U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
PRAXIS PHARMACEUTICALS INC.
(Name of Small Business Issuer in its charter)
UTAH 87-0393257
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 to be registered under Section 12(b) of the Act: NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Exhibit index on page 16. Page 1 of ____ 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 agents to apply in
new therapeutic categories and 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.
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, 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 granted Praxis-Australia the exclusive worldwide license to the
use of phosphosugars as prescription therapeutics and 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's proposed
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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's patent rights in
lawsuits, if necessary, may be significant and could interfere with Praxis's
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 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. David Stadnyk, an officer, director, and principal
shareholder of the Company, owns more than 10% of the outstanding stock of
Fairchild. 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) and $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 installment has been paid. 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 any consideration received by Fairchild from the sale of a licensed product
or the granting of a sublicense, less the $250,000 and any other development
costs, manufacturing and production costs, and marketing and selling costs.
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.
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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 will 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, 1999 and 1998, the Company incurred
$92,456 and $50,016 in research costs, respectively. Through the six months
ended November 30, 1999, the Company spent $200,889 on research and development.
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.
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.
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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.
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 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.
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.
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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 December 1, 1999, the Company had 6 full-time employees, 1 of which
was an officer of the Company, Dr. William Cowden.
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
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implemented. The Company plans to have industry standard non-compete and
non-disclosure agreements with all of its employees.
ITEM 2. 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 has incurred. 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.
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
SIX MONTHS ENDED NOVEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED NOVEMBER
30, 1998. The Company continues to incur losses from operations. The net loss
for the six months ended November 30, 1999 was $130,353 as compared to $213,294
during the comparable six-month period in 1998. The decrease in the net loss is
due to the receipt of $158,193 in research and development funding, which is
recorded as a reduction of research and development expenses. Were it not for
the recovered costs, research and development expenses in 1999 ($200,889)
actually increased 864% over 1998 amounts ($20,840). Promotion and travel
expenses in 1999 ($44,574) also increased by 64% over 1998 amounts ($27,191).
However, there were no consulting expenses in the 1999 period, as compared to
$130,708 in 1998.
YEAR ENDED MAY 31, 1999 COMPARED TO PERIOD ENDED MAY 31, 1998. For the year
ended May 31, 1999, the net loss was $490,574 as compared to a loss of $68,296
for the period from inception at June 20, 1997 to May 31, 1998. Administration
expenses increased from $15,460 in 1998 to $353,118 in 1999. The most
significant component of these expenses in 1999 was consulting fees of $213,358.
Most of these consulting fees were paid through the issuance of the Company's
common stock for public relations and other services. Research and development
costs increased by $42,440 from $50,016 in 1998 to $92,456 in 1999, an 84.9%
increase. 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. The Company expects that research and development costs
will continue to increase in 1999, reflecting increased pre-clinical and
clinical testing of its products.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for Praxis' operations has
been the private sale of its securities. Through May 31, 1999, the Company
issued common stock for cash of $302,725 and services of $209,208, and sold
$50,000 of convertible debentures.
At May 31, 1999, the Company's working capital deficiency was $16,397, as
compared to the deficiency of $119,296 at May 31, 1998. Of the liabilities at
May 31, 1999, $113,082 was owed to Alexander Cox & Co., an affiliate, for sums
advanced for operations. At November 30, 1999, the working capital deficiency
increased to $23,750 due to the depletion of cash for operations during the six
months then ended and the increase in accounts payable.
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 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, 1999, 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 $137,500, 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.
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.
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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 3. 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 Part I - Item 7. 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 4. 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 December 10, 1999. 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.
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS (1)
Dr. Brett Charlton 1,666,110 (2) (3) 13.45%
24/1-9 Totterdell Street
Belconnen, 2617 Australia
Dr. William Cowden 1,566,110 (3) 12.64%
56 Urambi Village
Darlington, NSW 2008 Australia
David Stadnyk 1,266,110 (3) 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) 33.27%
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(1) 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
December 10, 1999, 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) Includes 800,000 shares held in the name of Neysa Investment Ltd., a
company owned and controlled by Dr. Charlton.
(3) Includes 566,110 shares issuable upon exercise of stock options. See Item
6. Executive Compensation.
(4) Includes 1,698,330 shares issuable upon exercise of stock options. See Item
6. Executive Compensation.
CHANGES IN CONTROL
We are not aware of any arrangements that may result in a change in control
of Praxis.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
NAME AGE POSITION
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
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.
10
<PAGE>
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 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.
ITEM 6. EXECUTIVE COMPENSATION.
The Company is not presently paying any executive compensation except for
consulting fees to Dr. Cowden. See Part I - Item 7. 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.
