UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
Amendment No. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
PHAGE THERAPEUTICS INTERNATIONAL INC.
-------------------------------------
(Name of small business issuer in its charter)
Florida 91-1838947
------------------------ ----------
(State or jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
19017 120th Avenue NE, Suite 102
Bothell, Washington 98011
------------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (425) 478-1727
--------------
Securities to be registered under Section 12(b) of the Act: NONE
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
--------------------------------------------------------------------------------
(Title of class)
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TABLE OF CONTENTS
<S> <C> <C>
ITEM 1. DESCRIPTION OF BUSINESS..................................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................................6
ITEM 3. DESCRIPTION OF PROPERTY.................................................................................12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................12
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.........................................13
ITEM 6. EXECUTIVE COMPENSATION..................................................................................17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................19
ITEM 8. LEGAL PROCEEDINGS.......................................................................................20
ITEM 9. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................20
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................................................................21
ITEM 11. DESCRIPTION OF SECURITIES...............................................................................22
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................27
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................28
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................28
ITEM 15. FINANCIAL STATEMENTS ...................................................................................28
ITEM 16. EXHIBITS ...............................................................................................53
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FORWARD-LOOKING STATEMENTS
This Form 10-SB contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"), including, but
not limited to statements related to the business objectives and strategy of
Phage. Such forward-looking statements are based on current expectations,
estimates and projections about Phage's industry, management beliefs, and
certain assumptions made by management of Phage. Words such as"anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates,"variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed,
forecasted, or contemplated by any such forward- looking statements. The PSLRA
does not apply to initial public offerings. Factors that could cause actual
events or results to differ materially include, among others, the following: the
early state of development of Phage, reliance on officers and directors, ability
to attract and retain qualified personnel, dependence on collaborative
arrangements and errors in anticipating its need for capital. See, "Management's
Discussion and Analysis or Plan of Operation on page 7"
ITEM 1. DESCRIPTION OF BUSINESS
Background of Phage
Phage Therapeutics International Inc. ("Phage") was originally incorporated in
the State of Florida on July 8, 1997, under the name All Products Distribution,
Corp. All Products Distribution, Corp. was founded with the specific intent of
opening salons offering services such as manicures, pedicures, facials and
hairstyling. This business venture failed. On August 19, 1998 All Products
Distribution, Corp. changed its name to Phage Therapeutics International Inc.
Phage switched its focus to biotechnology when it decided to pursue the
acquisition of Phage Therapeutics, Inc. ("Phage Therapeutics"). Phage
Therapeutics was incorporated in the State of Washington on December 24, 1996.
The principal executive offices of Phage are located at 19017 120th Avenue NE,
Bothell, Washington 98011 and Phage's telephone number is (425) 478-1727.
Phage is an emerging biotechnology company that, through its controlling
interest in Phage Therapeutics, a bio- pharmaceutical corporation, is focussed
on the discovery, development and regulatory approval of bacteriophage- based
therapeutic products for the treatment of certain antibiotic-resistant
infections and other bacterial infectious diseases.
Phage has acquired approximately 88% of the issued and outstanding share capital
of Phage Therapeutics through a combination of purchasing stock directly from
Phage Therapeutics and through completion of a series of share exchange
agreements with individual stockholders. Phage intends to acquire the remaining
outstanding shares of Phage Therapeutics in due course to increase its holding
of Phage Therapeutics to 100%. Phage Therapeutics shareholders who decide not to
exchange their shares of Phage Therapeutics for shares of Phage's common stock
will remain minority interest shareholders of Phage Therapeutics.
Business of the Issuer
Business Strategy
-----------------
Phage's initial business strategy is to increase its share holdings in Phage
Therapeutics. The resulting combined corporate entity ("Phage"), will then
continue to establish itself as a leader in the discovery, development and
regulatory approval of bacteriophage-based therapeutic products for the
treatment of certain antibiotic resistant and other bacterial infectious
diseases. Phage will subsequently manufacture and seek regulatory approval for
its bacteriophage therapeutic products through Phase II Clinical trials. Once
clinical trials have commenced, Phage then plans to enter into a pharmaceutical
co-development and co-marketing agreements with multinational pharmaceutical
companies to achieve marketing, sales and distribution of the resulting
pharmaceutical products.
1
<PAGE>
Phage Therapeutics was formed to discover, develop and gain regulatory approval
for bacteriophage therapeutic products for the treatment of antibiotic-resistant
and other bacterial infectious diseases. Bacteriophage (phage or phage
therapeutic agents) are bacterial viruses that infect and destroy bacteria. A
bacteriophage virus infects a host bacterial cell by attaching itself to the
bacterial cell surface and then injecting its viral nucleic acid into the
bacterial cell. Hundreds of new bacteriophage viruses are formed within the
bacterial cell as the virus replicates. The bacterial cell is subsequently
destroyed, releasing the newly formed bacteriophage viruses to infect additional
bacterial cells. This process is repeated within the bacterial population about
every 20 minutes until the bacteria are eliminated. Bacteriophage have been used
successfully in infectious disease prevention and treatment programs in the
former USSR and Eastern Europe for more than 50 years, although they were not
developed and administered under USFDA standards and procedures. Bacteriophage
are highly specific, with each kind of bacteriophage typically infecting only
one bacterial species.
Demonstrated Need for Bacteriophage Therapeutic Products
--------------------------------------------------------
In recent years the advances of the antibiotic era, barely 60 years old, are
being dissipated quickly by the rapid emergence of multi-drug resistance among
common bacterial pathogens. Now, as in the pre-antibiotic era, physicians face
the challenge of keeping patients with serious bacterial infections alive. An
example is the evolution of multi-drug resistance strains of Staphylococcus
aureus, a common and serious cause of community and hospital acquired infectious
diseases. The prevalence of multi-drug resistance among staphylococci has grown
substantially in many regions in the United States sine the 1980's, rendering
vancomycin as the remaining effective therapeutic agent. By 1997, strains of
Staphylococcus aureus with reduced susceptibility to vancomycin were reported
from Japan to the United States. Many leading authorities believe that the
emergence of Staphylococcus aureus resistant to all currently-available
antibiotic agents, including vancomycin, is imminent and a strong indicator of
the post-antibiotic era. As a result, bacterial resistance to antibiotics has
now emerged as one of the major public health threats of the late 20th century.
It was observed in 1994 that more than 90% of all staphylococcal isolates (e.g.,
Staphylococcus aureus) were penicillin-resistant, and more than 40% were
methicillin-resistant. At the same time, more than 14% of all enterococci (e.g.,
Streptococcus spp.) isolated from Intensive Care Units were found to be
vancomycin-resistant (Vancomycin is often the antibiotic of last resort when all
other antibiotic products have failed to control a bacterial infection). There
were reported to be about 40 million hospitalizations in the United States each
year at that time, with about 2 million patients having developed
hospital-acquired (or nosocomial) bacterial infections, of which 50 to 60%
involved antibiotic-resistant bacteria. Deaths in the United States from
nosocomial infections now exceed 90,000 per year, at a cost in the United States
alone of nearly $5 billion. These patients did not enter the hospital with the
primary complaint of infection.
Infections caused by Steptococci represent a major and growing healthcare
concern throughout the world each year, and especially Staphylococcus
pneumoniae, a primary inciting agent of bacterial pneumonia, bacteremia, otitis
media, and meningitis. There are reported to be more than 6 million cases of
bacterial ear infection (otitis media) each year in the United States, 500,000
cases of S. pneumoniae pneumonia, more than 55,000 cases of bacteremia, and more
than 6,000 cases of meningitis, resulting in more than 40,000 deaths. Often, the
rates of morbidity and mortality from these infectious agents are greater in the
rest of the world. In 1992, the list of the current top multidrug resistant
human infectious bacteria was reported in an article in the journal Science
(Science, Vol.257, 21 August, 1992, p.1036), which management believes remains
valid today, and included:
o Staphylococcus aureus
o Pseudomonas aeruginosa
o Enterobacteriaceae (Escherichia (E. coli), Salmonella, Shigella and
Yersinia)
o Streptococcus pneumoniae (and Enterococcus spp.)
o Mycobacterium tuberculosis
o Neisseria gonorrhoeae
2
<PAGE>
Initial Product Line
--------------------
Phage is developing several bacteriophage product candidates that demonstrate
significant activity against antibiotic-resistant forms of Staphylococcus
("Staph") aureus and other human pathogenic Staph species commonly considered to
be lethal infectious agents encountered widely in medicine. Phage's top
bacteriophage product candidate has shown strong and reproducible cell lytic
(cell destructive) activity against most Staph isolates tested, including most
antibiotic-resistant forms. Samples of Phage's product candidate bacteriophage
will be sent to a contract laboratory for preclinical testing of biological
activity safety, efficacy and "Proof of Principle." The objective of preclinical
"Proof of Principle" testing is to show that the product candidate demonstrates
evidence of its intended therapeutic effect in a relevant animal model of the
target disease. Following the series of preclinical biological activity safety,
efficacy and "Proof of Principle" studies, Phage plans to initiate first Phage I
clinical trials for safety under FDA guidelines. Phage's additional emerging
bacteriophage products are targeted specifically for the treatment of
antibiotic-resistant infections caused by Pseudomonas aeruginosa and certain
species of the pathogenic bacterium Neisseria.
Market Place
------------
The current annual worldwide market for infectious disease therapeutic agents is
estimated to exceed $25 billion, and continues to grow. Management believes that
the United States market share for new-generation antibiotics alone is
anticipated to reach about $10 billion within the next year. This phenomenal
growth continues in spite of the fact that bacteria have now developed
resistance to nearly all of the antibiotic agents that represent the product
growth leaders. This has led to a continual stream of new antibiotic products
introduced to the market, many of which have severely shortened product life
spans, as a direct result of the rapid development of resistance by infectious
bacteria. The medical community, including national and international public
health agencies, has been urging and supporting the biomedical research
community to expand their efforts to identify new technologies and products
employing novel mechanisms of action against infectious bacteria. The underlying
technology surrounding the bacteriophage products is anticipated to yield new
therapeutic agents for the treatment of life-threatening infections, especially
those incited by antibiotic-resistant bacteria. Phage plans to establish a
leadership position in the technology, development and regulatory approval of
bacteriophage therapeutic products.
Manufacturing Development
-------------------------
Essential to the successful scale-up manufacturing of bacteriophage therapeutic
products for preclinical and clinical testing, regulatory approval and
commercial sale is the establishment of current Good Manufacturing Practices
(cGMP) systems of manufacturing that will result in the reproducible
manufacturing of pharmaceutical products. Company mangers have substantial
expertise in cGMP manufacturing of pharmaceutical products and plan to have the
initial products manufactured by contract at a facility in compliance with cGMP
guidelines of the USFDA (United States Food and Drug Administration). Phage will
establish a cGMP manufacturing management system for drug substance and clinical
supplies manufacturing. The bacteriophage products are considered to be
biologicals by the USFDA, and Phage has experience in establishing systems to
the FDA standards. Computer-based quality assurance, quality control and
documentation systems will be established to assure compliance with FDA and
international regulatory authorities. Phage anticipates advancing the
development of one pharmaceutical product candidate through one stage of
development at any time, although two additional pharmaceutical product
candidates will be initiated concurrently within the molecular biology research
and development facility.
Competition
-----------
3
<PAGE>
The competition that will be faced by Phage during the discovery, development
and regulatory approval of its product line of bacteriophage therapeutic agents
will be represented by a combination of elements. Competition may be encountered
from the discovery and invention of new antibiotics that may be analogs or
derivatives of existing antibiotics to which antibiotic resistance genes have
not yet been expresses, or perhaps by new classes of antibiotics for which there
may not yet exist antibiotic resistance mechanisms within the bacterial genome.
Such successes could represent substantial competition. Greater competition may
be represented by new classes of agents that may represent novel biological
mechanisms of action for which resistance mechanisms are unlikely events. Also,
strategies for infection control are being implemented in hospitals and clinics,
and in industrial and domestic settings, that will preclude the onset of
contamination and subsequent infection. Such strategies and behaviors will
reduce the need for some users of antibiotics as therapeutic agents. Similar
strategies are currently being employed in the food and beverage industries,
also to reduce exposure of the general population to infectious agents.
Competition for Phage's technology, products and markets is represented by any
and all pharmaceutical and biotechnology companies that discover, make and sell
antibiotic products for the treatment of human infectious diseases. For example,
Exponential Biotherapies, Inc., (New York) is exploring bacteriophage product
development strategies employing technology intended to circumvent various
immune defense mechanisms of the human host against the bacteriophage.
Exponential is developing bacteriophage products for the treatment of
vancomycin-resistant enterococcus (VRE), streptococcal and staphylococcal
infections. In addition, Intralytix (Baltimore) is also developing bacteriophage
for the treatment of VRE and some animal bacterial infections. To Phage's best
knowledge, these competitor companies are in the research and development stage
at this time and have not initiated FDA-approved clinical trials.
Patents, Trademarks & Licenses
-------------------------------
Phage Therapeutics is identifying, characterizing, developing and patenting
novel bacteriophage technologies created within its own laboratories in
Washington State, and other bacteriophage technology has been identified for
which exclusive licenses are currently being negotiated. Phage Therapeutics has
filed a patent application number 09/082-274 on May 20, 1998, to protect Phage's
Staphylococcal products and to create significant barriers to entry by potential
competitors. A second patent application, number 09/631-605 has been filed on
August 3, 2000, to protect a proprietary, novel, natural source for Phage's
library of Staphylococcal bacteriophage active against both Staphylococcus
aureus and S. epidermidis. Both patent applications include bacteriophage
compositions, useful methods for their production, producer strains of bacteria
and therapeutic uses for treating humans and domestic animals. For patent
purposes, Phage has already deposited certain producer strains with the American
Type Culture Collection (ATCC) and will be depositing additional producer
strains and novel bacteriophage in the near future.
Phage Therapeutics has adopted a program to identify and protect intellectual
property resulting from research and development programs within its United
States research operations, as well as with its collaborating investigators and
institutions. Phage's policy is to protect its technology by, among other
things, filing patent applications with respect to technology considered
important to the development of its business. Phage also relies on trade
secrets, un-patented know-how, continuing technology innovation and the pursuit
of licensing opportunities to develop and maintain its competitive position.
Phage also require its employees, consultants, outside scientific collaborators
and sponsored researchers and other advisors to execute confidentiality
agreements (which include non-competition provisions) upon the commencement of
employment or other relationship with Phage. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with Phage is to be kept confidential
and not disclosed to third parties except in specific circumstances. In the case
of employees, the agreements provide that all of the technology of Phage or its
subsidiary which is conceived by the individual during the course of employment
with Phage is the exclusive property of Phage.
Regulatory Matters
------------------
General. Regulations imposed by federal, state and local authorities in the
United States, as well as authorities in other countries, are a significant
factor in the conduct of the research, development, manufacturing and eventual
marketing of Phage's products. In the United States, drugs, biological products
and medical devices are regulated by the United States Food, Drugs and Cosmetics
Act which is administered by the Food & Drugs Administration (FDA).
There are other regulatory laws, and corresponding regulations, which require
that the conduct of laboratory, preclinical and clinical studies conform with
Good Laboratory Practice ("GLP") and Good Clinical Practices ("GCP"). In
addition, manufacturing facilities for the research, testing and production of
drugs which are commercially produced must meet Good Manufacturing Practice
("GMP") requirements.
Phage is in compliance with all regulatory requirements to which it is subject
and has not been sanctioned by any regulatory authority for failure to comply
with any such requirements.
Regulatory Process for Therapeutic Drugs. The development and approval of a new
drug requires the performance of pre-clinical and clinical trials. The duration
of trials and number of subjects required may vary according to the disease
studied, the seriousness of the side effects, the nature of the proposed
treatment and the availability of existing therapies. Phage has not yet started
clinical trials. Phage has not yet started clinical trials.
4
<PAGE>
Pre-Clinical Studies. The purpose of pre-clinical studies is to determine the
safety, pharmacokinetics and scientific value of a new drug in animals before it
is administered to humans. Pre-clinical studies also include laboratory
evaluation of product chemistry, formulation and stability. Some of the
pre-clinical testing, including toxicity studies on animal species, must be
conducted by laboratories that comply with CGLP regulations. Data obtained from
pre-clinical trials must provide an adequate basis for evaluating both the
safety and scientific rationale for subsequent Phase I clinical studies in
patients. All of the data collected during pre-clinical studies must then be
presented in the form of an Investigational New Drug Application ("IND") or its
equivalent to the regulatory authorities in the jurisdiction where clinical
studies were conducted. In the United States, clinical studies may begin 30 days
after the IND application is filed unless the FDA notifies the applicant
otherwise. Reproductive safety studies provide justification for allowing
enrolment of female subjects of childbearing potential. Toxicity and
carcinogenicity studies that may take as long as 24 months to complete may be
undertaken to demonstrate the safety of drug administration for the extended
period of time required for effective therapy.
