UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
X Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended November 30, 2003
_________ Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
Commission File Number: 333-100110
SimplaGene USA, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 01-0741042
---------------------- ----------------------
(State of incorporation) (IRS Employer ID Number)
11900 Wayzata Blvd., Suite 100, Hopkins, MN 55305
(Address of principal executive offices)
(952) 541-1155
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: January 7, 2004: 2,950,000
Transitional Small Business Disclosure Format (check one): YES NO X
SIMPLAGENE USA, INC.
(a development stage enterprise)
Form 10-QSB for the Quarter ended November 30, 2003
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 11
Item 3 Controls and Procedures 14
Part II - Other Information
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 15
2
PART I
Item 1 - Financial Statements
SIMPLAGENE USA, INC.
(a development stage enterprise)
Balance Sheets
November 30, 2003 and 2002
(Unaudited)
November 30, November 30,
2003 2002
------------ ------------
ASSETS
Current Assets
Cash in bank $ 85,685 $ 6,518
Other Assets
Deferred offering costs - 10,103
------------ ------------
Total Assets $ 85,685 $ 16,621
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 635 $ -
Loans from officer/shareholder 600 -
------------ ------------
Total Liabilities 1,235 -
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock - $0.001 par value
10,000,000 shares authorized.
None issued and outstanding. - -
Common stock - $0.001 par value.
50,000,000 shares authorized.
2,950,000 and 1,950,000 shares
issued and outstanding 2,950 1,950
Additional paid-in capital 94,466 17,550
Deficit accumulated during the development stage (12,966) (2,879)
------------ ------------
Total Stockholders' Equity 84,450 16,621
------------ ------------
Total Liabilities and Stockholders' Equity $ 85,685 $ 16,621
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
3
SIMPLAGENE USA, INC.
(a development stage enterprise)
Statements of Operations and Comprehensive Loss
Three months ended November 30, 2003 and 2002 and
Period from August 2, 2002 (date of inception) through November 30, 2003
(Unaudited)
Period from
Three months Three months August 2, 2002
ended ended (date of inception)
November 30, November 30, through
2003 2002 November 30, 2003
------------ ------------ -----------------
Revenues $ - $ - $ -
Cost of Sales - - -
Gross Profit - - -
Operating expenses
Organizational and start-up costs - 2,879 4,679
General and administrative expenses 3,268 - 8,288
Depreciation and amortization - - -
------------ ------------ -----------------
Total operating expenses 3,268 2,879 12,967
------------ ------------ -----------------
Loss from operations and
before provision for income taxes - (2,879) (12,967)
Provision for income taxes - - -
------------ ------------ -----------------
Net Income - (2,879) (12,967)
Other comprehensive income - - -
------------ ------------ -----------------
Comprehensive Loss $ (3,268) $ (2,879) $ (12,967)
============ ============ =================
Loss per weighted-average share
of common stock outstanding,
computed on net loss -
basic and fully diluted nil nil nil
============ ============ =================
Weighted-average number
of common shares outstanding 2,950,000 1,950,000 2,429,186
============ ============ =================
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
4
SIMPLAGENE USA, INC.
