UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20 - F/A
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ or __________
Commission file number: 333-101771
GUARDIAN BIOTECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Federally incorporated in Canada
(Jurisdiction of incorporation or organization)
4450-110 Gymnasium Place
Saskatoon, Saskatchewan, Canada S7N 0W9
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
_______________________ _____________________________
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common shares
-----------------------------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
------------------------------------------------
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common shares outstanding: October 31, 2003: 12,607,500
Indicate by check mark whether the registrant: (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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) [X] Yes [ ] No
(2) [X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has
selected to follow.
[ ] Item 17 [X] Item 18
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable
Item 2. Offer Statistics and Expected Timetable
Not Applicable
Item 3. Key Information
A. Selected financial data
The selected financial and other data set forth below should be read in
conjunction with the audited financial statements of Guardian Biotechnologies
Inc. as of October 31, 2003 and 2002 including the notes thereto, and "Item 5 -
Operating and Financial Review and Prospects" included in this annual report.
The selected financial data set forth below for the fiscal year ended
October 31, 2003 and period ended October 31 2002 are derived from the audited
financial statements of Guardian, which have been audited by D and H Group,
independent chartered accountants. Our financial statements are compiled in
Canadian dollars, expressed in US dollars, and presented in accordance with
accounting principles generally accepted in the United States.
1
STATEMENT OF OPERATIONS (in U.S. dollars)
Select information
Year ended October 31, 2003 and from inception
August 15, 2002 to October 31, 2002
Year ended Period ended
2003 2002
Sales $0 $0
Operating expenses 541,150 98,207
Operating loss (541,150) (98,207)
Research grant 45,002 0
Net loss (496,148) (98,207)
Other comprehensive income (loss) 28,704 (1,672)
Comprehensive loss $(467,444) $(99,879)
Weighted average number
of common shares 8,449, 041 3,831,169
Basic and diluted loss per
common share $(0.06) $(0.03)
2
BALANCE SHEETS (in U.S. dollars) as of October 31, 2003 and 2002
Select information
2003 2002
Cash and cash equivalents $174,895 $259,186
Accounts receivable -trade 11,623 0
Other 1,248 0
Total current assets 187,766 259,186
Property, plant and equipment - net 63,957 0
Total Assets $251,723 $259,186
Accounts payable and accrued liabilities $21,922 $40,496
Shareholders' equity 229,801 218,690
Total Liabilities and Shareholders' Equity $251,723 $259,186
Exchange rate information
The following table sets forth, for the periods and dates indicated, certain
information concerning the noon buying rate of a US dollar in Canadian dollars.
No representation is made that the Canadian dollar or US dollar amounts referred
to herein could have been or could be converted into US dollars or Canadian
dollars, as the case may be, at any particular rate, or at all.
YEARS ENDED OCTOBER 31 (CDN$ PER US$1.00)
AVERAGE RATE(1) YEAR END HIGH LOW
1998 1.4721 1.5432 1.5770 1.4005
1999 1.4948 1.4720 1.5557 1.4512
2000 1.4771 1.5273 1.5311 1.4350
2001 1.5411 1.5905 1.5905 1.4933
2002 1.5718 1.5610 1.6128 1.5108
2003 1.4379 1.3195 1.5903 1.3043
November 2003 1.3362 1.2973
December 2003 1.3405 1.2923
January 2004 1.3340 1.2690
February 2004 1.3442 1.3108
March 2004 1.3480 1.3080
(1) The average of the noon buying rates on the last date of each month
(or a portion thereof) during the period.
B. Capitalization and indebtedness
Not applicable
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk Factors
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK.
BEFORE MAKING A DECISION CONCERNING THE PURCHASE OF OUR SECURITIES, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS ANNUAL
REPORT WHEN YOU EVALUATE OUR BUSINESS. THE POTENTIAL SUCCESS OF OUR BUSINESS
MODEL MUST BE CONSIDERED IN LIGHT OF OUR STATUS AS A DEVELOPMENT STAGE COMPANY.
3
WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN WHICH COULD RESULT IN A LOSS FOR
OUR INVESTORS
We may never become profitable. If we do achieve profitability at some point in
the future, we cannot be certain that we will remain profitable or that profits
will increase in the future. For further discussion, see the section of this
document entitled " Operating and Financial Review and Prospects" below.
WE REQUIRE ADDITIONAL FUNDING SINCE WE EXPECT A NEGATIVE OPERATING CASH FLOW
OVER THE NEXT 12 MONTHS
We expect to experience negative operating cash flow for the foreseeable future
as a result of significant upfront expenses needed to develop proprietary
therapeutic proteins for medical and veterinary use. Accordingly, we will need
to raise additional funds in the short-term in order to fund our business plan.
We will need to raise the funds by offering and selling equity securities or
convertible debt securities, which will cause the percentage of ownership of our
shareholders to be reduced. The securities issued to raise funds may have
rights, preferences or privileges that are senior to those of the holders of our
other securities, including our common stock. We do not have any contractual
restrictions limiting our ability to incur debt. Any significant indebtedness,
however, could restrict our ability to fully implement our business plan. If we
are unable to repay the debt, we could be forced to cease operating. For further
discussion, see "Liquidity and capital resources" in the section of this
document entitled "Operating and Financial Review and Prospects" below.
CHANGES OR INTERRUPTIONS TO OUR ARRANGEMENTS WITH SUPPLIERS MAY DECREASE OUR
PROFITABILITY OR DESTROY OUR BUSINESS
Serving as a market distributor of laboratory instruments, products and supplies
for Toylab Inc. is our initial business. In the case that Toylab fails to meet
delivery, quality and technology requirements of the customer, we would be
exposed to the risk of being held responsible for customers' claims and could
suffer a possible loss of revenue or higher than anticipated costs, which could
seriously harm our operating results and ability to attract new business and
retain existing business. We are also subject to the risk that Toylab may cease
providing their specialized products or may choose not to upgrade their products
and thereby diminish the quality of the products we are able to deliver. If we
are unable to find a replacement manufacturer, those products may be permanently
unavailable. Any of these events could increase our costs and harm our ability
to deliver products on time and to compete.
WE MAY NOT ACHIEVE THE CUSTOMER BASE NECESSARY TO BECOME OR REMAIN PROFITABLE,
WHICH DECREASES THE VALUE OF OUR STOCK
The laboratory supply industry is highly competitive. Most of our competitors
have significantly greater financial, technical, product development and
marketing resources than us. Our primary competitors for customers include
Prodigene, Inc. with respect to molecular farming, <GENX> International Inc.,
VWR-Canlab, Fisher Scientific and Labequip Ltd. with respect to sale of
laboratory supplies and the laboratory services division of the University of
Guelph in Ontario with respect to genetically modified organism (gmo) testing.
Many of our competitors have substantial installed customer bases and the
ability to fund significant production and marketing efforts. There can be no
assurance that future competition will not have a material adverse effect on our
results of operations, financial condition or business. For further discussion,
see "competition" under the section of this document entitled "Business
Overview" below.
THE LOSS OF ANY OF OUR KEY PERSONNEL MAY AFFECT OUR ABILITY TO IMPLEMENT OUR
BUSINESS PLAN AND CAUSE OUR STOCK TO DECLINE IN VALUE
We are dependent on key employees to implement our business plan, and the loss
of any of them may have a negative affect on our ability to timely and
successfully implement our business plan. We have an employment agreement with
Sun Lee, CEO and president and with James
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Macpherson, director and general manager. We have not obtained key man
insurance with respect to such persons. The key persons are Dr's. Sun Lee and
James Macpherson.
GOVERNMENT REGULATION OF THE BIOTECHNICAL INDUSTRY AND GENETIC MODIFICATIONS MAY
NEGATIVELY AFFECT OUR ABILITY TO PROVIDE THE MARKETPLACE WITH OUR PRODUCTS AND
SERVICES
The laws and regulations applicable to genetically modified species (gmo)
directly affect us because our products and services are dependent on the
biotechnical industry. These laws and regulations are still evolving and
unclear and have the potential of affecting our business. We are not aware of
any current or pending laws that will have a substantial negative impact on our
ability to carry out our business plan.
Investment Risks
OUR COMMON STOCK HAS NO PRIOR MARKET AND PRICES MAY DECLINE
The value and transferability of our common stock is currently affected by the
fact that there is no market for the stock. No assurance can be given that a
market for our common stock will develop or that it will be listed on the NASD's
over-the-counter bulletin board.
OUR ISSUANCE OF ADDITIONAL SHARES MAY HAVE THE EFFECT OF DILUTING THE INTEREST
OF SHAREHOLDERS; OUR COMMON STOCK SHAREHOLDERS DO NOT HAVE PREEMPTIVE RIGHTS
Any additional issuances of common stock by us from our authorized but unissued
shares may have the effect of diluting the percentage interest of existing
shareholders. Out of our 100,000,000 authorized common shares, 87,392,520, or
approximately 87.4%, remain unissued. The board of directors has the power to
issue such shares without shareholder approval. We fully intend to issue
additional common shares in order to raise capital to fund our business
operations and to meet our growth objectives.
SHAREHOLDERS MAY HAVE LITTLE CONTROL OVER DECISION MAKING DUE TO CONCENTRATION
OF OWNERSHIP IN THE HANDS OF MANAGEMENT AND DIRECTORS
Our executive officers, directors and one principal shareholder own or exercise
full or partial control over 63.53% of our outstanding common stock. As a
result, other investors in our common stock may not have much influence on
corporate decision making. In addition, the concentration of control over our
common stock in the executive officers, directors and principal shareholder
could prevent a change in control of the Company.
