SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 10,1999
VERSAILLES CAPITAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
COLORADO 0-22865 84-1044910
- ---------------------------- ----------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
21550 OXNARD STREET, SUITE 830, WOODLAND HILLS, CA 91367
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(Address of Principal Executive Offices, Including Zip Code)
(818) 676-0404
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On February 17, 1999, Versailles Capital Corp. ("Versailles"), British Lion
Medical, Inc. ("British Lion") and Amerimmune, Inc. ("Amerimmune"), a
wholly owned subsidiary of Versailles, entered into an Agreement and Plan
of Merger (the "Merger Agreement") and pursuant to the terms of the Merger
Agreement on February 23, 1999 British Lion's then current shareholders
acquired approximately 97% of the issued and outstanding voting shares of
Versailles and Versailles acquired all of the issued and outstanding shares
of British Lion through a merger of British Lion with and into Amerimmune,
with Amerimmune as the surviving corporation (the "Transaction"). For
financial reporting purposes, the Transaction has been accounted for as a
reverse acquisition whereby British Lion is deemed to be the acquirer of
Versailles and the surviving company. Versailles and its Subsidiaries are
referred to herein as the Company or the Registrant.
This Amendment No. 1 amends the Current Report on Form 8-K of the
Registrant dated March 10, 1999 (the "Form 8-K"). As provided in Item 7 of
the Form 8-K, the Form 8-K did not include pro forma financial information
of Versailles, which was either not available or impracticable to provide
at the time the Form 8-K was filed. This Amendment No. 1 is filed to
provide audited financial statements and the pro forma financial
information of Versailles.
Item 5. Other Events.
RISK FACTORS
CLINICAL TRIAL RESULTS INCLUDING RESULTS FOR CYTOLIN(R) ARE UNPREDICTABLE
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through
preclinical studies and clinical trials that a product is safe and
efficacious for use in each target indication. The Company's development
efforts will be centered on the development of a new drug, Cytolin(R),
which is being tested with patients suffering from Human Immunodeficiency
virus ("HIV"). The Company currently contemplated announcement of its
Cytolin(R) clinical trials during last half of 1999. No assurance can be
given as to the ability of the Company to complete these trials on a timely
basis or at all. In addition, no assurance can be given as to the results
of such trials with respect to the safety or efficacy of Cytolin(R).
Moreover, the results for the required preclinical studies and initial
clinical trials of Cytolin(R) may not be predictive of results that will be
obtained in large-scale testing. In addition, the Company can provide no
assurance that it will view the results of testing of Cytolin(R) as
sufficient to support continuing development of the proposed drug.
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Many biopharmaceutical companies have suffered significant setbacks in
advanced clinical trials, even after obtaining promising results in earlier
trials. Because Cytolin(R) is the Company's only product in development
and its primary asset, any adverse results from the Company's clinical
trials would significantly adversely affect the Company's prospects and
could result in a complete loss of value in the trading price of the
Company's Common Stock.
EARLY STAGE COMPANY WITH NO REVENUES AND A HISTORY OF LOSES
2. The Company has not yet generated any operating revenues. The Company
has incurred losses since inception and has an accumulated deficit of
$324,538 through December 31, 1998, and the Company expects to incur losses
in the future. The Company cannot predict when marketing approvals for
Cytolin(R) will be obtained, if ever. Even if such approvals are obtained,
there can be no assurance that Cytolin(R) will be successfully
commercialized.
The Company expects its operating expenses to increase over the next
several years as it funds development, clinical testing and other expenses
of seeking FDA approval. The Company's ability to achieve a profitable
level of operation is dependent in large part on obtaining regulatory
approvals for its products, entering into agreements for product
development and commercialization, and expanding from development into
successful marketing, all of which will require significant amounts of
capital. There can be no assurance that the Company will ever achieve a
profitable level of operations.
PATENT AND TRADE SECRET UNCERTAINTY
3. Patents, trademarks, copyrights and other proprietary rights are
important to the Company's success and competitive position. Due to the
length of time and expense associated with bringing new pharmaceutical
products to market, there are benefits associated with acquiring products
that are protected by existing patents or for which patent protection can
be obtained. The Company has obtained the exclusive irrevocable worldwide
patent rights to develop and market the product, Cytolin(R), from Three R
Associates, Inc. ("Three R"). However, patents are not a guarantee of
protection from competitors, especially in an area characterized by rapid
advances, and enforcement of patents and proprietary rights in many
countries can be expected to be problematic or unpredictable. There can be
no assurance that any patents issued or licensed to the Company or Three R
will not be challenged, invalidated, infringed upon, or designed around by
others or that the claims contained in such patents will not infringe the
patent claims of others. Furthermore, there can be no
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assurance that others will not independently develop similar products.
Although management believes that patents provide significant protection
for the Company's product, the Company's business may be adversely affected
by competitors who develop a substantially equivalent product. Patent
litigation can be extremely expensive, and the Company may find that it is
unable to fund litigation necessary to defend its rights.
REGULATORY MATTERS COULD AFFECT THE COMPANY'S ABILITY TO CONDUCT ITS BUSINESS
4. The production and marketing of the Company's products are subject to
rigorous requirements by the FDA and also by comparable agencies in other
countries and by state regulatory authorities. Products developed by the
Company cannot be marketed commercially in any jurisdiction in which they
have not been approved. Approval by United States authorities does not
guarantee, nor at times even facilitate or expedite, approval in other
countries. The process of conducting clinical trials and obtaining
regulatory approval for a product typically takes a number of years and
involves substantial expenditures. In addition, product approvals may be
withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company
may encounter significant delays or excessive costs in its efforts to
secure and maintain necessary approvals or licenses. Future federal,
state, local or foreign legislative or administrative acts could also
prevent or delay regulatory approval of the Company's products. There can
be no assurance that the Company will be able to obtain or maintain the
necessary approvals for manufacturing or marketing the Company's products
for proposed indications or that the data it obtains in clinical trials
will be sufficient to establish the safety and efficacy of its products.
Even if the Company obtains regulatory approval for Cytolin(R),
identification of certain side effects after it is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval or require reformulation, additional testing, and changes in
labeling of the product. The Company's inability to obtain or maintain
requisite governmental approvals, the identification of side effects or
other factors could delay or preclude the Company from further developing
or marketing Cytolin(R), which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is also subject to other regulations under numerous federal,
state and local laws regarding, among other things, occupational safety,
laboratory practices, the use and handling of radioisotopes and hazardous
chemicals, prevention of illness and injury, environmental protection and
hazardous substance control. Failure to
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comply with such regulations could have a material adverse effect on the
Company's business, financial condition and results of operations.
