UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number: 0-28627
PRAXIS PHARMACEUTICALS INC.
(Name of small business issuer in its charter)
UTAH 87-0393257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
595 HORNBY STREET, SUITE 600, VANCOUVER, BRITISH COLUMBIA V6C 1A4 CANADA
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 646-5614
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $-0-
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $2,345,774 AS OF SEPTEMBER 12, 2000
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 11,822,209
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
Exhibit index on page 16. Page 1 of 32 pages
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Praxis Pharmaceuticals Inc. ("Praxis" or the "Company") was formed in
response to an apparent market opportunity in the pharmaceutical industry for
small molecular agents capable of moderating inflammatory responses. The
founding individuals recognized several significant diseases, which are
inadequately served by current therapies, as providing this opportunity. Praxis
is a startup company, which commenced operations in July 1997. Its mission is to
develop a unique panel of therapeutics based on carbohydrate chemistry. To
achieve that mission, Praxis plans to acquire licenses for products or
intellectual property from other organizations or companies when and if there is
sufficient evidence that this would facilitate the expansion of the range of
therapeutics that Praxis has in its product line. Praxis also plans to develop
new drugs internally. The drugs are intended to be used in the control of
inflammation in a range of indications, such as skin conditions to autoimmune
diseases. The technology also has applicability in the cosmetic and
nutraceutical markets and agents for wrinkles and other conditions are being
developed for these markets.
Effective September 30, 1999, Praxis granted a worldwide, exclusive license
to Fairchild International Inc. ("Fairchild"), an affiliate, for all products
and processes developed, and to be developed, relating to arthritis and dermal
wrinkles, in consideration for 2,600,000 shares of Fairchild common stock
(valued at $26,000 initially, but subsequently written down to $1) and royalty
payments based upon revenues earned by Fairchild from the sale of any developed
products. In addition, a research and development agreement was entered into
whereby Praxis was contracted to conduct a research program to be funded by
Fairchild for a total amount of $250,000. (This agreement, including "Schedule
C", has been filed as Exhibit 10.1 to Praxis' registration statement on Form
10-SB.) A first installment of $62,500 was paid on October 1, 1999. Quarterly
payments of $50,000 are to be made beginning January 1, 2000, with a final
payment of $37,500 due October 1, 2000. The January 1, 2000 and April 1, 2000
installments have been paid. The receipt of the remaining $87,500 from Fairchild
is not certain. Fairchild's financial condition is questionable. The independent
auditors' report on Fairchild's financial statements for the year ended December
31, 1999 included an explanatory paragraph relating to the uncertainty of
Fairchild's ability to continue as a going concern. The funds paid by Fairchild
to Praxis can only be used by Praxis for the conduct of the research projects
and can only be expended in accordance with the budget included as part of
"Schedule C", unless Praxis obtains prior written authorization from Fairchild.
Fairchild and Praxis will, not less than once every three months, review and
evaluate progress on the research projects. Following such reviews, milestones
as set out in "Schedule C" may be revised as and when needed by mutual agreement
between Fairchild and Praxis. The research program is to be fully funded by the
funds received by Fairchild. The $250,000 budget for the research and
development program includes allowances for all associated overhead and costs to
be expended by Praxis on the program. No administrative overhead will be
expended that is not covered by the funds received from Fairchild in relation to
the research program. Praxis will not incur either directly or indirectly any
additional expenses on the research program.
Under the exclusive license, Praxis is to be paid 35% of net revenue, which
is any consideration received by Fairchild from the sale of a licensed product
or the granting of a sublicense, after deduction of the following: $250,000 to
be paid by Fairchild plus any other development costs, manufacturing and
production costs, marketing and selling costs, and expenses incurred by
Fairchild in connection with obtaining regulatory approvals. This means that
before any royalties are paid to Praxis, the following are first returned to
Fairchild: (1) the $250,000 research expenditures and (2) any other development
costs, manufacturing and production costs, marketing and selling costs, and
expenses incurred by Fairchild in connection with obtaining regulatory
approvals. Further, there is nothing in the agreement that would prevent
Fairchild from unilaterally deciding to continue to spend money on research and
thereby, perhaps, use all monies that would otherwise be paid to Praxis as
royalties. Accordingly, it is not certain when, if, or to what extent Praxis
will receive any royalty revenues from this licensing arrangement. Upon the
expiration of the last licensed patent, which includes any patents arising out
of applications to be filed in the future, Fairchild's license shall become a
fully paid-up, perpetual license. This date would be no sooner than 2016. The
settlement of any disputes regarding this agreement with Fairchild will be by
binding arbitration, with the arbitrators to be selected by the Company and
Fairchild.
At the time Praxis entered into the agreement with Fairchild in May 1999,
David Stadnyk, an officer, director, and principal shareholder of the Company,
owned approximately 16.4% of the outstanding stock of
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Fairchild and was a promoter of Fairchild. In addition, in March 1999 Fairchild
paid Mr. Stadnyk consulting compensation of $25,000, 500,000 shares of Fairchild
common stock, and one-year options to purchase 1,000,000 shares of Fairchild
common stock. The options expired without having been exercised. See "Company
Development" below and Item 12. Certain Relationships and Related Transactions.
The 16.4% ownership disclosed above includes the 500,000 shares received by Mr.
Stadnyk as consulting compensation.
BACKGROUND AND CORPORATE STRUCTURE
Praxis Pharmaceuticals, Inc. was incorporated on June 20, 1997 under the
laws of the State of Nevada. In June 1998, Praxis-Nevada engaged in a reverse
acquisition transaction with Micronetics, Inc., a company incorporated in Utah
on December 31, 1981, where the shareholders of Praxis-Nevada gained control
over Micronetics. Micronetics then changed its name to Praxis Pharmaceuticals
Inc. Praxis-Nevada engaged in the reverse acquisition transaction to achieve
having its common stock quoted on the OTC Bulletin Board. At the time of the
transaction, the common stock of Micronetics was quoted on the OTC Bulletin
Board under the symbol "MKRO" and had a shareholder base of 262 holders.
Praxis-Nevada had a shareholder base of 13. Immediately after the reverse
acquisition transaction, the shareholders of Praxis-Nevada held approximately
98% of the outstanding shares of the Company.
A wholly owned Australian subsidiary, Praxis Pharmaceuticals Australia Pty.
Ltd. (ACN 082 811 630) ("Praxis-Australia"), was formed in June 1998 as a
private company.
In October 1999 an equity investment was made in Praxis-Australia by
Rothschild Bioscience Managers Ltd., which reduced Praxis' equity ownership to
35%.
PATENTS AND LICENSE RIGHTS
The Company has obtained exclusive licenses to exploit and use intellectual
property possessed by the Australian National University in the area of
phosphosugars and their analogues as anti-inflammatory agents, covered by the
University's patents (including USA 5506210, European 89909685.3, International
WO90/01938 and Australia PO3098/96).
Anutech Pty Limited ("Anutech"), the commercial subsidiary of Australian
National University, originally granted a license to the Company in October
1997. This earlier agreement was superseded by an agreement dated October 14,
1999. The Company's exclusive worldwide license pertains to the use of
phosphosugars as nutraceuticals (foods that provide medicinal or health
benefits), complementary medicines, or cosmetics. The license specifically
excludes the use of phosphosugars as prescription therapeutics and topical
application for wound care. As consideration for the license, Anutech is to
receive a 4% royalty on net sales of products, 50% of all royalty income on net
sales of products received from sublicensees, and 15% of all sublicense fees.
Anutech has also granted Praxis-Australia the exclusive worldwide license
to the use of phosphosugars as prescription therapeutics, and the license
specifically excludes the uses granted to the Company. Anutech is to receive 2%
of all amounts received by Praxis-Australia or any sublicensee in connection
with the licensed intellectual property or related products.
In addition to the licenses described above, Praxis owns two patents that
relate to agents for use in immunosuppression and transplant rejection
(US5691346 and US 5837709). Praxis believes that patent protection of its
technologies, processes and products is important to its future operations. The
success of Praxis' proposed products might depend, in part, upon the Company's
ability to obtain patent protection. Praxis intends to enforce its patent
position and intellectual property rights vigorously. The cost of enforcing
Praxis' patent rights in lawsuits, if necessary, may be significant and could
interfere with Praxis' operations. Although Praxis intends to file additional
patent applications, as management believes appropriate, with respect to any new
products or technological developments, no assurance can be given that any
additional patents will be issued or, if issued, will be of commercial benefit
to Praxis. In addition, it is impossible to anticipate the breadth or degree of
protection that any such patents may afford. To the extent that Praxis relies on
unpatented proprietary technology, no assurance can be given that others will
not independently develop or obtain substantially equivalent or superior
technology or
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otherwise gain access to Praxis' trade secrets, that any obligation of
confidentiality will be honored or that Praxis will be able to effectively
protect its rights to proprietary technology. Further, no assurance can be given
that any products developed by Praxis will not infringe patents held by third
parties or that, in such case, licenses from such third parties would be
available on commercially acceptable terms, if at all.
