Filed On 3/30/04 4:40pm ET · SEC File 33-80612 · Accession Number 1000096-4-119
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
3/30/04 Nanobac Pharmaceuticals Inc 10KSB 12/31/03 10:136 Mitchell Fi..Printing/FA
Document/Exhibit Description Pages Size
1: 10KSB Form 10-Ksb (12-31-2003) 76 307K
2: EX-3.1 Amendment 2± 8K
3: EX-10.4 Agreement and Plan of Reorganization 33 77K
4: EX-10.10 Loan Agreement 2 11K
5: EX-10.11 Employment Agreement 16 76K
6: EX-21.1 List of Subsidiaries 1 5K
7: EX-23.1 Consent 1 6K
8: EX-23.2 Consent 1 6K
9: EX-31.A Certifications Required Under Section 302 2± 10K
10: EX-31.B Certifications Required Under Section 302 2± 10K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the
fiscal year ended December 31 2003
Nanobac Pharmaceuticals, Incorporated
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(Exact name of registrant as specified in its charter)
Florida 0-24696 59-3248917
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification Number)
2727 W. Martin Luther King Blvd, Suite 850, Tampa, Florida 33607
----------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(813) 264-2241
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(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 [ ] No [X]
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-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes [ ] No [X]
State issuer's revenue for its most recent fiscal year: $482,815
The approximate aggregate market value of voting and non-voting stock held by
non-affiliates of the registrant was $54,341,752 as of March 26, 2004. 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.
As of March 26, 2004 there were 139,517,285 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on or about May
31, 2004 are incorporated by reference into Part III.
Nanobac Pharmaceuticals, Incorporated
Form 10-KSB
For the Year Ended December 31, 2003
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of
the Security Holders 22
Part II
Item 5. Market for Registrant's Common Stock
and Related Shareholder Matters 23
Item 6. Selected Consolidated Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 48
Item 9. Changes in and Disagreements with
Independent Auditors on
Accounting and Financial Disclosure 48
Part III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 49
Item 13. Certain Relationships and Related Transactions 49
Item 14. Controls and Procedures 50
Part IV
Part 15. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 51
2
PART I
Item 1. The Business
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Overview
Nanobac is a biolifescience company. Our business is the study and development
of therapeutic and diagnostic technologies related to the novel pleomorphic
pathogen known as nanobacterium sanguineum ("Nanobacteria"). Our primary purpose
is to use our discoveries, science and innovation to dramatically improve
people's lives. Our corporate goals are to launch a stream of products that will
impact the delivery of healthcare.
Business Applications
[Graphic Omitted]
Building a Leading Company in Nanobacteria Applications
Healthcare
Prevention, detection, treatment, and management of illness at the point of
patient care through the services offered by the medical and allied health
professions.
Biomedical
Application of biological and physiological principles to healthcare.
Bioindustrial
Application of biological and physiological principles to the biomedical
industry.
Healthcare Strategy
We are currently pursuing concurrent paths to provide earlier, easier and more
accurate diagnosis and treatment of degenerative and other pathologic
calcification diseases. Taking advantage of our diagnostic assays, combined with
our potential therapies, we will offer a change to the way pathological
calcifications are managed. The cost savings from our products occur at every
stage of the disease progression:
[GRAPHIC OMITTED]
o Earlier screening allows:
(a) Earlier diagnosis
(b) fewer physician office visits, less expensive, more accurate care
(c) medical management rather than surgical intervention
o Definitive nanobacterial diagnosis allows:
(a) earlier referral of diseased patients
(b) earlier initiation of the proper therapy
o Determination of nanobiotic therapy allows:
(a) more targeted and cost-effective therapy
(b) better clinical outcomes
o Monitoring nanobacterial progression/regression allows:
(a) optimization of therapeutic regimen for best clinical outcome
(b) prophylactic treatment and disease prevention
4
Initially, use of our diagnostic and therapeutic products will be adjunctive
with current procedures. Over time, as the value of the proprietary serological
tests are established and the product line expands to include further
serological and genetic diagnostic technology, our diagnostic work-ups may
reduce costly and time consuming protocols.
Market Positioning
Our products and services will be marketed as follows:
o Unique. We believe that our test for diagnosing nanobacteria is simpler and
more cost effective than our competitors.
o Expert Source. Remaining closely involved on a continuing basis with physician
and scientific thought leaders will be a cornerstone of our philosophy and
continued product development. We will support and present a broad number of
clinical studies which create publications and the adoption of products by the
physician results. The clinical results and patient reports will contain
in-depth analyses and discussion of the diagnoses as well as prescribed therapy
recommended by our medical advisory staff.
o Patented Technology. The initial test for diagnosing nanobacteria was
developed by two scientists in the area of bacteriology research. While the
underlying tests used to diagnose nanobacteria are relatively straight forward,
their application for disease states relies on the specificity of proprietary
reagents isolated and developed by Neva Ciftcioglu, PhD and Olavi Kajander, MD,
PhD. We own these patents as a result of our acquisition of Nanobac OY.
5
Products
[GRAPHIC OMITTED]
Diagnostic Development Strategy
Diagnostic - The Company's diagnostic products will be developed in three
phases:
Phase I: Nanobac has a commercially available serology test for the
identification of nanobacterial antibodies and antigens. Oxoid is the
distributor in the UK, Europe, Brazil and Australia. With combined research and
commercial results, Nanobac has established a database of serum specimens and
clinical data related to the diagnosis of nanobacteria. These technologies were
developed by Neva Ciftcioglu, PhD and Olavi Kajander, MD, PhD. at the University
of Kuopio in Finland, and Nanobac OY of Finland. Under Dr. Kajander's
supervision and using protocols he established, the Company utilizes its
database to provide a detailed diagnostic analysis. The analysis includes
reference to research studies, observations from similar and contrasting sets of
samples. The initial tests are the only simple blood serum tests commercially
available for clinicians and researchers for screening for Nanobacterium
sanguineum. Nanobac is consulting with a Contract Research Organization in order
to reach 510k status. 510k status is the premarket notification provisions of
the 1976 Medical Device Amendments to the Food, Drug, and Cosmetic (FD&C) Act as
amended by the Safe medical Devices Act of 1990 and is intended to serve as a
screening mechanism to allow for marketing of medical devices with a reasonable
assurance of safety and effectiveness.
Phase II: We will broaden the general cardiovascular serological products with
our proprietary serology product. Our diagnostic will become a key metric in the
work up of cardiovascular patients. The current serodiagnostic cardiovascular
market is expansive. and does not have a stand alone predictive or diagnostic
marker. Nanobac will pursue a pre-market approval (PMA) from the FDA specific to
the cardiac marker claim.
6
Phase III: Promotion in other disease sites. With a preeminent position in
defining nanobacteria clinical pathways of care, we will support and present a
broad number of clinical studies on other disease sites. This will lead to the
adoption of products by the appropriate physician specialist. We intend to
pursue the urology market with a strategy similar to cardiology.
We are fortunate to have an ISO 9000 facility, in Finland, that produces our
antibodies and antigens for the nanobacteria diagnostic serology test. The
components that are required to complete the Elisa test kit are commercially
available throughout the world. We are not dependent on any customer or vendor
at this time.
