UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 2 to FORM SB-2
|
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
NANOBAC
PHARMACEUTICALS, INCORPORATED
|
|
(Exact
name of registrant as specified in its
charter)
|
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Florida
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8071
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59-3248917
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||
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State
or jurisdiction of
incorporation
or organization
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer Identification
No.)
|
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2727
W. Martin Luther King Blvd., Suite 850,
Tampa,
Florida 33607
(813)
264-2241
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(Address
and telephone number of registrant's principal executive
offices)
|
|
John
D. Stanton, CEO
2727
W. Martin Luther King Blvd., Suite 850
Tampa,
Florida 33607
(813)
264-2241
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|
(Name,
address and telephone number of agent for service)
Copy
of communications to:
Darrin
M. Ocasio, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of Americas
New
York, NY 10018
Telephone:
212-930-9700
Facsimile:
212-930-9725
|
Approximate
date of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title
of each class
of
securities to be
registered(1)
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Amount
to be
registered
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Proposed
maximum
offering
price
per
share
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Proposed
maximum
aggregate
offering
price
|
Amount
of
registration
fee(2)
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|||||||||
|
Common
stock
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26,472,843(3
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)
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$
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0.08
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$
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2,117,827.44
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$
|
268.43
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|||||
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Common
stock
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32,625,000(4
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)
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$
|
0.08
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$
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2,610,000.00
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$
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330.82
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|||||
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Total
Registration Fee
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$
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599.25
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|||||||||||
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(1)
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Includes
shares of our common stock, no par value, which may be offered pursuant
to
this registration statement, which shares are issuable pursuant to
subscription agreements and the exercise of warrants by the selling
stockholders. We are also registering such additional shares of common
stock as may be issued as a result of stock-splits, stock dividends
and
similar transactions pursuant to Rule 416. The number of shares of
common
stock registered hereunder represents a good faith estimate by us
of the
number of shares of common stock issuable pursuant to subscription
agreements and upon exercise of the warrants. For purposes of estimating
the number of shares of common stock to be included in this registration
statement, we calculated 100% of the number of shares of our common
stock
issuable pursuant to subscription agreements assuming the issuance
price
will be at $0.12 per share. Should we have insufficient shares, we
will
not rely upon Rule 416, but will file a new registration statement
to
cover the resale of such additional shares should that become necessary.
|
| (2) |
Fee
calculated in accordance with Rule 457(c) of the Securities Act.
Estimated
for the sole purpose of calculating the registration fee and based
upon
the average quotation of the high and low price of our common stock
on
October
3, 2005,
as reported on the OTC Bulletin
Board.
|
| (3) |
Represents
common stock that may be issued under subscription agreements.
|
| (4) |
Represents
common stock that may be issued upon the exercise of common share
purchase
warrants.
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THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS
MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
THE
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
PROSPECTUS
Subject
to Completion
October
3, 2005
NANOBAC
PHARMACEUTICALS, INCORPORATED
59,097,843
SHARES OF COMMON STOCK
This
prospectus relates to the resale by certain selling stockholders of up to
59,097,843 shares of common stock of Nanobac Pharmaceuticals, Incorporated
issuable to the selling stockholders:
-
up to
26,472,843 shares of common stock pursuant to subscription and other agreements;
and
-
up to
32,625,000 shares of common stock issuable to certain selling stockholders
assuming the exercise of outstanding common share purchase
warrants.
The
selling stockholders may offer to sell the shares of common stock being offered
in this prospectus at fixed prices, at prevailing market prices at the time
of
sale, at varying prices or at negotiated prices. We will not receive any
proceeds from the resale of shares of our common stock by the selling
stockholders.
Our
common stock is quoted on the OTC Bulletin Board under the symbol "NNBP". On
October 3, 2005 the closing bid price for one share of our common stock was
$0.08.
We do
not have any securities that are currently traded on any other exchange or
quotation system.
Our
business is subject to many risks and an investment in our common stock will
also involve a high degree of risk. You should invest in our common stock only
if you can afford to lose your entire investment. You should carefully consider
the various Risk Factors described beginning on page 9 before investing in
our
common stock.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
information in this prospectus is not complete and may be changed. The selling
stockholder may not sell or offer these securities until this registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an
offer to buy these securities in any state where the offer or sale is not
permitted.
The
date
of this prospectus is October 3, 2005.
The
following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
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As
used
in this prospectus, the terms "we", "us", "our", and "Nanobac" mean Nanobac
Pharmaceuticals, Incorporated and its subsidiaries, unless otherwise
indicated.
Our
Business
We
are
dedicated to improving people’s health through the detection and eradication of
nanobacterium sanguineum
(nanobacteria). Our research is establishing the pathogenic role of Nanobacteria
in calcification, particularly in coronary artery heart disease and vascular
disease. We have identified two biomarkers of nanobacterial infection, labelled
NB2™ ELISA assays, to detect nanobacterial antigen ad IgG antibody. We are also
leveraging our proprietary knowledge and intellectual property to develop
therapies to treat nanobacterial infection. We currently market a patented
therapeutic nanobacteria regimen that we developed.
Our
intellectual property covers methods for the detection, growth and treatment
of
Nanobacteria and is being leveraged to develop novel companion diagnostic and
therapeutic products to detect and treat nanobacterial infections. We are also
exploring commercialization opportunities in the bio-industrial and bio-medical
markets.
About
Nanobacteria - Nanobacteria are extremely small cell-walled micro organisms.
We
believe that they are the smallest self-replicating organism ever detected.
Nanobacteria were first discovered in 1988 by a Finnish researcher, and Nanobac
co-Founder Olavi Kajander, M.D., Ph.D. Dr. Neva Ciftcioglu joined his team
in
1991 and their corroborated work with nanobacteria has put them at the forefront
of research into this medically important pathogen. Their research was the
first
to establish that blood-borne Nanobacteria forms slow-growing calcified colonies
in arteries and organs, much as coral reefs are formed.
There
are
medical researchers that contend that nanobacteria not alive and they are
artifacts, contaminants or crystalline growths. We believe research shows that
nanobacteria have many characteristics of life and further research is required.
We
are
also working on the following portfolio of diagnostic and therapeutic products
focused on Nanobacteria and diseases of pathological calcification.
1. Diagnostics
-
We have developed two diagnostic assays to identify the presence of Nanobacteria
in blood. One test measures levels of Nanobacterial antigen (NANO-CAPTURE -
Nanobacterial Antigen Assay) and the other test measures whether a patient
has
been exposed to Nanobacteria (NANO-SERO - Nanobacteria Antibody Assay). Our
goal
is to develop diagnostic assays that will be globally distributed for a variety
of diseases associated with nanobacterial infection and pathologic
calcification. Our diagnostic tests will facilitate further research into the
cause and effect of Nanobacteria and will allow researchers the ability to
measure changes in levels of Nanobacteria in their test patients.
2. Therapeutics
- We are in the process of implementing a clinical strategy to develop novel
therapies against nanobacterial infections. Currently, we offer a combination
of
supplements that are designed to help break down the hydroxylapatite shell
that
encapsulates Nanobacteria, which may make the pathogen more susceptible to
antimicrobial therapy. Preliminary results demonstrate that our combination
of
supplements, along with the antibiotic Tetracycline HCL, may reduce coronary
calcium scores. However, further studies are required and the preliminary
results may be incorrect. To date, no drugs have demonstrated the ability to
significantly decrease coronary calcium scores.
3. Other
Applications - Nanobacteria may also be contaminating biologics, like vaccines
and bio-medical devices, like implantable hip replacement parts. We are
exploring commercial opportunities to detect and eradicate nanobacterial
infection or contamination in the following additional markets:
| · |
Bio-Medical-
Vaccines and Blood Products
|
| · |
Bio-Industrial-
Implantable Durable Medical Devices and Medical Exam
Equipment
|
Prospectus
Summary (continued)
Disease
Markets - Nanobacteria may be implicated in a variety of human diseases
associated with pathological calcification including coronary artery disease,
kidney stones, polycystic kidney disease, prostatitis and cancers with calcium.
Treatment costs associated with these diseases represent over $350 billion
of
total healthcare spending. Most significant amongst this list is cardiovascular
disease. Cardiovascular disease represents 27% of all physician visits and
26%
of all physician scripts in the United States. Coronary artery disease (CAD)
is
the most common form of heart disease. CAD begins as coronary artery
calcification that leads to atherosclerosis before developing into
CAD.
Our
principal executive offices are located at 2727 W. Martin Luther King Blvd.,
Suite 850, Tampa, Florida 33607. We were incorporated under the laws of the
state of Florida. Our telephone number is (813) 264-2241.
Number
of Shares Being Offered
This
prospectus covers the resale by the selling stockholders named in this
prospectus of up to 26,472,843 shares of our common stock issued to selling
stockholders, and up to 32,625,000 shares of common stock which may be issued
to
the selling stockholders upon the exercise of outstanding common share purchase
warrants issued in connection with private placement. The selling stockholders
may sell the shares of common stock in the public market or through privately
negotiated transactions or otherwise. The selling stockholders may sell these
shares of common stock through ordinary brokerage transactions, directly to
market makers or through any other means described in the section entitled
"Plan
of Distribution".
Number
of Shares Outstanding
There
were 189,006,760 shares of our common stock issued and outstanding as at October
3, 2005.
Use
of Proceeds
We
will
not receive any of the proceeds from the sale of the shares of common stock
being offered for sale by the selling stockholder. We will, however, incur
all
costs associated with this registration statement and prospectus.
Prospectus
Summary (continued)
Summary
of Financial Data
The
following selected consolidated financial data has been derived from our
consolidated financial statements. The information below should be read in
conjuncture with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our Consolidated Financial Statements and related
notes. The following information is presented as of and for the period from
February 22, 2002 (date of inception) through December 31, 2002 and as of and
for the years ended December 31, 2003 and 2004.
|
Years
ended December 31,
|
||||||||||
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2004
|
2003
|
2002
|
||||||||
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Consolidated
Balance Sheet Data:
|
||||||||||
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Working
Capital
|
($1,189,310
|
)
|
($6,763,635
|
)
|
($340,922
|
)
|
||||
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Total
assets
|
$
|
9,684,307
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$
|
6,044,090
|
$
|
5,223
|
||||
|
Total
liabilities
|
$
|
3,573,463
|
$
|
6,850,246
|
$
|
346,145
|
||||
|
Shareholders'
equity (deficit)
|
$
|
6,110,844
|
($806,156
|
)
|
($340,922
|
)
|
||||
|
Shares
outstanding at period end
|
187,240,093
|
99,968,840
|
19,982,965
|
|||||||
|
Consolidated
Statement of Operation Data:
|
||||||||||
|
Revenue
|
$
|
358,361
|
$
|
482,815
|
$
|
0
|
||||
|
Gross
profit
|
$
|
257,891
|
$
|
149,693
|
$
|
0
|
||||
|
Operating
loss
|
($7,600,383
|
)
|
($2,700,211
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)
|
($43,621
|
)
|
||||
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Loss
from continuing operations
|
($8,461,140
|
)
|
($2,761,133
|
)
|
($43,621
|
)
|
||||
|
Net
loss
|
($8,518,408
|
)
|
($3,699,491
|
)
|
($1,475,299
|
)
|
||||
|
Diluted
earnings per share
|
($0.06
|
)
|
($0.05
|
)
|
($0.11
|
)
|
||||
|
Cash
dividends
|
$
|
0
|
$
|
0
|
$
|
0
|
||||
|
Cash
dividends per share
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
||||
|
Weighted
average common shares
|
152,903,084
|
67,489,524
|
13,941,197
|
|||||||
|
(1)
|
Consolidated
Balance Sheet and Consolidated Statement of Operation data for
the years
ended December 31, 2004 and 2003 give effect to our acquisition
of
NanobacLabs Pharmaceuticals, Inc. in June 2003 and Nanobac OY in
November
2003.
|
|
(2)
|
Consolidated
Statement of Operation data for the years ended December 31,
2004, 2003
and 2002 give effect for the October 2003 decision to dispose
of the
HealthCentrics business Unit. Accordingly, HealthCentrics’ operations for
2002 and 2003 have been removed from continuing operations.
|
An
investment in our common stock involves a number of very significant risks.
You
should carefully consider the following risks and uncertainties in addition
to
other information in this prospectus in evaluating our company and our business
before purchasing shares of common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.
The risks described below are not the only ones facing our company. Additional
risks not presently known to us may also impair our business operations. You
could lose all or part of your investment due to any of these
risks.
We
require additional financing in order to continue in business as a going
concern, the availability of which is uncertain. We may be forced by business
and economic conditions to accept financing terms which will require us to
issue
our securities at a discount, which could result in further dilution to our
existing stockholders.
As
discussed under the heading, "Management's Discussion and Analysis - Liquidity
and Capital Resources," we require additional financing to fund our operations.
There can be no assurance that additional financing will be available to us
when
needed or, if available, that it can be obtained on commercially reasonable
terms. In addition, any additional equity financing may involve substantial
dilution to our stockholders. If we fail to raise sufficient financing to meet
our immediate cash needs, we will be forced to scale down or perhaps even cease
the operation of our business, which may result in the loss of some or all
of
your investment in our common stock.
In
addition, in seeking debt or equity private placement financing, we may be
forced by business and economic conditions to accept terms which will require
us
to issue our securities at a discount from the prevailing market price or face
amount, which could result in further dilution to our existing
stockholders.
Liquidity
and Working Capital Risks; Need for Additional Capital to Finance Growth and
Capital Requirements
Throughout
2004 and 2003, affiliates of our Chief Executive Officer have provided our
capital needs through loans and capital contributions. While these affiliates
continue to provide for the majority of our cash requirements, they are under
no
obligation to continue such financing and/or strategic guidance. In the event
these affiliates should discontinue their support, we may have difficulty in
continuing our operations. In such an event, shareholders could lose their
investment in its entirety. Historically, these affiliates have provided capital
to us on a demand debt basis after which they may convert debt into shares
of
our common stock. If, in the future we require additional capital, these
affiliates may contribute some or all of our requirements. We anticipate that
as
a part of any such loan, these affiliates would have rights to convert into
additional shares of our common stock. In such an event and to the degree of
which we require these affiliates’ support, shareholders may experience
dilution. At present, we do not maintain key man insurance for our CEO.
In
addition to the financial support we may receive from affiliates of our CEO,
we
may continue to seek to raise capital from public or private equity or debt
sources to provide working capital to meet our general and administrative costs
until net revenues make the business self-sustaining. We cannot guarantee that
we will be able to raise any such capital on terms acceptable to us or at all.
Such financing may be upon terms that are dilutive or potentially dilutive
to
our stockholders. If alternative sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available funding.
Risk
Factors (continued)
Potential
Incorrect Conclusions on the Detection and Eradication of
Nanobacteria
Most
of
our future revenue is based on our ability to detect and eradicate Nanobacteria.
If it is ultimately proved that our diagnostic methodologies and treatment
regimens as covered by our patents are ineffective or based upon incorrect
scientific conclusions, our existing patents and product lines may lose most
or
all of their value. Further, if we are unsuccessful in leveraging our diagnostic
and therapeutic products to detect and treat nanobacterial diseases, we may
not
generate sufficient revenue to offset our expenses.
Acceptance
of Products in the Marketplace is Uncertain.
Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our proposed treatments and products.
Our treatments and products may not achieve market acceptance, and such adverse
marketing results could materially harm the Company.
Limited
Operating History Anticipated Losses; Uncertainty of Future
Results
We
have a
limited operating history upon which an evaluation of our Company and our
prospects can be based. Our prospects must be evaluated with a view to the
risks
encountered by companies in early stages of development, particularly in light
of the uncertainties relating to the new and evolving biolife science research
which we intend to develop and market, and the acceptance of our business model.
We will be incurring costs to: (i) perform research studies to prove the
effectiveness of our pharmaceutical products, (ii) further develop and market
our products; (iii) establish distribution relationships; and (iv) build an
organization. To the extent that such expenses are not subsequently followed
by
commensurate revenues, our business, results of operations and financial
condition will be materially adversely affected. We, therefore, cannot insure
that we will be able to immediately generate sufficient revenues. We expect
negative cash flow from operations to continue for at least the next 12 months
as we continue to develop and market our business. If cash generated by
operations is insufficient to satisfy our liquidity, we may be required to
sell
additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. Our initial operations may not be profitable, since time will
be
required to build our business to the point that our revenues will be sufficient
to cover our total operating costs and expenses. Our reaching a sufficient
level
of sales revenues will depend upon a large number of factors, including
availability of sufficient working capital, the number of customers we are
able
to attract and the costs of continuing development of our product
line.
Federal
Food and Drug Administration
Some
or
all of our products may be governed by rules and regulations established by
the
United States Food and Drug Administration (“FDA”). Changes in FDA regulations
and the enforcement thereof may affect our biolife science business.
Furthermore, we may not be successful in filing and obtaining approval of our
510K or PMA filings with the FDA for our Nano-Capture Antigen and Nano-Sero
IgG
ELISA assays.
Data
Obtained Through Clinical Trials.
Data
obtained from pre-clinical studies and clinical trials do not necessarily
predict results that will be obtained from later pre-clinical studies and
clinical trials. Moreover, pre-clinical and clinical data is susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after experiencing
promising results in earlier trials. The failure to adequately demonstrate
the
safety and/or effectiveness of an intended product under development could
delay
or prevent regulatory clearance of the potential drug or treatment, resulting
in
delays to commercialization, and could materially harm the
business.
Risk
Factors (continued)
Competitors
in the Pharmaceutical Industry May Develop Competing
Technologies
Drug
companies and/or other health care companies may seek to develop and market
technologies which may compete with our Company’s technology. While we believe
that our technology regarding the prescription treatment of nanobacterial
infections caused by nanobacterium sanguineum is unique, other competitors
may
develop similar or different treatments which may become more accepted by the
marketplace.
Regulations
may Inhibit our Ability to Sell Nanobac Supplements
Codex
is
a joint body comprising government representatives
and non-governmental organizations, jointly managed by the United
Nation's (U.N.) Food and Agriculture Organization (FAO) and the World
Health Organization (WHO) of the U.N. The Codex Committee on Nutrition and
Foods
for Special Dietary Uses (CCNFSDU) has been attempting to develop international
guidelines for vitamins and minerals since 1991. In November 2004, these
guidelines were finalized and a vote to ratify will take place in July,
2005.
There
is
a school of thought within the dietary supplement community that
buying vitamins and other dietary supplements will be severely limited
by
this CODEX. Passage of the above guidelines may inhibit our ability
to sell
Nanobac Supplement outside of the United States. We do not believe that the
passage will impact United State revenue as the U.S. draft position states
that
"The United States supports consumer choice and access to dietary supplements
that are safe and are labelled in a truthful and non-misleading manner."
Further, the CODEX Draft notes that the Codex Guidelines for Vitamin and Mineral
Supplements will not adversely affect the availability of safe and truthfully
labelled supplement products in the U.S. marketplace or to U.S. consumers.
If
our interpretation is not correct passage of the international guidelines may
inhibit the sales of Nanobac Supplement inside and outside of the United States
Risk
of Third Party Lawsuits.
We
are
exposed to potential product liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. We cannot assure
potential investors that such claims will not be asserted against the Company.
A
successful liability claim or series of claims brought against us could have
a
material adverse effect on our financial condition. In addition, we may be
sued
by third parties who claim that our products and treatments infringe upon the
intellectual property rights of others or that we have misappropriated trade
secrets of others. This risk is exacerbated by the fact that the validity and
breadth of claims covered in medical technology patents and the breadth and
scope of trade secret protection involve complex legal and factual questions
for
which important legal principles are unresolved. Any litigation or claims
against us, whether or not valid, could result in substantial costs, could
place
a significant strain on our financial resources, and could harm our
reputation.
Government
Regulation
Healthcare
in general and the pharmaceuticals industry in particular are highly regulated
markets, subject to both federal and a multitude of state regulations and
guidelines. The majority of our business is still in clinical research
applications and is governed by the medical community. There can be no assurance
that changes to state or federal laws will not materially restrict our ability
to sell our products or develop new product lines.
Intellectual
Property Rights
We
have a
family of patents encompassing the detection and eradication of nanobacteria.
There are risks inherent in any intellectual property rights in that they may
be
challenged as being invalid or not original. Additionally, other parties may
abuse such intellectual rights, causing the Company to defend its rights.
Risk
Factors (continued)
Dependency
upon Key Technical and Scientific Personnel Who May Terminate Employment at
Any
Time.
Our
success will depend to a significant degree upon the continued services of
key
technical and scientific personnel, including but not limited to E. Olavi
Kajander, MD, PhD. In addition, our success may depend on our ability to attract
and retain other highly skilled personnel. Competition for qualified personnel
is intense, and the process of hiring and integrating such qualified personnel
is often lengthy. We may be unable to recruit personnel on a timely basis,
if at
all. All of the Company’s management and other employees may voluntarily
terminate their employment with us at any time. The loss of the services of
key
personnel, or the inability to attract and retain additional qualified
personnel, could result in delays to development, loss of sales, and/or
diversion of management resources that could have a material adverse affect
on
the Company.
Competition
The
markets in which we compete include successful and well-capitalized competitors
that vary in size and scope. Principal competitors include Pfizer, Merck and
other pharmaceutical companies having unique treatments for cardiovascular
disease. All of these competitors are more established, benefit from greater
name recognition and have substantially greater resources than us. Moreover,
we
could face additional competition as other established and emerging companies
enter the market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer subscriptions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and operating results. In
addition, current and potential competitors may make strategic acquisitions
or
establish cooperative relationships among themselves or with third-parties,
thereby increasing the ability of their products to address the needs of our
prospective consumers. While we believe we can differentiate our product from
these current and future competitors, focusing on the products' functionality,
flexibility, adaptability and features, there can be no assurance that we will
be able to compete successfully against current and future competitors. The
failure to effectively compete would have a material adverse effect upon our
business, financial condition and operating results.
Lack
of Independent Directors
We
cannot
guarantee our Board of Directors will have a majority of independent directors
in the future. In the absence of a majority of independent directors, our
executive officers, who are also principal stockholders and directors, could
establish policies and enter into transactions without independent review and
approval thereof. This could present the potential for a conflict of interest
between the Company’s stockholders and the controlling officers and/or
directors.
Limitation
of Liability and Indemnification of Officers and Directors
Our
officers and directors are required to exercise good faith and high integrity
in
our management affairs. Our Articles of Incorporation and By Laws provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from
any
transaction in their respective managerial capacities unless they violated
their
duty of loyalty, did not act in good faith, engaged in intentional misconduct
or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which
they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner they
reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct
or
breach of fiduciary obligations.
