UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Commission file Number 000-25019
PVAXX CORPORATION
(Formerly Oak Brook Capital IV, Inc.)
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
000-25019 05-0499528
(Commission File Number) (I.R.S. Employer Identification Number)
12730 New Brittany Boulevard
Fort Myers, Florida 33907
(Address of Principal Executive Offices) (Zip Code)
(941) 274-9355
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, No Par Value - 21,322,800 shares as of
September 30, 2000.
<PAGE>
FORWARD-LOOKING INFORMATION
THIS FORM 10QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
PVAXX CORPORATION INCORPORATED OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN
U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF PVAXX
CORPORATION AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS
ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-
LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10QSB AND
ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT
CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO
FUTURE OPERATING RESULTS OVER TIME.
ITEM 1. FINANCIAL STATEMENTS
<PAGE> F-1
PVAXX CORPORATION
(FORMERLY OAKBROOK CAPITAL IV)
& SUBSIDIARIES
(Development Stage Companies)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The following financial statements include a consolidated balance sheet as of
September 30, 2000, consolidated statements of operations and deficit
accumulated during development stage, consolidated statements of changes in
stockholders' equity and consolidated statements of cash flows for the three
months ended September 30, 2000 and for the period from May 1, 1998
(inception) through September 30, 2000.
PVAXX CORPORATION & SUBSIDIARIES
Index to Financial Statements 1
Accountant's Review Report 2
Consolidated Balance Sheet 3
Consolidated Statements of Operations & Deficit Accumulated
During Development Stage 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7
<PAGE> F-2
BERSCH ACCOUNTING S.C.
Certified Public Accountants
633 W. Wisconsin Ave., Suite 610 Milwaukee, Wisconsin 53203
Tel: 414-272-8800 www.berschaccounting.com
Fax: 414-223-4070 email: [email protected]
November 6, 2000
Shareholders and Board of Directors
PVAXX CORPORATION
Fort Myers, Florida
Accountant's Review Report
I have reviewed the accompanying consolidated balance sheet of PVAXX
Corporation and Subsidiaries as of September 30, 2000 and the related
consolidated statements of operations & deficit accumulated during the
development stage, changes in stockholders' equity and cash flows for the
three months then ended and from May 1, 1998 (inception) through September 30,
2000, in accordance with Statements of Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
All information included in these financial statements is the representation
of the management of PVAXX Corporation and Subsidiaries.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than
an audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
On the basis of my review, I am not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
Dennis W. Bersch, CPA
Milwaukee, WI
<PAGE> F-3
PVAXX CORPORATION
(FORMERLY OAK BROOK CAPITAL IV)
& SUBSIDIARIES
(With Accountant's Review Report of November 6, 2000)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,347
Restricted cash and cash equivalents (Note 6) 299,970
VAT tax refund receivable 37,037
Total current assets $ 363,354
FIXED ASSETS
Machinery & equipment $ 580,965
Office equipment 9,698
Furniture & fixtures 51,639
Motor vehicles 50,273
Less: accumulated depreciation (105,608)
Net fixed assets 586,967
OTHER ASSETS:
Prepaid expenses $ 31,030
Deposits 4,349
Patent rights (Note 1) 62,981
Total other assets 98,360
Total assets $ 1,048,681
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 109,004
Current portion of long-term liabilities
Accrued wages - officers 330,000
Other accrued liabilities 119,556
Total current liabilities $ 558,560
LONG TERM LIABILITIES:
Notes payable $ 6,908
Capital lease to related parties 628,807
Loans payable to officers/directors 266,609
Total long term liabilities 902,324
Total liabilities $ 1,460,884
(SHAREHOLDERS' EQUITY): (Exhibit 3)
Preferred stock - no par value,
10,000,000 shares authorized, $ 100,000
issued and outstanding
Common stock - no par value,
40,000,000 shares authorized
21,322,800 shares issued and outstanding 204,200
Paid in Capital 217,914
Accumulated other comprehensive income 8,998
Deficit accumulated during the development stage (943,315)
Total equity (412,203)
Total liabilities and equity $ 1,048,681
</TABLE>
<PAGE> F-4
PVAXX CORPORATION
(FORMERLY OAK BROOK CAPITAL IV)
& SUBSIDIARIES
(With Accountant's Review Report of November 6, 2000)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED
DURING DEVELOPMENT STAGE
For the three months ended September 30, 2000 and
