>!5Z_W&87HCTF!=?013ZQ)V(6OPG'Q$D6N5A@R:6^%Z-0=7$HHP6
MFJ0'CFD`B:!;V^F$4V3V%,7(:<,=259UQMV6)&]51<-:9P1TPE7U9ECHEA&=**-5==SI656FIP/=4*N!U')**0X;79G6)6U(^G@GYFU)=/
M+BF87X_YF>%KE;:T5V"?ZJ@BH79F*"M=M[8#&G$S94I#/2P5.N1;I*>9:>LN2GMU!I6MV>T[*UX+GU*0E&CTRB^E
M6&6[[AR@3DJGM175JW%UX:R#+Y2K4$SR5\5%=5G'R5*[:BY*6IJ79D\!S"22
M+O,B<7&Q;4P9IM2QN:*FDUG'L\A>\%FO=-50N5NC2^=&I&*##1J<=8H2_033
M:Q+7-+U*.^?HUF@QF-6.]KWDYE4Z(!9QL%_`7<9*:$<:8]WQZ5PCAK-Y*:0*
M?W]`)][7$7ZCWB%>?.'3@:=]M^&01R[YY)17;OGE_YAGKOGFG#_;^>>@/RAW
M'VBF&_KIJ`.((QN-I^[ZZT%&Z5N5LF%9]6^TPZ[[[JZ9*E2>>\KV6Z>\%Z][
M1Y)2]6CR8H]N_/.3WRHOO-_^43(DCT.OO>'(,S5:KR$;%CYFVY>O.9-]%DUS
M\X&V;O[[9B^:*O:Q88E^I>[#K__^_/?O__\`#*``!TC``AKP@`A,H`(7R,`&
M.O"!$(R@!"=(P0I:\((8S*`&-\C!#GKP@R`,H0A'2,(2FO"$*$RA"E?(PA:Z
M\(4PC*$,9TC#&MKPACC,H0YWR,,>^O"'0`RB$(=(Q"(:\8A(3*(2E\C$)CKQ
MB5#$6_TD%I9BS2X?42R)>/_@0`^ZN2ULO(+9_(CG1*V)C"<:@=/4TFC&_!7!
M+&STV').%D7V2U+!!'CU.ZWYW04X6_1BGEX`Q38IJS1QWT,>9><]5
M"4O?VLKH2/L9\I`WX\88"]E(I*T/?VK$8AVOI,?Z@6IHZE/4BC#&=,&UT&>#>@P
M*BYU#4TD8O1GT.R8N^\4X*4PC:E,
M9TK3FG93DPWK343!$CSKG6MFZGJ(D=)3TZ(:M:@WO29"P9B:*0[$7(F4BSEQ
M<-2J6C6I8ESJ/X\R)?2YYEU13=14:V#5LB(UJ1]\K7OOKUKX`-K&`'2]C"&O:PB$WL7EEX5[7F5;&0C:QD)TO9
MR@*6L8TMZV,MR]G.>O:SD,5L9JNZ6=":]K2H[:QH1VO4TJ;VM;"-K6!7RUJ;
M(D:VN,TM;FE;VYFZ5K?`#:YE>=O;F/Y6N,A-[F&)6]R7_QY7N="-;E^9V]SG
M2O>ZRJ5N<:V+W>X"=P,#"*]XQTO>\IKWO.A-KWK7R][VNI>\B&FN;:WBW?IF
M%P/OS:]^]\O?_K8WOO+U[6WM2^#OXM>_"$ZP@A<\7@`'V+@#+K"$8PM>!EOX
MPAA.KX-E*H`.>SBSW)VPB(=[X`R;^,0,WG!,/?SAQH88L!Y6;(?_RF*]SGBO
M-^YKCH'+XAU_ML(H#K*0]:MB#K?XKB_V:X\-.V,?V[C&.W8R`:2,VAA/>\9'G*@]>)#;&34ZSFGNL92M?^WK(AN[Q:,N\B3.W><]_EK./(XUJ'*M:T[`&M*M3S>I-!U;0G\YU
