| [ X ] | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended November 20, 2004
| [ ] | Transition report pursuant to section 13 or 15(d) of the Securities Exchange act of 1934 |
For the transition period from ________ to ________
Commission File No.333-100110
SimplaGene USA, Inc.
(Exact name of small business issuer as specified in its charter)
| Nevada | 01-0741042 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
11900 Wayzata Blvd., Suite 100, Hopkins, MN 55305
(Address of Principal Executive Offices and Zip Code)
(952) 541-1155
(Issuer’s Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by sections 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:January 7, 2004: 2,950,000
Transitional Small Business Disclosure Format (check One): Yes [ ] No [ X ]
SIMPLAGENEUSA, INC.
(a development stage enterprise)
Form 10-QSB for the Quarter ended November 30, 2004
Table of Contents
Page
| Part I — Financial Information | ||||||||
| Item 1 Financial Statements | 3 | |||||||
| Item 2 Management's Discussion and Analysis or Plan of Operation | 12 | |||||||
| Item 3 Controls and Procedures | 14 | |||||||
| Part II — Other Information | ||||||||
| Item 1 Legal Proceedings | 15 | |||||||
| Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | 15 | |||||||
| Item 3 Defaults Upon Senior Securities | 15 | |||||||
| Item 4 Submission of Matters to a Vote of Security Holders | 15 | |||||||
| Item 5 Other Information | 15 | |||||||
| Item 6 Exhibits | 15 | |||||||
| Signatures | 16 | |
2
SIMPLAGENEUSA, INC.
(a development stage enterprise)
Balance Sheets
November 30, 2004 and 2003
| November 30, 2004 | November 30 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash in bank | $ | 73,481 | $ | 85,685 | ||||
| Total Assets | $ | 73,481 | $ | 85,685 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable - trade | $ | -- | $ | 635 | ||||
| Loans from officer/shareholder | 16,200 | 600 | ||||||
| Total Liabilities | 16,200 | 1,235 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock - $0.001 par value | ||||||||
| 10,000,000 shares authorized | ||||||||
| None issued and outstanding | -- | -- | ||||||
| Common stock - $0.001 par value | ||||||||
| 50,000,000 shares authorized | ||||||||
| 2,950,000 shares issued and outstanding | 2,950 | 2,950 | ||||||
| Additional paid-in capital | 94,466 | 94,466 | ||||||
| Deficit accumulated during the development stage | (40,135 | ) | (12,966 | ) | ||||
| Total Stockholders' Equity | 57,281 | 84,450 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 73,481 | $ | 85,685 | ||||
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
3
SIMPLAGENEUSA, INC.
(a development stage enterprise)
Statements of Operations and Comprehensive Loss
Three months ended November 30, 2004 and 2003 and
Period from August 2, 2002 (date of inception) through November 30, 2004
| Three months ended November 30, 2004 | Three months ended November 30, 2003 | Period from August 2, 2002 (date of inception) through November 30, 2004 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | -- | $ | -- | $ | -- | |||||
| Cost of Sales | -- | -- | -- | ||||||||
| Gross Profit | -- | -- | -- | ||||||||
| Operating expenses | |||||||||||
| Marketing and selling expenses | 4,425 | -- | 16,225 | ||||||||
| Organizational and start-up costs | -- | -- | 4,679 | ||||||||
| General and administrative expenses | 1,738 | 3,268 | 19,231 | ||||||||
| Depreciation and amortization | -- | -- | -- | ||||||||
| Total operating expenses | 6,163 | 3,268 | 40,135 | ||||||||
| Loss from operations and | |||||||||||
| before provision for income taxes | (6,163 | ) | (3,268 | ) | (40,135 | ) | |||||
| Provision for income taxes | -- | -- | -- | ||||||||
| Net Income | (6,163 | ) | (3,268 | ) | (40,135 | ) | |||||
| Other comprehensive income | -- | -- | -- | ||||||||
| Comprehensive Loss | $ | (6,163 | ) | $ | (3,268 | ) | $ | (40,135 | ) | ||
| Loss per weighted-average share | |||||||||||
| of common stock outstanding, | |||||||||||
| computed on net loss - | |||||||||||
| basic and fully diluted | nil | nil | nil | ||||||||
| Weighted-average number | |||||||||||
| of common shares outstanding | 2,950,000 | 2,950,000 | 2,651,469 | ||||||||
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
4
SIMPLAGENEUSA, INC.