Clinical Trials. Clinical trials involve the administration of investigational
products to humans under the supervision of a qualified investigator. These
trials must be conducted in compliance with GCP under protocols set out in the
IND. Clinical trials are generally conducted in three phases. Phase I clinical
trials are commonly performed in healthy human subjects or, less frequently, in
selected patients with the targeted disease or disorder. The objective of these
trials is to obtain initial pharmacokinetic and pharmacodynamic data concerning
the therapy as well as the toxicity of the treatment and the subjects' tolerance
to it. Data regarding the absorption, distribution, metabolism and excretion of
the drug are also obtained in Phase I. In Phase II human clinical trials,
preliminary evidence is sought regarding the pharmacological effects of the drug
and the desired therapeutic efficacy with small numbers of patients with the
targeted disease. In these trials, efforts are made to evaluate tolerable dose
ranges, as well as the optimal dosage level and dosage schedule. Additional
safety data may be compiled from these trials. Phase III clinical development
trials generally consist of expanded, large-scale studies of patients with the
targeted disease so as to obtain definitive statistical evidence of the efficacy
and safety of the proposed drug and dosing regimen in comparison with standard
therapy.
Approval Process. The FDA may interrupt clinical studies if the health of the
subjects is threatened, if the side effects are not compensated for by the
drug's benefits or for any other reason. Once Phase III clinical trials have
been completed, all clinical trial results as well as information concerning the
product and its composition, synthesis, manufacture, packaging and labeling
methods for the purpose of obtaining approval to market the product are collated
into a file known as the regulatory dossier. The dossier, along with appropriate
application material, is filed according to agency-specific guidelines with the
appropriate regulatory authority. This application is known as a New Drug
Application ("NDA") in the United States. The agency review of an NDA generally
takes two to three years and government authorities may subsequently require
that the performance of Phase IV studies be completed following initial
marketing of the drug to assess its long-term effects.
Since drug manufacturing is also regulated, companies are required to ensure
compliance with GMP quality standards that require the control of production
activities, raw-material procurement, complaint management, product recalls,
labelling and promotional material. In addition to these standards, which are
common to all drugs, manufacturers of biopharmaceutical products must
demonstrate that their products are homogeneous from one lot to the next,
failing which the applicable regulatory authority may prohibit the sale of a lot
and possibly require that a product be recalled.
Accelerated Approval in the United States. The FDA has enacted regulations which
are intended to accelerate the process of validating the development, assessment
and marketing of new diagnostic drug or drugs used for the treatment of serious
diseases for which there is no other satisfactory treatment. This "fast-track"
designation enables the FDA to participate in the process of establishing
research protocols and enables, but does not require it to approve the marketing
of the drug immediately following the conclusion of Phase II clinical trials.
The FDA may nonetheless require that Phase III clinical trials for a drug be
completed even if it has approved the marketing of the drug.
Employees
---------
5
<PAGE>
Phage presently has no employees and conducts its business through its Officers
and Directors. Phage pays Stealth Investments, Inc. a monthly fee of $10,000
which is split evenly between Mr. Darren Pylot and Mr. Chris Tomanik for
management fees. Phage also pays a consultant fee of $2,500 a month to Mr. Noah
Croom, Phage's legal counsel. As of November 1, 2000, Phage Therapeutics has 3
employees in its Bothell, Washington office. These employees are: Mr. Richard
Herman, Mr. Douglas Lee, and Mr. Ken Lehman. The employees of Phage Therapeutics
are not unionized. Phage anticipates that the development of its business will
require the hiring of additional employees. At present, Mr. Richard Honour is
being paid as a consultant to Phage Therapeutics, but will become an employee by
the end of this year. Also see Contractual Arrangements on page 25. None of
Phage's current employees are covered by any collective bargaining agreement and
Phage has never experienced a work stoppage. Phage considers its employee
relations to be good. Phage believes its future success will depend in large
part upon its continuing ability to attract, train and retain highly skilled
technical, sales, marketing and customer support personnel.
Reports to Shareholders
Phage intends to furnish its shareholders with annual reports containing audited
financial statements and such other periodic reports as Phage may determine to
be appropriate or as may be required by law. Upon the effectiveness of this
Registration Statement, Phage will be required to comply with periodic
reporting, proxy solicitation and certain other requirements by the Securities
Exchange Act of 1934.
The public may read and copy any materials Phage files with the Securities
Exchange Commission (the "SEC") at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
General
The following discussion and analysis should be read in conjunction with the
financial statements, including the notes thereto, appearing elsewhere in this
document.
Overview
Phage has not had revenues from operations in each of the last two fiscal years.
Phage has financed its operations through raising capital through private
placements and loans from shareholders. [See Consolidated Financial Statements -
Notes 5 & 6]
Plan of Operation
Phage anticipates expending approximately $4,984,000 over the next twelve month
period in pursuing its anticipated plan of operations. Phage anticipates
covering these costs by additional equity financing. In approximately February
2000, Phage completed an offering of 1,942,858 units at $0.70 per unit pursuant
to a Regulation D, Rule 506 of the Securities Act of 1933, as amended. The total
proceeds of $1,360,000 received subsequent to the year end will help Phage
complete its anticipated plan of operations. As of October 23, 2000 Phage has
entered into a Securities Purchase Agreement with seven purchasers for
$3,000,000 paid to Phage in exchange for 4,285,714 units (see Securities
Purchase Agreement as Exhibit "C"). Each "Unit" consisting of one share of
Phage's common stock with a par value of $0.001 per share (the "Common Stock")
and one Common Stock purchase warrant (the "Warrant"). For every one and a half
Warrants the holder will entitle the holder to acquire one additional share of
Common Stock of Phage at an exercise price of $0.70 per share. Phage has
received $1,500,000 as payment for the first part of this agreement. The second
payment of $1,500,000 will occur within 7 days of the filing of this 10SB with
the Securities and Exchange Commission. These funds will go towards the
operations of Phage.
6
It is anticipated that if there is any shortfall in raising capital to continue
Phage's plan of operations, then the plan will be cut-back accordingly. Phage
anticipates that the financing raised to date will be used in the next twelve
months as follows :
--------------------------------------------------------- -------------------
1. Repayment of Indebtedness $300,000
--------------------------------------------------------- -------------------
2. Personnel Costs (Salaries, Taxes & Benefits) $1,350,000
--------------------------------------------------------- -------------------
3. Intellectual Property Development $150,000
--------------------------------------------------------- -------------------
4. Pharmaceutical R&D:
A. Manufacturing Development $0
--------------------------------------------------------- -------------------
B. Manufacturing Scale-Up $650,000
--------------------------------------------------------- -------------------
C. Analytical Methods Development $200,000
--------------------------------------------------------- -------------------
D. Formulations Development $75,000
--------------------------------------------------------- -------------------
E. Preclinical Safety and Efficacy Testing $400,000
--------------------------------------------------------- -------------------
F. Preclinical `Proof of Principle' Tests $300,000
--------------------------------------------------------- -------------------
G. Clinical Supplies Manufacturing $100,000
--------------------------------------------------------- -------------------
H. CGMP Documentation $75,000
--------------------------------------------------------- -------------------
I. Initial Stability Studies $50,000
--------------------------------------------------------- -------------------
J. `Phase I in Normals' Clinical Trials $100,000
--------------------------------------------------------- -------------------
K. Phase I/II Clinical Trials $100,000
--------------------------------------------------------- -------------------
L. Phase II Clinical Trials $0
--------------------------------------------------------- -------------------
5. FDA Regulatory Costs:
--------------------------------------------------------- -------------------
A. Internal $100,000
--------------------------------------------------------- -------------------
B. Outsourced $125,000
--------------------------------------------------------- -------------------
6. Laboratory Operations:
--------------------------------------------------------- -------------------
A. Internal $170,000
--------------------------------------------------------- -------------------
B. Outsourced $150,000
--------------------------------------------------------- -------------------
C. Work on Products 2 & 3 $45,000
--------------------------------------------------------- -------------------
7. Facilities (Rent, Telephones, Maintenance) $144,000
--------------------------------------------------------- -------------------
8. Equipment (Lab & Office) $200,000
--------------------------------------------------------- -------------------
9. Legal (Corporate & Securities) $50,000
--------------------------------------------------------- -------------------
10. Accounting (Corporate, Securities, Tax & Audit) $30,000
--------------------------------------------------------- -------------------
11. Investor & Public Relations $20,000
--------------------------------------------------------- -------------------
12. Business Operations $150,000
--------------------------------------------------------- -------------------
Total $5,034,000
--------------------------------------------------------- -------------------
7
<PAGE>
Fiscal Year Ended December 31, 1999
-----------------------------------
(Audited)
The Auditors for Phage have audited the consolidated balance sheet of Phage as
at December 31, 1999 and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended and for the period from inception on December 24, 1996 to December 31,
1999. [See Financials under Part F/S]
Revenues, Costs & Expenses
The only revenue to Phage has been by way of equity financing and loans to Phage
by shareholders. As of the year ended December 31, 1999, Phage had a loss of
$1,487,498. The accumulated loss from the date of inception on December 24,
1996, to December 31, 1999 is $4,185,753. The basic and diluted loss per share
as of the year ended December 31, 1999 is $0.23 cents per share.
As of December 31, 1999, Phage had assets totaling $52,025. This is comprised of
$1,223 cash & cash equivalents, $8, 282 prepaid expenses and other current
assets, and $42,520 in capital assets which includes research and development
equipment, computer and office equipment, furniture and fixtures, leasehold
improvements, construction (from year ended December 1998), and the accumulated
amortization.
The liabilities of Phage as of the year ended December 31, 1999 total $1,107,432
and stockholders' equity totaled $52,025.
Three Months Period Ended June 30, 2000
---------------------------------------
(Unaudited) June 30, 2000
Revenues, Costs & Expenses
As of June 30, 2000, Phage has assets totaling $833,410. $803,941 in cash and
cash equivalents, $7,715 in prepaid expenses and other current assets, and
$21,754 in capital assets. [See Unaudited Financials for Period Ended June 30,
2000].
Expenses for the three month period ending June 30, 2000 total $(168,747). These
expenses include general & administrative costs of $159,012, research and
experimentation costs of $9,235 and loss on disposal of assets of $500. The
basic and diluted loss per share for the three month period ended June 30, 2000
is $0.02.
Liquidity and Capital Resources
-------------------------------
Any prospective investors should consider carefully the following risks and
highly speculative factors which may affect the business of Phage.
Factors That May Affect Operating Results
The factors set forth below, along with the other information contained herein,
should be considered carefully in evaluating Phage's prospects. Further, this
document contains certain forward-looking statements that involve risks and
uncertainties, such as statements of Phage's plans, goals, objectives,
expectations and intentions. The cautionary statements made in this section
apply to all related forward-looking statements wherever they appear in this
document. Readers are cautioned that, while the forward-looking statements
reflect Phage's good faith beliefs, they are not guarantees of future
performance, and involve known and unknown risks and uncertainties. In addition,
Phage's actual results could differ materially from those discussed herein and
the business, its financial condition or results of operations could be
materially and adversely affected. In such case, some of the factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this document.
8
<PAGE>
Start-up or Development Stage Company
-------------------------------------
Since its organization, Phage has had limited operations and is a "start-up" or
"development stage" company. As with any company at this stage, there may be
unforeseen costs, expenses, problems and difficulties of which the management
may not be aware of. A commitment of substantial resources to conduct
time-consuming research and development and clinical studies will be required if
Phage is to complete the development of any potential products. Phage has not
yet begun to market or generate revenues from the commercialization of its
products and expects to incur further substantial losses during its current year
of operation. There can be no assurance that any of Phage's products will meet
applicable health regulatory standards, obtain required regulatory approvals, be
capable of being produced in commercial quantities at reasonable costs or be
successfully marketed, or that the investment made in such potential products
will be recouped through strategic alliance payments, product sales and royalty
payments to generate sufficient revenues to fund its continuing operations.
There can be no assurances that Phage, or its subsidiary, Phage Therapeutics
will achieve profitability in the future, or, if so, as to the timing or amount
thereof. Phage's products and technologies are currently in the research and
development stages and there can be no assurance that these programs conducted
by Phage will result in commercially viable products. No specific drug
formulation has yet been achieved. To obtain regulatory approvals for some of
Phage's products and to achieve commercial success, human clinical trials must
demonstrate that the products are safe for human use and that they show
efficacy. No assurance can be given that any animal or human tests, if
undertaken, will yield favorable results. Unsatisfactory results obtained from a
particular study relating to one or more of Phage's products or technologies may
cause Phage to reduce or abandon its commitment to that program. (See Financial
Statements and Business of Phage)
Reliance Upon Officers, Directors and Key Employees
---------------------------------------------------
Phage is reliant on certain members of its management and scientific staff, and
the loss of the services of one or more of these individuals could adversely
affect Phage. In addition, Phage's ability to effectively manage growth will
require it to continue to implement and improve its management systems and to
recruit and train qualified employees. Although Phage has been successful in the
past in obtaining trained staff, there can be no assurance that Phage will be
able to attract and retain skilled and experienced personnel in the future.
No Key Man Life Insurance
-------------------------
The success of Phage will depend to a considerable degree on Dr. Gaetano
Morello, Chairman and Director, Mr. Darren Pylot, President & Director, and Mr.
Richard C. Honour, Vice President of Research and Development of Company and the
President and a Director of Phage Therapeutics Inc. Phage has not obtained key
man life insurance for any of these officers There can be no assurance that
Phage will be able to secure key man life insurance for any of the officers.
Conflicts of Interests
----------------------
Management of Phage may devote time to other companies or projects which may
compete, directly or indirectly, with Phage. An attempt will be made with regard
to any conflicts of interest between Phage and management to resolve such
conflicts in favor of Phage.
Ability to Attract and Retain Qualified Personnel
-------------------------------------------------
Phage's success depends upon the continued efforts of its senior management team
and its technical, marketing and sales personnel. Such employees may voluntarily
terminate their employment with Phage at any time, as Phage presently has no
employment agreements with any of its employees. Phage's success also depends on
its ability to attract, train and retain additional highly qualified management,
technical, marketing and sales personnel. The process of hiring employees with
the combination of skills and attributes required to carry out Phage's strategy
is extremely competitive and time-consuming. There can be no assurance that
Phage will be able to retain or integrate existing personnel, or successfully
identify, hire and train additional qualified personnel. The loss of the
services of key personnel, or the inability to attract additional qualified
personnel, could have a material adverse effect on Phage's business, financial
condition and results of operations.
9
<PAGE>
Dependence on Collaborative Arrangements
----------------------------------------
Phage's strategy is to enter into various arrangements with corporate partners,
licensors, licensees and others for the research, development, manufacturing,
marketing and commercialization of its products. There can be no assurance that
Phage will be able to establish such arrangements on favorable terms, if at all,
or that such arrangements will be successful. The failure to establish
successful collaborative arrangements with respect to certain products could
negatively impact Phage's ability to commercialize those products.
Control by Certain Shareholders
-------------------------------
Phage has acquired approximately 88% of the issued and outstanding common shares
of Phage Therapeutics Phage acquired its share position in Phage Therapeutics by
purchasing shares directly from Phage Therapeutics and by acquiring shares from
other stockholders of Phage Therapeutics Phage issued shares in its common stock
in exchange for the shares of Phage Therapeutics it acquired from individual
stockholders. In these transactions, sufficient common shares of Phage were
issued such that a controlling interest in Phage rests with the former
stockholders of Phage Therapeutics if they chose to act as a group. In total
3,836,711 shares in the capital stock of Phage were issued to the former
stockholders of Phage Therapeutics which represents approximately 35% of the
issued and outstanding share capital of Phage. Phage is not aware of any
agreement among the 22 former stockholders of Phage Therapeutics to act as group
or in concert with one another in connection with their share ownership in
Phage.
Need for Additional Capital
---------------------------
Phage, as of June 30, 2000, has current assets of $811,656 and current
liabilities of $871,503. As of this date, Phage has not acquired or received any
income from its proposed operations, and there can be no assurance that any such
commitments will be forthcoming in the future. To continue to operate as a going
concern over the next twelve months is wholly contingent Phage's ability to
raise up to $5.5 million in a combination of debt and equity securities to have
sufficient working capital to run and grow the business through. Recently, Phage
raised $1.5 million of this amount. Should Phage be unsuccessful in its efforts
to raise the additional capital it needs, it will be required to curtail its
plans or it may be required to cut back or stop operations. There can be no
assurance that Phage will raise additional capital or generate cash from
operations sufficient to meet its obligations and planned requirements.
