FORM 10-SB
Amednment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
BIOLABS, INC.
(Name of Small Business Issuer in its charter)
NEW YORK
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1A-3033 KING GEORGE HIGHWAY, SURREY B.C. CANADA V4P 1B8
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604)542-0820
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Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange
on which each class is
to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.0001
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(Title of class)
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PART I
Item 1. Description of Business.
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BioLabs, Inc. a New York corporation, having its principal place of business in
Surrey, British Columbia, Canada (herein, the "Company" or "BioLabs"), is a
development stage company formed to manufacture and market certain cancer
therapy tests developed by others.
The Company entered into a joint venture agreement dated as of November 4, 1998
with an unrelated entity, Biotherapies Incorporated ("Biotherapies") to develop
and commercialize a Mammastatin Serum Assay Test (the "MSA Test"). The joint
venture operates as a Michigan Limited Liability corporation ("LLC"). The name
of such entity is Biomedical Diagnostics, LLC, and is herein referred to as the
"LLC" or "JV". See BUSINESS - ABiotherapies Background.@
Subject to the Federal Drug Administration (AFDA@) approval process, (see
BUSINESS - "FDA Approval Process") management expects the JV to be able to
promptly commence the design and development of anti-bodies for use in
commercial applications of the MSA Test. The Company also owns a six (6%)
percent minority interest in Biotherapies. Full clinical trials for Mammastatin
at the MP Anderson Cancer Center in Houston, TX have commenced. In addition, the
JV is making necessary arrangements to provide a large data base required for
the MSA Test. However, revenues are not expected to be realized at any time in
the foreseeable future.
Under the terms of the LLC Operating Agreement, the Company has agreed to make
U.S. $1,500,000 of capital contributions to the JV, of which $500,000 has been
paid to date and $1,000,000 is due and payable on August 9, 1999. In addition,
$1,000,000 has been paid directly to Biotherapies in connection with the ongoing
development of products using the Mammastatin technology. In addition, the
Company is required to undertake certain responsibilities and incur certain
expenses for Biotherapies.
Finally, the Company is obligated to pay U.S. $2,500,000 (all amounts are set
forth in U.S. funds) to Biotherapies for exclusive on-going product development
when the LLC completes clinical trials and obtains necessary regulatory
approvals for the manufacturing and marketing of some form of the MSA test in
the United States. $500,000 of such amount is due on August 9, 1999; $1,000,000
is due within 60 days of completion of diagnostic clinical trials; and the final
$1,000,000 of which is due 30 days after the JV has achieved $100,000 in gross
revenue, derived from any sale or license of the Mammastatin Serum Assay and
subsequent to the completion of the diagnostic clinical trials for some form of
the Mammastatin Serum Assay in the United States. Within fourteen (14) days
after the LLC obtains the regulatory approvals, the Company is required to issue
Biotherapies 5% of the Company's total outstanding shares of all classes on a
fully diluted basis. The Company also intends to negotiate other commercial
relationships relating to cancer therapy treatments and other biotechnology
projects. There is no assurance that any such relationships will be established
or, if established, that any such transactions or relationships will be
profitable or effective for the Company. See BUSINESS - "Risk Factors".
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The Company has no revenue from operations, is in a start-up phase with its
existing assets and has no significant assets, tangible or intangible, other
than the opportunities for the JV disclosed herein. The Company continues to
have significant obligations with respect to the JV and Biotherapies. In order
to complete its obligations, the Company requires additional financing. The
Company expects to need to place additional securities with investors in
registered offerings or exempt transactions in order to raise the capital
required for its activities until such time as the JV and the Company can
generate revenues from operations. None of the Company's current officers are
employed directly by the Company. Although engaged substantially full-time for
the Company, in accordance with Canadian practice, they are employed by the
Company through a personal services holding company. (See Item 6: AExecutive
Compensation@).
Biotherapies-Background
Biotherapies was founded in 1994 by Dr. Paul Ervin Jr. Dr. Ervin is currently a
director of the Company. With the commencement of the full clinical trials for
Mammastatin at the MD Anderson Cancer Center in Houston, Texas combined with the
rapidly increasing work load associated with the completion of the LLC lab in
Ann Arbor, Michigan to begin processing the large data base for the MSA for
Biomedical Diagnostics. Dr. Ervin has advised the Company that he does not
intend to stand for re-election at the Company's 1999 Annual General Meeting,
but will instead accept a senior position on the Scientific Advisory Board for
BioLabs.
Dr. Ervin had previously discovered the Mammastatin protein in 1987 at the
University of Michigan Cancer Center (now known as the Karamasoff Cancer Center
in Detroit, Michigan). Dr. Ervin observed that under certain laboratory
conditions that Mammastatin decreased the growth rate of breast cancer cells.
During his Ph.D. training from 1987 to 1994, Dr. Ervin continued his research
which resulted in the issuance of a patent to the University of Michigan in
1990, entitled Mammastatin Biochemical Characteristics. Dr. Ervin ultimately
discovered that Mammastatin is a naturally occurring human protein that has been
identified in laboratory media conditions by the growth of normal mammary
epithelial cells in culture. Further, that Mammastatin can be identified in
female blood serum and Mammastatin levels vary in the serum of healthy women
during menstrual cycles. Additionally, preliminary research indicated that
Mammastatin is a growth inhibitory protein that may be a normal regulator of
breast cell growth which does not affect the growth of other cells. Mamma stein
requires the addition of a phosphate group to be active. Cancer cells have an
excess of the enzyme that removes the phosphate group. Mammastatin is not active
and levels are low in over 90% of breast cancer samples analyzed; while it is
active in all of the normal breast cells analyzed.
A gene for Mammastatin has been isolated and identified. Dr. Ervin has been
successful in cloning the gene and is now preparing for synthetic production for
further research. In 1997, Biotherapies was given permission to administer
natural Mammastatin to Stage IV breast cancer patients on a compassionate basis.
The protein was approximately 70% effective in either stopping or eradicating
the cancer. There is no assurance that those results will be replicated in
future necessary tests.
<PAGE>
In conjunction with Biotherapies research on Mammastatin, Biotherapies developed
a quantitative assay for measuring Mammastatin in blood serum, known as the MSA
test. The assay in all its forms is believed by management to be a viable system
for measuring the quantity of Mammastatin protein in a liquid, and thereby a
reliable indicator of the potential presence or likely absence of breast cancer
cells.
The JV has been formed to commercialize the MSA test, subject to the FDA
approval process. The JV envisions development of a AKit@ which would allow
antibody based detection of the Mammastatin protein. Components of the Kit may
include, in additional to antibodies and protein, substrates to develop color
from the serum assay, membrane to immobilize serum proteins, an apparatus to
perform the blot, a scanner to read the blot, and a software program and
computer to interpret the blot. Neither the MSA Test nor its component parts or
the exact procedure to be followed has been finalized.
Biotherapies- Contributions to the LLC/LLC Governance
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Under the terms of the Operating Agreement, Biotherapies' contribution to the JV
is an exclusive, non-assignable, non-sub-licensable, royalty free world-wide
sub-license to use all of Biotherapies' rights under the License Agreement with
the University of Michigan, for the development, manufacturing, marketing and
sale of the MSA test. The LLC will own all improvements developed by the LLC,
including modifications and enhancements as well as any new product or material
which performs substantially the same function as the MSA test, but does so
through a different method or process.
So long as the JV remains in effect, the Company will be notified of any
opportunities for the development or commercialization of any other diagnostic
or screening test developed by Biotherapies with the intent to establish a
similar arrangement or alliance. The JV is managed by four committee members,
two of whom were appointed by the Company and two appointed by Biotherapies.
Each member has one vote. The committee has the power and authority to make all
of the ordinary and usual decisions concerning the business of the JV, including
the hiring of key officers. Tie votes are resolved by the President of
Biotherapies, currently, Mr. Tom Trimmer.
The JV Management Committee must refer the sale or hypothecation of all or
substantially all of the assets of the JV, capital expenditures or major
commitments in excess of $250,000, non-arms-length transaction or issuance of
any additional JV interests directly to the JV partners. As currently
constituted, any such transaction requires the Company's consent.
The JV Agreement has no fixed term for expiry and both the Company and
Biotherapies can engage in competing technologies or business to the MSA test.
Either member of the JV may sell or encumber all or part of its interest in the
JV to another party by first granting the non-selling member a 30 day right of
first refusal.
Additional Capital Requirements of the JV
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In the event that additional capital is required by the JV, each member of the
JV is obligated to fund its 50% portion of the total shortfall. Should either
member of the JV fail to fund the shortfall within 60 days of the due date, the
other member has the option to fund the shortfall and correspondingly dilute the
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non-funding member's ownership interest in the JV. The Company currently has no
way of raising its portion of the JV capital otherwise than through the sale of
securities by future private placements or registered public offering
transactions. The Company is registering its Common Stock under the Exchange Act
in order to facilitate the possibility of such future offerings.
Subject to income tax regulations, and generally accepted accounting principles
and practices, the JV intends to allocate JV profits or losses for each fiscal
year in a manner that would cause each member's adjusted capital account balance
at the end of the year to equal the amount that would be distributed to the
members under a hypothetical liquidation of the JV. In determining hypothetical
liquidation values, it would be presumed that all of the JV's assets would be
sold at fair market value net of liabilities.
It is intended that the JV will distribute operating cash flow, if any, each
calendar quarter. Operating cash flow is the gross cash proceeds generated by
the JV's operations less expenses, working capital, interest and principal
payments on JV debt, capital asset purchases and contingencies, all as
determined by the committee. Operating cash flow will also include a deduction
for a 4% royalty payment on sales payable under the head licensing agreement
between Biotherapies and the University of Michigan. Operating cash will not
include a deduction for depreciation and amortization of capital equipment.
The FDA Approval Process
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The FDA approval process is being managed by Biotherapies, which has retained a
team of expert regulatory and legal advisors. In 1997, the FDA accepted the
Mammastatin proof of concept studies and approved the therapeutic product under
the AFast Track@ program, under which new products of life threatening diseases
can be approved in less than two years. The proof of concept study involved a
sample of 1000 blood samples and correlated low Mammastatin levels with the
incidence of breast cancer.
In 1998, Biotherapies received approval from the FDA to commence Phase I and II
clinical trials at the University of Texas, MD Anderson Cancer Center in
Houston, Texas. The trial protocols were completed in early 1999 and the program
was started in May, 1999. Phase I and II clinical trials will utilize naturally
produced Mammastatin and are likely be completed in mid-2000. If Phase I and II
are successful, Biotherapies will still have to complete one or more Phase III
trials prior to obtaining FDA approval to commercially launch the product. Phase
III trials will involve the use of recombinant or synthetic Mammastatin because
of the limited production capability of natural Mammastatin. Phase III testing
will primarily focus on long term safety and efficacy and may take several
years.
In the United States, commercialization and sale of either therapeutic products
or diagnostic/screening tests are subject to review and authorization procedures
by the FDA. Generally, any proposed drug or medical device must pass each phase
of a multi phase process, designed to prove safety, efficacy and effectiveness
over a sufficient sample. Regulatory authorities have a broad discretion when
granting or denying approvals. There is no assurance that the MSA Test will be
sanctioned for use. The FDA could impose additional product testing on the
therapeutic, and in the case of the MSA test, may require additional testing.
