UNITED STATES
SECURITIES 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 August 31, 2004
EVOLVE ONCOLOGY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4047693
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
712 Fifth Avenue, New York, NY 10019
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 646-723-8941
Check here whether the issuer (1) has filed all reports required to be filed by
Sections 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 reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [ ] No [X]
As of February 1, 2006, the following shares of the Registrant's common stock
were issued and outstanding:
48,763,098 shares of voting common stock
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
STATEMENT OF CASH FLOWS 5
Note 1. BASIS OF PRESENTATION 6
Note 2. GOING CONCERN 6
Note 3. NET LOSS PER COMMON SHARE 7
Note 4. STOCKHOLDERS' EQUITY 7
Item 2. Management's Discussion And Analysis or Plan of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other information 12
Item 6. Exhibits 12
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
ITEM 1
Financial Statements
EVOLVE ONCOLOGY INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31,
2004
------------
ASSETS $
Current Assets:
Accounts Receivable 359
------------
Other Assets:
Patents - net 99,167
------------
TOTAL ASSETS 99,526
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable 928,633
Note payable - Related Party 405,808
Accrued expenses and other Liabilities 133,398
------------
Total Current Liabilities 1,467,839
------------
TOTAL LIABILITIES 1,467,839
------------
STOCKHOLDERS' DEFICIT
Common stock, par value $0.001,
100,000,000 shares authorized,
43,538,098 shares issued and outstanding 43,538
Additional paid-in capital 30,005,110
Accumulated deficit (31,360,449)
Accumulated other comprehensive income/(loss) (56,512)
------------
TOTAL STOCKHOLDERS' DEFICIT (1,368,313)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 99,526
============
The accompanying notes are an integral part of these financial statements.
3
EVOLVE ONCOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Three Months Three Months From inception
Six Months Ended Ended August Ended August 31, Ended August 31, February 15, 2001 to
August 31, 2004 31, 2003 2004 2003 August 31, 2004
------------- ------------- ------------- ------------- -------------
Revenue $ -- -- -- -- --
Operating expenses
Research and development 492,346 150,000 492,346 150,000 696,188
General and administrative 2,425,008 122,909 1,662,997 60,069 4,021,861
Amortization 833 -- 833 -- 833
------------- ------------- ------------- ------------- -------------
Total Expenses 2,918,187 272,909 2,156,176 210,069 4,718,882
Other expenses
Financing costs 10,666,567 -- 10,666,567 -- 10,666,567
Loss on impairment of asset -- -- -- -- 15,975,000
------------- ------------- ------------- ------------- -------------
(Loss) from operations before (13,584,754) (272,909) (12,822,743) (210,069) (31,360,449)
taxes
Taxes -- -- -- --
------------- ------------- ------------- ------------- -------------
Net Income (Loss) $ (13,584,754) (272,909) (12,822,743) (210,069) (31,360,449)
============= ============= ============= ============= =============
A summary of the components of other comprehensive loss for the following
periods ended August 31, 2004 and 2003 as follows:
Six Months Three Months Three Months
Six Months Ended Ended August Ended August 31, Ended August 31,
August 31, 2004 31, 2003 2004 2003
------------ ------------ ------------ ------------
Net (loss) (13,584,754) (272,909) (12,822,743) (210,069)
Foreign currency translation gain
(loss) 13,037 (8,133) 16,862 10
------------ ------------ ------------ ------------
Total Comprehensive (loss) (13,571,717) (281,042) (12,805,881) (210,059)
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
4
EVOLVE ONCOLOGY INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
From inception
For the Six Months For the Six Months February 15, 2001
Ended August 31, Ended August 31, through August 31,
2004 2003 2004
------------- ------------- -------------
Cash flows from operating activities
Net loss $ (13,584,754) (272,909) (31,360,449)
Adjustments to reconcile net loss to net
cash (used) in operating activities:
Stock issued for services 2,268,000 0 3,405,500
Warrants issued for financing costs 10,666,567 0 10,666,567
Impairment of asset 0 0 15,975,000
Amortization of intangible asset 833 0 833
Decrease in receivables 15 0 1,222
Increase in accounts payable and accrued
liabilities 347,902 281,042 1,062,031
------------- ------------- -------------
Net cash from (used in) operating activities $ (301,437) 8,133 (249,296)
Cash flows from investing activities
Acquisition of patents (100,000) 0 (100,000)
------------- ------------- -------------
Net Cash Used in Investing Activities (100,000) 0 (100,000)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from related party note 388,400 0 405,808
------------- ------------- -------------
Net Cash From Financing Activities 388,400 0 405,808
------------- ------------- -------------
Effect of exchange rate 13,037 (8,133) (56,512)
------------- ------------- -------------
Net increase in cash and cash equivalents 0 0 0
Cash at beginning of period 0 0 0
------------- ------------- -------------
Cash at end of period $ 0 0 0
------------- ------------- -------------
Supplemental cash flow information:
Cash paid for interest $ 0 0 0
Cash paid for taxes $ 0 0 0
The accompanying notes are an integral part of these financial statements.