THE COMPANY WILL BE REQUIRED TO OBTAIN ADDITIONAL FINANCING
5. The Company may require substantial and increasing amounts of funds to
conduct necessary research and development and preclinical and clinical
testing of its product, and to market any products which may receive
regulatory approval. The Company's ability to meet its cash obligations as
they become due and payable is expected to depend for at least the next
several years on its ability to obtain equity and or debt capital. There
can be no assurance that the Company will be successful in raising the
necessary funds on commercially acceptable terms, if at all. The Company's
future capital requirements will depend upon many factors, including
progress with preclinical testing and clinical trials; the time and costs
involved in obtaining regulatory approvals; competing technological and
market developments; the ability of the Company to establish collaborative
arrangements; and, effective commercialization and marketing activities. In
any event, the Company may incur negative cash flows and net losses for the
foreseeable future. If the Company raises additional funds through the
issuance of equity securities, the percentage ownership of its then-current
shareholders may be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of common shares.
If the Company raises additional funds through the issuance of debt
securities, these new securities would have certain rights, preferences and
privileges senior to those of the holders of common shares.
The Company may require significant capital in order to complete the FDA
approval process and New Drug Application Phase. Additional funds will be
sought, most likely through sale of equity or debt securities. If adequate
funds are not available, the Company may delay, scale back or eliminate
certain programs, or may seek funds through collaborative arrangements with
strategic partners or others. Such arrangements could require
relinquishment of rights to certain technologies, products or markets which
it would not otherwise relinquish.
THE COMPANY COULD SUSPEND OPERATIONS IF SUFFICIENT FUNDS ARE NOT AVAILABLE
6. The Company may experience cash flow difficulties from time to time
due to its substantial capital needs. For the foreseeable future, the
Company's ability to meet its cash obligations as they become due and
payable will depend on its ability to obtain debt and/or equity funding. In
the event that the Company can not raise sufficient
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capital when needed to sustain or expand its operations, the Company would
suspend research and development activities.
THE PHARMACEUTICAL INDUSTRY IS CHARACTERIZED BY INTENSE COMPETITION AND IS
SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE
7. Rapid technological development may cause the Company's products to
become obsolete before the Company recoups all or any portion of the
related expenses. The Company's competitors include major pharmaceutical
companies, biotechnology firms and universities and other research
institutions, both in the United States and abroad, which are actively
engaged in research and development of products in the therapeutic areas
being pursued by the Company. Most of the Company's competitors have
substantially greater financial, technical, manufacturing, marketing and
human resource capabilities than the Company. In addition, many of the
Company's competitors have significantly greater experience in testing new
or improved therapeutic products and obtaining regulatory approval of
products. Accordingly, the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly than the Company. If the
Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiencies and marketing
capabilities, areas in which it has no experience.
THE COMPANY IS DEPENDENT ON PRINCIPAL MEMBERS OF ITS MANAGEMENT TEAM
8. The Company is significantly dependent on its officers and directors.
If the Company fails to retain the services of one or more of these
individuals, the Company's operations may be adversely affected. The
Company does not have key man insurance on any of its officers or
directors. Companies in the pharmaceutical and health care industries
compete intensely for qualified personnel. The Company's inability to
retain its existing personnel or to hire additional qualified employees
would have a material adverse effect on the Company's business.
THE COMPANY IS DEPENDENT ON KEY CONTRACTS THAT ARE WITH AN ENTITIES
CONTROLLED BY MEMBERS OF ITS MANAGEMENT TEAM
9. The Company entered into a management agreement with WCCS for purposes
of assisting the Company in obtaining FDA approval necessary to market the
Company's product, Cytolin(R), for commercial use. Although the Company
believes it could have contracted with other companies for comparable
services, the Termination, Sale and Shareholder Agreement by and among
Three R, Allen D.
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Allen and Cytodyn(R) which conveys the patents to Three R, required the
Company to enter into the abovementioned management agreement, as a
condition to Three R's granting the Company an exclusive worldwide license
to develop the product.
Three R and WCCS are controlled by some of the officers and directors of
the Company, Lois Rezler, Daniel L. Azarnoff and Roy S. Azarnoff, all of
whom will basically control the rights to all pharmaceutical products which
will be licensed to the Company. The Company will be obligated to provide
certain funding, including funding for the development and testing of the
product, at specified times. There can be no assurance that the Company
will be able to meet future payments or funding obligations under the WCCS
agreement, which would have a material adverse effect on the Company.
CHANGES IN U.S. REGULATION OF PHARMACEUTICALS AND REIMBURSEMENT POLICIES
COULD AFFECT THE COMPANY
11. Government health administration authorities, together with private
health insurers, increasingly are attempting to contain health care costs
by limiting the price or reimbursement levels for medical products and
services, and private heath insurers are increasingly demanding data to
justify the inclusion of new products in their formularies. There can be
no assurance that the Company's products, if and when developed, will be
included in the formularies of private health insurers or what level of
reimbursement, if any, the Company will receive for its products from such
private health insurers or the government. In certain foreign markets,
pricing or profitability of prescriptive pharmaceuticals is subject to
government control. In the United States, there have been a number of
federal and state proposals to implement similar government controls or
otherwise significantly reform the existing health care system. Due to
uncertainties as to the ultimate features of this or any other reform
initiatives that may be enacted, the Company cannot predict which, if any,
of such reform proposals will be adopted, when they may be adopted, or what
impact they may have on the Company. It is possible that any legislation
which is enacted will include provisions resulting in price limits,
utilization controls or other consequences that may adversely affect the
Company.
12. The Company's business will expose it to potential product liability
risks which are inherent in the testing, manufacturing, marketing and sale
of pharmaceutical products, and product liability claims may be asserted
against the Company. Product liability insurance for the pharmaceutical
industry generally is expensive to the extent that it is available at all.
There can be no assurance that adequate insurance
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coverage will be available at acceptable costs, if at all, or that a
product liability claim would not adversely affect the business or
financial condition of the Company.
