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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 2000.
[_] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _________ to __________.
Commission File Number 33-23489
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BIOGAN INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 58-1832055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7213 POTOMAC DRIVE, BOISE, IDAHO 83704
(Address of principal executive offices)
208-376-8500
(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 [ ]
As of May 15, 2000, there were 85,386,710 shares of the Company's common
stock issued and outstanding.
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Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BIOGAN INTERNATIONAL, INC.
BALANCE SHEET
MARCH 31, 2000
(Unaudited)
ASSETS
Current assets:
Cash $ 1,839,818
------------
Total current assets 1,839,818
Furniture/Equipment 34,716
Accumulated depreciation (21,333)
------------
Total fixed assets 13,383
------------
Total assets $ 1,853,201
============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 76,630
Notes payable - stockholders 120,000
Notes payable - other 20,000
Accrued salaries - officers 171,200
Accrued expenses (accrued interest due stockholders $35,231) 45,313
------------
Total current liabilities 433,143
Non-current liabilities
Convertible debentures 2,000,000
Stockholders' equity (deficiency)
Preferred stock, $.001 par value; 10,000,000
shares authorized, no shares issued and outstanding --
Common stock, $.001 par value; 300,000,000 shares
authorized, 85,386,710 shares issued and outstanding 85,387
Additional paid in capital 4,326,474
Contributed capital 547,000
Retained deficit (5,538,803)
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Total stockholders' equity (deficiency) (579,942)
------------
Total liabilities and stockholders' equity (deficiency) $ 1,853,201
============
See accompanying notes to financial statements.
2
BIOGAN INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
2000 1999
-------------- --------------
Sales
Revenue $ -- $ --
Expenses
Wages -- 792
Depreciation expense 1,832 1,473
Interest expense 14,993 2,909
Legal & accounting fees 98,350 934
Rent -- 2,000
Financing costs 500,000 --
Other operating expenses 7,318 2,645
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Total expenses $ 622,493 $ 10,753
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Net operating income (loss) (622,493) (10,753)
Net income (loss) $ (622,493) $ (10,753)
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Income (loss) per common share, basic and diluted ($0.01) ($ 0.00)
See accompanying notes to financial statements.
3
BIOGAN INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------
2000 1999
------------ ------------
Cash flows from operations
Net loss $ (622,493) $ (10,753)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,832 1,473
------------ ------------
Total adjustments 1,832 1,473
Accounts payable 9,195 4,819
Accrued liabilities 13,591 3,062
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Net cash provided (used)
by operating activities (597,875) (1,399)
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Cash flows from investing activities
Net cash provided (used)
by investing activities -- --
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Cash flows from financing activities
Contributed capital 370,500 --
Convertible debenture proceeds 2,000,000 --
------------ ------------
Net cash provided (used)
by financing activities 2,370,500 --
------------ ------------
Net increase (decrease) in cash 1,772,625 (1,399)
Beginning cash balance 67,193 1,038
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Cash ending balance $ 1,839,818 $ (361)
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Supplemental information
Cash payments for interest expense $ -- $ --
Cash payments for income taxes -- --
See accompanying notes to financial statements.
4
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation and Business
The accompanying unaudited financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. The unaudited financial statements include all
adjustments, consisting of all normal recurring adjustments, which are, in
the opinion of management, necessary to fairly state the financial position
as of March 31, 2000 and the results of operations and cash flows for the
related interim periods ended March 31, 2000 and 1999. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make
the information presented not misleading. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000 or any other
period.
The accounting policies followed by the Company and other information
are contained in the notes to the Company's financial statements filed on
March 30, 2000 as part of the Company's annual report on Form 10-KSB. This
quarterly report should be read in conjunction with such annual report.
B. Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted-average number of
shares of common stock outstanding during the applicable period. The
weighted-average number of shares of common stock outstanding for the three
months ended March 31, 2000 and 1999, was 85,386,710, and 85,122,884,
respectively. Of the 85,386,710 shares outstanding, 48,852,065 are
restricted and 36,534,645 shares are unrestricted.
