(Address
of Principal Executive Office) (Zip Code)
(813)
865-1125
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, without par value
(Title
of
Class)
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 a shorter period that the registrant was required
to
file such reports), and (2) has been subject to such filing requirements for
the
past 90 days. Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSBor any amendment to
this Form 10-KSB. o
Indicate
by check mark whether the Registrant is an accelerated filer (as defined in
Rule
12b-2 of the Act): Yes o No x
State
issuer’s revenue for its most recent fiscal year: $17,621
The
approximate aggregate market value of voting and non-voting stock held by
non-affiliates of the registrant was $4,803,220 as of March 31, 2008. The shares
of Common Stock held by each current executive officer and director and by
each
person who is known to the Company to own 5% or more of the outstanding Common
Stock have been excluded from this computation on the basis that such persons
may be deemed affiliates.
The
determination of affiliate status is not a conclusive determination for other
purposes.
Submission
of Matters to a Vote of Security Holders
15
Part
II
Item
5.
Market
for Registrant’s Common Stock and Related Stockholder
Stockholder
Matters
16
Item
6.
Management’s
Discussion and Analysis or Plan of Operations
19
Item
7.
Financial
Statements
35
Item
8.
Changes
in and Disagreements with Accountants on
Accounting
and Financial Disclosure
36
Item
8A.
Controls
and Procedures
Part
III
Item
9.
Directors,
Executive Officers, Promoters and Control Persons
38
Item
10.
Executive
Compensation
41
Item
11.
Security
Ownership of Certain Beneficial Owners and
Management
and Related Stockholder Matters
43
Item
12.
Certain
Relationships and Related Transactions
44
Item
13.
Exhibits
45
Item
14.
Principal
Accountant Fees and Services
50
2
PART
I
Item
1. Business
Nanobac
Pharmaceuticals, Incorporated and its subsidiaries (which may be referred to
as
“Nanobac”, “the Company”, “NNBP”, “we”, “us”, or “our”) is a research-based
bio-lifescience company formed in 1994 as a Florida corporation. The current
business described below commenced in June 2003 with the acquisition of
NanobacLabs Pharmaceuticals, Inc.
We
are a
life science company dedicated to the discovery and developments of products
and
services to improve people's health through the detection and treatment of
Calcifying Nanoparticles (“CNPs”), otherwise known as "nanobacteria". The
Company's research is directed toward establishing the pathogenic role of
nanobacteria in soft tissue calcification, particularly in coronary artery
heart
disease, prostatitis and vascular disease.
Nanobac’s
drug discovery and development is focused on new and existing compounds that
effectively inhibit, destroy or neutralize CNPs. Nanobac manufactures and
markets In Vitro Diagnostic (IVD) kits and reagents for detecting calcifying
nanoparticles. IVD products (blood and tissue tests) include assays, proprietary
antibodies and reagents for uniquely recognizing CNPs. Nanobac's BioAnalytical
Services works with biopharmaceutical partners to develop and apply methods
for
avoiding, detecting, and inactivating or eliminating CNPs from raw materials.
Calcification
is a significant feature in most diseases that are leading causes of death,
including heart disease. Calcification is shown in numerous studies to block
circulation, cause inflammation and cell disruption, and is a sign of various
cancers. We have decided to have a sharpened focus on drug therapy based on
findings by Nanobac scientists that certain drugs, when combined, are effective
at halting the calcification process. Some of these drug combinations have
not
been tested in animals or humans.
Our
plan
is to focus on the following priorities over the next 12-18 months:
·
Therapy
-
We
have narrowed the field of potential partners to support the United
States
Food and Drug Administration pre-Investigational New Drug “(PIND”) to test
our proprietary drug combinations to treat stone-forming diseases,
with a
preliminary focus on prostatitis, which affects millions of men and
currently is largely untreatable. We also expect to conduct tests
with
other stone forming diseases such as gallstones and kidney
stones.
·
Pharmaceutical
Drug Development - The
FDA approved Nanobac to move forward with PIND 73,524 for Chronic
Prostatitis/Chronic Pelvic Pain Syndrome (“CP/CPPS”). We are currently
evaluating several contract service providers who have formulation
and
manufacturing capabilities. Once a contract is entered into, we expect
to
begin assembling the supporting documentation for completing the
Investigational New Drug (“IND”) application. We intend to have the IND
submitted financing permitted. The submission is part of the process
for
obtaining FDA approval to begin clinical studies to determine if
Nanobac’s
therapy is effective for Type III Prostatitis patients. Additional
clinical and non-clinical studies will be determined by the outcome
of the
first study.
3
Item
1: Business (continued)
The
decision to proceed with the clinical development program (guidance for which
is
given by the FDA and the purpose for which is to inform prescribers and patients
about the documented benefits of a product, in this case, a new drug
combination) is on hold until proper funding is obtained by the Company. The
kinetics (the study of reaction rates, an important area of chemistry) pilot
study is the first study to be submitted to the FDA for commencing Nanobac’s IND
and starting clinical trials. The study will evaluate EDTA and two well
established bisphosphonates (etidronate and alendronate). (EDTA is the acronym
for the chemical compound ethylenediamine tetraacetic acid. EDTA refers to
the
chelating agent. This amino acid is widely used to sequester di- and trivalent
metal ions). To meet the requirements set forth by the FDA, stability testing
is
required for any drug to be utilized in any clinical trial. Therefore, the
use
of a Good Manufacturing Process (“GMP”) compliant facility is required to
formulate and manufacture the EDTA.
·
Infection
- The
gold standard for proving that something is infectious and causes
diseases
is Koch's postulates. We intend to validate earlier findings on Koch's
postulates with calcifying nanoparticles in laboratory animals, including
testing whether the infection can be prevented or treated with a
proprietary drug combination. The Mayo Clinic is currently conducting
a
study to prove Koch’s postulates and the initial findings are
encouraging.
Characterization
-
We have
preliminary photographic and biochemical evidence that calcifying nanoparticles
self-replicate in non-precipitating conditions, suggesting further that they
have a self-sustaining mechanism and might be infectious. In a recent agreement
with Fetzer Memorial Trust, we have begun experiments at our NASA laboratory
in
Houston to demonstrate this replication via time-lapse photography using
award-winning CytoViva microscope technology capable of breaking through the
200
nanometer (nm) barrier for light microscopes. We own the intellectual property
arising from the above experiments.
·
Thrombosis
- Thrombosis
is the cause of death in most hemodialysis patients (generally patients
having kidney problems). We intend to validate findings that calcifying
nanoparticles discovered in human blood provoke thrombosis and might
be
preventable.
·
Diagnostics
-
We believe that our proprietary Elisa antibody test uniquely recognizes
calcifying nanoparticles known as nanobacteria, and plan to further
validate the functionality of this diagnostic test.
All
of
the aforementioned activities will require significant additional funding from
third parties. During the past year, we have not been able to obtain the funding
to pursue all the activities. No assurance can be given that such funding will
be available at commercially reasonable terms, if at all.
4
Item
1: Business (continued)
Protein
Array Development
Our
monoclonal antibody (mAb 8D10) used in our NanoCapture™ and Nano-Sero™ ELISA
kits detects CNPs. This is the first step in our diagnostic information to
clinicians. From this base knowledge, we characterized the antibody targets
and
developed a Surface Antigen Pattern ImmunoAssay (“SAPIA”) for finding out what
antigens are present on the accessible surface of CNPs. We can utilize this
technique to map the antigens in human identified CNP blood samples. Previously,
specific antibodies against calcium-dependent conformation of Factor II, Factor
IX and Factor X have been produced and used in analysis of the auto assembly
and
catalytical activation of the clotting cascade. 8D10 is the first case known
to
us where the noncovalent phosphate-mediated interaction with calcium phosphate
mineral is the key element detected. Since blood does not normally contain
apatite mineral, this target is specific for the detection of CNPs.
We
screened serum samples of patients with 13 diseases, 40 samples per disease
using ELISA tests for CNPs and for anti-CNP antibodies. The results indicate
CNPs are present in several diseases with a very high correlation and
prevalence. In diseases such as Parkinson’s disease and breast cancer, there are
negative and positive patients. CNPs also caused a measurable immune response
with IgG antibodies. Further studies are needed. Further studies include running
more disease state samples, creating more specific antibodies to different
diseases, running those sample panels with new antibodies, performing the
statistical analysis for sensitivity, specificity, positive prediction and
negative prediction values. Upon completion of the studies, we will likely
seek
a GMP kit manufacturing partner to manufacture and validate the kits. We will
concurrently go to diagnostic equipment manufacturers and discuss platform
solutions and possible level of interest in a joint development
project.
We
will
continue optimizing our proprietary diagnostics, with a clear focus on
developing effective therapies in cooperation with well-established partners
including NASA, Mayo Clinic, Cleveland Clinic, and numerous other institutions.
Once these experiments are completed, we hope to have a compelling and
well-rounded scientific basis for the Company to move forward.
Recent
Developments
As
our
liabilities continue to increase, several other creditors have indicated that
they will initiate legal action. If the creditors are successful in the legal
actions, Nanobac may lose or forfeit most or all of its assets including its
rights to intellectual property.
5
Item
1: Business (continued)
We
signed
a letter of intent (“LOI”) for the acquisition of DNAPrint Genomics, Inc.
(OTCBB:DNAG - News)
(“DNAPrint” or DNAP) on January 18, 2008 and an amendment on February 1, 2008.
The terms of the LOI call for Nanobac to issue 75 million shares of its common
stock in exchange for all of the common stock of DNAP. DNAP develops
next-generation drug and diagnostics, applying advanced computational methods
and systematic genome-based approaches to streamline clinical product
development. The acquisition is contingent upon the approval of DNAP’s
stockholders and our ability to raise $1.5 million to $5.0 million. The LOI
is
null and void if the funds are not raised by March 31, 2008. This deadline
has
past and an agreement has not been consummated.
We
believe that DNAP’s efforts would enable Nanobac to increases its intellectual
property rights and add an advanced drug and diagnostic pipeline that has near
term product realization.
During
February 2008, we announced publication in the International Journal of
Nanomedicine research that scientists from the University of California San
Francisco collaborating with Nanobac scientists at NASA's Johnson Space Center
have concluded demonstrating that calcium deposits in the human kidney called
Randall's Plaque may in fact be Calcifying Nano Particles (CNPs, also referred
to as nanobacteria) which lead to the formation of Kidney Stones. The study,
led
by Marshall Stoller M.D. of University California San Francisco and Neva
Ciftcioglu, formerly Nanobac's Director of Science at NASA Johnson Space Center,
found that CNPs were identified and cultured from Randall's Plaques and detected
by Nanobac's proprietary diagnostics. This could represent potential new early
diagnosis and treatment opportunities for patients who suffer from Kidney
Stones.
During
January 2008, we announced that scientists at the Baylor College of Medicine,
working under a collaborative agreement with Nanobac, have cited evidence
showing the presence of Calcifying Nano Particles (“CNPs”) in surgically
resected gallbladders with cholelithiasis (Gall Stones). This potentially
represents a previously unrecognized factor in the development of cholecystitis
and cholelithiasis disease. The project seeks to determine if human cell derived
nanoparticles are pathogenic and induce inflammatory (cholecystitis) and
calcific pathologic (cholelithiasis) disease. The project also seeks to confirm
prior Nanobac studies, conducted in China, that Nanobac’s diagnostic test
specifically identifies CNPs. The study results suggest a strong association
between CNPs and cholelithiasis and conclude that it is conceivable that a
specific therapy for CNPs may prevent cholecystitis and reduce the need for
surgical intervention. The results were given at the 58th Annual Meeting of
the
American Association for the Study of Liver Diseases. The abstract was published
in “Hepatology 46(4) 699A 1036 Suppl S, 2007” issue.
Beginning
in late October 2007, we are offering our NanoCapture™ and Nano-Sero™ ELISA kits
for the detection of CNPs through an agreement with American Health Associates
“
under the trade name of “NB2”. As of December 31, 2007, we had not recognized
any revenue under this agreement.
During
September 2007 our Board of Directors approved a stock buy-back program for
up
to 20% of Nanobac’s outstanding public float. As of March 31, 2008, we did not
have sufficient financial resources to initiate any buy back of Nanobac shares.
6
Item
1: Business (continued)
Patents
- We
have
filed applications for a number of patents, have been granted patents, and
await
prosecution of pending application in the US and International Stages. Our
ability to pursue the grant of patents, has been significantly effected by
our
lack of funds. We have engaged legal counsel to pursue claims against others
for
infringement of our proprietary intellectual property rights.
Patent
General
Subject Matter
Expiration
Date
US
5,135,851
U.S.
-Method
for the culture and detection of nanobacteria also known as calcifying
nanoparticles
-Methods
for the eradication of Nanobacteria from articles and animals using
various novel combinations of systems, chemicals, compounds, drugs,
prodrugs, supplements, etc.
(issued
in 2004)
Jul
6, 2018
U.S.
& PCT Applications Filed
-Methods
and Compositions (combinations) for treating diseases characterized
by
pathological calcification
(Filed
in 2004)
U.S.
& PCT Applications Filed
-Methods
and combinations of compositions including Bisphosphonates, chelators,
and
citrates
(Filed
in 2004)
U.S.
-Methods
for the treatment of disease associated with calcification and/or
plaque
formation
(Filed
in 2004)
U.S.
& PCT Application Filed
-Detection
of antibodies against compositions of conformationally changed proteins
comprising calcium binding protein hydroxy apatite complexes and
novel in
vitro test methods
(Filed
in 2005)
U.S.
& PCT Applications filed
-Methods
and compositions to detect calcifying nanoparticles including the
identification and quantification of proteins thereon and correlation
to
diseases thereof
(Filed
in 2005)
There
can
be no assurance that our patents or pending applications will afford legal
protection against competitors or provide significant proprietary protection
or
competitive advantage. In addition, our patents or pending applications could
be
held invalid or unenforceable by a court, or infringed or circumvented by
others, or others could obtain patents that we would need to license or
circumvent. Competitors or potential competitors may have filed patent
applications or received patents, and may obtain additional patents and
proprietary rights relating to proteins, small molecules, compounds, or
processes competitive with ours. Additionally, for certain of our product
candidates, competitors, or potential competitors may claim that their existing
or pending patents prevent us from commercializing such product candidates
in
certain territories. Further, when our patents expire, other companies could
develop new competitive products to our products.