Continued
Control by Current Officers and Directors
The
present officers and directors control approximately 50% of the outstanding
shares of Common Stock, and are in a position to elect all of our Directors
and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of the Company, the appointment of officers,
and the determination of officer's salaries. Shareholders have no cumulative
voting rights.
Please
read this prospectus carefully. You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you
with
different information. You should not assume that the information provided
by
the prospectus is accurate as of any date other than the date on the front
of
this prospectus.
This
prospectus contains forward-looking statements, which relate to future events
or
our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors" on pages 8 to 11, that may cause our or our industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.
While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of
the
forward-looking statements to conform these statements to actual results The
safe harbour for forward-looking statements provided in the Private Securities
Litigation Reform Act of 1995 does not apply to the offering made in this
prospectus.
Any
member of the public may read and copy any materials filed by us with the
Securities and Exchange Commission at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The
SEC maintains an Internet web site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.
This
prospectus covers the resale by the selling stockholders named in this
prospectus by the selling stockholders named in this prospectus of:
-
up to
26,472,843
shares
of common stock including common stock issuable to the selling stockholders
pursuant to subscription agreements; and
-
up to
32,625,000
shares
of common stock issuable to selling stockholders assuming the exercise of
outstanding common share purchase warrants.
The
shares of common stock offered hereby are being registered for the account
of
the selling stockholders named in this prospectus. As a result, all proceeds
from the sales of the common stock will go to the selling stockholders and
we
will not receive any proceeds from the resale of the common stock by the selling
stockholders. We will, however, incur all costs associated with this
registration statement and prospectus.
This
prospectus relates to the offer and sale by the following selling stockholders
of the indicated number of shares, all of which are issuable pursuant to
warrants and subscription agreements held by these selling stockholders. The
number of shares set forth in the table for the selling stockholders represents
an estimate of the number of shares of common stock to be offered by the selling
stockholders. The actual number of shares of common stock issuable pursuant
to
the subscription agreements is based on the future market price of the common
stock. The actual number of shares of common stock offered in this prospectus,
and included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued
or
issuable pursuant to the subscription agreements and exercise of the related
warrants by reason of any stock split, stock dividend or similar transaction
involving the common stock, in accordance with Rule 416 under the Securities
Act
of 1933.
The
Shareholder identified under “OY Acquisition” is currently employed by the
Company, but is not a Named Executive Officer of the Company. None of the other
selling stockholders have held any position or office within our company, nor
have they had any other material relationship with us in the past three years,
other than in connection with transactions pursuant to which the selling
stockholders acquired convertible notes and warrants. We have been notified
by
the selling stockholders that they are not broker-dealers or affiliates of
broker-dealers and that they believe they are not required to be
broker-dealers.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common
stock
each person will own after the offering, assuming they sell all of the shares
offered.
Selling
Shareholders (continued)
|
Shares
Beneficially Owned
|
Shares
Beneficially Owned
|
|||||||||||||||
|
Prior
to the Offering
|
Total
Shares
|
After
the Offering
|
||||||||||||||
|
Name
|
Number
(1)
|
Percent
(2)
|
Registered
(1) (3)
|
Number
|
Percent
(2)
|
|||||||||||
|
Subscription
Agreements
|
||||||||||||||||
|
The
Nutmeg Group, LLC (4)
|
32,500,000
|
14.6
|
%
|
32,500,000
|
0
|
0.0
|
%
|
|||||||||
|
3366
Commercial
|
||||||||||||||||
|
Northbrook,
IL 60062
|
||||||||||||||||
|
Jaytern
Associates, Inc. (5)
|
6,250,000
|
3.1
|
%
|
6,250,000
|
0
|
0.0
|
%
|
|||||||||
|
29
Beach Road
|
||||||||||||||||
|
Monmouth
Beach, NJ 07750
|
||||||||||||||||
|
NITE
Capital (6)
|
10,000,000
|
4.9
|
%
|
10,000,000
|
0
|
0.0
|
%
|
|||||||||
|
100
East Cook Avenue, Suite 201
|
||||||||||||||||
|
Libertyville,
IL 60048
|
||||||||||||||||
|
Hartsfield
Capital Securities, Inc. (7)
|
3,250,000
|
1.6
|
%
|
3,250,000
|
0
|
0.0
|
%
|
|||||||||
|
3775
Mansell Road
|
||||||||||||||||
|
Alparetta,
GA 30022
|
||||||||||||||||
|
Subtotal
|
52,000,000
|
21.8
|
%
|
52,000,000
|
0
|
0.0
|
%
|
|||||||||
|
Conversion
of Current Liabilities
|
||||||||||||||||
|
Benedict
Maniscalco
|
1,566,925
|
0.8
|
%
|
951,925
|
615,000
|
0.3
|
%
|
|||||||||
|
4730
N. Habana Avenue
|
||||||||||||||||
|
Suite
201
|
||||||||||||||||
|
Tampa,
FL 33614
|
||||||||||||||||
|
MacFarlane
Ferguson & McMullen
|
222,460
|
0.1
|
%
|
222,460
|
0
|
0.0
|
%
|
|||||||||
|
400
North Tampa Street
|
||||||||||||||||
|
Suite
2300
|
||||||||||||||||
|
Tampa,
FL 33602
|
||||||||||||||||
|
Subtotal
|
1,789,385
|
0.9
|
%
|
1,174,385
|
615,000
|
0.3
|
%
|
|||||||||
|
OY
Acquisition
|
||||||||||||||||
|
E.
Olavi Kajander (8)
|
6,523,458
|
3.3
|
%
|
5,923,458
|
600,000
|
0.3
|
%
|
|||||||||
|
2727
W Martin Luther King Blvd
|
||||||||||||||||
|
Suite
850
|
||||||||||||||||
|
Tampa,
Florida 33607
|
||||||||||||||||
|
Subtotal
|
6,523,458
|
3.3
|
%
|
5,923,458
|
600,000
|
0.3
|
%
|
|||||||||
|
Total
|
60,312,843
|
24.7
|
%
|
59,097,843
|
1,215,000
|
0.6
|
%
|
|||||||||
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under such rule, beneficial ownership includes any shares as to which the
selling stockholder has sole or shared voting power or investment power and
also
any shares, which the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable pursuant to the
subscription agreements are subject to adjustment depending on the future market
price of the common stock, and could be materially less or more than the number
estimated in the table.
| (1) |
Represents
common stock that potentially may be issued: (a) pursuant to subscription
agreements; and (b) upon the exercise of common share purchase warrants
issued to the named selling stockholders pursuant to subscription
agreements. The subscription agreements contains a contractual restriction
on beneficial share ownership. It provides that the holder may not
receive
shares, or exercise the warrant, to the extent that such shares,
would
result in the holder, together with its affiliates, beneficially
owning in
excess of 4.99% of our then issued and outstanding shares of common
stock.
For the purposes of this table, any contractual restriction on the
number
of securities the selling stockholders may own at any point in time
has
been disregarded.
|
| (2) |
Includes
189,006,760 shares of common stock issued and outstanding as of October
3,
2005 and 32,625,000 Warrants related to the selling
shareholders.
|
| (3) |
Assumes
that all securities registered will be
sold.
|
| (4) |
Includes
10,833,333 shares of common stock underlying a subscription amount
of
$650,000 and 8,125,000 shares underlying warrants exercisable at
120% of
the Fixed Price per share and 8,125,000 shares underlying warrants
exercisable at 150% of the Fixed Price per share.
|
| (5) |
Includes
2,083,333 shares of common stock underlying a subscription amount
of
$125,000 and 1,562,500 shares underlying warrants exercisable at
120% of
the Fixed Price per share and 1,562,500 shares underlying warrants
exercisable at 150% of the Fixed Price per share.
|
| (6) |
Includes
3,333,333 shares of common stock underlying a subscription amount
of
$200,000 and 2,500,000 shares underlying warrants exercisable at
120% of
the Fixed Price per share and 2,500,000 shares underlying warrants
exercisable at 150% of the Fixed Price per share.
|
| (7) |
Includes
3,250,000 shares underlying warrants at approximately $.15 per
share.
|
| (8) |
Includes
5,000,000 shares of common stock underlying warrants exercisable
at $.005
per share.
|
Subscription
Agreements
From
August through February 2005, we entered into subscription agreements, with
the
selling stockholders, for a private placement of shares of common stock and
warrants for an aggregate purchase price of $2,950,000 ($1,000,000 of which
is
from an affiliate of the Company). As of date, we received an aggregate of
$1,475,000 from the selling stockholders (including $500,000 from an affiliate
of the Company) and the balance will be paid within five days of the
effectiveness of this prospectus. The purchasers are irrevocably bound to
purchase our securities.
Shares
of Common Stock
The
shares of common stock are priced at the lesser of
(a)
$0.12, or
(b)
fifty-two percent (52%) of the average closing bid price for the common stock
on
the five trading days immediately prior to the date on which the registration
statement is declared effective.
(the
lesser of (a) and (b) are referred to as the "Fixed Price").
Warrants
The
selling stockholders will be issued warrants exercisable into such number of
shares of common stock equal to 100% of the subscription amount paid by the
selling stockholders, divided by the Fixed Price. The warrants expire on
December 31, 2008. Fifty percent (50%) of such warrants are exercisable into
shares of common stock at a price per share equal to 110% of the lesser of
(a)
$0.12; or (b) fifty-two percent (52%) of the average closing bid price for
our
common stock for the five trading days immediately prior to the filing with
the
Securities and Exchange Commission of the Registration Statement]. The remaining
fifty percent (50%) of the warrants are exercisable into shares of common stock
at price per share equal to 150% of the lesser of (a) $0.12; or (b) fifty-two
percent (52%) of the average closing bid price for Common Stock on the five
trading days immediately prior to the filing with the Securities and Exchange
Commission of the Registration Statement].
Conversion
of Current Liabilities
During
October and December 2004, we entered into agreements with two creditors for
the
conversion of approximately $170,000 of current liabilities into 1,174,385
shares of common stock. The current liabilities were the result of professional
services provided to us.
OY
Acquisition
In
January, March and August, we executed agreements to issue 5,923,458 shares
of
our common stock and 5,000,000 warrants exercisable into shares of our common
stock in exchange for the remaining 35% of Nanobac OY and the settlement of
past
services provided by the minority stockholders of Nanobac OY. At the conclusion
of these transactions, we owned 100% of Nanobac OY.
The
selling stockholders and any of their respective pledgees, donees, assignees
and
other successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. The selling stockholders may use any one or more
of
the following methods when selling shares:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately-negotiated
transactions;
|
| · |
short
sales that are not violations of the laws and regulations of any
state or
the United States;
|
| · |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
| · |
through
the writing of options on the
shares;
|
| · |
a
combination of any such methods of sale; and
|
| · |
any
other method permitted pursuant to applicable law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The selling stockholders
shall have the sole and absolute discretion not to accept any purchase offer
or
make any sale of shares if they deem the purchase price to be unsatisfactory
at
any particular time.
The
selling stockholders may also engage in short sales against the box, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
The
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves
or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or
the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in
this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of
any
of the shares offered in this prospectus, may be deemed to be "underwriters"
as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts.
The
selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
Plan
of Distribution (continued)
The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
The
selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales
of
any of the shares by, the selling stockholders or any other such person. In
the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions
or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion.
In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
Except
as
described below, we know of no material, active or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceedings
or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholders are an
adverse party or has a material interest adverse to us.
On
September 24, 2004 a civil action was filed in United States District Court
-
Southern District of California by World Health Products, LLC (“World Health”)
broadly alleging that the Company, together with a customer of the Company
(“Customer”), has infringed on its Patent Number 5,602,180 related to the sale
of suppositories included in the Company’s supplement product. World Health
alleged additional complaints against the Customer to which the Company is
not
liable. During February 2005, World Health dropped the Company from their
lawsuit as there tests of the Company’s suppositories determined that World
Health’s patents were not being infringed upon.
|
Name
|
Position
Held with the Company
|
Age
|
Date
First
Elected
or Appointed
|
|||
|
John
Stanton
|
Chief
Executive and Financial Officer, and Chairman
|
56
|
November
2000
|
|||
|
Alex
Edwards
|
Director
|
40
|
March
2003 and January 2004
|
|||
|
Dr.
Jan Egberts
|
Director
|
45
|
January
2004
|
|||
|
Dr.
Stephen Rechtschaffen
|
Director
|
55
|
January
2004
|
|||
Business
Experience
The
following is a brief account of the education and business experience during
at
least the past five years of each director, executive officer and key employee,
indicating the principal occupation during that period, and the name and
principal business of the organization in which such occupation and employment
were carried out.
John
Stanton - Chairman Chief Executive Officer and Chief Financial
Officer
- From
March 2001 through January 2004, Mr. Stanton served as our Chief Executive
Officer (“CEO”). Mr. Stanton reassumed the role of CEO on July 23, 2004. From
March, 2001 through the present, Mr. Stanton has served as our Chairman of
the
Board of Directors and Chief Financial Officer. From 1987 through the present,
Mr. Stanton served as the President and CEO of Florida Engineered Construction
Products, Corporation. Mr. Stanton has served as Chairman of the Board of
Directors of publicly-traded EarthFirst Technologies, Inc. from May 15, 2000
through the present. Mr. Stanton also serves on the Board of Directors of
publicly traded Medical Technology Systems, Inc., Powercerv Corp., Cybercare,
Inc. and White Knight SST, Inc. Since the early 1990's, Mr. Stanton has been,
and continues to be, involved in turn-around management for financially
distressed companies, providing both management guidance and financing. In
1981,
Mr. Stanton assumed the role of Chief Financial Officer for Florida Engineered
Construction Products, Corporation, a privately held manufacturer of residential
and commercial construction products, located in Tampa, Florida. Mr. Stanton
worked as an auditor with the international professional services firm that
is
now known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton, a
Vietnam veteran of the United States Army, graduated from the University of
South Florida with a Bachelors Degree in Marketing and Accounting in 1972,
and
with an MBA in 1973. Mr. Stanton earned the designation of Certified Public
Accountant in 1974 and was a Sells Award winner in the CPA examination. Mr.
Stanton is a lifetime resident of Tampa, Florida.
Directors,
Executive Officers, Promoters and Control Persons
(continued)
Alex
Edwards - Director -
Beginning January 2004, Mr. Edwards served as our CEO. He relinquished the
CEO
role to Mr. Stanton in July 2004. From March 2003 through January 2004, Mr.
Edwards served as our Executive Vice President and Chief Operating Officer.
Mr.
Edwards was also a Director from March 2003 through May 2003. He rejoined the
Board of Directors in January 2004 and continues to serve on the Board of
Directors through the present. From May 2002 through present, Mr. Edwards is
a
managing partner of 360 Partners as well as president and CEO of 360 Energy.
From January 1997 to May 2002, Edwards was an executive with SRI/Surgical
Express. He served in roles that ranged from vice-president/general manager
to
spending his last year with the company as president. From February 1993 through
December 1996, he worked in sales and marketing with Dianon Systems, Inc. His
positions included sales and sales management roles as well as field and
corporate marketing. Mr. Edwards also served as an officer in the United States
Navy with duty assignments ranging from shipboard divisional leadership to
executive assistant for the Naval Surface Group Commander in Norfolk, Virginia.
Mr. Edwards is a 1987 graduate of the United States Naval Academy.
In
August
4003 Mr. Edwards settled a civil enforcement action brought against him by
the
Securities and Exchange Commission in U.S. District Court in Tampa, Florida.
The
complaint alleged that Mr. Edwards, while serving as president of SRI/Surgical
Express, Inc. (SRI), a publicly traded Florida hospital supply company, caused
SRI to enter into two transactions that resulted in SRI overstating its Fiscal
2001 third quarter revenue. Without admitting or denying the allegations in
the
complaint, Mr. Edwards consented to the entry of a Final Judgment permanently
enjoining him from future violations of (or aiding and abetting violations
of)
Sections 10(b), 13(b)(5), and 13(b)(2)(A) and (B) of the Securities Exchange
Act
of 1934 and Exchange Act Rule 13b2-1. The Final Judgment also imposed a $50,000
civil penalty.
Dr.
Jan Egberts - Director - Dr.
Egberts joined the Board of Directors on February 2, 2004. From February 2001
to
January 2004 Dr Egberts served as Chairman of Molnlycke Healthcare, Inc. in
Newtown, PA. In addition, he served concurrently as President of the BARRIER
division from February 2001 through April 2002 and from April 2002 to January
2004 as Senior Vice President and Global Marketing Director of Molnlycke Health
Care in Goteborg Sweden. Prior to Molnlycke, Dr. Egberts served as Vice
President, Business and Market Development World Wide for Johnson & Johnson,
New Brunswick, NJ from November, 1996 to February, 2001. At Johnson &
Johnson, he served as a member of the Global Management Board of the Johnson
& Johnson Medical franchise where he was responsible for
licensing/acquisitions, equity investment and patent management. Prior to
Johnson & Johnson, Dr. Egberts held various positions with Merck & Co.
including Senior Director Marketing, Osteoporosis Business Group in West Point,
PA from February, 1994 to November, 1996; Partner in Egberts & Company, in
Amsterdam from September, 1993 to February, 1994 and various roles including
lastly Engagement Manager with McKinsey & Company in New York, Dusseldorf,
London and Amsterdam from September, 1989 to September, 1993. Finally, Dr
Egberts was the Project Manager with Cancer Biotechnology Research and
Development Organon / Bionetics Research, Inc. from September, 1995 to August,
1997.
Dr.
Egberts received his medical degree from Erasmus University Medical School,
Rotterdam, the Netherlands in 1985. He pursued the final two years of his
Medical School at Harvard Medical School in Boston and served a Medical
Subinternship at John Hopkins Medical School in Baltimore. He received his
MBA
from Stanford Graduate School of Business in 1989.
Dr.
Stephan Rechtschaffen
-
Director
- Dr.
Rechtschaffen joined the Board of Directors on February 2, 2004. He co-founded
Omega Institute in 1977 and is the present CEO and Chairman of the Board. He
was
the developer and director of Foxhollow Wellness Spa in Lenox, MA from October
387 through June 1989, and director of the Rhinebeck Health Center in Rhinebeck,
NY, from November 1983 through March1989. Dr. Rechtschaffen is the author of:
TimeShifting;
Creating More Time to Enjoy Your Life,
1996,
published in the United States by Doubleday, and in England, Europe, Japan
and
Australia by Random House. He is co-author of Vitality
and Wellness,
1999,
published by Dell. Dr. Rechtschaffen received his medical degree in 1973 from
New York Medical College in New York City. His residency was at Harkness
Community Hospital in San Francisco.
Family
Relationships
There
are
no family relationships between any of our company's directors or executive
officers.
The
following table sets forth, as of October 3, 2005, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock
and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest
in
the shares of common stock, except as otherwise indicated.
|
Amount
and Nature of
|
Percentage
|
||||||
|
Name
and Address of Beneficial Owner
|
Beneficial
Ownership
|
of
Class(1)
|
|||||
|
Gary
S. Mezo (3)
|
|||||||
|
11407
Minaret Drive
|
|||||||
|
Tampa,
FL 33626
|
24,560,000
|
12.99
|
%
|
||||
|
John
D. Stanton (4) (5) (6)
|
89,082,658
|
47.13
|
%
|
||||
|
Alexander
Edwards III (5) (6)
|
9,166,667
|
4.85
|
%
|
||||
|
Jan
Egberts
|
0
|
0.00
|
%
|
||||
|
Stephan
Rechtschaffen
|
0
|
0.00
|
%
|
||||
|
Directors
and Executive Officers as a Group (Four persons)
|
98,249,325
|
51.98
|
%
|
||||
| (1) |
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and generally includes voting or investment power
with
respect to securities. For purposes of calculating the percentage
beneficially owned, the number of shares deemed outstanding includes
(i)
187,340,093 shares outstanding as October 3, 2005, and (ii) 1,666,667
shares underlying a subscription agreement. Unless otherwise provided,
the
street address of each beneficial owner is c/o Nanobac Pharmaceuticals,
Incorporated, 2727 W. Dr. Martin Luther King Blvd., Suite 850, Tampa,
Florida 33607.
|
| (2) |
Nanobac
has relied upon information reported by the respective shareholder
to the
SEC pursuant to Section 13(d) or 13(g) of the Securities Exchange
Act of
1934, as amended, as of April 12,
2005.
|
| (3) |
Includes
9,760,000 shares held by Mr. Mezo’s spouse, Nancy Schriewer, and 160,000
shares held by Nancy Schriewer’s father as to which he disclaims
beneficial ownership.
|
| (4) |
Includes
74,442,658 shares held by the corporate entities of Escape Velocity
of
Tampa Bay, Inc., White Knight SST, Inc., Stone Enclosure, Inc., Wade
Inc.
of Tampa Bay and Denouement Strategies, Inc. in which Mr. Stanton
owns a
controlling ownership.
|
|
(5)
|
Includes
14,640,000 shares that an affiliate of Mr. Stanton has an option
to
purchase from Mr. Mezo.
|
Changes
in Control
We
are
unaware of any contract or other arrangement the operation of which may at
a
subsequent date result in a change of control of Nanobac.
Our
authorized capital stock consists of 250,000,000 shares of common stock no
par
value, and 1,000,000 shares of preferred stock with no par value. As of October
3, 2005, there were 189,006,760 shares of our common stock issued and
outstanding. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders, including the
election of directors.
Each
stockholder is entitled to receive the dividends as may be declared by our
board
of directors out of funds legally available for dividends and, in the event
of
liquidation, to share pro rata in any distribution of our assets after payment
of liabilities. Our board of directors is not obligated to declare a dividend.
Any future dividends will be subject to the discretion of our board of directors
and will depend upon, among other things, future earnings, the operating and
financial condition of Nanobac, its capital requirements, general business
conditions and other pertinent factors. It is not anticipated that dividends
will be paid in the foreseeable future.
Stockholders
do not have pre-emptive rights to subscribe for additional shares of common
stock if issued by us. There are no conversion, redemption, sinking fund or
similar provisions regarding the common stock.
Shares
of
our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in "penny stocks". "Penny stock" is defined to be any equity security that
has a
market price (as defined) less than $5.00 per share or an exercise price of
less
than $5.00 per share, subject to certain exceptions. For the foreseeable future,
our common stock will most likely continue to be covered by the penny stock
rules, which impose additional sales practice requirements on broker-dealers
who
sell to persons other than established customers and "accredited investors."
The
term "accredited investor" refers generally to institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000
or
annual income exceeding $200,000 or $300,000 jointly with their spouse.
The
penny
stock rules require a broker-dealer, prior to a transaction in a penny stock
not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in
the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities.
The
validity of the shares of common stock offered by the selling stockholders
was
passed upon by the law firm of Sichenzia Ross Friedman Ference LLP.