<PAGE>
The MSA screening test will likely be subject to a less stringent trial process
because it is not an in-vitro therapeutic, but rather a blood test. The Company
anticipates that the duration of the test period will be approximately 6-9
months. The JV is currently in the process of reviewing the requirements
governing the test under a 510K application or a PMA application with FDA. Under
a 510K, the FDA would, if accepted, sanction the use of the test and approve
limitations on the wording and terms of use of the product. A PMA application,
if required, may necessitate more stringent testing in a controlled clinical
environment. Biotherapies, on behalf of the JV, has identified the Toronto
General Hospital Cancer Centre to conduct a 1000 sample range test and a
subsequent correlation test utilizing a similar sample size.
The sample range text will consist of 500 healthy women and 500 breast cancer
patients to determine normal Mammastatin ranges. Histories will be available for
each patient. Measurement of Mammastatin levels will be made, and a
determination as to whether the levels correspond with the patient history. The
correlation test will consist of 1000 blood samples absent of patient history.
The purpose of the correlation test is to seek to identify from blood samples
only those patients who have tumors or breast cancer. The sample range and
correlation tests are designed to prove the efficacy of the MSA screening test
as a measurement and diagnostic tool.
The international jurisdictions in which Biotherapies and the JV intend to
market their products have similar legislation and regulations governing the
sale of the therapeutic products and cancer screening tests. Any failure to
comply with these provisions could result in immediate cessation of sales and
distribution activities.
Laws and regulations of the United States and other jurisdictions are subject to
change. There can be no assurance that any such change would not adversely
affect the JV, and the JV's proposed business. The failure of the Company to
comply with such laws and regulations could have an adverse impact on the
operations of the Company.
Industry Overview
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Despite a multiplicity of new drugs and advanced technologies, cancer remains
one of the major causes of death in developed countries. For 1998, the American
Cancer Society estimated new breast cancer incidence alone at 180,300 with
43,900 related deaths in the USA. Breast cancer is a leading cause of cancer
mortality among women in the USA and the developed world. While the rate of
incidence increase is greatest in women under age 50, most cases occur after age
50.
Breast cancer, like other cancers, is a disease of abnormal cell growth.
Typically, the cells which line the milk producing ducts in the breast are the
cells that become cancerous. These cells undergo a controlled cycle of growth
and death during each menstrual cycle. The growth of these cells is thought to
be stimulated by the action of steroid hormones such as estrogen and
progesterone. Abnormal growth causes a dense accumulation of cells in a small
area, which is the early formation of a tumor and quite possibly breast cancer.
This abnormal growth or mutation, that ultimately leads to breast cancer, can be
passed in a hereditary manner (believed to be approximately 10% of all cases) or
<PAGE>
may be caused by mutating environmental agents. Environmental agents that are
thought to cause mutation include radiation, synthetic chemicals, pesticides and
diets which generate a large amount of activated chemicals. Cancer incidence
rates also increase dramatically with age. The aging population is associated
with increasing health care expenditure for cancer diagnosis and management in
the USA and worldwide.
In most cancer cases, the disease is first diagnosed via patient complaint, or
discomfort, or the detection of lumps in abnormal tumor development. In the
opinion of management, most experts appear to agree that early diagnosis is a
critical factor in improving the efficacy of treatment and survival. Further,
the increase in cancer survivors has greatly elevated the demand for monitoring
and treatment protocols post-disease detection and treatment.
Testing for Cancer. In the past, cancer was primarily diagnosed via
tissue biopsy, sample culture or x-ray, or mammography. Recent advances permit
cancer detection through the identification of specific markers or screens in
the body fluids of patients. Tumor markers or screening tests are defined as
either substances or antibodies that can be measured quantitatively to detect
the presence of a cancer. Such tests can also establish the extent of tumor
growth before treatment, to predict prognosis, and to monitor therapeutic
response.
The tumor marker and screening test industry has grown significantly over the
past several years due to increased awareness of the benefits of early
detection, and the FDA's reclassification of tumor marker tests as Class II
devices, in September, 1996. The reclassification allows manufacturers to submit
pre-market notification 510(K) to the FDA. The US market for immunoassay tumor
marker and screening tests is believed to have been in excess of $200 million in
1998 for existing products, and is expected to continue to grow significantly.
Current penetration rates in other developed countries are lower but are also
expected to grow at similar, if not better, rates with increased awareness.
The Company believes that the MSA screening test will be functionally similar to
the existing PSA test for prostrate cancer, in that it is an immunoassay test,
utilizing blood serum, that screens for levels of a key growth inhibiting
protein. According to a recent Frost & Sullivan report, PSA product revenues are
growing at a minimum rate of 30% compounded annual growth, as used for both
cancer screening and evaluating treatment progress. The PSA test is still in a
developing market phase. The Company believes that the MSA test can achieve
similar rapid initial penetration and similar or better growth rates than the
PSA test for prostrate cancer, based upon the fact that breast cancer is a
significantly more debilitating disease and effects a wider population base.
Competition
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Competition to the Biotherapies proposed therapeutic product consists of more
conventional treatments such as surgery, chemotherapy and radiation. In
addition, several other non-invasive therapeutics also exist, which are
manufactured and marketed by large multinational pharmaceutical companies. The
industry is dominated by four large competitors with Abbot Laboratories having
the major share (approximately 53%). The large companies are able to offer a
wide variety of tests for different cancers, and offer instrumentation giveaways
and other commercial incentives in exchange for test sales which the Company, as
presently structured, would be unable to provide. Such industry leaders also
have substantially greater resources, including capital and manpower, than the
Company.
<PAGE>
Additional competition through better or improved products may arise while
Biotherapies completes its clinical trials. While the Company believes that
Biotherapies' Mammastatin therapeutic has the potential to prove to be superior
to other treatments currently in existence, there is no assurance thereof, or
that the product will not face severe competition from existing products and
procedures or other products and procedures developed in the future, which could
significantly impact the Company's performance. The reclassification of tests by
the FDA has resulted in a significant expansion in the number of new products
submitted to the FDA for clearance.
Competition in the tumor marker and screening test immunoassay market is
dependent primarily upon efficacy including, sensitivity of the test to a
particular cancer type (i.e. the number of false readings).
Currently, management is not aware of any direct competition to the proposed MSA
immunoassay screening test, but there can be no assurance that such competition
will not develop in the near future.
Intellectual Property
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The Mammastatin technology, including the MSA test is, in the opinion of
management, protected by two existing patents granted pursuant to Dr. Ervin's
work to the University of Michigan in 1989 and two patent applications filed in
1997 and 1998. All patent applications have been assigned to the University of
Michigan according to the terms of the licensing agreement for the Mammastatin
technology between Biotherapies and the University of Michigan. Biotherapies
manages the patent process. Both Biotherapies and the JV intend to patent all
novel extensions of the existing technology.
There can be no assurance that the patent applications will ultimately be
granted or that the patents will fully protect Biotherapies, the Company, or the
JV from other competition. Both Biotherapies and the JV will have to incur
considerable costs in the future to obtain patent protection in other countries,
if any protection can be obtained at all.
History and Organization
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The Company is a New York corporation which was incorporated on September 19,
1994, under the name Flexx Realm Inc. The name was changed to BioLabs, Inc. on
August 14, 1998. The Company began focusing on the biotechnology industry in
1998. In November, 1998, the Company entered into the JV with Biotherapies.
Potential Expansion of Business
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The Company is continually evaluating opportunities in the biotechnology
industry. The Company anticipates that over the next several years it will
attempt to either acquire access to related or unrelated products and procedures
for cancer therapy and other biotechnology ventures. In doing so, the Company
may be able to diversify its revenue and asset base. The Company may seek to
acquire the rights to other technologies through future licensing, joint venture
or acquisition activities. There can be no assurance, however, that it will do
so, or that any such efforts will be successful.
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Employees
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The Company is in the start-up phase of its operations, none of the Company's
principal officers are employed directly by the Company. As of August, 1999, the
Company had one full time employee, employed in administration.
Cautionary Statements Regarding Forward Looking Statements.
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Statements in this Registration Statement on Form 10-SB under the captions
ADescription of Business@, AManagement's Discussion and Analysis or Plan of
Operations@ and elsewhere in this Form 10-SB, as well as statements made in
press releases or oral statements that may be made by the Company, or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not statements of historical fact, constitute Aforward looking
statements@ within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors, including those described in this Form 10-SB
under the caption ARisk Factors@, that could cause the actual results of the
Company to be materially different from the historical results or from any
future results expressed or implied by such forward looking statements. In
addition to statements which explicitly describe such risks and uncertainties,
readers are urged to consider statements labeled with the terms Aanticipates@,
Abelieves@, Abelief@, Aexpects@, Aplans@, Apotential@, Alikely@, Aintends@, to
be uncertain and forward looking. All cautionary statements made in this Form
10-SB should be read as being applicable to all related forward looking
statements wherever they appear. Investors should consider the following risk
factors as well as the risks elsewhere described in this Form 10-SB.
RISK FACTORS
Lack of Prior Operations and Experience. The Company has no revenue from
operations, is in a start-up phase with its existing assets and has no
significant assets, tangible or intangible, other than the opportunities for the
JV disclosed herein. There can be no assurance that the Company will generate
revenues in the future. There is no assurance that the Company will be able to
operate profitably in the future, if at all.
Need for Additional Financing. The Company continues to have significant
obligations with respect to the JV and Biotherapies. In order to complete its
obligations, the Company requires additional financing. Further, the JV may
require additional operating capital by the year 2000, for which the Company and
Biotherapies are required to contribute equally. There can be no assurance that
the Company will obtain additional financing for and the JV's current and future
operations or capital needs on favorable terms, if at all. If the Company
defaults with respect to capital calls for the JV, its interest therein may be
substantially diluted.
Uncertain Market/Government Regulations. Biotherapies' therapeutic product
requires FDA approval in the USA and will likely undergo a series of long term
clinical trials. The product will have to likely go through similar testing in
foreign jurisdictions. The MSA test is also subject to successful completion of
limited trials in the USA and requires standardization with respect to methods
of use and packaging, subject to FDA approval. There can be no assurance that
the tests and trials will ultimately be successful or that the product can be
commercialized in its current form, or approved for use, in either the USA or
any other foreign jurisdiction.
<PAGE>
Dependence on One Product. The size of the Company makes it unlikely that the
Company will be able to commit its funds to the acquisition of any other
business opportunities, until and unless it has first succeeded in some way with
the MSA test, to which there is no assurance.
Reliance in Biotherapies. As currently structured, the Company's potential for
future success is completely dependent upon the JV, Biotherapies and Dr. Paul
Ervin. No officer or director has any long term employment agreement. There can
be no assurance that Dr. Ervin or the Company's other directors will remain
associated with the Company.
Competition. Even if the MSA test can be successfully developed, and approved by
the FDA, and marketed, the Company is likely to face intense competition from
very large, well established firms in the medical and biotechnology industries.
These entities typically have significantly more resources and well established
track records. Many of these competitors are in a better position to attract
clientele. The Company, Biotherapies and the JV will likely have to form
alliances or further joint ventures in order to successfully penetrate the
marketplace. There can be no assurance that a competitor will not develop
similar or superior products nor that the Company will be successful in
competing in the marketplace.
Other Interests of Management. The officers and directors, including Dr. Ervin,
have other interests to which they may devote time and each may continue to do
so, notwithstanding the fact that additional management time may be necessary to
conduct the business of the Company.