From May 1, 1998 (inception) thru September 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Period Since Inception
--------------- ---------------
<S> <C> <C>
Three Months Since Inception
REVENUE $ 0 $ 0
COST OF REVENUE
Direct costs 0 0
Gross profit $ 0 $ 0
OPERATING EXPENSES
Development costs $ 52,787 $ 91,161
Finance costs 22,137
Administrative costs 425,864 817,849
Total operating expenses 478,651 931,147
Operating income (loss) $ (478,651) $ (931,147)
OTHER INCOME AND (EXPENSES) 4,830 (12,168)
Net Operating Income (Loss) $ (473,821) $ (943,315)
INCOME TAXES 0 0
Deficit accumulated during
the development stage $ (473,821) $ (943,315)
PER SHARE INFORMATION
Weighted average number of
common shares outstanding 20,943,716 20,943,716
Profit (loss) per share ($0.02) ($0.05)
Fully diluted shares 30,943,716 30,943,716
Profit (loss) per
fully diluted share ($0.02) ($0.03)
</TABLE>
<PAGE> F-5
PVAXX CORPORATION
(FORMERLY OAK BROOK CAPITAL IV)
& SUBSIDIARIES
(Development Stage Companies)
(With Accountant's Review Report of November 6, 2000)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From inception through September 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Shares Issued
Accumulated
Common Preferred Common Preferred Paid in Comprehen. Retained
Stock Stock Stock Stock Capital Income Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity at Inception $ 0
Issuance of common stock
for services 1,228,000 $ 4,200 4,200
Shares issued by Oakbrook
5/19/2000 94,800 0
Acquisition of subsidiary
corporations 0
Issuance of common stock 20,000,000 200,000 $ 217,914 417,914
Issuance of preferred stock 10,000,000 100,000 100,000
Foreign currency
translation adjustment 8,882 8,882
Deficit accumulated during
the development stage 0 0 0 0 0 0 (469,494) (469,494)
Balance 6/30/2000 21,322,800 10,000,000 204,200 100,000 217,914 8,882 (469,494) 61,502
Foreign translation
adjustment 116 116
Net loss for period 0 0 0 0 0 0 (473,821) (473,821)
Balance 9/30/2000 21,322,800 10,000,000 $ 204,200 $ 100,000 $ 217,914 $ 8,998 ($943,315) ($412,203)
(Exhibit 1) (Exhibit 1&2)(Exhibit 1)
</TABLE>
<PAGE> F-6
PVAXX CORPORATION
(FORMERLY OAK BROOK CAPITAL IV)
& SUBSIDIARIES
(With Accountant's Review Report of November 6, 2000)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended September 30, 2000 and
From May 1, 1998 (inception) thru September 30, 2000
(UNAUDITED)
Period Since Inception
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES: Three Months Since Inception
Net Loss $ (473,821) $ (943,315)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation & amortization $ 85,608 $ 105,608
(Increase) in VAT taxes receivable (14,048) (37,037)
(Increase) in prepaid expenses 439 (31,030)
(Increase) in security deposits 0 (4,349)
Increase in accounts payable (16,663) 109,004
Increase in accrued liabilities 9,991 119,556
Increase in accrued officer wages 150,000 330,000
Increase in loans payable to
Officers/Directors 170,638 266,609
Net cash provided by (used in)
operating activities ($87,856) ($84,954)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/investment of intangible patent 1,722 (62,981)
Purchase of equipment and improvements 11,118 (692,575)
Net cash provided by (used in)
investing activities $ 12,840 $ (755,556)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes & loans payable $ 2,481 $ 11,829
Proceeds from notes & loans payable
- related parties (19,864) 628,808
Repayments of notes & loans payable 0 (4,921)
Proceeds from sale of common stock 0 417,914
Proceeds from sale of preferred stock 0 100,000
Sale of common stock for services 0 4,200
Cash restricted by investor 0 (299,970)
Net cash provided by (used in)
financing activities (17,383) 857,860
EFFECT OF EXCHANGE RATE CHANGES ON CASH 116 8,998
Increase in Cash and Cash Equivalents (92,283) 26,348
Cash at beginning of period 118,631 0
Cash at end of period $ 26,348 $ 26,348
Supplemental information:
Interest expense $ 34 $ 12,208
Income tax expense 0 0
<PAGE> F-7
PVAXX CORPORATION
(FORMERLY OAK BROOK CAPITAL IV)
& SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2000
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History of the Reporting Entity
Originally named Oakbrook Capital IV, (Oakbrook IV) the company reporting
herein was formed in May 1998 in Colorado, with 40,000,000 shares of common
and 10,000,000 shares of preferred stock authorized. It was registered with
the SEC as one of a series of blank check companies seeking a business
combination with an operating company. On May 19, 2000, Oakbrook IV entered
into a share exchange agreement with PVAXX Corporation, a development stage
company whose primary business is the development of a biodegradable polymer,
which is distinguished by its relative environmental neutrality compared to
competing products in a variety of commercial, industrial and consumer
applications.
