U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-43126
BIOACCELERATE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0650219
------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
712 Fifth Avenue, 19th Floor New York, NY 10019
(Address of principal executive offices)
(212) 897-6849
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing requirements for the
past 90 days. YES [X] NO [_]
The number of $.001 par value common shares outstanding at November 14, 2005:
43,414,950
BIOACCELERATE HOLDINGS, INC
TABLE OF CONTENTS
Page
----
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited) 3
Item 2 Management's Discussion and Analysis or Plan of Operations 15
Item 3 Controls and Procedures 23
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 24
Item 2 Sales of Unregistered Equity Securities and Use of Proceeds 24
Item 3 Defaults Upon Senior Securities 24
Item 4 Submission of Matters to a Vote of Security Holders 24
Item 5 Other Information 24
Item 6 Exhibits 24
Signatures 25
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOACCELERATE HOLDINGS, INC
(A Development Stage Company)
Consolidated Balance Sheet as of September 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 137,556
Prepaid expenses 730,503
Other accounts receivable 530,140
-------------
Total Current Assets 1,398,199
-------------
Property and equipment, net 916,650
-------------
OTHER ASSETS
Other assets 11,406
Patents, net 843,559
Other long term investments 2,000,000
-------------
2,854,965
-------------
$ 5,169,814
=============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Bank loans and overdrafts $ 844,017
Accounts payable 7,161,676
Accrued expenses 2,076,070
Due to related parties 628,039
Loans payable 17,229,867
Current portion of long-term debt 57,177
Other current liabilities 217,494
Deferred revenue 50,000
-------------
Total Current Liabilities 28,264,340
-------------
Deferred revenue 1,162,500
Long-term debt 6,498,783
-------------
7,661,283
-------------
STOCKHOLDERS' (DEFICIT)
Preferred Stock, par value $.001; 10,000,000 shares authorized; --
none issued and outstanding
Common Stock, par value $.001; 100,000,000 shares authorized; 43,415
43,414,950 shares issued and outstanding
Additional paid in capital 184,294,379
(Deficit) accumulated in the development stage (214,831,537)
Other comprehensive Income (Loss)
Currency translation adjustment (262,066)
-------------
Total Stockholders' (Deficit) (30,755,809)
-------------
$ 5,169,814
=============
The accompanying notes are an integral part of these financial statements.
3
BIOACCELERATE HOLDINGS, INC
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Quarter From inception,
Nine months Nine months ended ended November 1, 1999
ended September ended September September 30, September 30, to September 30,
30, 2005 30, 2004 2005 2004 2005
Revenue $ 481,588 0 0 0 481,588
--------------- --------------- ------------- ------------- ----------------
Operating expenses
Research and development 10,698,072 1,605,041 453,255 1,146,375 53,376,146
General and administrative 8,889,516 1,523,071 2,018,205 845,037 14,110,991
Non cash stock compensation -
general and administrative 22,831,872 2,054,107 87,332,578
--------------- --------------- ------------- ------------- ----------------
42,419,460 3,128,112 4,525,567 1,991,412 154,819,715
--------------- --------------- ------------- ------------- ----------------
Net operating (loss) (41,937,872) (3,128,112) (4,525,567) (1,991,412) (154,338,127)
Other income (expenses)
Interest and finance charges (597,768) (352,429) (597,768)
Interest and finance charges -
Non cash (12,800,000) (49,731,308)
Share of losses in associate (251,466) (251,466) (362,441)
Minority share of losses 319,158 158,580 6,981,408
Profit on disposal of marketable
securities - net of corporation
tax 600,269 600,269 600,269
Impairment charges (17,383,570)
--------------- --------------- ------------- ------------- ----------------
(Loss) attributable to common
stockholders $ (54,735,371) (3,060,420) (4,277,727) (2,084,298) (214,831,537)
Other comprehensive income (loss)
Foreign currency translation
adjustments 211,182 41,220 9,812 6,274 (262,066
--------------- --------------- ------------- ------------- ----------------
Total comprehensive (loss) (54,524,189) (3,019,200) (4,267,915) (2,078,024) (215,093,603)
=============== =============== ============= ============= ================
Per share information - Basic and
Diluted Net (loss) per common
share $ (1.30) (0.12) (0.10) (0.08)
=============== =============== ============= =============
Weighted average number of shares
outstanding 42,108,967 25,403,038 43,173,053 25,570,370
=============== =============== ============= =============
The accompanying notes are an integral part of these financial statements.
4
2
BIOACCELERATE HOLDINGS, INC
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended Nine months ended From Inception
September 30, 2005 September 30, 2004 November 1, 1999
To September 30,
2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) operating activities $ (15,911,797) $ (3,596,753) $ (15,396,368)
------------------ ------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of long term investments (500,000) (2,222,936) (4,089,472)
Sale of long term investments 803,140 -- 803,140
Purchase of property and equipment (410,961) (192,247) (2,117,333)
Investment in affiliate -- -- (4,001,815)
Payment for purchase of subsidiaries - net of cash -- --
acquired -- -- (16,623,688)
------------------ ------------------ ----------------
Net cash (used in) investing activities (107,821) (2,415,183) (26,029,168)
------------------ ------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash -- 2,877,279 15,445,820
Bank overdraft 807,143 -- 844,017
Proceeds from loans payable 14,395,993 2,839,793 25,535,321
------------------ ------------------ ----------------
Net cash provided by financing activities 15,203,136 5,717,072 41,825,158
------------------ ------------------ ----------------
Effect of changes in exchange rates 211,182 200,374 (262,066)
------------------ ------------------ ----------------
Net (decrease)/increase in cash and cash equivalents (605,300) (94,490) 137,556
Cash and cash equivalents at beginning of period 742,856 331,438 --
------------------ ------------------ ----------------
Cash and cash equivalents at end of period $ 137,556 $ 236,948 $ 137,556
================== ================== ================
Supplemental cash flow information:
Cash paid for interest $ -- $ -- $ --
================== ================== ================
Cash paid for income taxes $ -- $ -- --
================== ================== ================
The accompanying notes are an integral part of these financial statements.
5
BIOACCELERATE HOLDINGS, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2005
NOTE 1 - NATURE OF THE BUSINESS
DESCRIPTION OF COMPANY: Bioaccelerate Holdings, Inc ("Bioaccelerate" or
"Company"), formerly Mobile Design Concepts, Inc. ("Mobile"), acquired
Bioaccelerate, Inc. ("BI") in an exchange of stock on September 23, 2004.
Simultaneously with the exchange of stock, Mobile Design Concepts, Inc. changed
its name to Bioaccelerate Holdings, Inc. Mobile was organized under the laws of
the State of Nevada on March 10, 2000. Mobile was formed to design, manufacture,
and lease mobile kiosks and other structures. The operation was discontinued on
December 31, 2002.
The Company is examining opportunities in both start-up and emerging companies
in the biopharmaceutical sector.
The Company has not yet generated any significant revenues and is considered a
development stage company as defined in Statement of Financial Accounting
Standards No.7. At the present time, the Company has not paid any dividends, and
any dividends that may be paid in the future will depend upon the financial
performance of its subsidiary, Bioaccelerate, Inc.
BI was organized under the laws of the State of Delaware on December 29, 1995 as
Tallman Supply Corp. On January 14, 1999, the Company changed its name to
Westminster Auto Retailers, Inc. On July 25, 2003, the Company changed its name
to Bioaccelerate, Inc.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: These consolidated financial statements include the
accounts of Bioaccelerate Holdings, Inc. and its subsidiaries (the Company),
with appropriate eliminations of inter-company balances and transactions. The
financial statements are prepared by the Company on the accrual basis of
accounting in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information, and in accordance with
the instructions for form 10QSB.
Certain information and footnote disclosures normally included in the Company's
annual audited financial statements, as required by accounting principles
generally accepted in the United States, have been condensed or omitted. The
interim condensed financial statements, in the opinion of management, reflect
all adjustments, consisting entirely of normal recurring adjustments, necessary
for a fair presentation of the Company's financial position as of September 30,
2005.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the entire fiscal year. These
interim condensed financial statements should be read in conjunction with the
audited financial statements for the seven months ended December 31, 2004, which
are contained in the Company's 10KSB/A, and filed with the Securities and
Exchange Commission,
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues and expenses during
the reporting period. Actual reports may differ from these estimates.
Significant estimates in the financial statements include the assumption that
the Company will continue as a going concern.
CERTAIN RISKS AND UNCERTAINTIES: The Company is subject to risks common to
companies in its industry, including, but not limited to, new technological
innovations, dependence on key personnel, protection of proprietary technology,
compliance with government regulations, uncertainty of market acceptance of
products, product liability and the need to obtain financing.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements presented
herein include the accounts of the Company and its majority owned subsidiaries
(collectively, the "Company").
The consolidated financial statements include the accounts of the following
companies:
Amilar Pharma Inc
Anvira Inc
Bioaccelerate Holdings, Inc (formerly Mobile Design Concepts, Inc)
Bioaccelerate, Inc
Bioaccelerate Limited
Bioaccelerate BVI Limited
Biocardio Inc
CNS Thera Inc
6
Cynat Oncology Inc
Enhance Biotech Inc
Evolve Oncology Inc
Genar Oncology Inc
Genaderm, Inc
Inncardio, Inc
Innova Lifestyle, Inc
Innovate Oncology, Inc
Oncbio Inc
The consolidated financial statements include the assets and liabilities of the
majority owned subsidiaries, adjusted to allow for minority interests. All
significant inter-company transactions have been eliminated.
LOSS PER SHARE
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses common stock
equivalents, if any, are not considered, as their effect would be anti dilutive.