MAD.-Z$3'[1,R?C2M6YWF8>E`=UK7T+8PKWLK`T$&6]*:GK6P
M;\QM5.O9V-OFN=WW1T>=1!6
MN0!Y^UNUS[:WP-V+;P'HNT3U\"(`_LWP+0=\X!#7L%5J*FI?MY.@R^QWPS?N
M[`M$_./K-?2A#6[QC*V`XRA?[L-!SO(!%'S4TF1!RF<^6'JW_./X9FW"<4#S
MGO_5YC?_A_C+,XMQ&?C\Z(M=>="%/G&:5KRQQ6P`TI$.]*7;>^@NCO#4:5YU
MJZ<;ZTC6^M93WG6O1[O@)`\[?.=:6;_>M-GRF;2YX&MK?=XV_'>=PY_-)\
MTUT+=I]YV?/^:;3_O0J!)[O;":]KPV==B4&.@'LEL%\(C-?RE@?UWL7L]\,3
M\<2*"&_F!Q``\6*^]*='[^@EGWG*D[[THC<][!,LAPA0O->/3Z*)6Q]ZRCM'
M]*C'Y.M#H^`.V=[I!N^\VG6?X=-O8OCX>#WPH0G]Z-->T8JX/;OI"GD,_SX5
MU9]]],'O>]:'OOCGJ8?VTYY[)#:?^)$(O^2G'W_X]S[^Z-_%_\X!L'[VM[O[
MWE=^TI=ZT"=]EQ=\`@A^`QA\PY=B^X8L"]!_!X<'B8=R@\=X@]8+$.@`1Z5\
M_T>!%;AQ%XB!7G8!,;#_Y:#!$A>O#=[]&=AKT!HJ"(#0[A\%ZA6%0HA\VX=78F>%$S:"2K.%Y4=];CA0L,%>2E.&F(0"_>=_:+AV>RAB?7B(]A>&
M70A&X1>'Y\=>F_1N'&B&9VA6-AB)T/\UB=]7?X:(@(58B%^8@(*XB@A8@/^E
M2)Y$)P_&5FE(BCB(A2]8@AL5@Z]PBQ`&B;I(8#G8BRB&)H>!#\((4Z-8C,)U
MC,AH8G9C(ME'@RJ(!-!88-(XC1B&<$+2B-F8`]MHC+P(A4R8A4RX>NEX@"JK(>]/7A)FXA05HB0OXC1H(-^)(A(!WC_AXCNL5
MB%PHAH>DB<0G;8(3CPIPD'F8D`J)7?E87J@8B/\HD?N8BGY(D1\2'E,X5V.%
M`1O971VICIH(D*V8B@W8AOAGDB=I(2GY5AL8`RW)D0R97A]IB8BHA7+H>CB9
MD_*QDVO%;TK_8`$_>5TO^8<"^82M^(^IYY#W1XU`0P1,Z5BJM"$A$)72-97^
MA90DF'XW\)6B6(VF9&9D68I!Z8V[5FW]P9::59%,!6^FAFG7)FXP=FHZ)FYV
MQF1\AF6!M6E^V7$60)?0]FM>@)=7Y6Z-\I>Q!FZ"Z69WEFVO1F?']FW=5IAL
MAF>,Z0".V7C8QP"225J066I]B6R8F6JN5FO)UFJ8Z6W*5IH-<)JYYA\:L)I'
MY9NN>5B`5IOD5F.TYF>;V9G?YIERIIS'V9SF-I>\N6#X40C`V5K85PC!IFW&
MR6Q_YIS%R6SD"9VCV6=]MIR7F5AF69U$9GP!@(WCF)-29VK>^9S-_S9NGWF;
MM]EH^YF>WXF`&J>F:EJ^HF8
M__EFRCEN%1I:U%F@ZE9[\8E\!>"!W&>/<8E<[2FBLUA[V7E6Q+BBP=6B+AIR
MFS=R*)JB54BC+!JB-_J>>!"C\Z6B/JI;-AJDZ`5V']BC1VI@!*JD[YBC1C:!
