File No. 333-41672
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As filed with the Securities & Exchange Commission on July 13, 2001
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ABOVE AVERAGE INVESTMENTS, LTD.
(Name of small business issuer in its charter)
Nevada 6770 98-0204736
(State or jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Identification No.) Classification
Code No.)
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Suite 104, 1456 St. Paul St., Kelowna,
British Columbia, Canada V1Y 2E6
(Address of principal place of business or intended principal place of business
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Devinder Randhawa
Above Average Investments, Ltd.
Suite 104, 1456 St. Paul St., Kelowna
British Columbia, Canada V1Y 2E6
(250) 868-8177 tel.
(Name, address and telephone number of agent for service)
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Copies to:
Antoine M. Devine, Esq. Michael D. Karsch, Esq.
Foley & Lardner Quick-Med Technologies, Inc.
One Maritime Plaza, 6th Floor Boca Raton, Florida 33431
San Francisco, CA 94111 (561) 620-9234
(415) 438-6456
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum offering Proposed maximum Amount of
securities to be registered price per unit (1) aggregate offering price registration fee
registered
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Common Stock, par value 2,500,000 $.05 $125,000 $56.00(2)
$0.0001
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(1) Estimated solely for the purpose of calculating the registration fee and pursuant to Rule 457.
(12 Previously paid.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant will file a
further amendment which specifically states that this registration statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement will become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
RECONFIRMATION OFFERING
PROSPECTUS
ABOVE AVERAGE INVESTMENTS, LTD.
2,500,000 SHARES OF COMMON STOCK
$.05 PER SHARE
This prospectus relates to the reconfirmation offering required by Rule
419 of Regulation C under the Securities Act of 1933 concerning 2,500,000 shares
of common stock, $.0001 par value of Above Average Investments, Ltd. The shares
were initially sold in an initial public offering of 2,500,000 shares of common
stock, which was completed in December 2000. In March 2001, we executed an
agreement with Quick-Med Technologies, Inc. to acquire all of Quick-Med's issued
and outstanding shares of capital stock in exchange for 10,260,000 shares of our
common stock. This prospectus is being furnished to investors in the offering so
they may consider reconfirming their investment as a result of the proposed
acquisition.
Prior to the offering and this reconfirmation offering, there has been
no market for common stock and we cannot assure you that a market will exist
after the proposed acquisition is completed.
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The offering and the reconfirmation offering are being conducted under
Rule 419 of Regulation C under the Act.
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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. It is illegal for anyone to tell you
otherwise.
The offering and the reconfirmation offering involve a speculative
investment, a high degree of risk, and suitable only for persons who can afford
the loss of their entire investment.
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The date of this prospectus is July 13, 2001
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.............................................................4
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
DEPOSIT OF OFFERING PROCEEDS AND SECURITIES..................................11
THE MERGER....................................................................13
USE OF PROCEEDS...............................................................15
CAPITALIZATION TABLE..........................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS..........................................17
BUSINESS......................................................................22
PRINCIPAL SHAREHOLDERS........................................................34
MANAGEMENT....................................................................36
EXECUTIVE COMPENSATION........................................................38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................39
MARKET FOR OUR COMMON STOCK...................................................39
DESCRIPTION OF SECURITIES.....................................................41
SHARES ELIGIBLE FOR FUTURE RESALE.............................................42
WHERE CAN YOU FIND MORE INFORMATION?..........................................42
REPORTS TO STOCKHOLDERS.......................................................43
LEGAL MATTERS.................................................................43
EXPERTS.......................................................................43
INDEMNIFICATION OF OFFICERS AND DIRECTORS.....................................43
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.....................................................44
FINANCIAL STATEMENTS.........................................................F-1
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, the words
"we," "us" and "our" refer to Above Average Investments, Ltd. (unless the
context indicates otherwise).
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PROSPECTUS SUMMARY
Above Average Investments, Ltd.
We were organized as a Nevada corporation on April 21, 1997 for the
purpose of creating a corporate vehicle to seek, investigate and, if the
investigation warrants, acquire an interest in business opportunities presented
to us by persons or firms who or which desire to employ our funding in their
business or to seek the perceived advantages of a publicly-held corporation.
Our executive offices are located at Suite 104-1456 St. Paul St.,
Kelowna, British Columbia, Canada V1Y 2E6. The telephone number is (250)
868-8177.
In December 2000, we completed an initial public offering for 2,500,000
shares of our common stock for $.05 per share pursuant to a Registration
Statement that became effective with the Securities and Exchange Commission on
September 19, 2000.
Quick-Med Technologies, Inc.
Quick-Med Technologies, Inc., a development stage company, was
incorporated in the State of Delaware on October 20, 1997. Quick-Med is a
biomedical technology company.
Quick-Med Acquisition
In March 2001, we executed an agreement with Quick-Med and its
shareholders to acquire all of Quick-Med's issued and outstanding shares in
exchange for 10,000,000 shares of our common stock. In June 2001, the agreement
was amended to increase the number of shares to be exchanged to 10,260,000. The
share exchange is structured so that Quick-Med's current shareholders will own
at least 51% of the outstanding shares in the post-merger entity.
We believe, after examining Quick-Med's business plan, interviewing
their management, and examining their proposed products, that Quick-Med's
planned products can successfully compete with other companies in the military,
pharmaceutical and cosmetic industries.
High Risk
Investment in our securities is highly speculative, involves a high
degree of risk, and only persons who can afford the loss of their entire
investment should vote to reconfirm their investment.
Use of Proceeds
In our initial public offering, we raised $125,000 in proceeds. None of
the deposited funds have been or will be expended to merge Quick-Med into us.
The deposited funds will be transferred to us upon completion of the merger.
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The Offering
Shares outstanding prior to the offering 500,000 (1)
Shares sold in the offering 2,500,000 (2)
Shares to be issued to Quick-Med 10,260,000 (3)
Shares outstanding after the merger 12,760,000 (1) (3)
(1) The 500,000 shares held by current Above Average shareholders will
be purchased by Quick-Med as part of the merger, and will be cancelled when the
merger is consummated. The Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock.
(2) Assumes that 100% of the purchasers reconfirm their investment.
There were 18 purchasers in the offering.
(3) Includes 260,000 shares that have been issued to a principal
shareholder upon conversion of outstanding indebtedness.
Expiration Date
This offering will expire on March 19, 2002. If a merger has not been
consummated, funds held in escrow will be returned to the investors.
Recent Developments
Our board believes that the merger represents a good investment
opportunity for our shareholders and recommends that the investors elect to
accept the reconfirmation offering. The merger agreement was approved by the
directors and shareholders of Quick-Med at a meeting held on March 5, 2001. The
merger agreement was confirmed by the unanimous consent of our directors on
March 19, 2001.
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Summary Pro Forma Combined Financial Data
The following table presents our summary pro forma combined financial
data , as adjusted for the effects of the merger and the consummation of this
offering and the application of the net proceeds. Please refer to the other
financial statements and notes included in this prospectus.
AAI Historical QMT Historical Pro forma
----------------------------- --------------------------------- -----------------------------
Nine Months Three Nine Months
Year ended Ended Year ended Ended Year ended Ended
June 30, 2000 March 31, 2001 December 31, 2000 March 31, 2001 June 30, 2000 March 31, 2001
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Statement of Operations Data:
Revenues earned - - - - - -
Gross profit - - - - - -
Selling, general, and
administrative expense 17,157 36,522 308,206 147,246 118,397 449,969
Operating loss (17,157) (36,522) (308,206) (147,246) (118,397) (449,969)
Interest and other expense net - - 5,697 3,700 2,090 8,328
Loss before income tax benefit (17,157) (36,522) (313,903) (150,946) (120,487) (458,297)
Net loss (17,157) (36,522) (313,903) (150,946) (120,487) (458,297)
Net loss per share (0.03) (0.03) (0.03) (0.01) (0.01) (0.04)
Shares used in computing net
loss per share 500,000 1,412,409 10,000,000 10,089,333 12,760,000 12,760,000
Balance Sheet Data:
Working capital (3,795) 121,419 (714,549) (593,287) 23,229 (471,868)
Total assets - 125,000 373,850 385,964 169,081 510,964
Total long term debt - - - - - -
Stockholders' equity (3,795) (3,581) (345,612) (233,932) 28,472 (112,513)
Nine Months
Year ended Ended
June 30, 2000 March 31,2001
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Statement of Operations Data:
Revenues earned $ - $ -
Gross profit - -
Selling, general, and
administrative expense 118,397 449,969
Operating loss (118,397) (449,969)
Interest and other
expense net 2,090 8,328
Loss before income tax benefit (120,487) (458,297)
Net loss $ (120,487) $ (458,297)
Net loss per share $ (0.01) $ (0.04)
Shares used in computing net
loss per share 12,760,000 12,760,000
Balance Sheet Data:
Working capital (471,868)
Total assets 510,964
Total long term debt
-
Stockholders' equity (112,513)
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RISK FACTORS
We are insolvent on a pro forma combined basis and will be unable to
continue operations without raising additional capital or generating revenues
from product sales or licensing. On a pro forma combined basis, we are insolvent
since Quick-Med has not yet raised sufficient funds to operate its planned
business. We incurred pro forma combined net losses of $175,029 in 1999 and
$120,487 in 2000. Quick-Med expects to incur operating losses for the next
several years as it invests in product research and development, preclinical and
clinical testing and regulatory compliance. Quick-Med will require substantial
additional funding to complete the research and development of its product
candidates, and, if necessary, to establish commercial scale manufacturing
facilities and market its products.
Quick-Med may have to dedicate a substantial portion of any future cash
flow to make interest and principal payments on its current debt, which will
reduce funds available for operations, capital expenditures and other purposes.
If it does not have positive cash flow from operations on a timely basis, it may
be unable to develop its products or to conduct its business in an effective or
competitive manner.
Quick-Med's accountants have issued a going concern opinion due to the
lack of capital. Because of the uncertainties in its ability to satisfy its
future capital needs, Quick-Med's auditors' report on its financial statements
for the year ended December 31, 2000 contains an explanatory paragraph about its
ability to continue as a going concern.
Because Quick-Med is a new business venture with no products in the
market, its securities are subject to the risks inherent in any new business
venture. Quick-Med has limited experience and a short history of operations,
especially with respect to the marketing and selling any products. It has not
generated revenues from operations. None of its products have received
regulatory approval. Quick-Med cannot assure you that it will be able to
complete designing and testing its products, that the products will be approved
by the FDA or accepted in the marketplace, or that it will be able to sell them
at a profit. Furthermore, as a young company, Quick-Med is especially vulnerable
to the problems, delays, expenses, and difficulties encountered by any company
in the development stage, many of which it cannot control.
Quick-Med has not proven any of its products' effectiveness and may not
be able to do so in the future. Quick-Med has just started developing its
primary products and will require substantial laboratory and clinical testing
before it can market a product to consumers. This testing could take several
years to complete.
Quick-Med's proposed products may not be accepted in the market, adding
to the time before it receives any revenue from product sales. Quick-Med plans
to develop and market products to U.S. and foreign militaries and pharmaceutical
and cosmetic companies for sale to civilian retail customers. Military sales
will require detailed and rigorous research and development process that may be
lengthy and uncertain in outcome. Although Quick-Med will not sell directly to
civilian retail customers, these consumers must still accept its wound dressing
or cosmetic products as beneficial and worthwhile. Patients, doctors and
third-party payors must also accept Quick-Med-developed products as medically
useful and cost-effective. Market acceptance will require substantial education
about the benefits of its wound care products and other products. Quick-Med
cannot assure you that the market will accept its products, even if approved for
marketing, on a timely basis. If retail consumers, patients, the medical
community, and third-party payors do not accept its products or acceptance takes
a long time, then revenues and profits would be reduced.
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Quick-Med will require additional capital to be successful, which will
potentially dilute the value of shares of then current shareholders. Quick-Med
expects to continue to incur substantial losses for at least another two years.
During this period, it does not expect to obtain significant revenues from
operations but will need substantial funds, primarily for the following
purposes:
o To continue product development of its proposed products;
o To conduct clinical trials of its wound dressing product and otherwise
pursue regulatory approvals for this product; and
o To begin to develop new products based on its wound care technology,
and to conduct the clinical tests necessary to develop and refine new
products.
To finance Quick-Med's operations to date, it has relied almost
entirely on private offerings of common stock and loans from officers. Most of
its outstanding common stock was issued for services. The terms on which it
obtains additional financing may dilute the existing shareholders investments,
or otherwise adversely affect its position. It is also possible that Quick-Med
will be unable to obtain the additional funding it needs as and when it needs
it. If it were unable to obtain additional funding as and when needed, Quick-Med
could be forced to delay the progress of its development efforts. These delays
would hurt its ability to bring a product to market and obtain revenues, and
could result in competitors developing products ahead of Quick-Med and/or in its
being forced to relinquish rights to technologies, products or potential
products.
Quick-Med will depend upon others for marketing and distributing its
products. Quick-Med has both military and civilian target markets. While its
management has experience in selling to military organizations, Quick-Med
currently lacks marketing and sales experience and personnel, distribution
channels and other infrastructure needed to successfully market and distribute a
product in civilian markets. It intends to rely on collaborative arrangements
with one or more other companies which possess strong marketing and distribution
resources to perform these functions. Quick-Med does not, however, have any
agreements with other companies for marketing or distributing its products. It
may be forced to enter into contracts to market and distribute its products that
substantially limit the potential benefits to it from commercializing these
products. Quick-Med will not have the same control over marketing and
distribution that it would have if it conducted these functions itself.
Quick-Med relies on key personnel who may leave on short notice.
Because its business is mostly scientific, Quick-Med depends greatly on
attracting and retaining management and scientific personnel. It has only one
full-time executive, David S. Lerner, its president. Its other officers are
consultants who devote substantial time to other employers. Losing any of these
individuals could have a material adverse effect on Quick-Med.
Quick-Med depends on licenses it has obtained on patented technology,
the loss of which would mean it could not develop many of its products.
Quick-Med's rights to develop several of its proposed products comes from its
license agreements. In the event that its license agreements terminate for any
reason, it would lose their rights to manufacture and market many of its
products. Quick-Med may also be required to license additional rights in order
to market its products and may not be able to obtain these rights on favorable
terms or at all.
Quick-Med has multiple U.S. and international patent applications that
may not be granted. Quick-Med cannot assure you that its applications will be
granted or that its patent rights will provide it with significant protection
against competitive products or otherwise be commercially viable. As a result
Quick-Med may not be able to protect its proprietary information.
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Quick-Med may experience a significant delay in obtaining patent
protection for its products due to a substantial backlog of pharmaceutical and
biotechnology patent applications at the U.S. Patent and Trademark Office,
commonly known as the PTO. Because patent applications in the U.S. are
maintained in secrecy until patents issue, other competitors may have filed or
maintained patent applications for technology used by Quick-Med or covered by
pending applications without its being aware of these applications.
A breach in Quick-Med's relationships with the University of Florida
may have a detrimental effect. Quick-Med has sought a close and favorable
relationship with the University of Florida. It plans to license certain
technologies from the University and two members of its research and development
team are faculty members at the University. Quick-Med cannot assure you that
disputes will not cause its favorable relationship with the University to
deteriorate. A deterioration in the relationship between Quick-Med and the
University could affect it adversely.
A breach of the State of Florida and University of Florida conflicts of
interest laws and rules could be harmful to Quick-Med. Two members of
Quick-Med's research and development team work are University of Florida
employees. As a result, it must comply with Florida statutes and University
policy on conflicts of interest. In order for it to do business with the
University which includes licensing technology or cooperative research, the
University must also approve its employees' service on Quick-Med's research and
development team. If the University were to decline to approve the outside
activities of the University employees who are members of Quick-Med's research
and development team, or were to change the terms of its conflicts of interest
policy it could have a material adverse effect on Quick-Med.
The regulatory approval process is costly and lengthy and Quick-Med may
not be able to successfully obtain all required regulatory approvals. The
preclinical development, clinical trials, manufacturing, marketing and labeling
of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the U.S. and other countries. Quick-Med
must obtain regulatory approval for some of its product candidates before
marketing or selling them. It is not possible to predict how long the FDA's or
any other applicable federal, state or foreign regulatory authority or agency's
approval process for any of its products will take or whether any approvals will
be granted. Positive results in preclinical testing and/or early phases of
clinical studies offer no assurance of success in later phases of the approval
process. Generally, preclinical and clinical product testing can take many
years, and can require the expenditure of substantial resources. The data
obtained from these tests and trials can be susceptible to varying
interpretation that could delay, limit or prevent regulatory approval. Any delay
or failure to obtain approvals could adversely affect Quick-Med's market for its
products and its ability to general product revenue. The risks associated with
the approval process include:
o Delays or rejections in the regulatory approval process based on the
failure of clinical or other data to meet expectations, or the failure
of the product to meet a regulatory agency's requirements for safety,
efficacy and quality; and
o Regulatory approval, if obtained, may significantly limit the indicated
uses for which a product may be marketed.
Quick-Med's clinical trials could take longer to complete and cost more
than it expects, which may result in its development plans being significantly
delayed. Quick-Med will need to conduct a complete study of each of its product
candidates. These studies are costly, time consuming and unpredictable. Any
unanticipated costs or delays in its clinical studies could cause Quick-Med to
expend substantial funds unexpectedly or delay or modify its plans
significantly, either of which would
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harm its business, financial condition and results of operations. The factors
that could contribute to these costs, delays or modifications include:
o The cost of conducting human clinical trials for any potential product.
These costs can vary dramatically based on a number of factors,
including the order and timing of clinical indications pursued and the
development and financial support from corporation partners; and
o Intense competition in the pharmaceutical market, which may make it
difficult for it to obtain sufficient patient populations or clinician
support to conduct its clinical trials as planned.