History of Losses. The Company has incurred net losses of $1,007,958 and
$191,118 for the fiscal years ended December 31, 1998 and 1997 respectively.
There can be no assurance that the Company will operate profitably in the near
future or at all.
Negative Net Worth. The Company had a negative net worth of $415,622 and
$393,896 as at December 31, 1998 and 1997 respectively. There is no assurance
that the Company will be able to attract the capital it needs for its current
business opportunities given that negative Net Worth.
Negative Cash Flow. The Company has no current income or likely source of
current income in the immediate future. Management and consulting fees,
including legal and accounting fees, are currently costing the Company in excess
of Seventy Thousand ($70,000) Dollars monthly. The Company will be required to
place additional securities in new financings to make up for such negative cash
flow. Such transactions may have a negative or depressing effect on the trading
policies for the Company's publicly-traded securities.
No Likelihood of Dividends. The Company has never paid any cash or other
dividend on either its Common or Preferred Stock. At present, the Company does
not anticipate paying dividends in the foreseeable future and intends to devote
any earnings to the development of the Company's businesses. Investors who
anticipate the need for income from their investment should refrain from
purchasing the Company's Stock.
Lack of Listing. The Company's securities are traded on the NASD Bulletin Board.
Continuation of such trading will be dependent, in part, on the Company's
ability to timely file required reports under the Securities Exchange Act of
1934 in the future. The Bulletin Board is not a national securities exchange.
The Bulletin Board does not provide holders of the Company's securities with the
liquidity which would or could be available, if the Company's common stock were
listed on a national securities exchange, or the NASDAQ electronic market.
<PAGE>
Indemnification and Exclusion of Liability of Directors and Officers. So far as
permitted by law, the Company's Certificate of Incorporation and By-Laws provide
that the Company will indemnify its directors and officers against expenses and
liabilities they incur to defend, settle or satisfy any civil or criminal action
brought against them on account of their being or having been Company directors
or officers unless, in any such action, they are adjudged to have acted with
gross negligence or to have engaged in willful misconduct. As a result of such
provisions, stockholders may be unable to recover damages against the directors
and officers of the Company for actions taken by them which constitute
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against directors
and officers and may discourage or deter stockholders from suing directors,
officers, employees and agents of the Company for breaches of their duty of
care, even though such action, if successful, might otherwise benefit the
Company and its stockholders.
<PAGE>
Item 2. Management's Discussion and Analysis of Plan of Operation.
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The Company is in a start-up phase with respect to its assets and operations. On
November 11, 1998, the Company entered into the joint venture with Biotherapies.
Description of Business@. Management believes that revenues will not be
generated by the joint venture prior to the year 2000, if then. Accordingly, the
financial results of the last two fiscal years are not indicative of future
years, if and when the joint venture begins to produce revenues.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
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Results for the fiscal year ended December 31, 1998 (AFY 98") reflect a loss of
$1,077,958 compared to a loss for the fiscal year ended December 31, 1997 (AFY
97") of $191,118. The greater loss incurred in FY 98 was primarily attributable
to costs associated with the Company's start-up and organization activities
related to the raising of capital to proceed with its investment in Biotherapies
and the joint venture. Similar costs and activities are being incurred and
undertaken in the current year.
General and administrative expenses for FY 98 were $1,080,811 compared to
$191,118 for FY 97. The major general and administrative expenses for the
Company were legal and accounting fees, management and consulting fees, and
travel expenses. Legal and accounting expenses increased by $89,176 in
connection with the Company's 504 offering, and the Biotherapies agreements.
Listing and share transfer fees increased from a nil amount to $37,802 as the
Company prepared for its listing on the bulletin board in February, 1999.
Management and consulting fees increased by $625,656 from $112,176 for FY 97 to
$737,832 for FY 98. The increase was primarily due to the Company's use of
external consultants to investigate, evaluate, negotiate and finance the
agreements with Biotherapies. Travel expenses also increased from $35,017 in FY
97 to $149,671 in FY 98, also related to the Company's activities associated
with the completion of the joint venture with Biotherapies, and its capital
raising and related activities.
Liquidity and Capital Resources. As of December 31, 1998, the Company had cash
of $82,153 compared to $402 as of December 31, 1997. On December 31, 1998, the
Company had a net working capital deficit of $1,346,248. However, $414,000 of
this deficiency are preferred stock subscriptions (i.e. amounts received for
Class A preferred stock where the shares were issued subsequent to December 31,
1998) and $872,500 is accrued liabilities which were converted to common stock
equity in 1999. Accordingly, in the opinion of management such liabilities do
not adversely impact cash flow. Without such liabilities, the net working
capital deficit as of December 31, 1998 was $59,748. On December 31, 1997, the
net working capital deficit was $393,896. Equity raised through the 504 offering
increased net worth by approximately $847,000 after all expenses associated with
the offering.
To date, the Company's cash requirements have exceeded cash flow. The Company
has satisfied its capital needs primarily through debt and equity financing.
The Company's outstanding indebtedness as of December 31, 1998 was $40,132,
represented by promissory notes payable to two companies controlled by officers
<PAGE>
and directors of the Company. The notes are payable 30 days after demand, bear
interest at prime plus 4%, and are convertible into shares of the Company at
$.25 per share. The notes are secured by a security interest in and to all
assets and book accounts of the Company. Subsequent to December 31, 1998, the
Company's indebtedness has not changed.
The Company has material capital commitments under its JV with Biotherapies. The
Company is unable to satisfy such needs without additional capital raising
activities, which are contemplated and being planned.
Year 2000. The Company believes that all of its computer systems are Year 2000
compliant. The operating systems employed by the Company include Windows 98 and
DOS, all of which are compliant. The ACCPAC accounting software is also
compliant. The Company does not believe that computer systems failures
attributable to Y2K will have any meaningful effect on the Company's operations.
<PAGE>
BIOLABS INC.
INTERIM (UNAUDITED) FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
BALANCE SHEET
(unaudited, prepared by management)
June 30, 1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash ........................................ $ 321,345 $ 121,575
Accounts receivable ......................... $ 18,970 $ 121
Prepaid expenses ............................ $ 22,833
----------- -----------
$ 363,148 $ 121,696
Long term investments
Biomedical Diagnostics LLC .................. $ 1,500,000
Biotherapies Incorporated ................... $ 420,000 $ 420,000
Office equipment ................................. $ 19,980
Incorporation costs .............................. $ 883 $ 2,647
----------- -----------
$ 2,304,010 $ 544,343
----------- -----------
LIABILITIES
Current liabilities
Accounts payable & accrued liabilities ...... $ 202,145 $ 61,635
Common stock subscriptions .................. $ 484,986
Preferred stock subcriptions ................ $ 300,000
Promissory notes payable - related parties .. $ 40,132 $ 170,973
$ 542,277 $ 717,594
SHAREHOLDERS' EQUITY (Deficiency)
Preferred stock par value $.0001
Authorized: 100,000,000 shares
Issued: 1999 - 619,170 1998 - nil ........... $ 62
Common stock par value $.0001
Authorized: 100,000,000 shares
Issued: 1999 - 8,119,036 1998 - 6,176,536 ... $ 812 $ 618
Additional paid-in capital ....................... $ 3,845,999 $ 475,594
Accumulated deficit .............................. ($2,085,139) ($ 649,463)
----------- -----------
$ 1,761,734 ($ 173,251)
----------- -----------
$ 2,304,010 $ 544,343
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
BioLabs Inc.
STATEMENT OF OPERATIONS AND DEFICIT
(unaudited, prepared by management)
FOR THE SIX MONTHS ENDED:
June 30, 1999 1998
---- ----
<S> <C> <C>
EXPENSES
Automobile .............................. $ 2,676 $ 4,903
Depreciation & ammortization ............ $ 3,921 $ 882
Interest & bank charges ................. $ 1,089 $ 6,677
Legal & accounting ...................... $ 58,215 $ 20,777
Listing & share transfer fees ........... $ 4,693
Management & consulting fees ............ $ 273,287 $ 79,981
Office & miscellaneous .................. $ 64,653 $ 937
Premises costs .......................... $ 14,076
Salaries & benefits ..................... $ 9,175
Telephone ............................... $ 9,884 $ 1,018
Travel & promotion ...................... $ 46,165 $ 12,023
----------- -----------
$ 487,834 $ 127,198
----------- -----------
LOSS BEFORE OTHER INCOME ..................... ($ 487,834) ($ 127,198)
Interest & miscellaneous income ......... $ 3,366 $ 448
----------- -----------
NET LOSS ..................................... ($ 484,468) ($ 126,750)
DEFICIT, BEGINNING OF PERIOD ................. ($1,600,671) ($ 522,713)
----------- -----------
DEFICIT, END OF PERIOD ....................... ($2,085,139) ($ 649,463)
----------- -----------
LOSS PER COMMON SHARE ........................ ($ 0.06) ($ 0.02)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
BioLabs Inc.
STATEMENT OF CASH FLOW
(unaudited, prepared by management)
FOR THE SIX MONTHS ENDED:
June 30, 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................... ($ 484,468) ($ 126,750)
Adjustment to reconcile net loss to cash
used in operating activities:
Depreciation & ammortization ................ $ 3,921 $ 882
Change in operating assets & liabilities .... $ 118,572 ($ 165,339)
----------- -----------
($ 361,975) ($ 291,207)
----------- -----------
Cash flows from investing activities:
Capital expenditures on equipment ............. ($ 14,157)
Purchase of shares in Biotherapies Inc. ....... ($ 420,000)
Investment in Biomedical Diagnostics LLC ...... ($1,000,000)
-----------
($1,014,157) ($ 420,000)
----------- -----------
Cash flows from financing activities:
Common stock issued for cash .................. $ 347,394
Preferred stock issued for cash ............... $ 1,729,324
Common stock subsriptions received ............ $ 484,986
Preferred stock subscriptions received ........ ($ 114,000)
-----------
$ 1,615,324 $ 832,380
----------- -----------
Net increase in cash ............................. $ 239,192 $ 121,173
Cash:
Beginning of period ........................... $ 82,153 $ 402
----------- -----------
End of period ................................. $ 321,345 $ 121,575
----------- -----------
Non Cash Financing and Investing
Activities:
Common Stock Issued to Settle Debt
and Accounts Payable ............................. $ 932,500 $ 347,395
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
BioLabs, Inc.
Statement of Stockholders' Equity
June 30, 1999
Series A Convertible
Common Stock Preferred Stock Additional Total
Number Number paid-in Accumulated stockholder
Of shares Amount of shares Amount capital deficit equity
--------- ------ --------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Issue of common stock on
organization of the company 8,816,992 $8,817 $8,817
Net Loss (147,192) (147,192)
Balance December 31, 1995 8,816,992 8,817 (147,192) (138,375)
Consolidation of shares in
November on a 50 for 1 basis (8,640,456) (8,799) 8,799
Net Loss (184,403) (184,403)
Balance December 31, 1996 176,536 18 8,799 (331,595) (322,773)
Issue of common stock for
settlement of debt 3,000,000 300 119,700 120,000
Net Loss (191,118) (191,118)
Balance December 31, 1997 3,176,536 318 128,499 (522,713) (393,896)
Issue of common stock for
settlement of debt 3,000,000 300 347,095 347,395
Net Loss (126,750) (126,750)
Balance June 30, 1998 6,176,536 618 475,594 (649,463) (173,251)
Issue of common stock for cash 1,010,000 101 708,736 708,837
Net Loss (951,208) (951,208)
Balance December 31, 1998 7,186,536 719 1,184,330 (1,600,671) (415,622)
Issue of common stock for
settlement of debt 932,500 93 932,407 932,500
Issue of Series A convertible
preferred stock for cash 619,170 62 1,729,262 1,729,324
Net Loss (484,468) (484,468)
Balance June 30, 1999 8,119,036 $812 619,170 $62 $3,845,999 ($2,085,139) $1,761,734
--------- --- ------- -- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
<PAGE>
BioLabs, Inc.
