SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ending June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-27339
BEPARIKO BIOCOM
---------------
(Name of Small Business Issuer)
NEVADA 88-0426887
------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
ONE BELMONT AVENUE, SUITE 417
BALA CYNWYD, PA 19004
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(610) 660-5906
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filings requirements for the
past 90 days. YES [X] NO [ ]
There were 5,750,000 issued and outstanding shares of the registrant's common
stock, par value $.001 per share, at August 12, 2002.
BEPARIKO BIOCOM
A Development Stage Entity
---------------
INDEX
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Page
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Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations (unaudited) . . . . . . . . . 4
Condensed Statements of Stockholders' Deficit (unaudited). . . . 5
Condensed Statements of Cash Flows (unaudited) . . . . . . . . 6
Notes to Condensed Financial Statements . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis or Plan of Operations . . . 15
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEPARIKO BIOCOM
(A Development Stage Entity)
Condensed Balance Sheets
ASSETS
------
June 30, December 31,
2002 2001
------------- ---------------
(Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 2,355 $ 47
Note receivable (net of allowance for uncollectibility of
14,400 in 2002 and 0 in 2001) 430,600 250,000
Interest receivable 1,056 -
------------- ---------------
Total Current Assets 434,011 250,047
Oil and Gas Interests, Using Successful Efforts
Unproved Properties, net 755,431 -
Loan Costs 71,241 -
------------- ---------------
$ 1,260,683 $ 250,047
============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
---------------------------------------
Current Liabilities
Accounts payable $ 101,357 $ 178,652
Accrued expenses 55,692 -
Notes payable 1,419,154 318,000
------------- ---------------
Total Current Liabilities 1,576,203 496,652
------------- ---------------
Commitments and Contingencies
Stockholders' Deficit
Preferred stock, $.001 par value authorized 10,000,000 shares;
none issued and outstanding as of June 30, 2002 and
December 31, 2001 - -
Common stock, $.001 par value authorized 100,000,000 shares;
5,750,000 shares issued and outstanding at December 31, 2001
and June 30, 2002 5,750 5,750
Additional paid-in capital 437,324 342,324
Deficit accumulated during development stage (758,594) (594,679)
------------- ---------------
Total Stockholders' Deficit (315,520) (246,605)
------------- ---------------
$ 1,260,683 $ 250,047
============= ===============
See notes to condensed financial statements.
3
BEPARIKO BIOCOM
(A Development Stage Entity)
Condensed Statements of Operations
(Unaudited)
Three Months Six Months April 2, 1997
Ended June 30, Ended June 30, (Inception) to
------------------------ ------------------------
2002 2001 2002 2001 June 30, 2002
----------- ----------- ----------- ----------- ---------------
Revenues $ 10,716 $ - $ 10,716 $ - $ 10,716
----------- ----------- ----------- ----------- ---------------
Operating Expenses
General and administrative 98,129 88,456 104,249 90,102 371,193
Bad debt expense (recovery) (85,600) - 14,400 - 14,400
----------- ----------- ----------- ----------- ---------------
Total Operating Expenses 12,529 88,456 118,649 90,102 385,593
----------- ----------- ----------- ----------- ---------------
Loss From Operations (1,813) (88,456) (107,933) (90,102) (374,877)
----------- ----------- ----------- ----------- ---------------
Other Expense
Interest expense 44,769 155,000 55,982 155,000 383,717
----------- ----------- ----------- ----------- ---------------
Net Loss to Common Stockholders $ (46,582) $ (243,456) $ (163,915) $ (245,102) $ (758,594)
=========== =========== =========== ========== ===============
Basic and Diluted Loss per Common Share $ (0.01) $ (0.04) $ (0.03) $ (0.04)
=========== =========== =========== ==========
Basic and Diluted Weighted Average
Common Shares Outstanding 5,750,000 5,750,000 5,750,000 5,750,000
=========== =========== =========== ==========
See notes to condensed financial statements.
