The Company cautions the reader not to place undue reliance on any forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
GelStat Corporation, a development stage company (formerly known as Developed Technology Resource, Inc.) was incorporated on November 13, 1991 in the State of Minnesota. As of January 1, 2001, the Company was not actively engaged in operating business activities. It generated no revenues during 2002 and 2001. The Company's principal executive office is located at 1650 West 82nd Street, Suite 1200, Bloomington, MN 55431, (telephone 952-881-4105) and its website is www.gelstat.com.
Effective April 30, 2003, the Company acquired GelStat Corp. ("GC") as a wholly-owned subsidiary. GC was organized in June 2002 for the purpose of developing, manufacturing and marketing over-the-counter ("OTC") and other non-prescription consumer health products related to migraine and sleep. The acquisition was accomplished by merger of GC (a Minnesota corporation) with our wholly-owned subsidiary, NP Acquisition (a Minnesota corporation). In the merger, the former owners of GC received shares of our common stock and GC became our wholly-owned subsidiary. No cash consideration was exchanged. The amount of the merger consideration was negotiated at arms length based on the then recent trading price of our common stock and our assessment of the business prospects of GC. In July 2003, the Company changed its name to GelStat Corporation. On March 17, 2004, GS Corp. was merged into its parent company, GelStat Corporation. References in this Report to the "Company" or "GelStat" mean GelStat Corporation.
In 2004, the Company established a subsidiary called GS Pharma, Inc. On January 5, 2005, GS Pharma assigned all rights in the license previously granted to it by GelStat to DTLL, Inc. (OTCBB: DTLI) in exchange for 12.5 million shares of DTLL. GelStat now beneficially owns these 12.5 million shares, or approximately 94 percent of the outstanding shares of DTLL, through its wholly owned subsidiary.
GelStat Corporation is a consumer health care company dedicated to the cost-effective development and marketing of OTC and other non-prescription consumer health care products. Development efforts are focused on proprietary, innovative products that address multi-billion dollar global markets. GelStat is committed to building a portfolio of products addressing common health conditions and believes that each of its present or planned products offers significant commercial potential. The Company believes that its current and planned products will potentially offer consumers improved efficacy, safety and/or convenience relative to existing products.
The Company's first product is GelStat(TM) Migraine, a patent pending solution designed to provide acute relief from migraine and migraine-like headaches. In conjunction with this first product, the Company has developed a delivery system designed to enhance the efficacy of the active ingredients in GelStat Migraine, including their speed of action. The result is a product that is expected to provide fast relief from migraine for most users at a fraction of the cost of prescription medications. GelStat Migraine shipments to retailers and wholesalers across the United States commenced in June 2004. By the end of 2004, distribution of GelStat Migraine had expanded to include approximately 16,000 food, drug store and mass market retailer locations, including 8 of the 12 largest drug store chains in the United States. By the end of 2004, GelStat Migraine was also available through 11 of the 12 largest drug wholesalers in the nation. GelStat Migraine is a homeopathic drug.
The Company has completed development of GelStat(TM) Arthritis. GelStat Arthritis is GelStat's second major product line. Packaging, sales literature and other associated materials, as well as certain aspects of the consumer marketing plan are now under final development. GelStat Arthritis is a sublingual dissolving tablet intended for the treatment of pain and associated symptoms of arthritis. It is expected to be introduced to consumers first by extensive sampling and via direct response marketing through the first half of 2005, prior to being introduced nationwide through traditional retailers. GelStat Arthritis is an OTC homeopathic drug.
GelStat(TM) Sinus is presently under final development and is intended to be marketed as a remedy for nasal and/or sinus congestion, irritation, pressure and sinus headache. It is expected to be introduced to consumers by mid-2005 as GelStat's third major product line. GelStat Sinus is expected to be marketed as an OTC homeopathic drug.
GelStat(TM) Sleep is presently under final development and is intended to be marketed as a sleep aid. It is expected to be introduced to consumers in the second half of 2005 or early in 2006 as GelStat's fourth major product line. GelStat Sleep is expected to be classified as a dietary supplement.
While GelStat expects to continue developing new products and will be opportunistic in regard to unanticipated opportunities within the OTC health care product field, the four products listed above are expected to account for essentially all of the Company's activity over the next twelve months.
OVERVIEW OF REGULATIONS REGARDING THE MANUFACTURE AND SALE OF HOMEOPATHIC DRUGS AND NUTRITIONAL SUPPLEMENTS.
This Overview Is A Brief Summary And Does Not Purport To Be Complete.
In general, the Company's products are regulated both by the U.S. Food and Drug Administration (the "FDA") and by the U.S. Federal Trade Commission (the "FTC.")
The FDA treats homeopathic drugs, both prescription and OTC, differently than non-homeopathic drugs. Unlike non-homeopathic drugs, homeopathic drugs are not required to submit to pre-market approval and are not required to be tested for safety and effectiveness. Homeopathic drugs must meet the standards set forth by the Homeopathic Pharmacopoeia of the United States ("HPUS.")
In general, the FTC and the FDA prohibit fraud in the marketing of homeopathic drugs, monitor OTC versus prescription use of homeopathic drugs, hold homeopathic drugs to several labeling requirements, and require production in compliance with current good manufacturing practices (with some minor exceptions).
The FDA prohibits "health fraud," defined as:
The deceptive promotion, advertisement, distribution or sale of articles, intended for human or animal use, that are presented as being effective to diagnose, prevent, cure, treat, or mitigate disease (or other conditions), or provide a beneficial effect on health, but which have not been scientifically proven safe and effective for such purposes. Such practices may be deliberate, or done without adequate knowledge or understanding of the article.
Only those homeopathic drugs that treat "self-limiting" conditions that the average consumer can recognize and diagnose are allowed to be marketed as OTC drugs. Homeopathic drugs that claim to treat serious diseases and those that require diagnosis by a physician, such as AIDS or cancer, must be marketed as prescription homeopathic drugs - they cannot be sold as an OTC drug.
The FDA requires that homeopathic drugs be properly labeled. A "drug or device shall be deemed to be misbranded... if its labeling is false or misleading in any particular." Furthermore, Section 352 of the Act requires that the name and place of business of the manufacturer, packer, or distributor be placed on the package. Homeopathic drugs for retail sale must also bear adequate directions for use that can be interpreted by the average lay person, and their ingredients as well as the dilution of each active ingredient must be stated (with dilution stated as the number of 1:10 dilutions required to arrive at the final concentration of active ingredient). The label must also state at least one major indication for the drug, the drug's established name, and any applicable warnings.