Quick-Med does not have product liability insurance and may not be able
to get any on reasonable terms. Its business exposes it to product liability
claims inherent in the testing and marketing of medical products. It currently
carries no product liability insurance, but intends to acquire insurance prior
to selling any of its products for commercial use. Quick-Med cannot assure you
that it will be able to get or keep adequate liability insurance at a reasonable
cost. Its inability to get or keep insurance at an acceptable cost could prevent
or inhibit the commercial development of its products. A liability claim, even
one without merit, could result in major legal expenses.
The hazardous material Quick-Med will use in part of its research and
development could result in significant liabilities. Quick-Med will use
hazardous materials in some of its research and development activities. In most
instances these materials are only handled by the U.S. military in conducting
tests jointly on behalf of Quick-Med and the military. In some other instances,
these materials may be handled within the private sector. While it believes that
it will be in substantial compliance with federal, state and local laws and
regulations governing the use of these materials, accidental injury or
contamination may occur. An accident or contamination could result in
substantial liabilities, which could exceed its financial resources. The cost of
compliance with environmental and safety laws and regulations may also increase
in the future, which could adversely affect revenues.
We may fail to obtain a sufficient number of investors to reconfirm the
offering, which will not permit us to complete the merger. A business
combination with an acquisition candidate cannot be closed unless, after the
reconfirmation offering required by Rule 419, 80% of the investors elect to
reconfirm their investment. If a sufficient number of investors do not reconfirm
their investment in the reconfirmation offering, the merger will not be closed.
If so, none of the securities held in escrow will be issued and your funds will
be returned to you without interest if another transaction is not approved by
March 2002.
We are issuing 10,260,000 shares in the acquisition, which will result
in substantial additional dilution. Our Certificate of Incorporation authorizes
the board to issue 100,000,000 shares of common stock, $.0001 par value. The
proposed acquisition, if completed, will result in our issuing an additional
10,260,000 shares of common stock and will result in substantial dilution in the
percentage of the common stock held by its present shareholders. Moreover, the
common stock to be issued in the acquisition has been valued on an arbitrary or
non-arm's-length basis by management, resulting in an additional reduction in
the percentage of common stock held by our present shareholders.
There is no public market for our common stock and none is expected to
develop immediately after this offering is completed, which means you may
experience difficulty in selling your shares. At the present time, there is no
public market for our securities. It is unlikely that a regular trading market
will develop when the reconfirmation offering is concluded, or if developed,
that a market will be sustained, or that our securities purchased by the public
in the offering may be resold at their original offering price or at any other
price. Any market for our securities that may develop
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will very likely be a limited one. While we intend to continue to timely file
periodic reports under the Securities Exchange Act of 1934 for so long as we may
be required to do so, we cannot assure you that we will continue to file such
reports on a voluntary basis. In any event, due to the low price of the
securities, many brokerage firms may choose not to engage in market making
activities or effect transactions in such securities. Purchasers of the
securities may have difficulties in reselling them and many banks may not grant
loans utilizing our securities as collateral. Our securities will not be
eligible for listing on the Nasdaq Stock Market when this reconfirmation
offering is completed.
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
DEPOSIT OF OFFERING PROCEEDS AND SECURITIES
Rule 419 requires that offering proceeds, after deducting underwriting
commissions, underwriting expenses and dealer allowances, if any, and the
securities purchased by you and other investors in this offering, be deposited
into an escrow or trust account governed by an agreement that contains certain
terms and provisions specified by Rule 419. Under Rule 419, the funds will be
released to us and the securities will be released to you only after we have met
the following three basic conditions:
First, we must execute an agreement for an acquisition of a business or
asset that will constitute our business and for which the fair value of the
business or net assets to be acquired represents at least 80% of the maximum
offering proceeds, but excluding underwriting commissions, underwriting expenses
and dealer allowances, if any. We have entered into an agreement with Quick-Med.
Second, we must file a post-effective amendment to the registration
statement that includes the results of this offering including, but not limited
to, the gross offering proceeds raised to date, the amounts paid for
underwriting commissions, underwriting expenses and dealer allowances, if any,
amounts dispersed to us and amounts remaining in the escrow account. We must
also disclose the specific amount and use of funds disbursed to us to date,
including payments to officers, directors, controlling shareholders or
affiliates, specifying the amounts and purposes of these payments. We must also
disclose the terms of the reconfirmation offer with the conditions prescribed by
the rules. The post-effective amendment must also contain information about the
acquisition candidate and business, including audited financial statements. This
prospectus complies with this requirement.
Third, we will mail a copy of the prospectus to each investor within
five business days of the effectiveness of the post-effective amendment. This
prospectus is the reconfirmation prospectus. The reconfirmation offering will be
made as described under "Prospectus Summary; ." After we submit a letter to the
escrow agent that the requirements of Rule 419 have been met and after the
acquisition is closed, the escrow agent can release the funds and securities.
We entered into an escrow agreement with City National Bank, N.A., Los
Angeles, California, which provides that the proceeds are to be deposited into
the escrow account maintained by the escrow agent promptly upon receipt. While
Rule 419 permits 10% of the funds to be released to us prior to the
reconfirmation offering, we do not intend to release these funds. The funds and
any dividends or interest earned, are to be held for the sole benefit of the
investor and can only be invested in bank deposit, in money market mutual funds,
federal government securities or securities for which the principal or interest
is guaranteed by the federal government.
All securities issued for the offering and any other securities issued,
including stock splits, stock dividends or similar rights are to be deposited
directly into the escrow account promptly upon issuance. Your name must be
included on the stock certificates or other documents evidencing the
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securities. The securities held in the escrow account are to remain as issued,
and are to be held for your sole benefit. You retain the voting rights, if any,
to the securities held in your name. The securities held in the escrow account
may neither be transferred or disposed of nor any interest created in them other
than by will or the laws of descent and distribution, or under a qualified
domestic relations order as defined by tax laws or retirement laws.
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THE MERGER
Background of the Merger Agreement
In November 2000 we commenced a "blank check" offering under Rule 419
of the Securities Act. The offering was successful in raising $125,000 in gross
proceeds from investors. Under Rule 419, $125,000 and the 2,500,000 shares
purchased by the investors were placed in escrow pending:
o distribution of a reconfirmation prospectus to the investors describing
the acquisition of Quick-Med; and
o the subsequent reconfirmation by at least 80% of the investors that
they have elected to remain investors.
In the event the merger is not approved by at least 80% of the
investors, then the shares deposited in the escrow account will not be released
to the investors. Instead, the $125,000 in offering proceeds in the escrow
account will be approved by the investors, and the share certificates will be
cancelled. Under Rule 419, the fair value of Quick-Med must represent at least
80% of the maximum offering proceeds, or $100,000. Based upon independent
audited financial statements, we believe that Quick-Med's business value is more
than $100,000.
Terms and Conditions of Merger Agreement
Under the merger agreement, Quick-Med will be merged into us. We will
consummate the transaction contemplated by the merger agreement when, among
other things, reconfirmation by at least 80% of the investors. If the merger is
consummated, 10,260,000 shares of common stock will be issued to former
Quick-Med shareholders. Each investor in this offering who accepts the
reconfirmation offer will, after consummation, hold the same number of shares
held prior to the merger, but the aggregate percentage interest in Above Average
will be reduced to 20%. Quick-Med will merge into Above Average with Above
Average as the surviving entity.
Our name will be changed to "Quick-Med Technologies, Inc." after the
merger. The merger is intended to be consummated so that the transaction will be
tax-free to all parties involved under Internal Revenue Code Section
368(a)(1)(A). Each investor who rejects the reconfirmation offer will be paid
his or her pro rata share of the amount in the escrow account at $.05 per share,
and current holders of our common stock, which is restricted from resale under
United States securities laws, will tender their shares to us for cancellation.
Governmental approval is not required to consummate the merger.
The result of the merger, assuming that 80% of the investors reconfirm
their investment, is that former Quick-Med shareholders will own 80.4% of the
surviving entity while our current shareholders will own 19.6% of Above Average.
Investors deciding to accept the reconfirmation offer are directed to
sign a reconfirmation letter and return it to Above Average Investments, Inc.,
Attention: Devinder Randhawa, who will forward each reconfirmation letter to our
escrow agent. Any investor who fails to return his or her form so that it is
received by Mr. Devinder Randhawa within 45 business days from the date of their
reconfirmation prospectus will be deemed to have rejected the reconfirmation
offer and will automatically be sent a check within five business days
representing his or her pro rata share of the funds in the escrow account for
the benefit of the investors.
-12-
Accounting Treatment
Although we are the legal surviving corporation, for accounting
purposes, the merger is treated as a purchase business acquisition of Above
Average by Quick-Med in a reverse acquisition, and a recapitalization of
Quick-Med. Quick-Med is the acquirer for accounting purposes because the former
Quick-Med stockholders received the larger portion of the common stock interests
and voting rights retained by the our former stockholders. Because Quick-Med is
the acquirer for accounting purposes, the surviving entity will adopt
Quick-Med's fiscal year end of December 31.
During March 2001, we entered into an agreement with Quick-Med
Technologies, Inc., a Delaware corporation, and its shareholders to acquire all
of the issued and outstanding shares of capital stock of Quick-Med in exchange
for 10,260,000 shares of our capital stock. For accounting purposes, the public
shell merger will be treated as a recapitalization of Quick-Med. The value of
our net assets after the public shell merger is the same as their historical
book value. Subsequent to the merger, assuming all of our shareholders reconfirm
their investment, our shareholders will retain 19.6% of the outstanding shares
of our capital stock. Upon ratification of the public shell merger by our
shareholders, we will change our name to Quick-Med Technologies, Inc.
Certain Income Tax Consequences
The merger is intended to qualify as a tax-free reorganization for
purposes of the federal income tax law so that Above Average's and Quick-Med's
shareholders will not recognize gain or loss from the transaction. The
transaction is not expected to result in the recognition of gain or loss to
either Above Average or Quick-Med in the respective jurisdictions where each
entity is subject to taxation. No opinion of counsel nor a ruling from the
Internal Revenue Service has been obtained. This statement is for general
information only and our stockholders should consult their own tax advisors as
to the specific tax consequences of the merger to them.
-13-
USE OF PROCEEDS
The gross proceeds of this offering were $125,000. Rule 419 permits 10%
of the funds or $12,500 to be released from escrow to us prior to the
reconfirmation of the offering. However, we did not request release of these
funds. We will receive the gross proceeds in the event a business combination
with Quick-Med is closed under Rule 419.
We have not incurred and do not intend to incur in the future any debt
from anyone other than management for our organizational activities. Debt to
management will not be repaid. Management is not aware of any circumstances that
would change this policy. None of the proceeds are being used to repay debt.
Management will pay the offering expenses. Those payments are classified as
additional paid-in capital.
Under Rule 419, after the reconfirmation offering and the closing of
the business combination, $125,000, plus any dividends received, but less any
amount returned to investors who did not reconfirm their investment under Rule
419, will be released to us and applied to working capital.
Amount Percent
Gross Proceeds $125,000 100%
Offering Expenses $ 0 0.0%
Research and development and $100,000 80.0%
operating expenses
Purchase of Shares from
original shareholders $ 25,000 20%
The anticipated application of the net proceeds are for research and
development expenses and operating expenses.
The proceeds received in this offering have been placed into the escrow
account pending closing of the pending business combination with Quick-Med.
These funds are in an insured financial institution in either a certificate of
deposit, interest bearing savings account or in short term federal government
securities as placed by City National Bank, N.A., Los Angeles, California.
-14-
CAPITALIZATION TABLE
Our capitalization on March 31, 2001 and as adjusted to give effect to
the issuance of shares to Quick-Med's shareholders after the proposed
acquisition is completed, is as follows:
Historical Pro Forma
- -----------------------------------------------------------------------------------------------------------------------
AA Investments Quick-Med
March 31, 2001 March 31, 2001 Total Adjustments Combined
-------------- -------------- ----- ----------- --------
Stock subject to redemption $125,000 $125,000 (b) $(125,000) $ -
Stockholders' equity:
Common stock 50 10,260 10,310 (a) (9,034) 1,276
Additional paid in capital 51,806 430,314 482,120 (a), (b) 78,597 560,717
Outstanding stock options 2,150 2,150 2,150
Accumulated deficit (55,437) (676,656) (732,093)(a) 55,437 (676,656)
-------- --------- ------------ ------ ---------
Total stockholders' equity (3,581) (233,932) (237,513) 125,000 (112,513)
Total capitalization $ (3,581) $(233,932) $(237,513) $125,000 $(112,513)
(a) To record the public shell merger of AAI and Quick-Med. 10,260,000 shares of
common stock issue in exchange for 100% of Quick-Med common stock and the sale
of 2,500,000 shares in exchange for $125,000 of AAI. (The total number of shares
outstanding after the merger will be 12,760,000 shares). The Assets of AAI are
recorded at their net asset value.
(b) To reclassify the common stock subject to redemption to additional paid in
capital and common stock as a result of the merger.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read along with the financial
statements and notes appearing in other parts of this prospectus.
Above Average Investments
We were in the development stage as of March 31, 2001 and completed an
initial public offering in December 2000 using a Registration Statement that
became effective with the SEC on September 19, 2000 and sold 2,500,000 shares of
its common stock, $.0001 par value, at a price of $.05 per share. The offering
was conducted directly by us without an underwriter. We are a "blank check"
company subject to Rule 419 of the Securities Act that was organized to obtain
funding from persons purchasing in the offering in order to provide a vehicle to
take advantage of business opportunities which management believes arise from
time to time.
The deposited funds and the securities to be issued to subscribers are
remaining in escrow and may not be released until an acquisition meeting certain
specified criteria has been made and enough subscribers reconfirm their
investments according to the procedures outlined in Rule 419.
We had no revenues for each of the years ended June 30, 2000 and June
30, 1999. We had a net loss of ($17,157) for the year ended June 30, 2000 as
compared to a net loss of ($1,708) for the year ended June 30, 1999. At June 30,
2000, we had total assets of $0 and total liabilities of $3,795.
We had no revenues for each of the nine months ended March 31, 2001 and
2000. We had a net loss of ($36,522) for the nine months ended March 31, 2001 as
compared to a net loss of ($13,943) for the nine months ended March 31, 2000. In
addition, at March 31, 2001, we had total assets of $125,000 and total
liabilities of $3,581.
In March 2001, we executed an agreement with Quick-Med, to acquire all
of Quick-Med's issued and outstanding shares of capital stock in exchange for
10,260,000 shares of our common stock. Assuming this reconfirmation offering and
acquisition is completed, Quick-Med's business will be our sole business.
Quick-Med Technologies.
Quick-Med was incorporated in Delaware in December 1997. Its business
primarily consists of research and development of biomedical products and
devices for antibacterial applications.
Results of Operations
Quick-Med had no sales for the years ended December 31, 2000 and
December 31, 1999 or the three months ended March 31, 2001 as its products are
still in the development stage.
Quick-Med reported an operating loss of ($308,206) for the year ended
December 31, 2000, and an operating loss of ($165,270) for the year ended
December 31, 1999. Quick-Med reported an operating loss of ($147,246) for the
three months ended March 31, 2001. This change resulted
-16-
primarily from the increase in total expenses in 2000 as operating levels
increased and research and development accelerated. In both 2000 and 1999,
Quick-Med also incurred various costs and expenses normally associated with a
start-up business. In the 2001 period, most of the expenses were related to
research and development of its primary proposed products. Quick-Med expects
that costs will continue to increase as it product development efforts continue
to increase.
Liquidity and Capital Resources
At December 31, 2000, Quick-Med had a working capital deficit of
($714,549), primarily due to loans of $309,300, a license fee due in 2001 of
$260,000 and accounts payable of $77,014. At December 31, 2000, Quick-Med had a
stockholders' deficit of ($345,812). At March 31, 2001, Quick-Med had a working
capital deficit of ($593,287), primarily due to loans of $204,300, a license fee
due in 2001 of $260,000 and accounts payable of $101,776. At March 31, 2001,
Quick-Med had a stockholders' deficit of ($233,932). This decrease in the
working capital deficit was due to the conversion of shareholder loans in common
stock in 2001.
To date, Quick-Med has funded its activities principally from short
term loans totaling $334,634 from shareholders and an affiliated company. It is
anticipated that Quick-Med will continue to depend on the receipt of investment
capital or other financing to fund its continuing activities. This shareholder
has indicated his willingness to continue funding until Quick-Med is able to
raise sufficient funds from third parties. To date, Quick-Med has been able to
meet its obligations on a timely or delayed basis as funding has been made
available on an as-needed basis.
Quick-Med intends to seek financing of approximately $4.5 million
through private sources within six to twelve months of the merger. We cannot
assure you that Quick-Med will obtain this financing, or, if obtained, it will
be on favorable terms.
-17-
QUICK-MED PLAN OF OPERATION
Research and Development
Over the next 12 months Quick-Med intends to continue the development
of its four main product groups. Assuming it raises sufficient funds, product
development will accelerate. Quick-Med does not anticipate opening its own
facilities but rather continuing its research and development with existing and
new partners in order to conserve resources. For each potential product,
Quick-Med will continue to monitor the appropriate time to enter into a license
agreement with a joint venture partner. Accordingly, Quick-Med does anticipate
hiring additional employees, although it expects to retain scientific and
product marketing consultants on a project basis over the next year. These
consultants will be paid on a hourly, milestone or project basis in cash or
equity.
Capital Expenditures and Requirements
Quick-Med has spent approximately $100,000 over the last two years on
the acquisition of patents and exclusive license agreements, and owes an
additional $260,000, of which $100,000 is due September 30, 2001, and the
remainder when certain milestones are met.