M3OJDN96D4EI>3,JC>HBENP6D6\J)5'JB].BE&@FFLJ6E8RI>75J/5ZJFL,6F
M;>IR9?IT&8EX(JF>KJG<]JG?FI>CI>G4D"H%&:HAPI?96JF
MM?6,C!I9=-JF;PJ6,UJIH'6I8SIM.ZJI1O_*J3_FJ(_JIH"JH'FYJ:0*<%%Z
MJ@B6J0LZJJW*6KFR4DL?3)`2W+GB,KC'8)#`PPLP.ZL"JKE@ZC<3HKK#5[BZT)
MET%+6-7:LS60&T?U*[0I:[.DI@%-B[1#^V#"B0A36W-5&V!7RYVYYP.VR>E;9$&SL1T%D!^K=1
M5K>`FY_4^K1[FXN1I6RC26ER*YN!RY^+BVVT6;8T:[A6"ZR)>9B1BYO?N6R0
M>YF$6UEZ>[F(:[::.[F;"VM^=I^VO!>P+#2[S%^P''>UG)J[S+ZU?-Z[S/RU?1*[/32[W5RY+7
BFW39"Y7;JU?=VZ#?2P#AZ[W?6[X.,+[DB[XY.[X-D```.S\_
`
end
GRAPHIC
13
g19382daimage006.gif
GRAPHIC
begin 644 g19382daimage006.gif
M1TE&.#EA[`"\`'<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y
M!`$`````+`$``0#K`+L`@@```````!G_BR1%_\_:__P*%O___P$"`P/_"+K<
M_C#*26NX^-;M<2::Q^O>AV+BM\M+:]\KM,T[+Q^@H'[
MXV1V@FAX>X9Y;G]_%AY).`8J6+(PZ=(^#F9.?)7V7EIXHFYR"D:"K
M(8FCBJ4GIZBIL:RW"Y6OK[:AM+^]N*"ZNZ/!([._M<+,N<6[QR+)RJG-MZ+/
MQH'4P-'6E-G/WB#3W-7?AL3AO-OFP.AZZNO:3.7N=N/P)J[SE_D;]N[5P:#O
MB;Q^](H$%#BP(!F$V?Y98,A-HD,9$".VH_CN_Z*FC!KK<:SHT13(D`I'DBQ)
MXN!)?QM5TK+HT.5+4C%EHE+%4H+-F[!RZMS9D\)/H(N$#GU$T]I1I'":REBZ
MLNB#IU#?2$U!M:I59UF+;;W:U:M5K&'%C.U0EMK:0VC3AGG+8&%;,W01R16G
M]&ZGHG'W3LG[I6(&?-,N$,*`AIR6-&L""Z;2MQ..&8QOX("D^LD'GM+4@M$-E;`1PZ\Q"Z>=.79P#;=)V_9@
M>G1S@ONT>N`]5_+V[GX\\Q/NWZA;D5K]CC@[S8&
M^8>'G=\U&_^\W[/VX/_-D3>>>N9U%]YE[+E@8'>+,(?(?0/E]YV$Q]U!"&<7
M:A8@WU\)E]4N$E2G%]X&;2@A_'!E^"-\LUHHH(M
MLG(8C%?T:`J!1-9&WHF51.%&BDRZUZ2-0_AF4)!T5&@97MHU(.2#/.K"STE;
M.E6E=]QYID02F6F'X0UUX4&$E'Q0\>5+T/5$X9W]]:?C@/5U81U(<++A7YI[
M$J?G>!PX:-1CT/PIYU<=J`!)H9L=MEQKCM$X&XK3-3F=6('N(>FAE5*JZ1*)
MEF?JGJ!"*L-]!I(*:VB(`J3JB&"4&-^.I(0Z27YW>=+GHJZ12%N.GJX8E*O_
M1@%92CZ8HG>DB@BJF!2S/KUXQIUDGC/,B>)@HQNVV?X8X6+'V>4K0."*]8(?