COMPANY DEVELOPMENT
It is envisioned that the Company will develop in stages:
o Research and Development
o Clinical Trials
o Commercialization
Praxis' business plan envisions the first two stages taking place over the
next three-year period. The Company has engaged in private placements of its
stock to fund research and development activities. Additional funding of
approximately $6,000,000 is being sought by the Company to enable it to develop
its intellectual property portfolio and to engage in early clinical trials of
its proposed products. Clinical trial activities will be necessary to generate
evidence of efficacy in order to attract alliance partners. An alliance in
pharmaceutical terms is the joint effort of a major pharmaceutical company and a
smaller "junior" drug developer who has the idea and the research, but not
sufficient capital to continue this to the next and most critical phase.
Management believes that the future viability of Praxis relies greatly on the
opportunity to gain the support, for mutual benefit, of one of the larger
worldwide drug houses. This may be particularly appropriate to the development
of formulations for topical or ocular delivery of Praxis drugs. Strategic
alliances with such companies will be investigated as a matter of priority by
Praxis.
The Company entered into a Research, Development and Licence Agreement with
Fairchild International Inc., an affiliate, dated as of May 11, 1999, which
closed September 30, 1999. This agreement has been filed as Exhibit 10.1 to the
Company's registration statement on Form 10-SB, with the exception of a
"Schedule B" referenced in the agreement which was never made a part of the
agreement. At the time Praxis entered into the agreement, David Stadnyk, an
officer, director, and principal shareholder of the Company, owned approximately
16.4% of the outstanding stock of Fairchild and was a promoter of Fairchild. In
addition, in March 1999 Fairchild paid Mr. Stadnyk consulting compensation of
$25,000, 500,000 shares of Fairchild common stock, and one-year options to
purchase 1,000,000 shares of Fairchild common stock. The options expired without
having been exercised. See Item 12. Certain Relationships and Related
Transactions.
Under that agreement, Fairchild obtained an exclusive, worldwide license to
make, use, and sell products and processes developed by Praxis relating to
arthritis and dermal wrinkles in consideration for 2,600,000 shares of Fairchild
common stock (valued at $26,000 initially, but subsequently written down to $1)
and a research engagement for $250,000. A first installment of $62,500 was paid
on October 1, 1999. Quarterly payments of $50,000 are to be made beginning
January 1, 2000, with a final payment of $37,500 due October 1, 2000. The
January 1, 2000 and April 1, 2000 installments have been paid. The receipt of
the remaining $87,500 from Fairchild is not certain. Fairchild's financial
condition is questionable. The independent auditors' report on Fairchild's
financial statements for the year ended December 31, 1998 included an
explanatory paragraph relating to the uncertainty of Fairchild's ability to
continue as a going concern.
Praxis agreed to conduct certain research projects commencing October 1,
1999. Any new intellectual property developed as a result of that research is to
be included as part of the licensed technology and licensed to Fairchild.
Fairchild is authorized to grant sublicenses and/or assign the license to an
affiliate. Praxis is to be paid 35% of net revenue, which is any consideration
received by Fairchild from the sale of a licensed product or the granting of a
sublicense, less all of the following: the $250,000 paid by Fairchild and any
other development costs, manufacturing and production costs, marketing and
selling costs, and expenses incurred by Fairchild in connection with obtaining
regulatory approvals. While the net revenue definition used in the Fairchild
agreement is believed by management of the Company to be typical for this type
of licensing agreement, it is not certain when, if, or to what extent Praxis
will receive any revenues from this licensing arrangement. Upon the expiration
of the last licensed patent, which includes any patents arising out of
applications to be filed in the future, Fairchild's license shall become a fully
paid-up, perpetual license. This date would be no sooner than 2016. The
settlement of any disputes
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regarding this agreement with Fairchild will be by binding arbitration, with the
arbitrators to be selected by the Company and Fairchild.
Praxis will use its best efforts to conduct the research and development
program outlined in the agreement with Fairchild. The agreement provides for
adjustment of milestones according to progress. If the research and development
project cannot be concluded satisfactorily by Praxis, the licensing component of
the agreement is still in force unless the two parties mutually negotiate
another research and development agreement or a new licensing agreement.
Royalties are still payable to Praxis even if Praxis does not perform the
research and development program to completion. Royalties from Fairchild to
Praxis in the event of an alliance between Fairchild and a larger firm would
still be 35% of net revenue, whether it is licensing fees or royalty payments
that Fairchild receives from the larger firm. An alliance with a larger
pharmaceutical firm would be on the basis of cash flowing from the larger firm
to Praxis and Fairchild, so it would not result in a requirement of any payments
from Praxis to another party.
In October 1999, an agreement was entered into whereby the equity
investment made in Praxis-Australia would be reduced to 35% through research and
development funding invested by Rothschild Bioscience Managers Limited, of
Melbourne, Victoria. The Rothschild investment is solely for the purpose of
research and development into phosphosugar-based anti-inflammatory agents for
registered therapeutic use.
It is expected that the profitability and financial viability of the
Company will ultimately rest with the corporate alliances that may be entered
into at this stage of fund raising. As noted above, the benefits of a correctly
structured alliance can be enormous for both parties involved. The Company
expects to incur significant operating losses over at least the next three
years. There is every likelihood that these losses may increase in the future as
the research and development and clinical trials continue. The Company's
profitability will ultimately depend upon its ability to reach development and
obtain regulatory approval for its products, and to enter into alliances to
develop, manufacture and market the products. There is no guarantee that the
Company will ever be profitable.
Praxis' near-term goals are to raise the funds necessary for the next five
years of company research and development activities through share offerings and
cash flow derived from sales and or licensing agreements on cosmetic products;
invest in a dedicated research facility and personnel; and generate pre-clinical
and early clinical results for the lead compounds. Over the long-term, its goal
is to develop strategic alliances with established pharmaceutical companies in
order to conduct large scale, late stage clinical trials and to market approved
therapeutics.
RESEARCH AND DEVELOPMENT
During the fiscal years ended May 31, 2000, 1999 and 1998, the Company
incurred $86,604, $92,456 and $50,016 in research costs, respectively.
In general terms the research and development process for the
pharmaceutical agents is as follows:
o Secure source of drug substance
o Development of validated analytical assays for purity and stability
o Development of validated analytical assays for detection of the drug
substance in plasma
o Formulation studies to provide a stable formulation for human use
o Full toxicology program in accord with current international
guidelines
o Preparation of clinical trial material
This process is expected to cost approximately $1,000,000 to complete and
allows commencement of clinical trials. The Company intends to focus its efforts
on the following conditions/diseases: psoriasis, surgical adhesions, ocular
inflammation, rheumatoid arthritis, and wrinkles. Specific strategic commercial
targets are as follows:
o Psoriasis - Develop optimal dermal formulation and enter early stage
clinical trials by second quarter 2001. Following the early stage
trials (early Phase II), the Company plans to form a strategic
alliance with large pharmaceutical company to advance clinical trials.
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o Surgical adhesions - Develop a data package which will be used to
enter into an agreement with an appropriate large pharmaceutical
company to receive milestone and royalty payments for further
development. The goal is to have such a data package by first quarter
2001.
o Ocular inflammation - Develop a data package which will be used to
enter into an agreement with an appropriate large ophthalmic
specialist pharmaceutical company to receive milestone and royalty
payments for further development. The goal is to have such a data
package by first quarter 2001.
o Rheumatoid arthritis - Develop optimal oral formulation and enter
early stage clinical trials by first quarter 2002. Following the early
stage trials (early Phase II), the Company plans to form a strategic
alliance with a large pharmaceutical company to advance clinical
trials.
o Wrinkles - A dermal product is to be finalized by second quarter 2000
and initial trials will begin in fourth quarter. An agreement has been
entered into with a cosmetic marketing company that will be
responsible for production and sales of the product in early 2001.
o Acne - Clinical trials of a potential acne treatment developed
internally by Praxis commenced in March 2000. If the results are
favorable, the filing of a new patent will be completed and a suitable
alliance partner will be sought for further development and marketing.
Although several drugs have been developed by various pharmaceutical
companies to treat the diseases targeted by Praxis, relatively limited research
has been conducted in the development of carbohydrate based on M6P receptor
targeted pharmaceutical products. Although Praxis has demonstrated in
pre-clinical studies that its carbohydrate compounds may have applicability in a
broad range of diseases, clinical studies are yet to be performed to confirm
these findings. The Company's proposed products are in the early development
stage, require significant further research, development, testing and regulatory
clearances, and are subject to the risks of failure inherent in the development
of products based on innovative technologies. These risks include the
possibilities that any or all of the proposed products may be found to be
ineffective or toxic, or otherwise may fail to receive necessary regulatory
clearances; that the proposed products, although effective, may be uneconomical
to market; or that third parties may market superior or equivalent products. Due
to the extended testing and regulatory review process required before marketing
clearance can be obtained, Praxis does not expect to be able to realize revenues
from the sale to consumers of any drugs within the next five years.
