U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________.
Commission file number 0-27282
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ATLANTIC TECHNOLOGY VENTURES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Fifth Avenue, Suite 5507, New York, New York 10118
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(Address of principal executive offices)
(212) 267-2503
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(Issuer's telephone number)
150 Broadway, Suite 1110, New York, New York 10038
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
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Number of shares of common stock outstanding as of May 1, 2001: 6,531,447
Transitional Small Business Disclosure Format (check one): Yes No X
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1
INDEX
Page
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 2001 (unaudited) and December 31, 2000 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2001 and 2000,
and the period from July 13, 1993 (inception) to March 31, 2001 4
Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2001 and 2000, and the
period from July 13, 1993 (inception) to March 31, 2001 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
PART II-- OTHER INFORMATION
Item 1. Legal Matters 14
Item 2. Changes in Securities 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES
EXHIBIT INDEX
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
March 31, December 31,
2001 2000
---------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 2,581,497 2,663,583
Accounts receivable -- 192,997
Prepaid expenses 29,320 22,599
----------------- --------------
Total current assets 2,610,817 2,879,179
Property and equipment, net 259,256 227,088
Investment in affiliate 63,623 67,344
Other assets 22,838 2,901
---------------- --------------
Total assets $ 2,956,534 3,176,512
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 779,246 785,838
Deferred revenue -- 1,294,615
----------------- ---------------
Total current liabilities $ 779,246 2,080,453
----------------- ---------------
Redeemable Series B preferred stock.
Authorized 1,647,312 shares; 0 and 206,898 shares issued and
outstanding at March 31, 2001 and December 31, 2000 respectively -- 600,000
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value.
Authorized 1,375,000 shares; 351,588 and 359,711 shares issued and outstanding
at March 31, 2001 and December 31, 2000, respectively (liquidation
preference aggregating $4,570,644 and $4,676,243 at
March 31, 2001 and December 31, 2000, respectively) 351 360
Convertible preferred stock warrants, 112,896
issued and outstanding at March 31, 2001 and December 31, 2000 520,263 520,263
Common stock, $.001 par value. Authorized 50,000,000
shares: 6,458,424 and 6,122,135 issued and outstanding at
March 31, 2001 and December 31, 2000 6,458 6,122
Common stock subscribed. 182 shares at March 31, 2001 and December 31, 2000 -- --
Additional paid-in capital 24,957,317 24,796,190
Deficit accumulated during development stage (23,306,559) (24,826,334)
---------------- --------------
2,177,830 496,601
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
---------------- --------------
Total stockholders' equity 2,177,288 496,059
---------------- --------------
Total liabilities and stockholders' equity $ 2,956,534 3,176,512
================ ==============
See accompanying notes to consolidated financial statements.
3
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
Three months ended March 31, (inception) to
-------------------------------- March 31,
2001 2000 2001
--------------- ------------------ ----------------
Revenues:
Development revenue $ 2,461,922 912,481 8,713,720
License revenue -- -- 2,500,000
Grant revenue 250,000 13,009 616,659
--------------- ------------------ ----------------
Total revenues 2,711,922 925,490 11,830,379
--------------- ------------------ ----------------
Costs and expenses:
Cost of development revenue 2,082,568 729,985 7,084,006
Research and development 306,767 127,439 9,811,677
Acquired in-process research and
development -- -- 2,653,382
General and administrative 681,948 495,678 16,585,174
Compensation expense relating to
stock warrants (general and administrative) 11,971 990,820 1,032,836
License fees -- -- 173,500
--------------- ------------------ ----------------
Total operating expenses 3,083,254 2,343,922 37,340,575
--------------- ------------------ ----------------
(25,510,196)
Operating loss (371,332) (1,418,432)
Other (income) expense:
Interest and other income (20,018) (40,190) (1,271,154)
Interest expense -- -- 625,575
Equity in (earnings) loss of affiliate 3,721 -- 82,995
Gain on sale of Optex assets (2,809,451) -- (2,809,451)
Distribution to Optex minority shareholders 767,514 -- 767,514
--------------- ------------------ ----------------
Total other (income) expense (2,058,234) (40,190) (2,604,521)
--------------- ------------------ ----------------
Net income (loss) $ 1,686,902 (1,378,242) (22,905,675)
=============== ================== ================
5,931,555
Imputed convertible preferred stock
dividend 600,000 --
Dividend paid upon repurchase of Series B 167,127 -- 400,884
Preferred stock dividend issued in
preferred shares 64,144 659,319 1,347,207
--------------- ------------------ ----------------
Net income (loss) applicable to common shares $ 855,631 (2,037,561) (30,585,321)
=============== ================== ================
Net income (loss) applicable to common shares per share:
Basic $ 0.13 (0.41)
=============== ==================
Diluted $ 0.10 (0.41)
=============== ==================
Weighted average shares of common stock outstanding:
Basic 6,384,613 4,968,921
=============== ==================
Diluted 8,237,212 4,968,921
=============== ==================
See accompanying notes to consolidated financial statements
4
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
Cumulative
period from
July 13, 1993
Three months ended March 31, (inception) to
------------------------------- March 31,
2001 2000 2001
-------------- -------------- ------------------
Cash flows from operating activities:
Net income (loss) $1,686,902 (1,378,242) (22,905,675)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Acquired in-process research and development -- -- 1,800,000
Expense relating to issuance of warrants -- -- 298,202
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate 3,721 -- 82,995
Compensation expense relating to stock options and
warrants 11,971 990,820 1,240,881
Discount on notes payable - bridge financing -- -- 300,000
Depreciation 26,943 15,757 533,448
Gain on sale of Optex assets (2,809,451) -- (2,809,451)
Distribution to Optex minority shareholders 767,514 -- 767,514
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
Decrease in accounts receivable 192,997 17,927 --
Increase in prepaid expenses (6,721) (20,185) (29,320)
Decrease in deferred revenue (1,294,615) -- --
Increase (decrease) in accrued expenses (169,592) (46,815) 616,246
Increase in accrued interest -- -- 172,305
Increase in other assets (19,937) (2,901) (22,838)
-------------- -------------- ------------------
Net cash used in operating activities (1,610,268) (423,639) (19,142,454)
-------------- -------------- ------------------
Cash flows from investing activities:
Purchase of furniture and equipment (86,660) (6,116) (899,741)
Investment in affiliate -- (250,000) (146,618)
Proceeds from sale of Optex assets 3,000,000 -- 3,000,000
Proceeds from sale of furniture and equipment -- -- 6,100
-------------- -------------- ------------------
Net cash provided by (used in) investing
activities 2,913,340 (256,116) 1,959,741
-------------- -------------- ------------------
Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options -- 321,039 397,098
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable - bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid (577) -- (895)
Proceeds from the issuance of common stock -- -- 7,547,548
Proceeds from issuance of convertible preferred stock -- -- 11,441,672
Repurchase of convertible preferred stock (617,067) -- (1,128,875)
Distribution to Optex minority shareholders (767,514) -- (767,514)
-------------- -------------- ------------------
Net cash provided by (used in) financing
activities (1,385,158) 321,039 19,764,210
-------------- -------------- ------------------
Net increase (decrease) in cash and cash
equivalents (82,086) (358,716) 2,581,497
Cash and cash equivalents at beginning of period 2,663,583 3,473,321 --
-------------- -------------- ------------------
Cash and cash equivalents at end of period $2,581,497 3,114,605 2,581,497
============== ============== ==================
Supplemental disclosure of non-cash financing activities:
Issuance of common stock in exchange for common stock
subscriptions $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants -- -- 49,880
Conversion of preferred to common stock 336 289 2,762
Preferred stock dividend issued in shares 64,144 659,324 1,190,024
============== ============== ==================
See accompanying notes to consolidated financial statements.
5
ATLANTIC TECHNOLOGY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, the
financial statements do not include all information and footnotes required by
Generally Accepted Accounting Principles for complete financial statements. In
the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31, 2001
or for any subsequent period. These consolidated financial statements should be
read in conjunction with Atlantic Technology Ventures, Inc., and
Subsidiaries'("Atlantic") Annual Report on Form 10-KSB as of and for the year
ended December 31, 2000.
(2) LIQUIDITY
Atlantic anticipates that their current liquid resources will
be sufficient to finance their currently anticipated needs for operating and
capital expenditures for at least the next twelve months. In addition, Atlantic
will attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances and equity and debt financing.
However, Atlantic can give no assurance that they will be able to obtain
additional capital through these sources or upon terms acceptable to them.
On March 16, 2001, Atlantic entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC pursuant to which Fusion
Capital agreed to purchase up to $6.0 million of our common stock which will
commence upon effective registration and certain other conditions. A material
contingency that may affect Atlantic's operating plans and ability to raise
funds is its stock price. If its stock price remains at current levels, Atlantic
will be limited in the amount of funds it will be able to draw as defined by the
Fusion Capital agreement. As the Fusion Capital agreement is currently
structured, Atlantic does not have a guarantee that it will be able to draw any
funds. See note 11 below and see liquidity discussion within Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(3) COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated by
dividing net income (loss) applicable to common shares by the weighted average
number of common shares outstanding for the period. Diluted net income (loss)
per common share is calculated by dividing net income (loss) applicable to
common shares plus the impact of the assumed preferred stock conversions
totaling $231,271, by the weighted average common shares outstanding for the
period plus 1,888,599 common stock equivalents from assumed conversions of the
Series A and Series B preferred stock if dilutive. The common stock equivalents
from stock options, stock warrants, and stock subscriptions have not been
included in the diluted calculations as their effect is anti-dilutive.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2001, Atlantic adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
SFAS No. 133" and SFAS No. 133, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities". SFAS No. 138 amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. SFAS No. 133 requires a company to recognize all
derivative instruments as assets and liabilities in its balance sheet and
measure them at fair value. The adoption of these statements did not have a
material impact on Atlantic's consolidated financial position, results of
operations or cash flows, as Atlantic is currently not party to any derivative
instruments.