M8;IZ:FRR\G<9FM_*M>ZOA:S:';Y0$*@EH^U^RN*UV;:Y[QSHS2KIO;0!K$F1
M(+KI))),)GBQDDEZ:O&M'R_,L+_IMH;$6#229^QN'.OJ,LE?U'F1J?O5>PK*
M_8)\[(TD[YG+L&?9Y3_+#"FP0^&;U5+;
M*?#:J%KDSE&65*==%?*<_OP4;^$`'1YPS*$M[>3+_R\K#7DC5.%L.>4]F^WT
MYOMTY3FBZXG.::Y[Z].W6Q-_;EK5IF+]..G-FAZ[:0)2CF39NR*-Z@X%%&^\
M`L57
SQ``6Z"\=07`$#S$RROO/5;O-Z17M'?SGSSU9=O/?77FT]^
M]>DO@'X/WL\D:F\^L(^\^OBKGS[ZR9=O1>?S0TI>S->^_)V/??X[7O\6R#W.
M+65OCDI(#Q)X0.Y1T(#W*V`#4P)`Z`FP?NL[X/[N)T(#,E"#%83?\\`7/1!>
M<'DOC&$)_6>X#K)P;D4@(`U-^#X*[D][#HQ:`%O(!"!&8(,.".$(D[B:!PX1
MA_H@H!?B1Q0/$K$@[YOB"O\%U9O6%82*G(!@5KSHNBU&9HQ/T!X#C8@+,#+E
MB5!L@AHKR$8?28.
M>SQD(75H0@XZ,1UC'*`%%RA)22*2?_C[GPT#*4CB^5"&A`2B%&LXRAOFT92)
M].0:0SC+%"ZRE5Q$XP0;B,I0HC!_M\3E&?6V2P8D$I12G"4)^ZB).V*2F+A#
MAM=^!5H@GTK8YSSN:2>`$M0(`STH8.ZA4'B>R)]^^J-"
M$2K_%HA&AHH3I>@C+2JH[_E(-1Q]4!7;V*N0PD5H&?U"@TSZ3G0R`RLIA>C;
M3F:WZK"TC8FIZ:-N^M)9Q+0N8^#I-S;Q4Z`^5*A\N\,7V8/4FO3314TM25&C
M2M6J6O6J6,VJ5K?*U:YZ]:M@#:M8QTK6LD+NJ5`UZX,&,-6ZL+6M0KW``.;Z
M5G@$@*YU52LE[HK7N4Z5KWU%JUZ-TE>\_K6P=!7L8".%6,/&%+"-9>MB]P'9
MR.;5G)9-+%P+)]?,!A:GGG7L9`$26L0VM+2!W2Q@*HM:OY:SLZT5[6C;%-O&
M*G9BM;7M;+^06\M"D+6]=>UD81MZMP7O>UO+7G*Y
M=[[B+:-Z8`4[.,&J]=.#)TQAR5*U
MP17.<'4C+&$->WB^'.[PAT>\X:S>-[8&2'&*^[KBT*Y8Q8UM,8M5;`#/TCB[
M_R4=AEU,XQZ_^,VREXMKYBEK>E@R_K7J(:TK8W-9^WNEK=B[G.S
M_YQK9W-[V=J&MIG#+>H<6Q6RS69VL7],['6O.['7[@"@E]UM:+<[V*0.];V?