Therapeutic
[GRAPHIC OMITTED]
Therapeutic Development Strategy
We intend to capitalize on our patent for the eradication of nanobacteria. The
therapies that evolve from the patent to treat Nanobacterium Sanguineum
infection, may contribute to the treatment of cardiovascular, urologic, and
other degenerative diseases. The Nanobiotic therapy previously identified as
NanobacTx, Urobac, and Dermabac have been discontinued. NanobacTX was launched
by the predecessor company approximately three years ago. The previous
management team at Nanobaclabs reasoned that they were following the tenets of
Section 503a of the Federal Food, Drug and Cosmetic Act concerning "pharmacy
compounding", and that utilization of previously approved drugs was exempt from
the IND process. The new management, after legal, government, regulatory, and
industry consultations, voluntarily withdrew the aforementioned Nanobiotic
therapies from the market. New management regarded the previous management's
view as not supported by the FDA's current interpretation of section 503a.
NanobacTX had grown to 14,000 prescriptions since inception.
7
Licensing of late stage development compounds is also a strategy that we will
employ for compounds that require minimal development for filing to obtain FDA
approval. The lower cost and lower risk of this strategy coupled with the short
time to market for these compounds, is aligned with the overall Nanobac business
plan. We are also seeking better delivery methods that will improve patient
compliance.
Our ongoing therapeutic development strategy will include our proprietary
compounds as well as identification of compounds and projects that are in Phase
III (see government regulation for description of Phase III). Compounds and
projects can include mechanisms of action and mechanisms of drug delivery. We
provide unique opportunities for these companies to realize the significant
potential of their various antibiotic projects.
Healthcare Market
Market Size
Pathologic calcifications are treated in a number of ways, depending on the
seriousness of the disease. For example, Coronary Heart Disease (CHD),
Polycystic Kidney Disease (PKD), and Kidney Stone patients are managed with
lifestyle changes and medications. Others with severe CHD or PKD may need
surgery. In any case, once CHD or PKD develop, they require lifelong management.
Listed below are the costs associated with these disease states.
Health Dollars Spent
Disease Site (in millions of US$) Source
Coronary Heart Disease (CHD) 325,000,000,000 AHA
Kidney Stones 1,830,000,000 NIDDK
Polycystic Kidney Disease (PKD) 1,000,000,000 NIDDK
Prostatitus 1,330,000,000 NAMCS
------------------
329,160,000,000
==================
Additional biomedical research and clinical studies are planned or underway to
document nanobacteria's role in the development of Atherosclerosis, Gall Stones,
Chronic Prostatitis, Diabetes, Arthritic Spurs, Cataracts, Scleroderma, Kidney
Cysts and Kidney Stones, certain Breast Pathology, Polycystic Kidney Disease
(PKD), Solid Tumor Pathologies, Immunosuppressed Conditions, Dental Pulp Stone,
and Neurodegenerative Disease.
8
Cardiac
The most serious and widespread of the diseases caused by calcified plaque are
atherosclerosis (hardening of the arteries) and coronary heart disease (CHD).
Coronary artery disease (CAD) is CHD of the heart's arteries. Atherosclerosis in
the carotid arteries, the primary blood supply to the brain, affects more than
one-third of individuals 51 to 55 years old and over half of individuals 61-65
years of age. CAD begins as coronary artery calcification that leads to
atherosclerosis before developing into CAD. This process is generally slow and
can begin in childhood. Coronary artery disease remains the #1 killer of adult
males in the U.S. Cardiovascular diseases represent 26.7% of all physician
visits and 26.1% of all scripts in the United States. CAD is the most common
form of heart disease affecting approximately 1.3 million Americans. Over 50% of
the people who die suddenly of CAD had no symptoms. These major public health
issues, in the U.S. and worldwide, were chosen as the focus of our initial
research and development efforts.
Chest pain (angina) or shortness of breath may be the earliest signs of CAD. A
person may feel heaviness, tightness, pain, burning, pressure, or squeezing,
usually behind the breastbone but sometimes also in the arms, neck, or jaws.
These signs usually bring the patient to a doctor for the first time. In fact,
50% of the people having heart attacks, the heart attack was the first symptom
of heart disease. It is important to know that there is a wide range of severity
for CAD. Some people have no symptoms at all, some have mild intermittent chest
pain, and some have more pronounced and steady pain. Still others have CAD that
is severe enough to make normal everyday activities, like walking to the
mailbox, difficult. Because CAD varies so much from one person to another, the
way a doctor diagnoses and treats CAD will also vary a lot.
CAD is normally diagnosed using one or a combination of several diagnostic tests
Electron Beam Computed Tomographic Imaging (EBCT), Echocardiography,
Ventriculogram, Electrocardiogram (ECG or EKG), Coronary angiography, exercise
thallium test, or Positron emission tomography (PET) scanning. CAD can be
controlled or treated with various techniques: i) medication (beta blockers,
calcium channel blockers, or nitroglycerine), ii) transcatherter interventions
(Percutaneous transmyocardial revascularization (PTMR), Atherectomy,
Angioplasty, Stent, or Laser ablation), or iii) surgery (coronary artery bypass
or Transmyocardial laser revascularization (TMLR)). With nanobacteria being
present in atherosclerosis one may ask themselves if the current diagnostic
tools and therapeutic treatments available for CAD are insufficient to address
the problem. The nanobacterial blood test, NB2, may prove to be a new metric in
the diagnosis and treatment of CAD.
CAD is treated in a number of ways, depending on the seriousness of the disease.
For many people, CAD is managed with lifestyle changes and medications. Others
with severe CAD may need surgery. In any case, once CAD develops, it requires
lifelong management.
9
Urological
Kidney stones are one of the most common disorders of the urinary tract;
patients made more than 1.3 million visits to health care providers to have
their stones treated in 1997. In 1999, more than a quarter million hospitalized
patients had a diagnosis of kidney stones. An estimated 10 percent of people in
the United States will have a kidney stone at some point in their lives. Men
tend to be affected more frequently than women.
A kidney stone is a solid piece of material that forms in the kidney out of
substances in the urine. A stone may stay in the kidney or break loose and
travel down the urinary tract. A small stone may pass all the way out of the
body without causing too much pain. A larger stone may get stuck in a ureter,
the bladder, or the urethra. A problem stone can block the flow of urine and
cause great pain. Stone that will not pass by itself may require: extracorporeal
shockwave lithotripsy, tunnel surgery (percutaneous nephrolithotomy), or
ureteroscope extraction. Kidney stones are diagnosed by x ray, sonogram, or IVP
(intravenous pyelogram).
Greater than 90% of human kidney stones are positive for nanobacteria. It is
interesting to note that astronauts have preponderance for kidney stone
formation. Lack of gravity causes bone loss causing increased calcium in the
blood therefore nanobacteria is an important catalyst for stone formation. Not
only in astronauts is nanobacteria important in stone formation but it has also
been shown to cause stone formation in rats. With further studies Nanobac
Pharmaceuticals intends to change the course of diagnosing and treating the many
patients with these painful kidney stones. Polycystic kidney disease (PKD) is a
genetic disorder characterized by the growth of numerous cysts in the kidneys.
