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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: September 3, 2003
Date of Earliest Event Reported June 4, 2003
NANOBAC PHARMACEUTICALS, INC.
-----------------------------
(Exact name of Registrant as specified in its Charter)
Florida 0-24696 59-3248917
------- ------- ----------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2707 W. Martin Luther King Blvd, Ste 850, Tampa, Florida 33609
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(Address of Principal Executive Office) (Zip Code)
(813) 264-2241
--------------
Registrant's telephone number,
including area code:
AMERICAN ENTERPRISE CORPORATION
-------------------------------
Former name, former address and former fiscal year,
if changed since last report
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The Financial Statements required by Item 310 of Regulation S-B are stated in
U.S. dollars and are prepared in accordance with U.S. Generally Accepted
Accounting Principles. The following financial statements pertaining to Nanobac
Pharmaceuticals, Inc. and Subsidiaries will be filed as an amendment to this
filing with 60 days of the filing date of this report.
(a) Financial statements of business acquired
The audited financial statements of NanobacLab Pharmaceuticals, Inc.
and Subsidiaries for the year ended December 31, 2002 and the period
from inception (August 29, 2002) through December 31, 2002; the
audited financial statements of nanobacLab LLC for the year ended
December 31, 2001 and the period from inception (May 2, 2001) through
December 31, 2001; and unaudited financial statements for the six
months ended June 30, 2003 and the period from inception (August 29,
2002) through June 30, 2003.
(b) Pro forma financial information
Pro forma condensed combined financial statements of Nanobac
Pharmaceuticals, Inc., formerly know as American Enterprise
Corporation have been attached hereto at the end of this report. These
pro forma financial statements have been derived from the above
referenced NanobacLab Pharmaceuticals, Inc. and the Nanobac
Pharmaceuticals, Inc. audited financial statements included in its
annual filing on Form 10-KSB and the unaudited financial statements
for the six months ended June 30, 2003 for both Nanobac
Pharmaceuticals, Inc. and NanobacLabs Pharmaceuticals, Inc.
(c) Exhibits
None.
NANOBACLABS PHARMACEUTICALS, INC.
AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
together with
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2002
NANOBACLABS PHARMACEUTICALS, INC.
AND SUBSIDIARIES
-------------------------
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
TABLE OF CONTENTS PAGE
- ----------------- ----
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS -
BALANCE SHEET 2
STATEMENT OF OPERATIONS 3
STATEMENT OF STOCKHOLDERS' (DEFICIT) 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-14
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 15
SCHEDULE OF OPERATING EXPENSES 16
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
NanobacLabs Pharmaceuticals, Inc. and Subsidiaries
Tampa, Florida
We have audited the accompanying consolidated balance sheet of NanobacLabs
Pharmaceuticals, Inc and Subsidiaries (the "Company") as of December 31, 2002,
and the related consolidated statements of operations, stockholders' (deficit),
and cash flows for the period then ended. These consolidated 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 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NanobacLabs
Pharmaceuticals, Inc and Subsidiaries as of December 31, 2002, and the results
of its operations and its cash flows for the period then ended in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note J to the
financial statements, the Company's significant operating losses 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.
BAUMANN, RAYMONDO & COMPANY, P.A.
July 31, 2003
1
NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES
BALANCE SHEET
AT DECEMBER 31, 2002
ASSETS
CURRENT ASSETS
Cash $ 35,790
Accounts receivable 7,627
Prepaid expenses 18,797
Inventory 51,678
Security deposit 62,500
-----------
Total current assets 176,392
-----------
INVESTMENT 683,273
-----------
FIXED ASSETS, at cost less accumulated depreciation 126,432
-----------
OTHER ASSETS
Deferred offering costs 10,741
Security deposits 65,000
-----------
Total other assets 75,741
-----------
TOTAL ASSETS $ 1,061,838
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 281,636
Accrued interest payable 15,276
Line of credit 82,961
Notes payable 1,190,958
-----------
Total current liabilities 1,570,831
-----------
STOCKHOLDERS' (DEFICIT)
Common stock, $.0001 par value, 45,000,000
shares authorized, 7,450,000 issued and outstanding 745
Preferred stock, $.0001 par value, 5,000,000
shares authorized, 0 issued and outstanding --
Retained (deficit) (509,738)
-----------
Total stockholders' (deficit) (508,993)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 1,061,838
===========
The accompanying notes are an integral part
of these financial statements.
2
NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002
REVENUES $ 2,560,913
COST OF GOODS SOLD 834,010
-----------
GROSS PROFIT 1,726,903
OPERATING EXPENSES 2,019,372
-----------
(LOSS) FROM OPERATIONS (292,469)
INTEREST EXPENSE 31,135
-----------
(LOSS) BEFORE INCOME TAXES (323,604)
INCOME TAXES --
-----------
NET (LOSS) $ (323,604)
===========
The accompanying notes are an integral part
of these financial statements.