WE DO NOT ANTICIPATE PAYING DIVIDENDS TO COMMON STOCKHOLDERS IN THE FORESEEABLE
FUTURE, WHICH MAKES INVESTMENT IN OUR STOCK SPECULATIVE OR RISKY
We have not paid dividends on our common stock and do not anticipate paying
dividends on our common stock in the foreseeable future. The board of directors
has sole authority to declare dividends payable to our stockholders. The fact
that we have not and do not plan to pay dividends indicates that we must use all
of our funds generated by operations for reinvestment in our business
activities. Investors also must evaluate an investment in our Company solely on
the basis of anticipated capital gains.
LIMITED LIABILITY OF OUR EXECUTIVE OFFICERS AND DIRECTORS MAY DISCOURAGE
SHAREHOLDERS FROM BRINGING A LAWSUIT AGAINST THEM
Our Articles of Incorporation and Bylaws contain provisions that limit the
liability of directors for monetary damages and provide for indemnification of
officers and directors. These provisions may discourage shareholders from
bringing a lawsuit against officers and directors for breaches of fiduciary duty
and may also reduce the likelihood of derivative litigation against officers and
directors even though such action, if successful, might otherwise have benefited
the shareholders. In addition, a shareholder's investment in our Company may be
adversely affected to the extent that costs of settlement and damage awards
5
against officers or directors are paid by us pursuant to the indemnification
provisions of the Articles of Incorporation. The impact on a shareholder's
investment in terms of the cost of defending a lawsuit may deter the shareholder
form bringing suit against any of our officers or directors. We have been
advised that the SEC takes the position that these article and bylaw provisions
do not affect the liability of any director under applicable federal and state
securities laws.
POSSIBILITY OF MISLEADING INFORMATION PROVIDED TO INVESTORS COULD LEAD TO
DAMAGES AGAINST THE COMPANY
The Company improperly stated that its parent company, Nexgen Biotechnologies
Inc., had received United States Food and Drug Administration (US FDA) approvals
for certain of its products which the Company intended to resell and to use for
its GMO screening service. In fact, Nexgen Biotechnologies Inc. did not have
FDA approvals but was relying on certificates of analysis and validation
prepared by laboratories certified by the FDA.
Item 4. Information on the Company
A. History and Development of the Company
Guardian Biotechnologies Inc. (Guardian) is a Canadian corporation formed
federally on August 15, 2002. Nexgen Biotechnologies Inc. (Nexgen) is a 55.52%
shareholder and parent company of Guardian. Sun Lee, PhD, is a director, officer
and 7.93% shareholder of Guardian and is a director, officer and shareholder of
Nexgen. Guardian and Nexgen intend to put an agreement in place to define the
business relationship and responsibilities between the two companies and
summarized as follows: 1. Guardian expects to utilize proprietary molecular
farming technology developed by Nexgen to develop advanced protein products.
Nexgen intends to transfer to Guardian its synthetic gene design, a host system
technology using vegetables such as cucumbers and oriental melons, access to ten
proprietary genetic on/off switches (promoters) and access to Nexgen's Asian and
European markets and 2. Nexgen intends to provide GMO testing kits to be
distributed by Guardian plus proprietary technology developed by Nexgen to be
utilized in the GMO testing techniques. Guardian expects a formal agreement
defining the relationship with Nexgen to be put into place over the next six
months.
B. Business Overview
Guardian Biotechnologies Inc. is a development stage company engaged in the
field of molecular farming to harvest useful proteins for cosmetics, industry
and other uses. We intend to become a leader in the development of proprietary
therapeutic proteins for medical and veterinary use. The Company intends to
become a leader in the production of industrial and cosmetic enzymes. These
derived proteins will be formed through the use of plants as the production
system within the biotechnology arena referred to as molecular farming. We
intend to recruit recognized leaders in scientific research who will aid the
Company in its research goals by participating on the advisory board of
scientific directors for the Company. We expect to develop relations with North
American pharmaceutical, cosmetic and other industrial partners to distribute
medical, cosmetic and industrial enzymes to a variety of commercial markets.
The Company hopes to utilize a host plant that has no relation to food crops in
America, thus achieving a unique status of product that will be uncontaminated
and less regulated. This is expected to be a competitive advantage in achieving
a dominant position in the fledgling molecular farming industry.
Short term revenue streams are expected to be generated from the sales of lab
equipment and supplies and from fees for a service program that will test
genetically modified species (GMO).
A brief history of Nexgen Biotechnologies, Inc. follows:
1999 Nov. 4 Incorporated
2000 Apr. 21 Registered as a venture company
(Small and Medium Business Administration,Article 2000142271-0542)
2000 May. 23 First Korean company to develop and distribute GMO Detection Kit
2000 Jun. 26 GMO Detection Kit: Certificates by Korea Research Institute of Bioscience and Biotechnology
2000 Jul. 3 GMO Detection Kit: Certificates by Korea Food Research Institutes
2000 Dec. 1 GMO Detection Kit: One of the top 10 researches of the year according to Popular Science
2001 Feb. 12 Accredited ISO 9001 for GMO Kit
2001 Mar. 05 First Korean company to develop and distribute GMO Diagnosis Kit
2001 Mar. 22 GMO Detection Kit is approved by a US FDA licensed laboratory
2001 Jul. 12 GMO Diagnosis Kit is tested by a US FDA licensed laboratory
2001 Sep. 26 First Korean company to be accredited with ISO 9001 for GMO Search Engine
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Nexgen is a biotech company in the molecular farming business with a dedicated
focus on developing and mass-producing recombinant proteins used in
pharmaceuticals, industrial enzymes and cosmeceuticals. Alongside with its
molecular farming business, Nexgen is developing a position in the GMO detection
kit market against international and local competitors. The Company
commercialized its GMO detection kits in mid 2000 and established a 'Korea GMO
Detection Center'. The center provides not only qualitative determination
services but also provides quantitative determination services of GM foods to
institutions, government and businesses. The GMO Detection Kit was awarded a
Korea Millennium Product 2000 by the Ministry of Commerce, Industry and Energy.
The Company's main business, molecular farming involves producing useful
proteins for cosmetics, industrial process, and edible human vaccines for oral
vaccination. Its principal research institute was opened in February 2000. 70%
of the Company's employees are R&D staff of which six have PhD's in related
fields. Nexgen cooperates with a number of research and educational institutes
in Korea, and also holds international ties with major scientific institutes,
such as National Research Center/Plant Biotechnology Institutes ("NRC/PBI") of
Canada. Nexgen was designated as a bio-venture company by the Korean Government.
Nexgen has generated modest revenues to date but has not as yet become
profitable and is operating on shareholder investments to pursue its business
plan.
Nexgen was the first company in Korea to begin to develop the second generation
of plant biotechnology. Nexgen aims to produce highly valuable proteins for
medicine, agriculture, and industry. Nexgen's proficiency expands to the fields
of molecular farming of useful proteins for cosmetics and industrial process,
edible human vaccine for oral vaccination, phytoremediation for the cleaning of
contaminated environments, and the development of transgenic plants. Nexgen has
several alliances with domestic and foreign companies that include
pharmaceutical (Green Cross Pharmaceuticals), cosmetic (Coreana Cosmetic Co.)
and animal feed (Dodram Feed Inc.). Guardian will have access to alliances
provided through Nexgen provided Guardian and Nexgen conclude their contractual
arrangements.
In Canada, there is a potential for increased investment in biotechnology,
because overall, funds for knowledge-based technologies have become accessible
with the growth of the public and private equity markets. In addition, federal
and provincial governments are offering strategic funding through programs, such
as the federal government's new Technology Partnerships Canada program, which
offers financial support for innovative technologies at the near-market stage of
development. We intend to apply for funding although there can be no assurance
that our applications will be successful.
Guardian intends to lead in the development of proprietary therapeutic proteins
for medical and veterinary use and in the production of industrial and cosmetic
enzymes. These proteins will be made through the use of plants as the production
system within the biotechnology arena now referred to as Molecular Farming.
Our Services
LAB EQUIPMENT
Guardian intends to be a distributor of laboratory instruments, products and
supplies manufactured in Korea by Toylab Inc. These products are complementary
to the scientific endeavours of the Company and, while providing profits, the
sale of lab equipment simultaneously engenders strong links to the scientific
7
community. The sales from Toylab will generate short-term revenues for Guardian
that will enhance its yearly operational budget and bring a return on investment
to shareholders. A contractual arrangement has been negotiated between the
Company and Toylab. The Company has entered into a distribution agreement with
Diamed Lab Supplies to conduct direct sales of Toylab equipment and this
material is now listed in the Diamed catalogue and on their web-site.
GMO* DETECTION KITS
Guardian still has plans to develop a fee for service program, which will focus
on screening genetically modified species and their crop products as well as
diagnostic testing. This service will utilize proprietary technology developed
by the parent company, Nexgen. The operation of a fee for service program will
develop secondary revenues for Guardian that will enhance its yearly operational
budget and create shareholder value. Should a client conduct its own testing,
Guardian will then sell the client its GMO detection kit. No contractual
arrangements have been negotiated between the Company and Nexgen. The
implementation of this program has been delayed due to the availability of a
specific real-time Polymerase Chain Reaction from Nexgen and the shortage of
funds to hire additional personnel to run the service.
* GMO is the acronym for "genetically modified organisms".
MOLECULAR FARMING
In a practice known as molecular farming, scientists raise crops in a controlled
environment. The crops are used to derive proteins which have medical and
industrial applications. Recent advances allow scientists to utilize low cost
production methods to modify plants for the creation of specialized proteins
that can be used in beneficial applications in medicine and industry. These
advances make possible the production of important value-added products.
Plants can now be used for the large-scale manufacture of proteins of commercial
value, such as enzymes, peptides of medicinal and pharmaceutical value, and
vaccines for human health care and veterinary purposes.
The Company will work towards being a leader in the large-scale production and
the proprietary isolation and recovery of therapeutic proteins and industrial
and cosmetic enzymes.
