SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
- ----------------- ----------------------
June 30, 2001 000-28519
PATHOBIOTEK DIAGNOSTICS INC.
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(Registrant's Name)
Texas 76-0510754
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(State of incorporation) (I.R.S. Employer
Identification No.)
4800 Research Forest Drive, The Woodlands, TX 77381-4142
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 629-9062
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
19,955,654 common shares as of June 30, 2001
Part I: FINANCIAL INFORMATION
PATHOBIOTEK DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (UNAUDITED)
June 30, 2001 June 30, 2000
-------------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,748 5,115
Employee receivables 2,158 2,158
Due from lender 200,000 -
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Total current assets 209,906 7,273
PROPERTY AND EQUIPMENT, at cost 145,366 142,533
Less: Accumulated depreciation (107,300) (93,496)
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38,066 49, 037
OTHER ASSETS
Deposits 10,000 10,000
Patent costs 59,459 59,459
Less: Accumulated amortization (10,439) (8,799)
Other assets 300 300
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59,320 60,960
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$ 307,292 $ 117,270
=================== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 379,265 $ 314,018
Due to shareholder 26,361 28,150
Notes payable 270,000 -
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Total current liabilities 675,626 343,018
SHAREHOLDERS' EQUITY
Common stock, $.001 par value,
authorized 20,000,000 shares,
issued and outstanding 15,347,803 shares, 21,140 15,348
Additional paid in capital 2,435,015 1,766,672
Deficit accumulated during the development stage (2,824,489) (2,224,489)
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Total shareholders' equity (368,334) (225,748)
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$ 307,292 $ 117,270
=================== ===========
See notes to financial statements.
F-1
PATHOBIOTEK DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (UNAUDITED)
Six Six Three Three From
months months months months August 5, 1996
ended ended ended ended through
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 June 30, 2001
-------------- -------------- -------------- ------------- --------------
Revenues $ 0 $ 0 $ 0 $ 0 $ 1,850
Direct costs 0 0 0 0 0
------------ ------------ -------------- ------------- -------------
Gross profit 0 0 0 0 1,850
Administrative and general expenses 800,305 495,272 692,024 213,053 2,686,378
Depreciation expense 15,446 12,140 7,814 7,331 117,739
------------ ------------ -------------- ------------- -------------
815,751 507,412 699,838 220,384 2,804,117
------------ ------------ -------------- ------------- -------------
Loss from operations (815,751) (507,412) (699,838) (220,384) (2,802,267)
Other income 0 0 0 0 4,800
Interest expense (970) (2,074) (465) (328) (27,022)
------------ ------------ -------------- ------------- -------------
(970) (2,074) (465) (328) (22,222)
------------ ------------ -------------- ------------- -------------
Loss before income taxes (816,721) (509,486) (700,303) (220,712) (2,824,489)
Federal income taxes - current expense (benefit) 0 0 0 0 0
------------ ------------ -------------- ------------- -------------
Net loss (816,721) (509,486) (700,303) (220,712) (2,824,489)
Accumulated deficit at beginning of period (2,007,768) (2,370,418) (2,124,186) (2,659,192) 0
------------ ------------ -------------- ------------ ---------------
Deficit accumulated during the development stage $ (2,824,489)$ (2,879,904)$ (2,824,489) $ (2,879,904)$ (2,824,489)
============ ============ ============== ============= =============
See notes to financial statements.
