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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 June 30, 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
-------------------------------
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)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 August 18, 2000, there were 130,986,710 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
JUNE 30, 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,782
Prepaid expenses 1,988
Restricted cash 1,000,000
------------
Total current assets 1,055,770
FIXED ASSETS:
Furniture/Equipment 34,716
Accumulated depreciation (22,685)
------------
Total fixed assets 12,031
OTHER ASSETS:
Deferred bond issue costs - net of accumulated amortization 454,484
Stock pledged as collateral 28,800
Investment in joint venture 850,000
------------
Total other assets 1,333,284
------------
Total assets $ 2,401,085
============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 34,694
Notes payable - stockholders 95,000
Other accrued liabilities 70,297
------------
Total current liabilities 199,991
LONG TERM LIABILITIES:
Convertible debentures 2,000,000
------------
Total liabilities 2,199,991
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, 114,186,710 shares issued and outstanding
28,800,000 shares pledged as collateral (Note 7)
18,287,073 restricted shares 114,187
Paid in capital 4,326,475
Contributed capital (Note 3) 852,500
Retained deficit (5,092,068)
------------
Total stockholders' equity (deficiency) 201,094
------------
Total liabilities and stockholders' equity (deficiency) $ 2,401,085
============
See accompanying notes to financial statements.
2
BIOGAN INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
REVENUE $ -- $ 360 $ -- $ 360
COST OF REVENUE
Direct costs -- -- -- --
-------------- -------------- -------------- --------------
Gross profit -- 360 -- 360
OPERATING EXPENSES
Wages $ -- -- -- 792
Legal & accounting fees 99,478 12,397 197,828 13,331
Depreciation 1,353 1,473 3,185 2,945
Amortization 64,284 -- 80,517 --
Rent -- 611 (400) 2,611
Other operating expenses 11,074 4,611 18,703 7,257
-------------- -------------- -------------- --------------
Total operating expenses 176,189 19,092 299,833 26,936
-------------- -------------- -------------- --------------
Operating income (loss) $ (176,189) $ (18,732) $ (299,833) $ (26,576)
OTHER INCOME AND (EXPENSES)
Interest expense (43,802) (2,942) (48,966) (5,852)
Miscellaneous expense -- (84) (88) (84)
Interest income 1,930 15 1,930 15
Other income (Note 3) 171,200 -- 171,200 --
-------------- -------------- -------------- --------------
Total other income and (expense) 129,328 (3,011) 124,076 (5,921)
-------------- -------------- -------------- --------------
Income before income taxes $ (46,861) $ (21,743) $ (175,757) $ (32,497)
INCOME TAXES -- -- -- --
-------------- -------------- -------------- --------------
Net income (loss) after income tax $ (46,861) $ (21,743) $ (175,757) $ (32,497)
============== ============== ============== ==============
EARNINGS PER COMMON SHARE OUTSTANDING
Weighted average number of common
shares outstanding 103,426,270 85,122,884 103,426,270 85,122,884
Profit (loss) per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============== ============== ============== ==============
Fully diluted number of common
shares outstanding 103,426,270 85,122,884 103,426,270 85,122,884
Profit (loss) per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============== ============== ============== ==============
See accompanying notes to financial statements.
3
BIOGAN INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended June 30, Ended June 30,
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (175,757) $ (32,497)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 3,184 2,947
Amortization 80,517 --
Accounts receivable -- 180
Prepaid expenses (1,988) --
Accounts payable (32,740) 13,774
Accrued liabilities (132,627) 4,614
-------------- --------------
Net cash provided by (used in) operating activities $ (259,411) $ (10,982)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cooperative joint venture (1,850,000) --
-------------- --------------
Net cash provided by (used in) investing activities (1,850,000) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes & loans payable -- 10,000
Repayments of notes & loans payable (45,000) --
Deferred financing costs (535,000) --
Capital contributed by stockholder 676,000 --
Bond proceeds 2,000,000 --
-------------- --------------
Net cash provided by (used in) financing activities 2,096,000 10,000
-------------- --------------
Increase in cash and cash equivalents (13,411) (982)
Cash at beginning of period 67,193 1,038
-------------- --------------
Cash at end of period $ 53,782 $ 56
============== ==============
Supplemental information
Interest paid $ 8,990 $ --
Income taxes paid -- --
Non-cash transaction
28,800,000 shares of common stock issued as collateral $ 28,800 $ --
See accompanying notes to financial statements.
4
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 June 30, 2000
and the results of operations and cash flows for the related interim periods
ended June 30, 2000 and 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. 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. Operating results for the three months ended June
30, 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.
