UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 2003
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
(Exact name of registrant as specified in its charter)
Delaware 000-31653 95-4766094
- ------------------------------- ----------- -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File No.) Identification No.)
1285 Avenue of the Americas, 35th Floor, New York, NY 10019
- ------------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 561-1716
---------------
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Class Outstanding at August 31, 2003
----- ------------------------------
Common stock, $0.001 par value 16,128,900
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION.......................................... F-1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEETS ................................................... F-1
STATEMENTS OF OPERATIONS.......................................... F-2
STATEMENT OF STOCKHOLDERS' EQUITY................................. F-3
STATEMENTS OF CASH FLOWS.......................................... F-4
NOTES TO FINANCIAL STATEMENTS..................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 8
ITEM 3. CONTROLS AND PROCEDURES........................................... 9
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................. 10
ITEM 2. CHANGES IN SECURITIES............................................. 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 10
ITEM 5. OTHER INFORMATION................................................. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 10
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
APRIL 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS - Cash .......................................... $ 899
OTHER ASSETS - Goodwill ........................................ 17,000
---------
TOTAL ASSETS ....................................... $ 17,899
=========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Related party payable ................................... $ 36,000
Payable to DMI Biosciences .............................. 254,000
Accounts payable and accrued expenses ................... 271,350
Accrued wages ........................................... 68,000
Notes payable, related parties .......................... 168,173
---------
TOTAL CURRENT LIABILITIES ........................ $ 797,523
STOCKHOLDERS' (DEFICIT)
Common stock
Authorized - 25,000,000 shares, par
value $.001 per share
Issued and outstanding - 16,128,900 shares ........... 16,129
Additional paid in capital .............................. 51,420
Deficit accumulated in the development stage ............ (837,058)
Comprehensive loss ...................................... (10,115)
---------
TOTAL STOCKHOLDERS' (DEFICIT) .................... (779,624)
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) ....................... $ 17,899
=========
F-1
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
Three Months Ended
April 30,
----------------------------
2003 2002
---------- ----------
REVENUES .................................. $ -0- $ -0-
GENERAL AND ADMINISTRATIVE EXPENSES ....... 163,416 5,613
RESEARCH AND DEVELOPMENT EXPENSES ......... 403,987
---------- ----------
OPERATING (LOSS) .................... (567,403) (5,613)
OTHER INCOME (EXPENSE) - Interest .........
---------- ----------
NET (LOSS) ................................ $ (567,403) $ (5,613)
========== ==========
NET (LOSS) PER COMMON SHARE:
Basic and diluted .................. $ (0.32) $ (0.00)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING ....... 1,774,000 1,612,900
========== ==========
F-2
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE THREE MONTHS ENDED APRIL 30, 2003
(UNAUDITED)
Common Stock
-----------------------------
Shares Amount
---------- ----------
BALANCE, FEBRUARY 1, 2003 ................ 1,612,900 $ 1,613
ACQUISITION OF ENHANCE
LIFESCIENCES, INC ..................... 14,516,000 14,516
NET (LOSS) FOR THE THREE
MONTHS ENDED
APRIL 30, 2003 ........................ 0 0
---------- ----------
BALANCE, APRIL 30, 2003 .................. 16,128,900 $ 16,129
========== ==========
Deficit
Accumulated
Additional in Comprehensive
Paid-in Development Income
Capital Stage (Loss) Total
--------- --------- --------- ---------
BALANCE, FEBRUARY 1, 2003 .. $ 91,650 $(269,655) $ (10,033) $(186,425)
ACQUISITION OF ENHANCE
LIFESCIENCES, INC ....... (40,230) (25,714)
NET (LOSS) FOR THE THREE
MONTHS ENDED
APRIL 30, 2003 .......... (567,403) (567,403)
COMPREHENSIVE LOSS ......... (82) (82)
---------
(567,485)
--------- --------- --------- ---------
BALANCE, APRIL 30, 2003 .... $ 51,420 $(837,058) $ (10,115) $(779,624)
========= ========= ========= =========
F-3
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) .................................... $(567,403) $ (5,613)
--------- ---------
Adjustments to reconcile net (loss) to net
cash (used) in operating activities:
Changes in operating assets and liabilities -
Accrued expenses .......................... 492,321 3,263
--------- ---------
NET CASH (USED) IN OPERATING ACTIVITIES (75,082) (2,350)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Cash acquired in acquisition .................. 899
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .................................... 50,000 1,750