5
EVOLVE ONCOLOGY INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
NOTE 1. BASIS OF PRESENATATION
The financial statements included in this Form 10-QSB have been prepared by the
Company, without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted, although management believes the disclosures are adequate
to make the information presented not misleading. The results of operations for
any interim period are not necessarily indicative of results for a full year.
These statements should be read in conjunction with the financial statements and
related notes included in the Company's Annual Report on Form 10-KSB for the
year ended February 29, 2004.
The financial statements presented herein, for the six months ended August 31,
2004 and 2003 reflect, in the opinion of management, all material adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, results of operations and cash flow for
the interim periods.
NOTE 2. GOING CONCERN
Our financial statements are prepared using accounting principles generally
accepted in the United States of America generally applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. Currently, we do not have
significant cash or other material assets, nor do we have an established source
of revenues sufficient to cover our operating costs and to allow us to continue
as a going concern. We do not currently possess a financial institution source
of financing and we cannot be certain that our existing sources of cash will be
adequate to meet our liquidity requirements. These conditions raise substantial
doubt about our ability to continue as a going concern.
To meet our present and future liquidity requirements, the Company entered into
a credit facility on July 6, 2004, with Bioaccelerate Inc ("Bioaccelerate"), a
related party, to provide up to $5.0 million in funding. In return, the Company
issued to Bioaccelerate (on the date of the funding of the Initial Tranche) 5
year warrants to purchase 5,000,000 shares of the Company's common stock, at an
exercise price of $2.60 per share.
If additional funds are needed over what is available from the credit facility
discussed above, the Company will seek additional funding through private
placements, conversion of outstanding loans and payables into common stock,
development of the business of our newly-acquired subsidiaries, entering into
loans and other types of financing arrangements such as convertible debentures,
and through additional acquisitions that have sufficient cash flow to fund
subsidiary operations. There can be no assurance that we will be successful in
obtaining more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. If we
fail to obtain such financing, fail to improve our results of operations, and if
we reach our related party credit facility limit, we will be unable to meet our
obligations as they become due.
6
EVOLVE ONCOLOGY INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
NOTE 3. NET LOSS PER COMMON SHARE
Net loss per common share, basis and dilutive, has been computed using the
weighted average common shares outstanding at the date of the financial
statements. The Company has no potential dilutive securities.
For the six months For the six months
ended August 31, ended August 31,
2004 2003
Basic Earnings per share:
Income (Loss) (numerator) $ (13,584,754) (272,909)
Shares (demoninator) 43,538,098 16,581,492
Per Share Amount $ (0.31) (0.02)
NOTE 4. STOCKHOLDERS' EQUITY
In April 2004, the Company performed a 2 for 1 stock split. This resulted in the
issuance of 21,431,606 shares at par value of $0.001 per share.
During the quarter ended May 31, 2004, the Company issued 270,000 shares of
common stock to consultants for services performed on behalf of the Company.
These shares were valued at $2.40 per share.
In August 2004, the Company issued 405,000 shares of common stock to consultants
for services performed on behalf of the Company. These shares were valued at
$4.00 per share
NOTE 5. INTANGIBLE ASSETS
In the quarter ending August 31, 2004 the Company was assigned a patent that was
originally purchased by one of its parent companies, Bioaccelerate Inc.
Bioaccelerate Inc purchased this patent in an agreement dated August 6, 2004
from Targent Inc, a Delaware corporation. The consideration was $100,000. The
documents transmitted as part of the agreement between Bioaccelerate Inc and
Targent Inc were (i) the Southern Research Institute Report No. A327.1 to
Targent on the results of experiment TAR-3, dated August 29, 2001, and (ii) all
files and supporting documents directly related to the Assigned Technology.
The assignment was accounted in the financial statements of the Company by
recording an intangible asset for $100,000, and an increase to the note payable
to Bioaccelerate Inc by the Company of $100,000.
The acquisition of this information will assist Evolve Oncology Inc in its own
research and development programs.