Cash and Cash Equivalents
-------------------------
For purposes of the unaudited statement of cash flows, the Company
considers all short-term investments in interest-bearing accounts, securities
and other instruments with an original maturity of three months or less, to be
equivalent to cash.
Fixed Assets
------------
Fixed assets are stated at cost, less accumulated depreciation and
amortization, computed using the straight-line method over their estimated
useful lives that range from five to fifty years. Depreciation expense for the
six-month period ended June 30, 2000 and 1999 totaled $3,184 and $2,947,
respectively.
Deferred Bond Issue Costs and Discount
--------------------------------------
The Company issued secured convertible debentures on March 8, 2000, as
discussed in Note 7. The costs associated with the issuance of such debentures
and their discount are amortized over the life of the debentures.
5
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Income (Loss) Per Share
---------------------------
Basic earnings per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
during the applicable period. The following reflects amounts reported in the
financial statements:
FOR THE PERIOD ENDED JUNE 30, 1999
----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- --------
Income available to common stockholders
- basic earnings per share (32,497) 85,122,884 (.00)
----------------------------------
FOR THE PERIOD ENDED JUNE 30, 2000
----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- --------
Income available to common stockholders
- basic earnings per share (175,757) 103,426,270 (.00)
Income available to common stockholders
- fully diluted earnings per share (175,757) 103,426,270 (.00)
----------------------------------
The Company has issued and pledged shares of common stock in connection
with its secured convertible debentures as described in Note 7. Such shares
could potentially dilute earnings per share, but their effect was not included
in the above calculations because their effect was anti-dilutive for the periods
presented.
Development-Stage Company
-------------------------
The Company was a development-stage company in previous periods. The
Company ceased to be a development-stage company on September 29, 1999, when it
distributed its shares of InterCorp, Inc. stock and intellectual property as
described in Note 2.
6
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
Income Taxes
------------
The Company uses the asset and liability method as identified in SFAS 109,
Accounting for Income Taxes. At June 30, 2000, the Company had net operating
losses (NOL) carryforwards and research and 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 2017
1999 141,035 2019 --
----------- -----------
Total $4,886,755 $21,862
=========== ===========
No deferred assets will be recognized on the tax benefit resulting from the
NOLs 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 disallowed by the IRS. Due to the change in ownership of
the Company resulting from the transactions described in Note 8, the Company may
not realize a tax benefit from NOLs for prior years.
2. 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 stockholders
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.
3. RELATED PARTY TRANSACTIONS
Notes Payable - Stockholders
----------------------------
Notes payable at June 30, 2000, consisted of the following:
Ronald J. Tolman:
Note dated November 13, 1996 bearing interest at 10% per annum.
Note is unsecured and is payable on demand. Payments are applied
first to any unpaid interest. $ 40,000
Note dated September 7, 1999 bearing interest at 10% per annum.
Note is unsecured and is payable on demand. 5,000
Rulon L. Tolman:
Note dated November 13, 1996 bearing interest at 10% per annum.
Note is unsecured and is payable on demand. Payments are applied
first to any unpaid interest. 40,000
Note dated April 29, 1999 bearing interest at 10% per annum.
Note is unsecured and is payable on demand. Payments are applied
first to any unpaid interest. 10,000
----------
Total $ 95,000
==========
7
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
Other Income
------------
Ronald J. Tolman, Rulon Tolman and Jacque Tolman had accrued wages for past
services aggregating $96,600, $63,800 and $10,800, respectively, for a total of
$171,200. These stockholders have forgiven their respective wages due resulting
in other income in the amount of $171,200.
Contributed Capital
-------------------
Gilles LaVerdiere, President and Chief Executive Officer of the Company,
has contributed capital of $676,000 during the six-month period ended June 30,
2000.
4. COMMITMENTS AND CONTINGENT LIABILITIES
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.
5. STOCK OPTIONS
On December 8, 1988, the board of directors of the Company reserved
2,000,000 shares of the Company's common stock for issuance under a stock
incentive plan to be adopted by the Board of Directors. As of June 30, 2000, the
Company had not adopted a stock option plan and, accordingly, no options have
been granted.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents are carried at face value in U.S. dollar
denominations, or at exchange rates effective on the balance sheet date.
Accounts receivable and accounts payable are carried at face value, subject
to reserves, which may be established upon review.
7. CONVERTIBLE DEBENTURE
On March 31, 2000, the Company completed an offering of its 8% Secured
Convertible Debentures due February 28, 2002 in the aggregate amount of
$2,035,000. The debentures are secured by a standby letter of credit in the
amount of $1,200,000 issued by a financial institution, and are further secured
by 28,800,000 shares of the Company's common stock which are currently being
held in escrow as security for payment of the debenture. Interest accrues at a
rate of 8% per annum 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 maturity date. 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%, subject to adjustment. 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. The debentures may not be converted if such conversion
would result in the holder and its affiliates holding more than 9.99% of the
Company's common stock. The Debenture provides for substantial penalties for the
Company's failure to promptly honor conversion requests.
