UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 25, 2002
Proteo, Inc.
___________________________________________
(Exact name of registrant as specified in its charter)
Nevada
__________________________________
(State or other jurisdiction of incorporation)
000-30728 88-0292249
(Commission File Number) (IRS Employer Identification No.)
2775 Mesa Verde Drive East, #F101, Costa Mesa, CA 92626
________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(949) 979-7074
Registrant's telephone number, including area code:
N/A
(Former name, address and telephone number)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements of the Company for the period from inception until
December 31, 2001 and the financial statements of Old Proteo from inception
until December 31, 2001, as well as applicable pro forma financial information:
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report 1
Consolidated Balance Sheet 3
Consolidated Statements of Operations and Comprehensive Loss 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Proteo Marketing, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Proteo Marketing,
Inc. and Subsidiary (the "Company"), a Development Stage Company, as of December
31, 2001, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for the year then ended
and for the periods from November 22, 2000 (Inception) to December 31, 2000 and
from November 22, 2000 (Inception) to December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Proteo
Marketing, Inc. and Subsidiary as of December 31, 2001, and the consolidated
results of their operations and their cash flows for the year then ended and for
the periods from November 22, 2000 (Inception) to December 31, 2000 and from
November 22, 2000 (Inception) to December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company is a development stage company
which has experienced significant losses since inception with no revenues. As
discussed in Note 1 to the consolidated financial statements, a significant
amount of additional capital will be necessary to advance the development of the
Company's products to the point at which they may become commercially viable.
These conditions, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 1. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Squar, Milner, Reehl & Williamson, LLP
July 10, 2002
Newport Beach, California
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . $ 1,160,632
Prepaid expenses and other current assets. . . 75,204
1,235,836
PROPERTY AND EQUIPMENT . . . . . . . . . . . . 125,411
$ 1,361,247
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities . . . $ 115,182
Accrued licensing fees . . . . . . . . . . . . 100,000
215,182
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001 per share;
20,000,000 shares authorized; no shares issued
and outstanding. . . . . . . . . . . . . . . . -
Common stock, par value $0.001 per share;
100,000,000 shares authorized; 20,286,512
shares issued and outstanding. . . . . . . . . 20,287
Additional paid-in capital . . . . . . . . . . 3,614,827
Stock subscriptions receivable . . . . . . . . (2,034,195)
Accumulated other comprehensive loss . . . . . (20,493)
Deficit accumulated during development stage . (434,361)
1,146,065
------------
$ 1,361,247
See independent auditors' report and accompanying notes to these consolidated
financial statements.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIODS
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000, AND
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2001
NOVEMBER NOVEMBER
22, 2000 22,2000
(INCEPTION)(INCEPTION)
THROUGH THROUGH
DECEMBER DECEMBER
2001 31, 2000 31, 2001
----------- ---------- --------
REVENUES $ - $ - $ -
EXPENSES
General and Administrative 298,684 60,250 358,934
Research and Development, net of
grants 81,882 - 81,882
----------- ----------- ---------
380,566 60,250 440,816
INTEREST INCOME 6,455 - 6,455
----------- ----------- ---------
NET LOSS (374,111) (60,250) (434,361)
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS (20,493) - (20,493)
----------- ----------- ---------
COMPREHENSIVE LOSS $ (394,604) $ (60,250) $(454,854)
=========== =========== =========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.03) $ (0.01)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 10,981,000 4,668,000
=========== ===========
See independent auditors' report and accompanying notes to these consolidated
financial statements.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIODS
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000, AND
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2001
Deficit
Accumulated Accumulated
Common Stock Additional Stock Other During
-------------------- Paid-In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Loss Stage Total
------- --------- ------------ ------------- ------------- ------------ -----------
BALANCE-
NOVEMBER 22, 2000