There
have been no disagreements with any of our accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. On January 30, 2004, we appointed Aidman, Piser &
Company, P.A. as the independent accounting firm engaged as the principal
accounting firm to audit our financial statements for the year ended December
31, 2003. The decision to change the principal accounting firm was approved
by
our Board of Directors on January 30, 2004. For further information relating
to
our change in certifying accountants, please refer to our Current Report on
Form
8-K dated January 30, 2004 on file with the Commission.
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis or had,
or
is to receive, in connection with the offering, a substantial interest, directly
or indirectly, in the registrant or any of its parents or subsidiaries. Nor
was
any such person connected with the registrant or any of its parents,
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer or employee.
Our
consolidated financial statements as of and for the years ended December 31,
2004 and 2003, filed with this prospectus and registration statement have been
audited by Aidman, Piser & Company, P.A. independent accountants, as set
forth in their report accompanying the consolidated financial statements. The
financial statements referred to above are included herein in reliance upon
such
reports given upon the authority of the firm as experts in accounting and
auditing.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Florida law, a director or officer of Nanobac shall not be personally liable
to Nanobac or its shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Certificate of
Incorporation, as amended, is to eliminate the rights of Nanobac and its
shareholders (through shareholders' derivative suits on behalf of Nanobac)
to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent
or
grossly negligent behaviour), except under certain situations defined by
statute. Nanobac believes that the indemnification provisions in its Certificate
of Incorporation, as amended, are necessary to attract and retain qualified
persons as directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act might be
permitted to directors, officers or persons controlling our company under the
provisions described above, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
We
are a
research-based bio-lifescience company. Our research is focused on investigating
the role of Nanobacterium sanguineum, (“Nanobacteria”) in human diseases.
Researchers at Nanobac have discovered a novel nano-sized particle that we
believe is responsible for a majority of diseases associated with soft tissue
calcification or plaque. Nanobacteria are extremely tiny, mineral forming units
composed of calcium and phosphate, two primary components of bones and teeth.
Because of the mineralizing properties of Nanobacteria, they have also been
called calcifying nano-particles. Calcifying nano-particles have been identified
at the center (nidis) of numerous diseased tissues and floating in blood vessels
and in the urinary tract.
While
calcification is a normal process for building healthy bones and teeth,
calcification also plays a role in other conditions related to diseases, such
as
strokes and heart attacks. We believe that blood-borne nanobacteria forms
slow-growing calcified colonies in arteries and organs, much as coral reefs
are
formed. Calcification of blood vessels typically involves the heart’s coronary
arteries in atherosclerosis. It also occurs in arteries more generally
throughout the body in arteriosclerosis, or hardening of the arteries. Kidney
stones are calcifications within the urinary tracts. In addition, pathologic
or
soft tissue calcifications are observed in many other diseases such as,
prostatitis (a painful inflammation of the prostate gland), and Polycystic
Kidney Disease (growths of cysts in the kidneys). Research has shown the
presence of Nanobacteria in the parts of the body affected by these diseases.
We
believe that Nanobacteria may play a key role in the pathogenesis of these
and
other diseases.
We
believe that our research will lead to a better understanding of Nanobacteria
and its role in disease. This in turn will enable us to develop better
diagnostic tests to detect the presence of Nanobacteria and therapies to treat
Nanobacterial infection.
Our
objective is to gain a better understanding of the role Nanobacteria plays
in
diseases associated with soft tissue calcification (or the build up of calcified
deposits within the body), and to develop new methods to detect and treat
diseases associated with nanobacterial infection. At the same time, we intend
to
expand the sales of our Dietary Supplements and In Vitro Diagnostic products.
Our business is comprised of three areas:
| · |
Dietary
Supplements
|
| · |
In
Vitro Diagnostics
|
| · |
Bio-Medical
Research - Pharmaceutical Drug
Discovery
|
We
believe these three areas will fuel each other. The development of new and
more
effective methods to diagnose nanobacterial infection and diseases involving
pathologic calcification should increase the demand for our dietary supplements
and for new drugs that we may bring to the market alone or in partnership.
Likewise, as more effective therapies come to market, diagnostic test ordering
tends to increase.
While
there is still a long way to go in the study of Nanobacteria, we are pleased
with the results we have achieved thus far and we are optimistic about the
prospects for the future development of diagnostic tests and treatments for
diseases caused by - or associated with - nanobacterial infection.
Dietary
Supplement Products
Through
our research, we have developed a combination of dietary supplements called
“Nanobac Supplements” that are part of a patented therapeutic regimen.
Preliminary
studies have shown that the Nanobac Supplements in combination with the
antibiotic Tetracycline may decrease soft tissue calcification. One component
of
the Nanobac Supplements is a calcium disodium ethylene diamine tetraacetic
acid
(“EDTA”) rectal suppository. EDTA is a synthetic amino acid that acts as a
chelator (binding molecules such as metals and minerals and holding them tightly
so that they can be removed from a system). EDTA chelation removes heavy metals
and minerals from the blood, and is approved by the U.S. Food and Drug
Administration (“the FDA”) for use in treating lead poisoning and toxicity from
other heavy metals. Studies have shown that EDTA may help break up calcium
deposits allowing the calcium to be removed from the body.
Description
of Business (continued)
The
Company also markets a dietary supplement that is combined with the EDTA
suppository. The Nanobac Oral Supplement is a proprietary blend of essential
amino acids, enzymes, antioxidants and natural anti-inflammatory
components.
| - |
Enzymes
are proteins produced by living organisms and functioning as biochemical
catalysts in living organisms. Enzymes can speed up reactions in
the body
and this may help injured tissue repair
faster.
|
| - |
An
antioxidant is a chemical compound or substance that inhibits oxidation.
The Nanobac Oral Supplement includes several major antioxidants.
Increasing evidence suggests that using antioxidants can prevent
LDL
cholesterol lipoprotein oxidation and its resulting damage to arterial
tissue.
|
We
intend
to maximize the sales of our existing Nanobac Supplements by establishing
revenue generating collaborations with medical providers and expanding our
channels of distribution through partnerships with complementary technology
companies.
A
recent
preliminary study of prostatitis patients provided evidence that patients using
the Nanobac Supplements, combined with the antibiotic Tetracycline, over a
three
month period showed significant improvement in their symptoms of chronic
prostatitis / chronic pelvic pain syndrome. We are encouraged by the findings
of
this and other studies and are actively marketing the Nanobac Supplements while
continuing our research into the cause of soft tissue calcification and effect
of Nanobacteria on diseases. Based upon our findings, we anticipate developing
more effective countermeasures to treat diseases in which Nanobacteria may
play
a role.
Diagnostics
We
have
developed two diagnostic assays to identify the presence of Nanobacteria in
blood. One test measures levels of Nanobacterial antigen (NANO-CAPTURE -
Nanobacterial Antigen Assay) and the other test measures whether a patient
has
been exposed to Nanobacteria (NANO-SERO - Nanobacteria Antibody Assay).
An
antigen is generally defined as a substance that, when introduced into the
body,
stimulates the production of an antibody. An antibody is generally defined
as
any of various proteins in the blood that are generated in reaction to foreign
proteins or polysaccharides, neutralize them, and thus produce immunity against
certain microorganisms or their toxins.
In
October 2004 we announced the signing of a Manufacturing Agreement with
Medicorp, Inc., for the production of NANO-CAPTURE and NANO-SERO Assays. Nanobac
is transferring production of both assays from our Nanobac OY research
laboratory in Kuopio, Finland to Medicorp in preparation for expanded
distribution and potential FDA clinical trials. Medicorp is Canada's largest,
independent ISO 9001-certified manufacturer and distributor of immunodiagnostic
and microbiology products.
The
NANO-CAPTURE and NANO-SERO test kits will be sold through a distributor network.
We have signed a distribution agreement with Oxoid Ltd. (“Oxoid”) for
territories in Europe, Brazil and Australia. Oxoid is one of the world's leading
manufacturers and distributors of microbiological culture media and other
diagnostic products. With corporate headquarters in Basingstoke, Hampshire,
Oxoid Ltd is supported by a network of wholly owned sales and distribution
companies in Europe, North and South America and Australia. We have also
recently received notification of CE Mark status, which is necessary for
distribution of our kits in Europe.
Our
goal
is to develop diagnostic assays that will be globally distributed for a variety
of diseases associated with nanobacterial infection and pathologic
calcification. Our diagnostic tests will facilitate further research into the
cause and effect of Nanobacteria and will allow researchers the ability to
measure changes in levels of Nanobacteria in their test patients.
Description
of Business (continued)
Research
Nanobacterial
research is ongoing around the world. Our lead scientists Olavi Kajander and
Neva Ciftcioglu, have formed multidisciplinary alliances with top researchers
including: Hojatollah Vali, McGill University, Canada; Mayo Clinic, Rochester,
Minnesota; University of South Florida; Iowa State University; D. Shoskes,
Cleveland Clinic; Garcia-Cuerpo, Spain; China Ghangsha group;
Sommer,
Univ. of Ulm; Pretorius, South-Africa; G. Epstein/J.T. Salonen;
Tom
& Marcia Hjelle, Univ. of Illinois; Y. Av-Gay, University of British
Columbia; and R. Berger, Miami Heart Institute, Miami FL. We intend to serve
as
the nexus for research scientists and become the premier leader in nanobacterial
research and distribution of knowledge. We generally retain the rights for
the
commercialization of intellectual property that result from these collaborative
studies.
To
date,
these collaborations have resulted in the publishing of over 80 articles,
numerous abstracts and book chapters. Example publications since 1998 include
articles in Science, Nature and Nature Medicine, Proceedings of the National
Academy of Sciences, Lancet, New Scientist, Molecular Medicine, PDA Journal,
Kidney International, Circulation, Journal of Pathophysiology, and American
Society for Microbiology.
In
2004,
we entered into a Space Act Agreement with NASA’s Johnson Space Center (“JSC”),
Houston Texas, to collaborate on the research of nanobacterium sanguineum and
its nature and role in pathological calcification, including the detection
and
treatment of the pathogen. Since Astronauts may be more prone to an increased
rate of pathological calcification while in a zero gravity environment, the
collaboration will support NASA’s need to better understand the effects of
long-term space travel on humans. In addition, Nanobac’s work provides a model
for studying mineralized organic matters that could aid NASA in the search
for
extraterrestrial life.
Nanobac
co-founder and Director of Science, Neva Ciftcioglu, Ph.D. will remain at NASA
JSC as Staff Scientist and principal researcher. Under the agreement, NASA
will
provide workspace at JSC for Nanobac’s personnel located at JSC. The agreement
further provides Nanobac the opportunity to work together with a
multidisciplinary team of NASA researchers while having access to basic
laboratory services for nanobacteria science, including electron microscopy,
molecular biology and geology-mineralogy research facilities. Projects ranging
from searching for nanobacteria biosignatures in earth fossils and in Mars
meteorites to diagnosing and treating nanobacteria infection are anticipated.
Nanobac will provide JSC with equipment and specialty supplies for nanobacteria
research and apply its pioneering diagnostic and treatment experience in the
field.
We
own
the rights for the commercialization of intellectual property that results
from
our collaborative research at NASA JSC. However, the U.S. Federal Government
retains the right to use this intellectual property for U.S. Government purposes
without compensation to us.
Description
of Business (continued)
The
Role of Nanobacteria in Calcification Associated
Diseases
Cardiovascular
Diseases
The
most
serious and widespread of the diseases caused by calcified plaque are
atherosclerosis (hardening of the arteries) and coronary heart disease. Coronary
heart disease is caused by a narrowing of the coronary arteries that feed the
heart, which may be caused by the build-up of Nanobacteria.
Many
cardiovascular researchers have shown that atherosclerosis might be the
life-long result of our bodies’ various healing mechanisms and inflammatory
responses to infection. Researchers have sought to isolate an infectious agent
that is present in our tissues that could stimulate the development of
atherosclerotic plaques. Until recently, no single infection, viral or
bacterial, had been implicated.
The
Company believes that Nanobacteria might play a key role in the development
of
atherosclerosis and consequently focused its early efforts on investigating
the
relationship between Nanobacteria and atherosclerosis.
Three
recently published studies conducted by prominent medical researchers have
collectively shown that Nanobacteria might be the previously unidentified agent
involved in the development of atherosclerotic heart disease. A group of
researchers at the Mayo Clinic, led by Virginia Miller, PhD showed that
Nanobacteria are present in calcified atherosclerotic coronary arteries and
heart valves.
Cardiovascular
researcher Benedict Maniscalco, MD published a study that showed that patients
with severe coronary artery disease tested positive for nanobacterial antigen.
The study also indicated that a majority of cardiac patients that received
the
Nanobac Supplements had a decrease in their coronary artery calcium scores.
Angina was decreased or ablated in 16 of 19 patients. Lipid (fats and fat like
materials) profiles also improved in most patients. Dr. Maniscalco’s study
concluded that the coronary artery calcium scores of most coronary artery
disease patients decreased during the period they used the Nanobac Supplements
inferring regression of calcified coronary artery plaque volume. The patients
tolerated the therapy well and their angina and lipid profiles improved.
Also,
at
a recent American Heart Association scientific session, one of the world’s most
prominent heart disease researchers, Stephen E. Epstein, MD, Director of the
Cardiovascular Research Institute at Washington Hospital Medical Center in
Washington D.C., reported that 94% of people with calcified coronary arteries
have nanobacterial infection as measured by the Company’s Nanobacterial Antibody
Assay, and that antibody results correlated with coronary calcification scoring.
Therefore, the Nanobacterial Antibody Assay may be a predictor of patients
with
high levels of calcium in their coronary arteries. These patients are at the
highest risk for a heart attack. Thus, the Nanobacterial Antibody Assay could
be
used as a biomarker that may predict which patients are at greatest risk for
a
heart attack.
The
collective weight of the three studies suggests that nanobacteria infection
may
be the previously unknown infectious agent associated with atherosclerotic
plaque. The physical presence of Nanobacteria in the diseased artherosclerotic
tissues and the correlation with heart disease calcification levels suggests
that long-term nanobacterial infection is involved in the development of the
calcification in atherosclerotic heart disease.
Nanobac
is continuing its research of the relationship between nanobacterial infection
and heart disease and has expanded its research to include other diseases
involving pathological calcification.
Description
of Business (continued)
Urological
Diseases
Kidney
stones are one of the most common disorders of the urinary tract. A kidney
stone
is a solid piece of material that forms in the kidney out of substances in
the
urine. A problem stone can block the flow of urine and cause great
pain.
Prostatitis
is a painful inflammation of the prostate gland. Symptoms may include pain
while
urinating or ejaculating, chills or fever, perineal, testicular, bladder or
low
back pain.
Polycystic
kidney disease (“PKD”) is a genetic disorder characterized by the growth of
numerous cysts in the kidneys. PKD cysts can slowly replace much of the mass
of
the kidneys, reducing kidney function and leading to kidney failure.
Researchers
have shown a relationship between Nanobacteria and urological diseases such
as
kidney stones, prostatitis, and PKD. Until these studies, no single infection,
viral or bacterial, had been identified that could have caused the progression
of these diseases.
Nanobac
has focused on investigating the relationship between Nanobacteria and these
urological diseases.
Kidney
Stones:
Several
studies conducted by prominent medical researchers have collectively shown
Nanobacteria as a probable cause of kidney stone formation. Depending upon
the
patient population, researchers have found that 62% to 97% of kidney stones
have
Nanobacteria. The presence of Nanobacteria is independent of the type of kidney
stone.
It
is
believed that Nanobacteria create the calcific deposits that are physically
present in the kidney stones and therefore may be the cause of kidney stone
formation.
The
Company has been working with scientists at NASA to research the effects of
Nanobacteria in the formation of kidney stones during space flights. Neva
Ciftcioglu, the Company’s Director of Science, and a team of NASA scientists
used multiple techniques to determine that Nanobacteria infection multiplies
faster in space flight simulated conditions than on Earth. This determination
is
especially important to NASA as it indicates that astronauts on future long-term
missions to the moon and Mars are at an increased risk for developing kidney
stones.
The
Company is continuing its collaboration with NASA. The observation that
Nanobacteria grow faster in conditions simulating the microgravity conditions
of
space also allows researchers to grow cultures faster. A problem facing
researchers in studying Nanobacteria had been in developing a sufficient amount
of material. Nanobacterial particles double about once every three days compared
to typical bacteria which doubles about every 20 minutes.
Prostatitis:
A
recent observational study of prostatitis patients, led by Daniel A. Shoskes,
M.D., of Cleveland Clinic Florida, demonstrated a significant improvement in
the
symptoms of chronic prostatitis / chronic pelvic pain syndrome for those
patients who took Nanobac Supplements for a period of six months. The treated
group of fifteen patients had prostatic stones and longstanding Chronic Pelvic
Pain Syndrome (“CPPS”) symptoms that were not responsive to prior conventional
therapies. Two of the patients in the test group who had been on complete
medical disability have returned to work.
Polycystic
Kidney Disease (“PKD”):
Studies
have shown that 100% of kidney cyst fluids and urine were positive for
Nanobacteria. Nanobac plans to initiate research trials that will evaluate
the
link between Nanobacteria and PKD.
Description
of Business (continued)
Other
Opportunities
Nanobacteria
may also be contaminating biologics, like vaccines and bio-medical devices,
like
implantable hip replacement parts. We are exploring commercial opportunities
to
detect and eradicate nanobacterial infection or contamination in the following
additional markets:
| · |
Bio-Medical-
Vaccines and Blood Products
|
| · |
Bio-Industrial-
Implantable Durable Medical Devices and Medical Exam
Equipment
|
Nanobacterium
Sanguineum Background and Description
Nanobacterium
sanguineum (nanobacteria) was discovered in 1988 by Finnish researcher Olavi
Kajander, M.D., PhD. Dr. Kajander was carrying out mammalian cell research
when
a routine mammalian cell culture experiment, using commercially available fetal
bovine serum as the growth media, just wasn't getting off the ground. The cells
weren't thriving and dividing like they should; the cells were sickly and died
off before any study could be done. Strange vacuoles were forming up in many
of
the cells, and these cells subsequently died. Dr. Kajander, like all basic
cell
researchers, had encountered this problem before; sometimes their cell cultures
worked, and sometimes they didn't. Dr. Kajander researched this further and
after several weeks of culture, turbidity developed in one of the flasks. We
believe this represented the first isolation of Nanobacterium sanguineum.
In
1991
Dr. Kajander was joined by microbiologist Neva Ciftcioglu, Ph.D. at the
University of Kuopio, Finland. Their research established that the blood-borne
nanobacteria forms slow-growing calcified colonies in arteries and organs,
much
as coral reefs are formed. Nanobacteria have been found in human and animal
blood, urine and saliva. The name "nanobacteria" was introduced and patented
by
Dr. Olavi Kajander as the name for very small mineral-associated bacteria-like
particles.
Competition
The
market for providing physicians and managed care organizations with nanobacteria
related disease management and services is just emerging, and we believe are
currently the only company providing a comprehensive approach to managing
nanobacterial diseases.
The
general market for academic researchers and clinical laboratories with In Vitro
diagnostic test kits is highly competitive and includes diagnostic companies
such as, Roche, Abbott, Bayer, Johnson & Johnson, and Dade
Behring.
The
general market for specialized clinical laboratory services for detection,
diagnosis, prognosis and monitoring is highly competitive and dominated by
Quest
and Labcorp. Their competitive strength lies in their service capabilities
and
their ability to provide local couriers for specimen pickup and broad-based
contracting ability with managed care organizations.
The
general market for pharmaceuticals and dietary supplements is also highly
competitive and includes Fortune 500 pharmaceutical companies as well as small
to medium sized pharmaceutical and dietary supplement companies.
Nanobac
believes that it will be able to grow and defend the specialized nanobacteria
related disease market niche due to its expertise in the field, its disease
management approach, and its technology leadership.
Description
of Business (continued)
Government
Regulation
Clinical
Reference Laboratory
The
clinical reference laboratory operations are not regulated directly by the
FDA.
Clinical reference laboratories in the United States are regulated under the
federal Clinical Laboratory Improvement Act (CLIA). Our reference laboratory
is
located in Kuopio Finland and is regulated by European Union and Finland laws
and is not regulated by CLIA.
In
Vitro Diagnostics
The
FDA
regulates in vitro diagnostic kits and reagents. We intend to begin clinical
studies to support an FDA filing for both the NANO-CAPTURE and NANO-SERO assays.
The timing of our clinical trials and FDA approval is dependent on future
funding. We recently received notification that our NANO-CAPTURE and NANO-SERO
assays meet the criteria for CE Mark in Europe.
Dietary
Supplements
FDA
regulates dietary supplements under a different set of regulations than those
covering "conventional" foods and drug products (prescription and
Over-the-Counter). Under the Dietary Supplement Health and Education Act of
1994
(DSHEA), the dietary supplement manufacturer is responsible for ensuring that
a
dietary supplement is safe before it is marketed. FDA is responsible for taking
action against any unsafe dietary supplement product after it reaches the
market. Generally, manufacturers do not need to register with FDA nor get FDA
approval before producing or selling dietary supplements. Manufacturers must
make sure that product label information is truthful and not misleading.
FDA's
post-marketing responsibilities include monitoring safety, e.g. voluntary
dietary supplement adverse event reporting, and product information, such as
labelling, claims, package inserts, and accompanying literature. The Federal
Trade Commission regulates dietary supplement advertising.
Environmental
Matters
We
have
not been impacted financially or operationally by environmental laws.
Geographic
We
will
initially focus our dietary supplement business in North America. To date,
over
95% of our revenue is from the United States. We also plan to develop our
markets in the European Union through the operations of our Finnish Subsidiary,
Nanobac OY.
Employees
We
have
seven employees in our corporate headquarters in Tampa, Florida, one employee
at
the NASA facility in Houston Texas and five employees in Finland.
During
calendar 2004, and for the foreseeable future, our primary focus is on the
research of the role Nanobacteria plays in human diseases in which pathologic
calcification deposits are found. Since the beginning of 2004, there have been
an increasing number of studies linking Nanobacteria to serious health problems,
including cardiovascular diseases, peripheral vascular diseases, prostatitis,
kidney stones, and Polycystic Kidney Disease. These studies have provided
additional evidence of a relationship between Nanobacteria and these diseases
in
which pathological calcification is present. Our focus is in determining how
Nanobacteria works and what countermeasures can be developed to better treat
these diseases.
Recently
we signed a collaborative agreement with the Mayo Foundation for Medical
Education and Research to conduct research relating to the prevalence and
treatment of nanobacteria in specific disease populations. The parties will
evaluate the role of nanobacteria through four studies utilizing diagnostic
test
kits developed by Nanobac.