MG6X_,QG9^)ST@U7=9(#/3.";SJVYQ8KPA*\WWJUPN'D-[K:&2]RX%`?PQ04-
M\2%9W.$+O_;'-9WQ:,IWX]XM^3I/+G'T=GRO(%=Y7$>N7IDSF.8%MWE5,P!A
9E[]\&"P1Q['/?]Y3GBL<:$27JHZVF@``.S\_
`
end
GRAPHIC
14
g19382dcimage002.gif
GRAPHIC
begin 644 g19382dcimage002.gif
M1TE&.#EA80)$`7<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y
M!`$`````+`(``@!>`D(!@0```````+^_O\_^^0+_E(^IR^T/HYRTVHNSWKS[
M#X;B2)8F!*3JRK;N"\?R+,SVC>?ZSJ]U#PP*A\0?\8A,*HW*IC-I>$IMS*GU
MRJMBMUR=M@L.O[[B,C)J"ZC7._66?%O+9^Z8O,[%!^$J=LJMMQ((HW='-&A&
M9M@6`+08Y&>FPO>'&&8YIV.)@T9WUYBSR2)*`_GI*?-)FK1*97<*"-K2"E!X
M:IHGZZ)XBT,;J&JJ:[7)%RR)&8E*"].96J<,.EQ;.RW8IVL=0_E,.$MJ>RT^
MWC=;7DF]1X@76SW.;HZ.+5N(*I].?CZ]C[W]P@[OCSE1](8!S$9GWKE\^/B-
MZC=F74&&].(Y?`<17S6"_X(:!7RXC5NEB7,RP9+F455*93)$KOM64N4]=Q`-
M+;H94V:O'7!LL8D53*9
M`EUZLNO3KBUZ%FV:%*?3G,&R)KTZUH])K2RVC:S%OG`FG\#;CRY<9'
M3KZ-=QY1V:-O5=_E^31EDB@/&CP[F.\CTGJ[&_]>]V7TMUB1N@=-G2W5O,'M
M%__C/4AU[/E'6GT%^N/(/NU%EE%QZK'6URB6]0"==M*A==UWD4#H((96@679
M8,"U-I^$S6U(('(F]O.@5^NA*-I]57[J5%IF@_>HE@
MB?LER269']X386AQ>N6F56:B.>)?X8'97YMCTF?>=G9.)&>?0I9%Y'R;J;:C
M*PG"YIQO3G*)66PSQLF,GN$!2>"8(N9W%9R&58JI:9WJUMEKJC**&HCHI29I
M>JM-V.J=VABS:(Q'NH@D:KGQ*MQA/-:5Z(J#SCKC;X[_]I!@E-:ZZZ"4-M/DI',A*^9R&3:8DZNEF..V6H[
M7FW30BHMK5'9)W$3"0RS,<,2[2:SPP`Y3G";&Q/CU
M!,0:X]*%QQ\'#/#(G%AL\L,IKXPERRXO^[+&`CQ(<\TVWXQSSCKOS'///O\,
M=-!"#TUTT48?C7322B]]1\DQU_@TRR)''?'45#-L]=4=9_TQUUI?X?77880M
M-AADERV$TU^?C384;;O,]MM3Q"TW8W07?'?=UNH]1+_UHNA>-75XYY"IQW+CGH9HN^Q.=<.^^]O_'[Z<'OL;L3Q?]]_.3)*S_\<\L;
MW'P1T<\]/?75VZWW\W)K?SCWW5^/?=W>HST^\N`;?_Z2`@S`?OONOP]__/+/
M3W_]]M^/?_[Z[\]___[_#\``"G"`!"R@`0^(P`0J<($,G)\!&@C!"$IP@A2L
MH`4OB,$,:G"#'`S@`SL(PA"*<(0D+*$)&:B&$ZI0@1]G&
M6+I2D-'LIC>_"4%H@E.#T^2D)IUXQBT6LY#C;*<[WRE&=,+3@I7L9#K9Z4=+
M"I*=PYRG/_\Y3T`"5(+U'*A!#XI0`QXRH0PL*$,?"M&(#E'_HA!T*$4OBM&,
M:I1_L8M:^<3VT>RE;PDCI4%(LU!2GJ14>BM564N')-*7PDRF+:,I2FTZB9.J
M%*?DXNEP?/I3GG;T:3J5'5!/=M3+^72H,2NJ1Y,Z4ZB&3J9,?9E3B2K5EF15
MJTN]JE*SZE60;C5C-JTJW,8:UK6-M:="32M7P;I6J,75!T`UJ]30.M?XY)6N
M78TI7/?*.L`&MJU^E:I;-R?8P>+4KBL[;,H<^]3$0A9KOMRH92^+VUG.+O22^$3M">7IVMA*U*&PM6=MA6G-?LI6@>+<
MK6\-6M!J\M.:^=RG#Z=HVM\2\)7*_VWN.^M)Q.C*D9O4G:XA/^M<_]$LN]SM
M)G3K9]WD"A>;Q57H,\^KL^ZJ]X[3!.]XB6E.X0;3O.BM[W;7BU\RMA>6Q&VE
M/.-;7OK:=\"WS:^!F;C?'EY7G]G,K38#?]Y3'"%'YB.8^;R=LB5YW8K?`.