The FDA requires that homeopathic drugs be manufactured in general conformance with current good manufacturing practice ("cGMP"). However, there are two exceptions to this requirement. First, homeopathic drugs do not require expiration dating. Second, the FDA does not presently require laboratory determination of the identity and strength of each active ingredient prior to the release and distribution of the drug on the market. For further information on the FDA's regulation of homeopathic drugs, see the FDA's Compliance Policy Guide, "Conditions Under Which Homeopathic Drugs May be Marketed," which is available on the FDA's website, www.fda.gov.
Regulations governing nutritional supplements were substantially changed with passage of the U.S. Dietary Supplement Health and Education Act of 1994 ("DSHEA"). Prior to the DSHEA, the Nutritional Labeling Act ("NLA") gave the FDA wide interpretive powers in establishing appropriate label claims, with all such claims requiring pre-approval by the FDA.
Under DSHEA a manufacturer must only supply the FDA with information adequate to provide "reasonable assurance that the product does not present a significant or unreasonable health risk of illness or injury." This information must be supplied at least 75 days before the product is available to consumers. DSHEA permits the labels of dietary supplements to contain truthful and non-misleading structure/function claims and nutritional support claims that describe the role of the nutrient in supporting wellness. Nutritional supplements are not allowed to make claims to diagnose, prevent, cure, treat, or mitigate disease.
PRODUCTS
GelStat(TM) Migraine
GelStat Migraine is a patent pending homeopathic drug intended for use in providing acute relief from the pain and associated symptoms of migraine and migraine-like headaches. It is believed to be more effective if used early in the course of an attack, but may be used at any time. GelStat Migraine is administered sublingually (under the tongue), where it is held in place briefly before being swallowed.
GelStat Migraine is provided in single dose (OraDose(TM)) dispensers, which are intended to ensure ease of use as well as consistent, accurate administration of medication. The OraDose System is GelStat's proprietary, patent pending sublingual administration system. It includes not only the patent pending dispenser, but also a product formulation specifically designed to enable and enhance sublingual delivery of active ingredients zingiber officinale (ginger) and pyrethrum parthenium (feverfew.)
In a recent clinical trial 30 patients who consistently develop moderate to severe migraine headache pain were treated with GelStat Migraine early in the course of an attack, while at the mild pain phase. The primary objective of the study was to assess the efficacy of GelStat Migraine in providing acute relief from migraine headache pain and associated symptoms. Results demonstrated that migraine headache pain two hours after treatment was either mild or none in 83% of patients. Pain-free response was obtained by 48% of patients, with 34% reporting only mild pain. Moderate pain was reported by 17% and severe pain by 0% (none). Of those pain-free at two hours, 71% remained pain-free during the 24 hour post-dose period and 85% remained pain-free or had only mild pain. Moderately painful headache recurred in 14% of patients and severely painful headache in 0%. Migraine associated symptoms such as photophobia, phonophobia and nausea were eliminated in 53% of those patients initially reporting such symptoms. Side effects were infrequent and minor.
Over 90 percent of 30 million Americans with migraine employ OTC medications as part of their treatment arsenal and nearly 60 percent rely exclusively on OTC medications. In general, older OTC headache medications are based on aspirin or other non-steroidal anti-inflammatory drugs (NSAIDs) with these agents reported to exhibit an effect in approximately 25 percent of those with moderate to severe migraine. Americans spent an estimated $2.6 billion last year on over 600 million units of OTC headache medication.
Initial clinical trial data suggests that GelStat Migraine may be more effective than competing OTC migraine relief products, and that it may not be associated with the side effects common to other OTC products, such as stomach upset, or the development of rebound headaches and chronic daily headaches. Prescription medications for migraine are generally associated with significant side effects, none of which have been reported or noted with use of GelStat Migraine. Further details regarding this initial clinical trial are available on the Company's website at www.GelStat.com. The information found at the Company's website is not incorporated in or made a part of this report on Form 10-KSB.
GelStat(TM) Arthritis
The Company has completed development of GelStat(TM) Arthritis. GelStat Arthritis is GelStat's second major product line. Packaging, sales literature and other associated materials, as well as certain aspects of the consumer marketing plan are now under final development. GelStat Arthritis is a sublingual dissolving tablet intended for the treatment of pain and associated symptoms of arthritis. It is expected to be introduced to consumers first by extensive sampling and via direct response marketing through the first half of 2005, prior to being introduced nationwide through traditional retailers. Between 40 and 70 million Americans have some form of arthritis according to the National Institutes of Health. GelStat Arthritis is an OTC homeopathic drug.
GelStat Arthritis is provided as a sublingually dissolving tablet. Sublingual administration is believed to be of particular benefit because of the rapid onset of absorption and the high percent of active ingredient absorbed. It is believed that GelStat Arthritis may offer consumers an effective OTC treatment for the symptoms of arthritis without the risks and side effects associated with other OTC and prescription arthritis pain relievers. The tablets are specifically formulated for effective sublingual delivery of active ingredients.
GelStat(TM) Sinus
GelStat Sinus is presently under final development and is intended to be marketed as a remedy for nasal and/or sinus congestion, irritation, and pressure, including sinus headache. It is believed to be more effective than other commonly available OTC treatments by means of its unique anti-inflammatory properties. GelStat Sinus is expected to be introduced to consumers by mid-2005 as GelStat's third major product line. GelStat Sinus is expected to be marketed as an OTC homeopathic drug.
GelStat Sinus is provided as a nasal spray. Nasal administration of aerosolized particles, whereby active ingredients are placed in direct contact with or immediately adjacent to the affected membranes, is believed to be particularly advantageous in the treatment of nasal and sinus conditions. The nasal spray is specifically formulated for effective nasal delivery of active ingredients.
Sinusitis is one of the most common diseases in the United States. The National Institute of Allergy and Infectious Disease estimates that 37 million Americans are affected by sinusitis every year, and health care workers report 33 million cases of chronic sinusitis to the U.S. Centers for Disease Control and Prevention annually. In addition, at least an additional 20 million Americans are believed to suffer annually from nasal and sinus congestion related to allergies.
GelStat(TM) Sleep
GelStat Sleep is presently under final development and is intended to be marketed as a sleep aid. It is expected to be introduced to consumers in the second half of 2005 or early in 2006 as GelStat's fourth major product line. GelStat Sleep is expected to be marketed as a nutritional supplement for OTC (non-prescription) sales.
GelStat Sleep is provided as an orally dispersible tablet, a form of administration believed to be of particular benefit because of the rapid onset of absorption and the high percent of active ingredient absorbed. It is believed that GelStat Sleep may offer consumers an effective OTC sleep aid without the risks and side effects associated with other OTC and prescription sleep aids. The tablets are specifically formulated for effective delivery of active ingredients. Unlike nearly all other non-prescription sleep aids, GelStat Sleep does not contain antihistamines. Antihistamines cause drowsiness, but they are often ineffective sleep aids, and have side effects that create problems for many users.