6
(5) INCOME TAXES
Atlantic generated book income solely in the quarter ended
March 31, 2001 as a result of the sale of Optex assets to Bausch & Lomb as
described further in note 10. However, Atlantic does not expect to generated
book income for the year ended December 31, 2001; therefore, no income taxes
have been reflected for the three months ended March 31, 2001.
(6) PREFERRED STOCK DIVIDEND
On January 16, 2001, Atlantic's board of directors declared a
payment-in-kind dividend of 0.065 of a share of Series A convertible preferred
stock ("Series A Preferred") for each share of Series A Preferred held as of the
record date of February 7, 2001. The estimated fair value of this dividend of
$64,144 was included in Atlantic's calculation of net income (loss) per common
share for the three months ended March 31, 2001. The equivalent dividend for the
three months ended March 31, 2000 had an estimated fair value of $659,319 and is
recorded in the same manner.
(7) ISSUANCE OF STOCK WARRANTS
As more fully described in Note 9 to Atlantic's Annual Report
on Form 10-KSB as of and for the year ended December 31, 2000, on January 4,
2000, Atlantic entered into a Financial Advisory and Consulting Agreement with
Joseph Stevens & Company, Inc. pursuant to which Atlantic issued to Joseph
Stevens & Company, Inc. three warrants to purchase an aggregate of 450,000
shares of its common stock. Atlantic recorded compensation expense relating to
these stock warrants in the amount of $990,820 for the three month period ended
March 31, 2000. No such compensation is required subsequent to December 31,
2000.
On March 8, 2001, Atlantic entered into an agreement with The
Investor Relations Group, Inc. (IRG) under which IRG will provide Atlantic
investor relations services pursuant to which Atlantic issued to Dian Griesel
warrants to purchase 120,000 shares of its common stock at an exercise price of
$0.875 per share. These warrants will vest in 5,000 share monthly increments
over a 24 month period. In addition, should Atlantic's stock price reach $2.50,
Atlantic will grant Dian Griesel an additional 50,000 warrants. Should
Atlantic's stock price reach $5.00, Atlantic will grant Dian Griesel a further
50,000 warrants. As a result, Atlantic recorded compensation expense relating to
these stock warrants of $11,971 pursuant to EITF Issue No. 96-18 for the three
month period ended March 31, 2001 and will remeasure the compensation expense at
the end of each reporting period until the final measurement date is reached in
24 months.
Compensation for these warrants relates to investment banking
and investor relations services and represents a general and administrative
expense.
(8) REDEEMABLE SERIES B PREFERRED SHARES
On September 28, 2000, pursuant to a Convertible Preferred
Stock and Warrants Purchase Agreement (the Purchase Agreement) Atlantic issued
to BH Capital Investments, L.P. and Excalibur Limited Partnership (together, the
Investors) for a purchase price of $2,000,000, 689,656 shares of Atlantic's
Series B convertible preferred stock (Series B Preferred) and warrants to
purchase 134,000 shares of Atlantic's common stock. Half of the shares of the
Series B Preferred (344,828 shares) and warrants to purchase half of the shares
of common stock (67,000 shares) were held in escrow, along with half of the
purchase price.
On December 4, 2000, Atlantic and the Investors entered into a
stock repurchase agreement (the Stock Repurchase Agreement) pursuant to which
Atlantic repurchased from the investors a portion of the outstanding shares.
Pursuant to Atlantic's renegotiations with the Investors,
Atlantic was required, among other things, to redeem on March 28, 2002, all
outstanding shares of Series B Preferred for (A) 125% of the original issue
price per share or (B) the market price of the shares of common stock into which
they are convertible, whichever is greater (the Redemption Price). Atlantic
would have been able to at any time redeem all outstanding shares of Series B
Preferred at the Redemption Price. As a result of the renegotiations discussed
in this paragraph, the Series B Preferred was considered redeemable and the
remaining outstanding shares at December 31, 2000 were classified
7
outside of permanent equity in the accompanying consolidated balance sheet. At
December 31, 2000, Atlantic had 206,898 shares outstanding at a carrying amount
of $2.90 per share.
Holders of shares of Atlantic's outstanding Series B Preferred
could convert each share into shares of common stock without paying Atlantic any
cash. The conversion price per share of the Series B Preferred was also amended
by the second amendment to the Purchase Agreement. The conversion price per
share of Series B Preferred on any given day is the lower of (1) $1.00 or (2)
90% of the average of the two lowest closing bid prices on the principal market
of the common stock out of the fifteen trading days immediately prior to
conversion. The change in conversion price upon the renegotiations on January 9,
2001 resulted in a difference between the conversion price of the Series B
Preferred and the market price of the common stock on the effective date of the
renegotiation. This amount, estimated at $600,000, was recorded as an imputed
preferred stock dividend within equity and is deducted from net income (loss) to
arrive at net income (loss) applicable to common shares during the first quarter
of 2001.
On January 19, 2001, 41,380 shares of Series B Preferred were
converted by the Investors into 236,422 shares of Atlantic's common stock. On
March 9, 2001, Atlantic and the Investors entered into Stock Repurchase
Agreement No. 2, pursuant to which Atlantic repurchased from the Investors, for
an aggregate purchase price of $617,067, all 165,518 shares of Atlantic's Series
B Preferred held by the Investors on March 9, 2001. The carrying amount of the
165,518 shares is equal to $480,000; therefore the amount in excess of the
carrying amount, which equals $167,127, was recorded as a dividend upon
repurchase of Series B Preferred shares and is deducted from net income (loss)
to arrive at net income (loss) applicable to common shares.
(9) DEVELOPMENT REVENUE
In accordance with an amended license and development
agreement, which was subsequently terminated as described below in note 10,
Bausch & Lomb Surgical reimbursed Atlantic's subsidiary, Optex Ophthalmologics,
Inc. ("Optex"), for costs Optex incurred in developing its Catarex(TM)
technology, plus a profit component. For the three months ended March 31, 2001,
this agreement provided $2,461,922 of development revenue, and related cost of
development revenue of $2,082,568. For the three months ended March 31, 2000,
this agreement provided $912,481 of development revenue, and related cost of
development revenue of $729,985. The agreement was terminated in March 2001 (see
note 10 below).
(10) SALE OF OPTEX ASSETS
Pursuant to an asset purchase agreement dated January 31,
2001, among Bausch & Lomb, a Bausch & Lomb affiliate, Atlantic, and Optex, on
March 2, 2001, Optex sold to Bausch & Lomb substantially all of its assets
(mostly intangible assets with no book value), including all those related to
the Catarex technology. The purchase price was $3 million paid at closing
(approximately $564,000 of which was distributed to Optex's minority
shareholders). In addition, Optex is entitled to receive additional
consideration, namely $1 million, once Bausch & Lomb receives regulatory
approval to market the Catarex device in Japan, royalties on net sales on the
terms stated in the original development agreement dated May 14, 1998, between
Bausch & Lomb and Optex, as amended, and minimum royalties of $90,000, $350,000,
and $750,000 for the first, second, and third years, respectively, starting on
first commercial use of the Catarex device or January 1, 2004, whichever is
earlier. Optex also has the option to repurchase the acquired assets from Bausch
& Lomb if it ceases developing the Catarex technology.
Upon the sale of Optex assets, Bausch & Lomb's development
agreement with Optex was terminated and Optex has no further involvement with
Bausch & Lomb. As a result of this transaction, Atlantic recorded a gain on the
sale of Optex assets of $2,809,451. The purchase price of $3,000,000 is
nonrefundable and upon the closing of the asset purchase agreement in March
2001, Optex has no further obligation to Bausch & Lomb or with regard to the
assets sold. Upon the closing of the asset purchase agreement, Optex agreed to
forgo future contingent payments in exchange for the receipt of a one-time $3
million payment and the same potential for future royalties. Pursuant to
Atlantic's agreement with the minority shareholders of Optex, Optex made a
profit distribution in March 2001 of $767,514 representing the minority
shareholders' percentage of the cumulative profit from the Bausch & Lomb
development and asset purchase agreements up to and including proceeds from the
sale of Optex' assets. (This figure includes the $564,000 referred to above.)
Three former employees of Optex have made claims of $240,000 in aggregate
pursuant to their employment agreements for severance in connection with the
sale of Optex. The Company does not believe the terms or intention of the
parties pursuant to the transaction constituted
8
an event of termination of employment as defined in the employment agreements
requiring the payment of severance and has therefore, not accrued any estimated
liability as of March 31, 2001.
(11) PRIVATE PLACEMENT OF COMMON SHARES
On March 16, 2001, Atlantic entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC pursuant to which Fusion Capital
agreed to purchase up to $6.0 million of our common stock over a 30-month
period, subject to a 6-month extension or earlier termination at our discretion.
The receipt of funds under this agreement will commence upon effective
registration, which Atlantic expects in June 2001, and certain other conditions
being satisfied. The selling price of the shares will be equal to the lesser of
(1) $20.00 or (2) a price based upon the future market price of the common
stock, without any fixed discount to the market price. A material contingency
that may affect Atlantic's operating plans and ability to raise funds is its
stock price. If its stock price remains at current levels, Atlantic will be
limited in the amount of funds it will be able to draw as defined by the Fusion
Capital agreement. As the Fusion Capital agreement is currently structured,
Atlantic does not have a guarantee that it will be able to draw any funds.
Atlantic paid a finder's fee of $120,000 in relation to this agreement in April
2001 which is included in general and administrative expense for the three month
period ended March 31, 2001. Atlantic amended its agreement with Fusion on March
16, 2001, to allow Atlantic to draw funds pursuant to the agreement regardless
of its listing status on the Nasdaq SmallCap Market.
