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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12 (B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
KINESYS PHARMACEUTICALS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 98-0210050
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3771 Jacombs Road, Unit 415
Richmond, B.C., Canada V6V 2L9 N/A
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(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (604) 279-0363
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00001 par value per share
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(Title of Class)
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KINESYS PHARMACEUTICAL, INC.
AMENDMENT NO. 2 TO
FORM 10-SB
TABLE OF CONTENTS
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PART I
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Item 1. Description of Business
Item 2. Management's Discussion and Analysis
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, Promoters and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and other Shareholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
PART F/S
Financial Statements
PART III
Item 1. Index to Exhibits
Item 2. Description of Exhibits
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STATISTICAL INFORMATION RELATING TO THE SKIN CARE INDUSTRY INCLUDED
IN THIS REGISTRATION STATEMENT IS DERIVED BY THE COMPANY FROM RECOGNIZED
INDUSTRY REPORT REGULARLY PUBLISHED BY INDUSTRY ASSOCIATION AND INDEPENDENT
CONSULTING AND DATA COMPILATION ORGANIZATIONS IN THESE INDUSTRIES, INCLUDING
A.C. NEILSON CO.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW OF BUSINESS
(1) Principal products and their markets
KINeSYS Pharmaceuticals, Inc. ("Kinesys," "Company" or "Issuer") is
engaged in the design, development, and marketing of a complete line of body
and skin care products designed specifically for athletes and active
individuals. KINeSYS' products are currently divided into three functional
product lines: sun care, treatment and daily use products. Each product is
designed specifically to meet the requirements of professional athletes and
active, health conscious individuals. KINeSYS contracts the manufacturing of
its products to several pharmaceutical manufacturers located in both British
Columbia and Ontario, Canada. KINeSYS products are distributed for sale to
customers in Canada and the United States.
KINESYS' PRODUCTS
Kinesys' product line includes the following products, organized
into three functional lines: sun care products, treatment products, and daily
use products.
SUN CARE PRODUCT LINE
- - Quick Dry Sprays. KINeSYS' line of sunscreen sprays protect the skin
effectively with hands-free application and without any greasy residue. The
complete line of sunscreen sprays with SPF factors of 8, 15, and 30 are all
PABA-free, alcohol-free, and oil-free, and are water, sweat and sand
resistant. They are designed to protect all skin types from the sun's
damaging UVA and UVB rays.
- - Protective Creams. The KINeSYS SPF 30 cream is recognized by the Canadian
Melanoma Foundation for containing the physical sun block titanium dioxide,
resulting in superior protection for sensitive skin.
- - Sun Stick. The KINeSYS SPF 30 Sun Protection Stick is specially formulated
with titanium dioxide for protection of sensitive lips, nose and ears.
- - Insect Repellent. The KINeSYS SPF 15 with Insect Repellent offers all the
benefits of the quick spray sunscreen products with the added feature of a
safe and effective insect repellent. With its the hands-free application it
is popular with outdoor sporting and recreation enthusiasts.
TREATMENT PRODUCT LINE
- - Muscle Balm Analgesic Stick. This product uses a clean-hands mode of
application to deliver a pain relieving and inflammation reducing balm. The
muscle balm contains a higher concentration of rapidly absorbed active
ingredients compared to the majority of other products of its kind on the
non-prescription market.
- - Athletic Foot Spray. The KINeSYS Foot Spray is a fast drying non-aerosol
spray that prevents and treats minor fungal and bacterial infections while
at the same time controlling foot odor.
- - First Aid Treatment / After-Sun Soothing Spray. This spray contains a local
anesthetic to soothe dry, chapped, wind and sunburned skin and to relieve
the pain and/or itching associated with minor burns, scrapes, and
non-poisonous insect bites. It has a pleasant fragrance and a non-oily aloe
vera base and is applied via a non-aerosol pump.
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DAILY USE PRODUCT LINE
- - Daily Moisturizer. The KINeSYS Daily Moisturizer is an oil-free moisturizer
that also contains a SPF 6 level sunscreen to provide light protection from
ultra-violet radiation. It absorbs quickly, is non-greasy, non-comedogenic
and is fragrance free.
- - Sport Body Wash. The KINeSYS Sport Body Wash is a non-soap preparation that
controls body odor and prevents infection with the inclusion of Triclosan,
an anti-bacterial ingredient.
- - Shampoos. The KINeSYS Sport Shampoo with conditioner is designed to control
residue build up from swimming pools, salt water, and heavily mineralized
tap water. The shampoo restores moisture lost through exposure to the
elements such as the sun, salt water, chlorine, wind and blow-drying. Its
special 2 in 1 formula with a built in conditioner is pH balanced and is
gentle enough to use every day without losing its effectiveness. It also
prevents hair discoloration that is commonly associated with chlorine and
exposure to the elements.
The KINeSYS Vigor Shampoo acts as a natural medicated shampoo that is
perfect for the active individual who suffers from a dry itchy scalp and
dandruff. Its active ingredients are eucalyptus, which refreshes,
invigorates, and stimulates the scalp, and tea tree oil, which soothes and
heals an irritated scalp.
RESEARCH AND DEVELOPMENT
Kinesys develops its products through the collaborative efforts of
contract chemists, a Scientific Advisory Board comprised of Kinesys
consultants, and Kinesys' own employees. The Scientific Advisory Board
provides critical guidance and technical expertise in the area of research
and development, resulting in products that are comprised of novel and high
quality ingredients that meet and exceed the demands of athletes and active
individuals. Each member of the Advisory Board contributes a unique area of
expertise to Kinesys' product development, product evaluation, formulation
optimization and quality control.
(2) Distribution methods of the products
Retail stores have traditionally been the primary distribution
channels for all Kinesys products. The three main areas of retail
distribution include pharmacies, supermarkets and mass merchandisers. Access
to all three of these distribution systems is through distributors, agents
and/or brokers. The Company generally works with distributors who purchase
the product and marketing tools on a thirty-day term and resell the product
to their accounts. In this relationship, the distributor assumes
responsibility for product sales, promotion, marketing and managing their own
receivables, thereby allowing Kinesys to simplify the administrative workload
that accompanies expansion. The Company is presently working with agents in a
focused market area of western Canada and the western United States. The
agent/broker represents Kinesys products in concert with other products they
represent and are paid by the Company a commission on the wholesale value of
the products being distributed.
In 1998, Kinesys products were represented in over 2,000 retail
locations, up from 128 in 1997. Important accounts in Canada in 1998 included
Shoppers Drug Mart, London Drugs, Pharmasave and Pharma Plus. In the United
States, the Company was able to secure distribution with Rite Aid (formerly
Thrifty - Payless Drugs).
The secondary distribution channels for Kinesys products have been
through sporting goods stores, specialty stores, and golf courses. These
distribution channels have proven to be effective in establishing the Kinesys
brand within its target market. The Company has numerous contracts with
agents and distributors in these areas, including AMER Sports Canada Inc.
with 27 sales representatives across Canada representing the Kinesys product
in golf clubhouses and sporting goods stores. In 1998, these efforts resulted
in Kinesys being distributed in over 400 locations, up from 200 in 1997.
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A third distribution channel for Kinesys products is direct
marketing. The Company has had some success over the past year in marketing
its products directly in specialty markets such as golf tournaments, hotel
mini bars, cruise lines and corporate accounts.
The Company's final distribution channel is direct marketing through
the Company's toll free telephone number from its website. The Company
believes that this is an important and developing distribution channel and
will be increasing its efforts to facilitate more sales through the Internet.
(3) New products
Kinesys intends to pursue the development of proprietary products
specifically for its target market. Kinesys has several additional product
concepts that are in the research stage and that are expected to extend the
Kinesys product family. In particular, Kinesys plans to introduce a
children's line of sun care products in the first calendar quarter of 2000.
These products will be based on existing Kinesys products and will be sold in
distinctive packaging designed exclusively for the children's market. A
second area of development involves the potential use of collagen in sun care
products. This product line is in the research and development stage and will
require further research before products containing collagen will come to
market. Critical research has not yet been done, and there can be no guaranty
that economically viable products will emerge from this process. Additional
product concepts will only be introduced to the Kinesys product line when it
is economically feasible to do so.
(4) Competitive business conditions and the small business issuer's
competitive position in the industry and methods of competition
COMPETITORS
The sun care category is represented by relatively few dominant
multinational companies, balanced by smaller, niche focused companies. The
industry is still developing as the public continues to become more aware of
the dangers of excessive sun.
The specific industry leaders and their percentage of market share are:
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Schering Plough (Coppertone) 32.3%
Playtex (Banana Boat) 19.0%
Neutrogena 8.7%
Hawaiian Tropic 7.9%
Private Label 7.3%
No-Ad 5.3%
Bain De Soleil 4.7%
Panama Jack 1.3%
Australian Gold 1.2%
All Others combined 12.5%
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SOURCE: AC NEILSON CO.
In the other two Kinesys product categories, treatment products and
daily use products, there are a significant number of industry participants
and niche categories. For example, in the external analgesic market there
over 300 separate items on the shelves across North America (Source: Drug
Store News: July 6, 1998). None of the competitors feature a muscle balm stick
form of application combined with the concentration of active ingredients
that Kinesys has. Specific competitors to the Kinesys Analgesic Muscle Balm
product include Flex-All, Tiger Balm and Myoflex.
Kinesys will compete with other market participants by publicizing
the unique properties of its products, by building brand loyalty through
creative product positioning, and by establishing marketing
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alliances that will ensure focused penetration into target markets.
INTELLECTUAL PROPERTY PROTECTION.
The Company acquired its product formulas on a contract basis from
an independent chemist. The Company owns these formulas and does not pay
royalties to the developer. At the present time the Company and its
predecessors have relied upon the secret and proprietary nature of the
formulas to protect its products from the competition. It may in the future
file, but at this time has not filed, for copyrights in the U.S. and Canada
as well as other countries. The Company has no plans to seek patent
protection for its formulations. The Company believes that any legal
protection cannot prevent competitors from entering the market for skin care
products similar to those developed by Kinesys.
The Company relies on trade secrets and proprietary know-how which
it seeks to protect, in part, through appropriate confidentiality and
proprietary information agreements. These agreements generally provide that
all confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company
is not to be disclosed to third parties, except in specific circumstances,
and that all inventions conceived by the individual in the course of
rendering services to the Company shall be the Company's exclusive property.
There can be no assurance that confidentiality or proprietary information
agreements will not be breached, that remedies for any breach would be
adequate, or that the Company's trade secrets will not otherwise become known
to, or independently developed by, competitors.
(5) Sources and availability of raw materials and the names of principal
suppliers
The Company purchases the raw materials for its products primarily
from a chemical broker, Van Waters & Rogers, which has offices globally. If
Van Waters & Rogers ceased to supply products to the Company, the Company
believes that other suppliers would be readily available. In some instances,
the Company purchases these materials directly, while in other instances, the
contract pharmaceutical manufacturer purchases materials on behalf of the
Company. The Company owns the molds for production of its packaging and
contracts the production of bottles from two companies, Polybottle and
Richards Packaging, Inc. The caps or closures are purchased from either
Seaquist Canada, Ltd., or McKernans. Present active contract pharmaceutical
manufacturers include Biotech and Contract Pharmaceuticals Ltd.
(6) Dependence on one or a few major customers
The Company is not reliant on any particular relationship or avenue
of distribution for its sales. Although the Company typically does business
only with a few distributors at a time, it does not consider these
relationships to be unique or proprietary. The Company made an unusually
large sale in 1998 that was not duplicated in 1999; such sales, though
important, are not relied upon exclusively. The Company has approximately
1,000 customers, many of whom have the potential to grow into significant
channels for distribution of the Company's products. No single customer or
distribution channel is critical to the Company's potential success.
(7) Patents, trademarks, licenses, franchises, concessions, royalty
agreements or labor contracts, including duration.
The Company claims no patents, licenses, franchises, or concessions.
It has no labor contracts. Kinesys Canada has entered into a royalty
agreement dated December 17, 1996, with Douglas E. and Ed Ford covering
revenues from North American operations. This agreement was entered into in
partial consideration for the sale of the Company on December 17, 1996 from
Green River Petroleum Inc. back to its founders, Jeff and Jocelyn Kletter.
Royalties will be payable by the Company under this agreement when its annual
gross revenues exceed CDN$1 million. The agreement will expire upon payment
of an aggregate royalty of CDN$1,250,000 (if before October 1, 2001) or
CDN$1,500,000 (if thereafter).
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Kinesys protects its name through trademark registrations of the
Kinesys name and logo in Canada and the United States, the countries where it
presently does business. In addition, the trademark of "Kinesys" is presently
registered in New Zealand, Australia, the European Union, England, Malaysia,
Singapore, Philippines and Thailand for use with cosmoceutical sports
medicine products. The Company is presently pursuing trademark registration
in Japan.
(8) Need for any government approval of principal products or services
and effect of existing or probable governmental regulations on the business.
Skin care products require governmental approval in most countries
where the Company sells or expects to sell its products. The Kinesys products
that require registration with the Food and Drug Administration (FDA) in the
United States and the Health Protection Branch (HPB) in Canada have been
registered. In addition, Kinesys SPF 15 with Insect Repellant has been
registered with the Canadian Pest Control Management Regulatory Agency.
Necessary registrations are being pursued in Japan.
Although Kinesys believes it has received all regulatory approvals
required to operate its business to date, regulations may change, resulting
in unexpected costs and uncertainty. Kinesys may not be able to comply with
the applicable requirements and necessary approvals may not be granted. We
cannot predict the extent and impact of future governmental regulations. If
we fail to comply with the applicable regulatory requirements, we may be
subject to fines, injunctions, civil penalties, recall or product seizure,
among other penalties.