(a development stage enterprise)
Statements of Cash Flows
Three months ended November 30, 2004 and 2003 and
Period from August 2, 2002 (date of inception) through November 30, 2004
| Three months ended November 30, 2004 | Three months ended November 30, 2003 | Period from August 2, 2002 (date of inception) through November 30, 2004 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Flows from Operating Activities | |||||||||||
| Net Loss | $ | (6,163 | ) | $ | (3,268 | ) | $ | (40,135 | ) | ||
| Adjustments to reconcile net income to | |||||||||||
| net cash provided by operating activities | |||||||||||
| Depreciation | -- | -- | -- | ||||||||
| Increase (Decrease) in Accounts payable-trade | (315 | ) | 635 | -- | |||||||
| Net cash used in operating activities | (6,478 | ) | (2,633 | ) | (40,135 | ) | |||||
| Cash Flows from Investing Activities | -- | -- | -- | ||||||||
| Cash Flows from Financing Activities | |||||||||||
| Cash advanced by officer/shareholder | 4,400 | -- | 16,800 | ||||||||
| Cash repaid to officer shareholder | (600 | ) | -- | (600 | ) | ||||||
| Proceeds from sale of common stock | -- | -- | 119,500 | ||||||||
| Cash paid to raise capital | -- | -- | (22,084 | ) | |||||||
| Net cash provided by financing activities | 3,800 | -- | 113,616 | ||||||||
| Increase (Decrease) in | |||||||||||
| Cash and Cash Equivalents | (4,678 | ) | (2,633 | ) | 73,481 | ||||||
| Cash and cash equivalents at beginning of period | 76,159 | 88,318 | -- | ||||||||
| Cash and cash equivalents at end of period | $ | 73,481 | $ | 85,685 | $ | 73,481 | |||||
| Supplemental Disclosures of | |||||||||||
| Interest and Income Taxes Paid | |||||||||||
| Interest paid during the period | $ | -- | $ | -- | $ | -- | |||||
| Income taxes paid (refunded) | $ | -- | $ | -- | $ | -- | |||||
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
5
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| SimplaGene USA, Inc. (Company) was incorporated on August 2, 2002 under the laws of the State of Nevada. The Company was formed to market hepatitis B virus (HBV) genetic data gathered by Ningbo SimplaGene Institute, a Chinese research institute, to pharmaceutical firms and research organizations. We intend to market this information on compact disc for use in scientific research and drug studies. Anticipated uses of this information include, analyzing mechanisms of viral infection, developing new pharmaceuticals, conducting standardized testing, and conducting other research. We do not intend to engage in any research activity and do not believe our business will be subject to any meaningful government regulation. |
| The Company has had no substantial operations or substantial assets since inception. Accordingly, the Company is considered in the development stage. |
| The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has a year-end of August 31. |
| 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented. |
| During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB for the year ended August 31, 2004. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein. |
| In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission’s instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending August 31, 2005. |
| For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. |
6
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| In prior periods, the Company completed an initial public offering of common stock, has not completed implementation of it’s business plan and has not generated revenue producing transactions. Accordingly, the Company is considered in the development stage. |
| Since May 15, 2004, the Company has been attempting to market hepatitis B virus (HBV) genetic data gathered by Ningbo SimplaGene Institute, a Chinese related party research institute, to pharmaceutical firms and research organizations through a Marketing Agreement with Ningbo Freetrade Zone Aipuweixi Trading Co., Ltd. (Ningbo Freetrade), located in Ningbo, Zhejiang Province, China (an unrelated entity). |
| As the Company has not been successful in finding buyers for the HBV data, the Company is exploring the possibility of selling purified DNA samples taken from the blood of patients with diseases specifically requested by customers. These samples may be collected specifically for a customer, or, if available, taken from the Ningbo SimplaGene sample library. |
| The Company’s management continues to believe that the proceeds from the Company’s initial capitalization and initial public offering of common stock will be sufficient to maintain the corporate status of the Company for the immediate future. However, due to the Company’s lack of operating assets, the Company’s continuance may become dependent on either future sales of securities and/or advances or loans from significant stockholders or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity during the development phase. |
| There is no assurance that the Company will be able to obtain additional equity or debt funding or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. |
| It is the intent of management and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding. |
| 1. Cash and cash equivalents |
| For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. |
| Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company’s cash management policies. |
| 2.Organization costs |