M5>'A$"L1NJN4I8:E6V(1YP_$*F[Q#$?K8A$*-,8T/B&,:\S!U>)XQR&\,8\Q
MV-H?"YF#/AZRD8\<3<8^%J^"G2Q6^RH^)@/6R4VM*Y7Y^MX*QE
M*..YS(#6L_^@^YSGO/JY:WQNVZ(I5VA%-YI\B9[KHQ%G921K>M//K2RG/PUJ
M/18YU$T,,JE/';]1H[J"R5VUJP=@T0R3%[=!'B8^.XSD`K\ZU+1%;G%9;%P'
M8]/4FQ[CKD\=W.%BN(_Z5+`A`]EJ4$_XV*`F<;!;25TNAA>^Q*XA@;^=7FIS
M.L'!AB4AA\O?7W?;V^!N]\W$K6ER3[>:Y\9MNH^Y;OZY>]_WA?>1Y0WM!Y\[
MOB:&L`#YC7!@^_O?GJZN=3L9RP9#'+[,1G5O%X[D"PL.0,9_D&=>SR(:LZY@,$./_>FF*!1UL
M:1[ZV")MZ4F7S>BC:_*>#^WHGZ^5Z0>C^M:\G%2K0QKI+^TYHPGM=*ZWU.LR
MD[K9SYY2LF,:[($.>YP'/6=)BWVE:ATEWSGC&]\JA?O^,@W/N>2'RBN*Q]#RF/>G]'>?.8A?\]9SQ?F5<3B
M)3WO0EVC7H6]SK"Y15YO>QM\]3*&/>U-F&QN^K?@H;\FQVU^^PM.._A[!+W$
M/Z[;/G)8]?M+N/.?+TGBDY#<$^>OL,]X;TM>?L70[[[W22_]"U+_X>ADKC"U
MO?UX?G_]"0__",>/[T/Z/N(;!_[]V(]__W>[?_J0Y[U\Q[M/M&9/S;9_.69[
M!;A!&C=L!-=JRX=M"`A"S`>!&$1BM=9@#V=N&5AQ$UAJX,>!]`1Z'^A.'BB"
M%:1Y)1A&]H>"$72"*^B"I]6"+RB#FE5W$G-X8)-X<4=3-5@U@9=U@U=6@,=W
M`=UE#:$29>$Z<.#;M:$0`>$.RB$.DB%3W@^45AU/FAX54A5
M5ZB$;4>&1BAG8]AW96B%1[A46OB%2[AT7HB$;G@]7/AG4SAU8-AU(3B#??A;
M,7ADZ>>'/P:(1M9Y@VADA3AD$HB(.,>'(D=_GT5PZ:1"EOA[XL5#
M&Z:"ES5\E[ACUO]FD@;;%8>=7B>8GBC563I0X<.YU;_1V0/F'-*WHBOUW
M:\@G;"P&8/.U7+9X-+@88^/'<:ZTB=>'B@DDC$5#C#268)[X@)ZT;1NX6ZSX
MC"VF@-P6B;,DC=9XC9:8C2Y6@9%H?=[H@*+77`!$Y/1.I9A:Y6'HX=F*XD6KHA`?)A!6ID25)>&?(DD1HDGO(
MAD+%D2&)D6JUDF]8A&OHDC^XDR?9DG"'AC"9AD$(D$>94/Z(E$L)1?3_^&J"
MR)3KI90T=HA1V8].^8L#>(@I!XZ=Q8A6R5W)5GZ$1&OH^%XF=UKB");X58&Z
MQVVJV&S+)I?V:%FAN);=]8IN*5]HN8!'5)7-UXQ`7*-&32/Z5SPMVP#>%W1A8Q=J5V8Z3.:F5W12%P!