Phage may seek additional sources of capital, including an additional offering
of its equity securities, an offering of debt securities or obtaining financing
through a bank or other entity. This may not be available on a timely basis, in
sufficient amounts or on terms acceptable to Phage. The inability of Phage to
raise additional equity capital or borrow funds required to effect its business
plan, may have a material adverse effect on Phage's financial condition and
future prospects. Additionally, to the extent that further funding ultimately
proves to be available, both debt and equity financing involve risks. Debt
financing may require Phage to pay significant amounts of interest and principal
payments, reducing the resources available to Phage's business operations. Some
types of equity financing may be highly dilutive to Phage's stockholders'
interest in Phage's assets and earnings. Any debt financing or other financing
of securities senior to common stock will likely include financial and other
covenants that will restrict Phage's flexibility.
Competition
-----------
The pharmaceutical and biotechnology industries are highly competitive. Phage
competes with other companies, academic and research institutions which have
substantially greater resources to those of Phage. Other companies may succeed
in developing products earlier than Phage, obtaining HPB and FDA approvals for
such products more rapidly than Phage or its subsidiary or developing products
that are more effective than those proposed to be developed by Phage. While
Phage will seek to expand its technological capabilities in order to remain
competitive, there can be no assurance that research and development by others
will not render Phage's technology or products obsolete or non-competitive or
result in treatments or cures superior to any therapy developed by Phage, or
that any therapy developed by Phage will be preferred to any existing or newly
developed technologies.
10
<PAGE>
Patents and Licensed Technology
-------------------------------
Phage's's policy is to protect its technology by, among other things, filing
patent applications with respect to technology considered important to the
development of its business. Phage also rely upon trade secrets, unpatented
know-how, continuing technology innovation and the pursuit of licensing
opportunities to develop and maintain its competitive position. There can be no
assurance, however, that any of the foregoing will prevent or provide meaningful
protection or adequate remedies for Phage's technology in the event of
unauthorized use or disclosure of such information.
Competitors or potential competitors may have filed applications for, or may
have received patents and may obtain additional and proprietary rights to,
compounds or processes used by or competitive with those of Phage. The issuance
of patents based on such compounds or processes could adversely affect the
ability of Phage or its subsidiary to market and sell Phage's or its
subsidiary's products. If a license is required, there can be no assurance that
Phage or its subsidiary will be able to obtain such a license, or that, if
obtainable, such a license would be available on reasonable terms.
Patent litigation is becoming widespread in the biotechnology industry and it is
not possible to predict how any such litigation will affect Phage's or its
subsidiary's efforts to form strategic alliances, conduct clinical testing or
manufacture and market any products under development. Further, there can be no
assurance that Phage's or its subsidiary's patents, if issued, would be held
valid by a court of competent jurisdiction. Phage may also become involved in
interference proceedings in connection with one or more of its patents or patent
applications to determine priority of invention, which could result in
substantial cost to Phage or its subsidiary, as well as a possible adverse
decision as to priority of invention of the patent or patent application
involved.
Regulatory Environment
----------------------
The procedure involved in obtaining regulatory approval from the competent
authorities to market therapeutic products is long and costly and may delay
product development. The approval to market a product may be applicable to a
limited extent only or it may be refused. Such limitations or refusal could be
detrimental to the sales and profitability of Phage. To date, Phage Therapeutics
has not submitted applications to the HPB or the FDA for the marketing of its
products. There can be no assurance that Phage will obtain such regulatory
approval on a timely basis or at all.
Manufacturing and Marketing
---------------------------
Phage has not yet manufactured any products for commercial distribution and in
order to be successful, Phage's products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
Phage does not have facilities for the production of its products under
development and will initially obtain the small amounts of its products it
requires for clinical studies from contract manufacturing companies. In order to
manufacture it products in commercial quantities, if it elects to do so, Phage
will need to develop its own manufacturing facilities or contract with third
parties to manufacture its products. There can be no assurance, however, that
Phage will be able to develop or otherwise secure access to such facilities or
that Phage or any third parties it contracts with will be able to produce
commercial quantities of Phage's products at reasonable cost, or at all.
Product Liability
-----------------
The sale and use of products under development by Phage, and the conduct of
clinical studies involving human subjects, may entail risk of product liability.
Phage does not currently have in place product liability insurance for its
products but expects that, as it expands, it will require such insurance. There
can be no assurance that Phage will be able to obtain appropriate levels of
product liability insurance prior to the sale of its products. An inability to
obtain insurance on economically feasible terms or to otherwise protect against
potential product liability claims could inhibit or prevent the
commercialization of products developed by Phage. The obligation to pay any
product liability claim or recall a product could have a material adverse effect
on the business, financial condition and future prospects of Phage.
11
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY.
At present the offices of Phage are being provided by management. Phage expects
to locate its offices at the facility leased by Phage Therapeutics on completion
of its acquisition of 100% of the shares of Phage Therapeutics Phage
Therapeutics entered a lease agreement effective May 1, 1997 which was to expire
April 2002. In November, 1999 Phage Therapeutics received from the lessor a
release from the remaining term of the lease in exchange for payments of
$35,000, $23,242 and $19,370 to be made on March 20, 2000, June 10, 2000 and
September 10, 2000 respectively. These amounts totaling $77,612 represent unpaid
rent of approximately $54,000 (for four months) plus a penalty for lease
termination. All amounts have been included in the Consolidated Financial
Statements as of December 31, 1999 and are included in rent expense and recorded
as a liability at December 31, 1999. This lease was for approximately 17,000
square feet in Bothell, Washington. Currently, Phage Therapeutics's physical
assets are being held in a storage facility for which Phage Therapeutics pays a
monthly fee. A new lab facility in Bothell, Washington will be ready for Phage
Therapeutics to move into by mid- November. The new lab facility will be used to
conduct research on the discovery of new products and to conduct supportive
development work on Phage's products.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning the Common Stock
ownership as of October 23, 2000, of each officer, director, promoter, or
shareholder who is known to Phage as management or to be the holder of record or
beneficial owner of more than five percent of Phage's Common Stock. Unless
otherwise indicated, Phage believes that the persons named in the table below,
based on information furnished by such owners, have sole voting and investment
power with respect to the Common Stock beneficially owned by them, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
------------------------------------------------------ -------------------------------------------------------------
Name and Address Amount and Nature of Beneficial Ownership (2)(3)
of Beneficial Owner (1)
------------------------------------------------------ -------------------------------------------------------------
Number(4) Percentage
------------------------------------------------------ -------------------------------- ----------------------------
<S> <C> <C>
Richard Honour, Vice President of Research & 100000 0.92%
Development
Kenmore, Washington
------------------------------------------------------
Darren Pylot, President & Chief Executive Officer 0 0%
Vancouver, British Columbia
------------------------------------------------------ -------------------------------- ----------------------------
Gaetano Morello, Chairman 100000 0.92%
Vancouver, British Columbia
------------------------------------------------------ -------------------------------- ----------------------------
Richard Herman 0 0%
Redmond, Washington
------------------------------- ----------------------------
Robert Miller (5) 997518 9.16%
Miami, Florida
------------------------------- ----------------------------
Douglas I. Lee 0 0%
Seattle, Washington
John J. Majnarich 0 0%
Preston, Washington
Deirdre (Dee) Sweeney 0 0
Redmond, Washington
Kenneth E. Lehman 0 0
Kenmore, Washington
Michael C. Maloney 0 0%
Woodinville, Washington
------------------------------------------------------ -------------------------------- ----------------------------
12
<PAGE>
</TABLE>
Note:
7. As of the date hereof, to the knowledge of Phage's directors and officers,
there are no other persons who are holders of record or are beneficial
owners, directly or indirectly, of shares conferring over 5% of the voting
rights attached to the issued and outstanding Common Shares. Unless
otherwise indicated, the named party is believed to have sole investment
and voting control of the shares set forth in the above table. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days upon the exercise of options. Calculations of
percentages of beneficial ownership assume the exercise by only the
respective named stockholders of all options for the purchase of Common
Stock held by such stockholder which are exercisable within 60 days of
November 15, 2000.
8. Unless otherwise indicated, the named party is believed to have sole
investment and voting control of the shares set forth in the above table.
9. Does not include Shares to be issued on exercise of the Warrants or
exercise of the Agent's Warrants.
10. Does not includes Shares issued under Stock Option Plan.
11. Auron 2000 owns 497,518 common shares, in which Mr. Robert Miller owns 100%
of Auron 2000. Mr. Robert Miller owns 500,000 in his own name.
Changes in Control
------------------
Phage currently has no arrangements which may result in a change of control.
Stock Options
-------------
The Board of Directors and shareholders of Phage have adopted an incentive stock
option plan (the "Plan") providing for the granting of stock options to
officers, directors, employees and key consultants of Phage and its subsidiaries
or affiliates. The purpose of the Plan is to enable Phage to attract and retain
persons whose efforts will assist in the future growth and success of Phage.
Under the Plan, Phage is authorized to issue options up to a total of 10% of the
shares of the common stock of Phage outstanding from time to time. The options
under the plan are non-assignable (except in the event of death) and vest over a
five year period. The vesting schedule will be determined by the Board of
Directors or Administrator of the Plan. Options granted under the Plan terminate
within 30 days, in respect of any optionee, in the event that such optionee
ceases to be a full-time employee, director or officer of the Corporation or
within six months after the death of such optionee. The Board of Directors may,
at its sole discretion, determine the time during which options shall vest and
the method of vesting, or that no vesting restriction shall exist.
Phage has reserved for issuance 1,405,000 shares of the common stock of Phage
pursuant to the Stock Option Plan based on the total issued an outstanding share
capital on January 4, 2000, the date the Stock Option Plan was approved by the
shareholders of Phage. There are currently 1,405,000 stock options outstanding
under the Stock Option Plan.
In addition to the foregoing, Phage anticipates it will assume the obligations
of the stock option plan for Phage Therapeutics and options issued under that
plan on and if it is able to acquire 100% of the issued and outstanding share
capital of Phage Therapeutics Currently, 1,405,000 options are issued and
outstanding exercisable for shares of Phage Therapeutics
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Officers of Phage
-------------------------------
13
<PAGE>
The names, ages and positions of the executive officers and directors of Phage
are:
Name ......... Age Position
---- --- --------
Gaetano Morello... 37 Chairman & Director
Darren Pylot...... 33 President & Director
Richard Honour.... 60 Vice-President Research & Development &
Director
In addition to the foregoing, Phage will recruit and appoint additional
directors and officers as needed who have the requisite complement of skills to
successfully implement the mandate of Phage. Currently Phage has no employees.
Phage will recruit employees as Phage grows and develops.
The following describes the principal occupation of each officer and director of
Phage for the previous five years:
Gaetano Morello. Dr. Gaetano Morello was appointed Director of Phage on February
8, 2000 and appointed Chairman on March 13, 2000. He is a licensed naturopathic
physician practicing in West Vancouver, British Columbia and a contributing
author to several medical publications, including The American Journal of
Natural Medicine. Dr. Morello is a medical consultant to a number of companies
and lectures in Canada, the United States, Germany and Italy on the scientific
basis of natural medicine. Dr. Morello also currently practices at the West
Coast Clinic for Naturopathic Medicine in Vancouver, Canada. He has experience
in the clinical applications of the scientific foundations of natural medicine.
Darren Pylot. Mr. Pylot has served as a Director and President Company since May
26, 1998 and has also served as Chief Executive Office & President of Phage
until June 17, 1999. He was re-appointed President of Phage on February 8, 2000.
Mr. Pylot is the founder and President of Stealth Investments Corp. (a private
British Columbia company). Since 1994 he has been the President and a Director
of Serena Resources Ltd., a publicly traded mineral exploration company. Since
1996, Mr. Pylot has been a Director of Stamford International Inc., a publicly
traded holding company which has a controlling interest in Nanovation
Technologies Inc., a company who has an exclusive license from Northwestern
University for the world wide rights to the Photonic wire microvcavity laser
project, and that has funded construction of a nano-fabrication laboratory on
the Northwestern University campus.
Richard Honour, PhD. Mr. Honour was re-appointed a Director and Vice President
of Research and Development of Phage on August 15, 2000 and has served as
President and Chief Executive Officer of Phage from October 27, 1998 to December
16, 1999. He has also served as President & Chief Executive Officer for Phage
Therapeutics from 1997 to December 16, 1999. He was President & CEO of
ZymoGenetics (Seattle, WA, 1983-85) and MicroProbe Corporation (Bothell, WA,
1985-90) and Executive VP for Pharmaceutical Development with Cytran, Inc.
(Kirkland, WA, 1991-95). He then worked with the investment banking firm of
Chanen, Painter & Co. (Seattle, WA, 1995-97). Previously, Dr. Honour was
Executive Director of a National Cancer Institute-sponsored clinical trials
research program at the University of Southern California, School of Medicine
(Los Angeles, CA, 1973-83), which evaluated new cancer therapeutic agents and
multidisciplinary regimens, where he also held a faculty appointment. His career
and experience have focused on the discovery and development of diagnostic and
therapeutic products for human infectious diseases and cancer. Dr. Honour earned
a Doctorate degree from the University of California (1972), where he
specialized in microbiology. He is a Director for several private technology and
health care companies and he is a biotechnology and health care advisor for the
Washington Technology Center, University of Washington, as well as for two
venture capital firms.
14
<PAGE>
Appointment of Director and Officers
-------------------------------------
Directors may be elected in the manner prescribed by the provisions of Sections
607.0801 through 607.0850 of the Florida Business Corporation Act. Directors are
elected at the first annual shareholders' meeting and at each annual meeting
thereafter unless their terms are staggered under s. 607.0806. Any director may
resign at any time by delivering written notice to the board of directors or its
chair or to Phage. Thereafter, directors who are elected at an election of
directors by stockholders, and directors who are elected in the interim to fill
vacancies and newly created directorships, shall hold office until the next
election of directors by stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. In the interim between
elections of directors by stockholders, newly created directorships and any
vacancies in the Board of Directors, including any vacancies resulting from the
removal of directors for cause or without cause by the stockholders and not
filled by said stockholders, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum.
Phage must have a President, a Secretary, and a Treasurer, and if deemed
necessary, expedient, or desirable by the Board of Directors, a Chairman of the
Board, a Vice-Chairman of the Board, and Executive Vice-President, one or more
other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers and agents with such titles as the
resolution choosing them shall designate. Each of any such officers must be
natural persons and must be natural persons and must be chosen by the Board of
Directors or chosen in the manner determined by the Board of Directors.
The term of office of each director is one year or until his successor is
elected at the annual meeting of Phage and qualified. The term of office for
each officer of Phage is at the pleasure of the Board of Directors. The Board of
Directors has no nominating, auditing or compensation committee. There are no
arrangements or understandings between any of the officers or directors and any
other persons pursuant to which such officer or director was selected as an
officer or director.
Involvement in Other Public Companies
-------------------------------------
Mr. Darren Pylot is also the President and Director of Serena Resources Ltd.
which is currently inactive. Serena Resources Ltd. has applied to the Canadian
Ventures Exchange ("CDNX") for Mining Property approval and is awaiting approval
from CDNX.
Involvement in Certain Legal Proceedings
----------------------------------------
Except as indicated below and/or hereinbefore, to the knowledge of Management,
during the past five years, no present or former director, executive officer, or
person nominated to become a director or executive officer of Phage:
(1) Filed a petition under federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar
officer appointed by a court for the business or property of such
person, or any partnership in which he was a general partner at
or within two years before the time of such filing, or any
corporation or business association of which he was an executive
officer at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and
other minor offences);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him
or her from or otherwise limiting his/her involvement in any type
of business, securities or banking activities;
(4) Was found by a court of competent jurisdiction in a civil action,
by the Securities and Exchange Commission or the Commodity
Futures Trading Commission, to have violated any federal or state
securities law, and the judgment in such civil action or finding
by the Securities and Exchange Commission has not been
subsequently reversed, suspended, or vacated.
Directors, Executive Officers of Phage Therapeutics
---------------------------------------------------
The Board of Directors and Officers of Phage Therapeutics mirrors the current
Board of Directors of Phage in composition and positions held.
15
<PAGE>
Advisors of Phage and Phage Therapeutics
----------------------------------------
Phage's management team and advisors have extensive experience in biotechnology
and biopharmaceutical development, including the development of human
therapeutic products. Various of the these members have direct experience in
research management, drug substance and finished product pharmaceutical
manufacturing, analytical methods, pharmaceutical product development,
preclinical studies design and management, FDA documentation systems, quality
control and quality assurance systems, Phase I, II and III clinical
investigations, pharmaceutical product corporate strategic planning,
intellectual property and licensing, and corporate finance. The management team
and advisors are as follows:
Richard E. Herman, PhD, is a microbial geneticist and molecular biologist with
15 years of experience in biotechnology. Dr. Herman holds a PhD degree and has
worked on the interaction of bacteriophage T4 with an antibiotic resistance
plasmid in E.coli. Dr. Herman has conducted research on the infective processes
of Herpes Simplex Virus in nerve cells and developed cloning techniques for
streptococci bacteria of importance to industrial fermentations. While Director
of Microbial Research at BioTechniques Laboratories (Redmond, WA), Dr. Herman
led product development, directed animal field trials (including poultry, swine,
beef and dairy cattle) and patented products containing beneficial bacteria
designed to improve the health of the intestinal tracts of animals and humans.
