8-K 1 d1012924.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------------------------------------- Date of report (Date of earliest event reported): December 14, 2004 OMNICORDER TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Charter) Delaware 0-27943 84-1209909 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 125 Wilbur Place, Suite 120 11716 Bohemia, New York (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (631) 244-8244 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c)) SECTION 3 - SECURITIES AND TRADING MARKETS ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES. GENERAL On December 14, 2004, we completed a private placement of 1,500,000 shares of our newly-created series A convertible preferred stock (convertible into 1,363,637 shares of common stock) and warrants to purchase 500,000 shares of our common stock, which resulted in gross proceeds to us of $1,500,000. Discussion of the series A preferred stock and warrants in this report is qualified entirely by reference to the Certificate of Designation and form of Warrant attached hereto as Exhibits 4.1 and 4.2, respectively. PREFERRED STOCK CONVERSION. The series A preferred stock is convertible into shares of common stock (i) at any time at the option of the holder, and (ii) automatically, as of the close of business on the 20th consecutive trading day on which the closing bid price for the common stock on the principal stock exchange or market on which it is listed, or if not traded on such exchange or market, on the OTC Bulletin Board (such exchange or market is referred to in this report as the reference exchange), is at least 200% of the conversion price referred to in the following sentence. Each share of series A preferred stock is convertible into approximately .91 of a share of common stock, based on a conversion price of $1.10. The conversion price is subject to adjustment in the event of certain dilutive or accretive events, such as stock splits, stock combinations or the issuance of common stock or securities convertible or exercisable into common stock as a dividend in-kind (other than as a dividend on the series A preferred stock). The conversion price is subject to further adjustment as follows: o If the price at which the series A preferred stock is offered in a future proposed rights offering is less than $1.00 per share, the conversion price will be reduced to such lower price. o For a period of 36 months after December 14, 2004, if we issue any shares of our common stock or securities convertible or exercisable into our common stock (subject to customary exceptions for exchanges of securities, equity incentive plans, strategic transactions, mergers or acquisitions, or bank or equipment financings) at a price per share less than the 30-day volume-weighted average price of our common stock on the reference exchange, the conversion price will be adjusted on a weighted-average basis. OTHER ADJUSTMENTS. Holders will receive the benefit of any favorable adjustments to the rights and preferences of our series A preferred stock agreed to in connection with a future proposed rights offering. VOTING RIGHTS. Holders of series A preferred stock will have the right to one vote for each share of common stock into which the series A preferred stock then held by such holders may be converted, and will vote together with the holders of common stock as a single class, except when otherwise required by law. DIVIDENDS. The series A preferred stock will receive a cumulative dividend of 4% per annum, payable annually in cash or in additional shares of series A preferred stock (computed on the basis of the 30-day volume-weighted average price of our common stock on the reference exchange), at our option. LIQUIDATION PREFERENCE. The liquidation preference of the series A preferred stock is defined as an amount per share equal to the conversion price, plus all accrued and unpaid dividends on the series A preferred stock. -2- REDEMPTION. The series A preferred stock may not be redeemed by us or the holders of those shares at any time. WARRANTS Each holder was issued, for no additional consideration, five-year warrants to purchase that number of shares of our common stock as is equal to 30% of the number of shares of series A preferred stock acquired by such investor in the private placement. The warrants have an exercise price per share equal to the conversion price of $1.10, subject to adjustment in the event of certain dilutive or accretive events, such as stock splits, stock combinations or the issuance of common stock or securities convertible or exercisable into common stock as a dividend in-kind. In addition, if the price at which the series A preferred stock is to be offered in a future proposed rights offering is less than $1.00 per share, the exercise price of the warrants will be reduced to such lower price. REGISTRATION RIGHTS We have agreed to use our reasonable best efforts to: (a) promptly file with the U.S. Securities and Exchange Commission a registration statement on Form SB-2 covering the shares of common stock issuable upon the conversion of the series A preferred stock and exercise of the warrants issued in the private placement by no later than 120 days following December 14, 2004; and (b) cause the registration statement to become effective as soon as practicable thereafter. PRIVATE PLACEMENT The shares of series A preferred stock and warrants were offered and sold in accordance with Regulation D under the Securities Act of 1933, as amended. Accordingly, each investor in the private offering qualified as an "accredited investor," as defined in Regulation D, in order to participate in the private placement. Each investor's right to transfer the series A preferred stock and warrant is restricted as provided in the Securities Act and the rules and regulations adopted under that act, as well as under state securities laws. SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS. (b)-(c) As of December 14, 2004, Mark A. Fauci is no longer an officer of our company. The Board of Directors is conducting a search for a new chief executive officer and, in the interim, William D. Abajian of The Abajian Group, LLC will oversee our day-to-day operations. Mr. Abajian will report to Michael A. Davis, M.D., D.Sc., the Chairman of the Executive Committee of our Board of Directors. Mr. Abajian founded The Abajian Group, LLC, a strategic management consulting firm that specializes in start-up companies, in August 2002. Prior to that, Mr. Abajian was the Chief Executive Officer of CPG, Inc., a biotechnology company specializing in DNA synthesis, chromatography and molecular biology products. CPG, Inc. was founded by Mr. Abajian in 1988 and sold to Millipore in July 2002. Mr. Abajian has not engaged in a related party transaction with us during the last two years, except that, through The Abajian Group, LLC, he has served as an independent consultant for us since September 2004. -3- A copy of the press release announcing these executive changes, and the completion of our $1.5 million convertible preferred stock private placement described in Item 3.02 above, is included as Exhibit 99.1 to this report and is incorporated herein by reference. SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 4.1 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of OmniCorder Technologies, Inc. 4.2 Form of Warrant to Purchase Common Stock of OmniCorder Technologies, Inc. 10.1 Form of Subscription Agreement between OmniCorder Technologies, Inc. and the private placement subscribers. 99.1 Press Release of OmniCorder Technologies, Inc. issued December 14, 2004. -4- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. OMNICORDER TECHNOLOGIES, INC. Date: December 20, 2004 By:/s/Celia Schiffner -------------------------------------- Celia Schiffner Controller -5- EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 4.1 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of OmniCorder Technologies, Inc. 4.2 Form of Warrant to Purchase Common Stock of OmniCorder Technologies, Inc. 10.1 Form of Subscription Agreement between OmniCorder Technologies, Inc. and the private placement subscribers. 99.1 Press Release of OmniCorder Technologies, Inc. issued December 14, 2004.

