SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
DateJuly 28, 2005_________________________________
BIOTECH HOLDINGS LTD. _
(Exact name of Registrant as specified in its charter)
#160 - 3751 Shell Road, Richmond, British Columbia, Canada, V6X 2W2 _
(Address of principal executive offices)
Commission file number0-29108 _
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F)
Form 20-F Yes Form 40-F No
(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
No
Biotech Holdings Ltd.
Filed in this Form 6-K
Documents index
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOTECH HOLDINGS LTD.
By: /s/ Robert Rieveley
Name: Robert Rieveley
Title: Chief Executive Officer
Date: July 27, 2005
AMENDED AND RESTATED
BiO
BIOTECH HOLDINGS LTD.
THIRD QUARTER REPORT
December 31, 2004
Head Office:
Suite 160 - 3751 Shell Road
Richmond, British Columbia
Canada V6X 2W2
Telephone: (604) 295-1119
Facsimile: (604) 295-1110
Toll Free: 1-888-216-1111
Website:www.biotechltd.com
E-mail:biotech@direct.ca
Shares Listed
TSX Venture: BIO.V
NASD OTC-BB: BIOHF
Frankfurt Stock Exchange: 925970.F
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notice to Shareholders
For the Nine Months December 31, 2004
Explanation for this Amended and Restated Report
In December 2004, the Company began shipping its Type II Diabetes drug Sucanon to Mexican retailers. Shipments in the month had a wholesale value of $29,147. The Company reviewed its accounting policy for revenue recognition and at that time was satisfied that the conditions for revenue recognition were met.
In July 2005, management met with the Company^s Audit Committee and the Company^s auditors to discuss the year end financial statements. The question of revenue recognition was discussed at length. It was noted that collections for these shipments did not commence until June 2005, which was beyond their credit terms. Upon further investigation, it was determined that there were unexpected delays in the launch of the TV advertising campaign for Sucanon until May 26, 2005. It was felt that a retailer would have had a reasonable expectation that the advertising should have started sooner and that as at December 31, 2005, the Company therefore had future performance obligations to meet prior to recognizing the $29,147 sales previously reported. In retrospect, with regards to conservatism, the shipments of December and subsequent shipments will not be recognized as revenue until May 26, 2005 (the first quarter of the fiscal year ended March 31, 2006) when the TV advertising campaign began.
The overall effect that the restatement has had is that assets have been reduced by $23,358, liabilities have been reduced by $3,743, non-controlling interest have been reduced by $4,432 and the net loss and deficit for the quarter and 9 month period have been increased by $17,183. The adjustment had no impact on cash flow. Although the overall effect of these adjustments may not be considered material, the fact that sales were being eliminated from the Consolidated Statements of Operations may be perceived as material.
The Company would like to emphasize that the product was shipped in the period and has deferred the recognition of these sales until the quarter ended June 30, 2005. The Company believes that it has set in place safeguards to ensure the collection of these receivables.
The Responsibility for Financial Statements
The accompanying financial statements for Biotech Holdings Ltd. have been prepared by management in accordance with Canadian generally accepted accounting principles. The most significant accounting principles are set out in the March 31, 2004 audited financial statements. Only changes in accounting information have been disclosed in these financial statements. Estimates and approximations have been made using careful judgement. Recognizing that the Company is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been presented fairly.
Auditor Involvement
The auditor of Biotech Holdings Ltd. has not performed a review of the unaudited financial statements for the nine months and the quarter ended December 31, 2004 and December 31, 2003.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notice to Shareholders
For the Nine Months December 31, 2004
Forward-looking Information
Forward looking statements in the management discussion and analysis ("MD&A") and the Report to Shareholders, including statements regarding the Company^s business which are not based on historical facts, are made pursuant to the "safe harbour" provisions of the United States Securities Litigation Reform Act of 1995 and pursuant to Form 51-102F1 of National Instrument 51-102 as implemented in rules, regulations, and policies of Canadian securities regulatory authorities. These Quarterly Financial Statements contain certain forward-looking statements and information relating to Biotech Holdings Ltd. that are based upon the beliefs of its management as well as assumptions made by and information currently available to the Company. When used in this document, the words "anticipate", "believe", "estimate" and "expect" and similar expressions, as they relate to the Company or its management, are intended to identify forward-l ooking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performances or achievements that may be expressed or implied by such forward-looking statements.
