UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------------------
FORM 8-K/A
(Amendment No. 3)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
-------------------------------------------------------------------
Date of Report (Date of earliest event reported): April 6, 2005
LIGHTEN UP ENTERPRISES INTERNATIONAL, INC.
------------------------------------------
(Exact Name of Registrant as Specified in Charter)
NEVADA 000-50073 87-0576481
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2200 Powell Street, Suite 675
Emeryville, California 94608
----------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 601-2000
------------------------------------------
(Former name or former address, if changed since last report)
================================================================================
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.13e-4(c))
CURRENT REPORT ON FORM 8-K/A
(AMENDMENT NO. 2)
LIGHTEN UP ENTERPRISES INTERNATIONAL, INC.
EXPLANATORY NOTE:
This Amendment No. 3 on Form 8-K/A amends the Current Report on Form
8-K/A, Amendment No. 2, dated April 6, 2005, of Lighten Up Enterprises
International, Inc., a Nevada Corporation ("Registrant"), filed with the
Securities and Exchange Commission ("SEC") on June 22, 2005, which amended the
Current Report on Form 8-K/A, Amendment No. 1 dated April 6, 2005 of the
Registrant filed with the SEC on June 3, 2005, which amended the Current Report
on Form 8-K dated April 6, 2005 of the Registrant filed with the SEC on April 8,
2005. This Amendment No. 3 is being filed to correct typographical errors in the
financial information provided pursuant to Item 9.01(b) and (c) below.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. In accordance
with Item 9.01(a), attached hereto are the audited financial statements of
Bionovo, Inc. for the fiscal years ended December 31, 2004 and 2003.
(b) PRO FORMA FINANCIAL INFORMATION. In accordance with Item
9.01(b), attached hereto are the pro forma financial statements of Bionovo, Inc.
(c) EXHIBITS.
The exhibits listed in the following Exhibit Index are filed as part of
this Report.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement of Merger and Plan of Reorganization, dated as of
April 6, 2005, among Lighten Up Enterprises International,
Inc., LTUP Acquisition Corp. and Bionovo, Inc. (incorporated
herein by reference from Exhibit 2.1 to the Registrant's Form
8-K filed with the SEC on April 8, 2005)
3.1(i) Articles of Incorporation of the Registrant (incorporated
herein by reference from Exhibit 3.1(i) to the Registrant's
Form 10-SB filed with the SEC on November 7, 2002)
3.1(ii) Restated and Amended Articles of Incorporation of the
Registrant (incorporated herein by reference from Exhibit
3.1(ii) to the Registrant's Form 10-SB filed with the SEC on
November 7, 2002)
3.1(iii) Certificate of Amendment to Restated and Amended Articles of
Incorporation of the Registrant (incorporated herein by
reference from Exhibit 3.1(iii) to the Registrant's Form 10-SB
filed with the SEC on November 7, 2002)
3.2 By-laws of the Registrant (incorporated herein by reference
from Exhibit 3.2 to the Registrant's Form 10-SB filed with the
SEC on November 7, 2002)
4.1 Form of Private Placement Warrant (incorporated herein by
reference from Exhibit 4.1 to the Registrant's Form 8-K filed
with the SEC on May 11, 2005)
10.1 Form of Private Placement Subscription Agreement (incorporated
herein by reference from Exhibit 10.1 to the Registrant's Form
8-K filed with the SEC on May 11, 2005)
10.2 Form of Private Placement Investor Questionnaire (incorporated
herein by reference from Exhibit 10.2 to the Registrant's Form
8-K filed with the SEC on May 11, 2005)
10.3 Form of Private Placement Registration Rights Agreement
(incorporated herein by reference from Exhibit 10.3 to the
Registrant's Form 8-K filed with the SEC on May 11, 2005)
10.4 Form of Private Placement Acknowledgement and Amendment
(incorporated herein by reference from Exhibit 10.4 to the
Registrant's Form 8-K filed with the SEC on May 11, 2005)
10.5 Registration Rights Agreement, dated September 30, 2004
(incorporated herein by reference from Exhibit 10.5 to the
Registrant's Form 8-K/A, Amendment No. 1, filed with the SEC
on June 3, 2005)
10.6 Stock Incentive Plan, as amended (incorporated herein by
reference from Exhibit 5 to the Registrant's Schedule 14C
filed with the SEC on June 3, 2005)
10.7 Employment Agreement, dated July 1, 2004, between Bionovo,
Inc. and Isaac Cohen (incorporated herein by reference from
Exhibit 10.7 to the Registrant's Form 8-K/A, Amendment No. 1,
filed with the SEC on June 3, 2005)
10.8 Assignment and Assumption Agreement, dated April 6, 2005,
among Registrant, Bionovo, Inc. and Isaac Cohen regarding
Employment Agreement (incorporated herein by reference from
Exhibit 10.8 to the Registrant's Form 8-K/A, Amendment No. 1,
filed with the SEC on June 3, 2005)
10.9 Employment Agreement, dated July 1, 2004, between Bionovo,
Inc. and Mary Tagliaferri (incorporated herein by reference
from Exhibit 10.9 to the Registrant's Form 8-K/A, Amendment
No. 1, filed with the SEC on June 3, 2005)
10.10 Assignment and Assumption Agreement, dated April 6, 2005,
among the Registrant, Bionovo, Inc. and Mary Tagliaferri
regarding Employment Agreement (incorporated herein by
reference from Exhibit 10.10 to the Registrant's Form 8-K/A,
Amendment No. 1, filed with the SEC on June 3, 2005)
10.11 Licensing and Technology Transfer Agreement, dated November 6,
2003, between Bionovo, Inc. and United Biotech Corporation
(certain terms of this agreement have been omitted and are
subject to a request for confidential treatment with the SEC)
(to be filed by amendment)
21.1 Subsidiaries of Registrant (incorporated herein by reference
from Exhibit 21.1 to the Registrant's Form 8-K/A, Amendment
No. 1, filed with the SEC on June 3, 2005)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 27, 2005 LIGHTEN UP ENTERPRISES INTERNATIONAL, INC.