7
Item
1: Business (continued)
Research
Nanobacterial
research is ongoing around the world. Our lead scientist Olavi Kajander has
formed multidisciplinary alliances with top researchers including: Marshall
Stoller, University of California San Francisco; Rune Eliasson, Sweden;
Hojatollah Vali, McGill University, Canada; Mayo Clinic, Rochester, Minnesota;
University of South Florida; Iowa State University; D. Shoskes, Cleveland
Clinic; Garcia-Cuerpo, Spain; China Ghangsha group; Sommer, Univ. of
Ulm; Pretorius, South-Africa; G. Epstein/J.T. Salonen; Tom &
Marcia Hjelle, Univ. of Illinois; Y. Av-Gay, University of British Columbia;
and
R. Berger, Miami Heart Institute, Miami FL. We intend to serve as the nexus
for
research scientists and become the premier leader in nanobacterial research
and
distribution of knowledge. We generally retain the rights for the
commercialization of intellectual property that result from these collaborative
studies.
To
date,
these collaborations have resulted in the publishing of over 86 articles,
numerous abstracts and book chapters. Example publications since 1998 include
articles in Science, Nature and Nature Medicine, Proceedings of the National
Academy of Sciences, Lancet, Urology, New Scientist, Molecular Medicine, PDA
Journal, Kidney International, Circulation, Journal of Pathophysiology, and
American Society for Microbiology.
In
2004,
we entered into a Space Act Agreement with NASA’s Johnson Space Center (“JSC”),
Houston Texas, to collaborate on the research of nanobacterium sanguineum and
its nature and role in pathological calcification, including the detection
and
treatment of the pathogen. Since Astronauts may be more prone to an increased
rate of pathological calcification while in a zero gravity environment, the
collaboration will support NASA’s need to better understand the effects of
long-term space travel on humans. In addition, Nanobac’s work provides a model
for studying mineralized organic matters that could aid NASA in the search
for
extraterrestrial life.
Under
the
agreement, NASA will provide workspace at JSC for Nanobac’s personnel located at
JSC. The agreement further provides Nanobac the opportunity to work together
with a multidisciplinary team of NASA researchers while having access to basic
laboratory services for CNPs science, including electron microscopy, molecular
biology and geology-mineralogy research facilities. Projects ranging from
searching for CNPs biosignatures in earth fossils and in Mars meteorites to
diagnosing and treating CNPs are anticipated. Nanobac will provide JSC with
equipment and specialty supplies for CNP research and apply its pioneering
diagnostic and treatment experience in the field. Since the resignation of
Dr.
Neva Ciftcioglu in December 2007, Nanobac has not had any personnel working
at
the Johnson Space Center. We will continue to work with NASA on several research
initiatives under a revised Space Act Agreement.
We
own
the rights for the commercialization of intellectual property that results
from
our collaborative research at NASA JSC. However, the U.S. Federal Government
retains the right to use this intellectual property for U.S. Government purposes
without compensation to us.
8
Item
1: Business (continued)
The
Role of CNPs in Calcification Associated Diseases
Urological
Diseases
Researchers
have shown a relationship between CNPs and urological diseases such as chronic
prostatitis/chronic pelvic pain syndrome (CP/CPPS), kidney stones, and PKD.
Until these studies, no single infection, viral or bacterial, had been
identified that could have caused the progression of these diseases. Nanobac
has
focused on investigating the relationship between CNPs and these urological
diseases.
Chronic
prostatitis/chronic pelvic pain syndrome (CP/CPPS) is a disease in males defined
by pelvic pain and/or ejaculatory and/or urinating pain/discomfort lasting
longer than 3 months. At any time 2-10% of adult men are suffering from CP
symptoms and 15% of men will suffer from CP symptoms at some point of their
lives. In the United States, more than 2 million men per year will visit their
physician for CPPS. The cause for CP/CPPS is frequently unknown and thus the
therapies are mostly empirical and target the symptoms. Antimicrobial and
anti-inflammatory agents and a-adrenergic
receptor blockers are frequently used, and seem to relieve the symptoms in
many
patients. However, men with refractory long-standing symptoms present a
substantial problem to general practioners, internists and urologists, as the
current therapies have inconsistent effects on the patient’s symptoms.
Persistent unknown cause behind the symptoms leads to a situation where no
evidence based medicine can be used as a basis for therapeutic
efforts.
The
prostatitis syndromes are a group of disorders with varying symptoms and
probably diverse etiologies. Prostatitis is divided into four types. Of these
four types, CP/CPPS type III accounts for the majority of CP/CPPS patients
seen
in an average urology practice. These patients often have prostatic
calcification (prostate stones). The presence of prostatic stones in younger
men
is associated with both inflammation and symptoms of CPPS. While prostatic
calcification is often detected in asymptomatic (not exhibiting symptoms of
disease) older men who undergo prostate biopsy, the presence and degree of
calcification in younger CP/CPPS patients can be striking. One hypothesis is
that prostatic calculi in the prostatic ducts may increase intraprostatic
pressures and lead to pain and swelling. Furthermore, the composition of
prostate stones are typically calcium apatite, which is the hallmark of CNPs
action. This association led researchers to postulate a role for CNPs in the
development of CP/CPPS. Indeed, preliminary research comparing serum (blood)
of
men with a diagnosis of prostatitis with serum from unaffected men revealed
significantly higher rates in the prostatitis group of CNP antigen by
Enzyme-linked
immunosorbent assays (ELISA)
that
are
the
simplest and most widely used diagnostic test systems. They are used to test
a
blood sample for the presence/absence of given antibodies and/or
antigens.
Kajander
proposed a new etiology (cause of disease) for CP/CPPS, simply because we have
found that these patients very often have very high levels of CNPs in their
blood. CNPs carry important players of inflammation and cell death on their
surface. It has been shown in
vitro
(in
Petri dishes, test tubes etc…) that CNPs can kill cultured mammalian cells and
can cause cell damage. When 15 human diseases were investigated for the presence
of CNPs in peripheral blood, CP/CPPS patients showed the highest values or
highest antigen level of CNPs. A strategy to treat CP/CPPS should be based
upon
a new understanding of the basic disease process calcific
inflammation.
9
Item
1: Business (continued)
An
observational study of prostatitis patients, led by Daniel A. Shoskes, M.D.,
of
Cleveland Clinic Florida, published in the leading peer-reviewed urology
journal, The Journal of Urology, demonstrated a significant improvement in
the
symptoms of chronic prostatitis / chronic pelvic pain syndrome for those
patients who took Nanobac Supplements for a period of three months. The treated
group of 16 patients had prostatic stones and longstanding Chronic Pelvic Pain
Syndrome (“CPPS”) symptoms that were not responsive to prior conventional
therapies. Two of the patients in the test group who had been on complete
medical disability have returned to work.
Kidney
Stones:
Kidney
stones are one of the most common disorders of the urinary tract. A kidney
stone
is a solid piece of material that forms in the kidney out of substances in
the
urine. A problem stone can block the flow of urine and cause great
pain.
Several
studies conducted by prominent medical researchers have collectively shown
CNPs
as a probable cause of kidney stone formation. Depending upon the patient
population, researchers have found that 62% to 97% of kidney stones have CNPs.
The presence of CNPs is independent of the type of kidney stone.
It
is
believed that CNPs create the calcific deposits that are physically present
in
the kidney stones and therefore may be the cause of kidney stone
formation.
The
Company has been working with scientists at NASA to research the effects of
CNPs
in the formation of kidney stones during space flights. A team of NASA
scientists used multiple techniques to determine that CNPs multiply faster
in
space flight simulated conditions than on Earth. This determination is
especially important to NASA as it indicates that astronauts on future long-term
missions to the moon and Mars are at an increased risk for developing kidney
stones.
The
Company is continuing its collaboration with NASA. The observation that CNPs
grow faster in conditions simulating the microgravity conditions of space also
allows researchers to grow cultures faster. A problem facing researchers in
studying CNPs had been in developing a sufficient amount of material. CNPs
double about once every three days compared to typical bacteria which doubles
about every 20 minutes.
Polycystic
Kidney Disease (“PKD”):
Polycystic
kidney disease (“PKD”) is a genetic disorder characterized by the growth of
numerous cysts in the kidneys. PKD cysts can slowly replace much of the mass
of
the kidneys, reducing kidney function and leading to kidney failure.
Studies
have shown that 100% of kidney cyst fluids and urine tested positive for the
presence of Nanobacteria. Nanobac plans to initiate research trials that will
evaluate the link between Nanobacteria and PKD.
10
Item
1: Business (continued)
Cardiovascular
Diseases
The
most
serious and widespread of the diseases caused by calcified plaque are
atherosclerosis (hardening of the arteries) and coronary heart disease. Coronary
heart disease is caused by a narrowing of the coronary arteries that feed the
heart, which may be caused by the build-up of CNPs.
Many
cardiovascular researchers have shown that atherosclerosis might be the
life-long result of our bodies’ various healing mechanisms and inflammatory
responses to infection. Researchers have sought to isolate an infectious agent
that is present in our tissues that could stimulate the development of
atherosclerotic plaques. Until recently, no single infection, viral or
bacterial, had been implicated.
Three
recently published studies conducted by prominent medical researchers have
collectively shown that CNPs might be the previously unidentified agent involved
in the development of atherosclerotic heart disease. A group of researchers
at
the Mayo Clinic, led by Virginia Miller, PhD showed that CNPs are present in
calcified atherosclerotic coronary arteries and heart valves.
Cardiovascular
researcher Benedict Maniscalco, M.D., who is the Company’s Director of Medical
Research, Medical Director, and member of the the Company’s Board of Directors,
published a study that showed that patients with severe coronary artery disease
tested positive for nanobacterial antigen. The study also indicated that a
majority of cardiac patients that received the Nanobac Supplements had a
decrease in their coronary artery calcium scores. Angina was decreased or
ablated in 16 of 19 patients. Lipid (fats and fat like materials) profiles
also
improved in most patients. Dr. Maniscalco’s study concluded that the coronary
artery calcium scores of most coronary artery disease patients decreased during
the period they used the Nanobac Supplements inferring regression of calcified
coronary artery plaque volume. The patients tolerated the therapy well and
their
angina (a
heart
condition marked by chest pain due to reduced oxygen to the heart) and
lipid
profiles improved.
Also,
at
an American Heart Association scientific session, one of the world’s most
prominent heart disease researchers, Stephen E. Epstein, M.D, Director of the
Cardiovascular Research Institute at Washington Hospital Medical Center in
Washington D.C., reported that 94% of people with calcified coronary arteries
have nanobacterial infection as measured by the Company’s Nanobacterial Antibody
Assay, and that antibody results correlated with coronary calcification scoring.
Therefore, the Nanobacterial Antibody Assay may be a predictor of patients
with
high levels of calcium in their coronary arteries. These patients are at the
highest risk for a heart attack. Thus, the Nanobacterial Antibody Assay could
be
used as a biomarker that may predict which patients are at greatest risk for
a
heart attack.
The
collective weight of the three studies suggests that CNPs infection may be
the
previously unknown infectious agent associated with atherosclerotic plaque.
The
physical presence of CNPs in the diseased artherosclerotic tissues and the
correlation with heart disease calcification levels suggests that long-term
CNP
presence may be involved in the development of the calcification in
atherosclerotic heart disease.
Nanobac
is continuing its research of the relationship between CNPs and heart disease
and has expanded its research to include other diseases involving pathological
calcification.
11
Item
1: Business (continued)
Other
Opportunities
Calcifying
Nano-Particles expose a risk of contamination for biopharmaceuticals
(a
pharmaceutical produced by biotechnology and especially by genetic
engineering)
containing human or animal blood components or blood and animal tissue derived
raw materials that are used to produce the end product.
Nanobac
BioAnalytical Services develop and apply methods for avoiding, detecting, and
inactivating or eliminating CNPs from raw materials or production substrates.
Our contamination control program focuses on host cell lines, animal and human
derived materials, raw materials, availability of diagnostic procedures and
downstream processes capable of inactivating or removing contaminants. We are
considering enlisting biopharmaceutical partners to further this line of
business.
Calcifying
Nano-Particle (CNP) Background and Description
CNPs
were
discovered in 1988 by Finnish researcher Olavi Kajander, M.D., PhD. Dr. Kajander
was carrying out mammalian cell research when a routine mammalian cell culture
experiment, using commercially available fetal bovine serum as the growth media,
just wasn't getting off the ground. The cells weren't thriving and dividing
like
they should; the cells were sickly and died off before any study could be done.
Strange vacuoles were forming up in many of the cells, and these cells
subsequently died. Dr. Kajander, like all basic cell researchers, had
encountered this problem before; sometimes their cell cultures worked, and
sometimes they didn't. Dr. Kajander researched this further and after several
weeks of culture, turbidity developed in one of the flasks. We believe this
represented the first isolation of CNPs.
Competition
The
market for providing physicians and managed care organizations with nanobacteria
related disease management and services is just emerging, and we believe we
are
currently the only company providing a comprehensive approach to managing
nanobacterial diseases.
The
general market for academic researchers and clinical laboratories with in vitro
diagnostic test kits is highly competitive and includes diagnostic companies
such as, Roche, Abbott, Bayer, Johnson & Johnson, and Dade
Behring.
The
general market for pharmaceuticals is also highly competitive and includes
Fortune 500 pharmaceutical companies as well as small to medium sized
pharmaceutical and dietary supplement companies.
12
Item
1: Business (continued)
Government
Regulation
Clinical
Reference Laboratory
Clinical
reference laboratories in the United States are regulated under the federal
Clinical Laboratory Improvement Act (CLIA). Our reference laboratory is located
in Kuopio Finland and is regulated by European Union and Finland laws and is
not
regulated by the CLIA.
In
Vitro Diagnostics
The
FDA
regulates in vitro diagnostic kits and reagents. We intend to begin clinical
studies to support an FDA filing for our assays. The timing of our clinical
trials and FDA approval is dependent on future funding and preliminary research
results. We received notification that our NANO-CAPTURE and NANO-SERO assays
meet the criteria for CE Mark in Europe.
Environmental
Matters
We
have
not been impacted financially or operationally by environmental laws.
Geographic
We
will
initially focus our drug discovery business in the United States. To date,
over
90% of our prior revenue was from the United States. We may also develop markets
in the European Union through the operations of our Finnish Subsidiary, Nanobac
OY.
Employees
We
currently have one employee in Finland. Our executives are uncompensated or
independent contractors.
We
operate in a rapidly changing environment that involves a number of risks,
uncertainties, and assumptions, many of which are beyond our control. For a
discussion of some of these risks, see “—Risk Factors” in Item 6 of this report.
Other risks are discussed elsewhere in this Form 10-KSB.
We
are
subject to the information requirements of the Securities Exchange Act of 1934
(the “Exchange Act”). Therefore, we file periodic reports, proxy statements, and
other information with the Securities and Exchange Commission (the “SEC”). Such
reports, proxy statements, and other information may be obtained by visiting
the
Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549
or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site (http://www.sec.gov)
that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically.
Financial
and other information about the Company is available on our website
(http://www.nanobac.com).
We
make available on our website, through links to the SEC website, copies of
our
annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after filing such material electronically or otherwise furnishing it to the
SEC.