AMENDED AND RESTATED
Management Discussion and Analysis
Discussion of Operations and Financial Condition
These consolidated financial statements have been prepared in accordance with the Canadian Institute of Chartered Accountants (CICA) Standards for interim financial statements and with Canadian generally accepted accounting principles applicable to a going concern. Accordingly, these financial statements reflect the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications on the basis that the going concern assumption is appropriate. If this assumption were not appropriate, adjustments could be material. Interim financial statements do not include all the disclosure requirements for annual financial statements and, accordingly, should be read in conjunction with the Company^s audited financial statements dated March 31, 2004.
Operating Results
The following table highlights the Company^s quarterly results from operations for the current and last fiscal year:
Quarter Ended | June 30, 04 | Sept 30, 04 | Dec 31, 04 | Mar 31, 05 | Total Year |
Revenues | $ 0 | $ 0 | $ 0 | $ 0 | |
Cost of Sales | 0 | 0 | 0 | 0 | |
Gross Profit | 0 | 0 | 0 | 0 | |
General, Administrative | |||||
and Selling Expenses | 162,065 | 160,301 | 164,638 | 487,004 | |
Amortization | 152,983 | 154,131 | 152,191 | 459,305 | |
Professional Fees | 2,453 | 6,749 | 25,701 | 34,903 | |
Interest Expense | 16,890 | 17,062 | 15,817 | 49,769 | |
Stock-based compensation | 0 | 65,250 | 26,344 | 91,594 | |
Loss before undernoted items | (334,391) | (403,493) | (384,691) | (1,122,575) | |
Non-controlling interest share of | |||||
profit | 0 | 0 | 0 | 0 | |
Loss for the period | (334,391) | (403,493) | (384,691) | (1,122,575) | |
Outstanding Common Shares | 87,935,219 | 88,209,719 | 90,034,310 | 90,034,310 | |
Loss per share | (0.00) | (0.00) | (0.00) | (0.01) | |
Quarter Ended | June 30, 03 | Sept 30, 03 | Dec 31, 03 | Mar 31, 04 | Total Year |
Revenues | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
General, Administrative | |||||
and Selling Expenses | 113,835 | 134,986 | 134,281 | 132,639 | 515,741 |
Amortization | 155,554 | 146,424 | 154,269 | 153,959 | 610,206 |
Professional Fees | 0 | 33,355 | 15,870 | 11,857 | 61,082 |
Interest Expense | 84,489 | 67,647 | 27,154 | 23,169 | 202,459 |
Stock-based compensation | 0 | 0 | 53,540 | 17,641 | 71,181 |
Loss before undernoted items | (353,878) | (382,412) | (385,114) | (339,265) | (1,460,669) |
Profit (Loss) from Discontinued | |||||
Operations | 21,364 | 99,296 | (464,890) | (502,052) | (846,282) |
Loss for the period | (332,514) | (283,116) | (850,004) | (841,317) | (2,306,951) |
Outstanding Common Shares | 73,928,130 | 74,639,928 | 82,083,942 | 87,542,219 | 87,542,219 |
Loss per share | (0.01) | (0.00) | (0.01) | (0.01) | (0.03) |
AMENDED AND RESTATED
Management Discussion and Analysis
Discussion of Operations and Financial Condition
Operating Results (Continued)
Year to date Discussion
Shipments of the Company^s diabetes drug, Sucanon, commenced in Mexico in mid-December 2004. The December shipments had a total of value of $29,147 in sales which has been deferred until the launch of the TV infomercial advertising.
Operating expenses totaled $1,122,575 representing a $1,171 (0.1%) increase from the $1,121,404 expenses incurred in the 9 months ended December 31, 2003.