GelStat Sleep is expected to employ a unique combination of active ingredients, each of which has independently been shown in some studies to be effective in promoting healthy sleep. Those ingredients are combined with proprietary adjuncts as part of the delivery system intended to provide rapid, effective and safe administration when used as directed. By utilizing an orally dispersible tablet to deliver the planned combination of ingredients, the Company hopes to offer a product that is substantially advantageous relative to competing products.
Symptoms of insomnia, including occasional sleeplessness, affect approximately two-thirds of Americans. Over half of all adults (58%) report experiencing symptoms of insomnia at least two nights per week, and 35% (66 million) report symptoms of insomnia every night. Clinically significant insomnia affects 10 to 17 percent of the adult U.S. population, though only about 4% seek a physician's assistance for treatment. Insomnia is more common among the elderly, but a recent survey showed that even among young adults, approximately 10 percent had used nonprescription medications in the past year to improve sleep. 27% of adult Americans (51 million) describe their sleep quality as fair or poor, making insomnia the second most common medical complaint after pain.
OraDose(TM) DELIVERY SYSTEM
The OraDose(TM) Delivery System is a patent pending delivery system employed by GelStat for sublingual (under the tongue) administration of GelStat Migraine. The OraDose System includes not only the OraDose dispenser, but also the specific formulations used to improve sublingual absorption of the medication. The OraDose System is an effective means of delivering liquid formulations sublingually, especially GelStat Migraine.
OTHER SUBLINGUAL DELIVERY METHODS
The Company believes that sublingual delivery systems could be applied to a number of OTC products, including its own proprietary formulations as well as other existing OTC products. The Company believes that it possesses and will continue to further develop certain expertise in the application of sublingual delivery systems to various OTC products. Sublingual administration is often advantageous but seldom utilized, especially with non-prescription products. When properly formulated, many products may be administered sublingually and better overall performance might thereby be realized. Sublingual administration may be particularly advantageous because substances thus administered may evidence a more rapid onset of action, faster attainment of peak plasma concentration, and greater overall absorption. The application of sublingual delivery systems is an important part of GelStat's effort to create products that work faster, are more effective and offer better safety profiles than similar products administered by traditional means. GelStat plans to employ sublingual delivery systems in a number of future products.
SALES AND MARKETING
Market Size
GelStat(TM) Migraine
Migraine is an extremely common and debilitating illness. According to the American Council for Headache Education, migraines afflict approximately 30 million people in the U.S. alone, with 92% of all sufferers reporting some degree of disability. Women account for two-thirds to three-fourths of all migraine patients, as gender specific prevalence in the U.S. is 17.6% for females and 6% for males using the International Headache Society criteria for migraine diagnosis. Twenty-five percent of women with migraine experience four or more migraine attacks per month, 35% experience one to three migraine attacks per month, and 40% experience one or less than one severe attack per month.
The National Headache Foundation has reported (February, 2000) that over 90% of those with migraine employ OTC medications as part of their treatment arsenal and nearly 60% rely exclusively on OTC medications. Americans spend an estimated $6 billion per year on treatments to relieve migraine, including approximately $2.6 billion on OTC headache medications.
The Company believes that GelStat Migraine is a more effective, faster, and essentially side effect free alternative to presently available OTC migraine treatments and that it can therefore compete effectively in the migraine treatment market.
GelStat(TM) Arthritis
Arthritis and other rheumatic conditions are often chronic and can be disabling. The United States Center for Disease Control ("CDC") reports that they affect an estimated 40 to 70 million people in the United States, and that by the year 2020, this number is expected to increase by nearly 50 percent as the result of an aging population. Rheumatic diseases are the leading cause of disability among adults age 65 and older. Arthritis is responsible for 750,000 hospitalizations and 44 million outpatient visits every year.
Osteoarthritis ("OA") is the most prevalent form of arthritis, one of the most common diseases affecting humans and a common cause of disability. It is estimated that as of 1998, more than 20 million Americans have symptomatic OA. The prevalence of OA is expected to increase dramatically during the next 20 years as the population ages. In the United States, OA is second only to ischemic heart disease as a cause of work disability in men over age 50. OA is a major cause of disability in people aged 65 and older. Despite its public health impact, this disease continues to be a relatively unaddressed health issue.
Recent estimates by the United States National Institutes of Health place the direct medical cost of arthritis at over $22 billion per year, with total costs of medical care and lost wages exceeding $82 billion. Arthritis is responsible for 750,000 hospitalizations and 44 million outpatient visits every year.
GelStat(TM) Sinus
Sinusitis is one of the most common diseases in the United States. The National Institute of Allergy and Infectious Disease estimates that 37 million Americans are affected by sinusitis every year, and health care workers report 33 million cases of chronic sinusitis to the U.S. Centers for Disease Control and Prevention annually. In addition, at least 20 million Americans suffer annually from nasal and sinus congestion related to allergies.
Rhinosinusitis, an inflammatory disease of the paranasal sinuses, is a substantial source of morbidity and is one of the most common reasons patients visit primary care physicians. In the United States, rhinosinusitis patients make 16 million visits to physicians each year. The direct medical cost of sinusitis is estimated to be about $2.4 billion.
The American Academy of Asthma, Allergy and Immunology estimates that seasonal allergies affect at least 35.9 million Americans.
GelStat(TM) Sleep
The National Sleep Foundation defines "insomnia" as any of the following symptoms: difficulty falling asleep, frequent waking during the night, waking too early and not being able to go back to sleep, or waking feeling unrefreshed.
Symptoms of insomnia, including occasional sleeplessness, affect approximately two-thirds of Americans. Over half of all adults (58%) report experiencing at least one of the four symptoms of insomnia at least two nights per week, and 35% (approximately 70 million) report symptoms of insomnia every night. Clinically significant insomnia affects 10 to 17 percent of the adult U.S. population, though only about 4% seek a physician's assistance for treatment, most relying on self-medication and non-prescription products. Insomnia is more common among the elderly, but a recent survey showed that even among young adults, approximately 10% had used non-prescription medications in the past year to improve sleep. Insomnia is the second most common medical complaint after pain.
In contrast to the occasional sleepless night experienced by most people, insomnia may be a persistent or recurrent problem with serious medical complications, including anxiety, depression and multiple physical complaints. The total cost of insomnia as reported by the American Academy of Family Physicians, including treatment, lost productivity and insomnia-related accidents, may exceed $100 billion per year, with direct costs accounting for over $12 billion.