Dr. Herman was awarded the PhD degree from the University of Minnesota in
genetics, an MS degree in cellular biology, and a BA degree in biology.
Douglas I. Lee, MA, MBA, is a microbiologist and product development specialist
with more than 14 years of experience in the biotechnology industry. Mr. Lee
brings expertise in the fields of infectious disease microbiology and virology,
based on past employment at the University of Washington (Department of
Infectious Diseases), Genetic Systems Corporation (Seattle, WA), Immunex
Corporation (Seattle, WA), and MicroProbe Corporation (Bothell, WA). Most
recently, Mr. Lee was Senior Scientist with BARD Diagnostic Sciences, Inc.
(Redmond, WA), where he discovered and developed monoclonal antibodies for the
early detection of bladder cancer. In 1996, Mr. Lee earned an MBA degree from
the University of Washington.
Deirdre (Dee) Sweeney, B.Sc., is a regulatory affairs consultant with more than
24 years of regulatory experience having worked for the Federal Drug
Administration, Bristol-Meyers Squibb and most recently, NeoRx Corporation where
she held the position of Director of Regulatory Affairs. Ms Sweeney started her
own regulatory consulting business in 1997, Sweeney Regulatory Consulting,
providing regulatory services to companies engaged in the development and
manufacture of biotechnology products, pharmaceuticals, and medical devices. Ms
Sweeney was President of the Organization of Regulatory and Clinical Associates
(ORCA) for the past two years and she has served on the Board of Directors of
Washington Biotechnology and Biomedical Association (WBBA) for the past seven
years. Ms Sweeney received her Bachelor of Science degree in Biology and Art
from Bowling Green State University. Ms Sweeney is part of the Regulatory
Affairs Professional Society and has been Regulatory Affairs Certified (RAC)
since 1991.
Kenneth E. Lehman, B.A., MBA, is a controller with approximately 18 years of
experience in managerial accounting and project management with US West
Communications, Inc. Mr. Lehman's operational experience includes general
accounting, financial statements, financial analysis, accounting policies and
procedures, fixed asset management, and audits. Prior to this experience, Mr.
Lehman was part of the United States Army, Finance Corps, 101st Airborne
Division from 1969 to 1971. Mr. Lehman received his Bachelor of Arts in
Accounting from the University of Washington in 1974 and his Masters of Business
Administration, Finance and Accounting from City University in Seattle,
Washington in 1986. Mr. Lehman has begun working for Phage Therapeutics on a
full-time basis starting November 1, 2000.
16
<PAGE>
Collaborative Relationships
---------------------------
In addition to Phage Therapeutics's biotechnology business and laboratory
operations in Washington, Phage Therapeutics collaborates with several academic
research groups and universities for the evaluation and characterization of
bacteriophage that represent an important source of Phage's bacteriophage
technology and products. Phage Therapeutics is initiating individual consulting
and advisory agreements with certain of these key investigators including:
Michael C. Maloney, RAC, Advisor, is a regulatory professional with more than 21
years of United States and international experience in the commercialization of
medical products. He has experience in quality assurance, manufacturing,
documentation, clinical investigations, product licensing and regulatory
compliance. Mr. Maloney has participated in the successful introduction of a
broad spectrum of medical products, including Class I, II and III medical
devices, in vitro diagnostics, and critical care monitoring equipment. In
addition, he has participated in the development of biological and therapeutic
agents. Also, he has a broad range of experience in filing product licensing
applications, including IDE, 510(k), PMA and IND applications, as well as
international dossiers. He has served as Manager, Director or Vice President of
Regulatory Affairs, and Director of Operations. He is a member of the Regulatory
Affairs Professional Society (RAPS), is Regulatory Affairs Certified by RAPS,
and is a member of the American Society for Quality Control. Mr. Maloney
currently serves as President & CEO of La Hay Laboratories, Inc., Redmond, WA.
John J. Majnarich, PhD, is a biochemist and senior research executive with more
than thirty years of laboratory and management experience. Dr. Majnarich has
special expertise in the evaluation and testing of natural and synthetic
compounds for use as animal or human therapeutic products. Dr. Majnarich is
President and Scientific Director of BioResearch Laboratories, Inc., Redmond,
WA. He was founder of Biomed, Inc., Bellevue, WA, where he developed and managed
Biomed into one of the world's leading fish vaccine research and manufacturing
companies. Dr. Majnarich was also Director of the Biological Division of Schick
Laboratories, Seattle, WA, managing the licensing of a human therapeutic product
with the United States FDA. Dr. Majnarich has more than twenty years of
experience working with the USDA and the United States FDA in the development,
testing and licensing of new human therapeutic products, including natural
products and foods. Dr. Majnarich holds a Doctorate in Biochemistry from the
University of Washington.
ITEM 6. EXECUTIVE COMPENSATION
General
-------
Compensation is paid indirectly to Darren Pylot, as disclosed below under the
sub-heading "Contractual Arrangements". Mr. Richard Honour is being paid as a
consultant to Phage Therapeutics at a cost of $7,000 per month from Phage
Therapeutics Phage expects this consultancy arrangement with Mr. Richard Honour
to be cancelled by the end of this year and Phage Therapeutics will pay Mr.
Honour as an employee. In 1998 and 1999, Mr. Richard Honour was paid as an
employee of Phage Therapeutics Mr. Honour is owed back salary of a total of $
125,689,42 for 1998 and 1999. None of the other Directors of the Company have
received any cash compensation, directly or indirectly, for their services
rendered during the most recently completed financial year of Phage. Phage does
not have any non-cash compensation plans for its Directors and it does not
propose to pay or distribute any non-cash compensation during the current
financial year, other than pursuant to the granting of stock options.
Contractual Arrangements
------------------------
On September 1, 1998, Phage entered into a management agreement with Stealth
Investment Corp. to provide day to day management services to Phage (the
"Management Agreement"). Mr. Darren Pylot, a director and officer of the
Company, is the sole shareholder and director of Stealth Investment Corp. The
Management Agreement is terminable by either party with two month's notice and
provides for a base fee of $ 10,000 per month plus related expenses. In the
current fiscal year up to the period ending June 30, 2000, Phage has paid
Stealth Investment Corp. a total of $ 60,000 under the Management Agreement. As
of November 1, 2000, Phage owes $60,000 to Stealth Investment Corp.
17
<PAGE>
In January 2000, Phage Therapeutics entered into a consulting agreement with
Richard Honour. Mr. Richard Honour is a director and officer of the Company. Mr.
Richard Honour is provided a consultancy fee of $7,000 per month. This
consulting agreement is an oral agreement between Mr. Richard Honour and Phage
Therapeutics A written employment agreement is pending. From January 2000 to the
present, Mr. Richard Honour has received approximately $77,000.
Summary Compensation Table
The following table sets forth all annual and long term compensation for
services in all capacities to Phage for the three most recently completed
financial years in respect of each of the individuals who were, the Chief
Executive Officer and the other four most highly compensated executive officers
of Phage whose individual total compensation for the most recently completed
financial year exceeds $100,000 (collectively " the Named Executive
Officers") including any individual who would have qualified as a Named
Executive Officer but for the fact that the individual was not serving as such
an Officer at the end of the most recently completed financial year.
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation
-------------------------------------
Awards Payouts
------------------------------------------------------------------------ ----------- ------------------------- --------------
Name and Principal Year Salary* Bonus Other Annual Securities Restricted LTIP All Other
Position ($) ($) Compensation Under Shares or Payouts Compensation
($) Option/ Restricted ($) ($)
SAR's Share Units
Granted ($)
(#)
-------------------- -------- ---------------- -------- ---------------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name 2000 $Nil Nil Nil 50,000 Nil Nil Nil
Gaetano Morello 1999 Nil Nil Nil Nil Nil Nil Nil
1998 Nil Nil Nil Nil Nil Nil Nil
-------------------- -------- ---------------- -------- ---------------- ----------- ------------- ----------- --------------
Darren Pylot(2) 2000 $Nil Nil Nil 240,000 Nil Nil Nil
1999 Nil Nil Nil Nil Nil Nil Nil
1998 Nil Nil Nil Nil Nil Nil Nil
-------------------- -------- ---------------- -------- ---------------- ----------- ------------- ----------- ---------------
Richard Honour 2000 $ 7,000/mo (3) Nil Nil 500,000 Nil Nil Nil
1999 12,000/mo Nil Nil Nil Nil Nil Nil
1998 12,000/mo Nil Nil Nil Nil Nil Nil
-------------------- -------- ---------------- -------- ---------------- ----------- ------------- ----------- ---------------
<FN>
Notes:
(1) Perquisites and other personal benefits do not exceed the lesser
of $50,000 and 10% if the total of the annual salary and bonus of
the named executive officers for the financial year.
(2) Mr. Darren Pylot is paid $5,000 per month by Stealth Investments
Corp. which in turn is paid $10,000 per month from Phage for
management services. (See "Contractual Arrangements" on page 25).
(3) Mr. Richard Honour is currently being paid under a contractual
agreement for 2000. For the past two years, Mr. Honour was paid
as an employee. It is expected that Mr. Honour will be paid as an
employee by the end of 2000.
</FN>
</TABLE>
Long Term Incentive Plan (LTIP) Awards for Named Executive Officers
Phage has had no LTIP awards during the most recently completed financial year.
Stock Option and Stock Option Appreciation Rights (SAR's) for Named
Executive Officers
Stock Option Grants
The following table sets forth the information regarding the stock option grants
during the current fiscal year for the Chief Executive Officer and Phage's other
executive officers:
<TABLE>
<CAPTION>
Stock Options Granted in Last Fiscal Year - Individual Grants
------------------------------------------------------------------------------------------------------------------------
Number of Securities Percentage of Total Exercise Price
Underlying Options Granted Options Granted to ($/Share)
Name and Principal Position Employees in Fiscal Year
-------------------------------------- --------------------------- ---------------------------- ------------------------
<S> <C> <C> <C>
Darren Pylot, President 240000 10% 0.55
-------------------------------------- --------------------------- ---------------------------- ------------------------
Gaetano Morello, Chairman 50000 10% 0.75
-------------------------------------- --------------------------- ---------------------------- ------------------------
Richard Honour, VP of Research & 500000 10% 0.55
Development
-------------------------------------- --------------------------- ---------------------------- ------------------------
Total Stock Options Issued in 2000 1297000
-------------------------------------- --------------------------- ---------------------------- ------------------------
</TABLE>
18
<PAGE>
Stock Options
-------------
The Board of Directors and shareholders of Phage have adopted an incentive stock
option plan (the "Plan") providing for the granting of stock options to
officers, directors, employees and key consultants of Phage and its subsidiaries
or affiliates. The purpose of the Plan is to enable Phage to attract and retain
persons whose efforts will assist in the future growth and success of Phage.
Under the Plan, Phage is authorized to issue options up to a total of 10% of the
shares of the common stock of Phage outstanding from time to time. The options
under the plan are non-assignable (except in the event of death) and vest over a
five year period. The vesting schedule will be determined by the Board of
Directors or Administrator of the Plan. Options granted under the Plan terminate
within 30 days, in respect of any optionee, in the event that such optionee
ceases to be a full-time employee, director or officer of the Corporation or
within six months after the death of such optionee. The Board of Directors may,
at its sole discretion, determine the time during which options shall vest and
the method of vesting, or that no vesting restriction shall exist.
Phage has reserved for issuance 1,405,000 shares of the common stock of Phage
pursuant to the Stock Option Plan based on the total issued an outstanding share
capital on January 4, 2000, the date the Stock Option Plan was approved by the
shareholders of Phage. There are currently 1,405,000 stock options outstanding
under the Stock Option Plan.
In addition to the foregoing, Phage anticipates it will assume the obligations
of the stock option plan for Phage Therapeutics and options issued under that
plan on and if it is able to acquire 100% of the issued and outstanding share
capital of Phage Therapeutics Currently, 1,405,000 options are issued and
outstanding execiseable for shares of Phage Therapeutics
SARS
----
Phage has had no SARS during the most recently completed financial year.
Termination of Employment, Change of Control, and Employment Contracts
Phage has no plan or arrangement in respect of compensation received or that may
be received by executive officers in Phage's most recently completed or current
financial year to compensate such officers in the event of the termination of
employment on resignation, retirement, or change of control in the event of a
change in responsibilities following a change in control, where in respect of an
executive officer the value of such compensation exceeds $42,000.
Indebtedness to Company of Directors and Officers
None of the directors, senior officers or proposed nominees of management of
Phage or associates or affiliates of the foregoing persons is or has been
indebted to Phage at any time since the beginning of the last completed
financial year of Phage.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Transactions
--------------------
Phage has acquired approximately 88% of issued and outstanding share capital of
Phage Therapeutics through a combination of purchasing stock directly from Phage
Therapeutics and through completion of a series of share exchange agreements
with individual stockholders. Phage intends to pursue and enter into further
share exchange agreements with the remaining stockholders of Phage Therapeutics
in due course to increase its holding to 100%.
During the 1999 fiscal year, Phage received several loans from Prostar Limited,
a shareholder of Phage, which totaled $140,198 at year-end. The loans bear an
interest of 11% per annum are repayable on demand.
Other than the foregoing, there have been no transactions between Phage in which
any of the following persons have had or will have a direct or indirect material
interest:
o any director or executive officer of Phage;
o any nominee for election as a director;
o any security holder who is known to be the beneficial owner of more than
five percent of Phage's common stock; and
o any member of the immediate family of the forgoing persons.
19
<PAGE>
ITEM 8. LEGAL PROCEEDINGS.
Phage is not a party to any material legal proceedings, however, an individual
whom Phage Therapeutics, Inc engaged on a limited basis to assist with
introductions related to raising private equity capital has asserted that
certain private placement funds were received by Phage Therapeutics, Inc as a
result of introductions made by that individual. Phage is in the process of
determining the validity of the claims asserted. Should the claims be determined
valid, Phage Therapeutics will be expected to pay approximately $10,000 in cash
as a finder's fee, issue 35,000 Phage Therapeutics common shares and issue
warrants to purchase an additional 25,000 shares of common stock at $1.00 per
share for a term of seven years. As the probability of outcome is not certain,
no accrual has been made in the financial statements, nor have any shares been
reserved in connection with this contingency.
Prior to inception of Phage Therapeutics, a founder entered into a consulting
agreement with an individual to assist with the setup of licensing arrangements
between Phage Therapeutics and certain research institutions. A dispute has
arisen regarding the amount of payment required under the consulting
arrangement, which terminated in June 1997. Phage's exposure in relation to this
consulting agreement is a cash amount owed of approximately $17,000, which has
been accrued in the financial statements, 25,000 Phage Therapeutics common
shares, and an option for 41,668 additional common shares of Phage Therapeutics
As the probability of outcome is not certain, no accrual has been made in the
financial statements nor shares reserved in connection with this contingency.
To the best of management's knowledge, no other proceedings by or against Phage
has been threatened. To management's knowledge, no governmental authority is
contemplating the institution of a proceeding against Phage. None of Phage's
directors, officers, affiliates or beneficial owners of five percent or more of
any class of Phage's voting securities are a party adverse to Phage nor do any
of the foregoing individuals have a material interest adverse to Phage.
ITEM 9. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
As of October 24, 2000, the Issuer had 8,752,587 shares of Common Stock issued
and outstanding, of which 2,692,593 are free trading and the remaining 6,059,994
are restricted. The most recent Agreement between Phage and seven purchasers
increases the total issued and outstanding by another 2,142,857 shares. The
total issued and outstanding shares of Common Stock as of filing this 10SB
document with the Securities and Exchange Commission is 10,895,444.
The following table shows the high and low bid quotations for Phage's common
stock for each full quarterly period and month since Phage's shares were listed
for trading on the OTC Bulletin Board(R). Quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. Phage's Common Stock was originally listed on the NASDAQ
Bulletin Board as APDP in February 1998 and began trading during that month. In
August 1998, the Compnay symbol changed to PTXX. Currently, Phage has been
delisted from the OTC Bulletin Board(R) and is now listed on the Pink Sheets(R).
BID PRICES
YEAR PERIOD HIGH LOW
2000 First Quarter 4.218 0.844
Second Quarter delisted
Third Quarter delisted
1999 First Quarter 0.353 0.188
Second Quarter 1.758 1.323
Third Quarter 1.666 0.969
Fourth Quarter 1.115 0.740
20
<PAGE>
Pursuant to NASD Eligibility Rule 6530 (the "Rule") issued on January 4, 1999,
issuers who do not make current filings pursuant to Sections 13 and 15(d) of the
Securities Act of 1934 are ineligible for listing on the NASDAQ Over-
the-Counter Bulletin Board. Pursuant to the Rule, issuers who are not current
with such filings are subject to de-listing pursuant to a phase-in schedule
depending on each issuer's trading symbol as reported on January 4, 1999.
