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Mycobiotech Ltd – ‘20-F/A’ for 5/12/03

On:  Monday, 5/12/03, at 3:53pm ET   ·   For:  5/12/03   ·   Accession #:  1026700-3-28   ·   File #:  0-50083

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/12/03  Mycobiotech Ltd                   20-F/A      5/12/03    1:177K                                   Vanderkam & Associates

Amendment to Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F/A      Amendment to Annual Report of a Foreign Private       67    302K 
                          Issuer                                                 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Item 1. Identity of Directors, Senior Management and Advisers
2Item 2. Offer Statistics and Expected Timetable
"Item 3. Key Information
8Item 4. Information on the Company
16License Agreements
18Item 5. Operating and Financial Review and Prospects
23Item 6. Directors, Senior Management and Employees
29Item 7. Major Shareholders and Related Party Transactions
30Item 8. Financial Information
31Item 9. The Offer and Listing
"Item 10. Additional Information
34Item 11. Quantitative and Qualitative Disclosures About Market Risk
"Item 12. Description of Securities Other than Equity Securities
"Item 13. Defaults, Dividend Arrearages and Delinquencies
"Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
35Item 18. Financial Statements
"Item 19. Exhibits
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As filed with the Securities and Exchange Commission on May ___, 2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F Amendment No. 3 (Mark one) [x] Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 or [ ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended __________________ or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file number 0-50083 MYCOBIOTECH LTD ----------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Singapore ----------------------------------------------- (Jurisdiction of Incorporation or Organization) 12 Science Park Drive, #04-01 The Mendel, Singapore Science Park 1, Singapore 118225 ------------------------------------------------------------------- (Address of Principal Executive Offices) Please send copies of all communications to: Hank Vanderkam, Esq. Vanderkam & Associates 1301 Travis, Suite 1200 Houston, Texas 77002 (713) 547-8900 Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered ------------------- ----------------------------------------- None None Securities registered or to be registered pursuant to Section 12(g) of the Act: Common Stock Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None As of October 20, 2002, the Registrant had outstanding 25,593,548 ordinary shares. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes No X Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 X (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.) Indicate by check mark whether registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No____ N/A__X_ PART I Item 1. Identity of Directors, Senior Management and Advisers. A. Directors and Senior Management. Directors. The Board of Directors is entrusted with responsibility for the overall management of MycoBiotech Ltd (the "Company"). Information regarding the Directors is listed below: [Enlarge/Download Table] Name Address Position ---------- ----------- ---------- Dr Kok Kheng Tan 5B Bright Hill Drive, Singapore 579596 Chairman of the Board and Chief Executive Officer Prof Chin Tiong Tan 52 Kingsmead Road, Singapore 267996 Director Victor Ang 1 Siglap Road #04-14, Singapore 448906 Director Dr.Alfred Wee Tiong Loh 85 Namly Place, Singapore 267237 Director David Soo Theng Lua 442A Dunearn Road, Director Singapore 289616 Jin Soon Tan 41 Jalan Sembilang, Singapore 576884 Director Senior Management. The day-to-day operations of the Company are entrusted to the Chief Execuitve Officer and an experienced and qualified team of Executive Officers responsible for the different functions of the Group. The particulars of the Executive Officers are set out below: [Enlarge/Download Table] Name Address Position --------- --------- ----------- John Edward Smith 17 Queensberry Avenue, Bearsden, Chief Scientific Officer Glasgow G61 3LR, Scotland, UK Eugene Lim 35 Jasmine Road, Singapore 576594 Group Company Secretary and Chief Financial Officer Yevindra Sepala Ilangakoon 17, Bicknor Close, Canterbury, Kent Chief Operating CT2 7UB, England Officer-Europe Richard Poh Pheng Chia 30 Cedar Avenue General Manager B Marketing Singapore 349708 (Nutraceuticals And Functional Foods) Ronald Han Kiang Ang 77 Nim Road, #02-03 Nim Gardens, General Manager B Marketing Singapore 807586 (Mushrooms) Franklin Leong Tian Chong 118 Serangoon North Ave 1 #03-229, Group Accounts