-----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, Vzw4TJOFf6wdbMJX/DlftOhJ4M7w7w2JADWRAlpNjOX+BE4CzKV0rIkvSWRRm+z5 ubWZcSsBzMZ/yr8S1VUSQQ== /in/edgar/work/20000629/0001017951-00-000156/0001017951-00-000156.txt : 20000920 0001017951-00-000156.hdr.sgml : 20000920 ACCESSION NUMBER: 0001017951-00-000156 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIMMUNE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000818808 STANDARD INDUSTRIAL CLASSIFICATION: [6770 ] IRS NUMBER: 841044910 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-22865 FILM NUMBER: 664095 BUSINESS ADDRESS: STREET 1: 21550 OXNARD STREET STREET 2: SUITE 830 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8186760404 MAIL ADDRESS: STREET 1: 1200 17TH STREET STREET 2: SUITE 1000 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: VERSAILLES CAPITAL CORP /CO DATE OF NAME CHANGE: 19970714 FORMER COMPANY: FORMER CONFORMED NAME: MAN O WAR INC /CO/ DATE OF NAME CHANGE: 19970714 10KSB40 1 0001.txt FORM 10-KSB DATED MARCH 31, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended: March 31, 2000 ----------------------------------------------------- [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission file number: 0-22865 AMERIMMUNE PHARMACEUTICALS, INC. -------------------------------- (Name of small business issuer in its charter) Colorado 84-1044910 ---------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21550 Oxnard Street, Suite 830 Woodland Hills, California 91367 -------------------------------- (Address of principal executive offices) (Zip code) Issuer's telephone number: (818) 676-0404 ----------------------------------------- Securities to be registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common stock, par value $0.05 per share Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ x ] Issuer's revenues for its most recent fiscal year: $-0- ------ Aggregate market value of voting stock held by non-affiliates as of May 31, 2000: $6,525,732 ---------- Shares of Common Stock, $.05 par value, outstanding as of May 31, 2000: 43,042,856 ---------- Documents incorporated by reference: See Part II, Item 8 - "Changes in and Disagreements with Accountants on Accounting and Financial Disclosure" and Part III, Item 13-"Exhibits and Reports documents incorporated by reference into this annual report on Form 10-KSB. -1- TABLE OF CONTENTS PART I Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . .3 Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . 15 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 15 PART II Item 5. Market for Common Equity Stock and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 6. Management's Discussion and Analysis or Plan of Operation. . . 17 Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . 19 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . 19 PART III Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 20 Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . 21 Item 11. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 12. Certain Relationships and Related Transactions. . . . . . . . 26 Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 27 -2- AMERIMMUNE PHARMACEUTICALS, INC. FORM 10-KSB FORWARD-LOOKING STATEMENTS SOME OF THE STATEMENTS MADE IN THIS FORM 10-KSB AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE THAT ARE NOT HISTORICAL FACTS, SUCH AS ANTICIPATED RESULTS OF CLINICAL TRIALS, MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS," WHICH FORWARD LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS IN THE FEDERAL SECURITIES LAWS. THESE STATEMENTS OFTEN CAN BE IDENTIFIED BY THE USE OF TERMS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," "SHOULD", "COULD", "EXPERTS", "PLANS", "BELIEVES", "PREDICTS", "POTENTIAL", OR "CONTINUE," OR THE NEGATIVE THEREOF. SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE MADE. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS BEYOND THE CONTROL OF THE COMPANY THAT COULD CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS, AND EVENTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OF OPERATIONS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS, AND EVENTS AND ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND EVENTS IMPLIED BY SUCH FORWARD- LOOKING STATEMENTS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION "RISK FACTORS" IN ITEM 1 OF THIS FORM 10-KSB. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, THE COMPANY CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS, OR EVENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF SUCH STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION TO REVISE ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENT OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS. PART I ITEM 1. DESCRIPTION OF BUSINESS Overview - -------- Amerimmune Pharmaceuticals, Inc. together with its subsidiaries (the "Company" or the "Registrant") was incorporated under the laws of Colorado on December 31, 1986. From 1991 through February 22, 1999, the Company was inactive aside from seeking a business combination candidate. History - ------- The Company was incorporated under the name "Man O'War, Inc." Pursuant to a Registration Statement filed and declared effective by the Securities and Exchange Commission in 1987, the Company -3- completed an initial public offering of 30,000,000 Units, each Unit consisting of two (2) shares of $.0001 par value Common Stock and one (1) Class A Warrant, at a price of $.02 per Unit. Effective October 4, 1988, the Company completed the acquisition of one hundred percent (100%) of the outstanding common stock of Reduction Technologies, Inc. ("RTI"), a Texas corporation, in exchange for 369,000,000 shares of its $0.0001 par value common stock. This transaction resulted in a change of control of the Company. In 1991, RTI sold all of its assets to a third party for cash and utilized the cash to retire its liabilities. In 1993, RTI was dissolved and ceased to exist. From 1991 through February 22, 1999, the Company did not engage in any business operations or activities. In 1989, the Company ceased to be a reporting company under Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") due to its inability to audit the financial statements of RTI. While the Company's Common Stock traded for a brief period of time on the over-the- counter market and was quoted in the "Pink Sheets" published by the National Quotations Bureau, Inc., no public trading market for the Company's Common Stock existed from 1989 through February 23, 1999. The Company had no business operations or activities during that period other than its efforts to identify and consummate a merger or acquisition. As a result it was deemed a "blank check" company within the meaning of the Penny Stock Reform Act of 1990. On November 5, 1996, the Company amended its charter to (i) change its name to "Versailles Capital Corporation" and (ii) effect a one-for-five hundred (1-for-500) reverse split of its Common Stock, changing its par value to $.05 per share. British Lion Medical, Inc. ("British Lion") was incorporated in California in August 1997 and commenced operations on April 10, 1998. British Lion was engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus ("HIV"). The Company believes that Cytolin(R) is an important drug for the growing number of patients who have not been receiving treatment, for those who are on multi-drug therapy, and for those who have become resistant to drugs currently used to treat the HIV/AIDS virus. On February 17, 1999, the Company, British Lion and Amerimmune, Inc. ("Amerimmune"), a wholly owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement on February 23, 1999, British Lion's then current shareholders acquired approximately 97% of the issued and outstanding voting shares of the Company and the Company acquired all of the issued and outstanding shares of British Lion through a merger of British Lion with and into Amerimmune, with Amerimmune as the surviving corporation (the "Transaction"). For financial reporting purposes, the Transaction has been accounted for as a reverse acquisition whereby British Lion is deemed to have acquired the Company. In connection with the Transaction, Amerimmune succeeded to the business of British Lion and became engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R). On August 6, 1999, the shareholders of the Company adopted an amendment to the Company's articles of incorporation to change the name of the Company to Amerimmune Pharmaceuticals, Inc. from Versailles Capital Corporation. -4- Background - ---------- Allen D. Allen, developed a family of monoclonal antibodies, one of which is called Cytolin(R), that may block certain adhesion molecules on one of the disease fighting cells of the immune system, and thereby may protect the immune system's ability to keep itself functioning effectively. On the basis of scientific evidence gathered through 1993, Allen discerned that adhesion molecules appearing on certain white blood cells of individuals infected with Human Immunodeficiency Virus ("HIV") cause such cells to destroy CD4 cells, eventually resulting in the syndrome known as Acquired Immune Deficiency Syndrome ("AIDS"). Adhesion molecules appear in large numbers on the killer-type T cells of the immune system that proliferate in HIV-infected persons. In general, killer cells that carry an abundance of adhesion molecules tend to turn the human immune system against itself. Cytolin(R) may keep the immune system in check by blocking predetermined adhesion molecules on killer-type T cells. First described as an infectious disease in the early 1980s, HIV has infected over 30 million persons worldwide and about 900,000 in the United States. This retrovirus infects some of the body's immune system cells and eventually causes the immune system to damage itself, reducing the ability of the immune system to protect the body against fungal, bacterial, parasitic and viral organisms, as well as several types of cancer. The medical community generally believes that most people who become infected with HIV will eventually develop AIDS and die. Mr. Allen and his associates formed CytoDyn of New Mexico, Inc., a New Mexico corporation ("CytoDyn NM"), for the purposes of developing his theory and a drug which could diminish destruction of CD4 cells. CytoDyn NM raised and spent approximately $1,200,000 for development and testing of Cytolin(R). In 1994, Mr. Allen granted CytoDyn NM an exclusive worldwide license to use the patent rights and technology to Cytolin(R). In addition, CytoDyn NM obtained a trademark for Cytolin(R). In August 1998, Mr. Allen and CytoDyn NM entered into a Termination, Sale and Shareholder Agreement with Three R Associates, Inc., a California corporation ("Three R"), wherein: (i) CytoDyn NM agreed to relinquish the exclusive license to Cytolin(R) in exchange for 600,000 shares of British Lion's stock; and, (ii) Mr. Allen agreed to sell all United States patent and foreign patent rights and technological know-how underlying the drug, Cytolin(R), to Three R, in exchange for $1,350,000, payable monthly over a fifteen year period, with a provision that Three R could abandon their patent rights with no further obligations after minimum payments aggregating $180,000. In October 1998, Three R entered into a Patent and Trademark License Agreement with British Lion, whereby British Lion received: (i) irrevocable, exclusive, worldwide rights to use all present and future patent rights, know-how and background technology of Three R, relating to the product Cytolin(R); and, (ii) a sublicense to the trademark Cytolin(R). British Lion issued Three R 3,075,000 shares of its stock upon execution of the License Agreement, and agreed to assume Three R's obligations under a consulting agreement between Three R and Mr. Allen. The License Agreement was contingent upon: (i) British Lion's entering into a management agreement with Western Center for Clinical Studies, Inc., a California corporation ("WCCS") for purposes of assisting British Lion in obtaining Food and Drug Administration (the "FDA") approval to market Cytolin(R) for commercial use; and, (ii) the completion of British Lion's merger with a publicly held company. These conditions have been satisfied. Lois Rezler, Daniel L. Azarnoff and Roy S. Azarnoff, each of whom were previously directors of the Company, collectively own 100% of the issued and outstanding stock of WCCS and Three R. In October 1998, British Lion entered into a management agreement with WCCS which was subsequently ratified by a majority of the disinterested directors of the Company. -5- In November and December 1998, British Lion sold 200,000 shares of its stock for a total of $300,000 to certain accredited investors, as that term is defined under Rule 501(a) of Regulation D of the Act ("accredited investors"), in a private offering exempt from registration under Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder (a "private offering"). The proceeds of the offering were used as short term working capital. In February 1999, British Lion sold 1,070,000 shares of its stock for a total of $3,210,000 to accredited investors in a private offering. The offering terminated on February 22, 1999 and funds were held in escrow until February 23, 1999, the Effective Date (as defined therein) of the Merger Agreement. The proceeds of this offering will be used for research of Cytolin(R). In September 1999, Mr. Allen and CytoDyn NM delivered written notice to the Company that they believed that the Termination, Sale and Shareholder Agreement, dated August 1, 1998, among Mr. Allen, CytoDyn NM and Three R was void and was not enforceable due to fraudulent inducement by Three R and other unspecified reasons. Mr. Allen and CytoDyn NM have demanded that Three R and its owners surrender any and all stock in the Company which was obtained pursuant to this Agreement. In November 1999, the Company notified WCCS of rescission of the management agreement between the Company and WCCS, based upon the Company's belief that WCCS made certain fraudulent misrepresentations to the Company and breached its performance under the agreement. The Company is evaluating remedies to collect all amounts paid to WCCS in conjunction with this agreement. In February 2000, the Company entered into a Conditional License Agreement with Mr. Allen and CytoDyn NM which preserves the Company's rights to the Technology in the event Mr. Allen is successful in his efforts to rescind the Termination, Sale and Shareholder Agreement with Three R and its affiliates discussed above. The Company has agreed to continue to pay the obligations due to Mr. Allen under the Patent and Trademark License Agreement, should the Company's obligations under the Patent and Trademark License Agreement be terminated. Testing of Cytolin(R) --------------------- Cytolin(R) was tested in toxicology studies where it was found safe to administer to humans. A number of physicians in the United States administered Cytolin(R) to their HIV-infected patients over the course of approximately three years. As results from this initial use became available, other physicians obtained and administered Cytolin(R) to their patients as well. Four of these physicians allowed an independent, professional monitor into their offices to inspect the medical records of 188 patients they had treated with Cytolin(R) once or twice a month over 18 months. Data was recorded and summarized and formed part of the material presented to the FDA as an early indication of the safety of Cytolin(R). -6- Overview of the FDA Approval Process - ------------------------------------ GENERAL. The manufacturing and marketing of the Company's proposed products and its research and development activities are and will continue to be subject to regulation by federal, state and local governmental authorities in the United States and other countries. In the United States, pharmaceuticals are subject to rigorous regulation by the FDA's Center for Biologicals Evaluation and Research, which reviews and approves the marketing of biological drugs. The Federal Food, Drug and Cosmetic Act, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, labeling, storage, record keeping, advertising and promotion of the Company's potential products. APPROVAL PROCESS. The process of obtaining FDA approval for a new drug or biological ordinarily takes several years and generally involves the expenditure of substantial resources. The steps required before a new drug can be produced and marketed for human use include pre-clinical and clinical trials and the approval of a New Drug Application ("NDA"). However, the FDA offers an accelerated drug approval program for new drugs which treat serious or life-threatening illnesses. SEE "Accelerated Drug Approval". PRE-CLINICAL TESTING. A compound is subjected to extensive laboratory and animal testing to determine if it is safe and has the functionality for which its therapeutic use is intended. All animal safety studies must be performed under current good laboratory practices. INVESTIGATIONAL NEW DRUG ("IND"). Before human tests can begin, a drug sponsor must file an IND application with the FDA, showing how the drug and drug product(s) are made, the results of animal testing and a protocol describing the initial study in human beings. If the FDA does not reject or place an application "on hold" within 30 days, IND status ensues and permits a sponsor to undertake studies in human volunteer subjects. HUMAN TESTING ("CLINICAL"). Under an IND, the human clinical testing program involves three phases. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety, the efficacy criteria to be evaluated and the type of statistical analysis that will be done. Each protocol is submitted to the FDA as part of an IND filing or amendment. Each clinical study is conducted under the auspices of an independent Institutional Review Board ("IRB") for each institution at which a study will be conducted. The IRB considers, among other things, information on the product, ethical factors, informed consent documents, the risk to human subjects, and the potential benefits of therapy relative to risk. Phase I clinical trials are usually conducted on healthy volunteers to determine the maximum tolerated dose, adverse effects and pharmacokinetics of a product. Phase II studies are conducted on a statistically relevant number of patients having a specific disease to determine initial efficacy in humans for that specific disease, and possible adverse effects and safety risks. Phase III normally involves the pivotal trials of a drug, consisting of large-scale studies on patients with the disease for which the drug is intended, in order to evaluate the overall benefits and risks of the drug for the treated disease. In addition to a placebo, these studies may compare a Company's drug product with other available products. At the present time, two well-controlled clinical trials using a placebo, when ethical, for some subjects are required to establish efficacy and safety. Clinical studies are in process for Cytolin(R) to demonstrate safety as required for FDA approval. The FDA continually reviews the clinical trial plans and results and may suggest design changes or may discontinue the trials at any time if significant safety or other issues arise. The data obtained from the IND studies are the -7- basis for the official label or package insert that tells prescribing physicians about a drug product and how to use it appropriately. NEW DRUG APPLICATION ("NDA"). Upon completion of Phase III, a drug sponsor may file an NDA containing all pre-clinical, pharmacology, toxicology and clinical trial data, and chemistry, manufacturing and control information that has been gathered, as well as all other information that is known from any other sources. The information must include essentially all the data collected during the IND phase (e.g. chemical structure and characterization of the drug, formula and manufacturing process, stability in the proposed packaging, animal and laboratory studies, results of all human tests, etc.) and proposed labeling. Once submitted, the FDA has 90 days to accept an application. If an application is accepted, the Company must pay the FDA approximately $200,000 as a user fee in order to continue with the review process. APPROVAL. Once an NDA is approved, the manufacturer is required to keep the FDA informed at all times regarding any adverse reactions to the product. Moreover, contract manufacturers that the Company may use must adhere at all times to current Good Manufacturing Practices ("GMP") regulations enforced by the FDA through its facilities inspection program. These facilities