Domestic Sales & Marketing
GelStat intends to market and distribute its products primarily through drug stores and pharmacies, food stores, and mass merchandise retailers. The largest distribution channel for OTC and non-prescription consumer health care products in the United States is chain and independent drug stores and pharmacies. There are approximately 22,000 chain drug stores in the U.S. and 23,000 independent drug stores and small chains (5 stores or less). Food stores account for another 28,000 potential retail locations. Mass merchandisers (Wal-Mart, Target, etc.) and Club stores (e.g. Sam's Club) total another 7,400 locations, approximately 5,000 of which have full service pharmacies.
Other potential distribution channels include 120,000 convenience stores, 4,500 specialty nutrition and health stores, and direct marketing via television, radio, catalogs and the Internet.
International Sales & Marketing
The global incidence of migraine and other conditions intended to be addressed by the Company's products approximates that found in the United States. GelStat is pursuing international opportunities for GelStat Migraine simultaneous with its current domestic sales and marketing activities, and expects to achieve initial international distribution in 2005.
COMPETITION
There are numerous other companies that manufacture and market products that compete with the present and intended products of the Company. Most of the companies that compete with GelStat have much greater market exposure, human resources and financial resources than the Company. Most of the products that compete with the Company's products have greater brand recognition, and have already achieved a certain amount of consumer acceptance.
The Company believes that GelStat Migraine will compete primarily with other OTC migraine medications. The OTC migraine market is based almost entirely on common analgesics, some having been slightly modified for use in the treatment of migraine (e.g. by the addition of caffeine). Typical competitors include products like Excedrin Migraine(R), Motrin Migraine(R) and Advil Migraine(R).
Non-steroidal anti-inflammatory drugs (NSAIDs: ibuprofen, aspirin, etc.) have significant harmful side effects. Common side effects of these OTC analgesics include rebound headaches (both caffeine and NSAIDs have been implicated as a cause of rebound headaches), chronic daily headache, liver damage, kidney damage, ulcers and, less serious but more frequently encountered stomach upset.
The Company also competes indirectly with prescription migraine treatments. Triptans are now recognized as the prescription drug of choice for most migraine patients, and have largely displaced other prescription medications. The proposed mechanism of action for all triptans is vasoconstriction (narrowing of blood vessels) via binding with serotonin receptors on blood vessels leading to relief of migraine pain and associated symptoms.
One problem with triptans is that they are not specific for arteries in the brain, but narrow all arteries, including those in the heart. Chest-related symptoms, such as pressure or pain, occur with all triptans and up to 10% of patients are reported to discontinue treatment because of these symptoms. Triptans may also be associated with a high incidence of headache recurrence (the headache initially leaves, but comes back, often worse than originally.) Headache recurrence is reported to occur in 26-39% of those using sumatriptan. Another side effect not often discussed in the literature, but frequently mentioned by patients, is that triptan use often leaves patients feeling weak and exhausted.
PRINCIPAL SUPPLIERS
GelStat is dependent on vendors, suppliers and strategic partners. The Company must reach and maintain agreements with third-parties to supply it with the manufacturing, packaging, public relations, advertising, clinical trials, product brokering and distribution, and other products and services necessary to effect the business plan. The Company believes that at least several alternative sources exist for each service and component purchased for and used in the manufacture and marketing of its products. However, GelStat generally does not have long term service agreements with those performing services for the Company or long term supply agreements with suppliers to provide product at any set price or at all. In addition, GelStat currently does not have the physical or human resources to independently manufacture its products or any other products that might be developed. While believing that alternate vendors could be found, the need to change vendors, should it arise, could have a material adverse effect on the Company. The Company intends to outsource all of its product manufacturing and packaging operations for the foreseeable future.
INTELLECTUAL PROPERTY
The Company plans to continuously define, expand and defend the intellectual property related to its products and delivery systems. As such, GelStat has filed several domestic patent applications and has recently filed for international protection on GelStat Migraine under the Patent Cooperation Treaty ("PCT") protocol. None of the applied for domestic or international patents have been granted. As such, GelStat Migraine is presently marketed as "patent pending." GelStat also seeks both domestic and international protection of its name, brands and logo. Intellectual property protection may be very important to the successful marketing and distribution of its products. GelStat will therefore continue to file patent and other intellectual property applications to protect inventions and improvements that are considered important to the development of its products and business. The Company plans to file for international protection in those markets believed to hold potential economic importance for the Company. GelStat also relies on trade secrets, know how, continuing technological innovation and licensing opportunities to develop and maintain its competitive position.
In 2004, the Company formed a wholly owned subsidiary, GS Pharma, Inc. ("GS Pharma"), to pursue various pharmaceutical (prescription drug) opportunities that might exist relative to the Company's intellectual property and its pending and now ongoing research and development work. The Company believed and continues to believe that these opportunities may be substantial, but that their development and commercialization is beyond the scope of activity reasonably possible for GelStat Corporation in the foreseeable future. Formation of the subsidiary was a means to fund or otherwise further develop these opportunities without incurring dilution of GelStat common stock or otherwise negatively impacting its capital structure or financial resources, while still retaining substantial ownership interest for GelStat shareholders. As a means to effectively transfer these opportunities to the wholly owned subsidiary, GelStat granted GS Pharma an exclusive license to develop and commercialize prescription drug applications for certain compounds discovered and developed by GelStat. GelStat Corporation will continue focusing its resources on the development and commercialization of OTC health care products.
On January 5, 2005, GS Pharma assigned to DTLL, Inc. ("DTLL") all rights in the license previously granted to it by GelStat in exchange for 12.5 million shares of DTLL (OTCBB: DTLI). GelStat now beneficially owns these 12.5 million shares, or approximately 94 percent of the outstanding shares of DTLL, through its wholly owned subsidiary.
RESEARCH AND DEVELOPMENT
GelStat is a marketing driven company presently dedicated to products addressing migraine, arthritis, sinus/nasal conditions and problem sleep. Each of these is a multi-billion dollar international market. Nonetheless, potential new product opportunities may be evaluated according to their likely competitive advantage (economic as well as clinical), potential market size, patentability, suitability for sale as non-prescription products, likely consumer acceptance and perceived ability of the Company to successfully execute development and launch within the constraints of present opportunities. Ideally, additional products will prove suitable for administration sublingually, especially via the OraDose(TM) Delivery System or other unique delivery system which the Company has developed or might develop in the future.
GelStat Migraine is currently being positioned as a first-line treatment for use as an early intervention in the treatment of migraine, consistent with clinical data obtained thus far. However, several additional clinical trials of GelStat Migraine are presently underway and several more are planned. In addition to providing additional data on the efficacy of GelStat Migraine, such trials might create additional marketing opportunities and support the development of new products for migraine treatment. Additional products could include those specifically for the treatment of pediatric migraine, for migraine prophylaxis (prevention of migraine onset via daily use of product), or for "mini-prophylaxis" (prevention of migraine through daily use at and around the time of an expected menstrual period in women whose migraine is frequently associated with menses.) While there is no data presently available to support such use, these additional trials could provide such support and thus open substantially larger markets for GelStat Migraine or some modification thereof. The results of future and ongoing trials are uncertain.