PVAXX Corporation, formed in Florida in 2000, has its primary office in Fort
Myers, Florida and an office and laboratories located in Kemble, England, the
residence of the majority shareholder. PVAXX Corporation had purchased certain
United Kingdom business assets of the PVAXX Business Group in exchange for
10,000,000 shares of its Preferred and 20,000,000 shares of its Common stock.
The PVAXX Business Group, in turn, was owned and controlled by the acquiring
Company's President and Chairman of the Board of Directors, Henry Stevens. It
consisted of two development stage United Kingdom corporations; Jumik
Technologies, Ltd., which was incorporated on March 31, 1999 and changed its
name on March 22, 2000 to PVAXX Technologies, Ltd., and PVAXX Research and
Development Centre Ltd., which was incorporated on October 18, 1999 and
changed on May 22, 2000 to PVAXX Research & Development, Ltd. On March 31,
2000, PVAXX Corporation formed another subsidiary corporation, PVAXX Europe,
Ltd. The only activities of any of these companies have been development
stage activities.
The role of each of the subsidiary companies is as follows:
* PVAXX Technologies, Ltd. is the holder of the rights to patents published
under International Publication Numbers WO 98/26911 on June 25, 1998 and WO
00/12615 on March 9, 2000,
* PVAXX Research and Development Ltd. performs research into product
improvements and applications. Doing business as PVAXX Engineering, it
produces machines for pelletizing the product for sale to converters, and
as PVAXX Pharmaceuticals it manufactures and sells capsule making machinery.
* PVAXX Europe Ltd. is intended to market and sell the products in Europe.
<PAGE> F-8
In conjunction with the share exchange agreement, Oakbrook IV, the Colorado
corporation, changed its name to PVAXX Corporation, and the company and all of
the subsidiaries have changed their respective fiscal year-ends to June 30.
Principles of Consolidation
These financial statements include the combined accounts of the Colorado
corporation, Oak Brook Capital IV, and the former Florida corporation, PVAXX
Corporation. They are consolidated with the three 100% owned UK subsidiary
corporations (PVAXX Technologies, Ltd., PVAXX Research & Development, Ltd. and
PVAXX Europe, Ltd.). After conversion of UK currency to US dollars, all
significant inter-company accounts and transactions have been eliminated.
Foreign Currency Translation and Transactions
The financial position and results of operations of the company's foreign
subsidiaries are determined using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect as of the balance sheet date. Income statement
accounts are translated at the average rate of exchange prevailing during the
period. Translation adjustments arising from the use of differing exchange
rates from period to period are included in the accumulated other
comprehensive income account in shareholder's equity section.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting of amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Cash and Cash Equivalents
Highly liquid assets with a maturity date of three (3) months or less from the
date of acquisition are treated as cash or cash equivalents.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods over
estimated useful lives of the property.
The amortization of leasehold improvements is based on the shorter of the
lease term or the life of the improvement.