Phage's trading symbol on January 4, 1999 was PTXX. Therefore, pursuant to the
phase-in schedule, Phage is subject to de-listing on March 22, 2000. The trading
symbol was appended with an "E" on March 17, 2000 and was de-listed on March 22,
2000 for failure to comply with the Eligibility Rule NASD 6530.
Dividends
The payment of dividends by Phage, if any, in the future, rests within the
discretion of its Board of Directors and will depend, among other things, upon
Phage's earnings, its capital requirements and its financial condition, as well
as other relevant factors. Phage has not paid a cash or stock dividend and does
not anticipate paying any cash or stack dividends in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Since the December 1996 the following Common Shares have been issued and remain
outstanding (adjusted for all consolidations) by the Company:
<TABLE>
<CAPTION>
DATE NUMBER OF ISSUE PRICE ADDITIONAL AGGREGATE
---- --------- ----------- ---------- ---------
SHARES PER SHARE PAID-IN ISSUE PRICE
------ --------- ------- -----------
CAPITAL
-------
<S> <C> <C> <C> <C> <C>
Stock issued to founder in 1997(1) 571,429 0.001 39,429 40,000
July - December 1997 4,120,707 0.001 1,470,879 1,475,000
Balance at December 31, 1997 4,692,136 1,515,000
February - March 1998 165,000 1.60 265,000
April 1998 (2) 22,857 3.50 80,000
April - May 1998 500,000 0.86 433,041
Balance at December 31, 1998 5,379,993 2,293,041
Acquisition of Phage Therapeutics, 2,028,375 0.001 -36,873 -34,845
Inc.
March 25, 1999 - 4:1 consolidation of -1,486,852
shares
April 1999 187,500 0.80 150,000
April 1999 - acquisition of additional 629,284 0.001 -6,795
shares of Phage Therapeutics, Inc.
July 1999 (3) 71,429 0.001 79,929 80,000
Balance at December 1999 6,809,729 2,488,196
February 2000 1,942,858 0.70 1,360,000
October 2000 2,142,857 0.70 1,500,000
Balance as of November 15, 2000(4) 10,895,444 5,348,196
<FN>
(1) Issued to founders of the Company at par value.
(2) Prior to the beginning of the financing round described above, PhageTx
completed a bridge debt financing of $200,000 which consisted of
promissory notes, each with a term of 40 days, paying interest at 10%
per annum. These notes were repaid in April 1998. The noteholders also
received, as consideration for entering into the note agreements,
approximately 22,857 shares of newly issued common stock, as restated,
for a total value of $80,000.
(3) During July 1999, in settlement of the liability, the Company issued to
the placement agent 71,490 shares of common stock, plus warrants to
purchase 85,714 shares of common stock at an exercise price of $1.25
per share until March 25,
</FN>
</TABLE>
2001. Because these shares were issued in settlement of a debt owed by
PhageTx, an amount of $80,000, calculated by multiplying the number of
common shares issued by a price of $1.119 per share, has been recorded
as a general and administrative expense. See " Financials Statement of
December 31, 1999, Note 6 under Part F/S"
(4) The figures in this schedule reconcile to the audited financial
statements and the records of the Company. The records of the transfer
agent vary and are shown as the following as issued and outstanding:
December 31, 1997 1,077,000; December 31, 1998 1,486,500; and December
31, 1999 6,624,015. As of November 15, 2000, the issued and outstanding
is 10,895,444.
21
<PAGE>
Securities Purchase Agreement
-----------------------------
Phage has entered a Securities Purchase Agreement dated as of October 23, 2000
(the "Agreement") by and between Phage and seven purchasers. This Agreement is a
two-step procedure. Firstly, for the purchase price of $1,500,000, the
purchasers have received 2,142,857 units. Each "Unit" consists of one share of
Phage's common stock with a par value of $0.001 per share (the "Common Stock")
and one Common Stock purchase warrant (the "Warrant"). Every one and a half
Warrants entitles the holder to acquire one additional share of Common Stock of
Phage at an exercise price of $0.70 per share. This first part has occurred
shortly after the signing of the Agreement. The second part of this transaction
will occur within 7 days from the date Phage files this Form 10SB-12g with the
Securities and Exchange Commission. At that time, the same purchasers agree to
invest an additional $1,500,000 in exchange for an additional 2,142,857 Units.
ITEM 11. DESCRIPTION OF SECURITIES.
Qualification
The following statements constitute brief summaries of Phage's Articles of
Incorporation and Bylaws, as amended. Such summaries do not purport to be
complete and are qualified in their entirety by reference to the full text of
the Articles of Incorporation and Bylaws.
Common Stock
Phage's Articles of Incorporation authorize it to issue up to 50,000,000 shares
of Common Stock, $.001 par value per share. As of October 24, 2000, there were
8,752,587 shares of Common Stock issued and outstanding held by 60 stockholders
of record. Including the seven purchasers whom have entered a Securities
Purchase Agreement (see below under "Securities Purchase Agreement") the total
issued and outstanding common shares is 10,895,444 and 67 shareholders.
Liquidation Rights
------------------
Upon liquidation or dissolution, each outstanding share of Common Stock will be
entitled to share equally in the assets of Phage legally available for
distribution to shareholders after the payment of all debts and other
liabilities.
Dividend Rights
---------------
There are no limitations or restrictions upon the rights of the Board of
Directors to declare dividends out of any funds legally available therefor.
Phage has not paid dividends to date and it is not anticipated that any
dividends will be paid in the foreseeable future. The Board of Directors
initially may follow a policy of retaining earnings, if any, to finance the
future growth of Phage. Accordingly, future dividends, if any, will depend upon,
among other considerations, Phage's need for working capital and its financial
condition at the time.
Voting Rights
-------------
Holders of shares of Common Stock of Phage are entitled to cast one vote for
each share held at all shareholders meetings for all purposes.
22
<PAGE>
Other Rights
------------
Shares of Common Stock are not redeemable, have no conversion rights and carry
no preemptive or other rights to subscribe to or purchase additional shares of
Common Stock in the event of a subsequent offering. Nevada law does not require
shareholder approval for the issuance of authorized but unissued shares of
Common Stock. Such issuances may be made for a variety of corporate purposes,
including future private and public offerings to raise additional capital or to
facilitate corporate acquisitions.
Non-Cumulative Voting
---------------------
The Common Shares of Phage do not have cumulative voting rights, which means
that the holders of more than fifty percent of the shares of the Common Stock
voting for election of directors may elect all the directors if they choose to
do so. In such event, the holders of the remaining shares aggregating less than
fifty percent will not be able to elect directors.
Transfer Agent
--------------
Phage has appointed Interwest Transfer Company, Incorporated, 1981 East 4800
South, Suite 100, Salt Lake City, Utah 84117 as transfer agent for Phage's
shares of the Common Stock.
Incentive Stock Options
Phage has issued incentive stock options pursuant to the 2000 Stock Option Plan
to directors, officers, employees and certain professional consultants to Phage.
The following table shows the break-down of the stock options issued by Phage:
<TABLE>
<CAPTION>
Date Name Price per Amount of Vesting Date Expiry Date
Share Shares
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 4, 2000 Chris Tomanik $0.55 240000 To be determined by January 3,
the Administrator 2005
January 4, 2000 Darren Pylot $0.55 240000 To be determined by January 3,
the Administrator 2005
January 4, 2000 Douglas Lee $0.55 75000 To be determined by January 3,
the Administrator 2005
January 4, 2000 Graham Hughes $0.55 25000 To be determined by January 3,
the Administrator 2005
January 4, 2000 Richard Herman $0.55 200000 To be determined by January 3,
the Administrator 2005
January 4, 2000 Richard Honour $0.55 500000 To be determined by January 3,
the Administrator 2005
February 3, 2000 Mark Patchett $1.25 5000 To be determined by February 2,
the Administrator 2005
October 10, 2000 Gaetano Morello $0.75 50000 To be determined by October 9,
the Administrator 2005
October 10, 2000 John Majnarich $0.75 35000 To be determined by October 9,
the Administrator 2005
October 10, 2000 Michael Maloney $0.75 35000 To be determined by October 9,
the Administrator 2005
</TABLE>
23
<PAGE>
Terms of the Stock Incentive Plan
---------------------------------
General. The Board of Directors and Majority Stockholders have adopted and
approved a stock option plan (the "Plan"). The purpose of the Plan is to enable
Phage to offer its officers, directors, employees, consultants and advisors
performance-based incentives and other equity interests in Phage, thereby
attracting, retaining, and rewarding such personnel. Phage believes that
increased share ownership by such persons more closely aligns stockholder and
employee interests by encouraging a greater focus on the profitability of Phage.
There is reserved for issuance under the Plan an aggregate of 10% of shares of
Common Stock of Phage issued and outstanding from time to time. All of such
shares may, but need not, be issued pursuant to the exercise of incentive stock
options. Options granted under the Plan may be either "incentive stock options,"
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-statutory stock options. In addition, awards of or rights to
purchase shares of Phage's Common Stock ("Stock Rights") may be granted under
the Plan.
Phage has reserved for issuance 1,405,000 shares of the common stock of Phage
pursuant to the Stock Option Plan based on the total issued an outstanding share
capital on January 4, 2000, the date the Stock Option Plan was approved by the
shareholders of Phage. There are currently 1,405,000 stock options outstanding
under the Stock Option Plan.
In addition to the foregoing, Phage anticipates it will assume the obligations
of the stock option plan for Phage Therapeutics and options issued under that
plan on and if it is able to acquire 100% of the issued and outstanding share
capital of Phage Therapeutics Currently, 1,405,000 options are issued and
outstanding exercisable for shares of Phage Therapeutics.
Administration. The Plan will be administered by the Board of Directors or a
committee appointed by the Board of Directors (the "Administrator"). The
Administrator, subject to the terms and conditions of the Plan, has authority
to:
- select the persons to whom options and Stock Rights are to be granted;
- determine the number of shares of Common Stock to be covered by each option
and Stock Right granted;
- approve forms of option agreements for use under the Plan;
- determine the terms and conditions of any option or Stock Right;
- reduce the exercise price of any option or Stock Right if the fair market
value of the Common Stock covered by such option or Stock Right has
declined since the date the option or Stock Right was granted;
- institute an option exchange program;
- interpret the Plan and awards granted under the Plan;
- prescribe, amend and rescind rules and regulations relating to the Plan or
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
- modify or amend each option or Stock Right issued;
- allow optionees to satisfy withholding tax obligations by electing to have
Phage withhold from the shares to be issued on exercise of an option or
Stock Right that number of shares having a fair market value equal to the
amount required to be withheld;
- authorize any person to execute on behalf of Phage any instrument required
to effect the grant of an option or Stock Right previously granted by the
Administrator; and
- make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Administrator are final
and binding on all holders of options and Stock Rights.
Eligibility; Limitations of Options. Non-statutory stock options and Stock
Rights may be granted under the Plan to employees, directors and consultants of
Phage or any parent or subsidiary of Phage. Incentive stock options may be
granted only to employees. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of Phage. In order to preserve Phage's ability to deduct the
compensation income associated with options granted to such persons, the Plan
provides that no employee may be granted, in any fiscal year of Phage, options
to purchase more than 1,000,000 shares of Common Stock plus options to purchase
up to an additional 1,000,000 shares of Common Stock in connection with such
employee's initial commencement of service to Phage.
24
<PAGE>
Terms and Conditions of Options. Options granted under the Plan are subject to
additional terms and conditions under the individual option agreement. These
terms and conditions include:
- Exercise Price. The Administrator will determine the exercise price of
options granted at the time of grant. The exercise of an incentive stock
option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, the exercise
of an incentive stock option granted to a 10% stockholder may not be less
than 110% of the fair market value of the Common Stock on the date such
option is granted. The fair market value of the Common Stock is generally
determined with reference to the closing sale price for the Common Stock
(or the closing bid if no sales were reported) on the last market trading
day prior to the date the option is granted. The exercise price of a
non-statutory stock option may be determined by the Administrator, provided
however, the exercise price of a nonstatutory stock option intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code may not be less than 100% of the fair market value of
the Common Stock on the date of grant.
- Exercise of Option. The Administrator determines when options become
exercisable, and may in its discretion, accelerate the vesting of any
outstanding option.
- Form of Consideration. The means of payment for shares issued on exercise
of an option is specified in each option agreement. The Plan permits
payment to be made by cash, check, promissory note, other shares of Common
Stock of Phage (with some restrictions), cashless exercise, a reduction in
the amount of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
- Term of Option. The term of an incentive stock option may be no more than
ten years from the date of grant; provided that in the case of an incentive
stock option granted to a 10% stockholder, the term of the option may be no
more than five years from the date of grant. No option may be exercised
after the expiration of its term.
- Termination of Employment. If an optionee's employment, directorship or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Plan expire on
the earlier of (i) the date set forth in his or her notice of grant or
stock option agreement or (ii) the expiration date of such option. To the
extent the option is exercisable at the time of such termination, the
optionee may exercise all or part of his or her option at any time before
termination.
- Permanent Disability; Death. If an optionee's employment, directorship or
consulting relationship terminates as a result of permanent and total
disability (as defined in the Code) or death, then all options held by such
optionee under the Plan will generally expire on the earlier of (i) twelve
months from the date of termination of optionee's employment or (ii) the
expiration date of the option. The optionee or, if applicable, the executor
or other legal representative of the optionee's estate may exercise all or
part of the optionee's option at any time before such expiration to the
extent that the option was exercisable at the time of termination of
employment.
- Non-transferability of Options. Options granted under the Plan generally
are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by
the optionee.
- Value Limitation. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess portion of such option will be treated as a non-statutory stock
option.
- Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator.
Stock Rights. A Stock Right may award the recipient Common Stock or may give the
recipient the right to purchase Common Stock. Shares received or purchased
pursuant to a Stock Right will be subject to a restricted stock agreement
between Phage and the recipient. Unless the Administrator determines otherwise,
the restricted stock agreement will give Phage a reacquisition option
exercisable on the voluntary or involuntary termination of the recipient's
employment or consulting relationship with Phage for any reason (including death
and disability). The acquisition price for any shares reacquired by Phage will
be the original price paid by the recipient, if any. The reacquisition option
lapses at a rate determined by the Administrator. A Stock Right and the stock
acquired (while restricted) is generally nontransferable other than by will or
the laws of descent and distribution.
25
<PAGE>
Adjustments of Options on Changes in Capitalization. In the event that the stock
of Phage changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar changes in the capital
structure of Phage affected without the receipt of consideration, appropriate
adjustments will be made in the number and class of shares of stock subject to
the Plan, the number and class of shares of stock subject to any option or Stock
Right outstanding under the Plan, and the exercise price of any such award. In
the event of a liquidation or dissolution, any unexercised options will
terminate. The Administrator may, in its discretion, provide that each optionee
will fully vest in and have the right to exercise the optionee's option or Stock
Right as to all of the optioned stock, and shall release all restrictions on any
restricted stock prior to the consummation of the liquidation or dissolution. In
the event of a merger, sale or share exchange of Phage into another corporation
that results in a change of control of Phage, options that would have become
vested within 18 months after the closing date of the merger transaction will
accelerate and become fully vested on the closing of the transaction. In the
event of a change of control transaction, any other outstanding options that are
not accelerated would be assumed by the successor company or an equivalent
option would be substituted by the successor company. If any of these options
are not assumed or substituted, they would terminate.
Amendment and Termination of the Plan. The Administrator may amend, alter,
suspend or terminate the Plan, or any part of the Plan, at any time and for any
reason. No such action by the Board or stockholders may alter or impair any
option or Stock Right previously granted under the Plan without the written
consent of the optionee/recipient. Unless terminated earlier, the Plan will
terminate ten years from the date of its approval by the stockholders or the
Board, whichever is earlier.
Federal Income Tax Consequences of Options - Incentive Stock Options. An
optionee who is granted an incentive stock option does not generally recognize
taxable income at the time the option is granted or on its exercise, although
the exercise may subject the optionee to the alternative minimum tax. On a
disposition of the shares more than two years after grant of the option and one
year after exercise of the option, any gain or loss is treated as long-term
capital gain or loss. If these holding periods are not satisfied, the optionee
recognizes ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of:
o the fair market value of the shares at the date of the option exercise; or
o the sale price of the shares.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income on such a premature disposition may apply if
the optionee is an officer, director, or 10% stockholder of Phage. Phage is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee.