The Company incurred $166,905, $155,014 and $343,009 in research and development expense for the years ended December 31, 2004 and 2003, and for the period from June 25, 2002 (inception) until December 31, 2004 respectively. The Company plans to increase expenditures on research and development in 2005, primarily in new product development, development of new drug delivery systems, and the performance of additional clinical trials.
GelStat believes that clinical trials are essential to demonstrate efficacy in a manner recognized and accepted by the medical community as well as the consumer and, accordingly, plans to conduct clinical trials on every product it develops.
EMPLOYEES
GelStat maintains an executive office in Bloomington, Minnesota, a laboratory in St. Paul, Minnesota, and a branch office in Schofield, Wisconsin. As of April 13, 2005, the Company employed eleven people.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the directors, officers, and significant employees of the Company, their ages and positions with the Company as of December 31, 2004:
Stephen C. Roberts, M.D., Chairman and Chief Executive Officer ("CEO")
Dr. Roberts is a founder of GelStat Corp. and presently serves as Chairman and CEO of the Company. He has been a member of the Board of Directors of the Company since April 30, 2003. Prior to forming GelStat Corp., from June, 2001, Dr. Roberts was with Oak Ridge Financial Group, Inc., a Minneapolis-based investment banking firm, and prior to that, from May 1999 was President of Naturewell, Inc. Dr. Roberts founded AmTech Scientific, Inc. in 1998, primarily to develop and commercialize a unique diagnostic test for the detection of active tuberculosis. Dr. Roberts led the product development activities and FDA submissions for AmTech Scientific, which was subsequently acquired by LaJolla Diagnostics and the AmTech TB test sold to Meridian Bioscience, Inc. Dr. Roberts has substantial experience in clinical research, basic science research and regulatory issues. He was a Partner and Principal at Maven Securities, Inc., a Minneapolis-based investment banking firm, from 1996 to 1998. Dr. Roberts received his medical degree from the University of Minnesota Medical School and received a B.A. in Chemistry and Biology from St. Olaf College in Northfield, Minnesota.
Richard W. Ringold, Vice President, Managing Director-International and Director
Mr. Ringold has more than 15 years of global business management, corporate development and strategic marketing experience. Prior to joining GelStat, Mr. Ringold was Vice President of Corporate Finance at Oak Ridge Financial Group, Inc., focusing on merger and acquisition activities for corporate clients in the areas of medical products, technology, consumer products and manufacturing. Previously, Mr. Ringold was Director of International Marketing for the Toro Company (NYSE:TTC), where his direct responsibility included all Toro Consumer products sold outside the United States. Prior to that, Mr. Ringold spent 7 years at the Donaldson Company (NYSE:DCI) in a variety of business development, marketing and management roles, including leading the formation of Donaldson's first joint venture in China. Mr. Ringold has extensive experience building businesses internationally through joint ventures, distribution agreements, acquisitions and strategic alliances in Europe, Asia, Australia, Canada and Latin America. Mr. Ringold began his business career with Dow Chemical Company (NYSE:DOW). Mr. Ringold graduated magna cum laude from St. Olaf College with B.A. degrees in Chemistry and Biology, and received an MBA from the Carlson School of Management at the University of Minnesota. Mr. Ringold became a GelStat Director on May 1, 2004.
Donald Miller, Director
Mr. Miller, was formerly the Chief Financial Officer ("CFO") for Schwan's enterprises, where he was employed from 1962 to 2001 as Controller and CFO. During his career he was instrumental in Schwan's growth from a small regional food company to an international multi-billion dollar consumer packaged goods conglomerate. The Schwan Food Company is the largest branded frozen-food company in the United States. Along with his duties as CFO, Mr. Miller was highly involved in all acquisitions and divestitures of the company. Mr. Miller is currently employed by Schwan's as Special Assistant to the CEO and Mr. Miller sits on the Audit and Compensation Executive Committee of Schwan's Sales Enterprises. Mr. Miller is also Chairman of the board of Multiband Corporation and sits on their Audit and Compensation Executive Committees. Mr. Miller became a GelStat Director on August 12, 2004, and is presently chairman of its audit and finance committee and chairman of its compensation committee.
K. James Ehlen, M.D., Director
Dr. Ehlen is presently Chairman of Halleland Health Consulting, a leading health consulting group with expertise in regulatory and compliance affairs, clinical and health system integration, strategy and product positioning, and matters of corporate accountability, governance and ethics. He practiced as an endocrinologist for 13 years before spending the past 16 years in a series of executive roles. In 1988 he became chairman and CEO of Physicians Health Plan that subsequently evolved to Medica. In 1994, as CEO of Medica, he negotiated a merger with Healthspan to create the Twin Cities' based integrated health care system, Allina Health System, where he was co-CEO. In 1999, Dr. Ehlen left his position with Allina to become the Chief Medical Officer (CMO) of Humana, one of the country's largest health maintenance organizations. He is a past chairman of the Health Forum Board and the VHA Foundation Board, and is a long-standing member of the American College of Physician Executives. Dr. Ehlen became a GelStat Director on September 27, 2004, and is presently a member of its audit and finance committee and a member of its compensation committee.
Leo Furcht, M.D., Director
Dr. Furcht is a past founder of ASF, LLC, which developed and patented a natural product for the prescription treatment of mucositis, a serious side effect of cancer chemotherapy and radiation treatment. This product was recently acquired by MGI Pharma, Inc. (NasdaqNM: MOGN). Dr. Furcht also founded MCL, a stem cell research company that utilizes adult cells as an effective replacement for embryonic stem cells. MCL has now been acquired by Athersys, Inc., a development stage biotech company. Dr. Furcht co-founded South Bay Medical, a medical device company that was acquired by Mentor Corporation (NYSE: MNT) in 2001, and he co-founded Diascreen which was later acquired by Chronimed. Dr. Furcht is an active faculty member of the University of Minnesota, he holds the endowed chair as the Allen-Pardee Professor of Cancer Research, is Head of the Department of Laboratory Medicine and Pathology. He is the recent past Director of the Institute of Medical Biotechnology, is the listed inventor of over 25 issued patents and has published over 130 scientific articles. Dr. Furcht became a GelStat Director on October 19, 2004, and is presently a member of its audit and finance committee.
