U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the quarterly period ended MARCH 31, 2004
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File No. 000-31889
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BIO-ONE CORPORATION
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(Name of Small Business Issuer in Its Charter)
NEVADA 65-0815746
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1630 WINTER SPRINGS BOULEVARD, WINTER SPRINGS, FLORIDA 32708
- ------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(407) 977-1005
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
There were 59,515,870 shares of common stock outstanding as of May 10,
2004.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIO-ONE CORPORATION
INDEX OF FINANCIAL STATEMENTS
Page
Number
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FINANCIAL STATEMENTS
Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 2
Statements of Operations
Three months ended March 31, 2004 (Unaudited)
and March 31, 2003 (Unaudited) 3
Statements of Cash Flows
Three months ended March 31, 2004 (Unaudited)
and March 31, 2003 (Unaudited) 4
Notes to Financial Statements (Unaudited) 5
1
BIO-ONE CORPORATION
BALANCE SHEETS
ASSETS
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MARCH 31, 2004 DECEMBER 31,
UNAUDITED) 2003
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Current assets:
Cash and cash equivalents $ 4,389,467 210,021
Accounts receivable 3,036,703 16,652
Inventory 3,871,430 23,537
Prepaid expense 164,086 35,437
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Total current assets 11,461,686 285,647
Property and equipment, at cost, net of accumulated
depreciation and amortization 1,049,981 38,003
Deposits and other assets 24,252 152,276
Loan commitment fees, net 2,516,400 150,000
Goodwill 21,696,856 --
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Total assets $ 36,749,175 625,926
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 3,364,841 32,659
Accrued expenses 1,734,991 151,761
Current installments of note payable 4,442,502 574,502
Convertible debentures 15,000,000 --
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Total current liabilities 24,542,334 758,922
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Notes payable, less current installments 9,532,000
Shareholders' equity:
Common stock - $.001 par value, authorized 100 million
shares; issued 56,532,232 shares and 44,238,915 shares 56,532 44,238
Additional paid in capital 6,069,456 3,081,750
Accumulated deficit (3,451,147) (3,258,984)
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Total shareholders' equity 2,674,841 (132,996)
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$ 36,749,175 625,926
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See accompanying notes to financial statements
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BIO-ONE CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2004 2003
(UNAUDITED) (UNAUDITED)
-----------------------------
Revenues:
Net sales $ 4,673,504 --
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Costs and expenses:
Cost of goods sold 3,308,468 --
Selling, general and administrative 1,539,485 167,661
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4,847,953 167,661
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Operating loss (174,449) (167,661)
Non-operating revenue (expense):
Interest expense (4,577,714) (4,782)
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Loss before income taxes (4,752,163) (172,443)
Provision for income taxes -- --
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Net loss $ (4,752,163) (172,443)
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Basic earnings per share $ (0.09) (0.01)
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Diluted earnings per share $ (0.09) (0.01)
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Weighted average number of shares outstanding 50,385,573 21,682,092
============ ============
See accompanying notes to financial statements.
3
BIO-ONE CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
2004 2003
(UNAUDITED) (UNAUDITED)
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Cash flows from operating activities:
Net loss $ (4,752,163) (172,443)
Adjustments to reconcile net income to net cash
provide by operating activities:
Stock issued for services -- 24,300
Depreciation and amortization 153,012 5,327
Value of beneficial conversion feature 4,560,000 --
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable 16,652 --
Inventories 23,537 --
Accounts payable and accrued expenses (1,940,814) (132,596)
Deposits 125,349 (53,500)
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Net cash used in operating activities (1,814,427) (328,912)
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Cash flows from investing activities:
Purchase of property and equipment (6,127) (5,980)
Cash paid for acquisitions (11,500,000) --
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Net cash used in investing activities (11,506,127) (5,980)
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Cash flows from financing activities:
Proceeds from sale of common stock -- 500,000
Proceeds (repayments) of note payable, stockholder -- (27,600)
Proceeds from debentures 15,000,000 --
Proceeds from notes payable 5,000,000 --
Payments for loan financing cost (2,500,000) --
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Net cash provided by financing activities 17,500,000 472,400
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(Decrease) increase in cash and
cash equivalents 4,179,446 137,508
Cash and cash equivalents - beginning of period 210,021 14,742
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Cash and cash equivalents - end of period $ 4,389,467 152,250
============ ============
Supplemental disclosure of non cash financing and investing activities:
See accompanying notes to financial statements.