Guardian's approach is unique in that it will use non-traditional food crops in
its molecular farming programs. The primary production platform that has been
developed is a member of the cucumber family known as the 'oriental melon'. This
species has no sexually compatible wild relatives in North America or commercial
melon production that could contaminate it. Guardian will make use of oriental
melons and cucumbers, which are routinely grown under glass and are not
available for cross contamination of food crops. This unique contamination-free
status gives Guardian an edge compared to other protein farming companies
utilizing corn, potatoes and traditional crops.
Due to its isolation from standard North American crops, this unique production
platform has many commercial and regulatory advantages that allow Guardian to be
in the position of avoiding or reducing issues that surround the use of North
American crop plants in molecular farming. The Company has the goal of achieving
large-scale production of these valuable proteins and capturing a primary
position in this industry.
Business Strategy
Traditionally, research and development in leading edge technologies can require
years before maturation returns revenues to a company. The common strategy for
past biotechnology companies has been to rely upon investor funding and delay
the introduction of new products or services until later in the development of
the company. In order to circumvent the long wait for a return on investment,
Guardian has a plan to begin sales of complementary products that will generate
profits for the Company in the short term. There is a memorandum of
understanding in place between the Company and Nexgen to work together to
jointly develop new technologies and products.
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The impact of the key short-term revenues being developed by Guardian through
the distribution of Toylab products and the introduction of a GMO screening
service is that less outside investment will be required to provide financial
support for the long-term and potentially lucrative molecular farming project.
In summary, the business strategy for Guardian will be multi staged in that it
will consist of three components:
1) Long term: Guardian will invest capital and resources into molecular farming
for the development of valuable proteins. Concurrent with this will be the
formation of strategic alliances with Canadian and North American
pharmaceutical, neutraceutical, cosmetic and animal industry partners with
Guardian to facilitate the manufacture, marketing and distribution of these
protein products within Canada and the United States. The association with the
parent company, Nexgen, will enable Guardian to access Asian and European
markets. As well, Guardian will provide North American market penetration for
products developed by Nexgen.
2) Mid-term: Guardian will develop a fee for service program which will focus on
screening genetically modified species and their crop products as well as
diagnostic testing for external clients. This service will be based upon
proprietary technology already developed by Nexgen. The operation of fee for
service will allow cash flow for Guardian for its yearly operational budget. The
goal is to be ISO certified within two years.
3) Short-term: To deal with immediate cash flow, Guardian will function as a
distributor of scientific instruments, products and supplies manufactured in
Korea by Toylab Inc. It is the goal of Guardian to be self-sufficient within two
years and to focus the majority of any capital investment on long-term molecular
farming programs.
Industry Overview
The global market size of the biotechnology industry was US was US $30 billion
in 2002. By 2005, it is expected to reach US $95 billion and by 2010, US $190
billion*.
There are 1,466 biotechnology companies in the United States, of which 318 are
publicly held as of Dec.31 2002. Market capitalization, the total value of
publicly traded biotech companies at market prices, was US$206 billion as of
mid-April 2003*. The biotechnology industry has more than tripled in size since
1992, with revenues increasing from US$8 billion in 1992 to US$30.3 billion in
2002* *(Ernst and Young LLP and Bioworld). Over the past 14 years, the biotech
industry has recorded a 16 percent compounded annual growth rate in revenues.
Annual sales in Canada total more than $2 billion and the number of
biotechnology companies in Canada is over 417 as of 2002. Publicly traded
company revenues increased 44 percent to $1.4 billion from $1 billion in 2001.
R&D expenses were up 17 percent to $555 million from $474 million. The Canadian
industry's market capitalization was $8.9 billion in 2002. More than 75% are
small but rapidly growing companies with 50 or fewer employees. One quarter of
the companies are publicly traded. The health and agriculture sectors together
account for more than 75% of the overall biotech industry revenues. Despite the
many advances that have been made and the products that have become a commercial
reality, only a modest fraction of the potential of biotechnology has been
realized to date. The international effort focused on biotechnology continues to
expand as products of research assume prominent positions in the international
market place.
Source: Ernst & Young LLP, annual biotechnology industry reports, 1993-2002.
Financial data based primarily on fiscal-year financial statements of publicly
traded companies.
Marketing and Sales
Assuming negotiations with its parent company are successful, Guardian will
develop three tiers of customers for its products. The strength of long standing
strategic relationships with the parent company, Nexgen, and the NRC (the
acronym for the National Research Council which is operated by the Canadian
government) will assist in marketing efforts and the establishment of a strong
9
industry reputation. Nexgen was the first company in Korea to develop the second
generation of plant biotechnology and has an established history in the field of
molecular farming of advanced proteins. Guardian will function closely with
Nexgen in order to share the workload, to increase productivity, to take
advantage of each company's strengths, and to increase the speed of new product
development. Sharing of the workload will prevent costly research and facility
duplication for both Guardian and Nexgen. Guardian derives benefit and
positioning from industry relationships that have been established by its parent
company. Additional alliances include the National Research Council of Canada
and the FARR Technology Group, in Ontario, Canada.
Alliances and licensing will be the key marketing operatives for molecular
farming products. The customers will be larger pharmaceutical, industrial,
agricultural and cosmetic companies that will receive licenses from Guardian to
use its products.
Direct mail to industry players, attendance at trade shows and general
advertising will attract customers for the GMO testing service. Major food
corporations, importers of crops and processed crops and other companies will be
the target market as the regulatory requirements for GMO testing are increased.
Industry contacts coupled with direct mail, attendance at trade shows and
general advertising will develop clients for Toylab sales. Customers for these
products are the numerous labs on campuses, in secondary schools and in
independent scientific corporations.
Competition
Currently, Prodigene is the number one player in the field of molecular farming.
They have several patents. However, there are 800 types of proteins and many
kinds of host systems that can be used to produce them. Guardian, with its
parent partner, Nexgen, and the technologies already developed by that company,
proposes to utilize a host system that has no relation to crops in America, thus
achieving a unique status of product that will be uncontaminated and less
regulated. This is the powerful competitive advantage that Guardian offers to
its investors. With proper management and the ongoing R&D planned by the
company, Guardian has the potential for being a significant factor in the
molecular farming industry.
Employees
We currently employ five full-time employees. The Company currently has a
combined General Manager/Senior Scientist, three technicians and a combined
accountant/office manager. The Company expects to hire additional staff of a
second senior scientist, a postdoctoral research associate and three additional
technicians. We expect our labour relations to be good. None of our employees
are covered by a collective bargaining agreement.
Government Regulation
In 1993, the Organization of Economic Cooperation and Development published the
first general principles to govern the production and commercialization of
transgenic plants. Essentially these rules regulate how risk assessment should
be conducted and documented. Ironically, these rules do not necessarily apply to
the transgenic trait but rather to the host plant system. Changes to the plant
that make it more "weedy" are the major concern in that the new plant (termed a
PNT, or Plant with a Novel Trait) may be able to outgrow other plants in its
environment and become a new weed.
The Canadian Food Inspection Agency (CFIA) is the agency responsible for
regulating the release of "plants with novel traits". These regulations deal
primarily with the unconfined release of new plant varieties in the environment.
In 2002 the CFIA issued its "additional guidelines for plants used for plant
molecular farming". These regulations essentially regulate process rather than
deal with the safety of unconfined release of molecular farming plants into the
environment. In other words, Canada does not yet have in place specific
regulations regarding molecular farming and the products derived from this
industry. This is problematic for molecular farming companies since it provides
10
uncertainty as to how companies should proceed with development and ultimately
scale up of their products. The establishment of regulations soon would provide
companies with a solid frame work from which to organize their research and
development efforts in such a way as to ensure the products will be acceptable
and pass Government regulations.
In Canada the industry is critically aware of the concern, both public and
scientific, over the use of traditional crop plants for molecular farming. Most
companies are imposing self-regulated guidelines to develop new host plant
platforms for molecular farming to ensure a safe food supply chain. The
industry is anticipating regulations that will prevent the use of traditional
food crop plants for molecular farming and is making efforts now to comply with
the expected regulations in the future.
Guardian is also committed to using non-food plants for the final production of
any of its products and is focused on using oriental melon as well as other
plants currently under investigation to ensure the safety of Canadian food
production and not cause trade issues for Canadian food producers by not risking
accidental food contamination.
As a result of a recently held workshop on molecular farming the CFIA has
proposed draft amendments to Regulatory Directive 2000-07 to accommodate
confined research trials of PNTs for pharmaceutical production. It is important
to note that the CFIA and other regulatory agencies intend to modify existing
regulations and not to try formulating a new set of regulations for molecular
farming.
Points to note: isolation distances may be greater than those required for other
PNTs, disposal and destruction of all harvested plant materials must be
witnessed by a CFIA inspector and human toxicity and allergenicity data may be
required. At present these suggested modifications have not been officially
adopted and all proposed confined field trials are assessed on an individual
basis. Further consultations between Agriculture and Agri-Food Canada and CFIA
are planned.
The commercial release of plants for larger scale molecular farming activities
is not expected for several years. The CFIA has not yet disclosed any
information concerning how such activities may be regulated.
The regulatory situation in the USA is somewhat more advanced and some larger
scale trials have been completed. A few companies have begun commercial
production of novel products from plants and have achieved a regulatory status
that allows production on commercial scale. The oversight of
biotechnology-derived plants rests with the USDA's Animal and Plant Health
Inspection Service, (APHIS), the Food and Drug Administration, (FDA) and the
Environmental Protection Agency (EPA) An APHIS document that describes the terms
and conditions imposed on confined trials of plants tested in 2002, (barley,
corn, rice, sugarcane, tobacco and tobacco mosaic virus) has been published.
As described in the Federal Register, (vol 67, No 149, Aug 2, 2002) an expansion
of biotechnology-based crops is anticipated and up-dated field testing
requirements and early food safety assessments for new proteins to be produced
by plants are suggested. Any new proposals would be implemented through the
coordinated activities of the FDA, USDA, and EPA and be based on the following
principles:
1. The level of confinement under which a field test of a biotechnology-derived
plant is conducted should be consistent with the level of environmental, human
and animal health risk associated with the introduced protein and trait.