3
NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIOD FROM AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002
Common Stock Preferred Stock
------------------------- ------------------------ Retained
Shares Value Shares Value (Deficit) Total
---------- --------- -------- --------- --------- --------
Balance at August 29, 2002 -- $ -- -- $ -- $(186,134) $(186,134)
Issuance of common stock 7,450,000 745 -- -- -- 745
Net Loss -- -- -- -- (323,604) (323,604)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 7,450,000 $ 745 0 $ 0 $(509,738) $(508,993)
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(323,604)
---------
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation 16,267
(Increase) decrease in current assets
Accounts receivable 5,425
Prepaid expenses (15,977)
Inventory (51,678)
Deposits (125,000)
Deferred offering costs (10,741)
Increase (decrease) in current liabilities
Accounts payable 235,231
Accrued interest payable 12,610
---------
Total adjustments 66,137
---------
Net cash flows (used) in operating activities (257,467)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements (120,389)
---------
Net cash flows (used) in investing activities (120,389)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 401,685
Repayment of line of credit (97,667)
---------
Net cash flows provided by investing activities 304,018
---------
NET DECREASE IN CASH (73,838)
CASH, BEGINNING OF THE PERIOD 109,628
---------
CASH, END OF THE PERIOD $ 35,790
=========
The accompanying notes are an integral part
of these financial statements.
5
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist in
understanding the Company's management who are responsible for their integrity
and objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Nature of Operations
- --------------------
NanobacLabs Pharmaceuticals, Inc was formed in Delaware in August 2002 to act as
a holding company for its subsidiaries. The Company and its subsidiaries provide
a right for the patient to use compound pharmaceutical products related to the
treatment of nanobacteria infection to the medical industry with a heavy
emphasis on heart disease. The subsidiaries also provide research and diagnostic
capability. Currently the prescriptions are prescribed and sold throughout the
United States of America and the plans are to expand throughout North America.
NanobacLabs LLC, was organized in Florida in May 2001, and became the initial
operating entity offering the compound pharmaceutical product to be prescribed
to a patient. This entity had operations in 2001 and throughout all of 2002.
NanobacLabs Research Institute, LLC, was organized in Delaware in August 2002.
NanobacLabs Diagnostic, LLC, was organized in Florida in August 2002.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts and balances of
NanobacLabs Pharmaceuticals, Inc. and its wholly owned subsidiaries,
NanobacLabs, LLC, NanobacLabs Research Institute, LLC and NanobacLabs
Diagnostics, LLC (collectively referred to as the "Company"). All significant
intercompany accounts and transactions have been eliminated in the consolidating
process.
Revenue and Cost Recognition
- ----------------------------
For financial statement reporting, the Company recognizes income and the related
costs when earned and incurred, respectively. All payments for product shipments
are prepaid and authorized with credit cards.
Cash and Cash Equivalents
- -------------------------
All highly liquid investments purchased with maturity of three months or less
are considered cash equivalents.
6
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
- -------------------
The Company uses the allowance method to account for uncollectible accounts
receivable. Bad debt expense for the period ended December 31, 2002 was
$145,251.
Inventory
- ---------
The Company keeps in inventory test kits to be used by the patient as often as
directed by the patients' physician. The test kits are stated at the lower of
cost (first-in, first-out) or market, are serially numbered and have a shelf
life of two years.
Fixed Assets
- ------------
Fixed assets consist of office and computer equipment, leasehold improvements
and furniture and fixtures and are stated at cost and include expenditures that
substantially increase the useful lives of existing equipment. Maintenance and
repairs are charged to operations when incurred.
Depreciation of the fixed assets is calculated using the straight-line method
based on assets' estimated useful lives as follows:
Office equipment 5 years
Computer equipment 5 years
Leasehold improvements 5 years
Furniture and fixtures 5 years
Deferred Offering Costs
- -----------------------
The Company is in the process of offering 2,400,000 shares of the Company's
$.0001 par value common stock in a private placement memorandum. In connection
with this filing, any offering costs (consisting of legal, accounting and filing
fees) will be netted against the proceeds from the offering in the event the
offering is successful. In the event the offering is unsuccessful or abandoned,
any offering costs will be expensed.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
financial statements. Actual results could differ from those estimates.
7
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
- -----------------
The Company expenses the production costs of advertising the first time the
advertising takes place.
Income Taxes
- ------------
Starting in August 2002, the Company will record its federal and state income
tax liability in accordance with Financial Accounting Standards Board Statement
No. 109 "Accounting for Income Taxes". Deferred taxes payable are provided for
differences between the basis of assets and liabilities for financial statements
and income tax purposes, using current tax rates. Deferred tax asset is the
expected benefit of a net operating loss carryover that is available to offset
future income taxes.
From inception of the Company until August 2002, the Company was taxed as a
Limited Liability Company under provisions of the Internal Revenue Code. These
provisions provide that the income or loss generated by the Company will be
passed through to the stockholders and taxed at their respective individual
income tax rates.
Concentration of Risk
- ---------------------
Financial instruments which potentially expose the Company to concentrations of
risk, as defined by FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance- Sheet Risk and Financial Instruments
with Concentration of Credit Risk, consist principally of cash and accounts
receivable.