Betterments and large renewals which extend the life of an asset are
capitalized whereas maintenance and repairs and small renewals are expensed as
incurred.
Intangibles
Intangible assets such as patents on other intellectual property are recorded
at cost if it is determinable at the date of acquisition. Such intangible
assets are amortized over estimated useful lives based on the nature of the
item.
<PAGE> F-9
In accordance with SFAS 121, "Accounting for Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of", intangibles are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable through the estimated
undiscounted future cash flows resulting from the use of these assets. When
any such impairment exists, the related assets are written down to fair
value.
Income Taxes
The Company uses the asset and liability method as identified in SFAS 109,
Accounting for Income Taxes.
The consolidated Company has a net operating loss carryforward (NOL) of
$943,315 available to future periods due to losses generated since its
inception through September 30, 2000. This NOL would result in a tax debit
based on application of appropriate UK and US tax rates if offsetting profits
were anticipated. Because the Company and its subsidiaries are in the
development stages, there is no assurance that future operations will generate
a profit or income, therefore the company recognizes a valuation adjustment
which completely offsets the deferred tax asset related to the net operating
loss carryforward.
NOTE 2 - ACCOUNTS RECEIVABLE
Management believes all receivables are due and collectible and no reserve for
un-collectable amounts is necessary.
NOTE 3 - RELATED PARTY TRANSACTIONS
Through a series of transactions, the Company effectively acquired the PVAXX
Business Group from a company owned and controlled by Henry Stevens, the
present majority owner of PVAXX Corporation. The ultimate consideration for
the transaction is the 10,000,000 shares of Preferred stock and 20,000,000
shares of Common stock held by Henry Stevens and others whose PVAXX Florida
corporation shares were exchanged. The PVAXX Business Group consists of the
subsidiary companies described in Note 1.
The President, and another officer, advanced $266,609 to the Company with no
interest.
The patent rights owned by PVAXX Technologies, Ltd., were developed by and
acquired from a company owned by the President, Henry Stevens, and are carried
at their actual cost of $62,981 after adjustment for foreign currency.
The Company entered into an Employment Agreement dated March 20, 2000 with
Henry Stevens, the Company's President and Chairman of the Board of Directors.
The Agreement is for a term of five years and renewable by the Company.
<PAGE> F-10
Under the Agreement, the Company agrees to pay the following amounts:
a) $50,000 per month net of all taxes;
b) Use of a motor vehicle at the choice of the employee;
c) Use of residential facilities in the Fort Myers area at a rental not to
exceed $36,000 per annum; and
d) The Company will establish a performance related share option program,
under which the company's board of directors will determine participation
commensurate with the employee's position. However, as of balance sheet
date, the Company has not officially established a share option plan.
No payments have been made under the Agreement as of the date of the financial
statements.
NOTE 4 - RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of factors.
The ability of the Company to raise the capital necessary to continue to
develop and bring its products to market is not assured. The product being
developed by PVAXX will be sold in a highly competitive global market in which
it will need to demonstrate performance characteristics sought by customers,
at a competitive price which will yield a profit after production and
distribution costs. Estimates of the size of the market, and the company's
eventual market share may not be realized, and the effect of competition
cannot be determined.
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES
Leased Facilities
The Company has entered into a three (3) year lease of facilities in the Fort
Myers area effective June 1, 2000. Under the terms of the lease, the Company
is obligated for monthly based rental amounts plus sales tax and Common Area
Maintenance (CAM) charges. Under the terms of the lease, the Company is
obligated to keep and maintain the leased premises, including fixtures and
improvements, in good condition.
The Company is obligated for the following rent payments over the lease term:
Total Rent Monthly Base Rent CAM Sales Tax
------------ ------------------ ------- -----------
Year 1
1st quarter $11,013 $2,000 $1,463 $208
2nd quarter 11,013 2,000 1,463 208
3rd quarter 12,285 2,400 1,463 232
4th quarter 13,239 2,700 1,463 250
Year 2 55,080 2,808 1,522 260
Year 3 57,276 2,920 1,583 270
<PAGE> F-11
Employee Compensation
In addition to the employment contract with the President disclosed in Note 3,
an arrangement with the Vice-president provides for a salary of $10,000
monthly for one year, and $15,000 thereafter.