(9) Estimate of amount spent during each of the last two fiscal years on
research and development activities, and the cost thereof borne directly by
customers.
During the last two years the Company has engaged in limited
research and development activities, focusing its energy instead on sales and
marketing of previously-developed products. The Company estimates that is
spent approximately $25,000 prior to 1998 on its research and development
efforts, and it expects to spend between $50,000 and $100,000 in 1999. These
costs are not expected to be borne directly by customers but rather will be
funded out of the Company's working capital.
(10) Number of total employees and number of full time employees.
The Company currently has 2 full time employees and regularly
employs 3 independent contractors. The Company also employs approximately 8
contractors on a seasonal basis in order to enable it to meet summer
production, sales and marketing demands.
COMPANY HISTORY
Kinesys was incorporated in Nevada on February 17, 1998 under the
name of Goldsearch Corporation. On May 4, 1999, Goldsearch Corporation merged
with Kinesys Pharmaceutical Inc. ("Kinesys Canada"), a Canadian corporation.
In connection with the merger, 3,052,021 Goldsearch shares were issued to the
former holders of Kinesys Canada stock. Immediately following the merger, the
business of Kinesys Canada became the business of Goldsearch, and the former
Kinesys Canada shareholders controlled approximately 39% of the outstanding
Goldsearch voting equity. Goldsearch filed its Certificate of Amendment of
Articles of Incorporation on March 29, 1999 to change the company's name to
Kinesys Pharmaceuticals, Inc. Kinesys Canada survived the merger as a
wholly-owned subsidiary of the Company.
Kinesys Canada was incorporated in British Columbia, Canada, in
December of 1993 under the name "Motion Pharmaceutical Inc." The Kinesys name
was adopted in early 1994 as the company worked to develop a line of muscle
balm and skin care products for athletes. Kinesys Canada launched its first
products at the XV Commonwealth Games in Victoria, British Columbia in August
of 1994.
In April of 1995, Kinesys Canada listed its shares on the Alberta
Stock Exchange after raising CDN$920,000 in a private equity offering. The
company was subsequently returned to private control in
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September of 1996 when its founders purchased a majority of the outstanding
publicly-held equity. At that time, the company was burdened with over
CDN$350,000 of liabilities and was unable to meet the demands of its
creditors.
On February 19, 1997, the company filed a proposal to its creditors
as an Insolvent Person under the Canadian Bankruptcy and Insolvency Act.
Pursuant to this plan, creditors would receive $0.50 per dollar of
outstanding debt. The proposal was declared by the trustee in bankruptcy to
have been fully performed on December 30, 1998 and the company is no longer
subject to bankruptcy protection.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Kinesys supplies innovative high-performance skin care products to
professional and recreational athletes. By focusing on its current business
strategy, the Company intends to solidify its market position in Canada and
to expand to other geographical markets in the United States, overseas and
via the company's website on the Internet.
Founded in 1993, the Company spent its early years developing
formulas, establishing markets for its sunscreen and related products and
creating brand awareness. It has traditionally achieved most of its sales in
Canada, with occasional sales and product interest in the United States. It
now intends to focus on the United States market for its next phase of
growth. Management recognizes that directing the Company's efforts to expand
into new geographical markets will have a negative short-term impact on
revenue, but believes it is warranted by the potential long-term opportunity
of selling its primary sun care products in markets which are not as subject
to the seasonal variations found in Canada.
On May 4, 1999, Goldsearch Corporation ("Goldsearch"), a Nevada
corporation, merged (the "Merger") with Kinesys Canada. On May 4, 1999,
Goldsearch issued 3,052,021 shares of its Common Stock to the holders of
Kinesys Canada's issued and outstanding shares of common stock in exchange
for 100% of the issued and outstanding common stock of Kinesys Canada. Prior
to the Merger, Goldsearch had focused its operations in the area of mineral
exploration and had only nominal assets and liabilities. After the merger,
former Kinesys Canada stockholders owned approximately 39% of the issued and
outstanding Common Stock of the Company. The merger has been accounted for
using the purchase method of accounting with Kinesys Canada considered to be
the predecessor business. This treatment is appropriate because the
preexisting shareholders of Goldsearch, after the Merger, retain the power to
elect the Board of Directors and to replace management. Present management is
acceptable to the majority of shareholders but could be replaced at the
discretion of the Board of Directors at any time. No voting agreement or
other private contractual arrangement constrains the ability of the majority
of shareholders to exercise their right under Nevada law to control the
Company. Currently-outstanding warrants will, when exercised, result in even
more voting power being vested in the hands of the former Goldsearch
shareholders.
Following the Merger, the business conducted by the Company is the
business conducted by Kinesys Canada prior to the Merger with the additional
focus of growth opportunities in the U.S., overseas, and on the Internet. In
conjunction with the Merger, the Company changed its name to "Kinesys
Pharmaceuticals, Inc." The Company's shares were until December 1, 1999
traded on the Over the Counter Bulletin Board (the "OTCBB") operated by the
National Association of Securities Dealers, Inc. under the symbol "KNES."
Upon the effectiveness of this Registration Statement, the Company will
immediately seek to have its shares re-listed on the OTCBB.
In view of the evolving nature of its business and its limited
operating history, the Company has limited experience forecasting its
revenues. Therefore, the Company believes that period-to-period comparisons
of financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. To date, the Company has
incurred substantial costs to develop its product line, establish brand
recognition and secure sales and distribution channels. The Company will
continue to
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incur costs to develop new products, develop new customers, build brand
awareness and grow the business. These costs may not correspond with any
meaningful increases in revenues in the near term.
RESULTS OF OPERATIONS
The results of operations discusses financial results of Kinesys
Canada, the predecessor of the Company, and the consolidated results
Goldsearch and Kinesys Canada after the merger of those two entities.
Previously, the Registrant was engaged in the mineral exploration and
development business and had incurred expenditures in this regard of $147,265
for the period from incorporation (February 7, 1998) to May 4, 1999 (the date
of the merger with Kinesys Canada). No revenues were recognized from this
business activity.
Period from May 5, 1999 to September 30, 1999
The results for this period discuss the operating results of the
combined acquisition corporation (Goldsearch) and Kinesys Canada for the
period from May 5, 1999 to September 30, 1999. Because this is a unique
period beginning on the date of the Merger, no comparable period is reported
for 1998.
Revenue
Sales for the period were $100,731. The results include an
approximate $25,000 sale of consulting services which result in the gross
margin showing a higher than usual ratio to sales.
Operating Expenses
The Company's operating expenses consist of sales and marketing and
general and administrative expenses. Operating expenses were $597,044 for the
period.
Advertising and promotion expenses were $179,698, a substantial
increase over past years. This was a result of the company increasing its
marketing efforts in conjunction with its expanded sales and marketing plans.
For the same reasons, trade shows expenses increased substantially to $38,239.
Amortization of goodwill of $60,977 is a new expense in this period
reflecting the amortization of the goodwill arising on the acquisition of
Kinesys Canada over a 5 year period. Depreciation of fixed assets has
decreased because of the declining balance method of depreciation used and
the fact that there has not been significant new purchases of capital assets
in the past year.
Bank charges and interest totaled $6,085 in the period. The company
has been able to manage its cash flow requirements effectively this period
which has minimized interest costs.
Consulting fees and salaries combined were $94,460 in this period.
This amount represents permanent and contract staff added in order to fulfill
management responsibilities in accordance with the demands of the Company's
new business plans.
Professional fees expenses were $88,836 in this period. This large
amount was caused primarily by the Company's efforts to prepare for the
filing of this registration statement.
Period from January 1, 1999 to May 4, 1999
The results for this period discuss the operating results of the
predecessor corporation (Kinesys Canada) for the period from January 1, 1999
to May 4, 1999. Because this is a unique period ending on the date of the
Merger, no comparable period is reported for 1998.
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Revenue
Sales of $74,793 for the period, were derived primarily from the
sale of the Company's sunscreen products.
During the period, the Company devoted most of its efforts to
consolidation, refining its business plan and refocusing of the Company's
operations. During this period, the Company only actively solicited sales in
British Columbia, the Company's head office location. As a result, sales
declined substantially over the prior year. Management believes that this
decision will have long term benefits in the form of improved operations,
systems and focused marketing as the company begins to implement its plan to
expand its geographic and demographic markets.
The Company hopes to derive future revenue from increased sales in
the United States, predominantly in the western and southern states as well
as an increasing sales component from the company's website. The Company's
business model is based on building brand recognition through association
with sports teams, high-profile athletes, grassroots athletic events and
other more traditional forms of advertising. Included among approximately 40
such associations are the Company's involvement with the Canadian National
Alpine Ski Team, the Canadian National Men's Field Hockey Team, triathlete
Scott Tinley, Olympian Charmaine Crooks, professional golfer Richard Zokol,
the Vancouver Grizzlies NBA Tip-Off and Grizzlies Foundation, the Whistler
Tennis Open, and the Mountain Express Run for Leukemia.
Operating expenses
The Company's operating expenses consist of sales and marketing and
general and administrative expenses. Operating expenses were $104,607 for the
period.
Advertising and promotion expense for this period were $17,270,
sales commissions were nil, and interest expense was $2,127. Professional
fees paid to the Company's accountants, attorneys and computer consultants
for this period was $15,169. Salaries and benefits for this period was
$7,491. Expenses for participation in trade shows were $1,912. Finally,
travel expenses for the period were $5,664.
The relatively low level of expenses during this period is accounted
for by decreased expenditures for sales commissions and related advertising
and promotional giveaways. The sales and marketing expenses incurred in the
first three months of 1999 consist primarily of salaries related to
developing business arrangements with prospective partners, establishing a
more dynamic Internet presence, creating awareness of existing and new
services and costs of communicating to the industry and potential consumers.
The low level of general and administrative expense is attributable to a
decrease in costs associated with sales, such as fees and travel costs for
participation in trade shows. The company began to incur increased
professional fees during this period as it prepared to become a reporting
company under the Securities Exchange Act of 1934.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The results for this period discuss the operating results of the
predecessor corporation (Kinesys Canada) for the years ending December 31,
1998 and December 31, 1997.
Revenue
Sales of $622,930 and $167,170 for the years ended December 31, 1998
and 1997 respectively, were derived primarily from the sale of the Company's
sunscreen products. During 1997, the Company's attentions were primarily
focussed on its creditor protection proceedings, with this process carrying
over into 1998. During 1997 the Company was unable to focus its full
attention on sales or marketing and sales accordingly suffered. As the
Company emerged from creditor protection in 1998, it was able to begin to
refocus its efforts on its business plan and sales improved substantially.
However, as pointed out in the
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discussion of Revenue above the Company still lacked the proper systems and
operations to properly manage the increased sales. Management expects sales
to continue to improve in 1999 and 2000 as the Company continues on its
present course of focused sales with proper operational systems.
During 1998, the Company was successful in soliciting sales in the
United States. One such sale in particular accounted for 59% of the Company's
1998 sales. Management intends to pursue similar types of transactions with
U.S. customers in the latter half of 1999 and beyond, but cannot guarantee
that its efforts will be successful. Any failure to secure sizeable sales
accounts in the U.S. will constrain the Company's ability to meet its goals.
Future revenue will be derived increasingly from sales in the United
States, predominantly in the western and southern states, overseas and via
the company's website. The Company's business model is based on building
brand recognition through association with sports teams, high-profile
athletes, grassroots athletic events and through other traditional forms of
advertising.
Operating expenses
The Company's operating expenses consist of sales and marketing and
general and administrative expenses. Operating expenses were $988,616 and
$505,279 for the years ended December 31, 1998 and 1997, respectively.
Advertising and promotion expense for the year ended December 31,
1998 of $237,431 increased $99,452 or 72% from the comparable period in 1997.
Sales commissions for the year ended December 31, 1998 of $73,398 increased
$54,806 or 395% as compared with the previous year. Interest expense for the
year ended December 31, 1998 of $28,380 increased from nil in the comparable
period of 1997. Professional fees paid to the Company's accountants,
attorneys and computer consultants for the year ended December 31, 1998 of
$38,668 increased $9,083 or 31% from the comparable period in 1997. Salaries
and benefits for these periods were $107,194 and $118,298, respectively.
Expenses for participation in trade shows were $33,938 for the year ended
December 31, 1998 and $18,970 for the comparable period in 1997. Finally,
travel expenses for the year ended December 31, 1998 were $38,609 while the
comparable figure for 1997 was $25,966.
The marked increase in these numbers (particularly advertising,
promotion and commissions) for the year ended December 31, 1998 represents
the increased cost of promotional giveaways and an increase in commissions
paid on the large sale into the U.S. discussed above. A large expense in 1998
was attributable to the recognition of an employee benefit relating to the
grant of stock options to employees and directors in 1998 totaling $257,269.
Extraordinary Item
The Company reported a gain on debt restructuring of $59,203 and
$179,816 for the years ended December 31, 1998 and 1997, respectively. These
amounts were accounted for in connection with the Company's settlement with
unsecured creditors and are not expected to occur again in the future.
As the Company expands its business in 1999 and beyond, its research
and development, sales and marketing, website development and general and
administrative expenses will increase. Research and development expenses will
increase as the Company adds products to its line. Sales and marketing
expenses will increase as the Company participates in trade shows and similar
events in order to build business relationships, sell product and build brand
awareness. Internet costs will increase as the Company continues to develop
its website and advertise it on the Internet and related media. In addition,
advertising and public relations expenses will increase as the Company
invests to grow its business. General and administrative expenses will
increase as the Company continues to build its management infrastructure,
including additional personnel as needed, office space and internal
information systems.