General, administrative and selling expenses increased to $487,004 from $383,102 ($103,902 or 27.1%) in the nine month period. The $88,833 cost of operating the Canadian production plant combined with the $17,000 cost incurred by our newly established Mexico office, accounted for most of this increase.
During the nine months ended December 31, 2004, interest expenses from interest-bearing debt including Promissory Notes, Loans Payable and secured amounts due to related parties were reduced by $129,521. The Company also incurred $91,594 (2003: $53,540) in stock-based compensation expenses for stock options granted in the period. Amortization expenses were increased by $3,058. The loss from continuing operations was $1,122,575 which was $1,171 (0.1%) more than the $1,121,404 loss incurred in the 9 months ended December 31, 2003
Discontinued operations had a $344,230 loss in 2003 (2004: $Nil).
The loss for the nine month period was $1,122,575 (2003: $1,465,634) and the loss per common share was $0.01 for both periods.
Quarterly Comparison
Operating expenses totaled $384,691 which were $423 less than the $385,114 expenses incurred in the quarter ended December 31, 2003.
General, administrative and selling expenses increased from $134,281 to $164,638 ($30,357 or 22.5%) in the three month period. The $38,449 cost of operating the Canadian production plant and our new sales office in Mexico accounted for this increase.
During the quarter ended December 31, 2004, the Company granted stock options to employees and consultants and, as a result, it incurred $26,344 (2003: $53,540) in stock-based compensation expenses for stock options granted in the period.
During the three months ended December 31, 2004, interest expenses from interest-bearing debt including Promissory Notes, Loans Payable and secured amounts due to related parties were reduced by $11,337 and amortization expenses were reduced by $2,078.
The loss from continuing operations in the quarter was $384,691 (2003: $385,114). The total loss for the quarter was $384,691 (2003: $850,004) and the loss per common share was less than $0.01 for both periods.
AMENDED AND RESTATED
Management Discussion and Analysis
Discussion of Operations and Financial Condition
Financial Highlights
Operating activities in the nine months ended December 31, 2004 used $647,237 (2003: $452,512) in cash while Financing activities provided $840,859 (2003: $382,778) in cash flow and investing activities provided $20,072 (2003: $54,977) in cash. As a result, cash increased $213,694 (2003: decreased $14,757) in the six month period. As at December 31, 2004, the working capital deficiency was $1,714,738 (March 31, 2004: $2,156,781).
Management plans to raise debt and equity capital, as needed, on a private placement basis to finance the operating and capital requirements of the Company. It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
During the nine months ended December 31, 2004, the Company issued 2,492,091 common shares through the exercising of common share options, private placements and the exercising of common share warrants. As a result, Common Shares was increased by $993,647 (from 87,542,219 to 90,034,310 common shares issued and outstanding). After taking into account the $1,122,575 loss in the nine months and the above share issuances, the Shareholders^ deficiency was increased from $556,264 as at March 31, 2004 to $593,598 as at December 31, 2004.