By: /s/ Isaac Cohen
---------------------------------
Isaac Cohen
Chief Executive Officer and President
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
PAGE
----
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
BioNovo, Inc.
Emeryville, California
We have audited the accompanying balance sheets of BioNovo, Inc. (a Development
Stage Company) as of December 31, 2004 and 2003, and the related statements of
operations, stockholders' deficit, and cash flows for the years then ended and
from inception, February 1, 2002, through December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 BioNovo, Inc. as of December
31, 2004 and 2003, and from inception, February 1, 2002, through December 31,
2004, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
San Francisco, California
April 8, 2005
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, December 31,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 196,013 $ 73,867
Due from officers 1,796 --
Prepaid expenses and other current assets -- 15,156
--------- ---------
Total current assets 197,809 89,023
PROPERTY AND EQUIPMENT,
net of accumulated depreciation 9,859 2,795
OTHER ASSETS:
Deferred loan costs
net of accumulated amortization 65,551 --
Patent costs 11,264 --
--------- ---------
$ 284,483 $ 91,818
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 163,613 $ --
Accrued pension payable 52,000 --
Deferred revenue 15,000 15,000
Convertible notes payable 500,000 --
--------- ---------
Total current liabilities 730,613 15,000
--------- ---------
DEFERRED REVENUE 117,500 132,500
--------- ---------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value:
Authorized shares - 24,000,000 issued
and outstanding common shares - 20,400,000
20,400 20,400
Additional paid-in capital 9,600 (20,400)
Accumulated deficit (593,630) (55,682)
--------- ---------
Total stockholders' deficit (563,630) (55,682)
--------- ---------
$ 284,483 $ 91,818
========= =========
The accompanying notes form an integral part of these financial statements. 2
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Accumulated from
Year Ended Year Ended February 1, 2002
December 31, December 31, (Date of Inception) to
2004 2003 December 31, 2004
------------ ------------ ----------------------
REVENUE $ 45,240 $ 2,500 $ 47,740
------------ ------------ ------------
OPERATING EXPENSES:
Research and development 275,600 22,179 297,779
General and administrative 277,433 35,203 312,636
Sales and marketing 500 -- 500
------------ ------------ ------------
Total operating expenses 553,533 57,382 610,915
------------ ------------ ------------
LOSS FROM OPERATIONS (508,293) (54,882) (563,175)
OTHER INCOME (EXPENSE):
Interest expense, net of $495
in 2004, and $0 in 2003 of
interest income (28,855) -- (28,855)
------------ ------------ ------------
LOSS BEFORE INCOME
TAXES (537,148) (54,882) (592,030)
PROVISION FOR INCOME TAXES (800) (800) (1,600)
------------ ------------ ------------
NET LOSS $ (537,948) $ (55,682) $ (593,630)
============ ============ ============
NET LOSS PER SHARE $ (0.026) $ (0.003) $ (0.291)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 20,400,000 20,400,000 20,400,000
============ ============ ============
The accompanying notes form an integral part of these financial statements. 3
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
INCEPTION THROUGH DECEMBER 31, 2004
- --------------------------------------------------------------------------------
Common Stock Accumulated
---------------------------- Additional Deficit During
Number of Paid-In Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ---------- ----------
BALANCE AT INCEPTION - -- $ -- $ -- $ -- $ --
(February 1, 2002)
ISSUANCE OF COMMON STOCK
RESTATED FOR RECAPITALIZATION
ON JUNE 17, 2004 20,400,000 20,400 (20,400) -- --
---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 2002 20,400,000 20,400 (20,400) -- --
NET LOSS (55,682) (55,682)
---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 2003 20,400,000 20,400 (20,400) (55,682) (55,682)
NONCASH COMPENSATION
EXPENSE FOR OPTIONS ISSUED -- -- 30,000 -- 30,000
NET LOSS (537,948) (537,948)
---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 2004 20,400,000 $ 20,400 $ 9,600 $ (593,630) $ (563,630)
========== ========== ========== ========== ==========
The accompanying notes form an integral part of these financial statements. 4
BIONOVO, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Accumulated from
Year Ended Year Ended February 1, 2002
December 31, December 31, (Date of Inception) to
2004 2003 December 31, 2004
------------ ------------ ----------------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $(537,948) $ (55,682) $(593,630)
--------- --------- ---------
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Depreciation 1,821 3,090 4,911
Amortization of note discount 21,850 -- 21,850
Noncash compensation expense for options issued 30,000 30,000
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Prepaid expenses 15,156 (15,156) --
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 163,613 -- 163,613
Deferred tax liability (15,000) 147,500 132,500
Accrued pension payable 52,000 -- 52,000
--------- --------- ---------
Total adjustments 269,440 135,434 404,874
--------- --------- ---------
Net cash provided by (used for) operating activities (268,508) 79,752 (188,756)
--------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of intangible assets (11,264) -- (11,264)
Acquisition of fixed assets (8,885) (5,885) (14,770)
Advance to officers (1,796) -- (1,796)
--------- --------- ---------
Net cash used for investing activities (21,945) (5,885) (27,830)
--------- --------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from convertible notes payable 500,000 -- 500,000
Payments for financing costs for convertible notes (87,401) -- (87,401)
--------- --------- ---------
Net cash provided by financing activities 412,599 -- 412,599
--------- --------- ---------
NET INCREASE IN CASH 122,146 73,867 196,013
CASH, beginning of year 73,867 -- --
--------- --------- ---------
CASH, end of year $ 196,013 $ 73,867 $ 196,013
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ -- $ -- $ --
========= ========= =========
Income taxes paid $ 800 $ 800 $ 1,600
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
INVESTING ACTIVITIES-
Noncash compensation expense for options issued $ 30,000 $ -- $ 30,000
========= ========= =========
The accompanying notes form an integral part of these financial statements. 5
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FORMATION AND BUSINESS OF THE COMPANY:
BioNovo, Inc., (the "Company") was incorporated in California
on February 2, 2002. A new company was formed and incorporated
in Delaware on March 3, 2004, and was merged and recapitalized
with the California corporation.