GOVERNMENT REGULATION
The production and marketing of Praxis's pharmaceutical products are
subject to regulation for safety, efficacy and quality. The Food and Drug
Administration (FDA) approval procedure involves completion of certain
pre-clinical and manufacturing/stability studies and the submission of the
results of these studies to the FDA in an Investigational New Drug (IND)
application in support of performing clinical trials. IND allowance is then
followed by performance of human clinical trials and additional pre-clinical and
manufacturing quality control studies supporting safety, efficacy and
manufacturing quality control. The information developed under the IND is
compiled into a New Drug Application and submitted to FDA for approval to
market. The sequence of events is as follows:
o PRE-CLINICAL STUDIES involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety
of the product. These tests take on the average three and one-half
years.
o AN IND IS FILED with the FDA to begin testing the product on people.
The IND becomes effective if the FDA does not disapprove it within 30
days. However, any FDA comments or questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In
some instances, this process could result in substantial delay and
expense.
o PHASE I trials consist of testing of the product in a small number of
normal volunteers, primarily for safety. These trials take on the
average one year.
o In PHASE II, in addition to safety, the efficacy of the product is
evaluated in a small patient population. This typically takes about
two years.
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o PHASE III trials typically involve multicenter testing for safety and
clinical efficacy in an expanded population of patients at
geographically dispersed test sites. A clinical plan, or "protocol,"
accompanied by the approval of the institutions participating in the
trials, must be submitted to the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent
discontinuation of a clinical trial at any time if adverse events that
endanger patients in the trials are observed. These trials take on the
average three years.
o NEW DRUG APPLICATION (NDA) is prepared and filed with the FDA,
containing an analysis of the results of the pre-clinical and clinical
studies on the new drug. Following extensive review, the FDA may grant
marketing approval, require additional testing or information or deny
the application. The average NDA review time for new drugs is roughly
two and one-half years.
o PHASE IV clinical trials may be requested to be performed after
marketing approval to resolve any lingering questions.
Continued compliance with all FDA requirements and the conditions in an
approved application, including product specifications, manufacturing process
and labeling requirements, are necessary for all products. Failure to comply, or
the occurrence of unanticipated adverse events during commercial marketing,
could lead to the need for labeling changes, product recall, seizure,
injunctions against distribution or other FDA-initiated action, which could
delay further marketing until the products are brought into compliance.
The NDA itself is a complicated and detailed document and must include the
results of extensive animal, clinical and other testing, the cost of which is
substantial. Although the FDA is required to review applications within 180 days
of filing, in the process of reviewing applications the FDA frequently requests
that additional information be submitted and starts the 180 day regulatory
review period anew when the requested additional information is submitted. The
effect of such requests and subsequent submissions can significantly extend the
time for the NDA review process. Until an NDA is actually approved, no assurance
can be given that the information requested and submitted will be considered
adequate by the FDA to justify approval.
Whether or not FDA approval has been obtained, approval of a product by a
comparable regulatory authority must be obtained in most foreign countries prior
to the commencement of marketing of the product in that country. The approval
procedure varies from country to country and may involve additional testing, and
the time required may differ from that required for FDA approval. Although some
procedures for unified filings exist for certain European countries, in general
each country has its own procedure and requirements, many of which are time
consuming and expensive. Thus, substantial delays in obtaining required
approvals from foreign regulatory authorities may be encountered after the
relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
No assurance can be given that any required FDA or other governmental
approval will be granted or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of Praxis's proposed
products and cause Praxis to undertake costly procedures. This may furnish a
competitive advantage to the more substantially capitalized companies with which
Praxis plans to compete. In addition, the extent of potentially adverse
government regulations that may arise from future administrative action or
legislation cannot be predicted.
COMPETITION
Praxis faces significant competition in the area of pharmaceutical
research. Due to the Company's small size, it can be assumed that most if not
all of its competitors have significantly greater financial, technical, and
other resources. These competitors may be able to respond more quickly to new or
emerging technologies than Praxis can. Also, the Company's competitors and
potential competitors have greater name recognition and ability to enter into
strategic partnerships to engage in new research and development efforts. To
compete, Praxis may be forced to narrow its research and development focus,
reducing its likelihood for success.
EMPLOYEES
As of May 31, 2000, the Company had 6 full-time employees, 1 of which was
an officer of the Company, Dr. William Cowden.
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The Company's opportunity for success depends largely upon the efforts,
abilities, and decision-making of its executive officers. The loss any of the
Company's key personnel could, to varying degrees, have an adverse effect on its
operations and research and development efforts. The loss of any one of them
would have a material adverse affect on the Company.
The Company does not currently maintain "key-man" life insurance on any of
its executive officers, and there is no contract in place assuring their
services for any length of time. Within a reasonable period of time after
sufficient funds are available, it is the Company's intention to develop a plan
to purchase key-man life insurance for one or more key persons, with the Company
designated as the beneficiary, and enter into employment contacts with its key
executives. There is no assurance that the services of any member of management
will remain available to the Company for any period of time, that the Company
will be able to enter into employment contracts with any of its management, or
that any of the Company's plans to reduce dependency upon key personnel will be
successfully implemented. The Company plans to have industry standard
non-compete and non-disclosure agreements with all of its employees.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own real property. The Company shares office
facilities in Vancouver, British Columbia, for its executive offices, and is
charged for office and rent and administrative services on a proportional cost
basis by an affiliate. See Item 12. Certain Relationships and Related
Transactions.
Praxis accesses its research facilities through academic appointments of
the directors with the Australian National University and the payment of an
overhead fee to the university for the use of the facilities. These facilities
include laboratory and animal facilities, which are already in use for the
purpose of producing carbohydrate-based therapeutic compounds to be used in
pre-clinical and clinical trials and meet all the necessary regulatory
requirements. Praxis also has access to purpose built and equipped laboratory
facilities, which are dedicated to all aspects of carbohydrate chemistry
including synthesis, purification and analysis of compounds. The facilities also
allow the performance of most other aspects of chemistry that might be required.
Animal research facilities for all pre-clinical studies are available and are
being used by Praxis as a result of Dr. Cowden's appointment at the Australian
National University. These facilities meet all national standards for care and
use of laboratory animals. Animals and associated services are provided by the
University at a per animal charge which includes a component for infrastructure
costs. Magnetic resonance imaging and mass spectroscopy are freely accessible. A
Silicon Graphics workstation is operated and owned by Praxis. Full information
technology services are in place enabling high speed Internet connection and
computerized data handling. Other John Curtin School of Medical Research
laboratories and scientists are also accessible by Praxis in the event of
needing technology that is not directly available.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Praxis' common stock was traded over-the-counter from July 23, 1998 to
March 8, 2000 on the OTC Bulletin Board, and since March 9, 2000 on the "Pink
Sheets" under the symbol "PRXX". The following table sets forth the range of
high and low bid quotations for each fiscal quarter since the stock began
trading. These quotations reflect inter-dealer prices without retail mark-up,
markdown, or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES
1999 FISCAL YEAR HIGH LOW
<S> <C> <C>
Quarter ending 08/31/98 $3.25 $0.75
Quarter ending 11/30/98 $0.88 $0.06
Quarter ending 02/28/99 $0.54 $0.06
Quarter ending 05/31/99 $1.70 $0.19
2000 FISCAL YEAR
Quarter ending 08/31/99 $1.84 $0.39
Quarter ending 11/30/99 $1.10 $0.38
Quarter ending 02/29/00 $1.00 $0.30
Quarter ending 05/31/00 $1.25 $0.32
</TABLE>
On September 12, 2000, the closing bid price for the common stock was
$0.26. The number of record holders of the common stock as of December 10, 1999,
was 306 according to the Company's transfer agent. Holders of shares of common
stock are entitled to dividends when, and if, declared by the board of directors
out of funds legally available therefor.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of the financial condition and results of
operations for Praxis should be read in conjunction with the accompanying
financial statements and related footnotes.
GENERAL
The Company's business is the development and commercialization of drugs
and nutraceuticals designed to prevent inflammation and their sequelae, and the
development of cosmetics for skin conditions. To date, Praxis has not generated
any revenues from product sales, royalties or license fees. Effective September
30, 1999, the Company entered into a sublicensing arrangement with Fairchild
International Corp. for the development of a nutraceutical and cosmetic agent.
In exchange for this sublicense, the Company is to receive $250,000 as
reimbursement for research and development costs it shall incur. This amount and
other costs will be deducted in arriving at "net revenues" upon which Praxis'
35% royalty payment is based. Praxis plans to develop novel drugs and cosmetics,
and to commercialize these products through the formation of partnerships,
strategic alliances and license agreements with pharmaceutical and cosmetic
companies.
