UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-32835
GAMMACAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0956433
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11 Ben Gurion Street
54100 Givat Shmuel, Israel
(Address of principal executive offices)
972 3 5774475
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: 26,199,510 shares issued and
outstanding as of January 13, 2005.
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PART I
ITEM 1. - BUSINESS
This Annual Report on Form 10-KSB (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements regarding our business, financial condition,
results of operations and prospects. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form 10-KSB.
Additionally, statements concerning future matters are forward-looking
statements.
Although forward-looking statements in this Annual Report on Form 10-KSB reflect
the good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include, without
limitation, those specifically addressed under the heading "Risks Related to Our
Business" below, as well as those discussed elsewhere in this Annual Report on
Form 10-KSB. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-KSB. We file reports with the Securities and Exchange
Commission ("SEC"). We make available on our website under "Investor
Information/SEC Filings," free of charge, our annual reports on Form 10-KSB,
quarterly reports on Form 10-QSB, current reports on Form 8-K and amendments to
those reports as soon as reasonably practicable after we electronically file
such materials with or furnish them to the SEC. Our website address is
www.gammacan.com. You can also read and copy any materials we file with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. You can obtain additional information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-KSB/A. Readers are urged to carefully review and
consider the various disclosures made throughout the entirety of this annual
Report, which attempt to advise interested parties of the risks and factors that
may affect our business, financial condition, results of operations and
prospects.
DESCRIPTION OF BUSINESS
As used in this current report, the terms "we", "us", "our", and "Gammacan" mean
Gammacan International, Inc. and our subsidiary, Gammacan, Ltd., unless
otherwise indicated.
All dollar amounts refer to US dollars unless otherwise indicated.
Corporate History
We were incorporated under the laws of the state of Delaware on October 6, 1998
under the name of San Jose International, Inc. On August 19, 2004, we changed
the name of our company to Gammacan International, Inc. in the State of
Delaware.
During our first quarter ended December 31, 2003, we identified a promising
business prospect focused on the seismic acquisition business located in Western
Canada and agreed in principal to acquire all of the shares of two Alberta based
companies. However, on April 20, 2004, we decided to terminate our efforts to
pursue this proposed acquisition, because it appeared we would not be successful
in obtaining the necessary financing on a timely basis.
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Pursuant to an agreement for purchase and sale of intellectual property between
our subsidiary, Gammacan, Ltd., and ARP Biomed, Ltd. ("ARP"), we completed the
purchase and sale of the intellectual property on August 17, 2004. As a result,
we now own all of ARP's rights and interests in the intellectual property assets
(the "Intellectual Property") consisting of intravenous immunoglobulin ("IVIG")
research and development, patents and other intellectual property, which appears
to hold promising potential for the clinical treatment for various cancer types.
In consideration for acquiring the Intellectual Property, we have issued to ARP
12.5% of the common shares of Gammacan, Ltd.
Business Subsequent to the Acquisition of the Intellectual Property
With the acquisition of the Intellectual Property, we are now focused on the
commercialization of an anti-cancer immunotherapy that appears to be effective
in reducing the metastatic spread of a wide range of cancers. Our proposed
treatment will be based on intravenous immunoglobulin or IVIG, a safe,
minimally-toxic human plasma-based product, currently used to treat a variety of
immune deficiencies and autoimmune diseases, and replace the antibodies in
people who are unable to produce them. Antibodies are naturally occurring,
disease fighting proteins or compounds produced by healthy people. Intravenous
implies the direct injection or delivery, via certain equipment, into the
patient's bloodstream. In preliminary studies, IVIG appears to boost and
strengthen cancer patient's immune systems or antibody levels, which may be
successful in fighting cancer. Although there can be no assurance, many experts
currently view IVIG as a promising future alternative or complementary therapy
to today's standard chemotherapies and biological therapies.
Current Cancer Statistics
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Cancer is a disease of the body's cells. Cells in all the tissues and organs of
the body constantly grow and divide to replace old and damaged cells and
maintain the health of the body. Normally, all cells divide and reproduce
themselves in an orderly and controlled manner. In cancer, however, some cells
keep dividing without proper control, forming a lump (which is called a primary
tumor). In leukaemia, or cancer of the blood, too many white blood cells are
produced.
Sometimes cancer cells break away from a tumor and travel to other parts of the
body through the bloodstream or lymphatic system. The lymphatic system is a
network of fine channels - called lymph vessels - which run throughout the body
and are part of the body's protection against infection and cancer. When the
cancer cells reach other parts of the body they may settle and start to develop
into new tumors. These are known as secondary cancers/tumors or metastases.
Primary tumors, while still localized, can be treated through surgery and
radiation. However, cancers tend to metastasize, or spread, and form secondary
tumors in other locations throughout the body. Most existing therapeutics or
treatments fail because the cancer has metastasized and formed multiple tumors.
Many cancer victims with operable tumors ultimately succumb to metastatic or
spreading cancer following surgery
The extent to which metastases occur varies with the type of primary tumor.
Melanoma or skin cancer, breast cancer, lung cancer, colon cancer and prostate
cancer are among the types of cancer that frequently metastasize or spread. When
metastasis takes place, the secondary tumors may form at a number of sites in
the body. Lungs, liver, brain and bone are the most common sites of secondary
tumors.
Cancer therapeutics represents a major multibillion pharmaceutical market. This
market continues to grow in particular in response to the introduction of new an
more effective treatments. New products that have been introduced to the market
in recent years such as Mabthera Irressa, Gleevec, Avastin, Rituxan and others
seem to fuel increased growth both as these more effective, and thus more
costly, treatments replace conventional less effective, and because these new
therapies are being used in conjunction with conventional therapies.
Current Cancer Treatments
Current cancer treatments include surgery, radiation, and chemotherapy. These
treatments can be ineffective because they are either unable to target cancer
cells throughout the body or they give rise to serious and life-threatening side
effects. Consequently, the medical community is still a long way from winning
the war on cancer. The key success factors for new therapeutic approaches in the
cancer area seem to be less toxicity than what is available today and higher
rates of efficacy, at least in some patients. Modern immunotherapies tend to be
targeted towards certain patients in whom particular antigens are expressed in
their tumors, but these drugs may have no or little effect in other patients.
Thus, the new generation of anti-cancer therapies tend to be more effective in
patients where they are applicable, but less effective in other patients.
The alternative to the traditional cancer treatments is the use of various
immunotherapies based on enhanced understanding of cancer biology in recent
years. Current efforts to deliver effective cancer immunotherapies generally
fall into three categories: cytokines, monoclonal antibodies and vaccines.
Cytokines are medical drugs that stimulate the immune system during infections.
Drug developers have hoped that the same factors that fight infections could be
used to combat cancer cells. Several have been approved for commercial use, but
they are generally limited in their application.
Many companies are involved in developing monoclonal antibodies, which are
designed to bind to specific cancer cells and target them for destruction by the
immune system. These products are generally more developed, in terms of market
use and acceptance, than cytokines and several have significant sales. The
monoclonal antibody products realizing significant sales generally have limited
or few side effects.
Cancer vaccines rely on the administration of tumor antigens to elicit an immune
response that remains after the vaccine itself has disappeared. Most cancer
vaccine products currently being developed require the harvesting and processing
of tumor cells to make custom vaccines for each patient. Though this approach
has shown promise in clinical trials, scaling-up manufacture is likely to be
problematic, and these vaccines are generally considered to be a number of years
away from commercial use.
Chemotherapy
Chemotherapy is the use of anti-cancer drugs to destroy cancer cells. There are
over 50 different chemotherapy drugs and some are given on their own, but often
several drugs may be combined. The type of chemotherapy treatment given for a
particular cancer depends on many things, the type of disease, where in the body
it started, what the cancer cells look like under the microscope and whether
they have spread to other parts of the body.
Chemotherapy is currently the standard treatment for cancer that has or may have
metastasized or spread. Chemotherapy is a systemic treatment, usually
administered intravenously, but can be administered a number of ways, intended
to kill cancer/tumor cells, which have spread to multiple sites. However,
chemotherapy may also kill healthy dividing cells and consequently, may cause
serious side effects. These side effects may include a weakening of a patient's
immune system, and reduction in number of white blood cells which are necessary
to combat bacterial infections, inhibition or slowing of bone marrow cell
growth, which also may be accompanied with slow down in the production of red
blood cells or anemia, the inability to form blood clots, diarrhea, nausea and
hair loss. Generally, these side effects are temporary in nature, but most
patients experience a significant degree of discomfort, and can be long term in
some cases.
Chemotherapy can fail to completely eradicate micro-metastases, or the spreading
of very small cancer tumors, already residing in remote organs (lung, liver,
bone marrow or brain), especially when treatment is discontinued due to
patients' inability to tolerate its side effects. If the cancer is not
completely eradicated, it will likely continue to grow.
The need for effective, minimally-toxic treatments to inhibit spreading cancers
is widely recognized and numerous researchers, biotechnology and pharmaceutical
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companies are seeking alternatives to chemotherapy drugs. The potential for a
large receptive commercial market exists for a successful approach to inhibiting
spreading cancers without causing serious side effects.
IVIG or Intravenous Immunoglobulin
Our proposed immunotherapy product, if ultimately proven to be successful on a
regulatory and commercial basis, aims to harness the body's immune system, or
its natural defense mechanism to destroy cancer cells. Our proposed product is
intended to be used in the prevention of recurrence of cancer and to prevent
metastatic spread in patients. This use would suggest a long-term treatment in
which patient would receive IVIG for extended periods of time (possible for five
years as is the case of Tamoxifen for the prevention of breast cancer
recurrence). IVIG seems particularly suitable for long term treatments as it has
already been established as a long-term tolerable treatment with minimal side
effects even after year-long use.
Immunoglobulin or IVIG is a type of protein found in human blood that helps to
fight off harmful bacteria, viruses and other germs. IVIG is a blood
plasma-derived product containing protective antibodies normally present in the
blood of healthy individuals. IVIG is used to replace the antibodies in people
who are unable to produce them, thereby restoring an almost normal immune
response and helping to prevent or reduce the severity of certain infections. It
is widely used in the treatment of certain autoimmune diseases. Extensive use
over a period of years has demonstrated that IVIG therapy is a safe, non-toxic
therapy with virtually no side effects.
According to the Marketing Research Bureau, Inc, Orange, CT the annual world
market for IVIg is currently approximately 55 tons. There are in excess of 20
manufacturers of IVIg products and typically, these companies manage pools of
1,000 to 20,000 blood donors who are carefully screened prior to being allowed
to give blood. This donated plasma is also extensively tested for pathogens
prior to use. It is this donated blood plasma that is used to manufacture IVIG,
and through the combining the blood plasma of many individual donors, it is
believed that the resulting combination provides superior therapy than IVIG from
one individual exclusively.
The largest producers of IVIG for the U.S. market are ZLB-Behring (a subsidiary
of .Aventis), Alpha Therapeutics, Baxter Healthcare, and Bayer Biological
Products.
IVIG products became commercially available in the early 1980's. There are six
indications or uses approved by the U.S. Food and Drug Administration (the
"FDA"), but IVIG is also used to treat over seventy other "off-label" conditions
supported by a consensus of expert opinion, mostly primary immune deficiencies
or autoimmune neuromuscular disorders. Industry experts claim that many present
IVIG prescriptions are written for off-label indications and roughly deducting
the estimated use of IVIg for the indicated uses from the total sales, indicate
that as much as 40-50% of uses could be off-label. Patients receiving IVIG
therapy for primary immune deficiencies usually receive the therapy for life,
while patients receiving IVIG therapy for autoimmune disorders receive the
therapy intermittently over a period of months, and sometimes years, depending
on their condition.
IVIG is generally considered to be an expensive therapy, because it is a natural
product manufactured from whole human blood. A typical dose may consist of five
consecutive days of intravenous administration of 2 grams per kilogram of
patients' body weight. According to the International Blood/Plasma News,
December 2004 issue, U.S. prices range from about $39 per gram for lyophilized
preparations to a high of about $55 per gram for a 5%liquid product.
Pre-Clinical and Preliminary Experiments
ARP's scientists have already conducted certain animal experiments to test the
effectiveness of IVIG immunotherapy in treating cancer, and investigated the
effectiveness of IVIG treatment at various stages of disease progression with
varying dosages and routes of administration. They have made preliminary
progress in understanding the mechanisms under which IVIG appears to fight
cancer.
