SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2003
Commission File Number: 000-49620
Biogentech Corporation
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(Exact name of registrant as specified in its charter)
Nevada 91-1868007
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2445 McCabe Way, Suite 150, Irvine, California 92614
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(Address of principal executive offices) (Zip Code)
949.757.0001
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(Registrant's Telephone Number, Including Area Code)
Togs for Tykes, Inc.
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(Former name, if changed since last report)
1030 Wooster, Suite 4, Los Angeles, California
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(Former Address and Telephone Number of Principal Executive Offices)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
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On March 31, 2003, Togs for Tykes Acquisition Corp., a Nevada corporation and
our wholly-owned subsidiary ("Subsidiary"), Togs for Tykes, Inc., a Nevada
corporation ("Parent"), and BioGentec Incorporated, a Nevada corporation
("BioGentec"), entered into a conditional Agreement and Plan of Merger (the
"Agreement", which is attached hereto as Exhibit 2.1) whereby BioGentec agreed,
subject to conditions to closing specified herein, to merge with and into
Subsidiary (the "Merger"). The Agreement provides that the surviving corporation
shall be BioGentec. The Parent has changed its name to Biogentech Corp. (See
Parent's Form 8-K filed on June 25, 2003). Subsidiary was formed by us for the
purpose of effectuating the Merger. The closing of the Merger (the "Closing")
was subject to the following conditions (i.e., the following conditions must
occur in order for the Closing to occur) (all capitalized terms, if not
otherwise defined, have the meanings specified in the attached Agreement):
o CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to the Merger were subject to the
fulfillment or satisfaction, prior to or on the Closing, of the following
conditions:
(i) The Merger shall have been duly approved by the requisite
vote of the outstanding shares of BioGentec and Subsidiary entitled to vote
thereon in accordance with the Nevada Revised Statutes ("NRS"); and
(ii) All other authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting periods
imposed by, any governmental or regulatory authority, domestic or foreign, which
the failure to obtain, make or occur would have the effect of making the Merger
or any of the transactions contemplated hereby illegal or would have a Material
Adverse Effect (as that term is defined in the Agreement attached hereto as
Exhibit 2.1) on us or Subsidiary, assuming the Merger had taken place, shall
have been obtained, made or occurred.
o CONDITIONS PRECEDENT TO OUR OBLIGATION TO CLOSE THE MERGER. Our
obligation to effect the Merger and consummate the other transactions
contemplated to occur in connection with the Closing and thereafter were subject
to the satisfaction of each condition precedent listed below:
(i) Each representation and warranty set forth in Article 2 of
the Agreement shall have been accurate and complete in all material respects as
of the date of the Agreement, and shall be accurate and complete in all material
respects as of the Closing. BioGentec shall have received certificates dated the
Closing date and signed by our chief executive officer or corporate secretary,
substantially in the form attached as Exhibit I to the Agreement, certifying
that the conditions set forth in Sections 7.2(a), 7.2(b), 7.2(c) and 7.2(d) of
the Agreement have been satisfied;
(ii) BioGentec shall have performed and complied in all
material respects with its covenants to be performed or complied with at or
prior to the Closing;
(iii) Since the date of the execution of the Agreement to the
Closing, there shall be no event, series of events or the lack of occurrence
thereof which, singularly or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on BioGentec;
(iv) BioGentec shall have delivered to us all required
documentation to demonstrate that BioGentec shareholders are "accredited
investors" under applicable federal and state securities laws, including
information statements provided by BioGentec's shareholders; and
(v) No action is pending or threatened by or before any
governmental body, arbitrator, or mediator which seeks to restrain, prohibit,
invalidate, or collect any damages arising out of the transactions contemplated
by the Agreement.
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o CONDITIONS PRECEDENT TO OBLIGATIONS OF BIOGENTEC TO CLOSE THE MERGER.
BioGentec's obligation to effect the Merger and consummate the other
transactions contemplated to occur in connection with the Closing and thereafter
were subject to the satisfaction of each condition precedent listed below:
(i) Each representation and warranty set forth in Section 3 of
the Agreement shall have been accurate and complete in all material respects as
of the date of the Agreement, and shall be accurate and complete in all material
respects as of the Closing date, as if made on the Closing date, after giving
full effect to any supplements to the Agreement schedules as amended from time
to time so long as such modification does not constitute a Material Adverse
Effect. BioGentec shall have received a certificate dated the Closing date and
signed by the chief executive officer or corporate secretary of us certifying
that the conditions specified in Section 7.3(a), 7.3(b) and 7.3(c) of the
Agreement have been satisfied;
(ii) We shall have performed and complied in all material
respects with the covenants and obligations required by the Agreement to be
performed or complied with at or prior to the Closing;
(iii) Each of our officers and directors and Subsidiary shall
have delivered to BioGentec an executed letter specifying that each such officer
and director has resigned;
(iii) Since the date of the Agreement to the Closing, there
shall be no event, series of events or the lack of occurrence thereof which,
singularly or in the aggregate, could reasonably be expected to have a Material
Adverse Effect on us or Subsidiary; and
(iv) No action is pending or threatened by or before any
governmental body, arbitrator, or mediator which seeks to restrain, prohibit,
invalidate, or collect any damages arising out of the transactions contemplated
by the Agreement.
The Agreement also prohibits certain acts by us, Subsidiary and BioGentec
pending the Closing. If any of the covenants were violated, the Closing would
not occur. All of the conditions to Closing specified above occurred on or about
or prior to July 1, 2003. We will now file the Certificate of Merger with the
Secretary of the State of Nevada.
Pursuant to the terms of the Agreement, each share of BioGentec stock will now
be exchanged for and converted into one share of our common stock (except for
those shareholders who validly perfect their dissenters' rights). Our current
officers and directors have resigned and as their last act, they have appointed
new directors designated by BioGentec. Moreover, our current officers and
directors, who prior to the Closing owned 4,500,000 shares of our common stock,
have agreed to allow us to cancel their stock. We are in the process of taking
the necessary steps to cancel their stock.
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 1, 2003 (prior to distribution of our
shares to BioGentec shareholders), by each person or entity known by us to be
the beneficial owner of more than 5% of the outstanding shares of common stock,
each of our directors and named executive officers, and all of our directors and
executive officers as a group.
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TITLE OF CLAS NAME OF BENEFICIAL OWNER AMOUNT OF BENEFICIAL OWNER PERCENT OF CLASS
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Common Stock Becky Bauer, president, secretary, 3,000,000 shares (1) 54.23%
director
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Common Stock Brook Messick, secretary, treasurer, 1,500,000 shares (1) 27.11%
director
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Common Stock All directors and named executive 81.34%
officers as a group
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(1) The stock owned by Ms. Bauer and Ms. Messick will be redeemed and canceled
by mutual agreement.
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The following table sets forth certain information regarding the what we believe
will be the beneficial ownership of our common stock following the consummation
of the Merger and following the redemption and cancellation of the stock owned
by Ms. Bauer and Ms. Messick, by each person or entity anticipated by us who
will be the beneficial owner of more than 5% of the outstanding shares of common
stock following the Merger and following the redemption and cancellation of the
stock owned by Ms. Bauer and Ms. Messick, each of our directors and named
executive officers, and all of our directors and executive officers as a group.
=============== ============================ ==================================== ==================
TITLE OF CLASS NAME OF BENEFICIAL OWNER AMOUNT OF BENEFICIAL OWNER PERCENT OF CLASS
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Common Stock St. Petka Trust (1) 11,750,000 56.4%
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Common Stock Gene Pharmaceutical LLC (2) 2,000,000 9.6%
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Common Stock All directors and named executive 56.4%
officers as a group
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(1) BioGentec's Chairman of the Board of Directors, Radul Radovich, his
spouse Dragica Radovich, BioGentec's corporate secretary, and their
children, including Chaslav Radovich, who is the sole officer and
director of Biogentech Corporation are beneficiaries under the St.
Petka Trust and, as such, are considered beneficial owners of the
shares owned by St. Petka Trust.
(2) Gene Pharmaceutical LLC is the entity which assigned its patents to
BioGentec.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
Upon the consummation of the Merger, BioGentec will become our wholly-owned
subsidiary. BioGentec's management is as follows:
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NAME AGE POSITION
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Radul Radovich 81 Chairman of the Board of Directors and Chief Executive
Officer
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Chaslav Radovich 43 President
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James Luce 44 Chief Operating Officer, Chief Marketing Officer
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Robert Dietrich 57 Chief Financial Officer
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Ernest Armstrong 43 Vice President of Business Development
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Chad Brown 31 Vice President of Investor Relations
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o RADUL "RUDY" RADOVICH, CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER: Mr. Radovich, age 80, has been a Senior Project
Manager and Project Head for several multi-billion dollar projects with
Ciba-Geigy (Novartis), British Petroleum, Parsons, Narmco, Page
Engineering and others. Mr. Radovich has been Chairman of R & R
Holdings, Inc., a private investment banking company, for over 15
years. He earned a MSME at University of Belgrade, Yugoslavia.
o CHASLAV "CHAS" RADOVICH, PRESIDENT: Mr. Radovich, age 43, was founder
and CEO of Best Electronics, Inc., from 1986 through 1992. Best
Electronics was a wholesaler-distributor of computer memory and
peripheral products for companies including Intel, NEC, Toshiba,
Motorola and Texas Instruments. From inception, Best Electronics, Inc.
was profitable and Mr. Radovich grew earnings by more than 24% per
year, while strategically expanding the staff to 25. Since 1992, he has
been an independent investor and investment banker with R & R Holdings,
Inc. Over the last ten years, Mr. Radovich has played an instrumental
role in taking companies public, including Healthstar (PPOS),
Pharmaprint (PPRT), Logon America (LOAX) and AimSmart (AIMS). Mr.
Radovich has been appointed as our sole officer and director.
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o JAMES LUCE, CHIEF OPERATING OFFICER/CHIEF MARKETING OFFICER: Mr. Luce,
age 44, is a 22-year sales and marketing veteran with two diverse
Fortune 100 corporations. In mid 1999, Mr. Luce became Executive Vice
President-Retail Sales & Strategic Accounts for Bergen Brunswig Drug
Company ("BBDC"), a pharmaceutical wholesaler/distributor, leading a
team of 250 sales people, responsible for annual revenues exceeding $10
billion. Re-engineering the entire retail sales organization and
processes, he again drove results and led the re-signing of several
long-term contracts with the most significant customers. Prior to his
tenure with BBDC, Mr. Luce spent 18 years with Marriott International
Corporation, most recently as Regional Vice President-Sales and
Marketing, leading a team of over 650 sales and marketing associates in
289 hotels and resorts. In driving results for Marriott, his team
piloted several new company-wide initiatives and consistently led the
organization in sales, profitability and customer satisfaction.
o ROBERT DIETRICH, CHIEF FINANCIAL OFFICER: Mr. Dietrich, age 55, is a
director of Imaging Technologies Corporation (IMTO.OB) and served as
its Chief Accounting Officer and President of three of its subsidiaries
from October 2001 until October 2002. He is also a Director for
Knowledge Foundations, Inc. (KNFD.OB) where he has served as Chief
Financial Officer from April 2000 until present. Prior to 2000, Mr.
Dietrich served as President and CEO and Director of Semper Resources
Corporation (SRCR.OB) and CyberAir Communications, Inc. His background
includes more than fifteen years in senior management roles and
thirteen years with Big 5 and regional CPA firms as well as technology
based investment-banking organizations. He is a CPA with a BBA from
Notre Dame University and an MBA from University of Detroit.
o ERNEST ARMSTRONG, VICE PRESIDENT-BUSINESS DEVELOPMENT: Mr. Armstrong,
age 43, as CEO of Gene Pharmaceuticals, LLC, has overseen clinical
research on allergic rhinitis products and out-licensed medical
technology to BioGentec. From 1991 through 1996, Mr. Armstrong was
Founder and President of Broncorp, Inc., a research-based
pharmaceutical company focused on drug-delivery technologies and on
developing treatments for asthma and allergy. He was an Associate
Professor of International Business at Dai-Ichi Economics College,
Fukuoka, Japan 1998-1991. Mr. Armstrong speaks seven languages and
previously lived in Canada, France, Guatemala, Italy, Japan and
Switzerland. His education includes: BA-International Marketing and
core courses for BS in Biology, Humboldt State University, Arcata,
California; BA-French, University of Aix-en-Provence, France; MBA-San
Francisco State University.
o CHAD BROWN, VICE PRESIDENT-INVESTOR RELATIONS: Mr. Brown, age 31, spent
several years as a top performer with John Hancock Financial Services.
Subsequent to his tenure with John Hancock, he quickly became a heavily
recruited, top-tier advisor to John Hancock, Sutro and Company, Everen
Securities and Union Bank of Switzerland. Mr. Brown is a speaker on the
subjects of investments and risk management as well as a guest
commentator on several local California news programs. Mr. Brown has
served as a personal financial and risk management consultant for
clients residing in Europe and the South Pacific as well as across the
United States. Mr. Brown graduated with distinction with a BA-Economics
from California Lutheran University.
THE MEDICAL ADVISORY BOARD. BioGentec's Medical Advisory Board consists of nine
doctors, preeminent in the fields of allergy and immunology, as well as an
attorney with extensive education in immunology, biochemistry and intellectual
property law. These physicians and medical research scientists are associated
with top healthcare institutions and have long-term experience in allergy and
immunology as well as managing and conducting clinical trials. Several of the
advisory board members have previously contributed their scientific and medical
expertise into the research and development of BioGentec's foundation product,
as well as products in BioGentec's development pipeline. The members of this
advisory board are:
o JAMES M. BRODSKY, RPH, ND, HMD, CHIEF RESEARCHER: Dr. Brodsky is a
facilitating professor at the University of Southern California, School
of Pharmacy. He has been on the teaching staff at the University of the
Pacific Pharmacology Department and at Santa Ana College where he
taught Pharmacy Terminology. He has published numerous articles on
natural medicine and is a recognized speaker on Natural Medicine. Dr.