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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 March 31,
2004, and results of operations and cash flows for the three month periods ended
March 31, 2004 and 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) INVENTORIES
Inventories consist of the following:
DECEMBER 31,
MARCH 31, 2004
2004 (UNAUDITED)
--------------------------------
Finished goods $ 3,871,430 23,537
============ ======
(3) CONVERTIBLE DEBT
During the three months ended March 31, 2004, the Company issued $15,000,000 of
convertible notes with interest at 5%. The notes are convertible at a rate of
the Lesser of (i) an amount equal to seventy-five cents ($0.75) or (ii) an
amount equal to 80% of the lowest daily volume weighted average price for the 5
trading days immediately preceding the conversion date. The Company recorded
interest expense of approximately $4,560,000 as a result of discounts amortized
relating to these notes. The notes are convertible for a period of 6 months
after the effective date through September, 2004.
On February 5, 2004, the Company executed a Secured Promissory Note payable to
Cornell Capital Partners, LP in the principal amount of $5,000,000. The
Promissory Note accrues interest at an annual rate of 12% and is payable out of
the Company's cash or out of the net proceeds received by the Company under its
Equity Line of Credit Agreement, dated July 25, 2002 with Cornell Capital
Partners. The Company must pay all amounts due under the Promissory Note by
August 3, 2004, regardless of the availability of proceeds under the Equity Line
of Credit Agreement. The Promissory Note is secured by all of the assets of the
Company. As of March 31, 2004, $3,500,000 of this Promissory Note had been
converted into equity.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS
INTRODUCTORY STATEMENTS
Forward-Looking Statements and Associated Risks. This filing contains
forward-looking statements, including statements regarding, among other things,
(a) our Company's projected sales and profitability, (b) our Company's business
plan and growth strategies, (c) our Company's future financing plans and (d) our
Company's anticipated needs for working capital. In addition, when used in this
filing, the words "believes," "anticipates," "intends," "in anticipation of,"
"expects," and similar words are intended to identify forward-looking
statements. These forward-looking statements are based largely on our Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond our Company's control. Actual results could differ materially
from these forward-looking statements as a result of changes in trends in the
economy and any industry in which the Company enters, competition, the
availability of financing and other factors. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur.
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. Since that time, we have acquired (i)
80% of the issued and outstanding capital stock of American Nutritional
Exchange, (ii) all of the issued and outstanding capital stock of Interactive
Nutrition Inc., (iii) and a 51% interest in a Chinese joint venture with Weifang
Shengtai Pharmaceuticals. We now have a total of approximately six hundred (600)
employees. Our strategy will be dependent upon our successfully integrating the
acquired businesses and to continue 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. With the acquisitions of the assets of Physicians
Nutraceutical Laboratories, Inc., 80% of the capital stock of American
Nutritional Exchange, all of the issued and outstanding capital stock of
Interactive Nutrition, Inc and the joint venture with Weifang Shengtai
Pharmaceuticals, we believe that we 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
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recognized name in the growing vitamin and nutritional supplement field. We
intend to meet these objectives by targeting additional companies which
management believes are undervalued. We will rely on our consultant, Health
Business Partners, as well as Armand Dauplaise, our President and Chief
Executive Officer, and our directors 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.
We have acquired a manufacturing facility pursuant to our acquisition
of Interactive Nutrition, which should allow us to produce our vitamins and
supplements, as well as manufacture products and increase our revenues by
offering services to third party distributors who market nutritional
supplements. Now that 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, Inc. from 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.
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 five of these people,
which include an accounting manager, a general manager, an administrative
assistant and two 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.
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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 was at the rate of $50,000 per month from
September through December 2003. It is now at the rate of $100,000 per month
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
implication 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.