Recent Developments
During the nine months ending December 31, 2004, the Company focused on setting up and commencing the marketing of its Sucanon diabetes drug in Mexico. Shipments of Sucanon began in December 2004. Subsequent to the end of the period, the Company began advertising Sucanon on a national radio program in Mexico and received, in February, 2005, regulatory approval of its television infomercial for Sucanon. With this approval, the Company was in a position to decide, with its Mexican marketing partner and major retailer customers, regarding the optimum mix of TV and radio advertising to use, together with dedicated on-site Sucanon sales people in larger stores of selected chains. The Company received re-orders for Sucanon during January and February, 2005. As of the end of February, Sucanon was on the shelf in more than 600 stores across Mexico.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Consolidated Balance Sheet
(expressed in Canadian dollars)
as at | Dec. 31 | Mar 31, | |
2004 | 2004 | ||
(unaudited) | (audited) | ||
ASSETS | |||
Current Assets | |||
Cash | $ 590,325 | $ 376,631 | |
Amounts receivable | 87,226 | 19,284 | |
Inventory | 43,537 | 0 | |
Deposits and prepaid expenses | 0 | 11,450 | |
721,088 | 407,365 | ||
Property Plant and Equipment | |||
Continuing operations | 145,702 | 154,025 | |
Held for resale | 34,506 | 60,000 | |
Patent Interests | 1,164,077 | 1,609,363 | |
Formulations and deferred costs | 1,198 | 1,472 | |
$ 2,066,571 | $ 2,232,225 |
LIABILITIES & SHAREHOLDERS^ (DEFICIENCY)
LIABILITIES | |||
Current | |||
Accounts payable and | |||
accrued liabilities | $ 1,707,839 | $ 1,683,371 | |
Due to related parties - secured | 442,434 | 605,777 | |
- unsecured | 285,553 | 274,998 | |
2,435,826 | 2,564,146 | ||
Note payable | 224,343 | 224,343 | |
2,660,169 | 2,788,489 | ||
SHAREHOLDERS^ (DEFICIENCY) | |||
Share Capital | |||
Common shares | 25,037,422 | 24,043,775 | |
Convertible Preferred Shares | 1,380,691 | 1,380,691 | |
Contributed Surplus | 253,591 | 161,997 | |
Deficit | (27,265,302) | (26,142,727) | |
(593,598) | (556,264) | ||
$ 2,066,571 | $ 2,232,225 | ||
Interim financial statements do not include all the disclosure requirements for annual financial statements and, accordingly, should be read in conjunction with the Company^s audited financial statements dated March 31, 2004.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Consolidated Statements of Operations and Deficit
(expressed in Canadian dollars)
9 Months to | 9 Months to | 3 Months to | 3 Months to | |
Dec. 31 | Dec. 31 | Dec. 31 | Dec. 31 | |
2004 | 2003 | 2004 | 2003 | |
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |
Operating Expenses | ||||
General, administrative | ||||
and selling | 487,004 | 383,102 | 164,638 | 134,281 |
Amortization | 459,305 | 456,247 | 152,191 | 154,269 |
Professional fees | 34,903 | 49,225 | 25,701 | 15,870 |
Stock-based compensation | 91,594 | 53,540 | 26,344 | 53,540 |
Interest | 49,769 | 179,290 | 15,817 | 27,154 |
1,122,575 | 1,121,404 | 384,691 | 385,114 | |
Loss from continuing operations: | (1,122,575) | (1,121,404) | (384,691) | (385,114) |
Profit (Loss) from | ||||
Discontinued operations | 0 | 27,631 | 0 | (14,469) |
Gain from debt restructuring | 0 | 78,560 | 0 | 0 |
Writeoff of Leasehold Improvements | 0 | (450,421) | 0 | (450,421) |
Loss for the period | (1,122,575) | (1,465,634) | (384,691) | (850,004) |
Deficit, beginning of period | (26,142,727) | (23,744,960) | (26,880,611) | (24,360,590) |
Deficit, end of period | (27,265,302) | (25,210,594) | (27,265,302) | (25,210,594) |
Basic and Fully Diluted Loss per | ||||
Common Share | ||||
From continuing operations | (0.01) | (0.01) | (0.00) | (0.00) |
From discontinued operations | 0.00 | 0.00 | 0.00 | 0.00 |
On December 31, 2004 there were 90,034,310 (2003: 82,083,942) common shares issued and outstanding.