Brodsky has been the owner/pharmacist of Villa Park Pharmacy for over
25 years. Dr. Brodsky has been a member of the American Pharmaceutical
Association, the California Pharmaceutical Association, the Orange
County Pharmaceutical Association and the American Naturopathic Medical
Association.
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o LYNDON E. MANSFIELD, M.D., PRINCIPAL INVESTIGATIVE PHYSICIAN: Dr.
Mansfield, the key medical advisor and Principal Investigative
Physician since 1992, has conducted many allergy related clinical
research studies for major pharmaceutical companies and was
instrumental in preparing and presenting the prior trial results for
Prehistin to the FDA. His education includes: Temple University, Thomas
Jefferson Medical University - Doctor of Medicine. Residency:
Pediatrics - Brooke Army Medical Center. Board Certifications:
Pediatrics, Allergy and Clinical Immunology, Diagnostic Laboratory
Immunology/Clinical Lab, Immunology. Professional Societies: Fellow,
American Academy Allergy & Immunology Allergy & Immunology, Fellow,
American College of Allergists, Association of Medical Laboratory
Immunologists.
o ALVIN J. AUBRY, M.D.: Education: Tulane University School of Public
Health - Master of Public Health, Tulane University School of Medicine
- Doctor of Medicine, Straight Pediatrics at Brooke Army Medical Center
- Internship. Residency: Pediatrics - Madigan Army Medical Center.
Fellowship: Allergy & Immunology, Fitzsimmons Army Medical Center.
Board Certifications: American Board of Pediatrics, American Board of
Allergy & Immunology. Professional Societies: American Academy of
Allergy, Asthma & Immunology, American College of Allergy & Immunology,
American Medical Association, Association of Military Allergists, Texas
Medical Association, Texas Allergy Society.
o RICHARD E. DANZIGER M.D., PHD: Education: George Washington University
- M.D., University of Alberta - Ph.D., Dartmouth College - BA. Board
Certifications: American Board of Pediatrics - Diplomate, American
Board of Allergy & Immunology - Diplomate. Professional Societies:
Fellow - American College of Allergy, Asthma & Immunology, Member -
American Academy of Allergy, Asthma & Immunology, Executive Council -
Western Society of Allergy, Asthma & Immunology, Past President - San
Diego Allergy Society. Publications: Wagner, C.J.; Danziger, R.E. and
Nelson, H.S. "Relation Between Positive Small Air Ions, Weather Fronts
and Pulmonary Function in Patients with Bronchial Asthma. Annals of
Allergy 51 (4): 430-435. 1983. Fortner, B.R.; Danziger, R.E.;
Rabinowitz, P.S. and Nelson, H.S. The effect of ascorbic acid on
cutaneous and nasal response to histamine and allergen. J. Allergy
Clinical Immunology. (69) 484--488. 1982.
o STANLEY GOLDSTEIN, M.D. Education: Yeshiva University - B.A., New York
Medical College - M.D. Internship: Long Island Jewish Hillside Medical
Center - Pediatric Internship. Residency: Long Island Jewish Hillside
Medical Center - Pediatric Residency, Long Island Jewish Hillside
Medical Center - Senior Resident in Pediatrics. Professional Societies:
Fellow - Long Island Jewish Hillside Medical Center - Pediatric
Neurology, Fellow - Allergy/Clinical Immunology Children's Hospital of
Buffalo. Faculty Appointments: State University of N.Y. - Assistant
Clinical Instructor, Long Island Jewish Hillside Medical Center -
Director of Allergy Clinic, The Long Island College Hospital - Research
Coordinator and Attending Department of Allergy & Immunology. Board
Certifications: American Board of Pediatrics, American Board of Allergy
& Immunology, and American Board of Pediatric Pulmonary. Voluntary
Positions: Mr. Goldstein has held numerous volunteer positions and is a
member of; American Thoracic Society, Nassau County & Suffolk County
Allergy Society, New York Allergy Society and Board of Directors
American Lung Association of Nassau & Suffolk. Publications: Goldstein,
S., Rose, JO., Sutton, PL., Koup, JR., Jusko, WJ., and Middleton, E.,
Jr.: The Pharmacokinetics of Prednisone and Its Metabolite Prenisolone
in Pregnant Asthmatics, J. Allergy Clinical Immunology Vol. 63, No. 3,
March 1979, p. 219. Goldstein, S., Mueller, U., Wypysch, J., Reisman,
R., and Arbesdman, C.: Treatment of Ragweed Sensitive Patients with
Ragweed Fraction A conjugated to D-glutamic Acid: D-Lysine (FA:DGL). J.
Allergy Clinical Immunology, Vol. 65, No. 3, March 1980. Numerous
additional publications.
o LEWIS JOSEPH KANTER, M.D. Education: University of California - B.S.
Biological Sciences, Georgetown University School of Medicine - M.D.
Internship: Pediatrics - National Naval Medical Center. Residency:
Pediatrics - National Naval Medical Center. Board Certifications:
American Board of Pediatrics - Board Certified, America Board of
Allergy and Immunology (A Conjoint Board of the American Board of
Pediatrics and American Board of Internal Medicine) - Board Certified.
Professional Societies: Fellow - American Academy of Pediatrics, Fellow
- American Academy of Asthma, Allergy & Clinical Immunology, Member -
American Medical Association, Member - Association of Military
Allergists, Member - California Society of Allergy & Clinical
Immunology, Delegate - American Academy of Allergy & Immunology and
American College of Allergy & Immunology Member, Member - California
Medical Association, Member - Ventura County Medical Society, Past
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President - Gold Coast Allergy Society, Past Chairman - American
College of Asthma Allergy & Immunology, Re-certification Committee,
Executive board Member - California society of Allergy & Clinical
Immunology, Past Vice President & Program Chairman - California Society
of Allergy & Immunology, Executive Board Member, Western Society of
Asthma, Allergy & Immunology, President Elect & Program Chairman,
Western Society of Allergy & Immunology, Past President, Western
Society of Allergy & Immunology, Chairman - Scientific Advisory Panel
on Allergy & Immunology of Council on Scientific Affairs (CSA) of CMA,
Specialty Representative of California Society of Asthma, Allergy &
Clinical Immunology to CMA, Council on Scientific Affairs
Representative to CME Committee for California Medical Assoc., Member
Continuing Medical Education Committee, American College of Allergy &
immunology, Member of Advisory Committee on Alternative Therapists of
CMA. Faculty Appointments: Uniformed Services University of Health
Sciences, Assistant Professor of Pediatrics and Assistant Professor in
Internal Medicine, University of California at Los Angeles School of
Medicine, Clinical faculty. Publications: Nedocromil in the Outpatient
Management of Asthma, Arch Fam Med 1995' 4:835- 842. Inhaled
Fluticasone Propionate in the Treatment of Asthma, Advances in Therapy
Jan/Feb 1997, Vol. 14. No. 1. Inhaled Corticosteriods for Asthma
Therapy, Epitomes-Allergy & Immunology, Western Journal of Medicine
Nov. 1997, Vol. 167, No. 5; 343-346. Numerous additional publications
and presentations.
o ANITA M. KIRKPATRICK, Ph.D. Education: University of San Diego School
of Law - Juris Doctor Degree, Massachusetts Institute of Technology
Sloan School of Management - Master's Degree in Management of
Technology, University of New Mexico School of Medicine - Ph.D. in the
Medical Sciences (Biochemistry), New Mexico Highlands University M.S.
in Chemistry, Mount St. Mary's College/San Diego State College - B.S.
in Chemistry. Certification and Licensure: California State License in
Clinical Chemistry, Certified Specialist in Immunology, American
Society of Clinical Pathologists. Professional Societies: American
Association for clinical Chemistry, American Chemical Society; San
Diego Section, American Society of Clinical Pathology, American Society
for Microbiology, American Intellectual Property Law Association,
California Association for Medical Laboratory Technology, San Diego
County Bar Association, San Diego Intellectual Property Law
Association, Licensing Executives Society.
o JOSEPH T. MORGAN, M.D. Education: University of Colorado School of
Medicine, M.D. Internship: Good Samaritan Hospital - General Rotating
Internship, Pediatric Residency: St. Joseph's Hospital, University of
Colorado Medical Center, University of Colorado Medical Center - Chief
Resident in Pediatrics. Board Certification: The American Board of
Pediatrics. Professional Societies: Fellow - American Academy of
Pediatrics, Member - North Pacific Pediatric Society, Member - Oregon
Pediatric Society, Fellow - American College of Allergy, Asthma &
Immunology.
o MICHAEL J. NOONAN, M.D. Education: University of Nebraska - B.S.
Pre-Medicine, University of Nebraska College of Medicine - M.D.,
University of Oregon. Internship: Emanuel Hospital - Rotating
Internship. Residency: University of Oregon Medical Center - Pediatric,
Fellowship: National Jewish Hospital - Allergy & Immunology, Oregon
Health Sciences University - Allergy Immunology Fellowship. Board
Certification: American Board of Pediatrics, American Board of Allergy
& Immunology. Faculty Appointments: Department of Pediatrics, Oregon
Health Sciences University - Associate Clinical Professor.
Publications: Asthma, Allergy & Immunology, Vol. 10, No 4 1996. Noonan
MJ, Chervinsky P, Wolfe J, Liddles R, Kellerman DJ, Crescenzi KL; Does
Related Response to Inhaled Flutisone Propionate in Patients with
Methacholine-Induced Bronchial Hyper responsiveness: A Double-Blind,
Placebo-Controlled Study. Journal of Asthma Vo1. 35(2), 1998. Numerous
additional Publications and Research Interests.
o CHARLES JAY SIEGEL, M.D. Education: University of Wisconsin-Madison,
Medical College of Wisconsin - M.D. Internship: Children's Mercy
Hospital - Pediatrics. Residency: Children's Mercy Hospital -
Pediatrics. Fellowship: Children's Mercy Hospital, University of Kansas
Medical Center. Professional Societies: Phi Kappa Theta Social
Fraternity, Phi Delta Epsilon Medical Fraternity, Missouri State
Society, Missouri State Allergy Society - Past President, Clay Platte
Medical Society, American College of Allergy Asthma & Immunology -
Fellow, and American Academy of Allergy Asthma & Immunology - Member.
Board Certifications: National Board of Medical Examiners, American
Board of Pediatrics, and American Board of Allergy & Immunology.
Honors: Board of Regents, American College of Allergy, Asthma, &
Immunology - 1993-1995, Executive Committee American College of
Allergy, Asthma, & Immunology - 1994-1995, Chairman CME Committee of
the American College of Allergy Asthma & Immunology - 1997-2001,
Chairman Re-certification Committee of The American College of Allergy
Asthma & Immunology, Chairman Pharmaceutical Symposia Committee
American College of Allergy Asthma & Immunology, and Program committee
1997-2000 The American College of Allergy Asthma & Immunology.
Publications: Author of numerous articles.
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ITEM 2. ACQUISITION OF ASSETS.
------------------------------
MERGER OF SUBSIDIARY AND BIOGENTEC.
As the Closing has now occurred, we will file a Articles of Merger with the
Secretary of the State of Nevada whereby Subsidiary will merge with and into
BioGentec and BioGentec will be the surviving corporation (the "Merger"). We
have changed our name to "Biogentech Corp.". The Merger will be accounted for as
a reorganization.
1. MECHANICS OF THE MERGER. The separate corporate existence of Subsidiary shall
cease when the Articles of Merger are filed with the Nevada Secretary of State
and BioGentec will be the surviving corporation. The charter documents of
BioGentec will become the charter documents of the surviving corporation.
2. SHARE EXCHANGE. Pursuant to the Agreement, we will issue shares of our common
stock to the BioGentec shareholders in exchange for all the issued and
outstanding shares of BioGentec common stock. The holders of BioGentec common
stock immediately prior to the Merger will receive one share of our common stock
for each share of BioGentec stock owned by such holder. As of July 1, 2003, the
total number of shares that will be issued to Biogentec shareholders is
19,787,708 shares of Parent's common stock. The stock issued to Biogentec
shareholders will be "restricted stock" subject to the restrictions of Rule 144.
3. SHARE RESTRICTIONS. The shares of our common stock issued pursuant to the
Agreement shall bear a restrictive legend indicating that the shares are
"restricted" securities and are not transferable unless certain conditions are
satisfied pursuant to applicable securities laws. We have agreed to attempt to
register a portion of the shares issued to BioGentec shareholders pursuant to a
Registration Statement on Form SB-2.
4. BIOGENTEC INCORPORATED.
(a) BACKGROUND. BioGentec was incorporated in Nevada on November 21,
2000. BioGentec is dedicated to the development and commercialization of medical
products, focused primarily in the fields of immunomodulation, menopause,
pinpoint detoxification and cholesterol reduction. BioGentec anticipates that
its initial patented product, Prehistin,(formerly Allertin), will launch mid
2003 and will create a unique niche within the allergy relief category. In
November 2000, BioGentec acquired Allergy Limited, LLC ("Allergy Limited").
Allergy Limited sponsored the clinical research for Prehistin's formula from
1989 through 2000 and secured the first patent, in 1992 and BioGentec secured
the second in 2001.
(b) FACILITIES. BioGentec conducts its business primarily from its
headquarters in Irvine, California.
(c) WEBSITES. BioGentec has developed a corporate site,
www.BioGentec.com, and the initial product site, www.alleratin.com
(transitioning to a new website soon). On either site, the consumer has the
ability to contact BioGentec directly and can secure important information
relative to the company and/or the products. In addition, for those who prefer
more traditional methods of communication, BioGentec has a toll free telephone
number (888-765-5368).