11
<PAGE>
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 December 10, 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>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 November 30, 1999, $113,082 and $111,426, respectively, were owed
to Alexander Cox & Co. The May 31, 1999 amount was owed for the following:
administration and office charges ($18,493) and expenses paid on behalf of the
Company, such as research and development ($34,234); reorganization costs
($57,500); and professional fees ($3,148). A repayment of $293 offsets these
amounts. 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 of rent and administrative
services. During the year ended May 31, 1999, $14,874 was paid for rent and
services.
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. 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) and $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 installment has been paid.
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 any consideration received by Fairchild from the
sale of a licensed product or the granting of a sublicense, less the $250,000
and any other development costs, manufacturing and production costs, and
marketing and selling costs. David Stadnyk, an officer and director of the
Company, is the holder of more than 10% of the outstanding shares of Fairchild.
The 2,600,000 shares of Fairchild owned by the Company represented approximately
24% of the outstanding shares on the issuance date.
During the year ended May 31, 1999 and six months ended November 30, 1999,
$14,869 and $22,972, respectively, were paid to Dr. William Cowden for
consulting fees for services rendered in connection with the scientific conduct
of research and development.
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
The Company is authorized to issue of up to 50,000,000 shares of common
stock, $.001 par value per share, and 10,000,000 shares of preferred stock,
$.001 par value per share. You may wish to refer to the Company's articles of
incorporation and bylaws, copies of which are available for inspection. None of
the holders of any class or series of the Company's capital stock has preemptive
rights or a right to cumulative voting. As of December 10, 1999, there were
issued and outstanding 11,822,209 shares of common stock and no shares of
preferred stock.
PREFERRED STOCK
The Company's board of directors may determine the designations, rights,
preferences or other variations of each class or series of the preferred stock.
No classes or series of preferred stock have been established as of the
12
<PAGE>
date of this registration statement. The issuance of any shares of preferred
stock may operate to the detriment of the rights of holders of the common stock,
such as possibly preventing a takeover that could be advantageous to the
shareholders, making the common stock less marketable, and causing a decrease in
the price of the common stock.
COMMON STOCK
As of December 10, 1999, there were 11,822,209 shares of common stock
issued and outstanding. The board of directors may issue additional shares of
common stock without the consent of the common stockholders. The shareholders of
the Company approved a 1-for-5 reverse stock split to be effected by the Board
of Directors at any time on or before August 23, 2000.
VOTING RIGHTS. Each outstanding share of common stock is entitled to one
vote. The common stockholders do not have cumulative voting rights, which means
that the holders of more than 50% of such outstanding shares voting for the
election of directors can elect all of the directors to be elected, if they so
choose.
NO PREEMPTIVE RIGHTS. Holders of common stock are not entitled to any
preemptive rights.
DIVIDENDS AND DISTRIBUTIONS. Holders of common stock are entitled to
receive such dividends as may be declared by the directors out of funds legally
available for dividends and to share pro rata in any distributions to holders of
common stock upon liquidation or otherwise. However, the Company has never paid
cash dividends on its common stock, and does not expect to pay such dividends in
the foreseeable future.
"PENNY STOCK REGULATION OF BROKER-DEALER SALES OF COMMON STOCK. The
Securities and Exchange Commission (SEC) has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks".
Generally, penny stocks are equity securities with a price of less than $5.00
(other than securities registered on certain national exchanges or quoted on the
NASDAQ system). If the Company's shares are traded for less than $5 per share,
as they currently are, the shares will be subject to the SEC's penny stock rules
unless (1) the Company's net tangible assets exceed $5,000,000 during the
Company's first three years of continuous operations or $2,000,000 after the
Company's first three years of continuous operations; or (2) the Company has had
average revenue of at least $6,000,000 for the last three years. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prescribed by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These requirements may have
the effect of reducing the level of trading activity in the secondary market for
a stock that becomes subject to the penny stock rules. As long as the Company's
Common Stock is subject to the penny stock rules, the holders of the Common
Stock may find it difficult to sell the Common Stock of the Company.
13
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Praxis common stock has been traded over-the-counter since July 23, 1998 on
the OTC Bulletin Board 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.
BID PRICES
1999 FISCAL YEAR HIGH LOW
- ---------------- ---- ---
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
On December 10, 1999, the closing price for the common stock was $0.41. 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 2. LEGAL PROCEEDINGS.
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has sold shares of its Common
Stock, which were not registered under the Securities Act of 1933, as amended,
as follows:
1. In July 1998, the Company acquired Praxis-Nevada by issuing 5,000,000
shares of common stock to the 13 shareholders of Praxis-Nevada in reliance
upon the exemption from registration contained in Rule 504 of Regulation D.
No underwriters were used and no underwriting commissions were paid.
2. In July 1998, the Company issued 305,403 shares of Common Stock to 3
persons for services valued at $30,540.30 in reliance upon the exemption
from registration contained in Rule 504 under the Securities Act of 1933.
No underwriters were used and no underwriting commissions were paid.
14
<PAGE>
3. In July 1998, the Company issued 215,450 shares of Common Stock to 142
persons for cash of $107,725 in reliance upon the exemption from
registration contained in Rule 504 under the Securities Act of 1933. No
underwriters were used and no underwriting commissions were paid.