NOTE 3 - BASIS OF PRESENTATION
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The Company has experienced a significant loss from operations aggregating
$54,735,371, and $4,277,727, and $214,831,537 for the nine months and three
months ended September 30, 2005, and the period from inception to September 30,
2005. In addition, the Company has working capital and stockholder deficits at
September 30, 2005, of $26,866,141 and $30,755,809. The Company's ability to
continue as a going concern is contingent upon its ability to secure additional
financing, utilize its credit facilities, increase ownership equity and attain
profitable operations. In addition, the Company's ability to continue as a going
concern must be considered in light of the problems, expenses and complications
frequently encountered in established markets and the competitive environment in
which the Company operates. The Company is pursuing financing for its operations
and seeking additional investments. In addition, the Company is seeking to
establish a revenue base. Failure to secure such financing or to raise
additional equity capital and to establish a revenue base may result in the
Company depleting its available funds and not being able pay its obligations.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 4 - LOANS PAYABLE
CREDIT FACILITIES
During February 2004 the Company entered into a senior secured credit facility
with Technology Finance, Inc. ("Technology") under which Technology shall
provide the Company one or more loans in the aggregate principal amount of up to
$7,500,000. Notwithstanding this Technology shall have no obligation to fund the
Company, if one of the following have occurred: (i) there shall be a material
change in the business, properties, assets, results of operations, prospects or
financial condition of the Company since January 1, 2004; (ii) the Company shall
be in breach of, or in default under any material contract, license agreement or
instrument; or iii) there shall have occurred a disruption in the securities
markets. Technology has the right to convert the outstanding balance into shares
of the Company's common stock at $1.00 per share. The credit facility matures on
the earliest of (i) the date on which a placement in which the Company receives
at least $25,000,000 in gross proceeds for the issuance of debt or equity
securities, (ii) the date on which an event of default occurs, or (iii) the date
on which a change in control occurs. The advances bear interest at a rate equal
to the Applicable Federal Rate, as defined in Section 1247(d) of the Internal
Revenue Code and are secured by all of the Company's assets and assets acquired
in the future. The credit facility contain certain affirmative and negative
covenants including the Company furnishing Technology with audited financial
statements within 90 days after its year end and unaudited financial statements
with 45 days of each quarter excluding the Company's year end. In addition, the
credit facility provides that at the date of signing there shall be no
outstanding options, warrants or subscription rights for capital stock of the
Company. In addition, there has been a material change in the financial
condition of the Company since it last filed quarterly financial statements with
the Securities and Exchange Commission. The Company has not been notified by
Technology as to whether the credit facility will be called because of any
defaults. The entire balance due has been classified as a current liability. The
Company had a balance of $7,465,042 drawn against the balance of this credit
facility at September 30, 2005, and as of September 30, 2005, the interest rate
was 4%. The loan matures upon one of the events described above. This balance
includes interest of $50,000. Subsequent to September 31,2005, the balance of
the loan was converted into Series A Preferred Stock. (See Note 9.)
7
During September 2004 the Company entered into a senior secured credit facility
with Lifescience Ventures, Limited ("Lifescience") under which Lifescience shall
provide the Company one or more loans in the aggregate principal amount of up to
$12,500,000. Notwithstanding this Lifescience shall have no obligation to fund
the Company, if one of the following have occurred: (i) there shall be a
material change in the business, properties, assets, results of operations,
prospects or financial condition of the Company since January 1, 2004; (ii) the
Company shall be in breach of, or in default under any material contract,
license agreement or instrument; or iii) there shall have occurred a disruption
in the securities markets. As an inducement for extending the credit facility
Lifescience received 1,000,000 warrants to purchase shares of the Company's
common stock at $14 per share and 1,000,000 warrants to purchase shares of the
Company's common stock for $28 per share and the credit facility contains a
clause prohibiting the repricing of any outstanding options or warrants to a
price which is less than the prices of the Lifescience warrants. The fair value
of the warrants, determined using the Black-Scholes option pricing model,
aggregates $12,800,000 and will be amortized as additional interest over the
term of the credit facility commencing with the first draw. The credit facility
matures on the earliest of (i) the date on which a placement in which the
Company receives at least $50,000,000 in gross proceeds for the issuance of debt
or equity securities, (ii) the date on which an event of default occurs, or
(iii) the date on which a change in control occurs. The advances bear interest
at a rate equal to the Applicable Federal Rate, as defined in Section 1247(d) of
the Internal Revenue Code and are secured by all of the Company's assets and
assets acquired in the future. The credit facility contain certain affirmative
and negative covenants including the Company furnishing Lifescience audited
financial statements within 90 days after its year end and unaudited financial
statements with 45 days of each quarter excluding the Company's year end. In
addition, the credit facility provides that at the date of signing there shall
be no outstanding, options, warrants or subscription rights for capital stock of
the Company. In addition, there has been a material change in the financial
condition of the Company since it last filed quarterly financial statements with
the Securities and Exchange Commission. No amounts are outstanding pursuant to
this credit facility at September 30, 2005.
During September 2004 the Company entered into a senior secured credit facility
with Jano Holdings Limited ("Jano") under which Jano shall provide the Company
one or more loans in the aggregate principal amount of up to $12,500,000.
Notwithstanding this Jano shall have no obligation to fund the Company, if one
of the following have occurred: (i) there shall be a material change in the
business, properties, assets, results of operations, prospects or financial
condition of the Company since January 1, 2004; (ii) the Company shall be in
breach of or in default under any material contract, license agreement or
instrument; or iii) there shall have occurred a disruption in the securities
markets. As an inducement for extending the credit facility Jano received
1,000,000 warrants to purchase shares of the Company's common stock at $14 per
share and 1,000,000 warrants to purchase shares of the Company's common stock
for $28 and the credit facility contains a clause prohibiting the re-pricing of
any outstanding options or warrants to a price which is less than the prices of
the Jano warrants. The fair value of the warrants, determined using the
Black-Scholes option pricing model aggregates $12,800,000 and was charged to
operations as non cash interest upon the initial draw as the credit facility has
no specific due date and the Company was in default on the arrangement. The
credit facility matures on the earliest of (i) the date on which a placement in
which the Company receives at least $50,000,000 in gross proceeds for the
issuance of debt or equity securities, (ii) the date on which an event of
default occurs, or (iii) the date on which a change in control occurs. The
advances bear interest at a rate equal to the Applicable Federal Rate, as
defined in Section 1247(d) of the Internal Revenue Code and are secured by all
of the Company's assets and assets acquired in the future. The credit facility
contain certain affirmative and negative covenants including the Company
furnishing Jano audited financial statements within 90 days after its year end
and unaudited financial statements with 45 days of each quarter excluding the
Company's year end. In addition, the credit facility provides that at the date
of signing there shall be no outstanding options, warrants or subscription
rights for capital stock of the Company. As of the date hereof the Company is in
default of the covenant to provide financial statements for the year ended
December 31, 2004, and the quarters ended March 31, 2005 and September 30, 2005.
In addition, there has been a material change in the financial condition of the
Company since it last filed quarterly financial statements with the Securities
and Exchange Commission. The Company has not been notified by Technology as to
whether the credit facility will be called because of the defaults and the
entire balance due has been classified as a current liability. The Company had a
balance of $9,764,825 drawn against the balance of this credit facility at
September 30, 2005, and the interest rate was 4%. The loan matures upon one of
the events described above. Subsequent to the end of the quarter an amount of
$6,675,630 has been converted into Series A Preferred Stock.
CONVERTIBLE LOANS
During December 2004 the Company borrowed an aggregate of $3,100,000 with
interest at Libor (2.35% at December 31, 2004). Over the nine months ended
September 30, 2005 a further $1,459,865 was borrowed bring the total outstanding
as of September 30, 2005 to $4,559,865. These loans are convertible into common
shares of the Company at equivalent terms to the Company's next equity
financing, of not less than $6,000,000. Should a financing not occur within 1
year, the loans shall accrue interest at Libor plus 10% and the loan will be
convertible into common shares at a price to be determined between the parties.
Subsequent to September 31,2005, an amount of $3,629,908 has been converted into
Series A Preferred Stock. (See Note 9.)
8
In 1999 and 2000, the Company formed two joint ventures with Elan Corporation
("Elan") that were terminated in 2002 and 2003. As part of the joint ventures
Elan loaned the Company $1,925,028 in convertible debt financing, maturing on
April 14, 2006. Interest accrues at 9% per annum, compounded on an annual basis.
Elan has the right to convert outstanding debt into the number of common shares
that is obtained by dividing outstanding principal and interest by $10.29. At
September 30, 2005, accrued interest totalled $619,109.
NOTES PAYABLE
The Company's borrowings under an equipment lease financing agreement are
collateralized by the related equipment, furniture and fixtures, at interest
rates between 12% and 13% with monthly payments of approximately $9,920. Future
aggregate annual maturities are:
2005 $ 57,177
2006 13,890
------
71,067
======
NOTE 5 - INVESTMENT IN AFFILIATES
EVOLVE ONCOLOGY
Through December 2004, the Company acquired 23,857,000 common shares of Evolve
Oncology Inc. ("Evolve") these shares were obtained initially through the
acquisition of Pharma Manufacturing Services Ltd and the sale of Antibody
Technologies Inc.
At September 30, 2005, the Company owned a 49.15% interest in Evolve. For
accounting purposes, the Company is treating its capital investment in Evolve as
a vehicle for research and development. Because the Company is solely providing
financial support to further the research and development of Evolve, such
amounts are being charged to expense as incurred by Evolve since Evolve
presently has no ability to fund these activities and is dependent on the
Company to fund its operations. In these circumstances, Evolve is considered a
variable interest entity and has been consolidated. The creditors of Evolve do
not have recourse to the general credit of the Company. Through September 30,
2005, the Company advanced Evolve an aggregate of $3,043,686.