The Company generally has receivables from participating physicians who agree to
be part of a study on the effects of the compound drug on their patients. The
physicians are advanced funds based upon the submission of patient medical data.
The Company closely monitors these receivables, but does not generally require
collateral.
The Company maintains cash accounts with financial institutions that are
guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
per account. The Company's deposits with financial institutions, which exceeded
federally insured amounts at December 31, 2002 amounted to $0.
8
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE B - EQUIPMENT
Equipment consist of the following at December 31, 2002:
Office equipment $ 37,627
Computer equipment 25,869
Leasehold improvements 47,385
Furniture and fixtures 32,267
--------
143,148
Less accumulated depreciation (16,716)
--------
$126,432
========
NOTE C - INVESTMENT
On September 25, 2002, the Company agreed to purchase 4,500 shares or 27.27 % of
Nanobac OY from three entities located in Finland in the amount of 11,430 Euros
($11,198). Nanobac OY is a company that performs the same type of research in
nanobacteria infection that the Company does. The agreement also requires the
Company to acquire convertible promissory note loans purchase agreements in
Nanobac OY in the amount of 686,000 Euros ($672,075) which includes accrued
interest. The promissory notes have a conversion feature that allows the
promissory notes to convert into 17,723 shares of Nanobac OY. The title to the
4,500 shares does not transfer until such time as the Company has fully paid for
the convertible promissory notes. The convertible promissory notes have a stated
interest of 7.5% until the purchase price has been paid.
The agreement requires installments to be made on the purchase price (in Euros)
as follows:
December 18,2002 176,000
March 17, 2003 170,000
June 16, 2003 170,000
September 15, 2003 170,000
-------
686,000
=======
The Company has made only one installment payment of 176,000 Euros and that
occurred on February 10,2003.
NOTE D - LINE OF CREDIT
The Company has a revolving line of credit facility with a local bank. Maximum
borrowings under this facility are $100,000. The line of credit bears interest
at prime plus 1 % (5.75 % at December 31) and is due on demand. The line of
credit collateralized by inventory, accounts, equipment, contracts and general
intangibles and also requires a compensating balance arrangement of $50,000 at
all times. The line of credit is guaranteed by the majority shareholders.
9
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE E - NOTES PAYABLE
The Company's notes payable consist of the following as of December 31, 2002:
Promissory note payable to Custom Care Pharmacy,
monthly and weekly installments of principal and
interest in the amounts of $15,000 and 4,615,
respectively, due November 1, 2003, guaranteed by
the majority shareholder $ 382,685
The Finnish National Fund for Research and
Development, Savon Teknia Oy and Savon
Kasvurahasto I Ky; due in one installment of
176,000, Euro and three installments of 170,000
Euro on December 18,2002 and March 17, June 16 and
September 15, 2003; and one installment of 11,430
on September 15, 2003;Interest at 7.5%. The
Company is in default of the installment terms at
December 31, 2002 683,273
Promissory notes, unsecured, interest at 10% per
year, convertible to common stock at the option of
the lender, principal and interest due December
19, 2003 125,000
----------
Total current maturity of notes payable $1,190,958
==========
NOTE F - INCOME TAXES
For income tax purposes the Company has a net operating loss carryover of
$266,332, which can be used to offset future federal and state taxable income
through 2022.
The potential tax benefit of these losses is estimated as follows:
Future tax benefit $ 79,900
Valuation allowance (79,900)
----------
Future tax benefit $ --
==========
At December 31, 2002 no deferred tax assets or liabilities were recorded in the
accompanying financial statements.
10
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE G - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space at one location in Carrollwood, Florida and two
locations in Tampa, Florida under operating leases expiring in January 2002, May
2007 and July 2010, respectively. The lease that expires in May 2007 required a
security deposit in the amount of $125,000. To the extent that the Company
complies with the terms of the security deposit the deposit will be refunded to
the Company as follows:
June 1, 2003 $ 62,500
June 1, 2004 31,250
The annual lease payments for the lease agreements for the years ended December
31, are as follows:
2003 $ 176,718
2004 182,845
2005 158,190
2006 160,684
2007 96,026
Thereafter 125,139
------------
$ 899,602
============
Employment Agreements
- ---------------------
On April 15, 2002 the Company entered into an employment agreement with its
President and Chief Operating Officer. The term of the agreement is for a period
of two years and also provides for a monthly housing and automobile allowance.
The agreement also allows the employee to acquire the Company's stock on the
first and second anniversary date. Amounts owed under this agreement as of
December 31, 2003 and 2004 are $ 270,000 and 77,785, respectively.
Independent Contractors
- -----------------------
The Company has a consulting agreement with Gary Mezo, the majority shareholder.
The consulting fees are $25,000 per month beginning February 28, 2003 and
continue for a period of five years. The Company paid the related party $300,000
in consulting fees for the period ended December 31, 2002. At December 31, 2002,
the Company was indebted to the majority shareholder in the amount of $68,000.
On August 19, 2002 the Company entered into an agreement with its Chief Clinical
Director. The term of the agreement is for a period of two years and three
months. Amounts owed under this agreement as of December 31, 2003 and 2004 are $
150,000 and 225,000, respectively.