THE COMPANY IS DEPENDENT ON ITS SUPPLIERS
13. The Company currently is able to purchase certain key components for
its product candidates only from single suppliers. These suppliers are
subject to many strict regulatory requirements. There can be no assurance
that these suppliers will comply, or have complied, with applicable
regulatory requirements or that they will otherwise continue to supply the
Company with the key components for its product candidates. In the event
that suppliers are unable or refuse to supply the Company, or will supply
the Company only at a prohibitive cost, there can be no assurance that the
Company could access additional sources at acceptable prices, on a timely
basis, or at all.
THE COMPANY'S SUCCESS IS DEPENDENT ON LOCATING ADDITIONAL COLLABORATIVE
PARTNERS
14. The Company's strategy for the research, development and
commercialization of its product candidates has required, and will continue
to require, the Company to enter into various arrangements with corporate
and academic collaborators, licensors, licensees and others, and the
Company will, therefore, be dependent upon the success of these parties in
performing their responsibilities and obligations. There can be no
assurance that the Company will be able to enter into collaborative
arrangements or license agreements that the Company deems necessary or
appropriate to develop and commercialize its product candidates, or that
any or all of the contemplated benefits from such collaborative
arrangements or license agreements will be realized. Failure to obtain such
arrangements or agreements could result in delays in marketing the
Company's product candidates or the inability to proceed with the
development, manufacture or sale of product candidates. Certain of the
collaborative arrangements that the Company currently has or may enter into
in the future may place responsibility on the collaborative partner for
preclinical testing, clinical trials and/or preparation and submission of
applications for regulatory approval of potential pharmaceutical or other
products. Should a collaborative partner fail to develop or commercialize
successfully any product candidate to which it has rights, the Company's
business, financial condition and results of operations could be materially
and adversely affected. There can be no assurance that collaborators will
not pursue alternative technologies or product candidates either on their
own or in collaboration with others, including the Company's competitors,
as a means for developing treatments for the diseases or
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disorders targeted by the Company's collaborative arrangements.
Collaborative arrangements may also require the Company to meet certain
regulatory, research or other development milestones and expend minimum
levels of funds, and there can be no assurance that the Company will be
successful in doing so. Failure of the Company to meet its obligations
under its collaborative arrangements could result in a termination of those
arrangements and could have a material adverse effect on the Company's
business, financial condition and results of operations.
THE MARKET PRICE OF THE COMPANY'S SHARES WILL BE HIGHLY VOLATILE
15. The market price of the Company's common shares has been and is likely
to continue to be highly volatile, and an investment in these securities
involves substantial risks. The market prices for securities of
biotechnology companies (including the Company) have been highly volatile,
and the stock market from time to time has experienced significant price
and volume fluctuations that may be unrelated to the operating performance
of a particular company. A number of factors could result in the Company's
failure to meet the expectations of securities analysts or investors and
may have a significant impact on the price of the Company's common shares.
Such factors include, but are not limited to, announcements by the Company
or its competitors of clinical results, technological innovations, product
sales, new products or product candidates, developments or disputes
concerning patent or proprietary rights, regulatory developments affecting
the Company's products, as well as market conditions for emerging growth
companies and biopharmaceutical companies, economic and other internal and
external factors and period-to-period fluctuations in results of operations.
THE COMPANY HAS NO SALES AND MARKETING EXPERIENCE
16. The Company intends to sell certain of its products, if successfully
developed and approved, through sales and marketing partnership
arrangements. However, the Company does not expect to establish sales
capability for at least the next few years. The Company has no history or
experience in sales or distribution. To sell its products, the Company must
obtain the assistance of another company. There can be no assurance that
the Company will be able to establish sales and distribution capabilities
or succeed in gaining market acceptance for its products. If the Company
enters into co-promotion or patent licensing arrangements with established
pharmaceutical companies, the Company's revenues will be subject to the
payment provisions of such arrangements and dependent on the efforts of
third parties. There can be no assurance that the Company's collaborators
will effectively market any of the Company's potential products, and the
inability of the Company's collaborators to
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do so could have a material adverse effect on the business and financial
condition of the Company.
THE COMPANY IS SUBJECT TO ENVIRONMENTAL REGULATIONS
17. The Company and the third parties that currently manufacture the
Company's proposed products are subject to federal, state and local laws
and regulations governing the use, generation, manufacture, storage,
discharge, handling and disposal of materials and wastes which are
classified as "hazardous." There can be no assurance that the Company or
its third party manufacturers will not be required to incur significant
costs to comply with environmental laws, the Occupational Safety and Health
Act, and state, local and foreign counterparts to such laws, rules and
regulations if its manufacturing and research activities are increased or
that the operations, business and future profitability of the Company will
not be adversely affected by current or future laws, rules and regulations.
The risk of accidental contamination or injury from hazardous materials
cannot be eliminated. In the event of such an accident, and if the Company
is held liable for any damages that result, any such liability could exceed
the resources of the Company. In any event, the cost of defending claims
arising from such contamination or injury could be substantial. In
addition, the Company cannot predict the extent of the adverse effect on
its business or the financial and other costs that might result from any
new government requirements arising out of future legislative,
administrative or judicial actions.
THE COMPANY MAY HAVE LIABILITIES RELATED TO PRIOR OPERATIONS
18. The Company and its predecessors conducted operations in the 1980s.
The current management has performed only a limited review of the Company
or its subsidiaries operations prior to the Merger to determine the
existence or extent of any prior liabilities. Any existing liabilities of
the Company at the time of the Merger could exceed the Company's current
assets and have a material adverse effect on the Company's ability to
continue operations.
The following information amends Item 7 of the Form 8-K and sets forth in
its entirety the information as amended.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired. The following
financial statements of the Company are filed as part of this Current
Report:
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o Independent Auditor's Report
o Balance Sheet at December 31, 1998
o Statement of Operations for the period from April 10, 1998
(Date of Inception) through December 31, 1998
o Statement of Stockholders' Equity for the period from April
10, 1998 (Date of Inception) through December 31, 1998
o Statement of Cash Flows for the period from April 10, 1998
(Date of Inception) through December 31, 1998
o Notes to Financial Statements
(b) Pro Forma Financial Information. The following unaudited pro
forma financial information is filed as part of this Current Report:
o Description of Pro Forma Financial Information
o Pro Forma Combined Balance Sheet at December 31, 1998]
o Pro Forma Combined Statements of Stockholders Equity for the
Year Ended December 31, 1998
o Notes to Pro Forma Combined Financial Information
(C) Exhibits.