Over the next 12 months Quick Med does not anticipate to earn revenues
from any of its products. Over the next 12 months, Quick-Med is not required to
pay any royalties for its license to its primary MMP inhibitor. However, should
Quick Med receive revenues pursuant to its license of its primary MMP Inhibitor
they will be required to pay a royalty to the licensor of 2.0% on the first $1.5
million in revenue, and 1.5% thereafter. Quick-Med anticipates over the next 12
months that it will spend approximately $750,000 on operations, all of which is
expected to come from the planned $2 million private placement. Approximately
60% of that amount will be for research and development, patent prosecutions and
licenses for proposed products. It is also possible that a licensing arrangement
will be made with one or more strategic partners that will pay a license fee to
Quick-Med or assume a portion of the research expenses.
Quick-Med is not expected to pay any upfront fees and expenses for the
planned private placement. Any short-term cash obligations, which are not
expected to be material, will be funded by loans from shareholders.
Quick-Med does not expect any significant additions to property, plant
and equipment.
Skin Care
One of the largest health care markets is skin care, especially in the
aging population where natural chemical processes like declining estrogen levels
lead to skin deterioration. Quick-Med is developing an anti-wrinkle cosmetic
cream with particular application to post-menopausal women as a healthier
alternative to estrogen replacement. Related products will target the general
marketplace for skin care products.
The goal of this project is to develop a cosmetic product that visibly
reduces the signs of skin aging by reducing the appearance of lines and
wrinkles, increasing skin firmness while it softens and smoothes the skin. The
main feature of the cosmetic will be a formulation containing a combination of a
patented matrix metalloproteinase or MMP inhibitor and a plant extract
containing a phytoestrogen in an emollient cream. Previous scientific research
published in leading medical journals has demonstrated that the activity of MMPs
dramatically increases in the skin with age, especially in postmenopausal women,
and that topical application of estrogen reduces the level of MMP activity in
the skin of women and increases the amount of skin collagen. Combining a
phytoestrogen-containing
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plant extract with the MMP inhibitor is anticipated to produce a strong
synergistic benefit on the extracellular matrix of the skin.
For the anti-aging cream, Quick-Med will continue product formulations
and recently commenced clinical trials. Additional trials are expected once
additional formulations are completed. Testing may be conducted by Quick-Med or
in collaboration with a university or large pharmaceutical or cosmetic company.
This product is not currently expected to require FDA approval. If trials are
successful, a product may be commercialized in 2002.
Chemical Warfare
Chemical warfare is now a leading threat posed by rogue military states
or terrorists. Quick-Med is developing a post-injury chemical warfare agent for
treatment of mustard gas and other chemical burns to be sold to the U.S.
military and friendly states, as well as for civil defense. Related products
will target the civilian chemical burn market in areas like industrial accidents
and civilian or military exposures to hazardous materials.
For the sulfur mustard product, Quick-Med will continue its development
pursuant to the Cooperative Research and Development Agreement, or CRADA, with
U.S. Army Medical Research Institute of Chemical Defense. The CRADA provides
that much of the research is done by the Army in consultation with Quick-Med. If
development and trial studies are successful and regulatory approvals obtained,
a product may be ready for commercialization in 2003.
Wound dressings
With an aging population, the market for severe or chronic wound
dressings used in hospitals and outpatient facilities is large and growing
rapidly. Quick-Med is developing a proprietary modern bandage, which employs an
advanced wound dressing that utilizes its super absorbent polymer technology to
deliver medication while disinfecting and absorbing exudate.
For the wound-care bandage, Quick-Med will continue its product
development at laboratories with the intent of seeking to commercialize this
potential product in collaboration with a major medical device manufacturer. If
development and clinical trials are successful and regulatory approvals
obtained, a product may be ready for commercialization in 2003.
Protective clothing
Based on the Department of Defense (DOD) Nuclear Biological/Chemical
(NBC) Defense Annual Report To Congress Dated March 2000 the Department of
Defense is expected to spend $1 Billion over the next ten years for Chemical
Protective Clothing to protect our forces from Chemical /Biological warfare
attacks. The Army and DOD are currently procuring protective clothing that is
based on 1950's technology of activated carbon to meet its shortfall. DOD has a
stated need and an aggressive Research and Development effort to find a new
technology to replace the carbon based clothing to provide lighter and longer
lasting clothing for its forces. Quick-Med is developing a new generation of
fabric comprised of layers of high efficiency filtration fiber webs, some of
which are chemically modified with chemical warfare agent neutralizers. Related
products will target markets for emergency response forces and hazardous
material handlers.
For the protective clothing project, Quick-Med is currently negotiating
a joint venture contract with an industry leader in protective clothing fabric
and garment manufacturer because it believes that it will not be able to develop
a product without substantial collaboration. If development and trials are
successful, a product may be ready for commercialization in 2004.
-19-
BUSINESS
Introduction
Above Average Investments was incorporated on April 21, 1997 under the
laws of the State of Nevada to engage in any lawful corporate purpose. Other
than issuing shares to its shareholders, we never commenced any other
operational activities. We can be defined as a "blank check" company, whose sole
purpose at this time is to locate and consummate a merger or acquisition with a
private entity. Our board has elected to implement of our principal business
purpose, which is described below.
In December 2000, we completed an initial public offering of 2,500,000
shares of our common stock at a price of $.05 per share using a Registration
Statement that became effective with the Securities and Exchange Commission on
September 19, 2000. In March 2001, we executed an agreement with Quick-Med to
acquire all of Quick-Med's issued and outstanding shares of capital stock in
exchange for 10,260,000 shares of our common stock. Quick-Med was incorporated
in Delaware in December 1997 and is a biomedical technology company.
Quick-Med
Quick-Med intends to fund the research efforts necessary to develop the
planned products, administer the patenting process, subcontract the manufacture
of its products and, in many cases, enter joint ventures with other companies to
move products to the marketplace. Quick-Med itself does not intend to
manufacture and distribute final products. Quick-Med will focus its attention on
the value-added activities of developing and commercializing new core
technologies. Scientific experts in relevant fields are identified and retained
through consulting contracts. Senior management is identified to ensure broad
experience in all aspects of the business. Operating costs have been kept low
because the Quick-Med compensates non-executive management and the scientific
team in equity, and not in cash salaries, benefits and offices. Their activities
are conducted in a private laboratory provided by members of the management team
on a rent-free basis. Internal communication is frequent and highly effective
through the electronic means that underpin the growing trend toward
telecommunicating. To date, As a result of its success with this model,
Quick-Med has required only one full time employee, its president. and chief
operating officer.
Quick-Med's vision is to rapidly deliver products in targeted fast
growing civilian and military health care markets where it can leverage its core
technologies.
Quick-Med's Business Model
Quick-Med develops core technologies with multiple applications in
targeted areas showing wide gaps between available science and application. To
accelerate research and development Quick-Med retains leading qualified
researchers who can prototype, test and help to rapidly commercialize attractive
products. Quick-Med implements with vertical solutions for end-product research
and development, patent licensing and finance. It executes with a preeminent and
an experienced management team that has access to its target markets.
When it develops new technologies, Quick-Med seeks patent protection in
all major end geographic markets and it seeks exclusive ownership of the
associated patent rights. Exclusive rights maximize Quick-Med's ability to
profitably commercialize the technology. If Quick-Med personnel are
-20-
not the exclusive inventors of the technology, which means that Quick-Med is not
the sole owner of patent rights then there will be other inventors who,
according to patent law, are also able to exploit their rights under the patent.
While Quick-Med can still seek to commercialize the technology under such a
"non-exclusive" patent, it's ability to do so is reduced since it could face
competition from one of the other inventors named on the patent, or an entity to
whom the other inventors might have assigned their rights. In cases where there
are such other inventors, Quick-Med will seek a license agreement with the other
inventors or their assignees so that Quick-Med has exclusive rights to
commercialize the technology.
Quick-Med intends to increase its speed to market by strategic
partnerships with leading academic and business organizations. As an emerging
bio-tech company, Quick-Med must leverage its strengths and not risk the capital
expense of trying to build infrastructure for expertise that can be obtained by
effectively outsourcing or through joint ventures. It intends to selectively
employ partnerships and joint ventures to accelerate research and development.
For most of its intended products, Quick-Med does not intend to
manufacture and distribute to it's end-markets. Quick-Med expects to develop the
technology to a late stage of prototyping and market acceptance and then . It
seeks to choose partners for that reduce risk and accelerate growth in
manufacturing or distribution. For products where the ultimate user end-buyer is
a civilian entity, Quick-Med intends to license its technology to a branded
distributor and receive a royalty on end-market sales. Manufacturing will also
be outsourced, in many cases to the same company distributing the product. For
products where the user is a military or civil defense entity, Quick-Med will
itself sell the product to the user but will outsource manufacturing to firms
with military approval. In this case revenues will be earned directly from
sales.
Quick-Med believes that there can be significant benefits to strategic
partnerships with larger corporations. Quick-Med intends to have the technology
and a culture that fosters innovation, motivation, and flexibility. Larger
corporations can have capital, manufacturing resources, access to markets, and
strong consumer brands. Quick-Med seeks to gain the capacity and channels to
deliver its technology and the larger companies will add new products to their
lines, assuring successful relationships.
Management Team
Quick-Med's management team is composed of accomplished bankers,
attorneys, retired military generals and business professionals, all with 15 to
35 years of experience in their respective fields, and have attained senior
levels in their corporate, scientific or military careers. Quick-Med believes
its team understands all facets of the mission and seeks to execute rapidly,
accurately, and cost effectively to achieve its objectives.
Scientific Team
Quick-Med's scientific team consists of accomplished leading academic
and private sector researchers in the targeted research and development
segments. The team has extensive experience in the areas of wound healing,
cosmetic skin treatments, biochemistry, physical and surface chemistry and
material science. Individually and in groups they have been awarded numerous
patents for inventions in their respective fields. The team has also extensive
experience in managing research and development processes for both the military
and major private sector companies.
-21-
Products Under Development
Quick-Med's strategy is to develop core technologies that can apply to
multiple targets in the fast growing civilian and military health care markets.
Quick-Med presently has two technologies that it is seeking to use in four
markets:
Ilomostat
Quick-Med has an exclusive license on a new bio-medical compound called
Ilomostat. Ilomostat is a member of a class of compounds called Matrix
Metallaproteinese Inhibitors. Scientific research by members of Quick-Med's team
and other independent researchers have shown that MMPIs block the production of
Matrix Metallaproteinese or, MMPs, in skin cells. They have also shown that MMPs
are naturally occurring compounds that can cause detrimental effects in the skin
when events trigger an over-production of MMPs in skin cells. Events that can
trigger an over-production of MMPs include certain external chemical exposures,
sun damage or even natural aging in which the levels of other compounds in skin
cells, such as estrogen in women, decline.
This core technology will be developed into two product lines: chemical
warfare and skin care.
Chemical Warfare
Chemical warfare is now a the leading threat posed by rogue military
states or terrorists. Quick-Med is developing a post-injury chemical warfare
agent for treatment of mustard gas and other chemical burns to be sold to the
U.S. military and friendly states, as well as for civil defense. Related
products will target the civilian chemical burn market in areas like industrial
accidents and civilian or military exposures to hazardous materials.
Quick-Med expects to complete research and development of the
post-injury agent within the next 12 to 24 months. It expects final product
specification, initial contract awards, manufacturing and distribution to be
initiated within 18 to 24 months of that.
Skin Care
One of the largest health care markets is skin care, especially in the
aging population where natural chemical processes like declining estrogen levels
lead to skin deterioration. Quick-Med is developing an anti-wrinkle cosmetic
cream with particular application to post-menopausal women as a healthier
alternative to estrogen replacement. Related products will target the general
marketplace for skin care products.
Quick-Med expects to complete research and development of the cosmetic
cream within the next 9 to 18 months. It expects to license the patented
formulation to a manufacturing and distribution partner within 6 to 12 months
after completion of research and development. of that.
Advanced Super Absorbent Polymers
Quick-Med has a patent pending on an application of a second core
technology for super absorbent polymers that are chemically engineered to create
new products in its target markets:
-22-
Wound dressings
With an aging population, the market for severe or chronic wound
dressings used in hospitals and outpatient facilities is large and growing
rapidly. Yet the technology used in the current high margin products like the
gauze bandage still found in most medicine cabinets lags far behind available
science. Quick-Med is developing a proprietary modern bandage, which employs an
advanced wound dressing that utilizes its super absorbent polymer technology to
deliver medication while disinfecting and absorbing exudate.
Quick-Med expects to complete research and development of the wound
dressing within 9 to 18 months. It expects to license the patented technology to
a manufacturing and distribution partner within 6 to 12 months of that.
Protective clothing
Based on the Department of Defense Nuclear Biological/Chemical Defense
Annual Report to Congress Dated March 2000, the U.S. Army is expected to spend
over $1 billion in the next ten years on a 1950's technology for protecting
soldiers from chemical warfare attacks, which consists of heavy clothing laced
with activated carbon that is difficult to wear and requires frequent
replacement. Quick-Med is developing a new generation of fabric comprised of
layers of high efficiency filtration fiber webs, some of which are treated with
neutralizers for chemical warfare agents to replace existing technology for
protecting soldiers. Related products will target markets for emergency response
forces and hazardous material handlers.
It expects to complete research and development of a protective fabric
within the next 18 to 30 months. It expects to find a manufacturing partner that
meets U.S. Military requirements within 6 to 12 months of that. It expects
shipments to the U.S. Military and first responder groups to begin in 2004.
Current Status of the Projects
The goals and current status of the four research and development
projects are:
Anti-Wrinkle Cosmetic Product
The goal of this project is to develop a cosmetic product that visibly
reduces the signs of skin aging by reducing the appearance of lines and
wrinkles, increasing skin firmness while it softens and smoothes the skin. The
main feature of the cosmetic will be a formulation containing a combination of a
patented matrix metalloproteinase or MMP inhibitor and a plant extract
containing a phytoestrogen in an emollient cream. Previous scientific research
published in leading medical journals such as Nature Medicine has demonstrated
that the activity of MMPs dramatically increases in the skin with age,
especially in postmenopausal women, and that topical application of estrogen
reduces the level of MMP activity in the skin of women and increases the amount
of skin collagen. Combining a phytoestrogen-containing plant extract with the
MMP inhibitor is anticipated to produce a strong synergistic benefit on the
extracellular matrix of the skin.
A provisional patent on the skin care formulation has been submitted to
the U. S. Patent Office. Current development involves optimizing the composition
of the formulation. Efforts are underway with expert consultants in the fields
of cream and hydrogel formulations, phytoestrogens, MMP inhibitors, consumer
preferences and marketing research.
-23-
Discussions are underway for collaboration and joint development with
one or more universities and companies with extensive experience in molecular
research in natural aging and photoaging of the skin.
Animal and human testing of a potential product are anticipated to
begin by the end of 2001. Assuming development is successful, Quick-Med will
attempt to commercialize this potential product in collaboration with a major
cosmetic manufacturer and retailing company. The compounds it intends to use in
this product will be safe to humans and are already used in commercially
available products. In addition, it will not use concentrations of materials
that will require regulation as a drug by the FDA. It will use concentrations
and making effectiveness claims that allow the product to be regulated by the
FDA as a cosmetic and not a drug. This implies a less time consuming and less
costly testing protocols than for a drug. It expects the testing to take 9-18
months and to require not more than $250,000 in development costs.
Treatment of Sulfur Mustard Injuries of the Skin and Eye
The goal of this project is to develop a drug formulation that will
reduce tissue damage following exposure to vesicating or blistering chemical
agents. The U.S. Army has determined that changing political conditions in the
world have placed U.S. troops and civilians at significant risk for exposure to
chemical warfare agents, especially the vesicating agent sulfur mustard.
Previous research of sulfur mustard injuries to the eye, skin, and lungs
indicates that chronically elevated levels of proteases cause much of the tissue
damage in tissues exposure to sulfur mustard. Quick-Med has an exclusive license
for a synthetic MMP Inhibitor that has been proven in clinical studies conducted
by Glycomed, Inc. to reduce damage in ocular tissues of patients with infections
and in animals following severe chemical injury to the eye. [State citation.]
A Cooperative Research and Development Agreement, or CRADA, has been
signed with U.S. Army Medical Research Institute of Chemical Defense to develop
the MMP inhibitor for treatment of sulfur mustard injuries to the eye and skin.
Initial tests of Ilomostat, one of the MMP inhibitors, for treatment of sulfur
mustard injuries in mouse skin have produced encouraging results. Animal tests
are underway evaluating Ilomostat for treatment of sulfur mustard injury in
rabbit eyes. Under the terms of the CRADA, the U.S. Military will design, pay
for and conduct all tests, handling of hazardous materials and compliance with
environmental regulations. Quick-Med does not expect testing on human subjects.
The U.S. Military will also be responsible for product acceptance testing and
associated regulatory approvals. While the term of the CRADA extends a full five
years, it is expected that product development and testing will require 12 to 24
months.
Assuming development is successful, Quick-Med will attempt to
commercialize this potential product, which will be achieved in collaboration
with a major ocular drug company. In addition, Quick-Med may attempt to
commercialize the product for treatment of household and industrial chemical
burns.
Wound Dressing Project
The goal of this project is to develop a bandage suitable for
application on severe wounds received in both military and civilian activities.
The main feature of the dressing is an highly effective antimicrobial capable of
substantially reducing pathogen load over extensive intervals or until permanent
wound care can be administered.
The agent chosen is not susceptible to the shortcomings of antibiotics because
it is:
-24-
o Broadly effective against bacteria, fungi and viruses
o Not hindered by the presence of body fluids
o Capable of deactivating bacterial species that are resistant to
antibiotics
o Non-allergenic and non-extractable from the wound dressing
This goal has been substantially achieved by the invention of a polymer
that can be grafted to a variety of materials that have the properties essential
for use in a bandage.