Notes to Financial Statements
(unaudited, prepared by management)
Note 1. Summary of Significant Accounting Policies
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating assets
for the interim periods.
These financial statements should be read in conjunction with the financial
statements and accompanying notes contained in the company's financial
statements for the fiscal year ended December 31, 1998. The results of
operations for the six months ended June 30, 1999, are not necessarily
indicative of the results that will be achieved for the entire fiscal year
ending December 31, 1999.
The financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern, which assume that
the Company will realize its assets and discharge its liabilities in the normal
course of business. Realization values may be substantially different from the
carrying values as shown in these financial statements should the Company be
unable to continue as a going concern. The Company's ability to meet its
obligations and maintain its operations is contingent upon successful completion
of additional financial arrangements and the continuing support of its
creditors.
Note 2. Supplemental Cash Flow Disclosures
On January 26, 1999 and February 15, 1999, the Company issued common stock in
non-cash transactions described in note 3.
Note 3. Equity Transactions
On January 26, 1999, in a non-cash transaction, the Company issued 60,000 shares
of common stock in exchange for $60,000 of investor relations services provided
by an unrelated party.
On February 15, 1999, in a non-cash transaction, the Company issued 872,500
shares of common stock through a negotiated agreement to convert $872,500 of
outstanding accounts payable into equity of the Company. The creditors are
unrelated parties to the Company.
During the six months ended June 30, 1999, the Company issued 619,170 shares of
series A Convertible Preferred stock to 17 persons for $3.00 per share. The
Company believes that such offerings are exempt from registration pursuant to
Regulation D and Sections 3(b) or 4(2) of the Act as well as relevant exemptions
in accordance with the Canadian Securities Laws and provincial authorities,
including Section 74(2)(4) of the Securities Act (British Columbia) and
107(1)(d) of the Securities Act (Alberta).
All proceeds of the Company's private placement offerings, net of commissions,
have been applied by the Company solely to capital contributions to the JV with
Biotherapies, certain other capital commitments to Biotherapies and payment of
general operating expenses.
Note 4. Related Party Transactions
Pursuant to a management agreement dated September 1, 1998 between Tynehead
Capital Corp. and the Company, during the six months ended June 30, 1999, fees
aggregating $136,998 were paid or were payable, for the six months ended June
30, 1999, to Tynehead Capital Corp. in connection with management and
administration services provided by Messrs. McCartney, Pasemko and Klychak,
through their respective holding corporations. The amounts are divided equally
among the three executive officers excepting automobile expenses which were
based on actual expenses incurred.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following, discussion and analysis of the financial condition and results of
operations (unaudited) for BioLabs as of and for the six months period ended
June 30, 1999 and the comparable period in the prior year should be read in
conjunction with the companies financial statements and related notes appearing
elsewhere in this Report. This discussion contains statements that are not
historical fact. These forward looking statements are based upon current
expectation, assumptions, estimates and projections about the industry, and the
Company business including statements about product markets, planned product
developments and anticipated revenue and expense levels. These forward-looking
statements contain words such as "anticipate", "believe", "plan", "expect" or
similar language. These forward-looking statements are subject to business and
economic risks. Actual results could differ materially from those anticipated in
such forward looking statements as a result of many factors including those set
forth in this discussion and in documents filed with the SEC, including the
Companies registration statement on form 10-SB.
Results of Operations
The Company is in a start-up phase with respect to its assets and operations.
Management believes revenues will not be generated by the LLC prior to the
middle of 2000. These financial statements are not indicative of future periods,
if and when the LLC or BioLabs begins to produce revenues.
Comparison of the Six Months Ended June 30, 1999 to the Six Months Ended June
30, 1998.
Results for the six months ended June 30, 1999 reflect a loss from operations of
$484,468 compared to a loss of $126,750 for the six months ended June 30, 1998.
The loss for 1999 was greater than 1998 by $357,718 primarily as a result of
increased start up activities and fund raising activities to fund the Company's
LLC investment. Similar costs are expected for the balance of the fiscal year.
Total operating expenses increased by $360,636 to $487,834 for the six months
ended June 30, 1999, compared to $127,198 for the six months ended June 30,
1998. The major expenses for the Company in 1999 are legal fees, management and
consulting fees, office and premises costs and travel. Legal fees increased by
approximately $25,000 for costs related to the Company's Series A Convertible
Preferred offering and its listing of its common shares and the registration of
same. The increase in management and consulting fees increased by $193,306 due
to the contracting of an entity providing investor relations services, the
reflection of full costs associated with the executive staff and the use of
external consultants to investigate, evaluate, negotiate and finance the
agreements with Biotherapies and certain other opportunities. Office and
premises costs, in aggregate, increased by $77,797 as the Company established
its corporate offices and undertook a comprehensive plan to close its financing.
Salaries and benefits reflect the hiring of one clerical staff member.
The increase in travel and promotion of $34,142 is also related to the Company's
capital raising investigation and related activities.
Liquidity and Capital Resources
As of June 30, 1999, the Company had cash $321,345 compared to $121,575 at June
30, 1998. Improvement in the cash position was primarily due to additional funds
of $1,615,324 incurred from the issuance of Series A convertible preferred
stock.
Operating activities during the six months ended June 30, 1999 used $361,975 of
cash compared to a use of $291,207 for 1998. This usage increase is primarily
due to a greater loss for the six months in 1999, net of an increase in accounts
payable and preferred stock subscription received.
Cash used for investing activities was $1,019,157 utilized for $14,157 of office
and computer equipment and $1,000,000 required under the LLC agreement.
The Company generated a net amount of $1,615,324 from financing activities
compared to $832,380 in 1998. $1,729,324 was generated from the issuance of
619,170 shares of Series A preferred stock at a price of $3.00 per share, net of
commissions. In addition, $114,000 of preferred stock subscriptions on hand at
the beginning of 1999 was converted to issued shares during the period.
The Company cash balances currently on hand are not sufficient to fund its
operations and obligations for more than three months. As a result, the Company
must raise additional capital to fund its operations and obligations to the LLC.
As of the date of this report, the Company is seeking investors to close of the
balance of its existing preferred offering of 714,162 shares or $2,142,486
before selling commissions. The Company is also actively evaluating related
business opportunities. There can be no assurances that the Company will
successfully close its existing offering or raise additional capital to acquire
new opportunities.
Impact of the Year 2000 Issue
The year 2000 Issue is the result of certain computer programs being written
using two digits rather than four to indicate the applicable year. As a result,
computer programs with date-sensitive software may incorrectly recognize a date
using "00" as the year 1900 rather than the year 2000. Such an error could
result in a system failure or miscalculations resulting in disruptions of
operations, including a temporary inability to process normal business
transactions or provide service to our customers.
BioLabs has undertaken a review of its own computer systems and applications to
determine if significant problems exist with the operations of those systems as
a result of the Year 2000 Issue. As a result of that review, management does not
expect that any modifications required to address Year 2000 problems will have a
material impact on the Company's business, operations or financial condition.
BioLabs cannot guarantee that the systems of its vendors and suppliers will be
Year 2000 compliant. However, based on initial surveys, management does not
anticipate replacement or major modifications of any hardware or software
components in its systems if third party supplied hardware and software is not
Year 2000 compliant. Nevertheless, BioLabs may be required to install software
updates to its systems and hardware so that they will run properly after
December 31, 1999. Management believes that these needed software updates are
currently available or will be available based on announcements made by vendors
through normal software maintenance licenses.
BioLabs has not incurred material costs to date in its Year 2000 review process
and does not anticipate that it will incur material expenses outside the normal
course of business to modify systems or third party supplied systems to be Year
2000 compliant. However, its systems and third party systems may contain
undetected errors or defects that may cause management to incur material costs
and could result in a material adverse effect on its operations and financial
condition. In addition, if suppliers or other third parties fail to address and
correct their Year 2000 issues, the Company could face business interruption and
material unexpected costs.
Risks of Forward Looking Statements
Actual results may vary materially from the forward-looking statements made
above. BioLabs intends that such statements be subject to the safe harbor
provisions of the Securities Act. BioLabs' forward-looking statements include
the plans and objectives of management for future operations and relate to a
variety of factors, including management's assumptions about its and the LLC's
ability to:
- - generate future revenues and achieve profitability
- - attract financing necessary to meets its existing obligations and
financing necessary to broaden the Company's revenue base and minimize
risks associated with a concentration of its activities around one
product
- - successfully complete clinical trials and meet all of the requirements
imposed by the FDA
- - successfully develop a market for the product(s)
- - meet significant competition from significantly larger market
participants
- - retain and attract qualified personnel
- - meet all future regulations that may be imposed by regulatory
authorities
All assumptions are based on judgements with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond management's ability to control.
Management believes that the assumptions underlying our forward-looking
statements are reasonable. However, the assumptions may prove to be inaccurate
and therefore there can be no assurance that the results contemplated in
forward-looking statements will be realized. Readers should not regard any
statements made in this Report as a representation by BioLabs or any other
person that BioLabs will achieve its objectives.
<PAGE>
Item 3. Description of Property.
- ------- ------------------------
The Company maintains its executive offices in approximately 2000 square feet of
space in Surrey, British Columbia, Canada, pursuant to a lease expiring on
November 30, 2001. The Company has an option to renew the lease for an
additional three years. Monthly lease payments are approximately Two Thousand
Three Hundred ($2,300.00) Dollars per month.
[The rest of this page intentionally left blank.]
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- -----------------------------------------------------------------------
The following table sets forth information known to the Company, as of August 2,
1999, regarding the beneficial ownership of the Company's voting securities by
(i) each of the Company's directors and executive officers, and (ii) all
directors and executive officers of the Company as a group.
Except as indicated below, management is not aware of any individual or entity
that owns 5% or more of the voting stock of the Company, unless otherwise
indicated, each of the stockholders listed in the table below has sole voting
and dispositive power with respect to shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
Name of Common Percent Percent of Voting
Beneficial Owner(1) Shares of Class Ownership( 2)
------------------- ------ -------- -------------
<S> <C> <C> <C>
E. Greg McCartney ....... 350,000 4.3% 3.7%
Lawrence J. Pasemko ..... 350,000 4.3% 3.7%
Albert Klychak .......... 210,000 2.6% 2.2%
Dr. Ian B. Woods ........ 300,000 3.7% 3.2%
All Directors and
Officers as a Group ..... 1,210,000(3) 14.9% 12.8%
Lutz Family Trust ....... 310,000(4) 3.8% 6.6%
</TABLE>
- ----------------------------
(1) The address for each of Messrs. McCartney, Pasemko, Klychak, and Woods is
c/o BioLabs, Inc., Suite #1A, 3033 King George Highway, Surrey, BC, Canada, V4P
1B8.