The cysts are filled with fluid. PKD cysts can slowly replace much of the mass
of the kidneys, reducing kidney function and leading to kidney failure. PKD can
cause cysts in the liver and problems in other organs, such as the heart and
blood vessels in the brain. These complications help doctors distinguish PKD
from the usually harmless "simple" cysts that often form in the kidneys in later
years of life.
In the United States, about 500,000 people have PKD, and it is the fourth
leading cause of kidney failure. Medical professionals describe two major
inherited forms of PKD and a noninherited form. The signs of PKD include: pain
in the back and lower sides, headaches, urinary tract infections, blood in the
urine and cysts in the kidneys and other organs. Diagnosis of PKD is obtained
by: ultrasound imaging of kidney cysts, ultrasound imaging of cysts in other
organs, family medical history (genetic testing). PKD has no cure. Treatments
include: medicine and surgery to reduce pain, antibiotics to resolve infections,
dialysis and transplantation to replace functions of failed kidneys.
10
Studies have shown that in PKD patients 100% of kidney cyst fluids and urine
were positive for nanobacteria. Nanobacteria may cause damage to kidney cells
allowing cysts to form in these PKD patients that have defective tissue
regeneration. Again with nanobacteria being present in PKD patients one may ask
themselves if the current diagnostic tools and therapeutic treatments available
for PKD are insufficient to address the problem. Nanobac Pharmaceuticals plans
to initiate research trials that will evaluate the link between nanobacteria and
PKD. We are positioned to provide novel diagnostics and research potential
nanobacterial treatments for this disease with limited and costly treatment
options.
Prostatitis is a painful inflammation of the prostate gland. Prostatitis' cause
is not known, but can be classified as acute or chronic bacteria prostatitis.
Symptoms may include pain while urinating or ejaculating, chills or fever,
perineal, testicular, bladder or low back pain. Some common methods for
diagnosis are a digital rectal exam (DRE), transrectal ultrasound or a Prostate
Specific Antigen (PSA) test. Other methods are urine samples to determine
inflammation or infection, cystoscopy or urine flow studies to measure the
strength of the flow. Treatment usually includes prolonged antibiotic
treatments, alpha-blockers, anti-inflammatory drugs, vitamins, repetitive
prostatic massage or heat therapies. If antibiotic treatment is unsuccessful,
surgery (transurethral resection or TURP) may be done. This delicate surgery can
cause sterility, impotence, and/or incontinence. Prostatitis is difficult to
diagnose and is therefore difficult to treat. Some patients may never experience
relief and may have to cope with the condition for the remainder of their lives.
According to urologist Thomas Stamey, up to 50% of all men experience symptoms
of prostatitis during their lifetimes.
Competition
Competition in the biotechnology and pharmaceutical industries is intense and
comes from many and varied sources. We do not believe that any of the industry
leaders can be considered dominant in view of the rapid technological change in
the industry. Many of these companies have substantially greater financial,
marketing, research and development and human resources than us. Most large
pharmaceutical companies have considerable experience in undertaking clinical
trials and in obtaining regulatory approval to market pharmaceutical products.
The market for providing physicians and managed care organizations with
nanobacteria related disease management and services are just emerging, and we
are among the leaders in providing a comprehensive approach to managing
nanobacterial diseases.
The general market for providing primary care physicians, cardiologists, and
urologists with specialized serological diagnostic services for detection,
diagnosis, prognosis and monitoring is highly competitive and dominated by Quest
and Labcorp. Their competitive strength lies in their service capabilities, i.e.
to provide local couriers for specimen pickup and broad-based contracting
ability with managed care organizations.
11
The general market for providing primary care physicians, cardiologists, and
urologists with therapies for cardiovascular disease is also highly competitive
and includes both pharmaceutical and medical device companies. The treatment of
nanobacteria infection is a paradigm shift for these physicians as was h.Pylori
for the practicing gastroenterologist.
We believe that we will be able to grow and defend our specialized nanobacteria
related disease market niche due to our expertise in the field, our disease
management approach, and our technology leadership.
Patents and Intellectual Property
We have filed three patents, and received allowance on all three filings. We
intend to try to take steps to aggressively protect and expand our intellectual
property, which is a core strength. Our patents are summarized below.
Patent Antibody Extraction Protocol - Growth factor preparation of thymocyte
cell culture medium its production and use [US 5,776,778; WO9534317]
The present invention relates to a growth factor preparation derived from a
mixed lymphocyte culture, and a process for its production. The invention also
relates to a cell culture medium containing said growth factor preparation. The
invention further relates to a process for culturing plasma cells and producing
antibodies by using said cell culture medium.
12
Patent Diagnostic - Culture and detection method for sterile-filterable
autonomously replicating biological particles. [US 5,135,851,2008; EU 0460414,
(valid in 13 EU countries),2010]
Novel autonomously replicating biological particles resembling bacteria and
having most surprising properties were discovered from cell culture sera and
other biological samples alleged to be sterile according to the current testing
methods. These slowly growing agents named nanobacteria are smaller than any
known cell-walled bacteria. They pass through sterile filters, even with pore
sizes smaller than their diameter. They cannot be cultured on any standard
microbiological media. With the isolation and detection methods provided here
they are commonly detectable in animal or human serum. This patent holds for
methods of their culture, detection, purification, and elimination and described
the necessary reagents for that. Autonomously replicating particles can be
cultured in RPMI 1640, or in DMEM, or in other cell culture media. Optimal
growth can be obtained by supplementing the culture medium with 10-20% sterile
fetal bovine serum. Addition of small amounts of D,L or L selenomethionine
together with nucleotide precursors may improve growth. Culture is started by
addition of the test sample to the medium in a cell culture vial which is
thereafter incubated under standard mammalian cell culture conditions for at
least 15 days. Biological samples are preferably sterile-filtered before culture
through 0.22 micron filters. The growth of nanobacteria, if present, can be seen
using microscopy at high magnification. The organisms can be made more visible
by DNA staining and immunostaining done either separately or simultaneously to a
fixed preparation. Nanobacteria can be cultured without mammalian cells, but
co-culture together with an adherent cell line like 3T6 is useful because 3T6
cells can take nanobacteria inside the cells. This aids the staining of the
preparations. Intracellular agents are not lost during fixation and staining.
Nanobacterial antigens can be prepared by specific culture, harvest,
purification and solubilization methods. Immunization of rabbits with the
solubilized antigen (treatment with proteinase K and with 1 N HCI) produces
highly specific antibodies to nanobacteria. Gamma-irradiation of culture serum
at 2.5-4.0 megarads, preferably in addition with treatment using solid-phase
bound antibodies enables preparation of nanobacteria-free serum. Use of this
serum creates sterile culture medium for the culture and detection of
nanobacteria. Double staining combining Hoechst No. 33258 stain and
immunofluorescence specifically distinguishes nanobacteria from other cell
culture contaminants.
Patent Therapeutic - [US Patent 6,706,290; EP 1094711] Methods for eradication
of Nanobacteria
Nanobacteria contribute to pathological calcification in the human and animal
body, including diseases such as kidney stones, salivary gland stones, dental
pulp stones and atherosclerosis. The present invention provides methods for
sterilizing articles contaminated with nanobacteria. The present invention also
provides methods of treating patients infected with nanobacteria. In particular,
the present invention provides a method for preventing the recurrence of kidney
stones in a patient that has suffered from kidney stones, comprising
administration of an antibiotic, a bisphosphonate, or a calcium chelator, either
alone or in combination, in an amount effective to inhibit or prevent the growth
and development of nanobacteria.