13
Item
2. Properties
The
following table sets forth a description of our facilities:
Location
Square
Feet (Approx)
Lease
Expiration
Function
Tampa,
Florida
1,700
1
month notice
Headquarters
for Nanobac
Tampa,
Florida
2,100
June
2010
Office
space subleased to an unaffiliated entity
Koupio,
Finland
1,500
3
months notice
Research
and laboratory facility
All
facilities are in good condition. We expect that our current facilities will
be
sufficient for the foreseeable future. To the extent that we require additional
space in the near future, we believe that we will be able to secure additional
leased facilities at commercially reasonable rates.
Item
3. Legal
Proceedings
Except
as
described below, we know of no material, active or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceedings
or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial stockholders are an
adverse party or has a material interest adverse to us.
On
August10, 2004, we were served with a civil action as filed in the Superior Court
of
Fulton County State of Georgia by Foltz Martin LLC and Openbook Learning Club,
Inc. (“Foltz”). This suit alleges that the Company is liable for approximately
$67,000 of liabilities plus approximately $11,000 interest for services
performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004. The
Company owned 100% of HealthCentrics from December 2003 through March 2004
when
HealthCentrics was sold by the Company to an affiliate. During December 2005,
a
final judgment was awarded to Folz by the Superior Court of Fulton County for
approximately $79,000 and this amount is included in accrued liabilities in
the
accompanying financial statements.
On
January 19, 2006, we were served with a civil action as filed in the Superior
Court of Fulton County State of Georgia by EliteCorp Atlanta, LLC (“EliteCorp”).
This suit alleges that the Company is liable for approximately $318,000 of
liabilities plus approximately $110,000 interest for services performed by
the
plaintiffs for HealthCentrics, Inc. in 2003 and 2004. We responded to this
action on February 17, 2006 and denied virtually all the allegations of
EliteCorp. However, due to lack of funding, we were unable to continue to defend
this lawsuit although we were confident that EliteCorp’s suit was without merit.
As a result of our inability to defend this lawsuit, EliteCorp was awarded
a
judgment of approximately $481,000 and this amount is included in accrued
liabilities in the accompanying financial statements.
14
Item
3. Legal
Proceedings (continued)
During
January 2007, the Company, along with the Company’s CEO and a Board of Director
member was served with civil action in the Circuit Court of Cook County,
Illinois by Nutmeg Group LLC, the sole unaffiliated holder of subscription
agreements described in Note 10. The suit is seeking damages for alleged
breaches of contract by the Company and the affiliates as a result of the
alleged failure to deliver stock and warrants that were allegedly due to be
delivered under certain subscription agreements between the parties. We have
filed a motion to quash summons, contending there is no jurisdiction in Illinois
for this matter. The amount of damages, if any, that will be payable under
this
legal action is currently unknown.
During
October 2007, we were served with a civil action in the District Court of Harris
County, Texas 61st
Judicial
District by Neva Ciftcioglu (“Ciftcioglu”), our former employee. The petition
and subsequent amended petitions and motion for default judgment allege that
Nanobac owes Ciftcioglu unpaid compensation of $95,000 and 5 million shares
of
Nanobac’s common stock. Ciftcioglu is seeking to have a substantial portion of
Nanobac’s intellectual property assigned to her as settlement for her claim. We
are defending this lawsuit as we do not believe Ciftcioglu is entitled to our
intellectual property. We have included approximately $110,000 in the
accompanying financial statements for Ciftcioglu’s claim, related payroll taxes
and related legal costs. No liability has been recorded for the 5 million shares
of Nanobac stock as these shares were issued to Ciftcioglu in 2004.
Item
4. Submission
of Matters to a Vote of Security Holders
No
matters were submitted to a vote of the Company’s stockholders during the fourth
quarter of the year ended December 31, 2007.
15
PART
II
Item
5. Market
for Registrant’s Common Stock and Related Stockholder
Matters
Our
common stock is traded under the symbol “NNBP”.
From
October 12, 1994 through August 18, 1997, the Company's Common Shares were
traded in the NASDAQ SmallCap Market under the symbol "NATD". Beginning August18, 1997the Company's Common Shares were traded on the Over The Counter
Bulletin Board. Effective March 27, 2000, the trade symbol was changed to
"AMER". Effective July 21, 2003, the trade symbol was changed to "NNBP". From
March 2001 through November 2004, our Common Shares have traded through the
Over
The Counter Pink Sheets. From November 2004 to present, our Common Shares have
been traded on the Over The Counter Bulletin Board (“OTCBB”). The following
table sets forth the high and low bid prices for Common Shares as reported
by
NASDAQ, OTC Pink Sheets, and OTCBB for the periods indicated. Quotations on
NASDAQ, OTC Pink Sheets and OTCBB reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
High
Low
2006
First
Quarter
$
0.06
$
0.03
Second
Quarter
$
0.08
$
0.04
Third
Quarter
$
0.36
$
0.05
Fourth
Quarter
$
0.35
$
0.10
2007
First
Quarter
$
0.16
$
0.07
Second
Quarter
$
0.11
$
0.05
Third
Quarter
$
0.17
$
0.06
Fourth
Quarter
$
0.15
$
0.05
On
March31, 2008, the closing bid quote for the Common Shares was $0.04 per share,
and
there were approximately 250 holders of record of Common Shares. Our common
shares are issued in registered form. Continental Stock Transfer & Trust
Company, 17 Battery Place, New York, NY10004 is the transfer agent for our
common shares.
We
have
not paid cash dividends on our Common Shares and we do not anticipate doing
so
in the foreseeable future. The Company intends to retain earnings, if any,
for
future growth and expansion opportunities. Payment of cash dividends in the
future, as to which there can be no assurance, will be dependent upon the
Company's earnings, financial condition, capital requirements and other factors
determined by the Board of Directors.
16
Changes
in Securities
From
August 2004 through February 2005, we executed Subscription Agreements with
three unaffiliated investors and one affiliated investor. These investors paid
us 50% of the subscription price at execution and the remaining 50% is due
within five days from the date that a registration statement is declared
effective for the common shares that are being issued. In exchange for the
cash
consideration, we are to issue these investors shares of our common stock equal
to the amount paid divided by the lesser of (a) $0.12 or (b) fifty-two percent
of the average closing bid price for our common stock for the five days
immediately prior to the date on which a registration statement is declared
effective (“The Fixed Price”). In addition, each of these investors will receive
an equivalent number of warrants with expiration dates of five years from the
date of issuance. One half of these warrants will be priced at 110% of the
Fixed
Price and the remainder will be priced at 150% of the Fixed Price. During 2006,
a related party acquired the rights and obligations under the above Stock
Subscription Agreements from two of the three unaffiliated investors except
for
common stock previously issued to these investors and 2.7 million of the
warrants. The minimum number of shares and warrants that will be issued under
these Subscription Agreements (assuming a Fixed Price of $0.12 per share) is
as
follows:
Number
of Shares
Per
Share
Proceeds
Common
Stock, previously issued:
Unaffiliated
Investors
8,125,000
$
0.12
$
975,000
Affiliates
4,166,667
$
0.12
500,000
12,291,667
$
1,475,000
Common
Stock, future issuances
Unaffiliated
Investors
5,416,667
$
0.12
$
650,000
Affiliates
6,875,000
$
0.12
825,000
12,291,667
$
1,475,000
Warrants:
Unaffiliated
Investors
8,125,000
$
0.13
Affiliates
4,166,667
$
0.13
Unaffiliated
Investors
5,416,667
$
0.18
Affiliates
6,875,000
$
0.18
24,583,333
The
actual number of shares and warrants that ultimately will be issued under these
Subscription Agreements may be substantially higher due to the variability
of
the Fixed Price. Based on our recent traded price of $0.04 to $0.06 per share,
approximately six times as many shares and warrants would be issued as described
above.
Each
of
these investors received their shares in reliance upon Section 4(2) of the
Securities Act of 1933, because each of the holders was knowledgeable,
sophisticated and had access to comprehensive information about us. At all
relevant times we were a reporting company under the Securities Exchange Act
of
1934 and there was readily available adequate current public information with
respect to the Company.
A
success
fee was awarded to a broker for one of the above unaffiliated investor
transactions in the form of 5-year warrants equal to 20% of the value of the
transaction. These warrants have exercise prices equal to $0.16 to $0.22 per
share for transactions completed to date. Future warrants issued under this
agreement will have an exercise price equal to NNBP’s stock price on the date of
closing. We estimate that 2 million warrants will be issued to this broker.
17
Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchases
None
Selected
Quarterly Financial Data
Mar
31
Jun
30
Sep
30
Dec
31
2007
Quarter ended
Revenue
$
5,012
$
2,432
$
5,809
$
4,368
Gross
profit
$
752
$
530
$
1,142
$
678
Net
loss
($3,856,718
)
($716,562
)
($835,763
)
($1,167,068
)
Loss
per share:
Basic
and Diluted
($0.01
)
$
0.00
$
0.00
($0.02
)
2006
Quarter ended
Revenue
$
161,286
$
37,565
$
23,894
$
2,341
Gross
profit
$
116,091
$
14,942
$
12,608
$
1,640
Net
loss
($1,487,687
)
($1,395,460
)
($787,183
)
($1,303,023
)
Loss
per share:
Basic
and Diluted
($0.01
)
$
0.00
$
0.00
($0.01
)
18
Item
6. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Results
of Operation
The
following table presents the percentage of period-over-period dollar change
for
the line selected items in our Consolidated Statements of Operations for the
years ended December 31, 2007 and 2006. These comparisons of financial
results are not necessarily indicative of future results.
During
March 2006, we terminated the marketing and selling of dietary supplements
in
order for the Company to focus exclusively on the science related to CNPs,
which
we plan to lead to drug discovery and the development of diagnostic products
for
the detection and treatment of CNP related diseases. Accordingly, we had no
revenue from dietary supplements for the year ended December 31, 2007. We expect
no revenue from dietary supplements in future periods.
Diagnostic
product revenue decreased from 2006 to 2007 due to the termination of our United
States diagnostic product sales in November 2006. Approximately 97% of the
2007
diagnostic revenue was generated in Finland. Beginning in October 2007, we
have
initiated plans to offer our NB2 diagnostic tests in the United States through
an agreement with American Health Associates. We had previously offered NB2
diagnostic tests in the United States through November 2006. We did not
recognize any revenue from this initiative in 2007.
Revenue
from observation rights was recognized over the agreement’s 12-month term using
the straight-line method. This term ended on August 31, 2006, accordingly,
there
is no revenue from observation rights in 2007.
Based
on
our current operations, we anticipate less than $50,000 of revenue for the
year
ending December 31, 2008
Cost
of revenue
For
2007,
cost of revenue consisted of direct materials and testing services at of Finland
laboratory. For 2006, cost of revenue consisted of direct materials, testing
services (for diagnostic products) and shipping.
Gross
Profit
Gross
profit as a percentage of revenue was 18% for the year ended December 31, 2007
and 65% for the year ended December 31, 2006. The percentage profit decreased
as
we discontinued the higher margin diagnostic services in the United States
in
November 2006. The gross profit in Finland is lower due to high laboratory
costs
in relation to the relatively small volume of revenue.
20
2007
Compared to 2006 (continued)
Selling,
General and Administrative (“SG&A”)
During
January 2007, we issued 3,000,000 shares of our common stock to each of the
members of our Board of Directors (total of 12,000,000 shares). For financial
reporting purposes, these shares were valued at $1.6 million, which is included
in our selling, general and administrative (“SG&A”) expenses.
During
2007, we recognized a charge of approximately $481,000 in connection with the
judgment awarded to EliteCorp. While we did not believe the EliteCorp legal
action had merit, we did not have sufficient funds to defend this litigation.
Excluding
the stock issuance and judgment referred to above, approximately 87% of SG&A
expenses were comprised of payroll and professional fees for the year ended
December 31, 2007. The majority of professional fees are related to patents
and
public company expenses for audit, legal and investor relations. Other
significant SG&A expenses include facility rental and insurance.
SG&A
increased approximately $1.5 million for the year ended December 31, 2007
compared to the year ended December 31, 2006. Of this increase, $1.6 million
was
attributable to the stock issuance and $481,000 was attributable to the
EliteCorp judgment as described above. In addition, a $147,000 royalty expense
in 2007 was recorded in connection with potential payments due under our
Subscription Agreements and a $150,000 expense for stock issued to outside
consultants for investor and other services. These increases were offset by
decreases in payroll expenses of $173,000 as we eliminated payroll associated
with the sale of Nanobac Supplements; a decrease in rent expense of $135,000
associated with an abandoned lease; and a decrease in other compensation
associated with a stock grant bonus issued in 2006 of $560,000.
Research
and Development (“R&D”)
For
the
year ended December 31, 2007 and 2006 R&D expenses consisted of the
following types of expenses:
Expenses
for research studies fluctuate from year to year as these expenses are dependent
on specific initiatives and funding sources.
R&D
expenses for the year ended December 31, 2007 decreased $845,000 compared to
the
year ended December 31, 2006 as we reduced every aspect of our R&D
initiatives due to lack of funding.
21
2007
Compared to 2006 (continued)
Impairment
loss on intangible assets
During
March 2006, we established a plan to discontinue the sale of dietary
supplements. As a result of the above decision, the product rights’ intangible
asset was deemed fully impaired and an impairment loss of $585,000 has been
recognized during the year ended December 31, 2006.
Depreciation
and amortization
Approximately
93% of depreciation and amortization are related to the amortization of
intangible assets acquired in the 2003 and 2004 acquisitions of NanobacLabs
Pharmaceuticals, Inc. and Nanobac OY. Amortization expense decreased for the
year ended December 31, 2007 compared to the year ended December 31, 2006 as
the
amortization of product rights was eliminated due to the impairment of this
intangible asset described above.
Operating
loss
Our
operating loss for the year ended December 31, 2007 was $4.9 million compared
to
$4.8 million for the year ended December 31, 2006. This increased loss primarily
reflects the $1.6 million charge attributable to stock issuances during 2007
compared to a $560,000 charge in 2006 and the $481,000 charge for the EliteCorp
judgment. These additional costs were offset by an $845,000 decrease in R&D
expenses and a $585,000 decrease in impairment expense.
We
are
experiencing significant losses as we conduct research and development related
to nanobacteria and attempt to launch our products and services. We believe
it
will take significant time before we will earn meaningful revenue to offset
our
expenses and there is no assurance that we will be able to accomplish this
goal.
As a result of the losses, we are dependent on related parties and other
investors to provide sufficient cash sources to fund our operations.