CURRENT REPORT ON FORM 8-K PROMOS, INC. DECEMBER 19, 2003 TABLE OF CONTENTS PAGE ---- ITEM 1. CHANGES IN CONTROL OF REGISTRANT.............................................................1 Security Ownership of Certain Beneficial Owners and Management...............................3 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.........................................................5 The Reverse Acquisition......................................................................5 Consulting Agreement.........................................................................6 Description of Promos and Its Predecessors...................................................6 Description of Business......................................................................6 Company Overview..........................................................................6 Introduction to Technology................................................................7 Advanced Research and Development.........................................................7 Patents and Intellectual Property.........................................................8 Licensing Agreements......................................................................8 Potential Strategic Alliances............................................................10 Product Overview.........................................................................10 Commercialization Strategy...............................................................10 Competition and Industry.................................................................13 Governmental Regulation..................................................................14 Manufacturing............................................................................15 Employees................................................................................15 Description of Property.....................................................................15 Risk Factors................................................................................16 Risks Related to our Company.............................................................16 Risks Related to our Common Stock........................................................18 Cautionary Language Regarding Forward-Looking Statements and Industry Data...............20 Directors and Executive Officers............................................................20 Scientific Advisory Board................................................................24 Management Advisory Board................................................................25 Board Composition and Committees.........................................................26 Committees of the Board..................................................................27 Director Compensation....................................................................27 Indebtedness of Directors, Director Nominees and Executive Officers......................27 Family Relationships.....................................................................27 Legal Proceedings........................................................................27 Summary Compensation Table...............................................................28 Options/SAR Grants and Fiscal Year End Option Exercises and Values.......................28 Employment Agreement with Mark A. Fauci..................................................28 Stock Option Plan........................................................................29 Certain Relationships and Related Transactions..............................................29 Legal Proceedings...........................................................................30

ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT...............................................30 ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE...................................................30 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS...........................................................31