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
MANUFACTURING
We have acquired a manufacturing facility pursuant to our acquisition
of Interactive Nutrition, which should allow us to produce our vitamins and
supplements, as well as manufacture products and increase our revenues by
offering services to third party distributors who market nutritional
supplements. Now that we have acquired the manufacturing facility, we intend to
focus on the distributors who market nutritional supplements
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
distributors' products that are manufactured by others. We do not believe that
this is the most efficient way to operate.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS
We 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. 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
We now have marketing, sales and distribution systems in place within
each of our subsidiaries. The following discussion is predicated upon us
generating significant revenues and raising additional capital to fully
implement our consolidation strategy. Through each of our subsidiaries, we now
have 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
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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 be dependent upon the success of our
acquisitions integration program and 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 continually developing our marketing strategies and product lines and
expect that both will involve an ever-changing and evolving process. We will
continually 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, and
Pharmavite.
TRADEMARKS
PROPRIETARY PROTECTION
Our business prospects depend largely upon our ability to capitalize on
favorable consumer recognition of our trade names. Except for the trademarks
held by our recent acquisitions, we do not currently hold any other 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.
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,
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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
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
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localities in which our products are sold. The products and product-related
activities of Interactive Nutrition Inc. and our Chinese joint venture are
regulated by the applicable regulatory agencies in Canada and China.
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.
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. 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 in the United States, 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 rules and regulations may result in a considerable expense or may
cause us to have to discontinue production of some or all of our 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, we believe that 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 capital, we intend to 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, 80% of the capital stock of
American Nutritional Exchange, the stock of Interactive Nutrition Inc. and our
51% interest in our Chinese joint venture represents the first steps in our
acquisition strategy. We intend to continually seek to acquire additional
manufacturing, distribution and
11
marketing companies that we believe have 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
which we believe have 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.
NO 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 intends to 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.
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
12
applicable securities laws and state "blue sky" and corporation laws) cannot
presently be ascertained with any degree of certainty.
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.
CODE OF ETHICS
Bio-One has adopted a formal code of ethics that applies to our
principal executive officer and principal accounting officer, all other
officers, directors and employees. This code of ethics is filed with the
Securities and Exchange Commission as an exhibit to our 10KSB for the fiscal
year ended December 31, 2003.
RECENT DEVELOPMENTS
On February 4, 2004, Bio-One consummated a stock acquisition with
American Nutritional Exchange, Inc., a Florida corporation. Pursuant to the
Stock Purchase Agreement, Bio-One purchased shares of American Nutritional's
capital stock representing 80% of the votes of all issued and outstanding shares
of American Nutritional's capital stock for: (1) a purchase price in an amount
equal to $1,000,000 payable in installments and (2) a credit line to be made
available to American Nutritional in the principal amount of $1,000,000, which
may be drawn down by American Nutritional in traunches during 2004. Pursuant to
the Stock Purchase Agreement, Bio-One is entitled to receive 30% of any future
distribution of profits of American Nutritional and/or 30% of any future
distribution of proceeds from a sale of American Nutritional.
American Nutritional is a Florida-based business that is a wholesale
distributor of nationally branded nutritional supplements. American Nutritional
sells nutritional supplement products to retail stores representing
independents, large and small chain vitamin outlets, health clubs and
convenience stores throughout the Southeast United States. American Nutritional
has achieved distribution rights with approximately 25 of the manufacturers of
nutritional brands in the natural products industry. The 35-employee business
will continue to be operated with its present management team.
On February 5, 2004, Bio-One executed a Secured Promissory Note payable
to Cornell Capital Partners, LP in the principal amount of $5,000,000. The
Promissory Note accrues interest at an annual rate of 12% and is payable out of
Bio-One's cash or out of the net proceeds received by Bio-One under our Equity
Line of Credit Agreement, dated July 25, 2002 with Cornell Capital Partners.
Bio-One must pay all amounts due under the Promissory Note by August 3, 2004,
regardless of the availability of proceeds under the Equity Line of Credit
Agreement. The Promissory Note is secured by all of the assets of Bio-One. As of
March 31, 2004, $3,500,000 of this Promissory Note had been converted into
equity.
On March 31, 2004, we consummated the acquisition of all the issued and
outstanding capital stock of Interactive Nutrition Inc., a company organized
under the laws of Canada. Pursuant to a Share Purchase Agreement, we acquired
all of the issued and outstanding capital stock of Interactive Nutrition for an
aggregate purchase price of C$30,000,000. We issued a Convertible Promissory
Note in the principal amount of C$15,000,000, which we are obligated to pay 57
consecutive monthly installments of C$263,158 commencing on July 1, 2004.