22
2007
Compared to 2006 (continued)
Other
income (expense)
Other
income for the years ended December 31, 2007 and 2006 is summarized as
follows:
The
Form
10-QSB filings during 2007 reflect a derivative gain which relates to five
million exercisable warrants for which we did not have sufficient authorized
and
unissued shares. The related derivative liability for the warrants was computed
based upon the value of our stock as of January 30, 2007 as quoted on
established markets, using the Black-Scholes method, assuming an expiration
date
of the warrants of August 31, 2009, a 100% volatility percentage and an annual
interest rate of 4.87%. This was the date the Company first had insufficient
authorized and unissued shares to allow the issuance of shares of its common
stock if the warrants were fully exercised. As a result of the Company
increasing the number of its authorized shares of common stock, there are now
sufficient authorized shares to issue the shares if the five million warrants
were exercised. Accordingly, the full amount of the derivative gain was reversed
in the fourth quarter of 2007.
The
loss
on related party debt extinguishment resulted from the use, for financial
reporting purposes, of the price quoted on the OTCBB for a small number of
fully
registered and free trading shares of the Company’s common stock. In determining
the ratio of debt for stock in the related party exchange, the valuation
utilized in the Subscription Agreements with unaffiliated investors was used.
This lower value reflects the economic realities that the Company faces in
attempting to raiser capital by issuing large amounts of restricted stock which
cannot be immediately sold on the open market.
Loss
on
disposition of assets is attributable to leasehold improvements in connection
with the abandonment of our lease in March 2006. Foreign currency gain results
from exchange rate changes between the U.S. dollar and the Euro on intercompany
advances between our U.S. subsidiary and our Finland subsidiary.
23
Liquidity
and Capital Resources
As
of
December 31, 2007, we had total assets of $7.2 million of which only $31,000
were current assets. At December 31, 2007, we had total current liabilities
of
$6.7 million and a working capital deficit of $6.7 million. Approximately $4.1
million of the $6.7 million working capital deficit is attributable to related
party loans.
The
Company funded its activities during the past year primarily through loans
made
by entities affiliated with our Chief Executive Officer and through the issuance
of common stock. The related party loans were made as funding was needed and
were extremely advantageous to the Company in that the amounts were funded
as
the Company needed financial infusions and allowed the Company to avoid the
costs and distractions of attempting to raise these amounts from unrelated
parties. It is unrealistic to believe that unrelated parties would have offered
terms as generous as those obtained from the related parties, and it is also
unlikely that any financing could have been obtained under any terms without
the
financing of the related parties.
As
discussed in Item 5, since August of 2004, the Company has received $1.4 million
(net of $125,000 of expenses) from three unaffiliated investors and one
affiliate for shares of the Company’s stock and an equal amount of warrants to
acquire additional shares of the Company’s stock. The exact number of shares to
be issued is dependent upon the average closing bid price of the Company’s stock
on the five trading days immediately prior to the date on which a registration
statement for these shares is declared effective. The purchase price of the
shares is equal to the lesser of (1) $.12 or (2) 52% of the average closing
price described above. An additional $1.5 million is to be received from these
investors within five days of registering the common shares and warrants. A
registration statement has not yet been declared effective for these shares
and
there is no current plan to issue a registration statement.
Net
cash
used in operations was $911,000 for the year ended December 31, 2007. The
negative cash flow from operations reflects the $6.6 million net loss for the
period offset by non-cash charges of $1.6 million for the common stock issuances
to member of our Board of Directors, $1.6 million for the loss incurred on
the
extinguishment of related party debt in exchange for our common stock, $644,000
for non-cash charges for depreciation, amortization and interest accrued on
the
related party loan and a $1.7 million increase in current liabilities including
the $481,000 judgment for the EliteCorp legal action.
Net
cash
provided by investing activities for the year ended December 31, 2007 reflects
the refund of a $50,400 security deposit offset by $2,000 for the purchase
of
fixed assets.
Net
cash
provided by financing activities for the year ended December 31, 2007 was
$911,000, which is attributable to $893,000 of related party loans and $18,000
of employee loans to our Finland subsidiary.
As
noted
above, cash from related party loans primarily financed our negative cash flows
from operations. We are dependent on raising additional funding necessary to
implement our business plan. Should we not be successful in raising cash from
related parties and other investors, we are unlikely to continue as a going
concern.
24
Recent
Accounting Pronouncements
Critical
Accounting Policies and Estimates
Valuation
of goodwill and other intangibles:
Our
intangible assets include goodwill patents and product rights all of which
are
accounted for based on Financial Accounting Standard Statement No. 142
Goodwill
and Other Intangible Assets (“FAS
142”). As described below, goodwill is not amortized but is tested at least
annually for impairment or more frequently if events or changes in circumstances
indicate that the assets might be impaired. Intangible assets with limited
useful lives (patents and product rights) are amortized using the straight-line
method over their estimated period of benefit. We obtain a valuation of all
intangibles purchased in any acquisition.
Goodwill,
with a carrying value of $3.6 million, is tested for impairment using a two
step
method. The first step is to compare the fair value of the reporting unit to
which the goodwill relates (the Company’s enterprise value, or market
capitalization) to its book value, including goodwill. If the fair value of
the
reporting unit is less than its books value, the Company then determines the
implied fair value of goodwill by deducting the fair value of the reporting
unit’s net assets from the fair value of the reporting unit. If the book value
of goodwill is greater than its implied fair value, the Company writes down
goodwill to its implied fair value. There were no goodwill impairment
adjustments recorded in 2007 or 2006.
The
impairment test for the other intangible assets with limited useful lives is
performed by comparing the carrying amount to the sum of the undiscounted
expected future cash flows that relate to the respective asset. Impairment
exists if the sum of the undiscounted cash flows is less than the carrying
amount of the intangible asset or to its related group of assets. If that were
to occur, we would record an impairment loss for any excess of the carrying
value of the patents or product rights over the expected future discounted
cash
flows related to those assets. In that respect, we predominately use a
discounted cash flow model derived from internal budgets in assessing fair
values for our impairment testing. Factors that could change the result of
our
impairment test include, but are not limited to, different assumptions used
to
forecast future net sales, expenses, capital expenditures, and working capital
requirements used in our cash flow models. In addition, selection of a
risk-adjusted discount rate on the estimated undiscounted cash flows is
susceptible to future changes in market conditions and, when unfavorable, can
adversely affect our original estimates of fair values. In the event that our
management determines that the value of intangible assets have become impaired
using this approach, we will record an accounting charge for the amount of
the
impairment. We did not recognize any impairment charges with respect to our
patents in either 2007 or 2006 but did recognize a $585,000 impairment charge
in
2006 for the total carrying value of product rights based upon the Company’s
decision to terminate the marketing and sale of dietary supplements (the
products to which the product rights relate).
25
Stock-based
transactions:
In
December 2004, the FASB issued SFAS No. 123R - Accounting
for Share-Based Payments.
This
establishes standards for the accounting of transactions in which an entity
exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment
transactions. The statement requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost is recognized over the
period during which the employee is required to provide service in exchange
for
the award.
We
use
the Black-Scholes options-pricing model to determine the fair value of each
option grant as of the date of grant for expense incurred. In applying the
Black-Scholes option-pricing model during fiscal 2006, we assumed no dividend
yield, risk-free interest rates ranging from 5.00% to 5.25%, expected option
term of 5 years, and a volatility factor of 100%. Additionally, the Company
uses
the trading price of its common stock as the measure of the value for financial
reporting purposes of the Company’s common stock in connection with valuation of
stock grant awards.
Contractual
obligations
At
December 31, 2007, the Company’s contractual cash obligations, with initial or
remaining terms in excess of one year, were as follows:
Amount
of Commitment
Expired
by year ending December 31,
Other
Operating
Liabilities
Leases
Total
Less
than 1 year
25,000
64,213
$
89,213
1
-
2 years
-
89,611
89,611
3
-
4 years
-
-
-
Total
$
25,000
$
153,824
$
178,824
26
Quantitative
and Qualitative Risk - Foreign Currency
While
most of our operations are conducted in the United States, we also operate
a
laboratory in Kuopio Finland. We face two risks related to foreign currency
exchange: translation risk and transaction risk. Amounts invested in our Finland
operations are translated into US Dollars at the exchange rates in effect at
the
balance sheet date. Since the functional currency of our Finland subsidiary
is
the local currency, foreign currency translation of the balance sheet is
reflected as a component of stockholders’ equity and does not impact operating
results.
Our
Finland subsidiary collects revenue and pays expenses in Euros, mitigating
transaction risk. Revenues and expenses in Euros translate into varying amounts
of US Dollars depending upon whether the US Dollar weakens or strengthens
against the Euro. Therefore, changes in exchange rates may negatively affect
the
Company’s consolidated revenues and expenses (as expressed in US Dollars) from
foreign operations.
Currency
transaction gains or losses are incurred on our US Subsidiary’s intercompany
advance to our Finland Subsidiary. We recognize a gain on the intercompany
advance as the US Dollar weakens against the Euro and we recognize a loss when
the US Dollar strengthens against the Euro. Our net currency gain for 2007
was
approximately $85,000.
The
Company has not entered into a material amount of foreign currency forward
exchange contracts or other derivative financial instruments to hedge the
effects of adverse fluctuations in foreign currency exchange rates.
27
Forward
Looking Statements
Our
disclosure and analysis in this Form 10-KSB contains some forward-looking
statements, within the meaning of the Private Securities Litigation Reform
Act
of 1995 (“the Act”), that set forth anticipated results based on our plans and
assumptions. From time to time, we also provide forward-looking statements
in
other materials we release to the public as well as oral forward-looking
statements. Such statements give our current expectations or forecasts of future
events; they do not relate strictly to historical and current facts. We have
tried wherever possible to identify such statements by using words such as
“anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”,
“will” and similar expressions in connection with any discussion of future
operating or financial performance.
In
light
of the important factors that can materially affect results, including those
set
forth above and elsewhere in this report, the inclusion of forward-looking
information herein should not be regarded as a representation by us or any
other
person that our objectives or plans will be achieved. We may encounter
competitive, technological, financial and business challenges making it more
difficult than expected to continue to market our products and services;
competitive conditions within our industry may change adversely; we may be
unable to retain existing key management personnel; our forecasts may not
accurately anticipate market demand; and there may be other material adverse
changes in our operations or business. Certain important factors affecting
the
forward looking statements made herein include, but are not limited to (i)
accurately forecasting capital expenditures; (ii) obtaining new sources of
external financing; (iii) serving as the nexus for nanobacteria research and
(iv) conducting successful clinical trials supporting our theories that the
human body does not recognize nanobacteria as harmful, and accordingly,
nanobacteria could be the cause of pathological disease causing calcification
found in multiple diseases. Assumptions relating to budgeting, marketing,
product development and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based
on
actual experience and business developments, the impact of which may cause
the
Company to alter its capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations.
Risk
Factors
Trends,
Risks and Uncertainties
We
have
sought to identify what we believe to be the most significant risks to our
business. However, we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. You should not consider the risks and assumptions
identified in this report to be a complete discussion of all potential risks
and
uncertainties affecting the Company. Investors should carefully consider all
risk factors before making an investment decision with respect to our Common
Stock.
Cautionary
Factors that may affect Future Results
We
provide the following cautionary discussion of risks, uncertainties and possible
inaccurate assumptions relevant to our business and our products. These are
factors that we think could cause our actual results to differ materially from
expected results. Other factors besides those listed here could adversely affect
us.
28
Risk
Factors (continued)
We
require additional financing in order to continue in business as a going
concern, the availability of which is uncertain. We may be forced by business
and economic conditions to accept financing terms which will require us to
issue
our securities at a discount, which could result in further dilution to our
existing stockholders.
As
discussed under the heading, "Management's Discussion and Analysis - Liquidity
and Capital Resources," we require additional financing to fund our operations.
There can be no assurance that additional financing will be available to us
when
needed or, if available, that it can be obtained on commercially reasonable
terms. In addition, any additional equity financing may involve substantial
dilution to our stockholders. If we fail to raise sufficient financing to meet
our immediate cash needs, we will be forced to scale down or perhaps even cease
the operation of our business, which may result in the loss of some or all
of
your investment in our common stock.
In
addition, in seeking debt or equity private placement financing, we may be
forced by business and economic conditions to accept terms which will require
us
to issue our securities at a discount from the prevailing market price or face
amount, which could result in further dilution to our existing
stockholders.
Liquidity
and Working Capital Risks; Need for Additional Capital to
Finance
Growth
and Capital Requirements
Throughout
2007 and 2006, related parties have provided funding that has allowed the
Company to continue. our capital needs through loans and capital contributions.
These related parties are under no obligation to continue such funding. In
the
event these related parties should discontinue their support, we will likely
have difficulty in continuing our operations. In such an event, stockholders
could lose their investment in its entirety. Related party loans may, but are
not required, be exchanged for shares of the Company’s common stock, which would
cause dilution of existing shareholders.
In
addition, we may continue to seek to raise capital from public or private equity
or debt sources to provide working capital to meet our general and
administrative costs until net revenues make the business self-sustaining.
We
cannot guarantee that we will be able to raise any such capital on terms
acceptable to us or at all. Such financing may be upon terms that are dilutive
or potentially dilutive to our stockholders. If alternative sources of financing
are required, but are insufficient or unavailable, we will be required to modify
our growth and operating plans in accordance with the extent of available
funding.
Legal
Actions
We
are
being suited by a former employee and have had over $560,000 of judgments
awarded against us. These creditors have indicated that they will attempt to
levy claims against our assets which, if they are successful, we may be forced
to cease operations.
29
Risk
Factors (continued)
We
have a history of operating losses and fluctuating operating results, which
raise substantial doubt about our ability to continue as a going
concern.
The
Company has a history of incurring operating losses. There is no assurance
that
we will operate profitably or will generate positive cash flow in the future.
In
addition, we anticipate incurring losses from operations over the next two
years
as we focus on research and development for eventual drug discovery and the
development of diagnostic products. Consequently, we expect to incur operating
losses and negative cash flow until our products gain market acceptance
sufficient to generate a commercially viable and sustainable level of sales,
and/or additional products are developed and commercially released and sales
of
such products made so that we are operating in a profitable manner.
Potential
Incorrect Conclusions on the Detection and Eradication of
Nanobacteria
Most
of
our future revenue is based on our ability to detect and eradicate Nanobacteria.
If it is ultimately proved that our diagnostic methodologies and treatment
regimens as covered by our patents are ineffective or based upon incorrect
scientific conclusions, our existing patents and product lines may lose most
or
all of their value. Further, if we are unsuccessful in leveraging our diagnostic
and therapeutic products to detect and treat nanobacterial diseases, we may
not
generate sufficient revenue to offset our expenses.
Acceptance
of Products in the Marketplace is Uncertain.
Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our proposed treatments and products.
Our treatments and products may not achieve market acceptance, and such adverse
marketing results could materially harm the Company.