Shares of Common Stock Beneficially Owned(1) ------------------------------------------------ Number of Shares Percent of Class(2) ---------------- ------------------- Name ---- EXECUTIVE OFFICERS, PRESENT DIRECTORS AND PROPOSED DIRECTORS(3): Mark A. Fauci 8,539,883 28.9% Marek Pawlowski, Ph.D 45,823(4) * Steven W. Albanese -- * Jed Schutz 2,518,945(5) 8.2% George Benedict 722,345(6) 2.4% Joseph T. Casey 800,080(7) 2.7% Gordon A. Lenz 521,686(8) 1.8% Stephan R. Levy -- * Hon. Joseph F. Lisa 67,142(9) * Anthony A. Lombardo 41,074(10) * Robert W. Loy 192,377(11) * Judith F. Harayda -- * Richard Vietor 169,942(12) * All executive officers, present 13,624,297 43.2% directors and proposed directors as a group (13 persons) 5% STOCKHOLDERS: Michael Anbar, Ph.D.(13) 2,710,858 9.2%

NAME AGE POSITION ---- --- -------- Mark A. Fauci 44 President, Chief Executive Officer and Director Marek Pawlowski, Ph.D. 54 Vice President, Product Development Steven W. Albanese 42 Controller Jed Schutz 44 Director

NAME AGE POSITION ---- --- -------- George Benedict 66 Director Nominee Joseph T. Casey 72 Director Nominee Gordon A. Lenz 67 Director Nominee Hon. Joseph F. Lisa 66 Director Nominee Anthony A. Lombardo 56 Director Nominee Robert W. Loy 66 Director Nominee Richard Vietor 60 Director Nominee Judith F. Harayda 55 Director Stephan R. Levy 64 Director

NAME SCIENTIFIC AFFILIATION ---- ---------------------- George D. Demetri, M.D. Director, Center for Sarcoma and Bone Oncology, Dana Farber Cancer Institute Milos J. Janicek, M.D., Ph.D. Assistant Professor of Radiology, Brigham and Women's Hospital Terry Button, Ph.D. Associate Professor of Biomedical Engineering, Stony Brook University

NAME AREA OF BUSINESS EXPERTISE ---- -------------------------- Detlev Baurs-Krey International Business Development Sharon M. Dauk Financing and Business Strategy Denise Fantuzzi Marketing Anne Marie Fields Corporate Communications and Business Strategy Peter Lloyd International Sales and Marketing Richard Patterson West Coast Business Development William J. Wagner Financing and Business Strategy

Summary Compensation Table Annual Long-term Compensation Compensation ----------------------------------------------- Awards Payouts -------------------------- Securities Underlying LTIP All Other Fiscal Salary Bonus Options/ Payouts Compensation Name and Principal Position Year ($) ($) SARs (#) ($) ($) ------------------------------------------------------------------------------------------------------------------ Judith F. Harayda (1) 2003 2,000 -- -- -- -- Former President 2002 20,000 -- -- -- -- 2001 22,000 -- -- -- -- Mark A. Fauci 2003 180,000 -- -- -- -- President and Chief Executive 2002 180,000 -- -- -- -- Officer 2001 180,000 -- -- -- -- Marek Pawlowski, Ph.D. 2003 85,000 -- -- -- -- Vice President, Product 2002 85,000 -- 42,500 -- -- Development 2001 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------

EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Agreement of Purchase and Sale, dated as of December 19, 2003, between Promos, Inc. and OmniCorder Technologies, Inc. 10.1 OmniCorder Technologies, Inc. 1998 Stock Option Plan. 10.2 Employment Agreement, dated as of December 19, 2003, between Mark A. Fauci and OmniCorder Technologies, Inc., as assigned to Promos, Inc. 10.3 Indemnification Agreement, dated as of December 19, 2003, among Promos, Inc., Judith F. Harayda and Stephan R. Levy. 10.4 Form of Private Placement Subscription Agreement. 10.5 Registration Rights Letter of Promos, Inc.

INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Agreement of Purchase and Sale, dated as of December 19, 2003, between Promos, Inc. and OmniCorder Technologies, Inc. 10.1 OmniCorder Technologies, Inc. 1998 Stock Option Plan. 10.2 Employment Agreement, dated as of December 19, 2003, between Mark A. Fauci and OmniCorder Technologies, Inc., as assigned to Promos, Inc. 10.3 Indemnification Agreement, dated as of December 19, 2003, among Promos, Inc., Judith F. Harayda and Stephan R. Levy. 10.4 Form of Private Placement Subscription Agreement. 10.5 Registration Rights Letter of Promos, Inc.