6
While these experiments showed promising results, they are preliminary. Use of
IVIG in a commercial setting would be subject to much further substantial and
significant testing, and subject to certain clinical trials required by the FDA
and similar regulatory bodies in other countries.
At this stage however, there can be no assurance that IVIG will evolve into a
successful commercial product, gain acceptance for general use or use as a
replacement for existing therapeutic products, or even be approved for use by
the regulatory authorities.
These early experiments have shown that IVIG treatment appears to reduce
metastases and tumor recurrence for a broad spectrum of cancers, with virtually
no side effects. However, much more testing must be completed. IVIG also appears
to show promise to increase the chances for long term recovery by preventing the
return and spread of cancer. These preliminary experiments have also indicated
that IVIG therapy holds promise as an effective anti-cancer treatment at much
lower doses than is commonly used for treating immune deficiencies. This would
serve to make the treatment more affordable and may enable IVIG immunotherapy to
be used as a cancer prevention measure in high risk populations.
In these preliminary experiments, IVIG also appears to be effective when
administered intravenously, or through several other methods of delivery into
the patient's body. Alternative routes of administration could dramatically
improve ease-of-use, lower the delivered price of treatments, and enable the
treatment of additional conditions.
Intellectual Property
Our success will depend in part on our ability to obtain patent protection for
our Intellectual Property. Subsequent to our acquisition of the Intellectual
Property from ARP, we enjoy the patented protection of IVIG for treating solid
tumors through two major U.S. patents (#5,562,902 and #5,965,130), and
additional U.S. and international patent applications. The latest US patent was
registered in October 1999. Patent coverage includes a wide range of issues such
as: a novel method of administering to a mammal a preparation of IVIG for
inhibiting tumor metastasis or spreading, for treating primary tumors, and for a
broad spectrum of cancerous diseases. The IVIG preparation to be administered
according to this invention may contain intact or fragmented immunoglobulin
molecules. The preparation may be administered intravenously, directly under the
skin or subcutaneous routes, directly into a cavity (such as an organ or
stomach), either as a sole agent or in combination with other agents or methods,
which are commonly used for cancer treatment. We believe anyone selling IVIG for
treatment of cancer is subject to these patents. However, the validity and
breadth of claims in medical technology patents involve complex legal and
factual questions and, therefore, may be highly uncertain. No assurance can be
given that any patents based on pending patent applications or any future patent
applications by us will be issued, that the scope of any patent protection will
exclude competitors or provide competitive advantages to us, that any of the
patents that have been or may be issued to us will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by us. Furthermore, there can be
no assurance that others have not developed or will not develop similar
products, duplicate any of our technology or design around any patents that have
been or may be issued to us. Since patent applications in the United States are
maintained in secrecy for the initial period of time following filing, we also
cannot be certain that others did not first file applications for inventions
covered by our pending patent applications, nor can we be certain that we will
not infringe any patents that may be issued to others on such applications.
We also rely on trade secrets and unpatentable know-how that we seek to protect,
in part, by confidentiality agreements. It has not been, but is now our policy
to require our employees, consultants, contractors, manufacturers, outside
scientific collaborators and sponsored researchers, board of directors,
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technical review board and other advisors to execute confidentiality agreements
upon the commencement of employment or consulting relationships with us. These
agreements will provide that all confidential information developed or made
known to the individual during the course of the individual's relationship with
us is to be kept confidential and not disclosed to third parties except in
specific limited circumstances. We also will commence to require signed
confidentiality or material transfer agreements from any company that is to
receive our confidential information. In the case of employees, consultants and
contractors, the agreements will generally provide that all inventions conceived
by the individual while rendering services to us shall be assigned to us as the
exclusive property of our company. There can be no assurance, however, that all
persons who we desire to sign such agreements will sign, or if they do, that
these agreements will not be breached, that we would have adequate remedies for
any breach, or that our trade secrets or unpatentable know-how will not
otherwise become known or be independently developed by competitors.
Our success will also depend in part on our ability to commercialize our
technology without infringing the proprietary rights of others. We have not
conducted freedom of use patent searches and no assurance can be given that
patents do not exist or could not be filed which would have an adverse affect on
our ability to market our technology or maintain our competitive position with
respect to our technology. If our technology components, products, processes or
other subject matter are claimed under other existing United States or foreign
patents or are otherwise protected by third party proprietary rights, we may be
subject to infringement actions. In such event, we may challenge the validity of
such patents or other proprietary rights or we may be required to obtain
licenses from such companies in order to develop, manufacture or market our
technology. There can be no assurances that we would be able to obtain such
licenses or that such licenses, if available, could be obtained on commercially
reasonable terms. Furthermore, the failure to either develop a commercially
viable alternative or obtain such licenses could result in delays in marketing
our proposed technology or the inability to proceed with the development,
manufacture or sale of products requiring such licenses, which could have a
material adverse affect on our business, financial condition and results of
operations. If we are required to defend ourselves against charges of patent
infringement or to protect our proprietary rights against third parties,
substantial costs will be incurred regardless of whether we are successful. Such
proceedings are typically protracted with no certainty of success. An adverse
outcome could subject us to significant liabilities to third parties and force
us to curtail or cease our development and commercialization of our technology.
Research and Development
Foundational Research
Scientists have conducted extensive pre-clinical research to test the
effectiveness of IVIG immunotherapy in treating cancer. They have employed mice
models of various types of cancers as well as various types of human cancers
introduced into immune deficient (SCID) mice. They have investigated the
effectiveness of IVIG treatment at various stages of disease progression, using
alternative dosages and routes of administration. These pre-clinical and
preliminary experiments have shown that IVIG treatment prevents metastases and
tumor recurrence for a broad spectrum of cancers with little or no side effects.
IVIG treatment was shown to potentially work in conjunction with surgery to
provide long-term recovery. While surgery provides an effective short term
mechanism for treating localized cancer tumors, IVIG treatment was shown to
increase the chances of long term recovery by preventing the return or spread of
the cancer. Parallel studies conducted in melanoma, carcinomas and sarcomas
confirm these results.
Most pre-clinical experiments were conducted using a standard dosage of 2.0
grams per kilogram body weight. Additional experiments have shown that our
proposed therapy is effective with low doses of IVIG representing 1% (20
milligrams per kilogram body weight) of the standard IVIG dosage. These
experiments suggest that IVIG treatment could be affordably administered as a
preventative measure. IVIG has been shown in mice experiments to be effective
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when administered subcutaneously, intravenously, or through intra-cavitary
injection. The option of alternative routes of administration dramatically
improves ease-of-use and enables the treatment of previously untreatable
conditions such as intra-peritoneal spread (i.e. ovarian carcinoma). IVIG has
also been shown to be effective when administered as a whole molecule or as a
fraction. All this preclinical research was performed by ARP Biomed, Ltd., prior
to the transaction with Gammacan.
Product Development
Our initial focus over the next several years is to demonstrate efficacy of IVIG
cancer immunotherapy in human clinical trials. Efficacy is the ability of a drug
or other treatment to produce the desired result when taken by its intended
users.
IVIG immunotherapy will require regulatory approval before being commercially
marketed for human therapeutic use. Clinical trials generally include three
phases that together may take several years to complete. Phase I clinical
studies (toxicity trials) are primarily conducted to establish safety. Phase II
studies are designed to determine preliminary efficacy. Phase III studies are
conducted to optimize therapeutic efficacy in a statistically significant manner
at the levels of optimal dose, method of delivery into the body or route, and
schedule of administration. Once clinical trials are completed successfully,
products may receive regulatory approval.
Since IVIG is an established, safe therapy, we will not be required to conduct
Phase I studies. We plan to begin enrolling patients in the first quarter of
2005 for a Phase II study using IVIG immunotherapy for a range of cancers. Phase
II clinical trials will be conducted at two or more medical centers in Israel or
abroad if management deems this to be beneficial. It is expected to take at
least six months to enroll patients. We are planning on including several
different cancers in the trial. Preliminary results could be available during
the first year of trial. We will probably continue to monitor patients for a
number of years after the trial in order to collect additional evidence of
efficacy and potential benefits or adverse effects of the IVIg treatment. If
successful or promising, and at this preliminary stage there is no assurance
they will be, results of these clinical trials will be used to enter into
discussions with a major pharmaceutical partner to work with us to potentially
commercialize the products. This commercialization will include pivotal clinical
trials in accordance with regulatory requirements. Such trials may be long-term
trials and may require substantial financial resources that we do not presently
possess. We are considering a trial in order to test the potential use of IVIg
as a long term treatment to prevent the recurrence of cancer in patient who have
been diagnosed and successfully treated. This trial, will take a number of years
since the end-point will be related to long-term effects.
Employees
During the next 12 months, we plan to function with a small management staff.
During this time, we will focus on managing Phase II clinical trials and
establishing preliminary relationships with potential commercial partners.
Currently we have three employees, of which two are executives and one is
Director of Clinical Affairs.
Competition
Competition in the area of biomedical and pharmaceutical research and
development is intense and significantly depends on scientific and technological
factors. These factors include the availability of patent and other protection
for technology and products, the ability to commercialize technological
developments and the ability to obtain governmental approval for testing,
manufacturing and marketing. Our competitors include major pharmaceutical,
medical products, chemical and specialized biotechnology companies, many of
which have financial, technical and marketing resources significantly greater
than ours. In addition, many biotechnology companies have formed collaborations
with large, established companies to support research, development and
commercialization of products that may be competitive with ours. Academic
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institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint
ventures. We are aware of certain other products manufactured or under
development by competitors that are used for the treatment of the diseases and
health conditions that we have targeted for product development. There can be no
assurance that developments by others will not render our technology obsolete or
noncompetitive, that we will be able to keep pace with new technological
developments or that our technology will be able to supplant established
products and methodologies in the therapeutic areas that are targeted by us. The
foregoing factors could have a material adverse affect on our business,
financial condition and results of operations. These companies, as well as
academic institutions, governmental agencies and private research organizations,
also compete with our company in recruiting and retaining highly qualified
scientific personnel and consultants.
Competition within this sector itself is increasing, so we will encounter
competition from existing firms that offer competitive solutions in the cancer
treatment solutions. These competitive companies could develop products that are
superior to, or have greater market acceptance, than the products being
developed by our company. We will have to compete against other biotechnology
and pharmaceutical companies with greater market recognition and greater
financial, marketing and other resources.
Our competition will be determined in part by the potential indications for
which our technology is developed and ultimately approved by regulatory
authorities. In addition, the first product to reach the market in a therapeutic
or preventive area is often at a significant competitive advantage relative to
later entrants to the market. Accordingly, the relative speed with which we, or
our potential corporate partners, can develop products, complete the clinical
trials and approval processes and supply commercial quantities of the products
to the market are expected to be important competitive factors. Our competitive
position will also depend on our ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products, develop
and implement production and marketing plans, obtain and maintain patent
protection and secure adequate capital resources. We expect our technology, if
approved for sale, to compete primarily on the basis of product efficacy,
safety, patient convenience, reliability, value and patent position.
Government Regulations and Supervision
We will be using and developing biotechnology and pharmaceutical products for
use in treating human diseases. We will be directly affected by governmental
regulations from the United States Food and Drug Administration for these
products.
The FDA regulates clinical development and marketing approval of all medical
products intended for human use. The laws and regulations of the FDA place the
burden of proof of safety and efficacy on the manufacture of the product. This
agency possesses extensive experience with its regulatory mechanisms and applies
them to all products, with differing statutes for various categories of
products. Other countries have comparable regulatory agencies to the FDA,
although the specific regulations may differ substantially.
The principal activities which must be completed prior to obtaining approval for
marketing in the United States are as follows:
a)Pre-clinical Studies. Pre-clinical studies are conducted in animals to
test pharmacology, efficacy and toxicology and to do manufacturing and
formulation work based on in vivo results.
b)Phase I Clinical Trials. Phase I clinical trials consist of testing a
product in a small number of humans for its safety (toxicity), dose
tolerance and pharmacokinetic properties.
c)Phase II Clinical Trials. Phase II clinical trials usually involve a
larger patient population than is required for Phase I trials and are
conducted to evaluate the effectiveness of a product in patients having
the disease or medical condition for which the product is indicated.
These trials also serve to identify possible common short-term side
effects and risks in a larger group of patients.
d)Phase III Clinical Trials. Phase III clinical trials involve
conducting tests in an expanded patient population at geographically
dispersed test sites (i.e. multi-centre trials) in a controlled and/or
uncontrolled environment to establish clinical safety and
effectiveness. These trials also generate information from which the
overall benefit-risk relationship relating to the drug can be
determined and provide a basis for drug labeling.