(2) The percentage shown reflects voting ownership after taking into account the
existing Class A Preferred Stock. None of the officers or directors owns any of
the Class A Preferred Stock.
(3) Excludes 410,000 vested options to purchase Common Shares held by such
officers and directors.
(4)The Trust also owns 310,000 shares of the Company's Convertible Preferred
Stock, Class A.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- ---------------------------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
E. Greg McCartney 48 President, Chief Executive Officer and
Chairman of the Board of Directors
Lawrence J. Pasemko 62 Chief Financial Officer, Secretary and
Director
Albert Klychak 41 Vice President, Corporate Relations and
Director
Dr. Ian B. Woods 55 Vice President, Operations and Director
Dr. Paul R. Ervin Jr. 40 Director, Founder and Chairman of
Biotherapies Incorporated
Carol Patterson Neves 66 Director
E. Greg McCartney. Mr. McCartney has been the Company's President and Chief
Executive Officer since 1995. In addition, he serves as Chairman of the Board
for White Diamond Spirits Inc., an American distilled spirits importing company.
From 1992 to 1995, Mr. McCartney was Vice President of Corporate Development at
Advanced Gaming Technology Corp., a public company distributing and
manufacturing electronic gaming equipment. Prior to 1992, Mr. McCartney was a
founding partner in a number of private enterprises involved in the electronics
industry, real estate and the automotive distribution business.
Lawrence J. Pasemko. Mr. Pasemko has been the Company's Chief Financial Officer
and Secretary Treasurer since 1995. From 1992 to 1995, Mr. Pasemko was the CFO
for Advanced Gaming Technology Corp., a public company which manufactured and
distributed electronic gaming equipment. Prior to his employment with Advanced
Gaming, Mr. Pasemko was president of Supercart Pacific Wholesale (Canada) Inc.,
a private distribution business with operations throughout the Pacific Northwest
and was President and General Manager of two Chrysler automobile dealerships
located in British Columbia.
Dr. Ian B. Woods. Dr. Woods has been the Company's Vice President, Operations
since February 1998. Dr. Woods is the senior founding partner of the Burke
Mountain Medical Centre in Port Coquitlam, British Columbia, where he has
conducted a general medical practice since 1977. He received his Ph.D. in
Physics and his M.D. from the University of British Columbia. He completed his
internship at the Royal Columbian Hospital. He has served on numerous medical
advisory committees, is a director of ETC Industries Ltd. and President and
director of Chill Tech Industries Inc.
Albert Klychak. Mr. Klychak has been the Company's Vice President, Corporate
Relations since 1995 and is primarily responsible for investor relations. From
1993 to 1996, Mr. Klychak was the President and Director of Quinchak Enterprises
Limited, a private company providing financing and investor relations services
and management services for a private equity fund. From 1986 to 1993, he managed
a private equity portfolio as an independent consultant.
<PAGE>
Dr. Paul R. Ervin Jr. Dr. Ervin is the founder and chairman of Biotherapies,
Incorporated, a privately held biotechnology company specializing in the
development of cancer diagnostics and therapeutics. Dr. Ervin is also the
founder and managing director of the Mammastatin Research Institute, and is a
former scientist at the University of Michigan Cancer Research Center. Dr. Ervin
is the principal scientist who discovered Mammastatin and has conducted over 10
years of laboratory and pre-clinical tests on Mammastatin. Dr. Ervin received
his Bachelor of Science Degree from Eastern Michigan University and his Ph.D. in
Cellular and Molecular Biology from the University of Michigan. Dr. Ervin was
first elected to the Board on November 5, 1998, by the Board of Directors.
Carol Patterson Neves. Ms. Neves was employed with Merrill Lynch, Pierce, Fenner
& Smith for approximately 40 years prior to her retirement in 1996. From 1986 to
1996, Ms. Neves was the First Vice President/Senior Research Analyst:
Diversified Companies. Ms. Neves received her B.A. in Economics from Trinity
College, her graduate certificate from Harvard Business School and her MBA from
New York University. Ms. Neves was first elected to the Board on March 1, 1999,
by the Board of Directors.
Each director holds office until the Company's annual meeting of stockholders
and until his successor is duly elected and qualified. Officers are elected by
the Board of Directors and hold office at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company. All of the directors, other than Dr. Ervin
and Ms. Neves were re-elected at a meeting of the stockholders held on July 31,
1998. Dr. Ervin and Ms. Neves were subsequently selected by the Board. Dr. Ervin
has advised the Board of his intention not to stand for re-election, due to
excessive time demands, but will instead accept a senior position on the
Scientific Advisory Board for BioLabs.
<PAGE>
Item 6. Executive Compensation.
- ----------------------------------
The Company is in the start-up phase of its business and operations and
currently generates no revenues. None of the Company's principal officers are
employed directly by the Company. However, Messrs. McCartney, Pasemko and
Klychak, through their respective holding companies, are parties to an
employment agreement dated September 1, 1998, between Tynehead Capital Corp. and
the Company.
During the year ended December 31, 1998, fees aggregating $173,200 was paid or
was payable to Tynehead Capital Corp. in connection with management and
administrative services provided by such executive officers and their respective
holding corporations. The amount was divided equally among the three officers
excepting automobile expenses, which were based on actual expenses incurred. Dr.
Woods was not paid for his services in 1998.
The monthly management fee is subject to an annual review by the Board of
Directors of the Company. The Company may also pay to Tynehead Capital Corp. an
annual incentive management fee, to be determined by the Board of Directors,
taking into account the financial performance of the Company and other such
factors deemed relevant.
The agreement provides that Messrs. McCartney, Pasemko and Klychak will not
compete with the Company for a period of one year subsequent to termination. The
enforcement of such non-complete clauses may be subject to challenge as against
public policy.
Director Compensation Directors not otherwise employed by the Company did not
receive cash compensation for serving on the Board of Directors during the
fiscal year ended December 31, 1998. However, directors received stock options.
See below.
Option and Award Plan On July 31, 1998, the stockholders approved the 1998 Stock
Option Plan adopted by the Board of Directors of the Company. The plan provides
for the grant of incentive stock options for up to 650,000 shares of Common
Stock to those employees, officers, directors or consultants eligible under the
Plan to receive stock options.
The Plan is administered by the Board of Directors or a committee thereof, which
determines, among other things, those individuals who receive options, the time
period during which the options may be partially or fully exercised, the terms
of any restrictions, the number of shares of Common Stock issuable upon the
exercise of each option, the exercise price and the expiration date, which date
will not exceed ten years from the date of grant of the Option.
The exercise price per share of Common Stock subject to an incentive option may
not be less than the fair market value per share of Common Stock on the date the
option is granted, as determined by a formula contained in a standard stock
option agreement. The maximum grant to any individual cannot exceed 5% of the
total issued and outstanding Common Stock of the Company as of the date of the
grant of the option.
No stock option may be transferred by a plan participant other than by will, or
the laws of descent and distribution, and during the lifetime of the plan
participant, the option can be only exercised by the plan participant. In the
<PAGE>
event of termination by death, retirement or the date a consultant ceases to be
a consultant by termination of the contract in accordance with its terms, or
ceases to be a director, the plan participant shall be entitled to exercise the
option within ninety days of the termination date. Options expire immediately in
all other instances. The plan administrator may amend the rules with respect to
termination in special circumstances.
Options issued under the Plan must be exercised within ten years from the date
the option is granted. All options granted under the Plan provide for the
payment of the exercise price in cash or bank draft provided the plan
participant delivers notice of intent to exercise speaking the number of options
to be exercised.
In the event of a merger, amalgamation or other corporate arrangement, including
but not limited to takeover, the Board of Directors may, in a fair and equitable
manner, determine the manner in which all unexercised option rights granted
under this plan will be treated, including the acceleration of time for the
exercise of such rights.
Any unexercised options that expire or that terminate upon a participant ceasing
to be employed by the Company become available again for issuance under the
Plan.
As of August 2, 1999, the following options to purchase Common Stock have been
granted to officers, directors and employees of the Company:
Name Options Held Exercise Price
---- ------------ --------------
E. Greg McCartney 90,000 $1.00
Lawrence J. Pasemko 90,000 $1.00
Albert Klychak 90,000 $1.00
Dr. Ian B. Woods 90,000 $1.00
Dr. Paul R. Ervin Jr. 50,000 $1.00
Other Employees 5,000 $1.00
[The rest of this page intentionally left blank.]
<PAGE>
Item 7. Certain Relationships and Related Transactions
- --------------------------------------------------------
On May 4, 1997, shares of Common Stock of the Company were issued to officers
and directors noted below as a settlement of outstanding debts and accounts
payable of $17,400.
Shares of Common Stock
E. Greg McCartney 150,000
Lawrence J. Pasemko 135,000
Albert Klychak 150,000
Dr. Ian B. Woods 200,000
In addition to the foregoing:
On January 2, 1998, 200,000 shares of Common Stock of the Company were issued to
Aspenwood Holdings Ltd., a company controlled by E. Greg McCartney, as
settlement of outstanding debts and accounts payable of $23,160.
On January 2, 1998, 215,000 shares of Common Stock of the Company were issued to
Supercart Pacific Wholesale (Canada) Inc., a company controlled by Lawrence J.
Pasemko, as settlement of outstanding debts and accounts payable of $22,497.
On January 2, 1998, 100,000 shares of Common Stock of the Company were issued to
Dr. Ian B. Woods, an officer and director of the Company, as settlement of
outstanding debts and accounts payable of $8,635.
On January 2, 1998, 60,000 shares of Common Stock of the Company were issued to
Albert Klychak, an officer and director of the Company, as settlement of
outstanding debts and accounts payable of $6,948.
All of such stock issuances were related party transactions. No independent
opinion as to the fairness of the issuances was obtained.
In addition all of the above persons rendered services in connection with the
formation of the Company for which they received no cash compensation or other
payment.
Item 8. Description of Securities
- ----------------------------------
The Company is authorized to issue One Hundred Million (100,000,000) shares of
its Common Stock, $.0001 par value, of which 8,118,997 shares are outstanding as
of August 4, 1999. The Company is also authorized to issue One Hundred Million
(100,000,000) shares of its Preferred Stock, $.0001 par value, of which
1,285,838 shares are outstanding as of August 4, 1999.
Each outstanding share of Common Stock is entitled to one vote, either in person
or by proxy, on all matters that may be voted upon by the holders thereof at
meetings of the stockholders. The holders of the Company's Common Stock have
equal ratable rights to dividends from funds legally available, therefore, when,
and if declared by the Board of Directors of the Company, and are entitled to a
pro rata share, subject to preferences given to Preferred Stock holders, of all
the assets of the Company available for distribution to holders of the Common
Stock, upon liquidation, dissolution or winding up of the affairs of the
Company. The holders of Common Stock do not have preemptive, subscription or
conversion rights, redemption or any redemption or sinking fund provisions.
All shares of Common Stock outstanding are fully paid and non-assessable.
<PAGE>
Each holder of the Series A Convertible Preferred Stock, par value $0.0001, (the
AClass A Stock@) is entitled to receive, out of any funds legally available,
noncumulative dividends at a rate of six percent (6%) per annum prior and in
preference to any payment of any dividend on the Common Stock in each calendar
year, and to participate pro rata with the Common Stock in any additional
dividends. Dividends are paid when, as and if declared by the board. The
dividend rights and preferences of the Class A Stock are senior to those of the
Common Stock. The Company has never paid any dividends, and there is no
likelihood that it will do so in the foreseeable future.