It is expected that the profitability and financial viability of the
Company will ultimately rest with the corporate alliances it can obtain. The
Company expects to incur significant operating losses over at least the next
three years. It is likely that these losses may increase in the future as the
research and development and clinical trials continue. The Company's
profitability will ultimately depend upon its ability to reach development and
obtain regulatory approval for its products, and to enter into alliances to
develop, manufacture and market the products. There is no guarantee that the
Company will ever be profitable.
9
<PAGE>
Praxis' near-term goals are to raise the funds necessary for the next five
years of company research and development activities through share offerings and
cash flow derived from sales and or licensing agreements on cosmetic products;
invest in a dedicated research facility and personnel; and generate pre-clinical
and early clinical results for the lead compounds. Over the long term, its goal
is to develop strategic alliances with established pharmaceutical companies in
order to conduct large scale, late stage clinical trials and to market approved
therapeutics.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 2000 COMPARED TO YEAR ENDED MAY 31, 1999. The Company
continues to incur losses from operations. The net loss for the year ended May
31, 2000 was $230,173 as compared to $535,241 during the 1999 fiscal year. The
decrease in the net loss is due in large part to the recovery of research
advances from Fairchild in the amount of $135,594. As a result, project expenses
were $(9,452) for the 2000 fiscal year as compared to $137,456 for the 1999
fiscal year.
Administration expenses also decreased by almost 47% for the 2000 fiscal
year as compared to the 1999 fiscal year. The decrease was due primarily to a
decrease in consulting fees of $224,858. Also, the Company during the 2000
fiscal year did not incur interest expenses on convertible debentures ($16,667)
and finders fees ($7,500) that were incurred during the 1999 fiscal year.
Promotion and travel expenses in 2000 ($98,616) increased by 23.9% over 1999
amounts ($79,594), as did professional fees ($54,942 in 2000 compared to $24,337
in 1999) and related party administration charges ($30,321 in 2000 compared to
$14,874 in 1999).
The decreased loss from operations ($535,241 for 1999 as compared to
$203,175 for 2000) was offset only slightly by a loss of $26,998 resulting from
the write-down of the Company's investment in the Fairchild shares and
Praxis-Australia to reflect the Company's equity share of losses sustained by
these entities.
YEAR ENDED MAY 31, 1999 COMPARED TO PERIOD ENDED MAY 31, 1998. For the year
ended May 31, 1999, the net loss was $535,241 as compared to a loss of $68,296
for the period from inception at June 20, 1997 to May 31, 1998. Project expenses
were $52,836 in 1998 as compared to $137,456 in 1999. 1999 costs increased due
to the hiring of a director of research and development and to increased
pre-clinical study costs and internal research and development efforts.
Administration expenses increased from $15,460 in 1998 to $397,785 in 1999.
The most significant component of these expenses in 1999 was consulting fees of
$241,358. Most of these consulting fees were paid through the issuance of the
Company's common stock for public relations and other services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for Praxis' operations has
been the private sale of its securities. For year ended May 31, 2000, the
Company issued common stock for cash of $180,000. Through May 31, 1999, the
Company issued common stock for cash of $302,725 and services of $237,208, and
sold $50,000 of convertible debentures.
At May 31, 2000, the Company's working capital was $123,928, as compared to
a deficiency of $16,397 at May 31, 1999 and a deficiency of $119,296 at May 31,
1998. Of the liabilities at May 31, 2000, $71,426 was owed to related parties.
Of the liabilities at May 31, 1999, $113,082 was owed to Alexander Cox & Co., an
affiliate, for sums advanced for operations.
At May 31, 2000, the Company had received subscriptions of $220,500, net of
commissions payable of $24,500, for the sale of 612,500 shares of common stock
and 612,500 common stock purchase warrants. Each warrant is exercisable for one
year to purchase one share at $0.50 per share.
Until such time as the Company obtains agreements with third-party
licensees or partners to provide funding for the Company's anticipated research
and development activities, the Company will be dependent upon proceeds from the
sale of securities. Further, substantial funds will be required before the
Company is able to generate revenues sufficient to support its operations. There
is no assurance that the Company will be able to obtain
10
<PAGE>
such additional funds on favorable terms, if at all. The Company's inability to
raise sufficient funds could require it to delay, scale back or eliminate
certain research and development programs.
The report of the Company's independent auditors on the financial
statements for the year ended May 31, 2000, includes an explanatory paragraph
relating to the uncertainty of the Company's ability to continue as a going
concern. Praxis has suffered losses from operations, requires additional
financing, and needs to continue the development of its products. Ultimately the
Company needs to generate revenues and successfully attain profitable
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. There can be no assurance that it will be able to
develop a commercially viable product. Even if the Company were able to develop
a commercially viable product, there is no assurance that it would be able to
attain profitable operations.
PLAN OF OPERATION
Assuming that Fairchild pays its remaining installments of $87,500, the
Company currently has cash and cash commitments to support the pre-clinical
research program into anti-inflammatory drugs and anti-wrinkle compounds for at
least the next 15 months. Additional funds will be needed to support any further
operations at that time. In order to increase the value of the intellectual
property to enhance the value of the Company, further funding will be required
in the next 12 months to increase the size of the research and development
operations and to conduct clinical trials. Pre-clinical research and development
can be accomplished without an injection of capital in the next 12 months
assuming receipt of the Fairchild funds. Unless extra capital is raised in the
next 12 months there will be no change in the number of employees or rate of
research and development. There are no anticipated purchases of plant or
equipment or sale of same.
The receipt of the Fairchild funds is not certain. As indicated in Item 1.
Description of Business above, Fairchild's financial condition is questionable.
The independent auditors' report on Fairchild's financial statements for the
year ended December 31, 1999 included an explanatory paragraph relating to the
uncertainty of Fairchild's ability to continue as a going concern.
If Fairchild can obtain the capital necessary to fund the costs for
manufacturing, production, marketing, selling, and obtaining regulatory
approvals, it is possible that sales of products for arthritis and wrinkles
could commence in one to two years. This differs from prescription drugs, for
which Praxis does not expect to be able to realize revenues from the sale to
consumers within the next five years due to extended testing and regulatory
review. The regulatory requirements are much less stringent for cosmetic and
nutraceutical products than for prescription drugs. While there is nothing in
the agreement that would prevent Fairchild from unilaterally deciding to
continue to spend money on research and thereby, perhaps, use all monies that
would otherwise be paid to Praxis as royalties, doing so would not benefit
Fairchild. It would be in Fairchild's interest to commence sales of products to
generate revenues.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue refers to the inability of computer and other
information technology systems to properly process date and time information due
to the programming of a two digit year rather than a four digit year. The risk
is that a system will recognize the digits "00" as 1900 rather than the year
2000, or that the system may not recognize "00" as a year at all. As a result,
computers and embedded processing systems may be at risk of malfunctioning,
particularly during the transition from 1999 to 2000.
The Company has completed its assessment of the impact of Year 2000 issues
on its business operations. The Year 2000 issue may affect the Company in four
principal areas including: (1) computer systems such as personal computers,
operating systems, business software, and application software including
accounting systems, technical support software and administration software; (2)
field assets (primarily embedded systems) such as programmable logic controllers
and equipment control panels; (3) other systems such as telephones, photocopiers
and facsimile machines; and (4) third-party suppliers and service providers such
as banks and insurance companies.
To date, the Company has implemented and tested its computer software and
hardware for Year 2000 compliance and has concluded that its hardware and
software is Year 2000 compliant.
11
<PAGE>
The Company's Year 2000 program is designed to reduce the Company's risk of
material losses due to the Year 2000 issue. Management does not anticipate any
material adverse effect from the Year 2000 issue; however, the Company cannot be
certain that it will not suffer material adverse effects in the event that third
parties upon which the Company is dependent are unable to resolve their Year
2000 issues.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Dr. Brett Charlton 43 President, Medical Director, and director
Dr. William B. Cowden 45 Vice President, Scientific Director, and director
David Stadnyk 35 Secretary and director
</TABLE>
The term of office of each director ends at the next annual meeting of
Praxis' stockholders or when such director's successor is elected and qualifies.
The term of office of each officer ends at the next annual meeting of the
Praxis' board of directors, expected to take place immediately after the next
annual meeting of stockholders, or when such officer's successor is elected and
qualifies.
The last annual meeting was held on August 30, 1999, in Vancouver, British
Columbia.