C. Income Taxes
At March 31, 2000, the Company had net operating loss (NOL)
carryforwards and research & development tax credits as follows:
YEAR NOL YEAR EXPIRES TAX CREDITS YEAR EXPIRES
---- --- ------------ ----------- ------------
1995 2,887,130 2010 --
1996 1,122,539 2011 12,197 2011
1997 736,051 2017 9,665 2012
1999 141,035 2019 --
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$4,886,755 $21,862
No deferred asset will be recognized on the tax benefit resulting from
the NOL until the Company becomes profitable. While management believes the
loss recorded due to the stock restitution loss ($2,676,409) is a tax
deductible expense, it could be subject to an IRS disallowance. If the
transaction described in note 9 takes place, there will be a significant
change in ownership, and the net operating losses may be significantly
reduced.
D. Furniture and Equipment
Furniture and equipment are carried at cost. Depreciation of furniture
and equipment is provided using the straight-line method of depreciation
and the accelerated cost recovery method for federal income tax purposes.
Depreciation is calculated over useful life ranging from 5 to 10 years.
5
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
MARCH 31, 2000
(Unaudited)
E. Continue in Existence
The Company's recurring losses from the Company's development stage
activities in prior years raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible effects on the
recoverability and classification of assets or amounts and classifications
of liabilities that may result from the possible inability of the Company
to continue as a going concern. Management's plans to continue in existence
are set forth in notes 5 and 9. There can be no assurance that these plans
will be successful.
2. 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 and
disclosures 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.
3. PROPERTY DISTRIBUTION
On August 19, 1999, the Company organized its wholly owned subsidiary R-Tec
Holding, Inc. ("R-Tec"), an Idaho corporation, into which the Company
transferred its 50% ownership interest in IntorCorp, Inc. in exchange for
4,266,797 shares of common stock of R-Tec. On September 27, 1999, the Company
paid a stock distribution of all of its R-Tec common stock to its shareholders
of record as of September 15, 1999, at the rate of one share of R-Tec stock for
each 20 shares of common stock of the Company, rounded up.
4. NOTES PAYABLE AT MARCH 31, 2000
Notes payable at March 31, 2000 consisted of the following:
Notes Payable - Other:
Notes payable to an individual with interest at 10% per annum
from July 1, 1998. Note is unsecured and is payable on demand. $ 5,000
Notes payable to an individual with interest at 10% per annum
from August 18, 1998. Note is unsecured and is payable on demand. 15,000
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Total Notes Payable - Other $ 20,000
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Notes Payable - Stockholders:
Notes payable to Ronald J. Tolman with interest at 10% per annum
from November 13, 1996. Note is unsecured and is payable on
demand. Payments are applied first to any unpaid interest. $ 40,000
Notes payable to Ronald J. Tolman with interest at 10% per annum
from September 7, 1999. Note is unsecured and is payable on demand. 5,000
Notes payable to Ronald J. Tolman with interest at 8% per annum
from July 26, 1999. Note is unsecured and is due April 28, 2000. 10,000
Notes payable to Ronald J. Tolman with interest at 12% per
annum from September 29, 1998. Note is unsecured and is payable
on demand. 15,000
Notes payable to Rulon L. Tolman with interest at 10% per annum
from November 13, 1996. Note is unsecured and is payable on
demand. Payments are applied first to any unpaid interest. 40,000
Notes payable to Rulon L. Tolman with interest at 10% per annum from
April 29, 1999. Note is unsecured and is payable on demand.
Payments are applied first to any unpaid interest. 10,000
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Total Notes Payable - Stockholders $ 120,000
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6
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
MARCH 31, 2000
(Unaudited)
5. CONTRIBUTED CAPITAL
Additional capital of $370,500 was contributed during the three month period
ended March, 31, 2000 in connection with the joint venture transaction as
outlined in note 9.