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Since IVIG is an established, safe therapy, we will not be required to conduct
Pre-Clinical and Phase I Clinical Trials. Two key factors that influence the
rate of progression of the remaining clinical trials are the rate at which
patients can be recruited to participate in the research program, and whether
effective treatments are currently available for the disease the drug is
intended to treat. Patient recruitment is largely dependent upon the incidence
and severity of the disease and the alternative treatments available. Regulatory
agencies can demand more patients and longer exposure if they deem it prudent,
so as to better assess the relative safety compared with the long-term efficacy
of the drug.
The results of the pre-clinical tests and clinical trials are submitted to the
FDA in the form of a biologic license application for marketing approval. The
testing and approval process is likely to require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. Additional animal studies or clinical trials may be requested
during the FDA review period that may delay marketing approval. After FDA
approval for the initial indications, further clinical trials may be necessary
to gain approval for the use of the product for additional indications. The FDA
requires that adverse affects be reported to the FDA and may also require
post-marketing testing to monitor for adverse affects, which can involve
significant expense.
The growth in this industry over the last several decades has been accompanied
by growth in the extent and complexity of the FDA statutes and regulations, and
of the intensity of the FDA's regulations of the development, manufacturing,
distribution, marketing, promotion, advertising and use of regulated products.
In the last decade, the FDA legal and regulatory obstacles to product
commercialization and the penalties of non-compliance have been pivotal factors
in the success or failure of companies in our industry. This is particularly
true for small, emerging companies developing biopharmaceuticals and other
biotechnology products.
Risk Related to Business
You should carefully consider the following risk factors and all other
information contained herein as well as the information included in this Annual
Report in evaluating our business and prospects. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties, other than those we describe below, that are not presently known
to us or that we currently believe are immaterial, may also impair our business
operations. If any of the following risks occur, our business and financial
results could be harmed. You should refer to the other information contained in
this Annual Report, including our consolidated financial statements and the
related notes.
We have a limited operating history.
We have a limited operating history and must be considered in the development
stage. Our company's operations will be subject to all the risks inherent in the
establishment of a developing enterprise and the uncertainties arising from the
absence of a significant operating history. No assurance can be given that we
may be able to operate on a profitable basis.
At present, our success depends solely on the successful commercialization of
IVIG for our proposed use as a cancer therapy alternative.
The successful commercialization of IVIG is crucial for our success. This
11
proposed product and its potential application is in an early stage of clinical
and manufacturing/process development. It faces a variety of risks and
uncertainties. Principally, these risks include the following:
o future clinical trial results may show that IVIG at effective
doses is not well tolerated by the recipients or not
efficacious as compared to placebo.
o future clinical trial results may be inconsistent with ARP's
previous preliminary testing results. Data from our earlier
studies may be inconsistent with clinical data.
o even if IVIG is shown to be safe and effective for its
intended purpose, we may face significant or unforeseen
difficulties in obtaining/manufacturing sufficient quantities
at or at reasonable prices.
o our ability to complete the development and commercialization
of IVIG for our intended use is significantly dependent upon
our ability to obtain and maintain experienced and committed
partners to assist us with obtaining clinical and regulatory
approvals for, and the manufacturing, marketing and
distribution of IVIG on a worldwide basis.
o even if IVIG products are successfully developed, commercially
produced and receive all necessary regulatory approvals, there
is no guarantee that there will be market acceptance.
o our competitors may develop therapeutics or other treatments
which are superior or less costly than our own with the result
that our products, even if they are successfully developed,
manufactured and approved, may not generate significant
revenues
If we are unsuccessful in dealing with any of these risks, or if we are unable
to successfully commercialize our IVIG products for some other reason, it would
likely seriously harm our business.
We may require significant additional financing before our products may be
marketed.
We have raised an approximately $2.1 in two private placements of our securities
and we anticipate that this amount will only be sufficient to fund our proposed
operations for 12 months. Accordingly, our ability to continue develop and, if
warranted, commercialize our proposed IVIG products, will be dependent upon our
ability to raise significant additional financing. If we are unable to obtain
such financing, we will not be able to fully develop and commercialize our
technology. Our future capital requirements will depend upon many factors,
including:
- continued scientific progress in our research and development programs;
- costs and timing of conducting clinical trials and seeking regulatory
approvals and patent prosecutions;
- competing technological and market developments;
- our ability to establish additional collaborative relationships; and
- the effect of commercialization activities and facility expansions if and
as required.
We have limited financial resources and to date and no cash flow from
operations. There can be no assurance that we will be able to obtain financing
on acceptable terms in light of factors such as the market demand for our
securities, the state of financial markets generally and other relevant factors.
Our success depends on our ability to attract and retain collaborative partners
over whom we have limited control.
Our business will likely depend on our ability to enter into arrangements with
corporate and academic collaborators relating to the testing, manufacturing,
12
marketing and commercialization of our products. If successful, we are intending
to license or sublicense that property to others. We are planning to try to have
our partners assume the obligation to manufacture, market and distribute the
resulting products. Consequently, our success depends upon our partners' ability
to perform these tasks. There can be no assurance that we will be able to
establish necessary arrangements on favorable terms, or at all, or that
collaborative agreements will be successful.
Our success depends on our ability to protect our proprietary rights and operate
without infringing upon the proprietary rights of others.
We plan to continue to protect the technology that we consider important to the
development of our business by filing United States and selected foreign patent
applications. We currently hold several patents and pending patent applications
in the United States and corresponding patents and patent applications filed in
certain other countries over IVIG and its proposed use in cancer therapeutics.
The patent position of biopharmaceutical and biotechnology firms, is generally
uncertain and involves complex legal and factual questions. We do not know
whether any of our current or future patent applications will result in the
issuance of any patents. Even issued patents may be challenged, invalidated or
circumvented. Patents may not provide a competitive advantage or afford
protection against competitors with similar technology. Competitors or potential
competitors may have filed applications for, or may have received patents and
may obtain additional and proprietary rights to compounds or processes used by
or competitive with ours. In addition, laws of certain foreign countries do not
protect intellectual property rights to the same extent as do the laws of the
United States or Canada.
Patent litigation is becoming widespread in the biotechnology industry and we
cannot predict how this will affect our efforts to form strategic alliances,
conduct clinical testing or manufacture and market any products under
development. If challenged, our patents may not be held valid. We could also
become involved in interference proceedings in connection with one or more of
our patents or patent applications to determine priority of invention. If we
become involved in any litigation, interference or other administrative
proceedings, we will likely incur substantial expenses and the efforts of our
technical and management personnel will be significantly diverted. In addition,
an adverse determination could subject us to significant liabilities or require
us to seek licenses that may not be available on favorable terms, if at all. We
may be restricted or prevented from manufacturing and selling our products in
the event of an adverse determination in a judicial or administrative proceeding
or if we fail to obtain necessary licenses.
Our commercial success will also depend significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties.
Patent applications are, in many cases, maintained in secrecy until patents are
issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying
discoveries were made and patent applications are filed. In the event of
infringement or violation of another party's patent, we may be prevented from
pursuing product development or commercialization.
In addition to patents, we are planning to rely on trade secrets and proprietary
know-how to protect our intellectual property. We are planning to require our
employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors to enter into confidentiality agreements. These
agreements may not provide meaningful protection or adequate remedies in the
event of unauthorized use or disclosure of our proprietary information. In
addition, it is possible that third parties could independently develop
proprietary information and techniques substantially similar to ours or
otherwise gain access to our trade secrets.
We may not be able to obtain regulatory approvals that will be necessary to
commercialize our products.
The manufacture and sale of therapeutic products in the United States and Canada
is governed by a variety of statutes and regulations in both countries. These
laws govern the development, testing, manufacture, safety, efficacy, record
keeping, labelling, storage, approval, advertising, promotion, sale and
13
distribution of biopharmaceutical products. If our products are ultimately
marketed abroad, they would also be subject to extensive regulation by foreign
governments. There can be no assurance that we will be able to obtain the
required regulatory approvals or comply with the applicable regulatory
requirements for any of our IVIG products in development. If we are unable to
obtain necessary regulatory approvals, we may not be able to commercialize our
products.
The IVIG products currently under development will require significant clinical
testing and investment of significant funds prior to commercialization. Securing
regulatory approval requires us to submit extensive clinical data and supporting
information for each indication to establish the product's efficacy. The process
of completing these processes is likely to take a number of years. Any delay in
obtaining approvals may:
o adversely affect the successful commercialization of our product(s)
that we develop
o diminish any competitive advantages that we may obtain
o adversely affect our receipt of revenues or royalties
Additionally, if we fail to comply with applicable regulatory requirements at
any stage during the regulatory process, we may be subject to sanctions,
including fines, suspensions, product recalls, production suspensions, civil
penalties and criminal prosecution, among other actions.
Even if we are able to commercialize our products, our products may not gain
market acceptance.
Whether or not any our products gain market acceptance among the medical
community in general, as well as the degree of market acceptance of any of our
products, will depend on a number of factors, including:
- establishment and demonstration of clinical usefulness and safety
- cost-effectiveness of the products
- their potential advantage over alternative products
- reimbursement policies of governments and third-party payors
- marketing and distribution support for the products
The success of other products in our market segment in establishing the market,
their pricing, their clinical usefulness or other potential advantages or
disadvantages, will very likely have a major impact on the success of our
product. If our products do not achieve significant market acceptance, our
business, financial condition and results of operations will be harmed. In
addition, third-party payors such as government health administration
authorities, managed care providers and private health insurers are increasingly
challenging the price and examining the cost effectiveness of medical products
and services. If these third-party payors fail to provide adequate coverage for
our products, the market acceptance of the products may be adversely affected.
Competition in our targeted markets is intense and developments by other
companies could render our products or technologies non-competitive.
The biotechnology industry is highly competitive and subject to significant and
rapid technological change. Developments by other companies within the industry
could render our products or technologies non-competitive. Some of these
products may be more effective or have an entirely different approach or means
of accomplishing the desired effect than our products. We expect technological
competition from biotechnology companies and academic research institutions to
increase over time.
Many competitors and potential competitors have substantially greater product
development capabilities and financial, scientific, marketing and human
resources than we do. Our competitors may succeed in developing products earlier
14
and obtaining regulatory approvals and patent protection for such products more
rapidly than we can.
Our lack of commercial manufacturing experience means that we will have to incur
substantial costs to develop manufacturing facilities or contract with third
parties over whom we have limited control to develop our products.
In order to be successful, our products must be manufactured and/or obtained in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. We do not have facilities to commercially manufacture our
products under development and we must initially obtain the small amounts of
products we require for clinical studies from contract manufacturing companies.
In order to manufacture our products in commercial quantities, we will need to
develop manufacturing facilities or contract with third parties to manufacture
our products. We may not be able to develop or otherwise secure access to
appropriate facilities and manufacturing contracts with third parties may not be
available to us on favorable terms, if at all.
Our lack of marketing and sales experience means that we must rely on the
efforts of others to commercialize our products.
We do not have a marketing, sales or distribution capability. We intend to enter
into arrangements with third parties to market and sell most of our products. We
may not be able to enter into marketing and sales arrangements with others on
favorable terms, if at all. To the extent that we enter into marketing and sales
arrangements with other companies, our revenues will depend on the efforts of
others and which efforts may not be successful. If we are unable to enter into
satisfactory third-party arrangements, then we must develop a marketing and
sales force, which may need to be substantial in size, in order to achieve
commercial success for any product. We may not successfully develop or obtain
the necessary marketing and sales experience or have sufficient resources to do
so. If we fail to establish successful marketing and sales capabilities or to
enter into successful marketing arrangements with third parties, our business,
financial condition and results of operations will be materially adversely
affected.
Our development programs and future products subject us to the risk of product
liability claims for which we may not be able to obtain adequate insurance
coverage.
Human therapeutic products involve the risk of product liability claims and
associated adverse publicity. Currently, our principal risks relate to
participants in our clinical trials who may become ill or suffer unintended
consequences from our IVIG therapeutic. If we ultimately are successful in
commercializing a product, claims might be made directly by consumers,
healthcare providers or by pharmaceutical companies or others selling or using
our products. There can be no assurance that we will be able to obtain or
maintain sufficient and affordable insurance coverage for any of these claims
and, without sufficient coverage, any claim brought against us could have a
materially adverse effect on our business, financial condition or results of
operations.
