AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 29, 2004
REGISTRATION NO. 333-107048
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
TO
FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________
BIO-ONE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 2833 65-0815746
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Classification Code Number) Identification No.)
ARMAND DAUPLAISE
1630 WINTER SPRINGS BLVD. 1630 WINTER SPRINGS BLVD.
WINTER SPRINGS, FLORIDA 32708 WINTER SPRINGS, FLORIDA 32708
(407) 977-1005 (407) 977-1005
(Address and telephone number (Name, address, and telephone
of principal executive offices) number of agent for service)
Copies to:
Clayton E. Parker, Esq. Ronald S. Haligman, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard 201 South Biscayne Boulevard
Suite 2000 Suite 2000
Miami, Florida 33131 Miami, Florida 33131
Telephone: (305) 539-3300 Telephone: (305) 539-3300
Telecopier: (305) 358-7095 Telecopier: (305) 358-7095
Approximate date of commencement of proposed sale of the securities to
the public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier of the effective registration
statement for the offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 29, 2004
BIO-ONE CORPORATION
50,000,000 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 50,000,000 shares of
Bio-One's common stock by Cornell Capital Partners, L.P., who will become a
stockholder of Bio-One. Please refer to "Selling Stockholder" beginning on page
12. Cornell Capital Partners, the Selling Stockholder, will sell up to 50
million shares of common stock in this offering that it will receive pursuant to
the Equity Line of Credit, dated July 25, 2002. Bio-One is not selling any
shares of common stock in this offering and therefore will not receive any
proceeds from this offering. We will, however, receive proceeds from the sale of
common stock under the Equity Line of Credit. All costs associated with this
registration will be borne by us.
The shares of common stock are being offered for sale by the selling
stockholder at prices established on the Over-the-Counter Bulletin Board during
the term of this offering. These prices will fluctuate based on the demand for
the shares of common stock. On January 2, 2004, the last reported sales price
of our common stock was $0.08 per share.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit Agreement. Pursuant to the Equity Line of Credit, Cornell
Capital Partners will pay Bio-One 100% of the market price of our common stock.
Cornell Capital Partners is entitled to retain 5% of the proceeds raised by us
under the Equity Line of Credit.
Bio-One engaged Westrock Advisors, Inc. a registered broker-deal, to
advise us in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of $10,000, payable by the issuance of 43,479 shares of Bio-One's
common stock.
Brokers or dealers effecting transactions in these shares should
confirm that the shares are registered under applicable state law or that an
exemption from registration is available.
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "BICO."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
With the exception of Cornell Capital Partners, L.P., which is an
"underwriter" within the meaning of the Securities Act of 1933, no other
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission. None of the proceeds from the sale of stock by the selling
stockholder will be placed in escrow, trust or any similar account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is __________, 2004
TABLE OF CONTENTS
PROSPECTUS SUMMARY ....................................................... 1
THE OFFERING ............................................................. 2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION ............................... 3
RISK FACTORS ............................................................. 4
FORWARD-LOOKING STATEMENTS ............................................... 10
SELLING STOCKHOLDER ...................................................... 11
USE OF PROCEEDS .......................................................... 12
DILUTION ................................................................. 13
EQUITY LINE OF CREDIT .................................................... 14
PLAN OF DISTRIBUTION ..................................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................. 18
DESCRIPTION OF BUSINESS .................................................. 22
MANAGEMENT ............................................................... 29
DESCRIPTION OF PROPERTY .................................................. 31
LEGAL PROCEEDINGS ........................................................ 31
PRINCIPAL SHAREHOLDERS ................................................... 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................... 32
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS ......................................... 33
DESCRIPTION OF SECURITIES ................................................ 34
EXPERTS .................................................................. 36
LEGAL MATTERS ............................................................ 36
AVAILABLE INFORMATION .................................................... 36
INDEX TO FINANCIAL STATEMENTS ............................................ F-1
- --------------------------------------------------------------------------------
Our audited financial statements for the fiscal year December 31, 2002,
were contained in our Annual Report on Form 10-KSB.
i
PROSPECTUS SUMMARY
The following Prospectus Summary contains the most material information
on Bio-One Corporation. You should read the entire Prospectus carefully,
including "Risk Factors" and our Financial Statements and the notes to the
Financial Statements before making any investment decision.
OUR COMPANY
Bio-One Corporation, a Nevada corporation, was incorporated on February
24, 1998 to engage in the nutritional supplement marketing and internet
consulting business.
On May 30, 2000, Bio-One entered into a share exchange with Crown
Enterprises, Inc., a Florida corporation. Pursuant to the Agreement and Plan of
Share Exchange, dated May 30, 2000, Bio-One exchanged 10,000,000 shares of
common stock, or 85.47% of our then-current issued and outstanding common stock,
in exchange for 100% of the then-current issued and outstanding common stock of
Crown Enterprises. The year 2001 was the last full year of operation of Crown
Enterprises.
Pursuant to the Agreement and Plan of Share Exchange, Armand Dauplaise
was appointed as Bio-One's President and Chairman of the Board of Directors and
Kevin Lockhart was appointed as Bio-One's Secretary and a Director. All of the
prior officers and directors of Bio-One resigned pursuant to the Agreement and
Plan of Share Exchange. Prior to the share exchange, Messrs. Dauplaise and
Lockhart each owned 46%, respectively, of Crown Enterprises.
We operated Crown Enterprises to pursue its evolving program of
microscopic analysis and nutritional supplement sales. Due to limited financing,
we could not effectively operate the microscopy and vitamin supplement programs.
Differences arose among the members of the Board of Directors as to the proper
course of action. The matter was settled by transferring all of the tangible and
intangible assets of Crown Enterprises valued at $5,000 to Mr. Lockhart. In
exchange, Mr. Lockhart forgave $173,000 in back pay and Bio-One redeemed
1,750,000 shares of Bio-One common stock owned by Mr. Lockhart. Mr. Lockhart
also tendered his resignation as an officer, director and employee of the
Company, leaving Mr. Dauplaise as our sole officer and director. Crown
Enterprises ceased operations effective June 30, 2002.
Bio-One's focus is to manufacture and market products in the
nutritional supplement industry. We believe that the customer base and demands
for nutritional supplements is growing significantly. We intend to vertically
integrate production, marketing and distribution. On September 11, 2003, our
wholly-owned subsidiary, PNLabs, Inc., successfully consummated the acquisition
of the assets of Physicians Nutraceutical Laboratories, Inc. The purchased
assets included inventory, accounts receivable, office furniture, the rights to
the 5 products marketed by Physicians Nutraceutical Laboratories and all rights
to the operational business of Physicians Nutraceutical Laboratories. Physicians
Nutraceutical Laboratories did not retain any assets. The consideration given
for the purchase of the assets of Physicians Nutraceutical Laboratories was a
five year, 5% royalty on all monthly net sales of PNLabs. Currently, Physicians
Nutraceutical Laboratories' only business activity is to distribute the royalty
proceeds to its shareholders. Physicians Nutraceutical Laboratories has agreed
that it will not compete with Bio-One, PNLabs or any of our products. Physicians
Nutraceutical Laboratories has been in business since 1999 and prior to the sale
of its assets it employed five people. PNLabs has retained all five of these
people, which include an accounting manager, a general manger, an administrative
assistant and 2 office staff personnel. Physicians Nutraceutical Laboratories
previously marketed five products: (1) Choless(TM); (2) Choless(TM) Test Kit;
(3) Hormone Health; (4) Arthritis Health; and (5) Basic Essentials
Multi-Vitamin. Physicians Nutraceutical Laboratories developed the product
formulas and previously marketed these products to healthcare practitioners and
retail stores. All of Physicians Nutraceutical Laboratories' distribution
agreements with respect to these products have expired. We intend to continue to
market these five products through PNLabs, as well as add new products to our
product lines, and further develop a comprehensive marketing plan for all of our
products. Our Management believes that the nutritional supplement industry is
highly fragmented. We intend to implement a business to attempt to take
advantage of the fragmented nature of the nutritional supplement industry.
However, in order to implement this business strategy we will need to raise
significant working capital. Prior to PNLabs' acquisition of the assets of
Physicians Nutraceutical we had no operations, products, customers, supplies,
marketing, distribution system or sales. In addition, prior to this acquisition,
we generated no revenues, had incurred an operating loss since inception and as
of September 30, 2003, have an accumulated deficit of approximately $2.9
million. For the nine months ended September 30, 2002, we had revenues of
$20,220. Further prior to the acquisition, we had only one employee and did not
own or lease any real property. Each of the auditor reports of Tschopp, Whitcomb
& Orr, P.A. and Stark Winter Schenkein & Co., LLP with respect to Bio-One and
Physicians Nutraceutical Laboratories (prior to the acquisition of its assets by
Bio-One) indicate going concern qualifications, respectively.
Our principal place of business is located at 1630 Winter Springs
Boulevard, Winter Springs, Florida 32708 and our telephone number at that
address is (407) 977-1005.
1
THE OFFERING
This offering relates to the sale of common stock by Cornell Capital
Partners, L.P., which intends to sell up to 50,000,000 shares of common stock to
be issued under an Equity Line of Credit Agreement, dated July 25, 2002.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital Partners shares of common stock
for a total purchase price of $10 million. Cornell Capital Partners has to date
advanced us a total of $1.5 million pursuant to the Equity Line of Credit, which
resulted in our issuing 30 million shares of common stock. In order for us to
draw down any of the remaining $8.5 million available to us under the Equity
Line of Credit, we will have to issue additional shares of our common stock to
Cornell Capital Partners. Cornell Capital Partners will purchase the shares of
common stock for 100% of the lowest closing bid price of our common stock during
the 5 trading days immediately following notice of our intent to make a draw
down under the Equity Line of Credit. Cornell Capital Partners intends to sell
any shares purchased under the Equity Line of Credit at the then prevailing
market price.
In light of our recent stock price, we have not registered a sufficient
number of shares of common stock to draw down the remaining $8.5 million
available to us under the Equity Line of Credit. Based on our recent stock price
of $0.08, and that we are registering 50 million shares pursuant to the
accompanying registration statement, the maximum amount we would be able to draw
down on the remaining balance of the Equity Line of Credit equals $4,000,000. At
a recent stock price of $0.08, we would have to register 106,250,000 million
shares of common stock to draw down the entire $8.5 million remaining available
to us under the Equity Line of Credit. On December 11, 2003, our shareholders
approved an amendment to our Articles of Incorporation to increase our
authorized common stock to 500,000,000 shares. As of January 26, 2004, we have
44,553,996 shares of common stock issued and outstanding. In the event we desire
to draw down any available amounts remaining under the Equity Line of Credit
after we have issued the 50 million shares being registered in the accompanying
registration statement, we will have to file a new registration statement to
cover such additional shares we will issue for additional draw downs on the
Equity Line of Credit.
COMMON STOCK OFFERED 50 million
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING 44,553,996 shares
BEFORE THE OFFERING(1)
COMMON STOCK OUTSTANDING 94,553,996 shares
AFTER THE OFFERING(2)
USE OF PROCEEDS We will not receive any of the proceeds from
the sale of stock by the selling
stockholder. Any proceeds we receive from
the sale of common stock under the Equity
Line of Credit will be used to finance
acquisitions and general working capital
purposes. See "Use of Proceeds."
RISK FACTORS The securities offered hereby involve a high
degree of risk and immediate substantial
dilution and should not be purchased by
investors who cannot afford the loss of
their entire investment. See "Risk Factors"
and "Dilution."
DIVIDEND POLICY We do not intend to pay dividends on our
common stock. We plan to retain any earnings
for use in the operation of our business and
to find future growth.
OVER-THE-COUNTER BICO
BULLETIN BOARD SYMBOL
__________
(1) Based on shares outstanding as of January 26, 2004.
(2) Assumes that all shares offered under this Prospectus are issued under
the Equity Line of Credit.
2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of our Financial Statements, which are
included elsewhere in this Prospectus. You should read the following data
together with the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of this Prospectus as well as with our
Financial Statements and the notes therewith.
For The Quarter For The Year
Ended Ended
September 30, December 31,
2003 2002
Statement of Operation Data: (Unaudited) (Audited)
----------- ---------
Revenues $ 20,220 $ 22,220
Cost of goods Sold 6,904 9,343
Selling, general and administrative expenses 375,731 759,123
Other Income -0- 146,997
Net (loss) (367,198) (609,761)
Net loss per share - basic and diluted $ (0.01) $ (0.04)
September 30, December 31,
2003 2002
Balance Sheet Data: (Unaudited) (Audited)
----------- ---------
Cash and cash equivalents $ 352,702 $ 14,752
Total Current Assets 480,823 14,752
Property and Equipment 23,113 4,099
Other Assets 160,000 292,000
----------- -----------
Total Assets $ 663,936 $ 310,841
----------- -----------
Accounts payable 11,764 124,596
Notes Payable 3,208 71,008
Accrued Expenses 52,375 111,375
Current Installments of Notes Payable 74,502 74,502
----------- -----------
Total current liabilities $ 252,144 $ 381,481
----------- -----------
Common stock 44,238 18,855
Additional paid-in capital 3,066,551 1,786,377
Accumulated (deficit) (2,698,997) (1,875,872)
----------- -----------
Total stockholders' equity $ 411,792 $ (70,640)
----------- -----------
3
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have a history of losses. We have incurred an operating loss since
inception and had an accumulated deficit of $2,858,997 as of September 30, 2003.
For the years ended December 31, 2002, 2001 and 2000, we incurred a net loss of
$609,761, $677,150 and $365,213, respectively. During the nine months ended
September 30, 2003, we incurred a net loss of $691,125. We cannot predict the
amount of revenues, if any, we may generate as a result of our acquisition of
the assets of Physicians Nutraceutical Laboratories, Inc., which we consummated
on September 11, 2003. Consequently, we will in all likelihood, have to rely on
external financing for all of our capital requirements. Future losses are likely
to continue unless we successfully implement our revised business plan, which
calls for us to secure both debt and equity financing while aggressively
pursuing acquisitions and/or joint ventures with companies in the nutritional
supplement industry. Our ability to continue as a going concern will be
dependent upon our ability to draw down on the Equity Line of Credit we have
established with Cornell Capital Partners. If we incur any problems in drawing
down our Equity Line of Credit, we may experience significant liquidity and cash
flow problems. If we are not successful in reaching and maintaining profitable
operations we may not be able to attract sufficient capital to continue our
operations. Our inability to obtain adequate financing will result in the need
to curtail business operations and will likely result in a lower stock price.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS
We have relied on significant external financing to fund our
operations. As of November 24, 2003, we have received a total of $1.5 million
under our Equity Line of Credit with Cornell Capital Partners. We received all
of these proceeds in fiscal years 2002 and 2003, both periods in which we had no
revenues. Prior to our Equity Line of Credit, our officers and directors
advanced us approximately $70,000 in 2002 during a period in which we had
approximately $20,000 in revenues. As of September 30, 2003, we had $352,702 in
cash and cash equivalents and our total current assets were $480,823. Our
current liabilities were $252,144. We will need to raise additional capital to
fund our anticipated operating expenses and future expansion. Among other
things, external financing may be required to cover our operating costs. Unless
we obtain profitable operations, it is unlikely that we will be able to secure
additional financing from external sources. If we are unable to secure
additional financing or we cannot draw down on our Equity Line of Credit, we
believe that we have sufficient funds to continue operations for approximately
three months. We estimate that we will require $720,000 to fund our anticipated
operating expenses and approximately $16,000,000 to fund our expansion plans for
the next twelve months. The sale of our common stock to raise capital may cause
dilution to our existing shareholders. Our inability to obtain adequate
financing will result in the need to curtail business operations. Any of these
events would be materially harmful to our business and may result in a lower
stock price. Our inability to obtain adequate financing will result in the need
to curtail business operations and you could lose your entire investment. Our
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
WE MAY NOT BE SUCCESSFUL IN INTEGRATING THE BUSINESS OF PHYSICIANS NUTRACEUTICAL
LABORATORIES
On September 11, 2003, our wholly-owned subsidiary, PNLabs, Inc.,
acquired substantially all of the assets of Physicians Nutraceutical
Laboratories, Inc. The purchased assets included, among other things, the rights
to market the 5 products marketed by Physicians Nutraceutical Laboratories and
all rights to the operational business of Physicians Nutraceutical Laboratories.
We may fail to successfully market our new products and/or integrate the
operations of Physicians Nutraceutical Laboratories into Bio-One. The
integration of our new operations could place an increasing strain on our
management and financial resources. If we fail to integrate the products and
operations of Physicians Nutraceutical Laboratories in our business we may be
forced to curtail or cease our business operations.
4
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
Our common stock is traded on the Over-the-Counter Bulletin Board.
Prior to this offering, there has been a limited public market for our common
stock and there can be no assurance that an active trading market for our common
stock will develop. As a result, this could adversely affect our shareholders'
ability to sell our common stock in short time periods, or possibly at all. Our
common stock is thinly traded compared to larger, more widely known companies in
the nutritional supplement industry. Thinly traded common stock can be more
volatile than common stock traded in an active public market. The average daily
trading volume of our common stock in December 2003 was 394,028 shares. The high
and low bid price of our common stock for the last two years has been $0.47 and
$0.04, respectively. Our common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations, which could
adversely affect the market price of our common stock without regard to our
operating performance. In addition, we believe that factors such as quarterly
fluctuations in our financial results and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS WHEN NEEDED UNDER THE EQUITY LINE
OF CREDIT AND THE PRICE OF OUR COMMON STOCK WILL AFFECT OUR ABILITY TO DRAW DOWN
ON THE EQUITY LINE OF CREDIT
Currently, we are dependent upon external financing to fund our
operations. Our financing needs are expected to be provided, in large part, by
our Equity Line of Credit. As of January 26, 2004, we have received $1.5
million and issued 30,000,000 shares under the Equity Line of Credit. The amount
of each advance under the Equity Line of Credit is subject to an aggregate
maximum advance amount equal to $500,000 in any 30-calendar-day period. Because
of this maximum advance restriction, we may not be able to access sufficient
funds when needed.
In addition, there is an inverse relationship between the price of our
common stock and the number of shares of common stock which will be issued under
the Equity Line of Credit. In light of our recent stock price, we have not
registered a sufficient number of shares of common stock to draw down the
remaining $8.5 million available to us under the Equity Line of Credit. Based on
a recent stock price of $0.08, and that we are registering 50 million shares
pursuant to the accompanying registration statement, the maximum amount we would
be able to draw down on the remaining balance of the Equity Line of Credit
equals $4,000,000. At our current stock price of $0.08, we would have to
register 106,250,000 million shares of common stock to draw down the entire $8.5
million remaining available to us under the Equity Line of Credit. Our Articles
of Incorporation currently authorize Bio-One to issue 500 million shares and, as
of January 26, 2004, we have 44,553,996 shares of common stock issued and
outstanding. In the event we desire to draw down any available amounts remaining
under the Equity Line of Credit after we have issued the 50 million shares being
registered in the accompanying registration statement, we will have to file a
new registration statement to cover such additional shares we will issue for
additional draw downs on the Equity Line of Credit. Unless we obtain profitable
operations, it is unlikely that we will be able to secure additional financing
from external sources other than our Equity Line of Credit. Therefore, if we are
unable to draw down on our Equity Line of Credit, we may be forced to curtail or
cease our business operations.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not
less than $5.00 per share); or
o In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0
million for the last three years.
5
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of Armand
Dauplaise, our President and Chairman of the Board of Directors. Mr. Dauplaise
has been instrumental in securing our existing financing arrangements. In
addition, Mr. Dauplaise's efforts resulted in our acquisition of the assets of
Physicians Nutraceutical Laboratories, Inc., in September 2003. Mr. Dauplaise is
also primarily responsible for identifying additional acquisition candidates
with the assistance of Health Business Partners LLC and undertaking
due-diligence investigations. Mr. Dauplaise receives a salary of $120,000 per
year and a car allowance pursuant to his employment agreement with Bio-One. The
employment agreement is for one year and is renewable annually. The loss of the
services of Mr. Dauplaise could materially harm our business because of the cost
and time necessary to recruit and train a replacement. Such a loss would also
divert management attention away from operational issues. We do not presently
maintain a key-man life insurance policy on Mr. Dauplaise.
In addition, in order to implement our revised business strategy, we
believe that we will need to attract and retain a Chief Financial Officer, a
Director of Marketing, a Director of Operations, an Information Technology
Officer and additional administrative support staff as our company grows.
WE MAY BE UNABLE TO MANAGE GROWTH
Successful implementation of our business strategy requires us to
manage our growth. Growth could place an increasing strain on our management and
financial resources. To manage growth effectively, we will need to:
o Respond to the needs of an operating business and be
able to fully integrate management and controls to
our acquisition of the assets of Physicians
Nutraceutical Laboratories, Inc., as well as any
future acquisitions; and
o Attract and retain qualified personnel, as well as,
develop, train and manage management-level and other
employees.
If we fail to manage our growth effectively, our business, financial
condition or operating results could be materially harmed, and our stock price
may decline.
THE ISSUANCE OF PREFERRED STOCK MAY ENTRENCH MANAGEMENT OR DISCOURAGE A CHANGE
OF CONTROL
Our Articles of Incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock with designations rights, and preferences
determined from time to time by our Board of Directors. Accordingly, our Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividends, liquidation, conversion, voting, or other rights that
could adversely affect the voting power or other rights of the holders of our
common stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the company or, alternatively, granting the holders of
preferred stock such rights as to entrench management. If the holders of our
common stock desired to remove current management, it is possible that our Board
of Directors could issue preferred stock and grant the holders thereof such
rights and preferences so as to discourage or frustrate attempts by the common
stockholders to remove current management. In doing so, management would be able
to severely limit the rights of common stockholders to elect the Board of
Directors.
WE EXPECT INTENSE COMPETITION IN OUR INDUSTRY
Many of our competitors have significantly greater name recognition and
financial and other resources. If we are able to compete effectively against our
competitors, we will be forced to curtail or cease our business operations. Our
main competitors are NBTY, Rexall Sundown, Natrol, Herbalife and
Nutraceuticals. We believe the products that compete with ours, include
Cholesterol Success, Cholesterol Free Fish Oil, Complete Balance, Dong Quai,
Arthritis Pain Relief and Bone Core, Centrum and ABC Plus. Our market share in
the nutrition supplement industry is very small at this time.
6
OUR INDUSTRY IS SUBJECT TO GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling and
advertising of vitamins and other Nutraceutical products are subject to
regulation by one or more federal agencies, including the Food and Drug
Administration, the Federal Trade Commission, the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States
Postal Service, the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. These activities are also
regulated by various agencies of the states and localities, as well as of
foreign countries, in which our products may be sold. We may incur significant
costs in complying with these regulations. In the event we cannot comply with
government regulations affecting our business and products, we may be forced to
curtail or cease our business operations.
FUTURE ACQUISITIONS MAY DISRUPT OUR BUSINESS AND DEPLETE OUR FINANCIAL RESOURCES
Any future acquisitions we make could disrupt our business and
seriously harm our financial condition. We intend to consider investments in
complementary companies, products and technologies. While we have no current
agreements to do so, we anticipate buying businesses, products and/or
technologies in the future in order to fully implement our business strategy. In
the event of any future acquisitions, we may:
o issue stock that would dilute our current stockholders'
percentage ownership;
o incur debt;
o assume liabilities;
o incur amortization expenses related to goodwill and other
intangible assets; or
o incur large and immediate write-offs.
The use of debt or leverage to finance our future acquisitions should
allow us to make acquisitions with an amount of cash in excess of what may be
currently available to us. If we use debt to leverage up our assets, we may not
be able to meet our debt obligations if our internal projections are incorrect
or if there is a market downturn. This may result in a default and the loss in
foreclosure proceedings of the acquired business or the possible bankruptcy of
our business.
