<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to _________________
Commission file number 0-30252
BIOLABS, INC.
------------------------------------------------
(Name of small business issuer in its charter)
NEW YORK 98-0163232
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1A-3033 KING GEORGE HIGHWAY,
SURREY B.C. CANADA V4P 1B8
------------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (604) 542-0820
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT NOVEMBER 2, 2000
Common Stock, par value $0.0001 9,727,075
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 Financial Statements.............................................3
Item 2 Management's Discussion and Analysis or Plan of Operation........9
PART II -- OTHER INFORMATION
Item 1 Legal Proceedings...............................................12
Item 2 Changes in Securities...........................................12
Item 3 Defaults Upon Senior Securities.................................12
Item 4 Submission of Matters to a Vote of Security Holders.............12
Item 5 Other Information...............................................12
Item 6 Exhibits and Reports on Form 8-K................................12
SIGNATURES....................................................................13
</TABLE>
SAFE HARBOR
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements made with
respect to the result of operations and businesses of the Company. Words such as
"may", "should", "believe", "anticipate", "estimate", "expect", "intend",
"plan", and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are based upon management's current
plans, expectations, estimates and assumptions and are subject to a number of
risks and uncertainties that could significantly affect current plans,
anticipated actions and the Company's financial condition and results of
operations. Factors that may cause actual results to differ materially from
those discussed in such forward-looking statements include, among others, the
following possibilities: (i) fluctuations in foreign currency exchange rates;
(ii) heightened competition; (iii) the inability to carry out development plans
or to do so without delays; (iv) the loss of key executives; and (v) general
economic and business conditions. The Company does not intend to update these
cautionary statements.
Page 2
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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PART I
ITEM 1 FINANCIAL STATEMENTS
BIOLABS, INC.
(a New York Corporation)
(a development stage company)
BALANCE SHEETS
(Unaudited)
(U.S.$)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,208,573 $411,272
Amounts receivable 19,643 19,540
Prepaid expenses 18,545 30,929
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2,246,761 461,741
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DEPOSIT ON PURCHASE 50,000 50,000
INVESTMENT IN I.D. CERTIFY, INC. - Preferred shares 800,160 800,160
LONG-TERM INVESTMENT IN:
Prion Developmental Laboratories, Inc. - shares (14.29%) 1,000,010 --
Biomedical Diagnostics, LLC (50%; 1999 - 50%) 2,619,781 2,809,814
Biotherapies Incorporated - shares (17.3%; 1999 - 11.1%) 2,835,000 1,335,000
OFFICE EQUIPMENT, net 14,507 17,814
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$9,566,219 $5,474,529
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LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $27,216 $371,470
Promissory notes payable - related parties -- 40,132
Promissory notes payable - shareholder 3,033,791 --
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3,061,007 411,602
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STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value
Authorized 100,000,000 shares;
Issued: 2000 - 1,407,236; 1999 - 2,000,000 141 200
Common stock, $.0001 par value
Authorized 100,000,000 shares;
Issued: 2000 - 9,721,375; 1999 - 8,178,997 972 818
Additional paid-in capital 11,018,542 7,922,442
Accumulated deficit (4,514,443) (2,860,533)
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6,505,212 5,062,927
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$9,566,219 $5,474,529
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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BIOLABS, INC.
(a New York Corporation)
(a development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
(U.S.$)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED FOR THE 9 MONTHS ENDED TOTAL FROM
------------------------ ------------------------ INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999 2000
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<S> <C> <C> <C> <C> <C>
REVENUE $ -- $ -- $ -- $ -- $ --
EXPENSES
Automobile 3,521 3,154 9,062 5,830 53,930
Depreciation and amortization 1,532 1,866 4,596 5,787 19,302
Finders fee 200,000 -- 200,000 -- 200,000
Interest and bank charges 156,908 2,234 185,334 5,357 203,473
Investor relations 51,112 19,700 200,650 110,679 323,979
Legal and accounting 109,493 25,550 260,418 83,765 545,811
Listing and share transfer fees 9,329 2,965 28,169 7,658 113,764
Management and consulting fees 97,854 66,988 331,195 249,296 1,799,086
Office and miscellaneous 15,346 16,646 80,678 79,266 184,650
Rent and occupancy costs 6,831 6,479 21,204 20,555 51,744
Salaries and benefits 11,671 5,923 29,930 15,098 52,711
Telephone 4,518 8,692 18,057 18,576 53,692
Travel and promotion 45,034 120,329 128,301 166,494 573,550
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713,149 280,526 1,497,594 768,361 4,175,692
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LOSS BEFORE OTHER ITEMS (713,149) (280,526) (1,497,594) (768,361) (4,175,692)
Interest and miscellaneous income 17,676 33,717 3,366 41,468
Equity in loss of Biomedical Diagnostics, LLC (51,456) (67,864) (190,033) (122,322) (380,219)
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NET LOSS $(746,929) $(348,390) $(1,653,910) $(887,317) $(4,514,443)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,552,172 8,118,997 8,887,428 7,870,474
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LOSS PER COMMON SHARE $(0.08) $(0.04) $(0.19) $(0.11)
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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BIOLABS, INC.