Interactive Nutrition is a manufacturer and distributor of branded,
specialty nutritional supplements, which are currently marketed in the United
States, Canada and Hong Kong. Interactive Nutrition specializes in providing
research, development and custom formulation of premium nutritional supplement
private-label formulas, including over-the-counter, pharmaceutical grade,
private-label formulations. Interactive Nutrition's products include: SoyOne(TM)
Protein for Women, SoyOne(TM) Nutrition Bars, ISOWhey(TM) Protein Powder,
Creative Blast(TM) and Total Whey. Interactive Nutrition is a Current Good
Manufacturing Practices manufacturer. Interactive Nutrition operates in a 40,000
square-foot facility in Ottawa, Canada. The 75-employee business will continue
to be operated with this present management team.
On April 4, 2004, we consummated a joint venture transaction with
Weifang Shengtai Pharmaceuticals Co. Ltd., a company organized under the laws of
the People's Republic of China and located in Changle County, Shandong Province.
Pursuant to the Joint Venture Agreement, we acquired 51% of the joint venture
entity with Weifang Shengtai Pharmaceuticals for a cash payment equal to
$2,000,000 and 2,090,000 shares of our Series A Preferred Stock.
13
Weifang Shengtai Pharmaceuticals is a manufacturer and distributor of
glucose in China and holds those patents. This product distribution is conducted
through direct sales from the Sales Department and sales branches with offices
in nine major cities and is a supplier of glucose to many of China's major
pharmaceutical companies. In January, Shengtai moved into their newly
constructed 35-acre facility and are now one of the top three employers in their
county. The 450-employee business will continue to be operated with its present
management team.
On March 26, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically issue and sell
shares of our common stock for a total purchase price of $50 million. If we
request advances under the Standby Equity Distribution Agreement, 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 will retain 5% of
each advance under the Standby Equity Distribution Agreement. We may not request
advances in excess of a total of $50 million. The maximum of each advance is
equal to $525,000 and up to a maximum of $2,100,000 in any thirty-day period.
As of March 31, 2004, we issued a Secured Convertible Debenture in the
principal amount of $15 million. The convertible debenture is convertible into
shares of our common stock as a price per share that is equal to the lesser of
(i) an amount equal to $0.75 or (ii) an amount equal to 80% of the average of
the lowest daily volume weighted average price of our common stock for the five
trading days immediately preceding the conversion date. The convertible
debenture accrues interest at a rate of 5% per year and is convertible at the
holder's option. The convertible debenture has a term of 7 months. At Bio-One's
option, the convertible debenture may be paid in cash or converted into shares
of our common stock unless converted earlier by the holder. The payment terms
are $1,000,000 per week for five weeks commencing after May 1, 2004, resuming
after July 1, 2004 and after September 1, 2004. Except after an event of
default, as set forth in the Secured Convertible Debenture be entitled to
convert such debenture for a number of shares of common stock of Bio-One in
excess of that number of shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially held by
such holder and its affiliated to exceed 4.99% of the outstanding shares of
common stock of Bio-One.
EMPLOYEES
We currently have approximately six hundred (600) employees employed
within our subsidiaries and joint venture. We are currently reviewing our
personnel needs for the remainder of 2004 and beyond. As of the date hereof, we
anticipate hiring additional employees in 2004, which should include management,
marketing and support staff.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make a wide variety of estimates and assumptions that affect (i)
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements, and (ii) the
reported amounts of revenues and expenses during the reporting periods covered
by the financial statements. Our management routinely makes judgments and
estimates about the effect of matters that are inherently uncertain. As the
number of variables and assumptions affecting the future resolution of the
uncertainties increases, these judgments become even more subjective and
complex. We have identified certain accounting policies that are most important
to the portrayal of our current financial condition and results of operations.
Our significant accounting policies are disclosed in Note 1 of the Notes to the
Financial Statements.