Our operation of any acquired business will also involve numerous
risks, including:
o integration of the operations of the acquired business and its
technologies or products;
o unanticipated costs;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with
suppliers and customers;
o risks associated with entering markets in which we have
limited prior experience; and
o potential loss of key employees, particularly those of the
purchased organizations.
OUR EQUITY CREDIT LINE AGREEMENT COULD HAVE AN ADVERSE EFFECT ON OUR ABILITY TO
MAKE ACQUISITIONS WITH OUR COMMON STOCK
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Equity Line of Credit Agreement, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. It may be necessary for our shareholders to approve an increase in our
authorized common stock for us to register additional shares of common stock in
order to have sufficient authorized shares available to make acquisitions using
our common stock. As we issue shares of common stock pursuant to the Equity
Credit Line Agreement, we may not have sufficient shares of our common stock
available to successfully attract and consummate future acquisitions.
INVESTORS SHOULD NOT RELY ON AN INVESTMENT IN OUR STOCK FOR THE PAYMENT OF CASH
DIVIDENDS
We have not paid any cash dividends on our capital stock and we do not
anticipate paying cash dividends in the future. Investors should not make an
investment in our common stock if they require dividend income. Any return on an
investment in our common stock will be as a result of any appreciation, if any,
in our stock price.
7
THERE ARE NO CONCLUSIVE STUDIES REGARDING THE MEDICAL BENEFITS OF NUTRITIONAL
SUPPLEMENTS
We currently market five products: (1) CholessTM; (2) CholessTM Test
Kit; (3) Hormone Health; (4) Arthritis Health; and (5) Basic Essentials
Multi-Vitamin. Many of the ingredients in our current products, and we
anticipate in our future products, will be vitamins, minerals, herbs and other
substances for which there is not a long history of human consumption. Although
we believe all of our products to be safe when taken as directed by us, there is
little experience with human consumption of certain of these product ingredients
in concentrated form. In addition, we are highly dependent upon consumers'
perception of the safety and quality of our products as well as similar products
distributed by other companies, we could be adversely affected in the event any
of our products or any similar products distributed by other companies should
prove or be asserted to be harmful to consumers. In addition, because of our
dependence upon consumer perceptions, adverse publicity associated with illness
or other adverse effects resulting from consumers' failure to consume our
products as we suggest or other misuse or abuse of our products or any similar
products distributed by other companies could have a material adverse effect on
the results of our operations and financial condition.
THE MANUFACTURE AND DISTRIBUTION OF VITAMINS AND OTHER NUTRITIONAL SUPPLEMENTS
COULD RESULT IN PRODUCT LIABILITY CLAIMS
We currently market five products: (1) Choless(TM); (2) Choless(TM)
Test Kit; (3) Hormone Health; (4) Arthritis Health; and (5) Basic Essentials
Multi-Vitamin. We, like any other retailer, distributor and manufacturer of
products that are designed to be ingested, face an inherent risk of exposure to
product liability claims in the event that the use of our products results in
injury. Such claims may include, among others, that our products contain
contaminants or include inadequate instructions as to use or inadequate warnings
concerning side effects and interactions with other substances. While we intend
to obtain product liability insurance, we may not be able to obtain such
insurance at a reasonable cost, or, if available, will be adequate to cover
liabilities. We do not anticipate obtaining contractual indemnification from
parties supplying raw materials or marketing our products. In any event, any
such indemnification if obtained will be limited by our terms and, as a
practical matter, to the creditworthiness of the indemnifying party. In the
event that we do not have adequate insurance or contractual indemnification,
product liabilities relating to defective products could have a material adverse
effect on our operations and financial conditions.
POTENTIAL EFFECT OF ADVERSE PUBLICITY
We believe the growth experienced by the nutritional supplement market
is based in part on national media attention regarding scientific research
suggesting potential health benefits from regular consumption of certain
vitamins and other nutritional products. Such research has been described in
major medical journals, magazines, newspapers and television programs. The
scientific research to date is preliminary.
In the future, scientific research and/or publicity may not be
favorable to the nutritional supplement market or any particular product, or may
be inconsistent with earlier favorable research or publicity. Future reports of
research that are perceived as less favorable or that question such earlier
research could have a material adverse effect on our operations and financial
condition. Because of our dependence upon consumer perceptions, adverse
publicity associated with illness or other adverse effects resulting from the
consumption of our products or any similar products distributed by other
companies could have a material adverse effect on our operations. Such adverse
publicity could arise even if the adverse effects associated with such products
resulted from consumers' failure to consume such products as directed. In
addition, we may not be able to counter the effects of negative publicity
concerning the efficacy of our products. Any such occurrence could have a
negative effect on our operations.
ANY FUTURE ACQUISITIONS WILL HAVE TO DEVELOP NEW PRODUCTS IN ORDER TO KEEP PACE
WITH CHANGING CONSUMER DEMANDS
The dietary supplement industry is highly competitive and characterized
by changing consumer preferences and continuous introduction of new products.
Our goal is to expand our portfolio of dietary supplement products through
acquisition of existing companies and/or products serving niche segments of the
industry. New products must be introduced in a timely and regular basis to
maintain distributor and consumer interest and appeal to varying consumer
preferences.
We believe that any future success of our company will depend, in part,
on our ability to anticipate changes in consumer preferences and acquire,
manage, develop and introduce, in a timely manner, new products that adequately
address such changes. If we are unable to develop and introduce new products or
if our new products are not successful, our sales may be adversely affected as
customers seek competitive products. In addition, our introduction or our
announcement of new products could result in a reduction in sales of our
existing products, requiring us to carefully manage product introductions in
order to minimize disruption in sales of our existing products. Any reduction in
purchases or consumption of our existing products could have a material adverse
effect on our business, operating results and financial condition.
8
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Some
of our shareholders, including officers and directors are the holders of
"restricted securities". These restricted securities may be resold in the public
market only if registered or pursuant to an exemption from registration. Some of
these shares may be resold under Rule 144. As of January 26, 2004, 3,630,000
shares of our common stock are deemed restricted.
Upon completion of this offering, and assuming all shares registered in
this offering are resold in the public market, there will be an additional 50
million shares of common stock outstanding. All of these shares of common stock
may be immediately resold in the public market upon effectiveness of the
accompanying registration statement and the sale to the investor under the terms
of the Equity Line of Credit agreement.
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE EQUITY LINE OF CREDIT
The sale of shares pursuant to the Equity Line of Credit will have a
dilutive impact on our stockholders. At a recent stock price of $0.08, we
would have to issue 106,250,000 shares of common stock to draw down the entire
$8.5 million remaining available to us under the Equity Line of Credit. These
shares would represent approximately 238.5% of our outstanding common stock upon
issuance.
THE SELLING STOCKHOLDER INTENDS TO SELL THEIR SHARES OF COMMON STOCK IN THE
MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholder intends to sell in the public market the shares
of common stock being registered in this offering. That means that up to 50
million shares of common stock, the number of shares being registered in this
offering may be sold. Such sales may cause our stock price to decline.
THE SALE OF MATERIAL AMOUNTS OF COMMON STOCK UNDER THE ACCOMPANYING REGISTRATION
STATEMENT COULD ENCOURAGE SHORT SALES BY THIRD PARTIES
The significant downward pressure on our stock price caused by the sale
of a significant number of shares under the Equity Line of Credit could cause
our stock price to decline, thus allowing short sellers of our stock an
opportunity to take advantage of any decrease in the value of our stock. The
presence of short sellers in our common stock may further depress the price of
our common stock. Cornell Capital Partners can cover any short positions only
with shares received from us under the Equity Line of Credit.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE
The price in this offering will fluctuate based on the prevailing
market price of the common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THIS OFFERING COULD RESULT IN A
CHANGE OF CONTROL
We are registering 50 million shares of common stock in this offering.
These shares represent 50% of our authorized capital stock and would upon
issuance represent approximately 55% of the then issued and outstanding common
stock and we anticipate all such shares will be sold in this offering. If all or
a significant block of these shares are held by one or more shareholders working
together, then such shareholder or shareholders would have enough shares to
exert significant influence on Bio-One in an election of directors.
9
FORWARD-LOOKING STATEMENTS
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth in
this Prospectus include or relate to, among other things, (a) our projected
sales and profitability, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our ability to obtain and retain sufficient capital for future
operations, and (e) our anticipated needs for working capital. These statements
may be found under "Management's Discussion and Analysis or Plan of Operations"
and "Business," as well as in this Prospectus generally. Actual events or
results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks
outlined under "Risk Factors" and matters described in this Prospectus
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Prospectus will in fact
occur.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that we will be able to make acquisitions on
a timely basis, that we will retain the acquiree's customers, that there will be
no material adverse competitive or technological change in conditions in our
business, that demand for our products will significantly increase, that our
President will remain employed as such, that our forecasts accurately anticipate
market demand, and that there will be no material adverse change in our
operations or business or in governmental regulations affecting us or our
manufacturers and/or suppliers. The foregoing assumptions are based on judgments
with respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Accordingly, although we believe that the assumptions underlying the
forward-looking statements are reasonable, any such assumption could prove to be
inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. In addition, as disclosed
elsewhere in the "Risk Factors" section of this prospectus, there are a number
of other risks inherent in our business and operations which could cause our
operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Growth in absolute and
relative amounts of cost of goods sold and selling, general and administrative
expenses or the occurrence of extraordinary events could cause actual results to
vary materially from the results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause us to alter marketing, capital
investment and other expenditures, which may also materially adversely affect
our results of operations. In light of significant uncertainties inherent in the
forward-looking information included in this prospectus, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. Any statement in
this prospectus and in the documents incorporated by reference into this
prospectus that is not a statement of an historical fact constitutes a
"forward-looking statement". Further, when we use the words "may", "expect",
"anticipate", "plan", "believe", "seek", "estimate", "internal", and similar
words, we intend to identify statements and expressions that may be forward-
looking statements. We believe it is important to communicate certain of our
expectations to our investors. Forward-looking statements are not guarantees of
future performance. They involve risks, uncertainties and assumptions that could
cause our future results to differ materially from those expressed in any
forward-looking statements. Many factors are beyond our ability to control or
predict. You are accordingly cautioned not to place undue reliance on such
forward-looking statements. Important factors that may cause our actual results
to differ from such forward-looking statements include, but are not limited to,
the risk factors discussed below. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described under "Risk
Factors" below or elsewhere in this prospectus could have a material adverse
effect on our business, financial condition and results of operation. In such a
case, the trading price of our common stock could decline and you could lose all
or part of your investment.
10
SELLING STOCKHOLDER
The following table presents information regarding the selling
stockholder. The selling stockholder has never held a position or office, or had
any other material relationship, with Bio-One, except as follows:
Cornell Capital Partners, L.P. is the investor under the Equity Line of
Credit. Pursuant to the Equity Line of Credit, Cornell Capital Partners has
agreed to purchase up to $10.0 million of common stock from us. All investment
decisions of Cornell Capital Partners are made by its general partner, Yorkville
Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors makes the
investment decisions on behalf of Yorkville Advisors. Neither Cornell Capital
Partners, nor its agents has a short position or has had a short position at any
time since the Equity Line of Credit was executed on July 25, 2002.
Percentage of Percentage of
Outstanding Outstanding
Shares Shares Shares to be Shares Shares
Beneficially Beneficially Acquired Under to be Sold Beneficially
Owned Before Owned Before the Line of in the Owned After
Selling Stockholder Offering (1) Offering (2) Credit Offering Offering
- ------------------- ------------ ------------ ------ -------- --------
Cornell Capital Partners, L.P. -- -- 50,000,000 50,000,000 0%
______________
(1) Applicable percentage of ownership is based on 44,553,996 shares of
common stock outstanding as of January 26, 2004, together with
securities exercisable or convertible into shares of common stock
within 60 days of January 26, 2004 for each stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to
securities exercisable or convertible into shares of common stock that
are currently exercisable or exercisable within 60 days of January 26,
2004 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
11
USE OF PROCEEDS
This Prospectus relates to shares of our common stock that may be
offered and sold from time to time by Cornell Capital Partners. There will be no
proceeds to us from the sale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners under the Equity Line of Credit, which we intend to use
for general working capital purposes, including, among other things, funding
anticipated future acquisitions. The purchase price of the shares purchased
under the Equity Line of Credit will be equal to 100% of the lowest closing bid
price of our common stock on the Over-the-Counter Bulletin Board for the 5
consecutive trading days immediately following an advance date.
We have received a total of $1.5 million and have issued 30 million
shares to Cornell Capital Partners pursuant to the Equity Line of Credit. These
shares were previously registered pursuant to a registration statement declared
effective by the Securities and Exchange Commission on September 3, 2002. We
currently have approximately $350,000 in cash or cash equivalents on hand and
have utilized the remaining $1,200,000 for the following purposes:
Investment Banking: $217,000
Consultants: $189,000
Legal and Accounting: $162,906
Acquisition Deposits: $ 53,000
Investor Relations: $ 79,900
Repayment of Loan:* $ 73,402
Operating Expenses:** $324,192
Acquisition Development: $100,000
_____________
* Represents amounts repaid to Mr. Dauplaise pursuant to certain
stockholder loans.
** Includes salaries, taxes, insurance, travel, filing fees, utilities and
related expenses.
If we are able to draw down the remaining $8.5 million, we will receive
net proceeds of approximately $8 million. We anticipate using the proceeds we
receive under the Equity Line of Credit for general working capital, as well as
to assist in the financing of any future acquisitions. Based on the current
price of our common stock, we will not be able to draw down the entire Equity
Line of Credit. Based on a recent stock price of $0.08, we would receive
approximately $3.8 million out of a total available of $8.5 million remaining
under the Equity Line of Credit if we issue all 50 million shares being offered
in this Prospectus.
DETERMINATION OF OFFERING PRICE
The price at which the shares may actually be sold will be determined
by the market price of the common stock as of the date of sale by Cornell
Capital Partners.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain future
earnings for use in the operations of the business and to fund future growth.
Any payment of cash dividends in the future will be dependent upon the amount of
funds legally available, our earnings, financial condition, capital requirements
and other factors that the Board of Directors may think are relevant. We do not
contemplate or anticipate paying any dividends on the common stock in the
foreseeable future.
12
DILUTION
The net tangible book value of Bio-One as of September 30, 2003 was
$251,792 or $0.0057 per share of common stock. Net tangible book value per share
is determined by dividing the tangible book value of Bio-One (total tangible
assets less total liabilities) by the number of outstanding shares of our common
stock. Since this offering is being made solely by the selling stockholder and
none of the proceeds will be paid to Bio-One, our net tangible book value will
be unaffected by this offering. Our net tangible book value, however, will be
impacted by the common stock to be issued under the Equity Line of Credit. The
amount of dilution will depend on the offering price and number of shares to be
issued under the Equity Line of Credit. The following example shows the dilution
to new investors at an offering price of $0.08 per share.
If we assume that Bio-One had issued 121,428,571 shares of common stock
under the Equity Line of Credit at an assumed offering price of $0.08 per share
(i.e., the maximum number of shares needed in order to raise a total of $8.5
million available under the Equity Line of Credit), less a retention fee of
$425,000 and offering expenses of $85,000, our net tangible book value as of
September 30, 2003 would have been $8,241,792 or $0.0548 per share. Such an
offering would represent an immediate increase in net tangible book value to
existing stockholders of $0.0491 per share and an immediate dilution to new
stockholders of $0.0252 per share. The following table illustrates the per share
dilution:
Assumed public offering price per share $ 0.08
Net tangible book value per share before this offering $ 0.0057
Increase attributable to new investors $ 0.0491
----------
Net tangible book value per share after this offering $ 0.0548
--------
Dilution per share to new stockholders $ 0.0252
========
The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:
Assumed No. of Shares to be Dilution Per Share to
Offering Price Issued(1) New Investors
$0.08 106,250,000 $0.0252
$0.05 170,000,000 $0.0115
$0.03 283,333,333 $0.0048
$0.01 850,000,000 $0.0362
_____________
(1) Bio-One is registering 50,000,000 shares of common stock under the
Equity Line of Credit.
13
EQUITY LINE OF CREDIT
Pursuant to the Equity Line of Credit dated July 25, 2002, we may, at
our discretion, periodically issue and sell shares of our common stock for a
total purchase price of $10.0 million. We have already received $1.5 million
pursuant to this Equity Line of Credit and issued 30 million shares. We are
registering an additional 50 million shares in the accompanying registration
statement. Unless there is a significant increase in the price of our common
stock, it is unlikely that we will be able to utilize the remaining $8.5 million
available under the Equity Line of Credit without filing an additional
registration statement registering more shares. If we request further advances
under the Equity Line of Credit, Cornell Capital Partners will purchase shares
of common stock of Bio-One for 100% of the lowest closing bid price on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded for the 5 days immediately following the advance notice date.
Cornell Capital Partners intends to sell any shares purchased under the Equity
Line of Credit at the market price. This prospectus relates to the shares of
common stock to be issued to Cornell Capital Partners under the Equity Line of
Credit. Cornell Capital Partners cannot transfer its interest in the Equity Line
of Credit to any other person.
We previously registered a total of 30 million shares of our common
stock for Cornell Capital Partners pursuant to a Registration Statement (No.
333-98769) which was declared effective by the United States Securities and
Exchange Commission. We have issued a total of 30 million shares of common stock
pursuant to this equity credit line.
We will not receive any further advances pursuant to the Equity Line of
Credit until the accompanying registration statement is declared effective by
the Securities and Exchange Commission. Based on a recent stock price of
$0.08, we would receive approximately $3.8 million out of a total available of
$8.5 million remaining under the Equity Line of Credit. Our current Articles of
Incorporation authorize us to issue 500 million shares of common stock. Upon the
issuance of the 50 million shares being sold pursuant to this Prospectus, we
will have approximately 94.5 million shares issued and outstanding. As a result,
if we need to issue more than 50 million shares to draw down the entire $8.5
million available under the Equity Line of Credit, we will have to file a new
registration statement covering any additional shares.
ADVANCES. Pursuant to the Equity Line of Credit, we may periodically
sell shares of common stock to Cornell Capital Partners to raise capital to fund
our working capital needs. The periodic sale of shares is known as an advance.
Cornell Capital Partners will retain 5% of each advance under the Equity Line of
Credit.
MECHANICS. We may, at our discretion, request advances from Cornell
Capital Partners by written notice, specifying the amount requested up to the
maximum advance amount. A closing will be held 5 trading days after such written
notice at which time we will deliver shares of common stock and Cornell Capital
Partners will pay the advance amount. We have the ability to determine when and
if we desire to draw an advance.
COMMITMENT PERIOD. We may request an advance at any time during the
commitment period. The commitment period begins on the date the Securities and
Exchange Commission first declares the accompanying registration statement
effective. The commitment period expires on the earliest to occur of (i) the
date on which Cornell Capital Partners has made advances totaling $10.0 million
or (ii) two years after the effective date of the accompanying registration
statement.
MAXIMUM ADVANCE AMOUNT. We may not request advances in excess of a
total of $10.0 million. (The $10.0 million total advance includes $1.5 million
previously advanced plus up to $8.5 million which may be issued as a result of
the effective date of the accompanying registration statement.) The maximum
amount of each advance is equal to $175,000.00. In addition, in no event shall
the number of shares issuable to Cornell Capital Partners cause it to own in
excess of 9.9% of the then outstanding shares of common stock of Bio-One.
NUMBER OF SHARES TO BE ISSUED. We cannot predict the actual number of
shares of common stock that will be issued pursuant to the Equity Line of
Credit, in part, because the purchase price of the shares will fluctuate based
on prevailing market conditions and we have not determined the total amount of
advances we intend to draw. Nonetheless, we can estimate the number of shares of
common stock that will be issued using certain assumptions. Based upon the
current offering price of our common stock, we are not registering a sufficient
number of shares of common stock to draw down on the remaining $8.5 million
available under the Equity Line of Credit. You should be aware that there is an
inverse relationship between our stock price and the number of shares to be
issued under the Equity Line of Credit. That is, as our stock price declines, we
14
would be required to issue a greater number of shares under the Equity Line of
Credit for a given advance. This inverse relationship is demonstrated by the
following table, which shows the number of shares of our common stock to be
issued to Cornell Capital Partners, under the Equity Line of Credit, at various
prices.
Purchase Price: $0.08 $0.05 $0.03 $0.01
Number Of Shares Required To Draw Down Remaining
$8.5 Million Under The Equity Line Of Credit(1): 106,250,000(2) 170,000,000(2) 283,333,333(2) 850,000,000(2)
Total Outstanding(3): 129,553,996(2) 214,553,996(2) 327,887,329(2) 894,553,996(2)
Percent Outstanding(4): 65.61% 79.23% 86.41% 95.02%
_____________
(1) Represents the number of shares of common stock to be issued to Cornell
Capital Partners, under each scenario as a percentage of the total
amount outstanding under such scenario.
(2) Our current Articles of Incorporation do not permit us to issue more
than 500 million shares of common stock.
(3) Represents the total number of shares of common stock outstanding after
the issuance of the shares to Cornell Capital Partners.
(4) Represents the shares of common stock to be issued to fully draw down
on the remaining $8.5 million available under the Equity Line of Credit
as a percentage of the total number shares outstanding.
In addition to showing the inverse relationship, the above table also
shows that the issuance of shares under the Equity Line of Credit may result in
a change of control. If all or a significant block of these shares are held by
one or more shareholders working together, then such shareholder or shareholders
would have enough shares to assume control of Bio-One by electing its or their
own directors.
REGISTRATION RIGHTS. We granted to Cornell Capital Partners certain
registration rights. The registration statement accompanying this Prospectus
will register such shares upon effectiveness. The cost of this registration will
be borne by us. We previously registered a total of 30 million shares of our
common stock which were issued to Cornell Capital Partners.
NET PROCEEDS. We cannot predict the total amount of proceeds to be
raised in this transaction, in part, because we have not determined the total
amount of the advances we intend to draw. However, we expect to incur expenses
of approximately $85,000 consisting primarily of professional fees incurred in
connection with registering 50 million shares in this offering. In addition, we
are obligated to pay an underwriting discount to Cornell Capital Partners equal
to 5% of each advance.
USE OF PROCEEDS. We intend to use the net proceeds received under the
Equity Line of Credit for general corporate purposes, as well as any future
acquisitions. Please see "Use of Proceeds."
15
PLAN OF DISTRIBUTION
Cornell Capital, the selling stockholder, has advised us that the sale
or distribution of Bio-One's common stock owned by the selling stockholder may
be effected directly to purchasers by the selling stockholder or by pledgees,
donees, transferees or other successors in interest, as principals or through
one or more underwriters, brokers, dealers or agents from time to time in one or
more transactions (which may involve crosses or block transactions) (i) on the
over-the-counter market or in any other market on which the price of Bio-One's
shares of common stock are quoted or (ii) in transactions otherwise than on the
over-the-counter market or in any other market on which the price of Bio-One's
shares of common stock are quoted. Any transferees and pledges will be
identified by a post-effective amendment to the accompanying registration
statement. Any of such transactions may be effected at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
varying prices determined at the time of sale or at negotiated or fixed prices,
in each case as determined by the selling stockholder or by agreement between
the selling stockholder and underwriters, brokers, dealers or agents, or
purchasers. If the selling stockholder effects such transactions by selling
their shares of Bio-One's common stock to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholder or commissions from purchasers of common stock for whom they
may act as agent (which discounts, concessions or commissions as to particular
underwriters, brokers, dealers or agents may be in excess of those customary in
the types of transactions involved). Any brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning
of the Securities Act of 1933 in connection with the sale of common stock under
the Equity Line of Credit agreement. Cornell Capital Partners, L.P. will pay
Bio-One 100% of the lowest closing bid price of Bio-One's common stock on the
Over-the-Counter Bulletin Board or other principal trading market on which our
common stock is traded for the 5 days immediately following the advance date. In
addition, Cornell Capital Partners will retain 5% of the proceeds received by
Bio-One under the Equity Line of Credit, plus a one-time commitment fee of
1,478,261 shares of common stock which were previously issued to Cornell Capital
Partners' designees. The 5% retainage and the commitment fee are underwriting
discounts. In addition, Bio-One engaged Westrock Advisors, Inc., a registered
broker-dealer, to advise us in connection with the Equity Line of Credit. For
its services, Westrock Advisors, Inc. received 43,479 shares of Bio-One's common
stock.