All of the Class A Stock is restricted as to retransfer. There is no liquid
market for the securities. None is expected to develop. In certain events
relating to liquidation, dissolution, consolidation or winding up of the Company
holders of the Class A Stock are entitled to receive an amount equal to the
original purchase price per share for the Class A Stock plus an amount equal to
all declared but unpaid dividends thereon (the APreference Amount@). After the
full liquidation preference on all outstanding shares of the Class A Stock has
been paid, any remaining funds and assets of the Company legally available for
distribution to shareholders are distributed pro rata among the holders of the
Class A Stock and the Common Stock on an Aas-if-converted@ basis. If the Company
has insufficient assets to permit payment of the Preference Amount in full to
all the Class A Stock shareholders, then the holders of the Class A Stock will
receive lesser payments in proportion to the Preference Amount each such holder
would otherwise be entitled to receive, without any distribution to the holders
of the Common Stock.
The Company has rights to redeem all of the outstanding Class A Stock at any
time. The redemption price is 110% of the initial purchase price of the Class A
Stock plus all declared but unpaid dividends. Redemption is highly unlikely
under current circumstances.
The holders of the Class A Stock have the right to convert its Class A Stock
into shares of Common Stock at any time commencing one year after purchase. The
Conversion Rate is one share of Class A Stock for one share of Common Stock. All
rights incident to a share of Class A Stock will terminate automatically upon
any conversion of such share into Common Stock. The Conversion Rate of the Class
A Stock into Common Stock is subject to adjustment from time-to-time.
[The rest of this page intentionally left blank.]
<PAGE>
BIOLABS, INC.
FORM 10 S-B
REGISTRATION STATEMENT
PART II
Item 1. Market Price of and Dividends on the Registrants Common Equity.
- -----------------------------------------------------------------------
Price Range of Common Stock
- ---------------------------
The Common Stock of the Company commenced trading on the OTC Bulletin Board on
February 16, 1999, under the symbol ABILB@. The following table sets forth, for
the fiscal periods indicated, the high and low trading prices of a share of
Common Stock as reported by the OTC Bulletin Board for periods on and subsequent
to February 16, 1999. Such quotations reflect inter-dealer prices, without
dealer mark-up, mark-down or commission and may not necessarily represent actual
transactions.
High Low
---- ---
Fiscal Year 1999 to Date
1st Quarter $7.00 $3.50
2nd Quarter $4.625 $2.00
3rd Quarter $3.75 $2.875
As of August 4, 1999, there are approximately 1200 holders of record of shares
of such Common Stock. There is no market for the Registrant's Class A
Convertible Preferred Stock. As of August 4, 1999, there are approximately 19
holders of record of shares of the Class A Convertible Preferred Stock. None of
Class A Convertible Preferred Stockholders have converted. None are eligible to
convert prior to November, 1999.
The Company has not paid dividends on the Common Stock or the Class A Preferred
Stock since inception and does not intend to pay and dividends to its stock
holders in the foreseeable future. The declaration of dividends in the future
will be at the election of the Board of Directors and will depend upon the
earnings, capital requirements, financial position of the Company, general
economic conditions, and other factors the Board of Directors deems relevant.
Item 2. Legal Proceedings.
- ---------------------------
None. Not Applicable.
Item 3. Changes in and Disagreements with External Auditors.
- -------------------------------------------------------------
None. Not Applicable.
Item 4. Recent Sales of Unregistered Securities.
- -------------------------------------------------
In the past three years, the Company has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the AAct@), pursuant to
Section 3(b) hereof or as otherwise indicated herein.
<PAGE>
In August, 1998, the Company sold 960,000 shares of Common Stock at $1.00 per
share (an aggregate of $960,000) to 181 non-accredited investors. The Company
believes that each issuance and sale of such securities was exempt from
registration pursuant to Section 3 (b) of the Act and/or Rule 504 promulgated
thereunder. The Company filed a Form D relating to such transaction on August 1,
1998.
From November of 1998 to August of 1999, the Company sold 1,285,838 shares of
Convertible Preferred Stock to 19 persons. The Company believes that such
offerings are exempt from registration pursuant to Regulation D and Sections
3(b) or 4(2) of the Act as well as relevant exemptions in accordance with the
Canadian Securities Laws and provincial authorities, including Section 74(2)(4)
of the Securities Act (British Columbia) and 107(1)(d) of the Securities Act
(Alberta).
All proceeds of the Company's private placement offerings, minus sales
commissions not exceeding (10%) percent of the amount thereof, have been applied
by the Company solely to capital contributions to the JV, other required capital
commitments to Biotherapies and payment of general operating expenses. Except to
the extent disclosed herein Item 6, AExecutive Compensation@, none of the
proceeds were paid, directly or indirectly, to directors, officers, general
partners of the Company, 10% shareholders or any of their affiliates (other than
payments made to Biotherapies, which is an affiliate of Dr. Paul Ervin, a
director of the Company).
Item 5. Indemnification of Directors and Officers.
- ---------------------------------------------------
New York Law enables a corporation in its original certificate of incorporation,
or an amendment thereto validly approved by the Board of Directors, to eliminate
or limit personal liability of members of its Board of Directors for violations
of a director's fiduciary duty of care. However, the elimination or limitation
shall not apply where there has been a breach of the duty of loyalty, failure to
act in good faith, intentional misconduct or a knowing violation of a law, or
where an improper personal benefit is obtained. New York law permits a
corporation to indemnify directors and officers with respect to any matter in
which a director or officer acted in good faith and in a manner reasonably
believed to be not opposed to the best interests of the corporation, and, with
respect to any criminal action, had reasonable cause to believe the conduct was
lawful.
The Company's Certificate of Incorporation includes the following language:
The personal liability of directors to the corporation or its shareholders
for damages for any breach of duty in such capacity is hereby eliminated
except that such personal liability shall not be eliminated if a judgement
or other final adjudication adverse to such director established that his
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his
acts violated Section 719 of the Business Corporation Law.
The Company's By-Laws include the following language:
Each director and officer of the corporation shall be indemnified by the
corporation to the fullest extent permitted by law against all costs and
expenses actually and necessarily incurred by him or her in connection with the
defense of any action, suit or proceeding in which he or she may be involved or
to which he or she may be made a party by reason of his or her being or having
been such director or officer, except in relation to matter as to which he or
she shall be finally adjudged in such action, suit or proceeding to be liable
for negligence or misconduct in the performance of duty.
<PAGE>
Financial Statements
--------------------
The Financial Statements and Notes thereto can be found beginning on page FS-1
"Index to Financial Statements" following the signature page hereof.
[The rest of this page intentionally left blank.]
<PAGE>
BIOLABS, INC.
FORM 10 S-B
REGISTRATION STATEMENT
PART III
Exhibits.
3.1 Restated Certificate of Incorporation of BioLabs, Inc. 2/9/99
5.1 Opinion regarding legality of Shares.
10.1 Abstract of Limited Liability Company Operating Agreement of BioMedical
Diagnostics, LLC (Joint Venture
Agreement)
21.1 Subsidiaries of Registrant: None.
27.1 Financial Data Schedule
Undertakings
Upon the effectiveness of this Form 10-SB, the Registrant undertakes to
file all quarterly, annual and periodic reports required to be filed by the
Company.
<PAGE>
SIGNATURE PAGE
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.
BIOLABS INC.
BY /s/E. Greg McCartney
-----------------
E. Greg McCartney, Chief Ex.Officer/President
- --------------------------------------------------------------------------------
Name Title
DATE August 27, 1999
BY /s/E. Greg McCartney
E. Greg McCartney, President, Chief Executive Officer and Chairman
- --------------------------------------------------------------------------------
DATE August 27, 1999
BY /s/Lawrence J. Pasemko
----------------------
Lawrence J. Pasemko, Chief Financial Officer, Secretary and Director
DATE August 27, 1999
- --------------------------------------------------------------------------------
BY /s/Albert Klychak
-----------------
Albert Klychak, Vice President and Director
DATE August 27, 1999
- --------------------------------------------------------------------------------
BY /s/Dr. Ian B. Woods
-------------------
Dr. Ian B. Woods, Vice President and Director
DATE August 27, 1999
- --------------------------------------------------------------------------------
BY
---------------------
Dr. Paul R. Ervin, Jr., Director
DATE
- --------------------------------------------------------------------------------
BY
------------------------
Carol Patterson Neves, Director
DATE
- --------------------------------------------------------------------------------
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1 Auditors' Report
2 Statement of Operations and Deficit
3 Balance Sheet
4 Statement of Stockholders' Equity
5 Statement of Cash Flows
6 Notes to the Financial Statements
FS-1
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD Lemieux Deck Millard Bond]
Lemieux Deck
Millard Bond
Chartered
Accountants
AUDITORS'REPORT
6345-197 Street
Langley BC
Canada V2Y I K8
To the Shareholders and Directors of
BIOLABS INC. (formerly Flexx Realm Inc.)
Telephone: 604-534-3004
Email: [email protected]
Facsimile: 604-534-3449
We have audited the accompanying balance sheet of Biolabs, Inc. (a New York
corporation) as at December 31, 1998 and the related statements of operations
and deficit and changes in cash flows for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and the
results of its operations and the changes in its cash flows for the year then
ended in accordance with generally accepted accounting principles.
The prior year financial statements were audited by other auditors who expressed
their opinion without reservation in their report dated March 19, 1998.