(INCEPTION) . . . . - $ - $ - $ - $ - $ - $ -
Subscription of common
stock at $0.001 per
share. . . . . . . . . . 4,800,000 4,800 - (4,800) - - -
Common stock issued
for cash at $3.00 per
share. . . . . . . . . . 50,000 50 149,950 - - - 150,000
Reorganization with
Proteo Biotech AG. . . . 2,500,000 2,500 6,009 - - - 8,509
Net loss . . . . . . . . - - - - - (60,250) (60,250)
--------- -------- ------------ ------------ ----------- ---------- ----------
BALANCE -
DECEMBER 31, 2000 . 7,350,000 7,350 155,959 (4,800) - (60,250) 98,259
Common stock issued
for cash at $3.00 per
share . . . . . . . . . 450,000 450 1,349,550 - - - 1,350,000
Cash received for
Common stock
subscribed at $0.001
per share . . . . . . . - - - 4,800 - - 4,800
(continued)
See independent auditors' report and accompanying notes to these consolidated
financial statements.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIODS
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000, AND
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2001
Deficit
Accumulated Accumulated
Common Stock Additional Stock Other During
-------------------- Paid-In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Loss Stage Total
------- --------- ------------ ------------- ------------- ------------ ------------
Common stock issued
for cash at $0.40 per
share. . . . . . . . . . 201,025 201 80,209 - - - 80,410
Subscription of common
stock at $0.40 per share 5,085,487 5,086 2,029,109 (2,034,195) - - -
Common stock issued
for cash to related
parties at $0.001 per
share. . . . . . . . . . 7,200,000 7,200 - - - - 7,200
Other comprehensive
loss . . . . . . . . . . - - - - (20,493) - (20,493)
Net loss . . . . . . . . - - - - - (374,111) (374,111)
----------- -------- ---------- --------------- ------------- ----------- -----------
BALANCE - DECEMBER
31, 2001 . . . . . . . . 20,286,512 $ 20,287 $3,614,827 $ (2,034,195) $ (20,493) $ (434,361) $ 1,146,065
========== ========= ========== =============== ============= =========== ===========
See independent auditors' report and accompanying notes to these consolidated
financial statements.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIODS
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000, AND
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2001
NOVEMBER NOVEMBER
22, 2000 22, 2000
(INCEPTION) (INCEPTION)
THROUGH THROUGH
DECEMBER DECEMBER
2001 31, 2000 31, 2001
------------ ---------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . $ (374,111) $ (60,250) $ (434,361)
Changes in operating assets and
liabilities:
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . (11,542) (60,000) (71,542)
Accounts payable and accrued
liabilities. . . . . . . . . . . . . . . . 90,873 - 90,873
Accrued licensing fees . . . . . . . . . . 100,000 - 100,000
------------ ---------- -----------
NET CASH USED IN OPERATING ACTIVITIES. . . (194,780) (120,250) (315,030)
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property and equipment. . . (123,893) - (123,893)
Cash of reorganized entity . . . . . . . . - 27,638 27,638
------------ ---------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES . . . . . . . . . . . . . . . . (123,893) 27,638 (96,255)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of common stock . . 1,437,610 150,000 1,587,610
Proceeds for subscribed stock. . . . . . . 4,800 - 4,800
------------ ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES. 1,442,410 150,000 1,592,410
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT . . . . . . . . . . (20,493) - (20,493)
------------ ---------- -----------
NET INCREASE IN CASH . . . . . . . . . . . 1,103,244 57,388 1,160,632
CASH - beginning of period . . . . . . . . 57,388 - -
------------ ---------- -----------
CASH - end of period . . . . . . . . . . . $ 1,160,632 $ 57,388 $1,160,632
============ ========== ===========
(CONTINUED)
See independent auditors' report and accompanying notes to these consolidated
financial statements.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIODS
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000, AND
FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2001
NOVEMBER NOVEMBER
22, 2000 22, 2000
(INCEPTION) (INCEPTION)
THROUGH THROUGH
DECEMBER DECEMBER
2001 31, 2000 31, 2001
------------ --------- ----------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Common stock issued for subscriptions
receivable. . . . . . . . . . . . . . . . . . $ 2,034,195 $ 4,800 $ 2,038,995
============ ========== ==========
Net assets of reorganized entity in exchange
for equity securities . . . . . . . . . . . . $ - $ 8,509 $ 8,509
============ ========== ==========
See accompanying notes to consolidated financial statements for more information
on non-cash investing and financing activities during the year ended December
31, 2001 and for the period from November 22, 2000 (Inception) through December
31, 2000.