DR. BRETT CHARLTON, President and a director of the Company since June 19,
1998, is also responsible for the institution and management of all clinical
trials as the medical director of the Company. He has basic clinical training
and clinical involvement, particularly in diabetes. He has held academic
appointments at the Walter and Eliza Hall Institute (January 1986 to January
1988) and Stanford University (February 1992 to January 1995), and has been at
the John Curtin School of Medical Research, Australian National University since
January 1995. Dr. Charlton has been the Medical Director of the Clinical Studies
Unit of the National Health Sciences Center since June 1997. The National Health
Sciences Center, located in Deakin, Australian Capital Territory, is a
commercially funded non-profit organization that has government-based principal
shareholders of the Australian National University, the University of Canberra,
and the Australian Capital Territory. Funding is derived from fee for service
conduct of clinical trials and fee for service provision of graduate courses
through the University of Canberra. Revenues are used for funding of scientific
research activities in the government sector. Dr. Charlton spent three years
with Baxter Healthcare (January 1988 to January 1991), as research manager,
where he was involved with new technology assessment, strategic planning and
clinical trial management. He has been consulting for the biomedical and
pharmaceutical industry since 1984. Dr. Charlton has published more than 50
scientific papers in medical and biomedical journals. He is a graduate of the
University of New South Wales, Sydney, Australia, receiving his M.D. degree in
1979 and Ph.D. in 1985.
DR. WILLIAM B. COWDEN, Vice President and a director of the Company since
June 19, 1998, is also chief scientist and responsible for all drug development
programs and pre-clinical testing. He has been the Senior Research Fellow at the
John Curtin School of Medical Research, and Principal Scientific Advisor to
ANUTech Pty Ltd., Canberra, Australia, since April 1994. Dr. Cowden was
previously Senior Scientist at Peptide Technology Ltd., an Australia-based
company, from April 1994 to May 1998. As part of his work within the commercial
sector, Dr. Cowden has been involved in drug development studies from the
earliest stages of identification of drug candidates, including pre-clinical
assessment, up to the early clinical trial stage. Major pharmaceutical
companies, such as Johnson & Johnson Medical Corp., Cypros Pharmaceuticals Inc.,
and Progen Industries Inc., currently license some agents discovered in his
laboratory. He has published over 100 papers in peer-reviewed scientific medical
journals. He is the inventor and co-inventor on seven patents. He is a graduate
of the University of Queensland, Brisbane, Australia, and received his Ph.D.
degree in 1979.
DAVID STADNYK, Secretary and a director of the Company from June 19, 1998
to September 21, 1999 and since December 21, 1999, has diverse experience in
corporate management and finance. He has served as the Chairman, President,
Secretary and a director of Goanna Resources, Inc., a publicly listed mining
company (now known as Fairchild International Inc.) from its inception in June
1997 to March 1999. He was the President and CEO of Alexander News
International, a publicly traded newspaper publishing chain in Canada, from July
1994 to
13
<PAGE>
February 1997. Mr. Stadnyk was also a licensed stockbroker with two national
investment houses in Canada. Since July 1997, Mr. Stadnyk has been the executive
director of Alexander Cox & Co. based in Sydney, Australia and Vancouver,
British Columbia, which engages in financial consulting and venture capital
funding. He is a graduate of the University of British Columbia.
No other directorships are held by each director in any company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or any company registered as an investment company, under the
Investment Company Act of 1940.
Drs. Charlton and Cowden and Mr. Stadnyk may be deemed to be "promoters"
and "control persons" of the Company, as that term in defined in the Securities
Act of 1933. There are no other control persons.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended May 31, 2000, Drs. Charlton and Cowden and Mr.
Stadnyk failed to file their reports on Form 3 (Initial Statement of Beneficial
Ownership of Securities) on a timely basis. There were no other known failures
to file a report required by Section 16(a) of the Securities Exchange Act of
1934.
ITEM 10. EXECUTIVE COMPENSATION.
The Company is not presently paying any executive compensation except for
consulting fees to Dr. Cowden. See Item 12. Certain Relationships and Related
Transactions. It has no long-term incentive plans. The Company does not pay
directors for their services as such nor does it pay any director's fees for
attendance at meetings. Directors are reimbursed for any expenses incurred by
them in their performance as directors.
There are no employment agreements with any of the Company's executive
officers.
STOCK OPTION PLAN
On August 30, 1999, the Company's shareholders adopted a 1999 Stock Option
Plan under which a total of 1,698,330 shares were reserved initially for grant
to provide incentive compensation to officers and key employees. The number of
shares available for grant adjusts annually, commencing on the first day of the
next fiscal year to a number equal to 15% of the number of shares outstanding on
last day of the fiscal year just completed.
The board of directors administers the Stock Option Plan. Options may be
granted for up to 10 years at not less than the fair market value at the time of
grant, except that the term may not exceed five years and the price must be 110%
of fair market value for any person who at the time of grant owns more than 10%
of the total voting power of the Company. Unless otherwise specified in an
optionee's agreement, options granted under the plan to officers,
officer/directors, and employees will become vested with the optionee after six
months. The Plan will remain in effect until the board of directors terminates
it, except that no incentive stock option, as defined in Section 422 of the
Internal Revenue Code, may be granted after July 8, 2009.
Options may be exercised by payment of the option price (i) in cash, (ii)
by tender of shares of Company common stock which have a fair market value equal
to the option price, or (iii) by such other consideration as the board of
directors may approve at the time the option is granted.
As of May 31, 2000, 1,698,330 options had been granted under the plan as
follows:
<TABLE>
<CAPTION>
OPTIONEE NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
<S> <C> <C> <C>
Dr. Brett Charlton 566,110 $0.41 12/09/2004
Dr. William Cowden 566,110 $0.41 12/09/2004
David Stadnyk 566,110 $0.41 12/09/2004
</TABLE>
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Company's common stock, as of May 31, 2000. Except as otherwise indicated, the
persons named in the table have sole voting and investing power with respect to
all shares of common stock owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS (1)
<S> <C> <C>
Dr. Brett Charlton 1,666,110(2)<F2>(3)<F3> 13.45%
24/1-9 Totterdell Street
Belconnen, 2617 Australia
Dr. William Cowden 1,566,110 (3)<F3> 12.64%
56 Urambi Village
Darlington, NSW 2008 Australia
David Stadnyk 1,266,110 (3)<F3> 10.22%
430 - 744 Hastings Street
Vancouver, BC V6C 1A5 Canada
Neysa Investments Pty. Ltd. 800,000 6.77%
159 Victoria Road
Drummoyne, NSW 2047 Australia
Officers and directors as a group (3 persons) 4,498,330 (4)<F4> 33.27%
------------
<FN>
(1)<F1> Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from May 31, 2000, these additional shares are deemed to be outstanding
for the purpose of computing the percentage of common stock owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person. Percentages are
based on 11,822,209 shares outstanding.
(2)<F2> Includes 800,000 shares held in the name of Neysa Investment Ltd., a
company owned and controlled by Dr. Charlton.
(3)<F3> Includes 566,110 shares issuable upon exercise of stock options. See
Item 10. Executive Compensation.
(4)<F4> Includes 1,698,330 shares issuable upon exercise of stock options. See
Item 10. Executive Compensation.
</FN>
</TABLE>
CHANGES IN CONTROL
We are not aware of any arrangements that may result in a change in control
of Praxis.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ALEXANDER COX & CO. Alexander Cox & Co., a company owned and controlled by
David Stadnyk, has advanced sums to the Company from time to time for working
capital needs. At May 31, 1999 and 2000, $113,082 and $71,426, respectively,
were owed to Alexander Cox & Co. Cumulative amounts owed to Alexander Cox & Co.
from the Company's inception to May 31, 2000, totaling $143,696, have been for
the following: administration and office charges ($48,814) and expenses paid on
behalf of the Company, such as research and development ($34,234);
reorganization costs ($57,500); and professional fees ($3,148). As of May 31,
2000, the Company had repaid $72,270, leaving $71,426 owing at that date.
Interest does not accrue and there is no date established for repayment. In
addition, the Company shares office facilities with Alexander Cox & Co. and is
charged for its proportional share
15
<PAGE>
of rent and administrative services. During the years ended May 31, 1999 and
2000, $14,874 and $30,321, respectively, were paid for rent and services.
FAIRCHILD INTERNATIONAL INC. The Company entered into a Research,
Development and Licence Agreement with Fairchild International Inc.
("Fairchild"), an affiliate, dated as of May 11, 1999, which closed September
30, 1999. Under that agreement, Fairchild obtained an exclusive, worldwide
license to make, use, and sell products and processes developed by Praxis
relating to arthritis and dermal wrinkles in consideration for 2,600,000 shares
of Fairchild common stock (valued at $26,000 initially, but subsequently written
down to $1) and royalty payments based upon revenues earned by Fairchild from
the sale of any developed products. In addition, a research and development
agreement was entered into whereby Praxis was contracted to conduct a research
program to be funded by Fairchild for a total amount of $250,000. (This
agreement, including "Schedule C", has been filed as Exhibit 10.1 to Praxis'
registration statement on Form 10-SB.) A first installment of $62,500 was paid
on October 1, 1999. Quarterly payments of $50,000 are to be made beginning
January 1, 2000, with a final payment of $37,500 due October 1, 2000. The
January 1, 2000 and April 1, 2000 installments have been paid. The receipt of
the remaining $87,500 from Fairchild is not certain. Fairchild's financial
condition is questionable. The independent auditors' report on Fairchild's
financial statements for the year ended December 31, 1999 included an
explanatory paragraph relating to the uncertainty of Fairchild's ability to
continue as a going concern.