Cornell Capital Partners was formed in February 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in Bio-One's stock or to otherwise
engage in stabilizing or other transactions intended to help support the stock
price. Prospective investors should take these factors into consideration before
purchasing Bio-One's common stock.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000, as well as retention of 5% of the gross proceeds received
under the Equity Line of Credit. In addition, Bio-One engaged Westrock Advisors,
Inc., a registered broker-dealer, to advise us in connection with the Equity
Line of Credit. For its services, Westrock Advisors, Inc. received 43,479 shares
of Bio-One's common stock. The estimated offering expenses consist of: a SEC
registration fee of $350, printing expenses of $5,000, accounting fees of
$20,000, legal fees of $40,000 and miscellaneous expenses of $19,650. We will
not receive any proceeds from the sale of any of the shares of common stock by
the selling stockholders. We will, however, receive proceeds from the sale of
common stock under the Equity Line of Credit.
16
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholder, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholder or its agents may
not bid for, purchase, or attempt to induce any person to bid for or purchase,
shares of common stock of Bio-One while such selling stockholder is distributing
shares covered by this Prospectus. Accordingly, except as noted below, the
selling stockholder is not permitted to cover short sales by purchasing shares
while the distribution is taking place. Cornell Capital Partners can cover any
short positions only with shares received from Bio-One under the Equity Line of
Credit. The selling stockholder is advised that if a particular offer of common
stock is to be made on terms constituting a material change from the information
set forth above with respect to the Plan of Distribution, then, to the extent
required, a post-effective amendment to the accompanying registration statement
must be filed with the Securities and Exchange Commission.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF BIO-ONE AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS FILING. STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS PROSPECTUS THAT ARE NOT
STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD-LOOKING
STATEMENTS."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We believe that the key to our growth and future viability as an
operating company will be to effectively implement our acquisition strategy. We
must be able to selectively identify from the thousands of companies
manufacturing, marketing and distributing vitamins and other nutritional
supplements those, which can meet the parameters we establish for sales and
earnings. We will not ignore those companies with poor earnings if we identify a
reason for their poor showing. Earnings may be poor for a number of reasons
including poor management, poor marketing, the inability to establish a
successful sales team or establish a cost effective distribution network. By
vertically integrating the manufacturing, marketing and distribution chain, we
believe that we will be able to take advantage of economies of scale not
otherwise available. Our principle goal will be to acquire and operate at least
one high-level manufacturing business and several marketing companies that fit
the strict criteria we established. Management believes that the nutritional
supplement market is ripe for selective consolidation. When market valuations
support it, we believe that consolidation by aggregation is the most profitable
approach. We believe that these conditions apply today in the consumer health
care industry and specifically within the nutritional supplements segment.
We have just begun to implement our strategy on September 11, 2003, our
wholly-owned subsidiary, PNLabs, Inc., successfully consummated the acquisition
of substantially all of the assets of Physicians Nutraceutical Laboratories,
Inc. from Physicians Nutraceutical Laboratories. PN Labs was formed for the
purpose of acquiring the assets of Physicians Nutraceutical Laboratories. The
purchased assets included inventory, accounts receivable, office furniture, the
rights to the 5 products marketed by Physicians Nutraceutical Laboratories and
all rights to the operational business. Physicians Nutraceutical Laboratories
did not retain any assets. The consideration given for the purchase of the
assets of Physicians Nutraceutical Laboratories was a five year, 5% royalty on
all monthly net sales of PNLabs. Currently, Physicians Nutraceutical
Laboratories' only business activity is to distribute these royalty proceeds to
its shareholders. Physicians Nutraceutical Laboratories has agreed that it will
not compete with Bio-One, PNLabs or any of our products. Physicians
Nutraceutical Laboratories has been in business since 1999 and prior to the
acquisition it employed five people. PNLabs has retained all five of these
people, which include an accounting manager, a general manger, an administrative
assistant and 2 office staff personnel. Based on the product line that we
acquired from Physicians Nutraceutical Laboratories, we believe that there is
potential for growth. We believe that Physicians Nutraceutical Laboratories'
operations were hampered by limited working capital for both product development
and marketing. Assuming we secure the required financing, we believe that this
acquisition represents the first step to implementing our business strategy.
Physicians Nutraceutical Laboratories previously marketed five products: (1)
Choless(TM); (2) Choless(TM) Test Kit; (3) Hormone Health; (4) Arthritis Health;
and (5) Basic Essentials Multi-Vitamin. Physicians Nutraceutical Laboratories
developed the product formulas and previously marketed these products to
healthcare practitioners and retail stores. All of Physicians Nutraceutical
Laboratories' distribution agreements with respect to these products have
expired. These products are now marketed through our wholly-owned subsidiary,
PNLabs, Inc. We believe that the customer base and demands for nutritional
supplements is growing significantly. We intend to continue to market these five
products through PNLabs, as well as add new products to our product lines, and
further develop a comprehensive marketing plan for all of our products.
The acquisition by our wholly-owned subsidiary, PNLabs, of
substantially all of the assets of Physicians Nutraceutical Laboratories
requires us to pay a five year royalty to Physicians Nutraceutical Laboratories
equal to 5% of the net monthly sales of PNLabs and committed us to immediately
use $50,000 for working capital. Further, pursuant to our agreement with
Physicians Nutraceutical Laboratories, up to an additional $1.4 million of
development capital may be committed depending on future operating results. The
$1.4 million of development capital is at the rate of $50,000 per month during
September through December 2003. Then at the rate of $100,000 per month during
January through December 2004, subject to the business operating according to
its projections for revenues and profits. The development capital is being
allocated to develop products distribution channels for direct mail,
infomercials, e-commerce, retail, radio, and a physician's network. There is no
negative implications to Bio-One if we do not meet the $1.4 million capital
referenced above. The audited numbers for Physicians Nutraceutical Laboratories
indicate revenues for 2002 of approximately $800,000. The value of the assets
that we have acquired has been set at approximately $108,000.
18
The table below compares revenues, total expenses and net loss of
Physicians Nutraceutical Laboratories for the six months ended June 30, 2003,
and the years ended December 31, 2002 and 2001, respectively.
Period Revenues Total Expenses Net Loss
------ -------- -------------- --------
Six Months ended
June 30, 2003 (unaudited) $ 505,088 $ 720,243 $ 215,155
Year ended December 31,
2002 (unaudited) $ 807,229 $ 973,560 $ 166,331
Year ended December 31,
2001 (audited) $ 309,861 $1,274,774 $ 964,913
In the future, we anticipate using our common stock to finance
acquisitions and retaining cash for working capital purposes. However, it is
likely that future acquisition candidates will require cash compensation as part
of the sale. As such, our acquisition strategy will, to a certain extent, be
dependent on our ability to secure additional financing from Cornell Capital
Partners or other sources. If we are not able to secure the additional financing
or we are unable to draw down on the entire $10 million in financing, it is
highly unlikely that we will be able to implement our acquisition strategy. In
addition, we have signed an agreement with Investors Corporation that provides
for a $10 million term loan facility and a $6 million revolving line of credit.
The combination of our Equity Line of Credit, the term loan facility and
revolving loan facility should enable us to pursue our acquisition strategy.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2003, AS
COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2002
NET SALES. For the three months ended September 30, 2003, we had net
sales of $20,220, as compared to net sales of $0 for the three months ended
September 30, 2002, an increase of $20,220. This increase is primarily
attributable to the acquisition by our wholly-owned subsidiary, PNLabs, Inc., in
September 2003, of substantially all of the assets of Physicians Nutraceutical
Laboratories, Inc. Net sales for the three months ended September 30, 2003, is
comprised of sales of five products: (1) Choless(TM); (2) Choless(TM) Test Kit;
(3) Hormone Health; (4) Arthritis Health; and (5) Basic Essentials
Multi-Vitamin.
COST OF GOODS SOLD. For the three months ended September 30, 2003, we
had cost of goods sold of $6,904, as compared to cost of goods sold of $0 for
the three months ended September 30, 2002, an increase of $6,904. This increase
is primarily attributable to the third-party manufacturing costs incurred by our
wholly-owned subsidiary, PNLabs, Inc., in connection with the marketing and
sales of the nutritional supplement products acquired when PNLabs, Inc.,
purchased substantially all of the assets of Physicians Nutraceutical
Laboratories, Inc., in September 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended September 30, 2003, we incurred selling, general and administrative
expenses of $375,731, as compared to selling, general and administrative
expenses of $608,751 for the three months ended September 30, 2002, a decrease
of $233,020 or 38.3%. This decrease is primarily attributable to the sale of the
Crown Enterprises "Live Blood Cell Analysis" program to a former shareholder and
director of our Company.
OPERATING INCOME (LOSS). For the three months ended September 30, 2003,
we incurred an operating loss of $362,415, as compared to an operating loss of
$608,751 for the three months ended September 30, 2002, a decrease of $246,336
or 40.5%. This decrease is primarily attributable to our decrease in selling,
general and administrative expenses and our increase in net sales, respectively,
for the three months ended September 30, 2003 and the sale of the Crown
Enterprises "Live Blood Cell Analysis" program to a former shareholder and
director of the Company.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003, AS
COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002
REVENUES. For the nine months ended September 30, 2003, we had net
sales of $20,220, as compared to net sales of $22,220 for the nine months ended
September 30, 2002, a decrease of $2,000 or 9.0%. This decrease is primarily
attributable to our transition from selling the "Live Blood Cell Analysis"
testing services and selected nutritional supplements to marketing and selling
19
the nutritional supplement products that were acquired in September 2003, when
our wholly-owned subsidiary, PNLabs, Inc., purchased substantially all of the
assets of Physicians Nutraceutical Laboratories, Inc.
COST OF GOODS SOLD. For the nine months ended September 30, 2003, we
had cost of goods sold of $6,904, as compared to cost of goods sold of $9,343
for the nine months ended September 30, 2002, a decrease of $2,439 or 26.1%.
This decrease is primarily attributable to our transition from selling the "Live
Blood Cell Analysis" testing services and selected nutritional supplements to
the third-party manufacturing expenses incurred by our wholly-owned subsidiary,
PNLabs, Inc., with respect to the nutritional supplement products that it
acquired in September 2003, when it purchased substantially all of the assets of
Physicians Nutraceutical Laboratories, Inc.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended
September 30, 2003, we incurred selling, general and administrative expenses of
$691,659, as compared to selling, general and administrative expenses of
$914,260 for the nine months ended September 30, 2002, a decrease of $222,601 or
24.3%. This decrease is primarily attributable to and the sale of the Crown
Enterprises "Live Blood Cell Analysis" program to a former shareholder and
director of the Company.
OPERATING INCOME (LOSS). For the nine months ended September 30, 2003,
we incurred an operating loss of $678,343, as compared to an operating loss of
$901,383 for the nine months ended September 30, 2002, a decrease of $223,040 or
24.7%. This decrease is primarily attributable to our decrease in selling,
general and administrative expenses for the nine months ended September 30, 2003
and the sale of the Crown Enterprises "Live Blood Cell Analysis" program to a
former shareholder and director of the Company.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002, AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2001
REVENUES. For the year ended December 31, 2002, we had net sales of
$22,220, as compared to net sales of $82,943 for the year ended December 31,
2001, a decrease of $60,723 or 73.2%. This decrease is primarily attributable to
the sale of Crown Enterprises' "Live Blood Cell Analysis" program to a former
shareholder and director of our Company.
COST OF GOODS SOLD. For the year ended December 31, 2002, we had cost
of goods sold of $9,343, as compared to cost of goods sold of $39,698, a
decrease of $30,355 or 76.5%. This decrease is attributable to the sale of Crown
Enterprises' "Live Blood Cell Analysis" program to former shareholder and
director of our Company. The year ended December 31, 2002 was the last full year
that we had operations of Crown Enterprises, which engaged in a Microscopy Live
Blood Cell Program. Crown Enterprises ceased operations as of June 30, 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the year ended
December 31, 2002, we had total selling, general and administrative expenses of
$1,069,809, as compared to $710,977 for the year ended December 31, 2001, an
increase of $358,832 or 50.5%. This increase is primarily attributable to the
change in our focus away from the Crown Enterprises business plan and the
additional professional fees we incurred as a result of such transition. For the
year ended 2002, some of the areas which we have identified as selling, general
and administrative expenses include: legal and accounting fees totaling
$104,000, consulting fees payable to Health Business Partners $72,000, a
commitment fee paid in connection with our Equity Line of Credit paid to Cornell
Capital $360,000, business consulting fees of $181,000 paid in restricted stock
for services rendered, accrued compensation during this period totaled $150,700
and salaries totaled $48,092. We incurred a rental charge of $12,563, auto
expenses totaling $28,424, travel and entertainment, $10,087, filing fees of
$15,000 and various other charges totaling approximately $31,000.
OPERATING INCOME (LOSS). For the year ended December 31, 2002, we
incurred an operating loss of $920,477, as compared to $677,150 for the year
ended December 31, 2001, an increase of $243,327 or 35.9%. This increase is
primarily attributable the change in our focus away from the Crown Enterprises
business plan and the additional professional fees we incurred as a result of
such transition.
FINANCIAL RESOURCES AND LIQUIDITY
As of September 30, 2003, we had cash and other current assets totaling
$480,823 as compared to $14,752 as of December 31, 2002 and $50,928 for December
31, 2001. The significant increase in our cash position is directly attributable
to our decision to draw down a portion of our Equity Line of Credit with Cornell
Capital Partners. As of September 30, 2003, we had approximately $23,113 in
property and equipment as compared to $4,099 as of December 31, 2002 and $18,242
in furniture and equipment as of December 31, 2001.
20
Since establishing our Equity Line of Credit, we have been able to draw
down advances to pay off existing payables. Between December 31, 2002 and
September 30, 2003 we were able to discharge approximately $124,596 in
liabilities including $63,000 to Health Business Partners, legal fees of
$29,000, $16,000 payable to Bernard Shinder, $11,000 in accrued auto expense
payable to Mr. Dauplaise and $4,500 for accrued products. The satisfaction of
these liabilities is directly attributable to our decision to draw down on the
Equity Line of Credit. Between September 2002 and July 2003, we drew down
$1,415,000 pursuant to the terms of our Equity Line of Credit. Of this amount,
we used $1,062,798 and as of September 30, 2003, we had cash-on-hand of
$352,702.
As of September 30, 2003 our total current liabilities were $252,144,
consisting primarily of $11,764 in accounts payable, $74,502 representing the
current installment of notes payable, accrued expenses of $52,375, $3,208 in
shareholder loans and $110,295 of other payables.
In the absence of outside financing and without any consideration as to
the financial requirements incurred as a result of our acquisition of the assets
of Physicians Nutraceutical Laboratories, we believe that we have sufficient
cash to operate for approximately three to four months.
In order for us to pursue other acquisitions and reduce our reliance on
our Equity Line of Credit, we have signed an agreement with Investors
Corporation that provides for a $10 million term loan facility and a $6 million
revolving line of credit and provides us with greater flexibility in structuring
acquisitions. These funds should be available to us to assist in future
acquisitions subject to Investors Corporation's completion of their due
diligence with each transaction. The specific funding requirements will be based
on the acquisition candidate.
It is contemplated that the revolving loan facility of $6 million will
be based upon up to 85% of the accounts receivable financing and up to 50% of
the value of furnished goods inventory and work in progress of the acquisition
candidate.
The $10 million term loan facility contemplates advances of up to $10
million or 90% of net liquidation, net of expense, per appraisal with repayment
terms of any funds advanced under the term loan facility based upon a term of 48
months with payments monthly at 3% above the prime rate. Investors Corporation
may file first security liens against any funds advanced.
We will incur a fee of 1.5% of any monies advanced with a service fee
of $1,000 per month for each month during the term of the agreement. The
proposal submitted by Investors Corporation is not a commitment to lend. Rather,
it is subject to satisfactory completion of any field examinations, which
Investors Corporation deems relevant.
If we choose to utilize this funding, we will incur additional expenses
and reporting obligations. Investors Corporation may require us to maintain a
minimum tangible net worth and provide them with monthly financial reports.
21
DESCRIPTION OF BUSINESS
OUR BUSINESS
We are seeking to become a leading manufacturer and marketer of brand
name nutritional supplements sold through multiple distribution pipelines. Our
success will be dependent on our ability to acquire companies in the nutritional
supplement field and to effectively integrate their operations. Until our
acquisition of the assets of Physicians Nutraceutical Laboratories, Inc. in
September 2003, we had no operations, products, customers, suppliers, or
marketing and sales distribution system. With the acquisition of the assets of
Physicians Nutraceutical Laboratories, Inc. we now have a total of six employees
and our wholly-owned subsidiary, PNLabs, Inc., has assumed the leasehold
obligation of Physicians Nutraceutical Laboratories, Inc. Our strategy will be
dependent upon our successfully acquiring manufacturing, marketing and
distribution companies currently engaged in various aspects of this industry.
THE NUTRITIONAL SUPPLEMENT INDUSTRY
As the "baby boomer" population ages and life expectancies and
discretionary income increases, we believe that more emphasis is being placed on
the quality of a person's health and wellness. People want to live well as they
live longer. We believe that this will have a disproportionate effect on health
care expenditure and even more so on nutritional supplement sales, because of
the popularity of those products with older people. It is estimated that the
population of those 65 years and older will double to nearly 25% of the U.S.
population by the year 2030. It is documented that elders who take nutritional
supplements have higher intakes of vitamins and minerals and are more likely to
meet the recommended dietary allowance for many vitamins and minerals.
A related trend is the growth in use of complementary and alternative
medicine services. A powerful recent trend has been the establishment of
so-called Integrative Medicine practices, in which practitioners use both
traditional and alternative methods. A central feature of complementary and
alternative medicine and integrative medicine is a search for alternatives to
drug therapy and in many cases this leads practitioners to recommending and in
some cases selling nutritional supplements. We believe this trend, which is
driven by consumer demand will further reinforce the growth in sales of consumer
health products such as nutritional supplements.
Not all product categories within nutritional supplements are of equal
interest. While vitamin sales should not be overlooked, we believe that the real
growth in the future is likely to be in products developed to address a
particular health condition or to enhance performance. Bio-One intends to focus
upon specialty supplements, which require superior scientific research and
product development expenditure, but which also command the industry's most
attractive margins. Vitamins and other nutritional supplements are sold
primarily through six channels of distribution: health food stores, drug stores,
supermarkets and other grocery stores, discount stores, mail order and direct
sales organizations.
The domestic nutritional supplement industry is highly fragmented with
a large number of small competitors involved in manufacturing and marketing
vitamins and other nutritional supplement products to health food retailers and
distributors. Most of these companies are relatively small businesses operating
on a local or regional basis. If we acquire a manufacturing facility and several
of these small local or regional firms, we believe that will then have the
foundation to move forward with our business strategy. Our strategy is to
increase sales and profits by acquiring companies, which we anticipate will
allow us on a combined basis to become a recognized name in the growing vitamin
and nutritional supplement field. We intend to meet these objectives by
targeting companies which management believes are undervalued. We will rely on
our consultant, Health Business Partners, as well as Armand Dauplaise, our
President and three of our directors, Frank Clark, Bernard Shinder and
Roy Lerman for assistance in identifying prospective acquisition candidates and
to conduct any required due diligence. We believe that companies that are
typically family owned and are looking for an exit strategy or those family
owned businesses where there are no family successors or the successors do not
want to operate the business are prime acquisition candidates.
On June 20, 2003, we entered into an agreement with Health Business
Partners, pursuant to which Health Business Partners will assist Bio-One in
identifying acquisition candidates. Heath Business Partners is a merger and
acquisition advisory firm specializing in the nutrition and customer healthcare
industries. As an advisor, principal or general partner, Health Business
Partners has been involved in more than 25 transactions in the nutrition and/or
customer healthcare industries. Pursuant to the agreement, Bio-One is obligated
to pay Health Business Partners $2,000 per day with a $10,000 cap per month and
a success fee based upon the size of future acquisitions.
22
We intend to look to acquire a manufacturing facility, which should not
only produce our vitamins and supplements but should also manufacture product
and increase our revenues by offering services to third party distributors. Once
we have acquired the manufacturing facility, we intend to focus on the
distributors who market nutritional supplements. Future acquisitions could be
financed by internally generated funds, institutional financing, public or
private placement of our debt or equity securities or a combination of these.
However, market conditions, the trading price and volume of our common stock as
well as the uncertainty of the nature of any acquisition may limit our ability
to finance future operations.
THE NUTRITIONAL SUPPLEMENT MARKET
With an aging baby boom population striving to retain their health and
vitality, nutritional supplements and vitamins are in growing demand.
Nutritional supplements are natural, nutritional, biologically active
materials formulated to provide specific health benefits to humans.
Nutraceuticals are biologically active materials, derived from plant, microbial
or animal sources, which are formulated to provide specific health and
productivity benefits including, but not limited to, functional foods, fermented
foods, phytochemicals, microbial feed additives, probiotics, herbal products,
vitamins and health supplements.
PNLABS, INC.
Bio-One's focus is to manufacture and market products in the
nutritional supplement industry. We intend to vertically integrate production,
marketing, and distribution. On September 11, 2003, our wholly-owned subsidiary,
PNLabs, Inc., successfully consummated the acquisition of the assets of
Physicians Nutraceutical Laboratories from Physicians Nutraceutical
Laboratories. The purchased assets included inventory, accounts receivable,
office furniture, the rights to the 5 products marketed by Physicians
Nutraceutical Laboratories and all rights to the operational business.
Physicians Nutraceutical Laboratories did not retain any assets. The
consideration given for the purchase of the assets of Physicians Nutraceutical
Laboratories was a five year, 5% royalty on all monthly net sales of PNLabs.
Currently, Physicians Nutraceutical Laboratories' only business activity is to
distribute these royalty payments to its shareholders. Physicians Nutraceutical
Laboratories has signed a Non-Compete Agreement whereby it has agreed that it
will not compete with Bio-One, PNLabs or any of our products. Physicians
Nutraceutical Laboratories has been in business since 1999 and prior to the
acquisition it employed five people. PNLabs has retained 5 of these people,
which include an accounting manager, a general manger, an administrative
assistant and 2 office staff personnel.