Contributed capital ........................... 600
Debt acquired in acquisition .................. 25,000
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ................ 75,000 2,350
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ...................... 82 0
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ 899 0
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD ............................... 0 0
--------- ---------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD ..................................... $ 899 $ 0
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest ................................... $ 0 $ 0
========= =========
Taxes ...................................... $ 0 $ 0
========= =========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for acquisition
of Enhance Lifesciences, Inc. ............ $ 17,000 $ 0
========= =========
F-4
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Enhance Biotech, Inc. (formerly Becor Communications, Inc.; hereinafter referred
to as the Company) was organized on December 31, 1996, under the laws of the
State of Delaware. The Company operates as a holding company for its subsidiary,
Enhance Lifesciences, Inc. ("ELSI").
ELSI is a company in the development stage which is focusing on developing
various pharmaceutical products.
The Company also owns approximately 43% of Advanced Media, Inc., a distributor
of management and general workforce training videos. The investment in Advanced
Media, Inc. has been written down to $-0- based on its negative stockholders'
equity. The Company is in the process of spinning off the shares of Advanced
Media, Inc. to its shareholders.
The interim consolidated financial statements of the Company are condensed and
do not include some of the information necessary to obtain a complete
understanding of the financial data. Management believes that all adjustments
necessary for a fair presentation of results have been included in the unaudited
consolidated financial statements for the interim periods presented. Operating
results for the three-month period ended April 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended January 31,
2004. Accordingly, your attention is directed to footnote disclosures found in
the January 31, 2003 Annual Report of ELSI and particularly to Note 1 which
includes a summary of significant accounting policies.
On April 29, 2003, the Company acquired 100% of the outstanding stock of ELSI in
exchange for 14,516,000 shares of its common stock. For accounting purposes,
ELSI is treated as the acquirer and the financial statements (current and
historical) represent the operations of ELSI.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ELSI.
All material inter-company accounts and transactions have been eliminated.
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs as incurred.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No.109, Accounting for Income Taxes. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted (loss) per share. Basic (loss)
per share is computed by dividing net (loss) available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. In accordance with FASB 128, any anti-dilutive effects on net (loss) per
share are excluded.
5
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF RISK
INDUSTRY
The Company's products are intended for the lifestyle pharmaceutical industry.
This industry experiences a high degree of obsolescence and changes in buying
patterns. The Company must expend funds for research and development and
identification of new products in order to complete its business plan.
Substantially all research and development is conducted with DMI Biosciences,
Queen Mary College, and Clinical Resources Management Plc. Any disruption in the
Company's relationship with these companies could have a material impact on the
Company's future operations.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued the following statements:
FASB 144 - Accounting for the impairment or disposal of long-lived assets; FASB
145 - Rescission of FASB statements 4, 44 and 64 and amendment of FASB 13; FASB
146 - Accounting for costs associated with exit or disposal activities; FASB 147
- - Acquisitions of certain financial institutions; FASB 148 - Accounting for
stock based compensation; and FASB 150 - Accounting for certain financial
instruments with characteristics of both liabilities and equity.
These FASB statements did not have a material impact on the Company's financial
position and results of operations.
GOING CONCERN
These consolidated financial statements are presented on the basis that the
Company is a going concern. Going concern contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business over a
reasonable length of time. The following factors raise substantial doubt as to
the Company's ability to continue as a going concern:
A. Continued operating losses
B. Negative working capital
C. Lack of cash from continuing operations
Management's plans to eliminate the going concern situation include, but are not
limited to:
A. Completion of a private placement to raise funds.
B. Introduction of products to market.
Should the Company be unsuccessful in its plans, the operations of the Company
could be discontinued.