(a development stage enterprise)
Statements of Cash Flows
Three months ended November 30, 2003 and 2002 and
Period from August 2, 2002 (date of inception) through November 30, 2003
(Unaudited)
Period from
Three months Three months August 2, 2002
ended ended (date of inception)
November 30, November 30, through
2003 2002 November 30, 2003
------------ ------------ -----------------
Cash Flows from Operating Activities
Net Loss $ (3,268) $ (2,879) $ (12,966)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation - - -
Increase in Accounts payable-trade 635 - 635
------------ ------------ -----------------
Net cash used in operating activities (2,633) (2,879) (12,331)
------------ ------------ -----------------
Cash Flows from Investing Activities - - -
------------ ------------ -----------------
Cash Flows from Financing Activities
Cash advanced by officer/shareholder - - 600
Proceeds from sale of common stock - - 119,500
Cash paid to raise capital - (10,103) (22,084)
------------ ------------ -----------------
Net cash provided by financing activities - (10,103) 98,016
------------ ------------ -----------------
Increase (Decrease) in
Cash and Cash Equivalents (2,633) (12,982) 85,685
Cash and cash equivalents at beginning of period 88,318 19,500 -
------------ ------------ -----------------
Cash and cash equivalents at end of period $ 85,685 $ 6,518 $ 85,685
============ ============ =================
Supplemental Disclosures of
Interest and Income Taxes Paid
Interest paid during the period $ - $ - $ -
============ ============ =================
Income taxes paid (refunded) $ - $ - $ -
============ ============ =================
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
5
SIMPLAGENE USA, INC.
(a development stage enterprise)
Notes to Financial Statements
NOTE A - Organization and Description of Business
SimplaGene USA, Inc. (Company) was incorporated on August 2, 2002 under the laws
of the State of Nevada. The Company was formed to market hepatitis B virus (HBV)
genetic data gathered by Ningbo SimplaGene Institute, a Chinese research
institute, to pharmaceutical firms and research organizations. We intend to
market this information on compact disc for use in scientific research and drug
studies. Anticipated uses of this information include, analyzing mechanisms of
viral infection, developing new pharmaceuticals, conducting standardized
testing, and conducting other research. We do not intend to engage in any
research activity and do not believe our business will be subject to any
meaningful government regulation.
The Company has had no substantial operations or substantial assets since
inception. Accordingly, the Company is considered in the development stage.
NOTE B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of August 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented.
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-KSB. The information
presented within these interim financial statements may not include all
disclosures required by generally accepted accounting principles and the users
of financial information provided for interim periods should refer to the annual
financial information and footnotes when reviewing the interim financial results
presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending August 31, 2004.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
6
SIMPLAGENE USA, INC.
(a development stage enterprise)
Notes to Financial Statements - Continued
NOTE B - Preparation of Financial Statements - Continued
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
NOTE C - Going Concern Uncertainty
As of November 30, 2003 and subsequent thereto, the Company has completed an
initial public offering of common stock, continues to be in the process of
implementing its initial business plan and has not commenced operations, the
Company is considered in the development stage.
The Company's current management anticipates that the initial capitalization
will be sufficient to maintain the corporate status of the Company in the
immediate future. Because of the Company's lack of operating assets, the
Company's continuance may become dependent on either future sales of securities
and/or advances or loans from significant stockholders or corporate officers to
provide sufficient working capital to preserve the integrity of the corporate
entity during the development phase.
There is no assurance that the Company will be able to obtain additional equity
or debt funding or, that such funding, if available, will be obtained on terms
favorable to or affordable by the Company.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
NOTE D - Summary of Significant Accounting Policies
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with maturities
of three months or less, when purchased, to be cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Organization costs
The Company has adopted the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" whereby all organization
and initial costs incurred with the incorporation and initial
capitalization of the Company were charged to operations as incurred.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
7
SIMPLAGENE USA, INC.
(a development stage enterprise)
Notes to Financial Statements - Continued
NOTE D - Summary of Significant Accounting Policies - Continued
3. Deferred public offering costs
During the process of"going public" through an initial public offering (an
IPO), the Company deferred certain costs related to the registration
process. Deferred public offering costs represent accounting, legal and
underwriting costs incurred by the Company pertaining to this process.
These costs were charged against additional paid-in capital (deducted from
stock proceeds) upon completion of the public offering.
4. Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. At November 30, 2003, the deferred tax asset and deferred tax
liability accounts, as recorded when material to the financial statements,
are entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals.
As of November 30, 2003, the deferred tax asset related to the Company's
net operating loss carryforward is fully reserved. If these carryforwards
are not utilized, they will begin to expire in 2020.
5. Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of November 30, 2003 and 2002,
respectively, the Company had no warrants and/or options outstanding.
NOTE E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
8
SIMPLAGENE USA, INC.
(a development stage enterprise)
Notes to Financial Statements - Continued
NOTE F - Income Taxes
The components of income tax (benefit) expense for the year ended August 31,
2003, the period from August 2, 2002 (date of incorporation) and for the period
from August 8, 2002 (date of inception) through August 31, 2003, respectively,
are as follows:
Period from
Three months Three months August 2, 2002
ended ended (date of inception)
November 30, November 30, through
2003 2002 November 30, 2003
------------ ------------ -----------------
Federal:
Current $ - $ - $ -
Deferred - - -
------------ ------------ -----------------
- - -
------------ ------------ -----------------
State:
Current - - -
Deferred - - -
------------ ------------ -----------------
- - -
------------ ------------ -----------------
Total $ - $ - $ -
============ ============ =================
As of November 30, 2003, the Company has a net operating loss carryforward of
approximately $9,225 to offset future taxable income. Subject to current
regulations, this carryforward will begin to expire in 2023. The amount and
availability of the net operating loss carryforwards may be subject to
limitations set forth by the Internal Revenue Code. Factors such as the number
of shares ultimately issued within a three year look-back period; whether there
is a deemed more than 50 percent change in control; the applicable long-term tax
exempt bond rate; continuity of historical business; and subsequent income of
the Company all enter into the annual computation of allowable annual
utilization of the carryforwards.
(Remainder of this page left blank intentionally)
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
9
SIMPLAGENE USA, INC.
(a development stage enterprise)
Notes to Financial Statements - Continued
NOTE F - Income Taxes - Continued
The Company's income tax expense (benefit) for the three months ended
November 30, 2003 and 2002 and the period from August 2, 2002 (date of
inception) through November 30, 2003, respectively, differed from the
statutory rate of 34% as follows:
Period from
Three months Three months August 2, 2002
ended ended (date of inception)
November 30, November 30, through
2003 2002 November 30, 2003
------------ ------------ -----------------
Statutory rate applied to
income (loss) before income taxes $ (1,100) $ (1,000) $ (4,400)
Increase (decrease) in income taxes
resulting from:
State income taxes - - -
Difference between book method
and statutory recognition differences
on organization costs - 810 403
Other, including reserve for deferred
tax asset and application of net
operating loss carryforward 1,100 190 3,997
------------ ------------ -----------------
Income tax expense $ - $ - $ -
============ ============ =================
Temporary differences, consisting primarily of statutory deferrals of expenses
for organizational costs and statutory differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
bases of assets and liabilities give rise to deferred tax assets and liabilities
as of November 31, 2003 and 2002, respectively:
November 30, November 30,
2003 2002
------------ ------------
Deferred tax assets
Net operating loss carryforwards $ 3,135 $ 190
Less valuation allowance (3,135) (190)
------------ ------------
Net Deferred Tax Asset $ - $ -
============ =============
During the three months ended November 30, 2003 and 2002, respectively, the
valuation allowance increased by approximately $635 and $190.
NOTE G - Equity Transactions
At its August 2, 2002 capitalization, the Company sold an aggregate 1,950,000
shares of restricted, unregistered common stock to its initial shareholders for
gross proceeds of approximately $19,500.
On April 16, 2003, the Company completed the sale of an aggregate of 1,000,000
shares of its common stock for aggregate proceeds of approximately $100,000, in
satisfaction of the offering requirement of its self-underwritten public
offering of securities, pursuant to a Registration Statement Under The
Securities Act of 1933on Form SB-2. Offering proceeds were released from escrow
in April 2003 pursuant to the terms of the offering as detailed in the Company's
prospectus dated January 9, 2003. On April 16, 2003, the Company closed its
self-underwritten public offering of securities.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) Caution Regarding Forward-Looking Information
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
(2) General
SimplaGene USA was formed to market hepatitis B virus (HBV) genetic data
gathered by Ningbo SimplaGene Institute, a Chinese research institute, to
pharmaceutical firms and research organizations. We intend to market this
information on compact disc for use in scientific research and drug studies.