OMNICORDER TECHNOLOGIES, INC. (A Development Stage Enterprise) CONTENTS ------------------------------------------------------------------------------------------------ Page ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Balance Sheets - At December 31, 2002 and September 30, 2003 (Unaudited) 2-3 Statements of Operations - For the Years Ended December 31, 2002 and 2001, the Period from February 7, 1997 (Inception) to December 31, 2002, the Nine Months Ended September 30, 2003 and 2002 (Unaudited) and the Period from February 7, 1997 (Inception) to September 30, 2003 (Unaudited) 4 Statements of Stockholders' Deficiency - For the Period from February 7, 1997 (Inception) Through September 30, 2003 5-6 Statements of Cash Flows - For the Years Ended December 31, 2002 and 2001, the Period from February 7, 1997 (Inception) to December 31, 2002, the Nine Months Ended September 30, 2003 and 2002 (Unaudited) and the Period from February 7, 1997 (Inception) to September 30, 2003 (Unaudited) 7 NOTES TO FINANCIAL STATEMENTS 8-25

Cumulative Cumulative for the period for the period February 7, February 7, 1997 1997 (inception) (inception) For the Years Ended through For the Nine Months through December 31, December 31, Ended September 30, September 30, 2002 2001 2002 2003 2002 2003 --------------------------------------------------------------------------------------------- Net loss as reported $ (1,511,997) $ (1,675,158) $ (7,943,901) $ (1,546,805) $ (781,269) $ (9,490,706) Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect (455,701) (433,932) (1,938,597) (114,538) (322,460) (2,053,135) ------------ ------------ ------------ ------------ ------------ ------------ Pro forma net loss $ (1,967,698) $ (2,109,090) $ (9,882,498) $ (1,661,343) $ (1,103,729) $(11,543,841) ============ ============ ============ ============ ============ ============ Basic and diluted net loss as reported per share $(0.16) $(0.18) $(0.16) $(0.08) ============ ============ ============ ============ Basic and diluted pro forma Net loss per share $(0.21) $(0.23) $(0.17) $(0.12) ============ ============ ============ ============

Cumulative for Cumulative for the period the period February 7, February 7, 1997 1997 (inception) (inception) For the Years Ended through For the Nine Months through December 31, December 31, Ended September 30, September 30, 2002 2001 2002 2003 2002 2003 ---------------------------------------------------------------------------------- Expected life (years) 3.7 3.7 4.3 5 3.7 4.4 Risk free interest rate 3.97% 4.75% 4.78% 2.71% 4.43% 4.48% Volatility 130.73% 71.92% 89.00% 132.72% 132.58% 94.47%

December 31, September 30, 2002 2003 (Unaudited) ------------------------------- Research and development equipment $789,710 $847,768 Office equipment 22,497 22,497 Furniture and fixtures 5,243 11,004 -------- -------- 817,450 881,269 Less: accumulated depreciation 453,221 576,887 -------- -------- $364,229 $304,382 ======== ========

December 31, December 31, 2002 2001 ---------------------------------------------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ---------------------------------------------------------------- Outstanding, beginning of year 1,833,467 $2.32 1,735,386 $2.28 Options granted 230,500 3.41 118,202 3.11 Options forfeited (146,702) 3.47 (20,121) 2.83 ---------- ----- ---------- ----- Outstanding, end of year 1,917,265 $2.37 1,833,467 $2.32 ========== ===== ========== ===== Exercisable, end of year 1,797,303 $2.30 1,767,654 $2.31 ========== ===== ========== =====

Options Outstanding ------------------------------------------------------------- Options Number Weighted --------------------- Outstanding at Average Remaining Number Exercisable at Exercise December 31, Contractual December 31, Prices 2002 Life 2002 ---------------------------------------------------------------------------------- $1.13 118,800 5.34 118,800 $2.00 122,500 4.99 77,500 $2.33 1,516,080 2.74 1,509,810 $2.83 80,385 2.30 60,068 $5.00 79,500 2.26 31,125 --------- ---- --------- Total 1,917,265 3.53 1,797,303 ========= ==== =========