F-2
PATHOBIOTEK DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Period August 5, 1996 (Inception) through June 30, 2001
Deficit
Accumulated
Additional During the
Common Paid in Development
Stock Capital (3) Stage Total
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Issuance of 4,000,000 shares - August 7, 1996 4,000,000 (1) $ 4,000 $ $ $ 4,000
Issuance of 77,320 shares - January 23, 1997 77,320 77 9,923 10,000
Issuance of 300,000 shares - January 23, 1997 300,000 (2) 300 300
Issuance of 86,800 shares - Various dates in 1997 86,800 87 35,118 35,205
Issuance of 480,000 shares - Various dates in 1997 480,000 480 254,520 255,000
Net loss for the period August 5, 1996 (Inception) through
July 31, 1997 (325,680) (325,680)
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Balance at July 31, 1997 4,944,120 4,944 299,561 (325,680) (21,175)
Issuance of 970,193 shares - Various dates in 1998 970,193 970 417,927 418,897
Repurchase of 225,000 shares - Various dates in 1998 (225,000) (225) (99,775) (100,000)
Issuance of 129,500 shares - Various dates in 1998 129,500 130 18,390 18,520
Reduction of paid in capital for management fees (8,377) (8,377)
Net loss for the year ended July 31, 1998 (778,556) (778,556)
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Balance at July 31, 1998 5,818,813 5,819 627,726 (1,104,236) (470,691)
Issuance of 178,000 shares - Various dates in 1998 178,000 178 72,372 72,550
Repurchase of 73,000 shares - Various dates in 1998 (73,000) (73) (5,227) (5,300)
Issuance of 43,000 shares - Various dates in 1998 43,000 43 87,442 87,485
Reduction of paid in capital for management fees (16,215) (16,215)
Net loss for 5 months ended December 31, 1998 (403,184) (403,184)
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Balance at December 31, 1998 5,966,813 5,967 766,098 (1,507,420) (735,355)
Issuance of 4,576,555 shares - Various dates in 1999 4,576,555 4,576 482,296 486,872
Net loss for the year ended December 31, 1999 57,393 57,393
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Balance at December 31, 1999 10,543,368 10,543 1,248,394 (1,450,027) (191,090)
Issuance of shares previously subscribed - various dates 4,420,783 4,421 493,512 497,933
Issuance of shares for services rendered 583,652 584 24,766 25,350
Cancelation of previously issued shares (200,000) (200) (200)
Net loss for the year ended December 31, 2000 (557,741) (557,741)
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Balance at December 31, 2000 15,347,803 15,348 1,766,672 (2,007,768) (225,748)
Issuance of shares for cash 928,137 928 928
Cancelation of previously issued shares (928,137) (928) (928)
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See notes to financial statements.
F-3
PATHOBIOTEK DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Period August 5, 1996 (Inception) through June 30, 2001
(Continued)
Issuance of shares for services rendered 4,607,851 4,608 668,343 672,951
Shares subscribed, not issued 1,184,283 1,184 1,184
Net loss for six months ended June 30, 2001 (816,721) (816,721)
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Balance at March 31, 2001 21,139,937 $ 21,140 $ 2,435,015 $ (2,824,489) $ (368,334)
=======================================================================
See notes to financial statements.
F-4
PATHOBIOTEK DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Six Three Three From
months months months months August 5, 1996
ended ended ended ended through
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 June 30, 2001
------------- ------------- ------------- ------------- --------------
OPERATING ACTIVITIES
Net loss $ (816,721)$ (509,486)$ (700,303)$ (220,712)$ (2,824,489)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,446 13,427 7,814 7,331 117,739
Stock based compensation 668,343 0 600,000 0 668,343
Changes in operating assets and liabilities:
Other receivables 0 0 0 0 (2,158)
Patent costs 0 (575) 0 (12,260) (59,459)
Deposits 0 0 0 0 (10,000)
Other assets 0 0 0 0 (300)
State tax refund receivable 0 270 0 0 0
Trade accounts payable and accrued expenses 64,395 241,936 3,450 86,384 387,608
------------ ------------- ----------- ----------- -------------
Net cash provided by (used in) operating activities (68,537) (254,428) (89,039) (139,257) (1,722,716)
INVESTING ACTIVITIES
Capital expenditures (2,833) (8,978) 0 (3,833) (145,366)
Reverse merger 0 (150,000) 0 0 (150,000)
------------ ------------- ----------- ----------- -------------
Net cash provided by (used in) investing activities (2,833) (158,978) 0 (3,833) (295,366)
FINANCING ACTIVITIES
Proceeds from short-term debt 70,000 0 70,000 0 70,000
Principal payments on long-term debt 0 (16,054) 0 (16,685) (16,054)
Related parties 4,003 (16,685) 4,003 13,185 26,361
Proceeds from issuance of stock 0 422,010 22,784 150 1,945,523
------------ ------------- ----------- ----------- -------------
Net cash provided by (used in) financing activities 74,003 389,271 96,787 (3,350) 2,025,830
------------ ------------- ----------- ----------- -------------
(DECREASE) INCREASE IN CASH 2,633 (24,135) 7,748 (146,440) 7,748
Cash and cash equivalents at beginning of period 5,115 24,135 0 146,440 0
------------ ------------- ----------- ----------- -------------
Cash and cash equivalents at end of priod $ 7,748 $ 0 $ 7,748 $ 0 $ 7,748
============ ============= =========== =========== =============
See notes to financial statements.