Anticipated uses of this information include, analyzing mechanisms of viral
infection, developing new pharmaceuticals, conducting standardized testing, and
conducting other research. We do not intend to engage in any research activity
and do not believe our business is subject to any meaningful government
regulation.
Dr. Xinbo Wang, Jingwei Wang, and Jing Deng, who are officers, directors, and
stockholders of SimplaGene USA, are the President, Chief Executive Officer, and
Vice President, respectively, of Ningbo SimplaGene Institute. Further, Dr. Xinbo
Wang is the sole owner of Ningbo SimplaGene Institute.
We are a development stage business and have yet to commence sales operations or
generate any revenue. Our plan is to use the net proceeds of our initial public
offering to create an e-commerce web site on the Internet for the product,
develop sales materials, and establish marketing programs to promote sales of
our product to potential customers. We closed our initial public offering on
April 16, 2003 and received gross proceeds of $100,000.
(3) Results of operations, Liquidity and Capital Resources
We are in the development stage and have not generated revenues from operations.
For the period from our incorporation on August 2, 2002 through November 30,
2003, our activities have principally related to our formation, the preparation
and filing of a Registration Statement under the Securities Act of 1933 on Form
SB-2, continuing work on the development, refinement and implementation of a
marketing program for our products and compliance with our reporting
requirements under the Securities Exchange Act of 1934. Accordingly, we believe
that our reported periodic and cumulative financial results from inception
through November 30, 2003 are not meaningful as an indication of future
operations.
11
Upon inception, we received $19,500 in net proceeds from our founders and
initial investors. On April 16, 2003, we completed a self-underwritten public
offering of securities under the Securities Act of 1933 pursuant to Registration
Statement a Form SB-2. We sold 1,000,000 shares of common stock at a public
offering price of $0.10 per share. As this was a self-underwritten offering, we
paid no commissions to raise these funds.
At November 30, 2003, August 31, 2003 and November 30, 2002, respectively, we
had approximately $85,685, $88,300 and $6,500 in cash and cash equivalents. To
date, we show negative cash flows. We expect losses from operations and negative
cash flow to continue for the foreseeable future. If our revenues and our
spending levels are not adjusted accordingly, we may not generate sufficient
revenues to achieve profitability. Even if we achieve profitability, we may not
sustain or increase such profitability on a quarterly or annual basis in the
future. We may need to raise additional funds in the future. We cannot be
certain that any additional financing will be available on terms favorable to us
and we have not developed a plan for raising additional capital should it be
required. If additional funds are raised by the issuance of our equity
securities, then existing shareholders may experience dilution of their
ownership interest and such securities may have rights senior to those of the
then existing holders of common stock. If additional funds are raised by our
issuance of debt instruments, we may be subject to certain limitations on our
operations. If adequate funds are not available or not available on acceptable
terms, we may be unable to fund our operations, develop or enhance services, or
respond to competitive pressures.
(4) Plan of Operation
Our current business plan is based on the distribution of genetic data on the
Hepatitis B virus owned by Ningbo SimplaGene Institute. Our business will not
require us to engage in any product research or development activity. Our
business is limited to developing and maintaining a sales capability for the
hepatitis B virus data. We have not conducted any market studies or contacted
any potential users to determine whether there is a market for this data
product. It is management's belief alone that there may be a market for this
data that serves as the basis for us embarking on this venture.
We have not engaged in any material operations or generated any revenues. Since
the completion of our public offering of common stock, we have worked on
developing our Internet web site. We currently anticipate that we will produce
advertising and other promotional materials and make initial contact with
prospective users of the HBV data we intend to distribute by the end of the
period ending May 31, 2004.
