Filed Pursuant to Rule
424(b)(3)
Registration No.
333-156810
PROSPECTUS
NEOPROBE
CORPORATION
11,500,000
Shares of Common Stock
This
prospectus relates to the sale of up to 11,500,000 shares of our common stock by
Fusion Capital Fund II, LLC (Fusion Capital). Fusion Capital is sometimes
referred to in this prospectus as the selling stockholder. The prices at
which Fusion Capital may sell the shares will be determined by the prevailing
market price for the shares or in negotiated transactions. We will not
receive proceeds from the sale of our shares by Fusion Capital.
Our
common stock is registered under Section 12(g) of the Securities Exchange Act of
1934 and quoted on the OTC Bulletin Board under the symbol NEOP. On
September 29, 2010, the last reported sale price for our common stock as
reported on the OTC Bulletin Board was $1.86 per share.
The
selling stockholder is an “underwriter” within the meaning of the Securities Act
of 1933, as amended.
THE
SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER THE RISK FACTORS BEGINNING ON PAGE 5 BEFORE PURCHASING OUR
COMMON STOCK.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is October 4, 2010.
TABLE OF CONTENTS
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Page
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Prospectus
Summary
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2
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Risk
Factors
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5
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Special Note Regarding
Forward-Looking Statements
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15
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Where You Can Find More
Information and Incorporation by Reference
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16
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Use of
Proceeds
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17
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Description of Capital
Stock
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17
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Anti-Takeover Charter Provisions
and Laws
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18
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The Fusion
Transaction
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20
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Selling
Stockholders
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24
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Plan of
Distribution
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24
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Legal
Matters
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25
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Experts
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25
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Unless otherwise specified, the
information in this prospectus is set forth as of September 30, 2010, and we
anticipate that changes in our affairs will occur after such date. We have
not authorized any person to give any information or to make any
representations, other than as contained in this prospectus, in connection with
the offer contained in this prospectus. If any person gives you any
information or makes representations in connection with this offer, do not rely
on it as information we have authorized. This prospectus is not an offer
to sell our common stock in any state or other jurisdiction to any person to
whom it is unlawful to make such offer.
PROSPECTUS
SUMMARY
The
following summary highlights selected information from this prospectus and may
not contain all the information that is important to you. To understand our
business and this offering fully, you should read this entire prospectus
carefully, including the financial statements and the related notes beginning on
page F-1. When we refer in this prospectus to the “company,” “we,” “us,” and
“our,” we mean Neoprobe Corporation, a Delaware corporation, together with our
subsidiaries. This prospectus contains forward-looking statements and
information relating to Neoprobe Corporation. See Cautionary Note
Regarding Forward Looking Statements on page 15.
Our
Company
Neoprobe
Corporation is a biomedical technology company that provides innovative surgical
and diagnostic oncology products that enhance patient care and improve patient
outcome. We currently market a line of medical devices, our neoprobe® GDS
gamma detection systems, that are used in a cancer staging procedure called
intraoperative lymphatic mapping. In addition to our medical device
products, we have two radiopharmaceutical products, Lymphoseek® and
RIGScanTM CR, in
advanced phases of clinical development. We are also exploring the
development of our activated cellular therapy (ACT) technology for
patient-specific disease treatment through our majority-owned subsidiary, Cira
Biosciences, Inc. (Cira Bio).
We were
originally incorporated in Ohio in 1983 and reincorporated in Delaware in
1988. Our executive offices are located at 425 Metro Place North, Suite
300, Dublin, Ohio 43017. Our telephone number is (614) 793-7500. Our corporate website is
www.neoprobe.com. This
reference to our website is a textual reference only. We do not
incorporate the information on our website into this prospectus and you should
not consider any information on, or that can be accessed through, our website as
part of this prospectus.
From our
inception through 1998, we devoted substantially all of our efforts and
resources to the research and clinical development of radiopharmaceutical and
medical device technologies related to the intraoperative diagnosis and
treatment of cancers, including our proprietary radioimmunoguided surgery
(RIGS®)
technology. In 1998, U.S. and European regulatory agencies completed
evaluations and discussions of the status of the regulatory pathway for our RIGS
products, which coupled with our limited financial resources at the time, caused
us to suspend our radiopharmaceutical development activities and refocus our
operating strategy on our medical device business. After achieving
profitability in the fourth quarter of 1999 following this retrenchment, we
expanded our medical device offerings at the beginning of 2002 through the
acquisition of an Israeli company that was developing a line of blood flow
measurement devices.
Although
we had expanded our strategic focus with the addition of medical devices outside
the oncology field, we continued to look for other avenues to reinvigorate our
radiopharmaceutical development portfolio. In 2004, our efforts resulted
in a number of positive events that caused us to take steps to re-activate our
radiopharmaceutical and therapeutic initiatives. As a result of our
efforts since 2004, we now have submitted data from a Phase 3 clinical trial of
one of our radiopharmaceutical products, Lymphoseek®, to the
U.S. Food and Drug Administration (FDA) for review and have held a successful
meeting with FDA that has clarified the process for the near-term filing of a
new drug application (NDA) to FDA. In addition, we are enrolling patients
in a second Phase 3 clinical trial intended to further support and expand our
proposed product labeling for Lymphoseek and to support European filing for the
product. Interest in, and activity related to, our original
radiopharmaceutical product, RIGScanTM CR, has
also increased significantly in recent years as we received formal scientific
advice in late 2008 from the European Medicinal Evaluation Agency (EMEA)
regarding our regulatory and clinical development plans for RIGScan CR. We
have initiated action to obtain similar feedback from FDA and plan to file
amendments to our investigational new drug (IND) protocol in the coming months
to be followed by a Special Protocol Assessment (SPA) request. Our
subsidiary, Cira Biosciences, Inc. (Cira Bio), is also evaluating the market
opportunities for yet another technology platform, activated cellular therapy
(ACT). The success we have been experiencing in recent years related to
our drug development activities caused us, during 2009, to re-evaluate our
product initiatives and strategies. As a result of this evaluation, we
made the decision during the third quarter of 2009 to discontinue the operations
of our blood flow measurement device product line and to look for opportunities
to divest our Cardiosonix Ltd. subsidiary. We believe this decision will
allow us to better focus on our oncology-related development platforms as we
approach several key milestones in the coming twelve to eighteen
months.
We
believe that our virtual business model is unique within our industry as we
combine revenue generation from medical devices to cover our public company
overhead while we devote capital raised through financing efforts to the
development of products such as Lymphoseek which possess even greater potential
for shareholder return. In addition, we have sought to maintain a
development pipeline with additional longer-term return potential such as
RIGScan CR and ACT that provide the opportunity for incremental return on the
achievement of key development and funding milestones.
The
Offering
Fusion
Capital, the selling stockholder under this prospectus, is offering for sale up
to 11,500,000 shares of our common stock hereunder. On December 1, 2006, we
entered into a common stock purchase agreement with Fusion Capital, an Illinois
limited liability company, to sell $6,000,000 of our common stock over a
24-month period which ended on November 21, 2008. Through November 21,
2008, we sold to Fusion Capital under the agreement 7,568,671 shares for
proceeds of $1,950,000. None of the 7,568,671 shares are part of the
offering pursuant to this prospectus. On December 1, 2006, we issued to
Fusion Capital 720,000 shares of our common stock as a commitment fee upon
execution of the agreement. In connection with sales of our common stock,
we issued an additional 234,000 shares of our common stock to Fusion Capital as
an additional commitment fee. None of the 720,000 shares or the 234,000 shares
are part of the offering pursuant to this prospectus.
In
December 2008, we entered into an amendment to the agreement which gave us a
right to sell an additional $6,000,000 of our common stock to Fusion Capital
before March 1, 2011, along with the $4,050,000 of the unsold balance of the
$6,000,000 we originally had the right to sell to Fusion Capital under the
original agreement. We issued an additional 360,000 shares in
consideration for Fusion Capital’s agreement to enter into the amendment.
All 360,000 shares are part of the offering pursuant to this prospectus.
Pursuant to the amended agreement, as an additional commitment fee, we also
agreed to issue to Fusion Capital pro rata 486,000 shares of our common stock as
we sold the first $4,050,000 of our common stock to Fusion Capital under the
agreement as amended. In March 2010, we sold to Fusion Capital under
the amended agreement 540,541 shares for proceeds of $1,000,000, and issued
Fusion Capital 120,000 additional commitment shares in connection with the
sale. All 540,541 shares and 120,000 shares are part of the offering
pursuant to this prospectus. Subsequent to this sale, the remaining
aggregate amount of our common stock we can sell to Fusion Capital is
$9,050,000, and we have reserved a total of 10,113,459 shares of our common
stock for sale under the amended agreement. All 10,113,459 shares are part
of the offering pursuant to this prospectus. Following the issuance of the
120,000 commitment shares in connection with the March 2010 sale referenced
above, 366,000 commitment shares remain to be issued as we sell the remaining
$3,050,000 of the unsold balance of the $6,000,000 we originally had the right
to sell to Fusion Capital under the original agreement. All 366,000 shares
are part of the offering pursuant to this prospectus.
Our right
to make sales under the amended agreement is limited to $50,000 every two
business days, unless our stock price equals or exceeds $0.30 per share, in
which case we can sell greater amounts to Fusion Capital as the price of our
common stock increases. Fusion Capital does not have the right or any
obligation to purchase any shares on any business day that the market price of
our common stock is less than $0.20 per share. Assuming all 10,113,459
shares are sold, the selling price per share would have to average approximately
$0.90 for us to receive the full $9,050,000 remaining proceeds under the
agreement as amended. Assuming we sell to Fusion Capital all 10,113,459
shares at a sale price of $1.86 per share (the closing sale price of the common
stock on September 29, 2010), we would receive the full remaining $9,050,000
under the agreement.