The Company is a drug discovery and development company
focusing on cancer and women's health, primarily using select
plant extracts to screen against well understood therapeutic
targets. The Company has a unique developmental pathway that
leverages understanding of modern drug discovery with
experience in clinical development.
DEVELOPMENT STAGE COMPANY:
The Company has not generated any significant revenue since
inception. The accompanying financial statement has,
therefore, been prepared using the accounting formats
prescribed for a development stage enterprise (DSE). Although
the Company has recognized some revenue, the Company still
believes it is devoting substantial efforts on developing the
business and, therefore, still qualifies as a DSE.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the amounts in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash equivalents, accounts receivable,
accounts payable, and notes payable approximates their fair
value either due to the short duration to maturity or a
comparison to market interest rates for similar instruments.
CASH:
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with an original maturity of three months or less at the time
of purchase to be cash equivalents. The Company maintains the
majority of its cash and cash equivalents at two major banks.
CASH CONCENTRATION
The Company maintains its cash in bank accounts, which at
times may exceed federally insured limits. The Company has not
experienced any losses on such accounts.
6
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT:
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which generally
range from three to five years.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company assesses the impairment of its long-lived assets
periodically in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") 144, "Accounting for
the Impairment and Disposal of Long-Lived Assets". Whenever
events or changes in circumstances indicate that the carrying
amounts of long-lived assets may not be recoverable, the
Company will compare undiscounted net cash flows estimated to
be generated by those assets to the carrying amount of those
assets. When these undiscounted cash flows are less than the
carrying amounts of the assets, the Company will record
impairment losses to write the asset down to fair value,
measured by the discounted estimated net future cash flows
expected to be generated from the assets. To date there has
been no impairment.
DEFERRED LOAN COSTS:
Deferred loan costs relate to the direct costs related to
obtaining debt financing for the Company and will be amortized
over the life of the debt using the effective interest method
of accounting.
PATENT COSTS:
Intangible assets consist of patent licensing costs to date.
If the patents are awarded, the costs will be amortized over
the term of the patents. If the patents are not awarded, the
costs related to those patents will be expensed in the period
that determination is made.
INCOME TAXES:
Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each
year end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
DEFERRED REVENUE:
Deferred revenue consists of upfront fees received for
technology licensing that have not yet been recognized or
earned.
7
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CONVERTIBLE NOTES PAYABLE:
In January 2001, the Financial Accounting Standards Board
Emerging Issues Task Force issued EITF 00-27 effective for
convertible debt instruments issued after November 16, 2000.
This pronouncement requires the use of the intrinsic value
method for recognition of the detachable and imbedded equity
features included with indebtedness and requires amortization
of the amount associated with the convertibility feature over
the life of the debt instrument rather than the period for
which the instrument becomes convertible.
STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation in
accordance with Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and
complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Under APB No. 25,
compensation cost is recognized over the vesting period based
on the excess, if any, on the date of grant of the market
value of the Company's shares over the employee's exercise
price. When the exercise price of the option is less than the
fair value price of the underlying shares on the grant date,
deferred stock compensation is recognized and amortized to
expense in accordance with Financial Accounting Standards
Board ("FASB") Interpretation No. 44 over the vesting period
of the individual options.
Accordingly, if the exercise price of the Company's employee
options equals or exceeds the market price of the underlying
shares on the date of grant, no compensation expense is
recognized. Options or shares awards issued to nonemployees
are valued using the Black-Scholes pricing model and expensed
over the period services are provided.
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure",
which amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition
for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 expands the disclosure requirements of SFAS No.
123 to require more prominent disclosures in both annual and
interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the
method used on reported results. The transition provisions of
SFAS No. 148 are effective for fiscal years ended after
December 15, 2002. The transition provisions do not currently
have an impact on the Company's financial position and results
of operations as the Company has not elected to adopt the fair
value-based method of accounting for stock-based employee
compensation under SFAS NO. 123. The disclosure provisions of
SFAS No. 148 are effective for financial statements for
interim periods beginning after December 15, 2002. The Company
adopted the disclosure requirements in the first quarter of
fiscal year 2003.
8
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
STOCK-BASED COMPENSATION (CONTINUED):
The following table illustrates the effect on net loss and
loss per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to Stock-Based Employee
Compensation.
Years Ended December 31,
-------------------------
2004 2003
--------- ---------
Net income (loss) available as reported $(537,948) $ (54,882)
Compensation recognized under APB 25 30,000 --
Compensation recognized under SFAS 123 (100,000) --
--------- ---------
Pro-forma net income (loss) available $(607,948) $ (54,882)
========= =========
Loss per share, as reported $ (0.026) $ (0.003)
========= =========
Loss per share, pro-forma $ (0.030) $ (0.003)
========= =========
For grants in 2004, the following assumptions were used: (i)
no expected dividends; (ii) a risk-free interest rate ranging
from 3.5% to 5.5% during the year ended December 31, 2004,
(iii) expected volatility 0.0%, and (iv) an expected life of
the stated life of the option for options granted in 2004. The
fair value was determined using the Black-Scholes
option-pricing model.
The estimated fair value of grants of stock options and
warrants to nonemployees of the Company is charged to expense,
if applicable, in the financial statements. These options vest
in the same manner as the employee options granted under each
of the option plans as described above.
REVENUE RECOGNITION:
Revenue is generated from collaborative research and
development arrangements, technology licenses, and government
grants. To date only revenue from technology licenses has been
received.
Revenue is recognized when the four basic criteria of revenue
recognition are met: (i) a contractual agreement exists; (ii)
transfer of technology has been completed or services have
been rendered; (iii) the fee is fixed or determinable, and
(iv) collectibility is reasonably assured.
