EXHIBIT 99.1
Exhibit 99.1 - Sterling Medivations, Inc. unaudited financial statements as of
and for the nine months ended September 30, 2001, for the period from inception
(January 13, 2000) through September 30, 2000 and cumulative for the period from
inception (January 13, 2000) through September 30, 2001, together with
accompanying footnotes.
STERLING MEDIVATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(UNAUDITED)
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ASSETS
Current assets:
Cash $ 615,365
Prepaid expenses 3,170
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Total current assets 618,535
Furniture and equipment, net 4,150
Patents 164,571
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Total assets $ 787,256
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts Payable $ 24,320
Accrued consulting expenses 13,720
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Total liabilities 38,040
Convertible debt, net 62,500
Accrued interest 7,500
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Total liabilities 108,040
Stockholders' equity
Common stock, $.001 par value 6,000,000 authorized, 2,485,989 shares
issued and outstanding 2,486
Additional paid-in capital, common stock 19,239
Series A convertible preferred stock; $.001 par value; $1.00 per share liquidation
preference; 1,000,000 shares authorized, issued and outstanding 1,000
Additional paid-in capital, preferred stock 1,467,996
Deficit accumulated during development stage (811,505)
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Total stockholders' equity 679,216
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Total liabilities and stockholders' equity $ 787,256
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See accompanying notes.
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STERLING MEDIVATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
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CUMMULATIVE
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
NINE MONTHS (JANUARY 13, 2000) (JANUARY 13, 2000)
ENDED THOUGH THOUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001
-------------------- ------------------ ------------------
Operating Expenses:
Research and development $ 163,178 $ 141,689 $ 365,712
General and administrative 319,627 36,957 420,852
-------------------- ------------------ ------------------
Total operating expenses 482,805 178,646 786,564
-------------------- ------------------ ------------------
Operating loss (482,805) (178,646) (786,564)
Interest income 18,734 13,976 45,059
Interest expense (70,000) - (70,000)
-------------------- ------------------ ------------------
Net Loss $ (534,071) $ (164,670) $ (811,505)
-------------------- ------------------ ------------------
See accompanying notes.
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STERLING MEDIVATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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CUMMULATIVE
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
NINE MONTHS (JANUARY 13, 2000) (JANUARY 13, 2000)
ENDED THOUGH THOUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001
--------------------- ------------------ -------------------
Cash flows from operating activities:
Net loss (534,071) (164,670) (811,505)
Reconciliation of net loss to net cash used
in operating activities
Depreciation 1,779 593 2,965
Stock compensation expense 99 7,117 7,264
Interest expense on convertible notes 62,500 - 62,500
Changes in operating assets and liabilities
Prepaid expenses 4,698 (600) (3,170)
Accounts payable 5,545 15,047 23,569
Accrued consulting expenses - 13,720 13,720
Accrued interest 7,500 - 7,500
--------------------- ------------------ -------------------
Net cash used in operating activities (451,950) (128,793) (697,157)
Cash flows from investing activities:
Purchase of furniture and equipment - (2,895) (2,895)
Patent costs (86,396) (39,427) (164,571)
--------------------- ------------------ -------------------
Net cash used in investing activities (86,396) (42,322) (167,466)
Cash flows from financing activities
Issuance of Series A convertible preferred stock - 1,000,000 1,000,000
Stock issuance costs - (35,432) (35,432)
Proceeds from the exercise of stock options 750 - 15,585
Proceeds from convertible notes payable 500,000 - 500,000
Repurchase of common stock (165) - (165)
--------------------- ------------------ -------------------
Net cash provided by financing activities 500,585 964,568 1,479,988
Net increase in cash (37,761) 793,453 615,365
Cash:
Beginning of period 653,126 - -
--------------------- ------------------ -------------------
End of period 615,365 793,453 615,365
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Noncash financing activities:
In January 2000, the Company issued common stock in exchange for $4,219 of
equipment
At December 31, 2000, there were $16,467 of patent costs included in
accounts payable.
See accompanying notes.
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STERLING MEDIVATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
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1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to fairly present the
Company's financial position and results of operations, and cash flows
for the periods presented. The preparation of financial statements in
conformity with generally accepted accounting principals in the United
States of America require management to make estimates and assumptions
that affect the reported amounts therein. Due to the inherent
uncertainty involved in making estimates, actual results in future
periods may differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principals in the United States of America have been
condensed or omitted. These financial statements should be read in
conjunction with the Company's financial statements and notes thereto
as of December 31, 2000 and for the period from inception (January 13,
2000) through December 31, 2000, which are contained elsewhere in this
Form 8K/A. The results of operations for the interim periods presented
are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.
2. CONVERTIBLE NOTES PAYABLE AND DETACHABLE WARRANTS
During fiscal 2001, the Company issued convertible promissory notes
(the Notes) totaling $500,000 with an annual interest rate of 6%. The
Notes have a term of two years and the interest is payable at the end
of the term. The Notes have two conversion features: (1) automatic
conversion upon the closing of the next equity financing of at least
$3,000,000 into the capital stock issued by the Company in the next
equity financing within 9 months of the issuance of the Notes; or (2)
optional conversion to Series A convertible preferred stock if an
acquisition event occurs or the next equity financing does not occur
within 9 months of the issuance of the Notes. In automatic conversion,
the Notes will be converted into the number of shares of capital stock
equal to the outstanding principal balance of, and all accrued and
unpaid interest on, the Notes divided by the price per share of capital
stock issued in the next equity financing. In optional conversion, the
Notes will be converted into the number of shares of Series A
convertible preferred stock equal to the outstanding principal balance
of, and all accrued and unpaid interest on, the Notes divided by $1.00.
The Notes have detachable warrants that gives the holders the right to
purchase capital shares in the amount of 60% of the aggregate principle
amount of the Notes ($300,000). This amount is divided by either the
price per share of the next equity financing or $1.00 per share of
Series A convertible preferred stock based upon whether the method of
conversion of the notes is automatic conversion or optional conversion,
respectively. The term of the warrants is 5 years.
The Notes are discounted by the allocation of the relative fair value
of the warrants and the intrinsic value of the conversion feature of
the Notes. Using the Black-Scholes method of valuation, the relative
fair value of the warrants is estimated to be $253,000. The intrinsic
value of the conversion feature of the Notes or beneficial conversion
feature (BCF) value is
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STERLING MEDIVATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
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2. CONVERTIBLE NOTES PAYABLE AND DETACHABLE WARRANTS (CONTINUED)
estimated to be $503,000. Since the amount of the BCF is limited to the
balance of the Notes after the discount for the warrants, the BCF
discounts the remaining Notes balance of $247,000. The fair value of
the warrants ($253,000) and the BCF ($247,000) are included in
additional paid-in capital, Preferred Stock. The discount related to
the warrants and the BCF will be amortized to interest expense over the
term of the Notes or until the Notes are converted, at which time any
remaining discount and BCF will be charged to interest expense.
Interest expense related to the amortization of the discount is $62,500
for the nine month period ended September 30, 2001, and cumulative for
the period from inception (January 31, 2000) through September 31,
2001.
Schedule maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31,
2001 $ 0
2002 0
2003 500,000
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$ 500,000
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3. ACQUISITION
In December 2001, the Company finalized negotiations with SpectRx, Inc.
(SpectRx) to sell all of the Company's outstanding common and preferred
stock to SpectRx. In connection with the closing of this transaction,
the Notes described in Note 2 were converted to Series A preferred
stock.
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