As of
September 28, 2010, there were 82,387,411 shares of our common stock outstanding
(79,784,297 shares held by non-affiliates) including the 360,000 shares we
issued to Fusion Capital in consideration for Fusion Capital’s entering into the
first amendment, the 540,541 shares sold to Fusion Capital in March 2010, the
120,000 commitment shares issued to Fusion in connection with the March 2010
sale, and the 7,568,671 shares acquired by Fusion Capital pursuant to the stock
purchase agreement prior to the date of the first amendment to common stock
purchase agreement, but excluding the 10,113,459 shares which have not yet been
issued and purchased by Fusion Capital and the remaining 366,000 additional
commitment fee shares which have not yet been issued to Fusion Capital. If
all 11,500,000 shares offered hereby were issued and outstanding as of the date
hereof, the 11,500,000 shares would represent 12.4% of the total common stock
outstanding or 12.7% of the non-affiliate shares outstanding as of the date
hereof.
In
summary, this prospectus covers: (i) 360,000 shares of our common stock issued
to Fusion Capital in consideration for its agreement to enter into the amendment
to the common stock purchase agreement; (ii) 540,541 shares sold to Fusion
Capital under the amended agreement in March 2010; (iii) 120,000 commitment fee
shares issued to Fusion Capital in connection with the March 2010 sale; (iii)
366,000 additional commitment fee shares to be issued pro rata as we sell the
remaining $3,050,000 of the unsold balance of the $6,000,000 we had the right to
sell to Fusion Capital under the original agreement; and (vi) 10,113,459 shares
of our common stock which we may sell to Fusion Capital pursuant to the terms of
the common stock purchase agreement as amended. Under the agreement, we
have the right but not the obligation to sell more than the 10,113,459 shares to
Fusion Capital. As of the date hereof, we do not currently have any plans
or intent to sell to Fusion Capital any shares beyond the 10,113,459
shares. However, if we elect to sell more than the 10,113,459 shares, we
must first register any additional shares we may elect to sell to Fusion Capital
under the Securities Act before we can sell such additional shares. The
number of shares ultimately offered for sale by Fusion Capital is dependent upon
the number of shares purchased by Fusion Capital under the
agreement.
We do not
have the right to commence any sales of our shares to Fusion Capital until the
Securities & Exchange Commission has declared effective the registration
statement of which this prospectus forms a part. The registration statement was
declared effective on October 4, 2010, and the conditions to commence funding
were satisfied. Generally we have the right but not the obligation from
time to time but prior to March 1, 2011, to sell our shares to Fusion Capital in
amounts between $50,000 and $1.0 million depending on certain conditions set
forth in the common stock purchase agreement. We have the right to
control the timing and amount of any sales of our shares to Fusion
Capital. The purchase price of the shares will be determined based upon
the market price of our shares without any fixed discount at the time of each
sale. Fusion Capital shall not have the right nor the obligation to
purchase any shares of our common stock on any business day that the price of
our common stock is below $0.20. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the
agreement. The agreement may be terminated by us at any time at our discretion
without any cost to us.
An
investment in our common stock is highly speculative and involves a high degree
of risk. See Risk Factors beginning on page 5.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below, together with all of the other
information included in this prospectus, before making an investment
decision. If any of the following risks actually occurs, our business,
financial condition or results of operations could suffer. In that case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
We
have suffered significant operating losses for several years in our history and
we may not be able to again achieve profitability.
We had an
accumulated deficit of approximately $246 million as of June 30, 2010.
Although we were profitable in 2000 and 2001, we incurred substantial losses in
the years prior to that, and again in subsequent years. The deficit
resulted because we expended more money in the course of researching, developing
and enhancing our technology and products and establishing our marketing and
administrative organizations than we generated in revenues, and because of the
significant non-cash losses we have recognized related to accounting for certain
of the complex financial instruments we have issued in recent years to fund our
business. We expect to continue to incur significant expenses in the
foreseeable future, primarily related to the completion of development and
commercialization of Lymphoseek, but also potentially related to RIGS and our
device product lines. As a result, we are sustaining substantial operating
and net losses, and it is possible that we will never be able to sustain or
develop the revenue levels necessary to again attain profitability.
Our
products and product candidates may not achieve the broad market acceptance they
need in order to be a commercial success.
Widespread
use of our handheld gamma detection devices is currently limited to one surgical
procedure, sentinel lymph node biopsy (SLNB), used in the diagnosis and
treatment of two primary types of cancer: melanoma and breast cancer.
While the adoption of SLNB within the breast and melanoma indications appears to
be widespread, we believe expansion of SLNB to other indications such as head
and neck, colorectal and prostate cancers is likely dependent on a better
lymphatic tissue targeting agent than is currently available. Without
expanded indications in which to apply SLNB, it is likely that gamma detection
devices will eventually reach market saturation. Our efforts and those of
our marketing and distribution partners may not result in significant demand for
our products, and the current demand for our products may decline.
Our
radiopharmaceutical product candidates, Lymphoseek and RIGScan CR, are still in
the process of development, and even if we are successful in commercializing
them, we cannot assure you that they will obtain significant market
acceptance.
We
may have difficulty raising additional capital, which could deprive us of
necessary resources.
We expect
to continue to devote significant capital resources to fund research and
development and to maintain existing and secure new manufacturing
capacity. In order to support the initiatives envisioned in our business
plan, we may need to raise additional funds through the sale of assets, public
or private debt or equity financing, collaborative relationships or other
arrangements. Our ability to raise additional financing depends on many
factors beyond our control, including the state of capital markets, the market
price of our common stock and the development or prospects for development of
competitive technology by others. Because our common stock is not listed
on a major stock market, many investors may not be willing or allowed to
purchase it or may demand steep discounts. Sufficient additional financing
may not be available to us or may be available only on terms that would result
in further dilution to the current owners of our common stock.
We
believe that we have access to sufficient financial resources with which to fund
our operations or those of our subsidiaries for the foreseeable future.
Depending on market conditions and/or changes in our business plans, we may
raise capital in coming quarters under this registration statement or we may
consider other funding vehicles. The continuation of the depressed
worldwide financial conditions and stock market valuations may adversely affect
our ability to raise additional capital, either under facilities in place or
from new sources of capital. If we are unsuccessful in raising additional
capital, closing on financing under already agreed to terms, or the terms of
raising such capital are unacceptable, we may have to modify our business plan
and/or significantly curtail our planned development activities and other
operations.
In
December 2006, we entered into a common stock purchase agreement with Fusion
Capital, an Illinois limited liability company, to sell $6,000,000 of our common
stock over a 24-month period which ended on November 21, 2008. Through
November 21, 2008, we sold to Fusion Capital under the agreement 7,568,671
shares for proceeds of $1,950,000. In December 2008, we entered into an
amendment to the agreement which gave us a right to sell an additional
$6,000,000 of our common stock to Fusion Capital before March 1, 2011, along
with the $4,050,000 of the unsold balance of the $6,000,000 we originally had
the right to sell to Fusion Capital under the original agreement. In March
2010, we sold to Fusion Capital under the amended agreement 540,541 shares for
proceeds of $1,000,000. Subsequent to this sale, the remaining aggregate
amount of our common stock we can sell to Fusion Capital is $9,050,000, and we
have reserved a total of 10,113,459 shares of our common stock for sale under
the amended agreement. Our right to make sales under the amended agreement
is limited to $50,000 every two business days, unless our stock price equals or
exceeds $0.30 per share, in which case we can sell greater amounts to Fusion
Capital as the price of our common stock increases. Fusion Capital does
not have the right or any obligation to purchase any shares on any business day
that the market price of our common stock is less than $0.20 per share.
Assuming all 10,113,459 shares are sold, the selling price per share would have
to average approximately $0.90 for us to receive the full $9,050,000 remaining
proceeds under the agreement as amended. Assuming we sell to Fusion
Capital all 10,113,459 shares at a sale price of $1.86 per share (the closing
sale price of the common stock on September 29, 2010), we would receive the full
remaining $9,050,000 under the agreement. Under the agreement, we have the
right but not the obligation to sell more than the 10,113,459 shares to Fusion
Capital. As of the date hereof, we do not currently have any plans or
intent to sell to Fusion Capital any shares beyond the 10,113,459 shares.
However, if we elect to sell more than the 10,113,459 shares, we must first
register any additional shares we may elect to sell to Fusion Capital under the
Securities Act before we can sell such additional shares.
The
extent to which we rely on Fusion Capital as a source of funding will depend on
a number of factors, including the prevailing market price of our common stock
and the extent to which we are able to secure working capital from other
sources, such as through the sale of our products. To the extent that we
are unable to make sales to Fusion Capital to meet our capital needs, or to the
extent that we decide not to make such sales because of excessive dilution or
other reasons, and if we are unable to generate sufficient revenues from sales
of our products, we will need to secure another source of funding in order to
satisfy our working capital needs. Even if we are able to access the full
$9,050,000 potentially remaining under the agreement with Fusion Capital, we may
still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, the
consequences could be a material adverse effect on our business, operating
results, financial condition and prospects.
Clinical
trials for our radiopharmaceutical product candidates will be lengthy and
expensive and their outcome is uncertain.
Before
obtaining regulatory approval for the commercial sale of any product candidates,
we must demonstrate through preclinical testing and clinical trials that our
product candidates are safe and effective for use in humans. Conducting
clinical trials is a time consuming, expensive and uncertain process and may
take years to complete. During 2009, we successfully completed a Phase 3
clinical trial in patients with breast cancer or melanoma for our most advanced
radiopharmaceutical product candidate, Lymphoseek. We began enrolling
clinical subjects in a second Phase 3 trial for Lymphoseek in patients with head
and neck squamous cell carcinoma in the third quarter of 2009 and in a third
Phase 3 trial in subjects with breast cancer and melanoma in the third quarter
of 2010. While neither the second or third trials are required to be
completed in order to file our new drug application (NDA) for
Lymphoseek, these trials are intended to contribute additional data for safety
evaluation purposes and to support expanded post-marketing product labeling for
Lymphoseek. In late 2008, we obtained approval from the European Medicines
Agency (EMEA) for a Phase 3 clinical protocol for our next radiopharmaceutical
candidate, RIGScan CR, and we are preparing to approach FDA to obtain similar
clearance. Historically, the results from preclinical testing and early
clinical trials have often not been predictive of results obtained in later
clinical trials. Frequently, drugs that have shown promising results in
preclinical or early clinical trials subsequently fail to establish sufficient
safety and efficacy data necessary to obtain regulatory approval. At any
time during the clinical trials, we, the participating institutions, FDA or EMEA
might delay or halt any clinical trials for our product candidates for various
reasons, including:
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ineffectiveness
of the product candidate;
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discovery
of unacceptable toxicities or side
effects;
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development
of disease resistance or other physiological
factors;
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delays
in patient enrollment; or
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other
reasons that are internal to the businesses of our potential collaborative
partners, which reasons they may not share with
us.