Federal Income Tax Consequences of Options - Non-statutory Stock Options. An
optionee does not recognize any taxable income at the time he or she is granted
a non-statutory stock option. On exercise, the optionee recognizes taxable
income generally by the excess of the then fair market value of the shares over
the exercise price. Any taxable income recognized in connection with an option
exercise by an employee of Phage is subject to tax withholding by Phage. Phage
is entitled to a deduction in the same amount as the ordinary income recognized
by the optionee. On a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
26
<PAGE>
Stock Rights. Restricted stock is generally acquired pursuant to Stock Rights.
At the time of acquisition, restricted stock is subject to a "substantial risk
of forfeiture" within the meaning of Section 83 of the Code. As a result, the
recipient will not generally recognize ordinary income at the time of
acquisition. Instead, the recipient will recognize ordinary income on the dates
when the stock ceases to be subject to a substantial risk of forfeiture. The
stock will generally cease to be subject to a substantial risk of forfeiture
when it is no longer subject to Phage's right to reacquire the stock on the
recipient's termination of employment with Phage. At such times, the recipient
will recognize ordinary income measured as the difference between the purchase
price (if any) and the fair market value of the stock on the date the stock is
no longer subject to a substantial risk of forfeiture. The purchaser may
accelerate to the date of acquisition his or her recognition of ordinary income,
if any, and the beginning of any capital gain holding period, by timely filing
an election pursuant to Section 83(b) of the Code. In such event, the ordinary
income recognized, if any, is measured as the difference between the purchase
price and the fair market value of the stock on the date of purchase and the
capital gain holding period commences on such date. The ordinary income
recognized by a purchaser who is an employee will be subject to tax withholding
by Phage. Different rules may apply if the purchaser is also an officer,
director, or 10% stockholder of Phage.
Debt and Other Securities
Phage is not registering any security other than its Common Stock.
Change of Control
There are currently no provisions in Phage's Articles of Incorporation or Bylaws
that would delay or prevent a change of control of Phage.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Florida law, director immunity from liability to a corporation or its
shareholders for monetary liabilities applies automatically unless it is
specifically limited by a corporation's Articles of Incorporation(which is not
the case with Phage's Articles of Incorporation). Excepted from that immunity
are: (i) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law(unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful);(iii) a transaction from
which the director derived an improper personal profit; and (iv) willful
misconduct. Under certain circumstances, Nevada law provides for indemnification
of Phage's officers, directors, employees and agents against liabilities that
they may incur in such capacities.
In general, any officer, director, employee or agent may be indemnified against
expenses, fines, settlements or judgments arising in connection with a legal
proceeding to which such person is a party, if that person's actions were in
good faith, were believed to be in Phage's best interest, and were not unlawful.
Unless such person is successful upon the merits in such action, indemnification
may be awarded only after a determination by independent decision of the Board
of Directors, by legal counsel, or by a vote of the shareholders, that the
applicable standard of conduct was met by the person to be indemnified. The
circumstances under which indemnification is granted in connection with an
action brought on behalf of Phage is generally the same as those set forth
above; however, with respect to such actions, indemnification is granted only
with respect to expenses actually incurred in connection with the defense or
settlement of the action. In such actions, the person to be indemnified must
have acted in good faith and in a manner believed to have been in Phage's best
interest, and must not have been adjudged liable for negligence or misconduct.
27
<PAGE>
The foregoing is only a summary description and is qualified in its entirety by
reference to the applicable Florida Business Corporation Act, specifically
Section 607.0850 thereof. Article X of Phage's Articles of Incorporation limits
directors' personal liability to Phage or its shareholders to acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law,
including repayment of distributions made in violation of Florida Corporate law.
Except as otherwise disclosed in "Certain Relationships and related
Transactions", as of the date hereof, Phage has no contracts in effect providing
any person or entity with any specific rights of indemnification although
Phage's Bylaws may authorize its Board of directors to enter into and deliver
such contracts to provide a person or entity with specific rights of
indemnification in addition to the rights provided in the Articles of
Incorporation and Bylaws to the fullest extent provided under Florida law.
Phage has no special insurance against liability although Phage's Bylaws provide
that Phage may, unless prohibited by Florida law, maintain such insurance.
Insofar as indemnification for liabilities arising under the securities Act, may
be permitted to directors, officers and controlling persons of Phage, Phage has
been advised that in the opinion of the commission, such indemnification is
against public policy as expressed in the securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Phage of expenses incurred or paid by a
director, officer or controlling person of Phage in the successful defense of
any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with any securities being registered, Phage
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
INDEMNIFICATION OF DIRECTORS, OFFICERS OR OTHER PERSONS CONTROLLING PHAGE FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT IS HELD TO BE AGAINST PUBLIC POLICY
BY THE COMMISSION AND IS, THEREFORE, UNENFORCEABLE.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company appear at the end of this registration
statement beginning with the Index to Financial Statements on page 28
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
The financial statements required as a part of this Registration Statement are
included beginning on the index page 28 of this Registration Statement.
28
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
TABLE OF CONTENTS Page No.
Independent auditors' report 1
Consolidated balance sheet 2
Consolidated statement of operations 3
Consolidated statement of cash flows 4
Consolidated statements of changes in stockholders' equity 5
Notes to the financial statements 6 to 16
Supplemental Schedule 17
<PAGE>
1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Phage Therapeutics International Inc.
(A Development Stage Company)
We have audited the consolidated balance sheet of Phage Therapeutics
International Inc. as at December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended and for the period from inception on December 24,
1996, to December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and, 1998 and the results of its operations, changes in stockholders' equity and
cash flows for the years then ended and the period from inception on December
24, 1996 to December 31, 1999 in accordance with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that Phage
Therapeutics International Inc. will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company's loss from operations raises
substantial doubt as to the Company's ability to continue as a going concern
unless the company attains future profitable operations and/or obtains
additional financing. Management's plans in regards to these matters are
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The audited financial statements for the period from the date of inception on
December 24, 1996 to December 31, 1997 were examined by other auditors who
expressed an opinion without reservation on those statements, except for the
continuation as a going concern in their reported dated May 6, 1998.
Vancouver, Canada Chartered Accountants
August 31, 2000
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 2
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents $ 1,223 $ 1,744
Prepaid expenses and other current assets 8,282 13,172
----------- -----------
9,505 14,916
Capital assets (Note 4) 42,520 455,542
Deposits, non current -- 13,613
----------- -----------
52,025 484,071
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable $ 421,953 $ 335,246
Accrued liabilities 177,347 51,976
Deferred rent expense -- 45,131
Due to related parties (Note 10) 362,189 87,000
Notes payable to related party (Note 6) 145,943 --
----------- -----------
1,107,432 519,353
Shareholders' equity
Capital stock (Note 6)
Authorized
50,000,000 common shares, par value $0.001
Issued and outstanding
December 31, 1998 - 5,379,993
December 31, 199 - 6,809,729 6,809 5,380
Additional paid in capital 3,021,756 2,619,661
Non-controlling interest (8,369)
-----------
Non-qualified stock options outstanding (Note 7) 110,150 37,932
Deficit accumulated during the development state (4,185,753) (2,698,255)
----------- -----------
(1,055,407 (35,282)
----------- -----------
$ 52,025 $ 484,071
</TABLE>
Nature and continuance of operations (Note 1) Commitments and contingencies
(Note 11) Subsequent events (Note 12)
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 3
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
Amounts From
Beginning of
Development
State on
December 24, Year Ended Year ended
1996 to December 31, December 31,
December 31, 1999 1998
1999
---------------------------------------------------------------- ----------------- ---------------- ----------------
EXPENSES
<S> <C> <C> <C>
General and administrative $ 2,825,297 $ 852,238 $ 1,035,017
Research and experimentation 990662 265466 338488
Loss before other item -3815959 -1117704 -1373505
OTHER ITEM
Loss on disposal of capital assets -369794 -369794 --
Loss for the period $ (4,185,753) $ (1,487,498) $(1,373,505)
Basic and diluted loss per share $ (0.23) $ (0.27)
Weighted average number of shares outstanding 6428890 5124696
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 4
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------------------------- --------------- -------------- -------------
Cumulative
Amounts From Year ended
Date of Year Ended December
Inception on December 31, 31,
December 24, 1999 1998
1996 to
December 31,
1999
------------------------------------------------------- --------------- -------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Loss for the period $ (4,185,753) $ (1,487,498) $(1,373,505)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 129507 55016 54093
Compensation expense from vesting of 110150 72218 31438
non-qualified stock option
Loss on disposal of capital assets 369794 369794 -
Interest on loan from related party 5745 5745 -
Consulting 160000 80000 80000
Change in non-cash working capital items
Decrease (increase in prepaid expenses and -6282 6890 57134
other current assets)
Decrease in deposits - 13613 1500
Increase in accounts payable 382935 47689 212583
Increase in accrued liabilities 177347 125371 9360
Increase in deferred rent - -45131 -1673
Increase in due to related parties 362189 275189 87000
Net cash used in operating activities 2494368 481104 842070
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of cash on purchase of subsidiary 173 173 -
Purchases of capital assets -549102 -19069 -199433
Net cash used in investing activities -548929 -18896 -199433
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of capital assets 7281 7281 -
Notes payable to related party 140198 140198 -
Net proceeds received from stock issuances 2897041 352000 1030041
Net cash provided by financing activities 3044520 499479 1030041
Change in cash position during the period 1223 -521 -11462
Cash position, beginning of period - 1744 13206
Cash and cash equivalents, end of period $ 1,223 $ 1,223 $ 1,744
================================================================ ============== ================ =============
Supplemental disclosure with respect to cash flows (Note 10)
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 5
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------- ----------------------- ---------- ---------- ----------- ------------- ----------
Common Stock
------------
Non-qualified
Stock Deficit
Additional Non- Options Accumulated
Paid -in controllingOutstanding During the
Capital Interest Development
Stage Total
Number
of Shares Amount
--------------------------------- ------------ ---------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stock issued for expenses
incurred $ 571,429 $ 571 $ 39,429 $ - $ - $ - $ 40,000
By founder
Stock sold for cash - December 1785707 1786 98214 - - - 100000
1996
Stock sold for cash - March
through July 1997 1600000 1600 638400 - - - 640000
Stock sold for cash - August 735 734265 - - - 735000
through December 1997 735000
Issuance of non-qualified stock - - - - 6494 - 6494
options
Loss for the period - - - - - -1324750 -1324750
Balance at December 31, 1997 4692136 4692 1510308 - 6494 -1324750 196744
Stock sold for cash - February
through March 1998 165000 165 264835 - - - 265000
Stock issued as compensation for
bridge loan financing 22857 23 79977 - - - 80000
Stock sold for cash - April
through
May 1998, net of offering 500000 500 432541 - - - 433041
expenses of $66,959
Contribution of capital by - - 300000 - - - 300000
shareholders
Investment banking fee paid by
shareholders - - -300000 - - - -300000
Advances on merger letter of
intent
converted to common stock - - 332000 - - - 332000
November 1998
Deferred compensation from non-
qualified stock options - - - - 31438 - 31438
outstanding
Loss for the year - - - - - -1373505 -1373505
Balance at December 31, 1998 5379993 5380 2619661 - 37932 -2698255 -35282
Advances on merger converted to
common stock - February 1999 - - 50000 - - - 50000
Assumption of debt by parent
converted to common stock, - - 150000 - - - 150000
February 1999
Acquisition of parent 2028375 2028 -36873 - - - -34845
Non-controlling interest
recorded at -1486852 -1486 16022 -14536 - - -
March 25, 1999
Shares issued for cash and
receivables - April 1999 187500 188 149812 - - - 150000
Shares issued for acquisition of
additional shares of
subsidiary - 629284 628 -6795 6167 - - -
April 1999
Shares issued for settlement of 71429 71 79929 - - - 80000
liability
Deferred compensation from
non- - - - - 72218 - 72218
qualified stock options
outstanding
Loss for the year - - - - - -1487498 -1487498
Balance at December 31, 1999 6809729 $ 6,809 $3,021,756 $ (8,369) $ 110,150 $(4,185,753) $(1,055,407)
--------------------------------- ============ ========== ========== ========== =========== ============= ===========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 6
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NATURE AND CONTINUANCE OF OPERATIONS
Phage Therapeutics International Inc. ("Phage", or the "Company") is a
development stage company focused on the development, manufacturing and
marketing of bacteriophage therapeutic agents as pharmaceutical
products. The products will be developed specifically for the treatment
of antibiotic-resistant and other bacterial infectious agents. The
Company was originally incorporated in the State of Florida on July 8,
1997 under the name All Products Distribution Corporation, and changed
its name to Phage Therapeutics International Inc. on August 19, 1998.
The consolidated Company's date of inception is considered to be
December 24, 1996, the date of inception of Phage Therapeutics, Inc.
("PhageTx" or the "Subsidiary"), the Company's legally owned
subsidiary.
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As at December 31, 1999 the Company had a working capital
deficiency of $ 1,097,927 and has incurred losses of $4,185,753 from
the date of inception , December 24, 1996 to December 31, 1999. The
company anticipates expending approximately $5,000,000 over the next
twelve month period in pursuing its anticipated plan of operations. The
Company anticipates covering these costs by additional equity
financing. The Company has subsequent to the year end, completed an
offering of 1,942,858 units at $0.70 per unit pursuant to Regulation D,
Rule 506 of the United States Securities Act of 1933, as amended. The
total proceeds of $1,360,000 received subsequent to the year end will
help the Company complete its anticipated plan of operations. If the
company is unable to complete its further financing requirements, it
will then modify its expenditures and plan of operations to coincide
with the actual financing completed. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
2. SIGNIFICANT ACCOUNTING POLICIES
In preparing these financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, the reported amount of revenues, and
expenses for the year. Actual results in the future periods could be
different from these estimates made in the current year. The following
is a summary of the significant accounting policies of the Company.
Basis of consolidation and presentation
The consolidated financial statements include the accounts of Phage
Therapeutics International Inc. and its majority-owned subsidiary Phage
Therapeutics, Inc., a Washington corporation. As of December 31, 1999,
the Company owned approximately 88% of the outstanding common stock of
Phage Therapeutics, Inc. All significant inter-company transactions
have been eliminated in consolidation.
Effective March 25, 1999, the Company acquired 71% of the outstanding
common stock of Phage Therapeutics, Inc. through a series of share
exchange agreements with certain PhageTx shareholders (see Note 3).
Added to the Company's previous share holdings of Phage Tx, this
transaction increased the Company's interest in Phage Tx, to
approximately 80%. As a result of this transaction, the former
shareholders of PhageTx obtained control of the Company. For accounting
purposes, this acquisition has been treated as a recapitalization of
the Company. The accounting for this recapitalization is similar to a
reverse take-over in which the financial statements presented include
the accounts of Phage Tx since inception (December 24, 1996) and the
accounts of the company since the date of acquisition, March 25, 1999
to December 31, 1999.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 7
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
Cash and equivalents
All short-term investments, which consist entirely of bank repurchase
agreements and certificates of deposit, with maturities of three months
or less at date of purchase are considered to be cash equivalents. The
amounts are recorded at cost, which approximates fair market value.
Capital assets
Capital assets are recorded at cost and are amortized over their useful
lives using the straight-line method, which range from three to five
years.
Research and development expenses
Research and development costs are charged to expense as incurred.
Financial instruments
The Company's financial instruments consist of cash and equivalents,
accounts payable, accrued liabilities, due to related parties and notes
payable to related party. Unless otherwise noted, it is management's
opinion that the Company is not exposed to significant interest,
currency or credits arising from these financial instruments. The fair
value of these financial instruments approximate their carrying values,
unless otherwise noted.
Loss per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). Under SFAS 128, basic and diluted earnings per
share are to be presented. Basic earnings per share is computed by
dividing income available to common shareholders by the weighted
average number of shares outstanding in the year. Diluted earnings per
share takes into consideration common shares outstanding (computed
under basic earnings per share) and potentially dilutive common shares.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred
tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operation loss carry
forwards. Deferred tax expenses (benefit) results from the net change
during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 Accounting for
Stock-Based Compensation (Statement 123). The Company adopted the
disclosure-only provisions of Statement 123, and applies Accounting
Principles Board Opinion No. 25 (APB 25) and related interpretations in
accounting for its stock option plan. Accordingly, the Company's
stock-based compensation expense is recognized based on the intrinsic
value of the option on the date of grant. Pro forma disclosure of net
loss under Statement 123 is provided in a subsequent note to the
financial statements.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 8
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
Stock-based compensation (cont'd...)
The Company records deferred compensation for the difference between
the exercise price and the deemed fair value for financial reporting
purposes of stock options granted. The compensation expense related to
such grants is amortized over the vesting period.
Accounting for derivative instruments and hedging instruments
In June 1998, The Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 133 "Accounting for
derivative Instruments and Hedging Activities" ("SFAS 133") which
establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS 137 to defer the effective date of SFAS 133
to fiscal quarters of fiscal years beginning after June 15, 2000. The
company does not anticipate that the adoption for the statement will
have a significant impact on its financial statements.