4. In August 1998, the Company sold a convertible debenture to Sholem
Liebenthal in the principal amount of $100,000 due August 26, 1999 in
reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933. From September 1998 to February 1999, Mr.
Liebenthal converted $50,000 into 617,989 shares of Common Stock. The
remaining principal of $50,000 was redeemed for cash. The Company relied
upon Rule 504 for the issuance of the shares. No underwriters were used and
no underwriting commissions were paid.
5. In September 1998, the Company issued 516,832 shares of Common Stock to 6
persons for services valued at $129,208 in reliance upon the exemption from
registration contained in Rule 504 under the Securities Act of 1933. No
underwriters were used and no underwriting commissions were paid.
6. In December 1998, the Company sold 600,000 shares of Common Stock to Grant
Douglas Publishing, Inc. for $30,000 in reliance upon the exemption from
registration contained in Rule 504 under the Securities Act of 1933. No
underwriters were used and no underwriting commissions were paid. Through
an oversight the shares were not issued until June 1999.
7. In February 1999, the Company issued 2,583,000 shares of Common Stock.
800,000 of the shares had been sold in November 1998 for $40,000 cash to
Jewett Finance Corp. and Alexander Cox & Co. and the remaining 1,783,000
shares were issued for services valued at $80,000 to 5 persons in reliance
upon the exemption from registration contained in Rule 504 under the
Securities Act of 1933. The services were rendered in October 1998 and
November 1998. No underwriters were used and no underwriting commissions
were paid.
8. In February 1999, the Company issued 300,000 shares of Common Stock to
Anutech as consideration for the Company's license in reliance upon the
exemption from registration contained in Section 4(2) of the Securities Act
of 1933. No underwriters were used and no underwriting commissions were
paid. Anutech was deemed to be sophisticated with respect to this
transaction by virtue of its financial condition and relationship to
members of management of the Company.
9. In February 1999, the Company sold 250,000 shares of Common Stock for cash
of $50,000 to Jewett Finance Corp. in reliance upon the exemption from
registration contained in Rule 504 under the Securities Act of 1933. No
underwriters were used and no underwriting commissions were paid.
10. In March 1999, the Company sold 833,333 shares of Common Stock for cash of
$100,000 to Annette Gross-Blotekamp and Jewett Finance Corp. in reliance
upon the exemption from registration contained in Rule 504 of the
Securities Act of 1933. No underwriters were used and no underwriting
commissions were paid.
11. In September 1999, the Company sold 500,000 shares of Common Stock for cash
of $150,000 to Jeffrey Stone in reliance upon the exemption from
registration contained in Rule 504 of the Securities Act of 1933. No
underwriters were used and no underwriting commissions were paid.
With respect to the Company's claim of exemption pursuant to Rule 504, at the
time of the transactions, the Company was not subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, was
not an investment company, and was not a development stage company that had no
specific business plan. The aggregate consideration received for all the shares
sold pursuant to this exemption was less than $1,000,000.
15
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16-10a-901 ET SEQ. of the Utah Business Corporation Act and Article
VIII of the Company's Articles of Incorporation permit the Company to indemnify
its officers and directors and certain other persons against expenses in defense
of a suit to which they are parties by reason of such office, so long as the
persons conducted themselves in good faith and the persons reasonably believed
that their conduct was in the Company's best interests or not opposed to the
Company's best interests, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. Indemnification
is not permitted in connection with a proceeding by or in the right of the
corporation in which the officer or director was adjudged liable to the
corporation or in connection with any other proceeding charging that the officer
or director derived an improper personal benefit, whether or not involving
action in an official capacity.
PART F/S
See pages beginning with page F-1.
PART III
<TABLE>
<CAPTION>
- ------------------- ------------------------------------------------------------------------------ -----------------
REGULATION SEQUENTIAL
S-B NUMBER PAGE NUMBER
EXHIBIT
- ------------------- ------------------------------------------------------------------------------ -----------------
<S> <C> <C>
2.1 Stock Exchange Agreement with Micronetics, Inc.* N/A
- ------------------- ------------------------------------------------------------------------------ -----------------
3.1 Articles of Incorporation, as amended and restated* N/A
- ------------------- ------------------------------------------------------------------------------ -----------------
3.2 Bylaws* N/A
- ------------------- ------------------------------------------------------------------------------ -----------------
10.1 Research, Development and Licence Agreement dated May 11, 1999 between N/A
Praxis Pharmaceuticals, Inc. and Fairchild International Inc.*
- ------------------- ------------------------------------------------------------------------------ -----------------
10.2 Exclusive Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. N/A
and Praxis Pharmaceuticals Australia Pty Ltd. *
- ------------------- ------------------------------------------------------------------------------ -----------------
10.3 Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. and Praxis N/A
Pharmaceuticals Inc.*
- ------------------- ------------------------------------------------------------------------------ -----------------
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*
- ------------------- ------------------------------------------------------------------------------ -----------------
10.5 1999 Stock Option Plan * N/A
- ------------------- ------------------------------------------------------------------------------ -----------------
21 Subsidiaries of the registrant* N/A
- ------------------- ------------------------------------------------------------------------------ -----------------
27 Financial Data Schedule ___
- ------------------- ------------------------------------------------------------------------------ -----------------
</TABLE>
*Filed previously
16
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRAXIS PHARMACEUTICALS, INC.