December 31, December 31, 2002 2001 ----------------------------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ----------------------------------------------- Outstanding, beginning of year 947,001 $0.98 947,001 $0.98 Warrants granted 400,000 2.00 -- -- --------- ----- ------- ----- Outstanding, end of year 1,347,001 1.28 947,001 0.98 ========= ===== ======= ===== Exercisable, end of year 1,347,001 $1.28 947,001 $0.98 ========= ===== ======= =====

Warrants Outstanding ------------------------------------------------------------- Weighted Warrants Number Average Weighted Number Outstanding at Remaining Average Exercisable at December 31, Contractual Exercise December 31, Exercise Prices 2002 Life Price 2002 ----------------------------------------------------------------------------------- $0.25 534,600 1.07 $0.25 534,600 $1.13 37,401 0.67 1.13 37,401 $2.00 775,000 2.59 2.00 775,000 --------- ---- ---- --------- Total 1,347,001 2.36 $1.28 1,347,001 ========= ==== ===== =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY December 31, September 30, 2002 2003 -------------------------------- (Unaudited) CURRENT LIABILITIES Accounts payable and accrued expenses $ 263,428 $ 286,019 Accounts payable to related party 320,297 320,297 Deferred revenue -- 51,000 Deferred officers salaries 884,113 955,805 Notes payable 165,675 76,912 Common stock to be issued -- 402,696 ----------- TOTAL LIABILITIES 1,633,513 2,092,729 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIENCY Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value; 10,000,000 shares authorized; 9,559,647 and 10,000,000 shares issued and outstanding at December 31, 2002 and September 30, 2003, respectively 95,597 100,000 Additional paid-in capital 6,814,666 8,059,542 Deficit accumulated during the development stage (7,943,901) (9,490,706) Subscription receivable (15,070) (15,070) ----------- ----------- TOTAL STOCKHOLDERS' DEFICIENCY (1,048,708) (1,346,234) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 584,805 $ 746,495 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

Cumulative Cumulative for the Period for the Period from February 7, from February 7, 1997 (Inception) 1997 (Inception) For the Years Ended Through For the Nine Months Through December 31, December 31, Ended September 30, September 30, 2002 2001 2002 2003 2002 2003 ------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) OPERATING EXPENSES Research and development $ 1,102,932 $ 930,954 $ 3,596,666 $ 957,302 $ 477,771 $ 4,553,968 General and administrative 382,792 742,266 2,326,328 572,332 287,816 2,898,660 Related party legal expense -- -- 544,881 -- -- 544,881 Write-off of public offering costs -- -- 501,992 -- -- 501,992 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,485,724 1,673,220 6,969,867 1,529,634 765,587 8,499,501 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING LOSS (1,485,724) (6,969,867) (765,587) (8,499,501) INTEREST AND OTHER EXPENSES 26,273 1,938 974,034 17,171 15,682 991,205 ----------- ----------- ----------- ----------- ----------- ----------- NET LOSS $(1,511,997) $(1,675,158) $(7,943,901) $(1,546,805) $ (781,269) $(9,490,706) ----------- ----------- ----------- ----------- ----------- ----------- BASIC AND DILUTED NET LOSS $ (0.16) $ (0.18) $ (0.16) $ (0.08) =========== =========== =========== =========== PER SHARE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 9,384,483 9,172,640 9,997,237 9,347,385 =========== =========== =========== ===========