2. If a trait or protein presents an unacceptable risk or the risks cannot be
determined adequately, field test confinement requirements would be rigorous to
restrict out-crossing and commingling of seed and the occurrence at any level of
biotechnology-derived genes and gene products from these field tests would be
11
prohibited in commercial seed, commodities, and processed food and feed.
3. Even if a trait or protein does not present an unacceptable risk to the
environment or public health, field test requirements should still minimize the
occurrence of out-crossing and commingling of seed from these field tests, but
intermittent, low levels of biotechnology-derived genes and gene products from
such field tests could be found acceptable based on data and information
indicating the newly introduced traits and proteins meet the applicable
regulatory standards.
In our opinion, our planned molecular farming will conform to restrictions
currently in place and reasonably anticipated.
C. Organizational Structure
Guardian was federally incorporated on August 15, 2002 under the Canada Business
Corporation Act as a privately owned company that operates from its corporate
headquarters located in Saskatoon, Saskatchewan, Canada. Guardian is a Canadian
affiliate of the Korean based company Nexgen Biotechnologies, Inc. (Nexgen) that
was founded in 1999 by Dr . Sun Lee, who also founded and is president and
director of the Company.
Nexgen Biotechnologies Inc. (Nexgen) is a 55.52% shareholder and parent company
of Guardian. Sun Lee, PhD, is a director, officer and 7.93% shareholder of
Guardian and is a director, officer and shareholder of Nexgen. Guardian and
Nexgen intend to put an agreement in place to define the business relationship
and responsibilities between the two companies.
D. Property, Plants and Equipment
The Company leases its current principal executive offices and technical
facilities located at 4450 -110 Gymnasium Place, Saskatoon, Saskatchewan, Canada
for Cdn$4,646.00 per month. The lease expires during the fiscal year ending
October 31, 2007, and there is no security deposit.
We are leasing our present facilities within the newly developed Industrial
Partnership Wing (IPW) of the National Research Council Canada, Plant
Biotechnology Institute (NRC/PBI).
The office facilities are leased from the property owners. We do not carry
tenants insurance for office contents but intend to carry insurance of
Cdn$2,000,000 comprehensive general liability once our lab is in place.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis is based on and should be read in
conjunction with the Company's audited financial statements, including the notes
thereto, and other financial information appearing elsewhere herein. The audited
consolidated financial statements have been prepared using US dollars and are
presented in accordance with accounting principles generally accepted in the
United States.
A. Operating Results
Year comparisons between 2003 and 2002
For the year ended October 31, 2003, the Company achieved sales revenues of $nil
compared with sales revenues of $nil for the period ended October 31, 2002. The
Company's operating loss increased to $496,148 in 2003 from a loss of $98,207 in
2002. Such increase in the operating loss was due primarily to costs incurred
in organizing the Company to become a reporting issuer
($282,056 for 2003 - $92,253 for 2002) and to an increase in research expenses
($169,263 for 2003 - $nil for 2002). In the same period, working capital
decreased to $165,844 in 2003 from working capital of $218,690 in 2002. As of
the year ended October 31, 2003, the Company had an accumulated equity of
$229,801. The current year's contribution to the deficit was financed in part by
the issuance of shares and the Industrial Research Assistance Program of
$45,002.
12
B. Liquidity and capital resources
Our initial sources of liquidity are expected to be existing cash, sales from
Toylab products, fees from GMO testing services and cash from operations.
Guardian has on hand as at October 31, 2003, $ 174,895.00
(approximately $ 230,774 CDN) and anticipates expending an additional half
million dollars to complete our planned business strategy, over the next year of
its business plan inclusive of $146,000 ($209,306 CDN) in salaries for the year
to two of Guardian's directors, and additional staff of a second senior
scientist, a postdoctoral research associate and three additional technicians.
We will need additional funding in order to maintain research, produce and
distribute our products that are under development. We have been granted for
the Industrial Research Assistance Program (IRAP) on May 12, 2003 for up to
$76,730 ($110,000 CDN) for the Parasites Poultry Vaccine project. Currently the
Company is working on an application to the IRAP for the New Castle Disease
Vaccine project. We also have been receiving a contribution from the Western
Economic Diversification funds for half the salaries of the current two
technicians since October, 2003. There can be no assurances that financing,
whether debt or equity, will be available to us in the amounts required at any
particular time or for any particular period other than aforementioned funding,
or if available, that it can be obtained on satisfactory terms. We have made
no arrangements with our officers, directors or affiliates to provide liquidity
to us.
We anticipate that we will need to raise additional capital within the next 12
months in order to continue implementing our business plan and commence full
operations. We will need to raise the funds through debt or equity financing or
a combination of both. To the extent that additional capital is raised through
the sale of equity or equity-related securities, the issuance of such securities
is likely to result in dilution to our shareholders. There can be no assurance
that sources of capital will be available to us on acceptable terms, or at all.
If we are unable to raise additional capital, we may not be able to continue as
a going concern, and might have to reorganize under bankruptcy laws, liquidate
or enter into a business combination. We have not presently identified any
probable business combination. If adequate funds are not available within the
next 12 months, we may be required to significantly curtail our operations or no
longer be able to operate.
C. Research and development, patents and licenses, etc.
Research and Development
It is the goal of the Company to continually make enhancements and improvements
to its products. Costs incurred to make routine enhancements or improvements,
design changes to existing products and trouble shooting in production is
excluded from research and development expenses.
Products
Guardian aims to develop a variety of protein products that will range from
cosmetic proteins, therapeutic proteins for humans and animals, human and animal
antibodies and vaccines as well as multifunctional industrial and animal
feed-additive enzymes. The products we are currently developing are:
1) Edible Poultry Vaccines
Vaccine against Eimeria Parasites
We are developing an edible vaccine that will vaccinate fowl against Eimeria
parasites. The oral delivery of vaccines is a very attractive alternative to
injections due to the low cost of production, easy administration and long term
room temperature storage. Our edible vaccine is ready for initial testing in
chickens and making arrangements for the first round of chicken testing to begin
soon.
Coccidiosis is a serious disease of poultry that is caused by a group of
obligate, intracellular protozoan parasites of the genus Eimeria. These
parasites cause severe lesions within the intestines of poultry that lead to
reduced weight gain, delayed maturity and often death. Worldwide, this group of
parasites causes close to $1 billion (US) of economic losses yearly. Since the
early 1950's the poultry industry has used anticoccidial compounds to control
this disease, however, as with bacterial infections, Eimeria parasites have
rapidly developed resistance. With the high cost of drug development, the rapid
introduction of resistance and the demands by consumers for chemical free
agriculture, new anticoccidial drugs are slow to enter the market place.
13
These intestinal infections inflict heavy economic losses on poultry. The
poultry industry loses millions annually from parasites alone due to decreased
weight gain and delaying of maturity. A specific disease called Coccidiosis is
caused by protozoa's known as Eimeria that invade the cells in a chicken's or a
turkey's intestine. The bird's ability to absorb nutrients suffers, which
results in loss of weight or death. Eimeria infects most chickens by the time
they are 3 weeks old.
Many avian diseases, including Coccidiosis, are currently controlled by drug
therapy. Producers add drugs to commercial feed to combat the problem.
Drug-based control measures cost the industry more than $300 million annually.
However, they are increasingly ineffective as drug-resistant parasite strains
rapidly develop. Also, possible overuse adds to the public's concern over
chemical residues in the food supply. Guardian is, therefore, conducting
research and development to develop a new and novel vaccine for prevention of
Coccidiosis.
The use of recombinant technology has revolutionized the way vaccines are
developed. Whenever it is possible to make an effective vaccine using a single
protein or a portion of a protein (referred to as a subunit vaccine) this
practice is now preferable since the vaccine can be produced without using
infected animal or human tissue or cells. This practice avoids any contamination
from other infectious bacteria or viruses. Subunit vaccines generally contain a
single immunogenic protein which limits the occurrence of undesirable side
effects found when whole organisms are used to vaccinate.
However, as attractive as subunit vaccines are, they still require improvement.
If the immunogenic protein is produced using traditional animal cell culture,
there is a theoretical threat of viral contamination. Also, these immunogenic
proteins are administered through injection which then requires sterilization
and cold storage. Injected immunogenic proteins are not always effective in
providing mucosal immunity, which is of primary importance in Eimeria
infections.
In the case of Eimeria infections where the target organs are the intestines,
mucosal immunity or secretory IgA (sIgA) antibodies are critical to immunity.
The obvious method to generate sIgA antibodies is through the administration of
oral vaccines. This has proven difficult due to the problem of early protein
digestion within the host digestive system. Even if the protein does survive
there is still no assurance that the antigenic protein will be absorbed in
sufficient quantities to produce an antigenic response.
The company is developing an edible vaccine that will vaccinate birds against
Eimeria parasites. By turning a plant leaf into an edible pellet, an economical
vaccine can be produced which will protect chickens against multiple Eimeria
parasites. The oral delivery of vaccines is a very attractive alternative to
injections due to the low cost of production, easy administration and long term
room temperature storage. Testing of these proteins to protect birds against
parasite infections is underway.
Working closely with the Western College of Veterinary medicine and the Vaccine
and Infectious Disease Organization, both located in Saskatoon, Saskatchewan, we
are currently testing our first vaccine protein.
This research is being funded in part by a grant from the Industrial Research
Assistance Program of the National Research Council Canada (IRAP).
Vaccine against Newcastle Disease
Newcastle disease is caused by very contagious virus and often results in fatal
illness affecting all species of domestic and wild birds throughout the world.