Intellectual
Property Rights
We
have a
family of patents and patent pendings encompassing the detection and eradication
of nanobacteria. There are risks inherent in any intellectual property rights
in
that they may be challenged as being invalid or not original. Additionally,
other parties may abuse such intellectual rights, causing the Company to defend
its rights.
Key
Man Life Insurance
We
do not
maintain key man life insurance on the life of any officer, director, employee,
or independent contractor.
30
Risk
Factors (continued)
Limited
Operating History Anticipated Losses; Uncertainty of Future
Results
We
have a
limited operating history upon which an evaluation of our Company and our
prospects can be based. Our prospects must be evaluated with a view to the
risks
encountered by companies in early stages of development, particularly in light
of the uncertainties relating to the new and evolving biolife science research
which we intend to develop and market, and the acceptance of our business model.
We will be incurring costs to: (i) perform research studies to prove the
effectiveness of our pharmaceutical products, (ii) further develop and market
our products; (iii) establish distribution relationships; and (iv) build an
organization. To the extent that such expenses are not subsequently followed
by
commensurate revenues, our business, results of operations and financial
condition will be materially adversely affected. We, therefore, cannot insure
that we will be able to immediately generate sufficient revenues. We expect
negative cash flow from operations to continue for at least the next 12 months
as we continue to develop and market our business. If cash generated by
operations is insufficient to satisfy our liquidity, we may be required to
sell
additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. Our initial operations may not be profitable, since time will
be
required to build our business to the point that our revenues will be sufficient
to cover our total operating costs and expenses. Our reaching a sufficient
level
of sales revenues will depend upon a large number of factors, including
availability of sufficient working capital, the number of customers we are
able
to attract and the costs of continuing development of our product line. It
is
possible that the Company will never be profitable.
Federal
Food and Drug Administration
Some
or
all of our products may be governed by rules and regulations established by
the
United States Food and Drug Administration (“FDA”). Changes
in FDA regulations and the enforcement thereof may affect our biolife science
business. Furthermore, we may not be successful in filing and obtaining approval
of our 510K or PMA filings with the FDA for our Nano-Capture Antigen and
Nano-Sero IgG ELISA assays.
Data
Obtained Through Clinical Trials.
Data
obtained from pre-clinical studies and clinical trials do not necessarily
predict results that will be obtained from later pre-clinical studies and
clinical trials. Moreover, pre-clinical and clinical data is susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after experiencing
promising results in earlier trials. The failure to adequately demonstrate
the
safety and/or effectiveness of an intended product under development could
delay
or prevent regulatory clearance of the potential drug or treatment, resulting
in
delays to commercialization, and could materially harm the
business.
Competitors
in the Pharmaceutical Industry May Develop Competing
Technologies
Drug
companies and/or other health care companies may seek to develop and market
technologies which may compete with our Company’s technology. While we believe
that our technology regarding the prescription treatment of nanobacterial
infections caused by nanobacterium sanguineum is unique, other competitors
may
develop similar or different treatments which may become more accepted by the
marketplace.
31
Risk
Factors (continued)
Risk
of Third Party Lawsuits.
We
are
exposed to potential product liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. We cannot assure
potential investors that such claims will not be asserted against the Company.
A
successful liability claim or series of claims brought against us could have
a
material adverse effect on our financial condition. In addition, we may be
sued
by third parties who claim that our products and treatments infringe upon the
intellectual property rights of others or that we have misappropriated trade
secrets of others. This risk is exacerbated by the fact that the validity and
breadth of claims covered in medical technology patents and the breadth and
scope of trade secret protection involve complex legal and factual questions
for
which important legal principles are unresolved. Any litigation or claims
against us, whether or not valid, could result in substantial costs, could
place
a significant strain on our financial resources, and could harm our
reputation.
Government
Regulation
Healthcare
in general and the pharmaceuticals industry in particular are highly regulated
markets, subject to both federal and a multitude of state regulations and
guidelines. The majority of our business is still in clinical research
applications and is governed by the medical community. There can be no assurance
that changes to state or federal laws will not materially restrict our ability
to sell our products or develop new product lines.
Competition
The
markets in which we compete include successful and well-capitalized competitors
that vary in size and scope. Principal competitors include Pfizer, Merck and
other pharmaceutical companies having unique treatments for cardiovascular
disease. All of these competitors are more established, benefit from greater
name recognition and have substantially greater resources than us. Moreover,
we
could face additional competition as other established and emerging companies
enter the market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer subscriptions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and operating results. In
addition, current and potential competitors may make strategic acquisitions
or
establish cooperative relationships among themselves or with third-parties,
thereby increasing the ability of their products to address the needs of our
prospective consumers. While we believe we can differentiate our product from
these current and future competitors, focusing on the products' functionality,
flexibility, adaptability and features, there can be no assurance that we will
be able to compete successfully against current and future competitors. The
failure to effectively compete would have a material adverse effect upon our
business, financial condition and operating results.
Dependency
upon Key Technical and Scientific Personnel Who May Terminate Our Relationship
at Any Time.
Our
success will depend to a significant degree upon the continued services of
key
technical and scientific personnel, including but not limited to E. Olavi
Kajander, MD, PhD. In addition, our success may depend on our ability to attract
and retain other highly skilled personnel. Competition for qualified personnel
is intense, and the process of hiring and integrating such qualified personnel
is often lengthy. We may be unable to recruit personnel on a timely basis,
if at
all. All of the Company’s management and other employees may voluntarily
terminate their employment with us at any time. The loss of the services of
key
personnel, or the inability to attract and retain additional qualified
personnel, could result in delays to development, loss of sales, and/or
diversion of management resources that could have a material adverse affect
on
the Company.
32
Risk
Factors (continued)
Lack
of Independent Directors
We
cannot
guarantee our Board of Directors will have a majority of independent directors
in the future. In the absence of a majority of independent directors, our
executive officers, who are also principal stockholders and directors, could
establish policies and enter into transactions without independent review and
approval thereof. This could present the potential for a conflict of interest
between the Company’s stockholders and the controlling officers and/or
directors.
Limitation
of Liability and Indemnification of Officers and Directors
Our
officers and directors are required to exercise good faith and high integrity
in
our management affairs. Our Articles of Incorporation and By Laws provide,
however, that our officers and directors shall have no liability to our
stockholders for losses sustained or liabilities incurred which arise from
any
transaction in their respective managerial capacities unless they violated
their
duty of loyalty, did not act in good faith, engaged in intentional misconduct
or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which
they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner they
reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct
or
breach of fiduciary obligations.
Continued
Control by Current Officers and Directors
The
present officers and directors control approximately 50% of the outstanding
shares of Common Stock, and are in a position to elect all of our Directors
and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of the Company, the appointment of officers,
and the determination of officer's salaries. Stockholders have no cumulative
voting rights.
33
Risk
Factors (continued)
Limited
Market Due To Penny Stock
The
Company's stock differs from many stocks, in that it is a "penny stock." The
Securities and Exchange Commission has adopted a number of rules to regulate
penny stocks. These rules include, but are not limited to, Rules 3a5l-l, 15g-1,
15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange
Act of 1934, as amended. Because our securities probably constitute penny stock
within the meaning of the rules, the rules would apply to us and our securities.
The rules may further affect the ability of owners of our stock to sell their
securities in any market that may develop for them. There may be a limited
market for penny stocks, due to the regulatory burdens on broker-dealers. The
market among dealers may not be active. Investors in penny stock often are
unable to sell stock back to the dealer that sold them the stock. The mark-ups
or commissions charged by the broker-dealers may be greater than any profit
a
seller may make. Because of large dealer spreads, investors may be unable to
sell the stock immediately back to the dealer at the same price the dealer
sold
the stock to the investor. In some cases, the stock may fall quickly in value.
Investors may be unable to reap any profit from any sale of the stock, if they
can sell it at all. Stockholders should be aware that, according to the
Securities and Exchange Commission Release No. 34- 29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. These
patterns include: - Control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; - Manipulation
of prices through prearranged matching of purchases and sales and false and
misleading press releases; - "Boiler room" practices involving high pressure
sales tactics and unrealistic price projections by inexperienced sales persons;
- Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and - The wholesale dumping of the same securities by promoters
and broker- dealers after prices have been manipulated to a desired level,
along
with the inevitable collapse of those prices with consequent investor losses.
Furthermore, the penny stock designation may adversely affect the development
of
any public market for the Company's shares of common stock or, if such a market
develops, its continuation. Broker-dealers are required to personally determine
whether an investment in penny stock is suitable for customers. Penny stocks
are
securities (i) with a price of less than five dollars per share; (ii) that
are
not traded on a "recognized" national exchange; (iii) whose prices are not
quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must
still
meet requirement (i) above); or (iv) of an issuer with net tangible assets
less
than $2,000,000 (if the issuer has been in continuous operation for at least
three years) or $5,000,000 (if in continuous operation for less than three
years), or with average annual revenues of less than $6,000,000 for the last
three years. Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors
in
the Company's common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Rule
15g-9 of the Commission requires broker-dealers in penny stocks to approve
the
account of any investor for transactions in such stocks before selling any
penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience
as to
be reasonably capable of evaluating the risks of penny stock transactions;
(iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that
it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for the Company's stockholders to resell their shares to third parties
or to otherwise dispose of them.
34
Item
7. Financial
Statements
The
information required by this item is incorporated herein by reference to the
financial statements listed in Item 13 (a) of Part III of this Form 10-KSB
Annual Report.
35
Item
8. Changes
in and Disagreements with Independent Auditors on Accounting and Financial
Disclosures
There
have been no disagreements with any of our accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
On
October 11, 2007, we appointed Rottenberg, Merril, Solomon, Bertiger and
Guttilla, P.C. as our independent auditors. The decision to change our
independent auditors was approved by our Board of Directors on October 11,2007.
For further information relating to our change in independent auditors, please
refer to our Current Reports on Forms 8-K dated October 10, 2007 and October12,2007 and amended Current Reports on Forms 8-K/A dated November 20, 2007 and
December 5, 2007 on file with the Commission.
Item
8(a). Controls
and Procedures
Disclosure
controls and procedures
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company. Internal control over
financial reporting is a process to provide reasonable assurance regarding
the
reliability of our financial reporting for external purposes in accordance
with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that
in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as required by Rule 307 of Regulation S-B as of the end of the period
covered by this report. Based on this evaluation, management concluded that
the
company’s internal control over financial reporting was effective as of December31, 2007. There were no changes in our internal control over financial reporting
during the quarter ended December 31, 2007 that have materially affected, or
are
reasonably likely to materially affect, our internal control over financial
reporting.
36
Item
8(a). Controls
and Procedures
(continued)
Section
404 of the Sarbanes-Oxley Act of 2002
Section
404 of the Sarbanes-Oxley Act of 2002 requires our report on Form 10-KSB for
2008 to include a report of management on internal control over financial
reporting. Internal control over financial reporting, as defined under these
rules, is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
In
our
report, we will be required, among other things, to assess the effectiveness
of
our internal control over financial reporting. The report must also disclose
any
material weaknesses in internal control over financial reporting identified
by
management, and if there are any material weaknesses, we must conclude that
our
internal control over financial reporting was not effective. A material
weakness, under the applicable rules, is a control deficiency, or combination
of
control deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not
be
prevented or detected.
In
conducting our ongoing assessment of its internal control over financial
reporting to prepare for compliance with the requirements under Section 404
of the Sarbanes-Oxley Act, we have identified a lack of segregation of duties
to
be a potential material weakness in internal controls. Lack of segregation
of
duties is inherent to our company due to the small number of employees. Our
assessment is still in process to determine if this situation is actually a
material weakness or if there are any other material weaknesses.
37
PART
III
Item
9. Directors
and Executive Officers of the registrant
Chief
Executive and Financial Officer, and Chairman
59
November
2000
Alexander
H. Edwards III
Director
43
March
2003 and January 2004
Dr.
Benedict Maniscalco
Director
66
March
2006
Dr.
Stephen Rechtschaffen
Director
58
January
2004
Business
Experience
The
following is a brief account of the education and business experience during
at
least the past five years of each director and executive officer, indicating
the
principal occupation during that period, and the name and principal business
of
the organization in which such occupation and employment were carried
out.
John
Stanton - Chairman Chief Executive Officer and Chief Financial
Officer
-Mr.
Stanton has served as our Chief Executive Officer (“CEO”) July 23, 2004 to
present and from March 2001 through January 2004. From March, 2001 through
the
present, Mr. Stanton has served as our Chairman of the Board of Directors and
Chief Financial Officer. From 1987 through the present, Mr. Stanton served
as
the President and CEO of a private company headquartered in Tampa Florida
engaged in the business of manufacturing residential concrete construction
products. Mr. Stanton has served as Chairman of the Board of Directors of
publicly-traded EarthFirst Technologies, Incorporated from May 15, 2000 through
the present. Mr. Stanton also serves on the Board of Directors of publicly
traded Medical Technology Systems, Inc., and several other public companies.
Mr.
Stanton worked as an auditor with the international professional services firm
that is now known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton,
a Vietnam veteran of the United States Army, graduated from the University
of
South Florida with a Bachelors Degree in Marketing and Accounting in 1972,
and
with an MBA in 1973. Mr. Stanton earned the designation of Certified Public
Accountant in 1974 and was a Sells Award winner in the CPA
examination.
38
Benedict
S. Maniscalco, M.D. - Director of Clinical Research, Medical Director and member
of the Board of Directors - Dr.
Maniscalco joined the Board of Directors on March 29, 2006. From 2001 to the
present, Dr. Maniscalco has been in the private practice of cardiology. He
was
with Tampa Heart Center in Tampa Florida in 2000 to 2001. Dr. Maniscalco was
in
private practice for consultive cardiology with Health Centers of Excellence,
Inc. as Chief Executive Officer in Tampa Florida from March 1998 thorough
January 2000. From 1976 through 1998, he was an officer and board member of
a
large multi specialty cardiovascular group practice. From 1979 through 1996
he
was co-founder of St. Joseph’s Heart Institute in Tampa, Florida and served as
Director of Cardiac Catheterization and Director of Cardiology during his
tenure.
Over
past
30 years, Dr. Maniscalco has been a member of numerous local, state and national
professional societies. He has served as President and Governor of the Florida
Chapter of the American College of Cardiology and has been involved in numerous
committees dealing with socioeconomic and medical policies in both the American
College of Cardiology and the Society for Cardiac Angiography and Interventions.
He has been a frequent lecturer at the local, state and national level, on
both
clinical and non-clinical matters affecting the delivery of cardiovascular
services. Dr. Maniscalco received his medical degree from the Duke University
School of Medicine in 1967. He interned at Grady Memorial Hospital in Atlanta
and did his junior and senior residencies at Emory University Affiliated
Hospitals, followed by a fellowship in Cardiovascular diseases from 1973-1975.