A summary of financial position and results of operations of Evolve as of
September 30, 2005, and the seven months then ended is as follows:
Current assets $ 669,185
Property and equipment 97,000
-----------
$ 766,185
===========
Current liabilities $ 3,962,438
Stockholders' equity (3,196,253)
-----------
$ 766,185
===========
Sales $ --
===========
Net (loss) $(2,041,383)
===========
ENHANCE BIOTECH
At September 30, 2005 the Company holds a 22.4% interest in Enhance Biotech,
Inc. ("Enhance"). For accounting purposes, the Company is treating its capital
investment in Enhance Biotech as a vehicle for research and development. Because
the Company is solely providing financial support to further the research and
development of Enhance, such amounts are being charged to expense as incurred by
Enhance since Enhance presently has no ability to fund these activities and is
dependent on the Company to fund its operations. In these circumstances, Enhance
is considered a variable interest entity and has been consolidated. The
creditors of Enhance do not have recourse to the general credit of the Company.
Through September 30, 2005, the Company advanced Enhance an aggregate of
$4,960,246.
9
A summary of financial position and results of operations of Enhance at
September 30, 2005, is as follows:
Current assets $ 162,534
Amounts due after more than one year 878,894
Fixed assets 1,214,112
------------
$ 2,255,540
============
Total liabilities $ 11,447,396
Stockholders' equity (9,191,856)
------------
$ 2,255,540
============
Sales $ 238,540
============
Net (loss) $ (5,149,977)
============
NOTE 6 - INVESTMENTS
During September 2004 the Company invested $2,000,000 in Advance Nanotech, Inc.
("Advance") in exchange for 2,000,000 common shares. The Company borrowed the
funds for this transaction pursuant to the credit facility from Technology
Finance, Inc. described in Note 4. The shares received are considered restricted
securities and represent approximately 6% of the outstanding shares of Advance
subsequent to a private placement by Advance at $2.00 per share in February and
March 2005. The shares are carried at the lower of cost of $1.00 or market value
of $5.90 per issued share.
Through December 2004 the Company acquired an aggregate of 3,928,804 common
shares of Neuro Bioscience, Inc. ("Neuro"). The shares were obtained as an
inducement to provide future financing and have no cost basis. These shares are
carried at the lower of cost or market value of $1.01 per issued share.
During November 2004 the Company invested $1,366,536 in Australian Cancer
Technology ("ACT") in exchange for 4,893,301 common shares. The carrying value
of the shares was $202,871. During the quarter ended September 30, 2005, the
company sold its entire holding in ACT for an aggregate of $803,140 realizing a
gain of $600,269.
During August 2004 the Company invested $222,936 in JPS Holdings ("JPS"), a
private Company. A further $500,000 was invested during March 2005. No trading
information or financial information is available for JPS and the Company
carries its investment at the lower of cost or market value of $0.
NOTE 7 - STOCKHOLDERS' (DEFICIT)
From January through March, 2005 the Company issued an aggregate of 2,880,146
shares of common stock valued at their fair market value of $18,167,581 for
consulting services and research and development. The value of these shares was
charged to operations. In addition, the Company charged the fair value of the
options issued to Jano Holdings, Inc in connection with the loan facility
referred to in Note 4 to interest expense. The fair value was calculated as
$12,800,000 and this amount was charged to interest expense.
From April through June, 2005 the Company issued an aggregate of 480,864 shares
of common stock valued at their fair market value of $2,610,184 for consulting
services. The value of these shares was charged to operations.
From July through September 2005 the company issued an aggregate of 259,578
shares of common stock valued at their fair market value of $906,607 for
consulting services and research and development. In addition, a subsidiary
company also issued common stock for consulting services valued at a fair market
value of $1,147,500. The value of these shares was charged to operations.
NOTE 8 - RELATED PARTY TRANSACTIONS
At September 30, 2005 the company had an aggregate of $628,039 due to related
parties. These advances have no specified due date or interest rate.
10
NOTE 9 - SUBSEQUENT EVENTS
Common Stock
On October 19, 2005, Innovate Oncology Inc issued 225,000 shares of Common Stock
for services valued at the fair market value of $5.10 per share.
Credit Facilities
During October, 2005, the Company borrowed an additional $792,057 from Jano
Holdings Limited pursuant to its credit facilities described in Note 4.
Private Placement
In October 2005 the Registrant has commenced a private placement (the "Private
Placement") of the Registrant's Series A Convertible Preferred Stock, par value
$0.001 per share (the "Series A Preferred Stock"), to accredited investors. The
Registrant reasonably believes that the securities have been and will be sold in
the Private Placement only to "accredited investors," as such term is defined
under Rule 501(e) under Regulation D promulgated pursuant to the Securities Act
of 1933, as amended (the "Act"). The Registrant will use the proceeds of the
Private Placement for general working capital and other corporate purposes,
including, without limitation, the development of various compounds.
Shares of Series A Preferred Stock are being offered in the Private Placement
for $6.00 per share of Series A Preferred Stock. Each share of Series A
Preferred Stock may initially convert into four (4) shares of the Registrant's
common stock , par value $0.001 per share (the "Common Stock"), which equates to
an initial conversion price of $1.50 per share of Common Stock. The shares of
Common Stock issued upon conversion of shares of Series A Preferred Stock are
hereafter referred to as Conversion Shares.
Also, each purchaser in the Private Placement will receive one (1) warrant (a
"Warrant") to acquire one (1) share of Common Stock for every two (2) shares of
Common Stock initially underlying the shares of Series A Preferred Stock
purchased in the Private Placement. The shares of Common Stock which may be
acquired upon exercise of the Warrants are hereafter referred to as the "Warrant
Shares." The Warrants are exercisable initially at $2.00 per share of Common
Stock, subject to adjustment, and are exercisable for three (3) years after
issuance or until the market price of the Common Stock has been at least three
hundred percent (300%) of the then applicable exercise price of the Warrant for
a period of at least thirty (30) days, and the average trading volume of the
Common Stock has been at least one hundred thousand (100,000) shares per day
during such thirty (30) day period (subject to adjustment of such trading volume
threshold in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events) and the shares of Common Stock which may be
acquired upon exercise of the Warrants are registered at the time under an
effective registration statement, whichever is earlier.
In addition, each purchaser in the Private Placement will receive four (4)
shares of the common stock of Cynat Oncology, Inc. ("Cynat") and four (4) shares
of the common stock of Genaderm Inc. ("Genaderm"), being referred to as the
"Cynat Shares" and the "Genaderm Shares", respectively, for each share of Series
A Preferred Stock acquired by such purchaser in the Private Placement.
On October 7, 2005, the Registrant sold 3,128,769 shares of its Series A
Preferred Stock for an aggregate purchase price of $18,772,580, and issued to
those investors Warrants to acquire, in the aggregate, 6,257,523 Warrant Shares.
The Registrant also delivered 12,515,056 Cynat Shares and 12,515,056 Genaderm
Shares, in the aggregate, to those investors. In addition, the Registrant issued
162,755 shares of its Series A Preferred Stock, in the aggregate, to investors
to whom it had previously agreed to issue a lesser number of shares of Series A
Preferred Stock, in order to give those investors the benefit of the same terms
on their investment, as well as Warrants to acquire, in the aggregate, 325,510
Warrant Shares and 651,020 Cynat Shares and 651,020 Genaderm Shares. The
aggregate investment by those investors was $976,530.
The Registrant has agreed to pay to its placement agent and to any other
participating agent a cash fee equal to ten percent (10%) of the aggregate gross
proceeds to the Registrant from the sale of Series A Preferred Stock in the
Private Placement to investors introduced to the Registrant by the applicable
placement agent or participating agent (without duplication of introduction).
In addition, the Registrant has agreed to issue to its placement agent and to
any other participating agent a warrant (the "Placement Agent Warrants") to
purchase that number of shares of Common Stock (the "Placement Agent Warrant
Shares") equal to ten percent (10%) of the number of shares of Common Stock
initially issuable upon conversion of the Series A Preferred Stock sold in the
Private Placement to investors introduced to the Registrant by the applicable
placement agent or participating agent (without duplication of introduction).
11
The Placement Agent Warrants are initially exercisable at one dollar and fifty
cents ($1.50) per share of Common Stock, subject to adjustment, commencing upon
the date of issuance and continuing for five (5) years after issuance or until
the market price of the Common Stock has been at least three hundred percent
(300%) of the then applicable exercise price of the Placement Agent Warrant for
a period of at least thirty (30) days, and the average trading volume of the
Common Stock has been at least one hundred thousand (100,000) shares per day
(subject to adjustment of such trading volume threshold in the event of stock
splits, reverse stock splits, stock dividends, recapitalizations or similar
events) during such thirty (30) day period and the shares of Common Stock which
may be acquired upon exercise of the Placement Agent Warrants are registered at
the time under an effective registration statement, whichever is earlier. The
Placement Agent Warrants contain a cashless exercise provision. The Placement
Agent Warrants are transferable by the Placement Agent or other Participating
Agent receiving the same only to its officers, directors, shareholders and
employees, as well as by such persons to their immediate family affiliates in
connection with estate planning, provided that no such transfer or disposition
may be made other than in compliance with applicable securities laws and
furnishing satisfactory evidence of such compliance to the Registrant.
The Registrant also agreed to indemnify the placement agent and participating
agents against certain liabilities. The Registrant also agreed to pay its own
costs of the Private Placement. The Registrant has also agreed to pay to the
placement agent a non-accountable expense allowance (the "Non-Accountable
Expense Allowance") equal to 3% of the gross proceeds received by the Registrant
from the sale of Series A Preferred Stock to investors (other than investors
introduced by management or affiliates of the Registrant or management).
In connection with the Private Placement to date, the Registrant has paid to its
placement agent and other participating agents, in the aggregate, cash fees of
$196,053, issued Placement Agent Warrants to acquire 130,703 Placement Agent
Warrant Shares, and paid to its placement agent the aggregate sum of $58,815 for
the Non-Accountable Expense Allowance.