7
The Company's Board of Directors, review all intangible assets at least on an
annual basis and when assessing the value of this patent, the Board of Directors
determined that it should be amortized on a straight-line basis over 10 years.
At August 31, 2004, an amortization charge of $833 had been charged to the
Statement of Operations.
NOTE 6. RELATED PARTY PAYABLE
At August 31, 2004 a related party payable with Bioaccelerate Inc. consisted of
the following:
2004
Related party payable, unsecured, non-interest bearing $ 405,808
----------
Total Related party payable $ 405,808
NOTE 7 WARRANTS FOR THE PURCHASE OF COMMON STOCK
To meet our present and future liquidity requirements, the Company entered into
a credit facility on July 6, 2004, with Bioaccelerate Inc ("Bioaccelerate"), a
related party, to provide up to $5.0 million in funding. In return, the Company
issued to Bioaccelerate (on the date of the funding of the Initial Tranche) 5
year warrants to purchase 5,000,000 shares of the Company's common stock, at an
exercise price of $2.60 per share.
In accordance with SFAS No. 123(R), "Share Based Payment", the Company is
required to measure and record the charge related to warrants issued for stock
using the Black-Scholes pricing model to estimate fair value of the warrants at
the grant date.
The fair market value of the warrants at the date of issue was determined to be
$2.60. The plan calls for a total of 5,000,000 shares to be held for issue. A
summary of activity follows:
Number of Weighted Average
Shares Exercise Price
Outstanding at February 28, 2004 -- --
Granted 5,000,000 $ 2.60
Exercised -- --
Cancelled -- --
---------
Outstanding as of August 31, 2004 5,000,000 $ 2.60
Exercisable as of August 31, 2004 5,000,000 $ 2.60
The fair value of the warrants is $10,666,567. This amount has been charged in
full to the Statement of Operations in the six months ending August 31, 2004.
8
The fair value of the option grant was established at the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
2004
Risk free interest rate 4.0%
Dividend yield 0.0%
Volatility 115.0%
Average expected term (years to exercise date) 5
The stock warrants outstanding and exercisable under this plan as of August 31,
2004 are:
Average
Range of Exercise Weighted Average remaining Weighted Average
Price Warrants of Exercise Price contractual life Warrants of Exercise Price
$2.60 5,000,000 2.60 5 5,000,000 2.60
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-QSB, including information set forth under
this item 2. "Management's Discussion and Analysis, and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). We desire to avail
ourselves of certain "safe harbor" provisions of the Act and are therefore
including this special note to enable us to do so. Forward-looking statements
included in this Form 10-QSB or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to our
stockholders and other publicly available statements issued or released by us
involve unknown risks, uncertainties, and other factors which could cause our
actual results, performance (financial or operating), or achievements to differ
from the future results, performance (financial or operating), or achievements
expressed or implied by such forward looking statements. Such future results are
based upon our best estimates based upon current conditions and the most recent
results of operations.
9
LIQUIDITY
To date, we have incurred significant net operating losses. We anticipate that
we may continue to incur significant operating losses for some time.
As set out earlier, to meet our present liquidity requirements and part meet
future ones, on July 6, 2004, the Company entered into an agreement with
Bioaccelerate Inc ("Bioaccelerate"), a related party, to provide up to $5.0
million in funding. We must also raise significant capital to enable us to meet
future obligations until we are to become profitable. Profitability is dependent
upon our ability to generate sufficient sales from second-generation services.
Our existence is dependent on our ability to obtain the necessary financing.
We have insufficient relevant operating history upon which an evaluation of our
performance and prospects can be made. We are still subject to all of the
business risks associated with a new enterprise, including, but not limited to,
risks of current and unforeseen capital requirements, lack of fully-developed
products, failure of market acceptance, failure to establish business
relationships, reliance on outside contractors for the manufacture and
distribution, and competitive disadvantages against larger and more established
companies. The likelihood of our success must be considered in light of the
development cycles of new products and technologies and the competitive
environment in which we operate.
Evolve Oncology Inc. is engaged in the business of developing and
commercializing pharmaceutical compounds to fight cancer.
ACQUISITION OF EU LABORATORIES LIMITED.
On March 1, 2003 Evolve Oncology Inc., acquired the total outstanding share
capital of EU Laboratories Ltd. "EU Labs". EU Labs are a UK based company that
develops products to fight cancer.
OVERVIEW
The Company is currently operating through one wholly owned subsidiary, EU
Laboratories Limited.
