U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 2000
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to __________________
Commission file number 0-28627
PRAXIS PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 87-0393257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
595 HORNBY STREET, SUITE 600, VANCOUVER, BRITISH COLUMBIA, V6C 1A4 CANADA
(Address of principal executive offices)
(604) 646-5614
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date:
12,434,709 SHARES OF COMMON STOCK, $.001 PAR VALUE, AS OF
NOVEMBER 30, 2000
Transitional Small Business Disclosure Format (check one); Yes No X
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2000
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT
CASH (NOTE 3) $ 127,579
INVESTMENTS 2
------------
$ 127,581
============
LIABILITIES
CURRENT
ACCOUNTS PAYABLE $ 53,669
OWING TO RELATED PARTIES 23,935
------------
77,604
------------
STOCKHOLDERS' EQUITY
SHARE CAPITAL
AUTHORIZED
50,000,000 COMMON SHARES WITH A PAR VALUE
OF $0.001 PER SHARE
10,000,000 PREFERRED SHARES WITH A PAR VALUE
OF $0.001 PER SHARE
ISSUED AND PAID IN CAPITAL (NOTE 2)
12,434,709 COMMON SHARES 1,082,640
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (1,029,507)
DEFERRED TRANSLATION ADJUSTMENT (3,156)
------------
TOTAL STOCKHOLDERS' EQUITY 49,977
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 127,581
============
</TABLE>
APPROVED BY THE DIRECTORS:
------------------------------------
Bob Smart
------------------------------------
Brett Charlton
UNAUDITED
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
AND CUMULATIVE TO NOVEMBER 30, 2000
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIODS
TO ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
PROJECT EXPENSES
RESEARCH AGREEMENT AMENDMENT $ 45,000 $ - $ -
RESEARCH ADVANCES 229,076 - 200,889
PATENT COSTS 2,820 - -
RELATED PARTY CONSULTING FEES 65,538 - -
RECOVERED COSTS
CASH (135,594) - (158,193)
INVESTMENT CONSIDERATION (26,000) - -
------------ ------------ ------------
180,840 - 42,696
------------ ------------ ------------
ADMINISTRATION EXPENSES
BANK CHARGES AND EXCHANGE $ 16,674 $ 13,319 $ 362
CONSULTING 257,858 - -
FINDERS FEES 7,500 - -
INTEREST ON CONVERTIBLE DEBENTURES 16,667 - -
OFFICE AND SECRETARIAL 28,737 2,697 8,200
PROFESSIONAL FEES 111,091 23,663 12,396
PROMOTION AND TRAVEL 201,275 23,065 44,574
RELATED PARTY ADMINISTRATION
CHARGES 56,867 8,053 22,125
------------ ------------ ------------
696,669 70,797 87,657
------------ ------------ ------------
LOSS FROM OPERATIONS 877,509 70,797 130,353
EQUITY SHARE IN LOSS OF INVESTEES 26,998 - -
------------ ------------ ------------
NET LOSS FOR THE PERIOD $ 904,507 $ 70,797 $ 130,353
============ ============ ============
DEFICIT BEGINNING OF THE PERIOD - 958,710 728,537
------------ ------------
REORGANIZATION COSTS 125,000 - -
------------
DEFICIT END OF THE PERIOD $ 1,029,507 $ 1,029,507 $ 858,890
============ ============ ============
BASIC LOSS PER SHARE $0.01 $0.01
============ ============
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
AND CUMULATIVE TO NOVEMBER 30, 2000
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE PERIODS
TO ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
NET LOSS FOR THE PERIOD $ (904,507) $ (70,797) $ (130,353)
NON-CASH ITEMS
INVESTMENT CONSIDERATION
FOR RECOVERED COSTS (26,000) - (26,000)
ISSUE OF SHARES FOR
SERVICES 237,208 - -
RESEARCH AGREEMENT 45,000 - -
INTEREST ON CONVERTIBLE
DEBENTURES 16,667 - -
EQUITY SHARE IN LOSS OF
INVESTEES 26,998 - -
CHANGE IN NON-CASH OPERATING ITEMS
OTHER RECEIVABLE - 48,748
ACCOUNTS PAYABLE 53,669 3,151 5,879
------------ ------------ ------------
(550,965) (18,898) (150,474)
------------ ------------ ------------
INVESTING ACTIVITIES
INVESTMENT IN EQUITY AFFLIATE (1,000) (1,000)
------------ ------------ ------------
FINANCING ACTIVITIES
OWING TO RELATED PARTIES 23,935 (47,491) (1,656)
SHARE CAPITAL ISSUED FOR CASH 703,225 220,500 150,000
SHARE CAPITAL ISSUED FOR
CONVERSATION OF DEBENTURE 50,000 - -
SHARE SUBSCRIPTIONS - (220,500) -
REORGANIZATION COSTS (94,460) - -
------------ ------------ ------------
682,700 (47,491) 148,344
------------ ------------ ------------
TRANSLATION ADJUSTMENT (3,156) (3,156) -
CHANGE IN CASH FOR THE PERIOD 127,579 (69,545) (3,130)
CASH BEGINNING OF THE PERIOD - 197,124 103,513
------------ ------------ ------------
CASH END OF THE PERIOD $ 127,579 $ 127,579 $ 100,383
============ ============ ============
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
1. ACCOUNTING POLICIES AND NOTES
a. Accounting Policies
The accounting policies followed by the Company are unchanged from
those outlined in the audited financial statements for the year ended
May 31, 2000. The notes to the financial statements at May 31, 2000
substantially apply to the interim consolidated financial statements
at November 30, 2000 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.
b. Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Praxis Pharmaceuticals
International Pty. Limited, a private company registered in Australia,
and Praxis Pharmaceuticals Inc., a Nevada corporation.
c. Foreign Currency Translation
The functional currency of the Company's foreign operations is the
applicable local currency. The translation of foreign currencies in U.
S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using average exchange rates in effect at the balance
sheet date and for revenue and expense accounts using average exchange
rates during each reporting period. The net gains or losses resulting
from such translations are included in stockholder's equity as a
component of "Deferred Translation Adjustment". Gains and losses
arising from foreign currency transactions are reflected in the
consolidated statements of earnings as incurred.
2. SHARE CAPITAL
<TABLE>
<CAPTION>
a. Issued and Paid in Capital
SHARES CONSIDERATION
Common Shares
<S> <C> <C>
Balance at May 31, 2000 11,822,209 $ 862,140
Issued during the period
For cash subscriptions @ $.40 612,500 245,000
Finders fees - (24,500)
---------- -----------
Balance at November 30, 2000 12,434,709 $1,082,640
========== ===========
</TABLE>
UNAUDITED
5
<PAGE>
PRAXIS PHARMACEUTICALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
b. Share Issue Commitments
Outstanding share purchase warrants are exercisable as follows:
612,500 common shares @ $ .50 per share to April 17, 2001
3. SEGMENTED INFORMATION
a. Cash
The Company maintains its cash balance in U.S., Canadian and
Australian currencies. At the period end, the U.S. dollar equivalents
were as follows.
U.S. dollar $ 1,790
Australian dollars 123,517
Canadian dollars 2,272
--------
$127,579
========
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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of operations
for Praxis Pharmaceuticals, Inc. ("Praxis" or the "Company") 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, 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)
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 the Company's 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.
7
<PAGE>
In October 1999, an agreement was entered into whereby the equity investment
made in Praxis' subsidiary, Praxis Pharmaceuticals Australia Pty. Ltd, 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 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
The Company continues to incur losses from operations. The net loss for the six
months ended November 30, 2000 was $70,797 as compared to $130,353 during the
comparable six-month period in 1999. The decrease in the net loss is due
primarily to the reduction in the level of the Company's operations. No project
expenses were incurred in the 2000 period, as compared to $200,889 in research
advances (offset by $158,193 in recovered costs) during the six months ended
November 30, 1999. Also, administration expenses decreased 19% from $87,657 in
1999 to $70,797 in 2000. Related party administration charges decreased from
$22,125 in 1999 to $8,053 in 2000, as did promotion and travel expenses ($44,574
in 1999 as compared to $23,065 in 2000). The decreases in these types of
expenditures exceeded the increases in professional fees ($23,663 in 2000 as
compared to $12,396 in 1999) and bank charges and exchange ($13,319 in 2000 as
compared to $362 in 1999).
This most recent loss has increased the deficit accumulated since the inception
of the Company to $1,029,507 at November 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for Praxis' operations has been
the private sale of its securities. Through November 30, 2000, the Company has
sold stock for cash of $703,225.
At November 30, 2000, the Company's working capital was $49,975, as compared to
$123,928 at May 31, 2000. The decrease in working capital was due primarily to
the repayment of $55,000 owed to a related party and the use of cash for
operations.
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.
8
<PAGE>
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, since 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.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Stock Exchange Agreement with Micronetics (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 Praxis N/A
Pharmaceuticals, Inc. and Fairchild International Inc. (1)<F1>
10.2 Exclusive Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. and N/A
Praxis Pharmaceuticals Australia Pty Ltd. (1)<F1>
10.3 Licence Agreement dated October 14, 1999 between Anutech Pty Ltd. and Praxis N/A
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
---------------------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed with the Registration
Statement on Form 10-SB, File No. 0-28627
</FN>
</TABLE>
10
<PAGE>
B) REPORTS ON FORM 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRAXIS PHARMACEUTICALS, INC.
(Registrant)
Date: January 18, 2001 By: /S/ ROBERT SMART
-------------------------------------
Robert Smart, Secretary
(Principal financial officer)
11