4
BEPARIKO BIOCOM
(A Development Stage Entity)
Statement of Stockholders' Deficit
(Unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage Total
---------- --------- ---------- ------------- -----------
Balance at December 31, 1998 750,000 $ 750 $17,324 $ (17,976) $ 98
Net Loss - - - (1,598) (1,598)
---------- --------- ---------- ------------- -----------
Balance at December 31, 1999 750,000 750 17,324 (19,574) (1,500)
Common stock issued for cash,
January 21, 2000 5,000,000 5,000 15,000 - 20,000
Net Loss - - - (21,600) (21,600)
---------- --------- ---------- ------------- -----------
Balance at December 31, 2000 5,750,000 5,750 32,324 (41,174) (3,100)
Beneficial conversion discount
and warrants to purchase
155,000 shares of common
stock at $2.50 issued in
connection with the
convertible notes payable 310,000 310,000
Net Loss - - - (553,505) (553,505)
---------- --------- ---------- ------------- -----------
Balance at December 31, 2001 5,750,000 5,750 342,324 (594,679) (246,605)
Officer's contributed services
April 2002 through June 2002 5,000 5,000
Warrants to purchase 150,000
shares of common stock at
$2.00 issued in connection
with the convertible note
Payable 90,000 90,000
Net Loss - - - (163,915) (163,915)
---------- -------- ---------- ------------- -----------
Balance at June 30, 2002 5,750,000 $ 5,750 $ 437,324 $(758,594) $(315,520)
========== ======== ========== ============ ===========
See notes to condensed financial statements.
5
BEPARIKO BIOCOM
(A Development Stage Entity)
Statements of Cash Flows
(Unaudited)
Six Months April 2, 1997
Ended June 30, (Inception) to
2002 2001 June 30, 2002
---------- ---------- --------------
Cash Flows from Operating Activities
Net loss $ (163,915) $(245,102) $ (758,594)
Adjustments to reconcile net loss to
net cash used in operating activities
Officer's contributed services April 2002 through
June 2002 5,000 - 5,000
Bad debts 14,400 - 14,400
Amortization of note payable discount and loan costs 18,059 155,000 328,059
Changes in assets and liabilities
Other receivables (1,056) - (1,056)
Accounts payable and accrued expenses (21,603) 30,628 157,049
----------- ----------- ---------------
Net Cash Used in Operating Activities (149,115) (59,474) (255,142)
----------- ----------- ---------------
Cash Flows from Investing Activities
Note receivable (195,000) (250,000) (445,000)
Purchase of oil and gas interests (755,431) - (755,431)
----------- ----------- ---------------
Net Cash Used in Investing Activities (950,431) (250,000) (1,200,431)
----------- ----------- ---------------
Cash Flows from Financing Activities
Repayment of debt (318,000) - (318,000)
Issuance of convertible debt and warrants 1,419,854 310,000 1,737,854
Issuance of common stock - - 38,074
----------- ----------- ---------------
Net Cash Provided by Financing Activities 1,101,854 310,000 1,457,928
----------- ----------- ---------------
Net Increase in Cash and Cash Equivalents 2,308 526 2,355
Cash and Cash Equivalents, Beginning of Period 47 -
- -
----------- ----------- ---------------
Cash and Cash Equivalents, End of Period $ 2,355 $ 526 $ 2,355
=========== =========== ===============
See notes to condensed financial statements.
6
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB as prescribed by the Securities and
Exchange Commission ("SEC"). These financial statements, in the opinion of
management, include all adjustments (consisting only of normal recurring items
except for the reserve adjustment described in Note 4) necessary for their fair
presentation in conformity with accounting principles generally accepted in the
United States.
These financial statements should be read in conjunction with the financial
statements and notes included in the Bepariko Biocom (the "Company") Annual
Report on Form 10-KSB for the year ended December 31, 2001, for an expanded
discussion of the Company's financial disclosures and accounting policies.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to the SEC rules
and regulations. Interim results are not necessarily indicative of results for
the full year.
NOTE 2 - DESCRIPTION OF BUSINESS
Nature of Operations - Change of Management
- -------------------------------------------
On November 19, 2001, the Company experienced a change in management when all of
its directors and officers resigned from their positions and new officers and
directors were appointed. In April 2002, the Company's new management
implemented a new business plan and the Company became engaged in the business
of acquiring, exploring, and developing domestic natural gas and oil properties.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN 2002
Oil and Gas Accounting
- ----------------------
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.
Valuation allowances are provided if the net capitalized costs of gas and oil
properties at the field level exceed their realizable values based upon expected
future cash flows.
Upon the sale or retirement of a complete unit of a proved property, the cost
and related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. Upon
the retirement or sale of a partial unit of proved property, the cost is charged
to accumulated depreciation, depletion, and amortization with a resulting gain
or loss recognized in income.