Technology license agreements are for a term of ten years and
consist of nonrefundable upfront license fees and royalty
payments. In accordance with Staff Accounting Bulletin 104,
nonrefundable upfront license fees are recognized over the
license term using the straight-line method of accounting when
the technology is transferred or accessed, provided that the
technology transferred or accessed is not dependent on the
outcome of the Company's continuing research and development
efforts.
9
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RESEARCH AND DEVELOPMENT:
Research and development expenses include internal and
external costs. Internal costs include salaries and employment
related expenses and allocated facility costs. External
expenses consist of costs associated with outsourced clinical
research organization activities, sponsored research studies,
product registration, and investigator sponsored trials. In
accordance with SFAS No. 2, "ACCOUNTING FOR RESEARCH
DEVELOPMENT COSTS", all such costs are charged to expense as
incurred.
(2) RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2004, the Financial Accounting standards Board ("FASB")
issued SFAS No. 123(R), "Share-Based Payment". SFAS No. 123(R)
addresses accounting for share-based payments to employees, including
grants of employee stock options. Under the new standard, companies
will no longer be able to account for share-based compensation
transactions using the intrinsic method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". Instead, companies will be required to account for such
transactions using a fair-value method and recognize the expense in the
statement of income. SFAS No. 123(R) will be effective for periods
beginning after June 15, 2005, and allows, but does not require,
companies to restate the full fiscal year of 2005 to reflect the impact
of expensing share-based payment under SFAS No. 123(R). The Company has
not yet determined which fair-value method and transitional provision
it will follow. However, it expects that the adoption of SFAS No.
123(R) will have a significant impact on its results of operations. The
Company does not expect the adoption of SFAS No. 123(R) will impact its
overall financial position. There was no impact on net income and net
income per share from calculating stock-based compensation costs under
the fair value alternative of SFAS No. 123. However, the calculation of
compensation cost for share-based payment transactions after the
effective date of SFAS 123(R) will be different from the calculation of
compensation cost under SFAS No. 123, but such differences have not yet
been quantified.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an Amendment of FASB Statements No.
66 and 67" ("SFAS No. 152"). This Statement amends FASB Statement No.
66, "Accounting for Sales of Real Estate", to reference the financial
accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". This
Statement also amends FASB Statement No. 67, "Accounting for Costs and
Initial Rental Operations of Real Estate Projects", to state that the
guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects do not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject
to the guidance in SOP 04-2. This Statement is effective for financial
statements for fiscal years beginning after June 15, 2005, with earlier
application encouraged. The Company has evaluated the impact of the
adoption of SFAS No. 152 and does not believe the impact will be
significant to the Company's overall results of operations or financial
position, as the Company does not engage in these sorts of
transactions.
10
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(2) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets", an amendment of AOB Opinion No. 29. This statement
was the result of a joint effort by the FASB and the International
Accounting Standards Board ("IASB") to improve financial reporting by
eliminating certain narrow differences between their existing
standards. One such difference was the exception from fair value
measurement in AOB Opinion No. 29, "Accounting for Nonmonetary
Transactions", for nonmonetary exchanges of similar productive assets.
SFAS No. 153 replaces this exception with a general exception from fair
value measurement for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement shall be
applied prospectively and is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company
does not believe that the adoption of SFAS No. 153 will have a material
effect on its financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
Amendment of ARB No. 42, Chapter 4". The amendments made by Statement
No. 151 clarify that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges and require the allocation of
fixed production overheads to inventory based on the normal capacity of
the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during
fiscal years beginning after November 23, 2004. The Company has
evaluated the impact of the adoption of SFAS No. 151 and does not
believe the impact will be significant to the Company's overall results
of operations or financial position.
In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus on recognition and measurement guidance previously discussed
under EITF No. 03-01, "The Meaning of Other-Than-Temporary Impairment
and Its Application To Certain Investments". The consensus clarified
the meaning of other-than-temporary impairment and its application to
debt and equity investments accounted for under SFAS No. 115 and other
investments accounted for under the cost method. The recognition and
measurement guidance for which the consensus was reached in March 2004
is to be applied to other-than-temporary impairment evaluations in
reporting periods beginning after June 15, 2004. In September 2004, the
FASB issued a final FASB Staff Position that delays the effective date
for the measurement and recognition guidance for all investments within
the scope of EITF No 03-01. The consensus reached in March 2004 also
provided for certain disclosure requirements associated with cost
method investments that were effective for fiscal years ending after
June 15, 2004. The Company will evaluate the effect of adopting the
recognition and measurement guidance when the final consensus is
reached.
In December 2003, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 132 (Revised 2003) "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This standard replaces
FAS-132 of the same title, which was previously issued in February
1998. The revised FAS-132 was issued in response to concerns expressed
by
11
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(2) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
financial statement users about their need for more transparency of
pension information. The revised standard increases the existing GAAP
disclosures for defined benefit pension plans and other defined benefit
postretirement plans. However, it does not change the measurement or
recognition of those plans as required under FAS-87, "Employers'
Accounting for Pensions", FAS-88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and FAS-106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". Specifically, the revised
standard requires companies to provide additional disclosures about
pension plan assets, benefit obligations, cash flows, and benefit costs
of defined benefit pension plans and other defined benefit
postretirement plans. Also, for the first time, companies are required
to provide a breakdown of plan assets by category, such as debt,
equity, and real estate, and to provide certain expected rates of
return and target allocation percentages for these asset categories.
The revised FAS-132 is effective for financial statements with fiscal
years ending after December 15, 2003, and for interim periods beginning
after December 15, 2003. The adoption of this Statement did not have a
material impact on the Company's financial position, results of
operations, or cash flows.
In December 2003, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition". SAB
No. 104 supersedes SAB No. 101, "Revenue Recognition in Financial
Statements". SAB 104's primary purpose is to rescind accounting
guidance contained in SAB No. 101 related to multiple element revenue
arrangements, superseded as a result of the issuance of EITF 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables".