(d) BIOGENTEC'S PRODUCT. BioGentec believes that its initial product,
Prehistin, is chemically distinct from most allergy medications currently on the
market, as it works to prevent allergy symptoms by mitigating histamines from
being over-produced, as opposed to the litany of antihistamine products that are
reacting to the overproduction. Essentially a "pre-histamine", Prehistin will
also be differentiated from current allergy medications as it lacks the sedating
(and several other) side effects. Prehistin is a preventative system for
seasonal and year round allergies, both outdoor (pollen) and indoor (dust, pet
dander, mold), triggered by the most common allergens. This 21-day system of
flavored lozenges was demonstrated in clinical studies to have a persistence of
effect lasting months.
8
Prehistin's effectiveness is enabled through modulating the production of
immunoglobulin E (IgE) to prevent the immune system from overproducing
histamines in reaction to the presence of allergens. By mitigating this
cascading process, the symptoms associated with indoor and outdoor allergies are
prevented from occurring. Effectively, the terminology for this niche-creating
product is "prehistamine". BioGentec believes that the products currently
addressing allergy relief are virtually all histamine reactive and have varying
side effects, a source of frustration for allergy sufferers. Prehistin, a
patented and unique cobalamin complex formula, has preventative effectiveness,
with no known side effects, has no negative drug interactions and no upper
dosage limit. BioGentec believes that Prehistin will be cost competitive
relative to the long lasting relief and benefits desired by the vast majority of
allergy sufferers.
Prehistin is an immunomodulation ("anti-IgE") product. Immunoglobulin E (IgE) is
an antibody that mediates allergic diseases such as allergic rhinitis, allergic
asthma and atopic dermatitis. In the 1990's, research was completed relative to
IgE and allergies/asthma. The technology is so compelling and has such
significant commercial potential that, reportedly, Tanox, Novartis and Genentech
are spending $500+ million to develop the injectable "anti-IgE" drug, Xolair,
projected to be a blockbuster drug. The published primary target of their drug
is life-threatening asthma patients and the price is estimated to be appropriate
value for the benefits from the breakthrough, leading edge science that enabled
Xolair. Although quite different from Xolair, Prehistin will be a product that
has the same root science and technology, with 100% natural ingredients, while
offering the sufferers of allergic rhinitis (airborne allergies) the
effectiveness that comes from IgE reduction and histamine production mitigation.
This is all accomplished, via a sublingual lozenge, at a planned cost to the
consumer that should be well within the over the counter allergy medication
category's acceptable range. Behind the product is over 25 years of scientific
research and testing completed by leading allergists and immunologists. The
double blind, placebo-controlled studies required by the FDA were completed and
validate the safety and efficacy of this new approach. The protocols for Phase
III trials are being finalized, which will lead to execution of the trials and
application for FDA over-the-counter medication approval.
At this point, pricing of Prehistin is not finalized, however, overlaid against
the cost for other products in this category, as well as sufferers' desire to
find some solution to their symptoms without side effects, there appears to be a
degree of pricing elasticity that will hopefully lead to increased profits.
(e) THE PATENTS. BioGentec's patents cover the delivery and use of
cobalamin for seasonal and year-round allergies (allergic rhinitis) and asthma.
The patents are:
o United States Patent #6,255,294 "Cyanocobalamin Treatment in Allergic
Disease"
o United States Patent #5,135,918 "Method for Reducing Reagenic Antibody
Levels (IgE)"
o Japan Patent Pending # P2002-533399A (Same as U.S. #6,255,294)
o Mexico Patent Pending # 2001-006297 (Same as U.S. #6,255,294)
o Pending patents in European Union, Canada and Australia. (Same as U.S.
#6,255,294)
As BioGentec's patents are the only patents to date related to the subject, the
claims are broad.
(f) THE MARKET. BioGentec's product will be targeted to those
individuals who suffer from allergies. BioGentec believes that allergy sufferers
are constantly seeking relief from their symptoms and a "new approach" to
address those symptoms if their current approach is not working. Biogentec
estimates that there are well over 100 million individuals who suffer from
allergies, worldwide.
To facilitate its strategic plan, BioGentec will continue to move Prehistin
through the FDA approval process, domestically, with a United States launch
planned for just prior to the spring 2005 allergy season. To maximize the
revenue growth in the first year, BioGentec is planning to execute a fully
integrated marketing campaign including broadcast and print advertising, direct
mail and an aggressive public relations campaign, educating the consumer on the
product and driving retail sales of Prehistin.
In addition to the initial iteration of Prehistin, BioGentec plans to test, and
gain approval for, alternative delivery mechanisms for the same drug. The
mechanisms being tested are liposomal sprays, transdermal patches, liquid drops,
quick dissolve tablets and quick dissolve strips, among others, creating 3-7
products in the Prehistin line. BioGentec is also developing clinical trial
protocols to gain supplemental indications for this drug, such as sinusitis,
allergic asthma and pediatric cases of each, once FDA approval is secured for
Prehistin as a treatment for allergic rhinitis. BioGentec is planning to launch
one-two new products per year, either from its strong development pipeline or
through acquisition or licensing of (late stage development) products.
9
Prior to Prehistin's United States launch, BioGentec plans to distribute this
product in various countries throughout the world, as a supplement, nutritional
food, etc., depending on the regulatory criteria and process within each
country. Early signs show the potential ability to drive revenue from other
countries to be strong, while growing dramatically once the United States FDA
approves the drug as a treatment for allergies. Internationally, BioGentec is in
discussions with companies in Japan, Asia, Mexico and the UK, to operate as
partners in working Prehistin through their regulatory processes and launching
it to a broad network of retailers and physicians. However, BioGentec has not
yet entered into written agreements with such parties. BioGentec is evaluating a
variety of marketing, manufacturing and distribution scenarios to determine the
most effective and efficient channels to facilitate the product's worldwide
growth.
BioGentec's marketing team will launch the marketing campaign directly to retail
chains and work collaboratively with the retailers via co-marketing, co-branding
and in store promotions that will build brand awareness and assist in educating
the consumer. BioGentec believes that its product works very differently from
what consumers have learned to expect from any other products in the category,
making it critical that consumer education be woven in to all aspects of the
marketing program.
Internationally, BioGentec is in preliminary negotiations with companies in
Japan, Mexico and the UK, to launch Prehistin in late 2003. To facilitate a full
global launch, BioGentec is evaluating a variety of marketing, manufacturing and
distribution partners to determine the most effective and efficient channels in
the international marketplace.
(g) MANUFACTURING. BioGentec is currently attempting to identify a
manufacturer to produce the Phase III trial medications as well as the first
runs of the retail version of the product. The domestic manufacturer selected
must be FDA approved and able to accommodate the anticipated demand, once the
information is broadcast publicly. In addition, BioGentec is considering various
manufacturers around the world to accommodate demand and/or meet critical
regulatory requirements to distribute this product within a given country. The
partners being considered will play an important role in selecting International
manufacturers.
(h) FDA APPROVAL. The United States is a world leader in the discovery
and development of new medicines. Government regulation in the United States is
a significant factor in the production and marketing of new drugs. The FDA must
approve all new over-the-counter and prescription drugs, which includes any new
use for a substance even if previously used safely for a different purpose. In
the U.S., companies are subject to rigorous requirements in order to engage in
the human clinical testing that must be conducted to gain approval for a drug.
To begin clinical testing, a company must comply with mandatory procedures and
safety standards established by the FDA and apply to the FDA for consent. The
application requires a summary of previous work carried out on drug
characterization, toxicity and safety; as well as an in-depth description of the
proposed clinical trials, which occur in following three phases:
o Phase I trials are designed to measure the early safety profile and the
pattern of drug distribution and metabolism.
o Phase II trials are aimed at determining preliminary efficacy and
optimal dosage, and to expand the evidence regarding safety.
o Phase III trials are conducted to provide enough data for statistical
evaluation of efficacy and safety.
Cyanocobalamin, Prehistin's primary active ingredient, has been extensively
studied and has an excellent safety record. Cyanocobalamin has no upper dosage
limit, has no known side effects and has no known negative drug interactions.
Phase III clinical studies on Prehistin are planned by BioGentec for Spring in
2004. Protocols for Phase III trials are currently being finalized and the
studies are anticipated to begin during March 2004.
(i) THE CLINICAL RESEARCH. In patients with allergies (allergic
rhinitis), results from placebo-controlled studies yielded the following:
o Reductions in nasal symptoms (sneezing, runny nose and nasal
congestion);
o Reductions in the use of antihistamines; and
o Reductions in serum immunoglobulin E (IgE).
10
The science behind Prehistin is extensive. Starting in the early 1950's, Dr.
Theodoro Peraita began investigations into the ability of cobalamin injections
to reduce symptoms associated with allergies and asthma. For decades thereafter,
Dr. Peraita successfully treated many thousands of allergy patients. Research
throughout the latter half of the century in the U.S., Japan, Europe and Latin
America has replicated Dr. Peraita's results. The plan to commercialize this
technology began in earnest during 1989 and was led by Hepburn Armstrong, the
CEO of Broncorp, Inc. Mr. Armstrong engaged leading American immunologists and
allergists as investigative physicians in clinical studies. Each of the
following studies was sponsored by Broncorp, Inc., the company from which
BioGentec has secured exclusive rights to the patents and research.
In each study from 1990 to 1996, subjects with demonstrated allergic rhinitis
were administered 15 mcg cyanocobalamin IM twice daily for 15 consecutive days.
Small, unblinded pilot studies in the early 1990's showed decreases in total
serum IgE (a mediator of allergic disease) accompanied by clinical improvement
of nasal symptoms. Most significant was a double blind, placebo-controlled
(inactive dummy medication) study lead by Richard O'Connor, M.D., UCSD
Professor, and Board Certified in Allergy/Immunology and colleagues in San
Diego, California. Eleven subjects received cyanocobalamin, 11 placebos. Serum
was obtained for total serum IgE levels just prior to receiving the medication,
at 15 days, and at 30 days. The total mean serum IgE decreased significantly
(283 to 238) in the treated group, while the placebo group showed an
insignificant increase.
In 1992, O'Connor and company officials presented the research data to the FDA
Lyndon E. Mansfield, Board Certified in Allergy/Immunology and in Laboratory
Immunology in El Paso, Texas, reported a placebo-controlled, double blind study
that evaluated 129 subjects with allergic rhinitis during the 1992 allergy
season. Sixty-two subjects were administered cyanocobalamin, and 67 placebos.
The subjects were allowed unrestricted medication use, but permitted only
maintenance doses of immunotherapy. Total serum IgE was measured pre-therapy at
Day 0, and post-therapy at Day 30. Subjects self-rated their nasal symptoms,
once daily, for 30 days, in a 24-hour reflective diary. A t-Test showed a
statistically significant change in mean total serum IgE levels (p=0.0379) for
the treated group at Day 30 compared to Day 0 while the placebo group did not
(p=0.1268). Total nasal symptom scores favored the B12 therapy, with a
significant decrease at Week 3 (p=0.02). As a follow-up to the El Paso study,
patients recorded their symptoms approximately one year later (without any
further cyanocobalamin in the interim). The results showed that the active group
had reductions in nasal symptoms at year one compared to the placebo group.
In 1995 Broncorp, Inc. sponsored a study in Oregon, Washington and Idaho with a
protocol much like the study in El Paso, Texas. In 1996 Mansfield and company
officials presented the results to the FDA. In attendance at this pre-New Drug
Application (pre-NDA) meeting were Pulmonary Division Director Dr. John Jenkins
and 14 other officials from his division. The study evaluated 80 active subjects
and 85 placebos. Dr. Mansfield noted that although there was a drop in pollen
counts in Washington and Idaho, which skewed the results, the Oregon pollen
counts remained high throughout the study and that the Oregon data showed a
significant difference between active and placebo groups for nasal symptoms and
reductions in antihistamine use. Additionally, reductions in symptom lasted for
months after the patients completed the regimen.
A 1998 study showed that an easily dissolved, patient-friendly lozenge could
deliver a bio-equivalent amount of cyanocobalamin to the bloodstream as that of
an injection. In 1998 a double blind, placebo controlled study using
cyanocobalamin delivered by a lozenge showed results generally replicating the
findings of the IM studies, with reductions in sneezing, runny nose and nasal
congestion that were documented to persist weeks after the patients finished
taking the cyanocobalamin lozenges.
During 2000, in studies involving allergic mice, the serum concentrations of
biochemical involved in the allergic response were significantly lower in the
cobalamin-administered groups than in control mice. These lowered biochemical
included histamine, IgE, interleukin-2 (IL-2) and IL-4. (Funada U, et al. Effect
of cobalamin on the allergic response in mice. Bioscience, Biotechnology and
Biochemistry. 64 (10): p-2058 October 2000).
In 2001, in a series of studies in mice raised on a cobalamin deficient diet a
number of immune abnormalities appeared. In cobalamin-deficient mice, serum IgE
content was significantly higher than in control mice. The number of cells that
cause the allergic response to those that suppress the response (CD4+ to CD8-
cell ratio) was increased in cobalamin-deficient mice, making them
hypersensitive. (Funada U, et al. International J for Vit and Nutrition
Research. 71 (1): p 60-65 January 2001).