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While we
have achieved some level of success in our recent Phase 2 and Phase 3 clinical
trials for Lymphoseek, the results of these clinical trials, as well as pending
and future trials, are subject to review and interpretation by various
regulatory bodies during the regulatory review process and may ultimately fail
to demonstrate the safety or effectiveness of our product candidates to the
extent necessary to obtain regulatory approval or such that commercialization of
our product candidates is worthwhile. Any failure or substantial delay in
successfully completing clinical trials and obtaining regulatory approval for
our product candidates could severely harm our business.
If
we fail to obtain collaborative partners, or those we obtain fail to perform
their obligations or discontinue clinical trials for particular product
candidates, our ability to develop and market potential products could be
severely limited.
Our
strategy for the development and commercialization of our product candidates
depends, in large part, upon the formation of collaborative arrangements.
Collaborations may allow us to:
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generate
cash flow and revenue;
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offset
some of the costs associated with our internal research and development,
preclinical testing, clinical trials and
manufacturing;
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seek
and obtain regulatory approvals faster than we could on our own;
and
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successfully
commercialize existing and future product
candidates.
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We have
an agreement in place with Cardinal Health for the distribution of Lymphoseek in
the United States. We do not currently have collaborative agreements
covering Lymphoseek in other areas of the world or for RIGScan CR or ACT.
We cannot assure you that we will be successful in securing collaborative
partners for other markets or radiopharmaceutical products, or that we will be
able to negotiate acceptable terms for such arrangements. The development,
regulatory approval and commercialization of our product candidates will depend
substantially on the efforts of collaborative partners, and if we fail to secure
or maintain successful collaborative arrangements, or if our partners fail to
perform their obligations, our development, regulatory, manufacturing and
marketing activities may be delayed, scaled back or suspended.
We
rely on third parties for the worldwide marketing and distribution of our gamma
detection devices, who may not be successful in selling our
products.
We
currently distribute our gamma detection devices in most global markets through
partners who are solely responsible for marketing and distributing these
products. The partners assume direct responsibility for business risks
related to credit, currency exchange, foreign tax laws or tariff and trade
regulation. For the past ten years, our primary marketing and distribution
partner for our gamma detection devices has been Ethicon Endo-Surgery, Inc.
(EES), a Johnson & Johnson company. Recently, EES sold its breast care
franchise, the group that is responsible for selling our gamma detection
devices, to Devicor Medical Products, Inc. (Devicor). While we believe
that Devicor as our distribution partner intends to continue to aggressively
market our products, we cannot assure you that the distribution partner will
succeed in marketing our products on a global basis. We may not be able to
maintain satisfactory arrangements with our marketing and distribution partners,
who may not devote adequate resources to selling our products. If this
happens, we may not be able to successfully market our products, which would
decrease our revenues.
Our
radiopharmaceutical product candidates are subject to extensive government
regulations and we may not be able to obtain necessary regulatory
approvals.
We may
not receive the regulatory approvals necessary to commercialize our Lymphoseek
and RIGScan product candidates, which could cause our business to be severely
harmed. Our product candidates are subject to extensive and rigorous
government regulation. FDA regulates, among other things, the development,
testing, manufacture, safety, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical products.
If our potential products are marketed abroad, they will also be subject to
extensive regulation by foreign governments. None of our
radiopharmaceutical product candidates have been approved for sale in the United
States or in any foreign market. The regulatory review and approval
process, which includes preclinical studies and clinical trials of each product
candidate, is lengthy, complex, expensive and uncertain. Securing FDA
clearance to market requires the submission of extensive preclinical and
clinical data and supporting information to FDA for each indication to establish
the product candidate's safety and efficacy. Data obtained from
preclinical and clinical trials are susceptible to varying interpretation, which
may delay, limit or prevent regulatory approval. The approval process may
take many years to complete and may involve ongoing requirements for
post-marketing studies. In light of the limited regulatory history of
monoclonal antibody-based therapeutics, regulatory approvals for our products
may not be obtained without lengthy delays, if at all. Any FDA or other
regulatory approvals of our product candidates, once obtained, may be
withdrawn. The effect of government regulation may be to:
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delay
marketing of potential products for a considerable period of
time;
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limit
the indicated uses for which potential products may be
marketed;
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impose
costly requirements on our activities;
and
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provide
competitive advantage to other pharmaceutical and biotechnology
companies.
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We may
encounter delays or rejections in the regulatory approval process because of
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other regulatory action
against our product candidates or us. Outside the United States, our
ability to market a product is contingent upon receiving clearances from the
appropriate regulatory authorities. This foreign regulatory approval
process includes risks similar to those associated with FDA approval
process.
Our
radiopharmaceutical product candidates will remain subject to ongoing regulatory
review even if they receive marketing approval. If we fail to comply with
continuing regulations, we could lose these approvals and the sale of our
products could be suspended.
Even if
we receive regulatory clearance to market a particular product candidate, the
approval could be conditioned on us conducting additional costly post-approval
studies or could limit the indicated uses included in our labeling.
Moreover, the product may later cause adverse effects that limit or prevent its
widespread use, force us to withdraw it from the market or impede or delay our
ability to obtain regulatory approvals in additional countries. In
addition, the manufacturer of the product and its facilities will continue to be
subject to FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing clearance, the manufacturing,
labeling, packaging, adverse event reporting, storage, advertising, promotion
and record-keeping related to the product will remain subject to extensive
regulatory requirements. We may be slow to adapt, or we may never adapt,
to changes in existing regulatory requirements or adoption of new regulatory
requirements.
If we
fail to comply with the regulatory requirements of FDA and other applicable U.S.
and foreign regulatory authorities or previously unknown problems with our
products, manufacturers or manufacturing processes are discovered, we could be
subject to administrative or judicially imposed sanctions,
including:
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restrictions
on the products, manufacturers or manufacturing
processes;
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civil
or criminal penalties;
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product
seizures or detentions;
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voluntary
or mandatory product recalls and publicity
requirements;
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suspension
or withdrawal of regulatory
approvals;
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total
or partial suspension of production;
and
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refusal
to approve pending applications for marketing approval of new drugs or
supplements to approved
applications.
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Our
existing products are highly regulated and we could face severe problems if we
do not comply with all regulatory requirements in the global markets in which
these products are sold.
FDA
regulates our gamma detection products in the United States. Foreign
countries also subject these products to varying government regulations.
In addition, these regulatory authorities may impose limitations on the use of
our products. FDA enforcement policy strictly prohibits the marketing of
FDA cleared medical devices for unapproved uses. Within the European
Union, our products are required to display the CE Mark in order to be
sold. We have obtained FDA clearance to market and European certification
to display the CE Mark on our current line of gamma detection systems. We
may not be able to obtain clearance to market any new products in a timely
manner, or at all. Failure to comply with these and other current and
emerging regulatory requirements in the global markets in which our products are
sold could result in, among other things, warning letters, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to grant pre-market clearance for devices,
withdrawal of clearances, and criminal prosecution.
We
rely on third parties to manufacture our medical device products and our
business will suffer if they do not perform.
We rely
on independent contract manufacturers for the manufacture of our current
neoprobe® GDS line
of gamma detection systems. Our business will suffer if our contract
manufacturers have production delays or quality problems. Furthermore,
medical device manufacturers are subject to the quality system regulations of
FDA, international quality standards, and other regulatory requirements.
If our contractors do not operate in accordance with regulatory requirements and
quality standards, our business will suffer. We use or rely on components
and services used in our devices that are provided by sole source
suppliers. The qualification of additional or replacement vendors is time
consuming and costly. If a sole source supplier has significant problems
supplying our products, our sales and revenues will be hurt until we find a new
source of supply. In addition, our distribution agreement with Devicor for
our gamma detection devices contains failure to supply provisions, which, if
triggered, could have a significant negative impact on our
business.
We
may be unable to establish the pharmaceutical manufacturing capabilities
necessary to develop and commercialize our potential products.
We do not
have our own manufacturing facility for the manufacture of the
radiopharmaceutical compounds necessary for clinical testing or commercial
sale. We intend to rely on third-party contract manufacturers to produce
sufficiently large quantities of drug materials that are and will be needed for
clinical trials and commercialization of our potential products.
Third-party manufacturers may not be able to meet our needs with respect to
timing, quantity or quality of materials. We have completed a supply
agreement with Reliable Biopharmaceuticals covering the manufacturing of the
active pharmaceutical ingredient in Lymphoseek and we are in the process of
finalizing supply contracts with another third-party manufacturer for the
lyophilization, vialing and filling of the finished Lymphoseek product.
However, if we are unable to contract for a sufficient supply of needed
materials on acceptable terms, or if we should encounter delays or difficulties
in our relationships with manufacturers, our clinical trials may be delayed,
thereby delaying the submission of product candidates for regulatory approval
and the market introduction and subsequent commercialization of our potential
products. Any such delays may lower our revenues and potential
profitability.
We and
any third-party manufacturers that we may use must continually adhere to current
Good Manufacturing Practices regulations enforced by FDA through its facilities
inspection program. If our facilities or the facilities of third-party
manufacturers cannot pass a pre-approval plant inspection, FDA will not grant
approval to our product candidates. In complying with these regulations
and foreign regulatory requirements, we and any of our third-party manufacturers
will be obligated to expend time, money and effort on production, record-keeping
and quality control to assure that our potential products meet applicable
specifications and other requirements. If we or any third-party
manufacturer with whom we may contract fail to maintain regulatory compliance,
we or the third party may be subject to fines and/or manufacturing operations
may be suspended.
Unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform
initiatives applicable to our radiopharmaceutical products and product
candidates could limit our potential product revenue and adversely affect our
business.
The
regulations governing drug pricing and reimbursement vary widely from country to
country. Some countries require approval of the sale price of a drug
before it can be marketed and, in many of these countries, the pricing review
period begins only after approval is granted. In some countries,
prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. Although we monitor these
regulations, our product candidates are currently in the development stage and
we will not be able to assess the impact of price regulations for at least
several years. As a result, we may obtain regulatory approval for a
product in a particular country, but then be subject to price regulations that
may delay the commercial launch of the product and may negatively impact the
revenues we are able to derive from sales in that country.
The
healthcare industry is undergoing fundamental changes resulting from political,
economic and regulatory influences. In the United States, comprehensive
programs have been proposed that seek to increase access to healthcare for the
uninsured, to control the escalation of healthcare expenditures within the
economy and to use healthcare reimbursement policies to balance the federal
budget. On March 23, 2010, health reform legislation was approved by
Congress and has been signed into law. The reform legislation provides
that most individuals must have health insurance, will establish new regulations
on health plans, create insurance pooling mechanisms and other expanded public
health care measures, and impose new taxes on sales of medical devices and
pharmaceuticals. Since this legislation was recently enacted and will
require the adoption of implementing regulations, we cannot predict the effect,
if any, that it will have on our business, but this legislation and similar
federal and state initiatives may have the effect of lowering reimbursements for
our products, reducing medical procedure volumes, increasing our taxes and
otherwise adversely affect our business, possibly materially.
We expect
that Congress and state legislatures will continue to review and assess
healthcare proposals, and public debate of these issues will likely
continue. We cannot predict which, if any, of such reform proposals will
be adopted and when they might be adopted. Other countries also are
considering healthcare reform. Significant changes in healthcare systems
could have a substantial impact on the manner in which we conduct our business
and could require us to revise our strategies.
The
sale of our common stock to Fusion Capital may cause dilution and the sale of
common stock acquired by Fusion Capital could cause the price of our common
stock to decline.
In
connection with our agreement with Fusion Capital, we have authorized the sale
of up to 18,222,671 shares of our common stock and the issuance of 1,800,000
shares in commitment fees, and we have filed a registration statement with the
SEC for the sale to the public of 11,500,000 shares issuable to Fusion Capital
pursuant to the agreement. Through August 30, 2010, we have sold Fusion
Capital 8,109,212 shares of common stock and issued 1,434,000 shares of stock as
commitment fees to Fusion Capital. The number of shares ultimately offered
for sale to the public will be dependent upon the number of shares purchased by
Fusion Capital under the agreement. It is anticipated that these shares
will be sold over a period of up to 26 months from the date of the December 24,
2008 amendment to the agreement, at prices that will fluctuate based on changes
in the market price of our common stock over that period. Depending upon
market liquidity at the times sales are made, these sales could cause the market
price of our common stock to decline. Consequently, sales to Fusion
Capital may result in substantial dilution to the interests of other holders of
our common stock. The sale of a substantial number of shares of our common
stock by Fusion Capital, or anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future at a
time and at a price that we might otherwise wish to effect sales. However,
we have the right to control the timing and amount of any sales of our shares to
Fusion Capital and the agreement may be terminated by us at any time at our
discretion without any cost to us.
The
sale of the shares of common stock acquired in private placements could cause
the price of our common stock to decline.
Over the
past few years, we completed various financings in which we issued common stock,
convertible notes, warrants and other securities convertible into common stock
to certain private investors. The terms of these transactions require that
we file registration statements with the Securities and Exchange Commission
under which the investors may resell to the public common stock acquired in
these transactions, as well as common stock acquired on the exercise of the
warrants and convertible securities held by them. Further, some or all of
the common stock sold in these transactions may become eligible for resale
without registration under the provisions of Rule 144, upon satisfaction of the
holding period and other requirements of the Rule.
As
required by our financing arrangements with Fusion Capital, we have filed a
registration statement registering for resale a total of 11,500,000 common
shares, consisting of (i) 360,000 shares of our common stock issued to Fusion
Capital in consideration for its agreement to amend the common stock purchase
agreement, (ii) 540,541 shares sold to Fusion Capital under the amended
agreement in March 2010, (iii) 120,000 commitment fee shares issued to Fusion
Capital in connection with the March 2010 sale; (iii) 366,000 additional
commitment fee shares to be issued pro rata as we sell the remaining $3,050,000
of the unsold balance of the $6,000,000 we had the right to sell to Fusion
Capital under the original agreement; and (vi) 10,113,459 shares of our common
stock which we may sell to Fusion Capital pursuant to the terms of the common
stock purchase agreement as amended. The number of shares ultimately sold
under the registration statement will be dependent upon the number of shares
purchased by Fusion Capital under the amended agreement. It is anticipated
that these shares will be sold from time to time over a period ending on March
1, 2011, at prices that will fluctuate based on changes in the market price of
our common stock over that period. We have the right to control the timing
and amount of any sales of our shares to Fusion Capital and the agreement may be
terminated by us at any time at our discretion without any cost to
us.
On
December 26, 2007, we entered into a Securities Purchase Agreement (SPA) with
Platinum-Montaur Life Sciences, LLC (Montaur), pursuant to which we issued
Montaur a 10% Series A Convertible Senior Secured Promissory Note in the
principal amount of $7,000,000, due December 26, 2011 (the Series A Note) and a
five-year Series W Warrant to purchase 6,000,000 shares of our common stock at
an exercise price of $0.32 per share. On April 16, 2008, following receipt
by the Company of clearance by the FDA to commence a Phase 3 clinical trial for
Lymphoseek in patients with breast cancer or melanoma, we amended the SPA and
issued Montaur a 10% Series B Convertible Senior Secured Promissory Note in the
principal amount of $3,000,000, also due December 26, 2011 (the Series B Note,
and hereinafter referred to collectively with the Series A Note as the Montaur
Notes), and a five-year Series X Warrant to purchase 8,333,333 shares of our
common stock at an exercise price of $0.46 per share. On December 5, 2008,
after the Company had obtained 135 vital blue dye lymph nodes from patients who
had completed surgery and the injection of the drug in the Phase 3 clinical
trial of Lymphoseek in patients with breast cancer or melanoma, we issued
Montaur 3,000 shares of our 8% Series A Cumulative Convertible Preferred Stock
(the Series A Preferred Stock) and a five-year Series Y Warrant (hereinafter
referred to collectively with the Series W Warrant and Series X Warrant as the
Montaur Warrants) to purchase 6,000,000 shares of our common stock, at an
exercise price of $0.575 per share, also for an aggregate purchase price of
$3,000,000. On July 24, 2009, we entered into a Securities Amendment and
Exchange Agreement (Amendment Agreement) with Montaur, pursuant to which Montaur
agreed to the amendment and restatement of the terms of the Montaur Notes, the
Montaur Warrants and the Preferred Stock, to remove price-based anti-dilution
adjustment provisions that had created a significant non-cash derivative
liability on the Company’s balance sheet, and upon the surrender of the Montaur
Notes and the Montaur Warrants we issued Montaur an Amended and Restated 10%
Series A Convertible Senior Secured Promissory Note in the principal amount of
$7,000,000, due December 26, 2011 (the Amended Series A Note), an Amended and
Restated 10% Series B Convertible Senior Secured Promissory Note in the
principal amount of $3,000,000, due December 26, 2011 (the Amended Series B
Note, and together with the Amended Series A Note the Amended Montaur Notes), an
Amended and Restated Series W Warrant (the Amended Series W Warrant), an Amended
and Restated Series X Warrant (the Amended Series X Warrant), an Amended and
Restated Series Y Warrant (the Amended Series Y Warrant), and in consideration
for the agreement of Montaur to enter into the Amendment Agreement, a Series AA
Warrant to purchase 2,400,000 shares of our common stock at an exercise price of
$0.97 per share (the Series AA Warrant, and together with the Amended Series W
Warrant, Amended Series X Warrant and Amended Series Y Warrant, the Amended
Montaur Warrants). On June 25, 2010, we
entered into a Securities Exchange Agreement (the Exchange Agreement) with
Montaur, pursuant to which Montaur delivered to the Company for cancellation and
retirement: (1) the Amended Montaur Notes; and (2) the Series A Preferred Stock,
in exchange for 10,000 shares of our Series B Convertible Preferred Stock
(Series B Preferred Stock). Pursuant to the provisions of the Certificate
of Designations, Voting Powers, Preferences, Limitations, Restrictions, and
Relative Rights of the Series B Convertible Preferred Stock, Montaur may convert
all or any portion of the shares of the Series B Preferred Stock into an
aggregate 32,700,000 shares of our common stock, subject to adjustment as
described in the Certificate of Designations.
Montaur
may sell none, some or all of the shares of common stock acquired from us, as
well as common stock acquired on the exercise of the warrants and convertible
securities held by them. We have no way of knowing whether or when Montaur
will sell these shares. Depending upon market liquidity at the time, a
sale of these shares at any given time could cause the trading price of our
common stock to decline. The sale of a substantial number of shares of our
common stock, or anticipation of such sales, could make it more difficult for us
to sell equity or equity-related securities in the future at a time and at a
price that we might otherwise wish to effect sales.
We
may lose out to larger and better-established competitors.
The
medical device and biotechnology industries are intensely competitive.
Some of our competitors have significantly greater financial, technical,
manufacturing, marketing and distribution resources as well as greater
experience in the medical device industry than we have. The particular
medical conditions our product lines address can also be addressed by other
medical devices, procedures or drugs. Many of these alternatives are
widely accepted by physicians and have a long history of use. Physicians
may use our competitors’ products and/or our products may not be competitive
with other technologies. If these things happen, our sales and revenues
will decline. In addition, our current and potential competitors may
establish cooperative relationships with large medical equipment companies to
gain access to greater research and development or marketing resources.