Nicholas C. Bluhm, Chief Financial Officer
Mr. Bluhm has over 25 years of general management, financial management and capital markets experience. He most recently served as Vice President and CFO, Americas for Carlson Wagonlit Travel, an $11 billion global travel management company. Mr. Bluhm previously served as Executive Vice President and CFO of ONVOY, Inc., a $100 million telecommunications and e-business services company. Mr. Bluhm was a founder and CEO of Minneopa, Inc., a $300 million international technology services company. Mr. Bluhm's capital markets experience includes positions as Vice President, commercial banking services for US Bancorp and Vice President, investment banking services for RBC Dain Rauscher. Mr. Bluhm began his business career with Coopers & Lybrand in New York City. Bluhm is a former director of MCI International Gateways, WebMD (OnHealth Network), OneLink Communications, and CBS Marketwatch (Big Charts). Mr. Bluhm received an MBA from Columbia University's Graduate School of Business and received a B.S. degree in Engineering from Iowa State University.
James W. Higgins, Executive Vice President
Mr. Higgins is a co-founder of GelStat Corp. and was Executive Vice President of the Company at December 31, 2004. Prior to joining the Company, Mr. Higgins was Executive Vice President of Mitchell Health Technologies, where he was responsible for managing all channels of retail distribution. Previously, Mr. Higgins spent 15 years with the AC Nielsen Co., where his responsibilities included accounts with some of the most prominent consumer packaged goods companies in America, such as Kraft Foods and Good Humor-Breyers Ice Cream. Mr. Higgins has extensive experience in the field of consumer research and applied market research for consumer response management. Mr. Higgins received an undergraduate degree in Business and Marketing from Northern Michigan University.
Russell W. Mitchell, President
Mr. Mitchell is a co-founder of GelStat Corp. and was President of the Company at December 31, 2004. Mr. Mitchell previously founded Mitchell Health Technologies, Inc. (MHT), a leading master broker, specializing in the marketing and distribution of non-prescription drugs and nutritional supplements. As President of MHT since its 1994 founding, Mr. Mitchell was master broker for Quigley Corporation during their national rollout of Cold-Eeze, which attained retail sales of approximately $140 million annually within 18 months, and which is widely considered the most successful new product launch to date in its category. Mr. Mitchell has 20 years of sales and marketing experience, including 15 years of experience in new product development and sales and marketing of prescription drugs, OTC drugs and nutritional supplements. Mr. Mitchell majored in Business Administration - Marketing at Michigan Technological University.
Arthur Pirrone, Vice President - Domestic Sales & Marketing
Mr. Pirrone has more than 30 years of sales and marketing experience with OTC and health and beauty consumer products (HBC products). Prior to joining GelStat in 2003, Mr. Pirrone spent five years as a well-known HBC/OTC consultant, specializing in new product introductions, distributor development, promotional strategies, national account management, sales training, and establishing relationships with major drug wholesalers. From 1989 to 1998, Mr. Pirrone was Vice President of Sales & Marketing for Inverness Medical Technology, where he managed the growth and sales of the retail division, including achieving 100% chain drug distribution of the One Touch brand. Previously, Mr. Pirrone was Vice President of Sales & Marketing at Roberts Proprietaries, Inc., National Sales Manager at Hudson Vitamin/Pharmaceutical Corporation, and held senior sales positions at Abbott Laboratories and Revlon. Mr. Pirrone began his career in sales in the toiletries division of Proctor & Gamble where he achieved "Salesman of the Year" as well as numerous other awards. Mr. Pirrone graduated from New York University with a degree in Business Administration.
Each officer of the Company is elected or appointed by the Board of Directors of the Company and holds office until a successor is elected, or until the earlier of death, resignation or removal.
To the knowledge of the Company, no officer or director of the Company is a party adverse to the Company or has material interest adverse to the Company in any legal proceeding.
There are no family relationships between any directors or executive officers of the Company, either by blood or by marriage.
The information given in this Report on Form 10-KSB concerning the directors and officers is based upon statements made or confirmed to the Company by or on behalf of such directors and officers, except to the extent that such information appears in the Company's records.
INVESTMENT CONSIDERATIONS
PROSPECTIVE INVESTORS IN THE COMPANY SHOULD BE AWARE OF AND CAREFULLY CONSIDER THE FOLLOWING MATTERS AND OTHER INFORMATION PROVIDED BY THE COMPANY BEFORE MAKING A DECISION TO INVEST. THE RISKS DESCRIBED BELOW ARE NOT AN EXHAUSTIVE LIST OF THE RISKS. ADDITIONAL RISKS THAT ARE NOT YET KNOWN, OR THAT ARE CURRENTLY BELIEVED TO BE IMMATERIAL MAY ALSO SUBSTANTIALLY IMPAIR BUSINESS OPERATIONS. IF ANY OF THE EVENTS OR CIRCUMSTANCES DESCRIBED IN THE FOLLOWING RISK FACTORS ACTUALLY OCCURS, GELSTAT'S BUSINESS, FINANCIAL CONDITION, OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE OF THE COMPANY'S COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
The Company has a limited operating history.
GelStat Corporation is the result of a merger completed on April 30, 2003. At that time the Company, formerly known as Developed Technology Resource, Inc. (DTR), entered the intensely competitive OTC and non-prescription consumer health care products market by merging with GelStat Corp. To date, efforts in this business have been limited primarily to developing products, negotiating relationships with suppliers, vendors and strategic business partners, conducting clinical trials, applying for patent protection, preparing and executing marketing strategies, working with brokers and other key parties to implement our product introductions, establishing initial placement of GelStat Migraine with select retailers, developing new products, implementing internal processes and procedures in preparation for anticipated significant customer and revenue growth and raising working capital to fund ongoing operations. The Company has achieved minimal revenue to date and has only a limited operating history on which to base an evaluation of our business and prospects. There are numerous other companies that manufacture and market products that presently compete with the current and intended products of the Company. Most of the companies that compete with the Company have much greater market exposure, more personnel, and greater financial resources than the Company. Most of the products that compete with the Company's products have greater brand recognition and have already achieved a certain amount of consumer acceptance. There can be no assurance that the Company's plans for developing, manufacturing, and marketing our initial products, or any products, will be successful, or that the Company will ever attain significant sales or profitability. We anticipate that we will incur development stage losses for some time into the future until such time, if any, that we achieve sufficient sales to support our operations. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and fiercely competitive industries such as ours. We cannot assure you that we will be successful in addressing any of the many risks we may encounter.
The Company is currently not generating revenue sufficient to fund its ongoing expenses.