11
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE H - CONVERTIBLE DEBT AGREEMENT
On September 26, 2001 the Company entered into an agreement with Custom Care
Pharmacy. The agreement states that Custom Care Pharmacy would allow the Company
to purchase 5000 units of nanobac TX at a price of $85 per unit which includes
shipping. The Company would be required to make a weekly payment of $25 per unit
shipped by Custom Care Pharmacy and the balance of $60 would be accrued against
a $320,000 line of credit issued to the Company by Custom Care Pharmacy. The
line of credit accrued interest at the rate of six percent (6%) per annum.
The Company also issued a promissory note payable to Custom Care Pharmacy in the
amount of $106,000 for prior shipments of nanobac TX and other working capital
that was provided by Custom Care Pharmacy. The promissory note accrues interest
at the rate of six percent (6%) per annum and is due on demand. As part of this
entire agreement nanobacLabs, LLC granted Custom Care Pharmacy the option to
purchase up to 20% of the Company at a price of $600,000. Should Custom Care
Pharmacy elect to purchase less than 20%, the price would be reduced
accordingly. Said price shall be paid to either nanobacLabs, LLC or to Gary S.
Mezo and/or Nancy Mezo. The option purchase price expires September 30, 2002.
The agreement also provides that Custom Care Pharmacy will provide the Company
with the following price and volume commitments for units of nanobac TX:
5,000 units at $75 plus $10 shipping
100,000 units at $60 plus shipping
100,000 units at $55 plus shipping
100,000 units at $50 plus shipping
500,000 units at $48 plus shipping
500,000 units at $46 plus shipping
All other quantities at $45 plus shipping
On October 23, 2003 the line of credit of $320,000 and promissory note of
$106,000 were converted to a consolidated promissory note in the amount of
$471,887.
NOTE I - SUBSEQUENT EVENTS
Private Placement Memorandum
- ----------------------------
In June 2003, the Company completed the offering and issued approximately
1,229,500 shares of the Company's $.0001 par value common stock. Total proceeds
received from the placement amounted to approximately $1,177,000.
12
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE I - SUBSEQUENT EVENTS (CONTINUED)
Patent and Trademark License Agreement
- --------------------------------------
On January 1, 2003, the Company entered into a 30 year agreement with Gary Mezo
the majority shareholder to be able to license the nanobac compound exclusively.
Under the terms of this agreement the majority shareholder is due the following:
1. An annual renewal fee of $ 50,000.
2. A royalty fee of 5% of gross sales. If Dr. Mezo is no longer the
Chairman of the Board, the royalty increases to 10 %.
3. A minimum annual royalty of $500,000.
The agreement also allows Dr. Mezo to purchase up to 5% the preferred stock of
the Company.
Employment Agreement
- --------------------
On February 3, 2003 the Company entered into an employment agreement with its
Director of Scientific Research & Development. The term of the agreement is for
a period of five years. The agreement also allows the employee to acquire the
Company's stock during each year of employment. Amounts owed under this
agreement as of December 31, are as follows:
2003 $ 181,370
2004 200,000
2005 200,000
2006 200,000
2007 200,000
2008 18,630
------------
$ 1,000,000
============
Merger
- ------
An acquisition of the majority ownership of the Company was completed by
American Enterprise Corporation ("AMER") partially on June 2, 2003 concluding on
June 4, 2003. On June 4, 2003, AMER acquired 6,100,000 shares from Doctor Gary
S. Mezo and Mrs. Nancy M. Schriewer-Mezo representing approximately 74.4% of the
Company in exchange for 24,400,000 restricted AMER no par value common shares
together with a loan in the amount of $300,000 and a commitment to provide
additional equity capital during the twelve months following the acquisition.
Dr. Mezo is Chairman of the Company's Board of Directors.
13
NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE I - SUBSEQUENT EVENTS (CONTINUED)
Merger (Continued)
- ------------------
In addition, AMER has agreed to acquire the remaining 2,089,500 outstanding
shares of the Company for 8,358,000 AMER shares and, if exercised, 500,000
options to acquire the Company's shares for 2,000,000 AMER shares. The option
holder is not obligated to exercise its option.
In the event all Nanobac shares are converted, AMER will have issued an
aggregate of 34,758,000 shares and shall have issued and outstanding a total of
72,408,395 shares. In such an event, the owners of Nanobac will own
approximately 48% of AMER.
NOTE J - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the financial statements, the Company incurred a net loss of
$323,604 for 2002 and has incurred a net loss in the last fiscal year. At
December 31, 2002, current liabilities exceeded current assets by $1,364,439 and
total liabilities exceeded total liabilities by $508,993. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence
14
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
To the Members'
NanobacLabs Pharmaceuticals, Inc. and Subsidiaries
Tampa, Florida
Our report on our audit of the basic financial statements of NanobacLabs
Pharmaceuticals, Inc. and Subsidiaries for the period ended December 31, 2002,
appears on page 1. The audit was conducted for the purpose of forming an opinion
on the basic financial statements taken as a whole. The supplementary
information included on page 16 for the period ended December 31, 2002 is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
BAUMANN, RAYMONDO & COMPANY, P.A.