Additionally, SAB No. 104 rescinds the SEC's Revenue Recognition in
Financial Statements Frequently Asked Questions and Answers ("the FAQ")
issued with SAB No. 101 that had been codified in SEC Topic 13, Revenue
Recognition. Selected portions of the FAQ have been incorporated into
SAB No. 104. While the wording of SAB No. 104 has changed to reflect
the issuance of EITF 00-21, the revenue recognition principles of SAB
No. 101 remain largely unchanged by the issuance of SAB No. 104, which
was effective upon issuance. The adoption of SAB No. 104 did not impact
the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
issuers classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). With certain exceptions,
this Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies financial accounting and reporting of derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement is effective for contracts
entered into or modified after June 30, 2003, except for certain
hedging
12
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(2) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
relationships designated after June 30, 2003. The adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or cash flows.
In January 2003, the FASB issued FASB Interpretation No. ("FIN") 46
(revised December 2003 by FIN 46R), CONSOLIDATION OF VARIABLE INTEREST
ENTITIES, which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through
means other than voting rights and, accordingly, should consolidate the
entity. The Company will be required to apply FIN 46R to variable
interests in variable interest entities ("VIEs") created after December
31, 2004. For variable interests in VIEs that must be consolidated
under FIN 46R that were created before January 1, 2004, the assets,
liabilities, and noncontrolling interests of the VIE initially would be
measured at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting
change. If determining the carrying amounts is not practicable, fair
value at the date FIN 46R first applies may be used to measure the
assets, liability, and noncontrolling interest of the VIE. The Company
believes the adoption of FIN 46R will not have a material impact to its
financial position, results of operations, or cash flows as the Company
does not have any VIEs.
(3) MAJOR CUSTOMERS:
During the year ended December 31, 2003, one nonrelated customer
accounted for 100% of the revenue. There were no major customers for
December 31, 2004.
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
December 31, December 31,
2004 2003
------------ ------------
Furniture and fixtures $14,770 $ 5,884
Less accumulated depreciation (4,911) (3,089)
------- -------
$ 9,859 $ 2,795
======= =======
13
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(5) DEFERRED LOAN COSTS:
A summary is as follows:
December 31, December 31,
2004 2003
------------ ------------
Loan Costs $ 87,401 $ --
Less accumulated amortization (21,850) --
-------- --------
$ 65,551 $ --
======== ========
(6) PENSION PLAN:
During the year ended December 31, 2004, the Company has adopted a
simplified Employee Pension Program where the Company, on a
discretionary basis, can contribute up 25% of eligible participant
salaries up to an annual maximum in accordance with IRS regulations.
The Company made a $ 52,000 contribution for the year ending December
31, 2004.
(7) CONVERTIBLE NOTES PAYABLE:
The Company issued $500,000 of convertible notes payable on September
30, 2004. The notes are secured and bear interest at 6% per annum.
Principal and interest are due on September 30, 2005. The notes are
convertible into common stock at a conversion price equal to $0.4315
per share ($0.3596 post split price) of stock at the option of the
holder prior to the due date. There are registration rights attached to
the underlying shares of the convertible feature. It has been
determined that there is no beneficial element of the conversion
feature after the allocation of the warrants, discussed below, as set
forth in EITF 00-27, as the conversion feature approximates the fair
value of the shares on the date they were issued.
Additionally, the note holders received 463,436 warrants (556,123 post
split warrants) to purchase common stock in connection with the
issuance of convertible notes. The warrants are exercisable at $0.6473
($0.5394 post split) per share of stock and are for a term of five
years. The fair value attributable to these warrants was $0 as of
September 30, 2004. The fair value was determined using Black-Scholes
option-pricing method, a 3.50% risk-free interest rate, and .0%
expected volatility for a nonpublic company.
14
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(8) INCOME TAXES:
The provision for income taxes consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Current:
Federal $ -- $ --
State (800) (800)
Deferred taxes -- --
--------- ---------
Income tax provision $ (800) $ (800)
========= =========
The difference between the provision for income taxes and the U.S.
statutory income tax rate of 34% is as follows:
December 31, December 31,
2004 2003
------------ ------------
Tax benefit computed at 34% $(182,900) $ (18,900)
Permanent tax difference on option
accounting 10,000 --
Valuation allowance against net
operating losses 173,700 19,700
--------- ---------
Income tax expense $ 800 $ 800
========= =========
Deferred income tax assets (liabilities) on the balance sheet are as
follows:
December 31, December 31,
2004 2003
------------ ------------
Net current deferred tax assets-
Net operating losses $ 193,400 $ 19,700
Valuation allowance (193,400) (19,700)
--------- ---------
Net deferred tax assets (liabilities) $ -- $ --
========= =========
During the year ending December 31, 2004, the Company increased its
valuation allowance $173,700 against deferred income taxes. The
valuation allowance reduces deferred tax assets to an amount that
represents management's best estimates of the amount of such deferred
income taxes, that more likely than not, will be realized. Realization
of the deferred tax assets is dependent on sufficient future taxable
income during the period that temporary differences and carryforwards
are expected to be available to reduce taxable income.
15
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(8) INCOME TAXES (CONTINUED):
At December 31, 2004, the Company had approximately $600,000 of net
operating losses (NOL) carryforwards to offset against future income.
If 50% or more of ownership of the Company changes hands in the future,
the NOL may be subject to limitation on how much of the NOL could be
utilized in any given year. The NOL will expire in the year 2023 for
federal purposes.
(9) STOCKHOLDERS' DEFICIT:
COMMON STOCK:
The Company was incorporated in the State of California on
February 1, 2002. The Company was originally authorized to
issue 25,000 shares of stock. On March 3, 2004, a new
corporation was incorporated in Delaware with a par value of $
.001 per share with 20,000,000 shares authorized. On June 17,
2004, the two corporations were merged in a tax-free
reorganization with the Delaware corporation being the
surviving entity. This was treated as a recapitalization for
financial statement purposes. Accordingly, the outstanding
stock from inception is shown at the recapitalized amounts.