7
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN 2002
(Continued)
Upon the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Income Taxes
- ------------
Recognition of the benefits of the deferred tax assets and liabilities will
require that the Company generate future taxable income. There can be no
assurance that the Company will generate any earnings or any specific level of
earnings in future years. Therefore, the Company has established a valuation
allowance for all deferred assets (net of liabilities).
Reclassifications
- -----------------
Certain accounts in the prior-year financial statements have been reclassified
for comparative purposes to conform with the current presentation. These
reclassifications have no effect on reported net loss.
Financial Instruments
- ---------------------
The carrying amounts reflected in the consolidated balance sheet for cash and
equivalents, short-term receivables and short-term payables approximate their
fair value due to the short maturity of the instruments. The carrying value of
long-term debt approximates fair value based on an independent valuation and is
less than face value.
NOTE 4 - NOTE RECEIVABLE
In April 2001, the Company entered into a financing arrangement with Global
Genomics Capital, Inc. ("GGC"), whereby the Company advanced $250,000 to GGC and
GGC issued convertible promissory notes in the principal amount of $250,000 (the
"GGC Notes") to the Company. The GGC Notes accrued interest at a rate of 10%
per annum calculated annually, and provide that the principal amount and accrued
interest will be due and payable on demand, by the Company, if the Company
completes the acquisition of the GGC Shares. In the event that the Acquisition
Agreement is terminated for any reason other than the default of GGC, then GGC
will have the option, upon giving notice to the Company, to convert the
principal amount of the GGC Notes, and all accrued interest, into shares of
common stock of GGC at a conversion rate of $2.50 per share. If the Acquisition
Agreement is terminated as a result of default by GGC or its shareholders, the
principal amount of the GGC Notes and all accrued interest will be due and
payable on August 31, 2001.
The GGC Notes matured on August 31, 2001. In 2002, the Company and GGC entered
into an agreement whereby the Company extended the date for the repayment of the
GGC Notes and agreed to a repayment or conversion of the GGC Notes into shares
of GGC common stock in connection with the proposed merger of GGC with CytRx
Corp. Subsequent to June 30, 2002, the Company has agreed to accept $140,600
and 207,044 shares of CytRx Corp. in full payment of the principal and interest
of the note. As of August 7, 2002 the trading price of CytRx shares was $0.46.
Therefore, the market value as of August 7, 2002 of 207,044 shares of CytRx
stock to be issued to the Company in payment of the note was approximately
$95,000.
8
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 4 - NOTE RECEIVABLE (Continued)
As of June 30, 2002 the Company has recorded a $14,400 reserve for the amount of
the note in excess of the cash and the August 7, 2002 value of the 207,044
shares of stock to be received.
As of June 30, 2002 the Company had unsecured demand loans, which it had made to
three unrelated parties, 1025 Investments, Inc., I.P. Services, Inc., and
Pawnxchange, Inc. in the amounts of $90,000, $55,000 and $50,000, respectively.
The loans bear interest at 8 percent per annum. The Company has recorded $1,056
of interest receivable as of June 30, 2002.
NOTE 5 - OIL AND GAS INTEREST
On April 26, 2002, the Company acquired an approximate 6.25% gross working
interest (a 4.6% net revenue interest) in the South China Prospect and the South
French Prospect in the Hackberry Trend located in Jefferson County, Texas
(collectively, the "Prospects"), for a purchase price of $350,000. The Company
acquired these assets through an assignment from Vitel Ventures Corporation
("Vitel"). Vitel held the right to purchase these assets from Touchstone
Resources USA, Inc. ("Touchstone") in exchange for the cancellation of a loan in
the principal amount of $350,000, which it had previously extended to
Touchstone. Upon receiving payment from the Company, Vitel immediately
exercised the rights and assigned them to the Company. Consequently, Touchstone
transferred the gross working interest in the Prospects to the Company.
In connection with this acquisition, the Company also acquired two units,
representing an approximate 10.26% partnership interest, of Touchstone
Resources-2001 Hackberry Drilling Fund, L.P. (the "Partnership") for a purchase
price of $400,000. The Partnership owns an approximate 75% working interest in
the Prospects. Touchstone Resources Ventures, LLC, the General Partner of the
Partnership, is responsible for oversight and coordination of the development
and management of the Prospects in conjunction with Touchstone Resources, USA,
the operator of the Prospects.