23.1 Consent of Bennett Block Accountancy Corporation
27. Financial Data Schedule
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: April 7, 1999
VERSAILLES CAPITAL CORPORATION
By: /s/ Wellington A. Ewen
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Wellington A. Ewen
Chief Financial Officer
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BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT F-1
BALANCE SHEET F-2
December 31, 1998
STATEMENT OF OPERATIONS
For The Period From April 10, 1998 (Date of Inception)
to December 31, 1998 F-3
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period From April 10, 1998 (Date of Inception)
to December 31, 1998 F-4
STATEMENT OF CASH FLOWS
For The Period From April 10, 1998 (Date of Inception)
to December 31, 1998 F-5
NOTES TO FINANCIAL STATEMENTS F-6 - F-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To The Board of Directors and Stockholders
British Lion Medical, Inc.
I have audited the accompanying balance sheet of British Lion Medical, Inc.
( a development stage company) as of December 31, 1998, and the related
statements of operations, stockholders' equity, and cash flows for the
period from April 10, 1998 (date of inception) to December 31, 1998. These
financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about 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. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of British Lion Medical,
Inc. as of December 31, 1998 and the results of its operations and its cash
flows for the period from April 10, 1998 (date of inception) to December
31, 1998 in conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, the ultimate
recoverability of development stage costs is dependent on obtaining future
financing and attaining profitable operations, which cannot be determined.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Bennett Block Accountancy Corporation
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Los Angeles, California
March 16, 1999
F-1
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BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,010
Current portion of prepaid management fees -
affiliated corporation 60,937
-----------
TOTAL CURRENT ASSETS 64,947
OTHER ASSETS
Prepaid management fees - affiliated corporation 158,438
Deferred stock offering costs 54,485
Deposits 25,722
-----------
238,645
-----------
$ 303,592
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 186,011
Due to affiliated corporations 94,869
-----------
TOTAL CURRENT LIABILITIES 280,880
-----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000
shares authorized, 4,750,000 shares issued
and outstanding 347,250
Deficit accumulated during the development stage (324,538)
-----------
22,712
-----------
$ 303,592
===========
The accompanying notes are an integral part of these financial statements.
F-2
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BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
COST AND EXPENSES
Research and development $ 286,809
General and administrative 37,558
-----------
OPERATING LOSS (324,367)
OTHER INCOME
Interest income 629
-----------
LOSS BEFORE PROVISION
FOR INCOME TAXES (323,738)
PROVISION FOR INCOME TAXES 800
-----------
NET LOSS $ (324,538)
===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.08)
===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 4,138,953
===========
The accompanying notes are an integral part of these financial statements.
F-3
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BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
NO PAR VALUE DEFICIT
COMMON STOCK ACCUMULATED
------------ DURING THE
NUMBER DEVELOPMENT
OF SHARES AMOUNT STAGE TOTAL
--------- ------ ----- -----
<S> <C> <C> <C> <C>
Sale of stock for cash 3,470,000 $ 3,470 $ - $ 3,470
Stock issued for trademark 600,000 600 - 600
Stock issued for legal services 180,000 18,180 - 18,180
Stock issued for consulting services 300,000 25,000 - 25,000
Sale of stock for cash 200,000 300,000 - 300,000
Net Loss - - (324,538) (324,538)
---------- ---------- ---------- ----------
Balance, December 31, 1998 4,750,000 $ 347,250 $ (324,538) $ 22,712
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FORM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (324,538)
-----------
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED BY OPERATING ACTIVITIES
Noncash transactions:
Trademark contributed in exchange for common stock 600
Legal services contributed in exchange for common stock 18,000
Changes in assets and liabilities:
Prepaid management fees (219,375)
Deposits (25,722)
Accounts payable and accrued expenses 186,011
-----------
Total adjustments (40,486)
-----------
NET CASH USED BY
OPERATING ACTIVITIES (365,024)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 303,650
Borrowings from affiliated corporations 94,869
Deferred stock offering costs (29,485)
-----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 369,034
-----------
NET INCREASE IN CASH 4,010
CASH AND CASH EQUIVALENTS, April 10, 1998 -
-----------
CASH AND CASH EQUIVALENTS, December 31, 1998 $ 4,010
===========
SUPPLEMENTAL INFORMATION
Cash paid for income taxes $ 800
NONCASH TRANSACTIONS
Issuance of common stock in exchange for
deferred offering costs (financial consulting fees) $ 25,000
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
------------
British Lion Medical, Inc. ("the Company") was incorporated in
California in August 1997 and has been in the development stage, as
more fully defined in Statement of Financial Accounting Standards No.
7, since it commenced operations on April 10, 1998. The Company's
efforts since inception have been devoted primarily to research and
development activities, raising capital, obtaining licensing and
patent agreements and administrative functions.
The Company is engaged in the pharmaceutical research business with
the primary purpose of developing Cytolin(R), a drug designed to
protect the immune system, especially in patients suffering from Human
Immunodeficiency Virus ("HIV"). Management of the Company believes
that Cytolin(R) is important for the growing number of patients who
have become resistant to drugs currently used to treat the HIV/AIDS
virus. The Company intends to seek governmental approval from the
Food and Drug Administration ("FDA") for Cytolin(R). The Company
expects to obtain FDA approval for regular sales of Cytolin(R) within
three years.
Basis of Presentation and Management's Plans
--------------------------------------------
The Company's financial statements have been presented on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
During the period from inception to December 31, 1998, the Company had
no operating revenues and incurred a net loss of $324,538. At
December 31, 1998, the Company had a working capital deficit of
$215,933. The Company requires significant capital to conduct the
research and development and preclinical and clinical testing of
Cytolin(R) that is necessary in order to complete the FDA approval
process. Management of the Company does not expect to generate
revenue from operations within the next year. The Company's continued
existence and its ability to fund its operations and meet its
financial obligations is dependent on its ability to obtain equity or
debt financing.
Management has the following operating and financial plans to raise
the working capital necessary to fund operations.
At December 31, 1998, the Company was attempting to raise funds
through a private placement of its common stock and had entered into
a letter of intent for the potential
F-6
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
merger with a public company. The private placement and merger were
successfully completed in February 1999. Versailles Capital
Corporation ("Versailles"), a publicly held company, has acquired
British Lion Medical, Inc. and will continue the business of
developing the product Cytolin(R) (Note 7).