The funds paid by Fairchild to Praxis can only be used by Praxis for the
conduct of the research projects and can only be expended in accordance with the
budget included as part of "Schedule C", unless Praxis obtains prior written
authorization from Fairchild. Fairchild and Praxis will, not less than once
every three months, review and evaluate progress on the research projects.
Following such review, milestones as set out in "Schedule C" may be revised as
and when needed by mutual agreement between Fairchild and Praxis. The research
program is to be fully funded by the funds received by Fairchild. The $250,000
budget for the research and development program includes allowances for all
associated overhead and costs to be expended by Praxis on the program. No
administrative overhead will be expended that is not covered by the funds
received from Fairchild in relation to the research program. Praxis will not
incur either directly or indirectly any additional expenses on the research
program.
Praxis agreed to conduct certain research projects commencing October 1,
1999. Any new intellectual property developed as a result of that research is to
be included as part of the licensed technology and licensed to Fairchild.
Fairchild is authorized to grant sublicenses and/or assign the license to an
affiliate. Under the exclusive license, Praxis is to be paid 35% of net revenue,
which is any consideration received by Fairchild from the sale of a licensed
product or the granting of a sublicense, after deduction of the following:
$250,000 to be paid by Fairchild, plus any other development costs,
manufacturing and production costs, marketing and selling costs, and expenses
incurred by Fairchild in connection with obtaining regulatory approvals. This
means that before any royalties are paid to Praxis, the following are first
returned to Fairchild: (1) the $250,000 research expenditures and (2) any other
development costs, manufacturing and production costs, marketing and selling
costs, and expenses incurred by Fairchild in obtaining regulatory approvals.
Further, there is nothing in the agreement that would prevent Fairchild from
unilaterally deciding to continue to spend money on research and thereby,
perhaps, use all monies that would otherwise be paid to Praxis as royalties.
Accordingly, it is not certain when, if, or to what extent Praxis will receive
any royalty revenues from this licensing arrangement.
At the time Praxis entered into the agreement with Fairchild in May 1999,
David Stadnyk, an officer and director of the Company, owned approximately 16.4%
of the outstanding shares of Fairchild and was a promoter of Fairchild. In
addition, in March 1999 Fairchild paid Mr. Stadnyk consulting compensation of
$25,000, 500,000 shares of Fairchild common stock, and one-year options to
purchase 1,000,000 shares of Fairchild common stock. The options expired without
having been exercised. The 2,600,000 shares of Fairchild owned by the Company
represented approximately 24% of the outstanding shares on the issuance date.
According to Fairchild's amended Form 10-SB registration statement filed July
20, 2000, Praxis and David Stadnyk were the largest shareholders of Fairchild,
owning 23.7% and 19.8%, respectively, of the outstanding shares as of January
25, 2000. Winston Cabell and David Lane were reported to own 6.7% and 6.9%,
respectively. The 16.4% ownership disclosed above includes the 500,000 shares
received by Mr. Stadnyk as consulting compensation.
Drs. Charlton and Cowden negotiated the terms of the license agreement on
behalf of the Company and Byron Cox, the President of Fairchild, negotiated on
behalf of Fairchild. Since Fairchild's common stock is not
16
<PAGE>
widely traded, the amount of Fairchild shares sought by the Company was not
determined by a dollar value assigned to the stock. Also, the license was
difficult to value. Instead, the Company sought to have a significant financial
stake in Fairchild, based on the premise that if the Company's research and
development efforts prove to be successful, the Company should benefit through
the receipt of royalty payments and through an ownership interest in Fairchild.
PAYMENTS TO OTHER RELATED PARTIES. During the years ended May 31, 1999 and
2000, $14,869 and $50,463, respectively, were paid to Dr. William Cowden for
consulting fees for services rendered in connection with the scientific conduct
of research and development. During the year ended May 31, 2000, the following
were also paid by the Company for services rendered in connection with the
scientific conduct of research and development: Dr. Brett Charlton (an officer
and director) - $7,331; Neysa Investments Pty. Ltd. (a company owned and
controlled by Dr. Charlton) - $9,430; and Sciworks (a company of which Dr.
Cowden is a director) - $14,104.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
REGULATION SEQUENTIAL
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Stock Exchange Agreement with Micronetics, Inc. (1)<F1> N/A
3.1 Articles of Incorporation, as amended and restated (1)<F1> N/A
3.2 Bylaws (1)<F1> N/A
10.1 Research, Development and Licence Agreement dated May 11, 1999 between N/A
Praxis Pharmaceuticals, Inc. and Fairchild International Inc.(1)<F1>(2)<F2>
10.2 Exclusive Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. N/A
and Praxis Pharmaceuticals Australia Pty Ltd. (1)<F1>
10.3 Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. and N/A
Praxis Pharmaceuticals Inc. (1)<F1>
10.4 Shareholders Agreement dated as of October 15, 1999, between Praxis N/A
Pharmaceuticals Australia Pty Ltd., Praxis Pharmaceuticals Inc., Perpetual
Trustees Nominees Limited, and Rothschild Bioscience Managers Limited (1)<F1>
10.5 1999 Stock Option Plan (1)<F1> N/A
21 Subsidiaries of the registrant (1)<F1> N/A
27 Financial Data Schedule 31
----------------------
<FN>
(1)<F1> Filed previously
(2)<F2> Although a "Schedule B" was referenced in this document, it was never made
a part of the document and therefore has not been filed.
</FN>
</TABLE>
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRAXIS PHARMACEUTICALS, INC.
Date: October 13, 2000 By: /S/ BRETT CHARLTON
-------------------------------------
Dr. Brett Charlton, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Medical Director and director
/s/ BRETT CHARLTON (Principal Executive Officer) 10/13/00
----------------------------- ------------------
Dr. Brett Charlton
Vice President, Scientific Director and
/s/ WILLIAM B. COWDEN director 10/13/00
----------------------------- ------------------
Dr. William B. Cowden
Secretary and director
/s/ DAVID STADNYK (Principal Financial and Accounting 10/12/00
----------------------------- Officer) ------------------
David Stadnyk
18
</TABLE>
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
F-1
<PAGE>
STEELE & CO.*
CHARTERED ACCOUNTANTS
*Representing incorporated professionals
SUITE 808 TELEPHONE: (604) 687-8808
808 WEST HASTINGS STREET TELEFAX: (604) 687-2702
VANCOUVER, B.C., CANADA V6C 1C8 EMAIL: [email protected]
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Praxis Pharmaceuticals Inc.
We have audited the accompanying consolidated balance sheets of Praxis
Pharmaceuticals Inc. (a development stage company) as of May 31, 2000 and 1999
and the related consolidated statements of operations and deficit, changes in
stockholders' equity and cash flows for the periods ended May 31, 2000, 1999 and
1998 and cumulative to May 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Praxis
Pharmaceuticals Inc. as of May 31, 2000 and 1999 and the results of its
operations and its cash flows for each of the periods in the three year period
ended May 31, 2000 and cumulative to May 31, 2000, in conformity with U.S.
generally accepted accounting principles.
The accompanying consolidated 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 suffered losses from operations and there
is no revenue stream from operations. As a result, there is uncertainty about
its ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Vancouver, Canada
August 16, 2000 (with amendments "STEELE & CO."