Competition may result in price reductions, reduced gross margins and loss of
market share.
Our
products may be displaced by newer technology.
The
medical device and biotechnology industries are undergoing rapid and significant
technological change. Third parties may succeed in developing or marketing
technologies and products that are more effective than those developed or
marketed by us, or that would make our technology and products obsolete or
non-competitive. Additionally, researchers could develop new surgical
procedures and medications that replace or reduce the importance of the
procedures that use our products. Accordingly, our success will depend, in
part, on our ability to respond quickly to medical and technological changes
through the development and introduction of new products. We may not have
the resources to do this. If our products become obsolete and our efforts
to develop new products do not result in any commercially successful products,
our sales and revenues will decline.
We
may not have sufficient legal protection against infringement or loss of our
intellectual property, and we may lose rights to our licensed intellectual
property if diligence requirements are not met.
Our
success depends, in part, on our ability to secure and maintain patent
protection, to preserve our trade secrets, and to operate without infringing on
the patents of third parties. While we seek to protect our proprietary
positions by filing United States and foreign patent applications for our
important inventions and improvements, domestic and foreign patent offices may
not issue these patents. Third parties may challenge, invalidate, or
circumvent our patents or patent applications in the future. Competitors,
many of which have significantly more resources than we have and have made
substantial investments in competing technologies, may apply for and obtain
patents that will prevent, limit, or interfere with our ability to make, use, or
sell our products either in the United States or abroad.
In the
United States, patent applications are secret until patents are issued, and in
foreign countries, patent applications are secret for a time after filing.
Publications of discoveries tend to significantly lag the actual discoveries and
the filing of related patent applications. Third parties may have already
filed applications for patents for products or processes that will make our
products obsolete or will limit our patents or invalidate our patent
applications.
We
typically require our employees, consultants, advisers and suppliers to execute
confidentiality and assignment of invention agreements in connection with their
employment, consulting, advisory, or supply relationships with us. They
may breach these agreements and we may not obtain an adequate remedy for
breach. Further, third parties may gain access to our trade secrets or
independently develop or acquire the same or equivalent
information.
Agencies
of the United States government conducted some of the research activities that
led to the development of antibody technology that some of our proposed
antibody-based surgical cancer detection products use. When the United
States government participates in research activities, it retains rights that
include the right to use the technology for governmental purposes under a
royalty-free license, as well as rights to use and disclose technical data that
could preclude us from asserting trade secret rights in that data and
software.
We
may lose the license rights to certain in-licensed products if we do not
exercise adequate diligence.
Our
license agreements for Lymphoseek, RIGS, and ACT contain provisions that require
that we demonstrate ongoing diligence in the continuing research and development
of these potential products. Cira Bio’s rights to certain applications of
the ACT technology may be affected by its failure to achieve certain capital
raising milestones although no such notices to that effect have been received to
date. We have provided information, as required or requested, to the
licensors of our technology indicating the steps we have taken to demonstrate
our diligence and believe we are adequately doing so to meet the terms and/or
intent of our license agreements. However, it is possible that the
licensors may not consider our actions adequate in demonstrating such
diligence. Should we fail to demonstrate the requisite diligence required
by any such agreements or as interpreted by the respective licensors, we may
lose our development and commercialization rights for the associated
product.
We
could be damaged by product liability claims.
Our
products are used or intended to be used in various clinical or surgical
procedures. If one of our products malfunctions or a physician misuses it
and injury results to a patient or operator, the injured party could assert a
product liability claim against our Company. We currently have product
liability insurance with a $10 million per occurrence limit, which we believe is
adequate for our current activities. However, we may not be able to
continue to obtain insurance at a reasonable cost. Furthermore, insurance
may not be sufficient to cover all of the liabilities resulting from a product
liability claim, and we might not have sufficient funds available to pay any
claims over the limits of our insurance. Because personal injury claims
based on product liability in a medical setting may be very large, an
underinsured or an uninsured claim could financially damage our
Company.
We
may have difficulty attracting and retaining qualified personnel and our
business may suffer if we do not.
Our
business has experienced a number of successes and faced several challenges in
recent years that have resulted in several significant changes in our strategy
and business plan, including the shifting of resources to support our current
product initiatives. Our management will need to remain flexible to
support our business model over the next few years. However, losing
members of the Neoprobe management team could have an adverse effect on our
operations. Our success depends on our ability to attract and retain
technical and management personnel with expertise and experience in the medical
device business. The competition for qualified personnel in the
biotechnology industry is intense and we may not be successful in hiring or
retaining the requisite personnel. If we are unable to attract and retain
qualified technical and management personnel, we will suffer diminished chances
of future success.
Our
common stock is traded over the counter, which may deprive stockholders of the
full value of their shares.
Our
common stock is quoted via the OTC Bulletin Board (OTCBB). As such, our
common stock may have fewer market makers, lower trading volumes and larger
spreads between bid and ask prices than securities listed on an exchange such as
the New York Stock Exchange or the NASDAQ Stock Market. These factors may
result in higher price volatility and less market liquidity for the common
stock.
A
low market price may severely limit the potential market for our common
stock.
Our
common stock is currently trading at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any
non-NASDAQ equity security that has a market price share of less than $5.00 per
share, subject to certain exceptions (a "penny stock"). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and institutional or wealthy
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer,
current bid and offer quotations for the penny stock and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Such information must be
provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The additional
burdens imposed upon broker-dealers by such requirements could discourage
broker-dealers from effecting transactions in our common stock.
The
price of our common stock has been highly volatile due to several factors that
will continue to affect the price of our stock.
Our
common stock traded as low as $0.95 per share and as high as $2.30 per share
during the 12-month period ended September 29, 2010. The market price of
our common stock has been and is expected to continue to be highly
volatile. Factors, including announcements of technological innovations by
us or other companies, regulatory matters, new or existing products or
procedures, concerns about our financial position, operating results,
litigation, government regulation, developments or disputes relating to
agreements, patents or proprietary rights, may have a significant impact on the
market price of our stock. In addition, potential dilutive effects of
future sales of shares of common stock by the Company and by stockholders, and
subsequent sale of common stock by the holders of warrants and options could
have an adverse effect on the market price of our shares.
Some
additional factors which could lead to the volatility of our common stock
include:
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price
and volume fluctuations in the stock market at large which do not relate
to our operating performance;
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financing
arrangements we may enter that require the issuance of a significant
number of shares in relation to the number of shares currently
outstanding;
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public
concern as to the safety of products that we or others develop;
and
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fluctuations
in market demand for and supply of our
products.
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An
investor’s ability to trade our common stock may be limited by trading
volume.
Generally,
the trading volume for our common stock has been relatively limited. A
consistently active trading market for our common stock may not occur on the
OTCBB. The average daily trading volume for our common stock on the OTCBB
for the 12-month period ended September 28, 2010 was approximately 119,000
shares.
Some
provisions of our organizational and governing documents may have the effect of
deterring third parties from making takeover bids for control of our Company or
may be used to hinder or delay a takeover bid.
Our
certificate of incorporation authorizes the creation and issuance of “blank
check” preferred stock. Our Board of Directors may divide this stock into
one or more series and set their rights. The Board of Directors may,
without prior stockholder approval, issue any of the shares of “blank check”
preferred stock with dividend, liquidation, conversion, voting or other rights,
which could adversely affect the relative voting power or other rights of the
common stock. Preferred stock could be used as a method of discouraging,
delaying, or preventing a take-over of our Company. If we issue “blank
check” preferred stock, it could have a dilutive effect upon our common
stock. This would decrease the chance that our stockholders would realize
a premium over market price for their shares of common stock as a result of a
takeover bid.
Because
we will not pay dividends in the foreseeable future, stockholders will only
benefit from owning common stock if it appreciates.
We have
never paid dividends on our common stock and we do not intend to do so in the
foreseeable future. We intend to retain any future earnings to finance our
growth. Accordingly, any potential investor who anticipates the need for
current dividends from his investment should not purchase our common
stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus and the information incorporated by reference in this prospectus
contain forward-looking statements. We sometimes use words such as
“anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “predict,” “project,” “should,” “will” and similar
expressions, as they relate to us, our management and our industry, to identify
forward-looking statements. Forward-looking statements relate to our
expectations, beliefs, plans, strategies, prospects, future performance,
anticipated trends and other future events. Specifically, this prospectus
and the information incorporated by reference in this prospectus contain
forward-looking statements relating to, among other things:
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our
primary operating costs and
expenses;
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evaluation
of possible acquisitions of, or investments in business, products and
technologies; and
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sufficiency
of existing cash to meet operating
requirements.
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These
statements involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry’s past results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such
forward-looking statements. Actual results may differ materially.
Some of the risks, uncertainties and assumptions that may cause actual results
to differ from these forward-looking statements are described in “Risk Factors”
and elsewhere in this prospectus, and may also be found in an accompanying
prospectus supplement and in information incorporated by reference.
You
should read this prospectus, the documents that we filed as exhibits to the
registration statement of which this prospectus is a part and the documents that
we incorporate by reference in this prospectus completely and with the
understanding that our future results may be materially different from what we
expect. We qualify all of our forward-looking statements by these
cautionary statements, and we assume no obligation to update these
forward-looking statements publicly for any reason.
WHERE
YOU CAN FIND MORE INFORMATION
AND
INCORPORATION BY REFERENCE
We have
filed a registration statement on Form S-3 with the Securities and Exchange
Commission. This prospectus does not contain all of the information in the
registration statement. In addition, we file annual, quarterly and special
reports, proxy statements and other information with the Commission. Our
Commission filings are available to the public over the Internet at the
Commission’s web site at http://www.sec.gov. You may also read and copy
any document we file with the Commission at its public reference facilities at
100 F Street, N.E., Washington, DC 20549. You can also obtain copies of
the documents at prescribed rates by writing to the Public Reference Section of
the Commission at 100 F Street, N.E., Washington, DC 20549. Please call
the Commission at 1-800-SEC-0330 for further information on the operation of the
public reference facilities.