M-VRP&%YHZ5K8:)I_J(O+EY@-F(ZB&5H7%YO-U9;,IIC(9&NN^9KQN)NR&7-_
M69R[-94Q9IG)"8-.Z9S1R7K0*9W5^7XDZ9,Q"9$H&8_OF3
M6F>#!F?%YF@0UF?"'F@XZF>,MF3$DJ?%[J'UJFAGQ>=S;FA&;2<
M?HB<'TIDF2AZII5B,_B5)$J!)JINVM>-4H1\`8AY:LFB)4H_$4>6Z'>*`NB)
MGF>7-PJBQN=[SY9/TPBC.CJB[D6:F"FD."H_\Q::L2=0?8EO-=>D3?JD0_IA
M])>D[_5?A[F8[):E3KJE(-BE;_FENRB`LD>+!U>FC7FF+1JE>_E_BBF9ICBF
MD0>;8F*ZS1CG;A.M*>;?FJ"D3EZ\M>9-`IA'CIR*XJH#46=3+FDD]I`
M(=J'D(JI"*2IG7JFG_\*JD^ZGT?WGC19D\U3JDT7H?(YGQ1ZG@CZJML9E/;I
MH`3:H%"XH*B:J[+ZH"EYJ[0ZH2,9H#N8JL9ZDX_3G\@ZH,1:H:Z*J\,*H,_*
MH-)ZJAVYJ^UIK:T*G\5*5N1'G/$W:YPJH\Q$L0K[8:5WL<7ICI*@(RY3"LKKQU[I/.';O\UI3,+0,UDL_9:IZOYHPMEBAA+1T$:M/C_
MJ*C(B&*V>98&NT0(N[1,JUT3!5[8QTN26K5L6:F8=:E=FU_NVDXH*[:;^;5G
MZZ>K&C++&J[FJGC>VG7@.K?B:E3DRJR]"CYL*SQX^[9ZVZW4RJO;&JS.&JL6
M&JVS.JV'"ZW"JKAQ*[C:^KC<*I'96JZ$BY[K&;F7.[F%N[BVFKF.BZ&&"[J^
MFKBC^[D0ZKF4.[A&J;8?2[:O:Y6Q6[;P*KO&Z5QA>[O*U7J\][*>&5`9N[NG
M^8B$ZG`]ZG&.*K%4.[R\>Z]&.G$,>VT+IKLRU*?-B[M1:GT.)[T:.W!F>VW*
MA+W$FZ:-^IGBE7V^&XSG-;[.6[[&5)O3]HOT>G_/_]2^O-FTB^JT8^1Z4CN:
M'GN_^%NGIY>S.YJS>^FS772H`:RYQ:Q6N\W\N),XJ;4UO!@#Q;)JJ)\BO!FUA:S*O(=YR)
MOU1>#QQPJEG'+W2]DXQ1Y8AHOGA*H_,+OH99LYYL6:",L2
-----END PRIVACY-ENHANCED MESSAGE-----