6. RELATED PARTY TRANSACTIONS
See note 4 for details on notes payable due stockholders. Ronald Tolman,
Rulon Tolman and Jacque Tolman have accrued wages for past services aggregating
$96,600, $63,800 and $10,800, respectively.
Gilles LaVerdiere, President, Chief Executive Officer, Chairman of the Board
and a director of the Company, has contributed capital of $370,500 (see note 5)
during the three month period ended March 31, 2000.
7. CONTINGENCY
There is a dispute with a third party against the Company relating to
matters of business activities that is not expected to have a material adverse
effect on the Company's financial position, results of operation or cash flows.
8. STOCK OPTIONS
On December 8, 1988, the board of directors of the Company reserved for
issuance 2,000,000 shares of the Company's common Stock pursuant to the terms of
the Company's stock option plan. In accordance with the provisions of the stock
option plan, such options may not be issued with an exercise price lower than
any private placement offering of the Company's common stock. As of May 15,
2000, no options have been granted under this stock option plan.
9. PROPOSED JOINT VENTURE AGREEMENT
The Company entered into an Agreement and Plan of Reorganization with Tiaro
Bay Resources and Hechi Industrial Co., LTD., ("Hechi") a Chinese mining
company, on September 9, 1999. This agreement was revised on November 30, 1999
to provide for a direct venture between the Company and Hechi. Due to various
requirements of the Chinese government, the nature of the transaction was
changed from a share exchange to a cooperative joint venture. This transaction
is currently in process.
The joint venture agreement, as proposed to be amended, will require the
Company to contribute $2,000,000. During the first quarter of 2000, the Company
paid to Hechi a sum of $200,000 as a nonrefundable deposit. On March 30, 2000,
the Company completed an offering of its secured convertible debentures in the
aggregate amount of $2,000,000. It is anticipated that the joint venture
agreement will require the Company to issue preferred shares to Hechi
shareholders upon the transfer of the Hechi assets into the joint venture
entity. The preferred shares will be voting shares with preferential rights on
liquidation, dissolution, or winding up of the affairs of the corporation but
will not be entitled to dividends.
10. CONVERTIBLE DEBENTURE
The secured convertible debentures issued by the Company in connection with
its agreement with Hechi (see note 9) are 8% secured convertible debentures due
February 28, 2002. The Company issued debentures for an aggregate of $2,000,000,
which were issuable in denominations of $10,000. Interest accrues from March 8,
2000 and is due on a quarterly basis, or on the date of conversion to common
stock of the Company, or at the final due date of the debenture. The debenture
holders are entitled, at their option, to convert all or a portion of the
debenture into shares of common stock of the Company at any time until the due
date of the debenture. The conversion rate is equal to the lower of the per
share price of $.4166 or the average of the closing bid price for the previous
five days multiplied by 80%. The debenture holders may not convert more than
one-third of the original principal amount of the debenture during any 30
calendar day period, nor sell more than that number of shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this
quarterly report on Form 10-QSB. Except for the historical information contained
herein, the following discussion contains certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
document should be read as being applicable to all related forward-looking
statements wherever they appear herein. The Company's actual results may differ
materially from those anticipated in these forward-looking statements. The
Company undertakes no obligation publicly to update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
OVERVIEW
Biogan International, Inc., formerly known as Biogan Medical International,
Inc. (the "Company"), was incorporated on February 5, 1988. Historically, the
Company has been engaged in the development of electrical motors. Currently, the
Company is in the process of completing a proposed cooperative joint venture
with Hechi Industrial Co., Ltd. ("Hechi"), a mining company organized under the
laws of the Peoples' Republic of China. Hechi engages in mining, refining and
the trading of base metal products in China. The Company anticipates finalizing
all aspects of its agreement with Hechi during the second quarter of 2000. Upon
completion of the transaction, it is anticipated that the Company will be
entitled to approximately 95% of the profits from the cooperative joint venture.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. The Company did not have any revenues for the quarter ended March
31, 2000, nor did it have revenues for the quarter ended March 31, 1999.