The Series A Preferred Stock, the Conversion Shares, the Warrants, the Warrant
Shares, the Cynat Shares, the Genaderm Shares, the Placement Agent Warrants and
the Placement Agent Warrant Shares are "restricted securities" and, therefore,
may be transferred, to the extent permissible, only pursuant to registration or
qualification under federal and state securities laws or pursuant to an
exemption from registration or qualification. In addition, the Warrants are not
transferable in blocks of less than the lesser of (i) one hundred twenty
thousand (120,000) Warrants or, if applicable, (ii) the number of Warrants
acquired by the applicable purchaser in the Private Placement.
In connection with the Private Placement, the Registrant entered into the
Bioaccelerate Holding Inc. ('BACL'). Registration Rights Agreement. The BACL
Registration Rights Agreement imposes certain registration obligations upon the
Registrant with respect to the shares of Common Stock underlying the Series A
Convertible Preferred Stock acquired in the Private Placement by each investor
who executed and delivered to the Registrant the Securities Purchase Agreement.
The Registration Rights Agreement also grants registration rights in favor of
such investors with respect to the shares of Common Stock underlying Warrants
received by them in the Private Placement. Placement agents and participating
agents who execute and deliver the Registration Rights Agreement to the
Registrant have similar rights with respect to the shares of Common Stock
underlying Placement Agent Warrants. The shares with respect to which the
Registration Rights Agreement grants such rights are referred to as "Registrable
Securities", and shall continue to be Registrable Securities until those shares
have either been effectively registered under the Act and disposed of in
accordance with a registration statement covering them, have been sold to the
public pursuant to Rule 144 or by similar provision under the Act, or are
eligible for resale under Rule 144(k) or by similar provision under the Act
without any limitation on the amount of securities that may be sold under
paragraph (e) thereof.
Pursuant to the Registration Rights Agreement, the Registrant is required to use
its reasonable best efforts to accomplish the following:
prepare and file a registration statement covering the Common Shares and the
Warrant Shares (a "Required Registration Statement") with the U.S. Securities
and Exchange Commission (the "SEC") by the date (the "Required Filing Date")
which is not more than sixty (60) days after the first date to occur (the
"Commencement Date") of the following dates: the Final Closing Date (as such
term is defined in the Securities Purchase Agreement) or the termination of the
Offering, if there is no Final Closing Date; and cause either of the following
(the "Effectiveness Actions") to occur by a date (the "Required Effectiveness
Date") which is not more than ninety (90) days after the Commencement Date: (A)
cause the SEC to declare the Required Registration Statement to be effective or
(B) cause the SEC to communicate to the Registrant, orally or in writing, that
the Required Registration Statement will not be reviewed or that the Commission
has no further comments thereupon, whereupon the Registrant shall cause the
Required Registration Statement to be effective.
Pursuant to the Registration Rights Agreement, the failure to file or become
effective within the applicable time period shall be deemed to be a
"Non-Registration Event". For each thirty (30) day period during the pendency of
any such Non-Registration Event, the Registrant shall deliver to each investor
in the Private Placement, as liquidated damages, an amount equal to one percent
(1.0%) of the aggregate purchase price paid by such investor for shares of
Series A Preferred Stock in the Offering, with such payment being pro-rated for
any Non-Registration Event of less than thirty (30) days, subject to the maximum
penalty of 18.5% of the gross proceeds. Each such payment is hereinafter
referred to as a "Non-Registration Event Penalty Payment". Notwithstanding the
foregoing, in no event shall the Registrant be obligated to pay more than one
Non-Registration Event Penalty Payment to the same
12
Purchaser in respect of a substantively concurrent failure to perform. The
Registrant, at its sole discretion, shall pay the Non-Registration Event Penalty
Payment to all holders in cash or in shares of its Common Stock.
The Registrant agreed to use its reasonable best efforts to keep such Required
Registration Statement continuously effective (the "Effective Period") for a
period of two years after the Required Registration Statement first becomes
effective plus whatever period of time as shall equal any period, if any, during
such two year period in which the Registrant was not current with its reporting
requirements under the Exchange Act. To the extent the Registrable Securities
are not sold under the Required Registration Statement, the investors in the
Private Placement shall have the following registration rights pursuant to the
Registration Rights Agreement:
If the Registrant is eligible to use Form S-3 under the Act (or any similar
successor form) and shall receive from the holders of the Common Shares and any
permitted transferees (the "S-3 Initiating Holders") a written request that the
Registrant effect a registration on such Form S-3 pursuant to Rule 415 of the
Act and any related qualification or compliance with respect to all or part of
the Registrable Securities owned by the S-3 Initiating Holders (provided, that
the S-3 Initiating Holders registering Registrable Securities in such
registration (together with all other holders of Registrable Securities to be
included in such registration) propose to sell their Registrable Securities at
an aggregate price (calculated based upon the Market Price of the Registrable
Securities on the date of filing of the Form S-3 with respect to such
Registrable Securities) to the public of no less than the lesser of $5,000,000
or the remaining Registrable Securities), the Company shall (i) promptly give
written notice of the proposed registration, and any related qualification or
compliance, to all other holders of Registrable Securities; and (ii) as soon as
practicable, use reasonable best efforts to file and effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of the
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder in the group of
holders joining in such request as is specified in a written request given
within fifteen (15) days after the holder's receipt of such written notice from
the Registrant.
In addition, for so long as the Registration Rights Agreement shall be
applicable, whenever the Registrant proposes to register any of its securities
under the Securities Act (other than pursuant to any of the registration rights
described above, or a registration on Form S-4 or S-8 or any successor or
similar forms) and the registration form to be used may be used for the
registration of Registrable Securities, whether or not for sale for its own
account, the Registrant will give prompt written notice (but in no event less
than twenty five (25) days before the anticipated filing date) to all holders of
Registrable Securities, and such notice shall describe the proposed registration
and distribution and offer to all holders of Registrable Securities the
opportunity to register the number of Registrable Securities as each such holder
may request. The Registrant will include in such registration all Registrable
Securities with respect to which the Registrant has received written requests
for inclusion therein within fifteen (15) days after the holders' receipt of the
Registrant's notice. The Registrant shall use all reasonable efforts to cause
the managing underwriter of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggyback Registration to
be included on the same terms and conditions as any similar securities of any
other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. The performance of these registration rights is
subject to customary investor representations and warranties, customary
indemnifications by investors, customary allocations of fees and expenses and,
where applicable, customary cutback and blackout provisions.
In connection with the Private Placement, the Registrant entered into the Cynat
and Genaderm Registration Rights Agreement. The Cynat and Genaderm Registration
Rights Agreement imposes certain registration obligations upon the Registrant
with respect to the Cynat Shares and the Genaderm Shares, respectively, acquired
in the Private Placement by each investor who executed and delivered to the
Registrant the Securities Purchase Agreement. The Cynat Shares and the Genaderm
Shares with respect to which the Registration Rights Agreement grants such
rights are referred to as "Cynat Registrable Shares" and the "Genaderm
Registrable Shares", respectively, and shall continue to be Cyant Registrable
Shares or Genaderm Registrable Shares, as the case may be, until those shares
have either been effectively registered under the Act and disposed of in
accordance with a registration statement covering them, have been sold to the
public pursuant to Rule 144 or by similar provision under the Act, or are
eligible for resale under Rule 144(k) or by similar provision under the Act
without any limitation on the amount of securities that may be sold under
paragraph (e) thereof. Pursuant to the Cynat and Genaderm Registration Rights
Agreement, the Registrant is required to use its reasonable best efforts to
cause Cynat and Genaderm to accomplish the following:
prepare and file a registration statement covering the Cynat Registrable Shares
and the Genaderm Registrable Shares with the SEC by the date (the "Cynat and
Genaderm Required Filing Date") which is not more than one hundred twenty (120)
days after the first date to occur (the "Commencement Date") of the following
dates: the Final Closing Date (as such term is defined in the Securities
Purchase Agreement) or the termination of the Offering, if there is no Final
Closing Date (it being understood that Cynat shall prepare and file the required
registration statement with respect to Cynat Registrable Shares (the "Cynat
Required Registration Statement), and that Genaderm shall prepare and file the
required registration statement with respect to Genaderm Registrable Shares (the
"Genaderm Required Registration Statement"); and cause either of the following
(the "Effectiveness Actions") to occur by a date (the "Cynat and Genaderm
Required Effectiveness Date") which is not more than ninety (90) days after the
Commencement Date: (A) cause the SEC to declare the Cynat Required Registration
Statement and the Genaderm Required Registration Statement to be effective or
(B) cause the SEC to communicate to Cynat or Genaderm, whichever is applicable,
orally or in writing, that the Cynat Required Registration Statement and the
Genaderm Required Registration Statement will not be reviewed or that the
Commission has no further comments thereupon, whereupon the Registrant shall use
its reasonable best efforts to cause Cynat and Genaderm, as applicable, to cause
the Cynat Required Registration Statement and Genaderm Required Registration
Statement to be effective.
13
The Registrant agreed to use its reasonable best efforts to cause Cynat and
Genaderm to keep such Cynat Required Registration Statement and Genaderm
Required Registration Statement continuously effective (the "Effective Period")
for a period of two years after the Cynat Required Registration Statement and
Genaderm Required Registration Statement first becomes effective plus whatever
period of time as shall equal any period, if any, during such two year period in
which Cynat or Genaderm, as applicable, was not current with its reporting
requirements under the Exchange Act.
To the extent the Cynat Registrable Shares or the Genaderm Registrable Shares
are not sold under the Cynat Required Registration Statement or the Genaderm
Required Registration Statement, the investors in the Private Placement shall
have registration rights with respect to their Cynat Registrable Shares and
their Genaderm Registrable Shares, pursuant to the Cynat and Genaderm
Registration Rights Agreement, substantially similar to the Form S-3
registration rights and the piggyback registration rights of investors in
respect of the BACL Registration Rights Agreement.