8
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
In the event that the Company serves a redemption notice to the holder of a
debenture, the redemption price shall be equal to 125% of the outstanding
principal and interest balance of the debenture. In the event of a redemption
notice, the debenture holder will retain conversion rights as stated above, up
to a maximum of 50% of the amount subject to the redemption. The Company may not
serve any redemption notice without having the necessary cash or credit
facilities immediately available to cover the full redemption price.
In connection with the issuance of the debentures, the Company issued to
the debenture holders three-year warrants to purchase up to an aggregate of
489,000 shares of common stock at $.60 per share, subject to adjustment. The
shares into which the debentures are convertible and the shares underlying the
warrants are subject to a registration rights agreement requiring the Company to
register such securities for resale under the Securities Act of 1933, as amended
(the "Act"), at its own expense. There are substantial penalties to the Company
if the Company fails to file the required registration statement or cause the
registration statement to be declared effective under the Act within the time
period set forth in the registration rights agreement.
8. SUBSEQUENT EVENTS
Cooperative Joint Venture
-------------------------
Effective as of January 27, 2000, the Company entered into a Cooperative
Joint Venture Contract (the "Joint Venture Contract") with Hechi Industrial Co.,
Ltd., a private mining company organized under the laws of the People's Republic
of China ("Hechi"), to provide for the formation of a Chinese cooperative joint
venture called Guanghe Metals Co., Ltd. (the "Joint Venture").
In connection with the formation of the Joint Venture, the Company and
Hechi executed an Asset Purchase Agreement on August 1, 2000, which agreement
was dated effective as of July 1, 2000 (the "Asset Purchase Agreement"). The
Asset Purchase Agreement provides for the acquisition by the Company of certain
of the assets and assumption of certain of the liabilities of Hechi in exchange
for the issuance to the shareholders of Hechi, consisting of approximately 300
individuals, of an aggregate of 31,300 shares of Series A Convertible Preferred
Stock and 16,800,000 shares of common stock of the Company. The assets purchased
and liabilities assumed from Hechi consist of a 9% interest in the Gaofeng
Mining Co., Ltd, a 70% interest in the Guizhou Louxia Coal Co., Ltd. and all of
the assets and liabilities of six operating divisions of Hechi as follows: the
Hechi Copper Refinery, the Non-Ferrous Metals Trading Company, the Wuxu Mine,
the Transportation Company, the Coal Company, and the Stone Electronic
Information Services Company.
The Joint Venture Contract requires the Company to contribute an aggregate
of $9,200,000 in capital, of which $2,000,000 shall be paid within three (3)
months of receipt of the business license for the Joint Venture. As described in
Note 7, the Company completed an offering of its secured convertible debentures
in the aggregate amount of $2,035,000 to finance the requirement. As of June 30,
2000, the Company had paid $850,000 to Hechi.
Additional requirements of the Asset Purchase Agreement require the Company
to effect a 1-for-12 reverse split of its common stock and to change the
corporate name to HMZ Metals, Inc. The shares of Series A Convertible Preferred
Stock issued to the shareholders of Hechi are voting shares with preferential
rights on liquidation, dissolution, or winding up of the affairs of the Company,
but such shares are not entitled to dividends.
9
BIOGAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
9. EQUITY
The Company has capital stock on June 30, 2000 as follows:
Preferred Stock: $.001 par value, 100,000,000 shares authorized, no shares
issued or outstanding
Common Stock: $.001 par value, 300,000,000 shares authorized,
114,186,710 shares issued and outstanding
The Company has pledged or restricted its common stock as follows:
- 28,800,000 restricted shares pledged as collateral relating to the
convertible debentures (Note 7)
- 4,266,797 restricted shares related to stock distribution (Note 2)
- 14,020,276 other Rule 144 restricted shares
- 480,000 warrants expiring on February 28, 2005 relating to the
convertible debentures (Note 7)
- 9,000 warrants expiring on February 28, 2003 relating to the
convertible debentures (Note 7)
10. GOING CONCERN CONSIDERATIONS
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.
Although the Company had not entered into any revenue-producing contracts
as of the balance sheet date of June 30, 2000, management expects to have
successfully negotiated such contracts prior to its fiscal year end of December
31, 2000. Furthermore, the Company's investment in the Joint Venture with Hechi
described in Note 8 is expected to provide revenues necessary to sustain the
Company's operations. However, there can be no assurance that these plans will
be successful.