must pass a pre-approval plant inspection before the FDA will issue a pre-market approval of the product. The FDA may also require post-marketing testing (Phase IV) to support a conclusion of efficacy and safety of a product, or answer specific questions that arose during IND studies. Phase IV can involve significant expense. After FDA approval is obtained for the initial indication, further clinical trials are necessary to gain approval for the use of the product for additional indications. The testing and approval process is likely to require substantial time and effort, and there can be no assurance that any FDA approval of the Company's proposed products will be granted on a timely basis, if at all. The approval process is affected by a number of factors, primarily the adverse effects of a drug (safety) and its therapeutic benefits (efficacy). Additional preclinical or clinical trials of the Company's proposed products may be required during the FDA review period and may delay marketing approval, if any. The FDA may propose significant changes in the design, analysis and reporting of clinical studies conducted under INDs in response to the results of clinical studies by other companies. If significant changes are implemented, the costs associated with obtaining market approval of the Company's proposed products by the FDA are likely to be increased. Outside the United States, the Company will be subject to foreign regulatory requirements governing human clinical trials and marketing approval for its proposed products. Although the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements vary widely from country to country, these differences have been minimized in Europe and Asia as a result of publication and acceptance of the International Committee on Harmonization guidelines. Accelerated Drug Approval - ------------------------- The FDA allows patients with serious and life-threatening diseases, such as HIV, to benefit from earlier access to important new drugs through an "accelerated drug approval" program. To be eligible for this program, products must treat serious or life-threatening illnesses and provide meaningful therapeutic benefits beyond existing treatments. Under this program, a significant new therapy could be approved for marketing at the earliest possible point at which its safety and effectiveness are reasonably established under existing law. For example, the approval of a drug could be accelerated by demonstrating a favorable effect on a well- -8- documented surrogate endpoint to predict clinical benefit, instead of requiring that the drug demonstrate actual clinical benefit, which may take many months or years. Approval would be granted only if a sponsor agrees to conduct additional post-marketing studies to confirm the product's effectiveness and/or agrees to restrict distribution of the product. In addition, if further clinical trials do not bear out the product's effectiveness or if restricted distribution is inadequate to assure safe use, approval of the product would be withdrawn. The Current Status of FDA Approval/Proposed Research and Development Plan - ------------------------------------------------------------------------- A protocol has been submitted to the FDA, the drug has been manufactured and the Company has commenced a tolerability study for Cytolin(R). Following the conclusion of the tolerability study, which the Company anticipates will be concluded in approximately six to eight months (and assuming favorable results of such study), the FDA may grant approval to conduct the Phase II study. Upon completion of the first study and with FDA approval, the Company will initiate a Phase II study to determine if the drug is effective for a wide range of patients and what side effects, if any, exist. Additional studies may be required. Should one or more additional studies be required, these studies will involve more patients at a number of sites and will be designed to add data about Cytolin(R)'s effectiveness, side-effects and appropriate use. An NDA will be filed with the FDA as soon as feasible after all the information is assembled and analyzed including the last required study. Approval of an NDA will permit the Company to market Cytolin(R) through normal channels. Manufacturing - ------------- The Company does not have, and does not intend to establish, manufacturing facilities to produce its products. The Company plans to control its initial capital expenditures by using contract manufacturers to make its products. The Company believes that there are a sufficient number of high quality contract manufacturers available to fulfill its near-term production needs for both clinical and commercial uses. The manufacture of the Company's products by outside contractors will be subject to rigorous regulations, including the need to comply with the FDA's current GMP standards. As part of obtaining FDA approval for the product, each of the manufacturing facilities must be inspected, approved by and registered with the FDA. In addition to obtaining FDA approval of the prospective manufacturer's quality control and manufacturing procedures, domestic and foreign manufacturing facilities are subject to periodic inspection by the FDA and/or foreign regulatory authorities. Patents - ------- Cytolin(R) is protected by the following United States Method Patents: Patent #5,424,066 granted June 13, 1995 to Mr. Allen; and Patent #5,651,970 granted July 29, 1997 to Mr. Allen, each of which will expire 17 years from the date of grant. For a description of certain patent risks that the Company is currently subject to, see Risk Factors "Patent and trade secret uncertainty." Employees - --------- As of March 31, 2000, the Company had one full-time employee at its corporate headquarters in Woodland Hills, California. The Company believes its employee relations are good. -9- Risk Factors - ------------ CLINICAL TRIAL RESULTS INCLUDING RESULTS FOR CYTOLIN(R) ARE UNPREDICTABLE Before obtaining regulatory approvals for the commercial sale of any of its products under development, the Company must demonstrate through preclinical studies and clinical trials that a product is safe and efficacious for use in each target indication. The Company's development efforts will be centered on the development of a new drug, Cytolin(R), which is being tested in patients suffering from HIV. The Company commenced initiation of its Cytolin(R) clinical trials in February 2000 . No assurance can be given as to the ability of the Company to complete these trials on a timely basis or at all. In addition, no assurance can be given as to the results of such trials with respect to the safety or efficacy of Cytolin(R). Moreover, the results for the required preclinical studies and initial clinical trials of Cytolin(R) may not be predictive of results that will be obtained in large-scale testing. In addition, the Company can provide no assurance that it will view the results of testing Cytolin(R) as sufficient to support continuing development of the proposed drug. Many biopharmaceutical companies have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. Because Cytolin(R) is the Company's only product in development and its primary asset, any adverse results from the Company's clinical trials would significantly adversely affect the Company's prospects and could result in a complete loss of value in the trading price of the Company's Common Stock. EARLY STAGE COMPANY WITH NO REVENUES AND A HISTORY OF LOSES The Company has not yet generated any operating revenues. The Company has incurred losses since inception and has an accumulated deficit of $4,105,109 through March 31, 2000, and the Company expects to incur losses in the future. The Company cannot predict when marketing approvals for Cytolin(R) will be obtained, if ever. Even if such approvals are obtained, there can be no assurance that Cytolin(R) will be successfully commercialized. The Company expects its operating expenses to increase over the next several years as it funds development, clinical testing and other expenses of seeking FDA approval. The Company's ability to achieve a profitable level of operations is dependent in large part on obtaining regulatory approvals for its product, entering into agreements for product development and commercialization, and expanding from development into successful marketing, all of which will require significant amounts of capital. There can be no assurance that the Company will ever achieve a profitable level of operations. PATENT AND TRADE SECRET UNCERTAINTY Patents, trademarks, copyrights and other proprietary rights are important to the Company's success and competitive position. Due to the length of time and expense associated with bringing new pharmaceutical products to market, there are benefits associated with acquiring products that are protected by existing patents or for which patent protection can be obtained. The Company has obtained a license for the exclusive, irrevocable, worldwide patent rights to develop and market Cytolin(R) from Three R. However, Three R has not recorded and, under the terms of the Termination, Sale and Shareholder Agreement between Three R and the inventor, Three R cannot, prior to September 2001, record its purchase of the patent rights to the product Cytolin(R) with the United States Patent and Trademark Office. The effect of this inability to record on the part of Three R means that the registered owner of the patent, the inventor, could sell such patent to another purchaser who could record such transfer and attempt to extinguish Three R's, and therefore the Company's, patent rights. -10- Patents are not a guarantee of protection from competitors, especially in an area characterized by rapid advances, and enforcement of patents and proprietary rights in many countries can be expected to be problematic or unpredictable. There can be no assurance that any patents issued or licensed to the Company or Three R will not be challenged, invalidated, infringed upon, or designed around by others or that the claims contained in such patents will not infringe the patent claims of others. Furthermore, there can be no assurance that others will not independently develop similar products. Although management believes that patents provide significant protection for the Company's product, the Company's business may be adversely affected by competitors who develop a substantially equivalent product. Patent litigation can be extremely expensive, and the Company may find that it or its licensor is unable to fund litigation necessary to defend its rights. REGULATORY MATTERS COULD AFFECT THE COMPANY'S ABILITY TO CONDUCT ITS BUSINESS The production and marketing of the Company's products are subject to rigorous requirements by the FDA, by state regulatory authorities and also by comparable agencies in other countries. Products developed by the Company cannot be marketed commercially in any jurisdiction in which they have not been approved. Approval by United States authorities does not guarantee, nor at times even facilitate or expedite, approval in other countries. The process of conducting clinical trials and obtaining regulatory approval for a product typically takes a number of years and involves substantial expenditures. In addition, product approvals may be withdrawn or limited for noncompliance with regulatory standards or the occurrence of unforeseen problems following initial marketing. The Company may encounter significant delays or excessive costs in its efforts to secure and maintain necessary approvals or licenses. Future federal, state, local or foreign legislative or administrative acts could also prevent or delay regulatory approval of the Company's products. There can be no assurance that the Company will be able to obtain or maintain the necessary approvals for manufacturing or marketing the Company's products for proposed indications or that the data it obtains in clinical trials will be sufficient to establish the safety and efficacy of its products. Even if the Company obtains regulatory approval for Cytolin(R), identification of certain side effects after it is on the market or the occurrence of manufacturing problems could cause subsequent withdrawal of approval or require reformulation, additional testing, and changes in labeling of the product. The Company's inability to obtain or maintain requisite governmental approvals, the identification of side effects or other factors could delay or preclude the Company from further developing or marketing Cytolin(R), which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is also subject to other regulations under numerous federal, state and local laws regarding, among other things, occupational safety, laboratory practices, the use and handling of radioisotopes and hazardous chemicals, prevention of illness and injury, environmental protection and hazardous substance control. Failure to comply with such regulations could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY WILL BE REQUIRED TO OBTAIN ADDITIONAL FINANCING The Company will require substantial and increasing amounts of funds to conduct necessary research and development and preclinical and clinical testing of its products, and to market any products which may receive regulatory approval. The Company's ability to meet its cash obligations as they become due and payable is expected to depend for at least the next several years on its ability to obtain equity and/or debt capital. There can be no assurance that the Company will be successful in raising the necessary funds on commercially acceptable terms, if at all. The Company's future capital requirements will depend upon many -11- factors, including progress with preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; competing technological and market developments; the ability of the Company to establish collaborative arrangements; and effective commercialization and marketing activities. In any event, the Company may incur negative cash flows and net losses for the foreseeable future. If the Company raises additional funds through the issuance of equity securities, the percentage ownership of its then-current shareholders may be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of common shares. If the Company raises additional funds through the issuance of debt securities, these new securities would have certain rights, preferences and privileges senior to those of the holders of common shares. The Company will require significant capital in order to complete the FDA approval process and New Drug Application Phase. Additional funds will be sought, most likely through sale of equity or debt securities. If adequate funds are not available, the Company may delay, scale back or eliminate certain programs, or may seek funds through collaborative arrangements with strategic partners or others. Such arrangements could require relinquishment of rights to certain technologies, products or markets which it would not otherwise relinquish. THE COMPANY COULD SUSPEND OPERATIONS IF SUFFICIENT FUNDS ARE NOT AVAILABLE The Company may experience cash flow difficulties from time to time due to its substantial capital needs. For the foreseeable future, the Company's ability to meet its cash obligations as they become due and payable will depend on its ability to obtain debt and/or equity funding. In the event that the Company can not raise sufficient capital when needed to sustain or expand its operations, the Company would suspend research and development activities. THE PHARMACEUTICAL INDUSTRY IS CHARACTERIZED BY INTENSE COMPETITION AND IS SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE Rapid technological developments may cause the Company's products to become obsolete before the Company recoups all or any portion of the related expenses. The Company's competitors include major pharmaceutical companies, biotechnology firms and universities and other research institutions, both in the United States and abroad, which are actively engaged in research and development of products in the therapeutic areas being pursued by the Company. Most of the Company's competitors have substantially greater financial, technical, manufacturing, marketing and human resource capabilities than the Company. In addition, many of the Company's competitors have significantly greater experience in testing new or improved therapeutic products and obtaining regulatory approval of products. Accordingly, the Company's competitors may succeed in obtaining regulatory approval for products more rapidly than the Company. If the Company commences significant commercial sales of its products, it will also be competing with respect to manufacturing efficiencies and marketing capabilities, areas in which it has no experience. THE COMPANY IS DEPENDENT ON PRINCIPAL MEMBERS OF ITS MANAGEMENT TEAM The Company is significantly dependent on its officers and directors. If the Company fails to retain the services of one or more of these individuals, the Company's operations may be adversely affected. The Company does not have key man insurance on any of its officers or directors. Companies in the pharmaceutical and health care industries compete intensely for qualified personnel. The Company's inability -12- to retain its existing personnel or to hire additional qualified employees would have a material adverse effect on the Company's business. CHANGES IN U.S. REGULATION OF PHARMACEUTICALS AND REIMBURSEMENT POLICIES COULD AFFECT THE COMPANY Government health administration authorities, together with private health insurers, increasingly are attempting to contain health care costs by limiting the price or reimbursement levels for medical products and services, and private health insurers are increasingly demanding data to justify the inclusion of new products in their formularies. There can be no assurance that the Company's products, if and when marketed, will be included in the formularies of private health insurers or what level of reimbursement, if any, the Company will receive for its products from such private health insurers or the government. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, there have been a number of federal and state proposals to implement similar government controls or otherwise significantly reform the existing health care system. Due to uncertainties as to the ultimate features of this or any other reform initiatives that may be enacted, the Company cannot predict which, if any, of such reform proposals will be adopted, when they may be adopted, or what impact they may have on the Company. It is possible that any legislation which is enacted will include provisions resulting in price limits, utilization controls or other consequences that may adversely affect the Company. ADEQUATE PRODUCT LIABILITY INSURANCE MAY NOT BE AVAILABLE The Company's business will expose it to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products, and product liability claims may be asserted against the Company. The Company currently does not have product liability insurance. Product liability insurance for the pharmaceutical industry generally is expensive to the extent that it is available at all. There can be no assurance that adequate insurance coverage will be available at acceptable costs, if at all, or that a product liability claim would not adversely affect the business or financial condition of the Company. THE COMPANY IS DEPENDENT ON ITS SUPPLIERS The Company currently is able to purchase certain key components for its product candidate only from single suppliers. These suppliers are subject to many strict regulatory requirements. There can be no assurance that these suppliers will comply, or have complied, with applicable regulatory requirements or that they will otherwise continue to supply the Company with the key components for its product candidate. In the event that suppliers are unable or refuse to supply the Company, or will supply the Company only at a prohibitive cost, there can be no assurance that the Company could access additional sources at acceptable prices, on a timely basis, or at all. THE COMPANY'S SUCCESS IS DEPENDENT ON LOCATING ADDITIONAL COLLABORATIVE PARTNERS The Company's strategy for the research, development and commercialization of its product candidate has required, and will continue to require, the Company to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others, and the Company will, therefore, be dependent upon the success of these parties in performing their responsibilities and obligations. There can be no assurance that the Company will be able to enter into collaborative arrangements or license agreements that the Company deems necessary or appropriate to develop and commercialize its product candidate, or that any or all of the contemplated benefits from such collaborative arrangements or license agreements will be realized. Failure -13- to obtain such arrangements or agreements could result in delays in marketing the Company's product candidate or the inability to proceed with the development, manufacture or sale of the product candidate. Certain of the collaborative arrangements that the Company currently has or may enter into in the future may place responsibility on the collaborative partner for preclinical testing, clinical trials and/or preparation and submission of applications for regulatory approval of potential pharmaceutical or other products. Should a collaborative partner fail to develop or commercialize successfully any product candidate to which it has rights, the Company's business, financial condition and results of operations could be materially and adversely affected. There can be no assurance that collaborators will not pursue alternative technologies or product candidates either on their own or in collaboration with others, including the Company's competitors, as a means for developing treatments for the diseases or disorders targeted by the Company's collaborative arrangements. Collaborative arrangements may also require the Company to meet certain regulatory, research or other development milestones and expend minimum levels of funds, and there can be no assurance that the Company wil be successful in doing so. Failure of the Company to meet its obligations under its collaborative arrangements could result in a termination of those arrangements and could have a material adverse effect on the Company's business, financial condition and results of operations. THE MARKET PRICE OF THE COMPANY'S SHARES WILL BE HIGHLY VOLATILE The market price of the Company's common shares has been and is likely to continue to be highly volatile, and an investment in these securities involves substantial risks. The market prices for securities of biotechnology companies (including the Company) have been highly volatile, and the stock market from time to time has experienced significant price and volume fluctuations that may be unrelated to the operating performance of a particular company. A number of factors could result in the Company's failure to meet the expectations of securities analysts or investors and may have a significant impact on the price of the Company's common shares. Such factors include, but are not limited to, announcements by the Company or its competitors of clinical results, technological innovations, product sales, new products or product candidates, developments or disputes concerning patent, license or proprietary rights, regulatory developments affecting the Company's products, as well as market conditions for emerging growth companies and biopharmaceutical companies, economic and other internal and external factors and period-to-period fluctuations in results of operations. THE COMPANY HAS NO SALES AND MARKETING EXPERIENCE The Company intends to sell certain of its products, if successfully developed and approved, through sales and marketing partnership arrangements. However, the Company does not expect to establish sales capability for at least the next few years. The Company has no history or experience in sales or distribution. To sell its product, the Company must obtain the assistance of another company. There can be no assurance that the Company will be able to establish sales and distribution capabilities or succeed in gaining market acceptance for its product. If the Company enters into co-promotion agreements with established pharmaceutical companies, the Company's revenues will be subject to the payment provisions of such arrangements and dependent on the efforts of third parties. There can be no assurance that the Company's collaborators will effectively market the Company's potential product, and the inability of the Company's collaborators to do so could have a material adverse effect on the business and financial condition of the Company. -14- THE COMPANY IS SUBJECT TO ENVIRONMENTAL REGULATIONS The Company and the third parties that currently manufacture the Company's proposed products are subject to federal, state and local laws and regulations governing the use, generation, manufacture, storage, discharge, handling and disposal of materials and wastes which are classified as "hazardous." There can be no assurance that the Company or its third party manufacturers will not be required to incur significant costs to comply with environmental laws, the Occupational Safety and Health Act, and state, local and foreign counterparts to such laws, rules and regulations if its manufacturing and research activities are increased or that the operations, business and future profitability of the Company will not be adversely affected by current or future laws, rules and regulations. The risk of accidental contamination or injury from hazardous materials cannot be eliminated. In the event of such an accident, and if the Company is held liable for any damages that result, any such liability could exceed the resources of the Company. In any event, the cost of defending claims arising from such contamination or injury could be substantial. In addition, the Company cannot predict the extent of the adverse effect on its business or the financial and other costs that might result from any new government requirements arising out of future legislative, administrative or judicial actions. THE COMPANY MAY HAVE LIABILITIES RELATED TO PRIOR OPERATIONS The Company and its predecessors conducted operations in the 1980's and early 1990's. The current management has performed only a limited review of the Company or its subsidiaries operations prior to the Transaction to determine the existence or extent of any prior liabilities. Any existing liabilities of the Company at the time of the Transaction could exceed the Company's current assets and have a material adverse effect on the Company's ability to continue operations. ITEM 2. DESCRIPTION OF PROPERTY The Company's office facilities are located in Woodland Hills, California. The Company leases its facilities under the terms of a three- year non-cancelable operating lease agreement expiring in 2002. Under this agreement, the base rent for this facility is approximately $40,000 annually. The Company's investment policies are currently limited to research and development expenditures to obtain FDA approval to market Cytolin(R) and other immune therapies as well as additional pharmaceutical compounds. The Company invests excess cash with high quality financial institutions. All investments are made primarily for income. The Company does not invest in real estate or related assets. Changes in investment policies are determined by the Board of Directors. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings which management believes are not routine and incidental to its business or which are material. The Company may in the future be a party to legal proceedings. See Note 5 to Consolidated Financial Statements contained in Item 13. (a) of Part III of this Form 10-KSB for a discussion of certain potential disputes. 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 fiscal year ended March 31, 2000. -15- PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information - ------------------ The Company's Common Stock began trading on the Electronic Bulletin Board on February 24, 1999, under the trading symbol "VSCC." In August 1999, the trading symbol was changed to "AMUN" arising from the change of the Company's name from Versailles Capital Corporation to Amerimmune Pharmaceuticals, Inc. The following table sets forth the high and low bid prices for the Company's Common Stock from February 24, 1999. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. The information presented has been derived from the National Quotation Bureau, LLC Library. High Low 1999 Fiscal Year Bid Bid - ---------------- --- --- Fourth Quarter $3.1250 $1.1250 2000 Fiscal Year - ---------------- First Quarter $2.5625 $1.9375 Second Quarter $2.2500 $1.2500 Third Quarter $1.5625 $0.6250 Fourth Quarter $3.1250 $1.0000 2001 Fiscal Year - ---------------- First Quarter (through May 31, 2000) $1.2500 $0.4063 On May 31, 2000, the last reported bid and asked prices for the Common Stock were $0.4063 and $0.6250, respectively. Holders - ------- As of May 31, 2000, the Company had approximately 700 holders of record of the Company's Common Stock. Dividends - --------- The payment of dividends by the Company is within the discretion of its Board of Directors and depends in part upon the Company's earnings, capital requirements, debt covenants and financial condition. Since its inception, the Company has not paid any dividends on its Common Stock and does not anticipate paying such dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance its operations. -16- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Some of the statements made in this Form 10-KSB and the documents incorporated herein by reference that are not historical facts, such as anticipated results of clinical trials, may constitute "forward-looking statements," which forward looking statements are made pursuant to the safe harbor provisions in the federal securities laws. These statements often can be identified by the use of terms such as "may," "will," "expect," "anticipate," "estimate," "should", "could", "experts", "plans", "believes", "predicts", "potential", or "continue," or the negative thereof. Such forward-looking statements speak only as of the date made. Forward-looking statements are subject to risks, uncertainties and other factors beyond the control of the Company that could cause actual results, levels of activity, performance, achievements, and events to differ materially from historical results of operations, levels of activity, performance, achievements, and events and any future results, levels of activity, performance, achievements and events implied by such forward- looking statements. These risks include, but are not limited to, those discussed under the caption "Risk Factors" in Item 1 of this Form 10-KSB. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, achievements, or events. Moreover, neither the Company nor any other person assumes responsibility for the accuracy or completeness of such statements. The Company disclaims any obligation to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. Plan of Operation - ----------------- The Company (for purposes of this section, the term the "Company" includes the predecessor entity to its current operations, British Lion) is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through March 31, 2000. The Company is engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus (HIV). The Company believes that Cytolin(R) may be an important drug for the growing number of patients who have not been receiving treatment, for those who are on multi-drug therapy, and for those who have become resistant to drugs currently used to treat the HIV/AIDS virus. The Company intends to seek governmental approval from the Food and Drug Administration ("FDA") for Cytolin(R). The Company has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. The Company has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on research and development and allocates significant and increasing resources to clinical testing, marketing and other activities. In November and December 1998, the Company sold 1,426,790 shares of its common stock (at approximately $0.21 per share), for gross proceeds of $300,000, to certain accredited investors in a private placement. In December 1998, the Company began a second private placement of common stock to accredited investors, which was completed on February 22, 1999. The second private placement was made on a minimum/maximum "best efforts" basis. The Company raised the maximum amount of gross proceeds of $3,210,000 (7,633,364 common shares at approximately $0.42 per share) and paid cash offering expenses of $159,698. Net cash proceeds from the private placement aggregated $3,050,302. The Company believes -17- that the funds received in these private placements will enable it to satisfy its cash requirements without the need to raise additional funds before September 30, 2000. The Company has commenced a tolerability study for Cytolin(R) after a clinical protocol was sanctioned by the FDA and the bulk drug was manufactured, tested, packaged, and released for clinical use. The Company has completed the submission of related manufacturing records to the FDA. The Company estimates that it will require significant additional funding over the next three years in order to continue operations and to successfully complete the FDA approval process for Cytolin(R). The Company believes that additional funds will be needed to fund operations after September 30, 2000. There can be no assurances that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. Results of Operations - --------------------- For the year ended March 31, 2000, the Company incurred $832,518 in research and development expenses, $1,168,649 in general and administrative expenses and earned $78,715 in interest income net of taxes and other expenses, resulting in a net loss of $1,922,452. The expenses incurred during this period relate primarily to commencement of research activities, regulatory and administrative expenses. From April 10, 1998 to March 31, 1999, the Company incurred $422,293 in research and development expenses, $1,769,311 in general and administrative expenses and earned $8,947 in interest income net of taxes and other expenses, resulting in a net loss of $2,182,657 (which included significant non-cash, general and administrative expenses aggregating $1,498,500 related primarily to issuance of securities in exchange for services) for the period ended March 31, 1999. The expenses incurred during this period relate primarily to the commencement of business operations, the acquisition of a license, fundraising activities and merger expenses. The Company's activities to date are not as broad in depth or scope as the activities it must undertake in the future, and the Company's historical operations and financial information are not indicative of its future operating results or financial condition or its ability to operate profitably as a commercial enterprise if and when it succeeds in bringing any product to market. -18- Capital Resources and Liquidity - ------------------------------- From the commencement of operations of April 10, 1998 to March 31, 2000, the Company had no operating revenues and incurred net losses of $4,105,109. At March 31, 2000, the Company had working capital of $953,796. The Company requires significant capital to conduct the research and development and preclinical and clinical testing of Cytolin(R) that is necessary in order to complete the FDA approval process. Management of the Company does not expect to generate revenue from operations within the next year. The Company believes that additional funds will be needed to fund operations after September 30, 2000. There can be no assurance that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. In October 1998, the Company entered into a Patent and Trademark License Agreement (the "Agreement") with Three R. The Company was granted an irrevocable, exclusive, worldwide license to use all present and future patent rights, knowledge and background technology owned by Three R relating to the product, Cytolin(R). In addition, the Agreement granted the Company a sublicense to the trademark Cytolin(R). The Agreement was consummated simultaneously with the Company's acquisition of British Lion. The Company issued 21,936,981 shares of its common stock at $.001 per share to Three R upon execution of the Agreement, and the Company also agreed to assume Three R's obligations to pay Mr. Allen $1,350,000, payable monthly over a fifteen year period, and fees of $10,000 per year for consulting services under the agreements discussed above between Three R and Mr. Allen. See Note 5 to Consolidated Financial Statements contained in Item 13. (a) of Part III of this Form 10-KSB for a description of these Agreements and certain potential disputes. The Company could abandon its patent rights with no further obligations after minimum payments aggregating $180,000 to Allen, with one year's notice. Effect of Inflation and Foreign Currency Exchange - ------------------------------------------------- The Company has not experienced material unfavorable effects on its results of operations due to currency exchange fluctuations with any foreign suppliers or material unfavorable effects upon its results of operations as a result of domestic inflation. Plant, Equipment and Employees - ------------------------------ As of this time, the Company does not expect to make any purchases of significant plant, facilities or equipment and does not foresee a significant change in the number of employees. ITEM 7. FINANCIAL STATEMENTS The information required by this item is incorporated herein by reference to the financial statements listed in Item 13. (a) of Part III of this Form 10-KSB Annual Report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this Item was previously reported in the Company's Form 8-K as filed on March 29, 1999, which is incorporated herein by reference. -19- PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following table sets forth the names and positions of the current directors and executive officers of the Company: Officer or Name Age Position Director Since - ---- --- -------- -------------- Rex H. Lewis 47 President, CEO and Director 1999 Deborah Garrett Kalof 43 Chief Financial Officer 2000 Pamela M. Kapustay 44 Vice President of Operations 1999 and Secretary Kimberlie L. Cerrone 48 Director 1999 O. B. Parrish 66 Director 1999 Michael A. Davis 59 Director 1999 The following sets forth biographical information concerning the Company's directors and executive officers. REX H. LEWIS currently serves as President, CEO and a Director for the Company and has been a successful entrepreneur and investor over the past twenty years in many public and private ventures. His area of expertise spans the real estate, water rights, oil and gas, equipment leasing, grocery, and electric power management industries to name a few. He is a Director, since March 2000, of Planet Electric Inc., a power management company. Mr. Lewis' ability to manage, forecast, research, develop and promote products has contributed to the success of the diverse businesses he has been involved in. Mr. Lewis graduated Magna Cum Laude from Brigham Young University's MBA program in 1978. DEBORAH GARRETT KALOF, C.P.A., M.B.A. currently serves as the Company's Chief Financial Officer. For the past six years, Ms. Kalof has acted as a financial and accounting consultant for various domestic and multinational businesses including Morgan Stanley, Playa Vista and Bastion Capital Fund L.P. Prior to that, she was the Corporate Finance Controller for Westfield Corporation, Inc., and also served as a manager at the public accounting firm of Arthur Young & Company. Ms. Kalof received B.S. and M.B.A. degrees from the University of Florida. PAMELA M. KAPUSTAY, R.N., M.N. currently serves as the Vice President of Operations and Secretary for the Company. Previously, Ms. Kapustay has held administrative, clinical research and practice positions -20- in both university and corporate settings within the United States and abroad, including the University of Texas, M.D. Anderson Hospital and Tumor Institute, with a concentrated clinical focus in oncology and HIV/AIDS care. Ms. Kapustay continues to lecture and publish peer-reviewed articles and textbooks on various clinical aspects of peripheral blood stem cell transplantation. Ms. Kapustay received a B.S. degree in nursing from the University of Texas Health Science Center in Houston, Texas and a M.S. degree in nursing from the University of California, Los Angeles. KIMBERLIE L. CERRONE, M.S., M.B.A., J.D. currently serves as a Director of the Company. She is also Vice-President and General Counsel of Net Perceptions, Inc., a publicly-traded Internet company and a Director of Nihon Net Perceptions Kabushiki Kaisha, a Japanese company. Ms. Cerrone has held positions in senior management and business development in the biotechnology and software industries for more than ten years. She has consulted to early stage high technology and life science companies since 1998. She co-founded Neurobiological Technologies, Inc., a publicly-traded biotechnology company in 1987. Ms. Cerrone practiced technology law at Gunderson Dettmer and Venture Law Group for five years and has been general counsel at two software companies. O. B. PARRISH currently serves as a Director of the Company. He is also the President and a Director of Phoenix Health Care of Illinois, Inc. where he has been employed since 1989. Mr. Parrish is Chairman, CEO and a Director of the Female Health Company of Chicago, Illinois where he has been associated since 1994. In addition, he is Chairman of ViatiCare Financial Services LLC, of Minneapolis, which provides financial services to the terminally ill where he has been associated since 1993. Mr. Parrish is also a Director since 1999, of Miicro, which is a neuro-imaging company. From 1991 to 1995 Mr. Parrish was Co-Chairman and a Director of Inhalon Pharmaceuticals, Inc., of Bethlehem, Pennsylvania. Previously, Mr. Parrish was President of G.D. Searle's worldwide Pharmaceutical Group and Executive Vice President of Pfizer's International Division. MICHAEL A. DAVIS, M.D., Sc.D., M.B.A. currently serves as a Director for the Company, and has been Professor of Radiology and Director, Division of Radiologic Research in the Department of Radiology at the University of Massachusetts Medical Center ("UMMC"), Worcester, Massachusetts since 1980. Dr. Davis also serves as the Associate Medical Director of the Center for Advanced Clinical Technology at UMMC, which was formed to aid medical device and pharmaceutical manufacturers in obtaining safety and efficacy data required by the Food and Drug Administration ("FDA") and other world- wide regulatory bodies prior to granting marketing approval. Since 1989, Dr. Davis has served as Medical Director for the E-Z-EM Company, which is publicly-traded, and in 1995 was appointed as its Technical Director, Chief Scientific Officer and Director. Dr. Davis also serves as a Director, since 1996, of the publicly-traded MacroChem Corporation. Since 1982, Dr. Davis has been an Affiliate Professor of Biomedical Engineering at Worcester Polytechnic Institute, and has held faculty positions at Harvard Medical School and Northeastern University. Currently, Dr. Davis serves as President of Synergy Consulting Group, Ltd., a medical device and drug consulting group assisting contract research organizations, which helps in the design, monitoring and implementation of clinical trials and serves as liaison with the FDA. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth, in summary form, the compensation paid by the Company to all individuals who served as Chief Executive Officer of the Company (the "Named Executive Officers") for services rendered to the Company for the fiscal year ended March 31, 2000. No other executive officers of the Company earned total salary and bonus payments in excess of $100,000. -21- SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS -------------------------------------------- ------------ SECURITIES UNDERLYING OPTIONS (#) ----------- OTHER ANNUAL NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) COMPENSATION ($) - ---------------------------- ---- --------- ---------------- Rex H. Lewis(1) 2000 70,000(1) - - (1) Michael A. Davis, M.D., 2000 50,700 - - Sc.D., M.B.A., (2) 1999 13,000 - 570,718(5) former President and Chief Executive Officer L. Michael Underwood,(3) 1999 6,800(6) - - former President and Chief Executive Officer David C. Walters,(4) 1999 - - - former President 1998 - - - and Chief Executive 1997 - - - Officer
__________ (1) Mr. Lewis became President and Chief Executive Officer of the Company in November 1999. As of May 31, 2000, Mr. Lewis' employment agreement had not been finalized. Based on preliminary negotiations regarding the employment agreement, the Company has accrued $70,000 representing the pro rata portion of the expected $180,000 per year compensation applicable to the year ended March 31, 2000. Additionally, the Company expects to issue stock options to Mr. Lewis, the terms of which have not been finalized. (2) Dr. Davis served as President and Chief Executive Officer of the Company from February 1999 until November 1999. (3) Mr. Underwood served as President and Chief Executive Officer of the Company from December 1998 until February 1999. (4) Mr. Walters served as President and Chief Executive Officer of the Company from 1996 until December 1998 (5) Options provide for 100% acceleration of vesting in the event of occurrence of a change in control of the Company. Under the terms of a separation agreement with Dr. Davis, the total number of stock options has been reduced to 200,000. -22- (6) For services provided to the Company, Mr. Underwood was granted 680,520 shares of Common Stock with a fair market value of $6,800. OPTION GRANTS IN LAST FISCAL YEAR No options were granted to executive officers in fiscal 2000. FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning the fiscal year-end values of unexercised stock options held by the Named Executive Officers as of March 31, 2000. No options were exercised by any of the Named Executive officers for the fiscal year ended March 31, 2000.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT YEAR-END(#) FISCAL YEAR-END($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) ---- ------------------------- ---------------------------- Michael A. Davis 108,333 91,667 $89,916 $ 76,084 L. Michael Underwood - - - - David C. Walters - - - -
__________ (1) The value of unexercised in-the-money options is calculated by multiplying (A) the number of securities underlying such options by (B) the difference between (i) $1.25, the closing price of the Common Stock on the Nasdaq National Market on March 31, 2000 and (ii) the option exercise price. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS In November 1999, the Company entered into a termination of employment agreement with Dr. Michael A. Davis. The agreement reduced the number of stock options granted from 570,718 to 200,000 and modified the expiration date of the options. In November 1999, the Company hired Mr. Rex H. Lewis as its President and Chief Executive Officer. As of May 31, 2000 Mr. Lewis' employment agreement has not been finalized. Based on preliminary negotiations regarding the employment agreement, the Company has accrued $70,000 at March 31, 2000, representing the pro rata portion of the expected $180,000 per year compensation applicable to the year ended March 31, 2000. Additionally, the Company expects to issue stock options to Mr. Lewis, the terms of which have not been finalized. -23- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS The following table sets forth, as of May 31, 2000, the date hereof, the ownership of the Company's Common Stock by (i) each director and executive officer of the Company, (ii) all executive officers and directors of the Company as a group, and (iii) all persons known by the Company to beneficially own more than 5% of the Company's Common Stock: Percent of Name and Address Amount and Nature of Class of Shareholder Beneficial Ownership(1) Owned -------------- ----------------------- ----- Rex H. Lewis 5,018,753(2) 11.7% 2325-A Renaissance Drive Las Vegas, NV 89119 Maya, LLC 5,018,753 11.7% 2325-A Renaissance Drive Las Vegas, NV 89119 Deborah Garrett Kalof -0- -0- 21550 Oxnard Street #830 Woodland Hills, CA 91367 Pamela Kapustay 242,555(3) 0.6% 21550 Oxnard Street #830 Woodland Hills, CA 91367 Kimberlie L. Cerrone 252,663(4) 0.6% 21550 Oxnard Street #830 Woodland Hills, CA 91367 O. B. Parrish 252,663(4) 0.6% 21550 Oxnard Street #830 Woodland Hills, CA 91367 Michael A. Davis 569,705(5) 1.3% 21550 Oxnard Street #830 Woodland Hills, CA 91367 -24- Three R Associates, Inc. 25,977,788(6) 60.4% 21550 Oxnard Street #830 Woodland Hills, CA 91367 CytoDyn of New Mexico, Inc. 4,280,387(7) 9.9% 4236 Longridge Avenue #302 Studio City, CA 91604 Allen D. Allen 6,420,580(8) 14.9% 4236 Longridge Avenue #302 Studio City, CA 91604 Battersea Capital, Inc. 3,210,288(9) 7.1% P. O. Box 153 Santa Monica, CA 90403 J. Matt Lepo 3,210,288(10) 7.1% P. O. Box 153 Santa Monica, CA 90403 All Directors and Executive 6,336,339 14.5% Officers as a group (6 persons) - ------------------ (1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934. Unless otherwise stated below, each such person has sole voting and investment power with respect to all such shares. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. (2) The shares are owned by Maya, LLC, a limited liability company of which Mr. Lewis is the manager. (3) Includes exercisable options to purchase 135,545 shares of Common Stock for $.42 per share, expiring 12/1/08. (4) Includes exercisable options to purchase 252,663 shares of Common Stock for $.42 per share, expiring 2/23/09. (5) Includes exercisable options to purchase 141,667 shares of Common Stock for $.42 per share, expiring 2/23/10. (6) Includes: (i) 19,557,208 shares owned by Three R; and, (ii) 2,140,193 shares owned by Allen D. Allen and 4,280,387 shares owned by CytoDyn of New Mexico, Inc. ("CytoDyn NM") for which Three R holds an irrevocable proxy to vote all such shares. (7) CytoDyn NM granted an irrevocable proxy coupled with interest to vote its shares to Three R. (8) Includes: (i) 4,280,387 shares owned by CytoDyn NM, of which Allen D. Allen ("Allen") is a director and controlling shareholder; and, (ii) 2,140,193 shares owned by Allen. Allen granted an irrevocable proxy coupled with interest to vote his shares to Three R. -25- (9) Includes options to purchase an aggregate of 2,140,192 shares of Common Stock which consists of: 1,426,794 shares, immediately exercisable for a period of five (5) years, at $.42 per share, as adjusted post-merger granted by the Issuer; and, an option granted by Three R to purchase 713,398 shares of the Issuer's Common Stock owned by Three R, immediately exercisable for a period of five (5) years, at $.42 per share. (10) The shares, which include an aggregate of 2,140,192 shares underlying options held in the name of Battersea Capital, Inc. ("Battersea"), are owned by Battersea, of which Mr. Lepo is the managing director. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers, and persons who own more than 10% of the Company's Common Stock, to file reports of beneficial ownership of the Company's Common Stock and changes in such ownership with the Securities and Exchange Commission, the Nasdaq National Market and the Company. Specific due dates for these reports have been established, and the Company is required to disclose in this Proxy Statement any failure to file these reports on a timely basis. Based solely on its review of the copies of these reports received or written representations from these reporting persons that no Forms 5 or other reports were required for such persons, the Company believes that, during the 2000 Fiscal Year, all of such filing requirements under Section 16(a) were timely met. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In October 1998, Three R, a corporation that is wholly owned by Lois Rezler, Daniel Azarnoff and Roy Azarnoff each of whom are former directors of the Company, entered into a Patent and Trademark License Agreement (the "License Agreement") with British Lion, the entity which previously operated the business now conducted by the Company, pursuant to which Three R granted British Lion an irrevocable, exclusive, worldwide right to use all present and future patent rights, know-how and background technology of Three R, relating to Cytolin(R). In addition, the License Agreement contains a provision whereby Three R granted British Lion a sublicense to the trademark Cytolin(R). In exchange for the License, British Lion issued 3,075,000 shares of its Stock (equivalent to 21,936,981 Company shares) to Three R, and subsequently assumed Three R's obligations under a consulting agreement between Three R and Allen D. Allen, the inventor of the technology. The License Agreement was subject to: (i) British Lion's entering into a management agreement with WCCS for purposes of assisting British Lion in obtaining FDA approval to market Cytolin(R) for commercial use; and, (ii) British Lion's entering into a business combination with a publicly held company. In October 1998, British Lion entered into a management agreement with WCCS (the "WCCS Agreement"), for purposes of assisting British Lion in obtaining FDA approval to market Cytolin(R) for commercial use. Lois Rezler, Daniel L. Azarnoff and Roy Azarnoff, are the officers, directors and shareholders of WCCS, as well as former directors of the Company. On February 23, 1999, the Company obtained Directors and Officers indemnity liability insurance coverage, including securities coverages, in the amount of $3,000,000 which indemnifies the Company against claims, as well as provides coverage against any claims against the officers and directors of the Company which (i) the Company is not legally permitted or required to pay or (ii) when the Company is legally required or permitted to pay such loss as indemnity to the Directors and Officers but cannot in fact pay such loss due solely to the financial insolvency of the Company. There is no pending litigation or proceeding involving a director, officer, employee or other agent of the Company as to which indemnification is being or may be sought, and the Company is not aware of any other pending or threatened litigation that may result in claims for indemnification by any director, officer, employee or other agent. -26- ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Form 10-KSB: Index to Consolidated Financial Statements Report of Independent Auditors Consolidated Balance Sheets - March 31, 1999 and 2000 Consolidated Statements of Operations - for the period from April 10, 1998 (Date of Inception) through March 31, 1999 and for the year ended March 31, 2000 and cumulative amounts from inception through March 31, 2000 Consolidated Statement of Changes in Shareholders' Equity - for the period from April 10, 1998 (Date of Inception) through March 31, 2000 Consolidated Statements of Cash Flows - for the period from April 10, 1998 (Date of Inception) through March 31, 1999 and for the year ended March 31, 2000 and cumulative amounts from inception through March 31, 2000 Notes to Consolidated Financial Statements Exhibits required to be filed are listed below and, except where incorporated by reference, immediately follow the Financial Statements. Exhibit Number Description - ------- ----------- 2.1 Agreement and Plan of Merger, dated February 17, 1999, by and among Versailles Capital Corporation, Amerimmune, Inc. and British Lion Medical, Inc.(2) 3.1 Amended and Restated Articles of Incorporation.(1) 3.2 Amended and Restated By-Laws.(1) 3.3 Articles of Merger, as filed with the Colorado Secretary of State on February 23, 1999.(2) 3.4 Articles of Amendment to the Articles of Incorporation.(3) 10.1 Patent and Trademark License Agreement between British Lion Medical, Inc. and Three R Associates, Inc., dated October 24, 1998.(2) -27- 10.2 Termination, Sale and Shareholder Agreement by and among Three R Associates, Inc., Allen D. Allen and CytoDyn(R) of New Mexico, Inc., dated August 1, 1998.(2) 10.3 Management Agreement between British Lion Medical, Inc. and WCCS, Inc., dated October 24, 1998.(2) 10.4 Subscription, Share Restriction and Proxy Agreement between British Lion Medical, Inc. and Allen D. Allen, dated October 23, 1998.(2) 10.5 Versailles Capital Corporation 1998 Omnibus Stock Incentive Plan as amended and restated through February 23, 1999.(4) 10.6 Conditional License Agreement between Allen D. Allen, CytoDyn of New Mexico, Inc. and Amerimmune, Inc., dated February 24, 2000. 16.0 Letter on change in certifying accountant. (5) 27 Financial Data Schedule. - -------------------------------------------------------------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form 10-SB, Registration No. 0-22865, as filed with the Commission on July 22, 1997, and amended on Form 10-SB/A-1, filed with the Commission on February 25, 1998. (2) Incorporated by reference from the like numbered exhibits filed with the Registrant's Current Report on Form 8-K, as amended, dated March 10, 1999. (3) Incorporated by reference from the Registrant's September 30, 1999 Form 10-QSB, dated November 12, 1999. (4) Incorporated by reference from the Registrant's March 31, 1999 Form 10-KSB. (5) Incorporated by reference from the like numbered exhibit filed with the Registrant's Current Report on Form 8-K, dated March 29, 1999. (b) Reports on Form 8-K. During the last quarter covered by this report, the Company filed the following Current Report on Form 8-K: Form 8-K, dated February 7, 2000, reporting under Item 5 of such form. -28- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: June 28, 2000 AMERIMMUNE PHARMACEUTICALS, INC. By: /s/ O.B. Parrish ----------------- O.B. Parrish, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ O.B Parrish Chairman of the Board and Director June 28, 2000 - --------------- O.B. Parrish /s/ Rex H. Lewis President, Chief Executive Officer June 28, 2000 - ---------------- and Director Rex H. Lewis, M.B.A. /s/ Deborah Garrett Kalof Chief Financial Officer June 28, 2000 - ------------------------- Deborah Garrett Kalof, M.B.A., C.P.A. /s/ Kimberlie L. Cerrone Director June 28, 2000 - ------------------------ Kimberlie L. Cerrone, M.S., M.B.A., J.D. /s/ Michael A. Davis Director June 28, 2000 - -------------------- Michael A. Davis, M.D., Sc.D., M.B.A. -29- AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL INFORMATION PAGE NO. Report of Independent Auditors . . . . . . . . . . . . . . . . . . . .F-2 Consolidated Balance Sheets - March 31, 1999 and 2000. . . . . . . . .F-3 Consolidated Statements of Operations - for the period from April 10, 1998 (Date of Inception) through March 31, 1999 and for the year ended March 31, 2000 and cumulative amounts from inception through March 31, 2000. . . . . . . . . . . . . . . . .F-4 Consolidated Statement of Changes in Shareholders' Equity - for the period from April 10, 1998 (Date of Inception) through March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . .F-5 Consolidated Statements of Cash Flows - for the Period from April 10, 1998 (Date of Inception) through March 31, 1999 and for the year ended March 31, 2000 and cumulative amounts from inception through March 31, 2000. . . . . . . . . . . . . . . . .F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . .F-8 F-1 Report of Independent Auditors The Board of Directors Amerimmune Pharmaceuticals, Inc. We have audited the accompanying consolidated balance sheets of Amerimmune Pharmaceuticals, Inc. (a development stage company) as of March 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for the periods then ended, and for the period from April 10, 1998 (date of inception) to March 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amerimmune Pharmaceuticals, Inc. at March 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for the periods then ended, and for the period from April 10, 1998 (date of inception) to March 31, 2000 in accordance with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also disclosed in Note 1. The 2000 financial statements do not include any adjustments that might result from the outcome of this uncertainty. Ernst & Young LLP Woodland Hills, California June 15, 2000 F-2 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS ASSETS
CURRENT ASSETS March 31, 1999 March 31, 2000 -------------- -------------- Cash and cash equivalents $ 2,614,523 $ 522,649 Marketable securities - 618,360 Advances to an affiliate 46,581 - Current portion of prepaid management fees - affiliated corporation 73,125 - Other current assets 20,275 37,926 ------------ ------------ TOTAL CURRENT ASSETS 2,754,504 1,178,935 ------------ ------------ PROPERTY AND EQUIPMENT, NET 30,633 23,475 ------------ ------------ OTHER ASSETS Prepaid management fees - affiliated corporation 140,156 - Deposits 3,040 3,040 ------------ ------------ 143,196 3,040 ------------ ------------ TOTAL ASSETS $ 2,928,333 $ 1,205,450 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 114,597 $ 83,242 Accrued liabilities 143,941 141,897 ------------ ------------ TOTAL CURRENT LIABILITIES 258,538 225,139 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 5) SHAREHOLDERS' EQUITY Preferred stock $0.10 par value, 50,000,000 shares authorized, No shares issued or outstanding - - Common stock $0.05 par value, 100,000,000 shares authorized, 43,042,856 shares issued and outstanding in both years 2,152,143 2,152,143 Additional paid-in-capital 2,700,309 3,090,266 Note receivable from affiliate - (156,989) Deficit accumulated during the development stage (2,182,657) (4,105,109) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 2,669,795 980,311 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,928,333 $ 1,205,450 ============ ============