Also, there were 13,806,907 (2003: 13,806,907) Series I Convertible Preferred Shares issued and outstanding. These preferred shares are voting and are convertible into Common Shares on a 1:1 basis. They have a cumulative cash dividend of 8% of the original amount contributed plus accrued interest.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Consolidated Statements of Cash Flow
(expressed in Canadian dollars)
9 Months to | 9 Months to | 3 Months to | 3 Months to | |
Dec. 31 | Dec. 31 | Dec. 31 | Dec. 31 | |
2004 | 2003 | 2004 | 2003 | |
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |
Operating Activities: | ||||
Loss for the period | $(1,122,575) | $ (1,465,634) | $ (384,691) | $ (850,004) |
Add (Deduct): | ||||
Amortization | 459,305 | 456,247 | 152,191 | 152,556 |
Write-off of leaseholds | 0 | 450,421 | 0 | 450,421 |
Stock-based compensation | 91,594 | 53,540 | 26,344 | 53,540 |
(571,676) | (505,426) | (206,156) | (193,487) | |
Add (Deduct) changes in: | ||||
Amounts Receivable | (67,942) | 24,269 | (73,750) | 0 |
Inventory | (43,537) | 82,153 | (43,537) | 0 |
Prepaid expenses | 11,450 | 0 | 13,916 | 0 |
Accounts Payable | 24,468 | (53,508) | 78,062 | (4,617) |
(647,237) | (452,512) | (231,465) | (198,104) | |
Financing Activities: | ||||
Settlement of payable to related | ||||
parties through the issuance of | ||||
preferred shares | 0 | 1,380,691 | 0 | 0 |
Settlement of payable to related | ||||
parties through exercising | ||||
common share warrants | 0 | 1,150,000 | 0 | 1,150,000 |
Due to Related Parties | (152,788) | (2,099,115) | (202,457) | (1,043,567) |
(152,788) | 431,576 | (202,457) | 106,433 | |
Issuance of Common Shares | 993,647 | 191,039 | 850,657 | 97,387 |
Payment of loan payable | 0 | (148,000) | 0 | 0 |
(Decrease) in promissory notes | 0 | (91,837) | 0 | (96,256) |
840,859 | 382,778 | 648,200 | 107,564 | |
Investing Activities: | ||||
Acquisition of Capital Assets | (5,422) | 0 | (1) | 0 |
Sale of Capital Assets | 25,494 | 54,977 | 25,494 | 16,135 |
20,072 | 54,977 | 25,493 | 16,135 | |
Increase (Decrease) in Cash | 213,694 | (14,757) | 442,228 | (74,405) |
Cash, beginning of period | 376,631 | 17,611 | 148,097 | 77,259 |
Cash, end of period | $ 590,325 | $ 2,854 | $ 590,325 | $ 2,854 |
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements
December 31, 2004
The Company^s business focus remains the development and distribution of the Company^s Type II Diabetes drug, particularly in Mexico and Latin America.
These consolidated financial statements are stated in Canadian dollars and have been prepared in accordance with generally accepted accounting principles in Canada, on a going-concern basis, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. They do not include any adjustments to the recoverability and classification of recorded asset amounts and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has incurred recurring operating losses and has an accumulated deficit of $27,265,302 and a Shareholders^ Deficiency of $593,598 at December 31, 2004. These factors, among others, raise substantial doubt about the Company^s ability to be able to continue as a going concern. The future of the Company and the realization of its asset values will depend upon the Company^s ability to obtain adequate financing and continuing support from shareholders and creditors including ref inancing and to attain profitable operations.
Management plans to raise debt and equity capital on a private placement basis to finance the operating and capital requirements of the Company. It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for operations.
2. Basis of presentation and summary of significant accounting policies
The Summary of Significant Accounting Policies found in the audited financial statements dated March 31, 2004 should be read in conjunction with these interim financial statements. These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements except as noted below:
Revenue Recognition
The Company^s principal revenue is derived from its Type II diabetes drug currently sold in Mexico. The Company has entered into agreements with two non-related companies in Mexico. The first company manufactures and packages the tablets from a pre-mix of active ingredients manufactured by the Company in Canada. The second company markets the drug.
Revenue from product sales is recognized upon the delivery of the product to a retailer or final consumer when persuasive evidence of an arrangement exists, the price is fixed or determinable and collection is reasonably assured and the Company has no future performance obligations under any licensing agreement or other significant post-delivery obligations.
Stock based compensation
During the year ended March 31, 2004, the Company adopted the recommendations of the CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective April 1, 2003. This Handbook section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. This standard requires that all stock based awards to non-employees be measured and recognized using a fair value method. In the year ended March 31, 2004, the Company only disclosed the pro- forma effects to loss and loss per share as if the fair value method had been used on stock based awards to employees, officers and directors.