Our business may be harmed if we cannot obtain sufficient quantities of raw
materials.
We will be dependent on outside vendors for our entire supply of IVIG. If the
third party suppliers were to cease production or otherwise fail to supply us
with quality IVIG and we were unable to contract on acceptable terms for these
services with alternative suppliers, our ability to produce our products, and to
conduct testing and clinical trials would be adversely affected.
If we are unable to enroll sufficient patients and clinical investigators to
complete our clinical trials, our development programs could be delayed or
terminated.
The rate of completion of our clinical trials, and those of our collaborators,
15
is significantly dependent upon the rate of enrollment of patients and clinical
investigators. Patient enrollment is a function of many factors, including:
- efforts of the sponsor and clinical sites involved to facilitate timely
enrollment
- patient referral practices of physicians
- design of the protocol
- eligibility criteria for the study in question
- perceived risks and benefits of the drug under study
- the size of the patient population
- availability of competing therapies
- availability of clinical trial sites
- proximity of and access by patients to clinical sites
We may have difficulty obtaining sufficient patient enrollment or clinician
participation to conduct our clinical trials as planned, and we may need to
expend substantial additional funds to obtain access to resources or delay or
modify our plans significantly. These considerations may lead us to consider the
termination of ongoing clinical trials or development of a product for a
particular indication.
Our collaborations with scientific advisors and academic institutions may be
subject to restriction and change.
We plan on working with scientific advisors and academic collaborators who will
assist us in our ongoing research and development efforts. These scientists will
not be our employees and may have other commitments that limit their
availability to us. If a conflict of interest arises between their work for us
and their work for another entity, we may lose their services. In addition,
although we plan on our scientific advisors and academic collaborators signing
non-disclosure agreements, it is possible that valuable proprietary knowledge
may become publicly known which would compromise our competitive advantage.
We are subject to intense competition for skilled personnel and the loss of key
personnel or the inability to attract and retain additional personnel could
impair our ability to conduct our operations.
We will be highly dependent on the principal members of our management and
scientific staff, especially Dr. Dan J. Gelvan, our Chief Executive Officer, and
Professor Yehuda Shoenfeld, M.D., the Chief Scientist of Gammacan, Ltd. The loss
of whose services might adversely impact the achievement of our objectives and
the continuation of existing collaborations. In addition, recruiting and
retaining qualified scientific personnel to perform future research and
development work will be critical to our success. There is currently a shortage
of employees with expertise in our areas of research and clinical and regulatory
affairs, and this shortage is likely to continue. Competition for skilled
personnel is intense and turnover rates are high. Our ability to attract and
retain qualified personnel may be limited.
"Penny Stock" Rules may restrict the market for the Company's shares
Our shares of common stock are subject to rules promulgated by the Securities
and Exchange Commission relating to "penny stocks," which apply to companies
whose shares are not traded on a national stock exchange or on the Nasdaq
16
system, trade at less than $5.00 per share, or who do not meet certain other
financial requirements specified by the Securities and Exchange Commission.
These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in the such penny
stocks. These rules may discourage or restrict the ability of brokers to sell
our shares of common stock and may affect the secondary market for our shares of
common stock. These rules could also hamper our ability to raise funds in the
primary market for our shares of common stock.
Our share price will likely become highly volatile.
Factors such as announcements of technological innovations, new commercial
products, patents, the development of technologies (by us or others), results of
clinical studies, regulatory actions, publications, financial results or public
concern over the safety of our products or other related products and other
factors could have a significant effect on the market price of our common
shares.
Our Principal Facilities are Located in Israel, which Has Historically
Experienced Military and Political Unrest.
Our principal facilities are located in Israel. As a result, we are directly
influenced by the political, economic and military conditions affecting Israel.
Any major hostilities involving Israel, or the interruption or curtailment of
trade between Israel and its present trading partners, could significantly harm
our business, operating results and financial condition.
In addition, certain of our officers and employees may be obligated to perform
annual reserve duty in the Israel defense forces and are subject to being called
up for active military duty at any time. All Israeli male citizens who have
served in the army are subject to an obligation to perform reserve duty until
they are between 40 and 54 years old, depending upon the nature of their
military service.
Because some of our officers and directors are located in non-U.S.
jurisdictions, you may have no effective recourse against the management for
misconduct and may not be able to enforce judgment and civil liabilities against
our officers, directors, experts and agents.
All of our directors and officers are nationals and/or residents of countries
other than the United States, and all or a substantial portion of their assets
are located outside the United States. As a result, it may be difficult for
investors to enforce within the United States any judgments obtained against our
officers or directors, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any U.S. state.
Lack of Anti-Takeover Provisions
We do not currently have a shareholder rights plan or any anti-takeover
provisions in our By-laws. Without any anti-takeover provisions, there is no
deterrent for a take-over of our company, which may result in a change in our
management and directors.
ITEM 2 - PROPERTIES
Our principal executive offices are located in approximately 635 square feet of
office space in Givat Shmuel. The lease for such space expires on May 19 , 2005.
The aggregate annual base rental for this space is approximately $8,000. We have
an option to extend this lease for an additional two periods of 12 months
following May 19, 2005. We believe that our existing facilities are suitable and
adequate to meet our current business requirements.
17
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company's business. The
Company is currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
18
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock commenced trading on the over-the-counter bulletin board in
June 2004 under the symbol "GCAN". The following table sets forth the range of
the high and low bid quotations for our common stock for the periods indicated.
Such market quotations reflect inter-dealer prices, without mark-up, mark-down
or commission and may not necessarily represent actual transactions.
High Low
2004 $ $
----
First Quarter --
Second Quarter
Third Quarter 0.76 0.51
Fourth Quarter 2.50 0.75
As of January 12 2005, there were approximately 79 holders of record of our
common stock and the closing bid quotation of our common stock was $1.77 per
share.
Dividend Policy
We have never paid any cash dividends on our capital stock and do not anticipate
paying any cash dividends on the Common Shares in the foreseeable future. We
intend to retain future earnings to fund ongoing operations and future capital
requirements of our business. Any future determination to pay cash dividends
will be at the discretion of the Board and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as
the Board deems relevant.
Issuance of Securities
On August 13, 2004 we entered into subscription agreements for the sale of
1,224,998 units to 11 offshore and 3 accredited investors at a purchase price of
$0.75 per unit for total proceeds of $918,750. Each Unit consisted of one share
of our common stock and one common stock purchase warrant, which entitles the
holder to purchase an additional common share for $1.50 on or before August 13,
2005.
On November 11, 2004 we entered into subscription agreements for the sale of
978,000 units to 2 offshore investors and 5 accredited investors at a purchase
price of $1.25 per unit for total proceeds of $1,222,000. Each unit consisted of
one common share and one common share purchase warrant. Each share purchase
warrant entitles the holder to purchase one additional common share for a period
of two years after the date of the subscription agreement at an exercise price
of $1.50 in the first 15 months and $2.00 for the next nine months.
For each sale of these units we relied on either the exemption from registration
provided for accredited investors pursuant to Rule 506 of Regulation D, or
Regulation S promulgated under the Securities Act of 1933, as amended.
19
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We currently have no revenue from operations, we are in a start-up phase with
our existing assets and we have no significant assets, tangible or intangible.
There can be no assurance that we will generate revenues in the future, or that
we will be able to operate profitably in the future, if at all. We have incurred
net losses in each fiscal year since inception of our operations.
Our initial focus over the next several years is to demonstrate efficacy of IVIG
cancer immunotherapy in human clinical trials. Efficacy is the ability of a drug
or other treatment to produce the desired result when taken by its intended
users. If ultimately proven to be successful, and there can be no assurance that
it will be, we could be well-positioned to enter a licensing agreement with a
major pharmaceutical partner for commercial market development and sales.
We plan to begin enrolling patients in the first two quarters of 2005, for a
Phase II study using IVIG immunotherapy for a range of metastatic cancers. Since
IVIG is an established, safe therapy, we will not be required to conduct Phase I
studies. Phase II clinical trials will be conducted at no less than two medical
centers in Israel. It is expected to take at least six months to enroll
patients. We are planning on including several different cancers in the trial,
and preliminary results should be available during the first year of trial. We
may decide to continue to monitor patients for an extended period of time in
order to observe positive and negative effects arising at a later stage. If
successful or promising, and at this preliminary stage there is no assurance
they will be, results of these clinical trials will be used to enter into
discussions with a major pharmaceutical partner to work with us to potentially
commercialize the products.
We expect that it will take a number of years to receive final approval and
registration of an IVIg preparation for use as an anti-cancer reagent. However,
the company's strategy is to collaborate with a suitable IVIg manufacturer and
license them the rights to use IVIg as an anti-cancer agent, wherefore the
company's expected revenue stream is not entirely dependent upon the
registration of the IVIg products.
We are also contemplating to conduct additional clinical trials to test new
formulations of IVIG and to test IVIG immunotherapies for different cancers at
different stages of disease progression with varying dosages and routes of
administration. Our goal is to partner with a pharmaceutical company to conduct
these further Phase II and Phase III trials, in order to attain broad-based
regulatory approval.
Long Term Business Strategy
As noted previously, if IVIG shows significant promise thorough clinical trials,
we plan to ultimately seek a strategic commercial partner, or partners, with
extensive experience in commercialization and marketing of cancer drugs and or
therapeutic proteins. It is envisaged that the partner, or partners, would be
responsible for ensuring regulatory approvals and registrations in a timely
manner and for the penetration of the IVIG immunotherapies to the market. . This
planned strategic partnership, or partnerships, could provide a marketing and
sales infrastructure for our products as well as financial and operational
support for global trials and other FDA requirements concerning future clinical
development. Our future strategic partner, or partners, could also provide
capital and expertise that would enable the partnership to develop new
formulations of IVIG cancer immunotherapy suitable for patients at different
stages of disease progression as well as IVIg derivatives.
Other Research and Development Plans
In addition to conducting early-stage clinical trials, we plan to conduct
research to develop alternative delivery systems, to determine the optimal
dosage for different patient groups and to investigate alternative sources of
immunoglobulin other than human plasma. We plan to conduct research to isolate
the fraction of IVIG, which is responsible for its anti-metastatic effects and
to develop a potential synthetic version of IVIG. These formulations will be
suitable for:
20
o Low-dose, preventative therapy for disease-free, high-risk individuals,
o Strong dose for use in conjunction with surgery and other cancer
treatments, and
o Maintenance dose for use to prevent recurrence of cancer growth.
o Others
Our plan is to patent any successful inventions resulting from our further
research activities.
Other Strategic Plans
We are considering in-licensing and other means of obtaining additional lead
molecules for our product portfolio. The aim of this is to create a
well-balanced product portfolio including lead molecules in different stages of
development and addressing different medical needs.
Planned Expenditures
The estimate expenses referenced herein are in accordance with the business
plan. As the technology is still in the development stage, it can be expected
that there will be changes in some budgetary items. Our planned expenditures for
the next 12 months include:
Category Amount
Research & Development $810,000
----------------------
Marketing and Business Development $190,000
----------------------------------
General & Administrative Expenses $770,000
----------------------------------
Total $1,770,000
We are considering expanding and accelerating our planned clinical trials
program for IVIG. Ultimately, such a change may enable our company to
commercialize the product sooner if the trials prove to be successful. If we
decide to adjust our program, we anticipate that our related clinical trial
costs over the next 12 months would increase by approximately $1 million. The
decision to proceed will be based on several major factors, one of which is the
ability of our company to attract sufficient financing on acceptable terms.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
management's current views with respect to future events and financial
performance. Those statements include statements regarding the intent, belief or
current expectations of Gammacan and members of its management team as well as
the assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
in this report and in our other reports filed with the Securities and Exchange
Commission. Important factors currently known to Management could cause actual
results to differ materially from those in forward-looking statements. We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time. Gammacan believes that its
assumptions are based upon reasonable data derived from and known about its
business and operations and the business and operations of Gammacan. No
assurances are made that actual results of operations or the results of
GammaCan's future activities will not differ materially from its assumptions.
21
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GAMMACAN INTERNATIONAL INC.
(Formerly - San Jose International, Inc.)
(A Development Stage Company)
2004 ANNUAL REPORT
TABLE OF CONTENTS
Page
REPORTS OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM - Report of Kesselman & Kesselman F-1
REPORTS OF INDEPENDENT AUDITORS -
Report of Armando C. Ibarra F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of changes in stockholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-16
22
Kesselman & Kesselman
Certified Public Accountants (Isr.)