On March 4, 2005, the Company increased its authorized stock
to 24,000,000, effective with the increase in authorized stock
the Company also declared a 1.2 stock split. Accordingly these
financial statements retrospectively reflect these changes.
Holders of the common stock are entitled to one vote per
share. The majority shareholders (97%) are subject to the
Company's right of first refusal should any stockholders
decide to sell shares unless a public market exists for the
Company's common stock, the Company is dissolved, or more than
65% of the outstanding stock is sold.
STOCK OPTIONS:
In 2004 the Company adopted the Stock Option Plan (the Plan)
and reserved 3,000,000 shares of common stock for issuance
under the Plan.
Under the Plan, incentive options to purchase the Company's
common stock may be granted to employees at prices not lower
than fair market value at the date of the grant as determined
by the Board of Directors. Nonstatutory options (options that
do not qualify as incentive options) may be granted to
employees and consultants at prices no lower that 85% of fair
market value at the date of grant as determined by the Board
of Directors. In addition, incentive or nonstatutory options
may be granted to persons owning more than 10% of the voting
power of all classes of stock at prices no lower than 110% of
the fair market value at the date of grant as determined by
options (no longer than ten years from the date of the grant,
five years in certain instances). Options granted generally
vest at a rate between 25% to 50% per year.
16
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(9) STOCKHOLDERS' DEFICIT (CONTINUED):
STOCK OPTIONS (CONTINUED):
Activity under the plan is as follows:
Weighted
Shares Average
Available Number Exercise Aggregate
For Grant of Shares Price Price
---------- ---------- ---------- ----------
Plan Instituted 3,000,000 -- -- --
Options Granted (1,833,012) 1,833,012 $ .4833 885,956
Options Exercised -- -- -- --
Options Expired -- -- -- --
---------- ---------- ---------- ----------
Balance at
December 31, 2004 1,166,988 1,833,012 $ .4833 $ 885,956
========== ========== ========== ==========
During the year ended December 31, 2004, the Company issued
1,173,012 options to purchase common stock to its employees
and directors. The fair value of these options was $0 upon
issuance.
During the years ended December 31, 2004, the Company issued
660,000 options to purchase common stock for services rendered
by nonemployees. The fair value of these options was $0 upon
issuance.
The fair value of nonemployee options issued was determined
using the Black-Scholes method based on assumed volatility of
0.0%, an option life equal to ten years, a risk-free interest
rate of 5.5% based on the grant date and the term of the
option and assuming no dividends.
Total options under the Plan at December 31, 2004, comprised
the following:
Weighted
Number Average Number
Option Outstanding Remaining Exercisable
Exercise as of Contractual as of
Price 12/31/04 Life (Years) 12/31/04
-------- ----------- ------------ --------------
$ .292 1,173,012 9.50 752,254
.833 660,000 9.33 165,000
--------- ---------
1,833,012 917,254
========= =========
17
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(9) STOCKHOLDERS' DEFICIT (CONTINUED):
STOCK OPTIONS (CONTINUED):
In addition, the Company issued 103,212 options during the
year ended December 31, 2004, to a former employee in a
nonplan option grant. The fair value is computed on the date
of the grant using the intrinsic value method in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to
Employees"; $30,000 was recorded as a result of this
computation.
WARRANTS:
The following warrants are each exercisable into shares of
common stock:
Average
Weighted
Number of Exercise Aggregate
Shares Price Price
--------- -------- ---------
Balance at December 31, 2003 -- $ -- $ --
Warrants Granted 556,123 .53941 299,982
Warrants Exercised -- -- --
Warrants Canceled -- -- --
Warrants Expired -- -- --
-------- ------- --------
Balance at December 31, 2004 556,123 $.53941 $299,982
======== ======= ========
All warrants issued during the year were issued in conjunction
with convertible debt issuance (see Note 7), and all warrants
will expire during the fiscal year ending December 31, 2005.
SHARES RESERVED FOR FUTURE ISSUANCE:
The Company has reserved shares of common stock for future
issuance at December 31, 2004:
Stock Option Plan 1,833,012
Stock Option Outside of Plan 103,212
Stock Warrants 556,123
---------
Total 2,492,347
=========
18
BIONOVO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(10) LICENSE AGREEMENT:
In 2003, the Company entered into a licensing and technology transfer
agreement with a Taiwan biotech corporation wherein the rights to
certain technology restricted to a certain geographic region were
transferred to the Taiwan corporation for a period of 10 years, which
will automatically renew for periods of 3 years, unless a 12-month
written notice is given by either party to the agreement. The license
agreement was for a one-time fee of $150,000 and future royalties based
on 10% of future sales. Additional fees may be earned by the Company in
the future for additional clinical work.
(11) CONTINGENCIES AND COMMITMENTS:
The Company entered into a consulting agreement with Duncan Capital,
LLC to provide certain financial consulting services. The agreement
provides that Duncan Capital, LLC is to receive compensation in the
form of a cash fee of $100,000 plus warrants exercisable at a price of
$0.010 equal to 3.675% of the fully-diluted capital stock of the
Company after a successful reverse merger. In addition, Duncan Capital,
LLC will receive compensation of warrants exercisable at $0.6473 per
share of stock in an amount equal to 10% of the aggregate number of
fully- diluted shares of common stock converted by the convertible note
payable holders. The term of the warrants will be for five years.
Duncan Capital, LLC will receive 10% of the aggregate number of
fully-diluted shares of common stock for any debt financing that it
arranges. The strike price of the warrants will be equal to the strike
price negotiated with the debt holders.
(12) SUBSEQUENT EVENTS:
During March 2005, the Company increased the shares available under the
Stock Option Plan from 3,000,000 shares to 3,600,000.