to October 4, 2000 - Note 8) CHARTERED ACCOUNTANTS
F-2
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT
CASH (NOTE 7) $ 197,124 $ 103,513
OTHER RECEIVABLE 48,748 -
---------- ----------
245,872 103,513
INVESTMENTS (NOTE 3) 2 -
---------- ----------
$ 245,874 $ 103,513
========== ==========
LIABILITIES
CURRENT
ACCOUNTS PAYABLE $ 50,518 $ 6,828
OWING TO RELATED PARTIES (NOTE 4) 71,426 113,082
---------- ----------
121,944 119,910
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
SHARE CAPITAL
AUTHORIZED
50,000,000 COMMON SHARES WITH A PAR VALUE
OF $.001 PER SHARE
10,000,000PREFERRED SHARES WITH A PAR VALUE
OF $.001 PER SHARE
ISSUED AND PAID IN CAPITAL (NOTE 5)
11,822,209 COMMON SHARES
(1999 - 10,722,209 COMMON SHARES) 862,140 682,140
SHARE SUBSCRIPTIONS (NOTE 5) 220,500 30,000
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE (NOTE 8) (958,710) (728,537)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 123,930 (16,397)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 245,874 $ 103,513
========== ==========
</TABLE>
APPROVED BY THE DIRECTORS
"David Stadnyk"
-----------------------------------------
"Brett Charlton"
-----------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION) TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIOD
TO YEARS ENDED ENDED
MAY 31, MAY 31, MAY 31,
2000 2000 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PROJECT EXPENSES
RESEARCH AGREEMENT AMENDMENT $ 45,000 $ - $ 45,000 $ -
RESEARCH ADVANCES 229,076 86,604 92,456 50,016
PATENT COSTS 2,820 - - 2,820
RECOVERED COSTS
CASH (135,594) (135,594) - -
INVESTMENT
CONSIDERATION (26,000) (26,000) - -
RELATED PARTY
CONSULTING FEES 65,538 65,538 - -
---------- ---------- ---------- ----------
180,840 (9,452) 137,456 52,836
ADMINISTRATION EXPENSES
BANK CHARGES AND EXCHANGE 3,355 905 2,450 -
CONSULTING 257,858 16,500 241,358 -
FINDERS FEES 7,500 - 7,500 -
INTEREST ON CONVERTIBLE
DEBENTURES 16,667 - 16,667 -
OFFICE AND SECRETARIAL 26,040 11,343 11,005 3,692
PROFESSIONAL FEES 87,428 54,942 24,337 8,149
PROMOTION AND TRAVEL 178,210 98,616 79,594 -
RELATED PARTY
ADMINISTRATION
CHARGES 48,814 30,321 14,874 3,619
---------- ---------- ---------- ----------
625,872 212,627 397,785 15,460
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS 806,712 203,175 535,241 68,296
EQUITY SHARE IN LOSS OF
INVESTEES (NOTE 2) 26,998 26,998 - -
---------- ---------- ---------- ----------
NET LOSS FOR THE PERIOD
(NOTES 6 AND 8) 833,710 230,173 535,241 68,296
DEFICIT BEGINNING OF THE
PERIOD - 728,537 193,296 -
REORGANIZATION COSTS 125,000 - - 125,000
---------- ---------- ---------- ----------
DEFICIT END OF THE PERIOD $ 958,710 $ 958,710 $ 728,537 $ 193,296
========== ========== ========== ==========
BASIC LOSS PER SHARE $ .02 $ .07 $ -
========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 11,555,542 7,158,594
========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION) TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
TOTAL
COMMON SHARES CAPITAL IN SHARE STOCK-
------------- EXCESS OF SUBSCRIP- HOLDERS'
SHARES AMOUNT PAR VALUE TIONS DEFICIT EQUITY
---------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Share subscriptions - $ - $ - $ 74,000 $ - $ 74,000
Net loss for the period - - - - (68,296) (68,296)
Re-organization costs - - - - (125,000) (125,000)
---------- ------- ---------- ---------- ---------- ----------
Stockholders' equity
(deficiency) at May 31, 1998 - - - 74,000 (193,296) (119,296)
Common shares
Issued for cash
@ $.001 per share 5,000,000 5,000 - (5,000) - -
@ $.05 per share 800,000 800 39,200 - - 40,000
@ $.12 per share 833,333 833 99,167 - - 100,000
@ $.20 per share 250,000 250 49,750 - - 50,000
@ $.50 per share 215,450 215 107,510 (69,000) - 38,725
Issued for services
@ $.05 per share 1,400,000 1,400 68,600 - - 70,000
@ $.10 per share 383,000 383 37,617 - - 38,000
@ $.25 per share 516,832 517 128,691 - - 129,208
Issued for conversion of
debentures
@ $.03 per share 325,926 326 10,674 - - 11,000
@ $.11 per share 124,444 124 13,876 - - 14,000
@ $.14 per share 106,667 107 14,893 - - 15,000
@ $.16 per share 60,952 61 9,939 - - 10,000
Additional paid in
capital - - 16,667 - - 16,667
Issued for reorganization
costs @ $.10 per share 305,403 305 30,235 - - 30,540
Issued for research
agreement amendment 300,000 300 44,700 - - 45,000
Acquired on reorganization
acquisition 100,202 100 (100) - - -
Share subscriptions - - - 30,000 - 30,000
Net loss for the year - - - - (535,241) (535,241)
---------- ------- ---------- ---------- ---------- ----------
Stockholders' equity
(deficiency) at May 31, 1999 10,722,209 $10,721 $ 671,419 $ 30,000 $(728,537) $ (16,397)
========== ======= ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION) TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
TOTAL
COMMON SHARES CAPITAL IN SHARE STOCK-
------------- EXCESS OF SUBSCRIP- HOLDERS'
SHARES AMOUNT PAR VALUE TIONS DEFICIT EQUITY
---------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity
(deficiency) at May 31, 1999 10,722,209 $10,721 $ 671,419 $ 30,000 $(728,537) $ (16,397)
Common shares
Issued for cash
@ $.05 per share 600,000 600 29,400 (30,000) - -
@ $.20 per share 250,000 250 49,750 - - 50,000
@ $.40 per share 250,000 250 99,750 - - 100,000
Share subscriptions - - - 220,500 - 220,500
Net loss for the year - - - - (230,173) (230,173)
---------- ------- ---------- ---------- ---------- ----------
Stockholders' equity
(deficiency) at May 31, 2000 11,822,209 $11,821 $ 850,319 $ 220,500 $(958,710) $ 123,930
========== ======= ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION) TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIOD
TO YEARS ENDED ENDED
MAY 31, MAY 31, MAY 31,
2000 2000 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
NET LOSS FOR THE
PERIOD $(833,710) $(230,173) $(535,241) $ (68,296)
NON-CASH ITEMS
INVESTMENT
CONSIDERATION FOR
RECOVERED COSTS (26,000) (26,000) - -
ISSUE OF SHARES FOR
SERVICES 237,208 - 237,208 -
RESEARCH AGREEMENT 45,000 - 45,000 -
INTEREST ON
CONVERTIBLE
DEBENTURES 16,667 - 16,667 -
EQUITY SHARE IN LOSS OF
INVESTEES 26,998 26,998 - -
CHANGE IN NON-CASH
OPERATING ITEM
OTHER RECEIVABLE (48,748) (48,748) - -
ACCOUNTS PAYABLE 50,518 43,690 6,828 -
---------- ---------- ---------- ----------
(532,067) (234,233) (229,538) (68,296)
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
INVESTMENT IN EQUITY
AFFILIATE (1,000) (1,000) - -
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
OWING TO RELATED PARTIES 71,426 (41,656) 70,531 42,551
SHARE CAPITAL ISSUED
FOR CASH 482,725 180,000 302,725 -
FOR CONVERSION OF
DEBENTURES 50,000 - 50,000 -
SHARE SUBSCRIPTIONS 220,500 190,500 (44,000) 74,000
REORGANIZATION COSTS (94,460) - (69,460) (25,000)
---------- ---------- ---------- ----------
730,191 328,844 309,796 91,551
---------- ---------- ---------- ----------
CHANGE IN CASH FOR
THE PERIOD 197,124 93,611 80,258 23,255
CASH BEGINNING OF
THE PERIOD - 103,513 23,255 -
---------- ---------- ---------- ----------
CASH END OF THE PERIOD $ 197,124 $ 197,124 $ 103,513 $ 23,255
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
1. ACCOUNTING POLICIES
a. Investments and Basis of Presentation
i. These consolidated financial statements include the accounts of
the company and its wholly-owned subsidiaries, Praxis
Pharmaceuticals International Pty. Ltd., a private company
registered in Australia and Praxis Pharmaceuticals Inc. (a Nevada
corporation).
ii. The Company accounts for its investment in Praxis Pharmaceuticals
Australia Pty. Limited, a private company, and Fairchild
International Corporation, a listed company, using the equity
method of accounting. Effective June 1, 1999, the Company
discontinued consolidation of these investee companies. The
investee companies are currently in the development stage and the
equity in these companies is represented by unexpended funds
committed for research and development. The net assets of the
investees are unlikely to accrue to the Company during the
development stage. Accordingly, management is of the opinion that
additional recognition is not required or meaningful in the
accounts for the Company's equity share of earnings, losses or
change in share capital until the investees advance past the
development stage.
b. Pharmaceutical Research and Development
The Company is engaged in the research and development of
pharmaceutical products and expenses all costs incurred as period
costs. The underlying value of the pharmaceutical products is entirely
dependent upon the development of marketable products, the ability of
the Company to obtain the necessary financing to complete development
and upon future profitable production.
c. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions the
Company may undertake in the future, actual results may differ from
the estimates.
d. Foreign Currency
Transactions in foreign currencies are translated at rates prevailing
on the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies have been translated into U.S.
dollars at a rate of exchange prevailing at year end. Exchange gains
and losses from foreign currency translation adjustments are included
in current costs.