Trade Tower, 25 Hamered Street
Tel Aviv 68125 Israel
P.O Box 452 Tel Aviv 61003
Telephone +972-3-7954555
Facsimile +972-3-7954556
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
GammaCan International Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of GammaCan
International Inc. (A Development Stage Company; hereafter - the "Company") and
its subsidiary as of September 30, 2004, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended and
cumulatively, for the period from October 1, 2003 to September 30, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the cumulative totals of the Company for the period
from October 6, 1998 (date of incorporation) to September 30, 2003, which totals
reflect a deficit of $15,640 accumulated during the development stage. Those
cumulative totals were audited by other auditors whose report, dated November
17, 2003, expressed an unqualified opinion on the cumulative amounts.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiary as of September 30, 2004, the consolidated results of
operations, changes in stockholders' equity and cash flows for the year then
ended and cumulatively, for the period from October 1, 2003 to September 30,
2004, in conformity with accounting principles generally accepted in the United
States of America.
As explained in note 1a to the financial statements, subsequent to September,
30, 2005, the Company may be dependent on obtaining additional funding in order
to continue its research and development activity.
/s/ KESSELMAN & KESSELMAN
---------------------------
Kesselman & Kesselman
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
January 13, 2005
F-1
ARMANDO C. IBARRA
Certified Public Accountants
A Professional Corporation
Armando C. Ibarra, C.P.A. Members of the California Society of
Certified Public Accountants
Armando Ibarra, Jr., C.P.A., JD Members of the American Institute of
Certified Public Accountants
Members of the Better Business Bureau since 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
San Jose International, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of San Jose International, Inc.
(A Development Stage Company) as of September 30, 2003 and 2002 and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended and for the period from October 6, 1998 (inception) through
September 30, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of San Jose International, Inc. as
of September 30, 2003 and 2002, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has had significant losses since inception. This
condition raises substantial doubt as to its ability to continue as a going
concern. Management's plans regarding those matters are also described in Note
4. These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Armando C. Ibarra, CPA-APC
---------------------------------
Armando C. Ibarra, CPA-APC
November 17, 2003
Chula Vista, California
371 'E' Street, Chula Vista, CA 91910 Tel: (619) 422-1348 Fax: (619) 422-1465
F-2
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(Formerly - San Jose International, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30
------------------------------
2004 2003
------------- -------------
A s s e t s
CURRENT ASSETS:
Cash $ 705,868 $ 20
Prepaid expenses 11,029
Other 5,971
------------- -------------
T o t a l current assets 722,868 20
------------- -------------
PROPERTY AND EQUIPMENT, NET (see note 2) 3,899
------------- -------------
T o t a l assets $ 726,767 $ 20
============= =============
Liabilities and stockholders' equity
CURRENT LIABILITIES:
Accounts payable $ 140,901
Payroll and related expenses 16,317
-------------
T o t a l current liabilities 157,218
-------------
COMMITMENTS (see note 3)
-------------
STOCKHOLDERS' EQUITY:
Preferred stock, $ 0.0001 par value (20,000,000 shares
authorized; none issued and outstanding)
Common stock, $ 0.0001 par value (100,000,000 and 1,320,000,000 authorized
shares as of September 30, 2004 and 2003,
respectively; 25,221,510 and 56,281,500 shares issued and
outstanding as of September 30, 2004 and 2003, respectively) 2,522 5,628
Additional paid-in capital 941,619 10,032
Warrants 139,494
Deficit accumulated during the development stage (514,086) (15,640)
------------- -------------
T o t a l stockholders' equity 569,549 20
------------- -------------
T o t a l liabilities and stockholders' equity $ 726,767 $ 20
============= =============
The accompanying notes are an integral part of the financial statements.
F-3
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(Formerly - San Jose International, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
October 6,
Year ended 1998* to
September 30 September 30,
------------ ------------ ------------
2004 2003 2004
------------ ------------ ------------
RESEARCH AND DEVELOPMENT COSTS (see note 7) $ 166,992 $ -- $ 166,992
GENERAL AND ADMINISTRATIVE
EXPENSES (see note 8) 343,829 4,857 359,469
MINORITY INTERESTS IN LOSSES OF SUBSIDIARY (12,375) (12,375)
------------ ------------ ------------
NET LOSS FOR THE PERIOD $ (498,446) $ (4,857) $ (514,086)
============ ============ ============
BASIC AND DILUTED LOSS PER 1000
COMMON SHARES $ (10.91) $ (0.09)
WEIGHTED AVERAGE NUMBER OF COMMON
============ ============
SHARES USED IN COMPUTING BASIC AND
DILUTED LOSS PER COMMON SHARE 45,672,962 56,281,500
============ ============
* Incorporation date, see note 1a.
The accompanying notes are an integral part of the financial statements.
F-4
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(Formerly - San Jose International, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common stock - Common Additional
number of stock paid-in
shares amount capital Warrants
---------- ----------- ----------- -----------
BALANCE AS OF OCTOBER 6, 1998 -- $ -- $ -- $ --
Common stock issued on October 6, 1998 1,650,000 165 (155)
Common stock issued on October 9, 1998 2,722,500 272 (107)
Common stock issued on October 10, 1998 198,000 20 100
Common stock issued on December 1, 1998 9,900,000 990 2,010
Common stock issued on April 7, 1999 561,000 56 284
Net loss
---------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 1999 15,031,500 1,503 2,132
Common stock issued on September 30, 2000 41,250,000 4,125 875
---------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 2000 56,281,500 5,628 3,007
Net loss
---------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 2001 56,281,500 5,628 3,007
Net loss
---------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 2002 56,281,500 5,628 3,007
Contributed capital 7,025
Net loss
---------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 2003 56,281,500 5,628 10,032
Cancellation of shares - June 8, 2004 (32,284,988) (3,228) 3,228
Common stock and warrants issued on August 13, 2004 1,224,998 122 779,134 139,494
Gain on issuance of subsidiary
stock on August 17, 2004, see also note 1 86,625
Economic value of exercised option
on August 17,2004, see also note 1 62,600
Net loss
---------- ----------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 2004 25,221,510 $ 2,522 $ 941,619 $ 139,494
========== =========== =========== ===========
Accumulated
deficit Total
----------- -----------
BALANCE AS OF OCTOBER 6, 1998 $ -- $ --
Common stock issued on October 6, 1998 10
Common stock issued on October 9, 1998 165
Common stock issued on October 10, 1998 120
Common stock issued on December 1, 1998 3,000
Common stock issued on April 7, 1999 340
Net loss (3,444) (3,444)
----------- -----------
BALANCE AS OF SEPTEMBER 30, 1999 (3,444) 191
Common stock issued on September 30, 2000 5,000
----------- -----------
BALANCE AS OF SEPTEMBER 30, 2000 (3,444) 5,191
Net loss (3,108) (3,108)
----------- -----------
BALANCE AS OF SEPTEMBER 30, 2001 (6,552) 2,083
Net loss (4,231) (4,231)
----------- -----------
BALANCE AS OF SEPTEMBER 30, 2002 (10,783) (2,148)
Contributed capital 7,025
Net loss (4,857) (4,857)
----------- -----------
BALANCE AS OF SEPTEMBER 30, 2003 (15,640) 20
Cancellation of shares - June 8, 2004
Common stock and warrants issued on August 13, 2004 918,750
Gain on issuance of subsidiary
stock on August 17, 2004, see also note 1 86,625
Economic value of exercised option
on August 17,2004, see also note 1 62,600
Net loss (498,446) (498,446)
----------- -----------
BALANCE AS OF SEPTEMBER 30, 2004 $ (514,086) $ 569,549
=========== ===========
----------
* Incorporation date, see note 1a.
The accompanying notes are an integral part of the financial statements.
F-5
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(Formerly - San Jose International, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
October 6,
Year ended 1998* to
September 30 September 30,
------------------------------ -------------
2004 2003 2004
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (498,446) $ (4,857) $ (514,086)
Adjustments required to reconcile net loss to net cash used
in operating activities:
Income and expenses not involving cash flows:
Depreciation 59 59
Common stock issued for services 3,000
Minority interests in losses of subsidiary (12,375) (12,375)
Acquisition of research and development in process 100,000 100,000
Option exercise costs 62,600 62,600
Changes in assets and liabilities:
Increase in prepaid expenses (11,029) (11,029)
Increase in other current assets (5,971) (5,971)
Increase (decrease) in current liabilities 156,218 (2,294) 156,218
------------- ------------- -------------
Net cash used in operating activities (208,944) (7,151) (221,584)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES -
purchase of property and equipment (3,958) (3,958)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to additional paid in capital 7,025 12,319
Issuance of common stock and warrants 918,750 919,091
------------- -------------
Net cash provided by financing activities 918,750 7,025 931,410
------------- ------------- -------------
INCREASE (DECREASE) IN CASH 705,848 (126) 705,868
CASH AT BEGINNING OF PERIOD 20 146
------------- ------------- -------------
CASH AT END OF PERIOD $ 705,868 $ 20 $ 705,868
============= ============= =============
The company had no income taxes and interest cash payments during the reported
periods.
* Incorporation date, see note 1a.
The accompanying notes are an integral part of the financial statements.
F-6
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
a. Organization:
GammaCan International Inc. (A Development Stage Company; "the Company")
was incorporated on October 6, 1998, under the laws of the State of
Delaware, as San Jose International, Inc. The Company has no significant
revenues and no material operations and in accordance with Statement of
financial Accounting Standard ("SFAS") No. 7 "Accounting and Reporting by
Development Stage enterprises", the Company is considered a development
stage company.
Through September 30, 2004, the Company has incurred losses in an
aggregate amount of $514,086. Such losses have resulted from the Company's
activities as a development stage company. The Company's management
estimated that it would be able to finance its operations from its current
reserves and the cash raised in November 2004 (see note 10) for the coming
year. Continuation of the Company's current operations after utilizing the
mentioned reserves during the year ending September 30, 2005, is dependent
upon obtaining financial support from investors until profitable results
are achieved.
On August 19, 2004, the name of the company was changed from "San Jose
International, Inc." into "GammaCan International, Inc.".
During August 2004 the Company acquired, through GammaCan Ltd., formerly a
wholly owned subsidiary (hereafter - "the subsidiary"), from ARP Biomed,
Ltd. ("ARP"), an Israeli Company, all of ARP's interest in research and
development, patents and intellectual property (hereafter - "Intellectual
Property" or "research and development in process") to provide clinical
treatment for various cancer types, in consideration for the issuance of
12.5% of the subsidiary's stock to ARP. Under the terms of the agreement,
which was signed between the parties, the Company had to raise $800,000
and lend those funds to the subsidiary, which will use those funds to
commence clinical trials and further research and development utilizing
the Intellectual Property. The Intellectual Property was valued at
$100,000.
The gain on issuance of the subsidiary's stock, totaling $86,625, is
presented as a capital surplus within the "Stockholders' Equity" due to
the fact that there is no certainty of the realization of this gain.
The costs of registered patents, paid by the Company in connection with
acquisition of the Intellectual Property, were carried to research and
development costs.
F-7
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
The intellectual property being acquired included registered patents in
the United States and certain other countries, pending patents in other
countries, know-how, trial protocols and manuscripts.
On June 21, 2004, a company owned by the Company's sole officer and
director at that time, was granted an option by one of the shareholders to
purchase 100,000 options at $0.01 per share. The economic value of this
option is presented as an expense in the amount of $62,600. The option was
exercised on August 17, 2004.
b. Accounting principles
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in the United
States of America.
c. Use of estimates in the preparation of financial statements
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the financial statement date and the reported
expenses during the reporting periods. Actual results could differ from
those estimates.
d. Functional currency
The currency of the primary economic environment in which the operations
of the Company and its subsidiary are conducted is the US dollar ("US$" or
"dollar"). Most of the Company's research and development cost are
incurred in dollars. A significant part of the Company's capital
expenditures and most of its financing is in dollars. Thus, the functional
currency of the Company and its subsidiary is the dollar.
Transactions and balances originally denominated in dollars are presented
at their original amounts. Balances in non-dollar currencies are
translated into dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For non-dollar
transactions and other items reflected in the statements of operations,
the following exchange rates are used: (1) for transactions - exchange
rates at transaction dates or average rates and (2) for other items
(derived from non-monetary balance sheet items) - historical exchange
rates. The resulting transaction gains or losses are carried to financial
income or expenses, as appropriate.