In the current year, the Company has changed its accounting policy to include all stock-based awards to employees, officers and directors in its calculation using the same fair value method used for non-employees.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
2. Basis of presentation and summary of significant accounting policies (continued)
Non-controlling interest
The Company owns 75% of Smith Rothe Pharmaceutical Inc. ("Smith Rothe"). Smith Rothe has been granted an exclusive license to sub-contract the manufacture and marketing of the Company^s Type II diabetes drug Sucanon make claims and to use all patent rights in countries outside Oriental Asia. The 25% non-controlling interest of Smith Rothe is held by a company that is controlled by a Director of Biotech and the 25% amount earned by the non-controlling interest will be reflected as single line items on both the Consolidated Balance Sheet and Consolidated Statements of Operations once marketing profits are realized.
Authorized
The Company is authorized to issue an unlimited number of Series Convertible Preferred shares and common shares without par value. The preferred shares are voting and are convertible into Common Shares on a 1:1 basis. They have a cumulative cash dividend of 8% of the original amount contributed plus accrued interest.
Issued and outstanding | Price per | Number of | $ | Number of | $ | |
Share | Common | Common | Preferred | Preferred | ||
$ | Shares | Shares | Shares | Shares | ||
Balance March 31, 2003 | 73,928,130 | 21,869,798 | 0 | 0 | ||
Issued in previous fiscal year:: | ||||||
Preferred Share Warrants exercised | 13,806,907 | 1,380,691 | ||||
Common Shares issued for: | ||||||
Cash | 1,826,777 | 425,828 | ||||
Reduction in debt | 544,014 | 106,387 | ||||
Share warrants | 9,561,798 | 1,428,652 | ||||
Stock Options | 1,681,500 | 213,110 | ||||
Balance March 31, 2004 | 87,542,219 | 24,043,775 | 13,806,907 | 1,380,691 | ||
Issued in current fiscal period | ||||||
Common Share Stock Options exercised: | $0.12 | 90,000 | 10,800 | |||
$0.14 | 83,500 | 11,690 | ||||
$0.23 | 225,000 | 51,750 | ||||
$0.25 | 454,000 | 113,500 | ||||
852,500 | 187,740 | |||||
Private Placement | $0.50 | 1,528,480 | 764,240 | |||
Share Warrants Exercised | $0.375 | 111,111 | 41,667 | |||
Issued in current Fiscal Period | 2,492,091 | 993,647 | ||||
Balance December 31, 2004 | 90,034,310 | 25,037,422 | 13,806,907 | 1,380,691 | ||
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
Stock options and warrants outstanding as at December 31, 2004:
Stock Options Exercised in the period:
During the nine months ended December 31, 2004, the following stock options were exercised:
Exercise Total Total Employees Non-employees
Price Proceeds Number Number of Number of
of Shares Shares Shares
$0.12 $ 10,800 90,000 0 90,000
$0.14 $ 11,690 83,500 0 83,500
$0.23 $ 51,750 225,000 0 225,000
$0.25$113,500 454,000 380,000 74,000
Total$187,740 852,500 380,000 472,500
Common Share Stock Options expired in the period:
On October 17, 2004 750,000 Common Stock options at $0.88 per share expired. These options were split 640,000 for Employees, Directors and Officers and 110,000 for Consultants.