NOTE 6 - GAS AND OIL PROPERTIES, CAPITALIZED COSTS
June 30, 2002 December 31, 2001
----------------- -------------------
Unproved properties, not subject to amortization $ 755,431 $ -
Less accumulated depletion, depreciation,
amortization, and impairments - -
----------------- --------------------
Total oil and gas interests, net $ 755,431 $ -
================= ====================
9
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 7 - NOTES PAYABLE
June 30, 2002 December 31, 2001
----------------- --------------------
(Unaudited) (Audited)
12% Secured convertible note $ 1,419,154 $ -
10% Convertible promissory notes - 310,000
Other - 8,000
------------------ -------------------
$ 1,419,154 $ 318,000
================== ===================
12% Secured Convertible Note
- -------------------------------
In April 2002, the Company entered into a loan agreement pursuant to which it
borrowed $1,500,000 from Gemini Growth Fund, LP ("Gemini"), a Delaware limited
partnership. The Company's obligation to repay the loan is evidenced by a 12%
secured convertible promissory note. The Company's obligation to repay the note
is secured by a security interest granted to the lender covering substantially
all of the assets of the Company including a collateral mortgage and assignment
of lease and working interest. The note matures on October 31, 2003, however
the Company has the option to redeem the note at 100% of par prior to the
maturity date. Gemini has the option to convert the principal amount of the
note plus all accrued interest into common stock of the Company. Gemini was
issued a warrant to purchase 150,000 shares of the Company's common stock as
additional incentive to make the loan. The warrants expire on the earlier of
April 30, 2012 or the date on which the entire principal amount of the
convertible notes is converted to common stock. The conversion price of the
note and exercise price of the warrant initially is $2.00 subject to
antidilution and price adjustments per the agreements. The Company paid loan
commitment and origination fees of 1% and 4%, respectively, which were recorded
as loan costs. These costs will be amortized off over the term of the loan.
The Company amortized $8,905 as of June 30, 2002. Interest is payable in cash
unless Gemini elects to have the interest paid in common stock of the Company.
As described in the loan covenants, the Company is required to comply with
various financial covenants. Any failure to comply with such covenants may be
deemed a default on the loan by Gemini. The Company failed to comply with two
financial covenants but received a six-month waiver from the lender.
Under the terms of the loan agreement, the Company is required to register the
resale of all shares of its common stock issuable upon conversion of the note or
exercise of the warrants, within 180 days from the date of the closing of the
loan. If the common stock is not fully registered within 180 days, the Company
is subject to a monthly penalty of .1% shares of its common stock then
outstanding computed on a fully diluted basis per day until the shares are
registered.
Under Emerging Issues Task Force ("EITF") 00-27: Application of Issue No. 98-5
to Certain Convertible Instruments, the Company has allocated the proceeds from
issuance of the convertible promissory note and warrants based on a fair value
basis of each item. The fair value of the warrant was determined to be $90,000
by an independent valuation. Under EITF 00-27 the note discount for the warrant
will be amortized over the period from the date of issuance to the stated
maturity date of the note. During the second quarter of 2002 the Company
amortized $9,154 of interest expense.
10
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 7 - NOTES PAYABLE (Continued)
10% Convertible Promissory Notes
- --------------------------------
In April 2001 and as amended April 10, 2002, the Company issued $310,000
convertible promissory notes with interest payable at 10% per annum. In
connection with the issuance of the convertible promissory notes, the Company
also issued immediately exercisable warrants to purchase 155,000 shares of the
Company's common stock. The warrants have an exercise price of $2.50 per share
and expire in April 2004. The notes plus accrued interest were originally due
upon the earlier of April 10, 2003 or the receipt of fund or financing from any
source. The principal amount of the notes was repaid April 26, 2002. As of June
30, 2002 the Company has not paid $31,071 of accrued interest related to the
notes.
Non-Interest Bearing Loans
- --------------------------
An unrelated entity made two non-interest bearing demand loans to the Company
totaling $16,000 through April 2002, which were subsequently repaid.
A second unrelated entity made a non-interest bearing demand loan to the Company
in the amount of $12,000 in April 2002, which was subsequently repaid.