NOTE 6 - RESTRICTED CASH
On March 3, 2000, the former PVAXX executed an agreement with an unrelated
individual who transferred $299,970 to an escrow agent in exchange for 90,000
shares of its common stock. Under the terms of the escrow agreement, updated
and signed on August 4, 2000, the funds will be released to the company when
the exchanged shares of the new PVAXX corporation are tradable on a U.S.
national exchange at not less than $5.00 per share. If this is not achieved,
the funds may be released to the investor six (6) months after the effective
date of the agreement, upon return of the 90,000 shares.
NOTE 7 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, restricted cash, receivables, accounts payable, accrued
expenses and other liabilities, approximate fair value because of immediate or
short-term maturity of these financial instruments. The underlying carrying
amount reported for long-term debt and capital leases approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share are computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect per share amounts that
would have resulted if all preferred stock had been converted to common
stock. The following reflects amounts reported in the financial statements:
For the Period Ended September 30, 2000
Income Shares Per-share Amount
(Numerator) (Denominator)
------------ ------------- -----------------
Income available to
common stockholders
- basic earnings per share ($473,821) 20,943,716 $(.02)
Effect of dilutive securities
- convertible preferred stock 10,000,000
Income available to
common stockholders
- diluted earnings per share ($473,821) 30,943,716 $(.02)
<PAGE> F-12
From inception through September 30, 2000
Income Shares
(Numerator) (Denominator) Per-share Amount
------------ ------------- -----------------
Income available to
common stockholders
- basic earnings per share ($943,315) 20,943,716 $(.05)
Effect of dilutive securities
- convertible preferred stock 10,000,000
Income available to
common stockholders
- diluted earnings per share ($943,315) 30,943,716 $(.03)
NOTE 10 - GOING CONCERN CONSIDERATIONS
The company is addressing the substantial doubt about its ability to continue
as a going concern through the deferral of cash payments to the principal
shareholders, through the negotiation of anticipated private placements with
additional investors, and by taking steps to register shares for sale on the
public market in order to generate additional working capital.
The Company's management is addressing its ability to emerge from the
development stage and to continue as a going concern by continuing to develop,
refine, and market its processes and products. Although as of the balance
sheet date of September 30, 2000, the Company had not entered into any
revenue-producing contracts, several successful field tests of various
products have been conducted, and management expects to have successfully
negotiated several contracts before the end of this fiscal year.
NOTE 11 - LONG TERM LIABILITIES
Long-term liabilities include a capital lease dated May 1, 2000 with a related
party for equipment, office furniture and vehicles, and an automotive lease.
Capital Lease Auto Lease Total
-------------- ------------ ------------
2001 $ 157,987 $ 2,670 $ 160,657
2002 131,928 3,219 135,147
2003 339,316 593 339,909
Current 157,987 2,670 160,657
Long term 471,244 3,812 475,056
Total $ 629,231 $ 6,482 $ 635,713
PVAXX Corporation is the guarantor of these leases.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
PVAXX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2000
======================================
THREE MONTHS ENDING SEPTEMBER 30, 2000
======================================
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Item 1 of this
Quarterly Report.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") issued by the FASB, is effective for financial statements for
fiscal years beginning after December 15, 1995. The standard establishes new
guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, certain identifiable intangible assets, and
goodwill, should be recognized and how impairment losses should be measured.
The Company does not expect adoption to have a material effect on its
financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") issued by the FASB, is effective for
specific transactions entered into after December 15, 1995. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard established
a fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Except for historical information, the discussion in this Form 10QSB contains
forward-looking statements that involve risks and uncertainties. These
statements may refer to the Company's future plans, objectives, expectations
and intentions. These statements may be identified by the use of words such
as "expect", "anticipate", "believe", "intend", "plan" and similar expressions.
The Company's actual results could differ materially from those anticipated
in such forward-looking statements. Factors that could contribute to these
differences include, but are not limited to, the risks discussed in the
section titled "Market Risks and other Business Factors" later in this Form
10QSB.