11
(j) FUTURE PRODUCTS. In addition to Prehistin, BioGentec plans on
developing and marketing additional related products. The products are in
various stages of development and hopefully will provide a continuous stream of
corporate growth for the next several years. BioGentec believes that as revenues
and profits increase, the research and development expense percentage will
remain constant, hopefully enabling BioGentec to capture opportunities to
acquire products, technology and/or companies that assimilate in to the overall
corporate strategy. BioGentec's current product development pipeline includes:
O PREHISTIN PRODUCT LINE EXTENSION: BioGentec has additional products in
development using the Prehistin technology. BioGentec anticipates niche
extension products through supplemental indications (for children,
seniors, allergic asthma sufferers, animals and others) and additional
patented delivery mechanisms (such as a patch, liposome spray and
others). BioGentec hopes that as it increases its brand recognition in
the consumer marketplace, expanding the product line will increase
revenues.
o HORMONE REPLACEMENT: BioGentec is currently researching three
plant-based estrogens that will bond at the estrogen receptor sites,
but will not have the free radical load created by equine based
estrogens used in most formulations currently on the market. BioGentec
has also identified a plant based source of progesterone, which can be
used in many formulations.
o CHOLESTEROLEMIC PRODUCTS: Current, new cholesterolemic drug products
using red yeast rice are normally created by adding short chain
chemically derived groupings to the basic molecular structure. The
problem is that this new compound increases the half-life of the drug
up to 20 hours, which takes ten times longer to clear the liver
pathways. BioGentec is working on formulating red yeast rice with
microcirculatory compounds to reduce the half-life to two hours, making
the product much more quickly absorbed and much easier on the liver.
o PINPOINT DETOXIFICATION: BioGentec is researching the combination of
this compound with specific formulations meant to target different
areas of the body for detoxification purposes. With the ability to span
the bi-layer of the cell and by working at the cellular level with the
mitochondria of the cell, the smooth endoplasmic reticulum, and the
peroxisomes, BioGentec has been able to clear the cell itself, creating
new opportunities to target specific organs such as the liver, kidneys,
and intestines.
o SUPER ANTIOXIDANT PRODUCTS: In keeping with products involving the
immune system, BioGentec is currently investigating a new antioxidant
compound that boosts immune function. Because of its
hydrophobic/hydrophilic bonding capability, this compound has the
ability to cross the blood-brain barrier, the blood-spinal fluid
barrier, and even the blood-retinal barrier. Studies have shown this
compound to be stronger than other antioxidants such as a-Tocopherol,
b-Carotene, and Lycopene.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Concurrent with the Closing of the Merger, Ms. Bauer and Ms. Messick resigned
their positions as our officers and as members of our board of directors. They
did not resign because of any disagreement with our operations, policies or
practices. As their last act, Ms. Bauer and Ms. Messick appointed Chaslov
Radovich as our sole officer and director. Copies of Ms. Bauer's and Ms.
Messick's resignations are attached hereto as Exhibit 17.1 and 17.2.
12
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000
(INCEPTION) TO MARCH 31, 2003
CONTENTS
Page
----
Independent Auditors' Report 14
Financial Statements:
Balance Sheets 15
Statements of Operations 16
Statement of Stockholders' Equity (Deficit) 17-19
Statements of Cash Flows 20-24
Notes to Financial Statements 25-50
13
INDEPENDENT AUDITORS' REPORT
Board of Directors
BioGentec, Inc.
Irvine, California
We have audited the accompanying balance sheets of BioGentec, Inc. (A
Development Stage Company) as of March 31, 2003 and 2002, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended and the period from November 21, 2000 (inception) to March 31,
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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide 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 BioGentec, Inc. as of March 31,
2003 and 2002, and the results of its operations and its cash flows for the
years then ended and the period from November 21, 2000 (inception) to March 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has losses from operations, has not generated
significant revenue, and has a working capital deficiency. These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 23, 2003
14
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
March 31,
-----------------------------------------
2003 2002
------------------ -------------------
Current assets:
Cash and cash equivalents $ 2,290 $ 7,097
Restricted cash 100,000 -
Prepaid expenses and other current assets 3,486 27,900
Inventory 6,000 250
------------------ -------------------
Total current assets 111,776 35,247
Property and equipment, net of accumulated
depreciation of $28,696 and $14,886, respectively 57,425 67,735
Website development costs, net of accumulated
amortization of $15,500 and $6,500, respectively 14,900 23,150
Patents, net of accumulated amortization of $-0- 3,850,000 2,246,005
Deposit 40,000 -
------------------ -------------------
$ 4,074,101 $ 2,372,137
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 357,074 $ 102,261
Contract payable - current - 2,259,533
Due to related parties 298,162 271,254
------------------ -------------------
Total current liabilities 655,236 2,633,048
------------------ -------------------
Commitments and contingencies - -
Stockholders' equity (deficit):
Common stock, $.001 par value; 25,000,000 shares
authorized; 19,732,708 and 16,965,708 shares
issued and outstanding, respectively 19,733 16,966
Additional paid-in capital 6,906,045 1,005,492
Deferred compensation (196,000) (60,108)
Deficit accumulated during the development stage (3,310,913) (1,223,261)
------------------ -------------------
Total stockholders' equity (deficit) 3,418,865 (260,911)
------------------ -------------------
$ 4,074,101 $ 2,372,137
================== ===================
The accompanying notes are an integral part of these financial statements.
15
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Cumulative from
Year ended March 31, November 21, 2000
----------------------------------------- (inception)
2003 2002 to March 31, 2003
------------------- ------------------- -------------------
Net sales $ 447 $ - $ 447
Cost of sales 10,440 2,150 16,440
------------------- ------------------- -------------------
Gross loss (9,993) (2,150) (15,993)
------------------- ------------------- -------------------
Operating expenses:
Professional fees 852,902 325,495 1,214,837
Salary and wages 530,486 323,575 912,311
Rent expense 112,106 33,784 157,579
Marketing and promotion 171,974 9,866 181,840
Depreciation and amortization 22,810 19,365 44,196
Other operating expenses 291,131 183,490 505,084
------------------- ------------------- -------------------
Total operating expenses 1,981,409 895,575 3,015,847
------------------- ------------------- -------------------
Loss from operations (1,991,402) (897,725) (3,031,840)
Interest expense (96,250) (130,672) (279,073)
------------------- ------------------- -------------------
Loss before provision for income taxes (2,087,652) (1,028,397) (3,310,913)
------------------- ------------------- -------------------
Provision for income taxes - - -
------------------- ------------------- -------------------
Net loss $ (2,087,652) $ (1,028,397) $ (3,310,913)
=================== =================== ===================
Loss per common share -
basic and diluted $ (0.12) $ (0.06) $ (0.19)
=================== =================== ===================
Number of weighted average shares -
basic and diluted 17,747,111 16,743,619 17,105,232
=================== =================== ===================
The accompanying notes are an integral part of these financial statements.
16
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Deficit
accumulated Total
Common stock Additional during the stockholders'
----------------------- paid-in Deferred development equity
Shares Amount capital compensation stage (deficit)
----------- ----------- ---------- ------------ ------------ ------------
Balance at inception (November 21, 2000) - $ - $ - $ - $ - $ -
Issuance of founder's shares in exchange
for property and equipment 16,300,000 16,300 - - - 16,300
Issuance of common stock for cash - November 2000 @ $1.00 30,000 30 29,970 - - 30,000
Issuance of common stock for cash - December 2000 @ $1.00 15,000 15 14,985 - - 15,000
Issuance of common stock for cash - February 2001 @ $1.00 12,000 12 11,988 - - 12,000
Issuance of common stock for cash - March 2001 @ $1.00 125,000 125 124,875 - - 125,000
Issuance of common stock for services - March 2001 @ $1.00 10,000 10 9,990 - - 10,000
Contributed capital (see Notes 5 and 10) - - 62,681 - - 62,681
Net loss for the period from inception
(November 21, 2000) to March 31, 2001 - - - - (194,864) (194,864)
----------- ----------- ---------- ------------ ------------ ------------
Balance at March 31, 2001 16,492,000 16,492 254,489 - (194,864) 76,117
Issuance of common stock for cash - April 2001 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for telephone equipment -
April 2001 @ $1.00 6,750 7 6,743 - - 6,750
Issuance of common stock for cash - May 2001 @ $1.00 11,000 11 10,989 - - 11,000
Issuance of common stock for website development -
May 2001 @ $1.00 17,000 17 16,983 - - 17,000
Issuance of common stock for legal services -
May 2001 @ $1.00 1,000 1 999 - - 1,000
Issuance of common stock for cash - June 2001 @ $1.00 23,500 24 23,476 - - 23,500
Issuance of common stock for cash - July 2001 @ $1.00 20,000 20 19,980 - - 20,000
Issuance of common stock for cash - August 2001 @ $1.00 25,000 25 24,975 - - 25,000
The accompanying notes are an integral part of these financial statements.
17
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
accumulated Total
Common stock Additional during the stockholders'
----------------------- paid-in Deferred development equity
Shares Amount capital compensation stage (deficit)
----------- ----------- ---------- ------------ ------------ ------------
Issuance of common stock for services, related party -
September 2001 @ $1.00 65,858 66 65,792 - - 65,858
Issuance of common stock for cash - September 2001 @ $1.00 15,000 15 14,985 - - 15,000
Issuance of common stock for services - September
2001 @ $1.00 11,000 11 10,989 - - 11,000
Issuance of stock options for services - September 2001 - - 32,000 - - 32,000
Issuance of common stock for cash - October 2001 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - December 2001 @ $1.00 30,000 30 29,970 - - 30,000
Issuance of common stock for services -
December 31, 2001 @ $1.00 33,000 33 32,967 - - 33,000
Issuance of common stock for services, related party -
December 2001 @ $1.00 117,500 118 117,382 - - 117,500
Issuance of common stock for prepaid advertising -
December 2001 @ $1.00 15,600 15 15,585 - - 15,600
Issuance of common stock for property and equipment -
January 2002 @ $3.00 1,000 1 2,999 - - 3,000
Issuance of common stock for services, related party -
January 2002 @ $1.00 33,000 33 32,967 - - 33,000
Issuance of common stock for cash - February 2002 @ $2.00 20,000 20 39,980 - - 40,000
Issuance of common stock for cash - March 2002 @ $2.00 12,500 12 24,988 - - 25,000
Contributed capital (see Notes 5 and 10) - - 211,269 - - 211,269
Deferred compensation - - - (60,108) - (60,108)
Net loss - - - - (1,028,397) (1,028,397)
----------- ----------- ---------- ------------ ------------ ------------
Balance at March 31, 2002 16,965,708 16,966 1,005,492 (60,108) (1,223,261) (260,911)
Issuance of common stock for services - April 2002 @ $2.00 3,000 3 5,997 - - 6,000
Issuance of common stock for cash - April 2002 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for cash - April 2002 @ $2.00 17,500 17 34,983 - - 35,000
Issuance of common stock for cash - May 2002 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for cash - May 2002 @ $2.00 16,000 16 31,984 - - 32,000
The accompanying notes are an integral part of these financial statements.
18
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
accumulated Total
Common stock Additional during the stockholders'
----------------------- paid-in Deferred development equity
Shares Amount capital compensation stage (deficit)
----------- ----------- ---------- ------------ ------------ ------------
Issuance of stock options for services - May 2002 - - 350,000 - - 350,000
Contributed capital - bonus expense (see Note 10) - - 50,000 - - 50,000
Issuance of common stock for cash - June 2002 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - June 2002 @ $2.00 5,000 5 9,995 - - 10,000
Issuance of common stock for cash - July 2002 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - August 2002 @ $2.00 10,000 10 19,990 - - 20,000
Issuance of common stock for cash - September 2002 @ $2.00 10,000 10 19,990 - - 20,000
Issuance of stock options below fair market value -
November 2002 - - 250,000 (250,000) - -
Issuance of common stock for conversion of note -
December 2002 @ $2.00 50,000 50 99,950 - - 100,000
Issuance of common stock for cash - December 2002 @ $2.00 20,000 20 39,980 - - 40,000
Issuance of common stock for services - December 2002
@ $2.00 15,000 15 29,985 - - 30,000
Issuance of common stock for patents - December 2002
@ $2.00 2,000,000 2,000 3,998,000 - - 4,000,000
Contributed capital (see Notes 5 and 10) - - 292,718 - - 292,718
Issuance of common stock for exercise of options -
December 2002 574,000 574 574,028 - - 574,602
Deferred compensation - - - 60,108 - 60,108
Contributed capital (see Notes 5 and 10) - - 5,000 5,000
Issuance of stock options for services - January 2003 - - 25,000 - - 25,000
Issuance of common stock for cash - February 2003 @$2.00 11,500 12 22,988 - - 23,000
Issuance of common stock for cash - March 2003 @$2.00 5,000 5 9,995 - - 10,000
Deferred compensation - - - 54,000 - 54,000
Net loss - - - - (2,087,652) (2,087,652)
----------- ---------- ----------- ----------- ------------ ------------
Balance at March 31, 2003 19,732,708 $ 19,733 $6,906,045 $ (196,000) $(3,310,913) $ 3,418,865
=========== ========== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
19
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative from
Year ended March 31, November 21, 2000
--------------------------------------- (inception)
2003 2002 to March 31, 2003
------------------ ------------------ -------------------
Cash flows used for operating activities:
Net loss $ (2,087,652) $ (1,028,397) $ (3,310,913)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 22,810 19,365 44,196
Issuance of common stock for services 36,000 261,358 307,358
Exercise of stock options for services 26,960 - 26,960
Issuance of stock options for services 375,000 32,000 407,000
Capital contribution - bonus
(related party) 50,000 - 50,000
Amortization of prepaid advertising 11,700 3,900 15,600
Deferred compensation 114,108 (60,108) 54,000
Beneficial conversion feature expense 50,000 - 50,000
Amortization of discount 93,089 128,111 273,628
Impairment expense 55,832 - 55,832
Changes in assets and liabilities:
(Increase) decrease in assets:
Prepaid expenses and other
current assets 12,714 (16,200) (3,486)
Inventory (5,750) 2,150 250
Increase in liabilities:
Accounts payable and accrued 254,813 61,761 357,074
expenses
Due to related parties 373,943 215,494 645,687
------------------ ------------------ -------------------
Net cash used for operating activities (616,433) (380,566) (1,026,814)
------------------ ------------------ -------------------
The accompanying notes are an integral part of these financial statements.