(12) SUBSEQUENT EVENTS
An asset purchase agreement dated April 23, 2001, among
Atlantic, Atlantic's majority-owned subsidiary Gemini Technologies, Inc., the
Cleveland Clinic Foundation (CCF) and CCF's affiliate IFN, Inc. was signed in
which Gemini will sell, upon meeting certain closing conditions, to IFN
substantially all its assets, including all those related to the 2-5A antisense
enhancing technology for future contingent royalty payments and agreed upon
withdrawal of CCF's arbitration demand against Atlantic and Gemini. The
transaction is expected to close during the second quarter of 2001 and will be
beneficial to Atlantic as they will avoid the possibility of terminating the
Cleveland sublicense with no compensation to Gemini and substantial shutdown
costs that Gemini would likely have incurred without this asset purchase
agreement.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our results of operations
and financial condition in conjunction with our Annual Report on Form 10-KSB/A
for the year ended December 31, 2000. This discussion includes "forward-looking"
statements that reflect our current views with respect to future events and
financial performance. We use words such as we "expect," "anticipate,"
"believe," and "intend" and similar expressions to identify forward-looking
statements. Investors should be aware that actual results may differ materially
from our expressed expectations because of risks and uncertainties inherent in
future events, particularly those risks identified in the "Risk Factors" section
of the annual report on form 10KSB/A and should not unduly rely on these forward
looking statements.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2001 VS. 2000
In accordance with a license and development agreement, as amended,
Bausch & Lomb Surgical has paid our subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for developing its Catarex technology. For the three months ended
March 31, 2001, this agreement provided $2,461,922 of development revenue, and
related cost of development revenue of $2,082,568. For the three months ended
March 31, 2000, this agreement provided $912,481 of development revenue, and
related cost of development revenue of $729,985. The primary reason for the
substantial increase in revenues over last year was the recognition of a project
completion bonus of $1,067,345 paid out and recognized at the completion of the
project in March 2001. With the termination of the above agreement at the
conclusion of the sale of substantially all of Optex's assets (mostly intangible
assets with no book value) in March 2001, as described further below, we will no
longer have the revenues or profits associated with that agreement available to
us.
For the quarter ended March 31, 2001, research and development expense
was $306,767 as compared to $127,439 in the first quarter of 2000. This increase
is due to increased expenditures on certain development projects including CT-3
as we have been assessing potential markets and developing test plans for a
Phase II study.
For the quarter ended March 31, 2001, general and administrative
expense was $681,948 as compared to $495,678 in the first quarter of 2000. This
increase is largely due to an increase in payroll costs over last year of
approximately $72,000 and a finders fee of $120,000 incurred in conjunction with
a common stock purchase agreement entered into during the first quarter 2001
with Fusion Capital Fund II, LLC pursuant to which Fusion Capital agreed to
purchase up to $6.0 million of our common stock over a 30-month period, subject
to a 6-month extension or earlier termination at our discretion. The receipt of
funds under this agreement will commence upon effective registration and certain
other conditions which are targeted for June 2001. A material contingency that
may affect our operating plans and ability to raise funds is our stock price. If
our stock price remains at current levels, we will be limited in the amount of
funds we will be able to draw as defined by the Fusion Capital agreement. As the
Fusion Capital agreement is currently structured, we do not have a guarantee
that we will be able to draw any funds. See Liquidity and Capital Resources for
further details on this agreement.
For the quarter ended March 31, 2001, we had compensation expense
relating to stock warrants of $11,971 associated with warrants issued to Dian
Griesel during March 2001 as partial compensation for investor relations
services. Additional expense associated with these warrants will continue to be
incurred over the 2 year term of the agreement. For the quarter ended March 31,
2000, we had $990,820 of expense associated with warrants issued to Joseph
Stevens & Company as partial compensation for investment banking services which
was recorded in full as of December 31, 2000. Compensation expense relating to
these investor relations and investment banking services represent a general and
administrative expenses.
For the first quarter of 2001, interest and other income was $20,018,
compared to $40,190 in the first quarter of 2000. The decrease in interest
income is primarily due to the decline in our cash reserves.
Net income applicable to common shares for the quarter ended March 31,
2001, was $855,631 as compared to a net loss applicable to common shares of
$2,037,561 for the quarter ended March 31, 2000. This increase in net income
applicable to common shares is primarily attributable to a gain on the sale of
the assets of our subsidiary, Optex recognized during the first quarter of 2001
in the amount of $2,809,451, partially offset by a distribution to
10
the minority shareholders of Optex of $767,514. (see further discussion of this
sale below). In the quarter ended March 31, 2000, we recorded compensation
expense of $990,820 relating to stock warrants issued to Joseph Stevens & Co.
which did not exist during the current year. Net income (loss) applicable to
common shares also included a beneficial conversion on our Series B preferred
stock in the amount of $600,000 and a dividend of $167,127 paid upon the
repurchase of the outstanding Series B preferred stock recorded during the first
quarter of 2001. We also issued preferred stock dividends on our Series A
preferred stock for which the estimated fair value of $64,144 and $659,319 was
included in the net income (loss) applicable to common shares for the first
quarter of 2001 and 2000, respectively. The decrease in the estimated fair value
of these dividends as compared to the prior year is primarily a reflection of a
decline in our stock price and a reduction of the number of preferred shares
issued. Going forward, with the termination of our agreement with Bausch & Lomb,
we will no longer have the revenue or profits associated with that agreement
available to us. For the year ended December 31, 2000, we received $5,169,288 in
development revenue from Bausch & Lomb.
LIQUIDITY AND CAPITAL RESOURCES
From inception to March 31, 2001, we incurred an accumulated deficit of
$23,306,559, and we expect to continue to incur additional losses through the
year ending December 31, 2001 and for the foreseeable future. The loss has been
incurred through primarily research and development activities related to our
various technologies under our control.
Pursuant to an asset purchase agreement dated January 31, 2001, among
Bausch & Lomb, a Bausch & Lomb affiliate, Atlantic, and Optex, on March 2, 2001,
Optex sold to Bausch & Lomb substantially all its assets (mostly intangible
assets with no book value), including all those related to the Catarex
technology. Upon the sale, Atlantic and Optex have no further obligations to
Bausch & Lomb. The purchase price was $3 million paid at closing (approximately
$564,000 of which was distributed to the minority shareholders). In addition,
Optex is entitled to receive additional consideration, namely $1 million once
Bausch & Lomb receives regulatory approval to market the Catarex device in
Japan, royalties on net sales on the terms stated in the original development
agreement dated May 14, 1998, between Bausch & Lomb and Optex, as amended, and
minimum royalties of $90,000, $350,000, and $750,000 for the first, second, and
third years, respectively, starting on first commercial use of the Catarex
device or January 1, 2004, whichever is earlier. Optex also has the option to
repurchase the acquired assets from Bausch & Lomb if it ceases developing the
Catarex technology at fair value. Upon the sale of Optex assets, Bausch & Lomb's
development agreement with Optex was terminated. Upon the closing of the asset
purchase agreement Optex agreed to forgo future contingent payments in exchange
for the receipt of a one-time $3 million payment and the same potential for
future royalties. As a result of this transaction, we recorded a gain on the
sale of Optex assets of $2,809,451. Pursuant to our agreement with the minority
shareholders of Optex, we made a profit distribution of $767,514 representing
the minority shareholders' percentage of the cumulative profit from the Bausch &
Lomb cost plus 25 percent agreement up to and including proceeds from the sale
of Optex' assets.
On September 28, 2000, pursuant to a convertible preferred stock and
warrants purchase agreement (the purchase agreement), we issued to BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the Investors)
for a purchase price of $2,000,000, 689,656 shares of our Series B convertible
preferred stock (the Series B preferred stock) and warrants to purchase 134,000
shares of our common stock. Half of the shares of Series B preferred stock
(344,828 shares) and warrants to purchase half of the shares of common stock
(67,000 shares) were held in escrow, along with half of the purchase price.
On December 4, 2000, Atlantic and the Investors entered into a stock
repurchase agreement (the stock repurchase agreement) pursuant to which we
repurchased from the Investors for $500,000 137,930 shares of Series B preferred
stock, and agreed to the release from escrow to the Investors of the $1,000,000
purchase price of the 344,828 shares of Series B preferred stock held in escrow.
We also allowed the Investors to keep all of the warrants issued under the
purchase agreement and issued to the Investors warrants to purchase a further
20,000 shares of our common stock at the same exercise price. On January 19,
2001, 41,380 shares of Series B preferred stock were converted by the Investors
into 236,422 shares of our common stock. On March 9, 2001, Atlantic and the
Investors entered into a second stock repurchase agreement (stock repurchase
agreement no. 2). Pursuant to stock repurchase agreement no. 2, we repurchased
from the Investors, for an aggregate purchase price of $617,067, all 165,518
shares of our Series B preferred stock held by the Investors. The repurchase
price represented 125% of the purchase price originally paid by the investors
for the repurchased shares, as well as an amount equal to the annual dividend on
the
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Series B preferred stock at a rate per share of 8% of the original purchase
price. The repurchased shares constitute all remaining outstanding shares of
Series B preferred stock; we have cancelled those shares.