PNLabs markets five products: (1) Choless(TM); (2) Choless(TM) Test
Kit; (3) Hormone Health; (4) Arthritis Health; and (5) Basic Essentials
Multi-Vitamin. Physicians Nutraceutical Laboratories developed the product
formulas and previously marketed these products to healthcare practitioners and
retail stores. Choless(TM) ($29.95) is designed to support healthy HDL, LDL,
triglyceride and homocyteine levels. The Choless(TM) Test Kit ($39.95) is
designed to be a home cholesterol test kit with results in approximately 15
minutes. Hormone Health ($19.95), designed by physicians, is intended to address
symptoms of menopause, bone loss prevention, as well as promote healthy heart
functions. Arthritis Health ($29.95) is designed to combine cartilage building
and repair components with ingredients to promote the natural formation within
the body of a natural anti-inflammatory agent. Basic Essentials Multi-Vitamin
($29.95) is designed as a daily regimen to promote proper nutrition. PNLabs'
primary focus is to offer a broad-based product line, which we anticipate will
target some of the largest groups currently taking nutritional supplements. We
intend to continue to market these five products through PNLabs, as well as add
new products to our product lines, and further develop a comprehensive marketing
plan for all of our products. Except for those products, which we have acquired
from Physicians Nutraceutical Laboratories, Inc., we do not market or sell any
other supplements.
MANUFACTURING
We do not currently manufacture any products. While we believe the
acquisition of a manufacturing facility will be key to our overall business
strategy, we may acquire marketing and distribution companies before we are able
to fully implement our business strategy. Until such time as we can manufacture
our own products, we will rely on third party manufacturers.
Our management believes that the principal markets in which we compete
are competitive and fragmented, with competitors in both the private label
market and health supplements market. The term "private label market" describes
product distributors who have outsourced the manufacturing of their product. We
do not believe that this is the most efficient way to operate.
23
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS
We intend to obtain the raw materials for the manufacture of our
products from other sources. We believe that there are currently in excess of
two hundred (200) primary suppliers of raw materials within the U.S. In
addition, we believe that there are well over one hundred (100) manufacturers in
the U.S. that could manufacture any product we choose to produce. We do not
anticipate having contracts with any entities or persons committing such
suppliers to provide the materials required for the production of our products.
Raw materials including all natural herbs and minerals are plentiful worldwide.
MARKETING
No current marketing, sales or distribution system is currently in
place. During 2003, Mr. Armand Dauplaise's primary effort has been devoted to
negotiating with investment banking sources for Bio-One and identifying
potential acquisition candidates.
The following discussion is predicated upon us generating significant
revenues and raising additional capital to fully implement our consolidation
strategy. We plan to develop a sales and marketing/customer service department
dedicated to selling our services and proprietary products and technologies to
branded companies in the health supplement industry.
The primary markets for our services and products are in the preventive
and alternative healthcare fields. Preventive and alternative healthcare
programs and systems establish very specific requirements in helping improve and
maintain citizenry health. We believe that the market is global and growing
rapidly. As nutritional supplements use combined with preventive and alternative
healthcare become more readily accepted, we believe physicians and other
healthcare providers will be targeted for marketing purposes.
DEPENDENCE ON NEW PRODUCTS
Our ability to grow will not only be dependent upon the success of our
acquisition program but our ability to introduce new and innovative products
into such markets. We will attempt to introduce additional products in our
existing markets. The success of new products is subject to a number of
conditions, including developing products that will appeal to customers and
comply with existing regulations at the time of introduction.
COMPETITION
Management of Bio-One believes that competition in our principal
markets and the private label market is intense and fragmented. We are in the
process of developing our marketing strategies and product lines and expect that
both will involve an ever-changing and evolving process. We will attempt to
competitively price our products, provide superior quality products, and achieve
success through attentive and efficient customer service and effective
marketability strategies. We believe that there are many well-established
competitors with substantially greater financial revenues, as well as,
significant new market entrants in the nutritional supplement industry.
NBTY is the industry leader with $1.2 billion in annual sales. Less
than twenty (20) companies are realizing annual revenues in excess of $100
million, including: Leiner Health Products, American Home Products, Rexall
Sundown and Pharmavite.
TRADEMARKS
PROPRIETARY PROTECTION
Our business prospects depend largely upon our ability to capitalize on
favorable consumer recognition of our trade names. We do not currently hold any
trademarks. However, as we pursue our consolidation strategy, we intend to rely
on trademarks obtained from any of our acquired companies or promote the use of
the Bio-One name. In addition, we anticipate that we will also rely on trade
secrets and proprietary know-how, and employ various methods to protect our
concepts. Unlike pharmaceutical products that rely on specific combinations of
drugs and chemicals, patents cannot protect herbal products. However, management
believes that simply knowing the ingredients of an herbal product does not mean
that other manufacturers can duplicate the product.
24
GOVERNMENTAL REGULATION
The manufacturing, processing, formulating, packaging, labeling,
distributing, selling and advertising of our products are subject to regulation
by one or more federal agencies. The most active regulation has been
administered by the Food and Drug Administration ("FDA") which regulates our
products pursuant to the Federal Food, Drug and Cosmetic Act ("FDCA") and
regulations promulgated thereunder. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, food supplements, over-the-counter
drugs and prescription drugs, medical devices and cosmetics. In addition, the
FTC has overlapping jurisdiction with the FDA to regulate the labeling,
promotion and advertising of dietary supplements, over the counter drugs,
cosmetics and foods.
Although the dietary supplement industry is subject to regulation by
the FDA and local authorities, dietary supplements, including vitamins,
minerals, herbs and other dietary ingredients, now have been statutorily
affirmed as a "food." Dietary supplement companies are authorized to make
substantiated statements of nutritional support and, subject to several possible
limitations, to market manufacture substantiated safe dietary supplement
products without FDA pre-clearance. Failure to comply with applicable FDA
requirements can result in sanctions being imposed on Bio-One or the
manufacturers of our products, including but not limited to fines, injunctions,
product recalls, seizures and criminal prosecution.
Compliance with applicable FDA and any state or local statutes is
critical. Although we believe that we are in compliance with applicable
statutes, should the FDA amend its guidelines or impose more stringent
interpretations of current laws or regulations, we may not be able to comply
with these new guidelines. We are unable to predict the nature of such future
laws, regulations, interpretations or applications, nor can we predict what
effect additional governmental regulations or administrative orders, when and if
promulgated, would have on our business in the future. These regulations could,
however, require the reformation of certain products to meet new standards,
market withdrawal or discontinuation of certain products not able to be
reformulated, imposition of additional record keeping requirements, expanded
documentation regarding the properties of certain products, expanded or
different labeling and/or additional scientific substantiation.
The FDCA has been amended several times with respect to dietary
supplements, most recently by the Dietary Supplement Health and Education Act of
1994 ("DSHEA"). DSHEA was enacted on October 15, 1994. It provides a new
statutory framework governing the composition and labeling of dietary
supplements. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, dietary supplements are generally excluded from the legal
definition of "food additive." With respect to composition, DSHEA created a new
class of "dietary supplements", consisting of vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet, as well
as concentrates, metabolites, extracts or combinations of such dietary
ingredients. Generally, under DSHEA, dietary ingredients that were on the market
before October 15, 1994 may be sold without FDA pre-approval and without
notifying the FDA. On the other hand, a new dietary ingredient (one not lawfully
on the market before October 15, 1994) requires proof that it has been present
in the food supply as an article used for food without being chemically altered,
or evidence of a history of use or other evidence of safety establishing that it
is reasonably expected to be safe. The FDA must be supplied with such evidence
at least seventy-five (75) days before the initial introduction into interstate
commerce use of a new dietary ingredient. The FDA may not accept the evidence of
safety for any new dietary ingredients that we may decide to use, and the FDA's
refusal to accept such evidence could result in regulation of such dietary
ingredients as adulterated until such time as reasonable expectation of safety
for the ingredient can be established to the satisfaction of the FDA.
As for labeling, DSHEA permits "statements of nutritional support" for
dietary supplements without FDA pre approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general well
being of the body, or the mechanism of action by which a dietary ingredient may
affect body structure, function or well being (but may not state that a dietary
supplement will diagnose, mitigate, treat, cure or prevent a disease). A company
making a statement of nutritional support must possess substantiating evidence
for the statement, and, for such statements that are not about the effects on
the body as a result of a dietary supplement used as a tool for its nutritive
value and are not otherwise "health claims," disclose on the label that the FDA
has not reviewed that statement and that the product is not intended for use for
a disease, and notify the FDA of the statement within thirty (30) days after its
initial use. The manner for making the disclosure and notifying the FDA are set
forth in the regulations. However, the FDA may determine that a given statement
of nutritional support that we decide to make is a drug claim rather than an
acceptable nutritional support statement. Such a determination would require
deletion of the drug claim or our submission, and the FDA's approval of a New
Drug Application ("NDA"), which would entail costly and time-consuming clinical
studies. In addition, DSHEA allows the dissemination of "third party
literature", publications such as reprints of scientific articles linking
particular dietary ingredients with health benefits. Third party literature is
exempted from FDA regulation as dietary supplement "labeling" and may be used in
25
connection with the sale of dietary supplements to consumers. Such a publication
may be so used if, among other things, it is not false or misleading, no
particular manufacturer or brand of dietary supplement is promoted and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third party
literature that may be disseminated in connection with our products will be
determined by the FDA to satisfy each of these requirements, and any such
failure could subject the product involved to regulation as a new drug or as a
"misbranded" product.
DSHEA permits substantiated, truthful and non misleading statements of
nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining structure
or function of the body. Any statement of nutritional support beyond traditional
claims must be accompanied by disclosure that the FDA has not evaluated such
statement and that the product is not intended to cure or prevent any disease.
We anticipate that the FDA will promulgate Good Manufacturing Practices
("GMPs"), which are specific to dietary supplements and require at least some of
the quality control provisions contained in the GMPs for drugs. Management
anticipates that the FDA may promulgate GMP regulations authorized by DSHEA,
which are specific to dietary supplements. GMP regulation would require
supplements to be prepared, packaged and held in compliance with such rules, and
may require similar quality control provisions contained in the GMP regulations
for drugs. If the FDA adopts GMP regulations specific to dietary supplements, we
may not be able to comply with such GMP rules upon promulgation or without
incurring material expenses to do so.
Our products and product related activities may also be subject to
regulation by other regulatory agencies, including but not limited to the
Federal Trade Commission ("FTC"), the Consumer Products Safety Commission, the
United States Department of Agriculture, the United States Postal Service, the
United States Environmental Protection Agency and the Occupational Safety and
Health Administration. These activities are also regulated by various agencies
of the states and localities in which our products are sold.
Advertising of dietary supplement products is subject to regulation by
the FTC under the Federal Trade Commission Act ("FTCA"). Section 5 of the FTCA
prohibits unfair methods of competition and unfair or deceptive trade acts or
practices in or affecting commerce. Section 12 of the FTCA provides that the
dissemination or the causing to be disseminated of any false advertising
pertaining to drugs or foods, which would include dietary supplements, is and
unfair or deceptive act or practice. Under the FTC's Substantiation Doctrine, an
advertiser is required to have a "reasonable basis" for all objective product
claims before the claims are made. Pursuant to this FTC requirement, we are
required to have adequate substantiation of all material advertising claims made
for its products. Failure to adequately substantiate claims may be considered
either deceptive or unfair practices. We believe that any advertising claims
made by PN Labs are in compliance with these regulations.
In recent years the FTC has initiated numerous investigations of
dietary supplement and weight loss products and companies. The FTC has recently
issued a guidance document to assist supplement marketers of dietary supplement
products in understanding and complying with the substantiation requirement.
The FTC is authorized to use a variety of processes and remedies for
enforcement, both administratively and judicially including compulsory process,
cease and desist orders, and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. State and local authorities can also regulate
advertising and labeling for dietary supplements and conventional foods.
We believe that any product or supplement we distribute will be either
G.R.A.S. (Generally Regarded As Safe) listed by the FDA or do not currently
require extended regulatory approval. Recent legislation has resulted in a
regulatory environment, which sets what we believe to be reasonable limitations
and guidelines on health claims and labeling for natural products. We believe
that current and reasonably foreseeable governmental regulation will have
minimal impact on our business. The FTC oversees claims made by us and other
companies in the nutritional supplement industry. The FTC under the Federal
Trade Commission Act prohibits the use of unfair or deceptive trade practices,
including false or misleading advertising. The FTC in recent years has brought a
number of actions challenging claims by companies. These actions stem from the
Retail Truth In Labeling laws, which are the only laws, which currently regulate
the nutritional supplement industry. In the future, we may be subject to
additional laws or regulations administered by the FDA or other federal, state
or foreign regulatory authorities, the repeal of laws or regulations which
Bio-One considers favorable, or more stringent interpretations of current laws
or regulations. In fact, the FDA strictly regulates dietary supplements, as
opposed to nutritional supplements which are subject only to Truth In Labeling
laws. Should we begin producing nutritional supplements, or should one of our
products be determined by the FDA to be a dietary supplement, more stringent
regulation of our products may take place. Compliance with these additional
26
rules and regulations may result in a considerable expense or may cause us to
have to discontinue production of some or all of its then current products. New
laws and regulations could, however, require the reformulation of certain
products to meet new standards, the recall or discontinuance of certain products
not able to be reformulated, imposition of additional record keeping
requirements, or expanded documentation of the properties of certain products,
expanded or different labeling and scientific substantiation.
COMPLIANCE WITH ENVIRONMENTAL LAWS
We believe that we are in compliance with all relevant environmental
laws. In fact, we believe there are no environmental laws which directly impact
our business. Due to the nature of our operations, the cost of complying with
environmental laws will not have a significant effect on our operations.
RESEARCH & DEVELOPMENT
In order to stay competitive, we must continually introduce new
products. This involves research and development. To the extent that we have
sufficient revenues, we intend to more actively pursue the research, development
manufacture and distribution of nutritional supplements.
OUR ACQUISITION STRATEGY
We intend to become a vertically integrated company in the nutritional
supplement industry. In furtherance thereof, we believe the acquisition of the
assets of Physicians Nutraceutical Laboratories represents only the first step
in our acquisition strategy. We intend to seek to acquire manufacturing and
marketing companies that demonstrate to us the ability to profitably operate
their business and whose revenues can be substantially increased by means of
improved operating efficiencies in a vertically integrated company. We may seek
to acquire companies with lower earnings, if management believes that the
product, facilities, management or mix will fit within our overall objective to
become a leader in the nutritional supplement industry. We intend to seek
opportunities demonstrating the potential of long-term growth as opposed to
short-term earnings
Due to our limited capital resources, the consummation of a business
combination will likely involve the acquisition of, or merger or consolidation
with a company that does not need substantial additional capital but one where
its owners see the advantage of becoming one of the few companies in the
nutritional supplement field to be vertically integrated and provide enhanced
liquidity for the target business' current shareholders by exchanging their
common stock for stock and/or cash in a public vehicle.
OPPORTUNITY FOR SHAREHOLDER EVALUATION OR APPROVAL OF BUSINESS COMBINATIONS
Due to nondisclosure and confidentiality agreements which we may be
required to execute, our shareholders will, in all likelihood, not receive nor
otherwise have the opportunity to evaluate any financial or other information
which will be made available to us in connection with selecting a potential
business combination until after we have entered into an agreement to effectuate
a business combination. As a result, shareholders will be almost entirely
dependent on the judgment and experience of management in connection with our
acquisition strategy.
ACQUISITION CRITERIA
Management will consider, among other factors, the following factors in
targeting a business which are not listed in any particular order:
o financial condition and results of operation of the target business;
o the location of the target business;
o growth potential and projected financial performance of the target
business;
o experience and skill of management and availability of additional
personnel of the target business;
o capital requirements of the target business;
o competitive position of the target business;
o stage of development of the product, process or service of the target
business;
o degree of current or potential market acceptance of the product,
process or service of the target business;
o possible proprietary features and possible other protection of the
product, process or service of the target business; and
o costs associated with effecting the business combination.
27
The foregoing criteria are not intended to be exhaustive; any
evaluation relating to the merits of a particular acquisition will be based, to
the extent relevant, on the above factors as well as other considerations deemed
relevant by us in connection with any acquisition we conclude. In many
instances, it is anticipated that the historical operations of a target business
may not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis, change or substantially augment management, or make
other changes.
In connection with our evaluation of a prospective target business,
management anticipates that it will conduct a due diligence review which will
encompass, among other things, meetings with incumbent management and inspection
of facilities, as well as review of financial or other information which will be
made available to us. The time and costs required to select and evaluate a
target business (including conducting a due diligence review) and to structure
and consummate the business combination (including negotiating relevant
agreements and preparing requisite documents for filing pursuant to applicable
securities laws and state "blue sky" and corporation laws) cannot presently be
ascertained with any degree of certainty.
We may engage the services of professional firms that specialize in
finding business acquisitions in the nutritional supplement field and pay a
finder's fee or other compensation. No policies have been adopted regarding use
of such consultants or advisors, the criteria to be used in selecting such
consultants or advisors, the services to be provided, the term of service, or
regarding the total amount of fees that may be paid.
There are currently no limitations relating to our ability to borrow
funds to increase the amount of capital available to us to effect a business
combination or otherwise finance the operations of any acquired company.
However, our current limited resources could make it difficult for us to borrow
additional funds from other sources. The amount and nature of any borrowing by
us will depend on numerous considerations, including our capital requirements,
potential lenders' evaluation of our ability to meet debt service on borrowing
and the then prevailing conditions in the financial markets, as well as general
economic conditions.
If our securities are issued as part of an acquisition, such securities
are required to be issued either in reliance upon exemptions from registration
under applicable federal or state securities laws or registered for public
distribution. We intend to primarily target only those companies where an
exemption from registration would be available; however, since the structure of
the business combination has yet to be determined, no assurances can be made
that we will be able to rely on such exemptions. Registration of securities
typically requires significant costs and time delays are typically encountered.
In addition, the issuance of additional securities and their potential sale
could depress the price of our common stock in. Further, such issuance of
additional securities would result in a decrease in the percentage ownership of
present shareholders.
28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key employees as of January 2,
2004 are as follows:
Name Age Position
---- --- --------
Armand Dauplaise 64 President/ CEO
Irwin Newman 55 Director
Frank Clark 71 Director
Bernard Shinder 67 Director
Roy Lerman 64 Director
Each of our directors on our Board of Directors will hold his position
until the next annual meeting of shareholders or until his successor is duly
elected and qualified. Officers serve at the direction of the Board of
Directors. Mr. Dauplaise devotes his full time and efforts to the operations of
the Company.
ARMAND DAUPLAISE has served as an officer and director of our Company
since 1999. He has extensive business experience. From 1999-2002 he served as
president of Crown Enterprises, Inc., a previous subsidiary of Bio-One. From
1998-1999 he served as Chief Operating Officer of Leffler Enterprises, a
multi-property restoration business. Prior to 1998, Mr. Dauplaise served in
leadership positions with Restoring Services (1995-1998), Premier Services
(1980-1995), Coffee Butler (1979-1980), National Coffee (1977-1979), Hardees
Restaurants (1975-1977), Burger King Corporation (1972-1975), and Hallmark Cards
(1967-1972).
IRWIN NEWMAN served as a Director since his election by our
shareholders on December 11,2003. Mr. Newman serves as our corporate secretary.
Mr. Newman is a practicing attorney in Boca Raton, Florida. Since 2000, Mr.
Newman has been a partner with the Law Firm of Newman & Pollock. Since 1993 Mr.
Newman has also served as President and Chief Executive Officer of Jenex
Financial Services, Inc., a financial and consulting firm located in Boca Raton,
Florida. From 1988-1993, Mr. Newman served as Vice President for Boca Raton
Capital Corp.
FRANK CLARK served as a Director since his election by our shareholders
on December 11,2003. From 1992-2003 Mr. Clark has served as an independent
consultant. From 2000 to the present, Mr. Clark served on the Board of Directors
of Gensci Corp. From 2001 to the present, Mr. Clark has served on the Board of
Directors of 800 Healthy and Advanced Therapeutic Technology. From 1986 through
1992, Mr. Clark worked as a consultant for Right Management Consultants. Mr.
Clark also served as an executive vice president and a director of a Johnson &
Johnson subsidiary and as President and director of R.P. Scherer, Inc. and
established their business worldwide.
BERNARD SHINDER served as a Director since his election by our
shareholders on December 11,2003. Mr. Shinder will also serve as our Chief
Financial Officer. Mr. Shinder has been engaged as a professional in many
aspects of business finance including initial and secondary stock offerings,
mergers, acquisitions, venture capital, international taxation strategy,
international licensing, technology transfers, strategic planning and management
of the expansion process. Since 1987 Mr. Shinder has served as President of
Bernard Shinder Consultants, Inc. whose clients included Lumonics, Inc., Gandalf
Data Communications Inc., Campeau Corporation, Plastic Engine Technology
Corporation and the River Bank Group.
ROY LERMAN served as a Director since his election by our shareholders
on December 11,2003. Mr. Lerman has close to 40 years of experience in the
brokerage business and as a member in good standing with the American Stock
Exchange for more than 30 years. Since the beginning of 2003 he has served on
the Board of Directors of Rapid Technology Group. Since 2001 he has served on
the Board of Directors of KBF Pollution Management. Since 1999 he has served on
the Board of Directors of Balaton Power and since 1998 has served on the Board
of Directors of Netvoice Technologies. Since 1997 Mr. Lerman has served on the
Board of Directors of Paystar. Mr. Lerman's capabilities include representing
Southwest Securities as its New York Representative and Senior Vice President in
charge of all floor activities on The American Stock Exchange; a full Partner
and Director with SDO Securities since 2000, the largest execution firm on the
American Stock Exchange; since 1998 he has been a Partner in R.I.P. Consultants
with offices in New York and Hong Kong; and former Chairman of the Board for
Capital Suisse Securities, an international Brokerage firm.
29
For their services as a Director of Bio-One, Mr. Clark, Mr. Newman, Mr.
Lerman and Mr. Shinder will each be issued 300,000 shares of our restricted
common stock in consideration for their agreement to serve on our Board. In
addition, the directors will be reimbursed for all out of pocket expenses
incurred in connection with the attendance at any Board meeting or in connection
with any services they provide for and on behalf of Bio-One.
EXECUTIVE COMPENSATION: EMPLOYMENT AGREEMENTS
In May 2000, we entered into an employment agreement with our
President, Chief Executive Officer and Chairman of the Board, Mr. Armand
Dauplaise, which provides in part for Mr. Dauplaise to receive an annual
compensation of $120,000 per year plus a car allowance of $350 per month. The
agreement is renewable annually and has been renewed on an annual basis by
Bio-One.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by Bio-One, as
well as certain other compensation paid or accrued, during the fiscal years
ended December 31, 2002, 2001, and 2000 to Bio-One's named executive officers.
No restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to these executive officers during these fiscal years.
Summary Compensation Table
Annual Compensation Long-term Compensation
------------------- ----------------------
Awards Payouts
------------------ -------
Other Restricted
Annual Stock Options/ LTIP All Other
Salary Bonus Compensation Award(s) Sar's Payouts Compensation
Name and ------ ----- ------------ -------- ----- ------- ------------
Principal Position Year ($) ($) ($) (#) (#) ($) ($)
- ------------------ ---- --- --- --- --- --- --- ---
Armand Dauplaise 2002 $120,000 $ -- $ 4,200(1) -- -- $ -- $ --
President, Chief 2001 $120,000 $ -- $ 4,200(1) -- -- $ -- $ --
Executive Officer and 2000 $120,000 $ -- $ 4,200(1) -- -- $ -- $ --
Chairman of the Board
Kevin Lockhart 2002 $ -- $ -- $ -- -- -- $ -- $ --
Former Secretary and 2001 $120,000 $ -- $ -- -- -- $ -- $ --
Vice-Chairman 2000 $120,000 $ -- $ -- -- -- $ -- $ --
______________
(1) Represents Mr. Dauplaise's monthly car allowance of $350.
The following table contains information regarding options granted
during the year ended December 31, 2002 to Bio-One's named executive officer.