20
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
Cumulative from
Year ended March 31, November 21, 2000
----------------------------------- (inception)
2003 2002 to March 31, 2003
--------------- ----------------- -------------------
Cash flows used for investing activities:
Purchase of property and equipment (3,499) (19,571) (60,070)
Increase in patent costs (1,450) (23,261) (24,711)
Increase in restricted cash (100,000) - (100,000)
Increase in deposit (40,000) (40,000)
Increase in website development costs (750) (1,040) (13,890)
--------------- ----------------- -------------------
Net cash used for investing activities (145,699) (43,872) (238,671)
--------------- ----------------- -------------------
Cash flows provided by (used for)
financing activities:
Payment on contract (11,000) (75,000) (161,000)
Proceeds from advances - related party 255,607 50,000 305,607
Sale of common stock 220,000 204,500 606,500
Contributed capital 297,718 211,269 571,668
Payments on advances - related party (5,000) (50,000) (55,000)
--------------- ----------------- -------------------
Net cash provided by financing activities 757,325 340,769 1,267,775
--------------- ----------------- -------------------
Net increase (decrease) in cash and
and cash equivalents (4,807) (83,669) 2,290
Cash and cash equivalents,
beginning of period 7,097 90,766 -
--------------- ----------------- -------------------
Cash and cash equivalents, end of period $ 2,290 $ 7,097 $ 2,290
--------------- ----------------- -------------------
Cash paid during the year for:
Interest expense $ - $ - $ -
--------------- ----------------- -------------------
Income taxes $ - $ - $ -
--------------- ----------------- -------------------
The accompanying notes are an integral part of these financial statements.
21
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
NON-CASH INVESTING AND FINANCING ACTIVITY:
For the Period from November 21, 2000 (Inception) to March 31, 2001
-------------------------------------------------------------------
The Company issued 16,300,000 shares of its common stock at par, as
founder's shares, for property and equipment, totaling $16,300, upon
formation of the Company.
The Company issued a note payable as consideration for the purchase of
patents and inventory valued at $2,222,744 and $6,250, respectively. The
Company recorded a $1,701,006 discount on note payable relating to the
issuance of the note. Amortization of the discount resulted in the Company
recording $52,428 of interest expense.
The Company issued 10,000 shares of its common stock for consulting services
totaling $10,000, which represented the fair market value on the date of
issuance.
During the period from November 21, 2000 (inception) to March 31, 2001, R&R,
a shareholder of the Company, advanced the Company cash and also paid
certain expenses directly on behalf of the Company totaling $62,681. The
Company has recorded these transactions as a contribution to capital as of
March 31, 2001.
For the Year Ended March 31, 2002
---------------------------------
The Company issued 6,750 shares of its common stock valued at $6,750 for
telephone equipment, which represented the fair market value on the date of
issuance.
The Company issued 17,000 shares of its common stock valued at $17,000 for
website development costs, which represented the fair market value on the
date of issuance.
The Company issued 45,000 shares of its common stock valued at $45,000 for
legal and consulting services provided, which represented the fair market
value on the date of issuance.
The Company issued 216,358 shares of its common stock valued at $1.00 per
share or $216,358 as consideration for past and future consulting services
provided by a related party, which represented the fair market value on the
date of issuance. This resulted in the Company recording $60,108 of deferred
compensation as of March 31, 2002.
The Company issued 15,600 shares of its common stock valued at $15,600 for
prepaid advertising expense, which represents the fair market value on the
date of issuance. As of March 31, 2002, $3,900 of the prepaid advertising
had been expensed.
The Company recorded interest expense totaling $128,111 relating to the
discount on note payable.
During January 2002, the Company issued 1,000 shares of its common stock for
property and equipment with a fair value of $3,000.
The accompanying notes are an integral part of these financial statements.
22
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
NON-CASH INVESTING AND FINANCING ACTIVITY, CONTINUED:
For the Year Ended March 31, 2002, Continued
--------------------------------------------
The Company issued 64,000 options to officers of the Company, to purchase
its common stock at $0.50 per share for services rendered totaling $32,000.
The Company's common stock had a fair market value of $1.00 per share on the
date of issuance.
During the year ended March 31, 2002, R&R advanced the Company cash and also
paid certain expenses directly on behalf of the Company totaling $211,269.
The Company has recorded these transactions as a contribution to capital as
of March 31, 2002.
For the Year ended March 31, 2003
---------------------------------
As of March 31, 2003, the Company has fully amortized the remaining balance
of deferred compensation in the amount of $60,108 resulting from the
issuance of common shares for future consulting services.
The Company issued 18,000 shares of its common stock valued at $36,000 for
consulting services provided, which represented the fair market value on the
date of issuance.
During the year ended March 31, 2003, R&R advanced the Company cash and also
paid certain expenses directly on behalf of the Company totaling $297,718.
The Company has recorded these transactions as a contribution to capital as
of March 31, 2002.
On May 5, 2002, a related party transferred 25,000 shares of the Company's
common stock valued at $50,000 to an employee of the Company as a bonus. The
fair market value on the date of issuance was $2.00 per share. The Company
has recorded this transaction as a contribution to capital and salary
expense as of March 31, 2003.
During September 2002, a shareholder loaned the Company $50,000, which was
convertible into 50,000 shares of the Company's common stock. The fair
market value of the common stock was $2.00 per share; therefore, the Company
recorded a $50,000 expense relating to this note. Subsequently, on December
31, 2002, the note holder converted the $50,000 promissory note into 50,000
shares of the Company's common stock.
During May 2002, the Company granted stock options to three consultants to
purchase a total of 300,000 shares at an exercise price of $1.00 per share.
The options vest immediately on the execution date of the consulting
agreement. At the date of the grant, the fair value of the common stock was
$2.00 per share. The Company valued these options under the Black-Scholes
model with a total valuation of approximately $350,000, which was included
in the statements of operations for the year ended March 31, 2003.
During the year ended March 31, 2002, the Company issued 15,600 shares of
its common stock valued at $15,600 for prepaid advertising expense. The
Company recognized $11,700 of advertising expense relating to the issuance
during the year ended March 31, 2003.
The accompanying notes are an integral part of these financial statements.
23
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
NON-CASH FINANCING ACTIVITY, CONTINUED:
For the Year ended March 31, 2003, Continued
--------------------------------------------
The Company recorded interest expense totaling $93,089 relating to the
discount on a note payable.
Three employees exercised 574,000 stock options as consideration for the
forgiveness of $574,602 of accrued salaries to these three employees.
On December 19, 2002, the Company issued 2,000,000 shares of its common
stock valued at $4,000,000 in lieu of payment in full under the contract
payable totaling $2,341,622.
On November 5, 2002, the Company entered into an employee agreement with its
new Chief Operating Officer ("COO"). The COO received 500,000 options to
purchase 500,000 shares of the Company's common stock an exercise price
totaling the lesser of $2.00 per share or 75% of the fair market value of
the Company's common stock on date of grant. As of November 5, 2002, the
fair market value of the Company's common stock was $2.00 per share;
therefore, the exercise price of the stock options issued was $1.50 per
option. The Company recognized deferred compensation relating to these
options and is amortizing the expense over the vesting period (See note 5e).
During the year ended March 31, 2003, the Company recognized $54,000 of
expense relating to these options.
On December 27, 2002, the Company entered into an employee agreement with
its Chief Financial Officer ("CFO") on a part-time basis. This agreement
became effective on January 2, 2003. The CFO was granted 25,000 fully vested
options to purchase 25,000 shares of the Company's common stock with an
exercise price of $1.00 per share during January 2003. The fair market value
of the common stock was $2.00 per share; therefore, during January 2003, the
Company recognized $25,000 of compensation expense upon issuance.
The accompanying notes are an integral part of these financial statements.
24
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
BioGentec, Inc. (the "Company") is currently a development
stage enterprise under the provisions of Statement of
tFinancial Accounting Standards ("SFAS") No. 7. The Company
was incorporated under the laws of the State of Nevada on
November 21, 2000 as St. Petka, Inc. On May 4, 2001, the
Company formally changed its name to BioGentec, Inc. The
Company presently has its corporate headquarters located in
Irvine, California.
LINE OF BUSINESS:
The Company is a biotechnology company that has purchased the
intellectual property rights (including related patents) to
market Immun-Eeze, a dietary supplement, which is a natural
alternative to over-the-counter and prescription medications.
Immun-Eeze is effective in alleviating allergies and their
accompanying symptoms. Immun-Eeze has been reformulated (the
reformulation is included in the patent) and will be marketed
under the name Prehistin, previously "Allertin".
USE OF ESTIMATES:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America 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 date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK:
The Company places its cash in what it believes to be credit
worthy financial institutions and, at times, these deposits
may exceed the FDIC $100,000 insurance limit. The Company has
not experienced any losses in such accounts.
INVENTORY:
Inventory, consisting primarily of sample products used for
marketing purposes, is carried at the lower of cost or market
utilizing the first-in, first-out method.
25
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Depreciation is
computed using the straight-line method based upon the
estimated useful lives, currently five years over the various
classes of assets. Expenditures for maintenance and repairs
are charged to earnings as incurred; additions, renewals and
betterments are capitalized. When property and equipment are
retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations.
WEBSITE DEVELOPMENT COSTS:
Website development costs are for the development of the
Company's Internet website. These costs have been capitalized
when acquired and installed, and will be amortized over three
years once placed in service. The Company accounts for these
costs in accordance with EITF 00-2, "Accounting for Website
Development Costs," which specifies the appropriate accounting
for costs incurred in connection with the development and
maintenance of websites. Amortization expense totaled $9,000,
$6,500, and $15,500, respectively, for the years ended March
31, 2003 and 2002 and the period from November 21, 2000
(inception) to March 31, 2003.
PATENT COSTS:
Patent costs are carried at cost less accumulated
amortization, which is calculated on a straight-line basis,
over the estimated economic life of the patent (see Note 3).
Amortization will begin upon the rollout of the Company's
Immun-Eeze products. In accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets," the Company evaluates
intangible assets and other long-lived assets (including
patent costs) for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets and
other long-lived assets is measured by comparing their net
book value to the related projected undiscounted cash flows
from these assets, considering a number of factors including
past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value
of the asset exceeds the related undiscounted cash flows, the
asset is considered impaired, and a second test is performed
to measure the amount of impairment loss. As of March 31,
2003, the Company recognized an impairment loss on the patent
costs totaling $55,832 based on the management's assessment
and an independent valuation (see note 3).
26
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LONG-LIVED ASSETS:
In accordance with SFAS Nos. 142 and 144, long-lived assets to
be held and used are analyzed for impairment whenever events
or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS No. 142 relates to
assets with an indefinite life where as SFAS 144 relates to
assets that can be amortized and the life determinable. The
Company evaluates at each balance sheet date whether events
and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, the
Company uses future undiscounted cash flows of the related
asset or asset grouping over the remaining life in measuring
whether the assets are recoverable. In the event such cash
flows are not expected to be sufficient to recover the
recorded asset values, the assets are written down to their
estimated fair value. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value of
asset less the cost to sell.
INCOME TAXES:
Income taxes are provided for based on the asset and liability
method of accounting pursuant to SFAS No. 109, "Accounting for
Income Taxes." Deferred income taxes, if any, are recorded to
reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end.
REVENUE RECOGNITION:
The Company will recognize revenue from product sales when
shipment of product to the customer has been made, which is
when title passes. The Company will estimate and record
provisions for rebates, sales returns and allowances in the
period the sale is recorded. Shipping and handling charges are
included in gross sales, with the related costs included in
selling, general and administrative expenses. For the years
ended March 31, 2003 and 2002, the Company had not generated
any significant sales.
ADVERTISING COSTS:
Advertising costs are expensed as incurred and included in
operating expenses. For the years ended March 31, 2003 and
2002 and for the period from November 21, 2000 (inception) to
March 31, 2003, advertising costs were $171,974, $9,866, and
$181,840, respectively.
27
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RESEARCH AND DEVELOPMENT COSTS:
The Company incurs costs in the research and development of a
dietary supplement, Alleratin. All costs relating to phases I
and II clinical trials were incurred before acquisition of the
patents. Phase III and other research and development costs
are charged to expense as incurred. For the years ended March
31, 2003 and 2002 and the period form November 21, 2000
(inception) to March 31, 2003, the Company incurred $18,412,
$6,470, and $24,882, respectively, in research and development
expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash
equivalents, restricted cash, prepaid expenses and other
current assets, inventory, accounts payable and accrued
expenses, and due to related parties. The carrying amounts of
these assets and liabilities approximate their fair value due
to the highly liquid nature of these short-term instruments.
STOCK-BASED COMPENSATION:
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation cost is
recognized over the vesting period based on the excess, if
any, on the date of grant of the fair value of the Company's
shares over the employee's exercise price. When the exercise
price of the option is less than the fair value price of the
underlying shares on the grant date, deferred stock
compensation is recognized and amortized to expense in
accordance with FASB Interpretation No. 44 over the vesting
period of the individual options. Accordingly, if the exercise
price of the Company's employee options equals or exceeds the
market price of the underlying shares on the date of grant, no
compensation expense is recognized. Options or shares awards
issued to non-employees or non-employee directors are valued
using the Black-Scholes pricing model and expensed over the
period services are provided.
PROFORMA EARNINGS:
The Company uses the intrinsic value method (APB Opinion 25)
to account for its stock options granted to officers,
directors, and employees. Under this method, compensation
expense is recorded over the vesting period based on the
difference between the exercise price and quoted market price
on the date the options are granted. Since the Company has
granted all its stock options at an exercise price equal to or
above the quoted market on the date measurement date, no
compensation expense related to grants of stock options to
employees has been recorded.