He is licensed to practice in both Florida and Georgia and is certified by
the
American Board of Internal Medicine and the American Sub-Specialty Board in
Cardiovascular disease.
Alexander
H. Edwards III - Director -
Mr.
Edwards has served on our Board of Directors from January 2004 through the
present. Mr. Edwards had previously served on our Board from March 2003 through
May 2003. From January 2004 through July 2004, Mr. Edwards served as our Chief
Executive Officer. From March 2003 through January 2004, Mr. Edwards served
as
our Executive Vice President and Chief Operating Officer. Mr. Edwards currently
serves as the Chief Executive Officer and a member of the Board of Directors
of
VitalTrust Business Development Corporation, a publicly traded company
attempting to develop renewable sources of energy. From 2007 through January
of
2008, Mr. Edwards was the Chief Executive Officer and Chief Financial Officer
of
Nano Chemical Systems Holdings, Inc.
From
May
2002 through December 2004, Mr. Edwards was a managing partner of 360 Partners
as well as president and CEO of 360 Degree Energy, Inc. and 360 Sports, Inc.
Mr.
Edwards has also served as the Managing Member of Trident Consulting Partners,
LLC. From January 1997 to May 2002, Edwards was an executive with SRI/Surgical
Express, Inc. He served in roles that ranged from vice-president/general manager
to spending his last year with the company as president. From February 1993
through December 1996, he worked in sales and marketing with Dianon Systems,
Inc. His positions included sales and sales management roles as well as field
and corporate marketing. Mr. Edwards also served as an officer in the United
States Navy with duty assignments ranging from shipboard divisional leadership
to executive assistant for the Naval Surface Group Commander in Norfolk,
Virginia. Mr. Edwards is a 1987 graduate of the United States Naval
Academy.
In
August
2003 Mr. Edwards settled a civil enforcement action brought against him by
the
Securities and Exchange Commission in U.S. District Court in Tampa, Florida.
The
complaint alleged that Mr. Edwards, while serving as president of SRI/Surgical
Express, Inc. (“SRI”), a publicly traded Florida hospital supply company, caused
SRI to enter into two transactions that resulted in SRI overstating its fiscal
2001 third quarter revenue. Without admitting or denying the allegations in
the
complaint, Mr. Edwards consented to the entry of a Final Judgment permanently
enjoining him from future violations of (or aiding and abetting violations
of)
Sections 10(b), 13(b)(5), and 13(b)(2)(A) and (B) of the Securities Exchange
Act
of 1934 and Exchange Act Rule 13b2-1. The Final Judgment also imposed a $50,000
civil penalty.
39
Stephan
Rechtschaffen, M.D.
-
Director
-Dr.
Rechtschaffen joined the Board of Directors on February 2, 2004. He co-founded
Omega Institute in 1977 and is the present CEO and Chairman of the Board. He
was
the developer and director of Foxhollow Wellness Spa in Lenox, MA from September
1987 through June 1989, and director of the Rhinebeck Health Center in
Rhinebeck, NY, from November 1983 through March1989. Dr. Rechtschaffen is the
author of: TimeShifting;
Creating More Time to Enjoy Your Life,
1996,
published in the United States by Doubleday, and in England, Europe, Japan
and
Australia by Random House. He is co-author of Vitality
and Wellness,
1999,
published by Dell. Dr. Rechtschaffen received his medical degree in 1973 from
New York Medical College in New York City. His residency was at Harkness
Community Hospital in San Francisco.
Family
Relationships
There
are
no family relationships between any of our company's directors or executive
officers.
Section
16 of the Exchange Act requires Nanobac's directors and officers and persons
who
own more than 10% of a registered class of Nanobac's equity securities, to
file
initial reports of ownership and reports of changes in ownership with the SEC.
Such persons are required by SEC regulations to furnish Nanobac with copies
of
all Section 16(a) forms they file.
Specific
due dates for such reports have been established by the Commission and the
Company is required to disclose any failure to file reports by such
dates. The Company notes that John Stanton, Alexander Edwards, Benedict
Maniscalco and Gary Mezo have not filed any reports of ownership or changes
in
ownership pursuant to Section 16(a) filing requirements.
Audit
Committee
We
have
not established a separate audit committee. Accordingly, the Board of Directors
serves as the audit committee. The Chairman of the Board of Directors is also
our CEO and is not considered an independent director. An audit committee
financial expert has not been identified on the Board of Directors.
each
of our company's four most highly compensated executive officers
who were
serving as executive officers at the end of the most recently completed
fiscal year and whose total salary and bonus exceeds $100,000 per
year;
and
(c)
any additional individuals for whom disclosure would
have
been provided under but
for the fact that the individual was not serving as an executive officer
of our company at the end of the most recently completed fiscal
year
the
Named
Executive Officers are set out in the summary compensation table below.
Annual
Compensation
Name
and Principal Position
Year
Salary
Bonus
Other
Annual
Compensation
All
Other
Compensation
(1)
John
D. Stanton (2)
2007
$
0
$
0
$
0
$
0
Chairman
of the Board and
2006
$
0
$
0
$
0
$
0
Chief
Executive Officer and
2005
$
0
$
0
$
0
$
0
Chief
Financial Officer
Alex
Edwards (3)
2007
$
8,874
$
0
$
0
$
0
Board
of Director member
2006
$
23,660
$
0
$
0
$
0
former
Chief Executive Officer
2005
$
6,123
$
0
$
5,000
$
0
Benedict
S Maniscalco, M.D.,(4)
2007
$
0
$
0
$
87,500
$
0
Director
of Clinical Research
2006
$
0
$
0
$
113,462
$
0
Board
of Director member
1)
In
accordance with SEC rules, other compensation in the form of perquisites
and other personal benefits is omitted, such perquisites and other
personal benefits constituted less than the lesser of $50,000 or
10% of
the total annual salary and bonus for the Named Executive Officer
for such
year.
2)
Mr.
Stanton has served as the Chairman of the Board of Directors and
Chief
Financial Officer since March 2001 and served as Chief Executive
Officer
from March 2001 through January 2004 and July 2004 through present.
3)
Mr.
Edwards commenced employment with Nanobac in March 2003 and was named
Chief Executive Officer in January 2004. He relinquished the Chief
Executive Officer role in July 2004.
4)
Dr.
Maniscalco joined Nanobac’s Board of Directors in March 2006. He earned
consulting compensation in 2007 and 2006 for his services as Director
of
Clinical Research. Due to lack of funding, the $87,500 of consulting
income for 2007 has hot been paid to Dr. Maniscalco as of March 31,2008.
This amount is included in accounts payable in our December 31, 2007
financial statements.
41
Employment
and Compensation Agreement
John
Stanton
- Mr.
Stanton does not have an employment or similar agreement with Nanobac. Mr.
Stanton has received no salary or other compensation for the past three years.
Alexander
Edwards
-
On
July23, 2004, Mr. Edwards resigned as Chief Executive Officer. Mr. Edwards continues
to serve as a member of the Board of Directors. As a result of his resignation
as Chief Executive Officer, Mr. Edwards voluntarily terminated his employment
agreement and his salary was adjusted to $23,660 for the performance of limited
services to Nanobac from July 2004 through April 1, 2005 and from January 2006
through May 15, 2007. Subsequent to May 15, 2007, Mr. Edwards is no longer
compensated by the Company.
Benedict
Maniscalco - Dr.
Maniscalco has a consulting agreement with Nanobac to perform services as
Director of Clinical Research under a non-employee consulting agreement.
Directors'
Compensation
Nanobac’s
directors receive non-monetary compensation for their director services. Each
director is entitled to receive reimbursement of out-of-pocket expenses for
attending Board of Director or committee meetings. Each independent Director
is
eligible to receive options to acquire 1,500,000 shares of Nanobac’s common
stock. During January 2007, in lieu of issuance of stock options, the Board
of
Directors issued the following shares of common stock to members of the Board
of
Directors:
John
Stanton
3,000,000
Alexander
Edwards
3,000,000
Benedict
Maniscalco
3,000,000
Stephan
Rechtschaffen
3,000,000
12,000,000
The
stock
issued to the directors was valued for financial reporting purposes at $1.6
million.
Compensation
Committee Interlocks and Insider Participation
The
Company has not formed a Compensation Committee, accordingly, the Board of
Directors acts in the Compensation Committee’s capacity. The Board of Directors
is responsible for reviewing and recommending salaries, bonuses and other
compensation for Nanobac's executive officers.
Mr.
Edwards is currently on the Board of Directors and was an employee of the
Company from September 2003 through March 2004 and January 2006 through May15,2007.
Stock
Options
No
stock
options have ever been granted to any of the Named Executive Officers of Board
of Director members.
42
Item
11. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Principal
Stockholders The
following table sets forth, as of March 31, 2008, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock
and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest
in
the shares of common stock, except as otherwise indicated.
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and generally includes voting or investment power
with
respect to securities. For purposes of calculating the percentage
beneficially owned, the number of shares deemed outstanding includes
249,506,760 shares outstanding as March 31, 2008. Unless otherwise
provided, the street address of each beneficial owner is c/o Nanobac
Pharmaceuticals, Incorporated, 4730 N. Habana Avenue, Suite 205,
Tampa,
Florida33614.
(2)
Nanobac
has relied upon information reported by the respective stockholder
to the
SEC pursuant to Section 13(d) or 13(g) of the Securities Exchange
Act of
1934, as amended, as of March 31,2008.
(3)
Includes
9,760,000 shares held by Mr. Mezo’s spouse, Nancy Schriewer, and 160,000
shares held by Nancy Schriewer’s father as to which he disclaims
beneficial ownership.
(4)
Includes
82,442,658 shares held by entities related to Mr. Stanton.
Changes
in Control
We
are
unaware of any contract or other arrangement the operation of which may at
a
subsequent date result in a change of control of Nanobac.
43
Item
12. Certain
Relationships and Related Transactions
The
Company funded a portion of its activities during the past year primarily
through loans made by entities affiliated with its Chief Executive Officer.
It
is possible that some or all of these loans made be repaid through the issuance
of the Company’s common stock. There is no requirement that the lender accept
repayment in stock. As of December 31, 2007, the loan balance was approximately
$4.1 million.
Subscription
Agreement
During
December 2004, the Company entered into a Subscription Agreement with a related
party. Under the terms of the Subscription Agreement, the entity converted
a
$500,000 loan to equity. During 2006, the related party was assigned future
stock subscription and warrant rights from two unaffiliated investors. In
accordance with these subscription agreements, the Company is to receive
additional cash of $825,000 within five days of registering the common shares
and warrants issued as a result of the Subscription Agreements. The number
of
common shares to be issued is equal to the amount received divided by the lesser
of $.12 or 52% of the average closing bid price of the Company’s common stock on
the five trading days immediately prior to the date on which the registration
statement is declared effective (“Fixed Price”). In addition, the Subscription
Agreement provided for the issuance of warrants equal to the number of common
shares issued. Fifty percent (50%) of the warrants are exercisable at 110%
of
the Fixed Price and the remaining 50% of the warrants are exercisable at 150%
of
the Fixed Price. Unexercised warrants will expire December 31, 2008.
As
of
March 31, 2008, the registration statement has not been declared effective
and
the Fixed Price has not been determined. Accordingly, the additional cash of
$825,000 for common shares has not been received, no warrants have been issued
and the number of shares to be issued under this subscription agreement has
not
been determined.
44
Item
13. Exhibits
(a)
The
following documents are filed as part of this report:
(1)
Financial
Statements
The
following Financial Statements are included herein:
Acquisition
Agreement dated December 6, 2002, between American Enterprise Corporation
and HealthCentrics, Inc. and its stockholders. (Previously filed
with the
SEC as an exhibit to the Registrant’s Current Report on Form 8-K dated
December 13, 2002, and incorporated herein by
reference.)
Convertible
Promissory Note Loans Purchase Agreement dated September 25, 2002
between
NanobacLabs, L.L.C. and selected stockholders of Nanobac OY. (Previously
filed with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated November 26, 2003, and incorporated herein by
reference.)
Lease
Agreement dated April 17, 2002 between NanobacLabs, L.L.C. and
MLK- Tampa
Associates, LLC regarding 5,593 square feet of office space located
at
2727 W. Martin Luther King Blvd. - Suite 850, Tampa, Florida and
First
Amendment to Lease dated September 1, 2002 between NanobacLabs,
L.L.C. and
MLK-Tampa Associates, LLC regarding 2,121 square feet of office
space
located at 2727 W. Martin Luther King Blvd. - Suite 101, Tampa,
Florida
(Previously filed with the SEC as an exhibit to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2006 and
incorporated herein by
reference.)
46
10.10
Loan Agreement
dated
December 31, 2003 between Nanobac Pharmaceuticals, Incorporated and
Escape
Velocity of Tampa Bay, Inc. (Previously filed with the SEC as an exhibit
to the Registrant’s Annual Report on Form 10-KSB for the year ended
December 31, 2003.)
10.11
Employment
Agreement by and between Nanobac
Pharmaceuticals, Incorporated and Alex H. Edwards III dated January26,2004. (Previously filed with the SEC as an exhibit to the Registrant’s
Annual Report on Form 10-KSB for the year ended December 31,2003.)
10.12
Sublease Agreement
dated May 18, 2004 between NanobacLabs, L.L.C. and Tampa Bay Surgery
Center Associates, Ltd regarding the sublease of 2,121 square feet
of
office space located at 2727 West Dr. Martin Luther King Blvd. - Suite
101, Tampa, Florida. (Previously filed with the SEC as an exhibit to
the
Registrant’s Annual Report on Form 10-KSB fore the year ended December 31,2006 and incorporated herein by reference.)
Executive
Employment
Agreement between Nanobac Pharmaceuticals, Incorporated, and E. Olavi
Kajander, MD, PhD, an individual dated January 15, 2004. (Previously
filed
with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated March 31, 2004, and incorporated herein by
reference.)
10.15
Executive
Employment
Agreement between Nanobac Pharmaceuticals, Incorporated and Neva
Ciftcioglu, PhD, an individual dated March 31, 2004. (Previously filed
with the SEC as an exhibit to the Registrant’s Current Report on
Form 8-K dated March 31, 2004, and incorporated herein by
reference.)
10.16
Nonreimbursable
Space
Act Agreement between The National Aeronautics and Space Administration
Lyndon B. Johnson Space Center and Nanobac Pharmaceuticals, Incorporated.
(Previously filed with the SEC as an exhibit to the Registrant’s Current
Report on Form 8-K dated September 13, 2004 and incorporated herein
by reference.)
10.17
Debt Cancellation
Agreement dated August 30, 2004 between Nanobac Pharmaceuticals,
Incorporated and E. Olavi Kajander. (Previously filed with the SEC
as an
exhibit to the Registrant’s Annual Report on Form 10-KSB fore the year
ended December 31, 2005 and incorporated herein by
reference.)