See accompanying notes F-3 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) THROUGH MARCH 31, 1999 AND FOR THE YEAR ENDED MARCH 31, 2000 AND CUMULATIVE AMOUNTS FROM INCEPTION THROUGH MARCH 31, 2000
CUMULATIVE PERIOD ENDED YEAR ENDED AMOUNTS FROM MARCH 31, 1999 MARCH 31, 2000 INCEPTION -------------- -------------- --------- COSTS AND EXPENSES Research and development $ 422,293 $ 832,518 1,254,811 General and administrative 1,769,311 1,168,649 2,937,960 ------------ ------------ ------------ OPERATING LOSS (2,191,604) (2,001,167) (4,192,771) OTHER INCOME (EXPENSE) Interest income 10,188 88,907 99,095 Interest expense (441) (8,592) (9,033) ------------ ------------ ------------ 9,747 80,315 90,062 ------------ ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (2,181,857) (1,920,852) (4,102,709) PROVISION FOR INCOME TAXES 800 1,600 2,400 ------------ ------------ ------------ NET LOSS $ (2,182,657) $ (1,922,452) $ (4,105,109) ============ ============ ============ NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.08) $ (0.04) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 28,067,000 43,042,856 ============ ============
See accompanying notes F-4 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) THROUGH MARCH 31, 2000
DEFICIT COMMON STOCK NOTE ACCUMULATED ------------ ADDITIONAL RECEIVABLE DURING THE NUMBER PAID IN FROM DEVELOPMENT OF SHARES AMOUNT CAPITAL AFFILIATE STAGE TOTAL --------- ------ ------- --------- ----- ----- Issuance of common stock to founders on October 24, 1998 at $0.001 per share 24,077,174 $ 3,650 $ - $ - $ - $ 3,650 Fair value of stock and an option issued on October 24, 1998 in exchange for services and trademark rights 7,704,696 814,000 - - - 814,000 Fair value of stock issued to prospective officers on October 24, 1998 677,728 142,500 - - - 142,500 Issuance of common stock in a private placement in November and December 1998 at $0.21 per share 1,426,790 300,000 - - - 300,000 Fair value of stock and an option transferred by a principal stockholder on February 16, 1999 in exchange for services - 452,000 - - - 452,000 Issuance of common stock in a private placement in February 1999 at $0.42 per share 7,872,352 3,050,302 - - - 3,050,302 Fair value of stock transferred to a prospective officer by a principal stockholder on February 23, 1999 - 90,000 - - - 90,000 Merger of Versailles Capital Corporation 1,284,116 (2,700,309) 2,700,309 - - - Net loss for the period from inception (April 10, 1998) through March 31, 1999 - - - - (2,182,657) (2,182,657) ----------- ----------- ----------- ----------- ------------ ----------- Balance at March 31, 1999 43,042,856 2,152,143 2,700,309 - (2,182,657) 2,669,795 Fair value of stock options issued on April 1, 1999 in exchange for services - - 6,163 - - 6,163 Modification of stock options - - 383,794 - - 383,794 Note receivable from affiliate - - - (156,989) - (156,989) Net loss for the year ended March 31, 2000 - - - - (1,922,452) (1,922,452) ----------- ----------- ----------- ----------- ------------ ----------- Balance at March 31, 2000 43,042,856 $ 2,152,143 $ 3,090,266) $ (156,989) $ (4,105,109) $ 980,311 =========== =========== =========== =========== ============ ===========
See accompanying notes F-5 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) THROUGH MARCH 31, 1999 AND FOR THE YEAR ENDED MARCH 31, 2000 AND CUMULATIVE AMOUNTS FROM INCEPTION THROUGH MARCH 31, 2000
CUMULATIVE AMOUNTS PERIOD ENDED YEAR ENDED FROM MARCH 31, 1999 MARCH 31, 2000 INCEPTION -------------- -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,182,657) $ (1,922,452) $ (4,105,109) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES Noncash transactions: Depreciation and amortization - 11,600 11,600 Fair value of stock and an option issued in exchange for services and trademark rights 814,000 - 814,000 Fair value of stock issued to prospective officers 142,500 - 142,500 Fair value of stock transferred to a prospective officer by a principal shareholder 90,000 - 90,000 Fair value of stock and an option transferred by a principal shareholder in exchange for services 452,000 - 452,000 Fair value of stock options issued in exchange for services - 6,163 6,163 Modification of stock options - 383,794 383,794 Changes in assets and liabilities: Advances from/to affiliates (46,581) 46,581 - Other current assets (20,275) (17,651) (37,926) Prepaid management fees (213,281) 213,281 - Deposits (3,040) - (3,040) Accounts payable and accrued expenses 258,538 (33,399) 225,139 ------------ ------------ ------------ Total adjustments 1,473,861 610,369 2,084,230 ------------ ------------ ------------ NET CASH USED BY OPERATING ACTIVITIES (708,796) (1,312,083) (2,020,879) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities - (618,360) (618,360) Purchases of property and equipment (30,633) (4,442) (35,075) Loan to an affiliate - (156,989) (156,989) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (30,633) (779,791) (810,424) ------------ ------------ ------------
Continued on next page F-6 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) THROUGH MARCH 31, 1999 AND FOR THE YEAR ENDED MARCH 31, 2000 AND CUMULATIVE AMOUNTS FROM INCEPTION THROUGH MARCH 31, 2000
CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from sale of common stock 3,353,952 - 3,353,952 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,614,523 (2,091,874) 522,649 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, Beginning of Period - 2,614,523 - ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, Ending of Period $ 2,614,523 $ 522,649 $ 522,649 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid during period for: Interest $ 441 $ 8,592 $ 9,033 ------------ ------------ ------------ Income Taxes $ - $ 3,200 $ 3,200 ============ ============ ============
See accompanying notes F-7 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 1. BUSINESS AND BASIS OF PRESENTATION BUSINESS AND ORGANIZATION Amerimmune Pharmaceuticals, Inc. (the "Company"), formerly named Versailles Capital Corporation, is a Colorado Corporation incorporated on December 31, 1986. From 1991 through February 22, 1999, the Company was inactive aside from seeking a business combination candidate. British Lion Medical, Inc. ("British Lion") was incorporated in California in August 1997 and commenced operations on April 10, 1998. British Lion was engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus ("HIV"). On February 17, 1999, the Company, British Lion and Amerimmune, Inc. ("AI"), a newly organized, wholly owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement on February 23, 1999, each share of British Lion's issued and outstanding no par value common stock (5,853,500 shares) was exchanged for 7.133978 newly issued shares (41,758,740 shares) of the Company's $0.05 par value per share common stock. After the exchange, former British Lion shareholders acquired approximately 97% of the issued and outstanding voting shares of the Company and the Company acquired all of the issued and outstanding shares of British Lion through a merger of British Lion with and into AI, with AI as the surviving legal entity (the "Transaction"). Prior to the Transaction, the Company had nominal assets and liabilities. Unless otherwise noted, all references to the number of shares of common stock in these financial statements are based upon the equivalent post-exchange number of shares of the Company's common stock. For financial reporting purposes, the Transaction has been accounted for as a reverse acquisition whereby British Lion is deemed to have acquired the Company. Since this was a reverse acquisition, the legal acquiror, the Company, continued in existence as the legal entity whose shares represent the outstanding common stock of the combined entities. The acquisition has been accounted for as a recapitalization of British Lion based upon historical cost. The recapitalization was given retroactive effect. In connection with the Transaction, the Company succeeded to the business of British Lion and became engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R). The Company has assumed the obligations of British Lion including all outstanding stock options and warrants to purchase shares of British Lion's common stock and has issued equivalent shares of the Company common stock under the same terms and conditions. On August 6, 1999, the shareholders of the Company adopted an amendment to the Company's articles of incorporation to change the name of the Company to Amerimmune Pharmaceuticals, Inc. from Versailles Capital Corporation. F-8 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) BASIS OF PRESENTATION AND MANAGEMENT PLAN The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles on the basis of a going concern. All significant intercompany balances and transactions have been eliminated in consolidation. The Company is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through March 31, 2000. The Company has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. The Company has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on its research and development activities and allocates significant and increasing resources to clinical testing, marketing and other activities. The Company commenced a tolerability study for Cytolin(R) after a clinical protocol was sanctioned by the Food and Drug Administration ("FDA") and the bulk drug has been manufactured, tested, packaged, and released for clinical use. The Company has completed the submission of related manufacturing records to the FDA. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company estimates that it will require significant additional funding over the next three years to continue operations and to successfully complete the FDA approval process for Cytolin(R). The Company believes that additional funds will be needed to fund operations after September 30, 2000. The Company has established plans designed to increase the capitalization of the Company and is actively seeking additional capital that will provide funds needed to increase the internal growth of the Company in order to fully implement its business plans. There can be no assurances that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES Marketable securities are classified as held-to-maturity and consist of investments in United States Government Bonds that have maturities over three months but less than F-9 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) one year from date of purchase. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and marketable securities. At March 31, 2000, substantially all cash and cash equivalents were on deposit with one financial institution. PROPERTY AND EQUIPMENT Office furniture and equipment is recorded at cost. Depreciation commences as assets are placed in service and is computed on a straight-line method over their estimated useful lives of three years. Leasehold improvements are recorded at cost and amortized over the three-year term of the lease. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Payments related to the acquisition of technology rights, for which development work is in- process, are expensed and considered a component of research and development costs. ACCOUNTING FOR STOCK BASED COMPENSATION The Company's employee stock option plan is accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") which requires the recognition of expense when the option price is less than the fair value of the stock at the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). NET LOSS PER SHARE Loss per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 ("SAB 98"). Basic earnings per share excludes dilution for common stock equivalents and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and resulted in the issuance of common stock. Pursuant to SAB 98, common stock issued for nominal consideration is required to be included in the calculation of basic and diluted earnings per share, as if they were F-10 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) outstanding for all periods presented. In accordance with the SAB 98 requirements, 21,936,981 of the founder's shares are considered to be nominal issuances and have been considered outstanding for all of the period ended March 31, 1999. All outstanding stock options and warrants have been excluded from the calculation of diluted loss per share, because the assumed conversion of such instruments is antidilutive. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. To date, the Company has not had any transactions that are required to be reported in comprehensive income. SEGMENT INFORMATION The Company has determined that it does not have separately reportable operating segments in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, cash equivalents and marketable securities is assumed to be fair value because of the liquidity of these instruments. Accounts payable, accrued expenses and amounts due from an affiliate approximate fair value because of the short maturity of these instruments. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. RECLASSIFICATIONS Certain information in the 1999 consolidated financial statements has been reclassified to conform to current year presentation. 3. COMMON STOCK INITIAL ISSUANCE OF SHARES During October 1998, the Company issued 24,077,174 shares of restricted common F-11 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) stock (at $0.001 per share) to founders for cash in connection with the execution of patent and license agreements. Another 4,280,387 shares were issued in exchange for rights to a trademark (see Note 5). The shareholders who were issued these shares have agreed not to sell any of their shares for a period of two years from the date of issuance of the shares. In addition, during October 1998, the Company issued 677,728 shares of restricted common stock (at $0.001 per share) for cash to prospective officers. The shares of stock issued were recorded based upon a value of $0.21 a share, the price of the shares subsequently sold in the initial private placement. In connection with these transactions, the Company recorded a non-cash, general and administrative expense of $142,500. These shareholders agreed not to sell any of their shares for a period of two years from the date of issuance of the shares. INITIAL PRIVATE PLACEMENT In November and December 1998, the Company sold 1,426,790 shares of its stock, at approximately $0.21 per share for total proceeds of $300,000, to certain accredited investors in an initial private placement ("Initial Private Placement"). FEBRUARY 22, 1999 PRIVATE PLACEMENT Pursuant to the Merger Agreement, and as a condition precedent to the Transaction, the Company successfully completed a private placement of its common stock on February 22, 1999 and issued 7,633,364 common shares. Through this private placement, the Company raised net cash proceeds of $3,050,302 (gross proceeds of $3,210,000 less cash private placement expenses of $159,698). The Company also incurred non-cash expenses of $210,294 in connection with this private placement. The Company (i) issued 238,988 shares of its restricted common stock with a fair value of approximately $0.42 per share to an investor for assisting in this private placement of the Company's common stock ($100,500) and (ii) issued 515,308 warrants at a price of $0.42 per share to a private placement agent as commissions (the fair value of these warrants was estimated to be $109,794). In fiscal 1999, the Company entered into an agreement with a financial consulting firm, Battersea Capital, Inc. ("Battersea"), to assist the Company in private placements and finding an appropriate public company into which the Company could merge. In connection with Battersea's consulting agreement with the Company, LMU & Company ("LMU") acquired the majority ownership of Versailles prior to the Transaction and facilitated the merger of British Lion with Versailles. The Company paid LMU a finder's fee of $100,000 from the proceeds of its second private placement in February 1999 for these services. Such amounts have been included in the accompanying statement of operations as general and administrative expenses. SHARES ISSUED FOR SERVICES Shares of common stock issued for other than cash have been assigned amounts F-12 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) equivalent to the fair value of the assets or services received in exchange for such shares. As part of the consideration for Battersea's services described above, the Company issued 2,140,193 restricted shares of its stock to Battersea in October 1998 and granted Battersea an option to purchase an additional 1,426,794 shares of stock at a price of $0.42 per share for a five year period. The shares of stock issued were recorded at $450,000 based upon a value of $0.21 a share, the price of the shares sold in the Initial Private Placement. The stock option granted was recorded at $94,000, approximately $0.065 per share, using the Black-Scholes option pricing model. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $544,000. The shares issued and the shares underlying the option are covered by certain registration rights. In October 1998, the Company also issued 1,284,116 restricted shares to an attorney in exchange for cash of $180 and legal services provided to the Company. The shares of stock issued were recorded based upon a value of $0.21 a share, the price of the shares sold in the Initial Private Placement. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $270,000. This shareholder has also agreed not to sell any shares for a period of two years. In February 1999, a principal shareholder of the Company transferred 713,397 of its restricted shares of the Company's common stock to Battersea upon the completion of the Transaction. In addition, the same principal shareholder granted Battersea an option to purchase 713,397 shares of the Company's common stock at $0.42 per share from its own holdings. The shares of stock transferred were recorded at $300,000 based upon a value of $0.42 per share, the price of the shares sold in the February 22, 1999 private placement. The stock option granted was recorded at $152,000, approximately $0.21 per share, using the Black-Scholes option pricing model. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $452,000. In February 1999, the same principal stockholder of the Company transferred 214,019 of its restricted shares of the Company's common stock to a prospective officer of the Company upon completion of the Transaction. The shares of stock transferred were recorded at $90,000 based upon a value of $0.42 per share, the price of the shares sold in the February 22, 1999 private placement. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $90,000. 4. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." As a result of incurred net losses, no provision for income taxes was recognized other than the state minimum taxes of $1,600. The Company's income tax expense differs from income tax benefit computed at the U.S. federal statutory tax rate, because no income tax benefits were F-13 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) recorded for its losses and certain expenses recorded for financial reporting purposes are not deductible for income tax reporting purposes. A reconciliation of the statutory federal income tax rate to the effective tax rate, as a percentage of loss before income tax is as follows:
MARCH 31, 1999 2000 ---- ---- Statutory federal income tax (benefit) rate (34)% (34)% Non-deductible expenses 23 7 Valuation allowance 11 27 ------ ------ - % - % ------ ------ The components of the Company's deferred tax assets are as follows:
MARCH 31, 1999 2000 ---- ---- Deferred tax assets Net operating loss carryforward $ 208,000 $ 768,000 Patent rights 66,000 28,000 Accrued compensation - 24,000 Valuation allowance (274,000) (820,000) --------- --------- Net deferred tax assets $ - $ - ========= =========