NOTE 8 - STOCK WARRANTS
The Company had the following warrants to purchase shares of its common stock
outstanding as of:
June 30, 2002 December 31, 2001
------------------------------------ -----------------------------------
(Unaudited) (Audited)
Number of Exercise Price Number of Exercise Price
Description of Series Warrants issued Per Share Warrants issued Per Share
- --------------------- -------------------- --------------- ------------------ ----------------
Expire April 2004 155,000 $ 2.50 155,000 $ 2.50
Expire April 2012 150,000 2.00 - -
------------------- ------------------
Common Stock 305,000 155,000
=================== ==================
NOTE 9 - NET LOSS PER SHARE
The Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic
and diluted loss per share. Basic loss per share is computed by dividing net
loss attributable to common stockholders by the weighted average number of
common shares outstanding. Diluted loss per share is computed similarly to
basic loss per share except that the denominator is increased to include the
number of additional shares of common stock that would have been outstanding if
potentially dilutive shares of common stock had been issued and if the
additional shares of common stock were dilutive. At June 30, 2002 and December
31, 2001, the Company had potentially dilutive shares of 305,000 and 155,000,
respectively.
11
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 10 - SUPPLEMENTARY CASH FLOW DISCLOSURES
Cash paid during the period for interest and income taxes was as follows:
June 30,
-----------------------------------
2002 2001
--------------- ---------------
Interest paid $ 16,973 $ -
=============== ===============
Income taxes paid $ - $ -
=============== ===============
Non-Cash Investing and Financing
- --------------------------------
The Company issued 150,000 warrants valued at $90,000 in conjunction with a
$1,500,000 12% secured convertible note.
In connection with the 12% secured convertible promissory note (see Note 7) the
lender deducted loan and legal fees from the loan proceeds in the amount of
$80,146.
NOTE 11 - RELATED PARTY - CONTRIBUTED SERVICES
The president of the Company has provided services to the Company without
compensation. For the three months ended March 31, 2002 the value of these
services was de minimis. For the six months ended June 30, 2002 the value of
these services was $5,000. In accordance with the accounting treatment
proscribed in the SEC Staff Accounting Bulletin Topic 5-T, the Company recorded
an expense of $5,000 representing the value of these services provided. An
offsetting entry was recorded to paid-in capital.
NOTE 12 - LIQUIDITY
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern. The Company is in
its development stage and has significant debt obligations to repay in future
years and its liabilities exceed its assets. Additionally, the Company will need
significant funds to meet its cash calls on its various interests in oil and gas
prospects to explore, produce, develop, and eventually sell the underlying
natural gas and oil products under its interests and to acquire additional
properties. The Company believes that its projected revenues from its gas and
oil operations and proceeds from the collection of its GCC note receivable will
provide sufficient funds to fund its operations through June 2003. In the event
that the Company locates additional prospects for acquisitions, experiences cost
overruns at its prospects, or fails to generate projected revenues, the Company
will be required to raise funds through additional offerings of its securities
in order to have the funds necessary to complete these acquisitions and continue
its operations.
If the Company is unable to obtain additional funds when they are required or if
the funds cannot be obtained on terms favorable to the Company, management may
be required to delay, scale back or eliminate its well development program or
license third parties to develop or market products that the Company would
otherwise seek to develop or market itself, or even be required to relinquish
its interest in the properties.
12
BEPARIKO BIOCOM
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Financial Statements
NOTE 13 - COMMITMENT AND CONTINGENCIES
General
- -------
The oil and gas industry is extensively regulated by federal, state and local
authorities. In particular, gas and oil production operations and economics are
affected by price controls, environmental protection statutes, tax statutes and
other laws and regulations relating to the petroleum industry, as well as
changes in such laws, changing administrative regulations and the
interpretations and application of such laws, rules and regulations. Gas and
oil industry legislation and agency regulations are under constant review for
amendment and expansion for a variety of political, economic, and other reasons.
Numerous regulatory authorities, federal, and state and local governments issue
rules and regulations binding on the gas and oil industry, some of which carry
substantial penalties for failure to comply. The regulatory burden on the gas
and oil industry increases the Company's cost of doing business, and
consequently, affects its profitability. The Company believes it is in
compliance with all federal, state and local laws, regulations, and orders
applicable to the Company and its properties and operations, the violation of
which would have a material adverse effect on the Company or its financial
condition.
Operating Hazards and Insurance
- -------------------------------
The gas and oil business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formation, and environmental hazards such as oil spills, gas leaks, ruptures or
discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, cleanup responsibilities, regulatory investigation
and penalties and suspension of operations.