F-8
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
e. Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary GammaCan Ltd. All material intercompany transactions
and balances have been eliminated in consolidation.
f. Property and equipment
1) Property and equipment are recorded at cost, less accumulated
depreciation.
2) The assets are depreciated by the straight-line method over the
estimated useful lives of the assets.
Annual rates of depreciation are as follows:
%
----
Computers and peripheral equipment 33
Office furniture and equipment 6-15
g. Deferred income taxes
Deferred taxes are determined utilizing the assets and liabilities method
based on the estimated future tax effects of differences between the
financial accounting and tax bases of assets and liabilities under the
applicable tax laws. Deferred tax balances are computed using the tax
rates expected to be in effect when those differences reverse. A valuation
allowance is provided if, based upon the weight of available evidence, it
is more likely than not that some or all of the deferred tax assets will
not be realized. The Company has provided a full valuation allowance with
respect to its deferred tax assets.
Regarding the Israeli subsidiary, paragraph 9(f) of FAS 109,"Accounting
for Income Taxes", prohibits the recognition of deferred tax liabilities
or assets that arise from differences between the financial reporting and
tax bases of assets and liabilities that are measured from the local
currency into dollars using historical exchange rates, and those that
result from changes in exchange rates or indexing for tax purposes.
Consequently, the abovementioned differences were not reflected in the
computation of deferred tax assets and liabilities
F-9
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
h. Research and development
Research and development costs are expensed as incurred.
Acquisition of research and development in process and the costs of
registered patents, that have not yet reached technological feasibility
and have no alternative future use, are expensed as incurred.
i. Comprehensive income (loss)
The Company has no other comprehensive income (loss) components other than
net loss for the reported periods.
j. Loss per share
Basic and diluted net losses per common share are presented in accordance
with FAS No. 128 "Earning per share" ("FAS128"), for all periods
presented. Outstanding share options, and warrants have been excluded from
the calculation of the diluted loss per share because all such securities
are antidilutive for all periods presented. The total number of common
stocks related outstanding options and warrants excluded from the
calculations of diluted net loss was 2,674,998 for the years ended
September 30, 2004.
k. Stock based compensation
The Company accounts for employee stock based compensation in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations. In accordance
with FAS 123 - "Accounting for Stock-Based Compensation" ("FAS 123"), the
Company discloses pro forma data assuming the Company had accounted for
employee stock option grants using the fair value-based method defined in
FAS 123.
F-10
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
The following table illustrates the pro - forma effect on net loss and
loss per common share assuming the Company had applied the fair value
recognition provisions of FAS 123 to its stock-based employee
compensation:
Year ended September 30,
------------------------
2004 2003
--------- -------
Net loss as reported $(498,446) $(4,857)
Deduct: stock based employee compensation
expense determined under fair value
method for all awards, net of related tax effects (122,411)
--------- -------
Pro forma loss $(620,857) $(4,857)
========= =======
Net loss per 1000 common shares:
Basic and diluted - as reported $ (10.91) $ (0.09)
========= =======
Basic and diluted - pro forma $ (13.59) $ (0.09)
========= =======
l. Recently issued accounting pronouncements:
In December 2004, the Financial Accounting Standards Board ("FASB") issued
the revised Statement of Financial Accounting Standards ("FAS") No. 123,
Share-Based Payment (FAS 123R), which addresses the accounting for
share-based payment transactions in which the Company obtains employee
services in exchange for (a) equity instruments of the Company or (b)
liabilities that are based on the fair value of the Company's equity
instruments or that may be settled by the issuance of such equity
instruments. This Statement eliminates the ability to account for employee
share-based payment transactions using APB Opinion No. 25, Accounting for
Stock Issued to Employees, and requires instead that such transactions be
accounted for using the grant-date fair value based method. This Statement
will be effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005, for small business
issuers (January 1, 2006 for the Company). Early adoption of FAS 123R is
encouraged. This Statement applies to all awards granted or modified after
the Statement's effective date. In addition, compensation cost for the
unvested portion of previously granted awards that remain outstanding on
the Statement's effective date shall be recognized on or after the
effective date, as the related services are rendered, based on the awards'
grant-date fair value as previously calculated for the pro-forma
disclosure under FAS 123. The Company estimates that the cumulative effect
of adopting FAS 123R as of its adoption date by the Company (January 1,
2006), based on the awards outstanding as of September 30, 2004, will be
approximately $1,150,000. This estimate does not include the impact of
additional awards, which may be granted, or forfeitures, which may occur
subsequent to September 30, 2004 and prior to our adoption of FAS 123R.
The Company expects that upon the adoption of FAS 123R, the Company will
apply the modified prospective application transition method, as permitted
by the Statement. Under such transition method, upon the adoption of FAS
123R, the Company's financial statements for periods prior to the
effective date of the Statement will not be restated.
F-11
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - PROPERTY AND EQUIPMENT
Grouped by major classification, property and equipment are composed as
follows as of September 30, 2004:
Cost:
Office furniture and equipment $2,068
Computers and peripheral equipment 1,890
------
3,958
------
Less - accumulated depreciation
(depreciation for the period ended
September, 30 2004) 59
------
$3,899
======
NOTE 3 - COMMITMENTS:
a. The Company signed an agreement for the lease of its office
facilities, which expires on May 19, 2005, with an option to extend
it for 2 additional optional periods of 12 months each. The monthly
payment is $679. The future rental payments, on a fiscal year basis
under the lease, are $8,148 in the year ended September 30, 2005.
b. On August 17, 2004, the subsidiary entered into a written employment
agreement with Dr. Dan J. Gelvan, who serves as the Chief Executive
Officer (hereafter - CEO). Under the agreement, Dr. Gelvan will
receive a monthly salary of $8,000 for the first three months of his
services and will receive a monthly salary of $9,250 thereafter.
Either Dr. Gelvan or the subsidiary may terminate the employment
agreement for any reason whatsoever, with 30 days notice within the
first year of the engagement and with 90 days prior written notice
thereafter.
c. On August 17, 2004, the subsidiary entered into a services agreement
with the chief scientist of the subsidiary, in consideration of a
monthly compensation of $5,000. Either the chief scientist or the
subsidiary may terminate the services agreement, for any reason
whatsoever, with a 30 days notice.
NOTE 4 - GOING CONCERN
30.9.03 -The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As of the period ended
on September 30, 2003, the accumulated losses of $15,640 and working
capital of $20 raised substantial doubt about the Company's ability to
continue as a going concern. As for the Company's status as of September
30, 2004, see note 1a.
F-12
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - STOCK HOLDERS' EQUITY:
a. Capital stock
Composed as follows:
September 30, 2004 September 30, 2003
------------------ ------------------
Issued and Issued and
Authorized outstanding Authorized outstanding
---------- ----------- ---------- -----------
Number of shares Number of shares
---------------------------- -------------------------------
Preferred stock of $ 0.0001 par value 20,000,000 20,000,000
Common stock of $ 0.0001 par value 100,000,000 25,221,510 1,320,000,000 56,281,500
----------- ---------- ------------- ----------
120,000,000 25,221,510 1,340,000,000 56,281,500
=========== ========== ============= ==========
b. Stock transactions:
The stock is traded on the over-the-counter bulletin board. The quoted
price per share, as of September 30, 2004 is US$1.65.
On October 6, 1998, the Company issued 1,650,000 shares of common stock
for cash consideration of $10.
On October 9, 1998, the Company issued 2,722,500 shares of common stock
for cash consideration of $165.
On October 10, 1998, the Company issued 198,000 shares of common stock for
cash consideration of $120.
On December 1, 1998, the Company issued 9,900,000 shares of common stock
for services valued at $3,000.
On April 7, 1999, the Company issued 561,000 shares of common stock for
cash consideration of $340.
On September 30, 2000, the Company issued 41,250,000 shares of common
stock for cash consideration of $5,000.
On April 20, 2004 the Company effected a 16.5 to 1 forward stock split of
its Common Stock. All shares and per share amounts have been retroactively
restated to reflect the 16.5 to 1 stock split. Following the forward split
the Company also reduced the authorized capital of its common stock from
1,320,000,000 shares to 100,000,000 shares.
On June 8, 2004, the Company's former main stockholder returned 32,284,988
shares of common stock to the treasury for cancellation. Accordingly an
amount of $3,228 was deducted from the "Common stock amount" balance and
transferred to the "Additional paid in capital" balance.
F-13
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - STOCK HOLDERS' EQUITY (continued):
On August 13, 2004 the Company entered into subscription agreements for
the sale of 1,224,998 units at a purchase price of $0.75 per unit for a
total consideration of $918,750. Each unit consisted of one Common Share
in the Company and one share purchase warrant, which entitles the holder
to purchase an additional Common Share for $1.50 on or before August 13,
2005. The fair value of the warrants estimated by using the Black &
Scholes option-pricing model is $139,494.
In accordance to issuance of common stocks in November 2004, see note 10.
c. Summary of the company's stock options
On August 17, 2004, the company's board of directors adopted the 2004
Employees and Consultants Stock Option Plan (hereafter - the Plan). Under
the Plan 5,000,000 shares have been reserved for the grant of options,
which may be issued at the discretion of the Company's board of directors
from time to time. Under this Plan, each option is exercisable to purchase
one common share of $ 0.0001 par value of the Company. In August 2004
1,450,000 options were granted under the plan (of which 1,400,000 were
granted to the Company's CEO). The exercise price has been determined at
$1.3 per share. The options may be exercised after vesting and only in
accordance with the following:
1. On the first anniversary commencing the grant date - 25% of the
options.
2. On the last day of each month following the first anniversary of the
grant date, the option shall vest in equal monthly installments for
a period of 36 months.
The expiry date of the above options is on August 18, 2014. The fair value
of the above options on the date of grant estimated by using Black &
Scholes option-pricing model is $1,662,964.
The fair value of the option was based on the following assumptions:
dividend yield of 0% for all years; expected volatility of 103%; risk-free
interest rates of 5.4%; and expected lives of 7.88 years.
F-14
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - TAXES ON INCOME
a. Deferred income taxes:
September 30,
-----------------------
2004 2003
--------- -------
Tax loss carryforwards $ 100,369 $ 2,346
Valuation allowance (100,369) (2,346)
--------- -------
Net deferred tax assets $ -- $ --
========= =======
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. As
the achievement of required future taxable income is uncertain, the
Company recorded a valuation allowance.
b. U.S. income taxes
As of September 30, 2004, the Company has an accumulated tax loss
carryforward of approximately $ 240,000, which will expire 20 years from
the date the loss was incurred (September 30, 2003 - $15,640).
c. Israeli income taxes
The Israeli subsidiary is taxed in accordance with Israeli tax laws.
Under the Income Tax (Inflationary Adjustments) Law, 1985, results for tax
purposes are measured in real terms, in accordance with the changes in the
Israeli consumer price index ("CPI"). The Israeli subsidiary is taxed
under this law.
As of September 30, 2004, the Company's Israeli subsidiary has an
accumulated tax loss carryforward of approximately $200,000. Under Israeli
tax laws, carryforward tax losses are linked to the Israeli CPI. The
Israeli loss carryforwards have no expiration date.
NOTE 7 - RESEARCH AND DEVELOPMENT COSTS:
For the year ended
September 30, 2004
------------------
Acquisition of research and development in process $100,000
Costs of registered patents 39,554
Consulting and Legal fees 27,438
--------
$166,992
========
F-15
GAMMACAN INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - GENERAL AND ADMINISTRATIVE EXPENSES
Year ended
September 30,
-----------------------
2004 2003
-------- ------
Payroll and related expenses $ 81,713 $ --
Business Development Costs 158,466
Professional services 91,498
Other 12,152 4,857
-------- ------
$343,829 $4,857
======== ======
NOTE 9 - RELATED PARTIES - TRANSACTIONS:
a. As to the employment contract with the Company's CEO see note 3b.
Payroll and related expenses in respect of the Company's CEO and the
Company's former sole officer and director for the year ended
September 30, 2004 total $79,510
b. As to options granted to the Company's CEO, see note 5b.
c. The acquisition of Intellectual Property agreement (see note 1a) was
signed following a Memorandum of Understanding (MOU), which was
agreed between ARP and a related party. According to the MOU a new
company shall be incorporated to execute the acquisition of the
Intellectual Property.