Due to the uncertainty surrounding the Company's ability to realize the benefits of its net operating loss carryforwards in future tax returns, the Company has recorded a valuation allowance against its otherwise recognizable deferred tax assets. At March 31, 2000, the Company had operating loss carryforwards available to reduce future federal and state income of approximately $1,919,000, which expire in 2020 for federal income tax purposes and 2008 for state income tax purposes. 5. COMMITMENTS AND CONTINGENCIES TERMINATION, SALE AND SHAREHOLDER AGREEMENT Allen D. Allen ("Allen") is the present owner of all United States patent and foreign patent rights to the technology and know-how under the product Cytolin(R) ("the "Technology"). In 1994, Allen granted CytoDyn of New Mexico, Inc. ("CytoDyn"), of which Allen owns 100% of the voting stock, an exclusive, worldwide license to use the patent rights and technology. In addition, CytoDyn obtained a trademark name for Cytolin(R). In August 1998, Allen and CytoDyn entered into a Termination, Sale and Shareholder F-14 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) Agreement ("the Purchase Agreement") with Three R Associates, Inc. ("Three R"), a corporation affiliated with the Company through its ownership by three of the Company's former directors and/or officers. Pursuant to the terms of the Purchase Agreement, CytoDyn agreed to relinquish the exclusive license to use the technology and patents previously granted to it by Allen in exchange for 4,280,387 shares of the Company's common stock. In addition, Allen agreed to sell all United States Patent rights, foreign patent rights, and all technological know-how underlying the product, Cytolin(R), to Three R in exchange for $1,350,000, payable monthly over a fifteen year period. Payments to Allen commenced and the Company assumed the obligation to Allen, as part of the Patent and Trademark License Agreement discussed below, upon completion of the Transaction. CONSULTING AGREEMENT - RESEARCH AND DEVELOPMENT In August 1998, Allen entered into a consulting agreement with Three R whereby Allen agreed to provide the Company with any new and additional similar technologies, if any, for a period of fifteen years in exchange for a consulting fee of $10,000 per year. Payments under the consulting agreement commenced subsequent to completion of the Transaction, and the Company assumed the obligation to Allen upon completion of the Transaction, as part of the License Agreement. Effective February 23, 2000, the Company can terminate the consulting agreement with one year's notice. PATENT AND TRADEMARK LICENSE AGREEMENT In October 1998, the Company entered into a Patent and Trademark License Agreement ("the License Agreement") with Three R. The Company was granted an irrevocable, exclusive, worldwide license to use all present and future patent rights, know-how and background technology of Three R relating to Cytolin(R), which Three R had previously obtained from Allen and CytoDyn. In addition, the License Agreement granted the Company a sublicense to the trademark name, Cytolin(R). The License Agreement was consummated simultaneously with the Transaction. The Company issued 21,936,981 shares of its common stock to Three R upon execution of the Agreement, and the Company also assumed Three R's obligations to pay Allen under the agreements discussed above between Three R nd Allen. Under the terms of the Purchase Agreement discussed above, the Company is obligated to pay Allen, at a minimum, $180,000 in scheduled monthly installments through February 23, 2001. The Company has the option to terminate the payments due Allen after the minimum amounts are paid. If the Company elects to terminate the payment in excess of the minimum due, it would abandon the rights acquired through the Purchase agreement. During fiscal 1999, the Company accrued research and development expenses of $166,000 in connection with the minimum payments due to Allen through February 23, 2001. The payments were discounted to their fair value of $166,000 by applying an F-15 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) imputed interest rate of 8% to future cash outflows CONDITIONAL LICENSE AGREEMENT In September 1999, Allen and CytoDyn delivered written notice to the Company that they believed that the Purchase Agreement is void and is not enforceable due to fraudulent inducement by Three R and other, unspecified reasons. Allen and CytoDyn have demanded that Three R and its owners surrender any and all stock in the Company, which was obtained pursuant to the Purchase Agreement. In February 2000, the Company entered into a Conditional License Agreement with Allen and CytoDyn which preserves the Company's rights to the Technology in the event Allen is successful in his efforts to rescind the agreements with Three R and its affiliates discussed above. In consideration for entering into the Conditional License Agreement, the Company advanced CytoDyn an additional $50,000 pursuant to the terms of a Loan Agreement which was previously entered into whereby the Company loaned CytoDyn $100,000 (See Note 6). At March 31, 2000, the note receivable of $150,000, which is collateralized by shares of the Company's stock, plus accrued interest of $6,989 was classified as a reduction of shareholders' equity. In addition, the Company has agreed to continue to pay the obligations due to Allen under the Purchase Agreement, should Allen prevail in his actions. CONSULTING AGREEMENT - PHASE I TESTING In February 2000, Allen entered into a consulting agreement with the Company whereby Allen agreed to provide the Company with consulting services in connection with the Phase I testing of Cytolin(R) for a maximum period of six months in exchange for a consulting fee of $5,000 per month. MANAGEMENT AGREEMENT In October 1998, the Company entered into a three year management agreement for $585,000 per year with Western Center for Clinical Studies, Inc. ("WCCS"), a corporation that is wholly-owned by three of the Company's former officers and directors. The agreement was scheduled to expire on February 23, 2002. The management agreement provided for services by WCCS to the Company for the purpose of assisting the Company in obtaining FDA approval to market Cytolin(R) for commercial use. In November 1999, the Company notified WCCS of its rescission of this agreement based upon the Company's belief that WCCS made certain fraudulent misrepresentations to the Company and had breached its performance under the management agreement. The Company is evaluating remedies to collect all amounts paid to WCCS in conjunction with this agreement. OFFICER EMPLOYMENT AGREEMENT During November 1999, the Company hired a new president and chief executive officer. As of March 31, 2000, the new president and chief executive officer's F-16 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) employment agreement had not been finalized. Accordingly, based on preliminary negotiations regarding the employment agreement, the Company has accrued $70,000 representing the pro rata portion of the expected compensation applicable to the year ended March 31, 2000. Additionally, the Company expects to issue stock options to the new officer, the terms of which have not been finalized. LEASE COMMITMENTS The Company's office facilities are located in Woodland Hills, California. The Company leases its facilities under a three-year non-cancelable operating lease scheduled to expire on January 31, 2002. Minimum future rental payments required over the remaining lease term are as follows: YEAR ENDED MARCH 31 TOTAL ------------------- ------------- 2001 $ 41,896 2002 33,368 ------------ $ 75,264 ============ Rent expense for the years ended March 31, 2000 and March 31,1999 are $38,620 and $3,040 respectively. 6. RELATED PARTY TRANSACTIONS During the period from inception (April 10, 1998) through March 31, 2000, the Company incurred expenses of $442,575 as a result of services performed by an affiliate, WCCS, on behalf of the Company. In fiscal 1999, the Company advanced $219,375 to WCCS to commence certain services in connection with the development of Cytolin(R) to be performed over a three year period beginning when the management agreement between the parties became effective. In November 1999, the Company notified WCCS of its rescission of this agreement and expensed the remaining prepaid management fees. The Company is evaluating remedies to collect all amounts paid to WCCS in conjunction with this agreement During the period from inception (April 10, 1998) through March 31, 2000, the Company paid consulting fees of $68,694 to Allen for providing scientific expertise regarding the development of Cytolin(R), $115,875 pursuant to the Patent and Trademark License Agreement, and $10,000 in consulting fees in connection with the Phase I Testing of Cytolin(R). As of March 31, 2000, $3,500 of such fees were included in accounts payable. During the period from inception (April 10, 1998) through March 31, 2000, the Company incurred legal expenses of $10,000 for an attorney who is also a director of the Company. F-17 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) Since inception through January 31, 1999, the Company used part of an office facility and administrative services provided by WCCS at no cost. On February 1, 1999, the Company entered into a long-term non-cancellable operating lease agreement with an unrelated party. During June 1999, the Company loaned CytoDyn $100,000 to facilitate payment by CytoDyn of certain legal and office expenses and to facilitate repayment to the Company by CytoDyn of previous advances. In February 2000, the Company loaned CytoDyn an additional $50,000 under the same terms and conditions as the original loan, as consideration for entering into the Conditional License Agreement (see Note 5). The loans bear interest at a rate of 8% per annum and are due, together with accrued interest, on or before February 23, 2001. The loans are secured by 450,000 shares of Company common stock which are owned by CytoDyn. The Company believes that these loans are fully collectible 7. STOCK OPTION PLAN In December 1998, the Company established the 1998 Omnibus Stock Incentive Plan ("the Plan") under which the Company may grant options for up to 7,133,970 shares of its common stock. Options granted under the Plan are generally exercisable for a period of ten years from the date of grant at an exercise price not less than the fair market value of the shares at the date of grant. Options granted under the Plans generally vest over a one to three year period from the date of the grant. Activity in the stock option plan during fiscal years 2000 and 1999 was as follows:
OPTIONS OUTSTANDING ------------------------------ WEIGHTED AVERAGE NUMBER OF PRICE PER SHARES SHARE ------------------------------ Balance April 10, 1998 - $ - Granted 2,432,684 0.42 Exercised - - Cancelled - - ------------------------------ Balance at March 31, 1999 2,432,684 $ 0.42 Granted 50,000 2.50 Exercised - - Cancelled (927,462) .42 ------------------------------ Balance at March 31, 2000 1,555,222 $ 0.49 ------------------------------
At March 31, 2000, 5,578,748 shares were available for future grant under the Plan. At March 31, 2000, there were 936,766 options exercisable with weighted average exercise F-18 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED) prices of $0.42. As of March 31, 1999, no options were exercisable. The weighted average remaining contractual life of outstanding options at March 31, 2000 and 1999, was 8.9 and 9.8 years, respectively. In April 1999, the Company issued 50,000 shares at an exercise price of $2.50 per share to five individuals in exchange for services on the Medical Advisory Board for a three-year period. The stock options granted were valued March 31, 2000 at $18,500, $0.37 per share, using the Black-Scholes option pricing model. During fiscal 2000, the Company recorded $6,163 in consulting expense relating to the Medical Advisory Board options granted. Compensation expense related to these options will be remeasured until such time the options are fully vested. During the third and fourth quarter of fiscal year 2000, the Company modified the expiration dates of certain vested options in connection with the separation agreements with two former officers of the Company and recorded related non-cash compensation expense of $383,794. As of March 31, 2000, the Company also had additional outstanding and exercisable options for 1,426,794 common shares and warrants to purchase 515,308 shares of the Company's common stock which are exercisable at a price of $0.42 per share. Pro forma information regarding net loss and loss per share shown below was determined as if the Company had accounted for its stock options issuances under APB No. 25 in fiscal 1999 (no such issuances in fiscal 2000) under the fair value method of SFAS 123. The pro forma compensation expense for fiscal 2000 represents current year amortization of fiscal 1999 stock option grants. The fair value of the fiscal 1999 options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 6%; dividend yields of 0%; volatility factors of the expected market price of the Company's common stock of 50%; and expected life of the options of 3.2 years. These assumptions resulted in weighted average fair values of $0.17 per share for stock options granted during the period from April 10, 1998 to March 31, 1999. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's stock options have characteristics significantly different from those of traded options such as vesting restrictions and extremely limited transferability. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the option vesting periods. The pro forma effect on net loss for the year ended March 31, 2000 is not representative of the pro forma effect on net income/(loss) in future years because the pro forma information in future years will reflect the amortization of a larger number of stock options granted in several succeeding years. The Company's pro forma information is as follows: F-19 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (CONTINUED)
YEARS ENDED MARCH 31, 1999 2000 ---- ---- Pro forma net loss ($2,232,657) ($2,120,382) Pro forma loss per share Basic and Diluted ($0.08) ($0.05)
8. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
MARCH 31, 1999 MARCH 31, 2000 -------------- -------------- Office furniture and equipment $ 26,891 $ 30,568 Leasehold improvements 3,742 4,507 ------------- ------------- 30,633 35,075 Less accumulated depreciation and amortization - 11,600 ------------- ------------- $ 30,633 $ 23,475 ============= =============
F-20 EX-10.6 2 0002.txt CONDITIONAL LICENSE AGREEMENT Exhibit 10.6 CONDITIONAL LICENSE AGREEMENT THIS CONDITIONAL LICENSE AGREEMENT ("Agreement") is made and entered into as of the 24th day of February, 2000 ("Effective Date"), by and between, on the one hand, Allen D. Allen ("Allen") and CytoDyn of New Mexico, Inc., a New Mexico corporation ("CytoDyn") (Allen and CytoDyn are individually and collectively referred to herein as "Inventor"), and, on the other hand, Amerimmune, Inc., a Colorado corporation ("Amerimmune"). RECITALS -------- A. Inventor has developed certain technology that is more specifically described on Exhibit A hereto (the "Technology") and claims rights to the trademarks CYTODYN and CYTOLIN and the goodwill associated therewith and registrations and applications for registration thereof (the "Marks"). B. Inventor has previously entered into a Termination, Sale and Shareholder Agreement dated August 1, 1998 with Three R Associates, Inc., a California corporation ("3R"), concerning the assignment to 3R of all rights of Inventor in and to the Technology and the Marks. C. Pursuant to that certain Patent and Trademark License Agreement, dated October 24, 1998 between 3R and Amerimmune (the "3R License Agreement"), Amerimmune has received a worldwide exclusive right and license in and to the Technology and the Marks from 3R. D. Inventor has represented to Amerimmune that circumstances have arisen leading Inventor to question Inventor's transfer, if any, of the Technology and the Marks to 3R. E. In the event that Inventor's transfer of rights to the Technology and the Marks to 3R was ineffective, invalid or in any manner inoperative, or in the event that rights in and to the Technology and the Marks otherwise revert to or are acquired by Inventor, Amerimmune desires to obtain from Inventor, and Inventor is willing to grant to Amerimmune, an exclusive worldwide license in and to the Technology and the Marks on the terms contained in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings for purposes of this Agreement: 1.1 ALLEN. "Allen" shall mean Allen D. Allen. 1.2 AMERIMMUNE. "Amerimmune" shall mean Amerimmune, Inc., a Colorado corporation which is a wholly owned subsidiary of API. 1.3 API. "API" shall mean Amerimmune Pharmaceuticals, Inc., a Colorado corporation. 1 1.4 CONFIDENTIAL INFORMATION. "Confidential Information" shall mean (i) the Know-How and the Trade Secrets, as defined in Exhibit A attached hereto, and (ii) all confidential information or trade secrets of, on the one hand, Amerimmune or its affiliates, including without limitation API, and, on the other hand, Inventor or its affiliates, disclosed orally, in writing or otherwise by one party to the other party, or to their respective affiliates, officers, agents or employees. In order to be included in "Confidential Information" pursuant to (ii) in the preceding sentence, the disclosing party must mark written disclosures as "Confidential" or must give written notice identifying the Confidential Information within five (5) business days after the disclosure. "Confidential Information" shall not be deemed to include information that is publicly known or that becomes publicly known through no fault of Inventor (with respect to Amerimmune's Confidential Information), or through no fault of Amerimmune (with respect to Inventor's Confidential Information). 1.5 INVENTOR. "Inventor" shall mean Allen and CytoDyn of New Mexico, Inc. a New Mexico corporation, individually and collectively. 1.6 LICENSE. "License" shall mean the license granted pursuant to Section 2.1 hereof. 1.7 LICENSE CONDITION. "License Condition" shall mean that Inventor's transfer of rights to the Technology and the Marks to 3R is held by a court or arbitrator of competent jurisdiction, or by agreement between Inventor and 3R, to have been ineffective, invalid or in any manner inoperative, or the rights in and to the Technology and the Marks otherwise revert to or are acquired by Inventor. 1.8 LICENSED PRODUCTS. "Licensed Products" shall mean all products and/or services that (i) are developed, manufactured, marketed, distributed, imported and/or sold by Amerimmune or its successors, assigns and/or sublicensees, in connection with the Marks, and/or (ii) incorporate or utilize or are manufactured using any of the Technology. 1.9 LOAN AGREEMENT. "Loan Agreement" shall mean the Amendment to Loan Documents of even date herewith between Amerimmune and Allen attached hereto as Exhibit B. 1.10 MARKS. "Marks" shall mean all worldwide rights in and to the marks CYTODYN and CYTOLIN and all goodwill appurtenant thereto and all present and future U.S. and foreign registrations and applications for registration thereof, any corporate names and trade names for terms similar to CYTODYN and CYTOLIN, and the domain name registration for CYTOLIN. 1.11 TECHNOLOGY. "Technology" shall have the meaning set forth on Exhibit A attached hereto. 1.12 TERM. "Term" shall mean the period set forth in Section 11 hereof. 1.13 3R. "3R" shall mean Three R Associates, Inc., a California corporation. 2 1.14 3R LICENSE AGREEMENT. "3R License Agreement" shall mean that certain Patent and Trademark License Agreement dated October 28, 1998 between 3R and Amerimmune. 2. LICENSE OF RIGHTS TO MARK AND TECHNOLOGY 2.1 LICENSE. In the event that the License Condition is satisfied, Inventor shall be deemed to have granted to Amerimmune, and Amerimmune shall be deemed to have accepted, an irrevocable (subject to the terms of this Agreement), exclusive, worldwide right, license and privilege (including the right to sublicense subject to the terms of this Agreement) to use the Marks and the Technology (as now owned or hereafter acquired by Inventor or Inventor's successors or assigns) during the Term in connection with the development, manufacture, use, marketing, distribution, import, offer for sale and/or sale of Licensed Products. Except as otherwise set forth herein, the foregoing license shall be exclusive even with respect to Inventor, and Amerimmune shall have the right to use such names and marks, including without limitation the Marks, in connection with labeling, packaging and advertising the Licensed Products, as Amerimmune shall determine in its sole discretion; but (i) nothing contained herein shall be construed to require CytoDyn to change its corporate name or to prevent CytoDyn from utilizing "CytoDyn" as its corporate name or as an Internet domain name, and (ii) neither Amerimmune nor Inventor shall use "cytolin" in whole or part as an active Internet domain name, but either may use the term "CYTOLIN" in articles and discussions appearing at their respective web sites. Amerimmune may use Allen's name and bibliography and biography (as permitted by law) in promoting Licensed Products, but shall take reasonable steps to ensure that any such uses preserve Allen's good reputation. 