13
Our Science
The term "nanobacteria" is short for its scientific name Nanobacterium
sanguineum, a Latin term for blood nanobacteria. Though the human body does not
recognize nanobacteria as harmful, it has been shown to be implicated in the
formation of disease-causing calcified plaque in the circulatory system and
vital organs. We conduct research of degenerative diseases stemming from
nanobacterial infections. We are developing unique technologies for early
accurate diagnoses of nanobacterial infection, and eradication methods which
allow physicians to effectively manage the clinical symptoms of the disease,
improve therapeutic results, and as an outcome, lower overall medical costs.
We have patents with respect to the identification and eradication of the
pathogen Nanobacterium Sanguineum. Although we possess intellectual property
with Bioindustrial, Biomedical and Healthcare implications, we will focus
initially on Healthcare.
We plan to leverage our intellectual property and proprietary technology to
establish value and credibility with clinicians and researchers specializing in
cardiovascular and other diseases. From that base, we will broaden our reach by
setting up a secured wide area network which will increase clinicians' access to
our extensive database of information and clinical experience for the management
of a full range of diseases. We believe our products and services can greatly
reduce the cost and increase the quality of life for the patients. To bring our
products to the market, Nanobac will form a proprietary reference laboratory
that offers physicians a comprehensive patient analysis and a Nanobiotic
therapeutic.
Nanobacterium Sanguineum Background and Description:
Nanobacterium sanguineum (nanobacteria) was discovered in 1988 by Finnish
researcher Olavi Kajander, M.D., Ph.D.. 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. Thankfully, Dr. Kajander researched this further and
after several weeks of culture, turbidity developed in one of the flasks. This
represented the first isolation of Nanobacterium sanguineum.
14
In 1991 Dr. Kajander was joined by microbiologist Neva Ciftcioglu, Ph.D. at the
University of Kuopio, Finland. Nanobacteria was the first nano-sized,
autonomous, self-replicating organism ever detected. Their research established
that the blood-borne nanobacteria forms slow-growing calcified colonies in
arteries and organs, much as coral reefs are formed. Nanobacteria have been
found in human and animal blood, urine and saliva. The name "nanobacteria" was
introduced and patented by Dr. Olavi Kajander as the name for very small
mineral-associated bacteria-like life forms. Nanobacteria produce apatite
minerals by building apatite envelopes or "castles" around themselves. They seem
to play a role in the formation of kidney stones and other calcification
diseases. Nanobacteria may be involved in biofilm formation, a common problem in
urinary stents and catheters. They may also cause chronic infections in humans
and animals.
Nanobacterium sanguineum is a small, slowly growing bacterium that can be found
in human blood, kidney stones, and arterial wall plaques. Nanobacteria are
10,000 to 100,000 times smaller than typical bacteria and, until recently, were
not detectable using conventional sterility testing methods. These bacteria tend
to cluster and form a protective calcium shell that shelters them from the
immune system and most antibiotics. Nanobacteria are cytotoxic (can cause damage
to cells), resistant to heat, hydrocholic acid, high-dose radiation, and most
antibiotics (See Table 1).
Nanobacteria are carbonate apatite forming bacteria and have the unique
capability to fix calcium and prothrombin upon their cell membrance, ultimately
forming a porous protective calcium encasement. Within this encasement, they
become semi-dormant (multiple slowly) and can build upon themselves somewhat
like a coral reef might enlarge upon itself. Their rate of replication is
approximately 44% annually. Nanobacteria are pleomorphic which means that they
have different physical forms and shapes during their life cycle. They can also
change appearance, form and alter function in response to various changing
environmental factors.
Nanobacteria in mammalian cells leads to abnormal cell growth, growth rates or
cell death and may lead to genetic alteration (mutations). Nanobacteria cannot
be grown in standard culture media but grow well in media supplemented with
mammalian blood or serum. Nanobacteria have been found in various mammalian
serum-derived or serum-supplemented products, such as fetal bovine serum and
vaccines. As these organisms pass through most sterilization filters in use
today, novel sterilization techniques are needed. These may include improved
filtration, radiation and chemical treatments. Due to their extremely small
size, nanobacteria can only be studied using scanning and transmission electron
microscopes or other recently developed high-resolution microscopes.
15
Table 1: Unique Properties of Nanobacteria
---------------------------- ---------------------------------------------------
Property Description
---------------------------- ---------------------------------------------------
Size: 0.05-0.5 nm
---------------------------- ---------------------------------------------------
Doubling Time: 3-6 days
---------------------------- ---------------------------------------------------
Morphology: Coccoid to coccobacillar
Cell wall 20-200nm
---------------------------- ---------------------------------------------------
Isolated From: Vaccines
Fetal Bovine Serum
Calcified carotid arteries
Aortic aneurysms
Cardiac valves
---------------------------- ---------------------------------------------------
Antibiotic Penicillin
sensitivity Macrolides
Quinolones
---------------------------- ---------------------------------------------------
Resistant to: Heat: 100(0)C for 1 hr
pH Change
UV radiation
Gamma-Irraditaion: 1 megarad
Formaldehyde, glutaraldehyde
---------------------------- ---------------------------------------------------
Sensitivity: 5-FU
Tetracycline HCl
Cytosine-arabinoside
Gamma-Irraditaion: >2.5 megarad
0.02 micron/20nm filter
1% Virkon(R) (disinfectant)
---------------------------- ---------------------------------------------------
Nanocteria may be a primitive life form. One recent study examining upper
urinary tract stones found particles resembling nanobacteria by scanning
electronic microscopy. A second study confirmed the existence of nanobacterial
particles isolated from human saliva and dental plaque that were culturable.
Some groups have confirmed the existence of nanobacteria by identification of
the organisms in polycystic kidney disease, in a North Carolina beef herd, in
human pineal tissue, in human atherosclerotic plaques, in calcified carotid
arteries, aortic aneurysms, caridac valves, cardiac stents, and ovarian cancer.
Nanobacteria are present in many isolates of pathological calcification (calcium
build ups in areas of the body where calcium should not be present). Therefore,
nanobacteria may be implicated in multiple diseases including but not limited
to: cardiac disease, kidney stones, polycystic kidney disease, arthritis,
ovarian cancer, and prostatitis.
16
Nanotechnology is the creation of useful, functional materials, devices, and
systems through controlling and manipulating matter on the nanometer-length
scale (1-100 nanometers), and exploiting novel phenomena and properties
(physical, chemical, biological, mechanical, electrical) at that length scale.
The prefix "nano" means a billionth - a nanosecond is one-billionth of a second,
a nanometer is one billionth of a meter, and so on. For comparison, the head of
a pin measures one million nanometers across. A red blood cell has a diameter in
the range of thousands of nanometers. Ten nanometers is 1,000 times smaller than
the diameter of a human hair. DNA molecules are about 2.5 nanometers wide. An
individual atom measures a few tenths of a nanometer in diameter.