Comprehensive income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for the reporting and display
of comprehensive income and its components (revenue, expenses, gains
and losses). The purpose of reporting comprehensive income is to
present a measure of all changes in the stockholders' equity that
result from recognized transactions and other economic events of the
year, other than, transactions with owners in their capacity as owners.
SFAS 130 is effective for the financial statements issued for the
periods beginning after December 15, 1997. The adoption of SFAS 130 has
no impact on the total stockholders' equity during the current year.
Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the manner in which
public companies report information about operating segments in annual and
interim financial statements. The statement is effective for fiscal years
beginning after December 15, 1997. The Company does not have any reporting
requirements as defined by SFAS No. 131.
3. RECAPITALIZATION
During March 1999 the Company issued 3,393,141 common shares to acquire
71% of the issued and outstanding shares of Phage Therapeutics, Inc.
(the "PhageTx Acquisition"). This transaction increased the Company's
ownership of PhageTx to approximately 80%.
As a result of this transaction the former shareholders of PhageTx
acquired control over a majority of shares of the Company. Accordingly,
the transaction has been treated for accounting purposes as a
recapitalization of the Company and, therefore, these financial
statements represent a continuation of the legal subsidiary, PhageTx,
not the Company, as the legal parent. In accounting for this
transaction:
(i) PhageTx is deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets are included in the consolidated
balance sheet at their historical book values;
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 9
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. RECAPITALIZATION (cont'd...)
(ii) Phage was formed for the sole purpose of seeking a target
acquisition candidate and its net assets as of the Effective Date
were negative. Accordingly, the acquisition of the Company will be
accounted for by the purchase method with the net assets of the
Company recorded at fair market value at the date of acquisition.
The net assets acquired is as follows:
Cash and equivalents $ 173
Accounts receivable 4000
Accounts payable -39018
Net assets acquired $ 34,845
------------------------------------------------------- ===============
(iii) Historical cost financial statements presented are those of
PhageTx, with equity amounts of PhageTx retroactively restated the
number of shares received in the business combination.
(iv) The consolidated statements of operations and cash flows include
PhageTx's results of operations and cash flows from December 24,
1996 (date of inception) and Phage's results of operations from
the Effective Date.
4. CAPITAL ASSETS
36524 36159
Research and development $ 48,894 $ 51,009
Computer and office equipment 84843 84843
Furniture and fixtures 26596 26596
Leasehold improvements - 17183
Construction in process - 350402
160333 530033
Accumulated amortization -117813 -74491
$ 42,520 $ 455,542
=========================================== =============
Effective August 25, 1997, PhageTx entered into a contract for
construction of a research and development laboratory facility. As
of April 30, 1999 PhageTx had incurred approximately $350,000 of
architectural and construction fees related to the project. This
amount was recorded as Construction in process. No amortization
was recorded in relation to this amount, as the related facility
had not yet been completed. During November 1999 PhageTx
terminated its lease of the building in which the facility was to
be constructed and terminated the construction project.
Accordingly, all construction in process amounts previously
capitalized were expensed in November 1999 as a loss on disposal
of assets. No additional significant costs are expected to be
incurred as a result of termination of this construction project.
Because PhageTx terminated its facilities lease in November 1999,
the leasehold improvement amounts and associated accumulated
amortization have been expensed in that month as a loss on
disposal of assets.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 10
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. NOTES PAYABLE RELATED PARTY
1999 1998
-------------------------- ----------------- ----------------
Principal amount $ 140,198 $ -
Accrued interest 5745 -
$ 145,943 $ -
========================== ================= ================
During the year the Company received several loans from Prostar
Limited, a shareholder of the Company, which totaled $140,198 at
year-end. The loans bear interest at 11% per annum and are repayable on
demand.
6. CAPITAL STOCK
As a result of the PhageTx Acquisition transaction, all historical
stockholders' equity amounts have been retroactively restated to
reflect the exchange rates inherent in the PhageTx Acquisition
transaction. Accordingly, the historical equity amounts shown in the
Consolidated Statement of Stockholders' Equity reflect the equity
transactions completed by PhageTx, with share amounts restated to
reflect the equivalent number of shares of the Company's common stock,
issued in exchange for the respective shares of PhageTx stock. Equity
transactions are shown as if the Company had acquired 100% of the
issued and outstanding shares of PhageTx common stock, an adjustment is
recorded to indicate the number of shares of the legal parent
outstanding as of the date of the acquisition, and a non-controlling
interest is deducted from the total share amount to reflect the number
of shares of PhageTx not yet owned by the Company as of the date of the
acquisition.
At inception of PhageTx, 2,357,136 shares of common stock were issued
at an average price of approximately $0.06 per share, as restated.
Consideration for issuance of the shares consisted of $100,000 in cash
and $40,000 as reimbursement of expenses paid on behalf of PhageTx by a
founder.
Between April 1997 and July 1997 an additional 1,600,000 shares of
common stock were issued for cash consideration at a price of $0.40 per
share, as restated. Under the terms of an employment agreement, the
President and CEO of PhageTx was granted the right to purchase 100,000
shares o common stock (which is included in the 1,600,000 shares), at a
price of $0.40 per share, as restated, representing the market price of
the stock at the time employment commenced. Beginning April 1997, a
monthly amount of $5,000 was withheld from salary payments as
consideration for the stock purchase. All consideration related to this
stock purchase had been received by PhageTx as if December 31, 1997.
In August 1997 PhageTx initiated a financing round which raised $1.0
million. As of December 31, 1997, 735,000 shares of common stock had
been issued in connection with this round at a price of $1.00 per
share. Subsequent to December 31, 1997, an additional 265.000 shares of
common stock were subscribed to complete the minimum specified in the
offering, with 100,000 of these shares purchased by the Company. The
amount paid by the Company for these shares is treated as a
contribution of capital to PhageTx in the consolidated financial
statements.
During April and May 1998, PhageTx completed a private placement
financing round raising an additional $500,000 to fund PhageTx's
short-term operations. PhageTx engaged a placement agent to assist with
the financing round. In connection with this financing, the placement
agent received approximately 13% of the cash raised in the offering as
commission and expense reimbursement and was to receive 85,000
post-consolidated common shares of the Company. Certain founders of
PhageTx transferred to the placement agent, for a total value of
$300,000, the 85,000 common shares of PhageTx from their shareholdings.
This transaction was recorded as a contribution of capital.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 11
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. CAPITAL STOCK
Prior to the beginning of the financing round described above, PhageTx
completed a bridge debt financing of $200,000 which consisted of
promissory notes, each with a term of 40 days, paying interest at 10%
per annum. These notes were repaid in April 1998. The noteholders also
received, as consideration for entering into the note agreements,
approximately 22,857 shares of newly issued common stock, as restated,
for a total value of $80,000.
Between June and October 1998 Phage advanced to PhageTx a total of
$332,000 as pre-payment on letters of intent to merge the two entities.
Under the terms of the letters of intent, if a merger transaction was
not completed within a specified period of time, the advances converted
to common stock of PhageTx at a price of $1.00 per share. In November
1998, these advances were converted to PhageTx common stock. Upon
restatement for the PhageTx Acquisition transaction effective March 25,
1999, this amount is treated as a contribution of capital to PhageTx by
the Company.
During February 1999, certain shareholder notes payable and expenses
paid by shareholders on behalf of PhageTx were assigned by the
shareholders to the Company. PhageTx issued to the Company 150,000
shares of PhageTx common stock in satisfaction of the debt of $150,000.
Similar to the above transaction, this amount is treated as a
contribution of capital to PhageTx by the Company upon restatement for
the PhageTx Acquisition transaction.
During April 1999 the Company sold an additional 187,500 shares of
common stock at a price of $0.80 per share.
Under the terms of private placement and investment banking agreements
entered into by PhageTx in March 1998, upon the completion of certain
placement milestones the placement agent was to receive (1) warrants
for 300,000 shares of PhageTx common stock with an exercise price of
$1.25 per share for a three-year term beginning at the first public
trade of PhageTx stock; and (2) upon a merger with a public company or
completion of an initial public offering the placement agent would
receive 500,000 shares of PhageTx common stock. These agreements were
terminated in June 1998. Based on completion of the PhageTx Acquisition
transaction, the former placement agent asserted that the Company was
liable under the aforementioned agreements to issue common shares and
warrants in satisfaction of the stated terms. During July 1999, in
settlement of the liability, the Company issued to the placement agent
71,490 shares of common stock, plus warrants to purchase 85,714 shares
of common stock at an exercise price of $1.25 per share until March 25,
2001. Because these shares were issued in settlement of a debt owed by
PhageTx, an amount of $80,000, calculated by multiplying the number of
common shares issued by a price of $1.119 per share, has been recorded
as a general and administrative expense. Warrants
------------------------------------------------------------ -------------
1999 1998
------------------------------------------------------------ -------------
Balance, beginning of year 750000 -
------------------------------------------------------------ -------------
Issued 85714 750000
Exercised, prior to acquisition of -250000 -
PhageTx
Expired -500000 -
Balance, end of year 85714 750000
============================================================ =============
As at December 31, 1999 there were 85,714 warrants outstanding,
exercisable at $1.25 per share until March 25, 2001.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 12
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
7. STOCK OPTIONS
Phage Therapeutics International Inc.
The Board of Directors and shareholders of the Company have adopted an
incentive stock option plan (the "Plan") providing for the granting of
stock options to officers, directors, employees and key consultants of
the Company and its subsidiaries or affiliates. The purpose of the Plan
is to enable the Company to attract and retain persons whose efforts
will assist in the future growth and success of the Company. Under the
Plan, the Company is authorized to issue options up to a total of 10%
of the shares of the common stock of the Company outstanding from time
to time. The options under the plan are non-assignable (except in the
event of death) and are exercisable for a term of two years. 25% of the
options are eligible for exercise every six months by the optionee.
Options granted under the Plan terminate within 30 days, in respect of
any optionee, in the event that such optionee ceases to be a full-time
employee, director or officer of the Corporation or within six months
after the death of such optionee. The Board of Directors may, at its
sole discretion, determine the time during which options shall vest and
the method of vesting, or that no vesting restriction shall exist.
The Company has reserved for issuance 252,825 shares of the common
stock of the Company pursuant to the Stock Option Plan based on the
total issued and outstanding share capital on March 12, 1999, the date
the Stock Option Plan was approved by the shareholders of the Company.
There are currently no stock options outstanding under the Stock Option
Plan.
Phage Therapeutics, Inc.
During 1997 PhageTx's Board of Directors adopted a 1997 Stock Option
Plan under which an aggregate of 2,000,000 shares of common stock were
reserved for grants to employees, advisors and consultants. Shareholder
approval of the Plan was granted as of March 30, 1998. Options granted
under this plan were designated as incentive or nonqualified at the
discretion of the Plan Administrator.
Generally, the options vest ratably over three and four-year periods.
All options expire no later than ten years from the date of grant.
Incentive stock options are exercisable at not less than the fair
market value of the stock at the date of grant, and nonqualified stock
options are exercisable at prices determined at the discretion of the
Plan Administrator, but not less than 85% of the fair market value of
the stock at the date of grant.
The Plan contains a clause specifying terms of the conversion of
options on a stock for stock exchange. Under the Plan, if the
shareholders of PhageTx receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of common stock in any
transaction involving a merger, all options granted under the Plan
shall be converted into options to purchase shares of Exchange Stock
unless PhageTx and the corporation issuing the Exchange Stock, in their
sole discretion, determine that any or all such options granted under
this Plan shall not be converted into options to purchase Exchange
Stock, but instead shall terminate. The amount and price of converted
options shall be determined by adjusting the amount and price of the
options granted under the Plan in the same proportion as used for
determining the number of shares of Exchange Stock the holders of the
common stock receive in such merger, consolidation, acquisition of
property or stock, separation or reorganization. Unless provided
otherwise in the Optionee's original individual option agreement, the
vesting schedule set forth in the option agreement shall accelerate,
and reflect 100% vesting immediately prior to the conversion to an
option for the Exchange Stock.
As of the date of these financial statements, no corporate action has
been taken with regard to the outstanding options by the Company's
Board of Directors. In October 1999, management presented the Company
with a proposal to exercise all outstanding options in a cashless or
net exercise transaction, with subsequent conversion into common
shares. The Company has not yet determined the resolution of this
proposal, or how the outstanding options will be treated. In compliance
with the terms of the PhageTx Plan, the vesting schedule for all
remaining outstanding options has been assumed to accelerate and
reflect 100% vesting as of the date of the PhageTx Acquisition.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 13
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
7. STOCK OPTIONS
Phage Therapeutics, Inc. (cont'd...)
----------------------------------------------- -------------- -------------
Shares Under Price Weighted
Outstanding Per Share Average
Options Exercise
Price
----------------------------------------------- -------------- -------------
Balance at December 31, 1997 1724000 $0.20 - 1.00 0.67
Options granted 75000 1 1
Options terminated -200000 0.20 - 1.00 0.6
Balance at December 31, 1998 1599000 0.20 - 1.00 0.69
Options granted 100000 1 1
Options terminated -224000 0.20 - 1.00 0.73
Balance at December 31, 1999 1475000 0.20 - 1.00 0.73
==================================== ========= ============== ===========
As of December 31, 1999 all outstanding options were fully vested as a
result of the PhageTx Acquisition transaction. No options granted have
been exercised as of December 31, 1999. The weighted average
contractual life of options outstanding as of December 31, 1999 was 7.9
years.
The Company applies United States Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its Plan. Accordingly, no
compensation expense has been recognized for incentive stock options
issued in accordance with its stock-based compensation plan. Had
compensation cost for incentive stock option awards under the Company's
Plan been determined based upon the fair value at the grant date
consistent with the methodology prescribed under United States
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) the Company's net loss and loss
per share would have been adjusted as follows:
--------------------------------------------------------- ---------------
1999 1998
--------------------------------------------------------- ---------------
Net loss
As reported $ 1,487,498 $ 1,373,505
--------------------------------------------------------- ---------------
Pro-forma $ 1,632,319 $ 1,443,005
--------------------------------------------------------- ---------------
Basic and diluted loss per share
As reported $ (0.23) $ (0.27)
--------------------------------------------------------- ---------------
Pro-forma $ (0.25) $ (0.28)
--------------------------------------------------------- ---------------
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 14
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(7) STOCK OPTIONS (cont'd...)
The Company has granted nonqualified stock options to certain
consultants and advisors as compensation for their services. Consistent
with the treatment prescribed by SFAS 123 regarding grants of stock
options to non-employees, the Company has determined that the fair
value of the nonqualified stock options granted was approximately
$29,000, $20,250 and $60,900 for the years ended December 31, 1999 and
December 31, 1998 and the period from inception through December 31,
1997, respectively. Because the options granted vest over three years,
the period over which services are expected to be rendered, the Company
has amortized the fair value of the nonqualified options granted on a
straight-line basis over the three year service period of each option
granted. However, because the vesting of all outstanding options has
been accelerated to 100% as a result of the PhageTx Acquisition
transaction, all remaining expense was amortized as of March 31, 1999.
Accordingly, the Company has recorded in research and development,
compensation expense of approximately $72,200, $ 31,438 and $6,494 for
the years ended December 31, 1999 and December 31, 1998 and the period
from inception through December 31, 1997, respectively.
In arriving at its estimates of fair value for options granted, the
Company used the Black-Scholes option pricing model with the following
assumptions:
------------------------------------------- ----------------- ----------------
1999 1998
------------------------------------------- ----------------- ----------------
Expected dividend yield 0% 0%
Expected stock price volatility 0.001% .0.001%
Risk-free interest rate 5.10% 4.63%
Expected life of options in years 7 7
=========================================== ================= ================
The weighted average fair value at grant date for options granted was
$0.29, $0.27 and $0.23 per option for the years ended December 31, 1999
and December 31, 1998 and the period from inception through December
31, 1997, respectively.
8. INCOME TAXES
The Company's total deferred tax asset is as follows:
Net operating loss carry forward $ 1,505,298
Valuation allowance -1505298
$ -
------------------------------------------------------- ==============
At December 31, 1999 the Company had net operating loss
carryforwards for income tax purposes of approximately $4.4 million
that will expire between 2012 and 2020. Since utilization of
deferred tax assets resulting from loss carryforwards and temporary
differences is dependent on future profits, which is not assured, a
valuation allowance equal to the deferred taxes has been provided.
Utilization of the Company's tax loss carryforwards may be subject
to annual limitations if there is deemed to be a change in control.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 15
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
9. RELATED PARTY TRANSACTIONS
As of the date of inception, PhageTx entered into a management
consulting agreement with Barrington Holdings Ltd., an entity
affiliated with PhageTx's Chairman. Under the terms of this
agreement, PhageTx paid to Barrington $7,500 per month for
management services performed by the Chairman, plus reimbursement
of expenses incurred for the benefit of PhageTx. Approximately
$135,000 of fees and expenses were paid to Barrington in connection
with this agreement from inception through its termination
effective February 28, 1998. During 1998 and in January 1999
certain shareholders of PhageTx advanced funds to PhageTx to cover
operating expenses and incurred various additional expenses on
behalf of PhageTx. The amount of these expenses and advances
totaled approximately $99,000 at December 31, 1998. Additional
advances and expenses of $51,000 were incurred in early 1999.