The terms of the Series A Preferred Stock have been set forth in the Restated
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of the Registrant (the "Certificate of Designations") which has
been filed with the Secretary of State of Nevada.
Each share of Series A Preferred Stock shall carry a cumulative dividend at a
rate of six per cent (6%) per annum, payable out of funds legally available
therefore, prior and in preference to the payment of all other dividends on the
Registrant's Common Stock or junior equity securities, quarterly in arrears
(with the first payment on December 31, 2005) in cash or shares of the Company's
Common Stock, at the Registrant's option, whether or not declared by the Board
of Directors. The shares of the Registrant's Common Stock issued in payment of
the dividend hereunder shall be valued at the twenty (20) trading day trailing
average market price of the Common Stock as of the date five (5) days prior to
the dividend payment date. In the event that the shares of Common Stock issued
in payment of dividends payable more than one hundred eighty (180) days after
the issuance of the Series A Preferred Stock to which such dividends relate are
not then registered under an effective registration statement, the Company shall
only pay such dividends in cash.
In the event of any liquidation or winding up of the Company, before any
distribution of assets to the holders of Junior Securities, the holder of each
share of Series A Preferred Stock then outstanding shall be paid out of the
assets of the Company legally available for distribution to its stockholders a
per share amount equal to the original issue price per share of Series A
Preferred Stock ($6.00 per share), as adjusted for stock splits, dividends,
combinations or other recapitalization of the Series A Preferred Stock) plus any
declared and unpaid dividends thereon (the "Liquidation Preference"). Upon the
completion of all required distribution to any other class or series of Senior
Securities, if assets remain in the Company, the remaining assets of the Company
available for distribution to stockholders shall be distributed among the
holders of shares of any other series of preferred stock in accordance with
their respective terms, then to the holders of Common Stock pro rata based on
the number of shares of the Common Stock actually outstanding and held by
holders of shares of Common Stock. Notwithstanding the foregoing, if the holders
of the Series A Preferred Stock would receive on an as-converted basis an amount
greater than the Liquidation Preference, such holders shall be entitled to
receive such greater amount.
Each holder of Series A Preferred Stock has the right to convert such shares, at
any time, into a number of shares of Common Stock equal to the original issue
purchase price ($6.00 per share) divided by the conversion price (initially
$1.50 per share) (an "Optional Conversion"). Alternatively, a Series A Preferred
Stock will automatically convert into Common Stock calculated in the same manner
as an Optional Conversion upon the earliest to occur of the following dates (an
"Automatic Conversion"): (i) the date, at any time after the one year
anniversary of the issuance date, upon which both (x) the average of the market
price for a share of Common Stock for a period of at least thirty (30)
consecutive trading days exceeds three hundred percent (300%) of the
then-applicable conversion price and (y) the average of the trading volume for
the Common Stock during such period exceeds 100,000 shares per day (subject to
adjustment of such trading volume threshold in the event of stock splits,
reverse stock splits, stock dividends, recapitalizations or similar events)
shares per trading day; (ii) upon the affirmative vote of the holders of a
majority of the then outstanding shares of Series A Preferred Stock; or (iii)
immediately prior to the closing of an underwritten public offering of the
Registrant's Common Stock for aggregate gross proceeds to the Registrant of not
less than one hundred million dollars ($100,000,000) if the public offering
price of the Registrant's Common Stock is at least two (2) times the
then-applicable conversion price and the shares of Common Stock issued in
exchange for each share of the Registrant's Series A Preferred Stock so
converted are registered at the time of such conversion under an effective
registration statement. The terms "market price" and "trading day" are defined
in the Certificate of Designations.
The number and kind of securities issuable upon the conversion of the Series A
Preferred Stock and the conversion price shall be adjusted appropriately in the
event of stock splits, reverse stock splits, stock dividends, recapitalizations
or similar events. In addition, the conversion price shall be subject to
appropriate adjustment, on a weighted average basis, in the event that the
Registrant issues, or is deemed to issue under the applicable provisions of the
Certificate of Designations, additional shares of Common Stock at a purchase
price less than the then-effective conversion price, except for certain
issuances excluded from any such calculation.
The Series A Preferred Stock will vote together with the Common Stock and not as
a separate class except as specifically provided in the Certificate of
Designations or as otherwise required by law. Each holder of outstanding shares
of Series A Preferred Stock shall
14
have a number of votes equal to the number of whole shares of Common Stock into
which the Series A Preferred Stock would convert as of the applicable record
date at each meeting of stockholders of the Registrant.
So long as the Series A Preferred Stock is outstanding, the Registrant will not
do any of the following without the consent of at least a majority in interest
of the Series A Preferred Stock voting as a separate group: (a) authorize, issue
or agree to authorize or issue any new class or series of senior equity
securities or parity equity securities or securities or rights of any kind
convertible into or exercisable or exchangeable for any such senior equity
securities or parity equity securities, or offer, sell or issue any senior
equity securities or parity equity securities or securities or rights of any
kind convertible into or exercisable or exchangeable for any such senior equity
securities or parity equity securities; (b) purchase, repurchase or redeem
shares of (i) Common Stock, (ii) securities or rights of any kind convertible
into or exercisable or exchangeable for Common Stock or (iii) other securities
of the Company, (except in the case of a termination of an employee, at which
the Company may repurchase or redeem such shares of Common Stock at cost and
pursuant to any agreement under which such shares of Common Stock were issued);
(c) increase the authorized number of shares of Series A Preferred Stock, or (d)
amend the Certificate of Incorporation or Bylaws of the Registrant or alter or
change the rights, preferences or privileges of the Series A Preferred Stock or
any parity equity securities or senior equity securities in each case so as to
affect adversely the rights, preferences or privileges of the Series A Preferred
Stock.
In connection with the Private Placement referred to above the Registrant
consummated a second closing on October 24, 2005, at which the Registrant sold
170,668 shares of its Series A Preferred Stock for an aggregate purchase price
of $1,024,008 and issued to those investors Warrants to acquire, in the
aggregate, 341,336 Warrant Shares. The Registrant also delivered 682,672 Cynat
Shares and 682,672 Genaderm Shares, in the aggregate, to those investors.
To date, the Registrant has sold an aggregate of 3,299,437 shares of its Series
A Preferred Stock for an aggregate purchase price of $20,773,118 and issued to
those investors Warrants to acquire, in the aggregate, 6,598,859 Warrant Shares.
The Registrant also delivered 13,197,728 Cynat Shares and 13,197,728 Genaderm
Shares, in the aggregate, to those investors. Of the aggregate $20,773,118
invested in the Private Placement to date, $3,002,538 was paid in cash and
$17,770,580 was paid through conversion, on a dollar-for-dollar basis, of
outstanding indebtedness of the Registrant to investors.
In connection with the Private Placement to date, the Registrant has paid to its
placement agent and other participating agents, in the aggregate, cash fees of
$298,453, issued Placement Agent Warrants to acquire 198,970 Placement Agent
Warrant Shares and paid to its placement agent the aggregate sum of $89,536.14
for the Non-Accountable Expense Allowance.
No such fee or placement agent warrants are due with respect to certain
investors or with respect to the conversion of Series A Preferred Stock or the
exercise of warrants.
ITEM 2: MANAGEMENT'S DISCUSSION & ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED
This disclosure contains forward-looking statements. The forward-looking
statements include all statements that are not statements of historical fact.
The forward-looking statements are often identifiable by the use of words such
as "may," "expect," "believe," "anticipate," "intend," "could," "estimate,"
"seek," "contemplate," "hope," "suggest," "envision," or "continue," or
comparable language, or the negative or other variation of those or comparable
terms. Our actual results could differ materially from the anticipated results
described with forward-looking statements. These forward-looking statement are
based largely on our expectation and are subject to a number of risks and
uncertainties, including but not limited to: those risks associated with out
ability to identify and raise additional capital to complete our product
development programs; our allocation of resources as necessary to continue
operations; our ability to generate cash flow from revenue or other sources; our
ability to use our capital stock for acquisitions, paying expenses or other
disbursements, attracting personnel or contracts and other business uses. Many
of these factors are beyond our management's control. These uncertainties could
cause our actual results to differ materially from the expectations reflected in
these forward-looking statements. In light of these risks and uncertainties, we
cannot be certain that the forward-looking information contained herein will, in
fact, occur. Interested persons should consider carefully the previously stated
factors as well as the more detailed information contained elsewhere herein.
PLAN OF OPERATIONS.
BUSINESS
Bioaccelerate (or "The Company") acquires and develops pharmaceutical compounds
that have substantial medical and commercial value. The companies in which
Bioaccelerate currently has interests focus on five vertical therapeutic areas;
Oncology, Specialty Pharma, Central Nervous System, Cardiovascular and
Infection. These therapeutic areas represent a current combined market
opportunity in excess of $250 billion.
REDUCING RISK, ACCELERATING SPEED TO MARKET
Bioaccelerate uses a virtual development network to accelerate the development
of multiple early stage compounds to Phase II/III clinical development. The
Company believes that this strategy creates a lower risk business model, since
its network enables the timely and cost effective passage from the discovery
process up to Phase II/III where substantial incremental value is created.
15
INNOVATION COMPLEMENTED BY A DIVERSE PARTNER NETWORK
Bioaccelerate's innovative approach focuses on the use of latest technologies to
cut development costs and reduce the amount of time that a drug spends in
development. Bioaccelerate's key objective is to create value through its
aggressive development of existing companies and compounds, as well as;
o Identifying additional compounds for portfolio companies;
o Entering into partnering, co-development and marketing agreements with
large pharmaceutical and other biotech companies, speeding time to
market for the compounds being developed;
o Using industry expertise, business contacts and insights of in-house
scientific and business management to develop synergies and establish
collaborative agreements;
o Orchestrating a network of development resource to ensure efficiency
in the development process;
o Creating substantial shareholder value through the development of
existing and further portfolio companies, via the deep asset base of
identified compounds that Bioaccelerate has access to via established
relationships
A STRATEGIC APPROACH TO CREATING VALUE
Large pharmaceutical companies need additional products to fill depleted
pipelines. Bioaccelerate believes it has developed a cost effective process
which provides a link between early stage drug candidates and large
pharmaceutical companies. Currently, funding is increasingly only available from
the capital markets for later stage companies. Bioaccelerate develops and
consolidates multiple early stage products in standalone companies in vertical
therapeutic areas until critical mass and development milestones are achieved.