There are medical professionals who assert that nanobacteria do not exist. They
contend that nanobacteria are artifacts, contaminants or crystalline growths. We
disagree with this contention. Our business model is based on the existence of
nanobacteria.
Research and Development
Our lead scientists Olavi Kajander, and Neva Ciftcioglu NASA/USRA, have formed
multidisciplinary alliances with renown researchers including: Hojatollah Vali,
McGill University, Canada; Mayo Clinic, Rochester; Garcia-Cuerpo, Spain; China
Changsha group; Sommer, Univ. of Ulm; Pretorius, South-Africa; G. Epstein/J.T.
Salonen; Tom & Marcia Hjelle, Univ. of Illinois; S. Epstein, Washington Hospital
Center, Washington DC; R. Berger, Miami Heart Institute, Miami FL; Y. Av-Gay,
University of British Columbia; and H. Gomez, Genbiomics.
To date, this collaboration has published over 80 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, New Scientist, Molecular Medicine, PDA Journal, Kidney International,
Circulation, and American Society for Microbiology.
Biomedical Strategy
Potential biomedical applications include screening for and biosterilization of
nanobacterial contamination in products that will be used treating patients.
Injectable medical applications such as vaccines, blood products,
immunoglobulin, and IV fluids must be free of contaminants. Screening of
diagnostic support media such as culture media, and growth preparations is
critical in order to get the correct diagnosis. Biosterilization of Medical exam
equipment at the point of patient care and of implantable durable medical
devices such as hip replacements, cardiac valves, and stents will perhaps
mitigate or prolong the effectiveness of the device.
Bioindustrial Strategy
Potential bioindustrial applications include screening and biosterilization of
production line environments used for the preparation of cultures, vaccines, and
implantable durable medical equipment.
17
Government Regulation
Diagnostic laboratory operations are not regulated by the FDA. Our diagnostic
business is subject to regulation under the federal Clinical Laboratory
Improvement Act (CLIA). We will seek FDA guidance for our unique nanobiotic
therapeutic. We will comply with all FDA regulatory requirements.
Our contemplated activities and the products and processes that will result from
such activities will be subject to substantial government regulation.
Before new pharmaceutical products may be sold in the U.S. and other countries,
clinical trials of the products must be conducted and the results submitted to
appropriate regulatory agencies for approval. These clinical trial programs
generally involve a three-phase process.
Phase 1 includes the initial introduction of an investigational new drug into
humans. These studies are closely monitored and may be conducted in patients,
but are usually conducted in healthy volunteer subjects. These studies are
designed to determine the metabolic and pharmacologic actions of the drug in
humans, the side effects associated with increasing doses, and, if possible, to
gain early evidence on effectiveness. During Phase 1, sufficient information
about the drug's pharmacokinetics and pharmacological effects should be obtained
to permit the design of well-controlled, scientifically valid, Phase 2 studies.
Phase 1 studies also evaluate drug metabolism, structure-activity relationships,
and the mechanism of action in humans. These studies also determine which
investigational drugs are used as research tools to explore biological phenomena
or disease processes. The total number of subjects included in Phase 1 studies
varies with the drug, but is generally in the range of twenty to eighty.
In Phase 1 studies, CDER can impose a clinical hold (i.e., prohibit the study
from proceeding or stop a trial that has started) for reasons of safety, or
because of a sponsor's failure to accurately disclose the risk of study to
investigators. Although CDER routinely provides advice in such cases,
investigators may choose to ignore any advice regarding the design of Phase 1
studies in areas other than patient safety.
Phase 2 includes the early controlled clinical studies conducted to obtain some
preliminary data on the effectiveness of the drug for a particular indication or
indications in patients with the disease or condition. This phase of testing
also helps determine the common short-term side effects and risks associated
with the drug. Phase 2 studies are typically well-controlled, closely monitored,
and conducted in a relatively small number of patients, usually involving
several hundred people.
18
Phase 3 studies are expanded controlled and uncontrolled trials. They are
performed after preliminary evidence suggesting effectiveness of the drug has
been obtained in Phase 2, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit-risk relationship of the drug. Phase 3 studies also provide an adequate
basis for extrapolating the results to the general population and transmitting
that information in the physician labeling. Phase 3 studies usually include
several hundred to several thousand people.
In both Phase 2 and 3, CDER can impose a clinical hold if a study is unsafe (as
in Phase 1), or if the protocol is clearly deficient in design in meeting its
stated objectives. Great care is taken to ensure that this determination is not
made in isolation, but reflects current scientific knowledge, agency experience
with the design of clinical trials, and experience with the class of drugs under
investigation.
The results of the preclinical and clinical testing of a biologic product are
then submitted to the FDA in the form of an Application to Market a New Drug,
Biologic or an Antibiotic Drug for Human Use (Title 21, Code of Federal
Regulations, 314 & 601) or Biologics Licensing Application (BLA). In response to
a BLA, the FDA may grant marketing approval, request additional information or
deny the application if it determines the application does not provide adequate
basis for approval. The receipt of regulatory approval often takes a number of
years, involving the expenditure of substantial resources and depends on a
number of factors, including the severity of the disease in question, the
availability of alternative treatments and the risks and benefits demonstrated
in clinical trials. On occasion, regulatory authorities may require larger or
additional studies, leading to unanticipated delay or expense. Even after
initial FDA approval has been obtained, further clinical trials may be required
to provide additional data on safety and effectiveness and are required to gain
clearance for the use of a product as a treatment for indications other than
those initially approved. In addition, side effects or adverse events that are
reported during clinical trials can delay, impede, or prevent marketing
approval. Similarly, adverse events that are reported after marketing approval
can result in additional limitations being placed on the product's use and,
potentially, withdrawal of the product from the market. Any adverse event,
either before or after marketing approval, could result in product liability
claims against us.
In connection with the commercialization of products, it is necessary, in a
number of countries, to comply with certain regulations relating to the
manufacturing and marketing of such products and to the products themselves. For
example, the commercial manufacturing, marketing and exporting of pharmaceutical
products require the approval of the FDA in the U.S. and of comparable agencies
in other countries. The FDA has established mandatory procedures and safety
standards which apply to the manufacture, clinical testing and marketing of
pharmaceutical products in the U.S. An example of this is the FDA's current Good
Manufacturing Practices (or GMP). Before approval of a product, the FDA will
perform a pre-licensing inspection of the manufacturing facilities to determine
their compliance with GMP and other rules and regulations. In complying with
GMP, manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full compliance. After the
establishment is licensed for the manufacture of any product, manufacturers are
subject to periodic inspections by the FDA. Any determination by the FDA of
manufacturing related deficiencies could have a material adverse effect on our
business.
19
The regulatory requirements and approval processes for new products in the EU
and Canada operate under similar principles as those applied in the U.S. The
process of seeking and obtaining approval of the FDA or regulatory authorities
in the EU or other regulatory authorities worldwide for a new product and
licensing of the facilities in which the product is produced takes a number of
years and involves the expenditure of substantial resources. In addition, the
regulatory approval processes for products in the U.S., the countries of the EU
and other countries around the world are undergoing or may undergo changes. We
cannot determine what effect any changes in regulatory approval processes may
have on our business.
Environmental Matters
We have not been impacted financially or operationally by environmental laws.