RECLASSIFICATIONS
Certain 2002 amounts have been reclassified to conform with 2003 classifications
6
ENHANCE BIOTECH, INC.
(FORMERLY BECOR COMMUNICATIONS, INC.,
A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(UNAUDITED)
NOTE 2 NOTES PAYABLE
The Company has the following notes payable at April 30, 2003:
RELATED PARTIES:
Jano Holdings Limited, interest accrues at
6.0%. The balance is due upon the closing
of a private placement, change in control
or sale of assets. The note is part of a
financing agreement which provides the
Company up to $1.0 million under the same
terms. $143,173
Buddy Young, interest accrues at 8.0%, due
January 31, 2004 25,000
--------
$168,173
========
NOTE 3 COMMITMENTS
FINANCING
In February 2003, the Company entered into an agreement with Jano Holdings
Limited ("Jano"), a related party, to provide up to $1.0 million in funding. In
addition, the Company granted Jano warrants to purchase 1 million shares of its
common stock at the lower of the market price of such stock, if publicly traded,
or at such price sold to investors in any financing arrangement. The warrants
expire in February 2008.
CONSULTING
In connection with the acquisition of ELSI, the Company entered into an
agreement with Buddy Young (former President of the Company) to provide
consulting services for the period June 1, 2003 through December 1, 2004. For
more information on this agreement, please review the Company's filing on Form
8-K dated April 29, 2003.
The Company has an agreement with SCO Financial Group, LLC (a related party) to
provide investment and advisory services to the Company for $9,000 per month.
The total of $36,000 outstanding at April 30, 2003 is expected to be repaid upon
completion of a private placement.
RENT
The Company rents office space in the United Kingdom on a month-to-month basis.
Rent expense for the three months ended April 30, 2003 totaled $9,000.
NOTE 4 LICENSE AGREEMENT
In March 2003, the Company entered into two Co-Development Agreements with DMI
Biosciences, Inc. to develop and market a product for premature ejaculation and
a dermatological product. The Company is obligated to certain non-refundable
fees and royalties. See Exhibits 10.1 and 10.2 for further discussion of these
financial commitments.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 two
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, has negative working capital 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 also 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.
(2) RESEARCH AND DEVELOPMENT
The Company conducts its research and development with DMI Biosciences, Queen
Mary College, and Clinical Resources Management Plc. Such expenses are expensed
as incurred. Any disruption in the Company's relationship with these companies
could have a material impact on the Company's future operations.
RESULTS OF OPERATIONS
The three months ended April 30, 2003 compared to the three months ended April
30, 2002.
GENERAL OVERVIEW
Enhance Biotech, Inc., or ("the Company") is an emerging pharmaceutical company
wholly owned by Enhance Biotech Inc., developing an innovative portfolio of
products for the rapidly growing lifestyle drugs market. The company has six key
lifestyle product areas amongst which some are potentially blockbuster status
solutions to the needs of their particular conditions.
The market is recognized as growing rapidly to some $29 billion in the years to
2007 as the table below demonstrates. Added to this is the industry's spend on
lifestyle drug development in the last ten years which exceed $20 billion, each
of which demonstrates the attractive potential of this part of the global
pharmaceutical market place. In spite of this concentration on development for
the market, and the notable success of blockbuster drugs such as Viagra and
Xenical, relatively few successful solutions to the conditions recognized in
lifestyle category have actually reached market as yet. In addition there are
some conditions where very little work has been accomplished in spite of the
potential global market opportunity. Enhance's portfolio focuses upon six key
areas of the lifestyle market and in some cases is developing platform products
with potential ongoing development for related indications too. The key areas
are; sexual dysfunction, anti-aging, depression, cellulite, in vitro
fertilization and arthritis. A recent Reuters report on the lifestyle drug
sector demonstrates clearly the potential for successful participants in this
area as well as highlighting specifically some of the key areas in which the
Enhance portfolio will be active.