We
continue with our collaborative efforts with scientists at NASA researching
the
effects of Nanobacteria in the formation of kidney stones under conditions
simulating space flight. We also signed a collaborative agreement with Iowa
State University to work with the Department of Geological and Atmospheric
Sciences to explore novel methodologies for detecting calcified nano-particles
which may be related to nanobacteria.
While
there remains significant work ahead, we are encouraged by the progress being
made in the study of Nanobacteria and the increasing level of acceptance in
the
medical community that there may be a relationship between the nano-particles
we
call Nanobacteria and the progression of certain diseases involving pathologic
calcification. Our continuing research and development efforts, along with
our
efforts in obtaining recognition by various regulatory agencies (e.g. the FDA
and similar agencies throughout the world), will require significant additional
amounts of financing over the next several years.
We
are
attempting to protect the intellectual property rights to our discoveries
including our treatment therapies and our diagnostic methods by obtaining
patents. We currently have one issued patent and multiple patent applications
for treatment therapies including the combination of EDTA and tetracycline
to
treat nanobacteria infections and the formula mix and treatment regimen for
Nanobac Supplements, We also have one issued patent and multiple patent
applications related to our diagnostic products We are attempting to further
protect our intellectual property rights by obtaining additional patents in
unique areas of research with respect to the role of Nanobacteria in pathologic
calcification. These efforts are ongoing and will require significant additional
infusions of financing to complete. It is also anticipated that additional
patents will be sought in the future as our research and development efforts
yield new discoveries.
We
began
direct sales of our Nanobac Supplements in June 2004. Nanobac Supplements are
currently being marketed to the alternative medicine market and directly to
the
customer over the Internet. We anticipate that the Nanobac Supplements are
the
first generation of treatment therapies that we will develop and that the
portfolio of treatments will increase as a result of our continuing research
into the effect of Nanobacteria in numerous diseases.
During
calendar 2004, our two diagnostic tests have gained additional recognition
for
their ability to identify Nanobacteria. We plan to initiate marketing our
diagnostic testing kits in Europe during the first half of 2005.
During
April 2004, we announced a name change from Nanobac Pharmaceuticals,
Incorporated to Nanobac Life Sciences, Inc. to become effective upon approval
by
the shareholders.
Management
Discussion an Analysis (continued)
Results
of Operation
The
following table presents the percentage of period-over-period dollar change
for
the line selected items in our Consolidated Statements of Operations for the
years ended December 31, 2004 and 2003 and the six months ended June 30, 2005
and 2004. These comparisons of financial results are not necessarily
indicative of future results.
|
Year
ended December
|
Six
Months ended June
|
||||||||||||||||||
|
2004
|
2003
|
%
Change
|
2005
|
2004
|
%
Change
|
||||||||||||||
|
Revenue
|
$
|
358,361
|
$
|
482,815
|
-26
|
%
|
$
|
319,853
|
$
|
105,949
|
202
|
%
|
|||||||
|
Cost
of revenue
|
100,470
|
333,122
|
-70
|
%
|
102,299
|
20,805
|
392
|
%
|
|||||||||||
|
Gross
Profit
|
257,891
|
149,693
|
72
|
%
|
217,554
|
85,144
|
156
|
%
|
|||||||||||
|
Gross
Profit percentage
|
72
|
%
|
31
|
%
|
68
|
%
|
80
|
%
|
|||||||||||
|
Selling,
general and administrative
|
4,765,841
|
2,128,375
|
124
|
%
|
509,938
|
3,893,262
|
-87
|
%
|
|||||||||||
|
Research
and development
|
2,375,363
|
540,426
|
340
|
%
|
694,841
|
1,266,166
|
-45
|
%
|
|||||||||||
|
Depreciation
and amortization
|
717,070
|
181,103
|
296
|
%
|
377,726
|
368,539
|
2
|
%
|
|||||||||||
|
Operating
loss
|
(7,600,383
|
)
|
(2,700,211
|
)
|
181
|
%
|
(1,364,951
|
)
|
(5,442,823
|
)
|
-75
|
%
|
|||||||
|
Other
income (Expense)
|
(860,757
|
)
|
(60,922
|
)
|
1313
|
%
|
(813,105
|
)
|
(163,388
|
)
|
398
|
%
|
|||||||
|
Loss
from continuing operations
|
(8,461,140
|
)
|
(2,761,133
|
)
|
206
|
%
|
(2,178,056
|
)
|
(5,606,211
|
)
|
-61
|
%
|
|||||||
|
Discontinued
Operations
|
(57,268
|
)
|
(938,358
|
)
|
-94
|
%
|
0
|
(57,268
|
)
|
-100
|
%
|
||||||||
|
Net
loss
|
($8,518,408
|
)
|
($3,699,491
|
)
|
130
|
%
|
($2,178,056
|
)
|
($5,663,479
|
)
|
-62
|
%
|
|||||||
Management
Discussion an Analysis (continued)
Six
months ended June 30, 2005 Compared to Six months ended June 30,
2004
Revenue
Revenue
for the six months ended June 30, 2005 and 2004 is summarized as
follows:
|
Six
months ended June
|
|||||||
|
2005
|
2004
|
||||||
|
Nanobac
Supplement
|
$
|
262,313
|
$
|
25,211
|
|||
|
License
revenue
|
0
|
46,800
|
|||||
|
Diagnostic
Products
|
57,540
|
33,938
|
|||||
|
$
|
319,853
|
$
|
105,949
|
||||
During
February 2004, we initiated the license of a new product to a third party.
Effective June 2004, the above license agreement was cancelled and we initiated
sales of this product directly to customers under the name of Nanobac
Supplement. Since the introduction of our new product, our revenue has increased
on a quarterly basis as follows:
Quarter
1
- 2004 $
32,385
Quarter
2
- 2004 $
73,564
Quarter
3
- 2004 $118,141
Quarter
4
- 2004 $134,271
Quarter
1
- 2005 $151,865
Quarter
2
- 2005 $167,988
We
intend
to continue to expand our sales through increased marketing efforts,
accelerating our research and developing new products for better patient
acceptance
Cost
of revenue
Cost
of
revenue consists of direct materials, testing services (for diagnostic products)
and shipping. As a percentage of revenue, cost of revenue was 32%, respectively
for the six months ended June 30, 2005 compared to 20% for the six months ended
June 30, 2004. The lower cost of revenue in 2004 was due to the 2004 license
revenue having no direct costs. During June 2004, this licensing agreement
was
terminated and we initiated sales of Nanobac Supplement directly to customers,
which has resulted in higher revenue and cost of revenue.
Gross
Profit
Gross
profit as a percentage of revenue was 68%, respectively for the six months
ended
June 30, 2005 compared to 80% for the six months ended June 30, 2004. The
decrease in gross profit percentage is attributable to the 2004 license revenue
having no costs.
Management
Discussion an Analysis (continued)
Six
months ended June 30, 2005 Compared to Six months ended June 30, 2004
(continued)
Selling,
General and Administrative
Approximately
two-thirds of selling, general and administrative (“SG&A”) expenses are
comprised of payroll, travel and professional fees. The majority of professional
fees are related to public company expenses for audit, legal and investor
relations. Other significant SG&A expenses include facility rental and
insurance. SG&A expenses are summarized as follows:
|
Six
months ended June
|
|||||||
|
2005
|
2004
|
||||||
|
Charges
for stock issuance
|
$
|
0
|
$
|
2,562,750
|
|||
|
Other
SG&A
|
509,938
|
1,330,512
|
|||||
|
Total
SG&A
|
$
|
509,938
|
$
|
3,893,262
|
|||
SG&A
expenses for the six months ended June 30, 2004 include a $2.6 million charge
for stock issued to affiliates. Other SG&A expenses decreased approximately
$821,000 for the six months ended June 30, 2005 compared to the six months
ended
June 30, 2004. In particular, payroll expenses were reduced by approximately
$102,000, professional fees were reduced by approximately $438,000 and travel
expenses were reduced $213,000 for the six months ended June 30, 2005 compared
to the same period in 2004.
Research
and Development
For
the
six months ended June 30, 2005 and 2004 research and development (“R&D)
expenses consisted of the following types of expenses:
|
Six
months ended June 30
|
|||||||
|
2005
|
2004
|
||||||
|
U.S.
Payroll and medical directors
|
53
|
%
|
49
|
%
|
|||
|
Finland
payroll and laboratory
|
25
|
%
|
16
|
%
|
|||
|
Research
studies
|
6
|
%
|
26
|
%
|
|||
|
Other
|
16
|
%
|
9
|
%
|
|||
|
100
|
%
|
100
|
%
|
||||
Other
R&D expenses include professional fees related to development of patents and
other office expenses.
R&D
expenses for the six months ended June 30, 2005 decreased approximately $571,000
compared to the six months ended June 30, 2004. This decrease is due to a
reduction in the use of outside medical directors and due to no significant
outside research studies being conducted during the six months ended June 30,
2005. We have continued to perform significant research with our existing staffs
in our Kuopio and NASA laboratories. We anticipate increasing R&D expenses
during the next several months.
Management
Discussion an Analysis (continued)
Six
months ended June 30, 2005 Compared to Six months ended June 30, 2004
(continued)
Depreciation
and amortization
Approximately
95% of depreciation and amortization are related to the amortization of Product
Rights and Patents acquired in the June 2003 acquisition of LABS and the
November 2003 acquisition of OY.
Other
income (Expense)
Other
income for the six months ended June 30, 2005 and 2004 is summarized as
follows:
|
2004
|
2003
|
||||||
| Interest expense | |||||||
|
Stockholder
loan
|
($237,957
|
)
|
($23,703
|
)
|
|||
|
Other
|
(10,096
|
)
|
(19,231
|
)
|
|||
|
Derivative
loss
|
(643,630
|
)
|
–
|
||||
|
Foreign
currency exchange gain
|
32,021
|
–
|
|||||
|
Other,
net
|
(1,095
|
)
|
(17,988
|
)
|
|||
|
($860,757
|
)
|
($60,922
|
)
|
||||
The
derivative loss is the difference in the derivative instruments’ value at the
issue date compared to the value at June 30, 2005. The 2004 and 2005
subscription agreement transactions are derivatives as the actual number of
shares to be issued under these agreements is based on the future trading price
of the Company’s shares and is therefore indeterminable at June 30, 2005.
Foreign
currency gain results from exchange rate changes between the U.S. dollar and
the
Euro on intercompany advances between our U.S. subsidiary and our Finland
subsidiary.
Loss
from continuing operations
Loss
from
continuing operations for the six months ended June 30, 2005 was $788,000
compared to $4.2 million for the six months ended June 30, 2004. This decrease
reflects (a) $2.6 million decrease in charge for common stock issuances; (b)
increased gross profit of $83,000; (c) $545,000 decrease in SG&A expenses;
(d) $150,000 signing bonuses incurred in the first quarter of 2004 and (e)
$67,000 reduction in other R&D expenses (primarily research studies).
We
are
experiencing significant losses as we conduct research and development related
to nanobacteria and launch our products and services. We believe it will take
significant time before we will earn meaningful revenue to offset our expenses
and there is no assurance that we will be able to accomplish this goal. As
a
result of the losses, we are dependent on affiliates of our CEO and other
investors to provide sufficient cash sources to fund our operations.
Management
Discussion an Analysis (continued)
2004
Compared to 2003
Revenue
Revenue
for the years ended December 31, 2004 and 2003 is summarized as
follows:
|
2004
|
2003
|
||||||
|
Nanobac
Supplements
|
$
|
230,321
|
$
|
0
|
|||
|
License
revenue
|
46,800
|
0
|
|||||
|
Nanobac
TX
|
0
|
407,242
|
|||||
|
Diagnostic
Products
|
81,240
|
75,573
|
|||||
|
$
|
358,361
|
$
|
482,815
|
||||
During
December 2003, we voluntarily discontinued offering NanobacTX, which accounted
for 84% of our revenue for the year ended December 31, 2003. Accordingly, our
revenue for the first half of 2004 was significantly reduced from the level
experienced in the last half of 2003. During February 2004, we licensed a new
product to an affiliated third party. Effective June 2004, the above license
agreement was cancelled and we initiated sales of this product directly to
customers under the name of Nanobac Supplements. We are in the process of
accelerating our research and developing new products for better patient
acceptance.
Revenue
for the last quarter of 2004 averaged approximately $45,000 per month. Revenue
for the year ended December 31, 2003 represents seven months of sales subsequent
to our acquisition of LABS in June 2003.
Cost
of revenue
Cost
of
revenue consists of direct materials, testing services (for diagnostic products)
and shipping. As a percentage of revenue, cost of revenue was 28% for the year
ended December 31, 2004 compared to 69% for the year ended December 31, 2003.
Cost of revenue for 2003 included $150,000 of fixed lab fees for our diagnostic
products. Without this fee, our cost of revenue would have been approximately
38% as a percentage of revenue. This fixed lab fee was eliminated in October
2003 and replaced with a variable cost structure, which significantly decreased
cost of revenue.
In
addition, the lower cost of revenue in 2004 was due in part to the 2004 license
revenue having no direct costs. During June 2004, this licensing agreement
was
terminated and we initiated sales of Nanobac Supplements directly to customers,
which has resulted in higher revenue and cost of revenue.
Gross
Profit
Gross
profit as a percentage of revenue was 72%, for the year ended December 31,
2004
compared to 31% for the year ended December 31, 2003. The increase in gross
profit percentage is attributable to the 2004 license revenue having no costs
and the existence of $150,000 of fixed lab costs in 2003 which were not incurred
in 2004. We anticipate gross profit as a percentage of revenue to be between
65%
and 70% for 2005.
Management
Discussion an Analysis (continued)
2004
Compared to 2003 (continued)
Selling,
General and Administrative
Selling,
general and administrative (“SG&A”) expenses for the years ended December
31, 2004 and 2003 are summarized as follows:
|
Year
ended December
|
|||||||
|
2004
|
2003
|
||||||
|
Charges
for stock issuances
|
$
|
2,562,750
|
$
|
750,000
|
|||
|
Other
SG&A
|
2,203,091
|
1,378,375
|
|||||
|
Total
SG&A
|
$
|
4,765,841
|
$
|
2,128,375
|
|||
Charges
for stock issuances in 2004 relate to 4.5 million common shares issued to an
entity that is an affiliate of our CEO. We recognized an expense of $2.6 million
in 2004 in connection with this 4.5 million stock issuance which is the
approximate fair value of the stock on the issuance date.
For
2004,
64% of the Other SG&A expenses are comprised of payroll, travel and
professional fees. Expenses to operate as a public company (primarily
professional fees and investor relations costs) comprise an additional 18%
of
the remaining SG&A expense. Other significant SG&A expenses include
facility rental and insurance.
The
increase in SG&A for the year ended December 31, 2004 over December 31, 2003
(net of charges for stock issuances) is primarily attributable to the timing
of
the acquisition of LABS in June 2003. Only seven months of SG&A for LABS is
included in the above SG&A expenses for 2003 compared to twelve months of
expenses in 2004.
SG&A
expenses for HealthCentrics are included in “Discontinued Operations”.
Research
and Development
For
the
year ended December 31, 2004, approximately 65% of research and development
(“R&D“) expenses are for payroll and medical director fees and approximately
25% of R&D expenses are for research studies. Expenses for research studies
fluctuate from year to year as these expenses are dependent on specific
initiatives and funding sources. Remaining R&D expenses include patents, our
Finland lab and travel.
R&D
expenses for the year ended December 31, 2004 increased 340% compared to the
year ended December 31, 2003. The increase in R&D for the year ended
December 31, 2004 over December 31, 2003 is primarily attributable to the
acquisitions of LABS and OY. LABS was acquired in June 2003 and OY was acquired
in November 2003 and includes our laboratory in Koupio Finland. Accordingly,
only seven months of R&D for LABS and one and one-half months of R&D for
OY are included in the above expenses for the year ended December 31, 2003
compared to twelve months for 2004. This increase also reflects our emphasis
on
R&D subsequent to the June 2003 acquisition of LABS. Specific increases
include increased payroll, initiation of research studies, expansion of our
patents and $500,000 of signing bonuses with the execution of employment
agreements for key scientific personnel.
R&D
expenses for HealthCentrics are included in “Discontinued Operations”. We intend
to continue to our R&D investment in the coming year.
Management
Discussion an Analysis (continued)
2004
Compared to 2003 (continued)
Depreciation
and amortization
Approximately
95% of depreciation and amortization are related to the amortization of
intangible assets acquired in the 2003 and 2004 acquisitions of LABS and OY.
Other
income for the years ended December 31, 2004 and 2003 is summarized as
follows:
|
2004
|
2003
|
||||||
|
Interest
expense
|
|||||||
|
Stockholder
loan
|
($237,957
|
)
|
($23,703
|
)
|
|||
|
Other
|
(10,096
|
)
|
(19,231
|
)
|
|||
|
Derivative
loss
|
(643,630
|
)
|
0
|
||||
|
Foreign
currency exchange gain
|
32,021
|
0
|
|||||
|
Other,
net
|
(1,095
|
)
|
(17,988
|
)
|
|||
|
($860,757
|
)
|
($60,922
|
)
|
||||
The
derivative loss is the difference in the derivative instruments’ value at the
issue date compared to the value at December 31, 2004. The 2004 subscription
agreement transactions are derivatives as the actual number of shares to be
issued under these agreements is based on the future trading price of the
Company’s shares and is therefore indeterminable at December 31, 2004.
Foreign
currency gain results from exchange rate changes between the U.S. dollar and
the
Euro on intercompany advances between our U.S. subsidiary and our Finland
subsidiary.
Loss
from continuing operations
Loss
from
continuing operations for the year ended December 31, 2004 was $8.5 million
compared to $2.8 million for the year ended December 31, 2003. This increase
reflects $1.8 million increase in charge for common stock issuances included
in
SG&A, $536,000 of additional amortization and depreciation, $1.8 million of
additional R&D costs, $643,000 derivative loss and an additional five months
of LABS SG&A expenses in 2004 compared to 2003.
We
are
experiencing significant losses as we conduct research and development related
to nanobacteria and launch our products and services. We believe it will take
significant time before we will earn meaningful revenue to offset our expenses
and there is no assurance that we will be able to accomplish this goal. As
a
result of the losses, we are dependent on affiliates of our CEO and other
investors to provide sufficient cash sources to fund our operations.
Management
Discussion an Analysis (continued)
2004
Compared to 2003 (continued)
Discontinued
Operations
During
October 2003, we decided to divest our HealthCentrics’ business unit to focus
exclusively on our nanobacteria business unit. We were unsuccessful in finding
a
buyer in 2003 for this business unit. During March 2004, this business unit
was
sold to an affiliate of our CEO for consideration of $250,000 plus assumption
of
net liabilities of approximately $499,000. Our gain on disposal of approximately
$749,000 is accounted for as a capital contribution given the related party
nature of the arrangement.
As
a
result of our decision to dispose of the HealthCentrics business unit, the
operations of HealthCentrics were retroactively removed from continuing
operations and disclosed as a single line item on the statements of operations.
The loss from discontinued operations for the years ended December 31, 2004
and
2003 is summarized as follows:
|
2004
|
2003
|
||||||
|
Revenue
|
$
|
5,301
|
$
|
19,970
|
|||
|
Cost
of revenue
|
9,208
|
62,570
|
|||||
|
Gross
profit (loss)
|
(3,907
|
)
|
(42,600
|
)
|
|||
|
Selling,
general & administrative
|
53,361
|
692,407
|
|||||
|
Research
and development
|
–
|
203,351
|
|||||
|
Net
loss
|
($57,268
|
)
|
($938,538
|
)
|
|||
Management
Discussion an Analysis (continued)
Liquidity
and Capital Resources
As
of
June 30, 2005, we had total assets of $9.5 million of which only $133,000 were
current assets. At June 30, 2005, we had total current liabilities of $2.1
million and a working capital deficit of $2.0 million.
Since
the
United States Bankruptcy Court confirmed a plan of reorganization that allowed
the Company to emerge from Chapter 11 during calendar 2002, the Company has
financed its activities primarily through loans made by entities affiliated
with
our current Chief Executive Officer (referred to herein as “the Affiliated
Entities”). These loans were made as funding was needed and were extremely
advantageous to the Company in that the amounts were funded as the Company
needed financial infusions and allowed the Company to avoid the costs and
distractions of attempting to raise these amounts from unrelated parties. It
is
unrealistic to believe that unrelated parties would have offered terms as
generous as those obtained from the Affiliated Entities, and it is also unlikely
that any financing could have been obtained under any terms without the
financing of the Affiliated Entities. From time to time the Affiliated Entities
have agreed to allow a portion of the loan balances to be converted into shares
of the Company’s common stock. On September 30, 2004, $7,500,000 of the loan
balance was converted into 29,999,964 shares of our common stock at a price
of
$.25 per share. There is no obligation on the part of the Affiliated Entities
to
make additional loans to the Company. The Affiliated Entities are also under
no
obligation to convert any portion of the loan balances owed to it into
additional shares of the Company’s stock.
Since
August of 2004, the Company has received $1.4 million (net of $125,000 of
expenses) from three unaffiliated investors and one affiliate for shares of
the
Company’s stock and an equal amount of warrants to acquire additional shares of
the Company’s stock. The exact number of shares to be issued is dependent upon
the average closing bid price of the Company’s stock on the five trading days
immediately prior to the date on which a registration statement for these shares
is declared effective. The purchase price of the shares is equal to the lesser
of (1) $.12 or (2) 52% of the average closing price described above. An
additional $1.5 million is to be received from these investors within five
days
of registering the common shares and warrants. A registration statement has
not
yet been filed for these shares. Successful registration of the shares
contemplated under the agreements discussed above will provide significant
amounts of needed capital into the Company. However, a registration statement
has not yet been filed with the Securities and Exchange Commission (“SEC”) and
there are no assurances that the SEC will declare a registration statement
effective.
Net
cash
used in operations for the six months ended June 30, 2005 was $619,000 for
the
six months ended June 30, 2005. The negative cash flow from operations reflects
the $788,000 net loss for the period offset by the non-cash charge of $188,000
for depreciation and amortization. Net cash used in operations was $3.4 million
for the year ended December 31, 2004. The negative cash flow from operations
reflects the $8.5 million net loss for the year offset by the non-cash charge
for common stock issuances of $2.6 million, depreciation and amortization of
$717,000, interest expense added to the principal balance of the stockholder
loan of $238,000, and an increase in liabilities of approximately $1.7 million
($1.0 million of current liabilities and $0.7 million in stock settlement
liability).
As
noted
above, the deferral of $1.0 million of current liabilities, reduced the cash
used for operations for the year ended December 31, 2004, However, most, if
not
all, of these current liabilities will likely be settled with cash in future
accounting periods.