PROTEO MARKETING, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Proteo Marketing, Inc. ("PMI" or the "Company") was incorporated in the State of
Nevada and began operations in November 2000. In December 2000, PMI entered into
a reorganization and stock exchange agreement with Proteo Biotech AG, ("PBAG"),
a German corporation, incorporated in Kiel, Germany. Pursuant to the terms of
the agreement, all of the shareholders of PBAG exchanged their common stock for
2,500,000 shares of PMI common stock. As a result, PBAG is a wholly owned
subsidiary of PMI (see Note 2). Subsequent to December 31, 2001, the Company
completed a reverse merger with a publicly traded "shell" company (see Note 8)
on April 25, 2002.
The Company and its subsidiary intend to develop, manufacture, promote and
market pharmaceuticals and other biotech products. The Company is focused on the
development of pharmaceuticals based on the human protein Elafin. Elafin is a
human protein that naturally occurs in human skin, lungs, and mammary glands.
The Company believes Elafin may be useful in the treatment of cardiac
infarction, serious injuries caused by accidents, post surgery damage to tissue
and complications resulting from organ transplantations.
Since its inception, the Company has primarily been engaged in the research and
development of its proprietary product Elafin. Once the research and development
phase is complete, the Company will begin to manufacture and obtain the various
governmental regulatory approvals for the marketing of Elafin. The Company is
in the development stage and has not generated revenues from any product sales.
The Company believes that none of its planned products will produce sufficient
revenues in the near future. As a result, the Company plans to identify and
develop other potential products. There are no assurances, however, that the
Company will be able to produce such products, or if produced, that they will be
accepted in the marketplace.
DEVELOPMENT STAGE AND GOING CONCERN
The Company has been in the development stage since it began operations on
November 22, 2000, and has not generated any revenues from operations and there
is no assurance of any future revenues.
The Company will require substantial additional funding for continuing research
and development, obtaining regulatory approval and for the commercialization of
its product. There can be no assurance that the Company will be able to obtain
sufficient additional funds when needed, or that such funds, if available, will
be obtainable on terms satisfactory to the Company.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEVELOPMENT STAGE AND GOING CONCERN (continued)
Management has taken action to address these matters. They include:
- - Retention of experienced management personnel with particular skills in
the commercialization of such products.
- - Attainment of technology to develop additional biotech products.
- - Raising additional funds through the sale of debt and equity securities.
The Company's products, to the extent they may be deemed drugs or biologics, are
governed by the Federal Food, Drug and Cosmetics Act and the regulations of
State and various foreign government agencies. The Company's proposed
pharmaceutical products to be used with humans are subject to certain clearance
procedures administered by the above regulatory agencies. There can be no
assurance that the Company will receive the regulatory approvals required to
market its proposed products elsewhere or that the regulatory authorities will
review the product within the average period of time.
Management plans to obtain revenues from product sales, but there is no
commitment by any persons for purchase of any of the proposed products. In the
absence of significant sales and profits, the Company may seek to raise
additional funds to meet its working capital requirements through the additional
sales of debt and equity securities. There is no assurance that the Company will
be able to obtain sufficient additional funds when needed, or that such funds,
if available, will be obtainable on terms satisfactory to the Company.
These circumstances, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
RISKS AND UNCERTAINTIES
The Company's line of future pharmaceutical products being developed by its
German subsidiary are deemed as drugs or biologics, and as such, are governed by
the Federal Food and Drug and Cosmetics Act and by the regulations of state
agencies and various foreign government agencies. There can be no assurance that
the Company will maintain the regulatory approvals required to market its
products. The pharmaceutical products, under development in Germany, will be
subject to more stringent regulatory requirements because they are in vivo
products for humans. The Company and its subsidiary have
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RISKS AND UNCERTAINTIES (continued)
no experience in obtaining regulatory clearance on these types of products.