10
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
The Company was incorporated on February 5, 1988. Historically, the Company
has been engaged in the development of electrical motors. Currently, the Company
is engaged in the mining, refining and trading of base metal products in the
People's Republic of China, which operations are conducted through the Joint
Venture between the Company and Hechi. The Company owns a 95% interest in the
profits and loss of the Joint Venture, and possesses a 92% interest in the
remaining assets of the Joint Venture upon any liquidation or dissolution of the
Joint Venture.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. The Company did not have any revenues for the quarter ended June
30, 2000, nor did it have revenues for the quarter ended June 30, 1999.
OPERATING EXPENSES. Operating expenses increased by $157,000 to $176,000
during the three months ended June 30, 2000 from $19,000 for the three months
ended June 30, 1999. The increase in operating expenses resulted primarily from
an increase in legal and accounting fees from $12,000 during the second quarter
of 1999 to $99,000 during the same period of 2000, which expenses resulted
primarily from the transactions consummated by the Company in connection with
its Joint Venture with Hechi. The increase is also attributable to an increase
in amortization expense from 0 during the three months ended June 30, 1999, to
$64,000 during the three months ended June 30, 2000.
OTHER INCOME AND EXPENSES. Other income increased by $132,000, from
$(3,000) during the quarter ended June 30, 1999 to $129,000 during the quarter
ended June 30, 2000. This increase resulted primarily from the forgiveness of
wages by three employees of the Company during the three months ended June 30,
2000 in the aggregate amount of $171,200, partially offset by an increase in
interest expense from $44,000 during the three months ended June 30, 2000 as
compared to $3,000 for the same period in 1999. The increase in interest expense
in 2000 is primarily attributable to the Company's obligations under its 8%
secured convertible debentures.
NET LOSS. Net loss for the three months ended June 30, 2000 was $47,000 as
compared to net loss of $22,000 for the three months ended June 30, 1999. The
increase in net loss for the three months ended June 30, 2000 was attributable
to the increase in total expenses of the Company.
11
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES. The Company did not have any revenues for the six months ended
June 30, 2000, nor did it have revenues for the six months ended June 30, 1999.
OPERATING EXPENSES. Operating expenses increased by $273,000 to $300,000
during the six months ended June 30, 2000 as compared to $27,000 during the same
period of 1999. The increase in operating expenses resulted primarily from an
increase in legal and accounting fees from $13,000 during the six months ended
June 30, 1999 to $198,000 during the six months ended June 30, 2000, which
expenses in 2000 are attributable to the transactions consummated by the Company
in connection with its Joint Venture with Hechi and its offering of secured
convertible debentures. The increase is also attributable to an increase in
amortization expense from 0 during the six months ended June 30, 1999, to
$81,000 during the six months ended June 30, 2000.
OTHER INCOME AND EXPENSES. Other income increased by $130,000 from $(6,000)
during the six months ended June 30, 1999 to $124,000 during the same period in
2000. This increase resulted primarily from the forgiveness of wages by three
employees of the Company in the amount of $171,200 during the period ended June
30, 2000, which income was partially offset by interest expense of $49,000
during the six months ended June 30, 2000. The interest expense in 2000 is
primarily attributable to the Company's obligations under its 8% secured
convertible debentures.
NET LOSS. Net loss for the six months ended June 30, 2000 was $176,000 as
compared to net loss of $32,000 for the six months ended June 30, 1999. The
increase in net loss for the six months ended June 30, 2000 was attributable to
the increase in total expenses of the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 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 June 30, 2000, the Company had working capital of approximately
$(144,000) and an accumulated deficit of $5,100,000.
In March 2000, the Company completed an offering of 8% Secured Convertible
Debentures Due February 28, 2002 in the aggregate amount of $2,035,000. 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 maturity 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 maturity 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%.
During the six months ended June 30, 2000, an officer and a director of the
Company contributed capital to the Company aggregating $676,000.
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.
12
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 Joint Venture with Hechi. During
the first two quarters of 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 assurance 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. In addition, any debt financing or other financing of securities senior
to common stock will likely include financial and other covenants that will
restrict the Company's flexibility. At a minimum, the Company expects these
covenants to include restrictions on the Company's ability to pay dividends on
its common stock. Any failure to comply with these covenants would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
13
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 June 30, 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 June 30, 2000.
14
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: August 22, 2000 By: /s/ GILLES LaVERDIERE
-----------------------------------------
Gilles LaVerdiere, President
and Chief Executive Officer
Dated: August 22, 2000 By: /s/ RONALD J. TOLMAN
-----------------------------------------
Ronald J. Tolman, Chief Financial Officer
15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
16