Several of those critical accounting policies are as follows:
This discussion and analysis of the Company's financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to allowance for
doubtful accounts and deferred income tax assets. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The Company's
management has discussed the selection and development of its critical
accounting policies, estimates and related disclosure below with the Audit
Committee of the Board of Directors.
14
RECENT ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements that have a current or future potential
impact on our financial statements are as follows:
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or modified
after September 30, 2003, except as stated below and for hedging relationships
designated after September 30, 2003. In addition, except as stated below, all
provisions of this Statement should be applied prospectively. The provisions of
this Statement that relate to SFAS No. 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15, 2003, should continue
to be applied in accordance with their respective effective dates. In addition,
paragraphs 7(a) and 23(a), which relate to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after
September 30, 2003. Adoption of this Statement on July 1, 2003 did not have a
significant impact on the financial position or results of operations of the
Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability, or an asset in some circumstances. Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Adoption of this Statement on July 1, 2003 did
not have a significant impact on the financial position or results of operations
of the Company.
In May 2003, the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus on Issue No. 00-21, "Accounting For Revenue Arrangements
with Multiple Deliverables", which establishes criteria for whether revenue on a
deliverable can be recognized separately from other deliverables in a multiple
deliverable arrangement. The criteria considers whether the delivered item has
stand-alone value to the customer, whether the fair value of the delivered item
can be reliably determined and the customer's right of return for the delivered
item. This Issue applies to multiple deliverable revenue arrangements initiated
in reporting periods beginning after June 15, 2003. Adoption of this Issue did
not have a significant impact on the financial position or results of operations
of the Company.
In May 2003, the EITF reached a consensus on Issue No. 01-8,
"Determining Whether an Arrangement Contains a Lease", which requires capital
lease treatment for arrangements containing an embedded lease, thereby conveying
the right to control the use of property, plant or equipment (collectively,
"property") whether the right to control the use of the property is explicitly
or implicitly specified. The right is conveyed if the purchaser (lessee) obtains
physical or operational control of the underlying property or takes
substantially all of its output. This Issue applies prospectively to new or
modified arrangements beginning after May 28, 2003. Adoption of this Issue did
not have a significant impact on the financial position or results of operations
of the Company.
In December 2003, the FASB issued SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits - an
amendment of FASB Statements No. 87, 88 and 106". This Standard revises
employers' disclosures about pension plans and other postretirement benefit
plans. It does not change the measurement or recognition of those plans required
by SFAS No. 87, "Employers' Accounting for Pensions", No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The new rules require additional
disclosures about the assets, obligations, cash flows and net periodic benefit
cost of defined benefit pension plans and other postretirement benefit plans.
The required information should be provided separately for pension plans and for
other postretirement benefit plans. This Statement is effective for financial
statements with fiscal years ending after December 31, 2003, with a delayed
effective date for certain disclosures and for foreign plans. Adoption of this
Statement on December 31, 2003 did not have a significant impact on the
financial position or results of operations of the Company.
In December, 2003, the Staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 104. This SAB's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superseded as a result of the issuance of
EITF Issue No. 00-21. Additionally, the SAB rescinded the SEC's Revenue
Recognition in Financial Statements Frequently Asked Questions and Answers (the
"FAQ") issued with SAB 101 that had been codified in SEC Topic 13, Revenue
Recognition. Selected portions of the FAQ have been incorporated into this SAB.
While the wording of this SAB has changed to reflect the issuance of EITF Issue
15
No. 00-21, the revenue recognition principles of SAB 101 remain largely
unchanged. Adoption of this SAB on December 31, 2003 did not have a significant
impact on the financial position or results of operations of the Company.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2004, AS
COMPARED TO THE THREE-MONTH PERIOD ENDED MARCH 31, 2003
NET SALES. For the three months ended March 31, 2004, we had net sales
of $4,673,504, as compared to net sales of $0 for the three months ended March
31, 2003, an increase of $4,673,504. This increase is 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.
and our acquisition of eighty percent (80%) of all of the issued and outstanding
shares of American Nutritional Exchange.