The merger of the Company with Versailles, which is a publicly traded
corporation, will provide additional liquidity for the Company for
current operations. However, the Company estimates that it may
require additional funding of up to $9,000,000 over the next three
years to successfully complete the FDA approval process.
It is not possible to predict the success of management's efforts to
raise sufficient capital to fund operations. If management is unable
to achieve its goals, the Company will find it necessary to undertake
actions as may be appropriate to continue operations and meet its
financial commitments.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand and on deposit and
highly liquid investments with a maturity of ninety days or less when
purchased.
Concentration of credit risk
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash. The
Company places its cash with a high quality financial institution. At
times during the period from April 10, 1998 (date of inception) to
December 31, 1998, the balance at the financial institution exceeded
FDIC limits.
F-7
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deposits
--------
In December 1998, the Company entered into a letter of intent with a
manufacturer to begin the production and testing of the drug
Cytolin(R). The Company advanced the manufacturer a deposit of
$25,000 to commence the manufacturing process while a contract was
being negotiated and developed between the parties. At March 16,
1999, the agreement had not been finalized. However, the Company has
orally agreed to pay a total of $280,000 to the manufacturer, an
additional $255,000 will be paid to the manufacturer in periodic
installments through December 31, 1999.
Deferred Stock Offering Costs
-----------------------------
Deferred stock offering costs consist of expenses incurred to December
31, 1998 by the Company in the process of raising funds through a
private placement of its common stock which commenced in December,
1998. As more fully discussed in Note 5, the deferred stock offering
costs incurred as of December 31, 1998 and additional costs incurred
subsequent to that date, were charged against the proceeds of the
private placement in February 1999.
Income Taxes
------------
The Company records its taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each
year end based on enacted tax laws and statutory rates applicable to
taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Research and Development
------------------------
Research and development costs are charged to operations when incurred
and are included in operating expenses.
F-8
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
-------------------------------
The Company evaluates the potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Company reviews the amount of recorded
long-lived assets for impairment. If the sum of the expected cash
flows from these assets is less than the carrying amount, the Company
will recognize an impairment loss in such period. No impairment loss
was recognized for the period from April 10, 1998 (date of inception)
to December 31, 1998.
Accounting for Stock Based Compensation
---------------------------------------
In December 1998, the Company established an employee stock-based
compensation plan, the 1998 Omnibus Stock Incentive Plan, under which
the Company may grant options for up to 1,000,000 shares of common
stock. Employee stock options are accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" which requires the recognition of expense when the option
price is less than the fair market value of the stock at the date of
grant. Under the current terms of the plan, the exercise price of
each option is equal to the fair market value of the Company's stock
at the date of grant. The Company has adopted the disclosure-only
provisions of Statements of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The maximum term of the
options is no more than ten years and the options vest at scheduled
intervals during the vesting period. The adoption of SFAS 123
disclosure-only provisions had no effect on either the Company's
balance sheet or its results of operations.
The Company has entered into employment commitments with three
prospective officers which involve the issuance of stock options (Note 5).
Net Loss Per Share
------------------
Net loss per basic and diluted share are calculated based on the
weighted average number of shares outstanding during the period.
Comprehensive Income
--------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for
fiscal years beginning after December 15, 1997. To date, the Company
has not had any transactions that are required to be reported in
Comprehensive Income.
F-9
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Statement Instruments
---------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" requires that the Company
disclose estimated fair values for its financial statement instruments.
The carrying amount of cash is assumed to be its fair value because of
the liquidity of the instrument. Accounts payable and accrued
expenses and amounts due to affiliated corporations approximate fair
value because of the short maturity of these instruments.
NOTE 3 - COMMON STOCK
On November 11, 1998, the Company's Board of Directors approved an
increase in the number of the Company's authorized common shares from
1,000,000 to 10,000,000 shares. All common shares issued by the
Company are restricted securities within the meaning of Rule 144 of
the Securities Act of 1933. Accordingly, shares must be held for a
minimum of one year after issuance by stockholders before they are
available for sale.
During October 1998, the Company issued 3,470,000 shares of restricted
common stock at $.001 per share. Of these shares, 3,375,000 shares
were issued for cash in connection with the execution of patent and
license agreements, 95,000 shares were issued for cash to prospective
officers and 600,000 shares were issued for a trademark (Note 5). The
stockholders who were issued these shares have agreed not to sell any
of their shares for a period of two years.
In October 1998, the Company issued 180,000 restricted shares to an
attorney in exchange for cash of $180 and legal services. The shares
of stock issued were recorded at the estimated fair value of the
services provided, which was $18,000. This stockholder has also
agreed not to sell any shares for a period of two years.
In October 1998, the Company also issued 300,000 shares to a financial
consultant in exchange for services and granted an option, effective
at the date of merger, to purchase an additional 200,000 shares of
stock at a price of $3.00 per share for a five year period following
the date of the merger. The shares of stock and stock options issued
were recorded at the estimated fair value of the services provided of
$25,000. The shares issued and the shares underlying the options are
covered by certain registration rights.
Shares of common stock issued for other than cash have been assigned
amounts equivalent to the fair value of the assets or services
received in exchange for such shares.
F-10
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 3 - COMMON STOCK (Continued)
In November and December 1998, the Company sold 200,000 shares of its
stock, at $1.50 per share for total proceeds of $300,000, to certain
accredited investors in an initial private placement.
In December 1998, the Company began a second private placement of
common stock to accredited investors, which was completed on February
22, 1999. The private placement was made on a minimum/maximum "best
efforts" basis. The Company raised the maximum amount of gross
proceeds of $3,210,000 (1,070,000 shares at $3.00 per share) and paid
cash offering and merger expenses of $164,908. Net cash proceeds from
the private placement totaled $3,045,092.
NOTE 4 - INCOME TAXES
Due to the current period's net loss, the Company's income tax
liability has been limited to minimum California franchise taxes.
Deferred taxes consisted of the following at December 31, 1998:
Deferred tax asset:
Net operating loss $ 57,600
Valuation allowance ( 57,600)
---------
Net deferred taxes $ -
=========
The gross deferred tax asset balance as of December 31, 1998 was
approximately $57,600. A 100% valuation allowance has been established
against the deferred tax asset balance as the utilization of net
operating loss carryforwards cannot be reasonably assured.