Net
cash
used by investing activities for the six months ended June 30, 2004 was $34,000
for the purchase of fixed assets. Net cash provided by investing activities
was
approximately $165,000 for the year ended December 31, 2004, which reflects
the
receipt of $200,000 from a common stock option exercise related to the
acquisition of LABS offset by our purchase of fixed assets of approximately
$37,000.
Net
cash
provided by financing activities for the six months ended June 30, 2005 was
$639,000, which is attributable to stockholder loans of $449,000, common stock
subscriptions of $175,000 (net of expenses of $25,000) and an increase in notes
payable of $15,000. Net cash provided by financing activities was $3.2 million
for the year ended December 31, 2004, which is attributable to stockholder
loans
of $2.1 million and $1.2 million from common stock Subscription Agreements
as
described in the preceding paragraphs.
Management
Discussion an Analysis (continued)
Liquidity
and Capital Resources (continued)
We
are
dependent on raising additional funding necessary to implement our business
plan
as outlined above. Should we not be successful in raising cash from the
Affiliated Entities and other investors, we are unlikely to continue as a going
concern.
Recent
Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” The
statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. ARB No. 43 previously
stated that these costs must be “so abnormal as to require treatment as
current-period charges.” SFAS No. 151 requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of “so abnormal.” In addition, this statement requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted for fiscal years beginning after the issue date
of
the statement. The adoption of SFAS No. 151 is not expected to have
any
significant impact on our current financial condition or results of operations.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29.” APB Opinion No. 29,
“Accounting for Nonmonetary Transactions,” is based on the opinion that
exchanges of nonmonetary assets should be measured based on the fair value
of
the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets whose
results are not expected to significantly change the future cash flows of the
entity. The adoption of SFAS No. 153 is not expected to have any impact
on
our current financial condition or results of operations.
In
March
2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”),
which requires an entity to recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability’s fair
value can be reasonably estimated. FIN 47 is effective for fiscal years ending
after December 15, 2005. The Company is currently evaluating the effect that
the
adoption of FIN 47 will have on its consolidated results of operations and
financial condition but does not expect it to have a material impact.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections
(“SFAS 154”), which replaces Accounting Principles Board Opinions No. 20
“Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements - An Amendment of APB Opinion No. 28.” SFAS 154 provides
guidance on accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2006. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition, but does not expect it to have a material impact.
Critical
Accounting Policies
Use
of
estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures 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.
Forward
Looking Statements
This
report contains certain forward-looking statements that are based on current
expectations. In light of the important factors that can materially affect
results, including those set forth above and elsewhere in this report, the
inclusion of forward-looking information herein should not be regarded as a
representation by NNBP or any other person that the objectives or plans of
NNBP
will be achieved. NNBP may encounter competitive, technological, financial
and
business challenges making it more difficult than expected to continue to market
its products and services; competitive conditions within the industry may change
adversely; NNBP may be unable to retain existing key management personnel;
NNBP's forecasts may not accurately anticipate market demand; and there may
be
other material adverse changes in NNBP's operations or business. Certain
important factors affecting the forward looking statements made herein include,
but are not limited to (i) accurately forecasting capital expenditures; (ii)
obtaining new sources of external financing; (iii) serving as the nexus for
research similar and (iv) conducting successful clinical trials supporting
Dr.
Kajander’s theories that the human body does not recognize nanobacteria as
harmful, and accordingly, nanobacteria could be the cause of pathological
disease causing calcification found in multiple diseases. Assumptions relating
to budgeting, marketing, product development and other management decisions
are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact
of
which may cause NNBP to alter its capital expenditure or other budgets, which
may in turn affect NNBP's financial position and results of operations.
The
following table sets forth a description of our facilities:
|
Square
Feet
|
||||||||||
|
Location
|
(Approx)
|
Lease
Expiration
|
Function
|
|||||||
|
Tampa,
Florida
|
7,700
|
June
2007 -
|
Headquarters
for Nanobac
|
|||||||
|
|
June
2010
|
operations
(approximately 50% occupied)
|
|
|||||||
|
Koupio,
Finland
|
1,500
|
3
months notice
|
Research
and laboratory facility
|
|||||||
We
expect
that our current facilities will be sufficient for the foreseeable future.
To
the extent that we require additional space in the near future, we believe
that
we will be able to secure additional leased facilities at commercially
reasonable rates.
Loans
from Entity Affiliate with the Company’s Chief Executive
Officer
Since
emerging from bankruptcy in November 2002, Nanobac has financed its activities
primarily from advances from affiliates of the Company’s CEO (“CEO Affiliates”).
As a result of the above advances, the amount due to CEO Affiliates at September
30, 2004 was $7.5 million. On September 30, 2004, this loan was converted into
29,999,964 shares of Nanobac’s common stock.
From
October 1, 2004 through October 3, 2005, an additional $1.9 million has been
advanced to Nanobac to fund current operations. During December 2004, $500,000
of this loan was converted into a subscription agreement as described below.
The
remaining balance of approximately $1.4 million remains payable at October
3,
2005.
All
loan
amounts contemplated above are net of any periodic cash repayments.
Subscription
Agreement
During
December 2004, the Company entered into a Subscription Agreement with an entity
affiliated with the Chief Executive Officer. Under the terms of the Subscription
Agreement, the entity converted a $500,000 loan to equity. The Company is to
receive additional cash of $500,000 within five days of registering the common
shares and warrants issued as a result of the Subscription Agreements. The
number of common shares to be issued is equal to the amount received divided
by
the lesser of $.12 or 52% of the average closing bid price of the Company’s
common stock on the five trading days immediately prior to the date on which
the
registration statement is declared effective (“Fixed Price”). In addition, the
Subscription Agreement provided for the issuance of warrants equal to the number
of common shares issued. Fifty percent (50%) of the warrants are exercisable
at
110% of the Fixed Price and the remaining 50% of the warrants are exercisable
at
150% of the Fixed Price. Unexercised warrants will expire December 31, 2008.
License
Agreement
During
February 2004, the Company entered into a licensing agreement with Pegasus
Worldwide, Inc. (“Pegasus”) to market one of the Company's over the counter
products. The Company’s Chief Executive Officer is a director of Pegasus. Under
the terms of the license agreement, the Company was due $75 for each unit of
product sold. For the year ended December 31, 2004, the Company recognized
revenue of $46,800. Effective June 1, 2004, this license agreement was cancelled
and the Company is selling this product directly to customers.
Our
common stock is traded under the symbol "NNBP".
From
October 12, 1994 through August 18, 1997, the Company's Common Shares were
traded in the NASDAQ SmallCap Market under the symbol "NATD". Beginning August
18, 1997 the Company's Common Shares were traded on the Over The Counter
Bulletin Board. Effective March 27, 2000, the trade symbol was changed to
"AMER". Effective July 21, 2003, the trade symbol was changed to "NNBP". From
March 2001 through November 2004, our Common Shares have traded through the
Over
The Counter Pink Sheets. From November 2004 to present, our Common Shares have
been traded on the Over The Counter Bulletin Board (“OTCBB”). The following
table sets forth the high and low bid prices for Common Shares as reported
by
NASDAQ, OTC Pink Sheets, and OTCBB for the periods indicated. Quotations on
NASDAQ, OTC Pink Sheets and OTCBB reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
|
High
|
Low
|
||||||
|
2003
|
|||||||
|
First
Quarter
|
$
|
1.70
|
$
|
0.50
|
|||
|
Second
Quarter
|
$
|
0.69
|
$
|
0.24
|
|||
|
Third
Quarter
|
$
|
1.34
|
$
|
0.62
|
|||
|
Fourth
Quarter
|
$
|
1.05
|
$
|
0.49
|
|||
|
2004
|
|||||||
|
First
Quarter
|
$
|
0.90
|
$
|
0.41
|
|||
|
Second
Quarter
|
$
|
0.71
|
$
|
0.22
|
|||
|
Third
Quarter
|
$
|
0.30
|
$
|
0.16
|
|||
|
Fourth
Quarter
|
$
|
0.30
|
$
|
0.14
|
|||
|
2005
|
|||||||
|
First
Quarter
|
$
|
0.16
|
$
|
0.11
|
|||
|
Second
Quarter
|
$
|
0.12
|
$
|
0.07
|
|||
|
Third
Quarter *
|
$
|
0.10
|
$
|
0.07
|
|||
| * |
As
of September 30, 2005
|
On
September 30, 2005, the closing bid quote for the Common Shares was $0.08 per
share.
Our
common shares are issued in registered form. Continental Stock Transfer &
Trust Company, 17 Battery Place, New York, NY 10004 is the transfer agent for
our common shares. As of October 3, 2005, we had 189,006,759 shares of common
stock outstanding and approximately 252 stockholders.
We
have
not declared or paid any cash dividends since inception and we do not intend
to
pay any cash dividends in the foreseeable future. Although there are no
restrictions that limit our ability to pay dividends on our common shares other
than as described below, we intend to retain future earnings for use in our
operations and the expansion of our business.
Particulars
of compensation awarded to, earned by or paid to:
| (a) |
our
company's chief executive officer (the
"CEO");
|
|
(b)
|
each
of our company's four most highly compensated executive officers
who were
serving as executive officers at the end of the most recently completed
fiscal year and whose total salary and bonus exceeds $100,000 per
year;
and
|
| (c) |
any
additional individuals for whom disclosure would have been provided
under
|
|
(d)
|
but
for the fact that the individual was not serving as an executive
officer
of our company at the end of the most recently completed fiscal
year
|
the
Named
Executive Officers are set out in the summary compensation table
below.
|
Annual
Compensation
|
Other
Annual
|
All
Other
|
||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Compensation
|
Compensation
(1)
|
|||||||||||
|
John
D. Stanton (2) (3)
|
2004
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||
|
Chairman
of the Board;
|
2003
|
$
|
0
|
$
|
0
|
$
|
745,000
|
$
|
0
|
|||||||
|
Chief
Executive Officer and Chief
Financial Officer
|
2002
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||
|
Alex
Edwards (4) (5)
|
2004
|
$
|
228,536
|
$
|
0
|
$
|
5,000
|
$
|
0
|
|||||||
|
Chief
Executive Officer
|
2003
|
$
|
76,920
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||
| (1) |
In
accordance with SEC rules, other compensation in the form of perquisites
and other personal benefits is omitted, such perquisites and other
personal benefits constituted less than the lesser of $50,000 or
10% of
the total annual salary and bonus for the Named Executive Officer
for such
year.
|
| (2) |
Mr.
Stanton has served as the Chairman of the Board of Directors and
Chief
Financial Officer since March 2001 and served as Chief Executive
Officer
from March 2001 through January 2004 and July 2004 through present.
|
| (3) |
Other
Annual Compensation for 2003 is the value of 59,433,890 shares of
the
Company’s common stock or common stock equivalents issued to affiliates of
Mr. Stanton.
|
| (4) |
Mr.
Edwards commenced employment with Nanobac in March 2003 and was named
Chief Executive Officer in January 2004. He relinquished the Chief
Executive Officer role in July 2004.
|
| (5) |
Other
Annual Compensation is the value of 500,000 shares of the Company’s common
stock issued to Mr. Edwards.
|
Employment
and Compensation Agreement
John
Stanton
- Mr.
Stanton does not have an employment or similar agreement with Nanobac. To date,
Mr. Stanton has received no salary or other compensation except for the receipt
of common and preferred shares in accordance with the Company’s bankruptcy plan.
Alexander
Edwards
-
Effective
January 26, 2004, Mr. Edwards entered into a three year employment agreement
with Nanobac. The employment agreement expires on the third anniversary of
the
effective date, and will renew automatically for additional one year periods
until either Nanobac or Mr. Edwards serves a 90 day notice of non-renewal.
The
employment agreement may be terminated by Nanobac for good cause. Good cause
is
defined as including: (a) theft, embezzlement or physical destruction with
regard to material property of Nanobac; (b) continued neglect by the employee
in
fulfilling his duties as Chief Executive Officer as a result of habitual
alcoholism, drug addiction or unauthorized absenteeism; (c) appropriation of
business opportunities of Nanobac for the direct or personal gain; (d)
conviction or a plea of no contest for a felony or other criminal act for which
the possible penalties include a prison sentence of at least one year; (e)
a
material breach of the restrictive covenants contained in the employment
agreement; or (f) default in a material respect of duties or willful and
malicious interference with Nanobac’s operations.
Under
the
employment agreement, Mr. Edwards receives a base salary of at least $300,000
during the first year, $325,000 during the second year and $350,000 during
the
third year of the employment agreement. The Board of Directors may increase,
but
not decrease, base compensation above these amounts. The employment agreement
also provides for annual bonus compensation as annually approved by the Board
of
Directors or Compensation Committee. Mr. Edwards is also eligible to receive
stock options exercisable at fair market value on the grant date, in such
amounts and subject to such vesting provisions as determined by the Board of
Directors or Compensation Committee. Mr. Edwards will receive all standard
benefits made available to other executive employees of Nanobac.
In
the
event that Nanobac terminates Mr. Edwards's employment without good cause,
Mr.
Edwards will receive a severance payment equal to 50% of base salary payable
under the remaining term of the employment agreement. If the termination without
good cause is within three years of a change of control of Nanobac, Mr. Edwards
will receive a severance payment equal to three times base salary payable under
the remaining term of the employment agreement plus an amount equal to any
bonus
compensation paid in the previous year. The employment agreement contains a
non-competition covenant and non-solicitation covenants, in respect to customers
and employees of Nanobac, for a period of one year following termination of
employment.
On
July
23, 2004, Alexander Edwards resigned as Chief Executive Officer and John Stanton
assumed the role of Chief Executive Officer. Mr. Edwards continues to serve
as a
member of the Board of Directors. As a result of his resignation as Chief
Executive Officer, Mr. Edwards voluntarily terminated the above employment
agreement and his salary was adjusted to $23,660 per year for the performance
of
limited services to Nanobac.
Directors'
Compensation
Nanobac's
directors, who are not also employees of Nanobac, receive no monetary
compensation. Each director is entitled to receive reimbursement of
out-of-pocket expenses for attending Board of Director or committee meetings.
Each independent Director is to receive 1,500,000 options to purchase of stock
of Nanobac. The issuance of these options is contingent upon the approval of
a
stock option plan by Nanobac’s stockholders. If a stock option plan is not
approved, the Directors then receive 1,500,000 shares of Nanobac. During January
2005, 1,500,000 shares were issued to each of Jan Egberts and Stephan
Rechtschaffen as independent directors of Nanobac.
Compensation
of Directors and Executive Officers (continued)
Compensation
Committee Interlocks and Insider Participation
The
Company has not formed a Compensation Committee, accordingly, the Board of
Directors acts in the Compensation Committee’s capacity. The Board of Directors
is responsible for reviewing and recommending salaries, bonuses and other
compensation for Nanobac's executive officers.
Mr.
Edwards is currently on the Board of Directors and is an employee of the
Company. Mr. Stanton and Mr. Edwards serve on the Board of Directors and have
been awarded stock grants in connection with services performed when the Company
was in bankruptcy in 2001 and 2002.
Stock
Options
We
currently do not have a stock option plan.
Our
consolidated financial statements are prepared in conformity with generally
accepted accounting principles of the United States of America.
The
following financial statements pertaining to Nanobac are filed as part of this
prospectus:
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
- F-21
|
 |
|||
Independent
Auditors’ Report
Board
of
Directors
Nanobac
Pharmaceuticals, Incorporated and Subsidiaries
Tampa,
Florida
We
have
audited the accompanying consolidated balance sheet of Nanobac Pharmaceuticals,
Incorporated and Subsidiaries (F/K/A American Enterprise Corporation) (the
“Company”), as of December 31, 2004, and the related consolidated statements of
operations, stockholders’ deficit and cash flows for the two years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements
based
on our audits.
We
conducted our audit in accordance with standards of the Public Accounting
Oversight Board (United States of America). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control
over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Nanobac
Pharmaceuticals, Incorporated and Subsidiaries, at December 31, 2004, and
the
consolidated results of their operations and their cash flows for the two
years
then ended in conformity with accounting principles generally accepted
in the
United States of America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations,
has
working capital and net capital deficiencies and is dependent upon continued
financing from stockholders and outside investors, all of which raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
As
discussed in Note 10, the accompanying consolidated financial statements
have
been restated.