-11-
<PAGE>
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
The Company's primary source of liquidity is its potential to raise
additional cash through operations and the exercise of stock options held by
certain investors. The Company raised approximately $400,000 upon exercise of
options to purchase 533,333 shares of Common Stock on May 30, 1999. The
Company has additional outstanding options to purchase 400,000 Common shares
at an exercise price of $1.00 per share and options to purchase 320,000
Common shares at an exercise price of $1.25 per share. These options are held
by an unrelated third party and should be distinguished from options granted
under our 1999 Stock Option Plan. Holders of these options are not required
to exercise them, and if they do not exercise, there will be no cash proceeds
to the Company.
The Company's auditors, BDO Dunwoody LLP, have deemed that
continuation of the Company as a "going concern," as defined by U.S.
generally accepted accounting principles, is dependent upon the Company
obtaining additional working capital. The Company is taking steps to raise
additional capital, as its current cash reserves and proceeds from the
additional options when exercised over the next three months are expected to
allow the company to become self-sufficient at annual sales levels of
$2,000,000. The Company intends to conduct private placement sales of its
equity securities if and when its cash reserves are depleted or sales
increase above $2,000,000. There can be no assurance that any shares of
Common Stock of the Company can or will be sold or that other sources of
loans or funds will be available to the Company if and when needed. The
failure of the Company to obtain adequate additional capital may require the
Company to postpone some or all of the expansion of its proposed business
operations and, potentially, to cease its operations. Any additional equity
financings may involve substantial dilution to the Company's then-existing
shareholders.
RECENT TRANSACTION
The Company has recently entered into a one-year agreement with
Venture Catalyst.com, a division of Inland Entertainment Corporation
("Venture Catalyst"). Pursuant to this agreement, Venture Catalyst will
provide general consulting, investor relations, and financial communication
services to the Company. The Company has also agreed to lease office space
from Venture Catalyst in San Diego, California. This arrangement is expected
to permit the Company to more effectively distribute and sell its products in
the United States.
INDUSTRY BACKGROUND AND TRENDS.
The primary target market for Kinesys products is the active and
health conscious individual in the 18-45 age category. This demographic
represents the stage during which brand loyalty is being formed. Typically
the primary Kinesys consumer is educated, sophisticated, upper income and
living in an urban environment. The secondary target market is the
competitive and professional athlete who demands a product that will meet the
rigors of his or her sport. Word of mouth referral from the primary market,
supported by endorsements of competitive and professional athletes and
highlighted by strategic advertising results in a large tertiary target
market, the general public.
The skin care market in the US is valued excess of $8 billion and is
growing at a rate of 7% per year while in Canada a similar growth rate is
occurring in a market of over $615 million. The skin care product segment is
expected to remain buoyant as consumers desire to look and feel younger, even
as the North American population gets older. By 2010 the United States
population in the 45-64 age bracket will have increased by 70% to represent
27% of the population, in contrast to the 1990 census numbers. By
establishing brand loyalty now, Kinesys hopes to enjoy the benefit of this
segment of the population utilizing more skin care products in the future.
Equally important is that the 18-45 age brackets, Kinesys' present target
market, will continue to represent approximately 40% of the population, up
marginally by 3% over the same 20 year period.
The incidence of sunburn in the general population has increased 9%
over the past ten years and general skin cancer rates are increasing due to
overexposure to sun and burns from as far back as 25 years
-12
<PAGE>
ago. As a result, the sun care segment of the skin care market was worth over
$467 million in 1997, and sales are projected to increase at 12% per year to
reach $758 million by 2000. In 1997, sales of sun care products primarily
occurred in pharmacies ($158.1 million, or 45% of distribution), mass
merchandisers ($160 million, or 29% of distribution), and food stores ($99.2
million, or 24% of distribution). The sport segment represents 8.7% of the
total sun care industry and Kinesys is currently the only sun care company
dedicated to the sport sun care segment in North America.
Kinesys' Muscle Balm Analgesic Stick is positioned in one of the
fastest growing segments of pharmacy sales--external analgesics. In 1998 the
external analgesic market was valued at US$220 million and is projected to
double to US$440 million by the year 2001 in order to serve an aging but
still-active and fitness-oriented consumer. Sales distribution is 53% in
pharmacies, 26% in mass merchandisers and 20% in food chains.
INVESTMENT CONSIDERATIONS
Investment in the shares of our common stock involves a high degree
of risk. Investors should carefully consider the risks described below,
together with all of the other information included in this registration
statement, before making an investment decision. If any of the following
risks actually occurs, our business, financial condition or operating results
could be materially adversely affected. In such case, the trading price of
our common stock could decline, and investors may lose all or part of their
investment.
NEED FOR ADDITIONAL FINANCING
During the next 12 months, the Company's foreseeable cash
requirements will be met by a combination of existing cash, revenue generated
by the Company's sales, and additional equity financing. The Company is
currently devoting substantial resources to the development of its products
and to the establishment of sales and distribution relationships. Substantial
additional capital may be required in the future to fund product development
and product launch cycles. No assurance can be given that additional
financing will be available or that, if available, such financing will be
obtainable on terms favorable to the Company or its shareholders. If needed
capital is unavailable, the Company's ability to continue in business will be
jeopardized. To the extent the Company raises additional capital by issuing
equity or securities convertible into equity, ownership dilution to the
Company's shareholders will result.
HISTORY OF LOSSES AND NEGATIVE CASH FLOW; ANTICIPATED CONTINUED LOSSES.
Since the Company's inception, it has incurred significant losses
and negative cash flow, and as of September 30, 1999, it had an accumulated
deficit of approximately $670,399. The Company has not achieved profitability
and it expects to continue to incur operating losses for the foreseeable
future as it funds operating and capital expenditures in areas such as
establishment and expansion of markets, advertising, brand promotion, sales
and marketing, and operating infrastructure. The Company cannot assure
investors that it will ever achieve or sustain profitability or that its
operating losses will not increase in the future.
COMPETITION.
The market for sunscreen and other skin care products is highly
competitive. The competition for the Company's products comes largely from
large, well-established multinational companies with longer operating
histories, greater name recognition, larger retail bases and significantly
greater financial, technical, and marketing resources than the Company.
Competition from these sources could materially adversely affect the
Company's business, operating results or financial condition. Competitive
factors in the athletic skin care market include innovative products, product
quality, marketing and distribution resources and price. While the Company
believes that it has the experience and ability to compete within its
identified market, there can be no assurance that the Company will be able to
compete successfully against current or future competitors.
-13-
<PAGE>
RELIANCE ON KEY INDIVIDUALS; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL.
The Company is dependent upon the active participation of several
key management personnel, including Jonathan Mara, Chief Executive Officer,
Jeffrey Kletter, President, and Jocelyn Kletter, Vice President. Mr. Mara
provides services on a full-time contract basis, and this arrangement will be
subject to periodic renegotiations or renewal. The Company does not currently
maintain key employee insurance policies. Additionally, the Company will
likely need to recruit qualified personnel in order to expand according to
its business plan. Although the Company is committed to offering competitive
salaries, stock options, benefits and an appealing work environment, there
can be no assurance that Kinesys will be able to attract such persons or
retain any of its key personnel. The failure to attract and retain key
personnel could have a material adverse effect on the Company's viability.
PRODUCT LIABILITY
The Company's business exposes it to potential product liability
claims which are inherent in the manufacture and sale of skin care products.
Although no such claim has been brought against the Company to date, and to
the knowledge of the Company no such claim is threatened or likely, the
Company may face liability to product users for damages resulting from the
faulty design or manufacture of products. Although the Company maintains
product liability insurance coverage, there can be no assurance that product
liability claims will not exceed coverage limits or that such insurance will
continue to be available at commercially reasonable rates, if at all.
Consequently, a product liability claim or other claim in excess of insured
liabilities or with respect to uninsured liabilities could have a material
adverse effect on the Company.
DEPENDENCE ON NEW MARKETS
The Company's future growth, if any, depends in part on its ability
to penetrate new markets. There can be no assurance that Kinesys will be
successful in locating or penetrating any new markets for its products.
HIGH COST OF INVENTORY
Due to the nature of the Company's business, the Company is required
to invest a significant portion of its capital in building and maintaining
inventory. There can be no assurance that inventory held by the Company will
not become unsalable or diminish in value prior to sale. A significant
decline in the value or usability of inventory could have a significant
adverse affect on the Company's financial position.
LIMITED LIQUIDITY AND RESTRICTED TRANSFERABILITY
An investment in the Company involves limited liquidity. There is
currently only a limited public market for the Company's Common Stock, and no
assurance can be given that a broader public market will develop. An
investment in the Company is suitable only for sophisticated investors who
have no need to have ready access to the capital that they commit to the
Company. Potential investors must view an investment in the Company as a
long-term commitment.
RISKS OF LOW-PRICED STOCKS; PENNY STOCK REGULATIONS.
The Company's Common Stock is traded over-the-counter on NASD'S
"Electronic Bulletin Board." As such, the Company's Common Stock is subject
to Rule 15g-9 under the Exchange Act, which imposes certain sales practice
requirements on broker-dealers that sell such securities to persons other
than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's Common Stock and
may affect the ability of purchasers to sell any of the Common Stock acquired
in the secondary market.
-14-
<PAGE>
PAST BANKRUPTCY
The Company emerged from creditor protection under the laws of
Canada on December 30, 1998. Although management believes that the financial
conditions that led to the Company's bankruptcy will not recur, there can be
no assurance that the Company will never again seek legal protection from its
creditors. The Company's history with bankruptcy may make merchants or other
commercial parties unwilling to extend credit to the Company. If creditors
and investors perceive the Company to be at risk of insolvency, it would have
an adverse impact on the company's operating performance.
SHARE PRICE VOLATILITY.
The trading price of the Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the personal products industries and other events or
factors. In addition, in recent years the stock market in general has
experienced extreme price fluctuations. This volatility has had a substantial
effect on the market price of securities issued by many companies for reasons
unrelated to the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Common
Stock. To date, the Company's Common Stock has not traded in sufficient
volumes, or for a sufficient length of time, to produce any meaningful
evidence of correlation between its price and general market volatility.
PRODUCT RECALLS.
Products subject to governmental regulatory approval, such as the
Company's products, can experience performance problems in the field that
require review and possible corrective action by the manufacturer. The
Company has on at least one occasion been required to recall a substantial
amount of one of its products due to a labeling error. Similar product
problems in the future could result in market withdrawals or recalls of
products, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company is only moderately dependent on computer software
programs and operating systems in its internal operations, but it relies upon
third party vendors whose operations may be seriously affected by computer
failures. The use of computer programs that rely on two-digit date programs
to perform computations and decision-making functions may cause computer
systems to malfunction in the year 2000 and lead to significant business
delays and disruptions. While the Company believes that the software
applications that it uses or has developed are year 2000 compliant, to the
extent that any of these software applications contain source code that is
unable to appropriately interpret the upcoming calendar year 2000, some level
of modification or possible replacement of such source code or applications
will be necessary. The Company is currently unable to predict the extent to
which the year 2000 issue will affect its customers or strategic partners, or
the extent to which it would be vulnerable to any failure by the customers or
strategic partners to remedy any year 2000 issues on a timely basis. The
failure of a customer or strategic partner subject to the year 2000 issues to
convert its systems on a timely basis or a conversion that is incompatible
with the Company's systems could have a material adverse effect on the
Company's business, financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
Certain items contained in this document, including ITEM 2 and the
prior section, ITEM 1, are "forward looking" in that they discuss the
Company's expectations, beliefs, intentions or strategies regarding future
business operations and projected earnings from its products and services,
which are subject to many risks. All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such
forward-looking
-15-
<PAGE>
statements. The Company's actual results may differ materially as a result of
certain factors, including those set forth under the caption "Investment
Considerations" and elsewhere in this Form 10-SB. Potential investors should
consider carefully the previously stated factors, as well as the more
detailed information contained elsewhere in this Form 10-SB, before making a
decision to invest in the common stock of the Company.
ITEM 3. DESCRIPTION OF PROPERTY
Principal Property
The Company's headquarters are located in an office/warehouse
facility of approximately 3,000 square feet at Unit 415 - 3771 Jacombs Road,
Richmond, B.C., Canada V6V 2L9. The present facilities lease expired in
mid-1998 and the Company is presently on a month to month contract. The
property is leased from an unaffiliated third party for a monthly rental of
CDN$2,310. The Company maintains tenant fire and casualty insurance on its
property located in such building in an amount deemed adequate by the Company.
The Company has recently agreed to sublease approximately 300 square
feet of office space from Island Entertainment Corporation in San Diego,
California for a one-year period beginning in November of 1999. The address
of this office is 16868 Via Del Campo Court, Suite #200, San Diego, CA 92127.