Microbiological lab testing by Quick-Med has confirmed the
effectiveness of the polymer grafted to cellulose in deactivating at levels of
99.99% or more of bacteria, fungus or virus type isolates which are associated
with more than 75% of commonly occurring wound infections. Future phases of the
project are intended to add a super absorbent polymer as well as a blood
coagulating agent to the dressing.
Provisional and product improvement patent disclosures have been and
are being submitted. Assuming development is successful, Quick-Med will attempt
to commercialize this potential product in collaboration with a major medical
device manufacturer.
Protective Clothing Project
The goal of this project is to develop fabrics and apparel suitable as
protective barriers to the challenges of hazardous materials including chemical
and biological warfare agents and industrial solvent chemicals.
One provisional patent and an update to it have been submitted to the
U.S. Patent Office. The patent application covers a unique design of fabrics
capable of neutralizing and/or restricting the passage of hazardous materials.
The fabric is constructed so as to permit the transmission of moisture from the
body of the wearer without sacrificing its effectiveness as a barrier. It is
expected to be comfortable and durable to damage from wear over extended periods
of wear in military field use and reusable after laundering.
In early testing, a grafted chemical molecule capable of neutralizing
and permanently binding mustard gas was prepared and, upon preliminary testing,
found to be sufficiently effective for the intended applications.
Current and future development involves the evaluation of neutralizing
agents for other hazardous materials, combination of layers that represent
barriers to all chemical challenges and the inclusion of a polymer graft layer
already demonstrated to be effective against bacteria and viruses.
Quick-Med determined that collaboration and joint development with one
or more companies capable of producing the fabrics and clothing is necessary and
has initiated negotiations with a leader in protective fabric and garment
development and production.
Patents and Exclusive Licenses
Quick-Med's strategy is to obtain original patents or exclusive
composition and use licenses to practice patents relating to core technologies
and their use in targeted applications. These patents or licenses provide the
legal basis for Quick-Med to commercialize its products. Quick-Med has filed
three original patent applications for:
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o A super absorbent polymer antimicrobial wound dressing;
o An advanced non-estrogen anti-aging/anti-wrinkle topical cream; and
o A new technology multi-layer laminate fabric for chemical protective
clothing for the military and emergency response forces
The following is a list of patents licensed by Quick-Med for the MMP
compound family:
U.S. Patents
No. Description
5,183,900 Matrix metalloprotease inhibitors
5,189,178 Matrix metalloprotease inhibitors
5,239,078 Matrix metalloprotease inhibitors
5,268,384 Inhibition of angiogenesis by synthetic
matrix metalloprotease inhibitors
5,270,326 Treatment for tissue ulceration
5,696,147 Inhibition of angiogenesis by synthetic matrix
metalloprotease inhibitors
5,773,438 Synthetic matrix metalloprotease inhibitors and use
thereof
5,892,112 Process for preparing synthetic matrix metalloprotease
inhibitors
All of the patents expire on November 21, 2010.
International Patents
No. Expiration Date
2736285 (Japan) November 21, 2011
4501333 (Japan) November 21, 2011
652016 (Australia) November 21, 2011
1971367 (Japan) November 21, 2011
EPO558681 (Europe) November 21, 2011
The European patent designates Germany, Spain, France, United Kingdom
and Italy as the countries in which patent protection is effective. All of these
patents relate to the U.S. patents described above.
In June 2001, Quick-Med filed a patent application relating to the
wound dressing project, which if granted, would expire in December 2019.
Corresponding international applications were filed.
Presently, Quick-Med owns an undivided one-half interest in these patent
applications. University of Florida Research Foundation owns the other one-half
undivided interest.
Anti-Wrinkle Cosmetic Cream Application
The Anti-Wrinkle Cosmetic Cream application was filed on June 29,
2001,. The application was filed in the names of David Lerner and Gregory S.
Schultz and will be assigned to Quick Med.
Provisional Application for Compositions For Treating Skin and Eyes Exposed to
Mustard Gas
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Quick-Med is preparing an additional provisional application, which is
expected to be filed in July 2001.
Base Barrier Material for Use In Protective Clothing
The provisional application was filed on October 26, 2000, The
provisional application expires October 26, 2001. Quick-Med is filing the U.S.
non-provisional and PCT applications claiming priority back to the provisional.
Quick-Med also has the pending international applications in Australia,
Canada, Europe and Japan that will expire in 2014 and 2015 if granted.
License Agreements
Quick-Med has also identified several existing patents that it may
license in the future and has concluded an exclusive license agreement for a
group of patents relating to MMP Inhibitors, one of its core technologies, not
covered by its original patent applications.
Quick-Med entered in to a license agreement with Richard Galardny and
Damian Grobelny, the inventors, for certain patented compounds for MMP
Inhibitors. Although the license agreement grants worldwide exclusive rights to
Quick-Med , one or more of the patents may have lapsed, expired, or may no
longer be in force. In addition, for certain patents licensed since the
inventors are not the sole inventors, third parties may have rights to grant a
license or assign rights to others who may develop similar products.
This agreement covers composition of matter and the associated method
for a new breakthrough technology in treating chemical wounds to the eyes and
skin for both military and civilian uses, and for treating intrinsic skin aging
and deterioration. Quick-Med has paid the inventors $100,000 of cash and 160,000
shares of common stock and is required to make future payments based on meeting
developmental milestones. Quick-Med may have to pay up to $260,000 over the next
12 months in royalties and milestone payments.
Quick-Med has obtained non-exclusive patent rights in cases where
partial funding or research support for the invention was provided by the U.S.
Government or a university. In November 2000, Quick-Med entered into a
Cooperative Research and Development Agreement or CRADA with the U.S. Army
Medical Research Institute of Chemical Defense to focus on treatment of sulfur
mustard injuries to the eye and the skin with protease inhibitors. The
background for the collaboration comes from published results in animal models
and clinical trials using Ilomostat for treatment of severe and moderate corneal
ulcers produced by chemical injury or bacterial infection and psoriasis. The
goal of the CRADA is to develop a product for use in treating these injuries
that the military will purchase.
In the case of university support, most universities maintain the
policy that patents resulting from work by or with faculty members are at least
partially owned by the university. This affects Quick-Med because several of the
companies current and prospective scientists are University of Florida faculty.
Quick-Med is negotiating an arrangement with the University of Florida under
which Quick-Med will have exclusive rights to commercialize the affected
inventions.
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Research and Development Spending
In the past two fiscal years Quick-Med has not incurred research and
development expenses. However, it expects to begin incurring such expenses in
2001, when it employs scientists to conduct research.
Strategic Partnerships and Consulting Agreements
Consistent with the above philosophy, in addition to the CRADA,
Quick-Med is pursuing several strategic partnerships, joint ventures or
consulting arrangements to accelerate activities still in the research and
development phase. These include:
o U.S. Army's Medical Research Institute for Chemical and Biological
Defense
o University of Florida Departments of OB/GYN and Material Science
o Numerous individual scientists who are considered leaders in their
respective fields
o Joint Venture Agreement with a protective clothing manufacturer.
Potential Markets for Quick-Med Products
Quick-Med's strategy is to provide premium products in fast growing
military and civilian health care markets where it can leverage its core
technologies with multiple applications. Quick-Med particularly focuses on
markets where the performance of current products can be substantially improved
through more modern technology and where there is low price sensitivity by the
ultimate consumer.
The U.S. government has allocated $10 billion alone for the Defense
Preparedness Program, in addition to significant programs currently administered
by the U.S. Army Chemical and Biological Medical Research Command that have
allocated $4 billion over the next four years for research and development of
defenses against chemical or biological warfare. Based on the initial scientific
evidence for its compound Ilomostat, Quick-Med has entered a Cooperative
Research and Development Agreement with the Department of Defense to develop a
post-injury agent for mustard gas and similar chemical agents. These agreements
are extremely beneficial to Quick-Med because they not only provide funding and
military assistance in developing the product, they also indicate a high level
of interest and commitment to the project by the military.
A related market opportunity is in protective clothing that defends
against chemical attack. At present, Tex-Shield is the sole source contractor
for the Joint Service Light Integrated Suit Technology chemical suit for all of
the U.S. armed services, with a $1 billion plus multi-year contract. These
protective suits are fabricated with an old technology based on activated
carbon. The military has expressed great interest in replacing this technology
with more effective techniques within several years. Quick-Med's new chemically
modified, high filtration fiber web technology can form the basis for the next
generation of protective fabric. Quick-Med and an industry leader are
negotiating a joint venture to develop the technology. It also intends to pursue
a Cooperative Research and Development Agreement for this technology at the
appropriate time.
The wound care market is a major priority as it is a large and growing
opportunity in the future and has immediate possibilities in both the military
and civilian areas. It is estimated at $11 billion in annual sales by the
Southern Technology Applications Center at the University of Florida, and is
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currently served by largely low-tech products. For example, the gauze bandage
remains the primary over-the-counter and emergency room product with little
change in 50 years.
Quick-Med believes there is a new, emerging, worldwide market for
premium wound care products that combine instant coagulation, bactericidal, and
biodegradable features in dressings for serious wounds. Quick-Med management
expects this demand for premium products to exceed $1 billion annually in the
next three to five years spread across civilian, military, and veterinary
markets according to the Southern Technology Applications Center at the
University of Florida. It expects that demand will be driven by quality
preferences as well as by cost savings in the case of dressings whose medical
properties permit less frequent application and more rapid healing time.
At present, there are no products on the market satisfying this need,
as these products are still in the research and development stage. The
Department of The Army's Institute of Surgical Research indicates that at least
two companies have work-in-progress for products for this market, including the
American Red Cross. The American Red Cross received an Army grant because the
Army places a high priority on saving soldiers' lives on the battlefield.
Quick-Med's Advanced Super- Absorbent Polymers technology is intended
to apply to a wide variety of end markets:
Potential Customers for Quick-Med
End Uses Industries and Professions
Households Automotive
Hospitals Airlines
Emergency Rooms Cruise Lines
Nursing Homes Buses
E.M.S. Services Railroads/Subways
Fire/Rescue Taxis
All Schools Factories with risk of major accidents
First Aid Kits Medicine
Veterinary Clinics Construction
Over-The-Counter Police
Military
Quick-Med also intends to focus on the feminine hygiene, pediatric
diaper, and adult incontinency markets as its business develops. This unique
technology is expected to add beneficial medical capabilities to the standard
feminine napkins, pediatric diapers, and adult incontinence products, whose
total annual sales is approximately $15 billion according to the Southern
Technology Applications Center at the University of Florida.
Another important market for Quick-Med is the cosmetic skin care
products for anti-aging and anti-wrinkling, particularly for post-menopausal
women. According to Southern Technology Applications Center, this market is
estimated at $4-5 billion in annual sales. Due to the aging of the "baby boom"
population of 77 million people, this market is expected to grow significantly
over the next five to ten years. With Ilomostat, given its known therapeutic
effects, Quick-Med has an important opportunity to introduce more effective
products to this market, particularly for post-menopausal women as an
alternative to estrogen replacement therapy.
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In summary, the core technologies can lead to products in several
multi-billion dollar markets where consumers are not particularly cost-conscious
and where significant demand exists for premium products that deliver enhanced
performance.
Government Regulation
The research and development, manufacture, and marketing of human
pharmaceutical and diagnostic products and devices are subject to regulation
primarily by the FDA in the United States and by comparable authorities in other
countries. These national agencies and other federal, state, and local entities
regulate, among other things, research and development activities and the
testing, manufacturing, safety, handling, effectiveness, labeling, storage,
record keeping, approval, advertising, and promotion of the products the
Quick-Med is developing.
Noncompliance with applicable requirements can result in refusal to
approve product licensing or revocation of approvals previously granted.
Noncompliance can also result in fines, criminal prosecution, recall or seizure
of products, total or partial suspension of production, or refusal to enter into
additional contracts with Quick-Med.
The FDA approval process for bio-medical devices has historically been
costly and time consuming. Recently, the FDA has shortened the approval process
for medical devices to approximately six months from the normal 18 months
required for drug products. Under current law, each medical product
manufacturing establishment must be registered with, and determined to be
adequate by, the FDA before the product is approved. Both domestic and foreign
manufacturing facilities are subject to FDA inspection for compliance with
existing regulations and licensing specifications.
Any regulatory approvals that Quick-Med receives for a product may be
subject to limitations on the indicated uses for which the product may be
marketed. After Quick-Med obtains marketing approval for any product, the
manufacturer and the manufacturing facilities for that product will be subject
to continual review and periodic inspections by the FDA and other regulatory
authorities. If previously unknown problems with the product or with the
manufacturer or facility are discovered, restrictions on the product or
manufacturer may result, including an order to withdraw the product from the
market. If Quick-Med fails to comply with applicable requirements, it may be
fined, suspended or subject to withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
Quick-Med has a three part strategy to ensure it complies with
government regulations and minimizing the time required for regulatory approval
of its products:
Quick-Med has retained Covington & Burling, a legal consulting firm
specializing in regulatory affairs activities affecting the pharmaceutical,
cosmetic, medical device industries. This consultant will assist Quick-Med with
the following regulatory activities when required:
Regulatory Strategy and Liaison with FDA
o Non-clinical and clinical program assessment/development
o Non-clinical and clinical protocol review/monitoring of studies
o Regulatory affairs management/guidance
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Product Development and Launch Strategy
o Validation of methods/processes
o Product development strategies/assessment
o Product Compliance
o Label and labeling compliance
For two of its planned products, Quick-Med anticipates working in
cooperation with the U.S. Military under Cooperative Research and Development
Agreements. If so, military tests of product safety and efficacy will satisfy
U.S. regulatory requirements.
Quick-Med intends to only develop working arrangements with individuals
and organizations that already have satisfactory records in government
regulatory compliance or approvals.
Properties
We own no properties and at this time have no agreements to acquire any
properties.
Quick-Med occupies 600 square feet at 401 N.E. 25th Terrace, Boca
Raton, Florida. Space is provided to us at $500 per month by David S. Lerner,
Quick-Med's president.
Legal Proceedings
There is no litigation pending or threatened by or against us or
Quick-Med.
Employees
Quick-Med currently employs David Lerner on a full-time basis as
president and three part-time consultants.
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PRINCIPAL SHAREHOLDERS
The table below lists as of the date of this prospectus, the beneficial
ownership of our voting securities by each person known by us to be the
beneficial owner of more than 5% of our securities, as well as the securities
beneficially owned by all our directors and officers. The table indicates the
number and percentage of shares held before and after the proposed acquisition.
Unless specifically indicated, the shareholders listed possess sole voting and
investment power with respect to the shares shown.
Shares to be
Directors, Officers and 5% Shares Beneficially Owned Beneficially Owned
Stockholders Prior to Acquisition After Acquisition
Number Percent Number Percent
David Lerner 0 0 4,273,000 33.5%
401 NE 25th Terrace
Boca Raton, FL 33431-7524
Michael Granito, Ph.D. 0 0 3,190,000 25.0%
30 E. 37th Street
New York, NY 10016
Ret. Lt. Gen. Paul Cerjan 0 0 675,000 5.3%
1460 North Woodhouse Road
Virginia Beach, VA 23454
Ret. Maj. Gen. George Friel 0 0 405,000 3.2%
R.R. 2, Box 69
Buckeye, WV 24924
Gerald M. Olderman, Ph.D. 0 0 405,000 3.2%
17 Pickman Drive
Bedford, MA 01730
Gregory Schultz, Ph.D. 0 0 675,000 5.3%
University of Florida
Department of Ob/Gyn
Box 100294
1600 SW Archer Road
Gainesville, FL 32610
Michael Karsch 0 0 135,000 1.1%
7000 W. Palmetto Park Road,
Suite 501
Boca Raton, FL 33433
Devinder Randhawa 152,000 30.4% 0 0%
Suite 104, 1456 St. Paul St.
Kelowna, British Columbia
Canada V1Y 2E6
Bob Hemmerling 152,000 30.4% 0 0%
Suite 104, 1456 St. Paul St.
Kelowna, British Columbia
Canada V1Y 2E6
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All Above Average directors 304,000 60.8% 0 0%
and officers as a group
(2 persons)
All Quick-Med directors and 9,758,000 76.4%
officers as a group
(7 persons)
All the stock shown above are common stock. The balance of our
outstanding Common stock are held by 8 persons.
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MANAGEMENT
Quick-Med's directors and officers are as follows:
Name Age Position
Michael R. Granito, Ph.D. 49 Chairman
David S. Lerner 47 President and Director
Paul G. Cerjan, Lt. Gen./Ret. 62 Vice-President, Worldwide Military
Affairs and Director
George E. Friel, Maj. Gen./Ret. 58 Vice President, Military Research &
Development and Director
Gerald M. Olderman, Ph.D. 67 Vice-President, Commercial Research and
Development and Director
Gregory S. Schultz, Ph.D. 51 Vice President, Clinical Laboratory
Research and Development and Director
Michael D. Karsch 41 General Counsel, Secretary and Director
Michael D. Granito, Ph.D. was appointed to his position with Quick-Med
in July 2000. Since 1979, he has been a Managing Director for J.P. Morgan
(NYSE:JPM) in New York. He was responsible for world-wide Capital Market
Research activities in London, Frankfurt, Tokyo, and Melbourne offices, and was
Chair of Foundation for Research in International Banking and Finance or FRIBF.
Mr. Granito earned a doctorate in Finance, and graduated with triple major in
accounting, finance, and economics from The Wharton School at The University of
Pennsylvania. He also served as an Adjunct Professor of Finance at Yale
University and New York University and author of a book and fourteen papers on
finance and foreign exchange topics.
David S. Lerner was appointed to his position in December 1997 Mr.
Lerner has 20 years experience in international and domestic manufacturing,
marketing, sales, and business development. He has had business activities in
Asia, Europe, South America, and Mexico; and successfully handled export
financing activities, including letter of credit and manufacturing arrangements.