F-5
PATHOBIOTEK DIAGNOSTICS, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2001
Note 1 - Organization and Business Activity
Pathobiotek Diagnostics, Inc., (the "Company") was formed on August 5, 1996,
under the laws of the State of Texas for the purpose of developing, producing,
distributing, selling and/or performing diagnostics for various virus and
bacterium. The Company is a developmental stage company under Statement of
Financial Accounting Standard ("SFAS") No 7, "Accounting and Reporting by
Development State Enterprises". Pathobiotek Diagnostics, Inc. was a subsidiary
of Pacific Biotech International, Inc. (the "Parent"), a Texas Corporation,
until May 16, 2000. Pacific Biotech International, Inc. no longer owns any
shares of the Company. On March 6, 2000, the Company completed a Share Purchase
Agreement with shareholders of Investra Enterprises, Inc. (IEI) in which the
Company acquired all 672,000 issued and outstanding shares of IEI for $150,000
for purposes of completing a merger of the Company and IEI. The Company was the
surviving entity. These financial statements assume the Company will continue as
a going concern. There is substantial doubt the Company can continue as a going
concern due to losses and a lack of financing. No adjustments have been made for
this uncertainty.
Note 2 - Summary of Significant Accounting Policies
Cash and Cash Equivalents:
- --------------------------
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Supplemental schedule of non-cash investing and financing activities: Equipment
totaling $91,887 was acquired through a note payable financing agreement.
Property and Equipment:
- -----------------------
Property and equipment, consisting primarily of lab and computer equipment, is
stated at cost. Depreciation is computed using the straight-line method over
estimated lives ranging from 5 to 7 years.
Maintenance and repairs are expensed as incurred; major renewals and
improvements are capitalized.
Use of Estimates:
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Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported revenues and expenses.
Actual results could differ from the estimates.
F-6
PATHOBIOTEK DIAGNOSTICS, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - continued
June 30, 2001
Asset Valuation:
- ----------------
The carrying amounts of long-lived assets are reviewed periodically. If the
asset carrying amount is not recoverable, the asset is considered to be impaired
and the value is adjusted.
Amortization of Patent Related Costs:
- -------------------------------------
In connection with the issuance of shares of stock to the parent (Note 5), the
Company was assigned and licensed all technological applications of one U.S.
Patent Application. Legal costs related to the application incurred by the
Company are capitalized in accordance with management's estimation and
expectation of securing a patent.
Capitalized patent related costs are amortized on a straight-line basis over the
expected life of the patent starting from the application date.
The patent process may take from several months to several years. Should the
patent be denied or its value impaired, the balance of unamortized costs will be
expensed at that date.
Income Taxes:
- -------------
The Company utilizes Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted
statutory tax rates and laws that will be in effect when the differences
reverse.
Fair Value of Financial Instruments:
- ------------------------------------
The carrying amounts of cash, receivables, and payables approximate their fair
values due to the short-term maturities of these instruments.
F-7
PATHOBIOTEK DIAGNOSTICS, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - continued
June 30, 2001
Net (Loss) Per Share
- ----------------------------
Basic and diluted net loss per share information is presented under the
requirements of SFAS No. 128, Earnings Per Share. Basic net loss per share is
computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the period, less shares subject to repurchase. Diluted net
loss per share reflects the potential dilution of securities by adding other
common stock equivalents, including stock options, shares subject to repurchase,
warrants and convertible preferred stock, in the weighted-average number of
common shares outstanding for a period, if dilutive. All potentially dilutive
securities have been excluded from the computation, as their effect is
anti-dilutive. Loss per share for the three and six-months ended June 30, 2001
was $(.04) and loss per share for the three and six-months ended June 30, 2000
was $(.02) and $(.04), respectively.