/s/Lemieux Deck Millard Bond
- ----------------------------
Lemieux Deck Millard Bond
Chartered Accountants;
Langley, Canada January 22, 1999
MR, Members of institute of Charlored Accountants of British
Columbia
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS AND DEFICIT
Total from
inception
(September 19,
1994) to
December 31,
FOR THE YEARS ENDED DECEMBER 31, 1998 1998 1997 1996 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE .................. $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
EXPENSES
Amortization ............. 1,763 1,763 1,763 7,052
Automobile ............... 16,650 11,650 8,698 36,998
Interest and bank charges 3,136 8,088 123 11,347
Legal and accounting ..... 109,180 20,004 25,948 155,132
Listing and share
transfer fees .......... 37,802 -- -- 37,802
Management and consulting
fees ..................... 737,832 112,176 123,315 1,117,616
Office and miscellaneous . 15,463 772 1,875 19,246
Rent ..................... 3,196 -- -- 3,196
Telephone ................ 6,118 1,648 1,087 8,853
Travel and promotion ..... 149,671 35,017 21,594 206,282
----------- ----------- ----------- -----------
1,080,811 191,118 184,403 1,603,524
----------- ----------- ----------- -----------
LOSS BEFORE OTHER INCOME . (1,080,811) (191,118) (184,403) (1,603,524)
Interest and miscellaneous
income ................... 2,853 -- -- 2,853
NET LOSS ................. (1,077,958) (191,118) (1,600,671)
DEFICIT, BEGINNING ....... (522,713) (331,595) (147,192) --
DEFICIT, ENDING .......... $(1,600,671) $ (522,713) $ (331,595) $(1,600,671)
LOSS PER COMMON SHARE .... $ (0.17) $ (0.09) $ (1.04)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash ............................... $ 82,153 $ 402 --
Accounts receivable ................ -- 288 --
Prepaid expenses ................... 10,000 -- --
----------- ----------- -----------
92,153 690 --
----------- ----------- -----------
Long-term investment in:
Biomedical Diagnostics
LLC (Note 2) ...................... 500,000 -- --
Biotherapies Incorporated
- shares ......................... 420,000 -- --
Office equipment (Note 3) .......... 8,861 -- --
Organizational expense ............. 1,765 3,528 5,291
----------- ----------- -----------
$ 1,022,779 $ 4,218 $ 5,291
----------- ----------- -----------
LIABILITIES
Current Liabilities
Accounts payable and
accrued liabilities ............... $ 984,269 $ 276,598 $ 328,069
Preferred stock
subscriptions (Note 7) ............ 414,000 -- --
Promissory notes payable
- related parties (Note 4) 40,132 . 121,516 --
Commitments (Note 8)
----------- ----------- -----------
1,438,401 398,114 328,069
----------- ----------- -----------
STOCKHOLDERS' EQUITY (Note 5)
Preferred stock, $.0001 par value
Authorized 100,000,000 shares, none
issued
Common stock, $.0001 par value,
Authorized 100,000,000 shares;
Issued:
1998-7,186,536; 1997-3,176,536;
1996-176,536 ....................... 719 318 18
Additional paid-in capital ......... 1,184,330 128,499 8,799
Accumulated deficit ................ (1,600,671) (522,713) (331,595)
----------- ----------- -----------
(415,622) (393,896) (322,778)
----------- ----------- -----------
$ 1,022,779 $ 4,218 5,291
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS9 EQUITY DECEMBER 31,1998
Common Stock Additional Total
Number paid-in Accumulated stockholders'
of Shares Amount capital Deficit equity
--------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Issue of common stock on
organisation of the company 8,816,992 $ 8,817 $ -- $ -- $ 8,817
Net loss .................. -- -- -- (147,192) (147,192)
--------- ----------- --------- ----------- -----------
Balance, December 31, 1995 8,816,992 8,817 -- (147,192) (138,375)
Consolidation of shares
in November on a 50
for I basis ............... (8,640,456) (8,799) 8,799 -- --
Net loss .................. -- -- -- (184,403) (184,403)
--------- ----------- --------- ----------- -----------
Balance, December 31, 1996 176,536 18 8,799 (331,595) (322,778)
Issue of common stock for
settlement of debt ........ 3,000,000 300 119,700 -- 120,000
Net loss .................. -- -- -- (191,118) (191,118)
--------- ----------- --------- ----------- -----------
Balance, December 31, 1997 3,176,536 318 128,499( 522,713) (393,896)
Issue of common stock for
settlement of debt ........ 3,000,000 300 347,095 -- 347,395
Issue of common stock for
cash ...................... 1,010,000 101 708,736 -- 708,837
Net loss .................. -- -- -- (1,077,958) (1,077,958)
--------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 ......... 7,186,536 719 $ 1,184,330 $(1,600,671) $ (415,622)
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Total from
inception,
(September 19,
1994) to
December 31,
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Loss .............................. $(1,077,958) $ (191,118) $ (184,403) $(1,600,671)
----------- ----------- ----------- -----------
Adjustment to reconcile net
loss to cash used in operating
activities:
Amortization ......................... 1,763 1,763 1,763 7,052
Changes in operating
assets and liabilities:
Accounts receivable ................. 288 (288) -- --
Prepaid expenses .................... (10,000) -- -- (10,000)
Promissory notes payable ............ 266,011 121,516 -- 387,527
Accounts payable ...................... 707,671 68,529 182,640 1,104,269
----------- ----------- ----------- -----------
(112,225) 402 -- (111,823)
----------- ----------- ----------- -----------
Cash flows from investing activities
Capital expenditures on equipment ..... (8,861) -- -- (8,861)
Purchase of shares of
Biotherapies Inc. .................... (420,000) -- -- (420,000)
Investment in Biomedical
Diagnostics LLC ....................... (500,000) -- -- (500,000)
----------- ----------- ----------- -----------
(928,861) -- -- (928,861)
Cash flows from financing activities
Common stock issued for cash .......... 708,837 -- -- 708,837
Preferred stock subscriptions
received ............................. 414,000 -- -- 414,000
----------- ----------- ----------- -----------
1,122,837 -- -- 1,122,837
----------- ----------- ----------- -----------
Net increase in cash .................. 81,751 402 -- 82,153
Cash, beginning ....................... 402 -- -- --
----------- ----------- ----------- -----------
Cash, ending .......................... 82,153 402 -- 82,153
----------- ----------- ----------- -----------
Non-cash flnancing and
investing activities
Common stock issued to
settle debt ........................... $ 347,395 $ 120,000 $ -- $ 467,395
=========== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,1998
1. Summary of significant accounting policies
Nature of operations
Biolabs Inc., through its 50% interest in Biomedical Diagnostics LLC., is
involved in the development of a mammastatin diagnostic assay to be used in
breast cancer detection.
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern which assume that
the Company will realise its assets and discharge its liabilities in the normal
course of business. Realisation values may be substantially different from the
carrying values as shown in these financial statements should the Company be
unable to continue as a going concern. The Company's ability to meet its
obligations and maintain its operations is contingent upon successful completion
of additional financial arrangements and the continuing support of its
creditors.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts -of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
Cash equivalents include holdings of highly liquid investments with maturities
of three months or less when purchased.
Long-term investments
The Company accounts for its investment in Biomedical Diagnostics LLC by the
equity method, whereby the investment is initially recorded at cost and adjusted
thereafter to include the Company's pro-rata share of Biomedical Diagnostics LLC
earnings and losses. Long-term investments in companies in which the Company
holds less than a 20% interest are recorded at cost. When there is other than a
temporary decline in value, these investments are written down to provide for
the loss.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,1998
1. Summary of significant accounting policies (continued)
Equipment
Equipment is recorded at cost less depreciation. Depreciation is primarily
accounted for on the straight-line method based on estimated useful lives.
Organizational costs
Costs associated with the organization of the Company are capitalized and
amortized on a straight- line basis over a period of five years commencing
January 1, 1995.
Stock options
The exercise price of stock options granted was greater than the market price at
the grant date. No expense related to the stock options has been recorded.
Earnings per common share Statement of Financial Accounting Standards No. 128,
"Earnings per Share", which became effective in 1997, requires presentation of
two calculations of earnings per common share. "Basic" earnings per common share
equals net income divided by weighted average number of common shares
outstanding during the period. "Diluted" ean* uings per common share equal net
income divided by the sum of weighted average common shares outstanding during
the period plus common stock equivalents. Common stock equivalents are shares
assumed to be issued if outstanding stock options were exercised.
2. Investment in Biomedical Diagnostics, LLC
The Company has entered into a joint venture agreement with Biotherapies
Incorporated for development of a marnmastatin diagnostic assay. The joint
venture is named Biomedical Diagnostics, LLC and the Company and Biotherapies
Incorporated each have a 50% interest.
Under the terms of the Biomedical Diagnostics, LLC operating agreement, the
Company is required to make capital contributions of $1,500,000 to Biomedical
Diagnostics, LLC. The first contribution of $500,000 is due within 90 days of
the effective date. The remaining $1,000,000 contribution is due on or before
March 31, 1999.
The Company is also required, under the operating agreement, to make the
following additional payments to Biotherapies Incorporated:
- 500,000 within 60 days of execution (paid)
- $ 500,000 on or before March 31, 1999
- $2,500,000 within 14 days after the later of:
- the date the shares of the Company are first quoted on
the OTC Bulletin Board or the NASDAQ Market; and
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,19913
2. Investment in Biomedical Diagnostics, LLC (continued)
- the date Biomedical Diagnostics, LLC obtains regulatory approvals as
required for the manufacturing and marketing of some form of the
mammastatin diagnostic assay in the United States ("the Milestone").
Within 14 days of Biomedical Diagnostics, LLC achieving the Milestone, the
Company will issue to Biotherapies Incorporated voting shares of the common
stock of the Company constituting 5% of the total outstanding shares of all
types on a ftilly diluted basis, taking into account allocations, convertible
debt and issued shares.
As at December 31, 1998, Biomedical Diagnostics, LLC had not commenced
operations.
3. Equipment
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ----
<S> <C> <C> <C>
Office equipment ........................... $8,861 $-- $-
Less: accumulated depreciation ............. -- -- --
------ ----- ----
$8,861 $-- $-
------ ----- ----
</TABLE>
4. Promissory notes payable @ related parties
Promissory notes payable to companies controlled by Officers and Directors of
the Company, repayable 30 days after demand, interest at prime plus 4%,
convertible into shares of the Company at $.25 per share after the s'hares are
listed for trading, secured by a security interest in and to all assets and book
accounts, equipment, furniture, cash as well as accounts receivable and
inventory owned by the Company
1998 1997 1996
-------- -------- --------
$ 40,132 $121,516 $ --
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL,L STATEMENTS DECEMBER 31, 1998
5. Stockholders' equity
Pursuant to a Directors resolution dated November 14, 1996, the authorized and
issued common stock of the corporation was consolidated on a 50 to 1 basis.
Pursuant to the resolution, the authorized capital of the Company was then
increased to 19,000,000 shares with a par value of $0.0001 per share of which
176,340 shares are issued.
In July 1998, the Company amended the Articles of Incorporation as follows:
- The name of the Company was changed to Biolabs Inc.
- The authorized share capital of the Company was increased to
200,000,000 shares, comprised of:
- 100,000,000 common shares with a par value of $0.0001 per
common share
- 100,000,000 preferred shares with a par value of $0.0001 per preferred
share, leaving to the sole discretion of the directors the determination
of the rights and preferences of such shares.
6. Stock option plan
During 1998, the Company established a stock option plan to allow key employees,
directors, advisors and representatives of the Company to acquire Company common
stock. Under the terms of the plan the Company has made available 650,000 common
shares to the plan. Stock options outstanding under this plan are summarized as
follows:
Option price Shares
per share outstanding
$ 1.00 360,000
During the year the Company granted 360,000 stock options. These options expire
September 8, 2003. No options were exercised during the year.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,1998
7. Preferred stock subscriptions
Under the terms of a private placement offering memorandum the
company has received $414,000
in subscription payments for 138,000 Series A preferTed shares. The Series A
preferred shares carry a 6% non-cumulative dividend rate in preference to any
dividend on common stock, have a liquidation preference ahead of common stock
and are convertible into common stock on a one- for-one basis within one year of
the date of the subscription agreement.
Subsequent to the year end the Company received additional preferred share
subscriptions for 145,500 Series A preferred shares.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Iric.)
(a New York Corporation)
(a development stage company)
8. Commitments
Lease commitments
The Company leases office premises for use in its operations. Rent expense was
$3,196 in 1998. This table shows future minimum rental
Commitments under the lease at December 31, 1998.
1999 2000 2001
Lease commitment 37,065 37,194 35,400
Funding commitments
Under the terms of the Biomedical Diagnostics, LLC operating agreement the
Company has agreed to fimd Biotherapies Incorporated and Biomedical Diagnostics,
LLC as set out in Note 4 Investment in Biomedical Diagnostics, LLC.
Management services
During the year the Company entered into a management services agreement with
Tynehead Capital Corp. Tynehead Capital Corp. is controlled by certain directors
of the Company. Under the terms of the agreement the Company has future
commitments as set out in the table below.