Mr. Lerner has also dealt with major retailers like Sears, K-Mart, and WalMart
and developed markets for private label and nationally-branded products through
large mass retailers and department stores. Mr. Lerner earned a B.A. from Queens
College at the City University of New York.
Lt. Gen. Paul G. Cerjan (Ret.) - U.S. Army Lieutenant General, was
appointed his position in July 2000. From December 1997 to September 2000, Mr.
Cerjan was president of Regent University in Virginia Beach, Virginia. From
August 1994 to October 1997, he served as director tactical systems for Lockheed
Martin (NYSE:LMT) in Arlington, Virginia. He was in the U.S. Army from 1960 to
1994, rising to the rank of Lieutenant General. Mr. Cerjan served as project
manager
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for the design and construction of a small city for 26,000 people valued at $1.3
billion, managed 22 separate organizations in Europe with 70,000 people;
supervised all aspects of community life in Europe for 300,000 Americans and
served as CEO for a university organization educating the most senior leadership
of the Department of Defense. Mr. Cerjan has an M.S. in Construction Management
from Oklahoma State University; a B.S. in Engineering from United States
Military Academy at West Point, and is a registered professional engineer in
Virginia.
Maj. Gen. George E. Friel (Ret.) - U.S. Army Major General, was
appointed to his position in July 2000. Since September 1998, he has been
self-employed as a consultant to various organizations in the defense industry.
He was in the U.S. Army from 1967 to 1998, rising to the rank of Major General.
Mr. Friel was the Commanding General of the U.S. Army Chemical and Biological
Defense Command, at the Aberdeen Proving Ground in Maryland, Deputy Chief of
Staff for Chemical and Biological Matters of the Army Material Command,
Alexandria, Virginia from 1992 to 1998, and was responsible for a $1 billion
contract for protective military clothing. He served as Commanding General, 59th
Ordinance Brigade, Pinnasens, Germany; Chief, Nuclear Chemical Division, U.S.
Army Europe; and Commander, Miesau Army Depot in Germany. Mr. Friel was also
responsible for $600 million budget for Nuclear Biological and Chemical Defense
Command for six years and directed over 1,100 scientists and engineers including
150 Ph.D.s. Mr. Friel has also served as Chairman of the boards of The Nuclear,
Biological, and Chemical Defense Enterprise at the Edgewood Arsenal, and The
Army Material Command, Acquisition and Procurement Enterprise. He earned a B.S.
from University of Nebraska and M.B.A. from Northwest Missouri State University
and is a graduate of the U.S. Army Chemical School Basic and Advanced Courses.
Gerald M. Olderman, Ph.D. was appointed to his position in July 2000.
Since November 1996, he has been a Vice-President and Associate of R.F. Caffrey
& Associates, a management consultant to medical device companies and suppliers.
From November 1991 to November 1996, he served a Director and Head of Research
and Development for C.R. Bard, Inc.'s Cardiopulmonary Division, manufacturer of
health care products and a subsidiary of TYCO International, (NYSE:TYC). He has
35 years in the health care industry, 31 years in technical management, and 25
years as the head of research and development activities for Fortune 500
companies. He organized a new product development process for the
cardiopulmonary division of C.R. Bard Co. in which 19 new medical devices were
developed, including an intra-aortic balloon and pump and a centrifugal heart
by-pass pump. From 1985 to 1991, as vice president for domestic and
international research and development for Baxter Healthcare Corp., (NYSE:BAX),
Dr. Olderman directed technical programs for surgical, medical, home health
care, and industrial market segments including programs for wound management.
From 1978 to 1985, as vice president for research and development for the
Convertors Division of American Hospital Supply prior to its acquisition by
Baxter, he led product development and made material changes in a program that
helped to increase market share from 30% to 45% of a $750 million market. He
also handled quality assurance, business planning and market research. From 1972
to 1978, as vice president for research and development and director of
Surgikos, Inc., a subsidiary of Johnson & Johnson, (NYSE:JNJ), he built
technical organization to support the company's goals and entered the additional
market of extracorporeal products. He led the development of products for the
surgical line including package development, clinical research, regulatory
compliance and quality assurance. From 1961 to 1964, he served as a Senior
Scientist in the Hospital Division of J & J, assigned to wound care dressings
and absorbent products. Dr. Olderman received a B.S. in Chemistry from
Rensselaer Polytechnic Institute in Troy, New York in 1958. He also earned an
M.S. in Physical Chemistry in 1972, and a Ph.D. in Physical Chemistry in 1973
from Seton Hall University in South Orange, New Jersey.
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Gregory S. Schultz, Ph.D. was appointed to his position in July 2000.
Since July 1989 he has served as a Professor of Obstetrics/Gynecology in the
College of Medicine and researcher at the University of Florida in Gainesville.
From 1986 to 1988, Dr. Schultz served as principle investigator for U.S. Army
Medical Research Contracts. Dr. Schultz previously was an Associate Professor of
Ophthalmology and Associate Professor of Biochemistry at University of
Louisville School of Medicine. Dr. Schultz earned a doctorate in biochemistry
from Oklahoma State University and a postdoctoral fellowship in cell biology at
Yale University. His specialty is the development of growth factors for the
wound healing process. Growth factors are those elements that speed the healing
processes. He also serves as Quick-Med's principal investigator and has been a
principal investigator on 20 research grants since 1980.
Michael D. Karsch was appointed Director, General Counsel and Secretary
in July 2000. Since May 2001, Mr. Karsch has been a Managing Director of MCG
Partners, Inc., a merchant banking firm. From June 2000 to April 2001, Mr.
Karsch was a Vice President and General Counsel of MerchantOnline.com, Inc., a
provider of secure online transactions. From June 1998 to June 2000, he was a
partner for Broad & Cassel, a Boca Raton, Florida law firm. From May 1997 to May
1998, he was a partner with the law firm of Bernstein & Wasserman in Boca Raton,
Florida. From June 1996 to March 1997, he served as general counsel for U.S.
Diagnostic, Inc., a health care management company in West Palm Beach, Florida.
From August 1990 to June 1996, he was a partner with the law firm of Bachner,
Talley, Polevoy and Misher in New York. From 1986 to 1990, he was an associate
with the law firm of Skadden, Arps, Slate, Meagher & Flom in New York. He earned
a B.S., graduating cum laude from The Wharton School of the University of
Pennsylvania in 1982, and earned a J.D. from the University of Pennsylvania Law
School in 1985.
The above listed officers and directors will serve until the next
annual meeting of the shareholders or until their death, resignation,
retirement, removal, or disqualification, or until their successors have been
duly elected and qualified. Vacancies in the existing board are filled by
majority vote of the remaining directors. Our officers serve at the will of the
board. There are no family relationships between any executive officer and
director.
EXECUTIVE COMPENSATION
Above Average
None of our officers or directors have received any compensation for
their respective services rendered unto us. They all have agreed to act without
compensation until authorized by the Board of Directors, which is not expected
to occur until the we have generated revenues from operations after consummation
of a merger or acquisition. As of the date of this registration statement, we
have no funds available to pay officers or directors. Further, none of the
officers or directors is accruing any compensation under any agreement with us.
Quick-Med
David S. Lerner is currently paid $125,000 per year and Michael D.
Karsch is currently paid $24,000 per year. Quick-Med's other officers have
agreed to act without cash compensation until authorized by the board, which is
not expected to occur until Quick-Med has generated revenues from operations or
has obtained sufficient capital. The officers and directors are not accruing any
compensation under any agreement with Quick-Med.
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name Title Salary Options Exercise Price Expiration Date
- ---- ----- ------ ------- -------------- ---------------
David S. Lerner President $125,000 250,000 $2.00 8/16/05
Michael D. Karsch General Counsel $ 24,000 15,000 $2.00 8/16/05
Paul G. Cerjan VP $0 15,000 $2.00 8/16/05
George E. Friel VP $0 15,000 $2.00 8/16/05
Gerald M. Olderman VP $0 15,000 $2.00 8/16/05
Gregory S. Schultz VP $0 15,000 $2.00 8/16/05
Michael R. Granito Chairman $0 15,000 $2.00 8/16/05
No retirement, pension or insurance programs or other similar programs
have been adopted for Quick-Med's employees. A stock option plan has been
approved by Quick-Med's board, and 840,000 options to purchase common stock have
been granted to officers, directors and employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Above Average
The shareholders of Above Average, including Bob Hemmerling and
Devinder Randhawa, its current officers, have agreed to return the 500,000
shares of stock held by them immediately prior to the closing for cancellation.
There will be no consideration tendered for the return of the shares.
There have not been any transactions with promoters.
Quick-Med
At December 31, 2000, Quick-Med had a note payable of $23,710 for funds
advanced from Think Tank Associates, Inc., a company owned by our President,
David S. Lerner. The note is short term and bears interest at 6.0% and is
expected to be paid by December 31, 2001.
At December 31, 2000, Quick-Med had another note payable of $150,000
for funds advanced from Michael R. Granito, our Chairman. The note is short term
and bears interest at 6.0%. An additional $160,000 was advanced in 2001. All of
these loans have been converted to 260,000 shares of Quick-Med common stock.
There have not been any transactions with promoters.
Other than the relationships with the University of Florida, no officer
or director has any relationship with any company or entity that will be working
on developing Quick-Med's technology or patents.
MARKET FOR OUR COMMON STOCK
There is no trading market for our common stock at present and there
has been no trading market to date. Management has not undertaken any
discussions with any prospective market maker concerning the participation in
the aftermarket for our securities and management does not intend to initiate
any discussions until we have consummated a merger or acquisition. We cannot
guarantee that a trading market will ever develop or if a market does develop,
that it will continue.
Our common stock is not quoted at the present time. The SEC has adopted
a rule that defines a "penny stock," for purposes relevant to us, as any equity
security that has a market price of less than
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$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require:
o that a broker or dealer approve a person's account for transactions in
penny stocks; and
o the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny
stock to be purchased.
To approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience and objectives
of the person; and
o make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the suitability
determination; and
o that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stock in both public offering and in secondary trading, and about commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
Management intends that the merger with Quick-Med will allow our
securities to be traded on the OTC Bulletin Board. Initially, the trading will
likely have these limitations. Failure to qualify our securities for Nasdaq or
the OTC Bulletin Board or to meet the relevant maintenance criteria after
qualification in the future may result in our securities being delisted.
However, trading, if any, in our securities may then continue in the non-Nasdaq
over-the-counter market. As a result, a shareholder may find it more difficult
to dispose of, or to obtain accurate quotations for our securities.
Penny Stock Regulation
Our securities are not currently quoted on any recognized quotation
medium. While we cannot assure you there can be no assurance that a public
market will ever develop for our common stock, if a market should develop,
trading our common stock would be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, which require additional
disclosure by broker dealers in connection with any trades involving a stock
defined as a penny stock. A penny stock is generally any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules require the delivery, prior to any penny stock
transaction, of a disclosure scheduled explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
accredited investors and institutions. For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by these requirements
may discourage them from effecting transactions in our securities, which could
-38-
severely limit the liquidity of our securities and the ability of purchasers in
this offering to sell the securities in the secondary market.
Holders
There are currently 10 holders of Above Average Common Stock, and 17
holders of Quick-Med Common Stock. Immediately after the merger we will have 35
shareholders both beneficially and of record if all of the investors reconfirm
their investment.
Dividends
We have not paid any dividends to date, and have no plans to do so in
the immediate future.
Transfer Agent
After the merger the transfer agent will be Continental Stock Transfer
& Trust Company, 2 Broadway, New York, NY 10004.
DESCRIPTION OF SECURITIES
Above Average
Our authorized capital stock consists of 100,000,000 shares, of common
stock, par value $.0001 per share. There are 3,000,000 shares of common stock
issued and outstanding, as of the date of this filing.
Common Stock
All shares of common stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of common stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully
paid and nonassessable shares. Cumulative voting for electing directors is not
permitted, which means that the holders of a majority of the issued and
outstanding shares of common stock represented at any meeting where a quorum is
present will be able to elect the entire Board of Directors if they so choose.
In that event, the holders of the remaining shares of common stock will not be
able to elect any directors. In the event we are liquidated, each shareholder is
entitled to receive a proportionate share of our assets available for
distribution to shareholders after the payment of liabilities and after
distribution in full of preferential amounts, if any. All shares of our common
stock issued and outstanding are fully paid and nonassessable. Holders of stock
are entitled to share pro rata in dividends and distributions with respect to
the common stock, as may be declared by the Board of Directors out of legally
available funds.
There are no outstanding options or warrants to purchase, or securities
convertible into, our common equity. 500,000 of the shares of our common stock
currently outstanding are restricted securities as that term is defined in the
Securities Act.
Quick-Med
Quick-Med's authorized capital stock consists of 16,000,000 shares of
which 15,000,000 are common stock, par value $.001 per
-39-
share, and 1,000,000 are preferred stock, par value $.001 per share. There are
10,260,000 shares of common stock issued and outstanding, as of the date of this
filing. No preferred stock has been issued.
Common Stock
All shares of common stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of common stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully
paid and nonassessable shares. Cumulative voting for electing directors is not
permitted, which means that the holders of a majority of the issued and
outstanding shares of common stock represented at any meeting where a quorum is
present will be able to elect the entire Board of Directors if they so choose.
In that event, the holders of the remaining shares of common stock will not be
able to elect any directors. In the event we are liquidated, each shareholder is
entitled to receive a proportionate share of our assets available for
distribution to shareholders after the payment of liabilities and after
distribution in full of preferential amounts, if any. All shares of our common
stock issued and outstanding are fully paid and nonassessable. Holders of stock
are entitled to share pro rata in dividends and distributions with respect to
the common stock, as may be declared by the Board of Directors out of legally
available funds.
Quick-Med Options
Quick-Med has issued 840,000 options to its officers, directors and
employees. Quick-Med's management has adopted a stock option plan providing for
the issuance of options to purchase up to 3,000,000 shares of common stock.
SHARES ELIGIBLE FOR FUTURE RESALE
There has been no public market for our common stock and we cannot
assure you that a significant public market for our common stock will be
developed or be sustained after this offering. Sales of substantial amounts of
common stock in the public market after this offering, or the possibility of
substantial sales, could harm prevailing market prices for the common stock or
our future ability to raise capital through an offering of equity securities.
If 100% of the investors reconfirm their investment, we will have
3,000,000 shares outstanding. The 2,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act unless purchased by "affiliates" of Quick-Med, as that term is defined in
Rule 144 under the Securities Act described below. The 10,260,000 shares to be
issued when the merger is consummated will be restricted stock under Rule 144.
The 500,000 shares of restricted stock currently outstanding will be purchased
by Quick-Med as part of the merger and canceled when the merger is consummated.
Quick-Med has issued 840,000 options to its officers, directors and
employees under its stock option plan. Although these options will be cancelled
in the merger transaction, Quick-Med's management intends to adopt the stock
option plan and reissue new options.
WHERE CAN YOU FIND MORE INFORMATION?
We are a reporting company, and are subject to the reporting
requirements of the Exchange Act. We voluntarily filed a Form 10-SB on October
4, 1999. We have filed a registration statement with the SEC on form SB-2 to
register the offer and sale of the shares. This prospectus is part of that
registration statement, and, as permitted by the SEC's rules, does not contain
all of the information in
-40-
the registration statement. For further information about us and the shares
offered under this prospectus, you may refer to the registration statement and
to the exhibits and schedules filed as a part of the registration statement. You
can review the registration statement and its exhibits and schedules at the
public reference facility maintained by the SEC at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. The
registration statement is also available electronically on the World Wide Web at
http://www.sec.gov.
You can also call or write us at any time with any questions you may
have.
REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable at the end of each fiscal
year. Quick-Med's fiscal year ends on December 31st.
LEGAL MATTERS
The validity of the shares offered under this prospectus was passed
upon for us by Evers & Hendrickson, LLP of San Francisco, California, and is now
being passed upon by Foley and Lardner of San Francisco, California..
EXPERTS
Our financial statements as of the period ended June 30, 2000, and
included in this prospectus and in the registration statement, have been so
included in reliance upon the reports of Cordovano & Harvey, P.C., independent
certified public accountants, included in this prospectus, and on the authority
of the firm as experts in accounting and auditing.
The financial statements of Quick-Med for the years ended December 31,
2000 and December 31, 1999 included in this prospectus have been audited by
Daszkal Bolton Manela Devlin & Co., Certified Public Accountants, 2401 N.W. Boca
Raton Boulevard, Suite 100, Boca Raton, Florida 33431, independent auditors, and
are included in reliance upon the reports of the firm and on their authority as
experts in accounting and auditing.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article XII of the Articles of Incorporation and Article VI of our
Bylaws, as amended, states certain indemnification rights. Our Bylaws provide
that we will possess and may exercise all powers of indemnification of officers,
directors, employees, agents and other persons and all incidental powers and
authority. Our Board of Directors is authorized and empowered to exercise all of
our powers of indemnification, without shareholder action. Our assets could be
used or attached to satisfy any liabilities subject to indemnification.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
The Nevada Revised Statutes, as amended, authorize us to indemnify any
director or officer under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in any action, suit or proceedings,
whether civil, criminal, administrative or investigative, to which the person is
a party by reason of being a director or officer if it is determined that the
person acted under the applicable standard of
-41-
conduct stated in the statutory provisions. Our directors and officers are
indemnified to the full extent permitted by Nevada law in our Articles of
Incorporation.
We may also purchase and maintain insurance for the benefit of any
director or officer that may cover claims for situations where we could not
provide indemnification.