28
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROFORMA EARNINGS, CONTINUED:
Had the Company chosen the fair value method of accounting for
transactions involving stock option issuance to employees
pursuant to SFAS No. 123, the Company would have recorded an
additional $11,000 and $67,097 in compensation costs for the
years ended March 31, 2003 and 2002, respectively, as
presented by the proforma earnings statement, as follows.
March 31,
------------------------------------------
2003 2002
------------------- --------------------
Net loss:
As reported $ (2,087,652) $ (1,028,397)
Compensation recognized under APB 25 79,000 32,000
Compensation recognized under SFAS 123 (90,000) (99,097)
------------------ -------------------
Proforma net loss $ (2,098,652) $ (1,095,494)
=================== ====================
Net loss per common share - basic and diluted:
As reported $ (0.12) $ (0.06)
================= ====================
Proforma $ (0.12) $ (0.07)
================= ====================
For the years ended March 2003 and 2002, the Black-Scholes
option-pricing model with a risk-free interest rate of ranging
from 4.0% to 5.6%, a volatility of -0-%, zero dividend yield
and an expected life of ranging from one to two-and-a-half
years for the options was used to determine the fair value of
options rendered. The weighted average fair value of the
options issued during the year was $0.10.
BASIC AND DILUTED LOSS PER SHARE:
In accordance with SFAS No. 128, "Earnings Per Share," the
basic loss per common share is computed by dividing net loss
available to common stockholders less preferred dividends by
the weighted average number of common shares outstanding.
Diluted loss per common share is computed similarly to basic
loss per common share, except that the denominator is
increased to include the number of additional common shares
that would have been outstanding if the potential common
shares had been issued and if the additional common shares
were not anti-dilutive. The Company has excluded all
outstanding options and convertible debt from the calculation
of diluted net loss per share because these securities are
anti-dilutive. As of March 31, 2003 and 2002, the Company has
approximately 1,150,000 and 974,000 common stock equivalents,
respectively.
29
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMPREHENSIVE INCOME:
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. For the
years ended March 31, 2003 and 2002 and the period from
November 21, 2000 (inception), the Company has no items that
represent comprehensive income and, therefore, has not
included a schedule of comprehensive income in the financial
statements.
RECENT ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued Statement No. 145, "Rescission
of SFAS Statements No. 4, 44, and 64, Amendment of SFAS
Statement No. 13, and Technical Corrections," to update,
clarify, and simplify existing accounting pronouncements. SFAS
Statement No. 4, which required all gains and losses from debt
extinguishment to be aggregated and, if material, classified
as an extraordinary item, net of related tax effect, was
rescinded. Consequently, SFAS Statement No. 64, which amended
SFAS Statement No. 4, was rescinded because it was no longer
necessary. The adoption of this statement was implemented by
the Company as of April 1, 2002 and did not have a material
effect on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No.
146 addresses accounting and reporting for cost associated
with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be
recognized and measured initially at fair value when the
liability is incurred. FASB No. 146 is effective for exit or
disposal activities that are initiated after December 31,
2002, with early application encouraged. The adoption of this
statement did not have a material effect on the Company's
financial statements.
30
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In October 2002, the FASB issued Statement No. 147,
"Acquisitions of Certain Financial Institutions-an amendment
of FASB Statements No. 72 and 144 and FASB Interpretation No.
9," which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in
accordance with Statements No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its
scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions
of financial institutions are effective for acquisitions for
which the date of acquisition is on or after October 1, 2002.
The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this
Statement did not have a material impact to the Company's
financial position or results of operations as the Company has
not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure," which amends FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition
guidance and annual disclosure provisions of Statement 148 are
effective for fiscal years ending after December 15, 2002,
with earlier application permitted in certain circumstances.
The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods
beginning after December 15, 2002.
The adoption of this statement did not have a material impact
on the Company's financial position or results of operations
as the Company has not elected to change to the fair value
based method of accounting for stock-based employee
compensation.
31
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities." Interpretation
46 changes the criteria by which one company includes another
entity in its consolidated financial statements. Previously,
the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates
a variable interest entity is called the primary beneficiary
of that entity. The consolidation requirements of
Interpretation 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company does not expect
the adoption to have a material impact to the Company's
financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities." Statement 149 amends and clarifies financial
accounting and reporting of derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is
effective for contracts entered into or modified after June
30, 2003, except for certain hedging relationships designated
after June 30, 2003. The Company's does not expect adoption of
this statement to have a material impact on the Company's
financial position or results of operations.
32
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity." Statement 150 establishes standards
for how an issuer classifies and measures certain financial
instrument with characteristics of both liabilities and
equity. It requires that issuers classify a financial
instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were
previously classified as equity. Some of the provisions of
this Statement with the definitions of liabilities in FASB
Concepts Statement No. 6, "Elements of Financial Statements."
The remaining provisions of this Statement are consistent with
the Board's proposal to revise that definition to encompass
certain obligations that a reporting entity can or must settle
by issuing its own equity shares, depending on the nature of
the relationship established between the holder and the
issuer. While the Board still plans to revise that definition
through an amendment until it has concluded its deliberations
on the next phase of this project. That next phase will deal
with certain compound financial instrument including puttable
shares, convertible bonds, and dual indexed financial
instruments. This Statement is effective for financial
instruments entered into modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory
redeemable financial instruments of non-public entities. The
Company's does not expect adoption of this statement to have a
material impact on the Company's financial position or results
of operations.
(2) GOING CONCERN:
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going
concern. As of March 31, 2003 and 2002, the Company has not generated
significant revenue, has a working capital deficit of $543,460 and
$2,597,801, respectively, and has incurred substantial losses for the
years ended March 31, 2003 and 2002 totaling $2,087,652 and $1,028,397.
The Company is currently attempting to raise additional debt and equity
financing for operating purposes.
During the year ended March 31, 2003, the Company restructured the
minimum royalty obligation due to Gene Pharmaceuticals, LLC (see Notes
3 and 7). As of March 31, 2003, the Company no longer had a minimum
royalty obligation due and had issued 2,000,000 shares of its common
stock valued at a fair market value of $4,000,000 as consideration for
the contract payable totaling $2,341,622.
33
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(2) GOING CONCERN, CONTINUED:
The Company requires substantial capital to pursue its operating
strategy, which includes commercialization of Prehistin, and currently
has limited cash for operations. Until the Company can obtain revenues
sufficient to fund working capital needs and additional research and
development costs necessary to obtain the regulatory approvals for
commercialization, the Company will be dependent upon external sources
of financing.
During December 2002, the Company entered into negotiations to acquire
an entity publicly traded over the Bulletin Board Market to reverse
merge with, which would help facilitate the raising of additional
equity financing. During April 2003, a definitive agreement has been
signed between the Company and the public company. The Company
anticipates closing this transaction and filing a merger agreement with
the State of Delaware in July 2003.
There can be no assurances that sufficient financing will be available
on terms acceptable to the Company, or at all. If the Company is unable
to obtain such financing, the Company will be forced to scale back
operations, which could have an adverse effect on the Company's
financial condition and results of operations. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity
for the Company to continue as a going concern.
(3) ACQUISITION OF CERTAIN ASSETS:
On November 22, 2000, the Company entered into an asset purchase
agreement to acquire certain tangible and intangible assets from Gene
Pharmaceuticals, LLC, formerly known as Allergy Limited, LLC ("GP
LLC"), an unrelated company. As consideration, the Company agreed to
pay a $150,000 down payment, as well as royalty payments calculated as
a percentage of gross sales of the product known as "Immune-Eeze,"
occurring on or after January 1, 2001. The royalty payments were to be
computed and payable quarterly, beginning with the quarter ended March
31, 2001, at the greater of the:
(i) Buyers Minimum Royalty Obligation (see Note 7);
(ii) rate of 6% of annual gross sales on the first $50,000,000
in gross sales; and
(iii) rate of 3% of annual gross sales on all gross sales in
excess of $50,000,000.
The Company's minimum royalty obligation to GP LLC in the event that
gross sales in any quarter did not meet certain threshold amounts would
total $3,930,000. The minimum guaranteed purchase price was payable
through 2022 (see Note 7).
34
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(3) ACQUISITION OF CERTAIN ASSETS, CONTINUED:
Gross sales are defined as all payments received by the Company on
worldwide sales of all products containing Vitamin B12 including, but
not limited to, sales of all products in pediatric doses and for use by
domestic animals.
Per the asset purchase agreement, the Company had the option to buy the
patent outright with no royalty or future minimum royalty payments for
the following:
$5,000,000 through June 30, 2002; $6,000,000 from July 1, 2002
to June 30, 2003; $7,000,000 from July 1, 2003 to June 30,
2004; or $8,000,000 thereafter.
The tangible and intangible assets purchased resulted in the recording
of $6,250 of inventory, $2,222,744 of patents as of November 22, 2000,
and, since the minimum royalty payments did not include interest, the
Company has recorded a discount on the contract payable totaling
$1,701,006, using an interest rate of 6%, which was being amortized
over the life of the payable (see Note 7).
Per the asset purchase agreement, the Company has secured the rights to
two patents, which were valued at their fair market values as of the at
date of purchase (see Note 7). The patents are for the introduction of,
or "delivery" of, Cyanocobalamin, via a lozenge, and cover the various
forms of B12 used to provide relief from allergy and bronchial asthma
symptoms. The U.S. patent expires in 2009. Additional U.S. and foreign
patents covering the use of lozenges delivering B12 for allergic
diseases are in effect until 2019. In July 2001, the Company was
granted a Notice of Entitlement intended to expand geographic coverage
of the two existing patents. Amortization will be calculated on a
straight-line basis over the shorter of the remaining economic life or
estimated lives of the patents, ranging from 9 to 17 years, once
shipment of products begins. The Company recorded its patents based
upon the discounted value of the contract payable.
Recognition of contingent royalty payments above the guaranteed
purchase price will be expensed in the period they are incurred (see
Note 7).
As of March 31, 2002, the Company was in default on the minimum
guaranteed payments. On April 20, 2002, payments relating to the
minimum guaranteed purchase price were extended without penalty until
May 31, 2002, at which time the first payment was due and payable . On
June 1, 2002, the Company again became in default of the agreement.
Per the asset purchase agreement, in event of default on any of the
royalty or minimum royalty payments to the seller and such default is
not cured with in 120 days, all purchased assets would revert back to
GP LLC.
35
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(3) ACQUISITION OF CERTAIN ASSETS, CONTINUED:
On December 19, 2002, GP LLC and the Company entered into a new
memorandum of agreement whereby they amended the terms of the original
asset purchase agreement whereby the purchase price shall be as
follows:
a) the sum of all amounts previously paid by the
Company under the asset purchase agreement totaling $161,000;
b) the sum of $4,000,000 payable, including principal and
imputed interest, in the form of 2,000,000 shares of
the Company's common stock valued at $2.00 per share; and
c) a royalty calculated at 1.5% of the gross sales of the
product, as defined above.
Royalty payments shall commence to accrue on December 19, 2002, and
will be computed and payable quarterly. For the years ended March 31,
2003 and 2002 and the period from November 21, 2000 (inception) to
March 31, 2003, no royalty expense was accrued due to insignificant
amount of sales for the periods.
As a result, the Company satisfied its indebtedness to GP LLC, and
reduced its future royalty obligation related to the patents in
exchange for the shares, and therefore increased the carrying amount of
the patents to $3,905,832. Based upon an independent appraisal, the
fair value of the patents was deemed to be $3,850,000 as of March 31,
2003. Therefore, the Company recorded an impairment expense of $55,832
in other operating expenses for the year ended March 31, 2003, which is
included in other operating expenses.
The Company has also recorded the issuance of the common stock and
removed all guaranteed minimum royalty obligations under the original
asset purchase agreement (see Note 7).
(4) PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consisted of the following:
March 31,
---------------------------
2003 2002
------------ ------------
Furniture and fixtures $ 71,500 $ 65,000
Office equipment 14,621 17,621
----------- ------------
86,121 82,621
Less accumulated depreciation (28,696) (14,886)
------------ ------------
$ 57,425 $ 67,735
============ ============
For the years ended March 31, 2003 and 2002 and the period from
November 21, 2000 (inception) to March 31, 2003, depreciation expense
was $13,810, $12,865, and $28,696, respectively.
36
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(5) RELATED-PARTY TRANSACTIONS:
The Company had the following related-party transactions:
Due to Related Parties
----------------------
March 31,
------------------------------------------
2003 2002
------------------- --------------------
a) R&R Holdings $ 255,062 $ -
b) President/Executive Vice President 43,100 129,852
c) Former Chief Operating Officer - 129,852
d) Former Vice President - 11,550
------------------ -------------------
$ 298,162 $ 271,254
================== ===================
a) On January 1, 2001, the Company entered into a consulting
contract with R&R Development, Inc. DBA R&R Holdings, Inc.
("R&R") whereby they would provide managerial consulting
services to the Company at the rate of $125,000 per year and
the rate shall increase to $135,000 per year when and if the
Company completes a merger with a public shell company. R&R is
also a shareholder of the Company. As of March 31, 2001, the
Company had accrued $31,250 of consulting fees relating to
this agreement. No payments were made during the period from
November 21, 2000 (inception) to March 31, 2001. For the year
ended March 31, 2002, the Company accrued an additional
$125,000 in consulting fees relating to this agreement.
During the year ended March 31, 2002, the Company issued
216,358 shares of its common stock valued at $1.00 per share
or $216,358, which represented the fair market value on the
date of issuance, as consideration for the accrued consulting
services to date and as a prepayment for consulting services
to be provided per the contract relating to the year ended
March 31, 2002. As of March 31, 2002, the Company prepaid
$60,108 of consulting fees under the contract and has recorded
it as deferred compensation.