Common Share Stock Options granted in the period:
The following Common Share stock options were granted in the 9-month period ended December 31, 2004:
Total Employees
Exercise Price and expiry date Number Directors & Consultants
Officers
$0.54 Aug. 11, 2006 75,000 75,000 0
$0.66 Aug.26, 2006 150,000 0 150,000
$0.55 Mar 24, 2006 545,000 470,000 75,000
$0.55 Mar 24,2007 770,000 670,000 100,000
$0.55 Mar 24, 2008 1,290,000 1,160,000 130,000
Outstanding Options
The followingCommon Share stockoptions were outstanding on December 31, 2004:
Total Employees
Exercise Price and expiry date Number Directors & Consultants
Officers
$0.14 Dec 15, 2005 150,000 0 150,000
$0.25 Jan 2, 2006 876,000 560,000 316,000
$0.54 Aug 11, 2006 75,000 75,000 0
$0.66 Aug.26, 2006 150,000 0 150,000
$0.55 Mar 24, 2006 545,000 470,000 75,000
$0.55 Mar 24, 2007 770,000 670,000 100,000
$0.55 Mar 24, 20081,290,000 1,160,000 130,000
Outstanding as at Dec. 31, 20043,856,0002,935,000921,000
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
A breakdown of outstanding options as at December 31, 2004 to Directors and Officers was as follows:
Grant Date | 2-Jan-04 | 24-Nov-04 | 24-Nov-04 | 24-Nov-04 | ||||
Exercise Date | 2-May-04 | 24-Apr-05 | 24-Apr-06 | 24-Apr-07 | ||||
Expiry Date | 2-Jan-06 | 24- Mar -06 | 24- Mar -07 | 24-Mar -08 | ||||
Option Price | $0.25 | $0.55 | $0.55 | $0.55 | Total | |||
Cheryl Rieveley | Director | 90,000 | 70,000 | 90,000 | 120,000 | 370,000 | ||
Gale Belding | Director | 0 | 70,000 | 90,000 | 120,000 | 280,000 | ||
Johan de Rooy | Director | 90,000 | 50,000 | 70,000 | 100,000 | 310,000 | ||
Dr Geoff Herring | Director | 0 | 50,000 | 70,000 | 100,000 | 220,000 | ||
Robert Rieveley | Director & C.E.O. | 190,000 | 150,000 | 200,000 | 500,000 | 1,040,000 | ||
Lorne Brown | C.F.O. | 190,000 | 40,000 | 50,000 | 60,000 | 340,000 | ||
Total | 560,000 | 430,000 | 570,000 | 1,000,000 | 2,560,000 |
Private Placement and Warrants Granted and exercised in the period
In December 2004, the Company announced that it received $764,240 for a private placement. As a result of the private placement, 1,528,480 shares were issued at $0.50 per share along with 1,528,480 warrants exercisable at $0.55 each exercisable until October 26, 2006. Insiders participated for up to 31% of the private placement.
In addition, a non-insider exercised 111,111 Common Share Warrants at $0.375 each during the period.
Outstanding Warrants to Purchase Common Shares
Exercise Price Number Expiry Date
$0.375 1,715,666 January 27, 2006
$0.5501,528,480 October 26,2006
3,244,146
Outstanding Warrants to Purchase Preferred Shares
No preferred share warrants were outstanding on December 31, 2004.
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
Options Granted in the period
On August 11, 2004 the Company granted 75,000 stock options to employees. These options vest in 25,000 increments on February 11, 2005, August 11, 2005 and February 11, 2006 and expire on August 11, 2006. The option price is $0.54 per share while the price at the grant date was $0.49 per share.
On August 26, 2004 the Company granted 150,000 stock options to a non-employee who subsequently became an employee. These options vest in 50,000 increments on February 26, 2005, August 26, 2005 and February 26, 2006 and expire on August 26, 2006. The option price is $0.66 per share while the price at the grant date was $0.61 per share.
On November 24, 2004 the Company granted a total of 2,605,000 stock options to employees and non-employees. The option price is $0.55 per share while the price at the grant date was $0.52 per share. These options vest and expire in three increments. The split between to employees and non-employees by vesting and expiry date is as follows:
Grant Date | 24-Nov-04 | 24-Nov-04 | 24-Nov-04 | TOTAL GRANTED |
Vest Date | 24-Apr-05 | 24-Apr-06 | 24-Apr-07 | |
Expiry Date | 24-Mar-06 | 24-Mar-07 | 24-Mar-08 | |
Employees | 470,000 | 670,000 | 1,160,000 | 2,300,000 |
Non-employees | 75,000 | 100,000 | 130,000 | 305,000 |
Total Granted | 545,000 | 770,000 | 1,290,000 | 2,605,000 |
Compensation Expense and Assumptions
The Company recognized $91,594 in stock-based compensation during the nine month period ended ($26,344 in the quarter ended) December 31, 2004, and $65,250 for both the quarter and nine month period ended December 31, 2003.