HealthCentrics Business Unit
Prior to acquiring NanobacLabs Pharmaceuticals, Inc., our sole operating
business unit was HealthCentrics. This Business unit develops and markets
web-based medical accounting, billing and management information services to
third party billing companies, practice management and healthcare provider
organizations.
During October 2003 we decided to sell our HealthCentrics subsidiary, because of
our decision to focus on nanobacteria,. In addition, earlier plans to develop
multiple initiatives in healthcare, building products, and waste solutions will
not be pursued. We believe that a total focus on nanobacteria will maximize
shareholder value. During March 2004, HealthCentrics was sold to an affiliate of
the Chairman and CEO for $250,000.
Geographic
We will initially focus our business in the United States and Canada. To date,
over 95% of our revenue is from the United States. We also plan to develop our
markets in the European Union through the operations of our Finnish Subsidiary,
Nanobac OY.
Employees
We have seven employees in our corporate headquarters in Tampa, Florida and five
employees in Finland. There are currently no employees in the HealthCentrics
business unit.
Factors That May Affect NNBP
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 the MD&A section of
this report included under Item 7. Other risks are discussed elsewhere in this
Form 10-K.
20
Investor Information
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 NNBP is available on our website
(http://www.nanobaclabs.com). We make available on our website, through links to
the SEC website, copies of our annual report on Form 10-K, quarterly reports on
Form 10-Q, 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.
21
Item 2. Properties
----------
The following table sets forth a description of our facilities:
Square Feet
Location (Approx) Lease Expiration Function
------------------ ----------- ------------------- ------------------
Tampa, Florida 7,700 June 2007 - Headquarters for Nanobac
June 2010 operations (approximately
50% occupied)
Tampa, Florida 1,600 January 2005 Vacant
Koupio, Finland 1,500 3 months notice Research and laboratory
facility
Item 3. Legal Proceedings
-----------------
During January 2003 we engaged in arbitration with a software outsourcing firm,
AdiTech, Inc. over disputes arising from programming services in our
HealthCentrics' business unit. As a result of arbitration, our liability to
AdiTech was determined to be approximately $160,000. This liability has been
accrued by the HealthCentrics segment at December 31, 2003.
On May 1, 2001, the Company (named American Enterprise.Com, Corp at the time)
filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. On
November 20, 2002, the Middle District of Florida Court confirmed our Plan of
Reorganization (the "Plan"). At the time of Plan confirmation (November 20,
2002), we had no assets and no liabilities. Administrative fees including legal,
accounting and consulting were paid by Mr. John Stanton, our Chairman of the
Board and Chief Executive Officer. There were no priority creditors. Equipment
leases were treated as unsecured creditors. Unsecured creditors determined to
represent approximately $7,000,000 were allowed to choose between (a) a cash
payment on a pro rata basis from a $50,000 unsecured claim fund, or (b) a stock
payment on a pro rata basis from a 4,500,000 common share unsecured claim
treasury stock fund. All unsecured creditors opted to receive a pro rata portion
of the $50,000 cash unsecured claim fund. None of the unsecured creditors opted
to accept any of the 4,500,000 shares allocated to the treasury stock fund. We
have filed objections to a number of the unsecured creditors seeking their pro
rata portion of the $50,000 cash unsecured claim fund. We are unable at this
time to predict the outcome of these objections. However, the $50,000 cash
unsecured claim fund has already been provided to an escrow account established
for these purposes and the outcome of the objections to claims will have no
further impact on us.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the year ended December 31, 2003.
22
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder 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 August
18, 1997 the 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". Since
March, 2001, our Common Shares have traded through the Over The Counter Pink
Sheets. The following table sets forth the high and low bid prices for Common
Shares as reported by NASDAQ and OTC Pink Sheets for the periods indicated.
Quotations on the NASDAQ OTC Pink Sheets reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
High Low
---- ---
2002(1)
-------
First Quarter $0.05 $0.05
Second Quarter $0.04 $0.02
Third Quarter $0.17 $0.12
Fourth Quarter $2.15 $0.40
2003
----
First Quarter $1.70 $0.50
Second Quarter $0.69 $0.24
Third Quarter $1.34 $0.62
Fourth Quarter $1.05 $0.49
(1) On May 21, 2001, the Company filed for voluntary reorganization under
Chapter 11 of the Bankruptcy Code. On November 20, 2002, the Company emerged
from bankruptcy when the Middle District of Florida Court confirmed the
Company's Plan of Reorganization. On March 26, 2004, the closing bid quote for
the Common Shares was $.61 per share, and there were 217 holders of record of
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.
23
Changes in Securities
From May 2001 through November 2002, the Company was in bankruptcy. Throughout
bankruptcy, the Chairman, Secretary and CEO (collectively "NNBP Officers")
funded the Company's administrative costs and provided management to the
Company. During 2003, the Board of Directors authorized the issuance of stock in
satisfaction of the $750,000 liability. The liability was to be settled through
the issuance of up to 75.0 million shares of the Company's stock. The 75.0
million shares was based on the $750,000 at the then value of the stock ($.01
per share average price during the bankruptcy period). This obligation has been
recorded at $750,000 (based on the value at the measurement date) although
shares were issued periodically throughout 2003. Certain shares were issued as
preferred shares (at an equivalent value based on the conversion ratio of $44.11
per share) as the authorized shares of the Company did not permit such issuance.
Subsequent to December 31, 2003, the number of authorized shares was increased
to 250,000,000, at which time preferred stock was converted to 35,048,445 shares
of Common stock.
As discussed in Note 2, an aggregate 30,998,000 shares were issued in connection
with the LABS acquisition. In addition, $159,200 of acquisition costs for LABS
relates to an issuance of 4.0 million common shares to an entity controlled by
the Chief Executive Officer and Chairman in connection with the facilitation and
bridge funding for the acquisition of LABS.
An aggregate of 3,644,000 shares of stock were issued during 2003 in connection
with the conversion of $728,800 in related party debt to equity. On November 18,
2003, we issued 25,000 shares of NNBP to an attorney in exchange for services.
The shares were valued at $.60 per share. On December 21, 2003, we issued 25,000
shares of NNBP to a medical professional in exchange for services. The shares
were valued at $.61 per share.
In addition, the Company sold 1,690,000 shares of stock at prices ranging from
$.20 to $.40 for aggregate proceeds of $548,000 and 368,815 shares of preferred
stock were converted to 16,268,430 shares of common stock.
In June 2003, we issued 24,400,000 shares in connection with the acquisition of
approximately 74.4% of NanobacLabs Pharmaceuticals, Inc. From June5, 2003
through July 21, 2003, we acquired an additional 20.2% in exchange for 6,598,000
shares of common stock.
24
Selected Quarterly Financial Data
· Download Table
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
2003 Quarter ended
------------------
Revenue $0 $77,637 $241,340 $163,838
Net loss ($1,234,083) ($468,666) ($929,230) ($1,067,512)
Loss per share:
Basic ($0.03) ($0.01) ($0.01) ($0.01)
Diluted ($0.03) ($0.01) ($0.01) ($0.01)
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
2002 Quarter ended
------------------
Revenue $0 $0 $0 $0
Net loss ($31,301) ($572,910) ($388,666) ($482,422)
Loss per share:
Basic $0.00 ($0.05) ($0.03) ($0.03)
Diluted $0.00 ($0.05) ($0.03) ($0.03)
The 2003 results include the acquisition of LABS in June 2003. The 2003 and 2002
results reflect the removal of HealthCentrics' operations from continuing
operations based on the October 2003 decision to dispose of this business
segment.