Date: February 25, 2000 By: /S/ BRETT CHARLTON
--------------------------------
Dr. Brett Charlton, President
17
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(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.
(FORMERLY MICRONETICS, INC.)
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF PRAXIS
PHARMACEUTICALS INC. (FORMERLY MICRONETICS, INC.) (A DEVELOPMENT STAGE COMPANY)
AS OF MAY 31, 1999 AND 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF
OPERATIONS AND DEFICIT, CHANGES IN STOCKHOLDERS' EQUITY AND CASH FLOW FOR THE
PERIODS THEN ENDED AND CUMULATIVE TO MAY 31, 1999. 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. (FORMERLY MICRONETICS, INC.) AS AT MAY 31, 1999 AND 1998
AND THE RESULTS OF ITS OPERATIONS AND ITS CASH FLOW FOR THE PERIODS THEN ENDED
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 3 TO THE
FINANCIAL STATEMENTS, THE COMPANY HAS SUFFERED LOSSES FROM OPERATIONS, HAS A NET
CAPITAL DEFICIENCY 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
OCTOBER 8, 1999 (WITH AMENDMENTS TO /s/ Steele & Co.
FEBRUARY 6, 2000 - NOTE 9) CHARTERED ACCOUNTANTS
F-2
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT
CASH (NOTE 8) $ 103,513 $ 23,255
=========== ==========
LIABILITIES
CURRENT
ACCOUNTS PAYABLE $ 6,828 $ -
REORGANIZATION COSTS PAYABLE - 100,000
OWING TO RELATED PARTIES (NOTE 4) 113,082 42,551
----------- ----------
119,910 142,551
----------- ----------
COMMITMENTS (NOTE 7)
STOCKHOLDERS' EQUITY (DEFICIENCY)
SHARE CAPITAL (NOTE 5)
AUTHORIZED
50,000,000 COMMON SHARES WITH A PAR VALUE
OF $0.001 PER SHARE
ISSUED AND PAID IN CAPITAL
10,722,209 COMMON SHARES 637,473 -
SHARE SUBSCRIPTIONS (NOTE 5) 30,000 74,000
DEFICIT ACCUMULATED DURING (683,870) (193,296)
------------ -----------
THE DEVELOPMENT STAGE
TOTAL STOCKHOLDER'S EQUITY (DEFICIENCY) (16,397) (119,296)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 103,513 $ 23,255
============= ============
</TABLE>
APPROVED BY THE DIRECTORS
- ---------------------------------
- ---------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-3
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED MAY 31, 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION)
TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
TO PERIODS ENDED
MAY 31 MAY 31
1999 1999 1998
---- -----------------------------------
<S> <C> <C> <C>
PROJECT COSTS
RESEARCH AGREEMENT AMENDMENT $ 45,000 $ 45,000 $ -
RESEARCH 142,472 92,456 50,016
PATENT COSTS 2,820 - 2,820
--------- --------- ---------
190,292 137,456 52,836
--------- --------- ---------
ADMINISTRATION EXPENSES
RELATED PARTY ADMINISTRATION
CHARGES 18,493 14,874 3,619
BANK CHARGES AND FOREIGN
EXCHANGE 2,450 2,450 -
CONSULTING 213,358 213,358 -
FILING FEES 1,484 1,484 -
FINDERS FEES 7,500 7,500 -
OFFICE, RENT AND SECRETARIAL 11,200 7,508 3,692
PROFESSIONAL FEES 32,486 24,337 8,149
TRANSFER AGENT FEES 2,013 2,013 -
TRAVEL AND ENTERTAINMENT 79,594 79,594 -
--------- --------- ---------
368,578 353,118 15,460
--------- --------- ---------
NET LOSS FOR THE PERIOD (NOTE 6) $ 558,870 490,574 68,296
=========
DEFICIT BEGINNING OF THE PERIOD 193,296 -
REORGANIZATION COSTS (NOTE 2) - 125,000
--------- ----------
DEFICIT END OF THE PERIOD $ 683,870 $ 193,296
========= ==========
BASIC LOSS PER SHARE $ 0.07
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-4
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 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
@ $0.001 per share 5,000,000 5,000 - (5,000) - -
@ $0.05 per share 800,000 800 39,200 - - 40,000
@ $0.12 per share 833,333 833 99,167 - - 100,000
@ $0.20 per share 250,000 250 49,750 - - 50,000
@ $0.50 per share 215,450 215 107,510 (69,000) - 38,725
Issued for services
@ $0.03 per share 1,400,000 1,400 40,600 - - 42,000
@ $0.10 per share 383,000 383 37,617 - - 38,000
@ $0.25 per share 516,832 517 128,691 - - 129,208
Issued for conversion of
debentures
@ $0.03 per share 325,926 326 10,674 - - 11,000
@ $0.11 per share 124,444 124 13,876 - - 14,000
@ $0.14 per share 106,667 107 14,893 - - 15,000
@ $0.16 per share 60,952 61 9,939 - - 10,000
Issued for reorganization
costs @ $0.10 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 - - - - (490,574) (490,574)
--------- ------ --------- --------- --------- ---------
Stockholders' equity