The Prospect maintains a gas and oil lease operator insurance policy that
insures the Prospect against certain sudden and accidental risks associated with
drilling, completing and operating its wells. There can be no assurance that
this insurance will be adequate to cover any losses or exposure to liability.
Although the Company believes these policies provide coverage in scope and in
amounts customary in the industry, they do not provide complete coverage against
all operating risks. An uninsured or partially insured claim, if successful and
of significant magnitude, could have a material adverse effect on the Company
and its financial condition via its contractual liability to the Prospect.
Potential Loss of Oil and Gas Interests/ Cash Calls
- ---------------------------------------------------
The Company is subject to cash calls related to its various investments in oil
and gas prospects. Additional cash calls related to its Touchstone
Resources-2001 Hackberry Drilling Fund, L. P. are initially limited to $400,000.
If the Company does not pay its share of cash calls it will forfeit all or some
of its rights in certain of its interests in the Prospects and any related
profits. The Company's share of additional exploratory and drilling cost over
the next year is uncertain at this time. If one or more of the other members of
the Prospect fail to pay their share of the prospect costs - the Company may
need to pay additional funds to protect its investment.
NOTE 14 - CONCENTRATIONS
The Company currently has two investments in Oil and Gas Interests and operates
in a single industry. If neither interest proves successful, the concentration
of two investments could have a material adverse effect on the Company.
13
BEPARIKO BIOCOM
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 15 - SUBSEQUENT EVENTS
On July 17, 2002, the Company paid $150,000 to PH Gas, L.P. in exchange for a
42% limited partnership interest therein. PH Gas, L.P. thereupon invested a
total of $400,000 in APICO, LLC, a Delaware limited liability company and in
return received 4,100 of APICO, LLC's membership shares.
The business of APICO, LLC is to farm-in to certain concessions (the
"Concessions") in Phu Horm Gas Field Project in the Kingdom of Thailand, which
are controlled by Amerada Hess (Thailand) Limited which is acting as operator;
to acquire and own property interests and other rights in the Concessions; to
participate in exploring the Concessions, in developing and operating oil and
gas wells in the Concessions, in financing its operations, in selling production
from such wells and in selling interests in the Property and/or the Concession;
and to take all other actions necessary, appropriate or advisable in connection
with such business.
The Company is not subject to capital calls in connection with its limited
partnership interest in PH Gas, L.P. However, PH Gas, L. P. is subject to cash
calls from its investment in APICO, LLC as explained below. If PH Gas L. P.
does not meet its cash calls, then the Company's investment in PH Gas may become
impaired.
The APICO membership agreement indicates PH Gas, L.P. and the other APICO
members will be called upon from time to time for additional contributions so as
to meet the reasonable capital requirements of APICO.
If PH Gas, L.P., or any other member, fails to make required capital
contributions or meet the required cash calls in the amounts and at the times
specified in the membership agreement, then they would be in default. If the
default is not cured within 45 days, then APICO has the right to repurchase the
defaulting members shares for 1% of their original purchase price.
14
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 as amended, and
Section 21E of the Securities Exchange Act of 1934. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us and our affiliate
companies, that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "would,"
"expect," "plan," anticipate," believe," estimate," continue," or the negative
of such terms or other similar expressions. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those in our
other Securities and Exchange Commission filings, including our Annual Report on
Form 10-KSB filed on April 15, 2002. The following discussion should be read in
conjunction with our Consolidated Financial Statements and related Notes thereto
included elsewhere in this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATIONS
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We are a Nevada corporation that was formed on April 2, 1997. We are in
the business of acquiring, exploring and developing natural gas and oil
properties. We have directly and, through our subsidiaries, indirectly acquired
leasehold interests in prospects located in Texas and Thailand. On April 25,
2002, we acquired an approximate 6.25% gross working interest in the South China
Prospect and the South French Prospect in the Hackberry Trend located in
Jefferson County, Texas, for a purchase price of $350,000. On July 16, 2002 we
acquired an approximate 42% limited partnership interest in PH Gas, L.P. for
$150,000. PH Gas, L.P. owns 4,100 membership shares in APICO, LLC. APICO's
primary business is to farm-in certain concessions in the Phu Horm Gas Field
Project located in the Kingdom of Thailand and controlled by Amerada Hess
(Thailand) Limited. APICO, LLC also plans to acquire additional property
interests and other rights in these concessions, to participate in exploring
these concessions, and to develop and operate oil and gas wells in these
concessions. We have also acquired two units, representing an approximate
10.26% partnership interest, of Touchstone Resources-2001 Hackberry Drilling
Fund, L.P. (the "Partnership") for a purchase price of $400,000. The
Partnership owns an approximate 75% working interest in the prospects which we
currently own in Texas. Touchstone Resources Ventures, LLC, the General Partner
of the Partnership, is responsible for oversight and coordination of the
development and management of the Prospects in conjunction with Touchstone
Resources, USA, the operator of the Prospects.