MARKET RISKS AND OTHER BUSINESS FACTORS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), Congress encouraged public companies to make "forward looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward looking statements. We intend to qualify
both our written and oral forward looking statements for protection under the
Reform Act and any other similar safe harbor provisions.
<PAGE> 10
Generally, forward looking statements include expressed expectations of future
events and the assumptions on which the expressed expectations are based. All
forward looking statements are inherently uncertain as they are based on
various expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties which could
cause actual events or results to differ materially from those projected.
Due to those uncertainties and risks, the investment community is urged not to
place undue reliance on our written or oral forward looking statements. We
undertake no obligation to update or revise our for forward looking statements
to reflect future developments. In addition, we undertake no obligation to
update or revise forward looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
PLAN OF OPERATION
The Company has been established to produce and market a range of
biodegradable polymers for various applications in the agricultural,
pharmaceutical, adhesives and food market sectors. The Research and
Development unit is located in Kemble, Nr. Malmesbury, Wilts, United Kingdom,
and has been the main site for all development and commercial activities.
A pva based polymer, PVAXX biodegrades authentically into non-toxic residues.
When subjected to aerobic or anaerobic action, the bacteriological
decomposition of PVAXX entirely fulfils the ecological need for plastic waste
disposal. Recent development allows the polymer to be dry-compacted into
pellet form, for cost-effective and practical use by plastic product
manufacturers.
The Company has spent the past several years developing its technology and
producing samples for various industries. During the preceding twelve month
period, the Company has been active in contacting potential customers and has
focused on the following industries:
-Pharmaceutical;
-Industrial;
-Retail;
-Household;
-Agricultural;
-Leisure and Distributors.
It is the intention of the Company to appoint a global distributor in the
fourth quarter of 2000.
First production quantities will be shipped to customers late in the first
quarter of 2001. Average selling prices will be $1,650 per ton for
non-pharmaceutical grade and $6,000 per ton for pharmaceutical grade. The
company anticipates shipping 2,000 tons of non-pharmaceutical grade PVA in the
fiscal year ending June 30, 2001. The anticipated revenues of $3,300,000 will
enable the company to operate at a break-even level. Should the company need
additional financing prior to achieving greater levels of sales, the President
and majority shareholder may contribute additional capital to the company, or
the company may decide to raise capital through the sale of equity.
<PAGE> 11
The Company anticipates sales doubling in the second year of operation due to
the demand for the product at the customer and distributor level. This is
based on demonstrated and genuine interest where the parties have received
technical information and product samples for analysis and are progressing to
batch trial development. Initial projections detail a net profit margin of
14% after sales have exceeded $3,000,000.
All PVAXX components have received EU and FDA approval for human consumption,
via pharmaceuticals or food, allowing e.g. gelatine replacement in drug
capsules and fertilizer and seed coatings.
PVAXX applications include:
Fibre diapers, absorbent/wet wipes, solvent/chemical wipes,
soluble netting for detergent tablets, netting/packaging,
cigarette filters
Film supermarket/carrier bags, refuse sacks, laundry bags,
garment sleeving, mulch/silage wrapping, impervious
gas/odor barriers, food wrap, balloons
Extrusion bottles, medical disposables & tubing, toothpaste tubes,
& Blow moulding oilcans, drinking straws, ballpoint pen
refills
Profile/Injection medical capsules, golf tees, clothes hangers, bath pearls,
paint moulding balls, film canisters, shotgun cartridge
wadding, medical disposables, garden products,
multipack
beverage ring collars, bottle pre-forms, vacuum-formed
sandwich clams
Hot melt adhesives film & coating adhesive for board packaging, labeling,
reseals, construction materials
Demand for PVAXX
There is a proven potential demand for truly biodegradable plastic world-wide,
led by consumers and various pressure groups, and sanctioned by the
authorities in most countries, with impending legislative enforcement.