(a New York Corporation)
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(U.S.$)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
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COMMON STOCK PREFERRED SHARES
----------------- ------------------ ADDITIONAL TOTAL
NUMBER NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 8,178,997 $818 2,000,000 $200 $7,922,442 $(2,860,533) $5,062,927
Issue of common stock for settlement of
debt 242,528 24 -- -- 320,982 -- 321,006
Stock options exercised 68,500 7 -- -- 129,593 -- 129,600
Issue of common stock for cash 629,586 63 -- -- 1,998,026 -- 1,998,089
Stock purchase warrants exercised 9,000 1 -- -- 62,999 -- 63,000
Preferred stock converted to common 592,764 59 (592,764) (59) -- -- --
Finance costs related to options -- -- -- -- 584,500 -- 584,500
Net loss -- -- -- -- -- (1,653,910) (1,653,910)
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Balance, September 30, 2000 9,721,375 $972 1,407,236 $141 $11,018,542 $(4,514,443) $6,505,212
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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BIOLABS, INC.
(a New York Corporation)
(a development stage company)
STATEMENT OF CASH FLOWS
(Unaudited)
(U.S.$)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED FOR THE 9 MONTHS ENDED TOTAL FROM
----------------------------- ----------------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999 2000
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<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(746,929) $(348,390) $(1,653,910) $(887,317) $(4,514,443)
Adjustment to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 1,532 1,866 4,596 5,787 19,302
Finance costs related to options 118,291 -- 118,291 -- 118,291
Equity in loss of Biomedical Diagnostics
LLC 51,456 67,864 190,033 122,322 380,219
Expenses paid by issuance of stock -- -- -- 60,000 68,817
Changes in operating assets and
liabilities:
Amounts receivable (1,207) 11,611 (103) (7,359) (19,643)
Prepaid expenses 13,500 22,833 12,384 10,000 (18,545)
Promissory notes payable -- -- -- -- 387,527
Accounts payable and accrued liabilities (65,712) 132,591 (63,380) 222,967 1,300,590
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(629,069) (111,625) (1,392,089) (473,600) (2,277,885)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on equipment -- (305) (1,289) (14,463) (24,992)
Purchase of shares of Biotherapies Inc. (1,100,000) (515,000) (1,500,000) (515,000) (2,595,000)
Investment in Biomedical Diagnostics LLC -- (1,500,000) -- (2,500,000) (3,000,000)
Purchase of shares of Prion Developmental
Laboratories, Inc. (1,000,010) -- (1,000,010) -- (1,000,010)
Investment in I.D. Certify, Inc. -- (800,160) -- (800,160) (800,160)
Convertible promissory note 400,000 -- -- -- --
Deposit on purchase -- (50,000) -- (50,000) (50,000)
Organizational costs -- -- -- -- (8,817)
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(1,700,010) (2,865,465) (2,501,299) (3,879,623) (7,478,979)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 48,601 -- 2,190,689 -- 2,899,526
Preferred stock subscriptions -- -- -- (414,000) --
Preferred stock issued for cash -- 3,536,586 -- 5,565,911 5,565,911
Promissory note payable 2,000,000 -- 3,500,000 -- 3,500,000
------------------------------------------------------------------------------------------------------------------------------
2,048,601 3,536,586 5,690,689 5,151,911 11,965,437
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NET INCREASE (DECREASE) IN CASH (280,478) 559,496 1,797,301 798,688 2,208,573
CASH, BEGINNING 2,489,051 321,345 411,272 82,153 --
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CASH, ENDING $2,208,573 $880,841 $2,208,573 $880,841 $2,208,573
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued to settle debt $ -- $ -- $321,006 $872,500 $1,660,901
Common stock issued for shares of
Biotherapies Inc. $ -- $ -- $ -- $ -- $240,000
Common stock issued for services $ -- $ -- $ -- $60,000 $68,817
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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BIOLABS, INC.