Following the end of our fiscal year ended August 31, 2003, we began discussions
with Machimpex Nigbo Limited regarding an arrangement in which Machimpex Nigbo
Limited would market our product and provide other marketing consulting
services.
We do not plan to purchase any computer equipment with our funds, as Craig
Laughlin, a Company Vice President, has indicated his willingness to allow us to
use equipment he owns personally until we generate revenue from the sale of
product and have sufficient capital to purchase our own. Our proposed business
venture has no other significant capital requirements for equipment to fulfill
our business plan. Our objective is to commence marketing efforts by the end of
May 2004 so that we can generate revenue to sustain our operations.
We have engaged an independent design firm to build an English website for us at
an approximate cost of $2,000. We have ownership of the internet domain name
simplageneusa.com. We intend to pursue development of our marketing brochure
during the period ending February 29, 2004 and begin contacting potential
customers in March 2004.
We cannot predict when the first product sale may occur because we will not
determine how customers will receive our product offering until we actually
begin our marketing effort. From the initial rollout we hope to obtain
information on the market for the product and adjust the marketing approach
based on our evaluation of the response, with a view to generating revenue from
sale of the product by August 31, 2004.
12
We are considering engaging Machimpex Nigbo Limited as an independent marketing
consultant to both sell our product directly to potential customers and assist
us with the development of an in-house marketing program.
We will rely on third party suppliers to produce our marketing materials,
subject to the supervision and approval of our executive officers. We have not
entered into an agreement with anyone to perform this service, so our estimate
of the cost for the service is based solely on management's informal
investigation of pricing by third party suppliers. Actual costs may vary, and to
the extent such costs significantly exceed our estimates, we may need to seek
additional financing to implement our business or not be able to implement our
business as planned.
We expect our executive officers will initially render services on a part-time
basis as required for the development of our business, and make initial contacts
with prospective users of the data product. Our executive officers will provide
such services without compensation in consideration of the benefits they expect
to derive as stockholders from commencement of business operations, and because
SimplaGene USA will not have the capital to pay compensation unless it generates
revenue from operations or obtains additional financing. At such time as we have
sufficient capital, we expect we will enter into formal arrangements to
compensate our executive officers for their services on terms yet to be decided.
Furthermore, if we are successful in establishing meaningful operations, we
expect our executive officers will commit more time to the business and we will
evaluate hiring employees to support the development of our business. Regardless
of whether we are successful, we are required to file certain periodic reports
with the Securities and Exchange Commission, and will retain the services of
outside professionals, such as attorneys and accountants, to assist us with
meeting this obligation. We estimate the cost of these outside services will be
at least $10,000 over the next 12 months.
We currently maintain a mailing address at 11900 Wayzata Blvd., Suite 100,
Hopkins, MN 55305, which is the address of Craig Laughlin, a Company Vice
President, director, and stockholder. Other than this mailing address, the
Company does not currently maintain any other office facilities, and does not
anticipate the need for maintaining office facilities at any time in the
foreseeable future. The Company pays no rent or other fees for the use of the
mailing address as these offices are used virtually full-time by other
businesses and ventures of Mr. Laughlin.
It is likely that the Company will not establish an office until we are
successful in establishing meaningful operations. We expect that we will seek
and lease space suitable for our needs at a future date; however, it is not
possible, at this time, to predict what arrangements will actually be made with
respect to future office facilities or what the financial impact of any future
lease obligation may be.