Although indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors or persons controlling us under
Nevada law, we have been informed that in the opinion of the SEC, this form of
indemnification is against public policy as expressed in the Securities Act, and
is considered unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In January, 2000, we appointed Cordovano & Harvey, P.C. to replace
Kish, Leake & Associates, P.C. as our principal accountants. The report of Kish,
Leake & Associates, P.C. on our financial statements did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. We had no disagreements with
them on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. We did not consult with Cordovano &
Harvey, P.C. on any accounting or financial reporting matters in the periods
prior to their appointment. The change in accountants was approved by the Board
of Directors. We filed a Form 8-K with the Commission (File No. 000-27545) on
January 24, 2000.
-42-
Index to Financial Statements
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company
Page
Independent auditor's report..............................................F-2-3
Balance sheet as of June 30, 2000...........................................F-4
Statement of operations for the years ended June 30, 2000 and 1999 and
for the period from April 21, 1997 (inception) through June 30, 2000
(unaudited)..............................................................F-5
Statement of shareholders' equity (deficit), from April 21, 1997
(inception) through June 30, 2000........................................F-6
Statement of cash flows for the years ended June 30, 2000 and 1999 and
for the period from April 21, 1997 (inception) through June 30, 2000
(unaudited)..............................................................F-7
Notes to financial statements as of June 30, 2000...........................F-8
Condensed Balance Sheet (unaudited) as of March 31, 2001....................F-15
Condensed Statements of Operations (unaudited) for the three months
ended March 31, 2001 and 2000, nine months ended March 31, 2001
and 2000 and from April 21, 1997 (inception) through March 31, 2001......F-16
Condensed Statements of Cash Flows (unaudited) for the nine months
ended March 31, 2001 and 2000 and from April 21, 1997 (inception)
through March 31, 2001...................................................F-17
Notes to Condensed Financial Statements..................................F-18-19
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
Page
Independent Auditors' Report ...............................................F-20
Balance Sheet as of December 31, 2000 ......................................F-21
Statements of Operations and Accumulated Deficit for the years ended
December 31 2000 and 1999 and unaudited for the period
from December 9, 1997 (inception) through December 31, 2000................F-22
Statement of Stockholders' Deficit for the years ended December 31, 2000
and 1999, and unaudited for the period from December 9, 1997
(inception) through December 31, 2000 for the years ended................F-23
Statements of Cash Flows for the years ended December 31 2000 and 1999
and unaudited for the period from December 9, 1997 (inception)
through December 31, 2000................................................F-24
Notes to Financial Statements .......................................F-25 - F-32
UNAUDITED PRO FORMA FINANCIAL DATA
Pro Forma Combined Balance Sheet as of June 30, 2000........................F-33
Pro Forma Combined Statements of Income (Loss) as of June 30, 2000..........F-34
Pro Forma Combined Balance Sheet as of March 31, 2001.......................F-35
Pro Forma Combined Statement of Income (Loss) as of March 31, 2001..........F-36
Notes to Pro Forma Combined Financial Statements............................F-37
F-1
Independent Auditors' Report
To the Board of Directors and Shareholders
Above Average Investments, Ltd.
We have audited the balance sheet of Above Average Investments, Ltd. (a
development stage company) as of June 30, 2000 and the related statements of
operations, shareholders' equity and cash flows for the year ended June 30,
2000. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Above Average
Investments, Ltd. as of June 30, 2000, and the related statements of operations
and cash flows for the year ended June 30, 2000 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has a substantial dependence on the success of
its development stage activities, significant losses since inception, lack of
liquidity, and a working capital deficiency at June 30, 2000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding those matters are also described in Note
A. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
July 24, 2000
F-2
Independent Auditors' Report
To the Board of Directors and Shareholders
Above Average Investments, Ltd.
We have audited the accompanying balance sheet of Above Average
Investments, Ltd. (a development stage company) as of June 30, 1999 (not
separately included herein) and the related statements of income, shareholders'
deficit, and cash flows for the fiscal year ended June 30; 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Above Average
Investments, Ltd. at June 30, 1999, and the results of its operations and cash
flows for the fiscal year ended June 30, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 5 (not separately
included herein), the Company is in the development stage and has no operations
as of June 30, 1999. The deficiency in working capital as of June 30, 1999
raises substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are described in Note 5 (not
separately included herein) . The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Kish, Leake, and Associates, P.C.
Certified Public Accountants
Englewood, Colorado
September 24, 1999
F-3
ABOVE AVERAGE INVESTMENT, LTD.
(A Development Stage Company)
BALANCE SHEET
June 30, 2000
ASSETS
TOTAL ASSETS $ -
======
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
LIABILITIES
Accounts payable and accrued liabilities............................$3,795
------
TOTAL LIABILITIES $3,795
------
SHAREHOLDERS (DEFICIT)
Common stock, $.0001 par value, 100,000,000 shares
authorized, 500,000 shares issued and outstanding.....................50
Additional paid-in capital..........................................15,070
Deficit accumulated during the development stage...................(18,915)
-------
TOTAL SHAREHOLDERS' (DEFICIT) (3,795)
-------
$ -
======
See accompanying notes to financial statements
F-4
ABOVE AVERAGE INVESTMENT, LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Year Ended April 21, 1997
---------- (inception)
Through
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- -------------
COSTS AND EXPENSES
Legal fees................................... $ 8,629 $ -- $ 8,629
Accounting Fees.............................. 2,233 1,623 3,856
Licenses and fees............................ 341 85 426
Printing Costs 5,954 -- 5,954
Stock-based compensation for
organizational costs (Note B) -- -- 50
--------- ---------
LOSS FROM OPERATIONS.......... (17,157) (1,708) (18,915)
--------- --------- ---------
INCOME TAX BENEFIT (EXPENSE) (NOTE C)
Current tax benefit 3,266 325 3,601
Deferred tax expense (3,266) (325) (3,601)
--------- --------- ---------
NET LOSS $ (17,157) $ (1,708) $ (18,915)
========= ========= =========
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.03) *
=========
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 500,000 500,000
========= =========
* Less than .01 per share
See accompanying notes to financial statements
F-5
ABOVE AVERAGE INVESTMENT, LTD.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
April 21, 1997 (inception) through June 30, 2000
Deficit
Accumulated
Additional During
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
Beginning balance, April 21, 1997 -- $-- -- $ -- $ -- $ -- $ --
Common stock issued in exchange
for organization costs -- -- 500,000 50 00 00 50
Net loss for the period ended
June 30, 1997 -- -- -- -- (50) (50)
------- ------- ------- ------- -------- -------- --------
BALANCE, JUNE 30, 1997 -- -- 500,000 50 -- (50) --
Net loss for year ended
June 30, 1998 -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- --------
BALANCE, JUNE 30, 1998 -- -- 500,000 50 -- (50) --
Third party expenses paid by an
affiliate on behalf of the
Company -- -- -- -- 85 -- 85
Net Loss for year ended
June 30, 1999 -- -- -- -- -- (1,708) (1,708)
------- ------- ------- ------- -------- -------- --------
BALANCE, JUNE 30, 1999 -- -- 500,000 50 85 (1,758) (1,623)
Third party expenses paid by an
affiliate on behalf of the
Company -- -- -- -- 14,985 -- 14,985
Net loss for year ended
JUNE 30, 2000 -- $-- 500,000 $ 50 $ 15,070 $(18,915) $ (3,795)
BALANCE JUNE 30, 2000 -- $-- 500,000 $ 50 $ 15,070 $(18,915) $ (3,795)
======= ======= ======= ======= ======== ======== ========
See accompanying notes to financial statements
F-6
ABOVE AVERAGE INVESTMENT, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Year Ended April 21, 1997
------------------------------ (inception)
Through June 30,
2000
June 30, 2000 June 30, 1999 (unaudited)
------------- ------------- -----------
OPERATING ACTIVITIES
Net Loss $ (17,157) $ (1,708) $(18,915)
Non-cash transactions:
Stock-based compensation for organizational costs (Note B) -- -- 50
Third Party expenses paid by affiliate on behalf of the
company, recorded as additional-paid-in capital 14,985 85 15,070
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 2,172 1,623 3,795
----------- ----------- --------
NET CASH (USED IN) OPERATING ACTIVITIES $ -- $ -- $ --
----------- ----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- --
----------- ----------- --------
NET CHANGE IN CASH -- -- --
Cash, beginning of period -- -- --
----------- ----------- --------
CASH, END OF PERIOD $ -- $ -- $ --
=========== =========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ -- $ --
=========== =========== ========
Income taxes $ -- $ -- $ --
=========== =========== ========
Non-cash financing activities:
500,000 shares common stock issued for services $ -- $ -- $ 50
=========== =========== ========
See accompanying notes to financial statements
F-7
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies
Organization
Above Average Investments, Ltd. (the "Company") was incorporated under
the laws of Nevada on April 21, 1997 to engage in any lawful corporate
undertaking, including, but not limited to, selected mergers and acquisitions.
The Company is a development stage enterprise in accordance with Statement of
Financial Accounting Standard (SFAS) No. 7.
The Company has been in the development stage since inception and has
no operations to date.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company is a development stage company with no revenue
as of June 30, 2000 and has incurred losses of ($17,157), ($l,708) and ($l8,915)
for the years ended June 30, 2000 and 1999 and for the period April 21, 1997
(inception) through June 30, 2000, respectively. The Company has no operating
history or revenue, no assets, and continuing losses which the Company expects
will continue for the foreseeable future. These factors among others may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time. An affiliate of the Company plans to continue
advancing funds on an as needed basis and in the longer term, revenues from the
operations of a merger candidate, if found. The Company's continuation as a
going concern is dependent upon continuing capital advances from an affiliate
and commencing operations or locating and consummating a business combination
with an operating company. There is no assurance that the affiliate will
continue to provide capital to the Company or that the Company can commence
operations or identify such a target company and consummate such a business
combination. These factors, among others, raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Summary of significant accounting policies
Cash equivalents
The Company's financial instruments consist of accounts payable and
accrued liabilities. For financial accounting purposes and the statement of cash
flows, cash equivalents include all highly liquid debt instruments purchased
with an original maturity of three months or less.
F-8
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies,
continued
Use of estimates
The preparation of the financial statements in conformity with
generally accepted accounting principals requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities;
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. Accordingly, actual results could differ from those estimates.
Income Taxes
The Company reports income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the liability method in accounting
for income taxes. Deferred tax assets and liabilities arise from the difference
between the tax basis of an asset or liability and its reported amount on the
financial statements. Deferred tax amounts are determined by using the tax rates
expected to be in effect when the taxes will actually be paid or refunds
received, as provided under currently enacted law. Valuation allowances are
established when necessary to reduce the deferred tax assets to the amounts
expected to be realized. Income tax expense or benefit is the tax payable or
refundable, respectively, for the period plus or minus the change during the
period in the deferred tax assets and liabilities.
Loss per common share
The Company has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128") which requires the disclosure of basic and diluted earnings per
share. Basic earnings per share is calculated using income available to common
shareowners divided by the weighted average of common shares outstanding during
the year. Diluted earnings per share is similar to basic earnings per share
except that the weighted average of common shares outstanding is increased to
include the number of additional common shares that would have been outstanding
if the dilutive potential common shares, such as options, had been issued. The
Company has a simple capital structure and no outstanding options at June 30,
2000. Therefore, dilutive earnings per share are not applicable and accordingly
have not been presented
Fiscal year
The Company operates on a fiscal year ending on June 30.
F-9
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies,
continued
Stock based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October 1995. This accounting standard permits the use of either a fair value
based method or the method defined in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") to account for stock-based
compensation arrangements. Companies that elect to use the method provided in
APB 25 are required to disclose pro forma net income and earnings per share that
would have resulted from the use of the fair value based method. The Company has
elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25. For stock issued to officers the
fair value approximates the intrinsic value. Therefore, no pro forma disclosures
are presented.
Fair value of financial instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial instruments.
The Company has determined, based in available market information and
appropriate valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts payable, and
other accrued liabilities approximate fair value due to the short-term maturity
of the instruments.
Recently issued accounting pronouncements
The Company has adopted the following new accounting pronouncements for
the year ended June 30, 2000. There was no effect on the financial statements
presented from the adoption of the new pronouncements.
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," requires the reporting and display of total comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is based on the "management" approach for reporting segments. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosure about the Company's products, the geographic areas in which it earns
revenue and holds long-lived assets, and its major customers.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Post-retirement Benefits," which requires additional disclosures about pension
and other post-retirement benefit plans, but does not change the measurement or
recognition of those plans.
F-10
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies,
concluded
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect the Company as the Company currently
does not have any derivative instruments or hedging activities.
In June 1999, the FASB issued SFAS No. 137, which amended the
implementation date for SFAS No. 133 to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000.
Statement of Position ("SOP") 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP requires
that entities capitalize certain internal-use software costs once certain
criteria are met.
SOP 98-5, "Reporting on the Costs of Start-Up Activities." Sop 98-5
provides, among other things, guidance on the reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred.
The Company will continue to review these new accounting pronouncements
over time to determine if any additional disclosures are necessary based on
evolving circumstances.
Note B: Related party transactions
The Company maintains a mailing address at an affiliate's address. This
address is Suite 104, 1456 St. Paul Street, Kelowna, B.C., Canada, V1Y 2E6. At
this time the Company has no need for an office.
The Company has issued an officer 500,000 shares of common stock in
exchange for services related to management and organization costs of $50.00.
The officer will provide administrative and marketing services as needed. The
officer may, from time to time, advance to the Company any additional funds that
the Company needs for costs in connection with searching for or completing an
acquisition or merger.
The Company does not maintain a checking account and expenses incurred
by the Company have historically been paid by an affiliate. Since inception the
Company incurred $18,915 in expenses of which $15,070 were paid by an affiliate.
The affiliate does not expect to be repaid for the expenses it pays on behalf of
the Company. Accordingly, as the expenses are paid, they are classified as
additional-paid-in capital.
F-11
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note C: Income taxes
A reconciliation of U.S. statutory federal income tax rate to the
effective rate for the period from April 21, 1997 (inception) through June 30,
2000 is as follows:
April 21, 1997
(inception)
Year Ended June Year Ended Through June 30,
30, 2000 June 30, 1999 2000
U.S. statutory federal rate............................ 15.00% 15.00% 15.00%
State income tax rate, net of federal benefit.......... 4.04% 4.04% 4.04%
Net operating loss (NOL) for which no tax benefit
is currently available............................ -19.04% -19.04% -19.04%
0.00% 0.00% 0.00%
The valuation allowance offsets the net deferred tax asset for which
there is no assurance of recovery. The change in the valuation allowance for the
years ended June 30, 2000 and 1999 was $2,941 and $315, respectively. The change
in the valuation allowance for the period from April 21, 1997 (inception)
through June 30, 2000 was $3,601. NOL carryforwards at June 30, 2000 will begin
to expire in 2012. The valuation allowance will be evaluated at the end of each
year, considering positive and negative evidence about whether the asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax asset is no longer
impaired and the allowance is no longer required.
Should the Company undergo an ownership change, as defined in Section
382 of the Internal Revenue Code, the Company's tax net operating loss
carryforwards generated prior to the ownership change will be subject to an
annual limitation which could reduce or defer the utilization of those losses.
Note D: Shareholders' equity
Common Stock
The Company initially authorized 25,000 shares of $1.00 par value
common stock. On August 3, 1999 the Board of Directors approved an increase in
authorized shares to 100,000,000 and changed the par value to $.000l. On April
22, 1997 the Company issued 500,000 shares of common stock for services valued
at $.0001 per share. The shares were valued nominally at $50 as there was no
market price for the Company's common stock as of the date of issuance.
F-12
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
Notes to Financial Statements
Note D: Shareholders' equity, concluded
On August 18, 1999 the Company filed amended articles with the state of
Nevada to change the authorized shares of common stock originally approved by
the Board of Directors on April 21, 1997 from 25,000, no par value to
100,000,000, $.0001 par. Nevada Revised Statutes Section 78.385 (c) treats this
amendment as if it was filed on April 21, 1997, therefore, giving the Company
enough shares for the original issuance of 500,000 shares of common stock.
F-13
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(UNAUDITED)
ASSETS
March 31, 2001
--------------
Restricted cash $125,000
------------
Total assets $125,000
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued liabilities $3,581
------------
Common stock subject to redemption; 2,500,000 shares 125,000
------------
Stockholders' deficit:
Common stock, $0.0001 par value, 100,000,000
shares authorized; 3,000,000 shares issued and
outstanding, including 2,500,000 shares
subject to redemption 50
Additional paid-in capital 51,806
Deficit accumulated during the development state (55,437)
------------
Total stockholders' deficit (3,581)
------------
Total liabilities and stockholders' deficit $125,000
============
See accompanying notes to condensed financial statements.
F-15
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
April 21, 1997
Three Months Ended Nine Months Ended (inception) through
March 31, March 31, March 31,
---------------------------- --------------------------- ------------
2001 2000 2001 2000 2001
------------ ------------ ----------- ------------ ------------
Costs and expenses:
Legal fees $10,339 $2,236 $20,414 $6,622 $29,043
Accounting fees 3,545 250 9,150 2,106 13,006
Printing -- 2,865 6,804 5,026 12,758
Licenses and fees 59 -- 154 85 580
Stock-based compensation for
organizational costs -- -- -- -- 50
------------- ------------ ------------ ------------- -------------
Loss from operations (13,943) (5,351) (36,522) (13,839) (55,437)
------------- ------------ ------------ ------------- -------------
Benefit (provision) for income taxes -- -- -- -- --
------------- ------------ ------------ ------------- -------------
Net loss $(13,943) $(5,351) $(36,522) $(13,839) $(55,437)
============= ============ ============ ============= =============
Net loss per share - basic and diluted $(0.01) $(0.01) $(0.03) $(0.03)
============= ============ ============ =============
Weighted average number of shares -
basic and diluted 3,000,000 500,000 1,412,409 500,000
============= ============ ============ =============
See accompanying notes to condensed financial statements.