| /s/ Aidman, Piser & Company, P.A. |
July
29,
2005
Tampa,
Florida
401
East
Jackson St., Suite 3400
Tampa,
FL
33602
813-222-8555
Fax: 813-222-8560
|
NANOBAC
PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
|
||||||||
|
December
31, 2004
|
June
30, 2005
|
||||||
|
ASSETS
|
(Unaudited)
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
|
$
|
17,908
|
$
|
23,323
|
|||
|
Account
receivable
|
3,395
|
6,053
|
|||||
|
Inventory
|
70,571
|
73,355
|
|||||
|
Prepaid
expenses
|
23,649
|
34,382
|
|||||
|
Total
current assets
|
115,523
|
137,113
|
|||||
|
FIXED
ASSETS, less
accumulated depreciation of $84,143 at
|
|||||||
|
December
31, 2004 and $106,844 at June 30, 2005
|
124,995
|
134,743
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Security
deposits
|
68,054
|
20,785
|
|||||
|
Intangible
assets, less accumulated amortization of $832,701
|
|||||||
|
December
31, 2004 and $1,186,861 at June 30, 2005
|
5,760,342
|
5,406,882
|
|||||
|
Goodwill
|
3,615,393
|
3,615,393
|
|||||
|
Total
other assets
|
9,443,789
|
9,043,060
|
|||||
|
TOTAL
ASSETS
|
$
|
9,684,307
|
$
|
9,314,916
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
645,491
|
$
|
423,310
|
|||
|
Accrued
compensation
|
50,611
|
337,972
|
|||||
|
Accrued
expenses
|
335,861
|
218,422
|
|||||
|
Short-term
note payable
|
62,379
|
51,603
|
|||||
|
Other
liabilities
|
16,423
|
10,633
|
|||||
|
Stockholder
loans
|
194,068
|
1,469,123
|
|||||
|
Total
current liabilities
|
1,304,833
|
2,511,063
|
|||||
|
LONG-TERM
LIABILITIES
|
|||||||
|
Accrued
compensation
|
350,000
|
–
|
|||||
|
Stock
settlement liability
|
1,918,630
|
2,864,904
|
|||||
|
Total
liabilities
|
3,573,463
|
5,375,967
|
|||||
|
COMMITMENTS
AND CONTINGENCY (Notes 9, 11 and 13)
|
–
|
–
|
|||||
|
STOCKHOLDERS'
EQUITY
|
|||||||
|
Common
stock, no par value, 250,000,000 shares authorized, 189,006,760
shares issued and outstanding at June 30, 2005 and 187,240,093
shares
issued and outstanding at December 31,
2004
|
16,296,550
|
16,307,050
|
|||||
|
Preferred
stock, no par value, 1,000,000 shares authorized, no shares issued
and outstanding
|
–
|
–
|
|||||
|
Additional
paid-in capital
|
3,539,328
|
3,508,955
|
|||||
|
Accumulated
deficit
|
(13,693,198
|
)
|
(15,871,254
|
)
|
|||
|
Accumulated
other comprehensive loss
|
(31,836
|
)
|
(5,802
|
)
|
|||
|
Total
stockholders' equity
|
6,110,844
|
3,938,949
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
9,684,307
|
$
|
9,314,916
|
|||
The
accompanying notes are an integral part of these financial
statements
|
NANOBAC
PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
|
|||||||||||
|
Year
|
Year
|
Six
Months
|
Six
Months
|
||||||||||
|
ended
|
ended
|
ended
|
ended
|
||||||||||
|
December
31, 2004
|
December
31, 2003
|
June
30, 2005
|
June
30, 2004
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
||||||||||||
|
REVENUE
|
$
|
358,361
|
$
|
482,815
|
$
|
319,853
|
$
|
105,949
|
|||||
|
COST
OF REVENUE
|
100,470
|
333,122
|
102,299
|
20,805
|
|||||||||
|
GROSS
PROFIT
|
257,891
|
149,693
|
217,554
|
85,144
|
|||||||||
|
OPERATING
EXPENSES
|
|||||||||||||
|
Sales,
general and administrative
|
4,765,841
|
2,128,375
|
509,938
|
3,893,262
|
|||||||||
|
Research
and development
|
2,375,363
|
540,426
|
694,841
|
1,266,166
|
|||||||||
|
Depreciation
and amortization
|
717,070
|
181,103
|
377,726
|
368,539
|
|||||||||
|
Total
Operating Expenses
|
7,858,274
|
2,849,904
|
1,582,505
|
5,527,967
|
|||||||||
|
OPERATING
LOSS
|
(7,600,383
|
)
|
(2,700,211
|
)
|
(1,364,951
|
)
|
(5,442,823
|
)
|
|||||
|
OTHER
INCOME (EXPENSES)
|
|||||||||||||
|
Interest
expense
|
(248,053
|
)
|
(42,934
|
)
|
(22,514
|
)
|
(168,718
|
)
|
|||||
|
Derivative
loss (restated)
|
(643,630
|
)
|
–
|
(746,274
|
)
|
0
|
|||||||
|
Other,
net
|
30,926
|
(17,988
|
)
|
(44,317
|
)
|
5,330
|
|||||||
|
LOSS
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
(8,461,140
|
)
|
(2,761,133
|
)
|
(2,178,056
|
)
|
(5,606,211
|
)
|
|||||
|
PROVISION
FOR INCOME TAXES
|
–
|
–
|
–
|
–
|
|||||||||
|
LOSS
FROM CONTINUING OPERATIONS
|
(8,461,140
|
)
|
(2,761,133
|
)
|
(2,178,056
|
)
|
(5,606,211
|
)
|
|||||
|
DISCONTINUED
OPERATIONS:
|
|||||||||||||
|
Loss
from discontinued operations (no applicable income
taxes)
|
(57,268
|
)
|
(938,358
|
)
|
0
|
(57,268
|
)
|
||||||
|
NET
LOSS
|
$
|
(8,518,408
|
)
|
$
|
(3,699,491
|
)
|
$
|
(2,178,056
|
)
|
$
|
(5,663,479
|
)
|
|
|
LOSS
PER COMMON SHARE (BASIC AND DILUTED):
|
|||||||||||||
|
Continuing
operations
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
|
|
Discontinued
operations
|
0.00
|
(0.01
|
)
|
0.00
|
0.00
|
||||||||
|
Net
loss
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
|
|||||||||||||
|
Basic
and Diluted
|
152,903,084
|
67,489,524
|
188,700,715
|
140,683,537
|
|||||||||
The
accompanying notes are an integral part of these financial
statements
|
NANOBAC
PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
|
|||||||||||||||||||
|
FOR
THE PERIODS ENDED DECEMBER 31, 2004 AND 2003 AND JUNE 30, 2005
(Unaudited)
|
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Additional
|
Due
from
|
Other
|
Other
|
||||||||||||||||||||||||||||
|
Common
|
Stock
|
Preferred
|
Stock
|
Paid-in
|
Option
|
Accumulated
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Exercise
|
Deficit
|
Loss
|
Loss
|
Total
|
||||||||||||||||||||||
|
December
31, 2002 Balance
|
19,982,965
|
$
|
1,134,377
|
368,815
|
$
|
–
|
$
|
–
|
$
|
–
|
($1,475,299
|
)
|
$
|
–
|
$
|
–
|
($340,922
|
)
|
|||||||||||||
|
Conversion
of preferred stock to common stock
|
16,268,430
|
–
|
(368,815
|
)
|
–
|
–
|
–
|
0
|
|||||||||||||||||||||||
|
Stock
issued in connection with bankruptcy
|
23,335,445
|
399,516
|
794,569
|
350,484
|
–
|
–
|
–
|
–
|
–
|
750,000
|
|||||||||||||||||||||
|
Stock
issued for services
|
50,000
|
30,175
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
30,175
|
|||||||||||||||||||||
|
Conversion
of liabilities to shares of common stock
|
3,644,000
|
728,800
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
728,800
|
|||||||||||||||||||||
|
Sale
of common stock (see Notes 1 and 10)
|
1,690,000
|
548,000
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
548,000
|
|||||||||||||||||||||
|
Common
stock issued in acquisition
|
34,998,000
|
1,392,920
|
–
|
–
|
–
|
(200,000
|
)
|
–
|
–
|
–
|
1,192,920
|
||||||||||||||||||||
|
Comprehensive
loss:
|
|
||||||||||||||||||||||||||||||
|
Net
loss
|
–
|
–
|
–
|
–
|
–
|
–
|
(3,699,491
|
)
|
(3,699,491
|
)
|
–
|
(3,699,491
|
)
|
||||||||||||||||||
|
Foreign
currency translation adjustment
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
(15,638
|
)
|
(15,638
|
)
|
(15,638
|
)
|
||||||||||||||||||
|
Comprehensive
loss
|
(3,715,129
|
)
|
|||||||||||||||||||||||||||||
|
Balance,
December 31, 2003
|
99,968,840
|
$
|
4,233,788
|
794,569
|
$
|
350,484
|
$
|
–
|
$
|
(200,000
|
)
|
$
|
(5,174,790
|
)
|
$
|
(15,638
|
)
|
$
|
(806,156
|
)
|
|||||||||||
|
Conversion
of preferred stock to common stock
|
35,048,445
|
350,484
|
(794,569
|
)
|
(350,484
|
)
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||||||
|
Cash
received from option exercise
|
–
|
–
|
–
|
–
|
–
|
200,000
|
–
|
–
|
–
|
200,000
|
|||||||||||||||||||||
|
Stock
issued for services
|
4,500,000
|
2,562,750
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
2,562,750
|
|||||||||||||||||||||
|
Common
stock issued in acquisition of Nanobac OY
|
5,000,000
|
4,267,500
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
4,267,500
|
|||||||||||||||||||||
|
Capital
contribution associated with sale of subsidiary to affiliate
|
–
|
–
|
–
|
–
|
749,327
|
–
|
–
|
–
|
–
|
749,327
|
|||||||||||||||||||||
|
Conversion
of liabilities to shares of common stock
|
32,097,808
|
4,882,028
|
–
|
–
|
2,887,501
|
–
|
–
|
–
|
–
|
7,769,529
|
|||||||||||||||||||||
|
Sale
of common stock
|
10,625,000
|
–
|
–
|
–
|
(97,500
|
)
|
–
|
–
|
–
|
–
|
(97,500
|
)
|
|||||||||||||||||||
|
Comprehensive
loss:
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
–
|
–
|
–
|
–
|
–
|
–
|
(8,518,408
|
)
|
(8,518,408
|
)
|
–
|
(8,518,408
|
)
|
||||||||||||||||||
|
Foreign
currency translation adjustment
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
(16,198
|
)
|
(16,198
|
)
|
(16,198
|
)
|
||||||||||||||||||
|
Comprehensive
loss
|
(8,534,606
|
)
|
|||||||||||||||||||||||||||||
|
Balance,
December 31, 2004
|
187,240,093
|
$
|
16,296,550
|
–
|
$
|
–
|
$
|
3,539,328
|
$
|
–
|
$
|
(13,693,198
|
)
|
$
|
(31,836
|
)
|
$
|
6,110,844
|
|||||||||||||
|
Stock
issued for services (unaudited)
|
100,000
|
10,500
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
10,500
|
|||||||||||||||||||||
|
Sale
of common stock (unaudited)
|
1,666,667
|
–
|
–
|
–
|
(30,373
|
)
|
–
|
–
|
–
|
–
|
(30,373
|
)
|
|||||||||||||||||||
|
Comprehensive
loss:
|
|||||||||||||||||||||||||||||||
|
Net
loss (unaudited)
|
–
|
–
|
–
|
–
|
–
|
–
|
(2,178,056
|
)
|
(2,178,056
|
)
|
–
|
(2,178,056
|
)
|
||||||||||||||||||
|
Foreign
currency translation adjustment (unaudited)
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
26,034
|
26,034
|
26,034
|
|||||||||||||||||||||
|
Comprehensive
loss
|
(2,152,022
|
)
|
|||||||||||||||||||||||||||||
|
Balance,
March 31, 2005 (Unaudited)
|
189,006,760
|
$
|
16,307,050
|
–
|
$
|
–
|
$
|
3,508,955
|
$
|
–
|
$
|
(15,871,254
|
)
|
$
|
(5,802
|
)
|
$
|
3,938,949
|
|||||||||||||
The
accompanying notes are an integral part of these financial
statements
|
NANOBAC
PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
|
|||||||||||
|
Year
ended
|
Year
ended
|
Six
months
|
Six
months
|
||||||||||
|
December
31, 2004
|
December
31, 2003
|
June
30, 2005
|
June
30, 2004
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||||||||
|
Net
Loss
|
$
|
(8,518,408
|
)
|
$
|
(3,699,491
|
)
|
$
|
(2,178,056
|
)
|
$
|
(5,663,479
|
)
|
|
|
Adjustments
to reconcile net loss to cash flows from operating
activities:
|
|||||||||||||
|
Depreciation
and amortization
|
717,070
|
181,103
|
377,726
|
368,539
|
|||||||||
|
Loss
on disposition of assets
|
–
|
7,659
|
–
|
–
|
|||||||||
|
Derivative
loss
|
643,630
|
–
|
746,274
|
–
|
|||||||||
|
Charges
from common stock issuances
|
2,562,750
|
780,175
|
10,500
|
2,562,750
|
|||||||||
|
Minority
interest in net loss
|
–
|
(3,545
|
)
|
–
|
–
|
||||||||
|
Interest
expense added to stockholder loan
|
237,958
|
–
|
20,663
|
167,262
|
|||||||||
|
Net
(increase) decrease in assets:
|
|||||||||||||
|
Accounts
receivable
|
2,370
|
9,125
|
(2,658
|
)
|
(8,434
|
)
|
|||||||
|
Inventory
|
(54,360
|
)
|
67,286
|
(2,784
|
)
|
606
|
|||||||
|
Other
assets
|
(8,769
|
)
|
78,383
|
35,894
|
(1,005
|
)
|
|||||||
|
Net
increase (decrease) in liabilities:
|
|||||||||||||
|
Accounts
payable
|
530,196
|
278,107
|
(222,181
|
)
|
390,083
|
||||||||
|
Accrued
compensation
|
464,768
|
46,658
|
(62,639
|
)
|
319,549
|
||||||||
|
Accrued
expenses
|
10,628
|
99,218
|
(117,439
|
)
|
49,910
|
||||||||
|
Deferred
revenue
|
16,423
|
-
|
(5,790
|
)
|
14,138
|
||||||||
|
Total
adjustments
|
5,122,664
|
1,544,169
|
777,566
|
3,863,398
|
|||||||||
|
Net
cash flows from operating activities
|
(3,395,744
|
)
|
(2,155,322
|
)
|
(1,400,490
|
)
|
(1,800,081
|
)
|
|||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||||||||
|
Acquisition
of fixed assets
|
(36,765
|
)
|
(18,157
|
)
|
(37,766
|
)
|
(28,650
|
)
|
|||||
|
Security
deposits
|
2,500
|
(2,932
|
)
|
–
|
–
|
||||||||
|
Acquisition
of subsidiary, net of cash received
|
(901
|
)
|
(81,022
|
)
|
–
|
–
|
|||||||
|
Cash
received from exercise of option in subsidiary
|
200,000
|
300,000
|
–
|
200,000
|
|||||||||
|
Net
cash flows from investing activities
|
164,834
|
197,889
|
(37,766
|
)
|
171,350
|
||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||||||||
|
Advances
from line of credit, net
|
–
|
(36,453
|
)
|
–
|
–
|
||||||||
|
Proceeds
from issuance of common stock and stock subscription agreements,
net of expenses
|
1,177,500
|
548,000
|
169,627
|
–
|
|||||||||
|
Proceeds
from stockholder loans, net
|
2,066,091
|
1,997,467
|
1,254,392
|
1,617,701
|
|||||||||
|
Proceeds
(payment) of notes payable, net
|
(27,621
|
)
|
(486,188
|
)
|
(10,776
|
)
|
(16,400
|
)
|
|||||
|
Net
cash flows from financing activities
|
3,215,970
|
2,022,826
|
1,413,243
|
1,601,301
|
|||||||||
|
Effect
of exchange rate changes
|
(16,907
|
)
|
(15,638
|
)
|
30,428
|
4,835
|
|||||||
|
Net
change in cash
|
(31,847
|
)
|
49,755
|
5,415
|
(22,595
|
)
|
|||||||
|
Cash
balance, beginning of period
|
49,755
|
–
|
17,908
|
49,755
|
|||||||||
|
Cash
balance, end of period
|
$
|
17,908
|
$
|
49,755
|
$
|
23,323
|
$
|
27,160
|
|||||
|
Supplemental
disclosures of cash flow information:
|
|||||||||||||
|
Cash
paid for interest expense
|
$
|
10,095
|
$
|
42,934
|
$
|
1,851
|
$
|
1,456
|
|||||
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|||||||||||||
|
Common
stock issued in acquisition
|
$
|
4,267,500
|
$
|
1,392,920
|
$
|
–
|
$
|
5,737,500
|
|||||
|
Common
stock issued for the conversion of debt
|
$
|
7,769,529
|
$
|
728,800
|
$
|
–
|
$
|
–
|
|||||
|
Stockholder
loan used for acquisition
|
$
|
–
|
$
|
4,071,342
|
$
|
–
|
$
|
–
|
|||||
|
Capital
contribution associated with sale of subsidiary to
affiliate
|
|||||||||||||
|
Reduction
in stockholder loan
|
$
|
250,000
|
$
|
–
|
$
|
–
|
$
|
250,000
|
|||||
|
Assumption
of current liabilities
|
$
|
499,327
|
$
|
–
|
$
|
–
|
$
|
499,327
|
|||||
The
accompanying notes are an integral part of these financial
statements
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
1. Nature
of operations and summary of significant accounting
polices
Nature
of business
Nanobac
Pharmaceuticals, Incorporated and subsidiaries, ("Nanobac”, the "Company", or
"NNBP") trades under the symbol "NNBP."
NNBP’s
primary business is the study and development of therapeutic and diagnostic
technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
are believed to be small, slowly growing nano-particles that can be found in
human blood, kidney stones and arterial wall plaques.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation. On June 4, 2003, the Company acquired
a
majority interest in NanobacLabs Pharmaceuticals, Inc. and on November 11,
2003,
the Company acquired 65% of Nanobac OY (see Note 2, “Acquisitions”). In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations”, NNBP has included the results of operations of LABS
from June 4, 2003 and the results of operations of OY from November 11, 2003.
Where
losses applicable to the minority interest in a subsidiary exceed the minority
interest in the equity capital of the subsidiary, such excess and any further
losses applicable to the minority interest shall be charged against the majority
interest, as there is no obligation of the minority interest to make good such
losses.
Liquidity
and Management Plans
The
accompanying consolidated financial statements have been prepared assuming
that
NNBP will continue as a going concern. The Company has incurred recurring losses
and has a working capital deficiency at June 30, 2005. The Company is dependent
on the continued financing from outside investors including additional
shareholder loans. All of these matters raise substantial doubt about the
ability of the Company to continue as a going concern. Management believes
that
NNBP will need to raise additional capital in order to launch new clinical
trials, fund research and development for new treatment areas, and general
working capital requirements. Capital may be raised through further sales of
equity securities, which may result in dilution of the position of current
shareholders. At this time, there are no firm commitments to invest in NNBP.
If
NNBP is unable to obtain such financing, the business might not attain
profitability.
There
can
be no assurances that NNBP will be successful in obtaining debt or equity
financing in order to achieve its financial objectives and continue as a going
concern. The financial statements do not include any adjustments to the carrying
amount of assets and the amounts and classifications of liabilities that might
result from the outcome of this uncertainty.
Revenue
Recognition
Revenue
is recognized when the Company’s products are shipped and title has passed or
when diagnostic results are provided to the customer. Revenue is recorded net
of
reserves for estimated discounts and incentives.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
1. Nature
of
operations and summary of significant accounting polices
(continued)
Financial instruments
The
carrying value of NNBP’s financial instruments, including cash, accounts
receivable, accounts payable, short-term note payable and stockholder loans
approximate their fair market values.
Inventory
Inventory
is stated at the lower of cost or market. Cost is determined in a manner which
approximates the first-in, first-out (FIFO) method. Inventory consists of raw
materials for currently marketed products and materials and processing costs
for
antibodies and antigens used in our Finland laboratory. Inventory is shown
net
of applicable reserves and allowances. Shipping costs are expensed as incurred
and are included in cost of revenue.
Fixed
Assets
Fixed
assets consist of furniture, fixtures, computers and lab equipment and are
recorded at cost. Fixed assets are depreciated using the straight-line method
over the estimated useful lives of three to seven years.
Intangible
assets and goodwill
Intangible
assets are recorded at cost, less accumulated amortization. Intangible assets
consist of acquired technology rights obtained in the acquisition of LABS and
OY
(see Note 2). Amortization of intangible assets is provided over the following
estimated useful lives on a straight-line basis:
Patents 12
years
Product
rights
5 years
In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets” (“SFAS No. 142”), and Statement of Financial
Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”), the Company reviews its non-amortizable
long-lived assets, including intangible assets and goodwill for impairment
annually, or sooner whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. Other depreciable or
amortizable assets are reviewed when indications of impairment exist. Upon
such
an occurrence, recoverability of these assets is determined as follows. For
long-lived assets that are held for use, the Company compares the forecasted
undiscounted net cash flows to the carrying amount. If it is determined that
the
long-lived asset will be unable to recover its carrying amount, then it is
written down to fair value. For long-lived assets held for sale, assets are
written down to fair value. Fair value is determined based on discounted cash
flows, appraised values for management’s estimates, depending upon the nature or
the assets. Impairment within goodwill is tested using a two step method. The
first step is to compare the fair value of the reporting unit to its book value,
including goodwill. If the fair value of the unit is less than its book value,
the Company than determines the implied fair value of goodwill by deducting
the
fair value of the reporting unit’s net assets from the fair value of the
reporting unit. If the book value of goodwill is greater than its implied fair
value, the Company writes down goodwill to its implied fair value. The Company’s
goodwill and intangible assets relate to the acquisition of NanobacLabs
Pharmaceuticals, Inc. and Nanobac OY. Goodwill
and intangible asset amortization is not deductible for income tax
purposes.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
1. Nature
of
operations and summary of significant accounting polices
(continued)
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
Net
loss per share
Net
loss
per share represents the net loss attributable to common stockholders divided
by
the weighted average number of common shares outstanding during the period.
The
effect of incremental shares from common stock equivalents is not included
in
the calculation of net loss per share as the inclusion of such common stock
equivalents would be anti-dilutive. Accordingly, fully dilutive shares
outstanding equal basic shares outstanding as of December 31, 2004 and 2003.
Accumulated
Other Comprehensive Loss
Accumulated
other comprehensive loss consists of foreign currency translation adjustment
related to our Finland operations. Accumulated other comprehensive income has
no
applicable income tax.
Derivative
financial instruments
The
Company accounts for derivative financial instruments indexed to and potentially
settled in, its own stock in accordance with Emerging Issues Task Force 00-19,
which provides that if the number of shares deliverable in a transaction be
indeterminable, that said shares be presented as a liability in the balance
sheet. Further, the liability is to be measured at fair value until
such
time as the obligation is settled. The shares issued in connection
with
the 2004 Subscription Agreement transactions discussed in Note 10 are derivative
transactions and as such have been presented in the accompanying balance sheets
as liabilities and in the accompanying statements of operations as derivative
loss. The derivative loss represents the difference in the share value
as
issued and the value of said shares at the balance
sheet date based on the trading value of the stock at
December
31, 2004 and June 30, 2005.
At settlement, accumulated derivative losses will be charged to retained
earnings as a constructive dividend.
Research
and development expenses
Research
and development expenses are comprised of the following types of costs incurred
in performing R&D activities: salaries and benefits, occupancy costs of our
Finland laboratory, professional fees, clinical trial and related clinical
manufacturing costs. Research and development costs are expensed as incurred.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
1. Nature
of
operations and summary of significant accounting polices
(continued)
Income
taxes
NNBP
records its federal and state tax liability in accordance with Financial
Accounting Standards Board Statement No. 109 “Accounting for Income Taxes”. The
deferred taxes are recorded for temporary differences between the recognition
of
income and expenses for tax and financial reporting purposes, using current
tax
rates. Deferred assets and liabilities represent the future tax consequences
of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Recent
accounting pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” The
statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. ARB No. 43 previously
stated that these costs must be “so abnormal as to require treatment as
current-period charges.” SFAS No. 151 requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of “so abnormal.” In addition, this statement requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted for fiscal years beginning after the issue date
of
the statement. The adoption of SFAS No. 151 is not expected to have
any
significant impact on the Company’s current financial condition or results of
operations.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29.” APB Opinion No. 29,
“Accounting For Nonmonetary Transactions,” is based on the opinion that
exchanges of nonmonetary assets should be measured based on the fair value
of
the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets whose
results are not expected to significantly change the future cash flows of the
entity. The adoption of SFAS No. 153 is not expected to have any impact
on
the Company’s current financial condition or results of operations.
In
December 2004, the FASB revised its SFAS No. 123 (“SFAS
No. 123R”), “Accounting for Stock Based Compensation.” The revision
establishes standards for the accounting of transactions in which an entity
exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment
transactions. The revised statement requires a public entity to measure the
cost
of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost is to be recognized
over the period during which the employee is required to provide service in
exchange for the award. Changes in fair value during the requisite service
period are to be recognized as compensation cost over that period. In addition,
the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to
require that excess tax benefits be reported as a financing cash flow rather
than as a reduction of taxes paid. The provisions of the revised statement
are
effective for financial statements issued for the first interim or annual
reporting period beginning after June 15, 2005, with early adoption
encouraged. The Company is currently evaluating the impact that this statement
will have on its financial condition or results of operations.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
1. Nature
of
operations and summary of significant accounting polices
(continued)
Recent
accounting pronouncements (continued)
In
March
2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”),
which requires an entity to recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability’s fair
value can be reasonably estimated. FIN 47 is effective for fiscal years ending
after December 15, 2005. The Company is currently evaluating the effect that
the
adoption of FIN 47 will have on its consolidated results of operations and
financial condition but does not expect it to have a material impact.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections
(“SFAS 154”), which replaces Accounting Principles Board Opinions No. 20
“Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements - An Amendment of APB Opinion No. 28.” SFAS 154 provides
guidance on accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2006. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition, but does not expect it to have a material impact.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
2. Acquisitions
NanobacLabs
Pharmaceuticals, Inc.
On
June
4, 2003, NNBP acquired approximately 74.4% of LABS in exchange for 24,400,000
restricted shares of NNBP. From June 5, 2003 through December 31, 2003, NNBP
acquired the remaining 25.6% of LABS from various stockholders in exchange
for
6,598,000 restricted shares and additional consideration (in addition, see
Note
10 for stock issued in connection with bridge funding for this acquisition).
The
total
consideration for LABS was approximately $5.5 million, which included
the
fair value of NNBP common stock issued, as well as direct transaction costs.
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed as of the acquisition date:
|
Current
assets
|
$
|
895,058
|
||
|
Investment
in OY
|
693,778
|
|||
|
Fixed
assets
|
113,651
|
|||
|
Identifiable
intangible assets
|
1,350,000
|
|||
|
Goodwill
|
3,615,393
|
|||
|
Other
assets
|
62,500
|
|||
|
Current
liabilities
|
(768,280
|
)
|
||
|
Note
payable
|
(486,188
|
)
|
||
|
$
|
5,475,912
|
Acquired
identifiable intangible assets consist of product rights for the treatment
of
Nanobacteria. The
allocation of the purchase price was based, in part, on third-party valuations
of the fair values of identifiable intangible assets. Amortization
of this asset commenced as of the acquisition date.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
2. Acquisitions
(continued)
Nanobac
OY
Nanobac
OY is a Finnish company that performs similar research to that of the Company
in
nanobacteria infection. On September 25, 2002, LABS entered into an agreement
to
purchase 27% of Nanobac OY stock from three Finnish entities for 11,430 Euros.
A
separate agreement also required LABS to acquire convertible promissory notes
in
Nanobac OY in the amount of 686,000 Euros plus interest. On November 11, 2003,
NNBP completed the acquisition of Nanobac OY when the final payment was made
and
the Company exercised the conversion option in the convertible promissory notes.
Upon the conclusion of this transaction, the Company owned 65% of OY.
During
January through March 2004, NNBP acquired the remaining 35% of Nanobac OY from
Dr. Kajander and Dr. Ciftcioglu (“OY Minority Shareholders”). The purchase price
was (a) 5 million shares of NNBP’s common stock, (b) 5 million warrants
convertible into NNBP’s common stock at $.005 per share and (c) cash
consideration of 15,000 Euros. Total consideration to the OY Minority
Stockholders is valued at $4.3 million.