EU Laboratories Limited has a limited trading history, and has a current
portfolio of four products aimed at cancer. Onca 011 is a monoclonal antibody,
which targets most forms of cancer.
The global cancer market is forecast to grow from $29.4 billion in 2001 to $42.8
billion in 2007. In this period the innovative cancer therapy market is forecast
to triple from $4.3 billion in 2001 to $12.3 billion in 2007. The Company's
focus on innovative treatments should benefit from the fact that the leading
pharmaceutical companies in the oncology market will all suffer from multiple
patent expiries in the next four years with existing cytostatic and hormonal
therapies. This creates a clear market opportunity for niche drug discovery
companies focusing on innovative technologies, as the large pharmaceutical
companies will be looking to enhance their existing portfolios with new
products.
10
Management believes by focusing on innovative cancer therapies it will be
possible to develop multiple drug candidates. Evolve Oncology will take
development stage candidates which have commercial potential and take these
products through early stage clinical trials to prove efficacy and safety.
Evolve Oncology will then look to license the products to partners who will take
the economic burden of multi center clinical trials. Evolve Oncology will look
to license US rights whilst maintaining the European rights.
Although the US is the single most lucrative market the European market is
extremely valuable. The European market is broken down into five main
marketplaces UK, Germany, France, Italy and Spain. These five marketplaces have
a prevalent patient population of approximately 3.4mn as compared to 3.3mn in
the US (by main disease area excluding skin cancer). Evolve Oncology will look
to establish niche oncology sales forces in these markets whilst licensing its
products in other smaller European territories. Evolve Oncology will also look
to develop niche drugs which large pharmaceutical companies will not develop as
they do not have potential blockbuster status.
SALES
The Company had no revenues for the six months ended August 31, 2004.
GROSS PROFIT
Our gross loss for the six months ended August 31, 2004 was attributable to
Operating expenses.
RESEARCH & DEVELOPMENT
Research and Development expenses for the six months ended August 31, 2004 were
$492,346. Such expenses were incurred entirely during the three months ended
August 31, 2004. Research and Development was increased during the current
quarter as funds became available through the Related Party Credit Facility
discussed above as well as through a Patent, which was purchased during the
current quarter in the amount of $100,000, which allows the Company access to
certain research properties. The Company expects future R & D expenses to be
substantial.
GENERAL & ADMINISTRATIVE EXPENSES
During the six months ended August 31, 2004 the Company incurred $2,425,008 in
general and administrative expenses.
AMORTIZATION
As discussed above, the Company was assigned a patent that was originally
purchased by Bioaccelerate Inc, from Targent Inc during the quarter ended August
31, 2004 in the amount of $100,000. As determined by the Board of Directors of
the Company, the useful life of such Patent was determined to be 10 years. The
Company uses the Straight Line Method of Amortization. $833 was recorded for
amortization of the Patent for the period ended August 31, 2004.
11
OPERATING LOSS
The reported operating loss recorded for the six month period ended August 31,
2004, was $13,584,754 or $0.31 per share basic and undiluted.
TOTAL COMPREHENSIVE LOSS
The reported total comprehensive loss during the six month period ended August
31, 2004 was $13,571,717.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The directors are not aware of any pending legal proceedings against the
Company.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended May 31, 2004, the Company issued 270,000 shares of
common stock to consultants for services performed on behalf of the Company.
These shares were valued at $2.40 per share.
In April 2004, the Company performed a 2 for 1 stock split. This resulted in the
issuance of 21,431,606 at par value of $0.001 per share.
In August 2004, the company issued 405,000 shares of common stock to consultants
for services performed on behalf of the Company. These shares were valued at
$4.00 per share
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There has been no default in the payment of principal, interest, sinking or
purchase fund installment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
There is no other information to report which is material to the Company's
financial condition not previously reported.
ITEM 6. EXHIBITS
(a) Exhibits. The following exhibits are filed with this report.
31. Written Statement of Chief Executive Officer and Chief Financial Officer
with respect to compliance with Section 13(a) or 15 (d) of the Securities
Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.
32. Written Statement of Chief Executive Officer and Chief Financial Officer
with respect to compliance with Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and pursuant to 18 U.S.C. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned authorized officers.
Dated: February 1, 2006
Evolve Oncology Inc.
By: /s/ Nigel Rulewski
-----------------------------
Nigel Rulewski
CEO
(Principal Executive Officer)
By: /s/ Alan Bowen
-----------------------------
Alan Bowen
CFO
(Principal Financial Officer)
13