10.18
Amendment
to Executive
Employment Agreement dated August 30, 2004 between Nanobac
Pharmaceuticals, Incorporated and E. Olavi Kajander. (Previously filed
with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB fore the year ended December 31, 2005 and incorporated herein
by
reference.)
10.19
Stock Purchase
Agreement dated August 30, 2004 between Nanobac Pharmaceuticals,
Incorporated and E. Olavi Kajander. (Previously filed with the SEC
as an
exhibit to the Registrant’s Annual Report on Form 10-KSB fore the year
ended December 31, 2005 and incorporated herein by
reference.)
47
10.20
Amendment
to Executive
Employment Agreement dated September 10, 2004 between Nanobac
Pharmaceuticals, Incorporated and Neva Ciftcioglu. (Previously filed
with
the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB
fore the year ended December 31, 2005 and incorporated herein by
reference.)
10.21
Subscription
Agreement,
Registration Rights Agreement and Form of Warrant dated August 13,2004
between Nanobac Pharmaceuticals, Incorporated and The Nutmeg Group,
LLC
(serves as form of agreement for similar subscription
agreements).
Debt Cancellation
Agreement dated September 20, 2004 between Nanobac Pharmaceutical,
Incorporated and Escape Velocity of Tampa Bay, Inc. (Previously filed
with
the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB
fore the year ended December 31, 2005 and incorporated herein by
reference)
10.24
Debt Cancellation
Agreement dated October 18, 2004 between Nanobac Pharmaceutical,
Incorporated and Benedict Maniscalco, M.D. (Previously filed with the
SEC
as an exhibit to the Registrant’s Annual Report on Form 10-KSB fore the
year ended December 31, 2005 and incorporated herein by
reference.)
10.25
Debt Cancellation
Agreement dated December 14, 2004 between Nanobac Pharmaceutical,
Incorporated and MacFarlane Ferguson & McMullen. (Previously filed
with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB fore the year ended December 31, 2005 and incorporated herein
by
reference.)
10.26
Second amendment
to
lease agreement between Nanobac Sciences, LLC and CNL Retirement MOP
Tampa, Florida, LP regarding reduction of 5,593 square feet of office
space located at 2727 West Dr. Martin Luther King Blvd. - Suite 850,
Tampa, Florida to 4,053 square feet of office space. (Previously filed
with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2005 and incorporated herein
by
reference.)
Amendment
to Executive
Employment Agreement dated June 8, 2006 between Nanobac Pharmaceuticals,
Incorporated and E. Olavi Kajander, MD, PhD, an individual. (Previously
filed with the SEC as an exhibit to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2006 and incorporated herein
by
reference.)
The
following summarizes the fees expensed to Rottenberg,
Merril, Solomon, Bertiger and Guttilla, P.C. and Aidman, Piser & Company,
P.A., our Independent Auditors
for the
years ended December 31, 2007 and 2006:
2007
2006
Audit
$
117,162
$
114,000
Audit
related
-
-
Tax
-
-
Other
-
-
Total
$
117,162
$
114,000
Audit-Related
fees are attributable to (i) quarterly review services connected with our filing
of our quarterly reports, Forms 10-QSB (ii) services performed in connection
with SB-2 registration statement and (iii) services performed in connection
with
the SEC comment letter on our 2004 Form 10-KSB. Aidman, Piser & Company,
P.A. did not perform any professional services with respect to information
systems design and implementation for the years ended December 31, 2007 and
2006.
The
Board
of Directors has considered whether the Audit-Related services provided by
Rottenberg,
Merril, Solomon, Bertiger and Guttilla, P.C. and Aidman,
Piser & Company, P.A. are compatible with maintaining that firm’s
independence.
From
and
after the effective date of the SEC rule requiring Audit Committee pre-approval
of all audit and permissible non-audit services provided by independent
registered public accountants, the Board of Directors has approved audit
services provided by Aidman, Piser & Company, P.A. No non-audit procedures
were performed during 2007.
50
NANOBAC
PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
1.
Nature
of operations and summary of significant accounting
policies
Nature
of business
Nanobac
Pharmaceuticals, Incorporated and subsidiaries, ("Nanobac”, the "Company", or
"NNBP") trades under the symbol "NNBP."
Nanobac’s
primary business is the study and development of therapeutic and diagnostic
technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
are believed to be small, slowly growing nano-particles that can be found in
human blood, kidney stones and arterial wall plaques.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Nanobac Sciences LLC, Nanobac OY and Nanobac Research
Institute LLC. All material intercompany transactions and balances have been
eliminated in consolidation.
Liquidity
and management plans
The
accompanying consolidated financial statements have been prepared assuming
that
NNBP will continue as a going concern. The Company has incurred recurring losses
and has a large working capital deficiency at December 31, 2007. The Company
is
dependent on the continued financing from outside investors including related
party loans. All of these matters raise substantial doubt about the ability
of
the Company to continue as a going concern. Management believes that NNBP will
need to raise additional capital in order to launch new clinical trials, fund
research and development for new treatment areas, and general working capital
requirements. Capital may be raised through further sales of equity securities,
which may result in dilution of the position of current stockholders. At this
time, there are no firm commitments to invest in NNBP.
There
can
be no assurances that NNBP will be successful in obtaining debt or equity
financing in order to achieve its financial objectives and continue as a going
concern. The financial statements do not include any adjustments to the carrying
amount of assets and the amounts and classifications of liabilities that might
result from the outcome of this uncertainty.
Revenue
recognition
Revenue
is recognized when the Company’s products are shipped and title has passed or
when diagnostic results are provided to the customer. Revenue from the Company’s
observation rights’ agreement is being recognized over the agreement’s 12-month
term using the straight-line method. Revenue is recorded net of allowances
for
estimated discounts and incentives.
Inventory
Inventory
is stated at the lower of cost or market. Cost is determined in a manner which
approximates the first-in, first-out (FIFO) method. Inventory consists of raw
materials for currently marketed products and materials and processing costs
for
antibodies and antigens used in our Finland laboratory. Inventory is shown
net
of applicable allowances. Shipping costs are expensed as incurred and are
included in cost of revenue.
F-6
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
1.
Nature of operations and summary of significant accounting policies
(continued)
Furniture
and equipment
Furniture
and equipment consist of furniture, fixtures, computers and lab equipment and
are recorded at cost. Furniture and equipment are depreciated using the
straight-line method over the estimated useful lives of three to seven
years.
Intangible
assets and goodwill
Intangible
assets are recorded at cost, less accumulated amortization. Intangible assets
consist of patents, product rights and goodwill obtained in the acquisition
of
NanobacLabs
Pharmaceuticals, Inc. and Nanobac OY.
Amortization of intangible assets is provided over the following estimated
useful lives on a straight-line basis:
Patents
12
years
Product
rights
5
years (fully impaired and written off in
2006)
Impairment
of long-lived assets and intangible assets
In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets” (“SFAS No. 142”), and Statement of Financial
Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”), the Company reviews its non-amortizable
long-lived assets, including intangible assets and goodwill for impairment
annually, or sooner whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. Other depreciable or
amortizable assets are reviewed when indications of impairment exist. Upon
such
an occurrence, recoverability of these assets is determined as follows. For
long-lived assets that are held for use, the Company compares the forecasted
undiscounted net cash flows to the carrying amount. If it is determined that
the
long-lived asset will be unable to recover its carrying amount, then it is
written down to fair value. For long-lived assets held for sale, assets are
written down to fair value. Fair value is determined based on discounted cash
flows or appraised values from management’s estimates, depending upon the nature
or the assets.
Impairment
within goodwill is tested using a two step method. The first step is to compare
the fair value of the reporting unit to which the goodwill relates (the
Company’s enterprise value) to its book value, including goodwill. If the fair
value of the reporting unit is less than its book value, the Company then
determines the implied fair value of goodwill by deducting the fair value of
the
reporting unit’s net assets from the fair value of the reporting unit. If the
book value of goodwill is greater than its implied fair value, the Company
writes down goodwill to its implied fair value. There were no impairment
adjustments recorded in 2007. As described in Note 7, during the year ended
December 31, 2006, the Company’s Product Rights intangible asset was deemed
fully impaired based on the Company terminating the marketing and sales of
dietary supplements and therefore the asset is not expected to be recoverable
from the use or eventual disposition of the asset.
F-7
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
1.
Nature of operations and summary of significant accounting policies
(continued)
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Loss
per share
Loss
per
share represents net loss divided by the weighted average number of common
shares outstanding during the period. The effect of incremental shares from
common stock equivalents (options and warrants - see Note 9) is not included
in
the calculation of net loss per share as the inclusion of such common stock
equivalents would be anti-dilutive. Accordingly, fully dilutive shares
outstanding equal basic shares outstanding as of December 31, 2007 and 2006.
Accumulated
other comprehensive loss
Accumulated
other comprehensive loss consists of foreign currency translation adjustments
related to our Finland operations. Accumulated other comprehensive income has
no
applicable income tax.
Financial
Instruments
The
Company accounts, classifies and measures certain financial instruments with
characteristics of both liabilities and equity in accordance with Financial
Accounting Standards Board Statement No. 150, “Accounting for certain Financial
Instruments with Characteristics of both Liabilities and Equity” (“FAS 150”).
Pursuant to FAS 150, a financial instrument that embodies an unconditional
obligation, or a financial instrument other than an outstanding share that
embodies a conditional obligation, that the issuer must or may settle by issuing
a variable number of its equity shares, if, at inception, the monetary value
of
the obligation is based solely or predominantly on a fixed monetary amount
known
at inception requires the issuer to classify the financial instrument as a
liability. Further, the liability is to be measured initially and subsequently
at the fair value that the financial instrument obligates the issuer to convey
to the holder at the settlement date. The shares issued in connection with
the
2005 and 2004 Subscription Agreement transactions discussed in Note 10 are
stock
settlement obligations and, as such, have been presented in the accompanying
consolidated balance sheet as a liability.
The
carrying value of NNBP’s financial instruments, including cash, accounts
receivable, accounts payable, short-term note payable and stockholder loans
approximate their fair market values.
Research
and development expenses
Research
and development expenses are comprised of the following types of costs incurred
in performing R&D activities: salaries and benefits, occupancy costs of our
Finland laboratory, professional fees, clinical trial and related clinical
manufacturing costs. Research and development costs are expensed as incurred.
F-8
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
1.
Nature of operations and summary of significant accounting policies
(continued)
Income
taxes
NNBP
records its federal and state tax liability in accordance with Financial
Accounting Standards Board Statement No. 109 “Accounting for Income Taxes”. The
deferred taxes are recorded for temporary differences between the recognition
of
income and expenses for tax and financial reporting purposes, using current
tax
rates. Deferred assets and liabilities represent the future tax consequences
of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Recent
accounting pronouncements
In
February 2008, the FASB issued FASB Staff Position (FSP) Financial
Accounting Standard (FAS) 157-1, “Application of FASB Statement No. 157 to
FASB Statement No. 13 and Its Related Interpretive Accounting
Pronouncements That Address Leasing Transactions,” and FSP FAS 157-2, “Effective
Date of FASB Statement No. 157.” FSP FAS 157-1 removes leasing from the
scope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays the
effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company does not expect the above statement, as amended,
to
have a material impact on the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations,” which will become effective in 2009 via prospective application
to new business combinations. This Statement requires that the acquisition
method of accounting be applied to a broader set of business combinations,
amends the definition of a business combination, provides a definition of a
business, requires an acquirer to recognize an acquired business at its fair
value at the acquisition date and requires the assets and liabilities assumed
in
a business combination to be measured and recognized at their fair values as
of
the acquisition date (with limited exceptions). The company will adopt this
Statement in fiscal year 2009 and its effects on future periods will depend
on
the nature and significance of any acquisitions subject to this
statement.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements—an amendment of ARB No. 51.” This
Statement requires that the noncontrolling interest in the equity of a
subsidiary be accounted for and reported as equity, provides revised guidance
on
the treatment of net income and losses attributable to the noncontrolling
interest and changes in ownership interests in a subsidiary and requires
additional disclosures that identify and distinguish between the interests
of
the controlling and noncontrolling owners. The Company does not have any
noncontrolling interests in other entities and does not expect the adoption
of
this Statement to have a material effect on the Company’s financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities, Including an amendment of FASB
Statement No. 115,” which will become effective in 2008. SFAS No. 159
permits entities to measure eligible financial assets, financial liabilities
and
firm commitments at fair value, on an instrument-by-instrument basis, that
are
otherwise not permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election is
irrevocable and subsequent changes in fair value must be recorded in earnings.
The company does not expect the adoption of this Statement to have a material
effect on the Company’s financial statements.
F-9
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
1.
Nature of operations and summary of significant accounting policies
(continued)
Stock
Options
In
January 2006, the Company adopted the accounting provisions of Statement of
Financial Accounting Standards No. 123R, “Share-based Payments” (“SFAS 123 R”),
replacing “Accounting for Stock-based Compensation” (“SFAS 123”), which are
similar and require the use of the fair-value based method to determine
compensation for all arrangements under which employees and others receive
shares of stock or equity instruments (warrants and options). The adoption
of
this standard had no significant impact on the Company’s results of operations.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
2.
Furniture and equipment
Furniture
and equipment at December 31, 2007 is summarized as follows:
Computer
equipment
$
21,179
Computer
software
17,982
Lab
equipment
101,701
Office
equipment
16,624
Furniture
and fixtures
10,711
168,197
Accumulated
Depreciation
(130,695
)
$
37,502
Depreciation
expense for the years ended December 31, 2007 and 2006 was $23,382 and $36,858,
respectively.
F-10
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
Goodwill
relates to the 2003 acquisition of Nanobac Sciences, LLC (formerly known as
NanobacLabs, LLC) and the 2004 acquisition of Nanobac OY. Other intangible
assets as of December 31, 2006 are summarized as follows:
Patents
5,243,042
Less
accumulated amortization
(1,715,961
)
$
3,527,081
Amortization
expense for the years ended December 31, 2007 and 2006 was $436,920 and
$504,420, respectively. Expected future amortization is summarized as
follows:
Recoverability
of the Company’s intangibles is dependent upon the successful commercialization
of its technologies related to nanobacteria. While management believes there
is
a significant market for products to which these technologies can be applied,
substantial additional financing will be required in order to successfully
develop the technology. Should required funding not be available at acceptable
terms, if at all, then future impairment changes may result with regard to
the
Company’s intangible assets.
4.
Geographic Information
The
Company operates in a single business segment. Geographic information is
summarized as follows:
The
geographic classification of revenue was based upon the domicile of the entity
from which the revenue was earned.
5.