Rent of US$2,000 is payable monthly. The Company will maintain tenant fire
and casualty insurance on its property located in such building in an amount
deemed adequate by the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
The following table sets forth information with respect to each
person known by the Company to own beneficially more than 5% of the Company's
outstanding common stock, and the beneficial ownership of each officer and
director, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
- ------------------------------------------- ----------------------------------- -------------------
Name and address of Amount and nature
beneficial owner of beneficial owner Percent of class
- ------------------------------------------- ----------------------------------- -------------------
<S> <C> <C>
Jonathan Mara 615,795 (note 1) 7.3%
- ------------------------------------------- ----------------------------------- -------------------
Jeff Kletter 606,074 (note 2) 7.2%
- ------------------------------------------- ----------------------------------- -------------------
Jocelyn Kletter 602,741 (note 3) 7.2%
- ------------------------------------------- ----------------------------------- -------------------
Roberts & Scott Financial Inc. 440,000 (note 4) 5.3%
- ------------------------------------------- ----------------------------------- -------------------
Bullock & Bryson Financial Inc. 435,000 (note 5) 5.2%
- ------------------------------------------- ----------------------------------- -------------------
Smucker & Ogden Inc. 400,000 (note 6) 4.8%
- ------------------------------------------- ----------------------------------- -------------------
Friedman Capital Ltd. 395,000 (note 7) 4.7%
- ------------------------------------------- ----------------------------------- -------------------
Dr. Doug Clement 16,000 (note 8) 0.2%
- ------------------------------------------- ----------------------------------- -------------------
Dr. Don Rix 47,704 (note 9) 0.6%
- ------------------------------------------- ----------------------------------- -------------------
All directors and executive officers as a
group (5 persons) 1,888,314 22.5%
- ------------------------------------------- ----------------------------------- -------------------
</TABLE>
Note 1. Mr. Mara serves the Company on a contract basis through his wholly-owned
company, Guardian Angel Investments Ltd. and holds his options through this
entity. Guardian Angel Investments Ltd. has also been granted options to
purchase 200,000 shares of common stock over a three-year period with 1/3
vesting per year.
Note 2. Mr. Kletter has been granted options to purchase 200,000 shares of
common stock over a three-year period with 1/3 vesting per year.
Note 3. Ms. Kletter has been granted options to purchase 200,000 shares of
common stock over a three-year period with 1/3 vesting per year.
Note 4. Roberts & Scott Financial Inc. is beneficially owned by Derrick Huggins.
Note 5. Bullock & Bryson Financial Inc. is beneficially owned by Andrew Titley.
-16-
<PAGE>
Note 6. Smucker & Ogden Inc. is beneficially owned by G. Donna Hector.
Note 7. Friedman Capital Ltd. is beneficially owned by Julie Mills.
Note 8. Dr. Clement has been granted options to purchase 30,000 shares of common
stock over a one-year period with vesting based on participation in Board of
Directors and Scientific Advisory Board meetings.
Note 9. Dr. Rix has been granted options to purchase 30,000 shares of common
stock over a one-year period with vesting based on participation in Board of
Directors meetings.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company and their respective
ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jonathan Mara 39 Chief Executive Officer
Jeffrey Kletter 37 President and Director
Jocelyn Kletter 30 Vice President
Dr. Don Rix 68 Chairman and Director
Dr. Douglas B. Clement 65 Director
</TABLE>
All directors hold office until the next annual meeting of
stockholders and/or until their successors have been duly elected and
qualified. There are no agreements with respect to the election of directors.
On June 28, 1999, Dr. Rix was granted options to purchase 3,750 common shares
and Dr. Clement was granted options to purchase 2,500 common shares per board
meeting attended over a twelve-month period, at an exercise price of $1 per
share. Aside from expenses to attend the Board of Directors meetings and the
option grants to Drs. Rix and Clement, the Company has not compensated its
directors for service on the Board of Directors or any committee thereof.
Officers are appointed annually by the Board of Directors and each executive
officer serves at the discretion of the Board of Directors. Jeff Kletter and
Jocelyn Kletter are married; there are no other family relationships between
any of the directors and executive officers. The Company does not have any
standing committees at this time.
Dr. Don Rix, age 68, has been Chairman of the Board of Directors of Kinesys
since 1996. A pathologist, Dr. Rix serves as chairman and director of MDS
Metro Laboratory Services and CanTest Ltd. Dr. Rix brings to the Board a
wealth of information and experience in the management of high growth
companies in the industrial, scientific, and medical areas. Dr. Rix serves as
a director on the boards of Immune Network Research and Chai-Na-Ta Corp.
Dr. Rix is involved as a present Director of the Vancouver Opera, a Member of
the Benefactors Committee and past Board Member of the Vancouver Art Gallery
and the Medical Director for the Air Canada Open.
Dr. Douglas Clement, age 65, has been a director of Kinesys since its
formation in 1993. Dr. Clement has, for the past five years, been co-director
of the Allan McGavin Sports Medicine Centre and a professor of medicine at
the University of British Columbia. He conducts research, teaches, and
practices in the field of sports medicine. Dr. Clement has been a member of
the Canadian Olympic Association Board of Directors from 1985 to 1993 and is
the team physician for the Vancouver Canucks in the National Hockey League.
Dr. Clement has been honored with a number of academic and professional
awards, including: Coach of the Year (Sport BC), Order of Canada Medal,
Fellowship of the American College of Sports Medicine, the Vanier Award, and
the Sports Medicine Council of Canada Lifetime Achievement Award.
Jonathan Mara, age 39, has been Chief Executive Officer of Kinesys since
August 4, 1998, providing full-time service on a contract basis with his
wholly-owned company, Guardian Angel Investments Ltd. From July of 1997
through August of 1998, Mr. Mara was C.E.O. of Guardian Angel Investments
Ltd., through which he provided consulting services to various businesses.
Prior to his consulting position at Guardian, he founded Vantage Securities
Inc., an investment services firm, and was for approximately nine years its
President and C.E.O. Mr. Mara was successful in growing Vantage Securities to
annual sales of $275 million with all of the necessary systems in place to
facilitate electronic ordering, compliance, accounting,
-17-
<PAGE>
administration, human resources, business development, corporate finance,
sales management and marketing. Mr. Mara's focus at Kinesys is to administer
the Company's finances, manufacturing, and operations in a controlled,
systematized basis to allow the Company to grow profitably at a manageable
high rate of growth. Mr. Mara has a Bachelor of Science degree in Kinesiology
and is active in cycling, basketball, skiing and coaching youth basketball.
Jeff Kletter, age 37, co-founded the company in 1993 and has been its
President and a director since that time. Mr. Kletter has overseen the growth
of the Company, formulated its marketing, philosophy, promotion, brand equity
development and financing activities until the addition of Mr. Mara. Mr.
Kletter now focuses on brand equity and business and product development.
Before founding Kinesys, Mr. Kletter developed an extensive background in
marketing, sales and general management. Mr. Kletter is an active individual
whose favorite sporting activities include skiing, golf, squash and general
fitness.
Jocelyn Kletter, age 29, co-founded the company and has been its Vice
President since that time. Ms. Kletter has overseen the development of
product specifications, product compliance with regulatory requirements,
implementation of financial systems, control mechanisms and sales and
marketing. Ms. Kletter is currently employed by the Company. From January 1,
1999 through October 31, 1999 she served the Company full-time on a contract
basis through her wholly owned company, Brand Equity Ltd. Prior to January 1,
1999, Ms. Kletter was a full-time employee of the Company. She focuses on
brand equity, product distribution, sales and marketing. Prior to Kinesys,
Ms. Kletter operated her own personal fitness training company in conjunction
with teaching physical education at a British Columbia private school. Ms.
Kletter also developed valuable sales and marketing experience as a
Promotional Coordinator for Estee Lauder. Ms. Kletter actively participates
in skiing, running and general fitness.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation
information for the Chief Executive Officer. Compensation data for other
executive officers is not presented in the graphs because aggregate annual
compensation for such officers does not exceed $100,000. This information
includes the dollar value of base salaries, bonus awards, the number of
SARs/options granted, and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid by
the Company to its Chief Executive Officer for services rendered during the
periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
--------------------------- ---------------------------------------
Other Annual Awards
Compensation --------------------------------------- All other
Name and Securities compensation
Principal Restricted Underlying
Position Year (1) Salary Stock Awards Options/SARs
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan 1999-T CDN$25,000 $0 0 200,000 Shares 0
Mara, CEO 1998 CDN$19,800 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The results reported in the "Summary Compensation Table" for the period
designated "1998-T" are for the six-month period ended June 30, 1999, and
results for the period designated "1998" are for the year ended December 31,
1998.
Option Grants In the Last Fiscal Year
The following table summarizes all stock options granted to the
Company's Chief Executive Officer for the transition period from January 31,
1999 to June 30, 1999. There were no grants to the named
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<PAGE>
executive in the fiscal year ended January 31, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Number of
securities
underlying Percent of total
Options/SARs options/SARs granted to Exercise or base price
Name granted (#) (1) employees in 1998 ($/Sh) Expiration date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jonathan Mara 200,000- 32.13% $1.00 6/28/09
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) The estimated fair market value of the common stock on June 28, 1999
(grant date) was $1.00, as determined by the Board of Directors.
Aggregate Option Exercises and Option Values
The following table sets forth information with respect to the named
executive officer concerning option exercises for the fiscal year ended June
30, 1999 and exercisable and unexercisable options held as of June 30, 1999.
The named executive officer did not hold options during the fiscal year ended
January 31, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options at 6/30/99 In-the-Money Options at
# of Shares 6/30/98
- -----------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Jonathan Mara -- -- -- 200,000 -- --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions during the last two years involving any Director or
Executive Officer of the Company:
Jonathan Mara, Chief Executive Officer of the Company, provides full
time services to the Company on a contract basis through Guardian Angel
Investments, Inc., a company controlled by Mr. Mara. Guardian Angel is paid
$5,000 per month for services rendered.
Jocelyn Kletter, Vice President of the Company, provided full-time
consulting services to the Company on a contract basis from January 1, 1999
through October 31, 1999 through her company, Brand Equity Ltd. Brand Equity
Ltd. was paid approximately $60,000 per year for services rendered. For the
four years prior to the implementation of this consulting relationship and
following its termination, Ms. Kletter was and is an employee of the Company
and Kinesys Canada.
-19-
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue two classes of shares, Common
Stock and Preferred Stock. The total number of shares of Common Stock the
Company is authorized to issue is 100,000,000 shares with a par value of
$0.00001 each, of which 8,380,897 shares were issued and outstanding as of
September 30, 1999. The total number of shares of Preferred Stock the Company
is authorized to issue is 100,000,000 shares with a par value of $0.00001
each, of which none are issued and outstanding. Should the Company, in the
future, deem it necessary or appropriate to issue Preferred Stock, the Board
of Directors has the authority, under the Articles of Incorporation, to
establish different series of any class of preferred stock and to determine
the relative rights, preferences, privileges and limitations of each such
series.
The holders of the Common Stock are entitled to one vote per share
of Common Stock in the election of directors and in each other matter coming
before any vote of shareholders. Neither the Company's Articles of
Incorporation nor its Bylaws provide for dividend, voting, or preemption
rights. There are no provisions that would delay, defer, or prevent a change
in control of the Company.
On June 28, 1999, the Company adopted the 1999 Stock Option Plan,
setting aside 900,000 Common Shares for issuance thereunder. As of July 6,
1999, the Company has granted to its employees, directors and consultants
752,500 options exercisable for Company Common Stock. The exercise price for
all grants to date is $1 per share; the exercise price of future grants will
depend upon the market price of the Company's Common Stock on the grant date,
among other factors.
There are currently 8,380,897 shares of Company common stock issued
and outstanding, which includes 6,187,635 shares designated as "free trading"
and 2,193,262 shares that are classified as "restricted securities." Of these
"restricted securities," none have satisfied the one-year holding period of
Rule 144.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market information.
The Company's common stock is traded over-the-counter on NASD'S Over
the Counter Bulletin Board ("OTCBB") under the symbol "KNES". Quotations
commenced in October of 1998 and were suspended on December 1, 1999. The
Company will seek to have quotations resume on the OTCBB at the earliest
possible opportunity after effectiveness of this Registration Statement.
The price range of high and low bid for the Company's common stock
for the periods shown is set forth below. The quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
<TABLE>
<CAPTION>
PERIOD (1) HIGH LOW
---------- -------- ----
<S> <C> <C>
Q4 - 98 0.26 0.15
Q1 - 99 0.21875 0.15
Q2 - 99* 1.3125 0.8125
Q3 - 99 1.75 0.53125
</TABLE>
(1) Calendar quarters.
*On May 4, 1999, the Company changed its trading symbol from GDCT (Goldsearch)
to KNES (Kinesys)
-20-
<PAGE>
(b) Stockholders.
As of June 21, 1999 there were approximately 113 shareholders of
record of Kinesys Common Stock. No shares of preferred stock have been issued.
(c) Dividends.
The Company has never declared a cash dividend. Nevada law limits
the Company's ability to pay dividends on its common stock if any such
dividend would render the Company insolvent.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On March 29, 1999, the Company sold 4,525,000 shares of common stock
pursuant to Rule 504 to the following investors for an aggregate purchase
price of $45,250: Aronson & Aaronson, Inc. (440,000 shares); Bright Outlook
Consultants Ltd. (256,250 shares); Bullock & Bryson Financial, Inc. (435,000
shares); Bullock Investments, Inc. (440,000 shares); Carter & Associates
Financial, Ltd. (390,000 shares); Carter Capital Partners, Ltd. (400,000
shares); Dobbins & Dotenhoff, Ltd. (410,000 shares); Friedman Capital, Ltd.
(395,000 shares); Rock Capital Corp. (260,000 shares); Roberts & Scott
Financial, Inc. (440,000 shares); Smucker & Ogden, Inc. (400,000 shares);
Sprott Capital SA (233,750 shares); and Quest Enterprises Ltd. (25,000
shares). This sale of stock is pursuant to an investment by the listed
parties in the Company before its merger with Kinesys Pharmaceutical Inc. The
per share purchase price was fixed by the Board of Directors in its
reasonable discretion.