(deficiency) at May 31, 1999 10,722,209 $10,721 $ 626,752 $ 30,000 $(683,870) $(16,397)
========== ======= ========= ========= ========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-5
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED MAY 31, 1999
AND THE PERIOD FROM JUNE 20, 1997 (DATE OF INCORPORATION)
TO MAY 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
TO PERIODS ENDED
MAY 31 MAY 31
1999 1999 1998
---- -----------------------------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
NET LOSS FOR THE PERIOD $ (558,870) $(490,574) $ (68,296)
ITEMS NOT AFFECTING CASH FLOW
SHARE CAPITAL ISSUED
FOR CONSULTING 209,208 209,208 -
FOR RESEARCH AGREEMENT
AMENDMENTS 45,000 45,000 -
CHANGE IN NON-CASH OPERATING ITEMS
ACCOUNTS PAYABLE 6,828 6,828 -
---------- ---------- ---------
(297,834) (229,538) (68,296)
----------- ---------- ----------
FINANCING ACTIVITIES
OWING TO RELATED PARTIES 113,082 70,531 42,551
SHARE CAPITAL ISSUED
FOR CASH 302,725 302,725 -
FOR CONVERSION OF DEBENTURES 50,000 50,000 -
SHARE SUBSCRIPTIONS 30,000 (44,000) 74,000
REORGANIZATION COSTS (94,460) (69,460) (25,000)
----------- ---------- ----------
401,347 309,796 91,551
----------- ---------- ----------
CHANGE IN CASH FOR THE PERIOD 103,513 80,258 23,255
CASH BEGINNING OF THE PERIOD - 23,255 -
---------- ---------- ---------
CASH END OF THE PERIOD $ 103,513 $ 103,513 $ 23,255
========== ========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-6
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
1. ACCOUNTING POLICIES
a. Basis of Presentation
These consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Praxis
Pharmaceuticals Inc. (a Nevada corporation) and Praxis
Pharmaceuticals Australia Pty. Limited. These financial
statements have been prepared in accordance with accounting
principles and practices generally accepted in the United States.
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-7
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(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. Uncertainty Due to Year 2000 Issue
The Year 2000 Issue arises because many computerized systems may
recognize the year 2000 as some other date, resulting in errors
when information using year 2000 dates is processed. The effects
of the Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on operations
and financial reporting may range from minor errors to
significant systems failure which could affect an entity's
ability to conduct normal business operations. 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. CORPORATE RE-ORGANIZATION, NAME CHANGE AND ACQUISITION OF
PRAXIS PHARMACEUTICALS INC. (A NEVADA CORPORATION)
The re-organization of the Company included the consolidation of the
Company's common shares to 100,202 outstanding on the basis of 118.45
old shares for 1 new share, cancellation of 51,969 post-consolidation
common shares, and the change of the name from Micronetics, Inc. to
Praxis Pharmaceuticals Inc. (a Utah corporation).
By a share exchange agreement, the Company acquired a 100% interest in
Praxis Pharmaceuticals Inc. (a Nevada corporation), a private company.
5,000,000 common shares were issued in exchange for all of the issued
shares of the private company. In conjunction with the re-organization,
the Company completed a private placement of 215,450 common shares and
issued 305,403 common shares in partial settlement of its commitment for
re-organization costs. The acquisition has been accounted for using the
purchase method and applying accounting principles applicable to a
reverse takeover. As such, the Company is a continuation of both the
business and financial reporting of the private company and the
comparative figures presented in these financial statements are for its
year ended May 31, 1998.
F-8
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
3. GOING CONCERN CONSIDERATIONS
As at May 31, 1999, 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 $490,574 and
$68,296 for the periods ended May 31, 1999 and 1998 and had net capital
deficiencies of $16,397 and $119,296 at May 31, 1999 and 1998
respectively.
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.
The amounts owing to related parties are owing to a company owned by a
shareholder and director and are comprised of the following.