Deficit Accumulated During the Stock Common Stock Additional Development Subscription Shares Amount Paid-in-Capital Stage Receivable Total ------------------------------------------------------------------------------------- Issuance of common stock to founders 5,016,000 $50,160 $ (33,440) $ -- $(15,070) $ 1,650 Sale of common stock at $1.13 per share, net of expenses of $35,164 175,995 1,760 163,070 -- -- 164,830 Issuance of common stock warrants to related party for legal services -- -- 75,000 -- -- 75,000 Sale of common stock warrants to related party -- -- 40,000 -- (30,000) 10,000 Net loss -- -- -- (168,516) -- (168,516) --------- ------- ----------- ----------- -------- ---------- Balance at December 31, 1997 5,191,995 51,920 244,630 (168,516) (45,070) 82,964 Issuance of common stock to founders 1,320,000 13,200 (8,800) -- -- 4,400 Sale of common stock at $1.13 per share, net of expenses of $62,900 431,196 4,312 422,783 -- -- 427,095 Issuance of common stock for research and development 132,000 1,320 148,680 -- -- 150,000 Issuance of common stock warrants to related party for legal services -- -- 20,000 -- -- 20,000 Cash received from sale of common stock warrant -- -- -- -- 30,000 30,000 Issuance of common stock warrants in connection with sale of bridge notes -- -- 329,625 -- -- 329,625 Net loss -- -- -- (1,594,054) -- (1,594,054) --------- ------- ----------- ----------- -------- ---------- Balance at December 31, 1998 7,075,191 70,752 1,156,918 (1,762,570) (15,070) (549,970) Conversion of bridge notes into common stock 697,779 6,978 783,647 -- -- 790,625 Issuance of common stock for research and development 66,000 660 74,340 -- -- 75,000 Sale of common stock at $2.33 per share 460,287 4,603 1,069,397 -- -- 1,074,000 Net loss -- -- -- (1,547,973) -- (1,547,973) --------- ------- ----------- ----------- -------- ---------- Balance at December 31, 1999 8,299,257 $82,993 $ 3,084,302 $(3,310,543) $(15,070) $ (158,318) ========= ======= =========== =========== ======== ===========

Deficit Accumulated During the Stock Common Stock Additional Development Subscription Shares Amount Paid-in-Capital Stage Receivable Total ------------------------------------------------------------------------------ Issuance of common stock for research and development 66,000 $ 660 $ 74,340 $-- $-- $ 75,000 Issuance of common stock for services rendered 4,290 43 9,967 -- -- 10,010 Sale of common stock at $2.33 and $2.83 per share for 336,600 and 450,000 shares, respectively 786,600 7,866 2,052,535 -- -- 2,060,401 Issuance of stock options and warrants for services rendered -- -- 51,357 -- -- 51,357 Net loss -- -- -- (1,446,203) -- (1,446,203) ---------- -------- ----------- ----------- --------- ------------ Balance at December 31, 2000 9,156,147 91,562 5,272,501 (4,756,746) (15,070) 592,247 Issuance of common stock for services rendered 6,000 60 29,940 -- -- 30,000 Sale of common stock at $5.00 per share 80,000 800 399,200 -- -- 400,000 Issuance of stock options and warrants for services rendered -- -- 21,012 -- -- 21,012 Net loss -- -- -- (1,675,158) -- (1,675,158) ---------- -------- ----------- ----------- --------- ------------ Balance at December 31, 2001 9,242,147 92,422 5,722,653 (6,431,904) (15,070) (631,899) Issuance of common stock in accordance with anti-dilution provisions 80,000 800 (800) -- -- -- Sale of common stock at $2.50 and $2.00 per share for 50,000 and 187,500 shares, respectively 237,500 2,375 497,625 -- -- 500,000 Issuance of stock options and warrants for services rendered -- -- 595,188 -- -- 595,188 Net loss -- -- -- (1,511,997) -- (1,511,997) ---------- -------- ----------- ----------- --------- ------------ Balance at December 31, 2002 9,559,647 95,597 6,814,666 (7,943,901) (15,070) Sale of common stock at $2.00 per share 440,353 4,403 876,303 -- -- 880,706 Issuance of stock options and warrants for services rendered -- -- 368,573 -- -- 368,573 Net loss (Unaudited) -- -- -- (1,546,805) -- (1,546,805) ---------- -------- ----------- ----------- --------- ------------ Balance at September 30, 2003 (Unaudited) 10,000,000 $100,000 $ 8,059,542 $(9,490,706) $(15,070) $(1,346,234) ========== ======== =========== =========== ========= ============