This is considered to be the most infectious disease of birds. It is so virulent
that often birds will die without showing any clinical symptoms of having a
disease. A death rate of 100% can occur in unvaccinated commercial poultry
flocks and often disease occurs in vaccinated flocks as well.
14
California was recently devastated by a severe outbreak of Newcastle disease.
In order to fully contain the outbreak over 3.5 million birds, both domestic and
wild, had to be destroyed. More than $104 Million (US) was spent by the US
Federal task force that was involved in containing this outbreak.
Current vaccines are available but they are based upon attenuated
(live but weak viruses) or killed virus. While these vaccines are somewhat
effective often birds develop adverse reactions to the vaccination which result
in production losses. An additional problem is that once the flock has been
vaccinated using whole viruses it is no longer possible to track the possibility
of active infections since all the birds will show the presence of the
antibodies that diagnostic assays detect. Although these vaccines do have a
protective effect outbreaks still occur in vaccinated flocks.
To overcome these problems Guardian is developing an edible vaccine that is
based upon the development of protective antibodies to one specific protein that
is present in all highly infectious strains of the virus. This vaccine would
provide protection against the virus and also allow monitoring of the flocks
using existing diagnostic tests.
IRAP has committed funds to this research program and is slated to start its
contributions in June, 2004.
2) Therapeutic Proteins
ENBREL is the only fully human anti-TNF receptor approved by the FDA to reduce
the signs and symptoms and inhibit the structural damage in patients with
moderately to severely active arthritis, and to reduce the signs and symptoms of
active arthritis in patients with psoriatic arthritis. The makers of ENBREL,
Amgen Corporation, are currently seeking a plant biotechnology partner to
develop the production of ENBREL and other Phase I therapeutic proteins in
plants. Guardian, in partnership with its parent company Nexgen, is currently
in discussions with Amgen Corporation to develop a partnership to develop the
production of therapeutic proteins using plants as biofactories. Talks are
underway to define appropriate test proteins and host systems to start
collaboration.
3) Bacterial Excretion System
The production of recombinant proteins (e.g. therapeutic proteins) in bacteria
(Escehrichia coli) is one of the challenging fields of biotechnology. In E.
coli, recombinant proteins can be produced either as soluble forms or as
insoluble forms (inclusion body). The formation of inclusion bodies is a
frequent consequence of high-level protein production in the cytoplasm. There is
no direct evidence why recombinant proteins are sequestered into inclusion
bodies in E. coli. These inclusion bodies make protein purification difficult
and expensive. Several expression strategies have been developed to aid the
expression of recombinant proteins from E. coli. However, although these
strategies increase the production of proteins, the successes of these
strategies appeared to be protein specific. Also, the purification of soluble
target protein from the pool of cytoplasmic proteins is a relatively difficult
task as this compartment comprises the vast majority of the total cellular
proteins. An ideal method to produce recombinant proteins from E. coli is to
simply excrete the protein in the liquid media that the bacteria are grown in.
Guardian is currently developing a new technology that allows recombinant
proteins to be excreted out of the bacterial cell making protein recovery and
purification easier and less expensive. The company has been successful in
expressing a recombinant protein and having the bacteria excrete this protein
into the liquid media thus facilitating easier and less expensive purification.
4) Other Projects Postponed or Abandoned
In addition to the above projects, during the year 2003 Guardian worked on the
development of a rapid screening test against Hyperthyroidism, antibodies
against the herbicide 2, 4-D, commercially usable enzyme protease, and
diagnostic tests against SARS and West Nile Virus.
15
Hyperthyroidism
Hyperthyroidism is a disease most often diagnosed long after it has begun due to
costs involved in screening for the disease, especially in the USA. The
development of a rapid screening test would increase the speed of diagnosis of
this disease.
Antibodies
Guardian obtained the rights to express an antibody against the herbicide 2,4-D
from the University of Guelph. The expression of this antibody in any plant line
would result in resistance to this herbicide.
Proteases
In cooperation with the Plant Biotechnologies Institute (PBI), Guardian isolated
enzymes that have commercial value such as the enzyme protease which degrades
proteins, and some proteases function at extreme temperatures, such as 5 C or
above 60 C. These proteins would function well in cold water or hot water
washing and has potential as an additive in detergents for washing clothing. The
target markets are very diverse for this project. They range from detergent
manufactures to animal food producers, used making cheese, food processing.
SARS Diagnostic Test
Guardian worked on a SARS diagnostic test kit for the rapid detection of the
SARS virus. This project was conducted in cooperation with PBI during 2003. The
Company determined to allocate its limited working capital to its core projects
and, as a result, in February 2004 suspended this work until such time as it
becomes economically feasible for the Company to continue on the SARS project.
West Nile Virus Diagnostic Test
Guardian worked on a West Nile Virus diagnostic test. This project was also
conducted in cooperation with PBI during 2003. The Company determined to
allocate its limited working capital to its core projects and, as a result, in
February 2004 also suspended this work until such time as it becomes
economically feasible for the Company to continue on the West Nile Virus
project.
Guardian delayed further work on these projects in the beginning of 2004 due to
the financial and labour needs of these projects and will focus on its three
primary projects as described above in 1), 2) and 3).
Proprietary Technology
Intellectual Property
Guardian currently holds no patents and has not as yet applied for any patents
an d holds no other registered proprietary knowledge or assets. The Company is,
however, in the process of writing provisional patents on its poultry vaccine
technology and a bacterial excretion technology.
The Company has proprietary plant transformation technology and host plant
systems to facilitate product development in conjunction with its parent
company, Nexgen. Currently, assuming satisfactory completion of negotiations
with Nexgen, Nexgen's proprietary technology will be shared with the Company.
Much of the proprietary technology available to the Company has been developed
by the parent company, Nexgen, and will ultimately benefit the operations of
Guardian.
Guardian Biotechnologies Inc. is developing a portfolio of components which
includes its own proprietary technology and appropriate licenses from other
research institutions or Universities. Guardian intends to become a significant
factor in the development of proprietary therapeutic proteins for medical and
veterinary use. The Company also intends to become a significant factor in the
production of industrial and cosmetic enzymes. These proteins will be made
through the use of plants as the production system within the biotechnology
arena now referred to as Molecular Farming for which the Company expects to
apply for patent protection in the future. There can be no assurance that the
patents will be granted.
16
D. Trend information
See Item 4 B. Business Overview, Industry Overview
E. Off-balance sheet arrangements
Not applicable
F. Tabular disclosure of contractual obligations
Payments due (by period)
less than more than
Contractual Obligations Total one year 1-3 years 3-5 years 5 years
Long-term debt obligations $nil $nil $nil - -
Debentures $nil $nil $nil - -
Long-term accounts payable $nil $nil $nil - -
Retirement and severance indemnities $nil unknown unknown unknown unknown
G. Safe harbor
Forward looking statements
This annual report contains forward-looking statements. We intend to identify
forward-looking statements in this prospectus using words such as "anticipates",
"will", "believes", "plans", "expects", "future", "intends" or similar
expressions. These statements are based on our beliefs as well as assumptions we
made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties and assumptions. Actual future results may differ
significantly from the results discussed in the forward-looking statements.
Some, but not all, of the factors that may cause these differences include those
discussed in the Risk Factors section. You should not place undue reliance on
these forward-looking statements.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following table sets forth the name, age, and position of each Director and
Executive Officer of Guardian Biotechnologies Inc.
NAME AGE POSITION
Sun Lee, PhD 45 President, Treasurer and Director
James MacPherson, PhD 44 Secretary and Director
Paul Arneson, PhD 52 Director
Hyun Cho Chung, Ph D 44 Director
Sung Chan Yu, M.Sc. 42 Director
Dr. Sun Lee represented the first Board of Directors of the Company and was
appointed to the Board of Directors on August 15, 2002. Officers will hold their
positions at the pleasure of the Board of Directors, absent any employment
agreement.
There are no arrangements or understandings between the directors and officers
of Guardian Biotechnologies Inc. and any other person pursuant to which any
director or officer was or is to be selected as a director or officer. In
addition, there are no agreements or understandings for the officers or
directors to resign at the request of another person and the above-named
officers and directors are not acting on behalf of nor acting at the direction
of any other person.
The following summary outlines the professional background of the directors and
executive officers of the Company.
Sun Lee, PhD, President, Treasurer and a Director
Dr. Lee brings extensive research experience in the field of molecular farming.
His past positions include Director of the Plant Biotechnology Institute at
Dongbu Chemical Co., assistant research officer at Canada National Research
Council. Dr. Lee has written several theses on plant biotechnology: Genetic
transformation of broccoli; Genetic transformation of B.oleracea varieties;
Genetic transformation of recalcitrant genotypes of B.napus; Speed
transformation of Brassicas; and Development of plant promoters from Brassicas.
17
Dr. Lee is currently a director, officer and shareholder of Nexgen
Biotechnologies, Inc., the Company's parent company.
James MacPherson, PhD, General Manager, Secretary and a Director
Dr. MacPherson has two patents for plant cell transformation and has published
many articles on molecular cloning and related subjects. He has worked as
research manager and senior scientist at Performance Plants Inc. In his capacity
as a consultant to Nexgen Biotechnologies, Inc. (parent company of Guardian
Biotechnologies Inc.) he was a facilitator for the new biotechnology company
(Guardian Biotechnologies Inc.). Past experience includes positions as a
research associate at the Plant Biotechnology Institute, National Research
Council of Canada, and he was the recipient of two outstanding achievement
awards from the National Research Council. Dr. MacPherson is also a member of
the science advisory council for the Saskatchewan Institute of Applied Science
and Technology.