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
(U.S.$)
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
1. UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions for Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of results of operations have been
included in the financial statements. Results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. A summary of the Company's
significant accounting policies and other information necessary to
understand the consolidated financial statements is included in the
Company's audited financial statements for the years ended December 31,
1999 and 1998 as contained in the Company's Form 10-KSB for its year ended
December 31,1999. Such financial statements should be read in connection
with these financial statements.
2. INCOME TAXES
The Company has reviewed its net deferred tax asset for the nine month
period ended September 30, 2000, together with net operating loss
carryforwards, and accordingly has not given recognition of potential tax
benefits arising therefrom. In making this determination, the Company has
considered the Company's history of tax losses incurred since inception and
the fact that the Company is still within the development stage. As a
result, the Company's net deferred tax has been fully reserved.
3. NEW ACCOUNTING STANDARD
In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133) which established accounting and reporting
standards for derivative instruments and hedging activities. Effective for
all fiscal quarters in years beginning after June 15, 2000. SFAS 133
requires the Company to recognize all derivative instruments as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value on an on-going basis. The Company is
considering the effect of adopting SFAS 133 on its financial statements and
has preliminarily determined that it will have no effect on the Company's
financial condition or results of operations. The Company plans to adopt
the statement on January 1, 2001.
4. RECLASSIFICATION
Certain reclassifications of prior year balances have been made to conform
to current year classifications.
5. STOCK TRANSACTIONS
During the quarter ended September 30, 2000, stock options at $3.60 per
share to purchase 13,500 Common Shares were exercised by an option holder.
Net proceeds to the Company were $48,600.
274,501 preferred shares were converted into 274,501 common shares during
the quarter ended September 30, 2000.
6. INVESTMENTS
During the quarter ended September 30, 2000, the Company converted the
promissory note receivable from Biotherapies, Inc. into 16,000 common
shares of Biotherapies, Inc. and purchased an additional 28,000 shares for
$700,000, increasing its equity interest in Biotherapies, Inc. from 12.6%
to 17.3%.
Page 7
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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Also during the quarter ended September 30, 2000, the Company invested
$1,000,000 in Prion Developmental Laboratories, Inc. ("Prion") pursuant to
an Investment Agreement dated September 8, 2000 (the "Investment
Agreement") between Prion, Efoora, Inc., the parent company of Prion
("Efoora"), and the Company. The Company invested $1,000,000 on the date of
the transaction and committed to invest a further $1,000,000 on the later
to occur of September 30, 2000, or Prion's execution of research agreements
with certain universities, upon the condition that such research agreements
be executed no later than December 30, 2000. In return for its initial
investment, the Company received from Prion 1,000,000 shares of Prion
common stock, $0.00001 par value ("Prion Common Stock") at a price per
share of $1.00, and a warrant (the "Prion Warrant") to purchase an
additional one million shares of Prion Common Stock at an exercise price of
$0.40 per share. In return for its secondary investment, the Company will
receive an additional 1,000,000 Shares of Prion Common Stock.
The Investment Agreement also grants to the Company the right to receive
warrants to purchase up to an additional 1,000,000 shares of Prion Common
Stock at any time until March 8, 2001, such warrant to contain terms and
conditions identical to the Prion Warrant, except that the purchase price
and duration of such warrant, and the exercise price at which the
underlying shares of Prion Common Stock may be purchased, shall be as
mutually agreed at the time such right is exercised.
The Prion Warrant is exercisable until March 8, 2002, and may, at the
Company's option, be exchanged for a warrant to purchase 1,000,000 shares
of the common stock of Efoora, on terms and conditions otherwise identical
to those contained in the Prion Warrant.
Prion is engaged in the business of developing rapid diagnostic assays for
the detection of prion disease in humans, animals, food and related
products and by-products.
Page 8
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
BioLabs, Inc., (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 (the "MSA") diagnostic. The
joint venture operates as a Michigan Limited Liability corporation. The name of
such entity is Biomedical Diagnostics, LLC (the "Joint Venture"). The Company
also owns a 17.3% minority interest in Biotherapies.