On March 16, 2001, we entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC pursuant to which Fusion Capital agreed to
purchase up to $6.0 million of our common stock over a 30-month period, subject
to a 6-month extension or earlier termination at our discretion. The receipt of
funds under this agreement will commence upon effective registration and certain
other conditions which are targeted for June 2001. The selling price of the
shares will be equal to the lesser of (1) $20.00 or (2) a price based upon the
future market price of the common stock, without any fixed discount to the
market price. A material contingency that may affect our operating plans and
ability to raise funds is our stock price. If our stock price remains at current
levels, we will be limited in the amount of funds we will be able to draw as
defined by the Fusion Capital agreement. As the Fusion Capital agreement is
currently structured, we do not have a guarantee that we will be able to draw
any funds. A $120,000 finders fee relating to this transaction was paid to
Gardner Resources, Ltd. We have amended our agreement with Fusion Capital to
allow Atlantic to draw funds pursuant to the agreement regardless of its listing
status on the Nasdaq SmallCap Market.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
our progress in and the cost of ongoing and planned preclinical and clinical
testing; the timing and cost of obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in our existing collaborative and licensing relationships; the resources
that we devote to developing manufacturing and commercializing capabilities;
technological advances; status of competitors; our ability to establish
collaborative arrangements with other organizations; and our need to purchase
additional capital equipment.
At March 31, 2001, we had $2,581,497 in cash and cash equivalents and
working capital of $1,831,571. We anticipate that our current resources will be
sufficient to finance our currently anticipated needs for operating and capital
expenditures for at least the next twelve months. In addition, we will attempt
to generate additional capital through a combination of collaborative
agreements, strategic alliances, and equity and debt financing. However, we can
give no assurance that we will be able to obtain additional capital through
these sources or upon terms acceptable to us.
We have the following short term and long term liquidity needs. Our
cash utilized for operations for the next year is expected to be approximately
$200,000 per month. Currently, these expected operating expenses include
approximately $70,000 per month for research and pre-clinical development
expenses and approximately $130,000 for general and administrative expenses.
Based on our cash position of $2,581,497 at March 31, 2001, we will either have
to raise additional funds within the next twelve months to fund our current
spending requirements or we will have to reduce or eliminate the planned levels
of development activities. Since we do not have significant fixed cash
commitments, we have the option of significantly cutting or delaying our
development activities as may be necessary. To meet these needs in the short
term, we expect to begin drawing funds in the amount of $200,000 per month from
Fusion Capital starting in June 2001, once we have an effective registration. If
our agreement with Fusion Capital is not finalized, or if we are unable to draw
funds from Fusion Capital, we will seek alternative funding sources. These
funding sources include seeking other equity financing and working toward
licensing CT-3 later in 2001.
A material contingency that may affect our operating plans and ability
to raise funds is our stock price. If our stock price remains at current levels,
we will be limited in the amount of funds we will be able to draw as defined to
the Fusion Capital agreement. As the Fusion Capital agreement is currently
structured, we do not have a guarantee that we will be able to draw any funds.
We are at risk of being delisted from the Nasdaq SmallCap Market. As of
March 20, 2001, we had the thirtieth consecutive business day that the minimum
bid price of our common stock was less than $1.00. This constitutes a failure on
our part to meet Nasdaq's continued inclusion requirement for minimum bid price.
On March 22, 2001, Nasdaq notified us of this failure, and we have a period of
90 calendar days from that notice to comply with the continued inclusion
standard for minimum bid price. We can do so by meeting the standard for a
minimum of 10 consecutive business days during the 90 day compliance period.
12
In addition, the consolidated financial statements included with our
2000 Annual Report on Form 10-KSB for the year ended December 31, 2000, show
that on December 31, 2000, our net tangible assets were less than $2 million.
Consequently, we received a deficiency notice from Nasdaq notifying us that we
had ten days to submit a plan to achieve and sustain long-term compliance with
all applicable listing criteria. On May 2, 2001, we submitted our plan to
Nasdaq. If Nasdaq is not satisfied with the plan that we submitted, we will then
receive a staff determination from Nasdaq. Upon receipt of the staff
determination, we will have seven days to appeal the staff determination and
request a hearing before Nasdaq's Listing Qualifications Panel, and such a
request will generally stay the delisting pending a determination by the panel
(called a "panel decision"). Failure to request a hearing within seven calendar
days will result in automatic delisting. If our securities were delisted, it
could materially and adversely affect our ability to raise additional funding.
RESEARCH AND DEVELOPMENT ACTIVITIES
For a description of Atlantic's research and development activities,
see Item 5 of Part II entitled "Other Information."
13
PART II -- OTHER INFORMATION
Item 1. Legal Matters
Claim for Arbitration Brought by Cleveland Clinic Foundation
Atlantic's subsidiary, Gemini, has an exclusive worldwide sublicense
from the Cleveland Clinic Foundation to a U.S. patent and related patent
applications, as well as corresponding foreign applications, relating to 2-5A
chimeric antisense technology and its use for selective degradation of targeted
RNA. On May 8, 2000, the Cleveland Clinic Foundation filed a claim for
arbitration before the American Arbitration Association to terminate this
sublicense, claiming that Gemini has breached the sublicense by failing to
fulfill its obligations under the sublicense. Pursuant to an asset purchase
agreement dated April 23, 2001, among the Cleveland Clinic Foundation and its
new affiliate IFN, Inc., Atlantic and Gemini, Gemini has agreed to sell to IFN
substantially all its assets (mostly intangible assets with no book value),
including all those related to the 2-5A antisense enhancing technology in the
second quarter of 2001. Upon the closing of this transaction, which we expect
will occur in May 2001, the Cleveland Clinic will withdraw its outstanding
arbitration demand against Gemini and Atlantic, with prejudice, and each party
will be obligated to pay its own costs and attorney's fees related thereto. For
additional information, please see Item 5 under the subheading "Gemini and the
2-5A Antisense Technology."
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
Issuance to BH Capital Investments, L.P. and Excalibur Limited Partnership
On September 28, 2000, pursuant to a convertible preferred stock and
warrants purchase agreement (the "purchase agreement"), we issued to BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
for a purchase price of $2,000,000, 689,656 shares of our Series B convertible
preferred stock (the "Series B preferred stock") and warrants to purchase
134,000 shares of our common stock. Half of the shares of Series B preferred
stock (344,828 shares) and warrants to purchase half of the shares of common
stock (67,000 shares) were held in escrow, along with half of the purchase
price.
On December 4, 2000, Atlantic and the Investors entered into a stock
repurchase agreement (the "stock repurchase agreement") pursuant to which we
repurchased from the Investors for $500,000 137,930 shares of Series B preferred
stock, and agreed to the release from escrow to the Investors of the $1,000,000
purchase price of the 344,828 shares of Series B preferred stock held in escrow.
We also allowed the Investors to keep all of the warrants issued under the
purchase agreement and issued to the Investors warrants to purchase a further
20,000 shares of our common stock at the same exercise price.
The issuance of the shares of Series B preferred stock and warrants did
not involve any public offering and therefore was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
The warrants are exercisable at the fixed exercise price or 110% of the
market price 180 days after the date of issuance, whichever is lower. Pursuant
to a second amendment to the purchase agreement, executed on January 9, 2001,
the fixed exercise price of the warrants was lowered from $3.19, the fixed
exercise price upon their issuance, to $1.00, the market price of our common
stock at the time of the renegotiations. Each warrant may be exercised any time
during the five years from the date of granting. The warrants may not be
exercised if doing so would result in our issuing a number of shares of common
stock in excess of the limit imposed by the rules of the Nasdaq SmallCap Market.
Holders of shares of our outstanding Series B preferred stock can
convert each share into shares of common stock without paying Atlantic any cash.
The conversion price per share of the Series B preferred stock was also amended
by the second amendment to the purchase agreement. The conversion price per
share of Series B preferred stock on any given day is the lower of (1) $1.00 or
(2) 90% of the average of the two lowest closing bid prices on the principal
market of the common stock out of the fifteen trading days immediately prior to
conversion.
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On March 9, 2001, Atlantic and the Investors entered into stock
repurchase agreement no. 2. Pursuant to stock repurchase agreement no. 2, we
repurchased from the Investors, for an aggregate purchase price of $617,067, all
165,518 shares of our Series B preferred stock held by the Investors. The
repurchase price represented 125% of the purchase price originally paid by the
investors for the repurchased shares, as well as an amount equal to the annual
dividend on the Series B preferred stock at a rate per share of 8% of the
original purchase price. The repurchased shares constitute all remaining
outstanding shares of Series B preferred stock; we have cancelled those shares.
Issuance to Dian Griesel
On March 8, 2001, Atlantic entered into an agreement with The Investor
Relations Group, Inc., or "IRG," under which IRG will provide Atlantic investor
relations services. Pursuant to this agreement Atlantic issued to Dian Griesel
warrants to purchase 120,000 shares of its common stock. The term of the
warrants is five years and the exercise price of the warrants is $0.875, and
they will vest in 5,000 share monthly increments over a 24 month period. In
addition, should Atlantic's stock price reach $2.50, Atlantic will grant Ms.
Griesel an additional 50,000 warrants. Should Atlantic's stock price reach
$5.00, Atlantic will grant Ms. Griesel a further 50,000 warrants. As a result,
Atlantic recorded compensation expense relating to these stock warrants of
$11,971 for the three month period ended March 31, 2001 and will remeasure the
compensation expense at the end of each reporting period until the final
measurement date is reached in 24 months.
The issuance of the warrants did not involve any public offering and
therefore was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
Item 5. Other Information
Research and Development Activities
Optex and the Catarex Technology
Our majority-owned (81.2%) subsidiary, Optex, is entitled to royalties
and other revenues in connection with commercialization of Catarex technology.
Bausch & Lomb, a multinational ophthalmics company, is developing this
technology to overcome the limitations and deficiencies of traditional cataract
extraction techniques. Optex had been the owner of this technology, and was
developing it pursuant to a development agreement with Bausch & Lomb, but on
March 2, 2001, Optex sold to Bausch & Lomb substantially all of its assets
(mostly intangible assets with no book value), including those related to the
Catarex technology.