EXPENSES. Total expenses increased by $611,740 to $622,493 during the three
months ended March 31, 2000 from $10,753 for the three months ended March 31,
1999. The increase in expenses resulted primarily from an increase in financing
costs from $0 to $500,000 and an increase in legal and accounting fees from $934
to $98,350. A significant portion of these increases is attributable to the
Company's offering of its convertible debentures.
NET INCOME (LOSS). Net loss for the three months ended March 31, 2000 was
$622,493 as compared to net loss of $10,753 for the three months ended March 31,
1999. The increase in net loss for the three months ended March 31, 2000 was
attributable to the increase in total expenses of the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, the Company financed its
operations and capital expenditures primarily through proceeds from the
Company's offering of secured convertible debentures and from capital
contributions by an officer and director of the Company.
As of March 31, 2000, the Company had working capital of approximately
$1,407,000 and an accumulated deficit of approximately $5,539,000.
In March 2000, the Company completed an offering of 8% secured convertible
debentures due February 28, 2002 aggregating $2,000,000. Interest accrues from
March 8, 2000 and is due on a quarterly basis, or on the date of conversion to
common stock of the Company, or at the final due date of the debenture. The
debenture holders are entitled, at their option, to convert all or a portion of
the debenture into shares of common stock of the Company at any time until the
due date of the debenture. The conversion rate is equal to the lower of the per
share price of $.4166 or the average of the closing bid price for the previous
five days multiplied by 80%. The debenture holders may not convert more than
one-third of the original principal amount of the debenture during any 30
calendar day period, nor sell more than that number of shares.
During the first quarter of 2000, an officer and a director of the Company
contributed capital to the Company aggregating $370,500.
8
The accompanying financial statements contained elsewhere in this report
have been prepared assuming that the Company will continue as a going concern.
The Company has suffered recurring losses from operations and negative cash
flows from operations. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company believes that it will have to obtain additional funds to meet
its projected cash requirements and fund its operations for the next twelve
months, including anticipated funding of its proposed cooperative joint venture
with Hechi. During early 2000, the Company took certain actions in an effort to
become profitable and improve cash flow from operations in the future.
The Company is implementing a corporate finance program designed to improve its
working capital structure by considering certain financing alternatives. Such
alternatives include a proposed private placement of certain debt and/or equity
securities during the second or third quarter of 2000. Although the Company has
been successful in obtaining working capital to fund operations to date, there
can be no assurances that the Company will be able to generate additional
capital in the future or secure additional financing with reasonable terms, if
at all. In addition, there can be no assurance that the Company's funding
requirements or cash used in operating activities will not increase
significantly as a result of unforeseen circumstances. The inability to obtain
such financing could have a material adverse effect on the business, financial
condition and results of operations of the Company.
In the event the Company exceeds its projected cash requirements, there can
be no assurance that the Company would be able to obtain public or private
third-party sources of financing or that favorable terms for such financing
would be available. In addition, given the trading history of the Company's
common stock, there can be no assurance that the Company will be able to raise
additional cash through public or private offerings of its common stock. If
additional funds are raised by issuing equity or convertible debt securities,
options or warrants, further dilution to the Company's existing stockholders may
result.
YEAR 2000 ISSUES
The Company has not experienced any significant problems as a result of the
arrival of the Year 2000. Although no significant problems have materialized to
date, the Company will continue to monitor its systems throughout the Year 2000,
including the proper recognition of the leap year.
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Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended March 31, 2000, no matters were submitted to
a vote of the holders of the Company's securities.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIOGAN INTERNATIONAL, INC.
Dated: May 22, 2000 By: /s/ GILLES LaVERDIERE
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Gilles LaVerdiere, President
Dated: May 22, 2000 By: /s/ RONALD J. TOLMAN
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Ronald J. Tolman, Vice President and
Principal Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27.1 Financial Data Schedule
12