July 31, 2003
15
NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES
SCHEDULE OF OPERATING EXPENSES
FOR THE PERIOD FROM AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002
Automobile $ 10,394
Bad debt expense 145,251
Bank service charges 1,790
Cleaning 6,814
Contributions 9,500
Depreciation 13,333
Dues and subscriptions 3,826
Equipment rental 561
Filing fees 920
Insurance 9,626
Licenses and permits 50
Marketing 30,676
Medical director fee 92,500
Miscellaneous 3,653
Office expenses 7,689
Physician fees 237,580
Postage and delivery 13,120
Printing and reproduction 21,858
Professional fees 386,593
Rent 114,994
Repairs and maintenance 3,944
Research expense 29,086
Salaries and wages 737,277
Supplies 43,513
Storage 938
Taxes 4,007
Telephone 42,365
Temporary services 1,547
Training and education 87
Travel and entertainment 44,636
Utilities 1,244
----------
$2,019,372
==========
The accompanying notes are n integral part
of these financial statements.
16
nanobacLabs, LLC
--------------------
FINANCIAL STATEMENTS
together with
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2001
nanobacLabs, LLC
-------------------------
FINANCIAL STATEMENTS
DECEMBER 31, 2001
TABLE OF CONTENTS PAGE
- ----------------- ----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS -
BALANCE SHEET 2
STATEMENT OF OPERATIONS AND MEMBERS' (DEFICIT) 3
STATEMENT OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5-11
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 12
SCHEDULE OF OPERATING EXPENSES 13
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Members'
nanobacLabs, LLC
Tampa, Florida
We have audited the accompanying balance sheet of nanobacLabs, LLC as of
December 31, 2001, and the related statement of operations and members'
(deficit), and cash flows for the period May 2, 2001 (inception) to December 31,
2001. 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 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 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 nanobacLabs, LLC as of December
31, 2001, and the results of its operations and its cash flows for the period
then ended in conformity with accounting principles generally accepted in the
United States of America.
BAUMANN, RAYMONDO & COMPANY, P.A.
July 31, 2003
1
nanobacLabs, LLC
BALANCE SHEET
AT DECEMBER 31, 2001
ASSETS
CURRENT ASSET
Cash $ 109,628
Accounts receivable, net of allowance of $69,500 2,202
Prepaid expenses 2,820
---------
Total current assets 114,650
FIXED ASSETS, at cost less accumulated depreciation 22,847
OTHER ASSETS 2,500
---------
TOTAL ASSETS $ 139,997
=========
LIABILITIES AND MEMBERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 46,405
Accrued interest payable 2,666
Line of credit 171,060
Note payable 106,000
---------
Total current liabilities 326,131
MEMBERS' (DEFICIT) (186,134)
---------
TOTAL LIABILITIES AND MEMBERS' (DEFICIT) $ 139,997
=========
The accompanying notes are an integral part
of these financial statements.
2
nanobacLabs, LLC
STATEMENT OF OPERATIONS AND MEMBER'S (DEFICIT)
FOR THE PERIOD MAY 2, 2001 (INCEPTION) to DECEMBER 31, 2001
REVENUES $ 959,889
COST OF GOODS SOLD 379,622
---------
GROSS PROFIT 580,267
OPERATING EXPENSES 763,735
---------
(LOSS) FROM OPERATIONS (183,468)
INTEREST EXPENSE 2,666
---------
NET (LOSS) (186,134)
MEMBER'S (DEFICIT) - BEGINNING OF PERIOD --
---------
MEMBERS' (DEFICIT) - END OF PERIOD $(186,134)
=========
The accompanying notes are an integral part
of these financial statements.
3
nanobacLabs, LLC
STATEMENT OF OPERATIONS AND MEMBER'S (DEFICIT)
FOR THE PERIOD MAY 2, 2001 (INCEPTION) to DECEMBER 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(186,134)
---------
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation 3,383
(Increase) decrease in assets
Accounts receivable (2,202)
Prepaid expenses (2,820)
Deposits (2,500)
Increase (decrease) in liabilities
Accounts payable 46,405
Accrued interest payable 2,666
---------
Total adjustments 44,932
---------
Net cash flows (used) in operating activities (141,202)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer and office equipment (26,230)
---------
Net cash flows (used in) investing activities (26,230)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 106,000
Proceds from line of credit 171,060
---------
Net cash flows provided by investing activities 277,060
---------
NET INCREASE IN CASH 109,628
CASH, BEGINNING OF THE PERIOD --
---------
CASH, END OF THE PERIOD $ 109,628
=========
The accompanying notes are an integral part
of these financial statements.
4
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist in
understanding the Company's management who are responsible for their integrity
and objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Nature of Operations
- --------------------
nanobacLabs LLC (the" Company") was organized in Florida in May 2001. The
Company provides a right for the patient to use compound pharmaceutical products
related to the treatment of nanobacteria infection to the medical industry with
a heavy emphasis on heart disease. Currently the prescriptions are prescribed
and sold throughout the United States of America and the plans are to expand
into worldwide distribution of the products.