Therefore, the Company will be subject to the risks of delays in obtaining or
failing to obtain regulatory clearance and other uncertainties, including
financial, operational, technological, regulatory and other risks associated
with an emerging business, including the potential risk of business failure.
CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its wholly owned foreign subsidiary. The
operations of the Company's wholly owned foreign subsidiary acquired on December
30, 2000 (see Note 2), are included in the accompanying statements of operations
and comprehensive loss from such date. All significant intercompany accounts
and transactions have been eliminated in consolidation.
STARTUP ACTIVITIES
The Company has adopted Statement of Position No. 98-5, ("SOP 98-5") "Reporting
the Costs of Startup Activities." SOP 98-5 requires that all non-governmental
entities expense the costs of startup activities, including organizational costs
as these costs are incurred. The adoption of this standard has not materially
impacted the Company's results of operations, financial position or cash flows.
GRANTS
The Company receives grants from the German government which are used to fund
research and development activities and the acquisition of equipment (see Note
6). Revenue from grants for the reimbursement of research and development
expenses are offset against research and development expenses in the
accompanying consolidated statements of operations when the related expenses are
incurred. Grants related to the acquisition of tangible property are recorded as
a reduction of the properties historical cost.
Funds are available at the earliest from January 1 of each budget year with a
fund request submitted on or before December 5 of each year. Funds reserved for
each budget year may not be assigned and funds not requested by December 5 of
each budget year will expire.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
USE OF ESTIMATES
The Company prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United Sates of America, which
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, 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. Significant estimates made by
management include, among others, realizability of long-lived assets and
estimates for deferred income tax valuation allowance. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures About
Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value. Management believes that the carrying amounts of the Company's financial
instruments, consisting primarily of cash and accounts payable and accrued
expenses, approximate their fair value at December 31, 2001, due to their
short-term nature.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's German operations are translated into
U.S. dollars at period-end exchange rates. Net exchange gains or losses
resulting from such translation are excluded from net earnings but are included
in comprehensive loss and accumulated in a separate component of stockholders'
equity. Such amount was $20,493 at December 31, 2001. Income and expense are
translated at weighted average exchange rates for the period. During 2001 and
2000, the Company had no foreign exchange transaction gains or losses.
OTHER RISKS AND UNCERTAINTIES
The Company maintains its cash in uninsured accounts and not in bank depository
accounts insured by the Federal Deposit Insurance Corporation (FDIC). The
Company has not experienced any losses in these uninsured accounts.
The Company's research and development activities and most of its assets are
located in Germany. The Company's operations are subject to various political,
economic, and other risks and uncertainties inherent in such foreign country.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated or amortized
using the straight-line method over their expected useful lives, which range
from 3 to 14 years. No depreciation expense has been recorded from inception to
date as substantially all assets have not yet been placed in service (see Note
3). Expenditures for normal maintenance and repairs are charged to income, and
significant improvements are capitalized. The cost and related accumulated
depreciation of assets are removed from the accounts upon retirement or other
disposition; any resulting gain or loss is reflected in the consolidated
statements of operations.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment and disposition of long-lived assets in
accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of" which requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. If the cost basis of
a long-lived asset is greater than the projected future undiscounted net cash
flows from such asset (excluding interest), an impairment loss is recognized.
Impairment losses are calculated as the difference between the cost basis of an
asset and its estimated fair value. Any long-lived assets held for disposal are
reported at the lower of their carrying amounts or fair values less costs to
sell. As of December 31, 2001, management of the Company believes that no
impairment has been indicated. There can be no assurances, however, that market
conditions will not change which could result in impairment on long-lived assets
in the future.