During April 2005, the Company closed a private placement memorandum
wherein approximately $8,095,500 was raised for approximately
16,191,000 shares of common stock and approximately 4,047,500 warrants
to purchase shares of common stock to investors and 3,688,730 warrants
to others.
On April 6, 2005, the Company completed a reverse merger with Lighten
Up Enterprises International, Inc., a public company, whereby a newly-
created, wholly-owned subsidiary of the public company merged with and
into the Company in a tax free exchange, with the Company surviving.
Following the reverse merger, the Company is a wholly-owned subsidiary
of the public company. The stock of the public company continues to be
quoted on the OTC Bulletin Board under the symbol LTUP.OB. The
stockholders of the Company received stock of the public company
representing approximately 90.4% of the common stock outstanding
immediately after the reverse merger.
Also, during April 2005, the convertible debt holders elected to
convert $450,000 of the convertible debt to common stock pursuant to
the terms of the note.
Subsequent to year end, the Company executed an agreement with a
university to conduct clinical coordinating services as part of a
clinical trial of certain of its drugs. The cost of the service is
approximately $800,000.
19
LIGHTEN UP ENTERPRISES INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet aggregates
the balance sheet of Lighten Up Enterprises International, Inc. as of December
31, 2004, and the balance sheet of Bionovo, Inc., a Delaware corporation as of
December 31, 2004. The following unaudited pro forma condensed combined
statement of operations aggregates the statement of operations of Lighten Up
Enterprises International for the year ended December 31, 2004, and the
statement of operations of Bionovo for the year ended December 31, 2004. The
following unaudited pro forma condensed combined balance sheet and statement of
operations were prepared giving effect to a transaction completed on April 6,
2005, wherein a subsidiary of Lighten Up Enterprises International, Inc., LTUP
Acquisition Corp., merged with and into Bionovo, Inc., with Bionovo surviving.
On April 6, 2005, we completed a so-called "reverse merger" transaction, in
which we caused LTUP Acquisition Corp., a Delaware corporation and our
newly-created, wholly-owned subsidiary, to be merged with and into Bionovo,
Inc., a Delaware corporation. Bionovo is a drug discovery and development
company focusing on cancer and women's health. As a result of the merger,
Bionovo became our wholly-owned subsidiary, with Bionovo's former security
holders acquiring a majority of the outstanding shares of our common stock, par
value $0.0001 per share. The reverse merger was consummated under Delaware law
and pursuant to an Agreement of Merger and Plan of Reorganization, dated April
6, 2005 (the "Merger Agreement").
Immediately prior to the closing of the reverse merger, Bionovo completed the
closing of a private offering of Units comprised of its common stock and
warrants to purchase its common stock to new investors. Bionovo received gross
proceeds of $8,095,500 at the closing of the private offering.
Under the Merger Agreement, at closing, we issued 37,842,448 shares of our
common stock to the former security holders of Bionovo, representing
approximately 90.4% of our outstanding common stock following the merger, in
exchange for 100% of the outstanding capital stock of Bionovo, subject to
appraisal rights of former Bionovo stockholders. In addition, all warrants
issued by Bionovo to purchase shares of Bionovo common stock outstanding
immediately prior to the merger were amended to become warrants to purchase
common stock of Lighten Up Enterprises International on the same terms and
conditions as those warrants issued by Bionovo, including the number of shares
issuable upon the exercise of the warrants. Immediately prior to the closing of
the merger, all outstanding Bionovo warrants were exercisable for 6,445,394
shares of Bionovo common stock, which included the warrants issued in
Bionovo's private offering. At the closing of the merger, these warrants were
amended to become warrants to purchase the same number of shares of Lighten Up
Enterprises International common stock. Further, all stock options issued by
Bionovo under its Stock Incentive Plan or otherwise to purchase shares of
Bionovo common
stock outstanding immediately prior to the merger were amended to become stock
options to purchase common stock of Lighten Up Enterprises International on the
same terms and conditions as those stock options issued by Bionovo, including
the number of shares issuable upon the exercise of such stock options.
Immediately prior to the closing of the merger, all outstanding Bionovo stock
options were exercisable for 1,884,465 shares of Bionovo common stock. At the
closing of the merger, these stock options were amended to become stock options
to purchase the same number of shares of Lighten Up Enterprises International
common stock. We did not have any stock options outstanding as of immediately
prior to the closing of the merger.
The following pro forma condensed balance sheet and statement of operations uses
the assumptions as described in the notes and the historical financial
information available at December 31, 2004. The financial statements of both
Lighten Up Enterprises International and Bionovo at December 31, 2004 are
audited.
The unaudited pro forma condensed combined balance sheet and statement of
operations should be read in conjunction with the separate financial statements
and related notes thereto of Lighten Up Enterprises International and Bionovo.
The unaudited pro forma condensed combined balance sheet and statement of
operations are not necessarily indicative of the condensed combined balance
sheet and statement of operations which might have existed for the periods
indicated or the results of operations as they may appear now or in the future.
LIGHTEN UP ENTERPRISES INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As of December 31, 2004
(Unaudited)
LTUP Bionovo ADJUSTMENTS COMBINED
---------------------- ----------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 37 $ 196,013 -- 196,050
Due from officers -- 1,796 -- 1,796
Prepaid expenses and other current assets -- -- -- --
---------------------- --------- ---------
Total current assets 37 197,809 -- 197,846
PROPERTY AND EQUIPMENT,
net of accumulated depreciation -- 9,859 -- 9,859
OTHER ASSETS:
Deferred loan costs
net of accumulated amortization -- 65,551 -- 65,551
Patent costs -- 11,264 -- 11,264
---------------------- --------- ---------
$ 37 $ 284,483 $ -- $ 284,520
====================== ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses 131,169 $ 163,613 (131,169)(1) 163,613
Accrued pension payable -- 52,000 -- 52,000
Deferred revenue -- 15,000 -- 15,000
Convertible notes payable -- 500,000 -- 500,000
---------------------- --------- ---------
Total current liabilities 131,169 730,613 (131,169) 730,613
---------------------- --------- ---------
DEFERRED REVENUE 0 117,500 -- 117,500
---------------------- ---------
LONG TERM LIABILITIES
Accrued interest - related party 41,152 -- (41,152) --
---------------------- --------- ---------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value:
Additional paid-in capital 2,504 20,400 (2,104)(2) 20,800
Accumulated deficit 221,403 9,600 2,104 (2) 233,107
(396,191) (593,630) 172,321 (817,500)
---------------------- --------- ---------
Total stockholders' deficit (172,284) (563,630) -- (563,593)
---------------------- --------- ---------
$ 37 $ 284,483 -- 284,520
====================== ========= =========
(1) LTUP related party forgave loans.