Option/SAR Grants Table
% Total
Options/SAR's
Granted to
No. of Securities Employees in Year
Underlying Ended December 31
Options/SAR's 2002 Exercise or Base Price
Name Granted (#) (%) ($ Per Share) Expiration Date
- ---- ----------- --- ------------- ---------------
Armand Dauplaise None N/A N/A N/A
President, Chief Executive
Officer and Chairman of the Board
30
The following table contains information regarding options exercised in
the year ended December 31, 2002, and the number of shares of common stock
underlying options held as of December 31, 2002, by Bio-One's named executive
officer.
Aggregated Options/SAR Exercises
in Last Fiscal Year and
Fiscal Year End Options/SAR Values
Value of Unexercised
Number of Securities Underlying In-the-Money
Unexercised Options/SAR's Options/SAR's
Shares At Fy-End At Fy-End
Acquired On Value --------- ---------
Exercise Realized (#) ($)
-------- -------- --- ---
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- --- ----------- ------------- ----------- -------------
Armand Dauplaise -- -- -- -- -- --
President,
Chief Executive Officer and
Chairman of the Board
STOCK OPTION GRANTS IN THE PAST FISCAL YEAR
We have not issued any grants of stock options in the past fiscal year
to any officer or director.
DESCRIPTION OF PROPERTY
We currently do not own or lease any real property. Our president
provides us with office space at no charge at 1630 Winter Springs, Blvd., Winter
Springs, Florida 32708. We believe that this space is sufficient for our current
operating requirements until such time as we consummate our second acquisition.
LEGAL PROCEEDINGS
We do not have any pending litigation proceedings.
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information about the beneficial
ownership of our common stock as of January 26, 2004 by (i) each person who we
know is the beneficial owner of more than 5% of the outstanding shares of common
stock (ii) each of our directors or those nominated to be directors, and
executive officers, and (iii) all of our directors and executive officers as a
group.
Number of
Name and Address of Beneficial Owner(1) Shares Owned Percent Owned
- --------------------------------------- ------------ -------------
Armand Dauplaise
1630 Winter Springs Blvd.
Winter Springs, FL 32708 3,630,000(2) 8.2%
Irwin Newman
1630 Winter Springs Blvd.
Winter Springs, FL 32708 314,262(2) *
Frank Clark
1630 Winter Springs Blvd.
Winter Springs, FL 32708 203,041(2) *
Bernard Shinder
1630 Winter Springs Blvd.
Winter Springs, FL 32708 0(2) 0%
Roy Lerman
1630 Winter Springs Blvd.
Winter Springs, FL 32708 11,000(2) *
All Directors and Executive
Officers as a Group
(Five Persons) 4,257,303(2) 9.6%
_______________
* Represents less than 1%.
(1) Applicable percentage of ownership is based on 44,553,996 shares of
common stock outstanding as of January 26, 2004, together with
securities exercisable or convertible into shares of common stock
within 60 days of January 26, 2004 for each stockholder. Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable
or exercisable within 60 days of January 26, 2004 are deemed to be
beneficially owned by the person holding such options for the purpose
of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 900,000 shares held by Mr. Dauplaise's wife and children.
31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 2000, we entered into an employment agreement with our president
and chief executive officer, Armand Dauplaise which calls for payment to him of
$120,000 per year and an auto allowance of $350 per month. The term was for one
year and we have renewed the agreement on each anniversary date.
In June 2002, we borrowed $15,000 from Armand Dauplaise. This
obligation is repayable on demand and provides for interest on the outstanding
principal balance at the rate of 5% per annum. Later that year Mr. Dauplaise
advanced an additional $55,000 which was repayable with interest at the rate of
5% per annum. All sums advanced by Mr. Dauplaise have been repaid from monies
received under the equity credit line.
On June 30, 2002 we entered into an agreement with Kevin Lockhart, a
former officer and director, which provided in part for us to transfer certain
assets and intangible property then owned by us or Crown Enterprises, our wholly
owned subsidiary, to Mr. Lockhart in exchange for the forgiveness of accrued
salaries and the redemption of 1,750,000 shares of our common stock owned by Mr.
Lockhart.
32
MARKET PRICE OF AND DIVIDENDS
ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Our common stock has been listed on the NASDAQ OTC Electronic Bulletin
Board sponsored by the National Association of Securities Dealers, Inc. under
the symbol "BICO" since June 21, 2001. On January 26, 2004, the closing bid
price as reported by the Electronic Bulletin Board was $0.10. As of January 26,
2004, we believe there were approximately 1,700 holders of record of our common
stock.
The following table sets forth the high and low bid prices for the
common stock as reported on the Over-the-Counter Bulletin Board for each quarter
since June 21, 2001 for the periods indicated. Such information reflects inter
dealer prices without retail mark-up, mark down or commissions and may not
represent actual transactions.
The following table sets forth, for the period indicated, the bid price
range of our common stock.
2001 High Bid Low Bid
Quarter Ended June 30, 2001 $0.280 $0.20
Quarter Ended September 30, 2001 $0.800 $0.28
Quarter Ended December 31, 2001 $0.550 $0.37
2002 High Bid Low Bid
Quarter Ended March 31, 2002 $0.470 $0.33
Quarter Ended June 30, 2002 $0.400 $0.11
Quarter Ended September 30, 2002 $0.440 $0.05
Quarter Ended December 31, 2002 $0.120 $0.03
2003 High Bid Low Bid
Quarter Ended March 31, 2003 $0.180 $0.04
Quarter Ended June 30, 2003 $0.090 $0.04
Quarter Ended September 30, 2003 $0.135 $0.06
Quarter Ended December 31,2003 $0.095 $0.06
33
DESCRIPTION OF SECURITIES
COMMON STOCK
Our Articles of Incorporation authorize the issuance of 500,000,000
shares of common stock, $0.001 par value per share. As of January 26, 2004,
44,553,996 shares of common stock were issued and outstanding. The following
description is a summary of the capital stock of Bio-One and contains the
material terms of the capital stock. Additional information can be found in
Bio-One's Articles of Incorporation and Bylaws.
Each holder of our common stock is entitled to one vote per share of
common stock standing in such holder's name on our records on each matter
submitted to a vote of our stockholders, except as otherwise required by law.
Holders of our common stock do not have cumulative voting rights so that the
holders of more than 50% of the combined shares of our common stock voting for
the election of directors may elect all of the directors if they choose to do so
and, in that event, the holders of the remaining shares of our common stock will
not be able to elect any members to our board of directors. Holders of our
common stock are entitled to equal dividends and distributions, per share, when,
as and if declared by our board of directors from funds legally available.
Holders of our common stock do not have preemptive rights to subscribe for any
of our securities nor are any shares of our common stock redeemable or
convertible into any of our other securities. If we liquidate, dissolve or wind
up our business or affairs, our assets will be divided up pro-rata on a
share-for-share basis among the holders of our common stock after creditors and
preferred shareholders, if any, are paid.
PREFERRED STOCK
Our Articles of Incorporation authorize the issuance of 10,000,000
shares of preferred stock, $0.001 par value per share, the designation and
rights of which are to be determined by our Board of Directors. As of
January 26, 2004, none of the shares of preferred stock were issued and
outstanding.
Our Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series. We consider it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financing and in meeting corporate needs which may arise. If opportunities arise
that would make desirable the issuance of preferred stock through either public
offering or private placements, the provisions for preferred stock in our
Articles of Incorporation would avoid the possible delay and expense of a
shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the common stock which would result in dilution
of the income per share and net book value of the common stock. Issuance of
additional common stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the common stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to our common stock or any other series of preferred stock which we may
issue. Our Board of Directors may issue additional preferred stock in future
financing, but has no current plans to do so at this time.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. We intend to furnish holders of our common stock annual reports
containing audited financial statements and to make public quarterly reports
containing unaudited financial information.
WARRANTS
As of January 26, 2004, we did not have any warrants outstanding.
34
OPTIONS
As of January 26, 2004, we did not have any options outstanding.
TRANSFER AGENT
The transfer agent for the common stock is Continental Stock Transfer
and Trust Company of New York, NY and its telephone number is 212-509-4000.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as well as our By-Laws provide for the
indemnification of directors, officers, employees and agents of the corporation
to the fullest extent provided by the Corporate Law of the State of Nevada, as
well as is described in the Articles of Incorporation and the By-Laws. These
sections generally provide that the Company may indemnify any person who was or
is a party to any threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative except for an action by
or in right of the corporation by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation. Generally, no
indemnification may be made where the person has been determined to be negligent
or guilty of misconduct in the performance of his or her duties to the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of Bio-One,
pursuant to the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION AUTHORIZED
AND UNISSUED STOCK
The authorized but unissued shares of our common and preferred stock
are available for future issuance without our shareholders' approval. These
additional shares may be utilized for a variety of corporate purposes including
but not limited to future public or direct offerings to raise additional
capital, corporate acquisitions and employee incentive plans.
35
EXPERTS
The financial statements of Bio-One incorporated herein have been so
incorporated in reliance upon the report of Parks, Tschopp, Whitcomb & Orr,
P.A., independent certified public accountants, given upon their authority as
experts in auditing and accounting. With respect to the unaudited financial
information for the period ended September 30, 2003 incorporated herein, the
independent public accountants have applied limited procedures in accordance
with professional standards for a review of such information. The financial
statements of Physicians Nutraceutical Laboratories, Inc. for the year ended
December 31, 2002 incorporated herein have been so incorporated in reliance upon
the report of Tschopp, Whitcomb & Orr, P.A., independent certified public
accountants, given upon their authority as experts in auditing and accounting.
The financial statements of Physicians Nutraceutical Laboratories, Inc. for the
year ended December 31, 2001, incorporated herein have been so incorporated in
reliance upon the report of Stark Winter Schenkein & Co., LLP, independent
certified public accountants, given upon their authority as experts in auditing
and accounting. The accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the Registration Statement prepared or certified by the accountants within
the meaning of Section 7 and 11 of the 1933 Act.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Kirkpatrick & Lockhart LLP.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all the information set forth in
the registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
36
INDEX TO FINANCIAL STATEMENTS
BIO-ONE CORPORATION
- -------------------
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002 (UNAUDITED)
Balance sheet as of September 30, 2002 and December 31, 2002 F-4
Statement of Operations for the three month and nine month
periods ending September 30, 2003 and 2002 F-6
Statement of Cash Flows for the nine month periods ending F-7
September 30, 2003 and 2002
Notes to the Financial Statements for the three months ended
September 30, 2003 F-8
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001(AUDITED)
Independent Auditor's Report F-11
Consolidated Balance Sheets as of December 31, 2002 and 2001 F-12
Consolidated Statements of Operations for the year ended December 31, 2002 and
2001 and the cumulative period from
April 9, 1999 through December 31, 2002 F-13
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2002, 2001, 2000 and the period
from inception (April 9, 1999) through December 31, 2002 F-14
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and
2001 and the cumulative period from
April 9, 1999 through December 31, 2002 F-15
Notes to the Financial Statements for the year ended December 31, 2002 F-16
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC
- ------------------------------------------
FINANCIAL STATEMENTS AS OF JULY 31, 2003 (UNAUDITED)
Balance Sheet as of July 31, 2003 and 2002 F-23
Statment of Operations for the seven months ended July 31, 2003 and 2002 F-24
Statment of Cash Flows for the seven months ended July 31, 2003 and 2002 F-25
Notes to Unaudited Interim Financial Statements F-26
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 (AUDITED)
Independent Auditor's Report F-36
Balance Sheet as of December 31, 2002 F-37
Statements of Operations for the year ended December 31, 2002 F-38
Statements as of Stockholders' Deficit for the year ended
December 31, 2002 F-39
Statements of Cash Flows for the year ended December 31, 2002 F-40
Notes to the Financial Statements for the year ended
December 31, 2002 F-41
F-1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 (AUDITED)
Independent Auditors Report F-51
Balance Sheet as of December 31, 2001 F-52
Statements of Operations for the years ended December 31, 2001 and 2000 F-53
Statements of Stockholders' Deficit for the year ended December 31, 2001 F-54
Statements of Cash Flows for the years ended December 31, 2001 and 2000 F-55
Notes to the Financial Statements as of December 31, 2001 F-56
F-2
BIO-ONE CORPORATION
FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 2003
F-3
BIO-ONE CORPORATION
Balance Sheets
Assets
September 30, December 31,
2003 (Unaudited) 2002
---------------- ------------
Current assets:
Cash and cash equivalents $352,702 14,742
Accounts receivable 35,739 --
Inventories 60,993 --
Prepaids and other current assets 31,389 --
-------- --------
Total current assets 480,823 14,742
Property and equipment, at cost, net of accumulated
depreciation and amortization 23,113 4,099
-------- --------
Other assets:
Loan commitment fee, net of accumulated amortization 160,000 292,000
Total assets $663,936 310,841
======== ========
See accompanying notes to financial statements.
F-4
BIO-ONE CORPORATION
Balance Sheets
Liabilities and Shareholders' Equity
September 30, December 31,
2003 (Unaudited) 2002
---------------- -------------
Current liabilities:
Accounts payable $ 22,672 124,596
Accrued expenses 52,375 111,375
Current installments of note payable 74,502 74,502
Shareholder loans 3,208 71,008
Royalty payable 99,387 --
----------- -----------
Total current liabilities 252,144 381,481
----------- -----------
Shareholders' equity:
Common stock - $.001 par value, authorized 100 million
shares; issued 44,238,915 and 18,854,695 shares 44,238 18,855
Additional paid in capital 3,066,551 1,786,377
Accumulated deficit (2,698,997) (1,875,872)
----------- -----------
Total shareholders' equity 411,792 (70,640)
----------- -----------
$ 663,936 310,841
=========== ===========
See accompanying notes to financial statements.
F-5
BIO-ONE CORPORATION
Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------------------ -------------------------------
Revenues:
Net sales $ 20,220 -- 20,220 22,220
------------ ------------ ------------ ------------
20,220 -- 20,220 22,220
Costs and expenses:
Cost of goods sold 6,904 -- 6,904 9,343
Selling, general and administrative 419,731 608,751 823,659 914,260
------------ ------------ ------------ ------------
426,635 608,751 830,563 923,603
------------ ------------ ------------ ------------
Operating income (loss) (406,415) (608,751) (810,343) (901,383)
Non-operating revenue (expense):
Other income -- -- -- 146,996
Interest expense (4,783) (852) (12,782) (2,602)
------------ ------------ ------------ ------------
Income before income taxes (411,198) (609,603) (823,125) (756,989)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income $ (411,198) (609,603) (823,125) (756,989)
============ ============ ============ ============
Basic earnings per share $ (0.01) (0.04) (0.02) (0.06)
============ ============ ============ ============
Diluted earnings per share $ (0.01) (0.04) (0.02) (0.06)
============ ============ ============ ============
Weighted average number of shares outstanding 41,421,450 14,012,792 33,899,201 13,612,556
============ ============ ============ ============
See accompanying notes to financial statements.
F-6
BIO-ONE CORPORATION
Statements of Cash Flows
Nine Months Ended
September 30,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $ (823,125) (756,989)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 137,990 1,000
Common stock issued for services 27,300 494,630
Changes in operating assets and liabilities, net of
business acquired:
Accounts receivable -- 1,672
Inventories (14,109) 15,153
Accounts payable and accrued expenses (160,924) 44,274
Other assets (31,389) 1,700
----------- -----------
Net cash used in operating activities (864,257) (198,560)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (8,240) --
----------- -----------
Net cash used in investing activities (8,240) --
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock -- (1,750)
Proceeds from sale of common stock 1,278,257 240,000
Payment of principal on note payable -- --
Proceeds (repayments) from note payable (67,800) 71,008
----------- -----------
Net cash provided by financing activities 1,210,457 309,258
----------- -----------
Increase in cash and cash equivalents 337,960 110,698
Cash and cash equivalents - beginning of period 14,742 34,103
----------- -----------
Cash and cash equivalents - end of period $ 352,702 144,801
=========== ===========
Supplemental disclosure of noncash investing activities:
Fair value of assets acquired $ 99,387 --
Liabilities assumed -- --
Cash acquired -- --
See accompanying notes to financial statements.
F-7
BIO-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements have been prepared in accordance with rules
of the Securities and Exchange Commission and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows, in conformity with generally
accepted accounting principles. The information furnished, in the opinion of
management, reflects all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2003 and results of operations and cash flows for the nine-month periods ended
September 30, 2003 and 2002. The results of operations are not necessarily
indicative of results which may be expected for any other interim period, or for
the year as a whole.
(2) SALES TO MAJOR CUSTOMERS
During the nine months ended September 30, 2002 two customers accounted for 52%
and 26%, respectively, of total revenue.
(3) COMMON STOCK
Common stock issued during the nine months ended September 30, 2003:
1st Quarter 2003:
Common stock issued for cash 8,250,821
Common stock issued for services 401,265
2nd Quarter 2003:
Common stock issued for cash 11,025,213
Common stock issued for services 72,000
3rd Quarter 2003:
Common stock issued for cash 5,634,921
(4) ACQUISITION
On September 11, 2003, the Company acquired the assets of Physicians
Nutraceutical Laboratories, Inc. (PNL), a marketing and distribution company of
nutritional products. The acquisition was funded via seller's financing. The
purchase price is a 5% royalty on all sales of PN Labs during the ensuing 5
years (estimated at $99,387). There was no goodwill recorded with this
transaction.
(Continued)
F-8
BIO-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(4) ACQUISITION (CONTINUED)
This acquisition meets the Company's business objective of acquiring the assets
of a marketing Company within the nutritional supplements industry. The results
of operations of PNL are included in these financial statements from September
11, 2003 (date of acquisition) thru September 30, 2003.
The net assets acquired are as follows:
Accounts receivable $ 35,739 Goodwill --
Inventory 46,884 Royalty payable $ 99,387
Property and equipment 16,761
-------- --------
$ 99,387 $ 99,387
======== ========
The amounts allocated were determined by the following:
o Accounts receivable at present values of amounts to be received less
allowances for uncollectibility.
o Inventories at estimated selling price less cost of disposal and
profit allowance.
o Property and equipment at estimated replacement cost.
We may also make additional payments in excess of $99,387 to the extent that
this is exceeded by the 5% royalty or sales in the next five years. Such
additional payments would be recorded as goodwill, subject to impairment testing
of FAS 142.
The acquisition has been accounted for under the purchase method of accounting.
Had the acquisition occurred January 1, 2002, consolidated net revenue for the
year ended December 31, 2002 would have been approximately $827,000, net loss
would have been approximately $1,086,000 and net loss per share would have been
$(.08). The pro forma results are unaudited.
Had the acquisition occurred January 1, 2002, consolidated net revenue for the
nine months ended September 30, 2002 would have been approximately $610,000, net
loss would have been approximately $815,000 and net loss per share would have
been $(.06). The pro forma results are unaudited.
Had the acquisition occurred January 1, 2003, consolidated net revenue for the
nine months ended September 30, 2003 would have been approximately $650,000, net
loss would have been approximately $941,000 and net loss per share would have
been approximately $(.03). These pro forma results are unaudited.
F-9
BIO-ONE CORPORATION
FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2002 and 2001
F-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Bio-One Corporation
We have audited the accompanying consolidated balance sheets of Bio-One
Corporation (A Development Stage Company), as of December 31, 2002 and 2001 and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years then ended and for the cumulative
period from April 9, 1999 (inception) through December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 financial position of Bio-One Corporation
as of December 31, 2002 and 2001, and the results of their operations and their
cash flows for the years then ended and for the cumulative period from April 9,
1999 (inception) through December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
/S/ PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
February 6, 2003, except for note 9
for which the date is December 23, 2003
Maitland, Florida
F-11
BIO-ONE CORPORATION
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 2002 and 2001
Assets
2002 2001
----------- -----------
Current assets:
Cash $ 14,742 34,103
Accounts receivable -- 1,672
Inventory -- 15,153
----------- -----------
Total current assets 14,742 50,928
----------- -----------
Furniture and equipment 9,426 26,242
Less accumulated depreciation 5,327 8,000
----------- -----------
Net furniture and equipment 4,099 18,242
----------- -----------
Other assets:
Deposits -- 1,700
Loan commitment fee, less accumulated
amortiztion of $58,000 292,000 --
----------- -----------
$ 310,841 70,870
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 124,596 16,037
Notes payable (note 6) 74,502 74,502
Notes payable - shareholder 71,008
Accrued expenses (note 5) 111,375 202,642
----------- -----------
Total current liabilities 381,481 293,181
----------- -----------
Stockholder's deficit:
Common stock ($.001 par value; 100 million shares authorized;
18,854,695 shares at December 31, 2002 and 12,812,086 shares
at December 31, 2001 issued and outstanding) 18,855 12,812
Preferred stock ($.001 par value; 10,000,000
shares authorized; none issued) --
Additional paid-in capital 1,786,377 1,030,988
Accumulated deficit (1,875,872) (1,266,111)
----------- -----------
Total stockholders' deficit (70,640) (222,311)
----------- -----------
$ 310,841 70,870
=========== ===========
See accompanying notes to financial statements.
F-12
BIO-ONE CORPORATION
(A Development Stage Company)
Consolidated Statements of Operations
Years ended December 31, 2002 and 2001, and the cumulative
period from April 9, 1999 (date of inception) through December 31, 2002
Period from
April 9, 1999
2002 (inception) through
Restated 2001 December 31, 2002
------------ ------------ -------------------
Revenue:
Product sales $ 22,220 82,943 268,035
Cost of goods sold 9,343 39,698 111,660
------------ ------------ ------------
Gross profit 12,877 43,245 156,375
------------ ------------ ------------
Selling, general and administrative:
Professional fees 845,491 532,409 1,766,449
Salaries 48,092 58,000 316,560
Rent 12,563 27,175 56,438
Other administrative 144,977 93,393 308,534
------------ ------------ ------------
Total selling, general and administrative 1,051,123 710,977 2,447,981
------------ ------------ ------------
Other income (expense):
Interest expense (10,512) (9,418) (23,263)
Other income 146,997 -- 146,997
------------ ------------ ------------
Net loss, as previously reported $ (901,761) (677,150) (2,167,872)
============ ============ ============
Chage in accounting principle (note 9) 292,000 -- 292,000
------------ ------------ ------------
Net loss, as restated $ (609,761) (677,150) (1,875,872)
============ ============ ============
Loss per common share:
Basic $ (.04) (.06) (.20)
============ ============ ============
Diluted $ (.04) (.06) (.20)
============ ============ ============
Weighted average number of common shares
outstanding:
Basic 14,052,065 10,653,963 9,376,232
============ ============ ============
Diluted 14,052,065 10,653,963 9,376,232
============ ============ ============
See accompanying notes to financial statements.