CT-3
Atlantic is developing CT-3, a synthetic derivative of the major active
ingredient in marijuana, for use in the treatment of inflammation and pain and
other indications.
Background
There has been much publicity regarding whether patients are adequately
treated for acute and chronic pain. This is due, in part, to the significant
side effects of the more common drugs used to treat pain.
Acute pain encompasses such medical conditions as post-operative pain,
as well as pain from acute injuries. Chronic pain covers a broad range of
conditions, including headaches, cancer pain, arthritis pain, low back pain,
neuropathic pain, and psychogenic pain. Although difficult to quantify, it is
estimated that roughly 130 million people suffer from chronic pain in the U.S.
alone, with about 3 million new diagnoses of chronic pain per year.
The single biggest cause of chronic pain is arthritis. An estimated 40
million people in the U.S. suffer from arthritis, as do an equal number in
Europe. Osteoarthritis is the more common form, and 60% of its victims are
women. Half of those suffering from osteoarthritis are under the age of 65. The
number of people with osteoarthritis is expected to double by 2020 as the number
of elderly people continues to grow.
15
A more debilitating form of arthritis is rheumatoid arthritis,
affecting about 2.5 million people. Chronic pain and inflammation management are
critical in this patient segment. Cancer pain is another market, with about 1
million new diagnoses of cancer per year, a majority of them requiring pain
management.
Other causes of chronic pain are fibromyalgia (a connective tissue
disorder causing pain affecting approximately 5 million people), and peripheral
neuropathy.
Currently available analgesic (anti-pain) and anti-inflammatory drugs
include narcotics, non-narcotic analgesics, corticosteroids and nonsteroidal
anti-inflammatory drugs, or "NSAIDs." Although highly effective as analgesics,
the usefulness of narcotics is limited by significant adverse effects, including
their potential to cause addiction. In contrast, non-narcotic analgesics are
safer but, due to their low potency, have limited usefulness in cases of severe
chronic pain. Use of corticosteroids, which are highly effective as
anti-inflammatory agents, is limited by their potentially significant side
effects. Traditional NSAIDs, such as aspirin, ibuprofen and indomethacin, are
generally safer than corticosteroids for long-term use, but they too can cause
significant side effects when used chronically. While the newer NSAIDs
categorized as COX-2 inhibitors, for example Celebrex (developed by G.D. Searle
& Co.) and Vioxx (developed by Merck & Co.), are potentially less prone to cause
ulcers than are traditional NSAIDs, they do not appear to be more effective for
the relief of pain or inflammation.
Although a major focus of pharmaceutical research for many years has
been the development of safe, powerful anti-inflammatory and analgesic drugs
with minimal adverse side effects, no such universally safe and efficacious drug
has been developed. A variety of compounds are in preclinical and early clinical
development, but it is not evident that an acceptable combination of efficacy
and safety has yet been achieved.
In addition to the many pharmacological products, various alternative
treatments have been utilized due to the continued need for additional types of
pain management. The FDA estimated that there are approximately 9-12 million
visits per year for acupuncture treatment of chronic pain. In addition, various
herbs and nutritional supplements claim to relieve pain. Modified diets and
various relaxation techniques have been utilized by some patients, seeking
relief from their pain. Other devices, such as implanted opioid pumps, are
marketed for chronic pain. This indicates that there is a continued need for
alternative treatments to relieve pain.
The CT-3 Technology and Its Applications
We have proprietary rights to a group of compounds, one of which is
currently designated "CT-3." CT-3 is a synthetic derivative of (DELTA)9
tetrahydrocannabinol (THC), the major active ingredient of marijuana. It was
designed to maximize the potent efficacious medicinal properties of marijuana
without producing its undesirable psychotropic side effects. Based upon the
broad anti-inflammatory and analgesic properties exhibited in preclinical
studies, we believe that this group of compounds may be useful in the treatment
of inflammation and pain, as well as several other indications, including
musculoskeletal disorders, neurological disorders, cancer, glaucoma, and
gastrointestinal disorders. We also believe, based on preclinical studies and an
initial phase I human clinical trial, that this group of compounds has a reduced
potential for side effects.
Animal studies have shown that CT-3 lacks the ulcer causing side
effects of NSAIDs. Animal studies using dosages significantly higher than the
anticipated therapeutic dose of CT-3 have indicated a lack of central nervous
system side effects (psychoactivity), and we believe that CT-3 provides
anti-inflammatory and analgesic effects without the psychoactive effects of THC.
Also, a clinical trial designed to measure the safety and pharmacokinetics of
CT-3 resulted in no clinically relevant-adverse events and no evidence of
marijuana-like psychoactivity. Several in vitro studies have indicated that CT-3
acts by inhibiting and reducing the release or synthesis of several different
mediators of inflammation including cytokines, metalloproteinases, leukotrines,
and cylcooxygenases. In addition, tests in an in vivo model of rheumatoid
arthritis have shown CT-3 to have significant anti-inflammatory effects,
including the potential to reduce the amount of joint destruction caused by
rheumatism. Subsequent studies have substantiated these findings and have
demonstrated that CT-3 can minimize the effects of adjuvant-induced arthritis in
rats. We also believe that it is not yet known whether this compound is more
clinically effective than traditional NSAIDs, corticosteroids, COX-2 inhibitors
and the variety of potential competitor compounds in late preclinical and early
clinical development. The preliminary data therefore suggest that CT-3 appears
to have significant potential for therapeutic benefit in the treatment of
chronic pain and inflammation that potentially lacks the major side effects of
traditional anti-inflammatory drugs and analgesics.
16
Research and Development Activities
Atlantic is developing CT-3 as the lead compound in the series of
patented compounds. CT-3 has been tested in a Phase I clinical trial and in many
pre-clinical in vitro and in vivo studies to profile its potential activity and
to evaluate its usefulness in treating medical conditions. This evaluation
process started with a focus on analgesic and anti-inflammatory processes and
has been broadened to include musculoskeletal disorders, neurological disorders,
gastrointestinal disorders, psychiatric disorders, glaucoma, and cancer.
In 2000 we successfully filed an investigational new drug (IND)
application with the FDA for CT-3 and signed a contract with Aster Clinical
Research Center in Paris, France, to conduct the Phase I clinical trial. The
clinical trial was designed to measure the safety and pharmacokinetics of CT-3
in human subjects. As expected, the Phase I clinical trial was successfully
completed and showed that CT-3 was safe. There occurred no clinically-relevant
adverse events and no evidence of marijuana-like psychoactivity was found.
After completing the Phase I clinical trial, we increased our efforts
to sublicense CT-3 to suitable strategic partners to assist in clinical
development, regulatory approval filing, manufacturing and marketing of CT-3. We
anticipate that by the fourth quarter of 2001 we will have found a corporate
partner to continue the clinical development of CT-3. In addition, we are
considering conducting a Phase II clinical trial ourselves. Since CT-3 appears
to possess a wide range of therapeutic activity, we are carefully choosing an
indication that we feel CT-3 would be most efficacious for and one that will
strategically allow us to increase the licensing value of CT-3 in the most
timely and cost effective manner.
In addition, in the fourth quarter of 2000, the U.S. Patent and
Trademark Office issued us a new US patent 6,162,829 that covers the use of
analogs of CT-3 as analgesic or anti-inflammatory agents.
Competition
The market for the treatment of chronic pain and inflammation is large
and highly competitive. Several multinational pharmaceutical companies currently
have many popular products in this market and many companies have active
research programs to identify and develop more potent and safer
anti-inflammatory and analgesic agents. One notable area of research is in the
development of "COX-2 inhibitors," which are claimed to be safer to the stomach
than available NSAIDs. (COX-2 inhibition is not considered a significant
contributor to the mechanism of action of CT-3; in vitro studies have shown very
weak COX-2 inhibition.) Two COX-2 inhibitor compounds have recently received FDA
approval and several others are in various stages of clinical development. We
believe that the potential advantages of CT-3 make it worth developing, and that
if we succeed, CT-3 could become a significant new agent in the treatment of
pain and inflammation.
Proprietary Rights
We have an exclusive worldwide license to four U.S. patents and
corresponding foreign applications covering a group of compounds, including
CT-3. The licensor is Dr. Sumner Burstein, a professor at the University of
Massachusetts. This license extends until the expiration of the underlying
patent rights. The primary U.S. patent expires in 2012 and the new analog patent
6,162,829 expires in 2017. We have the right under this license to sublicense
our rights under the license. The license requires that we pay royalties to Dr.
Burstein based on sales of products and processes incorporating technology
licensed under the license, as well as a percentage of any income derived from
any sublicense of the licensed technology. Furthermore, pursuant to the terms of
the license, we must satisfy certain other terms and conditions in order to
retain the license rights. If we fail to comply with certain terms of the
license, our license rights under the license could be terminated.
Gemini and the 2-5A Antisense Technology
An asset purchase agreement dated April 23, 2001, among
Atlantic, Atlantic's majority-owned subsidiary Gemini Technologies, Inc., the
Cleveland Clinic Foundation, or "CCF," and CCF's affiliate IFN, Inc., was
signed, in which Gemini will sell to IFN substantially all its assets, including
all those related to the 2-5A antisense enhancing technology. The transaction is
expected to close in the second quarter of 2001. The closing is subject to
closing conditions standard for a transaction of this kind.