REVENUE RECOGNITION
Revenues from product sales will be recognized at the time of shipment.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in the Financial Statements"
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements and which was effective
October 1, 2000. The adoption of SAB No. 101 did not have a material impact on
the Company's financial statements.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as they are incurred.
Legal fees and other direct costs incurred in obtaining and protecting patents
are expensed as incurred. Grant funds received (see Note 6) are netted against
research and development costs.
INCOME TAXES
The Company accounts for deferred income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation issued to employees using the
intrinsic value method as prescribed by Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25"). Under the intrinsic
value method, compensation is the excess, if any, of the fair value of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Compensation, if any, is recognized over the applicable
service period, which is usually the vesting period. The Financial Accounting
Standards Board ("FASB") has issued SFAS No. 123 "Accounting for Stock-Based
Compensation." This standard, if fully adopted, changes the method of accounting
for all stock-based compensation to the fair value method. For stock options and
warrants, fair value is determined using an option pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life
of the option or warrant and the annual rate of quarterly dividends.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period.
The adoption of the accounting methodology of SFAS No. 123 for employees is
optional and the Company has elected to continue accounting for stock-based
compensation issued to employees using APB 25; however, pro forma disclosures,
as if the Company adopted the cost recognition requirements under SFAS No. 123,
are required to be presented. As of December 31, 2001, the Company has not
granted any stock options or warrants.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING FOR STOCK-BASED COMPENSATION (continued)
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB 25."
FIN 44 clarifies the application of APB 25 for (a) the definition of employee
for purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of the provisions of FIN 44 did not have a material
effect on the consolidated financial statements.
BASIC AND DILUTED LOSS PER COMMON SHARE
The Company computes net loss per common share using SFAS No. 128 "Earnings Per
Share." Basic loss per common share is computed based on the weighted average
number of shares outstanding for the period. Diluted loss per share is computed
by dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. There were no dilutive potential
common shares at December 31, 2001 and 2000.
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income (loss)
and its components in a full set of general-purpose financial statements. Total
comprehensive income (loss) represents the net change in stockholders' equity
during a period from sources other than transactions with stockholders and as
such, includes net earnings. For the Company, the components of other
comprehensive income (loss) are the changes in the cumulative foreign currency
translation adjustments and are recorded as components of stockholders' equity.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company has had no revenues since its inception. See Note 3 for information
on long-lived assets located in Germany.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which is
effective for business combinations initiated after June 30, 2001. SFAS No. 141
eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring on or after
July 1, 2001 are accounted for under the purchase method. The Company does not
expect SFAS No. 141 to have a material impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for fiscal years beginning after December 15, 2001.
Early adoption is permitted for entities with fiscal years beginning after March
15, 2001, provided that the first interim financial statements have not been
previously issued. SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets should be accounted for in
the financial statements upon their acquisition and after they have been
initially recognized in the financial statements. SFAS No. 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. SFAS
No. 142 provides specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. In addition, SFAS No. 142 expands the
disclosure requirements about goodwill and other intangible assets in the years
subsequent to their acquisition. Impairment losses for goodwill and
indefinite-life intangible assets that arise due to the initial application of
SFAS No. 142 are to be reported as resulting from a change in accounting
principle. However, goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to the provisions of SFAS No. 142. The Company does
not expect SFAS No. 142 to have a material effect on its financial statements.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NEW ACCOUNTING PRONOUNCEMENTS (continued)
Also, the FASB has recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs, and is effective for financial
statements issued for fiscal years beginning after June 15, 2002. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, including
accounting for a segment of a business accounted for as a discontinued
operation. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001. Management has not determined exactly
how the requirements of such pronouncements will affect the Company's future
financial statements.
2. REORGANIZATION WITH PROTEO BIOTECH AG
The reorganization with Proteo Biotech AG on December 30, 2000 was allocated as
follows, based on the December 30, 2000 estimated fair value, in U.S. dollars,
of the net assets of PBAG:
Cash $ 27,638
Other current assets 3,662
Property and equipment 1,518
Accounts payable and accrued expenses (24,309)
----------
$ 8,509
==========
PBAG had no significant operations as of December 31, 2000.