We intend to acquire additional ownership interests in properties located
in Texas as well as other traditional oil producing states in the southwestern
United States. With the assistance of various third parties, we plan to explore
and develop these prospects and sell on the open market any gas or oil that we
discover. We rely on Touchstone Resources USA, Inc. to assist and advise us
regarding the identification and leasing of properties on favorable terms. We
also rely upon Touchstone Resources USA, Inc. to provide us with additional
reserve assessment analysis and engineering services in connection with the
exploration and development of our prospects. SKH Management, L.P. will also
provide us with technical support including geological, geophysical, chemical
and other evaluation services. Each of Touchstone Resources USA, Inc. and SKH
Management, L.P. has a significant level of experience in exploring and
developing gas and oil properties in the regions where our prospects are
located.
We will also rely upon various third parties who will be responsible for
drilling wells, delivering any gas or oil reserves which are discovered through
pipelines to the ultimate purchasers and assisting us in the negotiation of all
sales contracts with such purchasing parties. We intend to play an active role
in evaluating prospects, and to provide financial and other management functions
with respect to the operations at each of our properties. As we intend to
subcontract the performance of substantially all of the physical operations at
our properties, we do not anticipate incurring a substantial amount of expenses
related to the purchase of plant, machinery or equipment in connection with the
exploration and development of our properties. Similarly, we do not anticipate
any substantial increase in the number of persons which we employ.
In April 2002, we raised approximately $1,500,000 in a private placement
offering of our securities. In addition, in August 2002, we received repayment
15
of $140,600 of the principal amount of our note receivable from Global Genomics
Capital, Inc. We have used approximately $900,000 of these funds to acquire our
leasehold interests in the South China Prospect and South French Prospect in the
Hackberry Trend located in Jefferson County, Texas, our limited partnership
interests in PH Gas, L.P., and our units in the Partnership, we have used
approximately $310,000 to repay Series 1 Promissory Notes in the aggregate
principal amount of $310,000 and we have used approximately $290,000 for working
capital purposes. We believe that the net proceeds from the repayment of the
Global Genomics Capital, Inc. note receivable and our projected revenues from
operations will provide us with a sufficient level of cash to satisfy our cash
requirements for the next twelve months. However, since we do not expect to
generate substantial gross revenues in 2002, in the event that we locate
additional prospects for acquisition or experience cost overruns at our
prospects, we will be required to raise funds through additional offerings of
our securities in order to have the funds necessary to complete these
acquisitions and continue our operations.
In April 1997, we were granted worldwide patent rights, pursuant to an
Exclusive Worldwide Licensing Agreement, covering electronic multiple
fingerprint recognition system. Since the date of the Exclusive Worldwide
Licensing Agreement, we have unsuccessfully attempted to exploit these patent
rights. While we still hold these patent rights, we are no longer devoting
substantial efforts to the exploitation of these patent rights and are currently
soliciting offers to sell or assign these rights. We plan to use any proceeds
received from the sale or assignment of these rights to satisfy our working
capital needs and to purchase additional leasehold interests in natural gas and
oil properties.
If we are unable to obtain additional funds when they are required or if
the funds cannot be obtained on terms favorable to us, then we may be required
to delay, scale back or eliminate some or all of our well development programs
or license third parties to develop or market products that we would otherwise
seek to develop or market ourselves, or even be required to relinquish our
interest in certain properties. If one or more of the other owners of leasehold
interests in our prospects fail to pay their equitable portion of development or
operation costs, then we may need to pay additional funds to protect our
ownership interests in our leasehold interests.