The
total
consideration to date for OY is $5.1 million, which included cash payments
(made
before and after the acquisition of LABS), the fair value of NNBP common stock
issued, as well as direct transaction costs. The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed as of the acquisition date:
|
Current
assets
|
$
|
37,534
|
||
|
Fixed
assets
|
29,286
|
|||
|
Identifiable
intangible assets
|
5,243,048
|
|||
|
Other
assets
|
4,731
|
|||
|
Current
liabilities
|
(11,884
|
)
|
||
|
Advances
from Nanobac
|
(228,119
|
)
|
||
|
$
|
5,074,596
|
Acquired
identifiable intangible assets consist of patents for the detection and
treatment of Nanobacteria. The
allocation of the purchase price was based, in part, on third-party valuations
of the fair values of identifiable intangible assets. Amortization
of this asset commenced as of the acquisition date.
In
addition, as part of the above agreement, the OY Minority Shareholders agreed
to
employment agreements with NNBP. These agreements included $500,000 of signing
bonuses of which $150,000 was paid in 2004 and the remaining $350,000 (earned
upon certain triggering events that occurred in 2004) is payable two years
from
the agreement dates (January and March 2006) and is included in long-term
liabilities.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
2. Acquisitions
(continued)
The
following unaudited table compares NNBP’s reported operating results to pro
forma information prepared on the basis that the above acquisitions had taken
place at January 1, 2003. In management’s opinion, the unaudited pro forma
combined results of operations are not indicative of the actual results that
would have occurred had the acquisitions been consummated at the beginning
of
2003 or 2004 or of future operations of the combined companies under the
ownership and management of NNBP.
|
Year
ended December 31,
|
|||||||
|
2004
|
2003
|
||||||
|
As
Reported
|
|||||||
|
Revenue
|
$
|
358,361
|
$
|
482,815
|
|||
|
Net
loss
|
$
|
(8,518,408
|
)
|
$
|
(3,699,491
|
)
|
|
|
Basic
loss per share
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
|
|
Diluted
loss per share
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
|
|
Proforma
|
|||||||
|
Revenue
|
$
|
358,361
|
$
|
1,183,210
|
|||
|
Net
loss
|
$
|
(8,555,553
|
)
|
$
|
(5,454,572
|
)
|
|
|
Basic
loss per share
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
Diluted
loss per share
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
3. Discontinued
Operations
During
October 2003, NNBP decided to divest its HealthCentrics business unit to focus
exclusively on its nanobacteria business unit. NNBP was unsuccessful in finding
a non-affiliated buyer for this business unit. During March 2004, this business
unit was sold to an affiliate of the current CEO for consideration of $250,000
(a reduction in amounts otherwise owed to the affiliate). NNBP’s gain on
disposal was $749,326, which is accounted for as a capital contribution given
the related party nature of the arrangement. Summary operating results for
the
discontinued operations for the years ended December 31, 2004 and 2003 are
as
follows:
|
2004
|
2003
|
||||||
|
Revenue
|
$
|
5,301
|
$
|
19,970
|
|||
|
Loss
before income taxes
|
($
57,268
|
)
|
($
938,358
|
)
|
|||
|
Provision
for income taxes
|
–
|
–
|
|||||
|
Net
loss
|
($
57,268
|
)
|
($
938,358
|
)
|
|||
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
4. Fixed
Assets
Fixed
assets at December 31, 2004 are summarized as follows:
|
Dec
2004
|
||||
|
Computer
equipment
|
$
|
44,683
|
||
|
Computer
software
|
17,982
|
|||
|
Lab
equipment
|
49,008
|
|||
|
Office
equipment
|
20,769
|
|||
|
Furniture
and fixtures
|
21,729
|
|||
|
Leasehold
improvements
|
54,967
|
|||
|
209,138
|
||||
|
Accumulated
Depreciation
|
(84,143
|
)
|
||
|
$
|
124,995
|
|||
Depreciation
expense for the years ended December 31, 2004 and 2003 was $47,295 and $18,177,
respectively.
5. Intangible
Assets
Intangible
assets as of December 31, 2004 are summarized as follows:
|
Product
rights
|
$
|
1,350,000
|
||
|
Patents
|
5,243,043
|
|||
|
6,593,043
|
||||
|
Accumulated
amortization
|
(832,701
|
)
|
||
|
$
|
5,760,342
|
Amortization
expense for the years ended December 31, 2004 and 2003 was $669,775 and
$162,926, respectively. Expected future amortization is summarized as
follows:
|
Year
ending December 31,
|
||||
|
2005
|
$
|
706,920
|
||
|
2006
|
706,920
|
|||
|
2007
|
706,920
|
|||
|
2008
|
549,420
|
|||
|
2009
|
436,920
|
|||
|
Thereafter
|
2,653,242
|
|||
|
$
|
5,760,342
|
|||
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
6. Accrued
Expenses
Accrued
expenses as of December 31, 2004 are summarized as follows:
|
Accrued
professional fees
|
$
|
79,500
|
||
|
Royalty
|
150,479
|
|||
|
Employee
expense reports
|
19,843
|
|||
|
Payroll
taxes and benefits
|
18,507
|
|||
|
Other
|
67,532
|
|||
|
$
|
335,861
|
7. Segment
Information
With
the
disposition of its HealthCentrics business unit (see Note 3), NNBP operates
a
single business segment. Geographic information is summarized as
follows:
|
Year
ended December 31,
|
|||||||
|
2004
|
2003
|
||||||
|
Revenue
|
|||||||
|
United
States
|
$
|
343,444
|
$
|
472,735
|
|||
|
Finland
|
14,917
|
10,080
|
|||||
|
$
|
358,361
|
$
|
482,815
|
||||
|
Assets
|
|||||||
|
United
States
|
$
|
3,281,026
|
|||||
|
Finland
|
6,403,281
|
||||||
|
$
|
9,684,307
|
||||||
The
geographic classification of revenue was based upon the domicile of the entity
from which the revenues were earned. Approximately 98% of Finland assets relate
to patents recorded as a result of the acquisition of OY (see Note 2).
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
8. Income
taxes
There
was
no current or deferred provision or benefit for income taxes for the years
ended
December 31, 2004 and 2003. The components of deferred tax asset are as
follows:
|
December
31,
|
December
31,
|
June
30,
|
||||||||
|
2004
|
2003
|
2005
|
||||||||
|
(Unaudited)
|
||||||||||
|
Deferred
tax asset:
|
||||||||||
|
Net
operating loss carryforwards
|
$
|
3,690,000
|
$
|
2,487,000
|
$
|
4,112,000
|
||||
|
Valuation
allowance
|
(3,690,000
|
)
|
(2,487,000
|
)
|
(4,112,000
|
)
|
||||
|
Deferred
tax asset net of valuation allowance
|
$
|
–
|
$
|
–
|
$
|
–
|
||||
As
of
June 30, 2005, the Company had approximately $10 million of net operating loss
carryovers which expire between 2016 and 2025.
The
following table accounts for the differences between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax
rates
of 34% to the loss from continuing operations before income taxes and minority
interest:
|
2004
|
2003
|
||||||
|
Statutory
tax benefit
|
$
|
2,981,000
|
$
|
967,000
|
|||
|
State
taxes, net of federal benefit
|
335,000
|
72,000
|
|||||
|
Nondeductible
expense for common
|
|||||||
|
stock
issued for services
|
(999,000
|
)
|
(292,000
|
)
|
|||
|
Amortization
of intangible assets
|
(261,000
|
)
|
(57,000
|
)
|
|||
|
Nontaxable
income in connection
|
|||||||
|
with
HealthCentrics' disposition
|
305,000
|
–
|
|||||
|
Nontaxable
derivative loss
|
(251,000
|
)
|
–
|
||||
|
Increase
in valuation allowance
|
(2,116,000
|
)
|
(715,000
|
)
|
|||
|
Other,
net
|
6,000
|
25,000
|
|||||
|
Provision
for taxes
|
$
|
–
|
$
|
–
|
|||
Changes
in the valuation allowance during the year ended December 31, 2004 were as
follows:
|
Valuation
allowance, beginning of year
|
$
|
2,487,000
|
||
|
Discontinued
operations
|
(913,000
|
)
|
||
|
Increase
from continuing operations
|
2,116,000
|
|||
|
Valuation
allowance, end of year
|
$
|
3,690,000
|
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
9. Related
Party
Transactions
Stockholder
Loan
An
entity
controlled by the Chief Executive Officer (who is also the largest stockholder
of NNBP), had loaned NNBP approximately $8.2 million from June 2003 through
December 2004. This loan had interest at 5% and is due on demand. On September
30, 2004, $7.5 million of the above loan was converted into 29,999,964 shares
of
the Company’s common stock. On December 13, 2004 an additional $500,000 of the
above loan was converted into 4,166,667 shares of the of the Company’s common
stock, which is included in the Stock Settlement Liability at December 31,
2004
(see Note 10). The remaining loan balance at December 31, 2004 and June 30,
2005
was approximately $194,000 and $1.5 million (unaudited), respectively.
Interest
expense for the above loans for the years ended December 31, 2004 and 2003
was
approximately $238,000 and $23,000, respectively. Interest expense for the
six
months ended June 2005 was approximately $21,000 (unaudited).
Short-Term
Notes Payable
Short-term
notes payable consist of unsecured advances from employees of the Company.
These
notes bear interest at 5% and are due on demand.
Conversion
of Debt into Equity
During
August 2004, an employee and minority stockholder (less than 5% ownership of
the
Company) converted an $111,000 liability due from the Company into 923,458
shares of the Company’s common stock.
License
Agreement
During
February 2004, NNBP entered into a licensing agreement with Pegasus Worldwide,
Inc. (“Pegasus”) to market one of NNBP's over the counter products. NNBP’s Chief
Executive Officer is a director of Pegasus. Under the terms of the license
agreement, NNBP was due $75 for each unit of product sold. For the year ended
December 31, 2004, NNBP recognized revenue of $46,800 under this license
agreement. Effective June 1, 2004, this license agreement was cancelled and
NNBP
is selling this product directly to customers.
Royalty
Agreement
The
Company was a party to a royalty agreement with the former majority owner of
LABS who, along with his spouse, own approximately 24.4 million common shares
of
NNBP. Under the terms of the royalty agreement, this stockholder would receive
an annual fee of $50,000 plus ten percent of gross sales from applicable
products. On March 16, 2004, the U.S. Patent Office printed Patent 6,706,290
“Methods for Eradication of Nanobacteria”. With the approval of this patent,
management believes that the above royalty agreement is not valid and no amounts
will ultimately be due under the above royalty agreement.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
10. Stockholders'
equity
Preferred
stock
The
holder(s) of preferred shares are entitled to receive non-cumulative dividends
not to exceed $.10 per share when and as declared by the Board of Directors.
In
the event of any liquidation, dissolution or winding down of the company, either
voluntary or involuntary, the holder(s) of each preferred share shall be
entitled to be paid on an amount equal to $4.00 per share. In the event that
the
Company authorizes the redemption of all or any preferred shares, the redemption
price shall be $4.30 per share. The preferred shares are convertible at any
time
into common at the ratio of 44.11 common shares to one preferred share. Holders
of preferred shares have a right to cast eight votes per preferred share and
the
right to elect 50% of the authorized members of the board of
directors.
Common
stock, preferred stock and warrant issuances
During
2004, creditors of the Company converted $7.8 million of liabilities into
32,097,808 shares of the Company’s common stock as follows:
|
Shareholder
loan (Note 9)
|
29,999,964
|
$
|
7,499,990
|
||||
|
Employee
(Note 9)
|
923,458
|
110,815
|
|||||
|
Unaffiliated
vendors
|
1,174
385
|
158,724
|
|||||
|
32,097,807
|
$
|
7,769,529
|
During
2004, the Company issued 5.0 million shares of its common stock and 5.0 million
warrants with an exercise price of $0.005 per share in connection with the
acquisition of the minority interest in OY (see Note 2). The value of these
stock and stock equivalent issuances was $4.3 million.
From
August 2004 through February 2005, the Company entered into Subscription
Agreements with three unaffiliated investors. Under the terms of the
Subscription Agreements, the Company received cash of $852,500 (net of $122,500
of expenses) through June 30, 2005. The Company is to receive additional cash
of
approximately $800,000 (net of expenses) within five days of registering the
common shares and warrants issued as a result of the Subscription Agreements.
The number of common shares to be issued is equal to the amount received divided
by the lesser of $.12 or 52% of the average closing bid price of the Company’s
common stock on the five trading days immediately prior to the date on which
the
registration statement is declared effective (“Fixed Price”). In addition, the
Subscription Agreements provide for the issuance of warrants equal to the number
of common shares issued. Fifty percent (50%) of the warrants are exercisable
at
110% of the Fixed Price and the remaining 50% of the warrants are exercisable
at
150% of the Fixed Price. Unexercised warrants will expire December 31, 2008.
The
Company has agreed to use its best efforts to promptly register the common
shares and warrants.
During
December 2004, the Company entered into a Subscription Agreement with an
affiliate of the Company’s Chief Executive Officer. Under the terms of the
Subscription Agreement, the Company received cash of $500,000 during the year
ended December 31, 2004. The Company is to receive additional cash of $500,000
within five days of registering the common shares and warrants issued as a
result of the Subscription Agreement. All other terms of the Subscription
Agreement are substantially the same as the Subscription Agreements to the
unaffiliated investors described in the preceding paragraph. This amount is
classified as Stock Settlement Liability in the accompanying consolidated
balance sheets.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND
2004
(unaudited)
10. Stockholders' equity (continued)
As
a
result of the above Subscription Agreements, at June 30, 2005, the Company
issued 12,291,667 shares of common shares, which represents the minimum number
of shares to be issued under the Subscription Agreements in exchange for cash
received through June 30, 2005. If the price of the Company’s stock is less than
$0.23 per share when the Company’s registration statement is declared effective,
the Company will be required to issue additional shares under the above
Subscription Agreements equal to a price of 52% of the average closing bid
price
of the Company’s common stock on the five trading days immediately prior to the
date on which the registration statement is declared effective. The ultimate
number of shares to be issued is indeterminate as the number of shares is
dependent on NNBP’s closing bid price when a registration statement is declared
effective. As a result, $1,275,000 and $1,475,000 (unaudited) of cash received
under the Subscription Agreements through December 31, 2004 and June 30, 2005,
respectively is included in long-term liabilities.
At
December 31, 2004 and June 30, 2005 the Company measured the value of the shares
to be issued under the Subscription Agreements based on the Company’s closing
bid price at December 31, 2004 and June 30, 2005 compared to the actual shares
issued. As a result of this measurement, an additional $646,630 and $746,274
(unaudited) Stock Settlement Liability was recorded for the year ended December
31, 2004 and the six month period ended June 30, 2005, respectively with a
charge to derivative loss in the statements of operations.
From
May
2001 through November 2002, the Company was in bankruptcy. Throughout the
bankruptcy proceedings, the Chairman, Secretary and CEO (collectively “NNBP
Officers”) funded the Company’s administrative costs and provided management to
the Company. During January 2003, the Company’s Board of Directors authorized
compensation to these NNBP Officers in the aggregate amount of $750,000 for
services rendered during the bankruptcy. Further, the Board of Directors
authorized the issuance of stock in satisfaction of the $750,000 liability.
The
liability was to be settled through the issuance of up to 75 million shares
of
the Company’s stock ($.01 per share fair value at the date of the award). This
obligation has been recorded at $750,000 (based on the value at the measurement
date) although shares were issued periodically throughout 2003. Certain shares
were issued as preferred shares (at an equivalent value based on the conversion
ratio of 44.11 per share). Subsequent to December 31, 2003, the number of
authorized shares was increased to 250,000,000, at which time the previously
issued preferred stock was converted to 35,048,445 shares of Common stock.
During
January 2004, the Company issued 4.5 million common shares to an entity that
is
an affiliate of the Company’s CEO. The Company recognized an expense of $2.6
million in 2004 in connection with this 4.5 million stock issuance which is
the
approximate fair value of the stock on the issuance date.
During
2003, a total of 34,998,000 shares of the Company’s common stock were issued for
the acquisition of LABS (see Note 2) including 4.0 million common shares to
an
affiliate of the Company’s Chief Executive Officer in connection with the
facilitation and bridge funding for this acquisition. The value of these share
issuances was approximately $1.4 million.
An
aggregate of 3,644,000 shares of stock were issued during 2003 in connection
with the conversion of $728,800 in related party debt to equity. Stock issued
for services in 2003 aggregated 50,000 shares valued at $30,175. In addition,
during 2003, the Company sold 1,690,000 shares of stock at prices ranging from
$.20 to $.40 for aggregate proceeds of $548,000 and 368,815 shares of preferred
stock were converted to 16,268,430 shares of common stock.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
10. Stockholders'
equity (continued)
Warrants
As
of
June 30, 2005 and December 31, 2004, in connection with the OY acquisition,
5,000,000 warrants were outstanding with an exercise price of $.005 per common
share and an expiration date of August 31, 2009 (see Note 2).
At
the
finalization of the Subscription Agreements described above, management
estimates between 18 million to 44 million warrants will be issued with an
estimated weighted average exercise price of $.05 to $.16 per common share
and
an expiration date of five years from the date of issuance. The ultimate number
of warrants to be issued and the related exercise price is indeterminate as
the
number of shares is dependent on NNBP’s closing bid price when a registration
statement is declared effective.
Stock
Option Plan
No
stock
options were outstanding for the years ended December 31, 2004 and 2003 and
the
six months ended June 30, 2005.
11. Commitments
The
Company leases administrative and laboratory facilities and office equipment
under cancelable and non-cancelable operating leases that expire through June
2010. The following table summarizes the minimum future rental commitments
under
non-cancelable operating leases:
|
Year
ending December 31,
|
||||
|
2005
|
$
|
174,281
|
||
|
2006
|
178,408
|
|||
|
2007
|
109,225
|
|||
|
2008
|
58,163
|
|||
|
2009
|
53,900
|
|||
|
2010
|
27,234
|
|||
|
$
|
601,211
|
|||
Rent
expense on operating leases for the years ended December 31, 2004 and 2003
was
approximately $222,000 and $167,000, respectively.
13. Contingency
On
September 24, 2004 a civil action was filed in United States District Court
-
Southern District of California by World Health Products, LLC (“World Health”)
broadly alleging that the Company, together with a customer of the Company
(“Customer”), has infringed on its Patent Number 5,602,180 related to the sale
of suppositories included in the Company’s supplement product. World Health
alleged additional complaints against the Customer to which the Company is
not
liable. During February 2005, World Health dropped the Company from their
lawsuit as their tests of the Company’s suppositories determined that World
Health’s patents were not being infringed upon.
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
15. Quarterly
Data
|
Mar
31
|
Jun
30
|
Sep
30
|
Dec
31
|
||||||||||
|
2004
Quarter ended
|
|||||||||||||
|
Revenue
|
$
|
32,385
|
$
|
73,564
|
$
|
118,141
|
$
|
134,271
|
|||||
|
Gross
profit
|
$
|
25,196
|
$
|
42,072
|
$
|
76,037
|
$
|
114,586
|
|||||
|
Loss
from continuing
|
|||||||||||||
|
operations
|
($4,221,972
|
)
|
($1,384,238
|
)
|
($994,276
|
)
|
($1,860,654
|
)
|
|||||
|
Net
loss
|
($4,279,240
|
)
|
($1,384,238
|
)
|
($994,276
|
)
|
($1,860,654
|
)
|
|||||
|
Loss
per share:
|
|||||||||||||
|
Basic
and Diluted
|
($0.03
|
)
|
($0.01
|
)
|
($0.01
|
)
|
($0.02
|
)
|
|||||
|
2003
Quarter ended
|
|||||||||||||
|
Revenue
|
$
|
0
|
$
|
77,637
|
$
|
241,340
|
$
|
163,838
|
|||||
|
Gross
profit
|
$
|
0
|
$
|
17,174
|
$
|
63,932
|
$
|
68,587
|
|||||
|
Loss
from continuing
|
|||||||||||||
|
operations
|
($935,446
|
)
|
($166,229
|
)
|
($679,241
|
)
|
($980,217
|
)
|
|||||
|
Net
loss
|
($1,234,083
|
)
|
($468,666
|
)
|
($929,230
|
)
|
($1,067,512
|
)
|
|||||
|
Loss
per share:
|
|||||||||||||
|
Basic
and Diluted
|
($0.03
|
)
|
($0.01
|
)
|
($0.01
|
)
|
($0.01
|
)
|
|||||
Reconciliation
of 2003 Quarterly Data to Forms 10-QSB as filed
|
Mar
31
|
Jun
30
|
Sep
30
|
||||||||
|
Revenue
|
||||||||||
|
Revenue
as reported on Form 10Q
|
$
|
5,812
|
$
|
84,049
|
$
|
244,616
|
||||
|
Discontinued
operations
|
(5,812
|
)
|
(6,412
|
)
|
(3,276
|
)
|
||||
|
Revenue
per above
|
$
|
0
|
$
|
77,637
|
$
|
241,340
|
||||
|
Gross
Profit
|
||||||||||
|
Gross
profit as reported on Form 10Q
|
($10,300
|
)
|
$
|
3,034
|
$
|
38,503
|
||||
|
Discontinued
operations
|
10,300
|
14,140
|
25,429
|
|||||||
|
Gross
profit per above
|
$
|
0
|
$
|
17,174
|
$
|
63,932
|
||||
|
Net
loss
|
||||||||||
|
Net
loss as reported on Form 10Q
|
($595,222
|
)
|
($449,924
|
)
|
($913,780
|
)
|
||||
|
Amortization
of intangible assets
|
–
|
(18,742
|
)
|
(90,000
|
)
|
|||||
|
Charge
or reversal thereof for stock issuances to affiliates of
officers
|
(650,000
|
)
|
74,550
|
|||||||
|
Other
|
11,139
|
–
|
–
|
|||||||
|
Net
loss per above
|
($1,234,083
|
)
|
($468,666
|
)
|
($929,230
|
)
|
||||
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
Nanobac's
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Florida law, a director or officer of Nanobac shall not be personally liable
to Nanobac or its shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of Nanobac's Articles
of
Incorporation, as amended, is to eliminate the right of Nanobac and its
shareholders (through shareholders' derivative suits on behalf of Nanobac)
to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent
or
grossly negligent behavior), except under certain situations defined by statute.
Nanobac believes that the indemnification provisions in its Articles of
Incorporation, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
"Securities Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defence of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
The
following table sets forth the costs and expenses payable by us in connection
with the issuance and distribution of the securities being registered hereunder.