COST OF GOODS SOLD. For the three months ended March 31, 2004, we had
cost of goods sold of $3,308,468, as compared to cost of goods sold of $0 for
the three months ended March 31, 2003, an increase of $3,308,468. This increase
is attributable to the third-party manufacturing costs incurred by our
wholly-owned subsidiary, PNLabs, Inc. and American Nutritional Exchange in
connection with the marketing and sales of their nutritional supplement
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended March 31, 2004, we incurred selling, general and administrative expenses
of $1,539,485, as compared to selling, general and administrative expenses of
$167,661 for the three months ended March 31, 2003, an increase of $1,371,824 or
818.2%. This increase is primarily attributable to the operations of PNLabs and
American Nutritional Exchange.
OPERATING INCOME (LOSS). For the three months ended March 31, 2004, we
incurred an operating loss of $174,449, as compared to an operating loss of
$167,661 for the three months ended March 31, 2003, an increase of $6,788 or 4%.
This increase is primarily attributable to the operations of PNLabs and American
Nutritional Exchange.
NET LOSS. For the three months ended March 31, 2004, we incurred a net
loss of $4,752,163 as compared to $172,443 for the three months ended March 31,
2003, an increase of $4,579,720 or 2,655.8%. This increase is primarily
attributable to the Company recording interest expense of approximately
$4,560,000 as a result of discounts amortized relating to a $5 million secured
promissory note and a $15 million secured convertible debenture.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, we had cash and other current assets totaling
$11,461,686 as compared to $285,647 as of March 31, 2003. The significant
increase in our cash position is directly attributable to our decision to draw
down a portion of a previous Equity Line of Credit, dated July 25, 2002 with
Cornell Capital Partners and the sale of a Secured Convertible Debenture in the
principal amount of $15 million and a Secured Promissory Note in the principal
amount of $5 million, each discussed below. As of March 31, 2004, we had
approximately $1,049,981 in property and equipment, as compared to $38,003 as of
March 31, 2003. As of March 31, 2004, our total current liabilities were
$24,542,334, consisting primarily of accounts payable of $3.364.841, accrued
expenses of $1,734,991, current installments of a note payable of $4,452,502 and
convertible debentures of $15,000,000.
On February 5, 2004, Bio-One executed a Secured Promissory Note payable
to Cornell Capital Partners in the principal amount of $5,000,000. The Secured
Promissory Note accrues interest at an annual rate of 12% and is payable out of
cash of Bio-One or out of the net proceeds received by Bio-One under our
previous Equity Line of Credit Agreement, dated July 25, 2002 with Cornell
Capital Partners. Bio-One must pay all amounts due under the Promissory Note by
August 3, 2004, regardless of the availability of proceeds under the Equity Line
of Credit. The Promissory Note is secured by all of the assets of Bio-One. As of
March 31, 2004, $3,500,000 of this Promissory Note had been converted into
equity.
On March 26, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically issue and sell
shares of our common stock for a total purchase price of $50 million. If we
request advances under the Standby Equity Distribution Agreement, 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 will retain 5% of
each advance under the Standby Equity Distribution Agreement. We may not request
advances in excess of a total of $50 million. The maximum of each advance is
equal to $525,000 and up to a maximum of $2,100,000 in any thirty-day period.
16
As of March 31, 2004, we issued a Secured Convertible Debenture in the
principal amount of $15 million. The convertible debenture is convertible into
shares of our common stock at a price per share that is equal to the lesser of
(i) an amount equal to $0.75 or (ii) an amount equal to 80% of the average of
the lowest daily volume weighted average price of our common stock for the five
trading days immediately preceding the conversion date. The convertible
debenture accrues interest at a rate of 5% per year and is convertible at the
holder's option. The convertible debenture has a term of 7 months. At Bio-One's
option, the convertible debenture may be paid in cash or converted into shares
of our common stock unless converted earlier by the holder. The payment terms
are $1,000,000 per week for five weeks commencing after May 1, 2004, resuming
after July 1, 2004 and after September 1, 2004. Except after an event of
default, as set forth in the Secured Convertible Debenture be entitled to
convert such debenture for a number of shares of common stock of Bio-One in
excess of that number of shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially held by
such holder and its affiliated to exceed 4.99% of the outstanding shares of
common stock of Bio-One.