F-16
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
April 21, 1997
(inception)
Nine Months Ended through March
March 31, 31,
------------------------------------ -----------------
2001 2000 2001
------------------ -------------- -----------------
Net cash provided by operating activities:
Net loss $(36,522) $(13,839) $(55,437)
Non-cash transaction:
Stock-based compensation for organizational costs -- -- 50
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities (214) 1,495 3,581
------------------ -------------- -----------------
Net cash used in operating activities (36,736) (12,344) (51,806)
------------------ -------------- -----------------
Cash flows from financing activities:
Third party expenses paid by affiliate on behalf of
the Company, recorded as additional paid-in capital 36,736 12,344 51,806
Common stock issued for cash 125,000 -- 125,000
Restricted cash received for common stock subject to
redemption (125,000) -- (125,000)
------------------ -------------- -----------------
Net cash used in financing activities 36,736 12,344 51,806
------------------ -------------- -----------------
Net increase in cash and equivalents -- -- --
Cash at beginning of period -- -- --
------------------ -------------- -----------------
Cash at end of period $ -- $ -- $ --
================== ============== =================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ -- $ --
================== ============== =================
Income taxes $ -- $ -- $ --
================== ============== =================
Non-cash financing activities:
500,000 shares common stock issued
for services $ -- $ -- $ 50
================== ============== =================
See accompanying notes to condensed financial statements.
F-17
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Above Average
Investments, Ltd. (the "Company") have been prepared in accordance with the
accounting policies in its audited financial statement for the year ended June
30, 2000 as filed in its form SB-2/A filed July 31, 2000 and should be read in
conjunction with the notes thereto. The Company entered the development stage in
accordance with Statements of Financial Accounting Standard ("SFAS") No. 7 on
April 21, 1997 and is a "blank check" company with the purpose to evaluate,
structure and complete a merger with, or acquisition of, a privately owned
corporation.
In the opinion of management, all adjustments consisting of normal recurring
adjustments considered necessary to provide a fair presentation of the operating
results for the interim periods presented have been made. These results have
been determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's Annual Financial Statements for the for the year ended June 30, 2000.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2001.
Interim financial data presented herein are unaudited.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company has issued 500,000 shares of common stock to an officer in exchange
for services related to management and organization costs of $50. The officer
will provide administrative and marketing services as needed. The officer may,
from time to time, advance to the Company any additional funds that the Company
needs for costs in connection with searching for of completing an acquisition or
merger.
The Company does not maintain a checking account and all expenses incurred by
the Company are paid by an affiliate. For the three months ended March 31, 2001,
the Company incurred $10,398 in expenses. The affiliate does not expect to be
repaid for the expenses it pays on behalf of the Company. Accordingly, as the
expenses are paid, they are classified as additional paid-in capital.
NOTE 3 -SHARE CAPITAL
In December 2000, the Company completed an initial public offering of 2,500,000
common shares at $0.05 per share for cash proceeds of $125,000. The proceeds of
the offering and the common stock issued pursuant thereto are being held in an
escrow account, and shall remain in the escrow account until an acquisition
meeting specific criteria is completed, and before the deposited funds and
deposited securities can be released to the Company and the investors,
respectively, the Company is required to update its registration statement with
post-effective amendment, and within five business days after the effective date
thereof, the Company is required to furnish the investors with the prospectus
produced thereby containing the terms of a reconfirmation offer and information
regarding the proposed acquisition candidate and its business. Investors must
have no fewer than 20 and no more than 45 business days from the effective date
of the post-effective amendment to decide to reconfirm their investment and
remain an investor or, alternatively, require the return of their investment.
Each investor shall have 20 business days from the date of this prospectus to
reconfirm their investment. Any investor not making any decision within the
20-business-day period will automatically have their investment returned.
If the Company does not complete an acquisition meeting the specified criteria
within 18 months of the effective date of its initial public offering, all of
the deposited funds in the escrow account must be returned to investors.
F-18
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 4 - MERGER AGREEMENT
During March 2001, the Company entered into an agreement with Quick-Med
Technologies, Inc. ("QMT"), a Delaware corporation, and its shareholders to
acquire all of the issued and outstanding shares of capital stock of QMT in
exchange for 10,260,000 shares of the Company's capital stock. For accounting
purposes, the public shell merger will be treated as a recapitalization of QMT.
The value of the net assets of the Company after the public shell merger is the
same as their historical book value.
Subsequent to the merger, assuming all of the Company's shareholders reconfirm
their investment, the Company's shareholders will retain approximately 20% of
the outstanding shares of the Company's capital stock. Upon ratification of the
public shell merger by its shareholders, the Company will change its name to
Quick-Med Technologies, Inc.
F-19
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Quick-Med Technologies, Inc.
We have audited the accompanying balance sheets of Quick-Med Technologies, Inc.
(a development stage company) as of December 31, 2000, and the related
statements of operations, changes in stockholders' deficit and cash flows for
the years ended December 31, 2000 and 1999. 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 audit.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Quick-Med Technologies, Inc.,
as of December 31, 2000, and the results of its operations and its cash flows
for the years ended December 31, 2000 and 1999, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has experienced recurring losses
and negative cash flows from operations for the years ended December 31, 2000
and 1999 and has a net capital deficiency. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are described in the footnotes accompanying the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Daszkal Bolton Manela Devlin & Co.
Boca Raton, Florida
May 16, 2001
F-20
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(UNAUDITED)
December 31, March 31,
2000 1999 2001
----------------------- -----------
Current assets:
Cash $ 5,113 $ 179 $ 26,609
--------- --------- ---------
Property and equipment, net 3,101 3,910 3,101
--------- --------- ---------
Other assets:
Deposits 6,020 - 6,020
Intangible asset, net 359,616 - 350,234
--------- --------- ---------
Total other assets 365,636 - 356,254
--------- --------- ---------
Total assets $ 373,850 $ 4,089 $ 385,964
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 77,014 $ 19,475 $ 101,776
Accrued expenses 48,014 20,311 34,004
License payable 260,000 - 260,000
Loan payable 150,000 - 150,000
Shareholder loans payable 159,300 - 54,300
Due to affiliate/shareholder 25,334 20,861 19,816
--------- --------- ---------
Total current liabilities 719,662 60,647 619,896
--------- --------- ---------
Stockholders' deficit:
Common stock, $0.001 par value;
15,000,000 authorized shares;
10,000,000, 9,605,000 and
10,260,000 shares issued and
outstanding at December 31,
2000, December 31, 1999, and
March 31, 2001, respectively 10,000 9,606 10,260
Additional paid-in capital 167,748 145,643 430,314
Outstanding stock options 2,150 - 2,150
Deficit accumulated during the
development stage (525,710) (211,807) (676,656)
--------- --------- ---------
Total stockholders' deficit (345,812) (56,558) (233,932)
--------- --------- ---------
Total liabilities and
stockholders' deficit $ 373,850 $ 4,089 $ 385,964
========= ========= =========
See accompanying notes to financial statements.
F-21
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
December 7,
1997
Three months (inception)
ended through
December 31, March 31, March 31,
------------------------ 2001 2001
2000 1999 (Unaudited) (Unaudited)
----------- ---------- ------------ ------------
Sales $ - $ - $ - $ -
Cost of sales - - - -
----------- ---------- ----------- ---------
Gross profit - - - -
Selling, general
and administrative
expenses 308,206 165,270 147,246 666,238
----------- ---------- ----------- ---------
Loss from operations (308,206) (165,270) (147,246) (666,238)
----------- ---------- ----------- ---------
Other income and
(expense):
Other income - - - -
Interest expense (5,697) (1,021) (3,700) (10,418)
----------- ---------- ----------- ---------
Total other income
and (expense) (5,697) (1,021) (3,700) (10,418)
----------- ---------- ----------- ---------
Income before income
taxes (313,903) (166,291) (150,946) (676,656)
----------- ---------- ----------- ---------
Provision (benefit)
for income taxes - - - -
----------- ---------- ----------- ---------
Net loss $ (313,903) $ (166,291) $ (150,946) $(676,656)
=========== ========== =========== =========
Net loss per share
(basic and diluted) $ (0.03) $ (0.02) $ (0.01)
=========== ========== ===========
Weighted average
common shares
outstanding 10,000,000 9,605,500 10,069,333
=========== ========== ===========
See accompanying notes to financial statements.
F-22
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Accumulated
Common Stock Additional Deficit Outstanding
------------------ Paid-In Development Stock
Shares Amount Capital Stage Options Total
------ ------ ---------- ----------- ----------- -----
Balance, December 31,
1997 - $ - $ - $ - $ - $ -
---------- -------- --------- --------- ------- ---------
Common stock issued 2,997,500 2,998 28,778 - - 31,776
Stock issued for
services 4,223,000 4,223 - - - 4,223
Net loss -
December 31, 1998 - - - (45,516) - (45,516)
---------- -------- --------- --------- ------- ---------
Balance, December 31,
1998 7,220,500 7,221 28,778 (45,516) - (9,517)
Stock issued for
services 2,385,000 2,385 116,865 - - 119,250
Net loss -
December 31, 1999 - - - (166,291) - (166,291)
---------- -------- --------- --------- ------- ---------
Balance, December 31,
1999 9,605,500 9,606 145,643 (211,807) - (56,558)
Stock issued for
services 230,000 230 11,270 - - 11,500
Stock issued for
license agreement 160,000 160 7,840 - - 8,000
Stock options
granted for license
and consulting - - - - 2,150 2,150
Stock issued for cash 4,500 4 2,995 - - 2,999
Net loss -
December 31, 2000 - - - (313,903) - (313,903)
---------- -------- --------- --------- ------- ---------
Balance, December 31,
2000 10,000,000 10,000 167,748 (525,710) 2,150 (345,812)
---------- -------- --------- --------- ------- ---------
Stock issued in debt
conversion 260,000 260 262,566 - - 262,826
Net loss - March 31,
2001 (unaudited) - - - (150,946) - (150,946)
---------- -------- --------- --------- ------- ---------
Balance, March 31,
2001 (unaudited) 10,260,000 $ 10,260 $ 430,314 $(676,656) $ 2,150 $(233,932)
========== ======== ========= ========= ======= =========
See accompanying notes to financial statements.
F-23
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
December 7,
Three 1997
months (inception)
ended through
December 31, March 31, March 31
----------------------- 2001 2001
2000 1999 (Unaudited) (Unaudited)
---------- ---------- ----------- -----------
Cash flows from operating
activities:
Net loss $(313,903) $(166,291) $(150,946) $(676,656)
Adjustments to
reconcile net loss to
net cash used by
operating activities:
Depreciation and
amortization 16,444 134 9,381 25,960
Common stock issued
for services 11,500 119,250 - 135,205
Stock options granted
for services 550 - - 550
Stock subscriptions
receivable - 1,270 - -
(Increase) decrease in:
Deposits (6,020) - - (6,020)
Increase (decrease) in:
Accounts payable 57,538 14,602 24,762 101,774
Accrued expenses 27,703 12,060 (11,183) 36,830
Due to affiliate 4,473 (1,050) (5,518) 19,816
--------- --------- --------- ---------
Net cash used by operating
activities (201,715) (20,025) (133,504) (362,541)
--------- --------- --------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment - (4,044) - (4,044)
Intangible assets (105,651) - - (105,651)
Net cash used by investing
activities (105,651) (4,044) - (109,695)
--------- --------- --------- ---------
Cash flows from financing
activities:
Issuance of common
stock, net 3,000 - - 34,545
Increase in loans payable 309,300 23,710 155,000 464,300
--------- --------- --------- ---------
Net cash provided by
financing activities 312,300 23,710 155,000 498,845
--------- --------- --------- ---------
Net increase (decrease)
in cash 4,934 (359) 21,496 26,609
Cash at beginning of
period 179 538 5,113 -
--------- --------- --------- ---------
Cash at end of period $ 5,113 $ 179 $ 26,609 $ 26,609
========= ========= ========= =========
See accompanying notes to financial statements.
F-24
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
December 7,
Three 1997
months (inception)
ended through
December 31, March 31, March 31
----------------------- 2001 2001
2000 1999 (Unaudited) (Unaudited)
---------- ---------- ----------- -----------
Supplementary information:
Cash paid for:
Interest $ - $ - $ - $ -
========= ========= ========= =========
Income taxes $ - $ - $ - $ -
========= ========= ========= =========
Non-cash disclosures of
investing and financing
activities:
License fee and
related payable $ 260,000 $ - $ - $ 260,000
========= ========= ========= =========
Common stock issued
for license $ 8,000 $ - $ - $ 8,000
========= ========= ========= =========
Stock options granted
to licensor $ 1,600 $ - $ - $ 1,600
========= ========= ========= =========
Conversion of debt to
equity $ - $ - $ 260,000 $ 260,000
========= ========= ========= =========
See accompanying notes to financial statements.
F-25
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND DEVELOPMENT STAGE RISK
Quick-Med Technologies, Inc. (the "Company") is a Delaware corporation organized
in December 1997. The Company specializes in the development of single use,
disposable, premium healthcare products. The Company funds research efforts
necessary to develop products, administer the patent process, subcontracts the
manufacture of its products, and collaborate with other companies to introduce
its products into the marketplace. The Company neither produces nor directly
markets its products. Instead, it intends to rely on outside organizations for
those activities.
The Company has no revenues to date. Since its inception, the Company has been
dependent upon the receipt of capital investment or other financing to fund its
continuing activities. In addition to the normal risks associated with a new
business venture, there can be no assurance that the Company's product
development will be successfully completed or that it will be a commercial
success. Further, the Company is dependent upon certain related parties to
provide continued funding and capital resources.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The Company had no
cash equivalents at December 31, 2000 and 1999.
Use of Estimates
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Stock Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 encourages the
use of a fair-value-based method of accounting for stock-based awards under
which the fair value of stock options is determined on the date of grant and
expensed over the vesting period. Under SFAS 123, companies may, however,
measure compensation costs for those plans using the method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees." Companies that apply APB No. 25 are required to include
pro forma disclosures of net earnings and earnings per share as if the
fair-value-based method of accounting had been applied. The Company elected to
account for such plans under the provisions of APB No. 25. The Company accounts
for stock options granted to consultants under SFAS 123 and recognized $363 in
compensation expense.
Unaudited Interim Information
The information presented as of March 31, 2001 has not been audited. In the
opinion of management, the unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 2001, and the
results of its operations and its cash flows for the three months ended March
31, 2001, and the stockholders' deficit for the three months ended March 31,
2001. The results of operations for the three-month period ended March 31, 2001
are not necessarily indicative of the results for the full year.
F-26
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the expected useful
lives of the assets.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
shares as if they were outstanding. Basic and diluted earnings per share are the
same for the years ended 2000 and 1999.
Reclassification
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 financial presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2000:
2000 1999
---------------- --------------
Computer equipment $ 4,044 $ 4,044
Less: accumulated depreciation (943) (134)
---------------- --------------
Net property and equipment $ 3,101 $ 3,910
================ ==============
Depreciation expense for the years ended December 31, 2000 and 1999 was $809 and
$134, respectively.
NOTE 4 - INTANGIBLE ASSET
The intangible asset represents license agreements with two inventors for the
rights to the MMP inhibitors, commencing on September 13, 2000. The license
agreements shall remain in force on a country-by-country basis for the life of
the last-to-expire patent license to the Company under the license agreement.
The licenses are amortized on a straight-line basis over ten years from the date
of the agreement. Accumulated amortization was $15,635 at December 31, 2000.
The Company assesses whether its intangible assets are impaired as required by
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of," based on an evaluation of undiscounted
projected cash flows through the remaining amortization period. If impairment
exists, the amount of such impairment is calculated as the estimated fair value
of the assets.
F-27
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INTANGIBLE ASSET, continued
Under the terms of the license agreements, the Company paid $100,000 and granted
160,000 shares of common stock valued at $0.05 per share and will grant 160,000
stock options. The stock options are valued at the estimated minimum value in
accordance with SFAS 123 of $1,600. In addition, the Company will pay an
additional $100,000 in September 2001 to the licensors. In order to maintain the
exclusive rights to the licenses, the agreements require a total payment of
$160,000 if certain milestones regarding the proof-of-concept and development of
a prototype are completed. If a milestone is not met by the third anniversary of
the agreement, the Company shall pay each inventor $25,000 per year until all
such milestones are completed.
As additional compensation to the licensors, the Company will pay a royalty on
the Company's net sales of licensed products. The royalty rate is 2% on the
first $1,500,000 of applicable quarterly revenue and 1.5% in sales above
$1,500,000. For each sublicense the Company grants, the licensors will be paid
3% of the up-front licensing fee, limited to $100,000.
NOTE 5 - RELATED PARTY TRANSACTIONS
March 2001 (Unaudited)
In March 2001, the Company obtained a short-term note payable due to a
shareholder in the amount of $45,000. The note bears interest at 6% per annum.
In January 2001, the Company obtained a short-term note payable in the amount of
$110,000, due to a shareholder. The note bears interest at 6% per annum. In
March 2001, the Company agreed to convert $150,000 of the outstanding note
payable to a shareholder at December 31, 2000 and the additional $110,000 note
payable obtained in January 2001 from the same shareholder plus accrued interest
of $2,826 into 260,000 shares of common stock. The shareholder and the Company
agreed to a negotiated value of approximately $1 for one share conversion ratio.
2000
At December 31, 2000 the Company had a note payable of $25,334 for funds
advanced from an affiliated company/shareholder, through common ownership. The
note is short-term, bears interest at 6% and is expected to be paid by December
31, 2001.
At December 31, 2000, the Company had notes payable of $150,000 for funds
advanced from a shareholder of the Company. The note is short term and bears
interest at 6.0%. In March 2001, the Company issued approximately 150,000 shares
of its common stock in satisfaction of these notes.