We
“incorporate by reference” into this prospectus the information we file with the
Commission (Commission file number 0-26520), which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this
prospectus. Information that we file with the Commission after the date of
this prospectus will automatically update this prospectus. We incorporate
by reference the documents listed below, and any filings we make with the
Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 after the initial filing of the registration statement that
contains this prospectus (except for information furnished and not filed with
the Commission in a Current Report on Form 8-K):
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our
Annual Report on Form 10-K for the year ended December 31, 2009, filed
with the Commission on March 31,
2010;
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our
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
2010, filed with the Commission on May 14, 2010, and June 30, 2010, filed
with the Commission on August 10,
2010;
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our
Current Reports on Form 8-K, dated January 11, 2010 (filed January 11,
2010), dated January 26, 2010 (filed January 28, 2010), dated February 24,
2010 (filed February 26, 2010), dated March 11, 2010 (filed March 12,
2010), dated May 26, 2010 (filed May 27, 2010), dated June 22, 2010 (filed
June 28, 2010) and dated July 16, 2010 (filed July 20, 2010);
and
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the
description of our common stock which is contained in our Form 8-A filed
with the Commission pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, as updated in any amendment or report filed for the
purpose of updating such
description.
|
Information furnished by us in Current
Reports on Form 8-K under Items 2.02 and 9.01 is expressly not incorporated by
reference in this prospectus.
We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, without charge, upon written or oral request, a copy of any or all of
the documents that are incorporated by reference into this prospectus but not
delivered with the prospectus, including exhibits that are specifically
incorporated by reference into such documents. You may request a copy of
these filings at no cost, by writing to or telephoning us at:
Neoprobe
Corporation
Attn:
Brent L. Larson
425 Metro
Place North
Dublin,
Ohio 43017-1367
(614)
822-2330
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholder. We will receive no proceeds from
the sale of shares of common stock in this offering.
DESCRIPTION
OF CAPITAL STOCK
The
following description of our capital stock is only a summary and is subject to
the provisions of our amended and restated certificate of incorporation, or
certificate of incorporation, and our amended and restated by-laws, or by-laws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and provisions of applicable law.
Our
articles of incorporation authorize our board of directors to issue 200,000,000
shares of common stock and 5,000,000 shares of preferred stock. As of
September 28, 2010, 82,387,411 shares of common stock were issued and
outstanding, and 11,000 shares of preferred stock were issued and
outstanding.
Common
Stock
Dividends
Each
share of common stock is entitled to receive an equal dividend, if one is
declared, which is unlikely. We have never paid dividends on our common stock
and do not intend to do so in the foreseeable future. We intend to retain any
future earnings to finance our growth. See Risk Factors.
Liquidation
If our
company is liquidated, any assets that remain after the creditors are paid, and
the owners of preferred stock receive any liquidation preferences, will be
distributed to the owners of our common stock pro-rata.
Voting
Rights
Each
share of our common stock entitles the owner to one vote. There is no cumulative
voting. A simple majority can elect all of the directors at a given meeting and
the minority would not be able to elect any directors at that
meeting.
Preemptive
Rights
Owners of
our common stock have no preemptive rights. We may sell shares of our common
stock to third parties without first offering it to current
stockholders.
Redemption
Rights
We do not
have the right to buy back shares of our common stock except in extraordinary
transactions such as mergers and court approved bankruptcy reorganizations.
Owners of our common stock do not ordinarily have the right to require us to buy
their common stock. We do not have a sinking fund to provide assets for any buy
back.
Conversion
Rights
Shares of
our common stock cannot be converted into any other kind of stock except in
extraordinary transactions, such as mergers and court approved bankruptcy
reorganizations.
Preferred
Stock
Our
certificate of incorporation authorizes our board of directors to issue "blank
check" preferred stock. The board of directors may divide this stock into series
and set their rights. On December 26, 2007, the board of directors designated
3,000 shares of preferred stock as Series A 8% Cumulative Convertible Preferred
Stock (Series A Preferred Stock). On December 5, 2008, we issued 3,000 shares of
Series A 8% Cumulative Convertible Preferred Stock to Montaur. On June 25, 2010,
the board of directors designated 10,000 shares of preferred stock as Series B
Convertible Preferred Stock (Series B Preferred Stock), and 1,000 shares of
preferred stock as Series C Convertible Preferred Stock (Series C Preferred
Stock). Also, on June 25, 2010: (1) Montaur surrendered the Amended Series A
Note, the Amended Series B Note, and all 3,000 shares of Series A Preferred
Stock issued to it on December 5, 2008, in exchange for 10,000 shares of Series
B Preferred Stock; and (2) David C. Bupp, the
Company’s President and Chief Executive Officer, and Cynthia B. Gochoco, both
individually and as co-executors of the Estate of Walter H. Bupp (the Bupp
Investors) surrendered the Amended Bupp Note in exchange for 1,000 shares
of Series C Preferred Stock. Montaur may convert all or any portion of the
shares of Series B Preferred Stock into an aggregate 32,700,000 shares of our
common stock, and the Bupp Investors may convert all or any portion of the
shares of Series C Preferred Stock into an aggregate 3,226,000 shares of our
common stock. On August 2, 2010, we filed a Certificate of Elimination with the
State of Delaware which had the effect of eliminating from our certificate of
incorporation all references to the Series A Preferred Stock.
The board
of directors may, without prior stockholder approval, issue any of the remaining
4,989,000 shares of authorized preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the relative
voting power or other rights of the common stock. Preferred stock could be used
as a method of discouraging, delaying, or preventing a take-over of our Company.
If we do issue preferred stock in the future, it could have a dilutive effect
upon the common stock. See Risk Factors.
Some
features of our certificate of incorporation and by-laws and the Delaware
General Corporation Law (DGCL), which are further described below, may have the
effect of deterring third parties from making takeover bids for control of our
company or may be used to hinder or delay a takeover bid. This would decrease
the chance that our stockholders would realize a premium over market price for
their shares of common stock as a result of a takeover bid. See Risk
Factors.
Limitations
on Stockholder Actions
Our
certificate of incorporation provides that stockholder action may only be taken
at a meeting of the stockholders. Thus, an owner of a majority of the voting
power could not take action to replace the board of directors, or any class of
directors, without a meeting of the stockholders, nor could he amend the by-laws
without presenting the amendment to a meeting of the stockholders. Furthermore,
under the provisions of the certificate of incorporation and by-laws, only the
board of directors has the power to call a special meeting of stockholders.
Therefore, a stockholder, even one who owns a majority of the voting power, may
neither replace sitting board of directors members nor amend the by-laws before
the next annual meeting of stockholders.
Advance
Notice Provisions
Our
by-laws establish advance notice procedures for the nomination of candidates for
election as directors by stockholders, as well as for other stockholder
proposals to be considered at annual meetings. Generally, we must receive a
notice of intent to nominate a director or raise any other matter at a
stockholder meeting not less than 120 days before the first anniversary of the
mailing of our proxy statement for the previous year’s annual meeting. The
notice must contain required information concerning the person to be nominated
or the matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
Delaware
Law
We are
incorporated in Delaware, and as such are subject to Section 203 of the DGCL,
which provides that a corporation may not engage in any business combination
with an interested stockholder during the three years after he becomes an
interested stockholder unless:
• the
corporation’s board of directors approved in advance either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder;
• the
interested stockholder owned at least 85 percent of the corporation’s voting
stock at the time the transaction commenced; or
• the
business combination is approved by the corporation’s board of directors and the
affirmative vote of at least two-thirds of the voting stock which is not owned
by the interested stockholder.
An
interested stockholder is anyone who owns 15 percent or more of a corporation’s
voting stock, or who is an affiliate or associate of the corporation and was the
owner of 15 percent or more of the corporation’s voting stock at any time within
the previous three years; and the affiliates and associates of any those
persons. Section 203 of the DGCL makes it more difficult for an interested
stockholder to implement various business combinations with our Company for a
three-year period, although our stockholders may vote to exclude it from the
law’s restrictions.
Classified
Board
Our
certificate of incorporation and by-laws divide our board of directors into
three classes with staggered three year terms. There are currently eight
directors, two in one class and three in each of two additional classes. At each
annual meeting of stockholders, the terms of one class of directors will expire
and the newly nominated directors of that class will be elected for a term of
three years. The board of directors will be able to determine the total number
of directors constituting the full board of directors and the number of
directors in each class, but the total number of directors may not exceed 9 nor
may the number of directors in any class exceed six. Subject to these rules, the
classes of directors need not have equal numbers of members. No reduction in the
total number of directors or in the number of directors in a given class will
have the effect of removing a director from office or reducing the term of any
then sitting director. Stockholders may only remove directors for cause. If the
board of directors increases the number of directors in a class, it will be able
to fill the vacancies created for the full remaining term of a director in that
class even though the term may extend beyond the next annual meeting. The
directors will also be able to fill any other vacancies for the full remaining
term of the director whose death, resignation or removal caused the
vacancy.
A person
who has a majority of the voting power at a given meeting will not in any one
year be able to replace a majority of the directors since only one class of the
directors will stand for election in any one year. As a result, at least two
annual meeting elections will be required to change the majority of the
directors by the requisite vote of stockholders. The purpose of classifying the
board of directors is to provide for a continuing body, even in the face of a
person who accumulates a sufficient amount of voting power, whether by ownership
or proxy or a combination, to have a majority of the voting power at a given
meeting and who may seek to take control of our Company without paying a fair
premium for control to all of the owners of our common stock. This will allow
the board of directors time to negotiate with such a person and to protect the
interests of the other stockholders who may constitute a majority of the shares
not actually owned by that person. However, it may also have the effect of
deterring third parties from making takeover bids for control of our Company or
may be used to hinder or delay a takeover bid.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Continental Stock Transfer
& Trust Company, located in New York, New York.