At this stage the company is then ready to access further funding from the
capital markets. This affords orphan/individual technologies an opportunity to
be developed while giving academic institutions and scientists access to
development capital for early stage compounds. Bioaccelerate's drug development
strategy includes in-licensing compounds from various academic, research and
medical centres where the company has developed extensive relationships.
Bioaccelerate is constantly reviewing these development opportunities to
establish which products offer the best strategic fit with other companies in
its portfolio.
A PROVEN DEPTH OF EXPERTISE
Bioaccelerate has a proven management team with a broad base of experience in
pharmaceutical & biotechnology companies as well as capital markets. The
management team is responsible for company-wide initiatives, significant
operating decisions and policymaking. This team works alongside a scientific
advisory board whose function is to advise the Company on scientific aspects of
product selection and development.
Bioaccelerate conducts its business directly and through its subsidiaries.
Bioaccelerate Holdings Inc. currently holds 100% of Bioaccelerate Inc.
,Bioaccelerate Ltd. and Bioaccelerate Ltd (BVI), and through these subsidiaries
a significant equity interest in the following thirteen biotech companies:
ONCOLOGY - Evolve Oncology, Inc. (49.1%); Genar Oncology, Inc. (94%); Innovate
Oncology, Inc. (90%); OncBio, Inc. (90%); Cynat Oncology, Inc. (94%)
SPECIALTY PHARMA - Innova Lifestyle, Inc. (94%); Amilar Pharmaceuticals Inc,
(94%); Enhance Biotech, Inc. (22.4%); Genaderm, Inc. (94%)
CENTRAL NERVOUS SYSTEM - CNS Thera, Inc. (94%); Neuro Bioscience, Inc (19%)
CARDIOVASCULAR DISEASE - InnCardio, Inc. (94%); BioCardio, Inc. (50 %)
ANTI-INFECTIVE - Anvira, Inc. (94%)
The Company also has investments in Advance Nanotech Inc (AVNA.OB), JPS
Holdings, Inc and Llama Biotech Ltd
Our management believes that large pharmaceutical companies need additional
drugs to fill depleted drug development pipelines, particularly since many
existing products of large pharmaceutical companies will soon be losing patent
protection. Increasingly those companies seek to fill that gap by in-licensing
drugs at the middle to late stages of development rather than acquiring
compounds at an earlier stage. We believe that the large in-house basic and
applied research staffs of those large pharmaceutical companies increase the
overhead of those companies and may also engender institutional resistance to
acquisition or development of in-licensed drugs, resulting in costs and delays
in development of new drugs by those companies. It also appears to us that many
individual scientists and medical research institutions may lack the expertise
or resources to develop promising early stage drug candidates.
Bioaccelerate's business goal is to act as a cost-effective pharmaceutical
development organization, identifying commercially viable early-stage compounds
from academic, research and medical centres where Bioaccelerate has forged
strong relationships, and utilizing our expedited product development structure
to provide a cost-effective link between early-stage drug candidates and large
pharmaceutical companies. Bioaccelerate achieves its value by providing
management expertise and funding to develop the products assigned to its
portfolio companies and achieves shareholder value by taking the portfolio
companies public and benefiting from the upside in share price of those
portfolio companies as and when milestones are achieved in the development of
the compounds.
STRATEGY
16
Bioaccelerate and its subsidiaries select, in-license and group, early-stage
compounds which their respective managements deem promising in the stand-alone
companies which Bioaccelerate has organized by vertical therapeutic areas.
Bioaccelerate may utilize its own resources for the initial operations of a
newly-formed subsidiary, including its initial in-licensing. However, when a
subsidiary company's product pipeline reaches critical mass and achieves certain
development milestones, it is intended that the subsidiary company will seek
additional funding from the capital markets on its own. Since funding is often
only available for later-stage compounds, Bioaccelerate's development resources
make it possible for academic institutions and scientists to pursue early- and
mid-stage develop of orphaned compounds and technology.
Bioaccelerate generally favors in-licensing compounds in the early- to mid-
stages of development to reduce the risks and costs associated with new
molecular entity (NME) and new chemical entity (NCE) development. Bioaccelerate
will continue to advance its clinical development strategy, balancing
in-licensing and reformulations with NME and NCE development when it feels it is
appropriate.
Bioaccelerate enters into development, marketing and partnership agreements with
laboratories, industry experts and large pharmaceutical companies to develop,
test and seek regulatory approval for drug candidates. By relying primarily upon
contracts with third parties for research, clinical development and project
management rather than doing that work in-house, Bioaccelerate is able to
maintain a limited infrastructure, particularly as compared with large
pharmaceutical companies. Our management believes that this strategy offers a
lower risk model for achieving incremental value for investors in new drug
products, allows us to accelerate the time it takes for new products to reach
the critical Phase II/III clinical trials level, and creates an efficient and
cost-effective route from discovery to commercializing a product.
RESEARCH AND DEVELOPMENT
The structure of our research and development activity is designed to enable the
best choices to be made as to where and how the projects are run and resourced.
Each is managed as a discreet project with its own budget and project manager.
Where and when possible projects make common use of the resources and contracted
facilities enlisted at each stage. We manage our projects through ongoing review
of scientific data, making use of our broadly experienced Management and
Scientific Advisory Board to assist in this process and by supplementing these
programs with our cost allocations as required to move toward regulatory
approval. Our cost allocations are based primarily on pre-established
development budgets set out in our agreements with research and co-development
partners. Costs attributed to Research and Preclinical projects largely
represent our pipeline generating activities. See Item 6 "Management Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion of research and development spending trends.
OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE
1. ONCOLOGY
Oncology is the therapeutic market with the largest portfolio of products in
development by Bioaccelerate and its subsidiaries. Reuters Business Insight
forecasts the global cancer treatment market to grow from $34.3 billion in 2002
to $42.8 billion in 2007. Their research also indicates that the innovative
cancer therapy market will triple from $4.3 billion in 2001 to $12.3 billion in
2007.
EVOLVE ONCOLOGY. Evolve Oncology seeks to acquire, develop and commercialize
drugs to treat various types of cancer and cancer pain management. Evolve
Oncology's product development portfolio targets lung, breast and other types of
cancer. Evolve Oncology's management believes its focus on innovative treatments
should benefit from the market opportunity created by multiple patent
expirations, particularly in hormonal and cytostatic therapies facing the large
pharmaceutical companies. Bioaccelerate will also seek to develop niche drugs
passed over by large pharmaceutical companies.
ONCBIO. OncBio seeks to acquire, develop and commercialize drugs to treat
multiple cancers such as breast, lung and chronic myelogenous leukemia. OncBio's
product development pipeline focuses on new, innovative compounds as well as
enhanced formulations of existing compounds.
GENAR ONCOLOGY. Genar Oncology seeks to acquire, develop and commercialize a
broad platform of compounds to fight cancers. Bioaccelerate's product
development portfolio targets multiple cancers, such as a single product one for
solid tumors prevalent in breast, lung and colorectal cancer. Management
believes these multiple-use products will enhance the drugs' value in the
marketplace.
INNOVATE ONCOLOGY. Innovate Oncology seeks to acquire, develop and commercialize
compounds targeted at multiple cancers and oncology-related conditions. Some of
the oncology related conditions we seek to address are reversing chemo
resistance and treating common side effects such as nausea and vomiting.
Innovate Oncology's pre-clinical product development portfolio is all based upon
scientific approaches which our management believes are innovative.
17
Bioaccelerate through it's subsidiaries is developing a platform of compounds
which have been selected to target multiple cancers, instead of focusing on only
one specific disease area. This approach management believes will enhance the
compounds future values and give the drugs a greater chance of success.
2. SPECIALTY PHARMA
The specialty pharma segment of the global pharmaceutical marketplace is
projected to grow from $22.9 billion in 2002 to $29 billion by 2007, according
to Reuters Business Insight. Bioaccelerate's management believes its three
lifestyle drug subsidiary companies are poised to take advantage of some of the
most potentially lucrative segments, including sexual dysfunction, skin diseases
and addiction.
ENHANCE BIOTECH. Enhance Biotech acquires, develops and commercializes drugs to
treat lifestyle disorders. Enhance's portfolio of seven products under
development target male sexual dysfunction and dermatology, two of the seven
major therapeutic segments in the lifestyle drug market. Enhance's lead product
targets premature ejaculation, which is the most widespread indication in male
sexual dysfunction (MSD). The disorder affects 29% of the adult male population
and represents a potential $6 billion market, according to Reuters Business
Insight.
Enhance Biotech recently acquired Ardent Pharmaceuticals Inc., a privately held
biotechnology company with an extensive research and development pipeline that
includes a number of pre- clinical and clinical drug candidates in the areas of
moderate to severe pain, urinary incontinence, premature ejaculation, depression
and cardio protection. Pursuant to the merger agreement, Ardent became a wholly-
owned subsidiary of Enhance Biotech and the former Ardent stockholders received
Enhance Biotech securities amounting, on a fully- diluted basis, to 45% of
Enhance Biotech's outstanding equity securities, post-merger. Shareholders of
Enhance Biotech own 55 % of the merged entity.