25
ITEM 6. Selected Financial Data
-----------------------
The following selected consolidated financial data has been derived from our
consolidated financial statements. The information below should be read in
conjuncture with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and related
notes. The following information is presented as of and for the period from
February 22, 2002 (date of inception) through December 31, 2002 and as of and
for the year ended December 31, 2003.
2003 2002
---- ----
Consolidated Balance Sheet Data:
Working Capital (6,763,635) (340,922)
Total assets 8,244,089 5,223
Long-term debt, net of current -- --
Shareholders' equity (deficit) (806,156) (340,922)
Shares outstanding at period end 99,968,840 19,982,965
Consolidated Statement of Operation Data:
Revenue 482,815 --
Gross profit 149,693 --
Operating loss (2,700,211) (43,621)
Net loss (3,699,491) (1,475,299)
Diluted earnings per share (0.05) (0.11)
Cash dividends -- --
Cash dividends per share -- --
Weighted average common shares 67,489,524 13,941,197
(1) Consolidated Balance Sheet and Consolidated Statement of Operation data for
the year ended December 31, 2003 give effect to our acquisition of
NanobacLabs Pharmaceuticals, Inc. in June 2003 and Nanobac OY in November
2003. Revenue for the year ended December 31, 2003 attributable to these
acquisitions was approximately $483,000.
(2) Consolidated Statement of Operation data for the year ended December 31,
2003 give effect for the October 2003 decision to dispose of the
HealthCentrics business Unit. Accordingly, HealthCentrics' operations for
2002 and 2003 have been removed from continuing operations.
26
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
------------------------------------------------------------------------
Overview
With the June 2003 and November 2003 acquisitions of NanobacLabs
Pharmaceuticals, Inc. ("LABS") and Nanobac OY ("OY"), our business is the study
and development of therapeutic and diagnostic technologies related to the novel
plemorphic pathogen known as nanobacterium sanguineum ("Nanobacteria").
Background
A schematic of our background is as follows:
----------------------------------------------------------------
November 2002
Emerged from Bankruptcy
as American Enterprise Corporation
(trading symbol: AMER)
----------------------------------------------------------------
I
----------------------------------------------------------------
December 2002
Acquired HealthCentrics, Inc.
(Reverse merger accounting used)
----------------------------------------------------------------
I
----------------------------------------------------------------
June 2003
Acquired majority interest in
NanobacLabs Pharmaceuticals, Inc. ("LABS")
----------------------------------------------------------------
I
----------------------------------------------------------------
June 2003 - July 2003
Changed name to Nanobac Pharmaceuticals, Incorporated
Changed trading symbol to NNBP
----------------------------------------------------------------
I
----------------------------------------------------------------
July 2003 - December 2003
Acquisition of minority shareholders
of LABS
----------------------------------------------------------------
I
----------------------------------------------------------------
November 2003
Acquired majority interest in
Nanobac OY
----------------------------------------------------------------
I
----------------------------------------------------------------
January 2004 - March 2004
Acquisition of minority shareholders
Of Nanobac OY
----------------------------------------------------------------
I
----------------------------------------------------------------
March 2004
Disposition of HealthCentrics
to affiliates of Chairman and CEO
----------------------------------------------------------------
27
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
-----------------------------------------------------------------------
Background
Nanobac Pharmaceuticals, Incorporated, (f/k/a American Enterprise Corporation)
("we", "our", "us" the "Company", "AMER", "NNBP") was formed as a Florida
corporation during June 1994. At that time, our corporate name was National
Diagnostics, Inc. and through our wholly-owned subsidiaries, we provided
diagnostic imaging services through several outpatient centers in Florida.
During 1998, we changed our corporate name to American Enterprise.Com, Corp.
On May 1, 2001, American Enterprise.Com, Corp filed for voluntary reorganization
under Chapter 11 of the Bankruptcy Code. On November 20, 2002, we emerged from
bankruptcy when the Middle District of Florida Court confirmed AMER's Plan of
Reorganization (the "Confirmed Plan" or "Plan"). At time of the Plan
confirmation, AMER had no assets and no liabilities. During the two-year period
of our bankruptcy we conducted no activities except those matters required to
complete the bankruptcy process.
During December 2002, we acquired HealthCentrics, Inc., a privately-held Florida
corporation in exchange for 17.7 million share of stock. After this acquisition,
the former shareholders of HealthCentrics owned 99.7% of AMER. Since
HealthCentrics is considered the acquirer for accounting and financial reporting
purposes, the transaction has been accounted for in accordance with reverse
acquisition accounting principles as though it were a recapitalization of
American Enterprise.Com, Corp. and a sale of shares by HealthCentrics, Inc. in
exchange for the net assets of the Company. The financial statements include the
historical results of operations and cash flows of HealthCentrics, Inc. from
inception.
HealthCentrics is a development-stage Florida corporation formed February 22,
2002 to organize, develop and market a suite of Web-based medical accounting,
billing and management information services to third party billing companies,
practice management and healthcare provider organizations. HealthCentrics has
generated less than $100,000 revenue to date and has sustained losses in excess
of $2 million since its inception. Because of the decision to focus on
nanobacteria, the company decided to sell HealthCentrics during October 2003.
28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
----------------------------------------------------------------------
Current Developments
Acquisition of NanobacLabs Pharmaceuticals, Inc. - On June 4, 2003, we acquired
approximately 74.4% of LABS from Gary S. Mezo and Nancy M. Schriewer-Mezo in
exchange for 24,400,000 restricted shares of NNBP. From June 5, 2003 through
July 21, 2003, we acquired an additional 20.2% of LABS from various stockholders
in exchange for 6,598,000 shares of NNBP, bringing our total ownership to 94.6%
of LABS.
Two entities ("Minority Stockholders") owned the remaining 5.4% of LABS. These
two entities also had options to acquire an additional 5.4% of LABS in exchange
for a cash contribution of $500,000 ("Minority Option"), which expired on March
31, 2004. Except for their stock ownership, these Minority Stockholders are not
affiliated with the Company. During October 2003, the Minority Stockholders
exercised $100,000 of their Minority Option. Simultaneously with this
transaction, we agreed to acquire the remaining outstanding shares of LABS from
the Minority Stockholders plus the stock issued for the $100,000 Minority Option
exercise in exchange for 3,240,000 shares of NNBP. On December 31, 2003, the
Minority Stockholders exercised the remaining $400,000 of their Minority
Options. After further negotiations, the Minority shareholders agreed to sell
the LABS' stock received for this option exercise in exchange for an additional
2,820,000 shares of NNBP. After the conclusion of these transactions, the total
shares due to the Minority Stockholders was 6,060,000 shares of NNBP. The
obligation to issue the Minority Stockholders 6,060,000 shares of NNBP was
settled by an entity controlled by the our Chairman and CEO ("Escape Velocity").
In exchange for the above, Escape Velocity was due $4.1 million which is
included in shareholder loans at December 31, 2003.