As of December 31, 1999, September 30, 2000, and currently, BioLabs holds a 50%
equity interest in the Joint Venture with Biotherapies. The Joint Venture holds
the exclusive worldwide rights to manufacture, market and distribute the MSA
diagnostic for breast cancer. The MSA is presently undergoing Phase I Clinical
Trials which are designed to provide sufficient data to seek Pre-Market Approval
("PMA") from the U.S. Food and Drug Administration ("FDA"). FDA determination
for MSA is anticipated by the first quarter of 2001.
As noted, in addition, the Company holds a 17.3% equity interest in
Biotherapies. Biotherapies is a privately held biotechnology company
specializing in the development of innovative cancer diagnostic and therapeutic
products. Biotherapies holds the exclusive rights, through the University of
Michigan, to patent applications for the use of Mammastatin as a diagnostic and
therapeutic for breast cancer. On June 15, 1999, with the financial support of
BioLabs, Biotherapies began Phase I/II of Clinical Trials utilizing Mammastatin
to treat Stage IV breast cancer, at the M.D. Anderson Cancer Center, Department
of Breast Medical Oncology, at the University of Texas. Biotherapies has advised
the Company that the Clinical trials have been put on hold by the FDA pending
resolution of certain production control issues. Biotherapies has also advised
the Company that the Phase I clinical trials at M.D. Anderson Cancer Center are
being closed in favor of recombinant testing. A new trial featuring the
recombinant protein will be initiated as soon as animal trials of the
recombinant protein are completed. The first clinical test of recombinant
protein will also be a Phase I trial performed at M.D. Anderson Cancer Centre.
Currently, Biotherapies is working with officials at MD Anderson Cancer Center,
the FDA, and the Company's Contract Research Organization (CRO) to satisfy the
FDA and to have the clinical hold released as soon as possible.
The Company intends to seek additional collaborative relationships to locate and
develop cancer inhibitor proteins associated with other common forms of cancer,
as well as continuing to fund existing research projects with Biotherapies to
discover other related proteins that perform similar growth inhibitory functions
in other frequently cancerous tissues, such as the prostate, ovary, colon and
lung.
INVESTMENT IN PRION DEVELOPMENTAL LABORATORIES, INC.
During the quarter ended September 30, 2000, the Company invested $1,000,000 in
Prion Developmental Laboratories, Inc. ("Prion") pursuant to an Investment
Agreement dated September 8, 2000 (the "Investment Agreement") between Prion,
Efoora, Inc., the parent company of Prion ("Efoora"), and the Company. The
Company invested $1,000,000 on the date of the transaction and committed to
invest a further $1,000,000 on the later to occur of September 30, 2000, or
Prion's execution of research agreements with certain universities, upon the
condition that such research agreements be executed no later than December 30,
2000. In return for its initial investment, the Company received from Prion
1,000,000 shares of Prion common stock, $0.00001 par value ("Prion Common
Stock") at a price per share of $1.00, and a warrant (the "Prion Warrant") to
purchase an additional one million shares of Prion Common Stock at an exercise
price of $0.40 per share. In return for its secondary investment, the Company
will receive an additional 1,000,000 Shares of Prion Common Stock.
The Investment Agreement also grants to the Company the right to receive
warrants to purchase up to an additional 1,000,000 shares of Prion Common Stock
at any time until March 8, 2001, such warrant to contain terms and conditions
identical to the Prion Warrant, except that the purchase price and duration of
such warrant, and the exercise price at which the underlying shares of Prion
Common Stock may be purchased, shall be as mutually agreed at the time such
right is exercised.
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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The Prion Warrant is exercisable until March 8, 2002, and may, at the Company's
option, be exchanged for a warrant to purchase 1,000,000 shares of the common
stock of Efoora, on terms and conditions otherwise identical to those contained
in the Prion Warrant.
Prion is engaged in the business of developing rapid diagnostic assays for the
detection of prion disease in humans, animals, food and related products and
by-products.
PLAN OF OPERATION/CAPITAL REQUIREMENTS
The Company has no revenue from operations, is in the start-up phase with its
existing assets and has no significant assets, tangible or intangible, other
than the opportunities described herein. There is no assurance that the Company
will ever earn revenue, operate profitably or provide a return on investment to
its security holders. The Company's activities to date have consisted primarily
of efforts to raise funds, establish a joint venture relationship with
Biotherapies for the manufacture and sale of the MSA test, and acquire equity
interests in Biotherapies and Prion. As currently structured, the Company
proposes to derive all its revenue from its 50% partnership in the Joint
Venture. A critical part of the Company's business plan requires the Company to
fund 50% of the costs to develop, manufacture, market and distribute the MSA
test.