<TABLE>
<CAPTION>
PERIODS ENDED
CUMULATIVE TO MAY 31
MAY 31, 1999 1999 1998
------------- -----------------------------------
<S> <C> <C> <C>
Administration and office charges $ 18,493 $ 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) (293) (1,843) 1,550
-------------- ------------- ------------
$ 113,082 $ 70,531 $ 42,551
============== ============= ============
</TABLE>
F-9
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
5. SHARE CAPITAL
a. Authorized
50,000,000 common shares with a par value of $0.001 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 2,098,783 297,725
For services 2,299,832 209,208
For debenture conversion 617,989 50,000
For research agreement amendment 300,000 45,000
---------- -------------
Balance at May 31, 1999 10,722,209 $ 637,473
========== =============
</TABLE>
c. Convertible Debentures
During the year, the Company issued $100,000 of 8% Series A
senior subordinated convertible redeemable debentures due August
26, 1999. Interest was payable monthly by the issue of common
shares, commencing September 26, 1998. The debenture was
convertible to common shares and the Company had the option to
redeem the debentures by paying 125% of the principal balance.
The debenture holder converted $50,000 to 617,989 common shares
and principal of $50,000 was redeemed for cash. The debenture
holder waived the interest and redemption premium.
F-10
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
5. SHARE CAPITAL (CONTINUED)
d. Share Issue Commitments
The Company has granted stock options to a corporate third party
as follows:
250,000 shares at $0.20 per share (subsequently exercised)
250,000 shares at $0.40 per share (subsequently exercised)
The options have been granted to acquire shares of the Company at
a price equal to or greater than the quoted market price of the
stock on the date of the grant. The Company does not recognize an
expense for services in accounting for the granting or exercise
of the option.
e. Share Subscriptions and Subsequent Events
Share subscriptions of $30,000 were received in December, 1999 to
acquire 600,000 common shares (subsequently issued) at $0.05 per
share.
The Company's shareholders have approved a share consolidation of
one new for five old common shares, effective September 16, 1999.
6. INCOME TAXES
The Company has incurred operating losses which are available to reduce
future years' taxable income. As at May 31, 1999, tax losses of
approximately $559,000 were incurred by different companies in different
jurisdictions. These losses are available for carry forward but may only
be available for offset in specific jurisdictions. No future benefits
have been recognized in the accounts.
7. PHARMACEUTICAL RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has entered into a research and development agreement with
an Australian corporate third party subject to common management. In
exchange for the funding of research and development of pharmaceutical
products, the Company acquires the right of first refusal to obtain
exclusive licences to the products. The public company will receive a 4%
royalty on net sales of licensed products by the Company.
F-11
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
7. PHARMACEUTICAL RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
The Company has entered into an agreement, effective September 30, 1999,
to grant a world-wide sub-licence for certain products to a public
company third party formerly under common management. In exchange for
the sub-licence, the Company is to receive 260,000 shares, representing
a 24% ownership interest at the closing date of the agreement. The third
party will also pay the Company $250,000 ($112,500 paid) to reimburse
the Company for research and development costs incurred.
8. SEGMENTED INFORMATION
a. Cash
The Company maintains its cash balance in U.S., Canadian and
Australian currencies. At the year end, the U.S. dollar
equivalents were as follows.
1999 1998
---- ----
U.S. dollars $ 13,339 $ 19,965
Australian dollars 90,174 -
Canadian dollars - 3,290
---------- -----------
$ 103,513 $ 23,255
========== ===========
b. Geographic Segments
DOMESTIC FOREIGN TOTAL
Net loss for the year $ 353,118 $ 137,456 $ 490,574
=========== ========== ===========
Assets - current $ 13,339 $ 90,174 $ 103,513
=========== ========== ===========
The Company's activities are all in the one industry segment of
the research and development of pharmaceutical products.
F-12
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(FORMERLY MICRONETICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(EXPRESSED IN U.S. DOLLARS)
9. AMENDMENTS
These financial statements have been amended to contain disclosures in
response to comments of the Securities and Exchange Commission arising
from the inclusion of the financial statements in the filing of a Form
10SB. Concurrently, it was determined that the financial statements
erroneously disclosed that 800,000 common shares had been issued for
consulting services at a deemed value of $40,000 ($0.05 per share). The
800,000 common shares were issued for cash of $40,000 ($0.05 per share).
These financial statements have been amended accordingly, resulting in a
decrease in the loss from operations to $490,574 for the year, a
decrease in the deficit accumulated during the development stage to
$683,870 and a decrease in the stockholder deficiency to $16,397.
F-13
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED - SEE NOTICE TO READER
F-14
<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]
NOTICE TO READER
WE HAVE COMPILED THE BALANCE SHEET OF PRAXIS PHARMACEUTICALS INC. (A DEVELOPMENT
STAGE COMPANY) AS AT NOVEMBER 30, 1999 AND THE STATEMENTS OF OPERATIONS AND
DEFICIT AND CASH FLOW FOR THE SIX MONTH PERIODS ENDED NOVEMBER 30, 1999 AND 1998
FROM INFORMATION PROVIDED BY MANAGEMENT. WE HAVE NOT AUDITED, REVIEWED OR
OTHERWISE ATTEMPTED TO VERIFY THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION
AND, ACCORDINGLY, WE DO NOT EXPRESS AN OPINION ON THEM. READERS ARE CAUTIONED
THAT THESE STATEMENTS MAY NOT BE APPROPRIATE FOR THEIR PURPOSES.