Paul Arnison, PhD, Scientific Advisor and a Director
Dr. Arnison holds approximately 175 publications to his name and is a leader in
plant biotechnology and business development strategies. He is currently
President of Botanical Alternatives Inc., dedicated to the production of
environmentally responsible pest control agents. Past positions include general
manager of FARR Biotechnology Group in Ontario and general manager of Paladin
Hybrids Inc. also in Ontario. Dr. Arnison is or has been a board member of
AgriGenomics Inc. and Transplastomic Technologies Inc. and has held various
other industry positions with government granting agencies, plant breeding,
hybrid systems development and novel hybridization systems. Additionally, he has
extensive experience with intellectual property issues and technology
assessment.
Hyun Cho Chung, Pd.D., Director
After receiving his B.Sc. in Korea, Dr. Chung moved to Canada to complete his
M.Sc. and eventually his PhD in Oral Biology. In 1995 Dr. Chung joined the
Faculty of Pharmaceutical Sciences at the University of British Columbia as a
Research Scientist. At the same time he was a research for the Canadian Cystic
Fibrosis Research Foundation. Currently Dr. Chung is the Owner of a Natural
Health Clinic in Burnaby and an Advisor to the HOC Health Centre in Coquitlam,
British Columbia. He also Lectures at the Royal City International College in
New Westminster, British Columbia.
Mr. Sung Chan Yu, M.Sc., Director
Mr. Yu graduated from the University of Nebraska, U.S.A. with a Bachelor of
Science in Mathematics and followed this with a Masters of Science degree
majoring in Applied Mathematics. During his last year of the Masters Degree
program he taught mathematics at Metro Community College in Omaha, Nebraska. Mr
Yu move d back to Korea in 1992 and has been specializing in Public Market
financing and investing for both on and offshore companies. His latest
accomplishment has been to launch a well-known venture company on KOSDAQ.
B. Compensation
Executive Compensation
We paid an aggregate amount of compensation during fiscal 2003 to our directors
and officers as a group equal t o $116,193 (2002 - $6,343). The amount of
retirement and severance benefits accrued for our executive officers and
directors in 2003 and 2002 was $nil. There were no pension, retirement or other
similar benefits set aside for our executive officers and directors in 2003 or
2002.
Stock Option Plan
Under our Articles of Incorporation, we may grant options for the purchase of
our shares to certain qualified officers and employees. There are no stock
options or warrants or other securities convertible into Guardian
Biotechnologies Inc. common stock outstanding as at October 31, 2003.
18
We may file a registration statement on Form S-8 after the effective date hereof
that would permit and facilitate the offering of options to acquire shares of
common stock of the Company by employees, directors and consultants at prices
per share at variance with any market quotations at the time. There were no
warrants or other securities convertible into Guardian Biotechnologies Inc.
common stock outstanding as of October 31, 2003.
Compensation of Directors
Directors, including directors who are also employees of the Company, receive no
extra compensation for their service on the Board of Directors of the Company.
Name & Principal Position Year Salary($) Bonus ($) Other All
Annual Other
Compensation Compensation
Sun Lee (Director, President, Treasurer) 2002 Nil Nil Nil Nil
2003 64,969 Nil Nil Nil
James Macpherson (Director, Secretary) 2002 6,343 Nil Nil Nil
2003 51,224 Nil Nil Nil
Paul Arnison (Director) 2002 Nil Nil Nil Nil
2003 Nil Nil Nil Nil
C. Board practices
The board of directors has the ultimate responsibility for the administration of
the affairs of GUARDIAN. Our amended articles of Incorporation, as currently in
effect, provide for a board of directors of not less than three directors and
not more than ten directors. Under our amended Articles of Incorporation, all
directors serve a three year term but may be replaced at the ordinary general
meeting of shareholders convened with respect to the last fiscal year. It is
expected that all current directors will continue to serve after this offering.
The directors are elected at a general meeting of shareholders by a majority of
vote of the shareholders present or represented by proxy, subject to quorum
requirements of at least one-quarter of all issued and outstanding shares having
voting rights. The board currently acts as the Company's audit committee.
Independent auditor
Our amended Articles of Incorporation provide for the appointment by the
shareholders of the Company of an independent auditor. The independent auditor's
term expires at the close of the ordinary general meeting of shareholders
convened with respect to the last fiscal year from the date of acceptance by the
independent auditor. Currently, D&H Group, Chartered Accountants is our
independent auditor.
Independent director
Mr. Paul Arnison, PhD serves on the board as an independent director. We have
appointed an additional director, Dr. Hyun Cho Chung.
D. Employees
Employment Contracts with employees and officers
Th e Company has entered into employment contracts, with its current employees.
The Company has 5 employees in the following areas: General Manager and Senior
Scientist, Accountant and Office Manager, Senior Technician and lab Manager, Two
technicians
E. Share Ownership
The following table sets forth certain information regarding the beneficial
ownership of the common stock of the Company as of October 31, 2003 of: (a) each
of the Company's directors and officers, and (b) all directors and officers of
the Company, as a group:
19
NAME SHARES OWNED PERCENTAGE OF
SHARES OWNED
Sun Lee - President, Treasurer and a Director 1,000,000 7.93%
Nexgen Biotechnologies, Inc. (1) 7,000,000 55.52%
James Macpherson, Secretary and Director 10,000 0.079%
Paul Arnison, Director 0 0.00%
Hyun Cho Chung, Director 0 0.00%
All Executive Officer and Directors as a Group 1,010,000 8.01%
(1)Sun Lee is President and a major shareholder of Nexgen Biotechnologies, Inc.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
The following table sets forth information with respect to the beneficial
ownership of our shares as of October 31, 2003 by each person known to us to own
beneficially more than five percent (5%) of our shares.
Name and address Amount of Stock Percentage of Class
Beneficially Owned
Nexgen Biotechnologies Inc. 7,000,000 55.52%
Sun Lee 1,000,000 7.93%
Nexgen Biotechnologies Inc. owned 5,000,000 shares of the Company as of October
31, 2002 and acquired additional 2,000,000 shares of the Company during the year
2003.
All the shares are shares of common stock and all have equal rights. There are
no arrangements known to the Company the operation of which would at a
subsequent date result in a change in control of the Company.
B. Related party transactions
There is no known relationship between any of the Directors and Officers of the
Company with major clients or provider of essential products and technology.
Sun Lee, a director and president of the Company, is also the president and a
major shareholder of Nexgen Biotechnologies, Inc., a majority shareholder of the
Company.
In the event conflicts do arise the Company will attempt to resolve any such
conflicts of interest in favour of the Company. The officers and directors of
the Company are accountable to the Company and its shareholders as fiduciaries,
which require that such officers and directors exercise good faith and integrity
in handling the Company's affairs. A shareholder may be able to institute legal
action on behalf of the Company on or behalf of that shareholder and all other
similarly situated shareholders to recover damages or for other relief in cases
of the resolution of conflicts in any manner prejudicial to the Company.
C. Interests of experts and counsel
Not applicable
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See "Item 18- Financial Statements"
20
B. Significant Changes
There has been no significant change in the Company's affairs since the October
31, 2003 financial statements.
Item 9. The Offer and Listing
Not Applicable
Item 10. Additional Information
A. Share capital
Not applicable for annual reports filed on Form 20-F
The Company had 8,200,000 shares of common stock issued and outstanding prior to
the filing of form F-1 with the U.S. Securities and Exchange Commission.
Effective May 14, 2003, the Company offered up to 5,000,000 shares of common
stock of the Company to the public at USD$0.10 per share. A total 4,407,500
shares of common stock was issued; 2,000,000 shares to Nexgen Biotechnologies
Inc., the parent company of the Company, and 2,207,500 shares to individuals.
The number of current outstanding shares of the Company is 12,607,500 with no
par value.
B. Memorandum and articles of association
Refer to Exhibit numbers 3.1 and 3.2 of the Company's Form F-1 accepted for
filing May 8, 2003
C. Material contracts
The Company entered into two agreements with Penn Capital Canada Ltd. ("PCC")
located at 16th Floor, 543 Granville Street, Vancouver, BC, Canada:
1. Public company listing services agreement dated August 8, 2002 Since its
inception, the Company has been planning to enter the U.S. capital market as a
potential means of financing its projects and has filed a registration statement
with the SEC and become a reporting issuer. PCC has been providing listing
services to the Company from the initial stages of Guardian's plan, including
accounting, administration, documentation, office, registration documents and
overall administration of the registration process, for fees of $180,000.00.
2. Investor relations service agreement dated May 12, 2003
The Company agreed to contract PCC for the preparation of promotional materials,
preparation of an updated business plan, dissemination of information to the
market place, exposure to stock brokers, financial analysts, private investors
and financial news letter writers, and preparation of news releases for a
program total of $150,000.00 over six months, which period has been extended
indefinitely.
D. Exchange Controls
There are currently no laws, decrees, regulations or other legislation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of the Company's
securities, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by the Articles of
Incorporation or other charter documents of the Company on the right of a
non-resident to hold voting shares of the Company, other than as provided by the
Investment Canada Act, as amended (the "Act"), as amended by the North American
Free Trade Agreement Implementation Act (Canada), and the World Trade
Organization (WTO) Agreement Implementation Act. The Act requires notification
and, in certain cases, advance review and approval by the Government of Canada
of the acquisition by a "non-Canadian" of "control of a Canadian business," all
as defined in the Act. Generally, the threshold for review will be higher in
monetary terms for a member of the WTO or NAFTA.
21
E. Taxation
United States and Canada: there are reciprocal tax treaties between Canada and
the United States.
Potential purchasers are urged to consult their tax advisors as to the
particular consequences to them under U.S. federal, state, local and applicable
foreign tax laws of the acquisition, ownership and disposition of common shares.