In the absence of outside financing and without any consideration as to
the financial requirements incurred as a result of our acquisitions of: (i) the
assets of Physicians Nutraceutical Laboratories, (ii) 80% the capital stock of
American Nutritional Exchange, (iii) the capital stock of Interactive Nutrition
or (iv) a 51% interest in a Chinese joint venture with Weifang Shengtai
Pharmaceuticals, as of April 1, 2004, we believe that we have sufficient cash to
operate for approximately twelve months.
In order for us to pursue other acquisitions and reduce our reliance on
our Standby Equity Distribution Agreement, we are pursuing additional sources of
equity and debt capital. This should provide us with greater flexibility in
structuring acquisitions.
CERTAIN BUSINESS RISK FACTORS
We are subject to various risks, which may have a material adverse
effect on our Company's business, financial condition and results of operations.
Certain risks are discussed below:
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 $3,258,984 as of December 31, 2003.
For the years ended December 31, 2003, 2002 and 2001, we incurred a net loss of
$1,383,112, $609,761 and $677,150, respectively. For the three months ended
March 31, 2004, we incurred a net loss of $174,449. We cannot predict the amount
of revenues, if any, we may generate as a result of our acquisitions of: (i) all
of the assets of Physicians Nutraceutical Laboratories, Inc., (ii) 80% of the
capital stock of American Nutritional Exchange, (iii) all of the capital stock
of Interactive Nutrition, or (iv) a 51% interest in Weifang Shengtai
Pharmaceuticals. 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 our Standby Equity Distribution
Agreement that we have established with Cornell Capital Partners. If we incur
any problems in drawing down our Standby Equity Distribution Agreement, 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 WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS
We have relied on significant external financing to fund our
operations. As of March 31, 2004, we had received a total of $5 million under
our previously existing Equity Line of Credit that we entered into July 25, 2002
with Cornell Capital Partners. We received these proceeds in fiscal years 2002,
2003 and 2004. Prior to our previously existing 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 March 31, 2004, we had
$4,389,467 in cash and cash equivalents and our total current assets were
$11,461,686. Our current liabilities were $24,542,334 as of March 31, 2004. 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. As of May 10, 2004, we estimate that we will require $960,000 to fund
our anticipated corporate operating expenses and approximately $15,000,000 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
17
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 OUR RECENT ACQUISITIONS
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.
On February 4, 2004, we acquired shares of American Nutritional Exchange, Inc.
representing 80% of the votes of all issued and outstanding shares of American
Nutritional Exchange. American Nutritional Exchange is a wholesale distributor
of nationally branded nutritional supplements. On March 31, 2004, we acquired
all of the issued and outstanding capital stock of Interactive Nutrition, Inc.
Interactive Nutritional is a manufacturer and distributor of branded, specialty
nutritional supplements, which are currently marketed in the United States,
Canada and Hong Kong. On April 4, 2004, we acquired a 51% interest in Weifang
Shengtai Pharmaceuticals Co. Ltd., a Chinese joint venture. Weifang Shengtai
Pharmaceuticals is a manufacturer and distributor of glucose in China.
We may fail to successfully market our new products and/or integrate
the operations of Physicians Nutraceutical Laboratories, American Nutritional
Exchange, Interactive Nutrition or the Chinese joint venture 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, American Nutritional
Exchange, Interactive Nutrition or Weifang Shengtai Pharmaceuticals into our
business, we may be forced to curtail or cease our business operations.
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 March 2004 was 1,971,415 shares. The high
and low bid price of our common stock for the last two years has been $0.50 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 STANDBY
EQUITY DISTRIBUTION AGREEMENT AND THE PRICE OF OUR COMMON STOCK WILL AFFECT OUR
ABILITY TO DRAW DOWN ON THE STANDBY EQUITY DISTRIBUTION AGREEMENT
Currently, we are dependent upon external financing to fund our
operations. Our financing needs are expected to be provided, in large part, by
our Standby Equity Distribution Agreement. The amount of each advance under the
Standby Equity Distribution Agreement is subject to a maximum amount equal to
$525,000 and up to an aggregate maximum advance amount equal to $2,100,000 in
any thirty-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 Standby Equity Distribution Agreement. Based on our recent stock price of
$0.17, we would have to issue to Cornell Capital Partners 294,117,647 shares of
our common stock in order to draw down the entire $50 million available to us
under the Standby Equity Distribution Agreement. We registered 250,000,000
shares of our common stock under the Standby Equity Distribution Agreement in a
registration statement on Form SB-2 that was declared effective by the
Securities and Exchange Commission on May 11, 2004. Our Articles of
Incorporation currently authorize Bio-One to issue 500 million shares and, as of
May 10, 2004, we had 59,515,870 shares of common stock issued and outstanding.