Net operating loss carryforwards for federal and state income tax
purposes at December 31, 1998 were approximately $155,300. The
Company experienced a change in ownership in February 1999 in a
transaction intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code (Note 7). Therefore, the
utilization of net operating loss carryforwards may be limited.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Termination, Sale and Shareholder Agreement
-------------------------------------------
Allen D. Allen ("Allen") is the present owner of all United States
patent and foreign patent rights to the technology and know-how under
the product Cytolin(R). In 1994, Allen granted Cytodyn of New Mexico,
Inc. ("Cytodyn"), of which Allen owns 100% of the voting
F-11
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
stock, an exclusive worldwide license to use the patent rights and
technology. In addition, Cytodyn obtained a trademark name for Cytolin(R).
In August 1998, Allen and Cytodyn entered into a Termination, Sale and
Shareholder Agreement (the "Purchase Agreement") with Three R.
Associates, Inc. ("Three R"), a corporation affiliated with the
Company that is wholly-owned by three of the Company's officers and
directors.
Pursuant to the terms of the Purchase Agreement, Cytodyn agreed to
relinquish the exclusive license to use the technology and patents
previously granted to it by Allen and to grant an exclusive license to
the trademark name, Cytolin(R), to Three R in exchange for 600,000
shares of British Lion Medical, Inc.'s common stock. In addition,
Allen agreed to sell all United States Patent rights, foreign patent
rights, and all technological know-how underlying the product,
Cytolin(R), to Three R in exchange for a minimum of $180,000. Payments
to Allen are to commence subsequent to the Company's merger with
Versailles (Note 7). Allen is to be paid a minimum of $90,000 per
year in quarterly installments through at least February 23, 2001.
Consulting Agreement - Research and Development
-----------------------------------------------
Allen also entered into a consulting agreement with Three R whereby he
agreed to provide British Lion Medical, Inc. with any new and
additional similar technologies, if any, for a period of fifteen years
in exchange for a consulting fee of $10,000 per year. Payments under
the consulting agreement are scheduled to begin subsequent to the
Company's merger with Versailles.
Patent and Trademark License Agreement
--------------------------------------
In October, 1998, the Company entered into a Patent and Trademark
License Agreement (the "Agreement") with Three R. The Company was
granted an irrevocable, exclusive worldwide license to use all present
and future patent rights, know-how and background technology of Three
R, relating to the product, Cytolin(R). In addition, the Agreement
granted the Company a sublicense to the trademark name, Cytolin(R).
The Agreement was consummated simultaneously with the Company's merger
with Versailles.
The Company issued 3,075,000 shares of its common stock at $.001 per
share to Three R upon execution of the Agreement, and the Company also
agreed to assume Three R's obligations to pay Allen a minimum of
$180,000 and fees of $10,000 per year for consulting services under
the agreements discussed above between Three R and Allen. The Company
can terminate the consulting agreement with one year's notice
beginning February 23, 2000, one year from the date the Company
completed its merger with Versailles.
F-12
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 1998, the Company has accrued and recorded research
and development expenses of $166,000 to operations in connection with
the minimum payments due to Allen through February 23, 2001. The
payments have been discounted to their fair value of $166,000 by
applying an imputed interest rate of 8% to future cash outflows.
Management Agreement
--------------------
In October, 1998, the Company entered into a three year management
agreement for $585,000 per year with Western Center for Clinical
Studies, Inc. ("WCCS"), a corporation that is affiliated with the
Company and is wholly-owned by three of the Company's officers and
directors. The agreement is scheduled to expire on February 23, 2002.
The management agreement was executed for the purpose of assisting the
Company in obtaining FDA approval to market Cytolin(R) for commercial
use. To avoid potential conflicts of interest, the WCCS agreement was
subsequently ratified by the disinterested directors of Versailles
following its merger with the Company (Note 6).
Consulting Agreements - Financial Services
------------------------------------------
The Company entered into an agreement with a financial consulting
firm, Battersea Capital, Inc., ("Battersea") to assist the Company in
private placements and finding an appropriate public company into
which the Company could merge. In consideration for Battersea's
efforts, the Company issued 300,000 shares of its stock to Battersea
in October 1998 and granted Battersea an option, effective at the date
of merger, to purchase an additional 200,000 shares of stock at a
price of $3.00 per share for a five year period following the date of
the merger. The shares of stock and stock options issued were
recorded at the estimated fair value of the services provided of
$25,000. The shares issued and the shares underlying the options are
covered by certain registration rights.
LMU & Company ("LMU") was engaged by Battersea for assistance in
providing financial consulting services to the Company, pursuant to
Battersea's consulting agreement with the Company. LMU acquired the
majority ownership of Amerimmune, Inc.("Amerimmune") and facilitated
the merger of Amerimmune and Versailles with the Company. The Company
has agreed to pay LMU a broker's fee of $100,000 from the proceeds of
its second private placement in February 1999.
F-13
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Commitments
----------------------
The Company has entered into employment commitments with three
prospective officers which provide for combined annual compensation of
$164,500. The Company has also granted options, in December 1998, to
purchase 191,000 shares of its common stock at $3.00 per share to
these officers which vest over a three year period from the date of grant.
Placement Agent Agreement
-------------------------
On February 9, 1999, in connection with its second private placement,
the Company entered into an agreement with a nonexclusive agent to act
on a "best efforts basis" in the offer and sale of its common stock.
The Company agreed to pay the agent commissions of ten percent of the
proceeds of its sales ($108,350) and to issue the agent warrants to
purchase twenty percent (20%) of the total number shares of common
stock sold by the agent at an exercise price of $3.00 per share for a
period of five years from the date of grant. The shares underlying
the warrants are covered by certain registration rights. At the
completion of the Company's private placement on February 22, 1999,
the Company was obligated to issue 72,233 warrants to the agent which
were valued at $1.30 per warrant.
Lease Commitments
-----------------
The Company's office facilities are located in Woodland Hills,
California. Beginning February 1, 1999, the facilities were rented
under the terms of a three year noncancellable operating lease
agreement assigned to the Company by an affiliate, WCCS. The initial
monthly base rent of $3,040, is scheduled to increase to $3,337 during
the term of the lease.
The lease is scheduled to expire on January 31, 2002. Minimum future
rental payments required over the lease term are as follows:
Year Ended December 31
----------------------
1999 $ 33,442
2000 37,964
2001 40,041
2002 3,337
---------
$ 114,784
=========
F-14
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
Other Commitments
-----------------
In February 1999, the Company issued 33,500 shares of its restricted
common stock to an investor as a finders fee for assisting the Company
in a private placement of the Company's stock. The value of the stock
issuance was recorded at $3.00 per share ($100,500).