THE
FUSION TRANSACTION
General
Fusion
Capital, the selling stockholder under this prospectus, is offering for sale up
to 11,500,000 shares of our common stock hereunder. On December 1, 2006, we
entered into a common stock purchase agreement with Fusion Capital, an Illinois
limited liability company, to sell $6,000,000 of our common stock over a
24-month period which ended on November 21, 2008. Through November 21,
2008, we sold to Fusion Capital under the agreement 7,568,671 shares for
proceeds of $1,950,000. None of the 7,568,671 shares are part of the
offering pursuant to this prospectus. On December 1, 2006, we issued to
Fusion Capital 720,000 shares of our common stock as a commitment fee upon
execution of the agreement. In connection with sales of our common stock,
we issued an additional 234,000 shares of our common stock to Fusion Capital as
an additional commitment fee. None of the 720,000 shares or the 234,000 shares
are part of the offering pursuant to this prospectus.
In
December 2008, we entered into an amendment to the agreement which gave us a
right to sell an additional $6,000,000 of our common stock to Fusion Capital
before March 1, 2011, along with the $4,050,000 of the unsold balance of the
$6,000,000 we had the right to sell to Fusion Capital under the original
agreement. We issued an additional 360,000 shares in consideration for
Fusion Capital’s agreement to enter into the amendment. All 360,000 shares
are part of the offering pursuant to this prospectus. Pursuant to the amended
agreement, as an additional commitment fee, we also agreed to issue to Fusion
Capital pro rata 486,000 shares of our common stock as we sold the first
$4,050,000 of our common stock to Fusion Capital under the agreement as
amended. In March 2010, we sold to Fusion Capital under the amended
agreement 540,541 shares for proceeds of $1,000,000, and issued Fusion Capital
120,000 additional commitment shares in connection with the sale. All
540,541 shares and 120,000 shares are part of the offering pursuant to this
prospectus. Subsequent to this sale, the remaining aggregate amount of our
common stock we can sell to Fusion Capital is $9,050,000, and we have reserved a
total of 10,113,459 shares of our common stock for sale under the amended
agreement. All 10,113,459 shares are part of the offering pursuant to this
prospectus. Following the issuance of the 120,000 commitment shares in
connection with the March 2010 sale referenced above, 366,000 commitment shares
remain to be issued as we sell the remaining $3,050,000 of the unsold balance of
the $6,000,000 we originally had the right to sell to Fusion Capital under the
original agreement. All 366,000 shares are part of the offering pursuant
to this prospectus.
Our right
to make sales under the amended agreement is limited to $50,000 every two
business days, unless our stock price equals or exceeds $0.30 per share, in
which case we can sell greater amounts to Fusion Capital as the price of our
common stock increases. Fusion Capital does not have the right or any
obligation to purchase any shares on any business day that the market price of
our common stock is less than $0.20 per share. Assuming all 10,113,459
shares are sold, the selling price per share would have to average approximately
$0.90 for us to receive the full $9,050,000 remaining proceeds under the
agreement as amended. Assuming we sell to Fusion Capital all 10,113,459
shares at a sale price of $1.86 per share (the closing sale price of the common
stock on September 29, 2010), we would receive the full remaining $9,050,000
under the agreement.
As of
September 28, 2010, there were 82,387,411 shares of our common stock outstanding
(79,784,297 shares held by non-affiliates) including the 360,000 shares we
issued to Fusion Capital in consideration for Fusion Capital’s entering into the
first amendment, the 540,541 shares sold to Fusion Capital in March 2010, the
120,000 commitment shares issued to Fusion in connection with the March 2010
sale, and the 7,568,671 shares acquired by Fusion Capital pursuant to the stock
purchase agreement prior to the date of the first amendment to common stock
purchase agreement, but excluding the 10,113,459 shares which have not yet been
issued and purchased by Fusion Capital and the remaining 366,000 additional
commitment fee shares which have not yet been issued to Fusion Capital. If
all 11,500,000 shares offered hereby were issued and outstanding as of the date
hereof, the 11,500,000 shares would represent 12.4% of the total common stock
outstanding or 12.7% of the non-affiliate shares outstanding as of the date
hereof.
In
summary, this prospectus covers: (i) 360,000 shares of our common stock issued
to Fusion Capital in consideration for its agreement to enter into the amendment
to the common stock purchase agreement; (ii) 540,541 shares sold to Fusion
Capital under the amended agreement in March 2010; (iii) 120,000 commitment fee
shares issued to Fusion Capital in connection with the March 2010 sale; (iii)
366,000 additional commitment fee shares to be issued pro rata as we sell the
remaining $3,050,000 of the unsold balance of the $6,000,000 we had the right to
sell to Fusion Capital under the original agreement; and (vi) 10,113,459 shares
of our common stock which we may sell to Fusion Capital pursuant to the terms of
the common stock purchase agreement as amended. Under the agreement, we
have the right but not the obligation to sell more than the 10,113,459 shares to
Fusion Capital. As of the date hereof, we do not currently have any plans
or intent to sell to Fusion Capital any shares beyond the 10,113,459
shares. However, if we elect to sell more than the 10,113,459 shares, we
must first register any additional shares we may elect to sell to Fusion Capital
under the Securities Act before we can sell such additional shares. The
number of shares ultimately offered for sale by Fusion Capital is dependent upon
the number of shares purchased by Fusion Capital under the
agreement.
We do not
have the right to commence any sales of our shares to Fusion Capital until the
Securities & Exchange Commission has declared effective the registration
statement of which this prospectus forms a part. The registration statement was
declared effective on October 4, 2010, and the conditions to commence funding
were satisfied. Generally we have the right but not the obligation from
time to time but prior to March 1, 2011, to sell our shares to Fusion Capital in
amounts between $50,000 and $1.0 million depending on certain conditions set
forth in the common stock purchase agreement. We have the right to
control the timing and amount of any sales of our shares to Fusion
Capital. The purchase price of the shares will be determined based upon
the market price of our shares without any fixed discount at the time of each
sale. Fusion Capital shall not have the right nor the obligation to
purchase any shares of our common stock on any business day that the price of
our common stock is below $0.20. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the
agreement. The agreement may be terminated by us at any time at our discretion
without any cost to us.
Purchase
of Shares Under The Common Stock Purchase Agreement
Under the
common stock purchase agreement, on any business day selected by us, we may
direct Fusion Capital to purchase up to $50,000 of our common stock. The
purchase price per share is equal to the lesser of:
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|
•
|
the
lowest sale price of our common stock on the purchase date;
or
|
|
|
•
|
the
average of the three (3) lowest closing sale prices of our common stock
during the twelve (12) consecutive business days prior to the date of a
purchase by Fusion Capital.
|
The
purchase price will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the business days used to compute the purchase price. We may
direct Fusion Capital to make multiple purchases from time to time in our sole
discretion; no sooner then every two (2) business days.
Our
Right to Increase the Amount to be Purchased
In
addition to purchases of up to $50,000 from time to time, we may also from time
to time elect on any single business day selected by us to require Fusion
Capital to purchase our shares in an amount up to $100,000 provided that our
share price is not below $0.30 during the two (2) business days prior to and on
the purchase date. We may increase this amount to up to $250,000 if our
share price is not below $0.60 during the two (2) business days prior to and on
the purchase date. This amount may also be increased to up to $500,000 if
our share price is not below $0.80 during the two (2) business days prior to and
on the purchase date. This amount may also be increased to up to $1
million if our share price is not below $1.20 during the two (2) business days
prior to and on the purchase date. We may direct Fusion Capital to make multiple
large purchases from time to time in our sole discretion; however, at least
three (3) business days must have passed since the most recent large purchase
was completed. The price at which our common stock would be purchased in
this type of larger purchases will be the lesser of (i) the lowest sale price of
our common stock on the purchase date and (ii) the lowest purchase price (as
described above) during the previous eight (8) business days prior to the
purchase date.
Minimum
Purchase Price
Under the
common stock purchase agreement, we have set a minimum purchase price (“floor
price”) of $0.20. However, Fusion Capital shall not have the right nor the
obligation to purchase any shares of our common stock in the event that the
purchase price would be less than the floor price. Specifically, Fusion Capital
shall not have the right or the obligation to purchase shares of our common
stock on any business day that the market price of our common stock is below
$0.20.
Events
of Default
Generally,
Fusion Capital may terminate the common stock purchase agreement without any
liability or payment to the Company upon the occurrence of any of the following
events of default:
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|
•
|
the
effectiveness of the registration statement of which this prospectus is a
part of lapses for any reason (including, without limitation, the issuance
of a stop order) or is unavailable to Fusion Capital for sale of our
common stock offered hereby and such lapse or unavailability continues for
a period of ten (10) consecutive business days or for more than an
aggregate of thirty (30) business days in any 365-day
period;
|
|
|
•
|
suspension
by our principal market of our common stock from trading for a period of
three (3) consecutive business
days;
|
|
|
•
|
the
de-listing of our common stock from our principal market provided our
common stock is not immediately thereafter trading on the Nasdaq Global
Market, the Nasdaq Capital Market, the New York Stock Exchange or the
American Stock Exchange;
|
|
|
•
|
the
transfer agent‘s failure for five (5) business days to issue to Fusion
Capital shares of our common stock which Fusion Capital is entitled to
under the common stock purchase
agreement;
|
|
|
•
|
any
material breach of the representations or warranties or covenants
contained in the common stock purchase agreement or any related agreements
which has or which could have a material adverse effect on us subject to a
cure period of ten (10) business
days;
|
|
|
•
|
any
participation or threatened participation in insolvency or bankruptcy
proceedings by or against us; or
|
|
|
•
|
any
change in our business properties, operations, financial condition or
results of operations of the Company and its Subsidiaries that could
reasonably be expected to have a material adverse
effect.
|
Our
Termination Rights
We have
the unconditional right at any time for any reason to give notice to Fusion
Capital terminating the common stock purchase agreement without any cost to
us.
No
Short-Selling or Hedging by Fusion Capital
Fusion
Capital has agreed that neither it nor any of its affiliates shall engage in any
direct or indirect short-selling or hedging of our common stock during any time
prior to the termination of the common stock purchase agreement.