| The Company has adopted the provisions of AICPA Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities” whereby all organization and initial costs incurred with the incorporation and initial capitalization of the Company were charged to operations as incurred. |
7
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| 3. Deferred public offering costs |
| During the process of “going public” through an initial public offering (an IPO), the Company deferred certain costs related to the registration process. Deferred public offering costs represent accounting, legal and underwriting costs incurred by the Company pertaining to this process. These costs were charged against additional paid-in capital (deducted from stock proceeds) upon completion of the public offering. |
| 4. Income Taxes |
| The Company uses the asset and liability method of accounting for income taxes. At November 30, 2004 and 2003, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and accruals for compensated vacation time. |
| As of November 30, 2004 and 2003, the deferred tax asset related to the Company’s net operating loss carryforward is fully reserved. If these carryforwards are not utilized, they will begin to expire in 2020. |
| 5. Earnings (loss) per share |
| Basic earnings (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements. |
| Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). |
| Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculation date. |
| As of November 30, 2004 and 2003, the Company has no outstanding stock options and warrants which would be deemed dilutive. |
| The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. |
| Interest rate risk is the risk that the Company’s earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. |
8
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| Financial risk is the risk that the Company’s earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. |
| During Fiscal 2005, 2004 and 2003, respectively, the Company was advanced approximately $4,400, $11,800 and $600 by the Company’s President and controlling shareholder, Xinbo Wang, for the purpose of funding the Company’s Marketing Agreement and to provide working capital. These advances are non-interest bearing and are repayable upon demand. The $600 working capital advance, made in Fiscal 2003, was repaid by the Company in October 2004. |
| The components of income tax (benefit) expense for the three month periods ended November 30, 2004 and 2003 and for the period from August 2, 2002 (date of inception) through November 30, 2004, are as follows: |
| Three months ended November 30, 2004 | Three months ended November 30, 2003 | Period from August 2, 2002 (date of incorporation) through November 30, 2004 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Federal: | ||||||||||||||
| Current | $ | -- | $ | -- | $ | -- | ||||||||
| Deferred | -- | -- | -- | |||||||||||
| -- | -- | -- | ||||||||||||
| State: | ||||||||||||||
| Current | -- | -- | -- | |||||||||||
| Deferred | -- | -- | -- | |||||||||||
| -- | -- | -- | ||||||||||||
| Total | $ | -- | $ | -- | $ | -- | ||||||||
| As of November 30, 2004, the Company has a net operating loss carryforward of approximately $37,500 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2023. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control among shareholders controlling 5.0% or more of the Company’s issued and outstanding common stock; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards. |
9
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| The Company’s income tax expense (benefit) for each of the three month periods ended November 30, 2004 and 2003 and for the period from August 2, 2002 (date of inception) through November 30, 2004, respectively, differed from the statutory rate of 34% as follows: |
| Three months ended November 30, 2004 | Three months ended November 30, 2003 | Period from August 2, 2002 (date of incorporation) through November 30, 2004 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Statutory rate applied to | |||||||||||
| income (loss) before income taxes | $ | (2,095 | ) | $ | (1,100 | ) | $ | (13,645 | ) | ||
| Increase (decrease) in income taxes | |||||||||||
| resulting from: | |||||||||||
| State income taxes | -- | -- | -- | ||||||||
| Difference between book method | |||||||||||
| and statutory recognition differences | |||||||||||
| on organization costs | (80 | ) | (80 | ) | 875 | ||||||
| Other, including reserve for deferred | |||||||||||
| tax asset and application of net | |||||||||||
| operating loss carryforward | 2,175 | 1,180 | 12,770 | ||||||||
| Income tax expense | $ | -- | $ | -- | $ | -- | |||||
| Temporary differences, consisting primarily of statutory deferrals of expenses for organizational costs and statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and liabilities as of August 31, 2004 and 2003, respectively: |
| November 30, 2004 | November 30, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Deferred tax assets | ||||||||
| Net operating loss carryforwards | $ | 12,770 | $ | 3,200 | ||||
| Less valuation allowance | (12,770 | ) | (3,200 | ) | ||||
| Net Deferred Tax Asset | $ | -- | $ | -- | ||||
| During each of the three month periods ended November 30, 2004 and 2003, respectively, the valuation allowance increased by approximately $2,170 and $1,200. |
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10
SIMPLAGENEUSA, INC.