NOTE 6 - RELATED PARTY TRANSACTIONS
Due to the Company's lack of liquidity, the Company's affiliates paid
the Company's operating expenses and certain other obligations during
the period from April 10, 1998 (date of inception) to December 31,
1998. During the period from April 10, 1998 (date of inception) to
December 31, 1998, expenditures paid on behalf of the Company by
affiliates totaled $94,869.
Amounts due to the Company's affiliates of $94,869 were non-interest
bearing as the payables were temporary in nature and were settled in
March, 1999. The affiliates charged back those expenditures to the
Company through intercompany accounts, reducing their own operating
expenses accordingly.
During the period from April 10, 1998 (date of inception) to December
31, 1998, the Company paid an affiliate, WCCS, $80,000 for services
performed by WCCS on behalf of the Company. The Company also advanced
WCCS $219,375 to commence certain services in connection with the
development of Cytolin(R) to be performed over a three year period
beginning when the management agreement between the parties became
effective (Note 5).
During the period from April 10, 1998 (date of inception) to December
31, 1998, the Company paid consulting fees of $36,525 to Allen for
providing scientific expertise regarding the development of Cytolin(R).
Since inception, the Company has used part of an office facility and
administrative services provided by WCCS at no cost. On February 1,
1999, the Company was assigned a long-term noncancellable operating
lease agreement with an unrelated party by WCCS (Note 5).
NOTE 7 - SUBSEQUENT EVENTS
On February 17, 1999, the Company entered into an agreement and plan
of merger with Versailles, a publicly held company, and Versailles'
wholly-owned subsidiary, Amerimmune, a newly organized corporation.
Pursuant to the terms of the agreement, Versailles was to acquire the
Company by the merger of the Company with Amerimmune
F-15
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 7 - SUBSEQUENT EVENTS (Continued)
in a transaction intended to qualify as tax-free reorganization under
Section 368(a) of the Internal Revenue Code. Versailles was to remain
as the surviving corporation after the merger with the Company.
Pursuant to the agreement, and as a condition precedent to the
exchange, the Company successfully completed a private placement of
its common stock (Note 3) on February 22, 1999. The Company raised
net cash proceeds of $3,045,092 (gross proceeds of $3,210,000 less
cash private placement and merger expenses of $164,908). The Company
also incurred non-cash merger expenses of $125,500 in connection with
the private placement. The Company (i) issued 33,500 shares of its
restricted common stock with a recorded value of $3.00 per share to an
investor for assisting in the private placement of the Company's
common stock ($100,500) and (ii) issued 300,000 shares of common stock
and 200,000 options at a price of $3.00 per share to a financial
consulting firm for assisting the Company in private placements and
finding an appropriate public company into which the Company could
merger. The fair value of these services was estimated at $25,000.
The Company's equity increased $2,919,592 as a result of the private
placement.
On February 23, 1999, the merger was completed, each share of British
Lion's issued and outstanding stock was exchanged for 7.13397 shares
(41,758,743 total shares) of Versailles' $.05 par value per share
common stock.
After the exchange, British Lion stockholders owned approximately 97%
of the outstanding common stock of Versailles. Versailles has also
assumed the obligations of British Lion regarding all outstanding
stock options and warrants to purchase shares of British Lion's common
stock and has agreed to issue shares of Versailles' common stock under
the same terms and conditions.
F-16
<PAGE>
BRITISH LION MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception)
TO DECEMBER 31, 1998
NOTE 7 - SUBSEQUENT EVENTS (Continued)
Unaudited pro forma combined balance sheet:
The following table presents the unaudited pro forma combined balance
sheet of the Company and Versailles as though the combination had
occurred on December 31, 1998, giving effect to the merger, the
private placement and other subsequent events described above.
ASSETS
Current assets $2,901,649
Other assets 184,160
----------
$3,085,809
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 143,500
Stockholders' equity 2,942,309
----------
$3,085,809
==========
F-17
<PAGE>
UNAUDITED PROFORMA INFORMATION
On February 17, 1999, Versailles Capital Corporation ("Versailles") and its
newly organized, wholly-owned subsidiary, Amerimmune, Inc. ("Amerimmune")
entered into an agreement and plan of merger whereby Versailles was to
acquire all of the issued and outstanding common shares of British Lion
Medical, Inc. ("British Lion") in exchange for shares of Versailles $.05
par value per share common stock. On February 23, 1999, the exchange was
completed, each share of British Lion's issued and outstanding stock was
exchanged for 7.13397 shares (41,758,743 total shares) of Versailles'
common stock.
After the exchange, British Lion stockholders owned approximately 97% of
the outstanding common stock of Versailles. Versailles has also assumed
the obligations of British Lion regarding all outstanding stock options and
warrants to purchase shares of British Lion's common stock and has agreed
to issue shares of Versailles' common stock under the same terms and
conditions.
Subsequent to the exchange, all directors and officers of Versailles
resigned and new officers and directors were elected. Versailles has
remained as the surviving corporation after the merger and has succeeded to
the business of British Lion.
Versailles is a pharmaceutical research company developing Cytolin(R), a
drug designed to protect the immune system, especially in patients
suffering from Human Immunodeficiency Virus ("HIV"). Cytolin(R) is
important for the growing number of patients who have become resistant to
drugs currently used to treat the HIV/AIDS virus.
The following unaudited proforma combined balance sheet and unaudited
proforma combined statement of stockholders' equity (deficit) assume the
exchange occurred on December 31, 1998 and combines the financial positions
of Versailles and British Lion as of December 31, 1998, using the
assumptions described in the accompanying notes. Since British Lion was
the predominant entity, this combination was accounted for as a
recapitalization of British Lion.
The unaudited proforma results of the combined operations of Versailles and
British Lion are not presented because the combination is accounted for as
a recapitalization at historical cost, as Versailles had diminimous
operations.