Enhance Biotech has and will continue to acquire and develop drug candidates
from the main lifestyle disorder categories. Through licensing in early to mid
stage products we will use our expertise and an established network of
development and commercialization partners to build long term value in to the
products for the company and shareholders.
By selecting the products acquired to be at varying development stages we are
able to take full benefit from the earliest opportunities to market while
looking to a strong product pipeline going forward. Amongst our five key areas
of development we have a number which while capable of achieving market
readiness with the initial science already have the ability to generate a second
phase of products offering still greater benefit and flexibility for the
lifestyle environment.
In addition to the pursuit of innovation and new development Enhance will make
use of reformulation technology in partnership with specialist, internationally
recognized technology houses to assist in meeting the needs of some lifestyle
conditions.
Revenue will be developed through a mixture of marketing license agreements with
major pharmaceutical companies where penetration of the end market for the
product justifies it and direct marketing of the products through Enhance
Biotech distribution channels and potentially direct via the internet.
8
To achieve this strategy the company has created and will continue to build on a
strong management, experienced in building science and technology based
businesses through partnership and licensing structures. An independent
scientific board will be appointed in addition to a supporting scientific and
commercial team. However the Enhance core business is not proposed to be a major
centralized organization. It is envisaged as a small core of Enhance staff with
a distributed support structure using the best personnel in partners and
licensed associates.
General and administrative expenses increased from $5,613 in the quarter ended
April 30, 2002, to $163,416 in 2003. The main reason for the increase was the
further development of the company's growth strategy and the development of its
products, specifically our product for Male Sexual Dysfunction.
Research & Development expenses for the period ending April 30, 2003, were
$403,987. The majority of these expenses were in connection with discovery and
pre clinical development for various of our products. There were no Research &
Development expenses for the corresponding 2002 quarter.
Liquidity & Capital Resources. We are actively seeking strategic alliances in
order to develop and market our range of products. In February 2003, we obtained
a secured $1 million line of credit facility from Jano Holdings Limited. In
addition, our officers agreed to defer salaries until we obtain sufficient
long-term funding. Our management believes that our agreement with Jano Holdings
will be sufficient to continue currently planned operations over the next 12
months. Should the company come up against and unforeseen problem, then the
company will revisit its budget and adjust it accordingly to allow the company
to operate until sufficient long term funding is achieved. However, a key
element of our business strategy is to continue to acquire, obtain licenses for,
and develop new technologies and products that we believe offer unique market
opportunities and/or complement our existing product lines.
ITEM 3. CONTROLS AND PROCEDURES
As of August 31, 2003, an evaluation was performed by our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, Our Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
August 31, 2003. There have been no significant changes in our internal controls
or in other factors that could significantly affect internal controls subsequent
to August 31, 2003.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The company filed two reports on Form 8-K during the quarter ended April 30,
2003, and one report on Form 8-K and one report on Form 8-K/A subsequent to
April 30, 2003, but prior to the filing of this Form 10-QSB. Information
regarding the items reported on is as follows:
Date Item Reported On
----------------- -----------------------------------------
April 18, 2003 Conversion of debt to common stock
April 29, 2003 Acquisition of Enhance Lifesciences, Inc.
July 14, 2003 Acquisition of Enhance Lifesciences, Inc.
September 4, 2003 Change in accountants
10.1 Co-Development Agreement between DMI BioSciences, Inc. and Registrant
in regards to DMI 7958.
10.2 Co-Development Agreement between DMI BioSciences, Inc. and Registrant
in regards to DMI 9742.
31.1 Certification of CEO Pursuant to Securities Exchange Act Rules 13a-14
and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14
and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
10
SIGNATURE
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.
Enhance Biotech, Inc.
Date: September 15, 2003 By: /s/ Linden Boyne
------------------------
Linden Boyne
Chief Financial Officer
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
11