Cumulative for the Period from February 7, 1997 (Inception) For the Nine For the Years Ended Through Months Ended December 31, December 31, September 30, 2002 2001 2002 2003 ----------------------------------------------------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,511,997) $(1,675,158) $(7,943,901) $(1,546,805) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 162,496 142,250 453,221 123,666 Unrealized loss (gain) from foreign currency transactions 16,096 (1,603) 14,493 17,171 Warrants issued to related party for legal services -- -- 95,000 -- Issuance of stock options and warrants for services rendered 595,188 21,012 667,557 368,573 Issuance of common stock for services rendered -- 30,000 40,010 -- Issuance of common stock for research and development -- -- 300,000 -- Amortization of original issue discount -- -- 329,625 -- Amortization of deferred financing costs -- -- 188,125 -- Changes in operating assets and liabilities: Prepaid expenses (39,847) 5,102 (71,841) 64,521 Grant receivable -- -- -- (68,000) Security deposit (1,203) (1,625) (3,453) (85) Accounts payable and accrued expenses 113,892 (178,531) 501,288 22,194 Deferred officers salaries 187,242 297,844 884,113 71,692 Accounts payable to related party -- -- 320,297 -- Deferred revenue -- -- -- 51,000 ----------- ----------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (478,133) (1,360,709) (4,225,466) (896,073) ----------- ----------- ----------- ----------- CASH USED IN INVESTING ACTIVITIES Purchases of property and equipment (6,945) (196,718) (817,450) (63,819) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 500,000 400,000 4,632,376 880,706 Proceeds from issuance of warrants -- -- 40,000 -- Proceeds from notes payable -- -- -- -- Issuance of bridge note payable -- -- 750,000 -- Payment of deferred financing costs -- -- (147,500) -- Proceeds from common stock to be issued -- -- -- 402,696 Repayments of notes payable (40,259) (37,042) (86,678) (105,537) ----------- ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 459,741 362,958 5,188,198 1,177,865 ----------- ----------- ----------- ----------- NET (DECREASE) INCREASE IN CASH (25,337) (1,194,469) 145,282 217,973 CASH AND CASH EQUIVALENTS - Beginning 170,619 1,365,088 -- 145,282 ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - Ending $ 145,282 $ 170,619 $ 145,282 $ 363,255 ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the periods for: Interest $ 1,842 $ 1,093 $ 945,753 $ 1,623 Income Taxes $ 1,867 $ -- $ 2,642 $ 475 Noncash financing activities: Conversion of bridge notes $ -- $ -- $ 790,625 $ -- Conversion of accounts payable to notes payable $ 70,736 $ 133,606 $ 237,861 $ 31,958

Cumulative for the Period from February 7, For the Nine 1997 (Inception) Months Ended Through September 30, September 30, 2002 2003 ----------------------------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(781,269) $(9,490,706) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 121,873 576,887 Unrealized loss (gain) from foreign currency transactions 8,778 31,664 Warrants issued to related party for legal services -- 95,000 Issuance of stock options and warrants for services rendered 130,738 1,036,130 Issuance of common stock for services rendered -- 40,010 Issuance of common stock for research and development -- 300,000 Amortization of original issue discount -- 329,625 Amortization of deferred financing costs -- 188,125 Changes in operating assets and liabilities: Prepaid expenses 26,600 (7,320) Grant receivable -- (68,000) Security deposit (1,203) (3,538) Accounts payable and accrued expenses 15,176 523,482 Deferred officers salaries 142,242 955,805 Accounts payable to related party -- 320,297 Deferred revenue -- 51,000 --------- ----------- NET CASH USED IN OPERATING ACTIVITIES (337,065) (5,121,539) --------- ----------- CASH USED IN INVESTING ACTIVITIES Purchases of property and equipment (6,945) (881,269) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 325,000 5,513,082 Proceeds from issuance of warrants -- 40,000 Proceeds from notes payable -- Issuance of bridge note payable -- 750,000 Payment of deferred financing costs -- (147,500) Proceeds from common stock to be issued -- 402,696 Repayments of notes payable (23,156) (192,215) --------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 301,844 6,366,063 --------- ----------- NET (DECREASE) INCREASE IN CASH (42,166) 363,255 CASH AND CASH EQUIVALENTS - Beginning 170,619 -- --------- ----------- CASH AND CASH EQUIVALENTS - Ending $ 128,453 $ 363,255 --------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the periods for: Interest $ 670 $ 962,615 Income Taxes $ 1,867 $ 3,117 Noncash financing activities: Conversion of bridge notes $ -- $ 790,625 Conversion of accounts payable to notes payable $ -- $ 269,819

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