(2) LTUP shareholders surrendered 21,040,000 shares.
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Unaudited Pro Forma Condensed Combined Financial Statements of Lighten Up
Enterprises International, Inc. and Subsidiaries:
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition of Bionovo by the Company using the purchase method of
accounting and include the pro forma adjustments described in the accompanying
notes.
The following unaudited pro forma condensed combined balance sheet as of
December 31, 2004, and combined statements of operations for the year ended
December 31, 2004 are based on the historical financial statements of Lighten
Up Enterprises International and Bionovo after giving the effect to the
acquisition of Bionovo under the purchase method of accounting.
BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements as of December
31, 2004 record the acquisition transaction as if the acquisition had taken
place on January 1, 2004. The unaudited pro forma condensed combined balance
sheet is
presented to give effect to the acquisition as if it occurred on December 31,
2004, and combines the balance sheets of Lighten Up Enterprises International
and Bionovo as of that date. The pro forma information does not purport to be
indicative of the results that would have been reported if the above
transactions had been in effect for the periods presented or which may result in
the future.
LIGHTEN UP ENTERPRISES INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(Unaudited)
LTUP Bionovo ADJUSTMENTS COMBINED
-------------------------- ----------- -----------
REVENUE $ 4,087 $ 45,240 -- 49,327
COST OF SALES -- -- -- --
-------------------------- ----------- -----------
GROSS PROFIT 4,087 45,240 -- 49,327
-------------------------- ----------- -----------
OPERATING EXPENSES:
Research and development -- 275,600 -- 275,600
General and administrative 31,077 277,433 -- 308,510
Sales and marketing 39,548 500 -- 40,048
-------------------------- ----------- -----------
Total operating expenses 70,625 553,533 -- 624,158
-------------------------- -----------
LOSS FROM OPERATIONS (66,538) (508,293) -- (574,831)
OTHER INCOME (EXPENSE):
Forgiveness of loan payable 172,321 172,321
Interest expense (2,061) (28,855) -- (30,916)
-------------------------- ----------- -----------
Total other income (2,061) (28,855) 172,321 141,405
LOSS BEFORE INCOME
TAXES (68,599) (537,148) -- (433,426)
PROVISION FOR INCOME TAXES -- (800) -- (800)
-------------------------- ----------- -----------
NET LOSS $ (68,599) $ (537,948) 172,321 $ (434,226)
========================== =========== ===========
NET LOSS PER SHARE $ (0.00) $ (0.03) $ (0.02)
========================== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 25,040,000 20,400,000 29,040,000
========================== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
SUMMARY OF TRANSACTION
On April 6, 2005, we completed a so-called "reverse merger" transaction, in
which we caused LTUP Acquisition Corp., a Delaware corporation and our
newly-created, wholly-owned subsidiary, to be merged with and into Bionovo,
Inc., a Delaware corporation. Bionovo is a drug discovery and development
company focusing on cancer and women's health. As a result of the merger,
Bionovo became our wholly-owned subsidiary, with Bionovo's former security
holders acquiring a majority of the outstanding shares of our common stock, par
value $0.0001 per share. The reverse merger was consummated under Delaware law
and pursuant to an Agreement of Merger and Plan of Reorganization, dated April
6, 2005.
Pursuant to the Merger Agreement, at closing, stockholders of Bionovo received
one share of our common stock for each share of Bionovo common stock in the
merger. As a result, at closing we issued 37,842,448 shares of our common stock
to the former stockholders of Bionovo, representing approximately 90.4% of our
outstanding common stock following the merger, in exchange for 100% of the
outstanding capital stock of Bionovo. The consideration issued in the merger was
determined as a result of arm's-length negotiations between the parties. As of
April 6, 2005, our board of directors also approved a change in our certifying
accountant. Prior to effecting the change of our certifying accountant, the
board of directors determined to retain our current accountants in connection
with the preparation of our Form 10-QSB for the quarter ended March 31, 2005.
The shares of our common stock issued to former holders of Bionovo common stock
in connection with the merger, including the investors in the Bionovo private
offering, and the shares of our common stock issued in our subsequent private
offering, were not registered under the Securities Act of 1933 in reliance upon
the exemption from registration provided by Section 4(2) of that Act and
Regulation D promulgated under that section, which exempts transactions by an
issuer not involving any public offering. These shares may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements. Certificates representing these shares contain a
legend stating the same.
PRO FORMA ADJUSTMENTS
The pro forma combined balance sheet as of December 31, 2004 gives effect
to the forgiveness of a liability of $131,169, and accrued interest of $41,152,
as the related party that provided the loan agreed to forgive the loan and all
accrued interest pursuant to the reverse merger.
Additionally, shareholders of 21,040,000 shares surrendered shares to treasury
pursuant to the reverse merger.
PRO FORMA NET LOSS PER SHARE
The pro forma basis and dilutive net loss per share are based on the weighted
average number of shares of pro forma Lighten Up Enterprises International's
common stock as if the shares issued to acquire Bionovo had taken place at the
beginning of the year. Dilutive shares are not included in the computation of
pro forma dilutive net loss per share as their effect would be anti-dilutive.