3. PROPERTY AND EQUIPMENT
Property and equipment, all located in Kiel, Germany, consists of the following
at December 31, 2001:
Technical and laboratory equipment $ 118,906
Office equipment 1,043
Computers 5,462
----------
$ 125,411
==========
Substantially all assets were not placed into service as of December 31, 2001.
Most of the Company's activities were conducted in leased facilities at the
University of Kiel, Germany, from November 22, 2000 (Inception) through December
31, 2001.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock. The holders of the Company's common stock are entitled to one vote for
each share held of record on all matters to be voted on by those stockholders.
In November 2000, the Company sold and issued 4,800,000 shares of common stock
at $0.001 per share for $4,800 in cash, which was received in fiscal 2001;
therefore the issuance was accounted for as a stock subscription receivable at
December 31, 2000. During the year ended December 31, 2001, the Company sold
and issued an additional 7,200,000 shares of common stock to related parties at
$0.001 per share for $7,200 in cash.
In November 2000, the Company sold and issued 50,000 shares of common stock at
$3.00 per share for $150,000 in cash.
In December 2000, the Company issued 2,500,000 shares of common stock in
connection with the reorganization and stock exchange agreement with PBAG (see
Notes 1 and 2).
During the year ended December 31, 2001, the Company issued and sold 450,000
shares of common stock at $3.00 per share to Euro-American GmbH for $1,350,000
in cash.
4. STOCKHOLDERS' EQUITY (continued)
COMMON STOCK (continued)
During the year ended December 31, 2001, the Company entered into a subscription
for 6,000,000 shares of the Company's common stock with Euro-American GmbH,
valued at $2,400,000. During the year ended December 31, 2001, 5,286,512 shares
of Company common stock were issued under this subscription, of which
approximately $80,000, representing 201,025 shares, has been received during
such year.
PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of non-voting no par value
preferred stock. The Board of Directors has not designated any liquidation value
or dividend rates. From November 22, 2000 (Inception) through December 31, 2001,
no preferred stock was issued.
5. INCOME TAX PROVISION
There is no material income tax expense recorded for the periods ended December
31, 2001 and 2000, due to the Company's net losses.
Income tax expense for the periods ended December 31, 2001 and 2000 differed
from the amounts computed by applying the U.S. federal income tax rate of 34
percent for the following reasons:
2001 2000
------------ -----------
Income tax benefit at U.S.
federal statutory rates $ (128,000) $ (21,000)
State income tax benefit (24,000) (4,000)
Miscellaneous operating
losses not benefited 152,000 25,000
State and local income taxes,
net of federal income tax effect 800 800
------------ -----------
$ 800 $ 800
5. INCOME TAX PROVISION (continued)
The Company has a deferred tax asset and like amount of valuation allowance of
approximately $177,000 at December 31, 2001, relating to tax net operating loss
carryforwards.
The valuation allowance increased by $152,000 during the year ended December 31,
2001.
As of December 31, 2001, the Company had net operating loss carryforwards of
approximately $455,000, $228,000, and $455,000 available to offset future
taxable Federal, state, and foreign income, respectively. The federal and state
carryforward amounts expire in varying amounts between 2006 and 2021. The
foreign net operating loss carryforwards do not have an expiration period.
6. COMMITMENTS AND CONTINGENCIES
LICENSE AGREEMENT
On December 30, 2000, the Company entered into a 30-year license agreement,
beginning January 1, 2001, with Professor Dr. Oliver Wiedow, MD, the owner and
inventor of several patents, patent rights and related technologies related to
Elafin. In exchange for an exclusive license worldwide for such patents,
patents rights and related technologies, the Company agreed to pay Dr. Wiedow a
licensing fee of $100,000 per year, with quarterly installments beginning April
1, 2001, for a term of six years. Such licensing fees shall be reduced by any
royalties paid to Dr. Wiedow. Royalties are to be paid quarterly, for the
30-year term of the agreement, to Dr. Wiedow in the amount of 3% of gross
revenues earned with products based on the licensed technology.