On May 3, 1999, the Company sold 3,092,021 shares of its common
stock pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933, for an aggregate purchase price of $152,601.05. These
shares were sold to all of the former shareholders of Kinesys Pharmaceutical
Inc. Significant purchasers include Jeff Kletter (606,074 shares), Josie
Kletter (602,741 shares), Jonathan Mara (through Guardian Angel Investments
Ltd., 614,795 shares), Yong Thai Public Co. Ltd. (325,000 shares), and
Catherine Fletcher (in trust, 100,000 shares). Consideration for this sale of
stock consisted entirely of shares of Kinesys Pharmaceutical Inc. stock at a
value per share fixed by agreement between the Company and the purchasers,
and approved by the Company's Board of Directors.
Approximately $400,000 was raised upon exercise of options to
purchase 533,333 shares of Common Stock on May 30, 1999.
In August of 1999, 564,000 shares of Common Stock were issued to
three providers of advertising and promotional services in partial
consideration for services rendered. The shares were exempt from registration
under Section 4(2) of the Securities Act of 1933. The Company expects to
enter into similar arrangements in the future.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws authorize the
Company to indemnify its directors and officers. The Company currently does
not maintain any liability insurance for its directors and officers but is
currently seeking quotes for such coverage.
Section 78.7502 of the Nevada Revised Statutes ("NRS") authorizes a
Nevada corporation to
-21-
<PAGE>
indemnify any director, officer, employee, or corporate agent "who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the corporation" due
to his or her corporate role. Section 78.7502 extends this protection
"against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit or proceeding if he acted in good faith and
in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful."
Section 78.7502 of the NRS also authorizes indemnification of the
reasonable defense or settlement expenses of a corporate director, officer,
employee or agent who is sued, or is threatened with a suit, by or in the
right of the corporation. The party must have been acting in good faith and
with the reasonable belief that his or her actions were not opposed to the
corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification
must not have been found liable to the corporation. To the extent that a
corporate director, officer, employee, or agent is successful on the merits
or otherwise in defending any action or proceeding referred to in Section
78.7502, Section 78.7502(3) of the NRS requires that he be indemnified
"against expenses, including attorneys' fees, actually and reasonably
incurred by him or her in connection with the defense."
Section 78.751(1) of the NRS limits discretionary indemnification
under Section 78.751(1) and 78.751(2) to situations in which either (a) the
stockholders, (b) the majority of a disinterested quorum of directors, or (c)
independent legal counsel determine that indemnification is proper under the
circumstances. Pursuant to Section 78.751(2) of the NRS, the corporation may
advance an officer's or director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking. Section 78.751(3)(a) provides
that the rights to indemnification and advancement of expenses shall not be
deemed exclusive of any other rights under any by-law, agreement, stockholder
vote or vote of disinterested directors. Section 78.751(3)(b) extends the
rights to indemnification and advancement of expenses to former directors,
officers, employees and agents, as well as their heirs, executors and
administrators. Regardless of whether a director, officer, employee or agent
has the right to indemnity, Section 78.752 allows the corporation to purchase
and maintain insurance on his behalf against liability resulting from his or
her corporate role.
-22-
<PAGE>
PART F/S
Financial Statement and Supplementary Data.
The Company is the acquisition corporation and continuing company
while its subsidiary is the predecessor company. The Company has presented
results and balances for both the acquisition corporation (on a consolidated
basis where appropriate) and the predecessor company in the same financial
statements. Distinction is made through the use of a perpendicular thick
black line with the acquisition corporation information generally to the left
of this line and the predecessor company information generally to the right
of this line. Columnar headings also disclose the information related to the
predecessor.
The Company's audited consolidated financial statements for the
five-month period ended June 30, 1999 and the financial statements of the
predecessor company for the period January 1, 1999 to May 4, 1999 and for the
year ended December 31, 1998 have been examined to the extent indicated in
the report by BDO Dunwoody LLP, and have been prepared in accordance with
generally accepted accounting principles of the United States and pursuant to
the Regulation S-B as promulgated by the Securities and Exchange Commission.
Financial statements of the Company for the year ended January 31, 1999 were
audited by Williams & Webster P.S.
Audited financial statements for the predecessor company are not
available for years prior to 1998; financial statements for 1997 are included
in unaudited form only. Financial statements for the predecessor for the 6
month periods ended June 30, 1999 and 1998 are also included in unaudited
form only.
The Company's quarterly financial results and position for the
quarters ended September 30, 1999 and 1998 have been included in audited
form. The September 30, 1998 information represents the results and balances
of the predecessor company.
(a) Audited Financial Statements for Kinesys Pharmaceuticals, Inc.
Auditors' Report.
Comments by Auditors for US Readers on Canada-US Reporting Differences.
Successor Company and Predecessor Company Financial Statements
Balance Sheets.
Statements of Operations.
Statement of Stockholders' Equity--Successor Company.
Statement of Stockholders' Equity--Predecessor Company.
Statements of Cash Flows.
Summary of Significant Accounting Policies
Notes to Financial Statements.
(b) Pro Forma Financial Statements
-23-
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
CONTENTS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
AUDITORS' REPORT F-2
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -
U.S. REPORTING DIFFERENCES F-3
SUCCESSOR COMPANY AND PREDECESSOR COMPANY FINANCIAL STATEMENTS
Balance Sheets F-4
Statements of Operations F-5 - 6
Statements of Stockholders' Equity - Successor Company F-7 - 8
Statements of Stockholders' Equity - Predecessor Company F-9
Statements of Cash Flows F-10 - 11
Summary of Significant Accounting Policies F-12 - 15
Notes to the Financial Statements F-16 - 23
PRO FORMA FINANCIAL STATEMENTS F-24 - 27
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
TO THE STOCKHOLDERS OF
KINESYS PHARMACEUTICALS, INC.
We have audited the Balance Sheet of KINeSYS Pharmaceuticals, Inc. (successor
company - formerly known as Goldsearch Corporation) as at June 30, 1999 and
the Statements of Operations, Stockholders' Equity and Cash Flows for the
period February 1, 1999 to May 4, 1999. We have also audited the Balance
Sheets of KINeSYS Pharmaceutical Inc. (predecessor company - also known as
KINeSYS Canada) as at May 4, 1999 and December 31, 1998 and the Statements of
Operations, Stockholders' Equity and Cash Flows for the period January 1,
1999 to May 4, 1999 and the year ended December 31, 1998. These financial
statements are the responsibility of the successor company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. 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 successor company as at June 30, 1999
and the results of its operations and its cash flows for the period February
1, 1999 to May 4, 1999 and the financial position of the predecessor company
as at May 4, 1999 and December 31, 1998 and the results of its operations and
its cash flows for the period January 1, 1999 to May 4, 1999 and the year
ended December 31, 1998 in accordance with accounting principles generally
accepted in the United States.
As discussed in Note 2 to the financial statements, the successor company
purchased the shares of the predecessor company on May 4, 1999, in a business
combination accounted for as a purchase. As a result, the consolidated
financial statements of the successor company are presented on a new basis of
accounting from the predecessor company and therefore, are not comparable.
CHARTERED ACCOUNTANTS
Vancouver, Canada
July 23, 1999
F-2
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCES
TO THE STOCKHOLDERS OF
KINESYS PHARMACEUTICALS, INC.
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the Company's ability to continue as a going concern,
such as those described in Note 1 to the financial statements. Our report to
the stockholders dated July 23, 1999 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditors' report when these are adequately disclosed in the
financial statements.
CHARTERED ACCOUNTANTS
Vancouver, Canada
July 23, 1999
F-3
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
GOLDSEARCH CORPORATION
SEPTEMBER 30 JUNE 30 January 31
1999 1999 1999
(CONSOLIDATED) (CONSOLIDATED)
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash $ - $ 109,481 $ 69
Accounts receivable, net 39,722 34,640 -
Inventories (Note 3) 109,342 112,061 -
Prepaid expenses 630,556 18,936 536
----------------------------------------------------------
779,620 275,118 605
FIXED ASSETS (Note 4) 31,337 29,340 -
GOODWILL (Note 5) 670,739 707,324 -
----------------------------------------------------------
$ 1,481,696 $ 1,011,782 $ 605
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
CURRENT
Accounts payable $ 135,406 $ 91,678 $ 2,098
Accrued liabilities 86,324 82,613 -
Loans payable - - -
----------------------------------------------------------
221,730 174,291 2,098
----------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital of PREDECESSOR COMPANY
Share capital
Authorized
100,000,000 Preferred shares,
par value $0.00001
100,000,000 Common shares, par
value $0.00001
Issued
9,082,397 Common shares (June 30,
1999 - 8,380,897 shares;
January 31, 1999 -
270,876 post-consolidation
common shares) 701,584 84 68
Additional paid-in capital 1,195,279 1,195,279 149,046
Stock subscription receivable - - (3,888)
Accumulated deficit (670,399) (370,312) (147,265)
Accumulated other comprehensive income -
foreign currency transaction adjustment 33,502 12,440 546
----------------------------------------------------------
1,259,966 837,491 (1,493)
----------------------------------------------------------
$ 1,481,696 $ 1,011,782 $ 605
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
KINESYS CANADA
May 4 December 31
1999 (a)(b) 1998(b)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 4,851 $ 1,759
Accounts receivable, net 43,835 7,098
Inventories (Note 3) 107,431 126,807
Prepaid expenses 13,481 2,782
-----------------------------------
169,598 138,446
FIXED ASSETS (Note 4) 31,359 33,164
GOODWILL (Note 5) - -
-----------------------------------
$ 200,957 $ 171,610
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
CURRENT
Accounts payable $ 236,623 $ 89,725
Accrued liabilities 94,801 126,464
Loans payable - 28,340
-----------------------------------
331,424 244,529
-----------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital of PREDECESSOR COMPANY 808,287 797,292
Share capital
Authorized
100,000,000 Preferred shares,
par value $0.00001
100,000,000 Common shares, par
value $0.00001
Issued
9,082,397 Common shares (June 30,
1999 - 8,380,897 shares;
January 31, 1999 -
270,876 post-consolidation
common shares)
Additional paid-in capital 950,730 950,730
Stock subscription receivable
Accumulated deficit (1,907,042) (1,850,326)
Accumulated other comprehensive income -
foreign currency transaction adjustment 17,558 29,385
-----------------------------------
(130,467) (72,919)
-----------------------------------
200,957 171,610
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Acquisition date (Note 2)
(b) Predecessor company
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-4
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
GOLDSEARCH CORPORATION
For the period
from
February 17,
May 5, 1999 February 1, 1999 1998
to September 30 to May 4, 1999 (a) (incorporation)
1999 Date of to January 31,
(Consolidated) Acquisition 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
SALES $ 100,731 $ - $ -
COST OF SALES 26,821 - -
-----------------------------------------------------------------------
73,910 - -
-----------------------------------------------------------------------
Advertising and promotion 179,698 - -
Amortization of goodwill 60,977 - -
Depreciation 4,130 - -
Bad debts 4,808 - -
Bank charges and interest 6,085 - -
Commissions 7,517 - -
Consulting fees 46,690 - 28,000
Financing arrangement fee (Note 6) 45,250 - -
Insurance 924 - -
Interest 18 - -
Investor relations - - 20,708
Licenses and dues 5,667 - -
Office 29,123 - 7,423
Professional fees 88,836 - 24,791
Rent 8,418 - 20,838
Repairs and maintenance 1,354 - -
Research and development - - -
Salaries and benefits 47,770 - -
Stock option compensation (Note 6) - - -
Telephone and utilities 3,888 - 5,301
Trade shows 38,239 - -
Travel 17,652 - -
-----------------------------------------------------------------------
597,044 - 107,061
-----------------------------------------------------------------------
LOSS BEFORE DISCONTINUED OPERATIONS (523,134) - (107,061)
LOSS ON DISCONTINUED OPERATIONS (Note 7) - - (40,204)
-----------------------------------------------------------------------
LOSS FOR THE PERIOD
BEFORE EXTRAORDINARY ITEM $ (523,134) $ - $ (147,265)
-----------------------------------------------------------------------
KINESYS CANADA
January 1
1999 to
May 4, December December
1999 31, 1998 31, 1997
(a)(b) (12 Months) (12 Months)
(b) (b)
- --------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
SALES $ 74,793 $ 622,930 $ 167,170
COST OF SALES 26,902 255,578 80,800
--------------------------------------------------------
47,891 367,352 86,370
--------------------------------------------------------
Advertising and promotion 17,270 237,431 137,979
Amortization of goodwill - - -
Depreciation 3,653 10,631 12,358
Bad debts - 4,588 1,635
Bank charges and interest 296 11,589 4,349
Commissions - 73,398 18,592
Consulting fees 31,823 66,398 48,743
Financing arrangement fee (Note - - -
Insurance 673 3,335 2,309
Interest 2,127 28,380 -
Investor relations - - -