Revenue and Cost Recognition
- ----------------------------
For financial statement reporting, the Company recognizes income and the related
costs when earned and incurred, respectively. All payments for product shipments
are prepaid and authorized with credit cards.
Cash and Cash Equivalents
- -------------------------
All highly liquid investments purchased with maturity of three months or less
are considered cash equivalents.
Accounts Receivable
- -------------------
The Company uses the allowance method to account for uncollectible accounts
receivable. Bad debt expense for the period ended December 31, 2001 was $70,900.
Office and computer equipment
- -----------------------------
Office and computer equipment are stated at cost and include expenditures that
substantially increase the useful lives of existing equipment. Maintenance and
repairs are charged to operations when incurred.
Office and computer equipment (continued)
- -----------------------------------------
Depreciation of office and computer equipment is calculated using the
straight-line method based on assets' estimated useful lives as follows:
Office equipment 5 years
Computer equipment 5 years
Read independent auditors' report.
5
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
- -----------------
The Company expenses the production costs of advertising the first time the
advertising takes place.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
financial statements. Actual results could differ from those estimates.
Income Taxes
- ------------
The Company is taxed as a Limited Liability Company under provisions of the
Internal Revenue Code. These provisions provide that the income or loss
generated by the Company will be passed through to the members' and taxed at
their respective individual income tax rates. There is, therefore, no provision
for income taxes included in the 2001 financial statements.
Concentration of Risk
- ---------------------
Financial instruments which potentially expose the Company to concentrations of
risk, as defined by FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance- Sheet Risk and Financial Instruments
with Concentration of Credit Risk, consist principally of cash and accounts
receivable.
The Company generally has receivables from participating physicians who agree to
be part of a study on the effects of the compound drug on their patients. The
physicians are advanced funds based upon the submission of patient medical data.
The Company closely monitors these receivables, but does not generally require
collateral.
The Company maintains cash accounts with financial institutions that are
guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
per account. The Company's deposits with financial institutions, which exceeded
federally insured amounts at December 2001, amounted to $50,775. Historically,
the Company has not experienced any losses on its deposits.
Read independent auditors' report.
6
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE B - FIXED ASSETS
Equipment consists of the following at December 31, 2001:
Office equipment $ 15,962
Computer equipment 10,268
--------
26,230
Less accumulated depreciation (3,383)
--------
$ 22,847
========
NOTE C - COMMITMENTS AND CONTINGENCIES
The Company leases office space in Tampa, Florida. The term of the lease is five
years commencing on January 15, 2000 through January 14, 2005. The lease
agreement required a security deposit in the amount of $2,500.
The annual lease payments for this lease agreement is as follows for the years
ending December 31:
2002 $ 29,091
2003 30,255
2004 31,465
2005 and thereafter 1,363
--------
$ 92,174
========
NOTE D - CONVERTIBLE DEBT AGREEMENT
On September 26, 2001 the Company entered into an agreement with Custom Care
Pharmacy. The agreement states that Custom Care Pharmacy would allow the Company
to purchase 5000 units of nanobac TX (test kits) at a price of $85 per unit,
which includes shipping. The Company would be required to make a weekly payment
of $25 per unit shipped by Custom Care Pharmacy and the balance of $60 would be
accrued against a $320,000 line of credit issued to the Company by Custom Care
Pharmacy. The line of credit accrues interest at the rate of six percent (6%)
per annum.
The Company also issued a promissory note payable to Custom Care Pharmacy in the
amount of $106,000 for prior shipments of nanobac TX and other working capital
that was provided by Custom Care Pharmacy. The promissory note accrues interest
at the rate of six percent (6%) per annum and is due on demand. As part of this
entire agreement the Company granted Custom Care Pharmacy the option to purchase
up to 20% of the Company at a price of $600,000. Should Custom Care Pharmacy
elect to purchase less than 20%, the price would be reduced accordingly. Said
price shall be paid to either the Company or to Gary S. Mezo and/or Nancy Mezo.
The option purchase price expires September 30, 2002.
Read independent auditors' report.
7
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE D - CONVERTIBLE DEBT AGREEMENT (CONTINUED)
The agreement also provides that Custom Care Pharmacy will provide the Company
with the following price and volume commitments for units of nanobac TX:
5,000 units at $75 plus $10 shipping
100,000 units at $60 plus shipping
100,000 units at $55 plus shipping
100,000 units at $50 plus shipping
500,000 units at $48 plus shipping
500,000 units at $46 plus shipping
All other quantities at $45 plus shipping
NOTE E - PURCHASE OPTION
On July 9, 2001 the Company entered into an agreement with Benedict S.