F-13
BIO-ONE CORPORATION
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years ended December 31, 2002, 2001, 2000,
and the period from inception (April 9, 1999) through December 31, 2002
Additional Stock
Common Stock Paid-in Treasury Subscription
Shares Amount Capital Stock Receivable
-------------- ------------ -------------- --------------- ---------------
Balances, April 9, 1999 -- $ -- -- -- --
Common stock subscribed 4,564,500 4,565 (1,065) -- (3,500)
Common stock issued for cash 430,000 430 116,570 -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 4,994,500 4,995 115,505 -- (3,500)
Common stock issued for cash 450,000 4,500 34,500 -- --
Common stock issued for services 51,000 510 4,590 -- --
Common stock subscribed 4,424,500 44,245 (40,745) -- (3,500)
Reverse acquisition 1,700,000 (42,630) 52,130 -- --
Common stock issued for cash 140,000 140 34,860 -- --
Stock subscription -- -- -- -- 7,000
Common stock issued for cash 279,999 280 69,720 -- --
Common stock issued for services 26,000 26 6,474 -- --
Shares returned to treasury from founders (2,095,000) (2,095) 2,095 2,095 --
Cancellation of treasury shares -- -- -- (2,095) --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2000 9,970,999 9,971 279,129 -- --
Common stock issued for cash 600,000 600 149,400 -- --
Common stock issued for services 795,532 795 261,805 -- --
Conversion of debt to common stock 555,555 556 99,444 -- --
Exercise of warrants 890,000 890 241,210 -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2001 12,812,086 12,812 1,030,988 -- --
Common stock issued for cash 5,404,959 5,405 234,595 -- --
Common stock issued for services 865,910 2,388 520,794 -- --
Common stock issued for commitment fee 1,521,740 1,522 348,478 -- --
Purchase and retirement of shares (1,750,000) (1,750) -- -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2002 $ 18,854,695 18,855 1,786,377 -- --
============ ============ ============ ============ ============
[restubbed table]
Accumulated
Deficit Total
--------------- --------------
Balances, April 9, 1999 -- --
Common stock subscribed -- --
Common stock issued for cash -- 117,000
Net loss (223,748) (223,748)
------------ ------------
Balances, December 31, 1999 (223,748) (106,748)
Common stock issued for cash -- 39,000
Common stock issued for services -- 5,100
Common stock subscribed -- --
Reverse acquisition -- 9,500
Common stock issued for cash -- 35,000
Stock subscription -- 7,000
Common stock issued for cash -- 70,000
Common stock issued for services -- 6,500
Shares returned to treasury from founders -- 2,095
Cancellation of treasury shares -- (2,095)
Net loss (365,213) (365,213)
------------ ------------
Balances, December 31, 2000 (588,961) (299,861)
Common stock issued for cash -- 150,000
Common stock issued for services -- 262,600
Conversion of debt to common stock -- 100,000
Exercise of warrants -- 242,100
Net loss (677,150) (677,150)
------------ ------------
Balances, December 31, 2001 (1,266,111) (222,311)
Common stock issued for cash -- 240,000
Common stock issued for services -- 173,182
Common stock issued for commitment fee -- 350,000
Purchase and retirement of shares -- (1,750)
Net loss (609,761) (609,761)
------------ ------------
Balances, December 31, 2002 (1,875,872) (70,640)
============ ============
See accompanying notes to financial statements.
F-14
BIO-ONE CORPORATION
(A Development Stage Company)
Consolidated Statements of Cash Flows
Years ended December 31, 2002 and 2001, and the cumulative
period from April 9, 1999 (date of inception) through December 31, 2002
Period from
April 9, 1999
(inception) through
2002 2001 December 31, 2002
---------- ---------- -------------------
Cash flows used in operating activities:
Net loss $ (609,761) (677,150) (1,875,872)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 60,884 4,871 68,884
Common stock issued for services 173,182 262,600 205,232
Changes in:
Accounts receivable 1,672 258 --
Inventory 15,153 4,748 --
Other assets 1,700 -- --
Accounts payable 108,559 (14,123) 124,596
Accrued expenses (78,936) (826) 111,375
---------- ---------- ----------
Net cash used in operating activities (327,547) (419,622) (1,365,785)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of equipment (2,822) (8,207) (14,983)
---------- ---------- ----------
Net cash used in investing activities (2,822) (8,207) (14,983)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from note payable to stockholder 71,008 -- 71,008
Issuance of common stock 240,000 392,000 1,250,000
Proceeds from issuance of notes payable -- 75,000 199,502
Repayment of principal on notes payable -- (25,000) (125,000)
---------- ---------- ----------
Net cash provided by financing activities 311,008 442,000 1,395,510
---------- ---------- ----------
Net change in cash (19,361) 14,271 14,742
Cash, beginning of period 34,103 19,832 --
---------- ---------- ----------
Cash, end of period $ 14,742 34,103 14,742
========== ========== ==========
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 10,512 9,418 23,263
========== ========== ==========
Supplemental disclosure of non-cash financing and investing activities:
During the year ended December 31, 2001 notes payable in the amount of
$100,000 were converted into 555,555 shares of common stock.
See accompanying notes to financial statements.
F-15
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Bio-One Corporation (Bio-One or the Company) and its wholly owned subsidiary,
Crown Enterprises, Inc. (Crown). All significant intercompany balances and
transactions have been eliminated in consolidation. Bio-One and subsidiaries
have a December 31 fiscal year end.
Bio-One Corporation was incorporated in the State of Nevada, with capital stock
of 20,000,000 shares at $ 0.001 par value, and 1,000,000 shares of preferred
stock at $0.001 per value. On July 26, 2000, Bio-One Corporation approved and
ratified an increase in the number of authorized shares of the Company's common
stock from 20,000,000 to 100,000,000. On the same date, the Company approved and
ratified an increase in the number of authorized shares of the Company's
preferred stock from 1,000,000 to 10,000,000.
Crown Enterprises, Inc. was incorporated under the laws of the State of Florida
on April 9, 1999. Crown had developed a complete line of naturopathic and
nutritional supplement products that could be recommended to address the
specific conditions identified by Crown's Microscopy "Live Blood Cell Analysis"
Program. Crown's "sell through" concept coupled with its Microscopy Program and
full line of naturopathic products placed Crown in the forefront of the
preventative and alternative healthcare industry.
On May 30, 2000, Crown agreed to exchange shares with Bio-One Corporation, a
Nevada company. Accordingly, Crown exchanged 10,000,000 shares of its stock for
10,000,000 shares of Bio-One stock in a business combination accounted for as a
reverse acquisition. During the period Bio-One was in existence, prior to the
reverse acquisition, its only activity was to raise equity capital. For
accounting purposes, the reverse acquisition is reflected as if Crown issued its
stock (10,000,000 shares) for the net assets of Bio-One. The net assets of
Bio-One were not adjusted in connection with the reverse acquisition since they
were monetary in nature.
In June 2002, Bio-One disposed of Crown's "Live Blood Cell Analysis" Program, by
purchasing the common stock of a former shareholder/director. The Company's
total focus is on vertically integrating manufacturing and marketing
acquisitions within the nutritional supplements industry.
(Continued)
F-16
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(A) ORGANIZATION - (CONTINUED)
In July 2002, the Company signed an agreement with Cornell Capital Partners, LP
for a $10,000,000 Equity Line of Credit investment. Cornell Capital is a
domestic hedge fund, which makes investments in small-to-mid-sized publicly
traded companies. Under the Equity Line Agreement, Bio-One has the right, but
not the obligation to require Cornell Capital to purchase shares of Bio-One
common stock up to a maximum amount of $10,000,000 over a 24-month period
commencing September 3, 2002. There is no minimum draw down although Bio-One may
make draws, as provided below, during the term of the Equity Line. The purchase
price of the shares will be 100% of the lowest closing bid price of Bio-One
common stock during the six consecutive trading days immediately following
receipt of the Company's notice of its intent to make an Equity Line draw, which
notice may be withdrawn by the Company. Bio-One paid Cornell Capital a one-time
fee equal to $350,000, payable in 1,478,261 shares of Rule 144 restricted common
stock. This fee of $350,000 has been capitalized as a loan commitment fee and is
being amortized over the 2 year term of the commitment. Cornell Capital is
entitled to retain 5% of each Equity Line advance.
In August 2002 the Company filed a SB-2 Registration Statement with the SEC and
registered 30,000,000 shares of common stock for the purpose of raising equity
capital. On September 3, 2002 the SEC declared the registration statement
effective.
Operations of the Company through the date of these financial statements have
been devoted primarily to identification and targeting of acquisition
candidates, raising capital and administrative activities.
The Company's revenues will be generated with vertically integrating
manufacturing and marketing acquisitions within the nutritional supplements
industry. The Company is prepared to launch its business plan upon completion of
its capitalization.
(B) REVENUE RECOGNITION
The principal sources of revenues are derived from product sales. Revenue from
product sales is recognized when the product is shipped.
(C) INVENTORY
Inventory consists of nutritional supplement products, which are valued at the
lower of cost or market on first-in, first-out basis.
F-17
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using straight-line methods over five year
estimated useful lives.
Depreciation expense amounted to $2,884, $4,871, and $10,884 for the years ended
December 31, 2002, 2001, and the cumulative period from April 9, 1999 through
December 31, 2002.
The Company reviews the carrying value of property and equipment for impairment
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable from the estimated future cash flows expected to result
from its use and eventual disposition. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds the fair value
of assets.
(E) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for cash, accounts receivable
and accounts payable approximates fair values due to the immediate or short-term
maturity of these financial instruments. Fair value for notes payable was based
on interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities, and approximate carrying
value.
(G) CREDIT RISKS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. The Company sells
its products to customers, at times extending credit for such sales. Exposure to
losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.
F-18
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(H) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
(I) ADVERTISING COSTS
The Company expenses all costs of advertising as incurred. There were no
advertising costs included in selling, general and administrative expenses
during 2002 or 2001.
(J) STOCK TRANSACTIONS
Shares issued for services performed are valued at either the fair value of
equity instruments issued or the value of services performed, whichever is more
reliably measurable.
(K) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) which sets forth accounting and disclosure requirements
for stock-based compensation arrangements. The new statement encourages but does
not require, companies to measure stock-based compensation using a fair value
method, rather than the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 ("APB no. 25".) The Company has adopted
disclosure requirements of SFAS 123 and has elected to continue to record
stock-based compensation expense using the intrinsic value approach prescribed
by APB No. 25. Accordingly, the Company computes compensation cost for each
employee stock option granted as the amount by which the quoted market price of
the Company's common stock on the date of grant exceeds the amount the employee
must pay to acquire the stock. The amount of compensation cost, if any, will be
charged to operations over the vesting period. SFAS 123 requires companies
electing to continue using the intrinsic value method to make certain pro forma
disclosures (see note 7).
F-19
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) INCOME TAXES
At December 31, 2002, the Company had a net operating loss carryforward for
income tax purposes of approximately $2,000,000, which is available to offset
future taxable income. The loss carryforward expires in the years beginning in
2019, unless it is utilized sooner. A valuation allowance equal to the tax
benefit of the net operating losses has been established since it is uncertain
that future taxable income will be realized during the carryforward period.
Accordingly, no income tax provision has been recognized in the accompanying
financial statements.
(3) BASIC LOSS PER COMMON SHARE
Basic loss per common share has been computed based upon the weighted average
number of common shares outstanding during the period presented.
(4) COMMITMENTS
The Company has entered into an employment agreement with its founding director
requiring aggregate annual salaries of $120,000 beginning in April 1999. At
December 31, 2002 and 2001, $111,375 and $202,642, respectively, remained to be
paid. In 2002, a former director left the Company forfeiting amounts due him.
The amount forfeited was approximately $150,000 and is included in other income
in the accompanying statement of operations.
(5) NOTES PAYABLE
Note payable to bank, bearing interest at the rate of 9%,
due March 1, 2003, collateralized by accounts receivable
and inventory. $ 74,502
========
(6) COMMON STOCK
Common stock issued during the year ended December 31, 2002:
Common stock issued for services,
valued at $.20 to $.23 per share 2,387,650
Common stock issued for cash 5,404,959
On August 17, 2001 $100,000 of debt was converted into 555,555 shares of common
stock at a rate of $.18 per share.
During the year ended December 31, 2001, notes payable in the amount of $100,000
were converted into 555,555 shares of common stock. The original note agreement
dated May 2001 with an unrelated party was for a period of six months and
interest bearing at 12%. The note was convertible into common stock at the
option of the note holder at a rate of $.25 per share or at a rate based on a
three week average trading price.
F-20
BIO-ONE CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) STOCK BASED COMPENSATION
The Company plans to account for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25, under
which no compensation cost for stock warrants is recognized for stock purchase
warrants granted at or above fair market value. As of December 31, 2002, the
Company has not issued any employee stock options.
Accordingly, management has not presented the pro forma effects of the
application of SFAS No. 123 herein with respect to net earnings and earnings per
share for the years ended December 31, 2002 and 2001.
During 2000, the Company issued warrants to existing stockholders to purchase
580,000 shares of the Company's common stock. The warrants were valued using the
Black-Scholes option pricing model, which resulted in no additional offering
cost charges.
During 2001, the Company issued warrants to existing stockholders to purchase
600,000 shares of the Company's common stock. The warrants were valued using the
Black-Scholes option pricing model, which resulted in no additional offering
cost charges.
(8) SUBSEQUENT EVENTS
In January 2003 Cornell Capital Partners, LP advanced $500,000 under the terms
of the Equity Line Agreement with the shares to be valued and issued in twelve
puts over a period of 125 days. The Company issued 5 million shares of common
stock in connection with this financing. The shares are being held in escrow
subject to pricing.
In January 2003 the Company signed a term sheet with Investors Corporation for a
$10,000,000 Term Loan Facility and a $5,000,000 Revolving Credit Facility.
Closing is scheduled within 45 days after completion of the due diligence. The
funds will be used for closing on a series of scheduled acquisitions.
(9) CHANGE IN ACCOUNTING PRINCIPLE
In 2003, the Company determined that the $350,000 commitment fee paid to Cornell
Capital is more appropriately capitalized, than expensed as previously reported.
This fee is amortized over the life of the commitment (2 years).
F-21
PHYSICIANS NUTRACEUTICAL LABORATORIES
FINANCIAL STATEMENTS AS OF JULY 31, 2003
PHYSICIANS NUTRACEUTICAL LABORATORIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
JULY 31, 2003
F-22
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
Balance Sheet
July 31, 2003 and 2002
Assets
------
2003 2002
----------- -----------
Current assets:
Cash $ 1,757 6,884
Accounts receivable 17,735 34,647
Inventory 70,119 51,006
----------- -----------
Total current assets 89,611 92,537
----------- -----------
Property and equipment, net (note 3) 19,806 33,064
Other assets 4,202 18,752
----------- -----------
$ 113,619 144,353
=========== ===========
Liabilities and stockholders' (deficit)
---------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 389,685 260,947
Due to affiliate 321,346 189,600
Note payable, officer (note 4) 607,416 548,726
----------- -----------
Total current liabilities 1,318,447 999,273
----------- -----------
Stockholders' (deficit):
Preferred stock, Series A convertible, $.001 par value,
10,000,000 shares authorized, 514,162 shares issued
and outstanding 514 514
Preferred stock, undesignated, 9,000,000 shares authorized -- --
Common stock, $.001 par value, 100,000,000 shares
authorized, 2,925,848 shares issued and outstanding 2,926 2,926
Additional paid-in capital 2,728,124 2,728,124
Accumulated (deficit) (3,936,392) (3,586,484)
----------- -----------
(1,204,828) (854,920)
----------- -----------
$ 113,619 144,353
=========== ===========
See accompanying note to the financial statements.
F-23
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
Statement of Operations
For the seven months ended July 31, 2003 and 2002
2003 2002
----------- -----------
Revenue $ 505,089 514,134
----------- -----------
Operating expenses:
Cost of sales 197,901 169,266
Selling, general and administrative expenses 522,343 379,147
----------- -----------
720,244 548,413
----------- -----------
Net (loss) $ (215,155) (34,279)
=========== ===========
Per share information - basic and fully diluted:
Weighted average shares outstanding 2,925,848 2,925,848
=========== ===========
Net (loss) per share $ (0.07) (0.01)
=========== ===========
See accompanying notes to the financial statements.
F-24
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
Statements of Cash Flows
For the seven months ended July 31, 2003 and 2002
2003 2002
--------- ---------
Net (loss) $(215,155) (34,279)
Adjustment to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 6,061 6,679
Changes in operating assets and liabilites:
Accounts receivable (4,611) (1,923)
Inventory (54,205) 8,706
Prepaid expenses 15,000 64,800
Other assets (2,950) (6,971)
Accounts payable and accrued expenses (156,169) (164,219)
--------- ---------
Net cash (used in) operating activities (412,029) (127,207)
--------- ---------
Cash flows from financing activities:
Proceeds from amounts due to affiliate (7,251) (150,839)
Payments, notes payable - officer 418,972 356,573
--------- ---------
Net cash provided by financing activities 411,721 205,734
--------- ---------
Net (decrease) increase in cash (308) 78,527
Beginning - cash balance 2,065 85,411
--------- ---------
Ending - cash balance $ 1,757 6,884
========= =========
Supplemental cash flow information:
Cash paid for income taxes $ -- --
========= =========
Cash paid for interest $ -- --
========= =========
Supplemental schedule of non cash investing and financing activity: During the
year end December 31, 2002, the Company and NSS agreed to convert $20,748
of previous capital contributions to advance from affiliate.
See accompanying notes to the financial statements.
F-25
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(A) ORGANIZATION
------------
The Company was incorporated on October 26, 1999 in the State of
Florida and is in the business of marketing and distributing
nutritional products.
The Company had been a wholly owned subsidiary of Nutrition
Superstores.com, Inc. ("NSS"). During February 2001 the Company agreed
to issue to NSS 2,898,348 shares of common stock and 440,416 shares of
preferred stock. The issuance was conditioned upon NNS's approval of a
spin off of the Company to the shareholders of NSS, which was also
approved in February 2001 (see note 5).
(B) REVENUE RECOGNITION
-------------------
The Company recognizes revenue when its products are shipped or
services are provided.
(C) PRODUCT DEVELOPMENT COSTS
-------------------------
The Company's web site will comprise multiple features and offerings
that are currently under development, and it is anticipated that the
offerings will require future development and refinement. In connection
with the development of its products, the Company will incur external
costs for hardware, software, and consulting services, and internal
costs for payroll and related expenses of its technology employees
directly involved in the development. All hardware costs will be
capitalized. Purchased software costs will be capitalized in accordance
with Statement of Position 98-1 Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. All other costs will
be reviewed for determination of whether capitalization or expense as
product development cost is appropriate.
(D) INVENTORY
---------
Inventory, which consists principally of finished goods, is stated at
the lower of cost or market using the first-in, first-out method.
F-26
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------
(E) PROPERTY, EQUIPMENT AND DEPRECIATION
------------------------------------
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the following estimated useful
lives:
YEARS
-----
Equipment 5
Furniture and fixtures 5
Automotive equipment 5
(F) CASH AND CASH EQUIVALENTS
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(G) ADVERTISING COSTS
-----------------
The Company expenses all costs of advertising as incurred. Advertising
costs included in selling, general and administrative expenses
aggregated $144,096 for the seven months ended July 31, 2003.
(H) FINANCIAL INSTRUMENTS
---------------------
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
July 31, 2003. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values.
These financial instruments include, cash, accounts receivable,
accounts payable and accrued expenses and notes payable. Fair values
were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on
demand. The fair value of the Company's long-term debt is estimated
based upon the quoted market prices for the same or similar issues or
on the current rates available to the Company for debt of the same
remaining maturities.
F-27
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------------------------------
(I) LONG-LIVED ASSETS
-----------------
The carrying value of long lived assets is reviewed on a regular basis
for the existence of facts and circumstances that suggest impairment.
To date, no such impairment has been indicated. Should there be an
impairment in the future, the Company will measure the amount of the
impairment based on the undiscounted expected future cash flows from
the impaired assets.
(J) NET INCOME (LOSS) PER COMMON SHARE
----------------------------------
The Company calculates net income (loss) per share as required by
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number
of common shares and dilutive common stock equivalents outstanding.
During periods when they are anti dilutive common stock equivalents, if
any, are not considered in the computation.
(K) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
F-28
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
(L) INCOME TAXES
------------
The Company follows SFAS 109, "Accounting for Income Taxes" for
recording the provision for incomes taxes. Deferred tax assets and
liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset
or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability
each period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax
assets to the amount that is more likely than not to be realized.
Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.
(M) DEFERRED OFFERING COSTS
-----------------------
The Company defers costs associated with the raising of capital until
such time as the offering is completed, at which time the costs are
charged against the capital raised. Should the offering be terminated
the costs are charged to operations during the period when the offering
is terminated.
(N) STOCK BASED COMPENSATION
------------------------
The Company accounts for equity instruments issued to employees for
services based on the fair value of the equity instruments issued and
accounts for equity instruments issued to other than employees based on
the fair value of the consideration received or the fair value of the
equity instruments, whichever is more reliably measurable.
The Company accounts for stock based compensation in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation." The provisions
of SFAS No. 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value
method set forth in Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees" but disclose the pro forma
effects on net income (loss) had the fair value of the options been
expensed. The Company has elected to continue to apply APB 25 in
accounting for its stock option incentive plans.
F-29
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
(O) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
----------------------------------------------
The unaudited financial statements have been prepared in accordance
with rules of the Securities and Exchange Commission and, therefore, do
not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash
flows, in conformity with generally accepted accounting principles. The
information furnished, in the opinion of management, reflects all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of July 31, 2003 and results
of operations and cash flows for the seven month period ended July 31,
2003. The results of operations are not necessarily indicative of
results which may be expected for any other interim period, or for the
year as a whole.
(2) BASIS OF PRESENTATION
---------------------
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern which contemplates the
recoverability of assets and the satisfaction of liabilities in the
normal course f business. The Company incurred net losses during the
seven months ended July 31, 2003 of $215,155. In addition, the Company
has a working capital deficit of $1,228,836 and a stockholders' deficit
of $1,204,828 at July 31, 2003.
The ability of the Company to continue as a going concern is dependent
upon its ability to raise additional capital from the sale of common
stock and the achievement of profitable operations. The Company is in
the process of attempting to raise additional equity capital through a
private placement.
The accompanying financial statements do not include any adjustment
that might be required should the Company be unable to recover the
value of its assets or satisfy its liabilities.
F-30
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following at July 31, 2003 and
2002:
2003 2002
------- -------
Furniture and fixtures $ 8,031 8,031
Equipment 17,890 31,751
Automotive equipment 23,472 23,472
------- -------
49,393 63,254
Less: accumulated depreciation 29,587 30,190
------- -------
$19,806 $33,064
======= =======
Depreciation expense charged to operations was $6,061 during the seven
months ended July 31, 2003.
(4) Notes Payable - Officer
-----------------------
At December 31, 2003 and 2002 note payable - officer consisted of the
following:
2003 2002
---- ----
Notes payable with interest at 5% per annum,
due on demand or if demand is not made, on
December 31, 2003 $ 607,416 548,726
========= =======
(5) Stockholders' (Deficit)
-----------------------
PREFERRED STOCK
---------------
The Board of Directors has authorized the issuance of 1,000,000 shares
of $.001 par value convertible preferred stock designated as Series A.
Commencing on June 1, 2001 the holders of Series A shall be entitled to
an 8.75% annual non-cumulative dividend in cash or at the option of the
Company shares of the Company's common stock. No dividends were
declared by the board of directors for the year ended December 31,
2002. Each share of Series A shall be convertible into common stock at
the conversion price of 1/3 of the initial public offering price of the
Company's common stock, provided however, that in the event the Company
does not complete a public offering the Series A will be convertible at
$5 per share but only at the expiration date of the Series A on May 31,
2004.
F-31
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(5) STOCKHOLDERS' (DEFICIT) (CONTINUED)
-----------------------------------
SHARE ISSUANCE
--------------
During February 2001 in exchange for the 100,000 common shares held by
the Parent the Company agreed to issue to its Parent 2,898,348 shares
of common stock and 440,416 shares of preferred stock. The issuance was
conditioned upon the Parent's approval of a spin off of the Company to
the shareholders of the Parent, which was approved in February 2001.
All share and per share amounts have been retroactively restated to
reflect the issuance.
STOCK BASED COMPENSATION
------------------------
The Company agreed to issue options to purchase 27,500 shares of common
stock at an exercise price of $2.00 per share and options to purchase
35,000 shares at an exercise price of $5.00 per share.