Licenses and dues 3,731 15,586 5,598
Office 6,299 28,639 20,957
Professional fees 15,169 38,668 29,585
Rent 3,748 18,797 18,498
Repairs and maintenance 405 6,502 4,924
Research and development - - 25,520
Salaries and benefits 7,491 107,194 118,298
Stock option compensation (Note - 257,269 -
Telephone and utilities 4,346 10,664 10,998
Trade shows 1,912 33,938 18,970
Travel 5,664 38,609 25,966
--------------------------------------------------------
104,607 988,616 (505,279)
--------------------------------------------------------
LOSS BEFORE DISCONTINUED OPERATIONS (56,716) (621,264) (418,909)
LOSS ON DISCONTINUED OPERATIONS (Not - - -
--------------------------------------------------------
LOSS FOR THE PERIOD
BEFORE EXTRAORDINARY ITEM $ (56,716) $ (621,264) $ (418,909)
--------------------------------------------------------
</TABLE>
(a) Acquisition date (Note 2)
(b) Predecessor company
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - STATEMENTS OF OPERATIONS (CONTINUED)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
GOLDSEARCH CORPORATION KINESYS CANADA
For the period
from
February 17, January 1
May 5, 1999 February 1, 1999 1998 1999 to December December
to September 30 to May 4, 1999 (a) (incorporation) May 4, 31, 1998 31, 1997
1999 Date of January 31 1999 (12 Months) (12 Months)
(Consolidated) Acquisition 1999 (a)(b) (b) (b)
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
LOSS BEFORE EXTRAORDINARY ITEM
(BROUGHT FORWARD) $ (523,134) $ - $(147,265) $ (56,716) $ (621,264) $ (418,909)
EXTRAORDINARY ITEM
Gain on debt restructuring
(Note 8) - - - - 59,203 179,816
------------------------------------------------------------------------------------------------
NET LOSS FOR PERIOD $ (523,134) $ - $(147,265) $ (56,716) $ (562,061) $ (239,093)
BASIC AND DILUTED LOSS PER SHARE
Before discontinued operations
and extraordinary item $ (0.06) $ - $ (0.40) $ (0.01) $ (0.13) $ (0.09)
Discontinued operations - - (0.16) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
After discontinued operations (0.06) - (0.56) (0.01) (0.13) (0.09)
Extraordinary item - - - - 0.01 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share for
period $ (0.06) $ - $ (0.56) $ (0.01) $ (0.12) $ (0.05)
====================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES 8,679,397 1,633,242 265,183 6,506,304 4,847,706 4,432,503
====================================================================================================================================
</TABLE>
(a) Acquisition date (Note 2)
(b) Predecessor company
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-6
<PAGE>
- -------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY (GOLDSEARCH
CORPORATION) - STATEMENTS OF STOCKHOLDERS'
EQUITY
(EXPRESSED IN US DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK FOREIGN TOTAL
COMMON SHARES ADDITIONAL SUB- ACCUM- CURRENCY STOCKHOLDERS'
--------------------- PAID-IN SCRIPTIONS ULATED TRANSLATION EQUITY
NUMBER AMOUNT CAPITAL RECEIVABLE DEFICIT ADJUSTMENT (DEFICIT)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash:
- in February 1998 at $0.0001
and $0.00001 per share 6,000,000 $ 60 $ 54 $ - $ - $ - $ 114
- in July 1998 through January
1999 at $0.20 per share 718,500 7 143,693 (3,888) - - 139,812
- in January 1999 at $0.10
per share 53,000 1 5,299 - - - 5,300
---------------------------------------------------------------------------------------
6,771,500 68 149,046 (3,888) - - 145,226
-------------------------------------
Net loss for the year - - - - (147,265) - (147,265)
Change in unrealized gains - - - - - 546 546
-------------------------------------
Total comprehensive loss (147,265) 546 (146,719)
---------------------------------------------------------------------------------------
Balance, January 31, 1999 6,771,500 68 149,046 (3,888) (147,265) 546 (1,493)
25 for 1 share consolidation (6,500,624) (65) 65 - - - -
Stock subscription receipt - - - 3,888 - - 3,888
Issuance of common stock for
cash in April 1999 at $0.01 per
common share 4,525,000 45 45,205 - - - 45,250
Shares issued on May 4, 1999
for acquisition of subsidiary,
valued at $0.197 per
share (Note 2) 3,052,021 31 601,218 - - - 601,249
Shares issued on exercise
of warrants 533,000 5 399,745 - - - 399,750
---------------------------------------------------------------------------------------
8,380,897 84 1,195,279 - (147,265) 546 1,048,644
-------------------------------------
Net loss for the period - - - - (223,047) - (223,047)
Change in unrealized gains $ - $ - $ - $ - $ - 11,894 $ 11,894
-------------------------------------
Total comprehensive loss (223,047) 11,894 (211,153)
---------------------------------------------------------------------------------------
Balance, June 30, 1999 8,380,897 $ 84 $ 1,195,279 $ - $(370,312) $12,440 $ 837,491
===========================================================================================================================
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-7
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY (GOLDSEARCH CORPORATION) - STATEMENTS OF STOCKHOLDERS' EQUITY
CONTINUED
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON SHARES PAID-IN TOTAL
------------- FOREIGN STOCKHOLDERS'
TRANSLATION EQUITY CURRENCY ACCUMULATED
NUMBER AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 8,380,897 $ 84 $ 1,195,279 $ (370,312) 12,440 $ 837,491
Issuance of common stock for services:
-in July 1999 at $1.00 per share 701,500 $ 701,500 $ -- $ -- $ -- $ 701,500
-------------------------------------------------------------------------------------
9,082,397 701,584 1,195,279 (370,312) 12,440 1,538,991
---------------------------------------------
Net loss for the period -- -- -- (300,087) -- (300,087)
Change in unrealized gains -- -- -- -- 21,062 21,062
---------------------------------------------
Total comprehensive loss (300,087) 21,062 649,337
-------------------------------------------------------------------------------------
Balance, September 30, 1999 9,082,397 $ 701,584 $ 1,195,279 $ (670,399) 33,502 $ 1,259,966
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-8
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
PREDECESSOR COMPANY (KINESYS CANADA) - STATEMENTS OF STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES ADDITIONAL
------------- ----------------- PAID-IN
NUMBER AMOUNT NUMBER AMOUNT CAPITAL
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997
(unaudited) 4,432,503 $ 154,041 -- $ -- $ --
Shares issued for cash -- -- 1,570,000 365,269 --
Net loss -- -- -- -- --
-----------------------------------------------------------------------
Balance, January 1, 1998 4,432,503 154,041 1,570,000 365,269 --
Shares issued for cash 217,009 35,323 291,978 83,798 --
Shares issued on
conversion of debt 990,126 158,861 -- -- --
Forgiveness of
stockholders' loans (Note ) -- -- -- -- 950,730
Grant of options to employees
and directors (Note 6) -- -- -- -- --
-----------------------------------------------------------------------
5,639,638 348,225 1,861,978 449,067 950,730
Net loss -- -- -- -- --
Change in unrealized gains -- -- -- -- --
-----------------------------------------------------------------------
Total comprehensive loss
Balance, December 31, 1998 5,639,638 348,225 1,861,978 449,067 950,730
Shares issued on
exercise of stock options 1,653,333 10,995 -- -- --
-----------------------------------------------------------------------
7,292,971 359,220 1,861,978 449,067 950,730
Net loss -- -- -- -- --
Change in unrealized gains -- -- -- -- --
Total comprehensive loss
-----------------------------------------------------------------------
Balance, May 4, 1999 (a) 7,292,971 $ 359,220 12,440 $ 1,195,279
- ---------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TOTAL
ACCUMULATED TRANSLATION STOCKHOLDERS'
DEFICIT ADJUSTMENT DEFICIT
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997
(unaudited) $(1,049,172) $ -- $ (895,131)
Shares issued for cash -- -- 365,269
Net loss (239,093) -- (239,093)
---------------------------------------------
Balance, January 1, 1998 (1,288,265) -- (768,955)
Shares issued for cash -- -- 119,121
Shares issued on
conversion of debt -- -- 158,861
Forgiveness of
stockholders' loans (Note ) -- -- 950,730
Grant of options to employees
and directors (Note 6) -- -- --
---------------------------------------------
(1,288,265) -- 459,757
--------------------------------------------
Net loss (562,061) -- (562,061)
Change in unrealized gains -- 29,385 29,385
--------------------------------------------
Total comprehensive loss (562,061) 29,385 (532,676)
--------------------------------------------
Balance, December 31, 1998 (1,850,326) 29,385 (72,919)
Shares issued on
exercise of stock options -- -- 10,995
--------------------------------------------
(1,850,326) 29,385 10,995
--------------------------------------------
Net loss (56,716) -- (56,716)
Change in unrealized gains -- (11,827) (11,827)
--------------------------------------------
Total comprehensive loss (56,716) (11,827) (68,543)
---------------------------------------------
Balance, May 4, 1999 (a) $ (370,312) $ 17,558 $ (130,467)
- -------------------------------------------------------------------------------
</TABLE>
(a) Acquisition date by Successor (Note 2)
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-9
<PAGE>
- -------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Goldsearch Corporation KINeSYS Canada
For the period
from
February 17,
May 5, 1999 February 1, 1999 1998 January 1
to September 30 to May 4, 1999(a) (incorporation) 1999 to December 31 December 31
1999 Date of to January 31, May 4, 1999 1998(b) 1997(b)
(Consolidated) Acquisition 1999 (a)(b) (12 Months) (12 Months
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period from
continuing operations $(523,134) $ -- $(107,061) $ (56,716) $(562,061) $(239,093)
Items not involving cash
Depreciation of fixed assets 4,130 -- -- 3,653 10,631 12,358
Amortization of goodwill 60,977 -- -- -- -- --
Stock compensation benefit -- -- -- -- 257,269 --
Gain on debt restructuring -- -- -- -- (59,203) (179,816)
(Increase)/decrease in assets
Accounts receivable 3,241 -- -- (34,989) 25,181 (25,208)
Inventories (3,748) -- -- 25,991 11,159 (103,988)
Prepaid expenses (25,833) -- (536) (10,150) 925 (1,313)
Increase/(decrease) in liabilities
Accounts payable and accrued
liabilities 6,578 -- 2,098 98,561 266,210 54,540
Customer deposits -- -- -- -- (44,304) 47,461
-------------------------------------------------------------------------------------------------
(477,789) -- (105,499) 26,350 (94,193) (435,059)
Loss on discontinued operations -- -- (40,204) -- -- --
-------------------------------------------------------------------------------------------------
(477,789) -- (145,703) 26,350 (94,193) (435,059)
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash acquired on
purchase of subsidiary 4,851 -- -- -- -- --
Purchase of capital assets (4,652) -- -- (1,848) (11,262) (18,162)
Increase in cash surrender
value of life insurance -- -- -- -- (11,262) (18,162)
-------------------------------------------------------------------------------------------------
(199) -- -- (1,848) (11,262) (18,162)
-------------------------------------------------------------------------------------------------
TOTAL OPERATING AND INVESTING
ACTIVITIES $(477,590) $ -- $(145,703) $ 24,502 $(105,455) $(453,221)
-------------------------------------------------------------------------------------------------
</TABLE>
(a) Acquisition date (Note 2)
(b) Predecessor company
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-10
<PAGE>
- --------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - STATEMENTS OF CASH FLOWS (CONTINUED)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Goldsearch Corporation KINeSYS Canada
For the period
from
February 17,
May 5, 1999 1998)
to September 30 (incorporation) January 1, 1999 December 31 December 31
1999 February 1, 1999 to January 31, to May 4, 1999 1998(b) 1997(b)
(Consolidated) to May 4, 1999(a) 1999 (a)(b) (12 Months) (12 Months
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
TOTAL OPERATING AND INVESTING
ACTIVITIES BROUGHT FORWARD $(477,590) $ -- $(145,703) $ 24,502 $(105,455) $(453,221)
----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common stock 399,750 45,250 149,114 -- -- --
Stock subscriptions receivable -- 3,888 (3,888) -- -- --
Repayment of loans payable -- -- -- -- -- --
Payment of creditor protection
amounts -- -- -- -- (34,586) --
Issuance of common shares -- -- -- 10,995 35,323 --
Issuance of preferred shares -- -- -- -- 83,798 365,269
Loans payable -- -- -- (28,340) 28,340 81,132
Bank indebtedness -- -- -- -- (6,847) 6,820
----------------------------------------------------------------------------------------------------
399,750 49,138 145,226 (17,345) 106,028 453,221
----------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH 28,633 -- 546 (4,065) 1,186 --
----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (49,207) 49,138 69 3,092 1,759 --
CASH, beginning of period 49,207 69 -- 1,759 -- --
----------------------------------------------------------------------------------------------------
CASH, end of period $ -- $ 49,207 $ 69 $ 4,851 $ 1,759 $ --
====================================================================================================================================
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,854 $ -- $ -- $ -- $ -- $ --
Non cash investing and
financing activities
- Acquisition of subsidiary
for common stock, less cash
acquired (Note 2) $ 596,398 $ -- $ -- $ -- $ -- $ --
- Conversion of debt to
common shares $ -- $ -- $ 158,861 $ --
- Forgiveness of
shareholder loans -- -- $ 693,461 $ --
====================================================================================================================================
</TABLE>
(a) Acquisition Date (Note 2)
(b) Predecessor company
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-11
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
BASIS OF PRESENTATION The previous fiscal year end of the
Company was January 31, 1999 and the Company has
changed its year end to June 30, effective in 1999.
On May 4, 1999 the Company completed a major
transaction acquiring all of the issued and
outstanding common and preferred shares of KINeSYS
Pharmaceutical Inc., a Canadian company engaged in
the manufacture and distribution of cosmoceutical
products (Note 2). As a result of the acquisition,
the Company is no longer considered to be in the
development stage. Subsequent to the acquisition,
the Company changed its name from "Goldsearch
Corporation" to "KINeSYS Pharmaceuticals, Inc."