Note 3 - Note Payable - Related Party
In connection with the purchase of lab equipment and supplies from the Parent
totaling $91,887, the Company entered into a promissory note payable agreement.
The balance and any unpaid interest was due on or before maturity of July 31,
2000. The note is secured by the lab equipment. Effective May 16, 2000, the
Parent transferred the note receivable to the President of the Company. The
balance due at June 30, 2001, is $26,361.
Note 4 - Income Taxes
The Company has incurred net operating losses of $2,824,489 since inception. No
tax benefit has been recorded relating to these losses because realization of
the carryforward benefit is uncertain. For tax purposes, the net operating loss
carryforwards will expire beginning in the year 2012.
Note 5 - Related Party Transactions
On August 7, 1996, the Company issued 4,000,000 shares of stock to the Parent,
Pacific Biotech International, Inc., in exchange for certain intangible assets
consisting primarily of licenses rights and technological applications. In
accordance with APB 16 and 29, the exchange was recorded at the Parent company's
historical capitalized basis, which was not considered material at August 7,
1996.
In March 1999, the Company issued an additional 2,000,000 shares of stock to the
Parent in exchange for certain intangible assets as described above. The
exchange was recorded at the Parent company's historical capitalized basis,
which was not considered material at March 1999. An additional 2,000,000 shares
was due to the Parent as of March 31, 2000. The right to receive the 2,000,000
shares was transferred to two executives of the Company effective May 16, 2000.
These shares were issued in April 2001 and did not have a material affect on the
Company's financial position.
F-8
PATHOBIOTEK DIAGNOSTICS, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - continued
June 30, 2001
Note 6 - Subscribed Stock
In addition there were 1,128,283 shares subscribed but not yet issued.
Note 7 - Reverse Stock Split
At a shareholders meeting held on July 16, 2001, the shareholders approved a one
for forty reverse split of common shares except no shareholder to be reduced to
less than ten shares. At the same meeting, shareholders approved the transfer of
technology, patents, and proprietary research to Pathobiotek, Inc., a
wholly-owned subsidiary and a spin-off by dividend, share for share (pre-reverse
split), of the subsidiary Pathobiotek, Inc. to shareholders, pro rata, effective
for shareholders as of record date of June 22, 2001.
Note 8 - Note Payable
The Company has entered into a promissory note agreement whereby it would
receive $250,000 from an outside lender. To date $70,000 has been received.
Should the Company be unable to repay this debt, a change of control would take
place.
F-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR QUARTER ENDED JUNE 30, 2001 COMPARED TO SAME PERIOD
IN 2000
The Company had no revenues in the quarter in 2001 or 2000. The Company incurred
$92,024 in general and administrative expenses in the quarter in 2001 compared
to $213,053 in expenses in the same quarter in 2000. The Company had a net loss
of ($99,838), including depreciation, in the quarter in 2001 compared to
($220,384), including depreciation, in the quarter in 2000. The net loss per
share was ($.006) in the quarter in 2001 compared to ($.014) in the quarter in
2000.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SAME PERIOD
IN 2000
The Company had no revenues in the six month period in 2001 and 2000. The
Company incurred $200,305 in general and administrative expenses and $15,446 in
the period in 2001 compared to $495,272 in general and administrative expenses
and $12,140 in depreciation in the period in 2000. The company incurred interest
expense of $970 in the six month period in 2001 and interest expense of $2074 in
the six month period in 2000. The net loss was ($216,721) in the six month
period in 2001 compared to ($509,486) in the six month period in 2000. The net
loss per share was ($.014) in the six month period in 2001 compared to ($.03) in
the period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $7,748 cash capital at the end of the period. The Company will
need to either borrow or make private placements of stock in order to fund
operations. No assurance exists as to the ability to achieve loans or make
private placements of stock.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 27, 2001
PATHOBIOTEK DIAGNOSTICS, INC.
/s/ Robert Simpson
--------------------------
Robert Simpson, President