2.2 FURTHER ASSURANCES; COOPERATION. (a) NOTIFICATION. Inventor shall immediately notify Amerimmune in writing in the event of the (i) transfer or reversion of any of the Technology or Marks to, or the acquisition of any of the Technology or Marks by, Inventor or any affiliate of Inventor, or (ii) acquisition by Inventor or any affiliate of Inventor from 3R of any capital stock or any proxy (including without limitation a return of any proxy previously granted to 3R) or other right to vote the stock of API and/or Amerimmune. (b) COOPERATION. Inventor shall execute such documents and instruments as Amerimmune shall reasonably request from time to time to confirm the license herein granted, and may cause such documents or instruments to be recorded in the records of the United States Patent and Trademark Office ("PTO") and such other offices as Amerimmune shall deem appropriate. (c) DOCUMENTATION. From time to time following execution of this Agreement, Inventor shall furnish to Amerimmune all information and documents regarding the Technology and the Marks, including without limitation research and development reports and all other data relating to the Technology, as shall be reasonably requested by Amerimmune. 2.3 PATENT MARKING. Amerimmune shall mark all Licenced Products or the packaging for such Licensed Products with patent numbers in accordance with statutory requirements and prudent practice pursuant to industry standards and, pending the issue of any patents covering the Licenced Products, shall cause the term "Patent Pending" to appear on such Licensed Products or the packaging for such Licensed Products. 3 2.4 PROTECTION OF RIGHTS. (a) PROSECUTION. Amerimmune may apply for patent and trademark protection for the Technology and the Marks in the name of Inventor in all countries of the world, or Inventor shall file such applications in Inventor's name as Amerimmune shall reasonably request, all of which shall be subject to the License, using counsel of Amerimmune's choice. Inventor shall diligently prosecute and maintain or, at Amerimmune's election, shall cooperate with Amerimmune in prosecuting and maintaining all such patent and trademark applications, patents and trademark registrations, using counsel of Amerimmune's choice. Inventor shall execute all papers, documents and instruments necessary to enable Amerimmune to cause to be prepared, filed and prosecuted, such applications for letters patent and trademark registration in such countries of the world as Amerimmune shall, in its sole discretion, determine is advisable. Notwithstanding anything else contained in this Agreement, neither Amerimmune/API nor a patent or trademark attorney or agent used by Amerimmune/API pursuant to this Agreement shall have power of attorney to assign, transfer, sell or register, the patents or Marks owned by or applied for in the name of Inventor. The patent attorney used by Amerimmune pursuant to this paragraph shall possess the specialized qualifications enumerated in Exhibit F. (b) NOTICES. Throughout the Term, Inventor shall promptly notify Amerimmune in writing of all patent and trademark applications, patents, and trademark registrations with respect to any of the Marks or the Technology that are being prosecuted or maintained by Inventor, and all changes of status of any such applications or registrations, accompanied by complete and accurate copies of all documents pertaining thereto. Within a reasonable period of time before deadlines or due dates relating to any such patent and trademark applications, patents and trademark, Inventor shall provide Amerimmune with copies of all relevant documentation so that Amerimmune may be informed and apprised of the continuing prosecution and maintenance, and may provide substantive comment and input thereon. In the event that Amerimmune from time to time during the Term provides directions to Inventor in connection with prosecution and maintenance of such patent and trademark applications, patents and trademark registrations, Inventor shall comply with the directions given by Amerimmune, provided such directions are reasonable. (c) REIMBURSEMENT. Amerimmune shall directly pay or shall reimburse Inventor for all fees and costs (including but not limited to attorneys', engineering and drafting fees) that are authorized in advance by Amerimmune for preparing, filing, prosecuting and maintaining the patent and trademark applications, patents and trademark registrations covering the Technology and the Marks. Inventor shall provide Amerimmune with documentation to support these costs upon request of Amerimmune. Inventor shall provide periodic statements to Amerimmune showing the amount to be reimbursed to Inventor under the provisions of this Section 2.4(d). Payment to Inventor shall be due within thirty (30) days of the date of these statements. If Amerimmune does not reimburse Inventor or notify Inventor in writing of a good faith dispute over the amount required to be reimbursed within thirty (30) days of receipt of a statement from Inventor, Inventor shall have the right to give Written Notice pursuant to Section 11.2 hereof to terminate the License with respect to such patent or trademark application, patent, or trademark registration for which reimbursement has not been paid. 4 3. CONSIDERATION In consideration for entering into this Agreement, Amerimmune has agreed to advance an additional $50,000 to Inventor pursuant to the terms of the Loan Agreement. In addition, as consideration for the License, upon Inventor's delivery to Amerimmune of evidence satisfactory to Amerimmune that (i) the License Condition has been satisfied with respect to all of the Technology and the Marks, and that (ii) Amerimmune's obligations under the 3R License Agreement have terminated, Amerimmune agrees to continue to pay to Inventor directly the consideration provided for in Section 4(b) of the 3R License Agreement and Section 2 of Letter Agreement dated August 1, 1998 (which Section, together with the definitions for "Inventor" and "Licensee" from the 3R License Agreement and Letter Agreement, both attached hereto as Exhibit C and are herein incorporated by reference) and to take such other actions as are provided for in Exhibit D attached hereto. 4. SURRENDER OF STOCK In the event that Inventor hereafter directly or indirectly acquires, purchases (other than bona fide cash purchases of API common stock in the open market at prevailing market prices), is awarded or otherwise receives from 3R, the current stockholders of 3R, or their respective affiliates or successors in interest any shares of capital stock of API and/or Amerimmune, Inventor shall immediately for no additional consideration surrender to API and/or Amerimmune, as applicable, all such shares of capital stock of API and/or Amerimmune for return to treasury stock. 5. CONFIDENTIALITY Each of Amerimmune and Inventor shall regard and preserve the Confidential Information of the other party as secret and confidential, and shall not publish or disclose any Confidential Information in any manner without the prior written consent of the other party. Each of Amerimmune and Inventor shall use the same level of care to prevent the disclosure of the other party's Confidential Information that it exercises in protecting its own Confidential Information and shall in any event take all reasonable precautions to prevent the disclosure of Confidential Information to any third party. Except as otherwise provided herein, before disclosing Confidential Information to a third party ("Recipient"), the disclosing party shall obtain a written commitment from the Recipient to observe the confidentiality provisions of this Section 5. Each party acknowledges and agrees that, in addition to any other available rights or remedies, a disclosing party shall be entitled to specific performance, injunctive relief and any other equitable remedy for the breach or default or threatened breach or default of this Section 5 and waives any defense that a remedy at law or damages is adequate. In addition to the confidentiality provisions described above, Inventor agrees to be bound by the confidentiality provisions contained in Exhibit G attached hereto. Neither party shall publicize the terms of this Agreement without the prior written consent of the other party (except as required in connection with any legal proceeding or arbitration, as required by law, or to the extent reasonably required in connection with any merger, acquisition, reorganization, capital or financing transaction), but each party shall have the right to publicize the existence of this Agreement. Inventor shall have the right to publish the results of any studies and/or trials in connection with the Technology that confirms (as opposed to that contradicts) information or study results already in the public domain. 5 6. QUALITY CONTROL Amerimmune agrees to maintain reasonable quality standards common in the industry for the Licensed Products to be distributed or sold by Amerimmune in connection with any of the Marks or Technology, and Amerimmune agrees to manufacture or have manufactured such Licenced Products in accordance with such standards. Inventor or its designated representatives shall have the right to inspect the materials, manufacturing sites and processes employed by Amerimmune in connection with, and samples of, such Licensed Products to assure Inventor that such quality standards are being complied with. Any such inspection shall be preceded by at least two (2) full business days' advance written notice, and shall be at Inventor's sole cost and expense. 7. IMPROVEMENTS Amerimmune shall have the right to improve the Technology through its own research and development. All such improvements that do not infringe the claims of the Patents shall be the property of Amerimmune, and improvements that infringe the claims of the Patents shall be the property of Inventor, but shall be subject to the License. Amerimmune and Inventor shall each promptly notify the other of improvements to the Technology which either party shall invent, create, develop or acquire during the Term. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS 8.1 AUTHORITY. Each party represents and warrants to the other party that (i) this Agreement has been duly authorized, executed and delivered by it and that this Agreement is a binding obligation of it, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally, and to general equitable principles, and (ii) such party's performance under this Agreement will not violate any agreement with any third party or any federal, state or local law or regulation. 8.2 TITLE; VALIDITY; INFRINGEMENT. Inventor represents, warrants and covenants to Amerimmune that: (i) Inventor is the sole inventor of the inventions included in the Technology; (ii) except for rights claimed by 3R, Inventor is the sole owner of all right, title and interest in and to the Technology and the Marks; (iii) Inventor has not done or omitted any act, nor shall Inventor do or omit any act, which would impair the validity of the Technology or the Marks or any part thereof or Inventor's ability to effect the transactions contemplated by this Agreement; (iv) all of the statements, declarations and claims made in any application for letters patent included in the Technology are true and correct in all respects and Inventor knows of no prior art not disclosed in such applications; (v) except for rights claimed by 3R, Inventor has the sole right and full power to license the Technology and the Marks to Amerimmune, and no consent of any other party is necessary or appropriate to the consummation of the transactions contemplated to be performed by Inventor under this Agreement; (vi) with the exception of rights assigned by Inventor to 3R and licenses that have heretofore been terminated in accordance with their terms, Inventor has not granted, nor prior to or during the Term shall Inventor grant, any interest in or to the Technology or the Marks by way of assignment, license, encumbrance, obligation, agreement, security interest, lien, option or otherwise to any third party; (vii) 6 to the best knowledge of Inventor and its officers and directors, the Technology and the Marks, and Amerimmune's exploitation of the rights licensed thereto pursuant to this Agreement, does not and will not infringe any valid patent, trade secret, copyright, trademark or other proprietary right of any third party; and (viii) Inventor and its officers and directors are not aware of any present or potential third party infringement of the Technology or the Marks, except as set forth on Exhibit E attached hereto. 8.3 CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF AMERIMMUNE. Amerimmune represents, warrants and covenants to Inventor that: (i) Amerimmune has not done or omitted any act, nor shall Amerimmune do or omit any act, which would impair the validity of the Technology or any part thereof or Amerimmune's ability to effect the transactions contemplated by this Agreement; (ii) Amerimmune has not sublicensed any interest in or to the Technology or the Marks to any third party; and (iii) Amerimmune and its officers and directors are not aware of any present or potential third party infringement of the Technology. 8.4 ACKNOWLEDGMENT BY AMERIMMUNE. Amerimmune acknowledges that Inventor has advised Amerimmune that a license from Coulter Immunology, Inc. may be required for Amerimmune to manufacture S6F1 Antibodies. 9. INFRINGEMENT 9.1 THIRD PARTY INFRINGEMENT. If Inventor learns of facts that it concludes may constitute an infringement of any of the Technology or the Marks by any third party, Inventor shall promptly notify Amerimmune in writing, setting forth such facts and the basis for its conclusion, and shall include with such notice any other reasonably available evidence in support thereof. (a) SUBSTANTIAL INFRINGEMENTS. Amerimmune shall take appropriate action at Amerimmune's expense against "Substantial Infringements" of the Technology or the Marks (including without limitation filing a lawsuit or arbitration against such third party infringer, if necessary). For purposes hereof, a "Substantial Infringement" shall be an infringement of Technology or Marks (i) where failure by Amerimmune to take appropriate action against such infringement would result in partial or total loss or abandonment of rights to the infringed Technology and/or Marks, or (ii) if the infringement has resulted in more than a 25% reduction in sales of Licenced Products in any country after introduction into the market in such country of the infringing product. Unless Inventor agrees otherwise in writing, Amerimmune's failure to commence appropriate action against a Substantial Infringement within thirty (30) days after learning or receiving written notice of such infringement shall result in the termination of the License in such country with respect to the Marks (if one of the Marks is the subject of such Substantial Infringement) or the infringed Technology. (b) OTHER INFRINGEMENTS. Amerimmune shall have the right, but not the obligation, at Amerimmune's expense to take such action against infringements other than Substantial Infringements as Amerimmune deems appropriate. If Amerimmune declines to take action (i.e., send demand letter, file lawsuit) against an infringer within thirty (30) days of receipt of notice thereof from Inventor, Inventor shall have the right to take action against such infringer upon giving Amerimmune at least fifteen (15) days prior written notice. Amerimmune shall have the right to participate in such 7 action, at Amerimmune's expense. Inventor shall not settle any action against a third party infringer of the Technology or the Marks without Amerimmune's prior written consent, which consent shall not be unreasonably withheld. (c) RECOVERY. Amerimmune shall be entitled to any monetary award, judgment or settlement resulting from action brought or taken by Amerimmune against a third party infringer. Inventor shall be entitled to any monetary award, judgment or settlement resulting from action brought or taken by Inventor against a third party infringer. Any monetary award, judgment or settlement resulting from action brought or taken jointly by Amerimmune and Inventor shall be divided between Amerimmune and Inventor PARI PASSU based on each party's financial contribution towards such result. 9.2 NOMINAL PLAINTIFF. If any infringement action, suit or proceeding is brought hereunder by Amerimmune to enforce any rights in the Technology or the Marks, Inventor shall upon the request and at the expense of Amerimmune, cooperate with Amerimmune and be named, joined and participate therein as a nominal plaintiff. 10. INDEMNIFICATION 10.1 INVENTOR INDEMNIFICATION. Inventor shall indemnify, hold harmless and defend Amerimmune and its officers, directors, employees, representatives and agents, from and against any and all claims, demands, lawsuits, actions, proceedings, liabilities, losses, damages, fees, costs and expenses (including without limitation attorneys' fees and costs of investigation and experts) resulting from or arising out of (i) any breach by Inventor of this Agreement, including without limitation any breach of the representations, warranties and covenants of Inventor hereunder, (ii) any claim by 3R or any other party that this Agreement represents an interference with a contractual relationship or otherwise violates such party's rights, or (iii) any claim that Amerimmune's exploitation of any rights in the Technology and the Marks herein licensed infringes or violates any patent, copyright, trademark or other right of any third party unless any such infringement or violation is due to actions or inactions by Amerimmune other than by reason of Amerimmune's exercise of its rights licensed pursuant to this Agreement; but Amerimmune shall not be entitled to indemnification hereunder for infringement exclusively resulting from Amerimmune's improvements to the Technology. 10.2 AMERIMMUNE INDEMNIFICATION. Amerimmune shall indemnify, hold harmless and defend Inventor and its officers, directors, employees, representatives and agents, from and against any and all claims, demands, lawsuits, actions, proceedings, liabilities, losses, damages, fees, costs and expenses (including without limitation attorneys' fees and costs of investigation and experts) resulting from or arising out of (i) any breach by Amerimmune of this Agreement, including without limitation any breach of the representations, warranties and covenants of Amerimmune hereunder, and (ii) the use of the Licensed Products (including without limitations any product liability claims) and/or the development, manufacture, marketing, distribution and/or sale by Amerimmune of the Licensed Products (except for infringement claims covered by Section 10.1(iii) above). In addition, Amerimmune shall require any sublicensee to agree to indemnify Inventor from and against all product liability claims by persons purchasing Licensed Products from such sublicensee and/or its agents or distributors. 8 11. TERM. 11.1 TERM. The term of the License shall commence as of the later of (i) the date first above written, or (ii) the date that the License Condition is satisfied, and shall terminate (i) with respect to the Patents or any other patents covered by this Agreement, upon the expiration of the last to expire of such Patents or patents; (ii) with respect to the Know-how and Trade Secrets, and any improvements thereto, and the Marks, upon termination of this Agreement as provided in Section 11.2 below, it being the intent of the parties that, absent such termination, the license with respect to such Know-how, Trade Secrets, and any improvements thereto, and Marks shall be in perpetuity. 11.2 TERMINATION. Inventor may terminate the License for a material breach of this Agreement by Amerimmune by delivering written notice to Amerimmune setting forth that Amerimmune is in material breach of this Agreement and specific statements of such material breach or breaches (the "Written Notice"). The License will terminate (A) 30 days after the receipt of the Written Notice (i) if material breaches capable of being corrected within such 30 days have not been corrected, or (ii) for material breaches not capable of being corrected within 30 days of receipt of the Written Notice, if correction of such breach is not commenced within such 30 days and prosecuted reasonably diligently thereafter, and (B) immediately upon receipt of the Written Notice in the case of material breaches incapable of being corrected. 