Maniscalco, MD that appointed him as Cardiology Director of the Company. The
compensation for these services are $5,000 per month paid to him as an
Independent Contractor. Also with this agreement the Company issued a purchase
option to Benedict S. Maniscalco, MD to purchase 5% ownership of the Company for
$150,000. The option expires on June 1, 2002. If 5% ownership is granted through
performance being met according to the terms in the following paragraph, the
option to purchase 5% is eliminated. The ownership of 5% would not be allowed to
be pledged, assigned, promised, transferred or sold to anyone without the
express written permission of the Company. The Company also has the first right
of to purchase the ownership at its original value of $150,000. On June 1,2002
the Company extended the option to purchase 5% ownership until September 30,
2002. The option was not exercised.
At the point in time that 1,500 patients involved in the nanobacTX - ACES II
Cardiology Trials have completed 4 months of treatment, nanobacLabs, LLC will
issue Benedict S. Maniscalco, MD 5% ownership, except if he has exercised his
purchase option of 5% he is not entitled to the additional 5% ownership.
NOTE F - RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Gary Mezo, the majority shareholder.
The consulting fees are $25,000 per month beginning February 28, 2003 and
continue for a period of five years. The Company paid the related party $165,000
in consulting fees for the period ended December 31, 2001.
Reade independent auditors' report.
8
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE G - SUBSEQUENT EVENTS
Operating Leases
On April 17, 2002 the Company entered into a long-term lease for office space
located in Tampa, Florida. The term of the lease is five years commencing on
June 1, 2002 through May 31, 2007. The lease agreement required a security
deposit in the amount of $125,000. The security deposit will be refunded to the
Company as follows:
June 1, 2003 $ 62,500
June 1, 2004 31,250
On September 1, 2002 the Company rented additional space in the office building
located in Tampa, Florida.
The annual aggregate lease payments for these lease agreements are as follows:
2002 $ 73,292
2003 146,463
2004 151,380
2005 156,827
2006 160,684
2007 and thereafter 221,165
---------
$ 909,811
=========
Investment
On September 25, 2002, the Company agreed to purchase 4,500 shares or 27.27 % of
Nanobac OY from three entities located in Finland in the amount of 11,430 Euros
($11,198). Nanobac OY is a company that performs the same type of research in
nanobacteria infection that the Company does. The agreement also requires the
Company to acquire convertible promissory note loans purchase agreements in
Nanobac OY in the amount of 686,000 Euros ($672,075) which includes accrued
interest. The title to the 4,500 shares of Nanobac OY does not transfer until
such time as the Company has fully paid for the convertible promissory notes.
The convertible promissory notes have a stated interest of 7% until the entire
purchase price has been paid.
The agreement requires installments to be made on the purchase price (in Euros)
as follows:
December 18,2002 176,000
March 17, 2003 170,000
June 16, 2003 170,000
September 15, 2003 170,000
-------
686,000
=======
The Company has made only one installment payment of 176,000 Euros and that
occurred on February 10,2003.
Read independent auditors' report.
9
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE G - SUBSEQUENT EVENTS (CONTINUED)
Employment Agreements
- ---------------------
On April 15, 2002 the Company entered into an employment agreement with its
President and Chief Operating Officer. The term of the agreement is for a period
of two years and also provides for a monthly housing and automobile allowance.
The agreement also allows the employee to acquire the Company's stock on the
first and second anniversary date. Amounts owed under this agreement as of
December 31, 2003 and 2004 are $ 270,000 and $ 77,785, respectively.
On February 3, 2003 the Company entered into an employment agreement with its
Director of Scientific Research & Development. The term of the agreement is for
a period of five years. The agreement also allows the employee to acquire the
Company's stock during each year of employment. Amounts owed under this
agreement as of December 31, are as follows:
2003 $ 181,370
2004 200,000
2005 200,000
2006 200,000
2007 200,000
2008 18,630
-----------
$ 1,000,000
===========
Independent Contractor
- ----------------------
August 19, 2002 the Company entered into an employment agreement with its Chief
Clinical Director. The term of the agreement is for a period of two years and
three months. Amounts owed under this agreement as of December 31, 2002, 2003
and 2004 are $20,192, $150,000 and $225,000, respectively.
Patent and Trademark License Agreement
- --------------------------------------
On January 1, 2003, the Company entered into a 30 year agreement with Gary Mezo
the majority shareholder to be able to license the nanobac compound exclusively.
Under the terms of this agreement the majority shareholder is due the following:
1. An annual renewal fee of $ 50,000.
2. A royalty fee of 5% of gross sales. If Dr. Mezo is no longer the
Chairman of the Board, the royalty increases to 10 %.
3. A minimum annual royalty of $100,000.
The agreement also allows Dr. Mezo to purchase up to 5% the preferred stock of
the Company.
Read independent auditors' report.
10
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE G - SUBSEQUENT EVENTS (CONTINUED)
Merger
- ------
On August 29, 2002, a parent company (NanobacLabs Pharmaceuticals, Inc.) and two
additional subsidiaries (NanobacLabs Research Institute LLC and NanobacLabs
Diagnostic, LLC) were formed. An acquisition of the majority ownership of
NanobacLabs Pharmaceuticals, Inc. was completed by American Enterprise
Corporation ("AMER") partially on June 2, 2003 concluding on June 4, 2003. On
June 4, 2003, AMER acquired 6,100,000 shares from Doctor Gary S. Mezo and Mrs.