During the year ended March 31, 2003, R&R accrued an
additional $125,000 of consulting fees relating to this
agreement. As of March 31, 2003, $64,892 was payable under
this contract and $60,108 reduced deferred compensation as of
March 31, 2003.
During the period from November 21, 2000 (inception) to March
31, 2001, R&R advanced the Company cash and also paid certain
expenses directly on behalf of the Company totaling $62,681.
The Company has recorded these transactions as a contribution
to capital as of March 31, 2001.
During the years ended March 31, 2003 and 2002, R&R advanced
the Company cash and also paid certain expenses directly on
behalf of the Company totaling $292,718 and $211,269,
respectively. The Company has recorded these transactions as a
contribution to capital as of March 31, 2003 and 2002.
37
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(5) RELATED-PARTY TRANSACTIONS, CONTINUED:
Due to Related Parties, Continued
---------------------------------
During the period from January 1, 2003 to March 31, 2003, R&R
advanced the Company cash totaling $187,007. The Company has
recorded these transactions as a demand note payable. The
Company has imputed interest on the note at a rate of 10% per
annum. Interest expense and accrued totaled $3,163 for the
year ended March 31, 2003.
b) The Executive Vice President ("EVP") of the Company entered
into an employment agreement dated November 22, 2000, amended
on December 31, 2001, which pays an annual salary of up to
$125,000 and certain bonuses. The EVP was also granted options
to purchase 230,000 shares of common stock of the Company at
an exercise price of $1.00 per share (see Note 11). For the
period from November 21, 2000 (inception) to March 31, 2001,
the Company accrued $12,500 of services relating to the
agreement. The Company accrued an additional $133,352 relating
to this agreement during the year ended March 31, 2002 and
also issued 32,000 options to the EVP to purchase its common
stock at $0.50 per share. The Company's common stock had a
fair market value of $1.00 per share on the date of issuance
and the $16,000 difference in the fair market value of the
stock options was recorded as a reduction in the amount due
under the employment contract and as a contribution to capital
(see Note 11). As of March 31, 2002, the Company had a
liability to the EVP totaling $129,852. Per the amended
employment agreement, if certain payments were not made to the
EVP relating to the employee agreement, an additional $55,000
of bonus compensation would accrue during the year ended March
31, 2003. For the nine months ended December 31, 2002, the
Company accrued an additional $148,750 relating to this
agreement, $93,750 of salary and a $55,000 bonus, which from
November 21, 2000 (inception) left a balance of $278,602 due
to the EVP. As of December 31, 2002, the EVP entered into an
agreement whereby he exercised his 262,000 options with a
total exercise price of $246,000. The consideration for the
exercise was forgiveness of accrued salary in the amount of
$278,602.
For the year ended March 31, 2003 the Company accrued $30,000
of salary for the EVP, who now serves as President of the
Company.
During the year ended March 31, 2003, the EVP advanced $13,100
to the Company. The Company has recorded these transactions as
demand note payable. Due to the short-term nature of the
advance, interest has not been imputed on the advance.
38
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(5) RELATED-PARTY TRANSACTIONS, CONTINUED:
c) The former Chief Operating Officer ("COO") of the Company
entered into an employment agreement dated November 2000,
amended on December 31, 2001, which pays an annual salary of
up to $125,000 and certain bonuses. The COO was also granted
options to purchase 230,000 shares of common stock of the
Company at an exercise price of $1.00 per share (see Note 11).
For the period from November 21, 2000 (inception) to March 31,
2001, the Company accrued $12,500 of services relating to the
agreement. For the year ended March 31, 2002, the Company
accrued an additional $133,352 relating to this agreement.
During the year ended March 31, 2002, the Company issued
32,000 options to the COO to purchase its common stock at
$0.50 per share. The Company's common stock had a fair market
value of $1.00 per share on the date of issuance and the
$16,000 difference in the fair market value of the stock
options was recorded as a reduction in the amount due under
the employment contract and as a contribution to capital (see
Note 11). As of March 31 2002, the Company had a liability to
the COO totaling $129,852. Per the amended employment
agreement, if certain payments were not made to the COO
relating to the employment agreement, an additional $55,000 of
bonus compensation would accrue during the year ended March
31, 2002. For the period from April 1, 2002 to July 31, 2002,
the Company accrued an additional $96,667 relating to this
agreement, $41,667 of salary and a $55,000 bonus, which from
November 21, 2000 (inception) left a balance of $226,519 due
to the COO as of July 31, 2002. As of July 31, 2002, the COO
resigned from the Company and entered into an agreement
whereby he would exercise 262,000 options with a total
exercise price of $246,000. The consideration for the exercise
was forgiveness of accrued salary in the amount of $226,519.
The Company recognized additional compensation expense of
$19,481 relating to this transaction.
d) The Company entered into an employment agreement with its Vice
President the ("VP") that pays $5,000 per month, plus an
annual performance bonus of up to 33% of the annual salary.
The agreement also granted the VP 200,000 options to purchase
shares of the Company's common stock at $1.00 per share. As of
March 31, 2002 the Company owed the VP $11,550 on the
agreement. For the nine months ended December 31, 2002, the
Company accrued an additional $45,000 relating to this
agreement and made payments during the period totaling
$11,800, which left a balance of $44,750 due to the VP. The VP
was also owed $2,770 relating to unreimbursed expenses. As of
December 31, 2002, the VP entered into an agreement whereby
the Company shall pay $5,000 to the VP and the VP would also
exercise 50,000 of his options with a total exercise price of
$50,000 and as consideration forgive all balances owed to him
as of December 31, 2002. This resulted in the Company
recognizing an additional compensation expense of $7,480. The
VP also tendered his resignation as of December 31, 2002.
39
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(5) RELATED-PARTY TRANSACTIONS, CONTINUED:
e) The Company entered into an employment agreement with its new
Chief Operating Officer ("COO") that pays an annual salary of
$120,000 per year. Salary increases and bonuses are
accomplished upon the Company reaching certain revenue or
investment milestones. The agreement also granted the COO
500,000 options to purchase shares of the Company's common
stock at $1.50 per share (see note 11). As of March 31, 2003
the Company owed the COO approximately $50,000 on the
agreement, which is, included in accounts payable and accrued
expenses.
The agreement also calls for 250,000 stock options to be
granted and issued on November 6, 2003 and an additional
250,000 stock options to be granted on November 6, 2004, as
per certain terms of employment. These options would have an
exercise price of the lessor of $2.00 per share or 75% of the
fair market value of the Company's common stock on the date of
the grant.
Each option is exercisable for a period of five years from
their respective date of grant and vest over a three year
period from date of grant with 50% vesting on the first
anniversary date and the remaining vesting in two equal
installments of 25% on each subsequent anniversary date.
f) On December 27, 2002, the Company entered into an employee
agreement with its Chief Financial Officer ("CFO") on a
part-time basis. This agreement became effective January 2,
2003. The CFO received 25,000 fully vested options to purchase
25,000 shares of the Company's common stock with a strike
price of $1.00 per share. The fair market value of the shares
was $2.00 per share; therefore, during January 2003, the
Company recognized $25,000 of compensation expense upon
issuance. The CFO received $86.54 per hour for the first eight
hours worked each week; vests 260 options shares with a strike
price of $1.00 per share for the next eight hours worked; and
will be paid $86.54 per hour for the next eight hours worked
each week. Option certificates will be issued weekly. The
agreement will be reviewed no longer than six months from the
date of execution. Each options issued under this agreement
will bear compensation expense as determined by the fair
market value of the Company's common stock on the date of
issuance. As of March 31, 2003, only the initial 25,000
options were earned and issued under this agreement.
40
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(6) INCOME TAXES:
The components of the provision for income taxes were as follows:
March 31,
------------------------------------------
2003 2002
------------------- --------------------
Current tax expense
U.S. federal $ - $ -
State and local - -
------------------- --------------------
Total current - -
------------------- --------------------
Deferred tax expense
U.S. federal - -
State and local - -
------------------- --------------------
Total deferred - -
------------------- --------------------
Total tax provision $ - $ -
=================== ====================
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate 34.0%
Deferred Tax Charge (Credit) -
Effect of Valuation Allowance (34.0)%
State Income Tax, net of Federal Benefit -
Effective Income Tax Rate -
As of March 31, 2003 and 2002, the Company had Federal net carryforward
losses of approximately $3,311,000 and $1,223,000, respectively, and
had State net carryforward losses of approximately $1,629,000 and
$612,000, respectively. Because of the current uncertainty of realizing
the benefit of the tax carryforward, a valuation allowance equal to the
deferred tax assets benefit for the loss carryforward has been
established. The full realization of the tax benefit associated with
the carryforward depends predominantly upon the Company's ability to
generate taxable income during the carryforward period.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes.
41
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(6) INCOME TAXES, CONTINUED:
Significant components of the Company's deferred tax asset were as
follows:
March 31,
------------------------------------------
2003 2002
------------------- --------------------
Deferred tax asset
Loss carryforwards $ 1,275,000 $ 470,000
Less valuation allowance (1,275,000) (470,000)
------------------- --------------------
Net deferred tax assets $ - $ -
================== ===================
Federal net operating loss carryforwards expire through 2023, while
State net operating loss carryforwards expire through 2015. Per year
availability is subject to change of ownership limitations under
Internal Revenue Code Section 382.
(7) CONTRACT PAYABLE:
Patent
------
As discussed in Note 3, the Company, as part of the purchase of certain
tangible and intangible assets, was committed to pay a minimum
guaranteed purchase price and contingent additional royalty payments
based upon certain levels of sales (performance covenant).
The minimum royalty payments did not include interest, therefore
Company has recorded a discount on the contract payable totaling
$1,701,006, using an interest rate of 6%, which was being amortized
over the life of the payable.
The minimum guaranteed purchase price and performance covenant
contained under the asset purchase agreement dated November 22, 2000
was as follows:
Minimum
purchase price
--------------------
Initial payment $ 150,000
4 quarterly payments of $15,000 60,000
4 quarterly payments of $30,000 120,000
75 quarterly payments of $48,000 3,600,000
-------------------
3,930,000
Less amounts representing interest (1,701,006)
--------------------
Present value of minimum royalty payments $ 2,228,994
===================
42
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(7) CONTRACT PAYABLE, CONTINUED:
The minimum payments under the agreement were to begin March 31, 2001.
During the years ended March 31, 2003 and 2002 and the period from
November 21, 2000 (inception) to March 31, 2001, the Company made
payments of $11,000, $75,000, and $75,000, respectively, which totaled
the $161,000 down payment.
As of March 31, 2002, the Company was in default on the minimum
guaranteed payments, and the minimum guaranteed payments were postponed
without penalty until May 31, 2002, at which time the first payment was
due and payable. The Company remained in default of the agreement upon
the extended due date.
During the years ended March 31, 2003 and 2002 and the period from
November 21, 2000 (inception) to March 31, 2002, the Company incurred
interest expense on the contract payable totaling $93,089, $128,111,
and $273,628 respectively.
Also as discussed in Note 3, on December 19, 2002, GP LLC and the
Company entered into a new memorandum of agreement whereby they amended
the terms of the original asset purchase agreement and there are no
more minimum guaranteed payments mandatory under the agreement and the
Company issued 2,000,000 shares of its common stock valued at
$4,000,000.
As a result of this new agreement, as of December 19, 2002, the Company
has removed the contract payable and all guaranteed minimum royalty
obligations from its liabilities (see Note 3).
(8) NOTES PAYABLE:
On October 22, 2001, the Company entered into a note payable to an
unrelated party totaling $20,000 bearing interest at the rate of 18%
per annum. On October 26, 2001, the Company entered into an additional
note payable with the same party for $30,000, bearing interest at the
rate of 18% per annum. Both notes were due on or before December 22,
2001. The Company repaid these notes, including accrued interest of
$2,561, on January 2, 2002.
During September 2001, the Company entered into a convertible note
payable totaling $50,000. The note was convertible into the Company
common stock at $1.00 per share when the fair market value of the stock
was $2.00 per share. Therefore, the Company recognized a beneficial
conversion expense totaling $50,000 relating to the note payable.
This note was converted into 50,000 shares of the Company's common
stock during December 2002.
43
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(9) COMMITMENTS AND CONTINGENCIES:
During the period from November 21, 2000 (inception) to December 31,
2001, the Company had an operating lease for office space totaling
approximately $2,900 per month. On December 19, 2001, the Company
signed a one-year lease for new office space commencing January 1, 2002
for a base rent of approximately $5,900 and then took additional space
that increased the base rent to approximately $12,000 per month.
The Company paid a security deposit of $15,600 and as of March 31,
2002, this security deposit was recorded in prepaid expenses and other
current assets. As of March 31, 2003, the Company has vacated the
office space and is in a dispute with the prior landlord. As part of
the dispute, the Company has expensed its security deposit as of March
31, 2003. The lease also called for one year of building signage rights
and, as consideration, the Company issued 15,600 shares of their common
stock, valued at $15,600 for the signage rights. These rights were
recorded as a prepaid expense and were amortized over a period of one
year ended December 31, 2002.
The Company has entered into a new three-year lease at a different
address. The Company has paid a security deposit of $40,000 under the
new lease.
The following is a schedule of the future minimum lease payments under
non-cancelable operating leases as of March 31, 2003:
2004 $ 124,374
2005 130,926
2006 137,466
------------------
Total $ 392,766
==================
Rent expense for the years ended March 31, 2003 and 2002 and for the
period from inception (November 22, 2000) to March 31, 2003, was
$112,106, $33,784, and $157,579, respectively.