11.3 EFFECT OF TERMINATION. Upon termination of the License, Amerimmune shall transfer to Inventor all rights which Amerimmune may have, if any, to the Technology and the Marks, and all rights to any sublicenses which may have been granted pursuant to the terms hereof. 12. NOTICE Any notice or other communication hereunder must be given in writing and either (i) delivered in person, (ii) transmitted by telex, facsimile or telecopy mechanism provided that any notice so given is also mailed as provided herein, (iii) delivered by Federal Express or similar commercial delivery service or (iv) mailed by certified mail, postage prepaid, return receipt requested, to the party to which such notice or communication is to be given at the address set forth on the signature page of this Agreement or to such other address or to such other person as either party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telex, facsimile or telecopy mechanism, when transmitted, (ii) if given by mail, two (2) days after such communication is deposited in the mails and addressed as aforesaid, (iii) if given by Federal Express or similar commercial delivery service, one (1) business day after such communication is deposited with such service and addressed as aforesaid, and (iv) if given by any other means, when actually delivered at such address. 9 13. DISPUTE RESOLUTION BY REFEREE Amerimmune and Inventor agree to waive the right to a jury trial and to submit any disagreement or controversy arising under or relating to this Agreement or the subject matter hereof for resolution by a trial on Order of Reference. Such trial shall be conducted by a retired judge or justice having expertise in commercial disputes and who is acceptable to both parties. The retired judge or justice shall be appointed pursuant to the provisions of California Code of Civil Procedure Section 638(1) or any amendment, addition or successor section thereto. If the parties are unable to agree upon a retired judge or justice panel to act as referee, then upon petition by either party to the presiding judge of the Superior Court of the State of California for the County of Los Angeles, Central District (or such other judge as the presiding judge may designate for such purpose), such judge shall in his or her sole discretion select one retired judge or justice who shall serve as the referee. Such referee shall hear the dispute or controversy until the final determination thereof pursuant to Article VI, Section 21 of the California Constitution, Section 638 ET SEQ. of the California Code of Civil Procedure, and Rule 244.1(a) of the California Rules of Court. The referee shall conduct such reference proceeding, including making orders relating to discovery to take place in connection therewith, so that the period of time from such referee's appointment until the reference proceeding is concluded is not longer than six (6) months (such period is directory only, and a failure to conclude such proceeding within such period shall not result in a loss of jurisdiction by the referee). The referee's award shall be in writing, and shall include a statement of decision, in accordance with Section 632 of the California Code of Civil Procedure. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference as may be specified in advance by the referee. The parties shall share equally, by paying their proportionate amount, the fees and costs of the reference. The parties intend this general reference agreement to be specifically enforceable. 14. GOVERNING LAW This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of California, except where such are governed exclusively by federal law. 15. RELATIONSHIP OF PARTIES Each party shall conduct all business in its own name as an independent contractor. No joint venture, partnership, employment, agency or similar arrangement is created between the parties. Neither party has the right or power to act for or on behalf of the other or to bind the other in any respect, to pledge its credit, to accept any service of process upon it, or to receive any notices of any nature whatsoever on its behalf. 10 16. SEVERABILITY If any provision of this Agreement is determined to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction then, to that extent and within the jurisdiction in which it is illegal, invalid or unenforceable, it shall be limited, construed or severed and deleted from this Agreement, and the remaining extent and/or remaining portions hereof shall survive, remain in full force and effect and continue to be binding and shall not be affected except insofar as may be necessary to make sense hereof, and shall be interpreted to give effect to the intention of the parties insofar as that is possible. 17. BREACH; REMEDIES In the event of a breach of this Agreement, the non-breaching party shall be entitled to exercise any right or remedy available to it hereunder, at law or in equity, including without limitation specific enforcement of the terms hereof. The exercise of any right or remedy available to a party shall not preclude the concurrent or subsequent exercise by it of any other right or remedy and all rights and remedies shall be cumulative. 18. ENTIRE AGREEMENT This Agreement (including Exhibits A-G attached hereto which are herein incorporated by this reference) contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous negotiations, agreements, arrangements and understandings with respect to the subject matter hereof. 19. INTERPRETATION The normal rule of construction that an agreement shall be interpreted against the drafting party shall not apply. In this Agreement, whenever the context so requires, the masculine, feminine or neuter gender, and the singular or plural number or tense, shall include the others. 20. AMENDMENT AND WAIVER Neither this Agreement nor any of its provisions may be amended, changed, modified or waived except in a writing duly executed by an authorized officer of the party to be bound thereby. 21. SUCCESSORS AND ASSIGNS This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective legal representatives, successors and assigns. 11 22. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and such counterparts together shall constitute one agreement. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written. Amerimmune, Inc. ___________________________________ 21550 Oxnard Street, Suite 830 Allen D. Allen Woodland Hills, California 91367 4236 Longridge Avenue #302 Facsimile: (310) 768-2026 Studio City, California 91604 Facsimile:_________________________ By:_____________________________ Name:___________________________ CytoDyn of New Mexico, Inc. Title:__________________________ ____________________________________ ____________________________________ Facsimile:__________________________ Consent of spouse of Allen D. Allen --------------------------------- The undersigned, who is the wife of Allen D. Allen, consents to the By:_________________________________ terms of the foregoing Agreement. Name:_______________________________ Title:______________________________ _________________________________ EXHIBIT A TECHNOLOGY "Technology" shall mean the Patents, Patent Rights, Know-how, Products and Trade Secrets, as such terms are hereafter defined, existing upon commencement of the Term (as such term is defined in the Agreement), together with any improvements to any of the foregoing invented, created, developed or acquired by Inventor during the Term. The "Patents" shall mean all right, title and interest in the inventions, processes and improvements described and claimed in United States Patent No. 5,424,066 entitled METHOD FOR INCREASING CD4+ CELL NUMBERS THROUGH THE USE OF MONOCLONAL ANTIBODIES DIRECTED AGAINST SELF-REACTIVE, CD4 SPECIFIC CYTOTOXIC T-CELLS issued June 13, 1995 and United States Patent No. 5,651,970 entitled METHOD FOR INHIBITING DISEASE ASSOCIATED WITH THE HUMAN IMMUNODEFICIENCY VIRUS THROUGH THE USE OF MONOCLONAL ANTIBODIES DIRECTED AGAINST ANTI-SELF CYTOTOXIC T-LYMPHOCYTES OR THEIR LYTICS, issued July 29, 1997. The "Patent Rights" shall mean foreign patent applications corresponding to the Patents, together with any U.S. or foreign continuations, divisional or continuation-in-part applications and all other applications relating in any way to the subject matter described in the Patents and any letters patent related thereto as well as any reissue and/or re-examined patents issuing thereon, and shall include without limitation pending U.S. patent application nos. 08/940,227 (METHOD FOR TREATING DISEASE INCLUDING MOLLUSCUM CONTAGIOSUM ASSOCIATED WITH THE HUMAN IMMUNODEFICIENCY VIRUS THROUGH THE USE OF MONOCLONAL ANTIBODIES) and 08/940,228 (TREATMENT OF HIV INFECTION (sic) BY INFUSING A DOSE OF SELECTED MONOCLONAL ANTIBODIES THAT INHIBIT PRODUCTION OF LYMPHOCYTE- ASSOCIATED MOLECULE (sic) 1 (LFA-1) ON CD8 CELLS). "Know-How" shall mean all know-how, intellectual property, technical expertise, inventions, information, improvements, computer programs, algorithms, data, discoveries, ideas, and concepts, whether or not patentable or copyrightable, including but not limited to medical, clinical, chemical, pharmaceutical, pharmacological, topological, toxicological or other scientific data (including without limitation preclinical and clinical data, notes, reports, models and samples), unique methods, processes, techniques, designs, formulae, configurations of any kind, computer graphics, apparatus, products, devices, software, specifications, drawings and all testing, assaying and analysis methodologies in any manner pertaining or relating to, resulting from or useful in connection with the Patents or Patent Rights. "Products" shall mean all products that embody or make use of all or any part of the Patents or Patent Rights or Know-how. "Trade Secrets" shall mean all documents and information in any form that have been originated by, are peculiarly within the knowledge of or are proprietary to Inventor in whole or in part, and are subject to protection under recognized legal principles as trade secrets or otherwise pertaining or relating to, resulting from or useful in connection with the design, manufacture, installation, sales, marketing, administration, use, repair or operation of products, processes or services pertaining or relating to, resulting from or useful in connection with the Patents or Patent Rights or Know-how or Products. EXHIBIT B LOAN AGREEMENT See attached form of Amendment to Loan Documents. EXHIBIT C 3R LICENSE AGREEMENT See attached form of 3R License Agreement EXHIBIT D ADDITIONAL COVENANTS OF AMERIMMUNE 1. As promptly as reasonably possible following satisfaction of the License Condition, Amerimmune shall: (i) pay to Inventor any payments owed to Inventor by Amerimmune under the terms of any Agreements existing as of the Effective Date between (A) Amerimmune and Inventor or (B) Amerimmune and 3R, that have been refused by Inventor, but in no event shall the foregoing be interpreted to require Amerimmune to make any double payment of any amount owed by Amerimmune; and (ii) use commercially reasonable efforts (which shall include, without limitation, filing either an arbitration or a lawsuit to the extent that a claim can be made in good faith) to cancel the shares of stock of Amerimmune and/or API owned by 3R, its shareholders, principals, officers, directors or affiliates. 2. If Inventor acquires shares of stock of Amerimmune and/or API from 3R or its shareholders, principals, officers, directors or affiliates, and delivers such shares to Amerimmune pursuant to Section 4 of the Agreement, Amerimmune shall pay to Inventor the amount of the incremental cost and expense incurred in acquiring such shares from 3R promptly after Inventor delivers to Amerimmune evidence reasonably satisfactory to Amerimmune of the amount of Inventor's incremental cost and expense. If, in an action or arbitration brought by Inventor to satisfy the License Condition, shares of stock of API owned by Inventor are ordered to be and are canceled, then, as additional consideration for the License, API shall issue to Inventor a number of shares of the same class of stock of API equal to the number of shares so canceled. 3. If the License Condition is satisfied, Amerimmune agrees not to file an action or arbitration against Inventor seeking return or cancellation of the shares of stock of Amerimmune and/or API owned by Inventor as of the Effective Date based on a claim of failure or lack of consideration for such shares. 4. If the License Condition is satisfied, Amerimmune agrees not to employ or enter into any consulting contract with 3R and/or any persons or entities who as of the Effective Date are shareholders, principals, officers, directors or affiliates of 3R. EXHIBIT E EXCEPTIONS TO SECTION 8.2(viii) Known to us as of February 13, 2000: Abbott Laboratories of Abbott Park, Ill., a major pharmaceutical company, has registered the Internet domain name CYTOLIN.COM, according to information we received from Dr. Strickland the evening of 2/13/00. It is not clear why they did so since our trademark would presumably preclude them from using that trade name on a product. It is not clear whether this registration would be an infringement as opposed to an unfair business practice since the Marks are protected as a description of products. Of course, if they don't use the domain name actively, then there is no damage being as how we have both agreed not to use it. A company in Florida incorporated under the name Cytodyne Technologies and has been advertising a nutraceutical weight loss product. This has caused confusion in that doctors have asked us if we have entered that field. Mr. McCann sent a cease and desist letter on behalf of Amerimmune with no apparent effect. Mr. Judson had gone so far as to prepare a complaint but that was sabotaged by Roy Azarnoff. EXHIBIT F 1. SPECIAL QUALIFICATIONS FOR A PATENT ATTORNEY USED TO PROSECUTE OR DEFEND ALLEN'S PATENTS. (a) Should have successfully prosecuted at least one patent on a treatment method, preferably more. (b) Should have successfully prosecuted at least one patent, preferably more, where novelty is a challenge due to the fact that the invention arises from a better understanding of information in the prior art and not from new information. (c) After conferring with Mr. Allen should understand the distinction between an infection, an infectious disease in the sense of Koch, and a noninfectious disease with an infectious agent, as may be necessary to argue for novelty. (d) After conferring with Mr. Allen should understand how the laws of nature can be used predictively by scientists, as may be necessary to argue for utility. (e) Should be able and willing to advise Amerimmune of how public or discoverable statements made by Amerimmune, or unchallenged public statements made by others, that incorrectly characterize the Technology could lay a foundation for a challenge to any patent licensed under this Agreement, including but without limitation, by estoppel. 2. SPECIAL QUALIFICATIONS FOR A PATENT ATTORNEY USED TO ENFORCE AND PREVENT INFRINGEMENTS AGAINST ALLEN'S PATENTS. Should have extensive knowledge of the statutory and case law on contributory infringement, the staple exception, and the reasons why a pharmaceutical product cannot be a staple. 3. ACKNOWLEDGMENT. Inventor acknowledges and agrees that Rod S. Berman, Esq. and David J. Meyer, Esq., of Jeffer Mangels Butler & Marmaro LLP satisfy all of the qualifications set forth in this Exhibit F. EXHIBIT G PRIOR CONFIDENTIAL INFORMATION The term "Prior Confidential Information" refers to all data, reports, drawings, tapes, formulae, interpretations, records, trade secrets, documents, information regarding products, processes, research and development, apparatus and application methods that are not and have not been openly communicated or made accessible by Amerimmune or 3R to third parties and that Inventor obtains or obtained from Amerimmune, 3R, their employees, subsidiaries and affiliates, or that Inventor otherwise acquired from Amerimmune or 3R, including information of a third party as to which Amerimmune has a nondisclosure obligation, and including all Consultant Innovations (as defined below). Additionally, Prior Confidential Information shall include any and all reports to 3R made by Allen in the course of performance of that certain Consulting Agreement dated August 1, 1998 between Allen and 3R (the "3R Consulting Agreement"), and the contents thereof and any and all information developed, created, transcribed or generated in any form in performance thereof. "Consultant Innovations" includes, but is not limited to, all intellectual property, technical innovations, inventions, discoveries, ideas, concepts, know-how, technical expertise, formulae, information, data, unique methods, improvements, new and useful art, computer programs, processes of which any computer program constitutes a part, configuration of any kind, algorithm, processes, techniques, designs, devices, software, specifications and medical, clinical, chemical, pharmaceutical, pharmacological, topological, toxicological or other scientific data (including without limitation preclinical and clinical data, notes, reports, models and samples), in any manner pertinent or related to, resulting from or useful in or to the Technology and all products that embody or make use of all or any part of the Technology that were or are conceived (whether or not reduced to practice) or first reduced to practice by Inventor whether solely or jointly with others, during the term of the 3R Consulting Agreement or as a result of knowledge acquired while performing services thereunder, whether patentable or copyrightable or not. Notwithstanding the foregoing, Consultant Innovations shall not include inventions, any intellectual property, technical innovations, discoveries, ideas, concepts, know-how, technical expertise, formulae, information, data, unique methods, improvements, new and useful art, computer programs, processes of which any computer program constitutes a part, configuration of any kind, algorithm, processes, techniques, designs, devices, software, specifications or other scientific data in the field of biotechnology that are in no manner pertinent or related to, or resulting from or useful in the Technology or medical or pharmaceutical purposes and, without limitation, shall not include anything whatsoever related to the fields of physics or music. Inventor: * shall hold the Prior Confidential Information in confidence; * shall take or cause to be taken all reasonable precautions to prevent the disclosure or communication of Prior Confidential Information to third parties; * agrees that each reproduction, duplication, or copy of any portion of Prior Confidential Information shall be deemed Prior Confidential Information for all purposes hereunder. Amerimmune agrees Inventor may publish papers in peer review, scientific and technical journals; provided that Inventor agrees (i) no such paper will include Prior Confidential Information, (ii) Inventor will deliver a final copy of the proposed paper to Amerimmune for its approval no less than 30 days prior to the date he plans to deliver the paper to the journal publisher, (iii) if Amerimmune advises Inventor that in its reasonable judgment the paper contains, or could lead to the discovery of, Prior Confidential Information, Inventor will delete such Confidential Information or the means of discovering such Information, (iv) if Inventor or the journal publisher propose to make any change to the paper previously submitted to Amerimmune, such proposed change will be submitted to Amerimmune for its approval before it is made and not less than 5 business days prior to the paper being released to the printer for final printing, and (v) Inventor will only permit a paper approved by Amerimmune to be published. Amerimmune agrees that should it publish any articles describing the contributions of Allen under this Agreement, it will acknowledge Allen's contribution to such results. EX-27 3 0003.txt FINANCIAL DATA SCHEDULE FOR MARCH 31, 2000
5 This schedule contains summary information extracted from the registrant's Form 10-KSB for the Fiscal Year ended March 31, 2000 and is qualified in its entirety to such form. YEAR MAR-31-2000 APR-01-1999 MAR-31-2000 522,649 618,360 0 0 0 1,178,935 35,075 11,600 1,205,450 225,139 0 0 0 2,152,143 2,933,277 1,205,450 0 0 0 0 1,912,260 0 8,592 (1,920,852) 1,600 (1,922,452) 0 0 0 (1,922,452) (0.04) (0.04)
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