16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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In April 2002, we issued a 12% secured convertible promissory note in the
principal amount of $1,500,000 with a maturity date of October 31, 2003 and
warrants to purchase 150,000 shares of our common stock at an exercise price of
$2.00 per share to Gemini Growth Fund, L.P., an accredited investor. Our
obligation to repay the secured convertible promissory note is secured by a
first priority lien granted to Gemini Growth Fund, L.P. covering substantially
all of our assets. Gemini Growth Fund, L.P., has the option to convert the
entire principal amount of the secured convertible promissory note, plus all
accrued interest thereon, into shares of our common stock at a conversion price
of $2.00 per share. The conversion price of the secured convertible promissory
note and the exercise price of the warrants is subject to reduction in the event
of standard antidilution events, such as stock splits, combinations or
reclassifications, as well as reduction in the event of any sales of our
securities at a purchase price of less than $2.00 per share. We paid a loan
commitment fee of $15,000 (1% of the principal amount of the note) and an
origination fee of $60,000 (4% of the principal amount of the note). This
private placement offering was completed pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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In April 2001, we issued our Series 1 Promissory Notes in the aggregate
principal amount of $310,000. The Series 1 Promissory Notes matured on August
31, 2001, at which point we defaulted on our obligations under the Series 1
Promissory Notes. In April 2002, we negotiated an amendment to each of the
Series 1 Promissory Notes extending their maturity dates to the earlier of (i)
the first anniversary of the date of the amendments or (ii) the date on which we
received funds or financings from any source. In April 2002, upon completion of
a private placement offering of our convertible debt securities in the aggregate
principal amount of $1,500,000, we repaid the aggregate principal amount of the
Series 1 Promissory Notes. We plan to repay all remaining unpaid accrued
interest, which was $31,071 as of June 30, 2002, during the third quarter of
2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) The following exhibits are included herein:
3.1 Articles of Incorporation (incorporated by reference to Exhibit 1 to our
Registration Statement on Form 10-SB dated December 20, 1999).
3.2 Bylaws (incorporated by reference to Exhibit 2 to our Registration
Statement on Form 10-SB dated December 20, 1999).
4.1 Form of Warrant Certificate issued in connection with receipt of proceeds
from issuance of Series 1 Promissory Notes in April 2001 (incorporated by
reference to Exhibit 10.4 to our Annual Report on Form 10-KSB filed on
April 15, 2002).
4.2 12% Secured Convertible Note in the principal amount of $1,500,000 issued
to Gemini Growth Fund, L.P.
4.3 Warrants to purchase 150,000 shares of common stock issued to Gemini Growth
Fund, L.P. in April 2002.
10.3 Letter Agreement dated April 25, 2002 by and between Vitel Ventures
Corporation and Bepariko BioCom (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K dated May 13, 2002).
10.4 Partial Assignment of Oil, Gas and Mineral Lease by and between Touchstone
Resources, Inc. and Bepariko BioCom dated April 25, 2002 BioCom
(incorporated by reference to Exhibit 10.2 to our Current Report on Form
8-K dated May 13, 2002).
10.5 Agreement of Limited Partnership of Touchstone Resources - 2001 Hackberry
Drilling Fund, L.P. (incorporated by reference to Exhibit 10.3 to our
Current Report on Form 8-K dated May 13, 2002).
10.6 Loan Agreement dated April 25, 2002 and between Bepariko Biocom and Gemini
Growth Fund, L.P.
10.7 Security Agreement dated April 25, 2002 issued to Gemini Growth Fund, L.P.
17
(b) Current Reports on Form 8-K.
On May 13, 2002 we filed a Current Report on Form 8-K reporting the acquisition
of our gross working interest in the South China Prospect and the South French
Prospect in the Hackberry Trend located in Jefferson County, Texas, as well as a
change in our principal accountants from Kurt D. Salinger C.P.A. to LJ Soldinger
Associates.
On June 10, 2002, we amended the aforementioned Current Report on Form 8-K to
attach a copy of the letter from Kurt D. Salinger C.P.A. required pursuant to
Item 304(a)(3) of Regulation S-B.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEPARIKO BIOCOM
Date: August 14, 2002 /s/ Cecile Coady
------------------
Cecile Coady
President
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EXHIBIT INDEX
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4.2 12% Secured Convertible Promissory Note in the principal amount of
1,500,000 issued to Gemini Growth Fund, L.P.
4.3 Warrants to purchase 150,000 shares of common stock issued to Gemini
Growth Fund, L.P. in April 2002.
10.6 Loan Agreement dated April 25, 2002 by and between Bepariko Biocom
and Gemini Growth Fund, L.P.
10.7 Security Agreement dated April 25, 2002 issued to Gemini Growth Fund,
L.P.
20