17
The Cleveland Clinic Sublicense
In May 1994 Gemini obtained an exclusive worldwide sublicense from CCF
to a U.S. patent and related patent applications, as well as corresponding
foreign applications, relating to 2-5A Chimeric Antisense Technology and its use
for selective degradation of targeted RNA. (That sublicense is referred to as
the "CCF sublicense.") The rights exclusively licensed to Gemini included rights
obtained by CCF through an interinstitutional agreement with the National
Institutes of Health, or "NIH," the co-owner of the patent rights. The term of
the CCF sublicense was until expiration of the underlying patent rights, and
under the CCF sublicense Gemini was required to pay to CCF as royalties 40
percent of income from sales of products and processes incorporating the
licensed technology. Gemini had to satisfy other requirements in order to retain
its license rights under the CCF Sublicense. For one thing, it was required to
take effective steps to achieve practical application of the sublicensed
technology. Failure by CCF to discharge its obligations to the NIH under the
interinstitutional agreement could have resulted in termination of the
interinstitutional agreement and, in turn, our access to the technology.
Research and Development Activities Through 1999
Gemini conducted research at its own laboratory facilities and
sponsored research at the NIH and CCF focusing on two main objectives: (1)
advancing basic research into the 2-5A technology, with a view to making 2-5A
cheaper to synthesize and increasing its clinical utility and (2) developing a
potential lead product candidate to demonstrate 2-5A's clinical utility.
Research has to date been conducted primarily in in vitro systems and has
included studies of infectious diseases (respiratory syncytial virus, or "RSV,"
herpes, and human immunodeficiency virus, or "HIV"), certain cancers (chronic
myelogenous leukemia, glioblastoma), conditions modulated by 5-alpha reductase
and dihydrotestosterone receptors (acne and androgenic alopecia), and aspects of
the interferon pathway that are mediated by PKR (a protein kinase enzyme).
Based on these data, Gemini decided initially to focus more of its
efforts on studies of RSV and telomerase, an enzyme believed to be critical for
the growth and survival of some cancers. Data collected to date indicate that
the molecule to be tested had greater in vitro potency than Ribavarin, an
FDA-approved treatment for RSV infections; these data were published in the
Proceedings of the National Academy of Sciences, a peer-review research journal.
This molecule has also been shown to be stable against degradative enzymes and
capable of being absorbed into lung tissue when administered in a droplet
formulation. Gemini concluded that the next step in development would be to
conduct an in vivo proof-of-principle study, preferably in primates. It began
exploring optimal manufacturing processes to produce sufficient quantities
needed in an in vivo study, and anticipated, but could give no assurance, that
such a study would establish proof-of-efficacy in primates. Further in vivo
studies would likely be necessary to firmly establish optimal dosing regimens.
Gemini believed that focusing its antisense program on a lead target
like primate-oriented RSV would allow it to demonstrate the clinical utility of
the 2-5A and enable it to more effectively pursue corporate partnerships to
further develop the technology. If it could complete such a partnership, the
research and development of the technology could have been expanded into some of
the aforementioned and additional areas of potential clinical use.
The lead compound against telomerase demonstrated convincing
proof-of-concept in a limited in vivo (nude mice) model where human glioblastoma
(the most common form of primary brain cancer) cells were transplanted into the
animals. The data were subsequently published in Oncogene, a peer-review journal
dedicated to cancer research. However, the development status of using of 2-5A
against the telomerase target was well behind that of using it against RSV.
Deteriorating Relations with the Cleveland Clinic
In 1999, after a change in management subsequent to a consent
solicitation process conducted by members of our current board of directors, our
new management team led by A. Joseph Rudick began critically assessing our
technology portfolio, including 2-5A, with a view to increasing the
profitability or cost effectiveness of each project without sacrificing quality
or speed of development.
Dr. Rudick met with CCF in September 1999 to discuss the status of the
2-5A development project. At that time, and in a letter sent the following
month, CCF formally informed us that in its view Gemini had not performed its
obligations under the terms of the Cleveland sublicense. In its letter, CCF
demanded that Atlantic and Gemini
18
either (1) take prompt action to cure their alleged defaults; (2) relinquish
control of the technology and return all rights to CCF, or (3) renegotiate the
terms of the sublicense, limiting Gemini's control of the 2-5A technology and
return some of the rights to CCF. In response, Atlantic informed CCF that Gemini
would attempt to cure its alleged defaults, and as a first step would
immediately hold a meeting of Gemini's Scientific Advisory Board as requested by
CCF. In addition, Atlantic continued to press both CCF and the NIH to comply
with the provisions of the Cleveland sublicense that required both CCF and the
NIH to sublicense to Gemini several method-of-use improvement patents for using
2-5A for the treatment of RSV and telomerase.
Atlantic then hired Hoyle Consulting, Inc., a Frederick, Maryland-based
regulatory consulting and clinical management consulting firm to independently
assess the all aspects of 2-5A development activities to date and prepare a
project plan for developing 2-5A for the treatment of RSV. A project plan
represents a standard first step in drug development and gives management the
information necessary to determine whether to proceed with a project or
terminate it.
After attending a meeting of Gemini's Scientific Advisory Board in
November 1999, Hoyle began preparing the project plan for 2-5A. Hoyle's first
task was to investigate the operational details and costs of making the 2-5A
drug substance in bulk. Hoyle received a quotation of $5,500 per gram to
manufacture the 2-5A drug substance, and on that basis determined that
performing a 28-day repeated dose toxicity study of 2-5A in dogs, one of the
most basic pre-clinical studies required by the FDA for an Investigational New
Drug, or "IND," application, would require approximately 400 grams of the drug
at a cost of $2.2 million. Moreover, since Gemini proposed to develop 2-5A to be
administered in aerosolized route of administration form (by inhalation, not
intranasal), the FDA could require that the dog toxicity studies be conducted by
multiple routes of administration, requiring both inhalation and intravenous
toxicity studies, which would require a greater quantity of the drug. Additional
quantities would be required for rat toxicology studies, pharmacokinetic studies
in both species used for the toxicity studies, formulation research, methods
development, and clinical trial supplies. In short, Hoyle concluded that the
high cost of obtaining the 2-5A drug substance in bulk raised serious concerns
about the continued economic viability of the 2-5A project.
We found Hoyle's concerns to be warranted, and we conveyed them CCF by
letter in January 2000. We further noted that Gemini had spent over $3 million
developing the 2-5A drug, thereby enabling it to be brought through an initial
proof-of-principle primate study, and that we were also concerned that we might
be infringing certain patents, thereby making our investment in 2-5A potentially
more risky and costly. Accordingly, we expressed our desire to explore various
options with CCF with regard to amending the Cleveland sublicense or terminating
it in return for appropriate compensation, given the value Gemini had added.
In a letter dated April 2000, CCF responded to Dr. Rudick's overture by
claiming that CCF considered Gemini's license to be terminated. CCF requested
that Gemini acknowledge that the sublicense was terminated and that Atlantic and
Gemini release CCF from any claims. CCF also threatened to resort to arbitration
to terminate the sublicense.
On May 5, 2000, Dr. Rudick, now Atlantic's CEO and Gemini's President,
and Fred Zotos, Atlantic's newly appointed President flew to CCF's attorney's
offices in Cleveland, Ohio, in an attempt to reach an agreement on returning the
Cleveland sublicense while avoiding the cost of arbitration. The parties could
not, however, agree upon terms.
Cleveland Clinic Files Arbitration Demand
On May 8, 2000, CCF filed a claim for arbitration before the American
Arbitration Association to terminate the Cleveland sublicense, claiming that we
had breached the sublicense by failing to fulfill our obligations. More
specifically, CCF's claims included the following alleged breaches:
(a) Gemini failed to adequately fund and otherwise advance and
pursue development of the 2-5A technology.
(b) Gemini failed to adequately staff the research team assigned
to develop the 2-5A technology.
19
(c) Gemini failed to provide specific benchmarks, established in
consultation with the Scientific Advisory Board, outlining all
research and development for the 2-5A technology.
(d) Gemini failed to provide adequate annual financial statements
on a regular and timely basis.
(e) Gemini failed to exercise diligence in developing the
technology.
(f) Gemini failed to establish a Cleveland-based business as
opposed to a Cleveland research facility.
In its response, Gemini denied each of these allegations. More
specifically, Gemini's views as to each allegation were, respectively, as
follows:
(a) Gemini had adequately funded and otherwise advanced
development of the 2-5A technology. Since entering into the
Cleveland sublicense in 1994, Gemini had expended
approximately $3,964,829 developing the 2-5A technology, of
which approximately $540,000 went to CCF and $414,521 went to
the NIH for sponsored research, $285,330 was spent on patent
prosecution fees, and $130,839 went to CCF employees acting as
consultants. These expenditures do not include any general and
administrative expenses incurred by Atlantic in overseeing
development of the 2-5A technology over the seven-year period
of the sublicense. The remainder of these expenditures were
spent on staffing, equipping, and operating the Gemini lab
facility in Cleveland, Ohio.
(b) Gemini had adequately staffed the research team assigned to
the development of the 2-5A technology. Gemini's research
staff included a Scientific Director, two full-time research
chemists, and a full-time and a part-time research biologist.
In addition, Gemini had scientific consulting agreements with
two CCF employees, an Atlantic employee was President of
Gemini, an Atlantic employee served half-time as Gemini's
Vice-President of Business Development and Licensing, and
Atlantic hired Hoyle Consulting, Inc., to coordinate the 2-5A
clinical development program.
(c) For each of the last three years Gemini had provided specific
benchmarks in the form of a detailed commercial development
plan. These benchmarks were established in consultation with
the Scientific Advisory Board at regular meetings of the
board, and outlined all research and development for the 2-5A
technology.
(d) Gemini's financial statements were consolidated with
Atlantic's, which are publicly available. Moreover, throughout
this period Gemini did not have any earnings to report and did
not owe CCF any royalties.
(e) Any assessment of how diligent Gemini was in developing the
technology must take into account that the antisense
technology in general, and the 2-5A antisense enhancement
technology in particular, are still experimental and involve
development, targeting, and testing of extremely challenging
molecules. One indication of this is that only one antisense
product, Vitravene by Novartis/Isis, has received FDA
approval, in 1998, even though Isis was incorporated in 1989
and the antisense field is now over twenty years old.