Critical features of the MSA test (certain antibodies) are currently being
developed by the Joint Venture for use in clinical trials. The results of these
trials will be submitted in an application to the FDA for approval of the MSA
test as a medical device. It is anticipated that this application will be
submitted by the end of the fourth quarter of 2000 with FDA action with respect
to the application expected during the first quarter of 2001. Based on such
timetable, the MSA test is not expected to be launched in North America until
the second quarter of 2001, at the earliest.
Final product development manufacturing, marketing, sales and distribution of
the MSA test is expected to require a significant amount of additional capital.
Under the terms of the Joint Venture Agreement, each member of the Joint Venture
is obligated to fund its 50% portion of additional capital requirements. The
Company intends to finance its portion of these expenses through the proceeds of
the sales of securities by future private placements of securities or registered
public offering transactions.
At the current time, the Company's only sources for additional capital are
through transactions relating to prospective participations (licensing or other
affiliations) in its development stage assets and rights, additional placements
of the Company's securities and the short-term borrowings described below. In
order to raise the capital required for its future activities, until such time
as the Joint Venture can generate revenues from operations, the Company
anticipates placing additional securities with investors in registered offerings
or exempt transactions.
Although the Company is also exploring licensing opportunities which would, if
consummated, enable it to pay such sums to Biotherapies, when due, without
future capital raise-ups, there can be no assurance thereof. The potential
insufficiency of funds is a significant risk factor. The Company is unable to
assure that sufficient funds will be available, when necessary, to meet its
obligations to Biotherapies, or that such funds, if available, will be available
on terms and conditions which are favourable to existing investors in the
Company. The failure of the Company to meeting its obligations to Biotherapies,
when due, can result in a dilution of the Company's interest in the Joint
Venture.
SHORT-TERM BORROWING - PROMISSORY NOTES PAYABLE
The Company has borrowed, from a major shareholder, $3,500,000 at 10% interest,
compounded semi-annually secured by promissory notes. The notes are due and
payable on the earlier of one year from the date of issue or ten days after the
Company completing a net financing of not less than $10,000,000. As
consideration the shareholder received the right to acquire up to 300,000 shares
of the Company at $6.50 per share expiring October 27, 2001 and up to 500,000
common shares of the Company at $4.00 per share expiring September 11, 2002.
LIQUIDITY
Based on the current state of affairs, Management believes that the Company has
adequate current cash resources, if appropriately allocated, to continue current
operations as is, for approximately 12 months or such sooner date, if sooner,
that the MSA test is launched as a commercial product. The Company's viability
is dependent on the achievement of certain commercialization goals and
milestones by the Joint Venture within that time period, and, even then,
continued viability may be dependent at least for some undetermined period, on
the Company's ability to attract
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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additional investment capital. There can be no assurance that the Company will
be able to successfully raise the capital required, when required, to meet its
proportionate costs in the future. The potential insufficiency of funds is a
significant risk factor.
None of the Company's current officers are employed directly by the Company.
Although such officers are engaged substantially full-time for the Company, in
accordance with Canadian practice, they are employed by the Company through
personal services holding companies. The Company has four full-time persons
engaged through the holding Company, and two other administrative employees,
employed directly.
ADDITIONAL CAPITAL REQUIREMENTS OF THE JOINT VENTURE
In the event that additional capital is required by the Joint Venture, each
member of the Joint Venture is obligated to funds its 50% portion of the total
requirements. As noted, the Company is not aware whether Biotherapies has the
financial capacity to pay its portion of the Joint Venture expenses. Should
either member of the Joint Venture 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 non-funding member's ownership interest in the Joint
Venture. The Company currently has no way of raising its portion of the Joint
Venture capital otherwise than through the sale of securities by future private
placements or registered public offering transactions.
INVESTMENT IN PRION DEVELOPMENTAL LABORATORIES, INC.
During the quarter ended September 30, 2000, the Company invested $1,000,000 in
Prion Developmental Laboratories, Inc. ("Prion") pursuant to an Investment
Agreement dated September 8, 2000 (the "Investment Agreement") between Prion,
Efoora, Inc., the parent company of Prion ("Efoora"), and the Company. The
Company invested $1,000,000 on the date of the transaction and committed to
invest a further $1,000,000 on the later to occur of September 30, 2000, or
Prion's execution of research agreements with certain universities, upon the
condition that such research agreements be executed no later than December 30,
2000. In return for its initial investment, the Company received from Prion
1,000,000 shares of Prion common stock, $0.00001 par value ("Prion Common
Stock") at a price per share of $1.00, and a warrant (the "Prion Warrant") to
purchase an additional one million shares of Prion Common Stock at an exercise
price of $0.40 per share. In return for its secondary investment, the Company
will receive an additional 1,000,000 Shares of Prion Common Stock.