INNOVA LIFESTYLE. Innova Lifestyle seeks to acquire, develop and commercialize
drugs for lifestyle disorders including acne, alcohol addiction and female
sexual dysfunction. Awareness has been increasing about the need for effective
and safe female stimulants to treat female sexual dysfunction. Analysts at
Reuters Business Insight say this disorder is still poorly defined and
understood, evidenced by their research that indicates that between 19% and 43%
of women in the general population suffer from sexual dysfunction. Despite that
prevalence, only 26% of women across the major markets seek treatment.
Bioaccelerate believes treatment for female sexual dysfunction may be a major
market opportunity following in the footsteps of the strong public response to
male erectile and premature dysfunction treatments coming to market now.
AMILAR PHARMACEUTICALS. Amilar Pharmaceuticals seeks to acquire, develop and
commercialize drugs to treat lifestyle disorders. Bioaccelerate's portfolio of
products under development concentrates on treatments for alcohol addiction,
osteoarthritis, interstitial cystitis, osteoarthritis and irritable bowel
syndrome. Alcohol addiction affects a patient population of 47 out of every 1000
adults. The current market for this product is estimated to be $300 million.
3. CENTRAL NERVOUS SYSTEM
The worldwide population with CNS disorders is rising steadily. This increase is
being driven by an aging population, improving diagnostic techniques, increasing
physician and patient awareness and a gradual shift away from the social stigma
traditionally attached to many psychiatric conditions. As the prevalence of CNS
disorders rises, so does the cost. In the U.S., it is estimated that more than
20% of healthcare spending is directed towards CNS-related disorders, according
to Reuters Business Insight. Alzheimer's disease alone is estimated to cost the
U.S. economy $100 billion annually, with a prevalent population of more than 4
million. Bioaccelerate is seeking to tap the potential in this market by
developing subsidiaries with diversified products to target the broad range of
CNS diseases.
CNS THERA. CNS Thera seeks to acquire, develop and commercialize compounds
targeted against various central nervous system disorders. Bioaccelerate's
portfolio of products under development focuses on some of the largest potential
markets such as Alzheimer's disease, epilepsy, multiple sclerosis and
Parkinson's disease.
4. CARDIOVASCULAR DISEASE
Among the cardiovascular diseases, a disorder of lipid metabolism called
dyslipidemics has had the fastest growth in global sales. In 2002, the global
anti-dyslipidemics market generated sales of $21.86 billion and Reuters Business
Insight forecasts annual sales to rise to $32.6 billion by 2008. Dyslipidemics
is often used as a blanket term to describe any imbalance in the level of blood
lipids (fats) and a variety of conditions characterized by either excessively
high or excessively low levels of certain lipids in the bloodstream, including
cholesterol and triglycerides. Within cardiovascular disease,
hypercholester-olemia is the most common risk, with an average prevalence rate
of 43.8% in the seven major markets.
BIOCARDIO. Biocardio seeks to acquire, develop and commercialize therapies to
treat cardiovascular and metabolic diseases. Bioaccelerate's products under
development target heart disease, cholesterol imbalances and chronic obstructive
pulmonary disorder
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(COPD). COPD is lung damage caused by smoking and has the third largest burden
of disease in the world. Bioaccelerate believes its novel therapy, if
successfully developed and approved, will fill a largely unmet need for
treatment.
INNCARDIO. Inncardio seeks to acquire, develop and commercialize therapies to
treat cardiovascular and metabolic diseases including diabetes, artherosclerosis
and myocardial ischemia. Approximately 60 million people in seven major markets
suffer from diabetes, 17 million in the U.S. alone.
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5. ANTI-INFECTIVES
The global anti-virals market, which is a subset of anti-infective, is forecast
to grow from $8.7 billion in 2001 to $14 billion in 2007, according to Reuters
Business Insight. Much of that growth comes from the high incidence of viral
infections and currently available drugs that are not efficacious. Another
growth factor for this therapeutic area is a strategy by big pharmaceutical
companies that increasingly target patients in developing countries.
Bioaccelerate believes this change creates an opportunity to develop its
anti-infective portfolio.
ANVIRA. Anvira seeks to acquire, develop and commercialize anti- infective
products for common diseases such as ear and throat infections as well as
pneumonia and bronchitis. Bioaccelerate's current portfolio of products under
development consists of reformulations of off- patent anti- infectives.
PRODUCT DEVELOPMENT
A major element of the Company's product development strategy is to use
third-party or contract research organizations ("CROs") to assist in the conduct
of safety and efficacy testing and clinical studies, to assist the Company in
guiding products through the FDA and EMEA regulatory review and approval
processes, and to manufacture and distribute any FDA and EMEA approved products.
The Company believes that maintaining a limited infrastructure will enable it to
develop products efficiently and cost effectively.
On November 1st, 2004 the Company entered into a contract with Faustus
Forschungs Cie, Translational Cancer Research GMBH for the co development of
nine compounds targeted at various forms of Cancer.
The Company believes the use of third-parties to develop and manufacture its
products has several advantages. This approach generally allows a greater pool
of resources to be concentrated on a product than if these functions were
preformed by internal personnel who were required to support all of the
Company's product development activities. Although this approach will allow the
Company to avoid the expense associated with developing a large internal
infrastructure to support its product development efforts, it will result in the
Company being dependent on the ability of outside parties to perform critical
functions for the Company. Over time, the Company expects to build internal
capabilities to replace certain development functions now contracted to outside
parties.
This contract approach to product development requires project management by
professionals with substantial industry experience. The Company will continue to
evaluate prospective additions to its in-house expertise, as well as
opportunities for contract and advisory services in areas of critical importance
to all of its proposed products, including the management of current development
teams. These areas include regulatory affairs, marketing and sales, quality
assurance, manufacturing, clinical trials management, finance, information
systems and general management.
The product development process is designed to identify problems associated with
a proposed product's safety and effectiveness. The Company attempts to reduce
the risk that a proposed product will not be accepted in the marketplace by
conducting market research and defining commercial strategy for each product
candidate. A drug development portfolio cannot be completely insulated from
potential clinical and market failures. It is likely that some proposed products
selected for development by the Company will not produce the clinical or revenue
results expected.
RESEARCH PRODUCT PIPELINE
The Company will continue to invest in the research and development of existing
and new products, including those that could extend the applications of existing
technologies. The Company is currently evaluating a number of product candidates
arising from various academic facilities and other biotech companies.
MARKET OVERVIEW
The pharmaceutical industry is characterized by ongoing convergence and
consolidation. Large pharmaceutical companies continue to experience depleted
product pipelines and reduced research and development ("R&D") productivity, as
measured by declining numbers of approved new chemical entities despite
year-on-year increases in R&D spending.
ONCOLOGY
Cancer is not a single disease, but a set of several hundred distinct neoplastic
entities that together represent the third largest disease burden of any
therapeutic area. According to the 2003 Facts and Figures report issued by the
American Cancer Association, men in the United States have an approximately 1 in
2 chance of developing cancer during their lifetime. The increasing age of the
population and the continuing morbidity and mortality associated with this
disease confirm the need for continued scientific research and the development
of new therapies.
20
o In 2004 over 10 million people were diagnosed with cancer, by 2015
this is forecast to reach 15 million. Six million people die from
cancer every year, representing 12% of deaths worldwide.
o The National Cancer Institute estimates the overall cost of cancer in
the U.S. to be in excess of $100 billion. Treatment of breast, lung
and prostate cancers accounts for over half the direct medical costs.
o The global cancer market was valued at $34.3 billion in 2002, a 16.5%
increase on previous year's sales of $29.5 billion. Cytotoxic drugs
were the largest class, followed by hormonal therapeutics. A fast
growing category was a class that includes cytokines and monoclonal
antibodies. This class, known as the innovative therapy category, was
driven by widespread physician uptake which led to growth of over 57%.
o Oncology is currently the most active area of research for
multi-national pharmaceutical companies. BMS is currently the leading
player in the oncology market in revenue terms, with total oncology
sales of $3.71 billion equating to a 10% market share
SPECIALTY PHARMA
Specialty pharma (including `lifestyle' drugs) enhance or improve human function
in individuals who believe that their problems - from sexual dysfunction to
diabetes, incontinence and obesity - negatively affect normal aspects of
everyday living. These conditions should be capable of being defined and
diagnosed with reference to measurable characteristics, of known etiology, and
prospective patients must be capable of being targeted and convinced of the
value of pharmacotherapy.
o The appeal of Specialty drugs lies in their ability to improve
physical and mental well-being and as an alternative to making
lifestyle changes.
o The ability to create new disease markets, as is currently happening
in the area of female sexual dysfunction, will cause the overall
Specialty pharma market to expand significantly over the next two
decades.
o When developing and defining a new Specialty condition: (a) the
disorder must be capable of being clearly defined and diagnosed with
reference to measurable characteristics, (b) the epidemiology of the
condition must be known, and (c) prospective patients must be capable
of being targeted and convinced of the value of pharmacotherapy.
o According to definition and included conditions, the global market for
Specialty/lifestyle medicines is estimated at close to $22 billion.
Leading contributors to this total include Sexual function, ED ($2.5
billion); Smoking, alcohol ($1.5 billion); Oral contraceptives ($4.0
billion); Obesity ($1 billion); Selected dermatological conditions
($4.0 billion); Inflammatory Bowel Disease ($2.0 billion); and Fatigue
($2.0 billion).