(f) Gemini established in Cleveland, Ohio, a 1400-sq.-ft.
laboratory containing a fully equipped biosafety-level-2 cell
culture facility and adjoining office space. This space
supported four full-time and one-part-time research scientists
and the two CCF consultants. And while Gemini acknowledged
that Atlantic employees managed some Gemini-related matters at
its offices in New York, New York, the Cleveland sublicense
did not specifically require that Gemini establish a Cleveland
based business, as opposed to a Cleveland based research
facility.
In light of Gemini's observations regarding CCF's arbitration claims,
Gemini determined that CCF's claims were without merit and intended to
vigorously defend the action instead of forfeiting the Cleveland sublicense
without compensation for the value added by Gemini's contribution to development
of the 2-5A technology.
20
Gemini's Continued Development of 2-5A Antisense
Despite the initiation of the arbitration, Gemini elected to continue
developing the 2-5A technology rather than risk having any cessation of
development activities be held to be a breach of the Cleveland sublicense.
Accordingly, Gemini continued to seek a Small Business Innovation Research, or
"SBIR," phase II research grant to allow it to conduct pre-clinical efficacy
studies of 2-5A in primates.
On August 14, 2000, Gemini was awarded a $750,000 SBIR phase II grant
by the National Institute for Allergy and Infectious Diseases, or "NIAID," a
unit of the NIH. Gemini intended to use the grant to fund a pre-clinical
efficacy study using aerosolized 2-5A to inhibit RSV in monkeys, as well as the
toxicological and pharmacological studies Gemini would need in order to file an
IND application with the FDA to begin clinical studies in humans. The goals of
the two-year research plan were as follows:
o to improve upon the synthesis and purification procedures
required for efficient scale-up production of the lead 2-5A
compound;
o to develop methodologies for aerosolized delivery of 2-5A to
the lungs;
o to carry the lead 2-5A compound through definitive
pre-clinical animal efficacy studies;
o to develop methodologies for analyzing 2-5A integrity in nasal
passages, bronchial lavages and serum of treated animals; and
o to perform preliminary toxicology and pharmacokinetic studies
on 2-5A in preparation for an IND filing leading to Phase I
clinical trials.
Efforts to Settle the Arbitration
Shortly after filing its demand for arbitration, CCF appointed a new
director of its Innovations unit, which managed the Cleveland sublicense with
Gemini. This, together with Gemini's receipt of the SBIR grant, led Atlantic and
Gemini to approach CCF again with a view to settling the arbitration. Gemini
proposed that it continue to develop 2-5A with the aim at using the
SBIR-grant-funded primate efficacy trial to reduce overall 2-5A dosage costs by
improving both drug delivery through an aerosolized formulation and decreasing
drug costs by refining the chemical process. If successful, in addition to
providing in vivo proof of efficacy, the study would reduce the overall 2-5A
dosage costs to a more acceptable level. This would have made 2-5A a more
attractive licensing opportunity for a corporate partner. In any event, Gemini
realized that it would be next to impossible to sublicense its rights to another
party as long as its rights under the Cleveland sublicense were the subject of
an arbitration. A further obstacle to licensing 2-5A to a corporate partner was
the fact that Gemini did not have a sublicense from CCF and the NIH to the
method of use patent for 2-5A for RSV, as required by the Cleveland sublicense.
Accordingly, through late 2000 and early 2001 the parties made efforts
to arrive at a settlement. To that end, Gemini held a meeting of its Scientific
Advisory Board in November 2000 and invited the representatives of CCF to
participate as observers. Based upon development goals agreed upon at this
meeting, Gemini formulated a revised development plan.
In February 2001, CCF forwarded a formal settlement offer to Gemini
outlining its numerous conditions for settlement based upon continuing the
Cleveland sublicense with Gemini. These settlement demands required that Gemini
dramatically increase expenditures, personnel, and development efforts on the
2-5A project well above their historic levels. These settlement terms did not
attempt to make any such increased investment more attractive to Gemini by
increasing Gemini's share of royalties (CCF would still have received 40% of any
sublicensing income and owned 7.5% of Gemini's stock), and did not provide for
CCF and the NIH to sublicense to Gemini the method of use patents as required by
the Cleveland sublicense. Moreover, Gemini learned, based on estimates quoted,
that 2-5A manufacturing costs had doubled over the previous year to $11,000 per
gram. Finally, Gemini was still concerned about potential patent infringement as
a result of practicing the 2-5A technology. Taken together, these factors led
Gemini to reject CCF's settlement offer and resulted in Gemini's offer to CCF
that it instead purchase Gemini's assets. CCF accepted this offer.
21
Asset Purchase Agreement and Arbitration Settlement
The purchase price is an amount equal to 20 percent of all amounts that
CCF is entitled pursuant to the Cleveland sublicense, subject to adjustments.
The purchase price will be reduced by 1 percent of the sublicense fees for each
$150,000 expended by IFN to develop the technology, subject to a floor of 5
percent. In addition, upon closing CCF will withdraw its outstanding arbitration
demand against Gemini and Atlantic, with prejudice, and each party will be
obligated to pay its own costs and attorneys' fees related thereto.
We feel that this solution, if consummated, will represent a
satisfactory alternative to two undesirable alternatives, namely (1) termination
of the Cleveland sublicense with no compensation to Gemini and substantial
shutdown costs and (2) continued development of 2-5A at levels that Gemini would
not be able to justify or sustain.
Our Diversification Strategy
Early in 2000 we adopted a broader approach in selecting technologies
to develop. Consistent with this approach, effective March 21, 2000, Atlantic's
name was changed from "Atlantic Pharmaceuticals, Inc." to its current name.
This broader approach is reflected in our acquisition on May 12, 2000,
of an ownership interest in TeraComm Research, Inc., a privately-held company
that is currently developing next-generation fiber optic communications
technologies, namely a high-speed fiber-optic transceiver.
The purchase price for our ownership interest was $5 million in cash,
200,000 shares of our common stock and a warrant to purchase 200,000 shares of
our common stock. TeraComm issued us 1,400 shares of its Series A preferred
stock representing a 35% ownership interest. Taking into account the cash
purchase price and the value of the common stock at the signing of the letter of
intent, we valued this deal at $6,795,000. We are accounting for the investment
in TeraComm in accordance with the equity method of accounting for investments
since we have the ability to exert significant influence over TeraComm,
including through our Board representation and other involvement with management
of TeraCom.
TeraComm is developing a fiberoptic transmitter that uses a
high-temperature superconductor (HTS) material to switch a laser beam on and off
with a high-speed electronic digital signal. HTS materials have zero electrical
resistance at low temperatures (< 70 K), and also can have very high optical
reflectance in their superconducting state while they can transmit light in
their normal (non-superconducting) state. TeraComm discovered that a small
electric current in an HTS material could switch the material between states,
and do so very quickly--in less than a millionth millionth of a second. Because
the HTS optical switch works best at far infrared wavelengths and these optical
waves are too large to send through an optical fiber, the TeraComm invention
employs an optical wavelength converter to change the waves to the band that is
just right for the fiber.
Thus far, TeraComm has successfully developed methods of producing
effective HTS thin-films with metal electrodes, has successfully demonstrated
control of optical transmission in HTS films using electric current, and has
been awarded patents covering implementation of this technology for fiberoptic
telecommunications. TeraComm has not yet achieved the technical milestone that
it needs to achieve for further progress in developing their technology.
TeraComm has informed us that it is seeking to raise additional funding to
continue its development program and achieve this technical milestone.
Due to our need to preserve our cash resources and due to our
uncertainty regarding TeraComm's plans for developing its technology, we
ultimately paid only $1 million of the $5 million cash portion of the purchase
price. As a consequence, we were required to surrender to TeraComm a number of
our shares of TeraComm's preferred stock, which had the effect of reducing to
14.4% our actual ownership interest. However, Atlantic continues to hold one
seat on the Board of Directors and therefore continues to have the ability to
exert significant influence.
22
Item 6: Exhibits and Reports on Form 8-K
Exhibits
The following documents are referenced or included in this report.
Exhibit No. Description
3.1(1) Certificate of Incorporation of Atlantic, as amended to date.
3.2(1) Bylaws of Atlantic, as amended to date.
3.3(5) Certificate of Designations of Series A Convertible Preferred
Stock.
3.4(6) Certificate of Increase of Series A Convertible Preferred Stock.
3.5(9) Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Atlantic, filed on September 28,
2000.
3. 6(9) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on November 17, 2000.
3.7(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 9, 2001.
3.8(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 19, 2001.
4.2(1) Form of Unit certificate.
4.3(1) Specimen Common Stock certificate.
4.4(1) Form of Redeemable Warrant certificate.
4.5(1) Form of Redeemable Warrant Agreement by and between Atlantic and
Continental Stock Transfer & Trust Company.
4.6(1) Form of Underwriter's Warrant certificate.
4.7(1) Form of Underwriter's Warrant Agreement by and between Atlantic and
Joseph Stevens & Company, L.P.
4.8(1) Form of Subscription Agreement by and between Atlantic and the
Selling Stockholders.
4.9(1) Form of Bridge Note.
4.10(1) Form of Bridge Warrant.
4.11(2) Investors' Rights Agreement by and among Atlantic, Dreyfus Growth
and Value Funds, Inc. and Premier Strategic Growth Fund.
4.12(2) Common Stock Purchase Agreement by and among Atlantic, Dreyfus
Growth and Value Funds, Inc. and Premier Strategic Growth Fund.