No expenses shall be borne by the selling stockholder. All of the amounts shown
are estimates, except for the SEC Registration Fees.
|
SEC
registration fees
|
$
|
500.00
|
||
|
Accounting
fees and expenses
|
$
|
10,000.00
|
||
|
Legal
fees and expenses
|
$
|
30,000.00
|
||
|
Miscellaneous
|
$
|
1,000.00
|
||
|
Total
|
$
|
31,500.00
|
||
| (1) |
We
have estimated these amounts
|
The
following table sets forth our sale of securities during the last three years
which securities were not registered under the Securities Act of 1933, as
amended. Except as described in paragraph 13, no underwriters were employed
with
respect to the sale of any of the securities listed below.
1. On
December
6, 2002, we entered into a share for share exchange agreement to trade all
the
outstanding common stock of HealthCentrics, Inc. for our common stock. Shares
issued in this exchange agreement are as follows:
|
Affiliates
of our CEO and Chairman
|
11,251,249
|
|||
|
25
accredited investors
|
6,481,716
|
|||
|
17,732,965
|
Each
of
these former shareholders of HealthCentrics, Inc. received their shares in
reliance upon Section 4(2) of the Securities Act of 1933, because each of the
holders was knowledgeable, sophisticated and had access to comprehensive
information about us. At all relevant times we were a reporting company under
the Securities Exchange Act of 1934 and there was readily available adequate
current public information with respect to the Company. We placed legends on
the
certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and
sale.
2. From
May 2001
through November 2002, we were in bankruptcy. Throughout the bankruptcy
proceedings, our Chairman, Secretary and CEO (collectively “NNBP Officers”)
funded our administrative costs and provided management to the Company in the
aggregate amount of $750,000 for services rendered during the bankruptcy. The
liability was to be settled through the issuance of up to 75 million shares
of
the Company’s stock ($.01 per share fair value at the date of the award). Shares
were issued periodically throughout 2003. Certain shares were issued as
preferred shares (at an equivalent value based on the conversion ratio of 44.11
per share). Subsequent to December 31, 2003, the number of authorized shares
was
increased to 250,000,000, at which time the previously issued preferred stock
was converted to 35,048,445 shares of Common stock. Total common shares issued
as a result of the above are as follows:
|
Alexander
Edwards III (Director)
|
500,000
|
|||
|
Affiliates
of our CEO and Chairman
|
54,933,890
|
|||
|
Two
accredited investors
|
2,950,000
|
|||
|
58,383,890
|
||||
Each
of
these Directors, affiliates or investors received their shares in reliance
upon
Section 4(2) of the Securities Act of 1933, because each of the holders was
knowledgeable, sophisticated and had access to comprehensive information about
us. At all relevant times we were a reporting company under the Securities
Exchange Act of 1934 and there was readily available adequate current public
information with respect to the Company.
3. During
March
1998 and March 1999, 368,815 shares of preferred stock were convertible into
common shares at a rate of 1 share of preferred stock into 44.11 shares of
common stock. During January 2003, 100% of the preferred stock was converted
into common stock as follows:
|
Affiliates
of our CEO and Chairman
|
11,651,555
|
|||
|
34
accredited investors
|
4,616,875
|
|||
|
16,268,430
|
Each
of
these affiliates or investors received their shares in reliance upon Section
4(2) of the Securities Act of 1933, because each of the holders was
knowledgeable, sophisticated and had access to comprehensive information about
us. At all relevant times we were a reporting company under the Securities
Exchange Act of 1934 and there was readily available adequate current public
information with respect to the Company.
4. During
March
2003, April 2003 and July 2003, we issued 3,644,000 shares in exchange for
the
cancellation of indebtedness. The indebtedness was the result of cash loans
to
the Company. 444,000 shares were issued to Stone Enclosures, Inc. and 1,795,000
shares were issued to Wade, Inc. in exchange for the cancellation of $447,800
of
indebtedness ($.20 per share). Both of these entities are controlled by our
CEO
and Chairman, John Stanton. The remaining 1,405,000 shares were issued to
Holmich Investment Corp. in exchange for the cancellation of $281,000 of
indebtedness ($.20 per share). Each of these investors received their shares
in
reliance upon Section 4(2) of the Securities Act of 1933, because each of the
holders was knowledgeable, sophisticated and had access to comprehensive
information about us. At all relevant times we were a reporting company under
the Securities Exchange Act of 1934 and there was readily available adequate
current public information with respect to the Company.
5. On
June 4,
2003 we entered into a share for share exchange agreement to exchange 74.4%
of
common stock of NanobacLabs Pharmaceuticals, Inc. (“LAABS”) for our common
stock. During June 2003 through December 2003, we acquired an additional 20.2%
of LABS in exchange for our common stock. Shares issued in this exchange
agreement are as follows:
|
Gary
Mezo
|
14,640,000
|
|||
|
Nancy
M. Schriewer - Mezo
|
9,760,000
|
|||
|
18
accredited investors
|
6,598,000
|
|||
|
30,998,000
|
An
additional 4,000,000 shares were issued to Escape velocity of Tampa Bay, Inc.
in
connection with the facilitation and bridge funding for the acquisition of
LABS.
Each
of
these former shareholders of LABS received their shares in reliance upon Section
4(2) of the Securities Act of 1933, because each of the holders was
knowledgeable, sophisticated and had access to comprehensive information about
us. At all relevant times we were a reporting company under the Securities
Exchange Act of 1934 and there was readily available adequate current public
information with respect to the Company. We placed legends on the certificates
stating that the securities were not registered under the Securities Act and
set
forth the restrictions on their transferability and sale.
7. From
July
2003 through September 2003, we sold an aggregate of 1,690,000 shares of our
Common Stock to ten accredited private investors for $548,000. Each of these
investors received their shares in reliance upon Section 4(2) of the Securities
Act of 1933, because each of the holders was knowledgeable, sophisticated and
had access to comprehensive information about us. At all relevant times we
were
a reporting company under the Securities Exchange Act of 1934 and there was
readily available adequate current public information with respect to the
Company. We placed legends on the certificates stating that the securities
were
not registered under the Securities Act and set forth the restrictions on their
transferability and sale.
8. During
November and December 2003 we issued 25,000 shares each to Eric Littman and
Hector Gomez in exchange for services rendered to the Company. Each of these
individuals received their shares in reliance upon Section 4(2) of the
Securities Act of 1933, because each of the holders was knowledgeable,
sophisticated and had access to comprehensive information about us. At all
relevant times we were a reporting company under the Securities Exchange Act
of
1934 and there was readily available adequate current public information with
respect to the Company. We placed legends on the certificates stating that
the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
9. During
January 2004 we issued 4,500,000 shares to Escape Velocity of Tampa Bay, Inc.
in
exchange for services rendered to the Company during its bankruptcy. This entity
is controlled by our Chairman and CEO. This affiliate received its shares in
reliance upon Section 4(2) of the Securities Act of 1933, because the holder
was
knowledgeable, sophisticated and had access to comprehensive information about
us. At all relevant times we were a reporting company under the Securities
Exchange Act of 1934 and there was readily available adequate current public
information with respect to the Company.
10. During
January 2004 and March 2004 (and amended in August 4004), we entered into an
employment agreements with E. Olavi Kajander and Neva Ciftcioglu which included
provisions to acquire their 35% ownership of Nanobac OY for 5,000,000 shares
of
our common stock and 5,000,000 warrants with an exercise price of $.005 per
share. Each of these employees received their shares in reliance upon Section
4(2) of the Securities Act of 1933, because the holder was knowledgeable,
sophisticated and had access to comprehensive information about us. At all
relevant times we were a reporting company under the Securities Exchange Act
of
1934 and there was readily available adequate current public information with
respect to the Company.
11. From
August
4004 through November 2004, we entered into agreements with three creditors
to
convert $269,538 of current liabilities due to them for professional services
provided to us into 2,097,843 shares of our common stock. Each of these
creditors received their shares in reliance upon Section 4(2) of the Securities
Act of 1933, because each of the holders was knowledgeable, sophisticated and
had access to comprehensive information about us. At all relevant times we
were
a reporting company under the Securities Exchange Act of 1934 and there was
readily available adequate current public information with respect to the
Company. We placed legends on the certificates stating that the securities
were
not registered under the Securities Act and set forth the restrictions on their
transferability and sale.
12. On
September
30, 2004, the stockholder loan of $7.5 million was converted into 29,999,964
share of our common stock at $0.25 per share. Shares were issued in this
conversion of debt into equity to affiliates of our CEO and Chairman. Each
of
these affiliates received their shares in reliance upon Section 4(2) of the
Securities Act of 1933, because each of the holders was knowledgeable,
sophisticated and had access to comprehensive information about us. At all
relevant times we were a reporting company under the Securities Exchange Act
of
1934 and there was readily available adequate current public information with
respect to the Company. We placed legends on the certificates stating that
the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
13. From
August
through October 2004, we executed Subscription Agreements with various
investors. These investors paid us 50% of the subscription price at execution
and the remaining 50% is due within five days that a registration statement
is
declared effective for the common shares that are being issued. In exchange
for
the cash consideration, we are to issue these investors shares of our common
stock equal to the amount paid divided by the lesser of (a) $0.12 or (b)
fifty-two percent of the average closing bid price for our common stock on
the
five days immediately prior to the date on which a registration statement is
declared effective (“The Fixed Price”). In addition, each of these investors
will receive an equivalent number of warrants. Assuming that The Fixed Price
will be $0.12 per share, the number of shares that will be issued under these
subscription agreements is as follows:
|
Number
|
||||||||||
|
of
Shares
|
Per
Share
|
Proceeds
|
||||||||
|
Common
Stock:
|
||||||||||
|
The
Nutmeg Group, LLC
|
10,833,333
|
$
|
0.12
|
$
|
1,300,000
|
|||||
|
Jaytern
Associates, Inc.
|
2,083,333
|
$
|
0.12
|
$
|
250,000
|
|||||
|
Alexander
Edwards
|
8,333,333
|
$
|
0.12
|
$
|
1,000,000
|
|||||
|
NITE
Capital
|
3,333,333
|
$
|
0.12
|
$
|
400,000
|
|||||
|
24,583,333
|
$
|
2,950,000
|
||||||||
|
Number
|
Exercise
|
||||||
|
of
Warrants
|
Price
|
||||||
|
Warrants:
|
|||||||
|
The
Nutmeg Group, LLC
|
5,416,667
|
$
|
0.132
|
||||
|
The
Nutmeg Group, LLC
|
5,416,667
|
$
|
0.180
|
||||
|
Jaytern
Associates, Inc.
|
1,041,667
|
$
|
0.132
|
||||
|
Jaytern
Associates, Inc.
|
1,041,667
|
$
|
0.180
|
||||
|
Escape
velocity of Tampa Bay, Inc. (1)
|
4,166,667
|
$
|
0.132
|
||||
|
Escape
velocity of Tampa Bay, Inc. (1)
|
4,166,667
|
$
|
0.180
|
||||
|
NITE
Capital
|
1,666,667
|
$
|
0.132
|
||||
|
NITE
Capital
|
1,666,667
|
$
|
0.180
|
||||
|
24,583,333
|
|||||||
| (1) |
Affiliate
of the Company.
|
Each
of
these investors received their shares in reliance upon Section 4(2) of the
Securities Act of 1933, because each of the holders was knowledgeable,
sophisticated and had access to comprehensive information about us. At all
relevant times we were a reporting company under the Securities Exchange Act
of
1934 and there was readily available adequate current public information with
respect to the Company.
Hartsfield
Capital Securities (Hartsfield) is due a 10% success fee for the Nutmeg
subscription. To date, Hartsfield has received $60,000 or 10% of the first
traunch of cash received from Nutmeg. An additional 10% will be payable to
Hartsfield when the remaining cash is received from Nutmeg. In addition,
Hartsfield is to receive warrants equal to 20% of the value of the Nutmeg
transaction based on 100% of the market price of our stock at the final closing
of the Nutmeg transaction. We estimate that the number of warrants to be issued
to Hartsfield will be approximately 3,250,000.
14. During
January 2005 we issued 100,000 shares of common stock to an employee as
consideration for services. This employee received his shares in reliance upon
Section 4(2) of the Securities Act of 1933, because the holder was
knowledgeable, sophisticated and had access to comprehensive information about
us. At all relevant times we were a reporting company under the Securities
Exchange Act of 1934 and there was readily available adequate current public
information with respect to the Company. We placed legends on the certificates
stating that the securities were not registered under the Securities Act and
set
forth the restrictions on their transferability and sale.
|
Exhibit
|
||
|
Number
|
Description
|
|
|
3.1
|
Restated
Articles of Incorporation (Previously filed with the SEC as an exhibit
to
the Registrant’s Annual Report on Form 10-KSB for the year ended December
31, 2003)
|
|
|
3.2
|
By-Laws
(Previously filed with the SEC as an exhibit to the Registrant’s Annual
Report on Form 10-KSB fore the year ended December 31,
2002)
|
|
|
10.1
|
First
Amended Plan of Reorganization of American Enterprise.com Corp.
(Previously filed with the SEC as an exhibit to the Registrant’s Current
Report on Form 8-K dated December 10, 2002, and incorporated
herein
by reference)
|
|
|
10.2
|
Acquisition
Agreement dated December 6, 2002, between American Enterprise Corporation
and HealthCentrics, Inc. and its shareholders (Previously filed with
the
SEC as an exhibit to the Registrant’s Current Report on Form 8-K
dated December 13, 2002, and incorporated herein by
reference)
|
|
|
10.4
|
Agreement
and Plan of Reorganization dated June 1, 2003 between Nanobac
Pharmaceuticals, Incorporated and NanobacLabs Pharmaceuticals, Inc.
(Previously filed with the SEC as an exhibit to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2003 and
incorporated herein by reference)
|
|
|
10.5
|
Share
Purchase Agreement dated September 25, 2002 between NanobacLabs,
L.L.C.
and selected shareholders of Nanobac OY (Previously filed with the
SEC as
an exhibit to the Registrant’s Current Report on Form 8-K dated
November 26, 2003, and incorporated herein by
reference)
|
|
|
10.6
|
Convertible
Promissory Note Loans Purchase Agreement dated September 25, 2002
between
NanobacLabs, L.L.C. and selected shareholders of Nanobac OY (Previously
filed with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated November 26, 2003, and incorporated herein
by
reference)
|
|
|
10.7
|
Closing
Agreement dated November 5, 2003 between NanobacLabs, L.L.C. and
selected
shareholders of Nanobac OY (Previously filed with the SEC as an exhibit
to
the Registrant’s Current Report on Form 8-K dated November 26, 2003,
and incorporated herein by reference)
|
|
|
10.9
|
Lease
Agreement dated April 17, 2002 between NanobacLabs, L.L.C. and MLK-Tampa
Associates, LLC regarding 5,593 square feet of office space located
at
2727 W. Martin Luther King Blvd. - Suite 850, Tampa, Florida and
First
Amendment to Lease dated September 1, 2002 between NanobacLabs, L.L.C.
and
MLK-Tampa Associates, LLC regarding 2,121 square feet of office space
located at 2727 W. Martin Luther King Blvd. - Suite 101, Tampa, Florida
(Previously filed with the SEC as an exhibit to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2004 and
incorporated herein by reference)
|
|
|
10.10
|
Loan
Agreement dated December 31, 2003 between Nanobac Pharmaceuticals,
Incorporated and Escape Velocity, Inc. (Previously filed with the
SEC as
an exhibit to the Registrant’s Annual Report on Form 10-KSB for the year
ended December 31, 2003)
|
|
|
10.11
|
Employment
by and between Nanobac Pharmaceuticals, Incorporated and Alex H.
Edwards
III dated January 26, 2004 (Previously filed with the SEC as an exhibit
to
the Registrant’s Annual Report on Form 10-KSB for the year ended December
31, 2003)
|
|
10.12
|
Sublease
Agreement dated May 18, 2004 between NanobacLabs, L.L.C. and Tampa
Bay
Surgery Center Associates, Ltd regarding the sublease of 2,121 square
feet
of office space located at 2727 W. Martin Luther King Blvd. - Suite
101,
Tampa, Florida (Previously filed with the SEC as an exhibit to the
Registrant’s Annual Report on Form 10-KSB for the year ended December 31,
2004 and incorporated herein by reference)
|
|
|
10.13
|
Share
Purchase Agreement dated March 30, 2004 between Nanobac Pharmaceuticals,
Incorporated and Escape Velocity of Tampa Bay, Incorporated for the
sale
of HealthCentrics, Inc. (Previously filed with the SEC as an exhibit
to
the Registrant’s Current Report on Form 8-K dated March 30, 2004, and
incorporated herein by reference)
|
|
|
|
||
|
10.14
|
Executive
Employment Agreement between Nanobac Pharmaceuticals, Incorporated,
and E.
Olavi Kajander, MD, PhD, an individual dated January 15, 2004 (Previously
filed with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated June 30, 2004, and incorporated herein by
reference)
|
|
|
10.15
|
Executive
Employment Agreement between Nanobac Pharmaceuticals, Incorporated
and
Neva Ciftcioglu, PhD, an individual dated June 30, 2004 (Previously
filed
with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated June 30, 2004, and incorporated herein by
reference)
|
|
|
10.16
|
Nonreimbursable
Space Act Agreement between The National Aeronautics and Space
Administration Lyndon B. Johnson Space Center and Nanobac Pharmaceuticals,
Incorporated (Previously filed with the SEC as an exhibit to the
Registrant’s Current Report on Form 8-K dated June 30September 13,
2004 and incorporated herein by reference)
|
|
|
|
||
|
10.17
|
Debt
Cancellation Agreement dated August 30, 2004 between Nanobac
Pharmaceuticals, Incorporated and E. Olavi Kajander (Previously filed
with
the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB for
the year ended December 31, 2004 and incorporated herein by
reference)
|
|
|
10.18
|
Amendment
to Executive Employment Agreement dated August 30, 2004 between Nanobac
Pharmaceuticals, Incorporated and E. Olavi Kajander (Previously filed
with
the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB for
the year ended December 31, 2004 and incorporated herein by
reference)
|
|
|
10.19
|
Stock
Purchase Agreement dated August 30, 2004 between Nanobac Pharmaceuticals,
Incorporated and E. Olavi Kajander (Previously filed with the SEC
as an
exhibit to the Registrant’s Annual Report on Form 10-KSB for the year
ended December 31, 2004 and incorporated herein by
reference)
|
|
|
10.20
|
Amendment
to Executive Employment Agreement dated September 10, 2004 between
Nanobac
Pharmaceuticals, Incorporated and Neva Ciftcioglu (Previously filed
with
the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB for
the year ended December 31, 2004 and incorporated herein by
reference)
|
|
|
10.21
|
Subscription
Agreement, Registration Rights Agreement and Form of Warrant dated
August
13, 2004 between Nanobac Pharmaceuticals, Incorporated and The Nutmeg
Group, LLC (serves as form of agreement for similar subscription
agreements)
|
|
|
10.22
|
Subscription
Agreement, Registration Rights Agreement and Form of Warrant dated
September 3, 2004 between Nanobac Pharmaceuticals, Incorporated and
Jaytern Associates, Inc. (Previously filed with the SEC as an exhibit
to
the Registrant’s Annual Report on Form 10-KSB for the year ended December
31, 2004 and incorporated herein by
reference)
|
|
10.23
|
Debt
Cancellation Agreement dated September 20, 2004 between Nanobac
Pharmaceutical, Incorporated and Escape Velocity, Inc. (Previously
filed
with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2004 and incorporated herein
by
reference)
|
|
|
10.24
|
Debt
Cancellation Agreement dated October 18, 2004 between Nanobac
Pharmaceutical, Incorporated and Benedict Maniscalco (Previously
filed
with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2004 and incorporated herein
by
reference)
|
|
|
10.25
|
Debt
Cancellation Agreement dated December 14, 2004 between Nanobac
Pharmaceutical, Incorporated and MacFarlane Ferguson & McMullen
(Previously filed with the SEC as an exhibit to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2004 and
incorporated herein by reference)
|
|
|
16.1
|
Baumann,
Raymondo & Company, P.A. letter to the Securities and Exchange
Commission dated February 3, 2004 (Previously filed with the SEC
as an
exhibit to the Registrant’s Current Report on Form 8-K dated January
30, 2004, and incorporated herein by reference)
|
|
|
23.1
|
Consent
of Aidman, Piser & Company, P.A.
|
|
|
31.1
|
Certification
to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive
Officer
|
|
|
31.2
|
Certification
to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial
Officer
|
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
|
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
|
The
undersigned Company hereby undertakes that it will:
| (1) |
file,
during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include:
|
| (a) |
any
prospectus required by Section 10(a)(3) of the Securities
Act;
|
| (b) |
reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the aggregate offering price
set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
|
| (c) |
any
additional or changed material information with respect to the plan
of
distribution not previously disclosed in the registration statement;
|
| (2) |
for
the purpose of determining any liability under the Securities Act,
each of
the post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of
the securities at that time shall be deemed to be the initial bona
fide
offering thereof; and
|
| (3) |
remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the
offering.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors,
officers
and controlling persons of Nanobac pursuant to the foregoing provisions, or
otherwise, Nanobac has been advised that in the opinion of the Commission that
type of indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against said liabilities (other than the payment by Nanobac
of
expenses incurred or paid by a director, officer or controlling person of
Nanobac in the successful defense of any action, suit or proceeding) is asserted
by the director, officer or controlling person in connection with the securities
being registered, Nanobac will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of the issue.
For
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act
shall be deemed to be part of this registration statement as of the time it
was
declared effective.
In
accordance with the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and authorized this registration statement to be signed
on its behalf by the undersigned, in the City of Tampa, State of Florida October
3, 2005.
| NANOBAC PHARMACEUTICALS, INCORPORATED | ||
| |
|
|
| By: | /s/ John D. Stanton | |
|
|
||
|
John
D. Stanton
Chairman, Chief Executive Officer and Chief Financial
Officer
|
||
POWER
OF ATTORNEY
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person who signature appears below
constitutes and appoints John D. Stanton as his true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution, for him and
in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto
said attorney-in-fact and agent, full power and authority to do and perform
each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent
or any of them, or of their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act, this registration statement has
been
signed by the following persons in the capacities and on the dates
stated.
Signatures
/s/
John
D. Stanton
By:
John
D. Stanton, Chairman,
Chief Executive Officer and Chief Financial Officer
Chief Executive Officer and Chief Financial Officer
October
3, 2005
/s/
Alexander Edwards III
By:
Alexander Edwards, III, Director
October
3, 2005
/s/
Jan
Egberts
By:
Jan
Egberts, M.D. , Director
October
3, 2005
/s/
Stephan Rechtschaffen
By:
Stephen Rechtschaffen, Director
October
3, 2005
/s/
Michael J Dean
By:
Michael J Dean, Vice President - Finance and
Controller (Chief Accounting Officer)
Controller (Chief Accounting Officer)
October
3, 2005
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