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Risk-free interest rate | 2.40% | |
Dividend yield | 0.00% | |
Volatility factor of the expected market price | ||
of the Company^s common shares | 100.00% | |
Expected life of the options (months) | 24 |
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
5. Related party transactions
The following expenses were incurred with non-arms length parties in the nine months ended December 31, 2004
Nine months ended | Quarter ended | |
December 31, 2004 | December 31, 2004 | |
Management fees paid and accrued | ||
to an officer | $108,000 | $ 36,000 |
Salaries to Directors and Officers | $ 97,799 | $ 33,339 |
Interest accrued on Notes Payable due to | ||
Related parties | $ 49,769 | $ 15,817 |
Services provided by companies controlled | ||
by Directors | $ 30,556 | $ 9,215 |
6. General Administrative and Selling Expenses:
A more detailed breakdown of this operating expense category is as follows:
Nine months ended | Quarter ended | |
Dec. 31, 2004 | Dec. 31, 2004 | |
Management Fees | $ 101,946 | $ 33,645 |
Salaries and Benefits | 97,799 | 33,339 |
Plant Set-up Costs | 88,833 | 21,449 |
Investor Relations | 57,931 | 24,286 |
Office Rent, Maintenance and Utilities | 43,721 | 15,143 |
Communication, Travel and Promotion | 29,520 | 9,039 |
Stock Exchange and Transfer Agent Fees | 23,297 | 8,027 |
Mexico Office Expenses | 17,000 | 17,000 |
Non-product Advertising | 16,456 | 1,194 |
Office Expenses | 10,501 | 1,516 |
Total | $ 487,004 | $ 164,638 |
List of Directors as at December 31, 2004:
Robert B Rieveley
Gale V. Belding
Johan de Rooy, FCA
Dr Geoff Herring
Cheryl Rieveley
List of Officers as at December 31, 2004:
Robert B Rieveley, Chief Executive Officer
Lorne D. Brown, Chief Financial Officer
AMENDED AND RESTATED
Biotech Holdings Ltd.
Notes to the Consolidated Interim Financial Statements (Continued)
December 31, 2004
In December 2004, the Company began shipping its Type II Diabetes drug Sucanon to Mexican retailers. Shipments in the month had a wholesale value of $29,147. The Company reviewed its accounting policy for revenue recognition and at that time was satisfied that the conditions for revenue recognition were met.
In July 2005, management met with the Company^s Audit Committee and the Company^s auditors to discuss the year end financial statements. The question of revenue recognition was discussed at length. It was noted that collections for these shipments did not commence until June 2005, which was beyond their credit terms. Upon further investigation, it was determined that there were unexpected delays in the launch of the TV advertising campaign for Sucanon until May 26, 2005. It was felt that a retailer would have had a reasonable expectation that the advertising should have started sooner and that as at December 31, 2005, the Company therefore had future performance obligations to meet prior to recognizing the $29,147 sales previously reported. In retrospect, with regards to conservatism, the shipments of December and subsequent shipments will not be recognized as revenue until May 26, 2005 (the first quarter of the fiscal year ended March 31, 2006) when the TV advertising campaign began.
The overall effect that the restatement has had is that assets have been reduced by $23,358, liabilities have been reduced by $3,743, non-controlling interest have been reduced by $4,432 and the net loss and deficit for the quarter and 9 month period have been increased by $17,183. The adjustment had no impact on cash flow. Although the overall effect of these adjustments may not be considered material, the fact that sales were being eliminated from the Consolidated Statements of Operations may be perceived as material.
The Company would like to emphasize that the product was shipped in the period and has deferred the recognition of these sales until the quarter ended June 30, 2005. The Company believes that it has set in place safeguards to ensure the collection of these receivables.