10.2(1) Employment Agreement dated July 7, 1995, between Atlantic and Jon
D. Lindjord.
23
10.3(1) Employment Agreement dated September 21, 1995, between Atlantic and
Dr. Stephen R. Miller.
10.4(1) Employment Agreement dated September 21, 1995, between Atlantic and
Margaret A. Schalk.
10.5(1) Letter Agreement dated August 31, 1995, between Atlantic and Dr. H.
Lawrence Shaw.
10.6(1) Consulting Agreement dated January 1, 1994, between Atlantic and
John K. A. Prendergast.
10.8(1) Investors' Rights Agreement dated July 1995, between Atlantic, Dr.
Lindsay A. Rosenwald and VentureTek, L.P.
10.9(1) License and Assignment Agreement dated March 25, 1994, between
Optex Ophthalmologics, Inc., certain inventors and NeoMedix
Corporation, as amended.
10.10(1) License Agreement dated May 5, 1994, between Gemini Gene Therapies,
Inc. and the Cleveland Clinic Foundation.
10.11(1)+ License Agreement dated June 16, 1994, between Channel
Therapeutics, Inc., the University of Pennsylvania and certain
inventors, as amended.
10.12(1)+ License Agreement dated March 28, 1994, between Channel
Therapeutics, Inc. and Dr. Sumner Burstein.
10.13(1) Form of Financial Advisory and Consulting Agreement by and between
Atlantic and Joseph Stevens & Company, L.P.
10.14(1) Employment Agreement dated November 3, 1995, between Atlantic and
Shimshon Mizrachi.
10.15(3) Financial Advisory Agreement between Atlantic and Paramount dated
September 4, 1996 (effective date of April 15, 1996).
10.16(3) Financial agreement between Atlantic, Paramount and UI USA dated
June 23, 1996.
10.17(3) Consultancy agreement between Atlantic and Dr. Yuichi Iwaki dated
July 31, 1996.
10.18(3) 1995 stock option plan, as amended.
10.19(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.20(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.21(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
12,500 shares of Common Stock of Atlantic.
10.22(4) Letter Agreement between Atlantic and Paramount Capital, Inc. dated
February 26,1997.
10.23(4) Agreement and Plan of Reorganization by and among Atlantic, Channel
Therapeutics, Inc. and New Channel, Inc. dated February 20, 1997.
10.24(4) Warrant issued to John Prendergast to purchase 37,500 shares of
Atlantic's Common Stock.
10.25(4) Warrant issued to Dian Griesel to purchase 24,000 shares of
Atlantic's Common Stock.
24
10.26(7) Amendment No.1 to Development & License Agreement by and between
Optex and Bausch & Lomb Surgical, Inc. dated September 16, 1999.
10.27(8) Financial Advisory and Consulting Agreement by and between Atlantic
and Joseph Stevens & Company, Inc. dated January 4, 2000.
10.28(8) Warrant No.1 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2000.
10.29(8) Warrant No.2 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2001.
10.30(8) Warrant No.3 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2002.
10.31(9) Preferred Stock Purchase Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc.
10.32(9) Warrant Certificate issued May 12, 2000, by Atlantic to TeraComm
Research, Inc.
10.33(9) Stockholders Agreement dated May 12, 2000, among TeraComm Research,
Inc., the common stockholders of TeraComm, and Atlantic.
10.34(9) Registration Rights Agreement dated May 12, 2000, between Atlantic
and TeraComm Research, Inc. with respect to shares of TeraComm
preferred stock issued to Atlantic.
h10.35(9) Registration Rights Agreement dated May 12, 2000, between Atlantic
and TeraComm Research, Inc. with respect to shares of Atlantic
common stock issued to TeraComm.
10.36(9) Employment Agreement dated as of April 10, 2000, between Atlantic
and A. Joseph Rudick.
10.37(9) Employment Agreement dated as of April 3, 2000, between Atlantic
and Frederic P. Zotos.
10.38(9) Employment Agreement dated as of April 10, 2000, between Atlantic
and Nicholas J. Rossettos, as amended.
10.39(9) Employment Agreement dated as of May 15, 2000, between Atlantic and
Walter Glomb.
10.40(9) Employment Agreement dated as of April 18, 2000, between Atlantic
and Kelly Harris.
10.41(10) Amendment dated as of July 18, 2000, to the Preferred Stock
Purchase Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc.
10.42(10) Convertible Preferred Stock and Warrants Purchase Agreement dated
September 28, 2000, among Atlantic, BH Capital Investments, L.P.
and Excalibur Limited Partnership.
10.43(10) Registration Rights Agreement dated September 28, 2000 among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.44(10) Escrow Agreement dated September 28, 2000 among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.45(10) Form of Stock Purchase Warrants issued on September 28, 2000 to BH
Capital Investments, L.P., exercisable for shares of common stock
of Atlantic.
10.46(10) Form of Stock Purchase Warrants issued on September 28, 2000 to
Excalibur Limited Partnership, exercisable for shares of common
stock of Atlantic.
25
10.47(10) Amendment No. 1, dated October 31, 2000, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.48(12) Stock Repurchase Agreement, dated December 4, 2000, among Atlantic,
BH Capital Investments, L.P., and Excalibur Limited Partnership.
10.49(14) Letter Agreement, dated December 28, 2000, among Atlantic and BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.50(11) Amendment No. 2, dated January 9, 2001, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.51(14) Amendment No. 1, dated January 9, 2001, to Registration Rights
Agreement dated September 28, 2000, among Atlantic and BH Capital
Investments, L.P. and Excalibur Limited Partnership.
10.52(11) Amendment No. 3, dated January 19, 2001, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.53(14) Letter Agreement, dated January 25, 2001, among Atlantic and BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.54(13) Stock Repurchase Agreement No. 2, dated March 9, 2001, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.55* Common Stock Purchase Agreement, dated March 16, 2001, between
Atlantic and Fusion Capital Fund II, LLC.
10.56* Warrant Certificate, issued March 8, 2001 by Atlantic to Dian
Griesel.
21.1(1) Subsidiaries of Atlantic.
24.1 Power of Attorney (included in Part III of this Report under the
caption "Signatures").
------
+ Confidential treatment has been granted as to certain portions of
these exhibits.
* Filed herewith.
(1) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2, Registration #33-98478, as filed with the
Securities and Exchange Commission (the "SEC") on October 24, 1995
and as amended by Amendment No. 1, Amendment No. 2, Amendment No.3,
Amendment No. 4 and Amendment No. 5, as filed with the Commission
on November 9, 1995, December 5, 1995, December 12, 1995, December
13, 1995 and December 14, 1995, respectively.
(2) Incorporated by reference to exhibits of Atlantic's Current Report
on Form 8-KSB, as filed with the SEC on August 30, 1996.
(3) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended September 30, 1996.
(4) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended March 31, 1996.
26
(5) Incorporated by reference to exhibits of Atlantic's Current Report
on Form 8-KSB, as filed with the SEC on June 9, 1997.
(6) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form S-3 (Registration No. 333-34379), as filed with
the Commission on August 26, 1997, and as amended by Amendment No.
1 as filed with the SEC on August 28, 1997.
(7) Incorporated by reference to exhibits of Atlantic Form 10-QSB for
the period ended September 30, 1999.
(8) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for
the period ended December 31, 1999.
(9) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended June 30, 2000.
(10) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended September 30, 2000.
(11) Incorporated by reference to exhibits of Atlantic's Form 8-K filed
on January 24, 2001.
(12) Incorporated by reference to exhibits of Atlantic's Form 8-K filed
on December 11, 2000.
(13) Incorporated by reference to exhibits of Atlantic's Form 8-K filed
on March 14, 2001.
(14) Incorporated by reference to exhibits of Atlantic's Form 10-KSB
filed on April 17, 2001.
Reports on Form 8-K
On January 24, 2001, Atlantic filed with the SEC a report on Form 8-K
reporting the renegotiation of the terms of the investment for shares of
Atlantic's Series B convertible preferred stock made by BH Capital Investments,
L.P. and Excalibur Limited Partnership (the "Investors") in order to address
concerns raised by Atlantic stockholders and the NASDAQ stock market.
On January 30, 2001, Atlantic filed with the SEC a report on Form 8-K
stating that Atlantic and the Investors had further amended certain terms of the
investment.
On February 5, 2001, Atlantic filed with the SEC a report on Form 8-K
stating that on January 31, 2001, Atlantic and Optex Ophthalmologics, Inc.
("Optex"), a majority-owned subsidiary of Atlantic, signed an asset purchase
agreement (the "Optex Agreement") with Bausch & Lomb, Incorporated ("Bausch &
Lomb") and Bausch & Lomb Surgical, Inc., a wholly-owned subsidiary of Bausch &
Lomb, providing for the sale of substantially all of Optex's assets to Bausch &
Lomb.
On March 14, 2001, Atlantic filed with the SEC a report on Form 8-K
stating that, pursuant to stock repurchase agreement no. 2 among Atlantic and
the Investors, Atlantic repurchased from the Investors all shares of Atlantic's
Series B convertible preferred stock held by the Investors.
On March 16, 2001, Atlantic filed with the SEC a report on Form 8-K
reporting the sale on March 2, 2001, by Optex to Bausch & Lomb of substantially
all the assets of Optex, pursuant to the asset purchase agreement dated January
31, 2001, among Bausch & Lomb, a Bausch & Lomb affiliate, Atlantic, and Optex.
27
SIGNATURES
In accordance with the requirements of the Exchange Act, Atlantic
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC TECHNOLOGY VENTURES, INC.
Date: July 16, 2001 /s/ Frederic P. Zotos
--------------------------
Frederic P. Zotos
President, Chief Executive Officer, and Director
Date: July 16, 2001 /s/ Nicholas J. Rossettos
--------------------------
Nicholas J. Rossettos
Chief Financial Officer
28