PRINCIPLES OF
CONSOLIDATION These financial statements are expressed in US
dollars and are prepared in accordance with
accounting principles generally accepted in the
United States. Consolidated figures include the
accounts of the Company and its wholly-owned
subsidiary. All significant intercompany accounts
and transactions have been eliminated on
consolidation.
UNAUDITED INTERIM
FINANCIAL STATEMENTS In the opinion of the Company's management, the
Statements of Operations and Cash Flows for the
period May 5, 1999 to September 30, 1999 contain
all adjustments (consisting of only normal
recurring adjustments) necessary to present
fairly the information set forth therein.
REVENUE RECOGNITION Sales are recorded upon shipment to third parties
net of returned product.
INVENTORIES Inventories are stated at the lower of cost and net
realizable value. Cost is generally determined on a
weighted average basis. Management reviews
realizable values of inventory on a regular basis.
Obsolete or impaired inventory is written-off at
such time that it is identified as such.
FIXED ASSETS Fixed assets are recorded at cost. Depreciation is
computed based on the estimated useful lives of
the assets as follows:
Computers - 30% declining-balance basis
Furniture and fixtures, equipment
and molds and dies - 20% declining-balance basis
Leasehold improvements are amortized over their
estimated useful lives or the lives of the related
leases, whichever is shorter.
F-12
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
GOODWILL Goodwill arising on the purchase of KINeSYS
Pharmaceutical Inc. is being amortized on a
straight-line basis over five years. Goodwill is
evaluated for impairment when events or changes
in circumstances indicate that the carrying amount
of Goodwill may not be recoverable through the
estimated undiscounted future cash flows resulting
from the use of goodwill. When any such impairment
exists, the goodwill will be written down to fair
value in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets".
FINANCIAL INSTRUMENTS The Company's financial instruments consist of
cash, accounts receivable, and accounts
payable and accrued liabilities. Unless otherwise
noted, it is management's opinion that the Company
is not exposed to significant interest, currency or
credit risks arising from these financial
instruments. The fair values of these financial
instruments approximate their carrying values,
unless otherwise noted, since they are short term
in nature or they are receivable or payable on
demand.
INCOME TAXES The Company follows the provisions of SFAS No. 109,
"Accounting for Income Taxes", which requires the
Company to recognize deferred tax liabilities and
assets for the expected future tax consequences of
events that have been recognized in the Company's
financial statements or tax returns using the
liability method. Under this method, deferred tax
liabilities and assets are determined based on the
temporary differences between the financial
statement carrying amounts and tax bases of assets
and liabilities using enacted rates in effect in
the years in which the differences are expected to
reverse.
FOREIGN CURRENCY
TRANSLATION The Company conducts its business primarily from
its offices in Richmond, British Columbia, Canada
and, therefore, a substantial portion of its
business is conducted in Canadian currency. The
financial position and results of operations of
the Company's subsidiary are determined using the
Canadian Dollar as the functional currency. Assets
and liabilities of the subsidiary are translated at
the exchange rate at the period end. Income
statement accounts are translated at the average
rate of exchange prevailing during the periods.
Translation adjustments arising from the use of
differing exchange rates from period to period are
included in the Accumulated Foreign Currency
Translation Adjustment account in Stockholders'
Equity.
F-13
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
LOSS PER SHARE Loss per share is computed in accordance with
SFAS No. 128, "Earnings per Share". Basic loss per
share is calculated by dividing the net loss
available to common stockholders by the weighted
average number of common shares outstanding for
the period. Diluted earnings per share reflects
the potential dilution of securities that could
share in earnings of an entity, similar to fully
diluted earnings per share. In loss periods,
dilutive common equivalent shares are excluded
as the effect would be anti-dilutive. Basic and
diluted earnings per share are the same for all
periods presented.
For the period May 5, 1999 to September 30, 1999
and the period February 1, 1999 to May 4, 1999 and
for the period from February 17, 1998
(incorporation) to January 31, 1999, stock options
and warrants totalling 1,472,500, Nil and Nil were
not included in the computation of diluted earnings
per share because their effect was anti-dilutive.
The predecessor company was a private company and
loss per share information is not presented in
regard to predecessor information.
STOCK BASED
COMPENSATION The Company applies Accounting Principles Board
Opinion ("APB") 25, "Accounting for Stock Issued to
Employees", and related Interpretations in
accounting for stock option plans. Under APB 25,
compensation cost is recognized for stock options
granted at prices below the market price of the
underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based
Compensation", requires the Company to provide
pro-forma information regarding net income as if
compensation cost for the Company's stock option
plan had been determined in accordance with the
fair value based method prescribed in SFAS No. 123.
USE OF ESTIMATES The preparation of financial statements in
accordance 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 management's best estimates as
additional information becomes available in the
future.
F-14
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
NEW ACCOUNTING
PRONOUNCEMENTS In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities"
was issued. SFAS No. 133 requires companies to
recognize all derivatives contracts as either
assets or liabilities on the balance sheet and
to measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing of gain
or loss recognition on the hedging derivative with
the recognition of (i) the changes in the fair
value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into
derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new
standards on July 1, 2000 to affect its financial
statements.
In April 1998, the American Institute of Certified
Public Accountants issued Statement of Position
98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on
the financial reporting of start-up costs and
organization costs. It requires costs of start-up
activities and organization costs to be expensed as
incurred. SOP 98-5 was effective for fiscal years
beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a
change in accounting principle. Adoption of this
standard did not have a material affect on the
financial statements.
F-15
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
1. NATURE OF BUSINESS AND CONTINUED OPERATIONS
The Company was incorporated in the state of Nevada on February 17,
1998. Until the acquisition of KINeSYS Pharmaceuticals Inc. on May 4,
1999 (Note 2), the Company was involved in the acquisition and
exploration of mineral properties. The Company is now focusing on
selling cosmoceutical products for active individuals and athletes to
wholesalers, distributors, retailers and the general public. The three
main product lines include: suncare, treatment, and daily use products.
Customers are located in Canada and the United States.
These accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. As at June 30, 1999 the Company has had no significant
operations and the Company's subsidiary has posted overall operating
losses since its inception. The continuation of the Company is
dependent upon the continuing financial support of creditors and
stockholders and obtaining long-term financing as well as achieving a
profitable level of operations. Management plans to raise equity
capital to finance the operations and capital requirements of the
Company. It is management's intention to raise approximately $1.2
million within the upcoming year. Amounts raised will be used to
develop a U.S. focus for marketing arrangements, to enhance the
Company's e-commerce ability through its website, to provide financing
for the purchase and manufacture of inventories and for other working
capital purposes including operational systems upgrades. While the
Company is expending its best efforts to achieve the above plans, there
is no assurance that any such activity will generate funds that will be
available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include
any adjustments that might arise from this uncertainty.
2. ACQUISITION OF KINeSYS PHARMACEUTICAL INC.
On May 4, 1999 the Company acquired all of the issued and outstanding
common and preferred stock of KINeSYS Pharmaceutical Inc. KINeSYS
Pharmaceutical Inc. is a company incorporated in December 1993 in British
Columbia, Canada that is engaged in the manufacture and distribution of
cosmoceutical products for active individuals and athletes.
F-16
<PAGE>
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
2. ACQUISITION OF KINeSYS PHARMACEUTICAL INC. - CONTINUED
Consideration for the purchase was the issuance of 3,052,021 shares of
common stock of the Company. The transaction was accounted for as a
purchase. Accordingly, operations of KINeSYS Pharmaceutical Inc. have been
included in the consolidated financial statements from May 4, 1999. The
value of the consideration paid, being the common stock of the Company,
was determined using quoted trading prices close to the date of
substantial agreement to the terms of the acquisition of $0.197 per share.
The value of the consideration paid exceeded the net book value of KINeSYS
Pharmaceutical Inc. at the transaction date by $731,715. The excess
consideration, or "goodwill", is being amortized to income on a
straight-line basis over five years.
The summarized unaudited pro-forma results of operations set forth below
for the period from February 17, 1998 (incorporation) to January 31, 1999
and for the eight months ended September 30, 1999 assume that the
acquisition occurred as of February 18, 1998 (the incorporation date).
<TABLE>
<CAPTION>
Period from
February 17,
EIGHT MONTHS 1998
ENDED (incorporation)
SEPTEMBER 30 to January 31,
1999 1999
-------------------------------
<S> <C> <C>
Sales $ 123,474 $ 622,930
Net loss for the period before
discontinued operations and extraordinary item $ (329,167) $ (914,872)
Net loss for the period $ (329,167) $ (855,669)
Basic and diluted loss per share $ (0.07) $ (0.26)
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
September 30 JUNE 30 January 31 May 4 December 31
1999 1999 1999 1999(b) 1998(b)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Packaging $ 26,150 $ 24,743 $ -- $ 10,652 $ 10,050
Finished goods 83,192 87,318 -- 96,779 116,757
------------------------------------------------------------
$109,342 $112,061 $ -- $107,431 $126,807
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
(b) Predecessor company
F-17
<PAGE>
- -------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
4. FIXED ASSETS
<TABLE>
<CAPTION>
September 30
1999
----------------------------------------
Accumulated Net Book
Cost Depreciation Value
----------------------------------------
<S> <C> <C> <C>
Computers $25,005 $20,548 $ 4,457
Furniture and fixtures 26,105 9,394 16,711
Warehouse equipment 1,788 1,009 779
Leasehold improvements 6,758 6,758 -
Molds and dies 21,888 12,498 9,390
----------------------------------------
$81,544 $50,207 $31,337
========================================
</TABLE>
<TABLE>
<CAPTION>
June 30 January 31
1999 1999
-----------------------------------------------------------
Accumulated Net Book Net Book
Cost Depreciation Value Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Computers $25,005 $20,186 $ 4,820 $ -
Furniture and fixtures 21,453 7,637 13,816 -
Warehouse equipment 1,788 968 820 -
Leasehold improvements 6,758 6,758 - -
Molds and dies 21,888 12,004 9,884 -
-----------------------------------------------------------
$76,892 $47,553 $29,340 $ -
===========================================================
</TABLE>
<TABLE>
<CAPTION>
May 4
1999 (b)
----------------------------------------
Accumulated Net Book
Cost Depreciation Value
----------------------------------------
<S> <C> <C> <C>
Computers $21,730 $16,056 $ 5,674
Furniture and fixtures 21,841 7,326 14,515
Warehouse equipment 1,820 945 875
Molds and dies 22,284 11,989 10,295
----------------------------------------
$67,675 $36,316 $31,359
========================================
</TABLE>
<TABLE>
<CAPTION>
December 31
1998 (b)
----------------------------------------
Accumulated Net Book
Cost Depreciation Value
----------------------------------------
<S> <C> <C> <C>
Computers $22,008 $14,764 $ 7,244
Furniture and fixtures 18,774 4,232 14,542
Warehouse equipment 1,574 673 901
Molds and dies 19,264 8,787 10,477
----------------------------------------
$61,620 $28,456 $33,164
========================================
</TABLE>
(b) Predecessor company
F-18
<PAGE>
- -------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
5. GOODWILL
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
--------------------------------------
<S> <C> <C> <C>
Goodwill, September 30, 1999 $731,715 $60,976 $670,739
======================================
Goodwill, June 30, 1999 $731,715 $24,391 $707,324
======================================
</TABLE>
6. SHARE CAPITAL
a) On April 6, 1999 the Company effected a 25 to 1 share consolidation.
References to common shares issued and outstanding in comparative
figures have been adjusted to post-consolidation amounts. As part of
the restructuring, the Company issued 4,525,000 shares of common
stock to certain investors at $0.01.
Proceeds from the issuance of 4,525,000 shares totalling $45,250 were
deposited in escrow to be released pro-rata in specified amounts to
an individual as a financing arrangement fee within the upcoming
year. The financing arrangement fee has been recognized in the
Statement of Operations for the five-month period ended June 30,
1999.
b) On June 28, 1999, the Company's Board of Directors adopted the 1999
Stock Option Plan which provides for the granting of stock options to
purchase up to 900,000 shares of the Company's common stock. The
stock option plan permits the granting of incentive and
non-qualifying stock options to officers, employees and consultants
of the Company and its subsidiary. Under the 1999 Stock Option Plan
exercise prices and terms are determined by the Board of Directors.
For incentive options, the exercise price shall not be less than fair
market value of the Company's common stock on the grant date. Options
granted are not to exceed terms beyond ten years.
On June 30, 1999, the Company granted options to employees, directors
and consultants to purchase 752,500 shares of common stock at $1.00
with a weighted average remaining contractual life of the options of
2.65 years. All the options remained outstanding at June 30, 1999.
There were no options granted during the year ended January 31, 1999.
Outstanding options for the purchase of common shares, granted to
employees, directors and consultants vest over a three-year period.
Stock options exercisable at June 30, 1999 totalled 207,051.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KINESYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
6. SHARE CAPITAL - CONTINUED
b) Pro-forma information regarding Net Loss and Loss per Share is
required under SFAS No. 123, and has been determined as if the Company
had accounted for its stock options under the fair value method of
SFAS No. 123. The weighted average fair value of options granted in
the period May 5, 1999 to September 30, 1999 was $0.88. The fair value
of these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following assumptions: no
dividends, a risk-free interest rate of 4.95%, volatility factor of
the expected market price of the Company's common stock of 315% and a
weighted average expected life of the options of four years.