VANCOUVER, CANADA /s/ Steele & Co.
FEBRUARY 6, 2000 CHARTERED ACCOUNTANTS
F-15
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
NOVEMBER 30, 1999
(EXPRESSED IN U.S. DOLLARS)
1999
----
ASSETS
CURRENT
CASH $ 100,383
INVESTMENTS AND ADVANCES (NOTES 2 AND 4) 27,000
-----------
$ 127,383
===========
LIABILITIES
CURRENT
ACCOUNTS PAYABLE $ 12,707
OWING TO RELATED PARTIES 111,426
-----------
124,133
-----------
STOCKHOLDERS' EQUITY
SHARE CAPITAL
AUTHORIZED
50,000,000 COMMON SHARES WITH A PAR VALUE
OF $0.001 PER SHARE
10,000,000 PREFERRED SHARES WITHOUT PAR VALUE
ISSUED AND PAID IN CAPITAL (NOTE 3)
11,822,209 COMMON SHARES 817,473
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (814,223)
------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 3,250
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 127,383
============
APPROVED BY THE DIRECTORS
- --------------------------------
- --------------------------------
UNAUDITED - SEE NOTICE TO READER
F-16
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIODS
TO ENDED
NOVEMBER 30, NOVEMBER 30
1999 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
(NOTES 2 AND 4) $ 391,181 $ 200,889 $ 20,840
RECOVERED COSTS (158,193) (158,193) -
BANK CHARGES AND EXCHANGE 2,812 362 (629)
CONSULTING 213,358 - 130,708
OFFICE AND SECRETARIAL 17,138 5,938 1,822
FINDERS FEES 7,500 - -
PROMOTION AND TRAVEL 124,168 44,574 27,191
PROFESSIONAL FEES 44,882 12,396 12,563
RELATED PARTY
ADMINISTRATION CHARGES 40,618 22,125 18,182
TRANSFER AGENT AND FILING FEES 5,759 2,262 2,617
---------- ----------- ------------
NET LOSS FOR THE PERIOD $ 689,223 130,353 213,294
===========
DEFICIT BEGINNING OF THE PERIOD 683,870 193,296
----------- ------------
DEFICIT END OF THE PERIOD $ 814,223 $ 406,590
=========== ============
BASIC LOSS PER SHARE $ 0.01 $ 0.03
=========== ============
</TABLE>
UNAUDITED - SEE NOTICE TO READER
F-17
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIODS
TO ENDED
NOVEMBER 30 NOVEMBER 30
1999 1999 1998
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
NET LOSS FOR THE PERIOD $ (689,223) $ (130,353) $ (213,294)
ITEMS NOT AFFECTING CASH FLOW
INVESTMENTS CONSIDERATION FOR
RECOVERED COSTS (27,000) (27,000) -
SHARE CAPITAL ISSUED FOR
CONSULTING 209,208 - 129,208
SHARE CAPITAL ISSUED FOR
RESEARCH AGREEMENT
AMENDMENTS 45,000 - -
CHANGE IN NON-CASH OPERATING ITEM
ACCOUNTS PAYABLE 12,707 5,879 17,532
------------ ----------- ------------
(449,308) (151,474) (66,554)
------------ ----------- ------------
FINANCING ACTIVITIES
OWING TO RELATED PARTIES 111,426 (1,656) 48,968
SHARE CAPITAL ISSUED FOR CASH 482,725 150,000 78,725
SHARE CAPITAL ISSUED FOR
CONVERSION OF DEBENTURE 50,000 - -
DEBENTURES PAYABLE - - 6,500
REORGANIZATION COSTS (94,460) - (69,460)
------------ ----------- ------------
549,691 148,344 64,733
------------ ----------- ------------
CHANGE IN CASH FOR THE PERIOD $ 100,383 (3,130) (1,821)
============
CASH BEGINNING OF THE PERIOD 103,513 23,255
----------- ------------
CASH END OF THE PERIOD $ 100,383 $ 21,434
=========== ============
</TABLE>
UNAUDITED - SEE NOTICE TO READER
F-18
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1999
1. ACCOUNTING POLICES AND NOTES
THE ACCOUNTING POLICIES FOLLOWED BY THE COMPANY ARE UNCHANGED FROM THOSE
OUTLINED IN THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31,
1999. THE NOTES TO THE FINANCIAL STATEMENTS AT MAY 31, 1999
SUBSTANTIALLY APPLY TO THE INTERIM FINANCIAL STATEMENTS AT NOVEMBER 30,
1999 AND ARE NOT REPEATED HERE. ALL ADJUSTMENTS HAVE BEEN MADE WHICH, IN
THE OPINION OF MANAGEMENT, ARE NECESSARY IN ORDER TO MAKE THESE
FINANCIAL STATEMENTS NOT MISLEADING.