(a development stage enterprise)
| On April 16, 2003, the Company completed the sale of an aggregate of 1,000,000 shares of its common stock for aggregate proceeds of approximately $100,000, in satisfaction of the offering requirement of its self-underwritten public offering of securities, pursuant to a Registration Statement Under The Securities Act of 1933on Form SB-2. Offering proceeds were released from escrow in April 2003 pursuant to the terms of the offering as detailed in the Company’s prospectus dated January 9, 2003. On April 16, 2003, the Company closed its self-underwritten public offering of securities. |
| On May 15, 2004, the Company entered into a Marketing Agreement with Ningbo Freetrade Zone Aipuweixi Trading Co., Ltd. (an unrelated party) (Ningbo Freetrade), located in Ningbo, Zhejiang Province, China whereby Ningbo Freetrade will provide all marketing activities related to the Company’s HBV DNA data and data processing results in the United States of America and Canada. |
| This agreement was for an initial term of six (6) months and requires an initial payment of $3,000 USD and a monthly payment of $2,200 USD. Further, Ningbo Freetrade will receive a commission of 20% of the retail selling price of any products sold through Ningbo Freetrade’s efforts. The Company paid, through advances by the Company’s controlling shareholder, $11,800 and $4,400, respectfully, during Fiscal 2004 and 2005 in satisfaction of this contract. |
(Remainder of this page left blank intentionally)
11
| SimplaGene USA was formed to market hepatitis B virus (HBV) genetic data gathered by Ningbo SimplaGene Institute, a Chinese research institute, to pharmaceutical firms and research organizations. Since May 15, 2004, the Company has been attempting to market hepatitis B virus (HBV) genetic data gathered by Ningbo SimplaGene Institute, a Chinese related party research institute, to pharmaceutical firms and research organizations through a Marketing Agreement with Ningbo Freetrade Zone Aipuweixi Trading Co., Ltd. (Ningbo Freetrade), located in Ningbo, Zhejiang Province, China (an unrelated entity). Anticipated uses of this information include, analyzing mechanisms of viral infection, developing new pharmaceuticals, conducting standardized testing, and conducting other research. We do not intend to engage in any research activity and do not believe our business is subject to any meaningful government regulation. |
| As the Company has not been successful in finding buyers for the HBV data, the Company is exploring the possibility of selling purified DNA samples taken from the blood of patients with diseases specifically requested by customers. These samples may be collected specifically for a customer, or, if available, taken from the Ningbo SimplaGene sample library. |
| Dr. Xinbo Wang, Jingwei Wang, and Jing Deng, who are officers, directors, and stockholders of SimplaGene USA, are the President, Chief Executive Officer, and Vice President, respectively, of Ningbo SimplaGene Institute. Further, Dr. Xinbo Wang is the sole owner of Ningbo SimplaGene Institute. |
| We are a development stage business and have yet to generate any revenue. We have been using the net proceeds of our initial public offering to promote sales of our product to potential customers through our Marketing Agreement with Ningbo Freetrade, and to pay our operating expenses. We closed our initial public offering on April 16, 2003 and received gross proceeds of $100,000. |
| We are in the development stage and have not generated revenues from operations. For the period from our incorporation on August 2, 2002 through November 30, 2004, our activities related primarily to our incorporation, the preparation and filing of a Registration Statement under the Securities Act of 1933 on Form SB-2, and our unsuccessful attempts to market our products through our Marketing Agreement with Ningbo Freetrade. Accordingly, our cumulative financial results, from inception to November 30, 2004, are not meaningful as an indication of future operations. |
| Upon inception, we received $19,500 in net proceeds from our founders and initial investors. On April 16, 2003, we completed a self-underwritten public offering of securities under the Securities Act of 1933 pursuant to Registration Statement a Form SB-2. We sold 1,000,000 shares of common stock at a public offering price of $0.10 per share. As this was a self-underwritten offering, we paid no commissions to raise these funds. |
| At November 30, 2004, we had $73,481 in cash and cash equivalents and our working capital was $57,281. To date, we show negative cash flows. We expect losses from operations and negative cash flow to continue in the foreseeable future. If our revenues and our spending levels are not adjusted accordingly, we may not generate sufficient revenues to achieve profitability. Even if we achieve profitability, we may not sustain or increase such profitability on a quarterly or annual basis in the future. We may need to raise additional funds in the future. We cannot be certain that any additional financing will be available on terms favorable to us and we have not developed a plan for raising additional capital should it be required. If additional funds are raised by the issuance of our equity securities, then existing shareholders may experience dilution of their ownership interest and such securities may have rights senior to those of the then existing holders of common stock. If additional funds are raised by our issuance of debt instruments, we may be subject to certain limitations on our operations. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our operations, develop or enhance services, or respond to competitive pressures. |