Nancy M. Schriewer-Mezo representing approximately 74.4% of NanobacLabs
Pharmaceuticals, Inc. in exchange for 24,400,000 restricted AMER no par value
common shares together with a loan in the amount of $300,000 and a commitment to
provide additional equity capital during the twelve months following the
acquisition. Dr. Mezo is Chairman of the NanobacLabs Pharmaceuticals, Inc. Board
of Directors.
In addition, AMER has agreed to acquire the remaining 2,089,500 outstanding
shares of the Company for 8,358,000 AMER shares and, if exercised, 500,000
options to acquire the Company's shares for 2,000,000 AMER shares. The option
holder is not obligated to exercise its option.
In the event all NanobacLabs Pharmaceuticals, Inc. shares are converted, AMER
will have issued an aggregate of 34,758,000 shares and shall have issued and
outstanding a total of 72,408,395 shares. In such an event, the owners of
NanobacLabs Pharmaceuticals Inc. will own approximately 48% of AMER.
Read independent auditors' report.
11
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
To the Members'
nanobacLabs, LLC
Tampa, Florida
Our report on our audit of the basic financial statements of nanobacLabs, LLC,
for the period ended December 31, 2001, appears on page 1. The audit was
conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information included on page 13
for the period ended December 31, 2001 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
BAUMANN, RAYMONDO & COMPANY, P.A.
July 31, 2003
Read independent auditors' report.
12
nanobacLabs, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
SUPPLEMENTARY INFORMATION
Advertising $ 7,030
Automobile 6,472
Bad debt expense 70,900
Consulting 165,822
Depreciation 3,383
Donations 100
Dues and subscriptions 3,125
Insurance 8,194
Medical director fee 65,980
Office expenses 29,727
Physician fees 163,335
Postage and delivery 680
Professional fees 5,878
Rent 18,366
Repairs and maintenance 1,000
Salaries and wages 146,093
Taxes 29,897
Telephone 13,714
Travel and entertainment 24,014
Utilities 25
--------
$763,735
========
Read independent auditors' report.
13
NANOBAC PHARMACEUTICALS INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2002 AND
AS OF JUNE 30, 2003
(UNAUDITED)
As of As of
June 30, 2003 December 31, 2002
------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 83,604 $ 41,013
Account receivable, net of allowance
of $147,585 and $0, respectively 12,363 2,627
Inventory 68,600 51,678
Prepaid expenses 137,648 18,797
Other current assets 8,095 62,500
----------- -----------
Total current assets 310,310 176,615
----------- -----------
FIXED ASSETS, net of accumulated
depreciation of $31,898 and $16,731, respectively 111,264 126,431
----------- -----------
INVESTMENT 693,778 683,273
----------- -----------
OTHER ASSETS
Deferred offering costs -- 10,741
Security deposits 86,766 65,000
Goodwill 5,065,389 5,065,389
----------- -----------
Total other assets 5,152,155 5,141,130
----------- -----------
TOTAL ASSETS $ 6,267,507 $ 6,127,449
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 507,032 $ 421,796
Accrued interest payable 32,015 15,275
Accrued expenses 258,535 205,984
Notes payable 905,413 1,190,958
Advances from shareholders 20,469 --
Line of credit 51,407 82,961
Other current liabilities 4,507 --
----------- -----------
Total current liabilities 1,779,378 1,916,974
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 100,000,000 8,057,757 6,014,377
shares authorized, 63,000,395 issued and outstanding
Preferred stock, no par value, 50,000,000 -- --
shares authorized, 0 issued and outstanding
Additional Paid in Capital 359,000 --
Retained (deficit) (3,928,628) (1,803,903)
----------- -----------
Total stockholders' (deficit) 4,488,129 4,210,474
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 6,267,507 $ 6,127,449
=========== ===========
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDING DECEMBER 31, 2002 AND NANOBAC PHARMACEUTICALS INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDING JUNE 30, 2003
(UNDAUDITED)
Six Months Year
Ending Ending
June 30, 2003 December 31, 2002
------------- -----------------
NET REVENUES $ 730,558 $ 2,572,468
COST OF GOODS SOLD 391,064 838,330
------------ ------------
GROSS PROFIT 339,494 1,734,138
------------ ------------
OPERATING EXPENSES
Sales and marketing 115,920 85,106
Research and development 265,254 405,780
General and administrative 2,038,647 3,002,435
Depreciation and amortization 15,182 13,333
------------ ------------
Total Operating Expenses 2,435,003 3,506,654
------------ ------------
NET OTHER EXPENSES (INCOME) 29,216 31,387
------------ ------------
LOSS BEFORE INCOME TAXES (2,124,725) (1,803,903)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (2,124,725) $ (1,803,903)
============ ============
LOSS PER COMMON SHARE
Basic $ (0.046) $ (0.129)
------------ ------------
Fully Diluted $ (0.046) $ (0.129)
------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 45,943,802 13,941,197
------------ ------------
Fully Diluted 45,943,802 13,941,197
------------ ------------