As of December 31, 2003, we owned 100% of LABS and the former stockholders of
LABS have received 37,058,000 shares of NNBP, which represents approximately 37%
of our common stock outstanding as of December 31, 2003.
The acquisition has been accounted for as a purchase business combination. Under
the purchase method of accounting, the assets acquired and liabilities assumed
from LABS are recorded at the date of acquisition, at their respective fair
values. Financial statements and reported results of operations of NNBP issued
after completion of the acquisition will reflect these values, but will not be
restated retroactively to reflect the historical financial position or results
of operations of LABS.
Acquisition of Nanobac OY - Pursuant to a Share Purchase Agreement dated
September 25, 2002, a Convertible Promissory Note Loans Purchase Agreement dated
September 25, 2002 (collectively, the "Acquisition Agreements"), LABS, agreed to
acquire a majority ownership of Nanobac Oy (a Finnish company) for approximately
697,000 Euros plus interest calculated at 7% per annum. Majority ownership would
only be obtained upon the conversion of the convertible promissory notes. In
accordance with the terms of the agreements, the ownership of the stock and
convertible notes would not be transferred until all payments were remitted by
Nanobac.
29
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
-----------------------------------------------------------------------
Acquisition of Nanobac OY(continued)
Pursuant to a Closing Agreement dated November 5, 2003, the final payment for
Nanobac Oy was remitted on November 11, 2003. Immediately after the final
payment was received, we exercised our conversion rights under the convertible
notes. As a result of the above conversion, we owned 65% of Nanobac Oy. The
remaining 35% was acquired from Dr. Kajander and Dr. Ciftcioglu in January 2004
and March 2004 in exchange for 10 million shares of NNBP.
Nanobac Oy's assets consist of cash, property and equipment, and other tangible
and intangible assets. Nanobac Oy's liabilities consist primarily of trade
payables and other accruals. The purchase price and associated charges have been
allocated among the identifiable tangible and intangible assets of Nanobac Oy
based on their fair market value at the acquisition date under the purchase
method of accounting for business combinations.
Nanobac OY is located in Kuopio, Finland and was created in partnership with the
Finnish government. Prior to the acquisition, Nanobac OY provided scientific
research and diagnostic technology for nanobacteria. Nanobac OY holds US and EU
patents for methods for eradication of nanobacteria [US Patent No. 6,706,290
printed on March 16, 2004; EP 1094711].
Disposition of HealthCentrics
Pursuant to a Share Purchase Agreement dated March 30, 2004, ("Agreement"),
Nanobac Pharmaceuticals, Incorporated ("NNBP"), agreed to sell its entire
interest in HealthCentrics, Inc. to Escape Velocity of Tampa Bay, Inc. ("Escape
Velocity") in exchange for consideration of $250,000. NNBP decided in October
2003 to divest its HealthCentrics Business Unit to focus exclusively on the
development of its Nanobac business unit. NNBP has actively search for a buyer
of its HealthCentrics business unit since October 2003 without success.
Escape Velocity is an affiliate of NNBP as it is controlled by NNBP's Chairman
and CEO. The consideration to be paid by Escape Velocity will be in the form of
a reduction of its loan currently due from NNBP. It is management's belief that
the sale price of $250,000 is an arm's length transaction. At December 31, 2003,
the book value of HealthCentrics' assets was less than $10,000 (primarily cash
and receivables), while HealthCentrics liabilities to non-affiliates were
approximately $450,000 (primarily accounts payable and accrued wages). As a
result of the above transaction, NNBP is expected to recognize a one-time gain
of approximately $690,000. Given the related party nature of the transaction,
any gain will be treated as a capital contribution in 2004.
Since October 2003, the operations of HealthCentrics have been minimized until a
buyer was found. NNBP and/or Escape Velocity contributed approximately $5,000
per month to fund the reduced operations of HealthCentrics.
30
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
-----------------------------------------------------------------------
Stock Issuances to Officers - From May 2001 through November 2002, the Company
was in bankruptcy. Throughout bankruptcy, the Chairman, Secretary and CEO
(collectively "NNBP Officers") funded the Company's administrative costs and
provided management to the Company. During 2003, the Board of Directors
authorized the issuance of stock in satisfaction of the $750,000 liability. The
liability was to be settled through the issuance of up to 75.0 million shares of
the Company's stock. The 75.0 million shares was based on the $750,000 at the
then value of the stock ($.01 per share average price during the bankruptcy
period). This obligation has been recorded at $750,000 (based on the value at
the measurement date) although shares were issued periodically throughout 2003.
Certain shares were issued as preferred shares (at an equivalent value based on
the conversion ratio of $44.11 per share) as the authorized shares of the
Company did not permit such issuance. Subsequent to December 31, 2003, the
number of authorized shares was increased to 250,000,000, at which time
preferred stock was converted to 35,048,445 shares of Common stock.
The $750,000 value of the above issuances is included in general and
administrative expenses for the year ended December 31, 2003.
In addition, 4.0 million common shares were issued to entities controlled by the
Chief Executive Officer and Chairman in connection with the facilitation and
bridge funding for the acquisition of LABS.
Change of Name - Effective June 20, 2003, we changed our name from American
Enterprise Corporation to Nanobac Pharmaceuticals, Incorporated Effective July
21, 2003, Nanobac Pharmaceuticals, Incorporated, began trading under the symbol
"NNBP."
Authorized Shares - Effective January 5, 2004, we increased our authorized
shares of common stock from 100,000,000 shares to 250,000,000 shares. This
increase in authorized shares was done in anticipation of approval from our
stockholders at our annual meeting in May 2004.
31
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
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Current Operations
As a result of the LABS and Nanobac OY acquisitions and the HealthCentrics
disposition, our business is the study and development of therapeutic and
diagnostic technologies related to the novel plemorphic pathogen known as
nanobacterium sanguineum. We specialize in the following areas, utilizing
clinical and scientific researchers, physicians and scientific collaborators:
o Healthcare
>> Medical diagnostics
>> Innovative therapeutics
o Bio-medical
o Bio-industrial
The term "nanobacteria" is short for its scientific name Nanobacterium
sanguineum, a Latin term for blood. Nanobacteria are "nano"-sized in that they
are from 20-200 nanometers in size, which is 1/100th to 1/1,000th the size of
regular bacteria. Compared to other bacteria, nanobacteria grow very slowly,
only reproducing every three to six days. Consequently, it often takes many
years for nanobacterial disease effects to develop. As a result of their
extremely small size and slow growth rate, Nanobacteria had avoided detection
and scientific study until they were discovered by Neva Ciftcioglu, PhD and
Olavi Kajander, MD, PhD. Nanobacteria form a calcium coating around themselves
that provides protection, and prevents them from being recognized as foreign
substances or pathogens by the human body. Dr. Kajander has theorized 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. This theory has been disputed by several members in
the scientific community. The Company is conducting studies to determine the
extent, if any, that this theory is correct.
32
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
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Results of Operation
The following table presents the
percentage of period-over-period dollar change for the line items in our
Condensed Consolidated Statements of Operations for the year ended December 31,
2003 and the period from February 22, 2002 (date of inception) through December
31, 2002. Due to the significance of the LABS and OY acquisit