<PAGE> 12
Specific requests from customers/development partners give the following
potential orders by market sector:
Potential List Price Order Value
Annual Orders (MT) (000's)
------------------ ----------- -----------------
Pharmaceutical 50,000 $6,000 $300,000
Industrial 35,000 $1,650 $ 57,750
Retail 35,000 $1,650 $ 57,750
Household 14,000 $1,650 $ 23,100
Agricultural 5,000 $1,650 $ 8,250
Leisure 5,000 $1,650 $ 8,250
Distributor 60,000 $1,485 $ 89,100
Total 204,000 $244,500
Company Sales & Distribution Schedule
Period Orders (MT) Sales (000's)
First 6 months: Oct 2000 - Mar 2001 - -
Second 6 months: Apr 2001 - Sep 2001 7,000* $11,550
Third 6 months: Oct 2001 - Mar 2002 30,000 $33,750
[*Financial year 1 Jun 2000 - Jun 2001 2,000 $ 3,300]
Initial sales will be to the Italian market, where new legislation to ban a
number of plastic applications is currently in implementation phase. A
development partner in each market sector has been identified and these
customers will receive first deliveries. The pharma sector is being developed
over the mid-term, and offers higher-margin opportunities. A PVAXX consumer
awareness program will be also be implemented during this period, and a trade
marketing program will support the distributor sales effort.
LIQUIDITY AND CAPITAL RESOURCES
The Company remains in the development stage and, since inception, has
experienced no significant change in liquidity or capital resources or
stockholder's equity. The Company's balance sheet as of September 30, 2000,
reflects a current asset value of $363,354, and a total asset value of
$1,048,681 in the form of cash and capitalized organizational costs.
The Company is registering for the sale of equity in connection with
the sale of 2,400,000 shares at approximately $1.00/share. The Company does
not have any underwriting commitments for such sale of equity. There can be no
assurance that any such sale will close or that the Company will continue to
consider such an offering.
Notwithstanding the steps taken by us to restructure our debt and raise
additional capital, our immediate cash requirements are significant. We cannot
assure you that we will be able to successfully realize cash flow from
operations or that such cash flow will be sufficient. We believe that our
existing and anticipated capital resources will enable us to fund our planned
operations through Fiscal 2001 as outlined above.
<PAGE> 13
In addition, our annual and quarterly operating results may be affected by a
number of factors, including the following:
-our ability to manage inventories, shortages of components or labor;
-the degree of automation used in the assembly process;
-fluctuations in material costs and the mix of material costs versus labor;
-manufacturing and overhead costs price competition;
-price competition;
-the inability to pass on excess costs to customers;
-the timing of expenditures in anticipation of increased sales; and
-customer product delivery requirements.
Any one of these factors, or a combination thereof, could adversely affect us.
The Company believes that the net proceeds of the offering will permit it to
repay the outstanding short-term debt, to continue to meet its working capital
obligations and fund the further development of its business for the next 12
months. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate
its research, engineering and development or manufacturing programs or obtain
funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
A substantial amount of the proceeds from the offering will be used to
purchase manufacturing and test equipment ($1,010,000) and research,
engineering and development related expenditures ($550,000).
ENVIRONMENTAL REGULATIONS
The Company is subject to Federal, state and local governmental regulations
relating to the storage, discharge, handling, emissions, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products. The Company believes that it is currently
in compliance in all material respects with such regulations. Failure to
comply with current or future regulations could result in the imposition of
substantial fines on the Company, suspension of production, alteration of its
manufacturing process, cessation of operations or other actions which could
<PAGE> 14
materially and adversely affect the Company's business, financial condition
and results of operations.
EVOLVING INDUSTRY STANDARDS; RAPID TECHNOLOGICAL CHANGES
The Company's success in its business will depend in part upon its continued
ability to enhance its existing products and services, to introduce new
products and services quickly and cost effectively to meet evolving customer
needs, to achieve market acceptance for new product and service offerings and
to respond to emerging industry standards and other technological changes.
There can be no assurance that the Company will be able to respond effectively
to technological changes or new industry standards. Moreover, there can be no
assurance that competitors of the Company will not develop competitive
products, or that any such competitive products will not have an adverse
effect upon the Company's operating results.