Under the accounting provisions of SFAS No. 123, the Company's
pro-forma Net Loss would increase by the additional amortization for
the period of $49,830 to $572,964, and its Loss per Share for the
period would increase by $0.01 to $0.07 per share.
c) During the period May 5, 1999 to September 30, 1999, the Company
granted the following warrants to purchase shares of common stock:
<TABLE>
<CAPTION>
Exercise Price Exercise Price Exercise Price
$0.75 $1.00 $1.25
----- ----- -----
<S> <C> <C> <C>
Balance, January 31, 1999 - - -
Granted during the period
- - exercisable within 10 business days of acquisition of
the Company's subsidiary 533,000 - -
- - exercisable upon 10 business days of the earlier of
approval by the SEC of the Company's registration
statement or September 1, 1999 - - 400,000
- - exercisable by December 31, 1999 320,000 - -
Exercised during the period (533,000) - -
--------------------------------------------------
320,000 - 400,000
--------------------------------------------------
--------------------------------------------------
</TABLE>
No warrants were granted during the Company's year ended January 31,
1999.
d) Common stock held in escrow at September 30, 1999 and June 30, 1999
totalled 2,880,000 (Nil in other comparative periods). Stock is to be
released from escrow based upon the exercise of stock purchase
warrants. Subsequent to June 30, 1999, the Company commenced the
process of filing documentation to release the first 960,000 shares of
common stock from escrow however this was not completed by September
30,1999. The remaining shares held in escrow will be released in
tranches of 960,000 shares of common stock as warrants are exercised.
e) The Company applies Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for stock options. Under APB 25, the predecessor company
recorded compensation expense in 1998 of $257,269 related to the grant
of the options to employees and directors consisting of the difference
between the exercise price and the market value of the predecessor's
common stock at the grant date.
f) The Company applies Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employee" and related interpretations
in accounting for stock options. Under APB 25, the predecessor company
recorded compentation expense in 1998 of $257,269 related to the grant
of the options to employees and directors consisting of the difference
between the exercise price and the market value of the predecessor's
common stock at the grant date.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
6. SHARE CAPITAL - CONTINUED
g) During the period ended September 30, 1999 the Company issued 701,500
shares of common stock in exchange for future advertising and
promotional services. The transaction was valued at $1.00 per share
being the trading value of the Company's shares at the date of the
transaction which approximates the fair value of the services
received.
- -------------------------------------------------------------------------------
7. DISCONTINUED OPERATIONS
On May 4, 1999, upon conclusion of the acquisition of KINeSYS
Pharmaceutical Inc., the Company discontinued its involvement in mineral
exploration activity. Mineral exploration expenses incurred to the
measurement date totalled $Nil (to January 31, 1999 - $40,204; There was
no gain or loss recognized on discontinuance.
- -------------------------------------------------------------------------------
8. EXTRAORDINARY ITEM
In 1996 the predecessor company filed a Notice of Intent to make a
proposal under the Bankruptcy and Insolvency Act. Under the proposal, the
unsecured creditors of the day were paid 50% of amounts owing. This
proposal was accepted by the courts in February 1997 and all repayments
were made by the end of 1998. In 1997 the predecessor company settled all
amounts payable with a waiver by the creditors of an amount of $179,816
which was recognized as an extraordinary item. In 1998, a further $59,203
was waived and also treated as an extraordinary item.
- -------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in these financial
statements are as follows:
a) The Company's subsidiary signed a three year contract with an
investment company, which is owned by a stockholder, for the
provision of financial and management services at a monthly fee of
CDN$5,000. The Company paid $6,704 during the period May 5, 1999 to
September 30, 1999 (January 31, 1999 - $Nil; Period Jan 1, 1999 to
May 4, 1999 - $13,300, Year ended Dec 31, 1998 - $19,800, Year ended
Dec 31, 1998 - $Nil). The contract expires in July, 2002.
b) The Company also paid fees to a consulting company, which is owned by
two shareholders, for a provision of consulting services. During the
peroid May 5, 1999 to September 30, 1999, fees totalled $6,704
(January 31, 1999 - $Nil; June 30, 1998 - $Nil, Period Jan 1, 1999 to
May 4, 1999 - $13,300, Year ended Dec 31, 1998 - $nil, Year ended Dec
31, 1997 - $nil)
Related party transactions are recorded at the exchange amount, being the
amount of consideration established and agreed to by the related parties.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
10. SEGMENTED INFORMATION
For the period May 5, 1999 to September 30, 1999 approximately $3,400 of
the Company's sales were made to customers in the United States (January
31, 1999 - $Nil). The remainder of sales were made to Canadian customers.
For the predecessor company sales to customers in the United States were
approximately as follows (with the remainder to Canadian customers):
<TABLE>
<S> <C>
Period January 1, 1999 to May 4, 1999 $ 7,847
Year ended December 31, 1998 $ 380,000
Year ended December 31, 1997 $ -
</TABLE>
- -------------------------------------------------------------------------------
11. INCOME TAXES
At June 30, 1999 the Company had deferred tax assets of approximately
$670,000 (January 31, 1999 - $50,000) principally arising from net
operating losses carried forward in the subsidiary in Canada. As
management of the Company cannot determine if it is more likely than not
that the Company will receive the benefit of this asset, a valuation
allowance equal to the deferred tax asset has been established at June 30,
1999, May 4, 1999 (the date of acquisition) and January 31, 1999. The
Company evaluates its valuation allowance requirements based on projected
future operations. When circumstances change and this causes a change in
management's judgement about the recoverability of deferred tax assets,
the impact of the change on the valuation allowance is reflected in
current income.
At June 30, 1999, the Company's subsidiary had losses available for
Canadian income tax purposes of approximately $1,300,000. These losses
will expire as follows:
<TABLE>
<S> <C>
2000 $ 102,000
2001 $ 469,000
2002 $ 38,000
2003 $ 185,000
2004 $ 352,000
2005 $ 57,000
2006 $ 97,000
</TABLE>
The Company has net operating losses carried forward for US tax purposes
of approximately $250,000 which expires in 2018 and 2019.
At September 30, 1999 deferred tax assets totalled approximately $770,000
and the Company has again established a valuation allowance of equal
amount. The increase in losses of approximately $100,000 from June 30,
1999 will expire in 2007.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KINeSYS PHARMACEUTICALS, INC.
SUCCESSOR COMPANY AND PREDECESSOR COMPANY - NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
INFORMATION SUBSEQUENT TO JUNE 30, 1999 IS UNAUDITED
- -------------------------------------------------------------------------------
12. COMMITMENT
Beginning at such time as the Company's subsidiary achieves annual gross
revenue in North America of CDN$1,000,000, the Company will be subject to
a Royalty Agreement which will require payment of 2.5% of gross North
American revenues of the Company's subsidiary in excess of CDN$1,000,000.
The agreement will expire upon payment of an aggregate royalty of
CDN$1,250,000 before October 1, 2001 or CDN$1,500,000 thereafter.
Management is presently attempting to renegotiate this agreement.
F-23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Financial Information reflects financial
information which gives effect to the acquisition of all the outstanding common
shares of KINeSYS Pharmaceutical Inc. in exchange for 3,052,021 shares of common
stock of the Registrant at a deemed value of $0.197 per share.
The Pro Forma Consolidated Statements included herein reflect the use of the
purchase method of accounting for the above transaction. Such financial
information has been prepared from, and should be read in conjunction with, the
historical financial statements and notes thereto included elsewhere in this
10-SB registration statement.
The Pro Forma Consolidated Statement of Operations gives effect to the
transaction as if it had occurred at the beginning of the earliest period
presented, combining the results of the Registrant and KINeSYS Pharmaceutical
Inc. for the eight-month period ended September 30, 1999. Sales and income for
the month of January 1999 for KINeSYS Pharmaceutical Inc. are not reflected in
the pro forma consolidated financial information. Sales and the net loss for
January 1999 amount to $4,175 and $23,765, respectively.
As well, the Pro Forma Consolidated Statement of Operations combines the
accounts of the Registrant and KINeSYS Pharmaceutical Inc. for the years ended
January 31, 1999 and December 31, 1998, respectively.
The Pro Forma Consolidated Financial Information is unaudited and is not
necessarily indicative of the consolidated results which actually would have
occurred if the above transactions had been consummated at the beginning of the
periods presented; nor does it purport to present the results of operations for
future periods.
F-24
<PAGE>
KINESYS PHARMACEUTICALS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE EIGHT-MONTH PERIOD ENDED SEPTEMBER 30, 1999
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
KINeSYS
Pharmaceuticals, Inc.
(formerly Goldsearch KINeSYS
Corporation) Pharmaceutical Inc. Pro Forma
(Feb 1/99 to Sept 30/99) (Feb 1/99 to May 4/99) Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $100,731 $ 22,743 $ 123,474
COST OF SALES 26,821 13,195 40,016
----------------------------------------------------------------------------------
73,910 9,548 - 83,458
----------------------------------------------------------------------------------
EXPENSES
Advertising and promotion 179,698 115,795 63,903
Amortization of Goodwill 60,977 - 36,583 97,560
Bad Debts 4,808 - 4,808
Bank Charges and Interest 6,085 912 5,173
Commissions 7,517 4,086 3,431
Consulting Fees 46,690 7,098 39,592
Depreciation 4,130 18 4,148
Financing Arrangement fee 45,250 - 45,250
Insurance 924 556 368
Interest 18 974 992
Licenses and dues 5,667 2,403 3,264
Office 29,123 12,365 16,758
Professional fees 88,836 14,206 74,630
Rent 8,418 2,619 5,799
Repairs and maintenance 1,354 204 1,558
Salaries and benefits 47,770 22,309 25,461
Telephone and utilities 3,888 598 4,486
Trade shows 38,239 32,206 6,033
Travel 17,652 8,241 9,411
----------------------------------------------------------------------------------
597,044 221,002 36,583 412,625
----------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD -$523,134 $230,550 -$36,583 -$ 329,167
==================================================================================
BASIC AND DILUTED LOSS PER SHARE 0.07
============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,784,479
============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-25
<PAGE>
KINESYS PHARMACEUTICALS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
KINeSYS
Pharmaceuticals, Inc.
(formerly Goldsearch KINeSYS Pro Forma
Corporation) Pharmaceutical Inc. Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ - $622,930 $ - $ 622,930
COST OF SALES - 255,578 - 255,578
----------------------------------------------------------------------------------
- 367,352 - 367,352
----------------------------------------------------------------------------------
EXPENSES
Advertising and promotion - 237,431 - 237,431
Amortization of Goodwill - - 146,343 146,343
Bad Debts - 4,588 - 4,588
Bank Charges and Interest - 11,589 - 11,589
Commissions - 73,398 - 73,398
Consulting Fees 28,000 66,398 - 94,398
Depreciation - 10,631 - 10,631
Insurance - 3,335 - 3,335
Interest - 28,380 - 28,380
Investor relations 20,708 - - 20,708
Licenses and dues - 15,586 - 15,586
Office 7,423 28,639 - 36,062
Professional fees 24,791 38,668 - 63,459
Rent 20,838 18,797 - 39,635
Repairs and maintenance - 6,502 - 6,502
Salaries and benefits - 104,194 - 104,194
Stock Compensation Benefit - 257,269 - 257,269
Telephone and utilities 5,301 10,664 - 15,965
Trade shows - 33,938 - 33,938
Travel - 38,609 - 38,609
----------------------------------------------------------------------------------
107,061 988,616 146,343 1,242,020
----------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS - 107,061 - 621,264 - 146,343 - 874,668
==================================================================================
BASIC AND DILUTED LOSS PER SHARE -$ 0.26
From continuing operations
============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,317,204
============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-26
<PAGE>
KINESYS PHARMACEUTICALS, INC.
NOTE TO PRO FORMA STATEMENTS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
1 To reflect the acquisition of Kinesys Pharmaceutical Inc. in exchange
for 3,052,021 shares of common stock at a deemed price of $0.197 per
share totalling $601,249. The carrying value of net assets at the
acquisition date approximated the fair values. The portion of the
purchase price allocated to goodwill would have caused amortization to
increase by $36,583 and $146,343 for the eight-month period ended
September 30, 1999 and for the year ended January 31, 1999, respectively.
Goodwill of $731,715 is being amortized on a straight-line basis over
five years.
F-27
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
- ----------- ------------
2.1 Articles of Incorporation of Company, filed February 17, 1998
(filed with Form 10-SB on 10/6/99).
2.2 Articles of Amendment of Articles of Incorporation of Company,
filed March 29, 1999 (filed with Form 10-SB on 10/6/99).
2.3 Bylaws of the Company (filed with Form 10-SB on 10/6/99).
6.1 Royalty Agreement dated 12/17/96 (filed with Form 10-SB on
10/6/99).
6.2 KINeSYS 1999 Stock Option Plan (filed with Form 10-SB on
10/6/99).
27 Financial Data Schedule
ITEM 2. DESCRIPTION OF EXHIBITS
See Item 1 above.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
KINeSYS PHARMACEUTICALS, INC.
(Registrant)
Date: December 23, 1999 By: /s/ Jonathan Mara
----------------------
Jonathan Mara, CEO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAY-05-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 39,722
<ALLOWANCES> 0
<INVENTORY> 109,342
<CURRENT-ASSETS> 779,620
<PP&E> 31,337
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,481,696
<CURRENT-LIABILITIES> 221,730
<BONDS> 0
0
0
<COMMON> 701,584
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,481,696
<SALES> 100,731
<TOTAL-REVENUES> 100,731
<CGS> 26,821
<TOTAL-COSTS> 597,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (523,134)
<INCOME-TAX> 0
<INCOME-CONTINUING> (523,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523,134)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