12
| The proposed business of SimplaGene USA is to distribute hepatitis B virus genetic data owned by Ningbo SimplaGene Institute. During fiscal year 2004 we expanded our focus to include purified DNA data derived form human samples. Our business will not require us to engage in any product research or development activity. Our business is limited to developing and maintaining a sales capability for the data products we offer. We have not conducted any market studies or contacted any potential users to determine whether there is a market for our data products. It is management’s belief alone that there may be a market for this data that serves as the basis for us embarking on this venture. |
| We have not engaged in any material operations or generated any revenues. Since the completion of our public offering of common stock, we have worked on developing and implementing marketing programs that have not proven successful. In May 2004 we entered into a six-month agreement with Ningbo Freetrade Zone Aipuweixi Trading Co., Ltd., located in Ningbo, Zhejiang Province, China to market our HBV data, as well as DNA processing. As compensation for its services, we paid Ningbo Freetrade an initial fee of $3,000 and $2,200 a month and agreed to pay a 20 percent commission on all product sold. The agreement expired in November 2004, and we are now exploring other marketing options. |
| We cannot predict when the first product sale may occur, if at all, because we have been unable to obtain customers for our products at our planned pricing. These factors suggest that there may not be the demand for our products we expected, or that we have been unable to develop a workable marketing plan. |
| Under these circumstances we are now re-evaluating our products and plan of operation to determine how to proceed with the limited resources remaining. We are currently exploring the possibility of selling purified DNA samples taken from the blood of patients with diseases specifically requested by customers. These samples may be collected specifically for a customer, or, if available, taken from the Ningbo SimplaGene sample library. However, we may determine that it is in the best interests of SimplaGene USA and its stockholders to abandon its current product offerings altogether and participate in other business ventures that we believe we can be successful with taking into consideration our limited resources. No decision to pursue any course of action other than marketing our products has been made at this time, and we can not predict whether we will continue on our present course our move in a different direction. |
| We expect our executive officers will initially render services on a part-time basis as required for the development of our business, and make initial contacts with prospective users of the data product. Our executive officers will provide such services without compensation in consideration of the benefits they expect to derive as stockholders from commencement of business operations, and because SimplaGene USA will not have the capital to pay compensation unless it generates revenue from operations or obtains additional financing. At such time as we have sufficient capital, we expect we will enter into formal arrangements to compensate our executive officers for their services on terms yet to be decided. Furthermore, if we are successful in establishing meaningful operations, we expect our executive officers will commit more time to the business and we will evaluate hiring employees to support the development of our business. Regardless of whether we are successful, we are required to file certain periodic reports with the Securities and Exchange Commission, and will retain the services of outside professionals, such as attorneys and accountants, to assist us with meeting this obligation. We estimate the cost of these outside services will be at least $10,000 over the next 12 months. |
| We currently maintain a mailing address at 11900 Wayzata Blvd., Suite 100, Hopkins, MN 55305, which is the address of Craig Laughlin, a Company Vice President, director, and stockholder. Other than this mailing address, the Company does not currently maintain any other office facilities, and does not anticipate the need for maintaining office facilities at any time in the foreseeable future. The Company pays no rent or other fees for the use of the mailing address as these offices are used virtually full-time by other businesses and ventures of Mr. Laughlin. |