F. Dividends and paying agents
Not Applicable
G. Statement by experts
Not Applicable
H. Documents on display
Documentation concerning the Company and which is referred to in this filing may
be inspected at the Company's offices located at 4450-110 Gymnasium Place,
Saskatoon, Saskatchewan, Canada S7N 0W9
I. Subsidiary Information
Not Applicable
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk exposures due to fluctuations in exchange rates
and interest rates. Changes in the foreign exchange rate between the CDN$ and
the US$ may affect us due to the effect of such changes on any shareholder
distributions to the shareholders using US$ as a main currency. Guardian
denominates its financial statements in the United States dollars but conducts
its daily affairs in Canadian dollars. We are not currently carrying significant
amounts of short term or long-term debt. Upward fluctuations in interest rates
increase the cost of additional debt and the interest cost of outstanding
floating rate borrowings.
Inflation
We do not consider that inflation in Canada has had a material impact on our
results of operations. Inflation in Canada in 2000, 2001 and 2002 was 2.7%,
2.6%, and 2.2% respectively.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
The Company is not currently in default, arrears or delinquent with respect to
any of its debt obligations or other responsibilities.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not Applicable
Item 15. Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of this
Annual Report on Form 20-F, the principal executive officers and directors of
the Company have concluded that the disclosure controls and procedures of the
Company as defined in 240.13a-15(c) and 240.15d-15(c) of the Securities
Exchange Act of 1934 (the Exchange Act) are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission's rules and
forms.
There were no significant changes in internal controls or in other factors of
the Company that could significantly affect these controls subsequent to the
date of their evaluation and up to the filing date of this Annual Report on
Form 20-F. There were no significant deficiencies or material weaknesses, and
therefore no corrective actions were taken or may occur and not be detected.
22
Item 16. (Reserved)
Item 16A. Audit Committee Financial Expert
The Company does not yet have an audit committee financial expert. The Company
is in the formative stage and has focused its requirements on biotech experts
for its board of directors. The Company intends to appoint a financial expert
once commercial operations commence.
Item 16B. Code of Ethics
The Company does not have in place a written code of ethics that applies to its
executive, financial or accounting officers or to persons performing similar
functions. The Company is dependent upon its president to lead by example and
has faith in his ability to do so. Once the Company becomes more diverse in its
operations and where required by regulation, it intends to implement a code of
ethics for its officers. The Company does not plan to grant any waiver,
including an implicit waiver, from a provision of the code of business conduct
and ethics to any person.
Item 16C. Principal Accountant Fees and Services
(a)Audit Fees
During the last two fiscal years, the Company paid $12,112.44 for professional
services rendered by the principal accountant for the audit of the Company's
annual financial statements or services normally provided in connection with
statutory and regulatory filings for those fiscal years.
(b)Audit-Related Fees
During the last two fiscal years, the Company paid $3,078.56 for professional
services rendered by the principal accountant for the audit of the Company's
annual financial statements or services normally provided in connection with
statutory and regulatory filings for those fiscal years that are not reported
under (a).
(c)Tax Fees
During the last two fiscal years, the Company paid $nil for professional
services rendered by the principal accountant for tax compliance, tax advice
and tax planning.
(d)All Other Fees
During the last two fiscal years, the Company paid $nil for professional
services rendered by the principal accountant for services other than those
described under (a) through (c).
(e) The Company's board of directors is currently acting as the audit committee.
The board approves all of the services provided by the principal accountants.
(f)Percentage of work performed by persons other than the principal accountant's
full-time, permanent employees: 0%
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
During the year ended October 31, 2003, Nexgen Biotechnologies Inc. acquired an
additional 2,000,000 shares of the Company for $200,000.00 ($0.10 per share).
Nexgen is the parent company of Guardian and purchased the shares in a private
transaction. The Company has no publicly announced plans or programs for the
issuance or sale of its shares.
Part III
Item 17. Financial Statements
Not Applicable
Item 18. Financial Statements
23
AUDITOR'S REPORT
To the Stockholders of
Guardian Biotechnologies Inc.
We have audited the balance sheet of Guardian Biotechnologies Inc.
(A Development Stage Company) as at October 31, 2003 and the statements of loss
and comprehensive income, stockholders' equity and cash flow for the year then
ended and for the period from inception on August 15, 2002 to October 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at October 31, 2003 and the
results of its operations and cash flow for the year and period then ended in
accordance with United States generally accepted accounting principles.
The financial statements as at, and for the period from inception on August 15,
2002 to October 31, 2002, were reported on by other auditors who expressed an
opinion without reservation on those statements in their report dated November
28, 2002.
"D&H Group"
Vancouver, B.C., Canada
January 13, 2004 Chartered Accountants
24
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated
January 13, 2004 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors'
report when these are adequately disclosed in the financial statements.
"D&H Group"
Vancouver, B.C., Canada
January 13, 2004 Chartered Accountants
25
Guardian Biotechnologies Inc.
(A Development Stage Company)
BALANCE SHEETS
(Expressed in U.S. Dollars)
October 31,
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,895 $ 259,186
Amounts receivable (Note 3) 11,623 -
Due from related party 1,248 -
187,766 259,186
PROPERTY AND EQUIPMENT (Note 4) 63,957 -
$ 251,723 $ 259,186
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 21,922 $ 40,496
COMMITMENT (Note 5)
STOCKHOLDERS' EQUITY
COMMON STOCK (Note 6) - Authorized
100,000,000 shares; no par value; issued and outstanding:
2003 - 12,607,500; 2002 - 7,000,000 $ 797,124 $ 318,569
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE (594,355) (98,207)
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS) 27,032 (1,672)
229,801 218,690
$ 251,723 $ 259,186
=========== ===========
GOING CONCERN (Note 1)
See accompanying notes to the financial statements
Approved by the Board "Dr. Sun Lee" Director "Dr. James MacPherson" Director
26
Guardian Biotechnologies Inc.
(A Development Stage Company)
STATEMENTS OF LOSS AND COMPREHENSIVE INCOME
(Expressed in U.S. Dollars)
Cumulative
Period from from
inception on inception on
August 15, August 15,
Year ended 2002 to 2002 to
October 31, October 31, October 31
2003 2002 2003
REVENUE $ - $ - $ -
EXPENSES
Administrative salaries and benefits 34,905 2,118 37,023
Depreciation of property and equipment 5,307 - 5,307
Consulting (Note 7) 282,056 92,253 374,309
Office 8,748 527 9,275
Research 169,263 - 169,263
Rent 19,649 460 20,109
Travel 9,667 946 10,613
Professional fees 13,288 1,903 15,191
Foreign exchange gain (loss) (1,733) - (1,733)
----------- ---------- ------------
(541,150) (98,207) (639,357)
OTHER INCOME
Research grant 45,002 - 45,002
NET INCOME (LOSS) FOR THE YEAR (496,148) (98,207) (594,355)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation 28,704 (1,672) 27,032
COMPREHENSIVE INCOME (LOSS) $ (467,444) $ (99,879) $(567,323)
EARNINGS (LOSS) PER COMMON SHARE -
BASIC AND DILUTED$ (0.06) $ (0.03)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,449,041 3,831,169
See accompanying notes to the financial statements
27
Guardian Biotechnologies Inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Deficit Accumulated
accumulated other
during the comprehensive
Common stock development income
Shares Amount stage (loss)
Balance at inception,
August 15, 2002 - $ - $ - $ -
Common shares issued
for cash 7,000,000 318,569 - -
Foreign currency translation - - - (1,672)
Net income (loss) for the
period - - (98,207) -
Balance at,
October 31, 2002 7,000,000 318,569 (98,207) (1,672)
Common shares issued to
settle accounts payable 1,200,000 38,555 - -
Common shares issued for
cash 4,407,500 440,000 - -
Foreign currency translation - - - 28,704
Net income (loss) for the
year - - (496,148) -
Balance at
October 31, 2003 12,607,500 $ 797,124 $ (594,355) $ 27,032
See accompanying notes to the financial statements
28
Guardian Biotechnologies Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(Expressed in U.S. dollars)
Cumulative
Period from from
inception on inception on
August 15, August 15,
Year ended 2002 to 2002 to
October 31, October 31, October 31,
2003 2002 2003
CASH FLOW FROM OPERATING ACTIVTIES
Net income (loss) $(496,148) $(98,207) $(594,355)
Adjustments to reconcile net cash provided by
operating activities
Depreciation of property and equipment 5,307 - 5,307
Decrease (Increase) in
Amounts receivable (11,623) - (11,623)
Due from related party (1,248) - (1,248)
Increase (decrease) in
Accounts payable and accrued liabilities 19,981 40,496 60,477
(483,731) (57,711) (541,442)
CASH FLOW FROM INVESTING ACTIVITY
Purchase of equipment (69,264) - (69,264)
CASH FLOW FROM FINANCING ACTIVITY
Issue of common shares for cash 440,000 318,569 758,569
INCREASE (DECREASE) IN CASH AND CASH (112,995) 260,858 147,863
EQUIVALENTS DURING THE YEAR
EFFECT OF FOREIGN CURRENCY TRANSLATION 28,704 (1,672) 27,032
CASH AND CASH EQUIVALENTS, beginning of year 259,186 - -
CASH AND CASH EQUIVALENTS, end of year $ 174,895 $ 259,186 $ 174,895
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
Cash $ 163,527 $ 259,186
Term deposit 11,368 -
$ 174,895 $ 259,186
See Note 10.
See accompanying notes to the financial statements
29
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
1. GOING CONCERN
Guardian Biotechnologies Inc. (the "Company") was incorporated under the
Canada Business Corporations Act on August 15, 2002 and is registered under
The Business Corporation Act (Saskatchewan).
The Company's planned principal business operations are conducted in Canada
and will include the development, and commercial exploitation, of therapeutic
proteins for medical and veterinary use and for use in the production of
industrial and cosmetic enzymes. The Company plans to distribute laboratory
equipment, plastic consumable laboratory supplies and testing kits for use
with genetically modified organisms. To date, the Company has devoted
substantially all of its efforts to developing a business plan and raising
capital. The Company has not yet generated revenue from its planned principal
business operations. As of October 31, 2003, the Company is considered a
development stage company as defined by Statement of Financial Accounting
Standards No. 7 ("SFAS No. 7").