F-18
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
British
Versailles Lion Proforma
Historical Historical Adjustments Combined
---------- ---------- ---------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ - $ 4,010 (A) $ (137,875) $2,840,712
(C) 3,074,577
(F) (100,000)
Current portion of prepaid
management fees -
affiliated corporation - 60,937 60,937
---------- ---------- ----------
TOTAL CURRENT
ASSETS - 64,947 2,901,649
OTHER ASSETS
Prepaid management fees -
affiliated corporation - 158,438 158,438
Deferred stock offering costs - 54,485 (C) (54,485) -
Deposits - 25,722 25,722
---------- ---------- ----------
- 238,645 184,160
---------- ---------- ----------
$ - $ 303,592 $3,085,809
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 495 $ 186,011 (A) $ (43,006) $ 143,500
Due to affiliated corporations - 94,869 (A) (94,869) -
---------- ---------- ----------
TOTAL CURRENT
LIABILITIES 495 280,880 143,500
---------- ---------- ----------
STOCKHOLDERS' EQUITY
(DEFICIT)
Preferred stock - - -
Common stock 64,206 347,250 (B) (1,179,405) 2,252,143
(C) 100,500
(C) 2,919,592
(E) 93,903
(E) (93,903)
Additional paid-in capital 469,178 - (B) 1,179,405 1,114,704
(D) (533,879)
Deficit accumulated during (F) (100,000)
the development stage (533,879) (324,538) (D) 533,879 (424,538)
---------- ---------- ----------
Total stockholders' equity
(deficit) (495) 22,712 2,942,309
---------- ---------- ----------
$ - $ 303,592 $3,085,809
========== ========== ==========
</TABLE>
See notes to unaudited proforma combined financial statements and the notes
to the accompanying historical financial statements.
F-19
<PAGE>
UNAUDITED PROFORMA COMBINED STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
British
Versailles Lion Proforma
Historical Historical Adjustments Combined
---------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
(DEFICIT) :
Preferred stock, $.10 par value; $ - $ - $ - $ -
50,000,000 shares authorized,
none issued and outstanding
Common stock, $.05 par value:
100,000,000 shares authorized; (B) (1,179,405)
1,284,116 (Versailles) (C) 100,500
41,758,743 (British Lion) (C) 2,919,592
and 43,042,859 (combined) (E) 93,903
shares issued and outstanding 64,206 347,250 (E) (93,903) 2,252,143
Additional paid-in capital 469,178 - (B) 1,179,405 1,114,704
(D) (533,879)
Deficit accumulated during (F) (100,000)
the development stage (533,879) (324,538) (D) 533,879 (424,538)
---------- ---------- ----------
Total stockholders' equity
(deficit) $ (495) $ 22,712 $2,942,309
========== ========== ==========
</TABLE>
See notes to unaudited proforma combined financial statements and the notes
to the accompanying historical financial statements.
F-20
<PAGE>
UNAUDITED PROFORMA INFORMATION
NOTES TO UNAUDITED PROFORMA
COMBINED FINANCIAL STATEMENTS
The proforma adjustments assume the issuance of 7.13397 shares of
Versailles' $.05 par value common stock in exchange for each share of
British Lion's no par value common stock. Versailles issued 41,758,743 of
it shares in exchange for British Lion's 4,750,000 issued and outstanding
shares, British Lion's private placement of 1,070,000 shares at $3.00 per
share, and the issuance of 33,500 shares of common stock, at a recorded
value of $3.00 per share, as a finders fee paid to an investor. In
addition, 72,233 stock warrants were issued in connection with the private
placement at a recorded value of $1.30 per warrant.
The acquisition is accounted for as a recapitalization of British Lion and
therefore, assets and liabilities are combined at historical cost.
The following is a summary of the adjustments required based upon the above
assumptions.
A. Record the payment of existing Versailles and British Lion
liabilities.
B. Issuance of Versailles' common stock in exchange for British
Lion's common stock.
Each share of British Lion's issued and outstanding no par value
common stock (5,853,500 total shares) was exchanged for 7.13397
shares (41,758,743 total shares) of Versailles $.05 par value
common shares. As a result of the recapitalization, common stock
decreased and additional paid-in capital increased $1,179,405 to
reflect the change in British Lion's shares from no par value to
$.05 par value common stock.
C. Issuance of $1,070,000 shares of British Lion's no par value
common stock at $3.00 per share pursuant to a private placement
effective February 22, 1999.
British Lion successfully completed a private placement of its
common stock on February 22, 1999. The Company raised net cash
proceeds of $3,045,092 (gross proceeds of $3,210,000 less cash
private placement and merger expenses of $164,908). The Company
also incurred non-cash merger expenses of $125,500 in connection
with the private placement. The Company (i) issued 33,500 shares
of its restricted common stock with a recorded value of $3.00 per
share to an investor for assisting in the private placement of
the Company's common stock ($100,500) and (ii) issued 300,000
shares of common stock and 200,000 options at a price of $3.00
per share to a financial consulting firm for assisting the
Company in private placements and finding an appropriate public
company into which the Company could merger. The fair value of
these services was estimated at $25,000. The Company's equity
increased $2,919,592 as a result of the private placement.
D. Elimination of Versailles' deficit accumulated during the
development stage.
Versailles' deficit accumulated during the development stage of
$533,879 was eliminated in the recapitalization and was
reclassified as a decrease to additional paid-in capital.
E. Each of the 72,233 stock warrants issued in connection with the
recapitalization were valued at $1.30.
F. Record the payment of a brokers fee of $100,000 incurred in
connection with the merger of Amerimmune and Versailles with the
Company.
F-21
BENNETT BLOCK Accountancy Corporation
CERTIFIED PUBLIC ACCOUNTANTS
10866 Wilshire Boulevard, 10th Floor Member - SEC and
Los Angeles, California 90024 Private Companies Practice
Telephone: (310) 446-9986 Sections of the American
Fax: (310) 446-9196 Institute of CPA's
Exhibit 23.1
CONSENT OF BENNETT BLOCK ACCOUNTANCY CORPORATION
I consent to the use of my report dated March 16, 1999, with respect to the
financial statements of British Lion Medical, Inc. as of December 31, 1998
and for the period from April 10, 1998 (date of inception) to December 31,
1998, included in the Form 8-K/A dated March 10, 1999.
/s/ Bennett Block Accountancy Corporation
- -------------------------------------------
Los Angeles, California
April 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-10-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,010
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,947
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 303,592
<CURRENT-LIABILITIES> 280,880
<BONDS> 0
0
0
<COMMON> 347,250
<OTHER-SE> (324,538)
<TOTAL-LIABILITY-AND-EQUITY> 303,592
<SALES> 0
<TOTAL-REVENUES> 629
<CGS> 0
<TOTAL-COSTS> 324,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (323,738)
<INCOME-TAX> 800
<INCOME-CONTINUING> (324,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324,538)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