Moreover, management intends to continue to implement "best practices" and
other established process improvements in its operations going forward. There
can be no assurance that the Company will be successful in refining, enhancing
and developing its operating strategies and systems going forward, that the
costs associated with refining, enhancing and developing such strategies and
systems will not increase significantly in future periods or that the
Company's existing software and technology will not become obsolete as a
result of ongoing technological developments in the marketplace.
VOLATILITY OF STOCK PRICE
The Company believes factors such as the Company's liquidity and financial
resources, quarter to quarter and year to year variations in financial results
could cause the market price of the Company's common stock to fluctuate
substantially. Any adverse announcement with respect to such matters or any
shortfall in revenue or earnings from levels expected by management could have
an immediate and material adverse effect on the trading price of the Company's
common stock in any given period. As a result, the market for the Company's
common stock may experience material adverse price and volume fluctuations and
an investment in the Company's common stock is not suitable for any investor
who is unwilling to assume the risk associated with any such price and volume
fluctuations.
SUFFICIENCY OF CASH FLOWS
The Company believes that current cash balances and any cash generated from
operations and from available debt or equity financing will be sufficient to
meet its cash needs for working capital and capital expenditures for at least
the next twelve months. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's liquidity requirements, management may
seek to sell additional equity or obtain credit facilities. The sale of
additional equity could result in additional dilution to the Company's
<PAGE> 15
shareholders. A portion of the Company's cash may be used to acquire or invest
in complementary businesses or products or to obtain the right to use
complementary technologies. From time to time, in the ordinary course of
business, the Company evaluates potential acquisitions of such
businesses, products or technologies.
RESULTS OF OPERATIONS
During the period from May 16, 2000 (inception) through September 30, 2000, the
Company has engaged in no significant operations other than organizational
activities, research and development, sales and marketing and the acquisition
of capital and preparation for reporting as a registrant under Section 12 of
the Securities Exchange Act of 1934, as amended. No revenues were received
by the Company during this period.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") issued by the Financial Accounting Standards Board ("FASB"), under which
deferred tax assets and liabilities are provided on differences between the
carrying amounts for financial reporting and the tax basis of assets and
liabilities for income tax purposes using the enacted tax rates. Under SFAS
109, deferred tax assets may be recognized for temporary differences that
will result in deductible amounts in future periods. A valuation allowance is
recognized, if on the weight of available evidence, it is more likely than
not that some portion or the entire deferred tax asset will not be realized.
FEDERAL INCOME TAX ASPECTS OF INVESTMENT IN THE COMPANY
The discussion contained herein has been prepared by the Company and is based
on existing law as contained in the Code, amended United States Treasury
Regulations ("Treasury Regulations"), administrative rulings and court
decisions as of the date of this Registration Statement. No assurance can be
given that future legislative enactments, administrative rulings or court
decisions will not modify the legal basis for statements contained in this
discussion. Any such development may be applied retroactively to transactions
completed prior to the date thereof, and could contain provisions having an
adverse affect upon the Company and the holders of the Common Stock. In
addition, several of the issues dealt with in this summary are the subjects of
proposed and temporary Treasury Regulations. No assurance can be given that
these regulations will be finally adopted in their present form.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings or material proceedings known
to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8 K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8 K
None
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
<S> <C> <C>
# 3.1 Articles of Incorporation of the Registrant, as amended;
# 3.2 Bylaws of the Registrant;
# 4.1 Instruments Defining Rights of Security Holders/Minutes
of Annual/Special Meetings of the Registrant;
# 10.1 Issuance of Restricted Shares from Authorized Shares
# 23.1 Consent of Mark T. Thatcher, P.C.;
x 27 Financial Data Schedule
x 99.1 Safe Harbor Compliance Statement
_______________________
x Filed herewith.
# Incorporated by reference from the Registrant's Amendment No. 2 to the
Registration Statement filed on Form 10-SB on or about May 14, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PVAXX CORPORATION and
OAK BROOK CAPITAL IV, INC.
/s/ Nadeau & Simmons, P.C.
DATE: November 14, 2000 By: NADEAU & SIMMONS, P.C.
Title: Filing Agent
</TABLE>