During the year ended December 31, 2001, the Company accrued $100,000 for
licensing fees in the accompanying consolidated balance sheet. The related
expense is included in general and administrative expense in the accompanying
statements of operations and comprehensive loss for the year ended December 31,
2001. No royalty expense was required for the period ended December 31, 2001.
6. COMMITMENTS AND CONTINGENCIES (continued)
GRANTS
The German state of Schleswig-Holstein granted Proteo Biotech AG approximately
790,000 Euros for the research and development of the Company's pharmaceutical
product Elafin. The grant originally covers the period from February 1, 2001 to
January 31, 2004 if certain milestones are reached by November 15 of each year,
with a possible extension as defined in the agreement.
The grant covers 49.99% of eligible research and development costs and are
subject to the Company's ability to cover the remaining 50.01% of the costs. An
additional condition of the grant is that the product is to be developed and
subsequently produced in the German state of Schleswig-Holstein.
Based on research and development expenditures through December 31, 2001, the
Company had qualified to receive approximately 153,000 Euros of such grant.
There were no research and development expenditures in fiscal 2000 that
qualified for grant funds. Approximately $138,000 of grant funds has been
received and recorded as a reduction of research and development expenses for
the year ended December 31, 2001. As of December 31, 2001, all of the grants the
Company had qualified for so far have been received and all milestones required
by the grant were satisfied.
LEASES
In October 2001, the Company entered into several leases for office and
laboratory facilities in Germany beginning January 2002 and expiring at dates
through December 2011. Certain leases have a rental adjustment in 2007 based on
the consumer price index.
Future minimum rental payments under non-cancelable operating lease commitments
approximate the following for the years ending December 31:
2002 $ 18,500
2003 18,500
2004 15,000
2005 15,000
2006 15,000
Thereafter 74,000
----------
$ 156,000
7. LOSS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share computations for the periods ended December 31,
2001 and 2000:
2001 2000
---- ----
Numerator for basic and diluted loss per share:
Net loss charged to common stockholders $ (374,111) $ (60,250)
Denominator for basic and diluted loss per share:
Weighted average number of shares 10,981,000 4,668,000
------------ -------------
Basic and diluted loss per share $ (0.03) $ (0.01)
============ =============
8. REVERSE MERGER (UNAUDITED)
The Company entered into a Shell Acquisition Agreement (the "Acquisition
Agreement") with Proteo, Inc. (formerly known as TriVantage Group, Inc.). In
accordance to the Acquisition Agreement, the Company originally acquired
176,660,280 shares (1,313,922 post split) of Proteo, Inc.'s common stock
representing 90% of the issued and outstanding common stock of Proteo, Inc. Upon
completion of the Acquisition Agreement, Proteo, Inc. completed a one for
one-hundred-fifty reverse stock split. In conjunction with the Acquisition
Agreement, the Company paid approximately $500,000 to SiteStar Corporation, the
former parent of Proteo, Inc. Such amount will be recorded as acquisition costs
during the year ended December 31, 2002.
Effective April 25, 2002, the shareholders of the Company exchanged their shares
of the Company for an aggregate of 20,286,512 shares of Proteo, Inc. to effect a
reverse acquisition (the "Merger") between the Company and Proteo, Inc. By
virtue of the Merger, the stockholders of the Company acquired 20,286,512 shares
of Proteo, Inc. The total issued and outstanding of the combined entities
subsequent to the Merger was 21,600,434 shares. Since Proteo, Inc.'s previous
and continuing operations and balance sheet are insignificant, a pro `forma
consolidated balance sheet at December 31, 2001 and consolidated statement of
operations for the year ended December 31, 2001 and 2000 are not presented here.
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.
Dated: July 30, 2002 PROTEO, INC.
By: /s/ Joerg Alte
-----------------
Joerg Alte
Chief Executive Officer