At December 31, 2000, the Company had notes payable to a relative of the
President of $9,300. The note is short term; bears interest at 6.0% and is
expected to be paid by December 31, 2001.
At December 31, 2000, the Company has $4,097 in the accounts payable balance
that is due to shareholders of the Company for reimbursable expenses.
At December 31, 2000, the Company paid $2,250 in rent to the President for the
sub-lease of office space. The sub-lease is for a period of one year and expires
in July 2001.
F-28
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' DEFICIT
The Company is authorized to issue 11,000,000 shares of stock, of which
10,000,000 are common stock, par value $0.001 per share, and 1,000,000 shares of
preferred stock, par value $0.001 per share. Earnings per share have been
calculated as if the shares had been issued at December 31, 2000 and 1999.
March 2001 (Unaudited)
In March 2001, the Company increased the number of authorized common shares to
15,000,000.
2000
During the year ended December 31, 2000, the Company issued 230,000 shares of
common stock for consulting and legal services. The Company recorded $11,500
($0.05 per share) in compensation expense.
On September 12, 2000, the Company issued 160,000 common shares in connection
with the acquisition of the license agreement. These shares were valued at $0.05
per share.
During the year, the Company sold 4,500 shares of its common stock for cash of
$3,000 ($0.67 per share).
1999
The Company issued 2,385,000 shares of common stock in 1999 for consulting
services provided to the Company. These shares were assigned a value of $0.05
per share in 1999, and the Company recognized $119,250 in consulting expense.
NOTE 7 - STOCK OPTIONS
During the years ended December 31, 2000 and 1999, 215,000 and 360,000 options
were granted to officers and directors of the Company at exercise prices of
$2.00 to $3.00 per share.
The Company has elected to account for the stock options under the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, no compensation expense has been
recognized on the employee stock options. The Company accounts for stock options
granted to consultants under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation."
Had the compensation expense for the stock option plan been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statements of Financial Standards No. 123, "Accounting for
Stock Based Compensation," the Company's net earnings for the years ended
December 31, 2000 and 1999 would have been decreased by $-0- and $2,376,
respectively. The fair value of each option is estimated on the date of grant
using the fair market option-pricing model with the assumption:
F-29
QUICK-MED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS, continued
Risk-free interest rate 6.5%
Expected life (years) Various
Expected volatility N/A
Expected dividends None
A summary of options during the years ended December 31, 2000 and 1999 is shown
below:
December 31, 2000 December 31, 1999
-------------------------------------- --------------------------------------
Number Weighted-Average Number Weighted-Average
of Shares Exercise Price of Shares Exercise Price
----------------- ----------------- ---------------- -----------------
Outstanding at January 1, 1998 625,000 $ 2.00 265,000 $ 2.00
Granted 215,000 2.93 360,000 2.00
Exercised - - - -
Forfeited - - - -
------------------ ------------------- ---------------- -----------------
Outstanding at December 31 840,000 $ 2.24 625,000 $ 2.00
------------------ =================== ---------------- =================
Exercisable at December 31 840,000 625,000
------------------ ----------------
Available for issuance at December 3 840,000 625,000
================== ================
At December 31, 2000 and 1999, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
2000 1999
--------------------- ---------------------
Net Loss
As reported $ (313,903) $ (166,291)
===================== =====================
Pro forma $ (313,903) $ (169,891)
===================== =====================
Loss per share
As reported $ (0.03) $ (0.02)
===================== =====================
Pro forma $ (0.03) $ (0.02)
===================== =====================
NOTE 8 - INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
standard requires, among other things, recognition of future tax consequences,
measured by enacted tax rates attributable to taxable and deductible temporary
differences between financial statement and income tax bases of assets and
liabilities. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in the deferred
tax asset and liability.
F-30
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES, continued
For income tax purposes, the Company has elected to capitalize the start-up
costs incurred during 1999 of $40,495 and in 2000 of approximately $271,000. The
start-up costs will be amortized over sixty (60) months in accordance with the
Internal Revenue Code. The Company's evaluation of the tax benefit of its carry
forward is presented in the following table. The tax amounts have been
calculated using the 34% federal and 6.0% state income tax rates.
The (provision) benefit for income taxes consists of the following:
2000 1999
--------------- -------------
Current $ - $ -
Deferred - -
--------------- -------------
$ - $ -
=============== =============
Deferred tax assets for 2000 and 1999 consist of the following:
2000 1999
--------------- -------------
Deferred tax asset:
Tax benefit of capitalized start-up costs $ 111,456 $ 23,765
Net operating loss carry forward 15,907 2,633
Less: valuation allowance (127,363) (26,398)
--------------- -------------
Deferred tax asset $ - $ -
=============== =============
The Company has net operating loss carry forwards of $39,767, which will begin
to expire in 2013.
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
organization will continue as a going concern. The organization has negative
cash flows from operations and an accumulated deficit that raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Management expects that until completion of its reverse merger described in Note
11, that it will fund its working capital through loans and advances from
stockholders.
NOTE 10 - NOTES PAYABLE
The Company has a $150,000 note payable with a merchant bank. Interest accrues
at a rate of 6% per annum and is unsecured. The remaining principle and accrued
interest is due June 30, 2001.
NOTE 11 - MERGER AGREEMENT (Unaudited)
In March 2001 the Company entered into an agreement with Above Average
Investments, Ltd. ("AAI") and its shareholders to acquire all of the issued and
outstanding shares of capital stock of the Company in exchange for 10,260,000
shares of AAI's capital stock. For accounting purposes, the public shell merger
will be treated as a recapitalization of the Company.
F-31
ABOVE AVERAGE INVESTMENTS, LTD.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 11 - MERGER AGREEMENT (Unaudited), continued
Subsequent to the merger, assuming AAI's shareholders reconfirm their
investment, the Company's shareholders will retain 80.4% of the outstanding
shares of capital stock. Upon ratification of the public shell merger by its
shareholders, AAI, the surviving entity, will change its name to Quick-Med
Technologies, Inc.
F-32
Above Average Investments, LTD.
Pro Forma Combined Balance Sheets
June 30, 2000
(Unaudited)
Historical
AA Investments Quick-Med Pro Forma
June 30, 2000 June 30, 2000 Total Adjustments Combined
Current assets:
Cash $ - $ 38,838 $ 38,838 $ 125,000 $ 163,838
-----------------------------------------------------------------------------------------------
Total current assets - 38,838 38,838 125,000 163,838
Property and equipment, net - 3,506 3,506 3,506
-----------------------------------------------------------------------------------------------
Other assets:
Stockholder loans receivable - 1,737 1,737 1,737
-----------------------------------------------------------------------------------------------
Total other assets - 1,737 1,737 - 1,737
-----------------------------------------------------------------------------------------------
Total assets $ - $ 44,081 $ 44,081 $ 125,000 $ 169,081
===============================================================================================
Current liabilities:
Accounts payable $ 3,795 $ 29,905 $ 33,700 $ 33,700
Accrued expenses - 33,899 33,899 33,899
Loans payable - 9,300 9,300 9,300
Stockholder loans payable - 50,000 50,000 50,000
Due to affiliate - 13,710 13,710 13,710
-----------------------------------------------------------------------------------------------
Total current liabilities 3,795 136,814 140,609 - 140,609
Common stock subject to redemption
Stockholders' equity:
Common stock 50 10,000 10,050 (a) (8,774) 1,276
Additional paid in capital 15,070 56,748 71,818 (a) 114,859 186,677
Accumulated deficit (18,915) (159,481) (178,396) (a) 18,915 (159,481)
-----------------------------------------------------------------------------------------------
Total stockholders' equity (3,795) (92,733) (96,528) 125,000 28,472
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ - $ 44,081 $ 44,081 $ 125,000 $ 169,081
===============================================================================================
1. The Pro Forma Balance Sheet at June 30, 2000 is based upon the balance
sheets of the Registrant and Quick-Med Technologies, Inc. as of June
30, 2000.
(a) To record the public shell merger of the Registrant and Quickmed.
10,260,000 shares of common stock issue in exchange for 100% of Quickmed
common stock and the IPO of 2,500,000 shares in exchange for $125,000 of
the Registrant. (The total number of shares outstanding after the merger
will be 12,760,000 shares.) The assets of AAI are recorded at their net
asset value.
F-33
Above Average Investments, LTD.
Pro Forma Combined Statement of Income
For the year ended June 30, 2000
(Unaudited)
Historical
AA Investments Quick-Med
Year ended Year ended Pro Forma
June 30, 2000 June 30, 2000 Total Adjustments Combined
Revenues earned $ - $ - $ - $ -
Cost of revenues earned - - - -
-----------------------------------------------------------------------------------------------
Gross profit - - - -
Operating expenses:
Selling, general and admn expense 17,157 101,240 118,397 118,397
-----------------------------------------------------------------------------------------------
Total operating expenses 17,157 101,240 118,397 118,397
Loss from operations (17,157) (101,240) (118,397) (118,397)
Other expense
Interest expense - 2,090 2,090 2,090
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net loss $ (17,157) $ (103,330) $ (120,487) $ - $ (120,487)
===============================================================================================
Basic net loss per share $ (0.03) $ (0.01)
================== ==================
Wieghted average shares
outstanding 500,000 12,760,000
================== ==================
Fully diluted net loss per share $ (0.03) $ (0.01)
================== ==================
Fully diluted average shares
outstanding 500,000 12,760,000
================== ==================
1. The Pro Forma Statement of Operations for the year ended June 30, 2000
is based upon the year ended June 30, 2000 for the Registrant and
Quickmed Technologies, Inc. and gives effect to the public shell merger
as if it had occured on July 1, 1999.
2. The June 30, 2000 earnings per share has been adjusted to reflect the
10,260,000 shares issued for Quick-med and the 2,500,000 IPO shares.
The total number of shares outstanding after the merger will be
12,760,000 shares.
F-34
Above Average Investments, LTD.
Pro Forma Combined Balance Sheets
March 31,2001
(Unaudited)
Historical
AA Investments Quick-Med Pro Forma
March 31, 2001 March 31, 2001 Total Adjustments Combined
Current assets:
Cash $ - $ 26,609 $ 26,609 (b) $ 125,000 $ 151,609
Cash restricted 125,000 125,000 (b) (125,000) -
-----------------------------------------------------------------------------------------------
Total current assets 125,000 26,609 151,609 - - 151,609
Property and equipment, net - 3,101 3,101 3,101
-----------------------------------------------------------------------------------------------
Other assets:
Deposits - 6,020 6,020 6,020
Intangible assets, net - 350,234 350,234 350,234
-----------------------------------------------------------------------------------------------
Total other assets - 356,254 356,254 - 356,254
-----------------------------------------------------------------------------------------------
Total assets $ 125,000 $ 385,964 $ 510,964 $ - $ 510,964
===============================================================================================
Current liabilities:
Accounts payable $ - $ 101,776 $ 101,776 $ 101,776
Accrued expenses 3,581 34,004 37,585 37,585
License payable - 260,000 260,000 260,000
Loans payable - 150,000 150,000 150,000
Shareholder loans payable - 54,300 54,300 54,300
Due to affiliate/shareholder - 19,816 19,816 19,816
-----------------------------------------------------------------------------------------------
Total current liabilities 3,581 619,896 623,477 - 623,477
Common stock subject to redemption 125,000 125,000 (b) (125,000) -
Stockholders' equity:
Common stock 50 10,260 10,310 (a) (9,034) 1,276
Additional paid in capital 51,806 430,314 482,120 (a), (b) 78,597 560,717
Outstanding stock options 2,150 2,150 2,150
Accumulated deficit (55,437) (676,656) (732,093) (a) 55,437 (676,656)
-----------------------------------------------------------------------------------------------
Total stockholders' equity (3,581) (233,932) (237,513) 125,000 (112,513)
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 125,000 $ 385,964 $ 510,964 $ - $ 510,964
===============================================================================================
1. The Pro Forma Balance Sheet at March 31, 2001 is based upon the balance
sheets of the Registrant and Quick-Med Technologies, Inc. as of March
31, 2001.
(a) To record the public shell merger of the Registrant and Quickmed.
10,260,000 shares of common stock issue in exchange for 100% of
Quickmed common stock and the IPO of 2,500,000 shares in exchange for
$125,000 of the Registrant. (The total number of shares outstanding
after the merger will be 12,760,000 shares.) The assets of AAI are
recorded at their net asset value.
(b) To reclass the restricted cash to unrestricted cash and to reclass the
stock subject to redemption to common stock. (The net assets of AAI at
March 31, 2001 was $121,419.)
F-35
Above Average Investments, LTD.
Pro Forma Combined Statement of Income
For the nine months ended March 31, 2001
(Unaudited)
Historical
AA Investments Quick-Med
Nine months ended Nine months ended Pro Forma
March 31, 2001 March 31, 2001 Total Adjustments Combined
Revenues earned $ - $ - $ - $ -
Cost of revenues earned - - - -
Gross profit - - - - -
Operating expenses:
Selling, general and admn expense 36,522 413,447 449,969 449,969
-----------------------------------------------------------------------------------------------
Total operating expenses 36,522 413,447 449,969 - 449,969
Loss from operations (36,522) (413,447) (449,969) (449,969)
Other expense
Interest expense - 8,328 8,328 - 8,328
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net loss $ (36,522) $ (421,775) $ (441,641) $ - $ (458,297)
===============================================================================================
Basic net loss per share $ (0.03) $ (0.04)
================== ==================
Wieghted average shares
outstanding 1,412,409 12,760,000
================== ==================
Fully diluted net loss per share $ (0.03) $ (0.04)
================== ==================
Fully diluted average shares
outstanding 1,412,409 12,760,000
================== ==================
1. The Pro Forma Statement of Operations for the nine months ended March
31, 2001 is based upon the nine months ended March 31, 2001 for the
Registrant and Quickmed Technologies, Inc. and gives effect to the
acquisition as if it had occured on July 1, 2000.
2. The June 30, 2000 earnings per share has been adjusted to reflect the
10,260,000 shares issued for Quick-med and the 2,500,000 IPO shares.
The total number of shares outstanding after the merger will be
12,760,000 shares.
F-36
[BACK COVER]
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of officers and directors
The information required by this Item is incorporated by reference to
"Indemnification of Officers and Directors" in the prospectus.
Item 25. Other Expenses of Issuance and Distribution
Our estimated expenses in connection with the issuance and distribution
of the securities being registered are estimated to be as follows:
Securities and Exchange Commission filing fee $ 56
Legal fees and expenses 50,000
Accounting fees and expenses 14,000
Marketing expenses 1,000
Miscellaneous 500
------
Total $ 65,556
======
Management will bear all expenses shown above.
Item 26. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities by the Company in
the past three years.
Following is a description of all securities that Quick-Med has issued
within the past three years without registering the securities under the
Securities Act:
o In 1998, Quick-Med sold an aggregate of 7,220,500 shares of common
stock for aggregate cash consideration of $30,275 (or $.004193 per
share of common stock).
o In 2000, Quick-Med issued 9,498,000 shares for payment of services to 7
persons and granted stock options to purchase an aggregate of 840,000
shares of common stock to officers, directors, employees and
consultants with aggregate exercise price of $2.00 per share pursuant
to its stock option plan. As of May 31, 2001, no shares of common stock
have been issued upon exercise of options.
No underwriters were used in connection with these sales and issuances
above. We relied upon Section 4 (2) of the Securities Act in each of the private
placement transactions listed above. We determined, based on information
received from the investors, including questionnaires and representations
contained in the purchase agreements, that each investor was either an
accredited investor or had such knowledge and experience in financial matters
such that he or she was capable of evaluating the merits and risks of the
investments. All recipients either received adequate information about us or had
access, through employment or other relationships, to such information. The
recipients of securities in each transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions.
II-1
Item 27. Exhibits
2.1** Merger Agreement dated March 19, 2001 between Above Average Investments
Ltd. and Quick-Med Technologies, Inc.
3.1* Articles of Incorporation
3.2* Amendment to Articles of Incorporation
3.3* Bylaws
4.1* Specimen Informational Statement
4.1.2** Share Purchase Agreement
5.1 Opinion of Foley & Lardner with respect to the legality of the shares
being registered
10.1 Quick-Med's MMP License Agreement
10.1.1 Amendment to Merger Agreement
10.2 Quick-Med Stock Option Plan
23.1.1 Consent of Kish, Leake & Associates, P.C.
23.1.2 Consent of Cordovano & Harvey, P.C.
23.1.3 Consent Daszkal Bolton Manela Devlin & Co.
23.2 Consent of Evers & Hendrickson LLP (included in Exhibit 5.1)
23.3 Consent of Michael R. Granito, Ph.D.
Consent of David S. Lerner
Consent of Paul G. Cerjan, Lt. Gen./Ret.
Consent of George E. Friel, Maj. Gen./Ret.
Consent of Gerald M. Olderman, Ph.D.
Consent of Gregory S. Schultz, Ph.D.
Consent of Michael D. Karsch
99.1** Escrow Agreement
99.2 Form of Reconfirmation Letter
* Incorporated by reference to Form 10-SB, File No. 000-27545, filed
October 4, 1999.
** Previously filed.
*** To be filed in an amendment.
Item 28. Undertakings
We undertake that we will:
1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
II-2
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the bona fide offering.
3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
We undertake to provide to the underwriters at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as the underwriter requires to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, we have 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.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Kelowna, Province of British Columbia, Canada,
on July 6, 2001.
ABOVE AVERAGE INVESTMENTS, LTD.
/s/ Bob Hemmerling
---------------------------
Bob Hemmerling, Director
Signature Title Date
/s/ Bob Hemmerling Director July 6, 2001
--------------------------
Bob Hemmerling,
/s/ Devinder Randhawa President and Director July 6, 2001
--------------------------
Devinder Randhawa
II-4