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern, which contemplates the
realization of assets and extinguishment of liabilities in the normal course
of business. At October 31, 2003, the Company has incurred losses during the
period from inception to October 31, 2003 of $ 594,355.
The company requires financing to fund its future operations and will attempt
to meet its ongoing liabilities as they fall due through the sale of equity
securities and/or debt financing. There can be no assurance that the Company
will be able to raise the necessary financing to continue in operation or meet
its liabilities as they fall due or be successful in achieving profitability
from its planned principle operations. Should the Company be unable to
realize the carrying value of its assets or discharge its liabilities in the
normal course of business, the Company may not be able to remain in operation
and the net realizable value of its assets may be materially less than the
amounts recorded on the balance sheet.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are in accordance with United States generally
accepted accounting principles ("US GAAP"). Significant accounting principles
utilized in the preparation of the financial statements are summarized below:
Basis of presentation
The preparation of financial statements in conformity with US GAAP 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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition
The Company will recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price to the customer is fixed or
determinable and when collectability is reasonably assured.
30
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Cash equivalents
For purposes of reporting cash flows, the Company considers, as cash
equivalents, all highly liquid investments with a maturity of three months or
less at the time of purchase.
Property and equipment
Property and equipment is initially recorded at cost. Expenditures incurred
for replacement and betterment of property and equipment are capitalized when
incurred. Maintenance and repairs are charged to expense as incurred.
Depreciation is provided over the estimated useful lives of the property and
equipment using the straight-line method at the following annual rates:
Laboratory equipment 10 years
Computer hardware 3 years
Office furniture 5 years
Impairment of long-lived assets
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" which
requires that long-lived assets to be held and used, be assessed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 144 established a
single accounting model for long-lived assets to be disposed of by sale.
Research and development
All research and development costs are expensed when incurred.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
No.123 "Accounting for Stock-Based Compensation", effective for fiscal years
beginning after December 15, 1995. SFAS 123 encourages a fair value method
of accounting for employee stock-based compensation and requires entities to
adopt that method of accounting for its awards of stock-based compensation to
non-employees. SFAS 123 allows an entity to continue to recognize employee
stock-based compensation using the intrinsic value method as described in
Accounting Pronouncement Bulletin Opinion No. 25 "Accounting for Stock Issued
to Employees" ("APB 25"). The Company has elected to account for employee
stock-based compensation as prescribed under APB 25. The Company has not
issued any stock-based compensation as of October 31, 2003.
Foreign currency translation
The Company's functional currency is the Canadian dollar and its books and
records are maintained in Canadian dollars. Transactions denominated in
currencies other than the Canadian dollar are accounted for in Canadian
dollars using the exchange rate in effect at the time. Foreign currency gains
and losses are included in earnings. These financial statements are presented
in United States ("US") dollars. Assets and liabilities are translated at the
rate of exchange in effect at the balance sheet date. Revenues and expenses
are translated at the exchange rates in effect at the time the transactions
occurred, which is approximated by the use of a weighted average rate of
exchange for the periods presented. Foreign currency translation gains and
losses are included as an element of other comprehensive income in the
statement of loss and comprehensive loss and in the stockholders' equity
section of the balance sheet.
31
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Earnings (loss) per share
Earnings (loss) per share is computed based on the weighted average number of
common shares outstanding during each year. Convertible equity instruments,
such as convertible preferred shares, stock options and stock purchase
warrants would not be considered in the calculation of earnings (loss) per
share as their inclusion would be anti-dilutive.
Income taxes
The Company follows SFAS No. 109 "Accounting for Income Taxes". SFAS No. 109
requires recognition of deferred income tax liabilities and deferred income
tax assets for the expected future income tax consequences of events that have
been included in the financial statements or income tax returns. Under this
method, deferred income tax liabilities and deferred income tax assets are
determined based on the difference between the financial statement and income
tax basis of assets and liabilities using enacted income tax rates in effect
for the year in which the differences are expected to reverse.
Recent accounting pronouncements
In April 2002, the FASB issued SFAS No. 145, "Recession of FASB Statements
No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections."
FASB 4 required all gains or losses from extinguishments of debt to be
classified as extraordinary items net of income taxes. SFAS 145 requires that
gains and losses from extinguishments of debt be evaluated under the
provisions of Accounting Principles Board Opinion No. 30, and be classified as
ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective
January 1, 2003. The Company does not anticipate that the adoption of this
statement will have a material effect on its financial position or results of
operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullified Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the
entity commits to an exit plan under EITF 94-3. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31,
2002. The Company does not anticipate that the adoption of this statement
will have a material effect on its financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123". SFAS 148 amends SFAS 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. SFAS 148 is effective for financial statements for fiscal
years ending after December 15, 2002. The Company has not awarded any
stock-based compensation to October 31, 2003.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities". SFAS 149 amends certain
portions of SFAS 133 and is effective for all contracts entered into or
modified after June 30, 2003 on a prospective basis. SFA
32
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
149 is not expected to have a material effect on the results of operations or
financial position of the Company as the Company presently has no derivatives or
hedging contracts.
In June 2003, the FASB approved SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS 150 is not expected to have an
effect on the Company's financial position.
3. AMOUNTS RECEIVABLE
2003 2002
Recoverable Canadian federal excise tax $ 9,369 $ -
Other 2,254 -
$ 11,623 $ -
4. PROPERTY AND EQUIPMENT
2003 2002
Accumulated
Cost depreciation Net Net
Laboratory equipment $ 54,502 $ 2,725 $ 51,777 $ -
Computer hardware 12,312 2,331 9,981 -
Office furniture 2,450 251 2,199 -
$ 69,264 $ 5,307 $ 63,957 $ -
During the year, the Company purchased laboratory equipment of $ 46,024 from
a corporate stockholder. The transaction was valued at predecessor cost.
5. COMMITMENT
The Company leases its premises under an operating lease that expires during the
fiscal year ending October 31, 2007. The Company is obligated to make the
following minimum rental payments under its operating lease in each of the
fiscal years ending:
October 31, 2004 $ 38,355
October 31, 2005 38,355
October 31, 2006 38,355
October 31, 2007 38,355
-------------
$ 153,420
=============
33
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
6. COMMON STOCK
During the period from inception on August 15, 2002 to October 31, 2002 the
Company issued:
- 2,000,000 common shares for cash of $ 1,269 ($0.0006 per share) in September
2002 to the founder of the Company at inception, and
- 5,000,000 common shares for cash of $ 317,300 ($0.06 per share) in September
2002.
These issuances were made to a director and to a corporation controlled by a
director.
During the year ended October 31, 2003 the Company issued:
- 1,200,000 common shares to settle accounts payable of $ 38,555
($0.03 per share) in November 2002, and
- 4,407,500 common shares for cash of $440,000 ($0.10 per share) in July 2003.
The July 4, 2003 issuance included 2,000,000 common shares issued to a
corporation controlled by a director and 10,000 common shares issued to a
director.
7. RELATED PARTY TRANSACTIONS
During the year ended October 31, 2003 the Company paid $ 116,193
(2002 - $ 6,343) to two directors for consulting fees.
See Note 4 and 5.
8. FINANCIAL INSTRUMENTS
Credit risk
Cash, amounts receivable and the amount due from related party expose the
Company to credit risk. The Company minimizes its exposure to credit risk by
transacting with parties that are believed to be creditworthy. The Company
maintains cash accounts at one Canadian chartered bank, thereby minimizing
exposure for deposits in excess of federally insured amounts. The Company
believes credit risk associated with cash is remote.
Fair value
The fair value of cash, amounts receivable, the amount due from related party
and accounts payable and accrued liabilities are believed to equal their
carrying amounts due to their short terms to maturity.
9. INCOME TAXES
At October 31, 2003 the Company had non-capital losses for Canadian income tax
purposes of approximately CDN. $ 850,000 that may reduce future taxable income
for fiscal years to October 31, 2010. The loss carryforwards are subject to
review by the Canada Revenue Agency.
The Company has fully reserved the $ 245,000 potential income tax benefit of
the loss carryforwards by a valuation allowance of the same amount, as there
is no reasonable assurance the benefit will be realized. Of the total
potential income tax benefit, $ 203,000 is attributable to 2003.
There are no significant temporary differences at October 31, 2003.
34
Guardian Biotechnologies Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
October 31, 2003 and 2002
(Expressed in U.S. Dollars)
10. SUPPLEMENTAL CASH FLOW INFORMATION
The Company conducted non-cash transactions as follows:
2003 2002
Operating activities
Settlement of accounts payable and accrued
liabilities by issue of common shares $(38,555) $ -
Financial activities
Common shares issued to settle accounts
payable and accrued liabilities 38,555 -
$ - $ -
The Company has paid no interest or income taxes.
35
Item 19. Exhibits
None
Exhibit 12 Section 302 Certification
Exhibit 13 Section 906 Certification
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
Guardian Biotechnologies Inc.
By: /S/ Sun Lee
----------------
Name: Sun Lee
Title : President, director
Date: June 23, 2004
36
Exhibit 12.
Certifications
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 W.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Sun Lee, certify that:
1. I have reviewed this annual report on Form 20-F of Guardian Biotechnologies
Inc. ;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15e and 15d-15e) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f for
the Company and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation o f financial statements for
external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting; and
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Company's auditors and the audit committee of the Company's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial reporting.
By: /s/ Sun Lee
----------------------
Name: Sun Lee
Title: President, Director
Date: June 23, 2004
37
Exhibit 13.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report, as amended, of Guardian Biotechnologies
Inc. (the "Company") on Form 20-F/A for the year ended October 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Sun Lee, President and Treasurer of the Company, certify, pursuant to
18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
By: /s/ Sun Lee
----------------------
Name: Sun Lee
Title: President, Director
Date: June 23, 2004
END OF FILING
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