2. INVESTMENTS AND ADVANCES
a. Praxis Pharmaceuticals Australia Pty. - $1,000
1,400,000 ORDINARY SHARES, RECORDED AT A NOMINAL AMOUNT,
CURRENTLY REPRESENTING AN 84.8% INTEREST, ASSUMING THE CONVERSION
OF ALL SHARE CLASSES. THE INVESTEE IS IN THE DEVELOPMENT STAGE
AND THE EQUITY THEREIN IS REPRESENTED BY UNEXPENDED FUNDS
COMMITTED FOR RESEARCH AND DEVELOPMENT (NOTE 4). THE NET ASSETS
OF THE INVESTEE ARE UNLIKELY TO ACCRUE TO THE EQUITY HOLDER
DURING THE DEVELOPMENT STAGE AND, AS SUCH, NO RECOGNITION IS MADE
IN THESE ACCOUNTS FOR THE EQUITY SHARE OF EARNINGS, LOSSES OR
CHANGE IN SHARE CAPITAL UNTIL THE INVESTEE ADVANCES PAST THE
RESEARCH AND DEVELOPMENT STAGE.
b. Fairchild International Corp. - $26,000
2,600,000 COMMON SHARES, RECORDED AT A NOMINAL $0.01 PER SHARE,
CURRENTLY REPRESENTING A 23.7% INTEREST AND CARRIED AT A NOMINAL
COST. THE INVESTEE IS IN THE DEVELOPMENT STAGE AND THE EQUITY
THEREIN IS REPRESENTED BY UNEXPENDED FUNDS COMMITTED FOR RESEARCH
AND DEVELOPMENT (NOTE 4). THE NET ASSETS OF THE INVESTEE ARE
UNLIKELY TO ACCRUE TO THE EQUITY HOLDER DURING THE DEVELOPMENT
STAGE AND, AS SUCH, NO RECOGNITION IS MADE IN THESE ACCOUNTS FOR
THE EQUITY SHARE OF EARNINGS, LOSSES OR CHANGE IN SHARE CAPITAL
UNTIL THE INVESTEE ADVANCES PAST THE DEVELOPMENT STAGE.
UNAUDITED - SEE NOTICE TO READER
F-19
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1999
3. SHARE CAPITAL
a. Issued and paid in capital
SHARES CONSIDERATION
Common shares
Balance at May 31, 1999 10,722,209 $ 637,473
Issued during the period
For cash
@ $0.05 per share 600,000 30,000
@ $0.20 per share 250,000 50,000
@ $0.40 per share 250,000 100,000
---------- ------------
Balance at November 30, 1999 11,822,209 $ 817,473
========== ============
A share consolidation of one new share for five old common shares
has been authorized by the shareholders and to be declared by the
directors on or before August 23, 2000.
4. RESEARCH AND DEVELOPMENT
The Company holds an ownership interest in Praxis Pharmaceuticals
Australia Pty. which is subject to a shareholders' agreement, dated as
of October 15, 1999. The agreement prescribes the terms whereby research
funding will reduce the Company's ownership interest to 35% (currently
84.8%). As of the date of the agreement, the ownership interest is
carried at a nominal value of $1,000. All advances to Praxis
Pharmaceuticals Pty. are expensed when advanced. Funds held by Praxis
Pharmaceuticals Pty. are committed to the research and development of
phosphosugars and related licensed fields.
The Company has licensed certain rights to Fairchild International Corp.
for consideration consisting of 2,600,000 common shares (representing a
23.7% ownership interest) and a commitment to provide research and
development funding totalling $250,000. The shares are subject to resale
restrictions and have been recorded at a nominal value of $26,000 ($0.01
per share). The research and development funding is recorded as a
reduction of costs.
5. SEGMENTED INFORMATION
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 activities are carried out in Australia.
UNAUDITED - SEE NOTICE TO READER
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED MAY 31, 1999 AND UNAUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-1999
<PERIOD-START> JUN-01-1999 JUN-01-1998
<PERIOD-END> NOV-30-1999 MAY-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 127,383 103,513
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 100,383 103,513
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 127,383 103,513
<CURRENT-LIABILITIES> 124,133 119,910
<BONDS> 0 0
0 0
0 0
<COMMON> 817,473 637,473
<OTHER-SE> (814,223) (653,870)
<TOTAL-LIABILITY-AND-EQUITY> 127,383 103,513
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 130,353 490,574
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (130,353) (490,574)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (130,353) (490,574)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (130,353) (490,574)
<EPS-BASIC> (0.01) (0.07)
<EPS-DILUTED> (0.01) (0.07)
</TABLE>