NOTE 10 - SUBSEQUENT EVENT
On November 11, 2004 the company entered into subscription agreements for
the sale of 978,000 units at a purchase price of $1.25 per unit for a
total consideration of $1,222,000. Each unit consisted of one common share
and one share purchase warrant. Each share purchase warrant entitles the
holder to purchase one additional common share for a period of two years
after the date of the subscription agreement at an exercise price of $1.50
in the first 15 months and $2.00 for the next nine months. The fair value
of the warrants estimated by using the Black & Scholes option-pricing
model is $266,629.
F-16
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 5, 2004, GammaCan International, Inc dismissed Armando C. Ibarra,
CPA-APC as its principal independent accountant. Effective October 5, 2004, we
engaged PricewaterhouseCoopers, Chartered Accountants, of Tel Aviv, Israel as
our new principal independent accountant. Our board of directors has approved
the dismissal of Armando C. Ibarra, CPA-APC and the appointment of
PricewaterhouseCoopers as our new principal independent accountants.
From the date of Armando C. Ibarra's appointment through the date of Armando C.
Ibarra's dismissal on October 5, 2004, there were no disagreements between our
company and Armando C. Ibarra on any matter listed under Item 304 Section
(a)(1)(iv) A to E of Regulation S-B, including accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Armando C. Ibarra would have caused
Armando C. Ibarra to make reference to the matter in its reports on our
financial statements.. The report on the financial statements prepared by
Armando C. Ibarra, CPA-APC for the fiscal period ending September 30, 2003
contained a paragraph with respect to our ability to continue as a going
concern.
Prior to engaging PricewaterhouseCoopers, we did not consult
PricewaterhouseCoopers regarding either:
1. the application of accounting principles to any specified
transaction, either completed or proposed, or the type of
audit opinion that might be rendered our financial statements,
and neither a written report was provided to our company nor
oral advice was provided that PricewaterhouseCoopers concluded
was an important factor considered by our company in reaching
a decision as to the accounting, auditing or financial
reporting issue; or
2. any matter that was either subject of disagreement or event,
as defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the
related instruction to Item 304 of Regulation S-B, or a
reportable event, as that term is explained in Item
304(a)(1)(iv)(A) of Regulation S-B.
Prior to engaging PricewaterhouseCoopers, PricewaterhouseCoopers has not
provided our company with either written or oral advice that was an important
factor considered by our company in reaching a decision to change our company's
new principal independent accountant from Armando C. Ibarra, CPA-APC to
PricewaterhouseCoopers.
ITEM 8A - CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
An evaluation was performed under the supervision and with the participation of
our management, including the chief executive officer and the chief financial
officer, of the effectiveness of the design and operation of our disclosure
procedures. Based on management's evaluation as of the end of the period covered
by this Annual Report, our principal executive officer and chief financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) were sufficiently effective to ensure that the
information required to be disclosed by us in the reports that we file under the
Exchange Act is gathered, analyzed and disclosed with adequate timeliness,
accuracy and completeness.
23
Changes in internal controls.
Prior to the end of the period covered by this report, management of Gammacan
determined that certain procedures related to the approval and administration of
contracts and services as well as the financial management were not sufficient.
We subsequently adopted additional procedures to address these deficiencies.
Other than the foregoing, there have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referred to above, nor were there any
significant deficiencies or material weaknesses in our internal controls.
Accordingly, no corrective actions were required or undertaken except as
disclosed.
ITEM 9 - DIRECTORS AND OFFICERS OF THE REGISTRANT
The following persons are our executive officers and directors as of the date
hereof:
Name Position Held with our Company Age Date First
Elected or Appointed
Dr. Dan J. Gelvan Chief Executive Officer of our company and Gammacan, 40 To GammaCan Ltd- August 17, 2004
Ltd. To the company-October 12,2004
Shmuel Levi Director of our company and Gammacan, Ltd. 54 August 17, 2004
Yair Aloni Director of our company and Gammacan, Ltd. 54 August 17, 2004
Tovi Ben Zeev Chief Financial Officer of our company and Gammacan, 52 To GammaCan Ltd-August 17, 2004
Ltd. To the Company- October 12,2004
Prof. Yehuda Shoenfeld, Chief Scientist of Gammacan, Ltd. 56 August 17, 2004
M.D.
Jean-Pierre Elisha Director of our company and Gammacan, Ltd. 53 January 7,2005
Martinez
Business Experience
The following is a brief account of the education and business experience during
at least the past five years of each director, executive officer and key
employee, indicating the principal occupation during that period, and the name
and principal business of the organization in which such occupation and
employment were carried out.
Dr. Dan J. Gelvan
Dr. Gelvan is the Chief Executive Officer of our company and our subsidiary,
Gammacan, Ltd. He is an experienced life science executive who brings to us an
unique combination of operational and strategic management. Over the past 6
years, Dr. Gelvan founded and managed Zetiq Technologies Ltd. an industry leader
in cell-based high-throughput screening for novel anti-cancer drugs. For the two
year period prior to founding Zetiq Technologies Ltd., Dr. Gelvan held a number
of strategic and business development positions in Clal (Israel) Ltd, one of
Israel's largest holding conglomerates. Dr. Gelvan is a member of Israel's
National Committee for Biotechnology, and holds a Ph.D. in Business Economics
from Roskilde University in Denmark as well as a BA and MA (cum laude) in
economics from the Hebrew University of Jerusalem.
24
Mr. Yair Aloni
Mr. Aloni is a director of our company and our subsidiary, Gammacan, Ltd. He
brings over 25 years experience as a senior executive in a number of companies.
From 2002 to present, he has served as the Chief Executive Officer of
Solidimension Ltd., a private company specializing in 3D printers. From 1996 to
2002, Mr. Aloni served as the Chief Executive Officer of Avnan Yazamut Ltd., a
company involved in the investments in companies in the fields of high
technology, biotechnology and electronics. Prior to 1996, Mr. Aloni worked as an
executive or senior manager of several electronic and auto parts companies.
Mr. Shmuel Levi
Mr. Levi is a director of our company and our subsidiary, Gammacan, Ltd. He has
held senior level financial management positions for over 28 years, for major
organizations, high tech and start-up companies in Israel. These include serving
as the Chief Financial Officer of Rafael Group from 1996 to 1999, the Corporate
Finance Manager of Strauss Group from 1991 to 1996 and a Senior Vice President
for Finance of North Hills Israel Ltd. For the last 5 years, Mr. Levi
concentrated in high-tech and start-up companies using his expertise in
performing due diligence, fundraising, public offerings and structuring
financial and legal transactions. From 2003 to 2004, he acted as the Chief
Financial Officer of Pluristem Life Systems, Inc., a biotechnology company whose
shares are quoted on the NASD Over the Counter Bulletin Board. Mr. Levi received
a M.Sc. and B.Sc. in Economics and Management from the Technion, Israel
Institute of Technology in 1976.
Mr. Jean-Pierre Elisha Martinez
Jean-Pierre Elisha Martinez is a director of our company and our subsidiary,
Gammacan, Ltd. Mr. Martinez, age 53, is a biomedical researcher at the Tel-Aviv
University, specializing in cellular engineering and bio-fluid dynamics. From
September 1999 through November 2004, Mr. Martinez was a researcher and lecturer
at Tel Aviv University as a PhD student, with a focus on Cellular Engineering
(human cells) and Bio-fluid dynamics in physiology and pathology. From March
2002 to August 2002, Mr. Martinez was a Consultant for "Barnev", for the
development of biological binding methods of electronic devices to human
tissues. From October 2001 to August 2002, he worked on marketing initiatives
for Statice Sante SA (France). From February 2001to April 2001, Mr. Martinez was
a consultant for Paper Power Ltd. for medical applications. From September 1999
to October 2001, he was project manager at Slo-Flo Ltd., for the development of
an intra-vaginal delivery device and from March 1999 to July 2001, Mr. Martinez
was project manager and integrator at "Meduck" for multi-disciplinary medical
instrumentation. Mr. Martinez headed the R&D department and was a director of
Elcam Plastics, a world leader in medical disposables.
Ms. Tovi Ben-Zeev
Ms. Ben-Zeev is the Chief Financial Officer of our company and our subsidiary,
Gammacan, Ltd. She brings 25 years of senior level financial experience to
Gammacan. Ms. Ben-Zeev is a Certified Public Accountant in Israel and holds an
MBA from Rutgers University of New Jersey. She also holds an M.Sc. in Physical
Chemistry from Bar Ilan University in Israel. Before her appointment as the
Chief Financial Officer of Gammacan, Ltd., Ms. Ben-Zeev was the Chief Financial
Officer of Zikit Ltd. from 1987 to 1993, a leading Israeli textile processor
whose shares are listed on the Tel-Aviv Stock Exchange. From 1997 to 1999, she
acted as the Chief Financial Officer and Chief Operating Officer of Sensotech
Ltd., a developer of intelligent safety systems. From 1999 to 2001, she acted as
the Chief Financial Officer and Chief Operating Officer of Eldan Electronic
Instruments Ltd., a leading representative of a number of medical devices and
life science companies.
25
Prof. Yehuda Shoenfeld, M.D.
Prof. Shoenfeld is the Chief Scientist of our subsidiary, Gammacan, Ltd. He is
one of Israel's leading physicians and scientists in the field of immunology.
Since 1989, Prof. Shoenfeld has lead the Department of Internal Medicine "B",
and the Research Center for Autoimmune Diseases at the Sheba Medical Center,
Israel's largest hospital. In 1990, Dr. Shoenfeld was appointed a Professor of
Medicine at Tel Aviv University and incumbent of the Laura Schwartz-Kipp Chair
for Autoimmunity. He is the author of more than 1,000 scientific papers and more
than 40 scientific books.
Board of Directors
All of our directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors.
Committees of the Board
We have two committees of our Board of Directors.
Audit Committee. The Audit Committee is responsible for determining the adequacy
of our internal accounting and financial controls, reviewing the results of our
audit performed by the independent public accountants, and recommending the
selection of independent public accountants. The Board has determined that each
of the members of the Audit Committee is unrelated, an outside member with no
other affiliation with us and is independent as defined by the rules of the SEC.
The Board has determined that Mr. Shmuel Levi is an "audit committee financial
expert" as defined by the SEC. The other audit committee member is Mr. Elisha
Martinez. The Audit Committee was formed on January 11, 2005 and has had its
first meeting on that day.
Compensation Committee. The Compensation Committee determines matters pertaining
to the compensation of certain of out executive officers and administers our
stock option, and incentive compensation. The Compensation Committee is
comprised of Messrs. Yair Aloni and Shmuel Levi. The Compensation Committee was
formed on January 11, 2005 and has had no meetings to date.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to us during fiscal year 2004, we are not aware of any director,
officer or beneficial owner of more than ten percent of our Common Stock that
failed to file reports required by Section 16(a) of the Securities Exchange Act
of 1934 on a timely basis during fiscal year 2004.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received during
the fiscal years ended September 30, 2004, 2003, and 2002 by the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers based on salary and bonus earned during the 2004 fiscal year.
26
Summary Compensation Table
Annual Compensation Long Term Pay-
Compensation outs
Name and Principal Year Salary Bonus Other Securities Restricted LTIP
Position Annual Under Shares or Pay-
Compen- Options/ Restricted outs
sation SAR's Share Units
Granted
Dr. Dan J. Gelvan, Chief Executive Officer 2004 14,620 2,290
Christopher Greenwood (1) 2003 Nil $Nil Nil Nil Nil Nil
Former President & Director 2002 Nil $Nil Nil Nil Nil Nil
(1) Mr. Christopher Greenwood resigned as our President and director on June 21,
2004.
Option Grants During 2004 Fiscal Year
The following table provides information related to options granted to the named
executive officers by Gammacan International during the 2004 fiscal year. The
Company does not have any outstanding stock appreciation rights.
No. of Securities % of Total Options
Underlying Granted to Employees
Options Granted in Exercise Expiration
Name (#) Fiscal Year Price ( $/Sh) Date
---------------------------- ------------------- ----------------------- --------------- --------------
Dan Gelvan 1,400,000 96.6 1.3 August 17,
2014
August 17,
Tovi Ben Zeev 50,000 3.4 1.3 2014
On June 21, 2004, a company owned by our sole officer and director
at that time, David Stephens, was granted an option by one of our shareholders
to purchase 100,000 shares at $0.01 per share. We have determined that the
economic value of this option should be presented as an expense on behalf of
Gammacan International Inc in the amount of $62,600. The option was exercised on
August 17, 2004. The issuance of this option has not been included in the
disclosure of options issued by Gammacan International Inc.