During January and February 1999, these shareholder advances and
expenses paid by shareholders on behalf of PhageTx were assigned by
the shareholders to Phage Therapeutics International Inc. In
concurrent transactions, the PhageTx issued to Phage Therapeutics
International Inc. 150,000 shares of PhageTx common stock, valued
at $1.00 per share, in satisfaction of the debt paid by Phage.
During the year Phage Tx paid or accrued wages of $144,000 (1998 -
$144,000) to the president and director of the Company. As at
December 31, 1999, the Company owed $182,836.
During the year PhageTx paid or accrued wages of $58,815 (1998 -
$94,000) to a former officer and director of the Company. As at
December 31, 1999, the Company owed $86,154.
On September 1, 1998 the Company entered into a management
agreement with Stealth Investment Corp. ("Stealth") to provide
day-to-day management services to the Company (the "Management
used Agreement"). A director and officer of the Company, is the
sole shareholder and director of Stealth. The Management Agreement
is terminable by wither party with two months notice and provides
for a base fee of $10,000 a month plus Subsequent to the PhageTx
acquisition, during the period from April 1, 1999 through December
31, 1999 the Company paid or accrued management fees of $45,000,
consulting fees of $45,000, office rent of $18,976, office
administration of $8,333 and investor relations of $1,871. As at
December 31, 1999 the Company owned Stealth $93,199.
10. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
------------------------------------------ ----------------- ----------------
1999 1998
------------------------------------------ ----------------- ----------------
Cash paid for income taxes $ - $ -
========================================== ================= ================
Cash paid for interest $ - $ -
========================================== ================= ================
The following non-cash operating, investing and financing
transaction occurred during the year ended December 31, 1998:
a) The Company issued 22,857 common shares at a deemed value of
$80,000 as consideration for compensation for bridge of a loan
financing.
b) Certain founding shareholders of the Company transferred from
their shareholdings 85,000 common shares to the agent at a deemed
value of $300,000, who completed a placement of 500,000 common
shares for the Company.
The following non-cash operating, investing and financing
transactions occurred during the year ended December 31, 1999:
a) The company issued 71,429 common shares at a deemed value of
$80,000 settlement of liability.
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL INC. 15
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
11. COMMITMENTS AND CONTINGENCIES
Lease Agreement
Effective May 1, 1997 PhageTx entered into a noncancelable
operating lease for office and research facilities, which was to
expire in April, 2002. The lease contained options for two
additional five-year extensions of the initial lease term, at rates
to be negotiated at the beginning of the option periods. In
November 1999 PhageTx received from the lessor a release from the
remaining term of the lease in exchange for payments of $35,000,
$23,242 and $19,370 to be made on March 20, 2000, June 10, 2000 and
September 10, 2000 respectively. These amounts, totaling $77,612,
represent unpaid rent of approximately $54,000 (four months) plus a
penalty for lease termination. All amounts have been included in
rent expense and recorded as a liability at December 31, 1999. A
deposit related to this lease of $12,638, included in other
non-current assets as of December 31, 1998, was expensed in the
month in which the lease was terminated.
PhageTx had recorded a deferred rent obligation of $43,657 as of
October 31, 1999, which represented the excess of rent calculated
on a straight-line basis over rent payments required by the terms
of the lease. This deferred rent amount was to be amortized over
the remaining term of the lease. Because the lease was terminated
in November 1999, all remaining deferred rent was charged to rent
expense in that month. Including the effects of the deposit,
deferred rent expense, and additional expense upon lease
termination, PhageTx recorded rent expense of approximately
$117,954 and $132,000 in connection with this lease during the
years ended December 31, 1999, December 31, 1998.
PhageTx's physical assets are currently held in a storage facility
for which PhageTx pays a monthly fee. No lease agreement has been
signed in connection with this storage facility, and payment is
made month to month. PhageTx incurred approximately $1,700 of
expense during the year ended December 31, 1999 for this facility.
Contingencies
An individual whom PhageTx engaged on a limited basis to assist
with introductions related to raising private equity capital has
asserted that certain private placement funds were received by
PhageTx as a result of introductions made by that individual. The
Company is in the process of determining the validity of the claims
asserted. Should the claims be determined valid, PhageTx would be
expected to pay approximately $10,000 in cash as a finder's fee,
issue 35,000 PhageTx common shares, and issue warrants to purchase
an additional 25,000 shares of common stock at $1.00 per share for
a term of seven years. As the probability of outcome is not
certain, no accrual has been made in the financial statements nor
shares reserved in connection with this contingency.
Prior to inception of PhageTx, a founder entered into a consulting
agreement with an individual to assist with the setup of licensing
arrangements between PhageTx and certain research institutions. A
dispute has arisen regarding the amount of payment required under
the consulting arrangement, which terminated in June 1997. The
Company's exposure in relation to this consulting agreement is a
cash amount owed of approximately $17,000, which has been accrued
in the financial statements, 25,000 PhageTx common shares, and an
option for 41,668 additional common shares of PhageTx. As the
probability of outcome is not certain no accrual has been made in
the financial statements nor shares reserved in connection with
this contingency.
12. SUBSEQUENT EVENT
In March 2000, the Company issued pursuant to a private placement,
1,942,858 units at $0.70 per unit, for total proceeds of
$1,360,000. Each unit consisted of one common share of the Company
and a warrant, which entitles the holder thereof, to purchase
another common share of the Company at $1.25 per share until March
3, 2001 and $2.00 per share until March 3, 2002. The private
placement was issued in accordance with Regulation D, Rule 506 of
the United States Securities Act of 1933, as amended.
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 17
(A Development Stage Company)
SUPPLEMENTAL SCHEDULE
CONSOLIDATED STATEMENTS OF OPERATIONS BY DETAIL LINE ITEM
-------------------------------------------- --------------- -------------- -------------
Cumulative
Amounts From
Date of
Inception on Year Ended Year ended
December 24, December 31, December
1996 to 1999 31,
December 31, 1998
1999\
-------------------------------------------- --------------- -------------- -------------
<S> <C> <C> <C>
EXPENSES
-------------------------------------------- --------------- -------------- -------------
General and administrative
-------------------------------------------- --------------- -------------- -------------
Compensation and benefits $ 1,021,761 $ 314,450 $ 380,084
-------------------------------------------- --------------- -------------- -------------
Travel, meetings and related expenses 217050 15547 34415
-------------------------------------------- --------------- -------------- -------------
Rent and other facilities costs 510874 163819 189103
-------------------------------------------- --------------- -------------- -------------
Consulting fees 543741 163915 237838
-------------------------------------------- --------------- -------------- -------------
Management fees 45000 45000 -
-------------------------------------------- --------------- -------------- -------------
Professional fees 215995 42745 85679
-------------------------------------------- --------------- -------------- -------------
Amortization 95146 38772 38772
-------------------------------------------- --------------- -------------- -------------
Other general and administrative 175730 67990 69126
-------------------------------------------- --------------- -------------- -------------
2825297 852238 1035017
-------------------------------------------- --------------- -------------- -------------
Research and experimentation
-------------------------------------------- --------------- -------------- -------------
Sponsored research agreements 157284 - -
-------------------------------------------- --------------- -------------- -------------
Research reagents, supplies and equipment 147726 1050 52240
-------------------------------------------- --------------- -------------- -------------
Consulting 245120 80000 122500
-------------------------------------------- --------------- -------------- -------------
Compensation and benefits 287024 143756 101803
-------------------------------------------- --------------- -------------- -------------
Travel, meetings and related expenses 28051 - 270
-------------------------------------------- --------------- -------------- -------------
Rent and other facilities costs 84345 24013 42587
-------------------------------------------- --------------- -------------- -------------
Amortization 36122 16244 17, 082
-------------------------------------------- --------------- -------------- -------------
General research and development 4990 403 1826
-------------------------------------------- --------------- -------------- -------------
990662 265466 338488
-------------------------------------------- --------------- -------------- -------------
</TABLE>
<PAGE>
PHAGE THERAPEUTICS INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Prepared by Management)
June 30, 2000
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 2
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Prepared by Management)
(Audited)
June 30, 2000 December 31, 1999
ASSETS
<S> <C> <C>
Current
Cash and equivalents $ 803,941 $ 1,223
Prepaid expenses and other current assets 7,715 8,282
----------- -----------
811,656 9,505
Capital assets, net 21,754 42,520
Deposits, non-current -- --
----------- -----------
$ 833,410 $ 52,025
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable $ 317,011 $ 421,953
Accrued liabilities 118,978 177,347
Deferred rent expense -- --
Due to related parties 289,571 362,189
Notes payable to related party 145,943 145,943
----------- -----------
871,503 1,107,432
Stockholders' equity
Capital stock
Authorized
50,000,000 common shares with a par value of $0.001
Issued and outstanding
December 31, 1999 - 6,809,729
June 30, 2000 - 8,752 6,809
Additional paid-in capital 4,379,813 3,021,756
Non-controlling interest (8,369) (8,369)
Non-qualified stock options outstanding 110,150 110,150
Deficit accumulated during the development stage (4,528,439) (4,185,753)
----------- -----------
(38,093) (1,055,407)
----------- -----------
$ 833,410 $ 52,025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 3
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Prepared by Management)
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
Cumulative
Amounts
From Six Month Six Month
Beginning Three Month Three Month Period Period
of Period Ended Period Ended June Ended
Development June 30, Ended June 30, 2000 June 30
State on 2000 30, 1999 1999
December
24, 1996 to
June 30,
2000
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
EXPENSES
General and administrative
Compensation and benefits $ 1,084,493 $ 46,808 $ 86,908 $ 62,732 $ 181,310
Travel, meetings and related 226823 4826 12409 9773 12412
Rent and other facilities costs 534211 11334 44392 23337 82888
Consulting fees 617741 53000 31048 79000 32172
Management fees 75000 - 15000 30000 15000
Professional fees 260910 24538 1397 49634 2684
Amortization 113897 9693 9693 18751 19386
Other general and administrative 206438 8813 28697 20989 30607
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
3119513 159012 229544 294216 376459
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
Research and experimentation
Sponsored research agreements 157284 - - - -
Research reagents, supplies and equipment 157009 6283 347 9283 1050
Consulting fees 245120 - 30000 - 60000
Compensation and benefits 309754 - 19344 22730 137114
Travel, meetings and related expenses 28283 144 - 232 -
Rent and other facilities costs 94345 - 9516 10000 20374
Amortization 41847 2808 4240 5725 8480
General research and development 4990 - 150 - 385
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
1038632 9235 63597 47970 227403
------------------------------------------------- ------------- ------------- ------------- ------------ -----------
Loss before other item -4158145 -168247 -293141 -324186 -603862
OTHER ITEM
Loss on disposal of assets 370294 -500 - -500 -
------------------------------------------------- ------------- ------------- ------------ ------------- -----------
Loss for the period $(4,528,439) $ (168,747) $(293,141) $(342,686) -603862
================================================= ============= ============= ============ ============= ===========
Basic and diluted loss per share $ (0.02) $ (0.04) $ (0.04) $ (0.10)
================================================= ============= ============= ============ ============= ===========
Weighted average number of shares 8752587 6602169 7943063 5991081
outstanding
================================================= ============= ============= ============ ============= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 4
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Prepared by Management)
Cumulative Amounts
From Beginning of
Development State Six Month Period Six Month Period
on December 24, Ended June 30, Ended June 30,
1996 to June 30, 2000 1999
2000
-------------------------------------------------------- --------------------- ------------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (4,528,439) $ (342,686) $(603,862)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization 142288 24475 27866
Compensation expense from investing of
non-qualified stock option 110150 - 72218
Loss on disposal of property and equipment 370200 500 -
Interest on loan from related party 5745 - -
Consulting - - -
Change in non-cash working capital items
Decrease (increase in prepaid expenses
and other current assets) -7715 567 -5956
Decrease (increase) in deposits - - -
Increase (decrease) in accounts payable 317011 -198141 11612
Increase (decrease) in accrued liabilities 118978 34830 -20909
Increase (decrease) in deferred rent - - 837
Increase (decrease) in due to related parties 289571 -72618 198071
------------------------------------------------------------
Net cash used in operating activities 3182211 -553073 -321797
------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of cash on purchase of subsidiary - - -
Purchases of property and equipment -541523 -4209 -1200
------------------------------------------------------------
Net cash used in investing activities -541523 -4209 -1200
------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of capital assets 7281 - -
Net proceeds received from loan 140198 - 7668
Net proceeds received from stock issuances 4380198 1360000 320793
------------------------------------------------------------
Net cash provided by financing activities 4527675 1360000 328461
------------------------------------------------------------
Change in cash position during the period 803941 802718 5464
Cash position, beginning of period - 1223 1744
------------------------------------------------------------
Cash position, end of period $ 803,941 $ 803,941 $ 7,208
======================================================== =============== ======================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHAGE THERAPEUTICS INTERNATIONAL INC. 5
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Prepared by Management)
Common Stock
Non-qualified Deficit
Stock Accumulated
Additional Non- Options During the
Paid -in controllingOutstanding Development
Capital Interest Stage Total
Number
of Shares Amount
--------------------------------- ------------ ---------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock issued for expenses
incurred $ 571,429 $ 571 $ 39,429 $ - $ - $ - $ 40,000
By founder
Stock sold for cash - December 1785707 1786 98214 - - - 100000
1996
Stock sold for cash - March
through July 1997 1600000 1600 638400 - - - 640000
Stock sold for cash - August
through December 1997 735000 735 734265 - - - 735000
Issuance of non-qualified stock - - - - 6494 - 6494
options
Loss for the period - - - - - -1324750 -1324750
----------------------------------------------------------------------------------
Balance at December 31, 1997 4692136 4692 1510308 - 6494 -1324750 196744
Stock sold for cash - February
through March 1998 165000 165 264835 - - - 265000
Stock issued as compensation for
bridge loan financing 22857 23 79977 - - - 80000
Stock sold for cash - April
through
May 1998, net of offering 500000 500 432541 - - - 433041
expenses of $66-959
Commission paid on offering by
shareholders - - -300000 - - - -300000
Forgiveness of debt by - - 300000 - - - 300000
shareholders
Advances on merger letter of
intent
converted to common stock - - 332000 - - - 332000
November 1998
Deferred compensation from non-
qualified stock options - - - - 31438 - 31438
outstanding
Net loss for the year - - - - - -1373505 -1373505
Balance at December 31, 1998 5379993 5380 2619661 - 37932 -2698255 -35282
----------------------------------------------------------------------------------
Expenses and notes from
shareholders
converted to common stock - - - 202000 - - - 202000
January
through February 1999
Adjustment to reflect
outstanding
shares of legal parent at
March 25, 1999 and net assets 2028375 2028 -38873 - - - -36845
of parent at historical
cost
Non-controlling interest
recorded at -1486852 -1486 16022 -14536 - - -
March 25, 1999
Shares issued for cash and
receivables - April 1999 187500 188 149812 - - - 150000
Shares issued for acquisition of
additional shares of
subsidiary - 629284 628 -6795 6167 - - -
April 1999
Shares issued for settlement of 71429 71 79929 - - - 80000
liability
Deferred compensation from
non- - - - - 72218 - 72218
qualified stock options
outstanding
Loss for the year - - - - - -1487498 -1487498
----------------------------------------------------------------------------------
Balance at December 31, 1999 6809729 $ 6,809 $3,021,756 $ (8,369) $ 110,150 $(4,185,753)$(1,055,407)
Shares issued for cash - March 1942858 $ 1,943 $1,358,057 - - - 1360000
2000
----------------------------------------------------------------------------------
Net loss for the period - - - - - $ (342,686) $(342,686)
Balance at June 30, 2000 8752587 $ 8,752 $ 4,379,813 $ (8,369) $ 110,150 $(4,528,439) $(38,093)
================================= ============ ========== ========== ========== =========== ============= ===========
</TABLE>
<PAGE>
ITEM 16. INDEX TO EXHIBITS
Item 1 - Index to Exhibits
3.1 Articles of Incorporation and Amendments
3.2 By-laws
10.1 Stock Option Plan 2000
10.2 Securities Purchase Agreement dated as of October 23, 2000
23 Consent of Independent Accountants
Item 2 - Description of Exhibits
The Exhibits required by this item are included as set forth in the
Exhibit Index.
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHAGE THERAPEUTICS INTERNATIONAL, INC.
(Registrant)
by /s/ Darren Pylot
------------------------------
President, CEO and Director
Dated: November 15, 2000