1999 2000 2001 2002 2003
Management services $274,000 $274,000 $274,000 $274,000 $205,000
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Iric.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,1998
9. Income taxes
The company has accumulated losses for tax purposes which may be carried forward
and used to reduce taxable income otherwise calculated. The benefit of these
available carry forwards has not been recorded in the accounts.
10. Related party transactions
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(a) Management and consulting
fees paid to companies controlled
by officers and directors of the Company. 137,055 103,691 123,315
(b) Interest on promissory notes payable
to companies controlled by officers
and directors of the Company. 2,225 7,574 -
(c) Included in the balance sheet are the
following amounts due to directors and
officers and/or companies controlled by
officers and directors of the Company.
Accounts payable $ 30,756 $248,098 $322,209
Promissory notes payable $ 40,132 $121,516 $ -
</TABLE>
(d) In 1997 the Company issued 3,000,000 common shares to companies
controlled by officers and directors of the Company to settle debt of $120,000.
During 1998 the Company issued 3,000,000 common shares to companies controlled
by officers and directors of the Company to settle debt of $347,395.
11. Financial instruments
The fair value of the company's cash, accounts receivable, accounts payable and
accrued liabilities, and promissory notes payable are estimated to approximate
their carrying values due to the immediate or short term maturity of these
financial instruments.
12. Subsequent events
Subsequent to the year end the Company reached agreement with certain of its
creditors to settle payables totalling $872,500 by issuing 872,500 common
shares.
<PAGE>
EXHIBITS TO BIOLABS, INC. 10-SB
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
BIOLABS, INC.
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
Filed February 9, 1999
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
BIOLABS, INC.
Under Section 807 of the Business Corporation Law.
The undersigned, being respectively the President and Secretary of the
corporation, pursuant to Section 897 of the Business Corporation Law of the
State of New York, do hereby restate, certify and set forth:
1. The name of the corporation is BioLabs, Inc. The name under which the
corporation was formed is Flexx Realm Inc.
2. The certificate of incorporation was filed by the Department of State on the
19th day of September, 1994.
3. The text of the certificate of incorporation as amended heretofore is hereby
restated without further amendment or change to read as set forth in full:
ARTICLE I
NAME
The name of this corporation is BioLabs, Inc.
ARTICLE II
PURPOSES AND POWERS
Section. Purposes. The purpose(s) for which the corporation is formed are:
(a) to engage in any lawful act or activity for which corporation may be
organized under the business corporation law, provided that the corporation is
not formed to engage in any act or activity which requires the act or approval
of any state official, department, board, agency or other body without such
approval or consent first being obtained;
(b), (c), (d) and (e) General purpose.
E-3
<PAGE>
The powers, rights and privileges provided in this certificate are not to be
deemed to be in limitation of similar, other or additional powers, rights and
privileges granted or permitted to a corporation by the Business Corporation
Law, it being intended that this corporation shall have all the rights, powers
and privileges granted or permitted to a corporation by such statute.
ARTICLE III
CORPORATE OFFICE
The office of the corporation is to be located in Nassau County, State of New
York.
ARTICLE IV
NUMBER OF SHARES
The aggregate number of shares which the corporation shall have the authority to
issue is 200,000,000 shares with a pr value $0.0001 per share, of which
100,000,000 shall be Common and 100,000,000 shall be Preferred.
The relative rights and preferences of the Preferred Stock shall be fixed and
amended from time to time by the Board of Directors at its sole discretion.
ARTICLE V
AGENT FOR THE INCORPORATION
The Secretary of State is designated s agent if the corporation upon whom
process against it may be served. The post office address to which the Secretary
of State shall mail a copy of any process against the corporation served upon
him is:
c/o Richard S. Lane, Esq.
One Old Country Road, Suite 497
Carle Place, NY 11514-1807
ARTICLE VI
DIRECTORS LIABILITY
E-4
<PAGE>
The personal liability of directors to the corporation or its shareholders for
damages for any breach if duty in such capacity is hereby eliminated except that
such personal liability shall not be eliminated if a judgment or other final
adjudication adverse to such director establishes that his acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that he personally gained in fact a financial profit or other advantage
to which he was not legally entitled or that his acts violated Section 719 of
the Business Corporation Law.
No shareholder of this corporation shall have a preemptive right because of his
shareholdings to have first offered to him any part of any of the presently
authorized shares of this corporation hereafter issued optioned or sold, or any
part of any debentures, bonds, notes or securities of this corporation
convertible into shares hereafter issued optioned or sold by the corporation.
This provision shall operate to defeat rights in all shares and classes of
shares now authorized and in all debentures, bonds, notes or securities of the
corporation which may be convertible into shares and also to defeat preemptive
rights in any and all shares and classes of shares and securities convertible
into shares which this corporation may be hereafter authorized to issue by any
amended certificate duly filed.
4. This restatement of the certificate of incorporation was authorized by the
board of directors of the corporation.
IN WITNESS WHEREOF, this certificate has been subscribed to this 3rd day of
February, 1999 by the undersigned, who affirm that the statements made herein
are true under the penalties of perjury.
/s/ G. GREG MCCARTNEY
-----------------
G. GREG MCCARTNEY
President
/s/ LAWRENCE J. PASEMKO
-------------------
LAWRENCE J. PASEMKO
Secretary
E-5
Exhibit 5.1
D. David Cohen, Esq.
500 North Broadway, Suite 133
Jericho, New York 11753
August 10, 1999
BioLabs Inc.
1A-3033 King George Highway
Surrey, B.C. Canada V4P 1B8
Dear Sirs:
The undersigned has represented BioLabs Inc. in connection with the
preparation of the BioLabs, Inc. (the ACompany@) Form 10-SB for initial
registration under the Securities Exchange Act of 1934 (the AExchange Act@) of
the Company's Common Stock with the U.S. Securities and Exchange Commission in
order to permit continued trading of the Common Stock on the NASD Bulletin
Board.
In connection with such preparation, the undersigned has reviewed such
originals or photostatic copies of the records of the Company, certificates of
officers of the Company, certificate of public officials and other documents as
we deemed relevant and necessary as a basis for the opinion set forth herein. In
connection with such examination we have assumed, without further examination,
the authenticity of all such documents. We have further relied upon information
provided by the officers and board of directors of the company with respect to
the content of the registration filing and the factual matters set forth in the
filing.
On the basis of the foregoing, and such other matters of fact and
questions of laws as we have deemed relevant under the circumstances, it is our
opinion that the outstanding Common Stock of the Company has been duly
authorized, validly issued and is currently outstanding and that the shares of
Common Stock constitute fully paid and non-assessable shares of the Company.
This opinion is limited to the matters stated herein and may not be
relied upon by any person other than the Company or used for any purpose other
than in connection with the registration under the Exchange Act of such
securities.
E-6
Exhibit 10.1
Abstract of Limited Liability Company
Operating Agreement
BioMedical Diagnostics LLC
(November 4, 1998 as amended July 25, 1999)
Parties: BioTherapies Incorporated, a Michigan corporation, residing at
5692 Plymouth Road, Ann Harbor, MI 48103 (ABiotherapies@). BioLabs, Inc., a New
York corporation (the ACompany@ or ABioLabs@) and BioMedical Diagnostic, LLC, a
Michigan Limited Liability Company (the AJV@). Biotherapies and BioLabs and the
Members of the JV.
Purposes: The primary purposes of the JV are to develop, manufacture,
market and sell and distribute the Mammastatin Serum Assay and other diagnostic
tools on an exclusive worldwide basis. Term: The JV is to exist until there has
been an unremedied breach by either party, or in certain bankruptcy events not
called within 180 days of occurrence. Upon any termination event the Members are
obligated to agree pursuant to good faith business negotiations for the purchase
by either Member of the entire interest in the JV of the other Member.
Fiscal year. The JV's fiscal year is the calendar year.
Capital Contributions. Each Member is required to make capital
contributions on a 50:50 basis. In addition, BioLabs is required to make capital
contributions in the amount of $1,500,000. Biotherapies has granted to the JV,
as its capital contribution, a exclusive non-assignable, non-sublicensable
royalty free worldwide sublicense to use all of Biotherapies right, title and
interest to the development, manufacturing, marketing and sale of the
Mammastatin Serum Assay being developed pursuant to a License Agreement with the
University of Michigan. The JV is obligated to pay the University of Michigan 4%
of the net sales for all products sold by the JV. The value of the license
contributed by Biotherapies is deemed to be $1,500,000.
E-7
<PAGE>
Additional Commitments. BioLabs is obligated to pay $1,000,000 in
installments, and an additional $2,500,000 within 14 days after the date the
shares of the Common Stock of BioLabs are first quoted on the OTC Bulletin Board
or the NASDAQ Small Cap market or the date the JV achieving a specified
milestone, to wit a completed clinical trial, with certain regulatory approvals.
The conditions and timing for payment of the $2,500,000 have been modified by
amendment date July 25, 1999, requiring $500,000 to be paid on Friday, August 6,
1999, $1,000,000 within 60 days of completion of certain diagnostic clinical
trials and $1,000,000 within 30 days of the JV achieving $100,000 in gross
revenues. In the event BioLabs shall default on its scheduled payments to the JV
or to Biotherapies, the equity position of BioLabs as a Member of the JV will be
reduced by dividing the amount paid by BioLabs by $10,000,000. The Company will
have 180 days to remedy that default and return to a 50% ownership position in
the JV. The Company has also agreed not to interfere in any other company,
organization, or legal entity investing in Biotherapies and will not require
renumeration from any investment or other business relationship between such
entities and Biotherapies.
E-8
<PAGE>
Biotherapies, in addition to its capital contributions, is required to
promptly notify the Company in writing or any other opportunities for the
development of additional products to use commercial reasonable efforts to
provide for the appointment of a Company nominee to the Board of Directors for
Biotherapies. Biotherapies is also obligated to give written notice of any sale
or dispositions of shares of stock of Biotherapies.
Cash Flow. The JV is required to make distribution out of operating
cash flow to the members in accordance with the membership participating
percentages currently 50% - 50%. No member is entitled to return its investment
amount or any interest thereon.
Member Interests. Members interests are not permitted to be transferred
except on notice and right of first refusal of the non-selling member to
purchase the transferring Member's interest. A member may assign its right to
receive distributions from the Company.
E-9
<PAGE>
Management. The business of the JV managed by four managers, two of whom
are appointed by Biotherapies and two appointed by BioLabs. The President of
Biotherapies resolves any determination on which the four managers are divided.
Product Development. The JV shall undertake the development of the
Mammastatin Serum Assay as the managers may from time to time determine. The JV
is required to obtain all regulatory approvals commercially necessary or
desirable for the distribution of its products.
Representations and Warranties. Each party represents and warrants to
the other the authority to enter into the JV Agreement, lack of necessity for
any regulatory or other third party consent, absence of litigation, and related
matters.
Dispute Resolution. If any controversy, claim or distribution arises
out of or relates to the JV agreement, as amended, the Members are obligated to
use their best efforts to resolve the disputes through good faith business
negotiations, prior to the institution of any mediation procedure or litigation.
E-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS AS OF, AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 82,153
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 92,153
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,022,799
<CURRENT-LIABILITIES> 984,269
<BONDS> 0
0
0
<COMMON> 719
<OTHER-SE> 1,184,330
<TOTAL-LIABILITY-AND-EQUITY> 1,022,779
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,080,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,077,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,080,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,077,958)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