The Company accounts for stock-based compensation plans by applying APB
25 and related interpretations. Under APB 25, because the exercise
price of the Company's employee stock options approximates or exceeds
the market price of the underlying stock at the date of grant, no
compensation cost is recognized.
SFAS 123 requires the Company to provide pro forma information
regarding net income and earnings per share as if compensation cost for
the Company's stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS 123. The fair value of
the option grants is estimated on the date of grant utilizing the
minimum value method with the following weighted average assumptions
for grants during the years ended December 31, 2001 and 2000; expected
life of options of 10 years, expected volatility of 0%, risk-free
interest rate of 1.5% and no dividend yield. The weighted average fair
value at the date of grant for options granted during the years ended
December 31, 2001 and 2000 was $0.00.
Under the provisions of SFAS 123, the Company's net loss and loss per
share would not have been effected.
F-32
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(5) STOCKHOLDERS' (DEFICIT) (CONTINUED)
-----------------------------------
STOCK BASED COMPENSATION (CONTINUED)
------------------------------------
A summary of stock option activity is as follows:
Number Of Weighted-Average Weighted-Average
Shares Exercise Price Fair Value
------- -------------- ---------------
Balance at December 31, 2001 62,500 $ 3.65 $ --
Granted in current year -- -- --
------- ------- -------
Balance at December 31, 2002 62,500 $ 3.65 $ --
======= ======= =======
The following tables summarizes information about fixed-price stock
options at December 31, 2002:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted-Average Weighted-Average
Exercise Number Contractual Weighted-Average Number Exercise
Price Outstanding Life Exercise Price Exercisable Price
------------- ----------------- ---------------- ---------------- ---------------- --------------
$5.00 35,000 8 years $5.00 27,000 $5.00
$2.00 27,500 9 years $2.00 -- $2.00
(6) INCOME TAXES
------------
At December 31, 2002, the Company had a net operating loss carryforward
for income tax purposes of approximately $3,600,000, which is available
to offset future taxable income. The loss carryforward expires in the
years beginning in 2019, unless it is utilized sooner. A valuation
allowance equal to the tax benefit of the net operating losses has been
established since it is uncertain that future taxable income will be
realized during the carryforward period. Accordingly, no income tax
provision has been recognized in the accompanying financial statements.
F-33
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
July 31, 2003 and 2002
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
EMPLOYMENT CONTRACT
-------------------
During January 2001, the Company entered into an employment contract
with its vice president of marketing, which provides for a salary of
$80,000 for 2001 and $125,000 in 2002, and 10,000 options to purchase
the Company's common stock (see note 5). The contract may be terminated
upon 90 days notice.
PRODUCT DISTRIBUTION AGREEMENT
------------------------------
During November 2001, the Company entered into a three year exclusive
agreement for distribution of substantially all of its products to the
mass retail outlets in the United States, Puerto Rico Guam and the U.S.
Virgin Islands. This agreement is renewable for a one year period
provided that the distributor purchases at least $4,000,000 in product
during the final year of the initial three year term and for additional
one year periods provided that the distributor purchases at least
$4,000,000 in product adjusted for price increases by the Company
during the proceeding one year term. In addition, the Company has
agreed to issue three year warrants to purchase its common stock should
the distributor pre pay for an order. For each advance payment the
Company will issue the number of warrants determined by multiplying the
amount of the advance by 7.5% and dividing by 4 and then dividing by
the exercise price of the warrants. The resulting number will then be
multiplied by 150%. The exercise price of the warrants is $1.50. During
December 2001, the distributor prepaid an order in the amount of
$244,020 and received 4,576 warrants, which expire during December
2004. This amount was recognized as revenue in January 2002. In
conjunction with this order the Company advanced its supplier $64,800
for product to be delivered to the distributor. Had the Company
computed the value of the warrants issued in accordance with the
provisions of SFAS No. 123 there would be no change in the reported net
loss or loss per share.
(8) RELATED PARTY TRANSACTIONS
--------------------------
During 2002 the Company's president was not paid the salary due to him
aggregating $120,000. The total unpaid salary due to this officer
amounts to $252,000 and is included in accrued expenses in the
accompanying balance sheet.
In addition, through December 31, 2002 NSS made working capital
advances aggregating $328,597 to the Company. These amounts are
included in amounts due to affiliate in the accompanying balance sheet.
F-34
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 2002
F-35
INDEPENDENT AUDITORS' REPORT
----------------------------
Shareholders and Board of Directors
Physicians Nutraceutical Laboratories, Inc.
We have audited the accompanying balance sheet of Physicians
Nutraceutical Laboratories, Inc. as of December 31, 2002 and the
related statements of operations, stockholders' (deficit) and cash
flows for the year then ended. 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 audit 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 financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present
fairly, in all material respects, the financial position of Physicians
Nutraceutical Laboratories, Inc. as of December 31, 2002, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2,
the Company has incurred substantial losses during the year ended
December 31, 2002 and has working capital and stockholder deficits at
December 31, 2002. Realization of the Company's assets is dependent
upon the Company's ability to meet its future financing requirements,
and the success of future operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
and classifications of liabilities that might be necessary in the event
that the Company cannot continue in existence.
/s/ Tschopp, Whitcomb & Orr, P.A.
November 17, 2003
Maitland, Florida
F-36
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
BALANCE SHEET
December 31, 2002
ASSETS
------
Current assets:
Cash $ 2,065
Accounts receivable 13,124
Inventory 15,914
Prepaid expenses 15,000
-----------
Total current assets 46,103
-----------
Property and equipment, net (note 3) 25,867
Other assets 1,252
-----------
$ 73,222
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 545,854
Due to affiliate 328,597
Note payable, officer (note 4) 188,444
-----------
Total current liabilities 1,062,895
-----------
Stockholders' (deficit):
Preferred stock, Series A convertible, $.001 par value,
10,000,000 shares authorized, 514,162 shares issued
and outstanding 514
Preferred stock, undesignated, 9,000,000 shares authorized --
Common stock, $.001 par value, 100,000,000 shares
authorized, 2,925,848 shares issued and outstanding 2,926
Additional paid-in capital 2,728,124
Accumulated (deficit) (3,721,237)
-----------
(989,673)
-----------
$ 73,222
===========
See accompanying note to the financial statements.
F-37
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 2002
Revenue $ 807,229
----------
Operating expenses:
Cost of sales 283,647
Selling, general and administrative expenses 689,913
----------
973,560
----------
Net (loss) $ (166,331)
==========
Per share information - basic and fully diluted:
Weighted average shares outstanding 2,925,848
==========
Net (loss) per share $ (0.05)
==========
See accompanying notes to the financial statements.
F-38
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' (DEFICIT)
For the year ended December 31, 2002
COMMON STOCK PREFERRED STOCK
-------------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
--------- ------ ------- ------ --------- -----------
Balances,
December 31, 2001 2,925,848 $2,926 514,162 514 2,748,872 (3,554,906)
Conversion of equity
to debt -- -- -- -- (20,748) --
Net loss -- -- -- -- -- (166,331)
--------- ------ ------- --- --------- ----------
Balances,
December 31, 2002 2,925,848 $2,926 514,162 514 2,728,124 (3,721,237)
========= ====== ======= === ========= ==========
See accompanying notes to the financial statements.
F-39
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
For the year ended December 31, 2002
Net (loss) $(166,331)
Adjustment to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 11,176
Write off of deferred offering costs 10,000
Loss on disposal of equipment 2,700
Changes in operating assets and liabilites:
Accounts receivable 19,600
Inventory 43,798
Prepaid expenses 49,800
Other assets 529
Deferred revenue (244,020)
Accounts payable and accrued expenses 232,708
---------
Net cash (used in) operating activities (40,040)
---------
Cash flows from financing activities:
Proceeds from amounts due to affiliate (39,597)
Payments, notes payable - officer (3,709)
---------
Net cash provided by financing activities (43,306)
---------
Net (decrease) increase in cash (83,346)
Beginning - cash balance 85,411
---------
Ending - cash balance $ 2,065
=========
Supplemental cash flow information:
Cash paid for income taxes $ --
=========
Cash paid for interest $ --
=========
Supplemental schedule of non cash investing and financing activity:
During the year end December 31, 2002, the Company and NSS agreed to
convert $20,748 of previous capital contributions to advance from
affiliate.
See accompanying notes to the financial statements.
F-40
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
The Company was incorporated on October 26, 1999 in the State of Florida and is
in the business of marketing and distributing nutritional products.
The Company had been a wholly owned subsidiary of Nutrition Superstores.com,
Inc. ("NSS"). During February 2001 the Company agreed to issue to NSS 2,898,348
shares of common stock and 440,416 shares of preferred stock. The issuance was
conditioned upon NNS's approval of a spin off of the Company to the shareholders
of NSS, which was also approved in February 2001 (see note 5).
(B) REVENUE RECOGNITION
The Company recognizes revenue when its products are shipped or services are
provided.
(C) PRODUCT DEVELOPMENT COSTS
The Company's web site will comprise multiple features and offerings that are
currently under development, and it is anticipated that the offerings will
require future development and refinement. In connection with the development of
its products, the Company will incur external costs for hardware, software, and
consulting services, and internal costs for payroll and related expenses of its
technology employees directly involved in the development. All hardware costs
will be capitalized. Purchased software costs will be capitalized in accordance
with Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. All other costs will be reviewed for
determination of whether capitalization or expense as product development cost
is appropriate.
(D) INVENTORY
Inventory, which consists principally of finished goods, is stated at the lower
of cost or market using the first-in, first-out method.
(Continued)
F-41
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the following estimated useful lives:
YEARS
-----
Equipment 5
Furniture and fixtures 5
Automotive equipment 5
(F) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
(G) ADVERTISING COSTS
The Company expenses all costs of advertising as incurred. Advertising costs
included in selling, general and administrative expenses aggregated $27,603
during 2002.
(H) FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2002. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include, cash,
accounts receivable, accounts payable and accrued expenses and notes payable.
Fair values were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand. The fair
value of the Company's long-term debt is estimated based upon the quoted market
prices for the same or similar issues or on the current rates available to the
Company for debt of the same remaining maturities.
(Continued)
F-42
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) LONG-LIVED ASSETS
The carrying value of long lived assets is reviewed on a regular basis for the
existence of facts and circumstances that suggest impairment. To date, no such
impairment has been indicated. Should there be an impairment in the future, the
Company will measure the amount of the impairment based on the undiscounted
expected future cash flows from the impaired assets.
(J) NET INCOME (LOSS) PER COMMON SHARE
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per share." Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During periods when they are anti dilutive common stock
equivalents, if any, are not considered in the computation.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(Continued)
F-43
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) INCOME TAXES
The Company follows SFAS 109, "Accounting for Income Taxes" for recording the
provision for incomes taxes. Deferred tax assets and liabilities are computed
based upon the difference between the financial statement and income tax basis
of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in
the period of change.
(M) DEFERRED OFFERING COSTS
The Company defers costs associated with the raising of capital until such time
as the offering is completed, at which time the costs are charged against the
capital raised. Should the offering be terminated the costs are charged to
operations during the period when the offering is terminated.
(N) STOCK BASED COMPENSATION
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.
The Company accounts for stock based compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123
allow companies to either expense the estimated fair value of stock options or
to continue to follow the intrinsic value method set forth in Accounting
Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees"
but disclose the pro forma effects on net income (loss) had the fair value of
the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans.
(Continued)
F-44
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(2) BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern which contemplates the recoverability
of assets and the satisfaction of liabilities in the normal course of business.
The Company incurred net losses during the year ended December 31, 2002 of
$166,331. In addition, the Company has a working capital deficit of $1,016,792
and a stockholders' deficit of $989,673 at December 31, 2002.
The ability of the Company to continue as a going concern is dependent upon its
ability to raise additional capital from the sale of common stock and the
achievement of profitable operations. The Company is in the process of
attempting to raise additional equity capital through a private placement.
The accompanying financial statements do not include any adjustment that might
be required should the Company be unable to recover the value of its assets or
satisfy its liabilities.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2002:
Furniture and fixtures $ 8,031
Equipment 17,890
Automotive equipment 23,472
---------
49,393
Less: accumulated depreciation 23,526
---------
$25,867
=========
Depreciation expense charged to operations was $11,176 during 2002.
(Continued)
F-45
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(4) NOTES PAYABLE - OFFICER
At December 31, 2002 note payable - officer consisted of the following:
Notes payable with interest at 5% per annum, due on demand
or if demand is not made, on December 31, 2003 $188,444
========
(5) STOCKHOLDERS' (DEFICIT)
PREFERRED STOCK
The Board of Directors has authorized the issuance of 1,000,000 shares of $.001
par value convertible preferred stock designated as Series A. Commencing on June
1, 2001 the holders of Series A shall be entitled to an 8.75% annual
non-cumulative dividend in cash or at the option of the Company shares of the
Company's common stock. No dividends were declared by the board of directors for
the year ended December 31, 2002. Each share of Series A shall be convertible
into common stock at the conversion price of 1/3 of the initial public offering
price of the Company's common stock, provided however, that in the event the
Company does not complete a public offering the Series A will be convertible at
$5 per share but only at the expiration date of the Series A on May 31, 2004.
SHARE ISSUANCE
During February 2001 in exchange for the 100,000 common shares held by the
Parent the Company agreed to issue to its Parent 2,898,348 shares of common
stock and 440,416 shares of preferred stock. The issuance was conditioned upon
the Parent's approval of a spin off of the Company to the shareholders of the
Parent, which was approved in February 2001. All share and per share amounts
have been retroactively restated to reflect the issuance.
(Continued)
F-46
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(5) STOCKHOLDERS' (DEFICIT) (CONTINUED)
STOCK BASED COMPENSATION
The Company agreed to issue options to purchase 27,500 shares of common stock at
an exercise price of $2.00 per share and options to purchase 35,000 shares at an
exercise price of $5.00 per share.
The Company accounts for stock-based compensation plans by applying APB 25 and
related interpretations. Under APB 25, because the exercise price of the
Company's employee stock options approximates or exceeds the market price of the
underlying stock at the date of grant, no compensation cost is recognized.
SFAS 123 requires the Company to provide pro forma information regarding net
income and earnings per share as if compensation cost for the Company's stock
option plans had been determined in accordance with the fair value based method
prescribed in SFAS 123. The fair value of the option grants is estimated on the
date of grant utilizing the minimum value method with the following weighted
average assumptions for grants during the years ended December 31, 2001 and
2000; expected life of options of 10 years, expected volatility of 0%, risk-free
interest rate of 1.5% and no dividend yield. The weighted average fair value at
the date of grant for options granted during the years ended December 31, 2001
and 2000 was $0.00.
Under the provisions of SFAS 123, the Company's net loss and loss per share
would not have been effected.
A summary of stock option activity is as follows:
Number Weighted- Weighted-
Of Average Exercise Average
Shares Price Fair Value
------------- ----------------- -----------
Balance at December 31, 2001 62,500 $ 3.65 $ --
Granted in current year -- -- --
-------- -------- -------
Balance at December 31, 2002 62,500 $ 3.65 $ --
======== ======= =======
(Continued)
F-47
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(5) STOCKHOLDERS' (DEFICIT) (CONTINUED)
STOCK BASED COMPENSATION (CONTINUED)
The following tables summarizes information about fixed-price stock options at
December 31, 2002:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- -------------------- ----------------- ----------------- ---------------- ---------------- ---------------
$5.00 35,000 8 years $5.00 27,000 $5.00
$2.00 27,500 9 years $2.00 -- $2.00
(6) INCOME TAXES
At December 31, 2002, the Company had a net operating loss carryforward for
income tax purposes of approximately $3,600,000, which is available to offset
future taxable income. The loss carryforward expires in the years beginning in
2019, unless it is utilized sooner. A valuation allowance equal to the tax
benefit of the net operating losses has been established since it is uncertain
that future taxable income will be realized during the carryforward period.
Accordingly, no income tax provision has been recognized in the accompanying
financial statements.
(7) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACT
During January 2001, the Company entered into an employment contract with its
vice president of marketing, which provides for a salary of $80,000 for 2001 and
$125,000 in 2002, and 10,000 options to purchase the Company's common stock (see
note 5). The contract may be terminated upon 90 days notice.
(Continued)
F-48
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
PRODUCT DISTRIBUTION AGREEMENT
During November 2001, the Company entered into a three year exclusive agreement
for distribution of substantially all of its products to the mass retail outlets
in the United States, Puerto Rico Guam and the U.S. Virgin Islands. This
agreement is renewable for a one year period provided that the distributor
purchases at least $4,000,000 in product during the final year of the initial
three year term and for additional one year periods provided that the
distributor purchases at least $4,000,000 in product adjusted for price
increases by the Company during the proceeding one year term. In addition, the
Company has agreed to issue three year warrants to purchase its common stock
should the distributor pre pay for an order. For each advance payment the
Company will issue the number of warrants determined by multiplying the amount
of the advance by 7.5% and dividing by 4 and then dividing by the exercise price
of the warrants. The resulting number will then be multiplied by 150%. The
exercise price of the warrants is $1.50. During December 2001, the distributor
prepaid an order in the amount of $244,020 and received 4,576 warrants, which
expire during December 2004. This amount was recognized as revenue in January
2002. In conjunction with this order the Company advanced its supplier $64,800
for product to be delivered to the distributor. Had the Company computed the
value of the warrants issued in accordance with the provisions of SFAS No. 123
there would be no change in the reported net loss or loss per share.
(8) RELATED PARTY TRANSACTIONS
During 2002 the Company's president was not paid the salary due to him
aggregating $120,000. The total unpaid salary due to this officer amounts to
$252,000 and is included in accrued expenses in the accompanying balance sheet.
In addition, through December 31, 2002 NSS made working capital advances
aggregating $328,597 to the Company. These amounts are included in amounts due
to affiliate in the accompanying balance sheet.
F-49
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001
F-50
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Physicians Nutraceutical Laboratories, Inc.
We have audited the accompanying balance sheet of Physicians
Nutraceutical Laboratories, Inc. as of December 31, 2001, and the
related statements of operations, stockholders' (deficit) and cash
flows for the year ended 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
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Physicians
Nutraceutical Laboratories, Inc. as of December 31, 2001, and the
results of its operations, and its cash flows for the year ended
December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 9, the Company has restated the financial
statements for the year ended December 31, 2001 to correct an error in
recording certain capital contributions.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
the Company has incurred substantial losses during the year ended
December 31, 2001 and has working capital and stockholder deficits at
December 31, 2001. Realization of the Company's assets is dependent
upon the Company's ability to meet its future financing requirements,
and the success of future operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
and classifications of liabilities that might be necessary in the event
that the Company cannot continue in existence.
Stark Winter Schenkein & Co., LLP
Denver, Colorado
February 25, 2002, except for Note 9 as
To which the date is March 15, 2002
F-51
Physicians Nutraceutical Laboratories, Inc.
Balance Sheet
December 31, 2001
(restated)
Assets
Current assets:
Cash $ 85,411
Accounts receivable 32,724
Inventory 59,712
Prepaid expenses 64,800
Other current assets 1,781
-----------
Total current assets 244,428
-----------
Property and equipment, net 39,743
-----------
Other assets:
Deferred offering costs 10,000
-----------
$ 294,171
===========
Liabilities and stockholders' (deficit)
Current liabilities:
Accounts payable and accrued expenses $ 181,146
Deferred revenue 244,020
Notes payable - officer 192,153
Amounts due to officer 132,000
Amounts due to affiliate 347,446
-----------
Total current liabilities 1,096,765
-----------
Stockholders' (deficit):
Preferred stock, Series A convertible,
$.001 par value,10,000,000 shares authorized,
514,162 shares issued and outstanding 514
Preferred stock, undesignated, 9,000,000 shares authorized --
Common stock, $.001 par value,
40,000,000 shares authorized,
2,925,848 shares issued and outstanding 2,926
Additional paid in capital 2,748,872
Accumulated (deficit) (3,554,906)
-----------
(802,594)
-----------
$ 294,171
===========
See the accompanying notes to the financial statements.
F-52
Physicians Nutraceutical Laboratories, Inc.
Statements of Operations
For the Year Ended December 31, 2001
2001
----------
Revenue $ 309,861
----------
Operating expenses:
Cost of sales 130,787
Selling, general and administrative expenses 1,143,987
----------
1,274,744
----------
Net (loss) $ (964,913)
==========
Per share information - basic and fully diluted:
Weighted average shares outstanding 2,925,848
==========
Net (loss) per share $ (0.33)
==========
See the accompanying notes to the financial statements.
F-53
Physicians Nutraceutical Laboratories, Inc.
Statement of Stockholders' (Deficit)
For the Year Ended December 31, 2001
(restated)
Common Stock Preferred Stock
-------------------- --------------- Paid in Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
--------- ------ ------- ------ --------- ----------- ---------
Balance
December 31, 2000 2,898,348 $2,898 440,416 $440 $2,707,661 $(2,589,993) $ 121,006
Common shares issued
for services 27,500 28 -- -- -- -- 28
Gifted preferred share -- -- 73,746 74 -- -- 74
Capital contribution
by affiliate -- -- -- -- 412,211 -- 41,211
Net (Loss) for the year -- -- -- -- -- (964,913) (964,913)
--------- ------ ------- ---- ---------- ----------- ---------
Balance
December 31, 2001 2,925,848 $2,926 514,162 $514 $2,748,872 $(3,554,906) $(802,594)
========= ====== ======= ==== ========== =========== =========
See the accompanying notes to the financial statements.
F-54
Physicians Nutraceutical Laboratories, Inc.
Statements of Cash Flows
For the Year Ended December 31, 2001
(restated)
2001
---------
Net (loss) $(964,913)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 11,534
Capital contribution of officer's salary --
Write off of deferred offering costs 115,640
Common shares issued for non cash items 102
(Increase) in accounts receivable (32,724)
(Increase) in inventory (17,718)
Decrease in prepaid expenses 75,289
(Increase) in other current assets (1,781)
Decrease in cash - escrow --
Increase in deferred revenue 244,020
Increase in amounts due to officer 132,000
Increase in accounts payable and accrued expenses 17,822
---------
Net cash (used in) operating activities (420,729)
---------
Cash flows from investing activities:
Acquisition of property and equipment (9,364)
---------
Net cash (used in) investing activities (9,364)
---------
Cash flows from financing activities:
Repayment of long term debt (9,163)
Increase in cash - escrow --
Capital contributions 41,211
Increase in deferred offering costs (89,865)
Proceeds from amounts due to affiliate 327,446
Proceeds from notes payable - officer 192,153
---------
Net cash provided by financing activities 461,782
---------
Net increase in cash 31,689
Beginning - cash balance 53,722
---------
Ending - cash balance $ 85,411
=========
Supplemental cash flow information:
Cash paid for income taxes $ --
Cash paid for interest $ --
Non cash investing and financing activities:
Deferred offering costs paid from cash - escrow $ --
See the accompanying notes to the financial statements.
F-55
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated on October 26, 1999 in the State of Florida and is
in the business of marketing and distributing nutritional products. The Company
was in the development stage through December 31, 2000.
The Company had been a wholly owned subsidiary of Nutrition Superstores.com,
Inc. ("Parent"). During February 2001 the Company agreed to issue to its Parent
2,898,348 shares of common stock and 440,416 shares of preferred stock. The
issuance was conditioned upon the Parent's approval of a spin off of the Company
to the shareholders of the Parent, which was also approved in February 2001 (See
Note 5).
REVENUE RECOGNITION
The Company recognizes revenue when its products are shipped or services are
provided.
PRODUCT DEVELOPMENT COSTS
The Company's web site will comprise multiple features and offerings that are
currently under development, and it is anticipated that the offerings will
require future development and refinement. In connection with the development of
its products, the Company will incur external costs for hardware, software, and
consulting services, and internal costs for payroll and related expenses of its
technology employees directly involved in the development. All hardware costs
will be capitalized. Purchased software costs will be capitalized in accordance
with Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. All other costs will be reviewed for
determination of whether capitalization or expense as product development cost
is appropriate.