F-8
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
1. ACCOUNTING POLICIES (CONTINUED)
e. Income Taxes
The Company has incurred operating losses which are available for tax
credit carry forward. No certainty exists whether it is more likely
than not that some portion of these amounts will be realized by a
reduction of future taxes payable and no deferred tax asset has been
recognized.
f. Year 2000 Issue
It is not possible to be certain that all aspects of the Year 2000
Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
2. GOING CONCERN CONSIDERATIONS
As at May 31, 2000, the Company had not reached a level of operations which
would finance day to day activities. These financial statements have been
prepared on the assumption that the Company is a going concern, meaning it
will continue in operation for the foreseeable future and will be able to
realize assets and discharge liabilities in the ordinary course of
operations. Different basis of measurement may be appropriate when a
company is not expected to continue operations for the foreseeable future.
The Company's continuation as a going concern is dependent upon its ability
to attain profitable operations and generate funds therefrom and/or raise
equity capital or borrowings from third parties and related parties
sufficient to meet current and future obligations. The Company suffered
losses from operations of $203,175, $535,241 and $68,296 for the periods
ended May 31, 2000, 1999 and 1998.
3. INVESTMENTS AND RESEARCH AND DEVELOPMENT
a. Praxis Pharmaceuticals Australia Pty. Limited - $1
The Company's investment in 1,400,000 ordinary shares has been
adjusted to reflect losses sustained by the investee and represents a
potentially diluted interest of 73.7%, assuming the conversion of all
issued preferred shares.
The Company's ownership interest is subject to a shareholders'
agreement dated October 15, 1999. The agreement prescribes the terms
whereby research funding by the preferred shareholder and employee
equity participation will reduce the Company's ownership interest to
35%. Subsequent to May 31, 2000, the preferred shareholder notified
the Company of its intention to subscribe for an additional 1,500,000
preferred shares, diluting the Company's interest to 41.2%. The
Company expenses its share of research and development funding when
advanced.
F-9
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
3. INVESTMENTS AND RESEARCH AND DEVELOPMENT (CONTINUED)
b. Fairchild International Corp. - $1
The Company's investment in 2,600,000 common shares has been adjusted
to reflect losses sustained by the investee and represents an interest
of 23.7%. The Company has licensed certain rights to Fairchild
International Corp., a listed company with common shareholders and, as
consideration, received 2,600,000 common shares and a commitment for
the reimbursement of research and development funding at prescribed
intervals aggregating $250,000 ($135,594 received) by October 1, 2000.
Reimbursements are recorded as a reduction of costs when received.
Funding of $26,000 due at the year end and $50,000 due July 1, 2000
has not been received. Management is unable to determine the timing of
payment and the balance has not been recorded as receivable. No notice
of default under the agreement has been given.
4. OWING TO RELATED PARTIES
The Company shares office facilities and has common management and
directorships with a number of public and private corporate related
parties. The Company is charged for office rentals and administrative
services on a proportional cost basis. Management believes that the methods
of cost allocations and resultant costs are reasonable. Accounts with
companies with common management and directorships, management and
directors are unsecured with no fixed terms of interest or repayment.
<TABLE>
<CAPTION>
PERIOD
CUMULATIVE YEARS ENDED ENDED
TO MAY 31, MAY 31, MAY 31,
2000 2000 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Administration and
office charges $ 48,814 $ 30,321 $ 14,874 $ 3,619
Payments on behalf of
Reorganization costs 57,500 - 57,500 -
Professional fees 3,148 - - 3,148
Research and development advances 34,234 - - 34,234
Cash advances (repayments) (72,270) (71,977) (1,843) 1,550
--------- --------- --------- ---------
$ 71,426 $(41,656) $ 70,531 $ 42,551
========= ========= ========= =========
</TABLE>
F-10
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
5. SHARE CAPITAL
a. Authorized
50,000,000 Common shares with a par value of $.001 per share
10,000,000 Preferred shares with a par value of $.001 per share
<TABLE>
<CAPTION>
b. Common Shares Issued SHARES CONSIDERATION
------ -------------
<S> <C> <C>
Shares of Praxis Pharmaceuticals Inc. (a Nevada
corporation) issued for cash and exchanged for shares of
Micronetics, Inc. 5,000,000 $ 5,000
Outstanding shares of Micronetics, Inc. at date of
acquisition with a nominal value 100,202 -
For reorganization costs 305,403 30,540
---------- --------
Balance at completion of business re-organization 5,405,605 35,540
For cash 1,298,783 297,725
For services 3,099,832 237,208
For debenture conversion 617,989 50,000
Additional paid in capital - 16,667
For research agreement amendment 300,000 45,000
---------- --------
Balance at May 31, 1999 10,722,209 682,140
For cash 1,100,000 180,000
---------- --------
Balance at May 31, 2000 11,822,209 $862,140
========== ========
</TABLE>
c. Share Issue Commitments
The Company has granted stock options to its directors to acquire
1,698,330 shares at $.41 per share, exercisable to December 9,
2004. The options have fully vested and, at the issue date, the
exercise price exceeded the quoted market value of the shares.
Accordingly, no stock option compensation has been recognized in
relation to these stock options in the financial statements.
d. Share Subscriptions
As at May 31, 2000, subscriptions of $220,500 (net of commissions
payable of $24,500) were received to acquire 612,500 units at
$.40 per unit. Each unit consists of one common share and one
common share purchase warrant. Each warrant is exercisable for
one year to purchase one common share at $.50 per share. The
warrants commence to expire March 14, 2001.
F-11
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
6. INCOME TAXES
The Company has incurred operating losses which are available to reduce
future years' taxable income. As at May 31, 2000, tax losses of
approximately $778,000 were incurred. No future benefits have been
recognized in the accounts.
7. SEGMENTED INFORMATION
a. Cash
The Company maintains its cash balance in U.S. and other currencies.
At the year end, the U.S. dollar equivalents were as follows.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
U.S. dollars $ 97,117 $ 13,339
Australian dollars 99,995 90,174
Canadian dollars 12 -
-------- --------
$197,124 $103,513
======== ========
</TABLE>
b. Geographic Segments
The Company's activities are all in the one industry segment of the
research and development of pharmaceutical products. The research and
development is carried out in Australia.
8. AMENDMENTS
These financial statements have been amended for inclusion in filings with
the Securities and Exchange Commission. Amendments to the financial
statements include:
a. Year Ended May 31, 2000
Reduction of $26,998 in the carrying value of investments in Fairchild
International Corporation and Praxis Pharmaceuticals Australia Pty.
Limited to reflect the equity share of losses sustained by the
investees. (Note 3)
b. Year Ended May 31, 1999
Increase in interest costs of $16,667 for the intrinsic value of the
embedded conversion benefit in convertible debentures.
Increase in consulting fees of $28,000 to reflect the market value of
the shares issued for services.
F-12
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(EXPRESSED IN U.S. DOLLARS)
8. AMENDMENTS (CONTINUED)
b. Year Ended May 31, 1999 (Continued)
The impact of these amendments on the May 31, 2000 and 1999 financial
statements is as follows:
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AS REPORTED RESTATED AS REPORTED RE-STATED
MAY 31, 2000 ADJUSTMENT MAY 31, 2000 MAY 31, 1999 ADJUSTMENT MAY 31, 1999
------------ ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investments $ 27,000 $ (26,998) $ 2 $ - $ - $ -
========== ========== ========== ========== ========= ==========
Total assets $ 272,872 $ (26,998) $ 245,874 $ 103,513 $ - $ 103,513
========== ========== ========== ========== ========= ==========
Issued and paid in capital $ 817,473 $ 44,667 $ 862,140 $ 637,473 $ 44,667 $ 682,140
========== ========== ========== ========== ========= ==========
Deficit accumulated
during development stage $(887,045) $ (71,665) $(958,710) $(683,870) $(44,667) $(728,537)
========== ========== ========== ========== ========= ==========
Total stockholders' equity
(deficiency) $ 150,928 $ (26,998) $ 123,930 $ (16,937) $ - $ (16,937)
========== ========== ========== ========== ========= ==========
Total liabilities and
stockholders' equity $ 272,872 $ (26,998) $ 245,874 $ 103,513 $ - $ 103,513
========== ========== ========== ========== ========= ==========
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
CUMULATIVE TO YEARS ENDED
MAY 31, 2000 MAY 31, 2000 MAY 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
Loss from operations as previously reported $762,045 $203,175 $490,574
Interest on conversion benefits 16,667 - 16,667
Consulting fees for shares 28,000 - 28,000
-------- -------- --------
Loss from operations as restated 806,712 203,175 535,241
Equity share in loss of investees 26,998 26,998 -
-------- -------- --------
Net loss for the period as restated 833,710 230,173 535,241
Deficit beginning of the period, as restated - 728,537 193,296
Reorganization costs 125,000 - -
-------- -------- --------
Deficit end of the period, as restated $958,710 $958,710 $728,537
======== ======== ========
</TABLE>
<PAGE>