| It is likely that we will not establish an office until we are successful in establishing meaningful operations. We expect that we will seek and lease space suitable for our needs at a future date; however, it is not possible, at this time, to predict what arrangements will actually be made with respect to future office facilities or what the financial impact of any future lease obligation may be. |
13
| Under our distribution agreement with Ningbo SimplaGene Institute, we hold the exclusive right to distribute the data product in the United States, Canada, and Mexico. Ningbo SimplaGene Institute has not entered into a distribution agreement with anyone else within or outside our territory, so prospective users cannot obtain the product from any other source. We purchase the product at a 30% discount to the actual sale price of the product license and renewals we receive from a customer. We have been offering the data product to prospective users through Ningbo Freetrade at $50,000, which includes the current version of the hepatitis B virus data files and any updates within one year of initial purchase without additional charge. After the first year, users must pay an annual fee of $10,000 to continue to use the product and receive additional updates. Ningbo SimplaGene Institute is not aware of any other company selling viral genomic information, so it has no basis for setting the price point for its data product on the basis of similar products in the market. Consequently, the pricing was determined arbitrarily, so it is possible that Ningbo SimplaGene Institute will adjust the pricing based on the response to our marketing effort. Ningbo SimplaGene Institute sets the product sale price and may adjust the selling price by giving us 60 days advance notice of the new pricing. We are authorized to offer a 10 percent discount to the selling price set by Ningbo SimplaGene Institute. The hepatitis B virus data is produced and delivered in the form of a compact disc with data files. It is the responsibility of Ningbo SimplaGene Institute to produce and deliver the product to us for redelivery to the end user against purchase orders we place. Under the terms of our distribution agreement with Ningbo SimplaGene Institute, it will maintain an inventory of product at our office and we will not have to pay for any product until it is sold. Therefore, we will not make any capital expenditures to acquire or maintain inventory. Dr. Xinbo Wang, Jingwei Wang, and Jing Deng, who are officers, directors, and stockholder of SimplaGene USA, are the President, Chief Executive Officer, and Vice President, respectively, of Ningbo SimplaGene Institute. Further, Dr. Xinbo Wang is the sole owner of Ningbo SimplaGene Institute. |
| We have met our initial capital needs with the proceeds of our public offering. We believe the proceeds of the offering will be adequate to fund our capital requirements for the next twelve months. If within that period we are not successful in generating revenues that will sustain our operations, we may need to obtain additional debt or equity financing to remain in operation. We have not presently identified any sources of additional financing should that become necessary, so we cannot predict whether additional financing will be available on terms we find acceptable. If additional financing is needed and cannot be obtained, we would likely be forced to curtail or terminate our operations. |
| As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There have been no significant changes in the Company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. |
| Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. |
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| None. |
| SimplaGene USA made a registered public offering of 1,000,000 shares of common stock at an offering price of $0.10 per share, or a total offering of $100,000, resulting in net proceeds of the offering to SimplaGene USA of $77,916. Assuming our pre-offering capital of $19,500 was used first to pay organizational and start-up costs and general and administrative expenses since inception, we have used out of the net proceeds of the offering $16,225 for selling and marketing expenses and $4,410 for general and administrative expenses. We hold the remaining net proceeds of the offering in a non-interest bearing bank account. The application of the net proceeds of the offering through November 30, 2004, does not represent a material change in the use of proceeds described in the prospectus of SimplaGene USA. |
| None. |
| None. |
| None. |
| Exhibits |
| 31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 — Chief Executive Officer 31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 — Chief Financial Officer 32.1 Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
| Reports on Form 8-K |
| None |
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| In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
| SIMPLAGENE USA, INC. |
| Date: January 18, 2005 | By: | /s/ Xinbo Wang | |
| Xinbo Wang, President, Chief Executive Officer and Director | |||
| Date: January 18, 2005 | By: | /s/ Craig S. Laughlin | |
| Craig Laughlin, Vice President and Principal Financial and Accounting Officer | |||
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