The Company had minimal operating revenue in 2004 and does not anticipate that revenues will be sufficient to satisfy the Company's ongoing expenses for some time. As such, the Company may continue to incur operating losses for the foreseeable future. There can be no assurance that the Company's selling and marketing activities in 2005 will be sufficient to result in emerging from the development stage. Our operating expenses may substantially increase as we expect to spend significant funds on marketing initiatives to drive consumer trial and develop product and brand awareness. Until such time that we achieve positive cash flow, we will be entirely dependent on outside investor capital to support operations. The Company's ability to raise capital now and in the future is subject to the Risk Factors described in this section and general economic, competitive, regulatory and other factors beyond the Company's control. This capital may not be available at all, or may be available only under terms which are highly dilutive or otherwise highly disadvantageous to shareholders. While planning to raise additional capital, the Company believes that, in the event additional capital is unavailable, cash on hand plus results of operations could fund operations for the next 12 months, though such operations would be substantially reduced in scope from those presently envisioned. There can be no assurance that additional capital will be available on terms acceptable to the Company or on any terms whatsoever. In addition, the Company may evaluate potential acquisitions and alliances, which may require equity or cash resources. The Company's ability to continue the present operations and successfully implement its development plans is contingent upon its ability to increase revenues and ultimately attain and sustain profitable operations and/or raise additional capital.
We may be unable to manage rapid growth in the near future.
We plan to grow at a rapid pace. Rapid growth, if achieved, will place a significant strain on our managerial, operational, reporting, and financial resources. We have taken preliminary steps to put in place the necessary legal, accounting, human resource management, and other relationships and tools to enable us to deal with this growth more efficiently. However, there is no assurance that we will be able to successfully manage rapid growth, should it occur. If we do not properly meet the increasing expenses and demands on our resources from future growth, we will be adversely affected. To properly manage our growth we may need to implement or improve administrative, financial, marketing and operational, systems, procedures and controls.
We are highly dependent on certain key personnel.
The Company is dependent on Stephen C. Roberts, M.D., its Chief Executive Officer, Richard Ringold, its Vice President, and other key executives and employees. The loss of services of any of these individuals could impair the Company's ability to complete the national rollout of its products, bring its products to a significant level of consumer acceptance, or manage operational and growth issues. The Company does not currently carry "key-man" life insurance on any member of its management team. We may also need to expand our staff. We may not be able to hire, train, integrate, retain, motivate and manage required personnel.
The performance of the Company's products is not fully known.
Our success depends upon the extent to which our products perform well and as anticipated. Although we believe that our products are efficacious, and believe we have sufficient data as well as sufficient experience with them to reasonably assert that they perform well enough to be economically viable, we as yet have only limited third-party evaluations. The complete performance profile for the Company's initial products will not be known for some time. Additional clinical trial data, if and when obtained for any product, will provide additional, but not all, information on any given product, since clinical trials are performed under specific, controlled circumstances and measure specific outcomes relative only or primarily to those circumstances.
The Company's products are subject to ongoing and additional clinical trials.
Two clinical trials of the Company's migraine product have been successfully completed. The results of the first trial have been presented as a poster presentation and have now been submitted for publication. The results of the second clinical trial have not yet been disclosed. Additional clinical trials of GelStat Migraine are planned for 2005. Clinical testing of the arthritis, sinus and sleep products is expected to commence in 2005.
The first clinical trial of GelStat Migraine, which was performed by well known and well respected investigators and conducted at a respected research facility, demonstrated efficacy in 83% of users, but was nonetheless limited by its open-label protocol and small sample size. We believe that presentation of this trial has provided substantial credibility for the Company and GelStat Migraine, and that publication of this trial may result in additional credibility. However, additional trials are needed, and some consumers and retailers may defer purchasing the product until such time, if any, that such additional trials are successfully completed. In addition, there can be no assurance that said additional trial results will be favorable, or that they will be favorably received by either the medical community or consumers. In addition, the results of future clinical trials are expected to strongly affect the economic viability and perceived value of our products. There can be no assurance as to the outcome of any future clinical trials. Despite this, the successful completion of clinical trials is a key aspect of the Company's marketing plan. If the clinical trial results for any or all of the Company's initial products suggest that some or all of these are not efficacious, or reveal unexpected problems such as serious side effects, the Company may be unable to successfully market said product(s) even if we desired to do so.
We are dependent on third-parties and strategic partners.
We must reach and maintain agreements with third-parties to supply us with the manufacturing, packaging, public relations, advertising, clinical trials, product brokering, product distribution, software and the general infrastructure necessary to effect our business plan. We believe that at least several alternate sources exist for each service or component purchased for or used in the manufacture and marketing of our products. However, we generally do not have long term service agreements with those currently performing services for the Company or long term supply agreements with our suppliers to provide product at any set price or at all. In addition, we currently do not have the physical or human resources to independently manufacture our products or any other products that we may develop. The Company particularly relies on third party vendors for the manufacture and packaging of its products. While believing that alternate vendors could be found, the need to change vendors, should it arise, could have a material adverse effect on the Company. We intend to outsource all of our product manufacturing and packaging operations for the foreseeable future. Our success therefore depends substantially on our relationships with these strategic partners and suppliers. If, in the future, we decide to establish our own manufacturing facilities, we will require substantial additional funds and significant additional personnel to undertake such operations. We cannot be certain that such funding or a sufficient number of such qualified persons will be available for such an undertaking.
Unanticipated problems associated with product development and commercialization could develop.
Our successful development of existing and new products is subject to the risks of failure and delay inherent in the development and commercialization of products based on innovative technologies. We may experience unanticipated or otherwise negative research and development results. Existing or proposed products may be found to be ineffective or unsafe, or may otherwise fail to receive required regulatory clearance or approval. We may find that existing or proposed products, while effective, are uneconomical to commercialize or market. Existing or proposed products may not achieve broad market acceptance.
The consumer health care product market is subject to substantial regulation by several regulatory agencies.
We believe that all of our current and planned products will be marketed either as homeopathic drugs or as dietary supplements, and that each will therefore be exempt from the new drug approval process required for prescription pharmaceuticals. The Company's products, product development activities and manufacturing processes are nonetheless subject to extensive and rigorous regulation by the Food and Drug Administration ("FDA") and by comparable agencies in foreign countries. In the United States, the FDA regulates manufacturing, labeling and record keeping procedures even for non-prescription products. We use qualified third-party manufacturers and believe these manufacturers to be in compliance with all appropriate regulations. Nonetheless, the failure of such third parties to adhere to regulations could have a material adverse affect on the Company. In addition, product claims, labels, advertising and other communications with the public are closely monitored by the Federal Trade Commission ("FTC"), as well as by the FDA. Failure to comply with any of the numerous regulations which govern our industry could result in regulatory or enforcement actions which would have a material adverse affect the Company. In addition, we are subject to those risks associated with any highly regulated industry wherein regulations are subject to change that is both substantial and rapid. Regulatory change may force the Company to expend substantial time and money becoming compliant, may make the Company's business more expensive to operate and the products less profitable, or not profitable at all, and might even prevent the Company from marketing one or more of its products. In addition, the marketing of our first product, GelStat Migraine, involves claims that this product is effective in treating migraine headaches. Under FDA and FTC rules, we are required to obtain clinical data to support any health claims we make concerning our products. Although we have neither provided nor been requested to provide any clinical data to the FDA in support of this claim, we have obtained supporting clinical data that we believe to be sufficient. We cannot be certain, however, that the clinical data we have obtained or will obtain in the future in support of our claims will be deemed acceptable or sufficient to the FDA or FTC, should either agency request any such data in the future. If the FDA or the FTC requests any supporting information, and we are unable to provide support that is acceptable to the FDA or the FTC, either agency could force us to stop making the claims in question, which would most likely have a negative impact on sales. Regulatory actions may materially adversely affect the Company's business, financial condition and results of operations in ways that are entirely unpredictable and entirely beyond the Company's control.