In the event we desire to draw down any available amounts remaining under the
Standby Equity Distribution Agreement after we have issued the 250,000,000
shares that were registered with the Securities and Exchange Commission, we will
have to file a new registration statement to cover such additional shares that
we would issue for
18
additional draw downs on the Standby Equity Distribution Agreement. Unless we
obtain profitable operations, it is unlikely that we will be able to secure
additional financing from external sources other than our Standby Equity
Distribution Agreement. Therefore, if we are unable to draw down on our Standby
Equity Distribution Agreement, 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.
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 Chief Executive Officer. Mr. Dauplaise has been
instrumental in securing our existing financing arrangements. In addition, Mr.
Dauplaise's efforts resulted in our acquisitions of: (i) all of the assets of
Physicians Nutraceutical Laboratories, (ii) 80% of the issued and outstanding
capital stock of American Nutritional Exchange, (iii) all of the issued and
outstanding capital stock of Interactive Nutrition, and (iv) a 51% interest in
Weifang Shengtai Pharmaceuticals. 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 $180,000 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 continue to implement our 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:
(i) all of the assets of Physicians Nutraceutical
Laboratories, Inc., (ii) 80% of the issued and outstanding
capital stock of American Nutritional Exchange, (iii) all of
the issued and outstanding capital stock of Interactive
Nutrition, and (iv) a 51% interest in Weifang Shengtai
Pharmaceuticals, as well as any future acquisitions; and
19
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. We currently have
2,090,000 shares of Series A Preferred Stock outstanding. 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 not able to compete effectively against
our competitors, we will be forced to curtail or cease our business operations.
Our main competitors are NBTY, 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.
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. 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
20
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 STANDBY EQUITY DISTRIBUTION 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 our Standby Equity Distribution 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 Standby Equity Distribution 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.
THERE ARE NO CONCLUSIVE STUDIES REGARDING THE MEDICAL BENEFITS OF NUTRITIONAL
SUPPLEMENTS
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, 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. 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.
21
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.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within 90 days prior
to the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of the Company's President and Chief
Financial Officer. Based upon that evaluation, he concluded that the Company's
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy the Company's disclosure obligations
under the Exchange Act.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls since the most recent evaluation of such controls.
22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not aware of any legal proceedings involving our Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) On February 5, 2004, we issued a Secured Promissory Note in the
principal amount of $5 million. The Note accrues interest at an annual rate of
12% and is due and payable by August 3, 2004.
On March 31, 2004, we issued a Secured Convertible Debenture in the
principal amount of $15 million, which we are obligated to pay or convert into
equity over a seven month period.
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.
(d) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) 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.(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
10.1 Share Exchange Agreement between the Company and Incorporated by reference to the Company's
Crown Enterprises dated May 20, 2000 Registration Statement filed on Form 10-SB filed
November 3, 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 Firm 10-QSB for the
2002 period ended June 30, 2002 on August 14, 2002
10.4 Placement Agent Agreement between Bio-One Corp and Incorporated by reference to the Company's Form
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
31.1 Certification Pursuant to Section 302 Provided herewith
31.2 Certification Pursuant to Section 302 Provided herewith
32.1 Certification Pursuant to 18 U.S.C. Section 1350 Provided herewith
32.2 Certification Pursuant to 18 U.S.C. Section 1350 Provided herewith
24
(B) REPORTS ON FORM 8-K.
On January 9, 2004, the Company filed a Current Report on Form 8-K with
respect to Items 2 and 7.
On February 13, 2004, the Company filed a Current Report on Form 8-K
with respect to Items 2 and 7.
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 14, 2004 BIO-ONE CORPORATION
By: /s/ Armand Dauplaise
Armand Dauplaise
President, Chief Executive Officer,
Chief Financial Officer and
Principal Accounting Officer
26