CENTRAL NERVOUS SYSTEM
CNS (Central Nervous System) products represent a large and fast-growing sector
of the pharmaceutical market. The segment is based on neurological and
psychiatric conditions, which have been estimated to account for over 15% of the
disease burden within the world's developed economies. Conditions include
Alzheimer's Disease, Depression, Epilepsy, Migraine, Multiple Sclerosis, Pain,
Parkinson's Disease and Schizophrenia.
o The worldwide population with CNS disorders is steadily rising. This
is being driven by an aging population, improving diagnostic
techniques, increasing physician and patient awareness and a gradual
shift away from the social stigma traditionally attached to many
psychiatric conditions.
o As the prevalence of CNS disorders rises, so does the cost. In the US,
it is estimated that over 20% of healthcare expenditure is directed
towards CNS related disorders. Alzheimer's disease alone is estimated
to cost the US economy $100 billion annually, with a prevalent
population of over 4m.
o Neuroscience (CNS) world market value is over $98 billion, growing at
11% per annum.
o The global CNS market is dominated by four major players,
GlaxoSmithKline, Eli Lilly, Pfizer and Janssen, who hold a combined
market share of 38.8%.
CARDIOVASCULAR
The Cardiovascular market is one of the largest of all pharmaceutical sectors.
Cardiovascular disease includes heart failure, atrial fibrillation, stable
angina and peripheral arterial disease. Acute thrombotic events, including
unstable angina, myocardial infarction, deep vein thrombosis, pulmonary embolism
and stroke also contribute to the burden of disease. Risk factors including
hypercholesterolemia, hypertension, diabetes and obesity predispose the
development of cardiovascular disease in later life.
o Cardiac therapy holds enormous potential for new drugs due to high
unmet need within substantial patient populations.
o Cardiovascular world market value is currently valued at $116 billion.
Cardiovascular disease accounts for 17 million deaths globally each
year. The Statin market has a world market value of $26 billion
21
o Antithrombotics sales grew to just under $10 billion in 2002, with
antiplatelet therapies representing a 58% share of the class.
o Pfizer is the dominant player in the global cardiovascular market with
a 19% market share.
INFECTION
Infectious diseases continue to be a leading cause of morbidity and mortality
across the globe. They are a leading cause of death, accounting for a quarter to
a third of the estimated 54 million deaths worldwide in 1998. However, new and
re-emerging infectious diseases may pose a rising global health risk. The spread
of infectious diseases can result as much from changes in human behaviour - from
lifestyles, land use patterns, increased trade and travel to inappropriate use
of antibiotic drugs - as from mutations in pathogens.
o The three main types of infections for which there is a significant
market are, in terms of Causitive Micro-organisms;
- bacterial
- fungal
- viral
In terms of the total anti-infective market, the contribution of the
anti-infective segment increased from 14% in 1996 to 22% in 2001.
o The Infection world market in 2004 was valued at $53 billion.
o There are around 30 key drugs in the Infection market. There are a
number a very large selling broad spectrum antibiotics dominating the
Infection market, such as Zithromax (Pfizer), Cipro (Bayer) and
Augmentin (GSK) The Intron franchise of Schering-Plough, which is used
for the treatment of hepatitis C infections, dominates the antiviral
drugs market with a share of around 17%. Combivir, GlaxoSmithKline's
combination drug for the treatment of HIV, is the second leading
antiviral drug and has a market share of 10%.
o The major players in the Infection market are GlaxoSmithKline,
Schering-Plough, Bristol Myers Squibb, Hoffman La Roche, Merck, Abbott
Laboratories, Pfizer, J&J and Bayer. GlaxoSmithKline is the market
leader with a share of 20%. Pfizer is the second largest player with a
market share of 10%.
GENERAL
Management's Discussion and Analysis presents a review of our consolidated
operating results and financial condition for the period ended September 30,
2005. This discussion and analysis is intended to assist in understanding the
financial information of the Company presented elsewhere herein. This section
should be read in conjunction with our consolidated financial statements and the
related notes, as well as ITEM 1., Description of Business, of this Form 10-QSB.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. In consultation with our Board of Directors, we have identified
accounting principles that we believe are key to an understanding of our
financial statements. These important accounting policies require management's
most difficult, subjective judgments.
(1) GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred
significant losses and needs additional capital to finance its operations. These
factors create substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern. The
Company intends to finance its operations through sales of its securities as
well as entering into loans and other types of financing arrangements such as
convertible debenture. There is no assurance that the company will be successful
in its efforts.
(2) RESEARCH AND DEVELOPMENT
The Company conducts its research and development with numerous academic
research facilities, other biotechnology companies and clinical research
organizations. Such expenses are expense as incurred. Any disruption in the
Company's relationship with these entities could have a material impact on the
Company's future operations. Research and Development is expenses as incurred.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2004. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable, accrued expenses and loans payable. Fair
values were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand.
The carrying value of the Company's long-term debt approximated its fair value
based on the current market conditions for similar debt instruments.
(4) STOCK BASED COMPENSATION
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.
The Company accounts for stock based compensation in accordance with SFAS 123,
"Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow
companies to either expense the estimated fair value of stock options or to
continue to follow the intrinsic value method set forth in APB Opinion 25,
"Accounting for Stock Issued to Employees" (APB 25) but disclose the pro forma
effects on net income (loss) had the fair value of the options been expensed.
The Company has elected to continue to apply APB 25 in accounting for its stock
option plans.
22
RESULTS OF OPERATIONS
During the three months ended September 30, 2005, work continued on the product
development programs as planned and the individual items are detailed below. The
period ended September 30, 2005, compared to the period ended September 30,
2004:
During the period the following events took place:
On August 24, 2005 the company issued 9,578 shares in relation to consulting
services at $3.30 per share. On September 15, 2005 the company issued 250,000
shares in relation to consulting services at $3.50 per share.
No revenues were generated during the three months ended September 30, 2005.
General and administrative expenses increased from $845,037 in the quarter ended
September 30, 2004, to $2,018,205 in quarter to September 30, 2005. The main
reason for the increase was the significant development of the Company's
infrastructure to support its planned growth. Such costs were primarily wages
and consulting fees.
Research & Development expenses for the quarter ended September 30, 2005, were
$453,255 as compared with $1,146,375 in the previous year. The majority of these
expenses were in connection with the development of an increased number of our
product candidates.
Non cash stock compensation was $2,054,107 for the quarter ended September 30,
2005 compared with nil for the same period in the previous year. These amounts
were due to payments made for services by the issue of common shares at market
prices.
The Company has incurred substantial losses to date and has an accumulated
deficit of $214,831,537 as of September 30, 2005.
LIQUIDITY & CAPITAL RESOURCES
Since our inception, we have financed our operation through the sale of stock
and the issuance of debt. The Company has $32,500,000 in line of credit
facilities as of September 30, 2005. $17,229,867 of the lines are outstanding.
The facilities accrues interest at the Applicable Federal Rate, as defined in
Section 1247(d) of the Internal Revenue Code. As of September 30, 2005, the
interest rate was 4.0%. As at September 30, 2005 cash and cash equivalents
totalled approximately $137,556. The Company expects to incur substantial
additional research and development expenses and general administrative
expenses, including personnel-related costs, costs related to preclinical
testing and clinical trials. The Company intends to seek additional funding
through the sale of debt and equity securities, increases in our credit
facilities and with suitable potential collaborators. Subsequent to September
30, 2005, $14,141,672 of these credit facilities were converted into preferred
stock (see Note 9 to the financial statements).
ITEM 3. CONTROLS AND PROCEDURES.
The issuer's principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f))
for the issuer and have:
o designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under their
supervision, to ensure that material information relating to the
issuer, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in
which the periodic reports are being prepared;
o designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
their supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
o evaluated the effectiveness of the issuer's disclosure controls and
procedures as of the end of the fiscal quarter (the "Evaluation
Date").
Based on their evaluation as of the Evaluation Date, their conclusions about the
effectiveness of the disclosure controls and procedures were that nothing
indicated:
o any significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data;
23
o any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; or
o any material weaknesses in internal controls that have been or should
be identified for the issuer's auditors and disclosed to the issuer's
auditors and the audit committee of the board of directors (or persons
fulfilling the equivalent function).
Changes in internal control over financial reporting. There was no significant
change in the issuer's internal control over financial reporting that occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the issuer's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. No such
action is contemplated by the Company nor, to the best of its knowledge, has any
action been threatened against the Company.
ITEM 2. SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS
(a) There were no sales of unregistered securities in the period
(b) During the period covered by this report, there were no securities that the
issuer sold by registering the securities under the Securities Act.
(c) During the period covered by this report, there was no repurchase made of
equity securities registered pursuant to section 12 of the Exchange Act. None of
the issuer's securities is registered pursuant to section 12 of the Exchange Act
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of matters to a vote of Security holders
None
ITEM 5. OTHER INFORMATION - CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
As of April 29, 2005, the Registrant has appointed new auditors. Registrant
terminated F E Hanson Limited as the company's auditor. The decision to change
auditors was approved by the Board of Directors. The former accountant only
acted for the Registrant from November 2004. The prior accountant did not render
any report on the financial statements for the past two years which contained
any adverse opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles. During the Registrant's two
most recent fiscal years and any subsequent interim period preceding the
termination there were no disagreements with the former accountant on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
Simultaneously with the termination of its relationship with F E Hanson
Limited., Registrant retained Stark, Winter, Schenkein, & Co., LLP, as
registrant's independent auditors. Stark, Winter, Schenkein, & Co LLP's address
is 7535 East Hampden Avenue, Suite 109, Denver, CO, 80231
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K.
The registrant filed a Form 8-K on 4th May, 2005 reporting that it had
terminated FE Hanson Limited as the company's auditors and appointed Stark,
Winter, Schenkein & Co, LLP as the company's auditor. This form 8-K is hereby
incorporated by reference.
Exhibit Index - Exhibits required by Item 601 of Regulation S-B.
(31) Certifications required by Rules 13a-14(a) or 15d-14(a).
(32) Section 1350 Certifications
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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.
Bioaccelerate Holdings, Inc.
Date: November14 , 2005 By: /s/ Lee Cole
----------------- ---------------------------------------
Lee Cole, CEO, President and Director
Date: November 14, 2005 By:/s/ Linden Boyne
------------------ ---------------------------------------
Linden Boyne , CFO, Secretary-Treasurer
& Director