Commitment
Shares Issued to Fusion Capital
Under the
terms of the common stock purchase agreement entered into in December 2006,
Fusion Capital received a commitment fee consisting of 720,000 shares of our
common stock. From December 2006 through November 2007, we also issued Fusion
Capital 234,000 shares of our common stock as we received approximately
$1,950,000 under the agreement. We issued Fusion Capital another 360,000
shares of our common stock in consideration for Fusion Capital entering into the
first amendment to common stock purchase agreement, dated December 24,
2008. In March 2010, we issued Fusion Capital 120,000 additional
commitment fee shares in connection with the sale to Fusion Capital under the
amended agreement of 540,541 shares for proceeds of $1,000,000. In
connection with future purchases of our common stock under the amended
agreement, we will issue up to 366,000 shares of common stock to Fusion Capital
as an additional commitment fee. These additional commitment fee shares
will be issued on a pro rata basis as we receive the remaining $3,050,000 of the
unsold balance of the $6,000,000 we had the right to sell to Fusion Capital
under the original agreement.
Effect
of Performance of the Common Stock Purchase Agreement on Our
Stockholders
All
11,500,000 shares registered in this offering are expected to be freely
tradable. It is anticipated that shares registered in this offering will
be sold from time to time over a period ending on March 1, 2011. The sale
by Fusion Capital of a significant amount of shares registered in this offering
at any given time could cause the market price of our common stock to decline
and to be highly volatile. Fusion Capital may ultimately purchase all,
some or none of the 10,113,459 shares of common stock not yet sold by us as of
the date hereof, but are part of this offering. After it has acquired such
shares, it may sell all, some or none of such shares. Therefore, sales to Fusion
Capital by us under the agreement may result in substantial dilution to the
interests of other holders of our common stock. However, we have the right to
control the timing and amount of any sales of our shares to Fusion Capital and
the agreement may be terminated by us at any time at our discretion without any
cost to us.
In
connection with entering into the agreement, as amended, we authorized the sale
to Fusion Capital of up to 18,222,671 shares of our common stock. As of
September 28, 2010, Fusion Capital had purchased 8,109,212 of the available
18,222,671 shares of our common stock, resulting in total proceeds to the
Company of $2,950,000. The number of shares ultimately offered for sale by
Fusion Capital under this prospectus is dependent upon the number of shares
purchased by Fusion Capital under the agreement. The following table sets
forth the amount of proceeds we would receive from Fusion Capital from the sale
of the remaining 10,113,459 shares available at varying purchase
prices:
|
Assumed
Average
Purchase
Price
|
|
|
Number
of Shares
Remaining
to be
Issued
if Full Purchase
|
|
|
Percentage
of
Outstanding
Shares After
Giving
Effect to the
Issuance
to Fusion
Capital(1)
|
|
|
Proceeds
from the Sale of
Remaining
Shares to Fusion
Capital
Under the Common
Stock
Purchase Agreement
|
|
| |
|
|
|
|
|
|
|
|
|
|
| $ |
0.20 |
|
|
|
10,113,459 |
|
|
|
12.3 |
% |
|
$ |
2,022,692 |
|
| $ |
0.50 |
|
|
|
10,113,459 |
|
|
|
12.8 |
% |
|
$ |
5,056,730 |
|
| $ |
1.00 |
|
|
|
9,050,000 |
|
|
|
11.8 |
% |
|
$ |
9,050,000 |
|
| $ |
1.50 |
|
|
|
6,033,333 |
|
|
|
8.8 |
% |
|
$ |
9,050,000 |
|
| $ |
1.86 |
(2) |
|
|
4,865,591 |
|
|
|
7.5 |
% |
|
$ |
9,050,000 |
|
| $ |
2.00 |
|
|
|
4,525,000 |
|
|
|
7.2 |
% |
|
$ |
9,050,000 |
|
| $ |
2.50 |
|
|
|
3,620,000 |
|
|
|
6.3 |
% |
|
$ |
9,050,000 |
|
| $ |
3.00 |
|
|
|
3,016,667 |
|
|
|
5.6 |
% |
|
$ |
9,050,000 |
|
____________________
(1) The
denominator is based on 82,387,411 shares outstanding as of September 28, 2010,
which includes (i) the 360,000 shares issued to Fusion Capital as consideration
for Fusion Capital entering into the first amendment, (ii) the 540,541 shares
sold to Fusion Capital in March 2010, (iii) the 120,000 commitment shares issued
to Fusion in connection with the March 2010 sale, (iv) the 7,568,671 shares
acquired by Fusion Capital pursuant to the stock purchase agreement prior to the
date of the first amendment to common stock purchase agreement, (v)
the 954,000 commitment shares issued prior to the date of the first
amendment, (vi) the number of shares which may be sold under the
agreement at the corresponding assumed purchase prices set forth in the first
column, and (vii) a pro rata amount of the 366,000 shares which we will issue in
the future as an additional commitment fee as we receive the first $3,050,000 of
the $9,050,000 of the future funding, together with the number of shares set
forth in the second column. The numerator is based on (i) the number of shares
which may be sold under the agreement at the corresponding assumed purchase
prices set forth in the first column, the 1,074,000 commitment shares issued to
Fusion to date, plus a pro rata amount of the 366,000 which we will in the
future as an additional commitment fee as we receive the first $3,050,000 of the
$9,050,000 of the future funding.
(2) Closing
sale price of our shares on September 29, 2010.
SELLING
STOCKHOLDER
The
following table presents information regarding the selling stockholder and the
shares that may be sold by it pursuant to this prospectus. Neither the
selling stockholder nor any of its affiliates has held a position or office, or
had any other material relationship with us.
|
|
|
Shares
Owned
Before
Offering
|
|
|
Percentage
of
Outstanding
Shares
Owned
Before
Offering
(1)
|
|
|
Shares
to be
Sold
in the
Offering
|
|
|
Percentage
of
Outstanding
Shares
Owned After
Offering (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fusion
Capital Fund II, LLC (1)(2)
|
|
|
1,119,963 |
|
|
|
1.36 |
% |
|
|
11,500,000 |
|
|
|
1.21 |
% |
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(1)
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Before
the offering Fusion Capital beneficially owned 1,119,963 shares of our
common stock, 360,000 of which are included in the offering pursuant to
this prospectus. As of September 28, 2010, there were 82,387,411 shares
outstanding which includes 1,074,000 shares issued to Fusion Capital as a
commitment fee, 360,000 shares issued to Fusion Capital in consideration
for its agreement to enter into the first amendment to the common stock
purchase agreement dated December 24, 2008, 540,541 shares sold to Fusion
Capital for resale in March 2010, and the 7,568,671 shares acquired
by Fusion Capital for resale pursuant to the stock purchase agreement
prior to the date of the first amendment to common stock purchase
agreement. Percentage of outstanding shares beneficially owned after
offering is based on 92,866,870 shares which includes the remaining
10,113,459 shares that may be sold to Fusion Capital and the remaining
366,000 commitment shares which may be issued in connection with the
offering. Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power with respect
to securities. Fusion Capital does not presently beneficially own
any of the 10,479,459 shares not yet issued under the agreement but
offered hereby as determined in accordance with the rules of the
SEC.
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(2)
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Steven
G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital, are
deemed to be beneficial owners of all of the shares of common stock owned
by Fusion Capital. Messrs. Martin and Scheinfeld have shared voting
and disposition power over the shares being offered under this
prospectus.
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PLAN
OF DISTRIBUTION
The
common stock offered by this prospectus is being offered by Fusion Capital Fund
II, LLC, the selling stockholder. The common stock may be sold or
distributed from time to time by the selling stockholder directly to one or more
purchasers or through brokers, dealers, or underwriters who may act solely as
agents at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. The sale of the common stock offered by this Prospectus may be
effected in one or more of the following methods:
• ordinary
brokers’ transactions;
• transactions
involving cross or block trades;
• through
brokers, dealers, or underwriters who may act solely as agents;
• “at
the market” into an existing market for the common stock;
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•
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in
other ways not involving market makers or established business markets,
including direct sales to purchasers or sales effected through
agents;
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• in
privately negotiated transactions; or
• any
combination of the foregoing.
In order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or dealers. In
addition, in certain states, the shares may not be sold unless they have been
registered or qualified for sale in the state or an exemption from the
registration or qualification requirement is available and complied
with.
Brokers,
dealers, underwriters, or agents participating in the distribution of the shares
as agents may receive compensation in the form of commissions, discounts, or
concessions from the selling stockholder and/or purchasers of the common stock
for whom the broker-dealers may act as agent. The compensation paid to a
particular broker-dealer may be less than or in excess of customary
commissions.
Fusion
Capital is an “underwriter” within the meaning of the Securities
Act.
Neither
we nor Fusion Capital can presently estimate the amount of compensation that any
agent will receive. We know of no existing arrangements between Fusion
Capital, any other stockholder, broker, dealer, underwriter, or agent relating
to the sale or distribution of the shares offered by this Prospectus. At
the time a particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents,
underwriters, or dealers and any compensation from the selling stockholder, and
any other required information.
We will
pay all of the expenses incident to the registration, offering, and sale of the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Fusion Capital
and related persons against specified liabilities, including liabilities under
the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
Fusion
Capital and its affiliates have agreed not to engage in any direct or indirect
short selling or hedging of our common stock during the term of the common stock
purchase agreement.
We have
advised Fusion Capital that while it is engaged in a distribution of the shares
included in this Prospectus it is required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. With
certain exceptions, Regulation M precludes the selling stockholder, any
affiliated purchasers, and any broker-dealer or other person who participates in
the distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the shares offered hereby this
Prospectus.
This
offering will terminate on the date that all shares offered by this Prospectus
have been sold by Fusion Capital.
LEGAL
MATTERS
The
validity of the shares offered hereby has been passed upon for us by Porter,
Wright, Morris & Arthur LLP, 41 South High Street, Columbus,
Ohio 43215.
EXPERTS
The
financial statements as of December 31, 2009 and 2008 and for each of the years
then ended incorporated by reference in this Prospectus have been so
incorporated in reliance on the report of BDO Seidman, LLP, an independent
registered public accounting firm, incorporated herein by reference, given on
the authority of said firm as experts in auditing and accounting.