We must successfully distribute our products to retailers.
The Company intends to sell its products primarily through traditional retail outlets, and to achieve this, will work with a large number of brokers and distributors currently serving that market. We believe we have good relationships already in place with those brokers and distributors whose assistance will be required to promote broad retail distribution. Nonetheless, there can be no assurance that any broker or distributor will be able to place the product(s) with retailers, or that they will continue working with the Company and our products. If brokers or distributors are unable to place the Company's products, or cease working with the Company and its products, it may not be possible to find a suitable replacement for any broker or distributor. In addition, we must dedicate significant capital and other resources to marketing our products. Even with such efforts, there can be no assurance that we will be successful. Failure to achieve certain minimum sales requirements might result in the Company's products not gaining additional distribution or even in their removal from retailers where they were previously available.
The market acceptance of the Company's products is uncertain.
Our success depends upon the acceptance by retail consumers of our products. Although we believe that our products are efficacious, and that they will meet with consumer acceptance, we have no assurance of that. While GelStat Migraine has been successfully test marketed, this does no assure that wide scale marketing will be successful. Other GelStat products under development, including GelStat Arthritis, GelStat Sinus and GelStat Sleep have not been test-marketed. In sum, there is only limited data by which to gauge possible consumer acceptance. Most of the products that compete with the Company's products have substantial brand recognition, and have already achieved a certain amount of consumer acceptance. Those consumers who presently use a competitor's product to treat a condition designed to be treated by our products will have to be convinced to switch products, which is often difficult. We believe that the successful completion of clinical trials demonstrating the efficacy of our products or, in the case of GelStat Migraine, additional clinical trials, may be essential for the successful marketing of these products, especially in light of entrenched competition. There can be no assurance that any clinical trials will be completed beyond the first two trials of GelStat Migraine that have already been completed, or that such additional clinical trials will demonstrate the same degree of efficacy as the first trial, or any efficacy at all. Insufficient market acceptance of our products would have a material adverse effect on our business, financial condition and results of operations.
Consumer use of the Company's products creates potential liabilities for the Company.
The consumer health products industry is subject to substantial litigation, and the Company faces an inherent business risk of exposure to product liability claims in the event that the use of its products is alleged to have resulted in adverse effects. Any such claims would likely have an adverse effect on the Company. The Company currently has product liability insurance for claims against it up to $5 million dollars. However, there can be no assurance that such coverage would protect the Company in every instance, or that a claim might not substantially exceed the limit of coverage beyond the Company's ability to pay. While the present policy is now in effect, there can be no assurance that such insurance will be available to the Company in the future on commercially reasonable terms, or at all.
New product development is an important part of our business plan.
The Company proposes as an important part of its business plan to complete development of additional products related to migraine, arthritis, sinus/nasal conditions and problem sleep. No assurance can be given that the Company will ever be able to successfully design, develop, and market any such additional new products.
The market is subject to rapid technological change and rapid product obsolescence.
The consumer health care products market is subject to rapid technological advances and the continuing introduction of new products that could render the products of the Company obsolete or non-competitive. Most of the companies that compete with the Company are better positioned than we are to adapt to or promote rapid change. These other companies have greater market exposure, personnel, and financial resources than we do.
Our patent positions and intended proprietary or similar protections are uncertain.
Although we have filed patent applications, we cannot assure you that our pending applications will be issued as patents or that any of our patents will afford adequate protection to us. We intend to rely significantly on the protections afforded by patent and trademark registrations with the U.S. Patent and Trademark Office ("USPTO") and similar agencies in foreign countries. We cannot be certain that any patent or trademark application that we file will be approved by the USPTO or other foreign agencies. We also rely on trade secrets, unpatented proprietary technologies and continuing technological innovations in the development and commercialization of our products. We cannot assure you that others will not independently develop the same or similar technologies or obtain access to our proprietary technologies.
Your percentage of ownership and voting power may decrease and the price of our common stock may decrease as a result of events that increase the number of our outstanding shares.
We may conduct future offerings of our common stock or other securities with rights to covert the securities into shares of our common stock. Exercise of outstanding options and warrants into our common stock may significantly and negatively affect the market price for our common stock as well as decrease your percentage ownership and voting power.
The market price of our common stock is volatile.
The market prices for our securities and for securities of development stage companies have historically been highly volatile. Future announcements concerning us or our competitors may have a significant impact on the market price of our common stock. Some of the factors that may affect the market price of the shares include progress of our relationships with strategic partners, results of clinical studies, technological innovations by us or our competitors, sales or the possibility of sales of our common stock, and our results of operations and financial condition. General economic conditions or general market fluctuations may also adversely affect the market price of our common stock.
We are effectively controlled by present management, which may limit your ability to influence shareholder matters or to receive a premium for your shares through a change in control.
As of April 13, 2005, our executive officers and directors beneficially owned 4,442,793 shares of common stock, or 32.2 % of the outstanding shares of common stock. By virtue of this ownership, they have significant influence in the election of directors and approval of significant corporate transactions. Accordingly, they effectively control the Company and direct its affairs. The interests of these shareholders may conflict with those of other shareholders. This concentration of ownership may also delay, defer or prevent a change in control of our Company and some transactions may be more difficult or impossible without the support of these shareholders.
We do not intend to pay cash dividends.
No cash dividends have been paid on our common stock and none are anticipated. It is anticipated that any future profits received from operations will be retained for the Company's operations. Any investors who anticipate a need for immediate income from their investment should, therefore, not purchase any of the Company's common stock.
We may be adversely impacted by general economic conditions.
The consumer health care products market is susceptible to negative trends in the national and/or regional economies. The success of our business depends, in part, on a number of factors related to spending patterns in the overall economy. Some recent economic reports indicate that consumer confidence remains depressed and that consumers are spending less. While the consumer health care products market tends to be relatively resistant to such forces, these trends may nonetheless substantially and adversely affect the consumer health care products industry and could have an adverse impact on our ability to grow or achieve profitability.