Manager Singapore 550118 Rajive Goonewardena 19 Seletar West Farmway 5 Singapore 798057 Senior Manager - Production & Technical Support Thye Aun Yong 62 Kasai Road, Singapore 808309 Senior Manager B Mushroom Production Scientific Advisory Board. The Company has established a Scientific Advisory Board comprising scientists and clinicians with academic and commercial experience in mycology and biotechnology especially in the area of drug discovery, development and clinical use. The board reviews and evaluates the Company=s research and development programs, advises on scientific and clinical strategy, monitors scientific progress and helps identify and assess new project areas. The members of our Scientific Advisory Board are:
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Prof. John Edward Smith DSc, FRSE (Chairman) Dr. Raymond Chang, MD, FACP Dr. Jong Shung-Chang, DSc Professor Gloria Lim, DSc Dr. David Moore, DSc, FLS Professor Solomon P Wasser, DSc B. Advisers. Vanderkam & Associates, 1301 Travis St. Ste. 1200, Houston, TX 77002 act as U.S. counsel for the Company. C. Auditors. The audits as of December 31, 2001 and 2000 and related statements for December 31, 2001, 2002 and 1999 and conversion to US GAAP were performed by Thomas Leger & Co., 1235 N. Loop W., Ste. 907, Houston, TX 77088. They are members of the American Institute of Certified Public Accountants. Item 2. Offer Statistics and Expected Timetable. No Disclosure Necessary. Item 3. Key Information. A. Selected Financial Data B Singapore dollars have been converted into U.S. dollars for operations at the rate following rates of exchange: 2001- 1.7917; 2000-1.7239; 1999-1.6929; 1998-1.6490; and 1997-1.6490. All years have been audited. The information for years ended December 31, 1997 and 1998 were audited using international accounting standards generally accepted in Singapore and not U.S.G.A.A.P. For comparative purposes the information for 1997 and 1998 has been converted into U.S.G.A.A.P. The information for years ended December 31, 1999, 2000, 2001 and the interim periods have been prepared in accordance with U.S.G.A.A.P. B. [Enlarge/Download Table] Years Ended December 31, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- US `000 US `000 US `000 US `000 US `000 Average Exchange Rate of Singapore 1.7917 1.7239 1.6929 1.6490 1.6490 Dollars STATEMENT OF OPERATIONS Net Sales 3,456 3,707 1,256 2,567 3,653 Cost of Sales (3,312) (2,478) (684) (1,215) (2,214) ------- ------- ----- ------- ------- Gross Profit 144 1,229 572 1,352 1,439 Operating Expenses (3,443) (4,556) (1,137) (2,117) (1,554) ------- ------- ------- ------- ------- Loss from Operations (3,299) (3,327) (565) (765) (115) Other income / (expenses) (732) (37) (72) 532 87 ------ ---- ---- --- -- Net loss before taxes (4,031) (3,364) (637) (233) (28) Taxation 0 44 31 - - Net loss after tax (4,031) (3,408) (668) (233) (28) Comprehensive income (loss) 102 65 (62) - - ---- ------ ----- - - Comprehensive loss (3,929) (3,343) (730) (233) (28) ======= ======= ===== ===== ==== Loss per common share (0.26) (0.26) (.07) (.02) - ====== ====== ===== ====== ==== Basic Weighted average shares outstanding 15,768,929 13,035,298 10,706,728 10,000,000 10,000,000 ========== ========== ========== ========== ========== [Download Table] Exchange Rate of Singapore Dollars- US `000 US `000 US `000 US `000 US `000 as of the Balance Sheet Date 1.8445 1.7331 1.6655 1.6490 1.6490 BALANCE SHEET DATA: Working Capital (deficit) (374) (141) (80) (1,642) (926) Total assets 2,515 3,714 1,618 474 1,887 Long term debts 211 2,098 2,157 1,024 1,569 Shareholders' deficit (49) (734) (1,781) (2,656) (2,422)
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Nine Months Ended September 30, 2002 2001 US'000 US'000 Average Exchange Rate of Singapore Dollars 1.7960 1.7835 ------ ------ Statement of Operations: Net Sales $ 2,652 $ 2,627 Cost of Sale 2,414 1,836 ----- ----- Gross Profit 238 791 Operating Expenses (2,150) 2,155 ------- ----- Loss from Operations (1,912) (1,364) Other Income (Expenses) (210) (454) ----- ----- Net Loss Before Taxes (2,122) (1,818) Taxation 0 0 Net Loss After Tax (2,122) (1,818) Comprehensive Income (Loss) 27 109 -- --- Comprehensive Loss (2,095) (1,709) Loss Per Common Share ($0.09) ($0.11) Basic Weighted Average Shares Outstanding 22,083,645 15,178,661 Exchange Rate of Singapore Dollars of the Balance Sheet Data 1.7760 1.7675 Balance Sheet Data: Working Capital 414 266 Total Assets 2,840 4,051 Long-term Debts 83 2,099 Shareholder Deficit 901 (734) The exchange rate between the U.S. dollar and the Singapore dollar for each of the past six months is as follows: High Low High Low September, 2002 1.78065 1.74545 June, 2002 1.79270 1.76374 August, 2002 1.77226 1.74723 May, 