Income taxes
There
was
no current or deferred provision or benefit for income taxes for the years
ended
December 31, 2007 and 2006. The components of deferred tax asset as of December31, 2007 and 2006 are as follows:
2007
2006
Deferred
tax asset:
Net
operating loss carryforwards
$
6,474,000
$
5,887,000
Accrued
expenses
599,000
97,000
Valuation
allowance
(7,073,000
)
(5,984,000
)
Deferred
tax asset net of valuation allowance
$
-
$
-
As
of
December 31, 2007, the Company had approximately $18 million of net operating
loss carryforwards which expire between 2016 and 2027.
The
following table accounts for the differences between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax
rates
of 34% to the loss before income taxes:
2007
2006
Statutory
tax benefit
$
2,301,000
$
1,696,000
State
taxes, net of federal benefit
253,000
173,000
Nondeductible
expense for common
stock
issued for services
(1,275,000
)
(185,000
)
Amortization
of intangible assets
(170,000
)
(197,000
)
Nontaxable
impairment loss
(6,000
)
(228,000
)
Increase
in valuation allowance
(1,110,000
)
(1,285,000
)
Other,
net
7,000
26,000
$
0
$
0
Changes
in the valuation allowance during the year ended December 31, 2007 were as
follows:
Valuation
allowance, beginning of year
$
5,957,000
Increase
from continuing operations
1,110,000
Impact
of adoption of FIN 48
6,000
Valuation
allowance, end of year
$
7,073,000
As
a
result of the implementation of FIN 48, the Company recognized a $6,000 decrease
in the deferred tax asset related to net operating loss. As this loss was wholly
offset by the Company’s valuation adjustment, there was no impact on retained
earnings as of January 1, 2007 from the adoption of this standard.
F-12
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
Related
parties have provided working capital loans to NNBP throughout 2006 and 2007.
These loans bear interest at the rate of 5% per annum and are due on demand.
During January 2007, $2.3 million of the above loan was exchanged for 30,000,000
shares of the Company’s common stock. For financial reporting purposes, these
shares were valued at approximately $3.9 million. The difference between the
value for financial reporting purposes of the shares and the amount of the
debt
was recorded as a loss on related party debt extinguishment. In determining
the
ratio of debt for stock in the related party conversion, the valuation utilized
in the Subscription Agreements with unaffiliated investors was used. The
remaining loan balance at December 31, 2007 was approximately $4.1 million.
Interest expense for the above loan for the years ended December 31, 2007 and
2006 was approximately $183,000 and $200,000, respectively.
Accounts
payable includes $98,000 of consulting fees and travel expenses due to our
Director of Clinical Research who is also a member of the Board of Directors.
8.
Discontinuance of product line and abandonment of lease
During
March 2006, the Company’s management established a plan for Nanobac to
discontinue the sale of dietary supplements and the Company’s focus to be
exclusively on the science that is expected to ultimately lead to drug discovery
and the development of diagnostic products. Effective March 30, 2006, the
Company assigned the dietary supplement product rights to an entity owned by
the
primary stockholder for no compensation. As a result of the above decision,
a
charge to earnings of $585,000 for the impairment of the product rights
intangible asset (the net book value of the then unamortized product rights)
has
been recognized in operating expenses in the accompanying consolidated statement
of operations for the year ended December 31, 2006. No other assets or
liabilities are conveyed in connection with this transaction.
During
March 2006, the Company ceased occupying leased office space in Tampa, Florida.
As a result of the early abandonment of this office lease, a charge to earnings
of approximately $125,000 for the write-off of leasehold improvements and the
acceleration of lease payments associated with the abandoned lease has been
recognized in operating expenses and other expenses in the accompanying
condensed consolidated statement of operations for the year ended December31,2006.
F-13
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
The
holder(s) of preferred shares are entitled to receive non-cumulative dividends
not to exceed $.10 per share when and as declared by the Board of Directors.
In
the event of any liquidation, dissolution or winding down of the company, either
voluntary or involuntary, the holder(s) of each preferred share shall be
entitled to be paid on an amount equal to $4.00 per share. In the event that
the
Company authorizes the redemption of all or any preferred shares, the redemption
price shall be $4.30 per share. The preferred shares are convertible at any
time
into common at the ratio of 44.11 common shares to one preferred share. Holders
of preferred shares have a right to cast eight votes per preferred share and
the
right to elect 50% of the authorized members of the board of directors. As
of
and for the years ended December 31, 2007 and 2006, there were no preferred
shares issued or outstanding.
Common
stock, preferred stock and warrant issuances
During
December 2007, the Company increased its authorized shares from 250,000,000
to
500,000,000 shares.
From
August 2004 through February 2005, the Company entered into Subscription
Agreements with three unaffiliated investors. Under the terms of the
Subscription Agreements, the Company received cash of $852,500 (net of $122,500
of expenses) through December 31, 2006. The Company is to receive additional
cash of approximately $800,000 (net of expenses) within five days of registering
the common shares and warrants issued as a result of the Subscription
Agreements. The number of common shares to be issued is equal to the amount
received divided by the lesser of $.12 or 52% of the average closing bid price
of the Company’s common stock on the five trading days immediately prior to the
date on which the registration statement is declared effective (“Fixed Price”).
These amounts are classified as Stock Settlement Liability at December 31,2007.
In addition, the Subscription Agreements provide for the issuance of warrants
equal to the number of common shares issued. Fifty percent (50%) of the warrants
are exercisable at 110% of the Fixed Price and the remaining 50% of the warrants
are exercisable at 150% of the Fixed Price. Unexercised warrants will expire
December 31, 2008. The Company had agreed to use its best efforts to promptly
register the common shares and warrants.
During
December 2004, the Company entered into a Subscription Agreement with a related
party. Under the terms of the Subscription Agreement, the Company received
cash
of $500,000 during the year ended December 31, 2004. The Company is to receive
additional cash of $500,000 within five days of registering the common shares
and warrants issued as a result of the Subscription Agreement. All other terms
of the Subscription Agreement are substantially the same as the Subscription
Agreements to the unaffiliated investors described in the preceding paragraph.
This amount is classified as Stock Settlement Liability at December 31, 2007.
During
2006, the related party acquired the rights and obligations under the above
Stock Subscription Agreements from two of the three unaffiliated investors
except for common stock previously issued to these investors and 2.7 million
of
the warrants. At December 31, 2007, the related party has the rights to
approximately 56% of the above stock subscription agreements.
F-14
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
As
a
result of the above Subscription Agreements, at December 31, 2007, the Company
has issued 12,291,667 shares of common shares, which represents the minimum
number of shares to be issued under the Subscription Agreements in exchange
for
cash received through December 31, 2007. If the price of the Company’s stock is
less than $0.23 per share when the Company’s registration statement is declared
effective, the Company will be required to issue additional shares under the
above Subscription Agreements equal to a price of 52% of the average closing
bid
price of the Company’s common stock on the five trading days immediately prior
to the date on which the registration statement is declared effective. As of
December 31, 2007, the registration statement had not been declared effective.
The
ultimate number of shares to be issued is indeterminate as the number of shares
is dependent on NNBP’s closing bid price when a registration statement is
declared effective. As a result, the $1.5 million of cash received under the
Subscription Agreements through December 31, 2006 is included in long-term
liabilities. In addition, the Company measured the value of the variable number
of shares to be issued under the Subscription Agreements at the fair value
that
the financial instrument obligates the Company to convey to the holder at the
settlement date. As a result of this measurement, an additional $1.3 million
is
included in long-term liabilities at December 31, 2007.
On
January 29, 2007, the Company issued 12,000,000 shares of the Company’s common
stock valued for financial reporting purposes at $1.6 million to the members
of
the Board of Directors for services. On January 29, 2007, 30,000,000 shares
were
issued to related parties in exchange for the reduction of the related party
loans (see Note 6).
In
August
2007, the Company issued 2,033,334 shares of the Company’s common stock valued
for financial reporting purposes at $150,000, to three consultants for services,
which was recorded as a charge in the statement of operations during the year
ended December 31, 2007 as the issuance was not revocable by the
Company.
In
May
2006, the Company entered into an agreement with Redwood Consultants, LLC
(“Redwood”) whereby Redwood provided the Company with investor communications
and public relations services. Under the terms of the agreement, the Company
issued 8,000,000 shares of the Company’s common stock valued for financial
reporting purposes at $560,000, which was recorded as a charge in the statement
of operations during the year ended December 31, 2006 as the issuance was not
revocable by the Company. The agreement remained in effect through May 8,2007.
In
July
2006, the Company entered into an agreement with Wall Street Resources, Inc.
(“Wall Street”) whereby Wall Street provided the Company with written analytical
coverage and reports and advised and assisted the Company in developing and
implementing a business plan, strategy and objectives to present to the
financial community. The agreement requires the Company to issue 466,667 shares
of the Company’s common stock valued for financial reporting purposes at $56,000
and pay $15,000 cash to Wall Street upon the issuance of Wall Street’s initial
report, which was dated September 12, 2006. The agreement remained in effect
through March 11, 2007.
F-15
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
Effective
July 2006 and November 2006, the Company amended the employment agreements
for
two employees to settle $225,000 of bonuses that were due to these employees
through the issuance of options to acquire 4,250,000 shares of the Company’s
common stock with an exercise price of $0.05 per common share, with immediate
vesting. These employees exercised a portion of these options to acquire
3,500,000 shares of the Company’s common stock in December 2006. No proceeds
were received by the Company for the exercise price as the Company granted
additional compensation to the option holder equal to the exercise price. In
accordance with SFAS No. 123R, these grants were valued for financial reporting
purposes at approximately $300,000 using the Black-Scholes valuation model
and
assuming a risk-free interest rate of 5.00% and 5.25%, volatility of 100% and
an
expected term of 60 months. The stock option grants were approved by a corporate
officer who has been provided this authority by the Board of Directors. At
December 31, 2007, the Company did not have a formal stock option plan for
the
above stock option issuances. The following table summarizes stock option
activity for the years ended December 31, 2007 and 2006:
The
Company leases administrative and laboratory facilities and office equipment
under cancelable and non-cancelable operating leases that expire through June
2010. The following table summarizes the minimum future rental commitments
under
non-cancelable operating leases at December 31, 2006:
Rent
expense on operating leases for the years ended December 31, 2007 and 2006
was
approximately $71,000 and $183,000, respectively.
11
Contingencies
The
Company has entered into an employment agreement with an employee which expires
in 2009. This employment agreement may require the issuance of $225,000 of
equity based compensation on an annual basis in addition to base compensation.
On
August10, 2004, the Company was served with a civil action as filed in the Superior
Court of Fulton County State of Georgia by Foltz Martin LLC and Openbook
Learning Club, Inc. (“Foltz”). This suit alleges that the Company is liable for
approximately $67,000 of liabilities plus approximately $11,000 interest for
services performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004.
The Company owned 100% of HealthCentrics from December 2003 through March 2004
when HealthCentrics was sold by the Company to an affiliate. A judgment was
awarded to Foltz in 2006. A $79,000 liability has been included in the
accompanying balance sheet for this matter.
On
January 19, 2006, the Company was served with a civil action as filed in the
Superior Court of Fulton County State of Georgia by EliteCorp Atlanta, LLC
(“EliteCorp”). This suit alleges that the Company is liable for approximately
$318,000 of liabilities plus approximately $110,000 interest for services
performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004. The
Company responded to this action on February 17, 2006 and denied virtually
all
the allegations of EliteCorp. A judgment was awarded to EliteCorp in 2007.
A
$481,000 liability has been included in the accompanying balance sheet for
this
matter.
During
January 2007, the Company, along with the Company’s Chief Executive Officer and
a Board of Director member was served with civil action in the Circuit Court
of
Cook County, Illinois by Nutmeg Group LLC, the sole unaffiliated holder of
subscription agreements described in Note 9. The suit is seeking damages for
alleged breaches of contract by the Company and the affiliates as a result
of
the alleged failure to deliver stock and warrants that were allegedly due to
be
delivered under certain subscription agreements between the parties. The Company
has filed a motion to quash summons, contending there is no jurisdiction in
Illinois for this matter. The amount of damages, if any, that will be payable
under this legal action is currently unknown and, as such, no liability has
been
recorded in the financial statements.
F-17
NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
During
October 2007, the Company was served with a civil action in the District Court
of Harris County, Texas 61st
Judicial
District by Neva Ciftcioglu (“Ciftcioglu”), a former employee. The petition and
subsequent amended petitions and motion for default judgment allege that Nanobac
owes Ciftcioglu unpaid compensation of $95,000 and 5 million shares of Nanobac’s
common stock. Ciftcioglu is seeking to have a substantial portion of Nanobac’s
intellectual property assigned to her as settlement for her claim. The Company
is defending this lawsuit as the Company does not believe Ciftcioglu is entitled
to intellectual property. A $110,000 liability has been included in accrued
payroll in the accompanying financial statements for unpaid wages to
Ciftcioglu’s claim, related payroll taxes and related legal costs. No liability
has been recorded for the 5 million shares of Nanobac stock as 5,000,000 shares
were issued to Ciftcioglu in 2004 and are already included in the Company’s
outstanding common stock.
12
Quarterly Data (unaudited)
Mar
31
Jun
30
Sep
30
Dec
31
2007
Quarter ended
Revenue
$
5,012
$
2,432
$
5,809
$
4,368
Gross
profit
$
752
$
530
$
1,142
$
678
Net
loss
($3,856,718
)
($716,562
)
($835,763
)
($1,167,068
)
Loss
per share:
Basic
and Diluted
($0.01
)
$
0.00
$
0.00
($0.02
)
2006
Quarter ended
Revenue
$
161,286
$
37,565
$
23,894
$
2,341
Gross
profit
$
116,091
$
14,942
$
12,608
$
1,640
Net
loss
($1,487,687
)
($1,395,460
)
($787,183
)
($1,303,023
)
Loss
per share:
Basic
and Diluted
($0.01
)
$
0.00
$
0.00
($0.01
)
F-18
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned; thereunto duly authorized, on April 14, 2008.
Nanobac
Pharmaceuticals, Incorporated
By:
/s/ John
D. Stanton
John
D. Stanton
Chief
Executive Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of Registrant and in the
capacities indicated on March 31, 2008.
Signature
Title
/s/ John
D. Stanton
John
D. Stanton
Chairman
of the Board of Directors
Chief
Executive Officer and Chief Financial Officer (Principal Executive,
Financial and Accounting Officer)
/s/ Benedict
S. Maniscalco
Benedict
S. Maniscalco, M.D.
Director,
Director of Clinical Research and Medical Director
/s/ Alexander
H. Edwards
III
Alexander
H. Edwards III
Director
/s/ Stephan
Rechtschaffen
Stephan
Rechtschaffen, M.D.
Director
51
Dates Referenced Herein and Documents Incorporated by Reference