Under our distribution agreement with Ningbo SimplaGene Institute, we hold the
exclusive right to distribute the data product in the United States, Canada, and
Mexico. Ningbo SimplaGene Institute has not entered into a distribution
agreement with anyone else within or outside our territory, so prospective users
cannot obtain the product from any other source. We purchase the product at a
30% discount to the actual sale price of the product license and renewals we
receive from a customer. We expect to offer the data product to prospective
users at $50,000, which includes the current version of the hepatitis B virus
data files and any updates within one year of initial purchase without
additional charge. After the first year, users must pay an annual fee of $10,000
to continue to use the product and receive additional updates. Ningbo SimplaGene
Institute is not aware of any other company selling viral genomic information,
so it has no basis for setting the price point for its data product on the basis
of similar products in the market. Consequently, the pricing was determined
arbitrarily, so it is possible that Ningbo SimplaGene Institute will adjust the
pricing based on the response to our marketing effort. Ningbo SimplaGene
Institute sets the product sale price and may adjust the selling price by giving
us 60 days advance notice of the new pricing. We are authorized to offer a 10
percent discount to the selling price set by Ningbo SimplaGene Institute. The
hepatitis B virus data is produced and delivered in the form of a compact disc
with data files. It is the responsibility of Ningbo SimplaGene Institute to
produce and deliver the product to us for redelivery to the end user against
purchase orders we place. Under the terms of our distribution agreement with
Ningbo SimplaGene Institute, it will maintain an inventory of product at our
13
office and we will not have to pay for any product until it is sold. Therefore,
we will not make any capital expenditures to acquire or maintain inventory. Dr.
Xinbo Wang, Jingwei Wang, and Jing Deng, who are officers, directors, and
stockholder of SimplaGene USA, are the President, Chief Executive Officer, and
Vice President, respectively, of Ningbo SimplaGene Institute. Further, Dr. Xinbo
Wang is the sole owner of Ningbo SimplaGene Institute.
We have met our initial capital needs with the proceeds of our public offering.
We believe the proceeds of the offering will be adequate to fund our capital
requirements for the next twelve months. If within that period we are not
successful in generating revenues that will sustain our operations, we will need
to obtain additional debt or equity financing to remain in operation. We have
not presently identified any sources of additional financing should that become
necessary, so we cannot predict whether additional financing will be available
on terms we find acceptable. If additional financing is needed and cannot be
obtained, we would likely be forced to curtail or terminate our operations.
Item 3 - Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer along with the Company's Chief Financial Officer. Based upon
that evaluation, the Company's Chief Executive Officer along with the Company's
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
PART II
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
In October 2002, SimplaGene USA, Inc. filed a Registration Statement on
Form SB-2 under the Securities Act of 1933 to register for public sale
1,000,000 shares of common stock, par value $0.001, at an offering price of
$0.10 per share or a total offering of $100,000. No shares were registered
for selling stockholders. The offering was self-underwritten and no
underwriter participated in the offering. The offering was declared
effective on January 9, 2003, commenced immediately following the effective
date, and terminated on April 16, 2003 with the sale of all offered shares
resulting in gross proceeds of $100,000. Expenses of the offering were
$22,084 for legal and accounting fees, escrow agent fee, and other
incidental expenses. No payments of offering expenses were made, directly
or indirectly, to any officer, director, affiliate, or person holding ten
percent or more of SimplaGene USA common stock.
14
The net proceeds of the offering to SimplaGene USA, Inc. were $77,916. From
completion of the offering on April 16, 2003, through November 30, 2003, we
used approximately $6,120 for legal and accounting fees associated with the
preparation and filing of reports with the Securities and Exchange
Commission and $1,500 on miscellaneous office expenses. We hold the
remaining net proceeds of the offering in non-interest bearing bank
accounts. The application of the net proceeds of the offering through
November 30, 2003, does not represent a material change in the use of
proceeds described in the prospectus of SimplaGene USA.
Item 3 - Defaults on Senior Securities
None
15
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
--------
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
- Chief Executive Officer
31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
- Chief Financial Officer
32.1 Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
-------------------
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SimplaGene USA, Inc.
Dated: January 8, 2004 /s/ Xinbo Wang
------------------------
Xinbo Wang
President, Chief Executive Officer
and Director
Dated: January 8, 2004 /s/ Craig S. Laughlin
------------------------
Craig S. Laughlin
Vice President and
Principal Financial and Accounting Officer
16