INVENTORY
Inventory, which consists principally of finished goods, is stated at the lower
of cost or market using the first-in, first-out method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the following estimated useful lives:
Years
-----
Equipment 5
Furniture and Fixtures 5
Automotive Equipment 5
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
F-56
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
ADVERTISING COSTS
The Company expenses all costs of advertising as incurred. Advertising costs
included in selling, general and administrative expenses aggregated $77,877
during 2001.
FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2001. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable and accrued expenses and notes payable.
Fair values were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand. The fair
value of the Company's long-term debt is estimated based upon the quoted market
prices for the same or similar issues or on the current rates available to the
Company for debt of the same remaining maturities.
LONG LIVED ASSETS
The carrying value of long lived assets is reviewed on a regular basis for the
existence of facts and circumstances that suggest impairment. To date, no such
impairment has been indicated. Should there be an impairment in the future, the
Company will measure the amount of the impairment based on the undiscounted
expected future cash flows from the impaired assets.
NET INCOME (LOSS) PER COMMON SHARE
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During periods when they are anti dilutive common stock
equivalents, if any, are not considered in the computation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
SEGMENT INFORMATION
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information." Certain information is disclosed, per SFAS No. 131,
based on the way management organizes financial information for making operating
decisions and assessing performance. The Company currently operates in a single
segment and will evaluate additional segment disclosure requirements as it
expands its operations.
F-57
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
INCOME TAXES
The Company follows SFAS 109, "Accounting for Income Taxes" for recording the
provision for income taxes. Deferred tax assets and liabilities are computed
based upon the difference between the financial statement and income tax basis
of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in
the period of change.
DEFERRED OFFERING COSTS
The Company defers costs associated with the raising of capital until such time
as the offering is completed, at which time the costs are charged against the
capital raised. Should the offering be terminated the costs are charged to
operations during the period when the offering is terminated.
STOCK BASED COMPENSATION
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.
The Company accounts for stock based compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123
allow companies to either expense the estimated fair value of stock options or
to continue to follow the intrinsic value method set forth in Accounting
Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees"
but disclose the pro forma effects on net income (loss) had the fair value of
the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans.
RECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141,
Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS 142
is effective for the year beginning January 1, 2002; however certain provisions
of that Statement apply to goodwill and other intangible assets acquired between
July 1, 2001, and the effective date of SFAS 142. The Company does not believe
the adoption of these standards will have a material impact on the Company's
financial statements.
In July 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is evaluating the impact of the
adoption of this standard and has not yet determined the effect of adoption on
its financial position and results of operations.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The provisions of the statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Company is evaluating the impact of the adoption of this standard and has
not yet determined the effect of adoption on its financial position and results
of operations.
F-58
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern which contemplates the recoverability
of assets and the satisfaction of liabilities in the normal course of business.
The Company incurred net losses during the year ended December 31, 2001 of
$964,913. In addition, the Company has a working capital deficit of $852,337 and
a stockholders' deficit of $802,594 at December 31, 2001.
The ability of the Company to continue as a going concern is dependent upon its
ability to raise additional capital from the sale of common stock and the
achievement of profitable operations. The Company is in the process of
attempting to raise additional equity capital through a private placement.
The accompanying financial statements do not include any adjustments that might
be required should the Company be unable to recover the value of its assets or
satisfy its liabilities.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2001:
Furniture and fixtures $ 8,031
Equipment 31,749
Automotive equipment 23,472
----------
63,252
Less: accumulated depreciation 23,509
----------
$ 39,743
==========
Depreciation expense charged to operations was $11,534 during 2001.
NOTE 4. NOTES PAYABLE - OFFICER
At December 31, 2001 notes payable - officer consisted of the following:
Notes payable with interest at 5% per annum, due
on demand or if demand is not made, on December 31, 2002 $ 192,153
=========
F-59
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 5. STOCKHOLDERS' (DEFICIT)
On September 26, 2000 the Company amended its Articles of Incorporation to
authorize 10,000,000 shares of $.001 par value preferred stock and 40,000,000
shares of $.001 par value common stock.
PREFERRED STOCK
The Board of directors has authorized the issuance of 1,000,000 shares of $.001
par value convertible preferred stock designated as Series A. Commencing on June
1, 2001 the holders of Series A shall be entitled to an 8.75% annual
non-cumulative dividend in cash or at the option of the Company shares of the
Company's common stock. Each share of Series A shall be convertible into common
stock at the conversion price of 1/3 of the initial public offering price of the
Company's common stock, provided however, that in the event the Company does not
complete a public offering the Series A will be convertible at $5 per share but
only at the expiration date of the Series A on May 31, 2004.
SHARE ISSUANCES
During February 2001 in exchange for the 100,000 common shares held by the
Parent the Company agreed to issue to its Parent 2,898,348 shares of common
stock and 440,416 shares of preferred stock. The issuance was conditioned upon
the Parent's approval of a spin off of the Company to the shareholders of the
Parent, which was approved in February 2001. All share and per share amounts
have been retroactively restated to reflect this issuance.
During the year ended December 31, 2001 the Parent contributed $41,211 to the
capital of the Company.
During January 2001 the Company adopted an employee stock option plan and
allocated 500,000 common shares to the plan.
During February 2001 the Company filed a Form 1-A Regulation A Offering
Statement to sell a minimum of 166,667 shares and a maximum of 1,666,666 shares
of its common stock at an offering price of $3 per share. This offering was
withdrawn during January 2002. No shares were sold pursuant to this offering and
the Company charged $115,640 of deferred offering costs related to the offering
to operations during 2001.
STOCK BASED COMPENSATION
The Company agreed to issue options to purchase 27,500 shares of common stock at
an exercise price of $2.00 per share and options to purchase 35,000 shares at an
exercise price of $5.00 per share.
The Company accounts for stock-based compensation plans by applying APB 25 and
related Interpretations. Under APB 25, because the exercise price of the
Company's employee stock options approximates or exceeds the market price of the
underlying stock at the date of grant, no compensation cost is recognized.
SFAS 123 requires the Company to provide pro forma information regarding net
income and earnings per share as if compensation cost for the Company's stock
option plans had been determined in accordance with the fair value based method
prescribed in SFAS 123. The fair value of the option grants is estimated on the
date of grant utilizing the minimum value method with the following weighted
average assumptions for grants during the year ended December 31, 2001: expected
life of options of 10 years, expected volatility of 0%, risk-free interest rate
of 1.5% and no dividend yield. The weighted average fair value at the date of
grant for options granted during the year ended December 31, 2001 was $0.00.
These results may not be representative of those to be expected in future years.
F-60
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
Under the provisions of SFAS 123, the Company's net (loss) and (loss) per share
would not have been effected.
A summary of stock option activity is as follows:
Weighted- Weighted-
Number average average
of shares exercise price fair value
--------- ------------- ----------
Balance at December 31, 2000 35,000 $ 5.00 $ --
Granted at above market value 27,750 2.00 --
------ -------- ---------
Balance at December 31, 2001 62,750 $ 3.65 $ --
====== ======== =========
The following table summarizes information about fixed-price stock options at
December 31, 2001:
Outstanding Exercisable
------------------------------------ --------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Number Outstanding Contractual Life Exercise Price Number Exercisable Exercise Price
- -------------- ------------------ ---------------- -------------- ------------------ --------------
$5.00 35,000 9 years $5.00 27,000 $5.00
$2.00 27,750 10 years $2.00 -- $2.00
NOTE 6. INCOME TAXES
The Company accounts for income taxes under SFAS 109, which requires use of the
liability method. SFAS 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences. Deferred tax assets and liabilities at the
end of each period are determined using the currently enacted tax rates applied
to taxable income in the periods in which the deferred tax assets and
liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences for all periods presented are as
follows:
F-61
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
Income tax provision at the federal statutory rate 34 %
Effect of operating losses (34)%
---
--
===
As of December 31, 2001, the Company has a net operating loss carryforward of
approximately $3,500,000, which will be available to offset future taxable
income. If not used, these carryforwards will expire in 2019 2020 and 2021. The
deferred tax asset relating to the operating loss carryforward of approximately
$1,200,000 has been fully reserved at December 31, 2001.
NOTE 7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACT
During January 2001 the Company entered into an employment contract with its
vice president of marketing, which provides for a salary of $80,000 for 2001 and
$125,000 in 2002, and 10,000 options to purchase the Company's common stock (see
Note 5). The contract may be terminated upon 90 days notice.
PRODUCT DISTRIBUTION AGREEMENT
During November 2001 the Company entered into a three year exclusive agreement
for distribution of substantially all of its products to the mass retail outlets
in the United States, Puerto Rica, Guam and the U.S. Virgin Islands. This
agreement is renewable for a one year period provided that the distributor
purchases at least $4,000,000 in product during the final year of the initial
three year term and for additional one year periods provided that the
distributor purchases at least $4,000,000 in product adjusted for price
increases by the Company during the proceeding one year term. In addition, the
Company has agreed to issue three year warrants to purchase its common stock
should the distributor pre pay for an order. For each advance payment the
Company will issue the number of warrants determined by multiplying the amount
of the advance by 7.5% and dividing by 4 and then dividing by the exercise price
of the warrants. The resulting number will then be multiplied by 150%. The
exercise price of the warrants is $1.50. During December 2001 the distributor
prepaid an order in the amount of $224,020 and received 4,576 warrants, which
expire during December 2004. In conjunction with this order the Company advanced
its supplier $64,800 for product to be delivered to the distributor. Had the
Company computed the value of the warrants issued in accordance with the
provisions of SFAS No. 123 there would be no change in the reported net loss or
loss per share.
F-62
PHYSICIANS NUTRACEUTICAL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
OTHER
During August 2000 the Company entered into an agreement with International
Monetary Group, Inc. ("IMG") whereby the Company engaged IMG to act as a
financial advisor and to make introductions to licensed broker-dealers, in the
Company's efforts to sell up to 1,000,000 shares of common stock at an amount of
up to $5,000,000. This agreement was voided during April 2001 and replaced with
a new agreement whereby the Company engaged IMG to act as a financial advisor
and to make introductions to licensed broker-dealers, in the Company's efforts
to sell up to 1,666,666 shares of common stock at an amount of up to $5,000,000.
As compensation IMG is to receive a fee of $200,000 upon acceptance of the
funding from sources introduced by IMG. The Company expensed approximately
$200,000 in conjunction with this agreement for offering costs and other
operating expenses. The agreement expires in April 2002 and it is the Company's
intent not to renew it. The Company has charged the offering costs related to
this attempted funding to operations during 2001 (see Note 5).
During December 2001 the Company entered into a one year financial advisory
agreement whereby the financial advisor agreed to provide the Company with
financial consulting services and assist the Company in obtaining capital
funding. In exchange for these services the Company agreed to pay a fee
aggregating $55,000 and in the event of a financing for the Company by the
financial advisor, an additional mutually agreed upon fee. Should the financial
advisor introduce the Company to another entity which completes a capital
funding the Company agreed to pay a finders fee as follows:
5% of the amount up to $1,000,000
4% of the amount between $1,000,000 and $2,000,000
3% of the amount between $2,000,000 and $3,000,000
2% of the amount between $3,000,000 and $4,000,000
1% of the amount in excess of $4,000,000
In conjunction with this agreement the Company paid the financial advisor
$10,000 during 2001, which has been recorded as deferred offering costs in the
accompanying financial statements.
NOTE 8. RELATED PARTY TRANSACTIONS
Through December 31, 2000 the Company had no significant revenue generating
operations. and substantially all of the Company's operations were funded by the
Parent and contributed to the Company's capital.
During 2001 the Company's president was not paid the salary due to him
aggregating $120,000. This amount is included in Amounts due to officer in the
accompanying balance sheet.
In addition, during the year ended December 31, 2001 the Parent made working
capital advances aggregating $327,446 to the Company. These amounts are included
in Amounts due to affiliate in the accompanying balance sheet.
NOTE 9. CORRECTION OF AN ERROR
During March 2002 the Company determined that it had incorrectly recorded
$112,701 as contributed capital from the Parent. This amount has been
reclassified to Amounts due to affiliates in the accompanying financial
statements. The adjustment had no effect on the net loss or net loss per share
for the year ended December 31, 2001.
F-63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bio-One's bylaws provide that we have the power to indemnify any
officer or director against damages if such person acted in good faith and in a
manner the person reasonably believed to be in the best interests of our
Company. No indemnification may be made (i) if a person is adjudged liable
unless a Court determines that such person is entitled to such indemnification,
(ii) with respect to amounts paid in settlement without court approval or (iii)
expenses incurred in defending any action without court approval.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. All expenses will be paid by Bio-One.
Securities and Exchange Commission Registration Fee $ 350
Printing and Engraving Expenses $ 5,000
Accounting Fees and Expenses $ 20,000
Legal Fees and Expenses $ 40,000
Miscellaneous $ 19,650
----------
TOTAL $ 85,000
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, prior to its acquisition of Crown, the Company sold
1,600,000 shares of its unrestricted common stock to seventy-two (72) investors
for $16,000. Dale B. Finfrock, Jr., the Company's then current sole officer and
director, received 279,960 of such shares. For such offering, the Company relied
upon Section 3(b) of the Securities Act of 1933, as amended (the "Act"), Rule
504 of Regulation D promulgated thereunder ("Rule 504").
In May 2000, the Company entered into the Share Exchange with Crown
Enterprises. We issued 10,000,000 shares of its common stock to the shareholders
of Crown for all of the issued and outstanding stock of Crown. As part of the
exchange, Armand Dauplaise (the Company's current President and Chairman)
("Dauplaise") and Kevin Lockhart (the Company's Secretary at that time)
("Lockhart") each received 4,597,500 shares of the Company's Common Stock.
In May 2000, we issued 100,000 shares of our restricted common stock to
three (3) persons for their services to the Company in connection with the Share
Exchange.
In June 2000, we sold 40,000 shares of our restricted common stock to
one (1) investor for $10,000.
In July 2000, we sold 100,000 shares of our restricted common stock to
one (1) investor for $25,000. The Company also issued a warrant to purchase an
additional 400,000 shares of the Company's restricted common stock, which
warrant was exercisable at a price of $0.25 per share. The Company received a
total of $25,000 for the investment. The warrant has expired.
In October 2000, we issued a total of 86,000 shares of its common stock
to Bradley Kline, Melvin Correll and Glenna Correll. These shares were issued
for services rendered. No contract exists. Richard Wilson, who received 60,000
of the shares, was inadvertently left off the list of Crown shareholders when
the Share Exchange took place in May 2000.
In November 2000, we sold 140,000 shares of our common stock to one (1)
investor for $35,000. We also issued a warrant to purchase an additional 180,000
shares of the Company's common stock at an exercise price of $1.00 per share or
eighty percent (80%) of the average bid price for the first three (3) weeks of
public trading, whichever is lower. The warrants have expired.
II-1
In December 2000, the Company executed a convertible promissory note in
favor of Margaret Schrock in the principal amount of $25,000. The note was
conducted to common stock in August 2001.
In December 2000, the Company sold a total of 139,999 shares of its
common stock to four (4) investors for a total of $34,999.99.
In March 2001, the Company sold 400,000 and 100,000 shares of its
common stock to John M. Moxen and Ohio Well Management, Inc., an Ohio
corporation respectively for a total of $125,000. The Company issued warrants to
purchase an additional 500,000 shares of the Company's common stock at an
exercise price of $1.00 per share or eighty percent (80%) of the average bid
price for the first three (3) weeks of public trading, whichever is lower. The
warrants have expired.
In April 2001, the Company issued 10,000 shares of its common stock to
Curt Jones, who served as a financial consultant to the Company.
In May 2001, the Company issued 100,000 shares of its common stock and
a warrant to purchase an additional 100,000 shares of its common stock at an
exercise price of $0.29 to Arthur Szatkowski for $25,000. The warrants expired
June 22, 2002.
In June 2001, the Company issued 10,000 shares of its common stock to
Curt Jones, who served as a financial consultant to the Company.
In June 2001, the Company issued 2,000 shares of its common stock to
Charles A. Gaudio & MaryAnn Gaudio JTWROS for services in connection with
production of the Company's website.
In July 2001, the Company issued 285,624 shares and 31,735 shares of
its restricted common stock to Irwin Newman and Jeffrey Gerstein respectively,
in connection with a consulting agreement entered into between the Company and
Mr. Newman.
In August 2001, the Company issued 416,667 shares of its common stock
to John M. Moxen upon the conversion of Mr. Moxen's promissory note dated May
25, 2001.
In August 2001, the Company issued 50,000 shares of its common stock to
each of Richard Friedman and Jeffrey Markowitz for services in connection with
certain financial advisory services rendered to the Company.
In August 2001, the Company issued 46,296 shares of its common stock to
each of Gloria Burkholder, Julie Gingrich and Sherry Schrock upon the conversion
of Margaret Schrock's promissory note dated December 5, 2000.
In September 2001, the Company issued 100,000 shares of its common
stock to Robert Gingras upon the exercise of a warrant to purchase shares of its
common stock at an exercise price of $0.25 per share, for a cumulative purchase
price of $25,000.
In September 2001, the Company issued 90,000 shares of its common stock
to the Margaret F. Schrock Family Trust upon the exercise of a warrant to
purchase shares of its common stock at an exercise price of $0.29 per share, for
a cumulative purchase price of $26,100.
In November 2001 we issued the following shares:
Number of
Name of Shareholder Shares Consideration
------------------- ------ -------------
Robert Gingras 300,000 $75,000 Cash
Frank Clark 23,936 Consulting
Richard Wexler 5,000 Consulting
Steve Scott 5,000 Consulting
II-2
In August, 2002 we issued 1,478,261 shares in connection with the
Equity Line of Credit. Cornell Capital Partners assigned all of the 1,478,261
shares of common stock it received as the $350,000 commitment fee under the
Equity Line of Credit to 7 individuals as follows:
Name of Shareholder Number of Shares
------------------- ----------------
Howard Salamon 147,826
Mark A. Angelo 266,087
Robert Farrell 266,087
Joseph Donahue 266,087
Matthew Beckman 266,087
Gerald Eicke 133,043
George Kanakis 133,044
We also issued 43,759 shares to Westrock Advisors in connection with a
placement agent agreement.
In October 2002 we issued shares to the following individuals for
consulting services:
Name of Shareholder Number of Shares
------------------- ----------------
Irwin Newman 31,090
Jeffrey Gerstein 3,450
Gary Whorle 10,000
In December 2002 we issued 110,000 shares to Roy Lerman for consulting
services.
During October 2002 to July 2003 we issued the following shares:
Name of Shareholder Date Acquired Number of Shares
------------------- ------------- ----------------
Irwin Newman 01/03 73,045
Jeffrey Gerstein 01/03 8,115
Frank Clark 02/03 179,105
Scott Sieck 02/03 141,000
The shares were issued for consulting services.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 ACT"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding Bio-One so as to make an informed investment decision. More
specifically, Bio-One had a reasonable basis to believe that each purchaser was
an "accredited investor" as defined in Regulation D of the 1933 Act and
otherwise had the requisite sophistication to make an investment in Bio-One's
common stock.
ITEM 27. INDEX TO EXHIBITS
Exhibit No. Description Location
3.(i).1 Articles of Incorporation of Bio-One Corporation Incorporated by reference to the Company's
filed February 24, 1998 Registration Statement filed on Form 10-SB filed
November 3, 2000
3.(i).2 Certificate of Amendment of Articles of Incorporated by reference to the Company's
Incorporation filed August 7, 2000 Registration Statement filed on Form 10-SB filed
November 3, 2000
3.(i).3 Certificate of Amendment of Articles of *
Incorporation filed August 7, 2000
II-3
Exhibit No. Description Location
3.(ii).1 Bylaws of Bio-One Corporation Incorporated by reference to the Company's
Registration Statement filed on Form 10-SB filed
November 3, 2000
5.1 Opinion re: Legality **
10.1 Share Exchange Agreement between the Company and Incorporated by reference to the Company's
Crown Enterprises Registration Statement filed on Form 10-SB filed
November 3, 2000
Dated May 20, 2000
10.2 Employment Agreement between the Company and Incorporated by reference to the Company's
Armand Dauplaise dated May 30, 2000 Registration Statement filed on Form 10-SB filed
November 3, 2000
10.3 Equity Line of Credit Agreement between the Incorporated by reference to the Company's
Company and Capital Partners, LP dated July 25, Quarterly Report filed on Form 10-QSB for the
2002 period ended June 30, 2002 on August 14, 2002
10.4 Placement Agent Agreement between Bio-One Incorporated by reference to the Company's Form
Corporation and Westrock Advisors SB-2 Registration Statement filed August 27, 2002
10.5 Registration Rights Agreement between Bio-One Incorporated by reference to the Company's Form
Corporation and Cornell Capital Partners, LLP SB-2 Registration Statement filed August 27, 2002
10.6 Escrow Agreement between Bio-One Corporation, Incorporated by reference to the Company's Form
Cornell Capital Partners, L.P. Butler Gonzales LLP SB-2 Registration Statement filed August 27, 2002
and Wachovia Bank, N.A.
10.7 Agreement between the Company and Kevin Lockhart Incorporated by reference to the Company's
and General Release in connection with redemption Form 8-K filed August 2, 2002
of shares and resignation as Board Member
10.8 Asset Purchase and Sale Agreement, dated Incorporated by reference to the Company's
September 11, 2003, by and between Bio-One Current Report on Form 8-K filed January 9, 2004
Corporation, PNLabs, Inc., and Physicians
Nutraceutical Laboratories, Inc.
10.9 Term Sheet between Investors Corporation ***
and Bio-One Corporation
10.10 Financial Consulting Agreement, dated June 20, ***
2003 by and between Bio-One Corporation
and Health Business Partners LLC
23.1 Consent of Kirkpatrick & Lockhart LLP **
23.2 Consent of Parks, Tschopp, Whitcomb & Orr, P.A. Provided herewith
23.3 Consent of Stark Winter Schenkein & Co., LLP Provided herewith
23.4 Consent of Parks, Tschopp, Whitcomb & Orr, P.A. Provided herewith
_____________________
* Included in Amendment No. 4 to Form SB-2 filed with the Commission on
January 12, 2004
** Included in Amendment No. 2 to Form SB-2 filed with the Commission on
October 14, 2003
*** Included in Amendment No. 1 to Form SB-2 filed with the Commission on
September 16, 2003
II-4
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3)
of the Securities Act of 1933 (the "ACT");
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remains unsold at the end of the offering. Insofar as
indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on this Form SB-2 and authorized this
registration statement to be signed on our behalf by the undersigned, in Winter
Springs, Florida, January 29, 2004.
BIO-ONE CORPORATION
By: /s/ Armand Dauplaise
--------------------
Name: Armand Dauplaise
Title: President, Chief Executive Officer,
Principal Accounting Officer and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Armand Dauplaise his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, for
him and in his name, place and stead, in any and all capacities (until revoked
in writing), to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or is substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ Armand Dauplaise President, Chief Executive Officer, January 29, 2004
- -----------------------
Armand Dauplaise Principal Accounting Officer and Director
/S/ Irwin Newman Director January 29, 2004
- -----------------------
Irwin Newman
/S/ Bernard Shinder Director January 29, 2004
- -----------------------
Bernard Shinder
/S/ Frank Clark Director January 29, 2004
- -----------------------
Frank Clark
/S/ Roy Lerman Director January 29, 2004
- -----------------------
Roy Lerman