The Investment Agreement also grants to the Company the right to receive
warrants to purchase up to an additional 1,000,000 shares of Prion Common Stock
at any time until March 8, 2001, such warrant to contain terms and conditions
identical to the Prion Warrant, except that the purchase price and duration of
such warrant, and the exercise price at which the underlying shares of Prion
Common Stock may be purchased, shall be as mutually agreed at the time such
right is exercised.
The Prion Warrant is exercisable until March 8, 2002, and may, at the Company's
option, be exchanged for a warrant to purchase 1,000,000 shares of the common
stock of Efoora, on terms and conditions otherwise identical to those contained
in the Prion Warrant.
Prion is engaged in the business of developing rapid diagnostic assays for the
detection of prion disease in humans, animals, food and related products and
by-products.
PROPOSED TRANSACTIONS
As of September 30, 2000, the Company owned a 17.3% limited stock interest in
Biotherapies. The Company proposes to further increase its stock interest in
Biotherapies. In 1999, the Company acquired 800,000 Series C preferred shares of
I.D. Certify for $800,160. The Company proposes to exchange the 800,000 Series C
preferred shares and issue 1,100,000 BioLabs Common Shares, subject to
finalization, for 100,000 Biotherapies' shares owned by an unrelated seller,
Dynamed, Inc., a Washington State privately owned corporation, plus Dynamed's
interest in a separate joint venture with Biotherapies relating to a test for
prostate cancer. The Company has paid a non-refundable $50,000 deposit to
Dynamed Inc. There is no assurance that the transaction will be completed, or
that if completed, it will prove to be beneficial to the Company or its security
holders. If the transaction is completed, it will increase the Company's equity
interest in Biotherapies to approximately 27%, and heighten the Company's
dependence upon the uncertain future progress of Biotherapies.
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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RESULTS OF OPERATIONS
Three months ended September 30, 2000 compared to three months ended September
30, 1999.
For the quarter ended September 30, 2000, the Company incurred a loss of
$746,929 compared to $348,390 for the three months ended September 30, 1999, an
increase of $398,539. The increase in the loss is primarily due to; payment of a
$200,000 finders fee with respect to the Company's debt financing; increases in
investor relations of $31,412 for the provision of stockholder services,
increases in professional fees of $83,943 for regulatory matters, increases in
management and consulting fees of $30,866 as the Company investigated potential
investment opportunities and an increase in interest charges of $154,674 which
is attributable to interest and finance costs on new short-term borrowings of
$3,500,000 which bears interest at 10%.
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999.
For the nine months ended September 30, 2000, the Company incurred a loss of
$1,653,910 compared to $887,317 for the nine months ended September 30, 1999, an
increase of $766,593. The increase in the loss is primarily due to; increases in
professional fees of $176,653 for matters relating to regulatory filings and
financings, an increase in the Company's 50% share of the Biomedical Diagnostics
LLC loss of $67,711, increase in investor relations of $89,971 for the provision
of stockholder services, increase in management and consulting fees of $81,899
as the Company investigated potential investment opportunities, an increase in
interest and finance costs of $179,977 which is attributable to new short-term
borrowings of $3,500,000 which bears interest at 10%; payment of a $200,000
finders fee with respect to the Company's debt financing; and an increase in
salaries and benefits of $14,832 reflecting the addition of one full time office
staff.
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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PART II
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
During the quarter ended September 30, 2000, stock options at $3.60 per share to
purchase 13,500 Common Shares were exercised by an option holder to net the
Company $48,600.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
On September 25, 2000, the Company filed a current report on Form 8-K dated
September 8, 2000 to report under Item 2 (Acquisition or Disposition of Assets)
the Execution of the agreement for its investment in Prion Developmental
Laboratories, Inc.
The following exhibits are filed herewith:
Financial Data Schedule
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BIOLABS, INC. -- FORM 10QSB -- QUARTERLY REPORT
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIOLABS, INC.
(Registrant)
Dated /s/
----------------------------------------
E. Greg McCartney
Chief Executive Officer
and Chairman
Dated /s/
----------------------------------------
Lawrence J. Pasemko
Chief Financial Officer
Page 14