The Company has entered into an agreement to acquire an entity publicly
traded over the Bulletin Board Market. As part of the negotiations, the
Company has made a good faith deposit of $100,000 into an escrow
account that, as of March 31, 2003, is classified by the Company as
restricted cash (See note 12).
44
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(10) STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock
------------
The aggregate number of shares of common stock that the Company has
authority to issue is 25,000,000 shares at a par value of $0.001. As of
March 31, 2003 and 2002, 19,732,208 and 16,965,708 shares were issued
and outstanding, respectively.
Common Stock For Property and Equipment
---------------------------------------
a) On November 22, 2000, the Company issued 16,300,000 shares of
its common stock, at par, as founder's shares in exchange for
certain property and equipment, with a fair value of $16,300
upon formation of the Company.
b) During April 2001, the Company issued 6,750 shares of its
common stock valued at $6,750 for telephone equipment, which
represented the fair market value on the date of issuance.
c) During January 2002, the Company issued 1,000 shares of
its common stock for property and equipment with a fair
value of $3,000.
Issuance of Common Stock for Cash
---------------------------------
a) During the period from November 21, 2000 (inception) to March
31, 2001, the Company issued 182,000 shares of its common
stock for $182,000, which represented its fair value on the
date of issuance.
b) During the year ended March 31, 2002, the Company issued
172,000 shares of its common stock for $204,500, which
represented its fair value on the date of issuance.
c) During the year ended March 31, 2003, the Company issued
125,000 shares of its common stock for $220,000, which
represented its fair value on the date of issuance.
Issuance of Common Stock for Services to Related Party
------------------------------------------------------
During the year ended March 31, 2002, the Company issued 216,358 shares
of its common stock valued at $1.00 per share or $216,358 as
consideration for past and future consulting services provided by a
related party, which represented the fair market value on the date of
issuance. As of March 31, 2002, the Company had deferred compensation
of $60,108 relating to this issuance.
45
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(10) STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED:
Issuance of Common Stock for Services
-------------------------------------
During the period from November 21, 2000 (inception) to March 31, 2001,
the Company issued 10,000 shares of its common stock valued at $10,000,
for various services performed by consultants. This represented the
fair market value of the common stock and services on the date of
issuance.
During the year ended March 31, 2002, the Company issued 45,000 shares
of its common stock valued at $45,000, for various services performed
by consultants. This represented the fair market value of the common
stock and services on the date of issuance.
During the year ended March 31, 2003, the Company issued 18,000 shares
of its common stock valued at $36,000, for various services performed
by consultants. This represented the fair market value of the common
stock and services on the date of issuance.
Capital Contribution
--------------------
R&R
---
As discussed in Note 5, R&R advanced the Company cash or paid certain
expenses on the Company's behalf totaling $297,718, $211,269, and
$62,681 for the years ended March 31, 2003 and 2002, and period from
November 21, 2000 (inception) to March 31, 2001, respectively. These
transactions have been recorded as contributions to capital.
Bonus expense - Silver Mountain Productions
-------------------------------------------
During May 2002, Silver Mountain Productions ("SMP"), a related company
owned by management, transferred 25,000 shares of the Company's common
stock as a bonus to an employee. Compensation expense in the amount of
$50,000, the fair value of the shares, was recognized.
Issuance of Common Stock for Prepaid Advertising
------------------------------------------------
During March 2002, the Company issued 15,600 shares of its common stock
valued at $15,600 for prepaid advertising expense, which represented
the fair market value on the date of issuance.
Issuance of Common Stock for Website Development Costs
------------------------------------------------------
During May 2001, the Company issued 17,000 shares of its common stock
valued at $17,000 for website development costs, which represented the
fair market value on the date of issuance.
46
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(10) Stockholders' Equity (Deficit), Continued:
Issuance of Common Stock for Patents
------------------------------------
As discussed in Note 3, on December 19, 2002, GP LLC and the Company
entered into a new memorandum of agreement whereby they amended the
terms of the original asset purchase agreement. The purchase price of
the patent is the sum of all amounts previously paid by the Company
under the asset purchase agreement totaling $161,000 as well as
$4,000,000 for the issuance of 2,000,000 shares of the Company's common
stock valued at $2.00 per share, which represented the fair market
value on the date of issuance.
(11) STOCK OPTIONS:
Stock Option Plan
-----------------
In 2002, the Company adopted a Stock Option Plan (the "Plan") initially
reserving an aggregate of 1,250,000 shares of the Company's common
stock (the "Available Shares") for issuance pursuant to the exercise of
stock options, which may be granted to employees and consultants to the
Company. The Plan options were subsequently increased to 2,000,000
shares effective as of December 31, 2001.
The Plan provides for the granting at the discretion of the Board of
Directors of both qualified incentive stock options and non-qualified
stock options. Consultants may receive only non-qualified stock
options. The maximum term of the stock options are three to five years
and generally vest proportionately throughout the term of the option.
The Company's option activity for the years ended March 31, 2003 and
2002 is as follows:
March 31,
------------------------------------------
2003 2002
------------------- --------------------
Options outstanding -
beginning of period 974,000 560,000
Granted during the year 825,000 714,000
Exercised during the year (574,000) -
Forfeited during the year (75,000) -
Canceled during the year - (300,000)
------------------ --------------------
Options outstanding - end of period 1,150,000 974,000
================== ===================
Options exercisable -
March 31, 2003 and 2002 400,000 353,334
Weighted average exercise price $ 1.22 $ 0.95
Weighted average remaining life 4.08 years 3.9 years
47
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(11) STOCK OPTIONS, CONTINUED:
Issuance of Stock Options
On November 22, 2000, the Chief Operating Officer and Executive Vice
President of the Company were granted options to purchase 460,000
shares of its common stock of the Company at an exercise price of $1.00
per share. These options expire on November 22, 2003. The options vest
over three years. At the date of grant, the fair value of the common
stock was $1.00 per share. At the date of the grant, the exercise price
was equal to the fair value of the stock; therefore, no compensation
expense was recorded. These options were exercised during the year
ended March 31, 2003.
On March 1, 2001, the Company granted stock options to an employee to
purchase 100,000 shares of its common stock at an exercise price of
$1.10 per share. The options vest over a three-year period beginning
with 25,000 on the first anniversary, 25,000 on the second anniversary
and 50,000 on the third anniversary. At the date of grant, the fair
value of the common stock was $1.00 per share. At the date of the
grant, the exercise price was higher than the fair value of the stock;
therefore, no compensation expense was recorded. The employee was
terminated with 75,000 unvested options for the year ended March 31,
2003.
On November 22, 2000, the Company granted stock options to a consultant
to purchase 200,000 shares of its common stock at an exercise price of
$1.00 per share. The options vest over a three-year period beginning
with 50,000 on the first anniversary, 50,000 on the second anniversary
and 100,000 on the third anniversary and expire on November 22, 2005.
At the date of grant, the fair value of the common stock was $1.00 per
share. At the date of the grant, the exercise price was equal to the
fair value of the stock; therefore, no compensation expense was
recorded. These options were cancelled unvested during the year ended
March 31, 2001.
On April 1, 2001, the Company granted stock options to a consultant to
purchase 100,000 shares of its common stock at an exercise price of
$1.00 per share. These options were to vest over a period of two years
after the date of grant. The consulting agreement was cancelled on
August 31, 2001 and the stock options were cancelled.
On April 19, 2001, the Company granted stock options to an employee to
purchase 200,000 shares of its common stock at an exercise price of
$1.00 per share. The options vest over a three-year period beginning
with 50,000 on the first anniversary, 50,000 on the second anniversary
and 100,000 on the third anniversary and expire on November 22, 2005.
At the date of grant, the fair value of the common stock was $1.00 per
share. At the date of the grant, the exercise price was equal to the
fair value of the stock; therefore, no compensation expense was
recorded.
48
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(11) STOCK OPTIONS, CONTINUED:
ISSUANCE OF STOCK OPTIONS, CONTINUED
During September 2001, the Company issued 32,000 options each to its
COO and EVP to purchase its common stock at $0.50 per share. These
options were issued as consideration for services performed by the COO
and EVP of the Company. The Company recognized an expense of $0.50 per
option or $32,000 relating to these options under the employment
contracts and reduced its liability to the COO and EVP by $32,000. The
fair value of the Company's common stock on the date of issuance with
$1.00. These options were exercised during the year ended March 31,
2003.
During May 2001, the Company granted 200,000 stock options to purchase
its common stock as follows: 100,000 options to a consultant at an
exercise price of $1.00 per share and 100,000 options to a consultant
at an exercise price of $1.10 per share. These options vest over a
period of up to five years after the date of grant. At March 31, 2002,
the exercise price was equal to or higher than the fair value of the
stock; therefore, no compensation expense has been recorded.
During May 2001, the Company granted stock options to an employee to
purchase 150,000 shares at an exercise price of $1.00 per share. The
options vest ratably over a three-year period beginning after the date
of the grant. At the date of grant, the fair value of the common stock
was $1.00 per share. At the date of the grant, the exercise price was
equal to the fair value of the stock; therefore, no compensation
expense was recorded.
During May 2002, the Company granted stock options to three consultants
to purchase a total of 300,000 shares at an exercise price of $1.00 per
share. The options vest immediately on the execution date of the
consulting agreement. At the date of the grant, the fair value of the
common stock was $2.00 per share. The Company valued these options
under the Black-Scholes model with a total valuation of approximately
$350,000, which was included in the statements of operations for the
year ended March 31, 2003.
On November 5, 2002, the Company entered into an employee agreement
with its new Chief Operating Officer ("COO"). The COO received 500,000
options to purchase 500,000 shares of the Company's common stock an
exercise price totaling the lessor of $2.00 per share or 75% of the
fair market value of the Company's common stock on date of grant. As of
November 5, 2002, the fair market value of the Company's common stock
was $2.00 per share; therefore, the exercise price of the stock options
issued was $1.50 per option. The Company recognized deferred
compensation on relating to these options and is amortizing the expense
over the vesting period (See note 5e).
On December 27, 2002, the Company entered into an employee agreement
with its Chief Financial Officer ("CFO") on a part-time basis. This
agreement became effective on January 2, 2003. The CFO received 25,000
fully vested options to purchase 25,000 shares of the Company's common
stock with a strike price of $1.00 per share. The fair market value of
the common stock was $2.00 per share; therefore, during January 2003,
the Company recognized $25,000 of compensation expense upon issuance.
49
BIOGENTEC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2003 AND 2002
AND THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
(12) SUBSEQUENT EVENTS:
As discussed in Note 9, the Company is negotiating a potential merger
transaction and pursuant to these negotiations has made a good faith
deposit of $100,000. During March 2003, the Company's Board of
Directors gave approval to merge with a Public Company ("PC").
During April 2003, the Company entered into a definitive agreement to
merge with the PC through a reverse triangular merger in which the
Company would be the surviving entity and became a wholly-ownded
subsidiary of PC. The Company anticipates closing this transaction
during July 2003.
50
PRO FORMA - PREPARED BY MANAGEMENT
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Togs for BioGentec Proforma Adjusted
Tykes, Inc. Incorporated Adjustments Proforma
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
3/31/03 3/31/03
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Unaudited Audited 3/31/03
--------- ------- -------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Current assets
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Cash 2,176 2,290 (2,176) (2) 2,290
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Restricted cash 0 100,000 (100,000) (1) 0
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Prepaid expenses 0 3,486 3,486
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Inventory 0 6,000 6,000
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Total current assets
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Fixed Assets - net 0 57,425 57,425
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Website - net 0 14,900 14,900
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Patents - net 0 3,850,000 3,850,000
---------------- --------- ---------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
$ 2,176 $ 4,074,101 $ 3,974,101
=============== ============== =============
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Liabilities and stockholders'
equity
(deficit)
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Current liabilities
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Accounts payable and accrued 2,628 (1)
expenses 4,814 357,074 2,176 (2) 357,074
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Due to related parties/shareholders
17,461 298,162 (17,461) (4) 298,162
---------------- ------------ --------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Total current liabilities 22,275 655,236 655,236
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Preferred stock 0 0 0
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Common stock 5,532 19,733 4,400 (3) 20,865
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Additional paid-in-capital 33,968 6,906,045 55,189 (3) 6,804,913
97,372 (1)
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Deferred compensation 0 (196,000) (196,000)
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Deficit accumulated during the
development stage
(59,599) (3,310,913) (59,599) (3) (3,310,913)
---------------- ----------- -----------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
Total stockholders' equity
(deficit) (20,099) 3,418,865 3,318,865
---------------- --------- ---------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
$ 2,176 $ 4,074,101 $ 3,974,101
================ ============== =============
------------------------------------ ---------------- ---------------- ----------------- ----- -------------------
(1) Restricted cash to be utilized for costs associated with the merger.
(2) Cash used to pay off certain creditors of Togs for Tykes, Inc. ("TTYK")
(3) Reflects 4,400,000 common shares being returned and cancelled by TTYK.
Capitalization of post merger BioGentec reflects the number of
outstanding shares at par value (20,865,208 shares), assumes the
cumulative of BioGentec and reflects the resultant paid in capital.
The merger agreement calls for an exchange of one common share of TTYK
for one common share of BioGentec. The actual number of shares
exchanged is dependent upon the number of additional shares issued by
BioGentec between the audited balance sheet date of 3/31/03 and the
closing date of the merger.
(4) Certain shareholder advances to TTYK were forgiven and treated as
capital contributions.
51
Index to Exhibits
2.1 Agreement and Plan of Merger between Togs for Tykes, Inc., Togs for
Tykes Acquisition Corporation and Biogentec Incorporated
17.1 Resignation of Becky Bauer
17.2 Resignation of Brook Messick
23.1 Consent of Independent Auditor
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Biogentech Corporation
July 2, 2003 By: /s/ Chaslov Radovich
------------------------------------
Chaslov Radovich, President