Aggregated Option Exercises During 2004 Fiscal Year and Fiscal Year-End Option
Values
The following table provides information related to employee options exercised
by the named executive officers during the 2004 fiscal year and number and value
of such options held at fiscal year-end.
27
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal Year- In-the-Money Options at Fiscal
End (#) Year- End ($) (1)
------------------------------------- ----------------------------------
Name Shares Acquired Value Exercisable Unexercisable Exercisable Unexercisable
on Exercise (#) Realized
--------------------- ------------------- -------------- ----------------- ------------------- --------------- ------------------
None.
28
EMPLOYMENT AGREEMENTS
On August 17, 2004, we entered into a written employment agreement with Dr. Dan
J. Gelvan. The agreement was amended on October 12, 2004. Dr. Gelvan serves as
our Chief Executive Officer and the Chief Executive Officer of our subsidiary.
Dr. Gelvan will receive a monthly salary of $8,000 for the first three months of
his services and will receive a monthly salary of $9,250 thereafter. Dr. Gelvan
will also be entitled to receive options under the 2004 Employees and Consultant
Stock Option Plan to purchase up to 1,400,000 common shares of our company at
the exercise price of $1.30 per share. Either Dr. Gelvan or our company may
terminate the employment agreement with Dr. Gelvan without cause, for any reason
whatsoever, with 30 days notice within the first year of the his engagement and
with 90 days prior written notice thereafter.
On August 17, 2004, we also entered into a written employment agreement with Ms.
Tovi Ben Zeev, which was amended on October 12, 2004. Ms. Ben Zeev serves as the
Chief Financial Officer of our company and our subsidiary, Gammacan, Ltd. on a
part time basis. Ms. Ben Zeev will receive a monthly salary of $1,300 for her
services as the Chief Financial Officer of Gammacan, Ltd. On January 11,2005,
effective November 1, 2004, Ms. Ben Zeev's monthly salary was raised to $4,000.
Ms. Ben Zeev will also be entitled to receive options under the 2004 Employees
and Consultant Stock Option Plan to purchase up to 50,000 common shares of our
company at the exercise price of $1.30 per share. Either Ms. Ben Zeev or our
company may terminate the employment agreement with Ms. Ben Zeev without cause,
for any reason whatsoever, with 30 days notice.
On August 17, 2004, we entered into a services agreement with Professor Yehuda
Shoenfeld, M.D., who will serve as the Chief Scientist of our subsidiary,
Gammacan, Ltd., commencing on September 1, 2004. Prof. Shoenfeld will receive a
monthly compensation in the amount of approximately $5,000 USD, for his services
as the Chief Scientist of Gammacan, Ltd. Either Prof. Shoenfeld or our company
may terminate the services agreement with Prof. Shoenfeld without cause, for any
reason whatsoever, with 30 days notice.
We do not have any material bonus or profit sharing plans pursuant to which cash
or non-cash compensation is or may be paid to our directors or executive
officers. When a compensation committee of our board of directors is created,
arrangements and plans to provide pension, retirement or similar benefits for
directors or executive officers will be decided upon by the compensation
committee.
DIRECTOR COMPENSATION
We reimburse our directors for expenses incurred in connection with attending
board meetings but did not pay director's fees or other cash compensation for
services rendered as a director in the year ended September 30, 2004. Effective
as of January 11, 2005, members of the Board of Directors shall be paid a fee of
$500 for each Board meeting attended. Members of the Board may also receive
option grants from the 2004 Employees and Consultants Stock Option Plan.
Directors are entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of our
board of directors. The board of directors may award special remuneration to any
director undertaking any special services on behalf of our company other than
services ordinarily required of a director. Other than indicated in this annual
report, no director received and/or accrued any compensation for his or her
services as a director, including committee participation and/or special
assignments.
Stock Option Plan
On August 17, 2004, our board of directors adopted the 2004 Employees and
Consultants Stock Option Plan in order to attract and retain quality personnel.
Under the 2004 Employees and Consultants Stock Option Plan, 5,000,000 shares
have been reserved for the grant of options, which may be issued at the
discretion of our board of directors from time to time.
Stock Options/SAR Grants
There were no grants of stock options under a stock option plan or stock
appreciation rights to any officers, directors, consultants or employees of our
company during the fiscal year ended September 30, 2003. On August 17, 2004, we
29
granted options to Dr. Dan J. Gelvan under the 2004 Employees and Consultants
Stock Option Plan to allow Dr. Gelvan to purchase up to 1,400,000 common shares
of our company at an exercise price of $1.30 per share. On the same date, we
also granted options to Ms. Tovi Ben Zeev under the 2004 Employees and
Consultants Stock Option Plan to allow Ms. Ben Zeev to purchase up to 50,000
common shares of our company at an exercise price of $1.30 per share. The
options granted to Dr. Gelvan and Ms. Ben Zeev are exercisable until August 17,
2014.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about the shares of the Company's
common Stock that may be issued upon the exercise of options granted to
employees under the 2004 Stock Option Plan, which were approved by the Board of
Directors, as well as shares that may be issued upon the exercise of options
under the 2004 Stock Option Plan, that were issued to consultants, which were
not approved by the Board of Directors.
(c)
Number of securities
(a) (b) remaining available for
Number of securities Weighted-average future issuance under
to be issued upon exercise price of equity compensation plans
exercise of outstanding excluding securities
outstanding options, options, warrants reflected in column (a)
Plan Category warrants and rights and rights (1)
----------------------------- ------------------------ --------------------- ---------------------------
Equity compensation plans
approved by security holders - - -
Equity compensation plans
not approved by security
holders (1), (2)
------------------------ --------------------- ---------------------------
Total
Code of Ethics
We have adopted a Code of Ethics for our officers, directors and employees. A
copy of the Code of Ethics is attached hereto as an exhibit.
30
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information, according to information
supplied to the Company regarding the number and percentage of the Company's
common stock beneficially owned by (i) each person who is beneficial owner of
more than 5% of the common stock; (ii) by each director; (iii) by each executive
officer; and (iv) by all directors and executive officers as a group. Unless
otherwise indicated, the stockholders listed possess sole voting and investment
power with respect to the shares listed.
Name and Address of Beneficial Owner Amount and Nature of Percentage
Beneficial Ownership (1) of Class (1)
Yair Aloni 280,005 common shares 1.07%
Director of our company and Gammacan, Ltd.
12A Shabazy St.
Tel Aviv, Israel
Yehuda Shoenfeld 699,996 common shares 2.67%
Chief Scientist of Gammacan, Ltd.
26 Sapir St.
Ramat Gen
Israel
Zeev Bronfeld 3,900,006 common shares 14.89%
6 Uri St.
Tel Aviv, Israel
Vered Caplan 3,900,006 common shares 14.89%
69 Deganyq St.
Pares Hanna Karkur
Israel
L.H. Osterloh 1,650,000 common shares 6.30
1305 1090 West Georgia St.
Vancouver, B.C. V6E 3V7 Canada
Vantech Securities Ltd. 1,650,000 common shares 6.30%
1305 1090 West Georgia St.
Vancouver, B.C. V6E 3V7 Canada
Directors and Executive Officers as a Group 980,001 common shares 3.74%
(1) Based on 26,199,510 shares of common stock issued and outstanding as of
January 13 , 2005. Except as otherwise indicated, we believe that the beneficial
owners of the common stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes voting
or investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable, or exercisable within 60 days, are
deemed outstanding for purposes of computing the percentage ownership of the
person holding such option or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
31
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise indicated below, we have not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to its knowledge, any of its directors,
officers, five percent beneficial security holder, or any member of the
immediate family of the foregoing persons has had or will have a direct or
indirect material interest:
Mr. Yair Aloni, a director of our company, and Professor Yehuda Shoenfeld, M.D.,
the Chief Scientist of our subsidiary, Gammacan, Ltd., are authorized
signatories of ARP Biomed Ltd. for the Intellectual Property Purchase and Sale
Agreement we entered into with ARP Biomed Ltd. on June 11, 2004. Mr. Aloni is
the Chief Executive Officer of ARP and Mr. Shoenfeld is an advisor to ARP.
32
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
Exhibits:
Number Exhibit
3.1 Certificate of Incorporation, with amendments, filed as an exhibit to the Company's Registration Statement on
Form 10SB, dated June 4, 2001, and incorporated herein by reference.
3.2 By-Laws, filed as an exhibit to the Company's Registration Statement on Form 10SB, dated June 4, 2001, and
incorporated herein by reference.
4.1 2004 Employees and Consultants Stock Compensation Plan, incorporated by reference from Form 8-K, dated as of
August 17, 2004
10.1 Sale of Intellectual Property Agreement dated June 11, 2004 between Gammacan, Ltd. and ARP Biomed, Ltd.,
incorporated by reference from the Company's Form 8-K, dated as of June 21, 2004
10.2 Employment Agreement dated August 17, 2004 between Gammacan Ltd. and Dr. Dan J. Gelvan, incorporated by
reference from Form 8-K, dated as of August 17, 2004.
10.3 Addendum to Employment Agreement between Gammacan, Ltd. and Dr. Dan J.
Gelvan, dated as of October 12, 2004, incorporated by reference from Form 8-K dated as of October 12, 2004
10.4 Indemnity Agreement between Gammacan International, Inc. and Dr. Dan J.
Gelvan, dated as of October 12, 2004, incorporated by reference from Form 8-K dated as of October 12, 2004
10.5 Employment Agreement dated August 17, 2004 between Gammacan Ltd. and Ms. Tovi Ben Zeev, incorporated by
reference from Form 8-K, dated as of August 17, 2004
10.6 Addendum to Employment Agreement between Gammacan, Ltd. and Tovi
Ben-Zeev, dated as of October 12, 2004, incorporated by reference from Form 8-K dated as of October 12, 2004
10.7 Indemnity Agreement between Gammacan International, Inc. and Tovin Ben-Zeev, dated as of October 12, 2004,
incorporated by reference from Form 8-K dated as of October 12, 2004.
10.8 Services Agreement dated August 17, 2004 between Gammacan, Ltd. and Prof. Yehuda Shoenfeld, M.D., incorporated
by reference from Form 8-K, dated as of August 17, 2004
10.9 Consulting agreement between Gammacan Ltd. and PBD Ltd., dated as of November 4,
2004, incorporated by reference to Form 8-K dated as of November 4, 2004
14 Code of Ethics
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the
Securities and Exchange Act of 1934, as amended
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the
Securities and Exchange Act of 1934, as amended
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Chief Executive Officer)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Chief Financial Officer)
Reports on Form 8-K:
33
Since the end of the third fiscal quarter, the Company filed Reports on Form 8-K
dated as of August 27, 2004, September 1, 2004, October 6, 2004, October 14,
2004, November 8, 2004 and November 12, 2004.
ITEM 14. PRINCIPAL ACCOUNTNAT FEEES AND SERVICES
Audit Fees. The aggregate fees billed by our auditors, for professional services
rendered for the audit of our annual financial statements for the year ended
September 30, 2004 and 2003, and for the reviews of the financial statements
included in our Quarterly Reports on Form 10-QSB during that fiscal year were $
45,200 , and approximately $ 2,000 , respectively.
Audit Related Fees. We incurred fees to auditors of $0 and $0, respectively for
audit related fees during the fiscal year ended September 30, 2004 and 2003.
Tax Fees. We incurred fees to auditors of $1,100 and $0 respectively for tax
compliance, tax advice or tax compliance services during the fiscal year ended
September 30, 2004 and 2003.
All Other Fees. We did not incur any other fees billed by auditors for services
rendered to the Company, other than the services covered in "Audit Fees" for the
fiscal year ended September 30, 2004 and 2003.
The Board of Directors has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GAMMACAN INTERNATIONAL, INC.
/s/ DAN J. GELVAN
-------------------------------
Dan J. Gelvan,
Chief Executive Officer
(principal executive officer)
/s/ TOVI BEN ZEEV
-------------------------------
Tovi Ben Zeev,
Chief Financial Officer
(principal accounting officer)
Date: January 13 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities as on January 13, 2005.
/s/ SHMUEL LEVI
-------------------------------
Shmuel Levi,
Director
-------------------------------
Yair Aloni,
Director
/s/ JEAN-PIERRE ELISHA MARTINEZ
-------------------------------
Jean-Pierre Elisha Martinez,
Director
35