2002 1.80695 1.78706 July, 2002 1.77096 1.73029 April, 2002 1.84673 1.80481 B. Capitalization and Indebtedness. The following table sets forth the debt and capitalization of the Company as of September 30, 2002 . The data set forth below should be read in conjunction with the other financial information included elsewhere in this Registration Statement. See "Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." US$ - Exchange Rate of Singapore Dollars as of Balance Sheet Data 1.7760 Common Stock .54 par 14,865,787 Paid in Capital 3,002,782 Retained Earnings Deficit (17,099,285) Accumulated Other Comprehensive Income 132,124 Unsecured convertible bonds 33,785 Grant 39,847 Long-term lease obligation 8,984 Liabilities & shareholders' deficit 2,480,021
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C. Reasons for the Offer and Use of Proceeds. No Disclosure Necessary. D. Risk Factors. The Company is subject to a number of risks and uncertainties. If any of the following considerations and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. SOUTHEAST ASIA RISKS The Weak Economies of Southeast Asia Have Been a Significant Factor In The Decline of Our Sales and May Impact Future Sales The economies of Southeast Asia remain weak as a result of the currency crisis of 1999 which led to a recession in the region. In addition, with a soft US economy, and the US technology meltdown, international exports, the economic engine of the region have been significantly affected, further depressing the regions economy. Because Southeast Asia, and Singapore in particular is the major markets for our products, the weak economy has impacted our sales as the Company's products are more a discretionary item then a food staple. The weak economy of the region is a significant factor in the decline in our sales, and until the "economy" of the region recovers, will impact future sales and either increase our loss or decrease our profitability. If the Political Instability in Southeast Asia Spreads to Singapore, then our Sales would be Negatively Effected thereby Increasing our Losses Although the political environment in Singapore is stable, there is significant political instability in the region. Since the fall of the government of Indonesia, the Indonesian political situation has been completely unstable. Malaysia, although reasonably stable, faces various internal challenges. In addition, the rise of Muslim extremist has further complicated the political landscape as both Malaysia and Indonesia are Muslim countries. Because Singapore is surrounded by Muslim countries, both of whom are battling Muslim extremist, and because of the unstable political situation in Indonesia, there is no guaranty that this instability will not spill over into Singapore, our principal market. Should this instability spread to Singapore, it would have a significant negative impact on our sales. Furthermore, since Indonesia and Malaysia supply the majority of our mushrooms a disruption of this supply could also significantly decrease our sales. Any decline in sales will increase our loss or decrease our profitability. Financial Risks UNLESS OUR LOSSES ARE REVERSED, WE WILL BE UNABLE TO CONTINUE OUR BUSINESS OPERATIONS We incurred accelerating net operating losses of $729,834, $3,342,998 and $3,929,488 for FY 1999, FY 2000 and FY 2001, respectively. In addition, we have a loss of $2,095,434 for the first nine months of 2002. Because of these losses our audit opinions have been qualified on a going concern basis. Furthermore, our revenue for the year ended December 31, 2001 declined by 6.8% from our revenues for the year ended December 31, 2000, although our revenues for the first nine months of 2002 totalled $ 2,651,861, a slight increase from the $2,627,344 the first nine months of 2001. In addition, our gross profit margins declined from 33.16% for the year ended December 31, 2000 to 4.18% for the year ended December 31, 2001 and to 8.98% for the nine months ended September 30, 2002. Unless these trends are reversed, we will be unable to continue as an operating business. If We Are Unable To Raise Additional Funds, We Will Be Unable To Continue Our Business Operations Because we have been unprofitable, and we are uncertain when, if ever we will generate earnings and cash flow and we are dependent upon the proceeds of future equity offerings or other financing to implement our business plan and to finance our working capital requirements. Monthly direct operating expenses average $268,000 and monthly indirect operating expenses average $239,000 a month. While we have recently completed a rights issue to shareholders, we will need to seek additional financing of at least $5,000,000. Upon completion of this registration we anticipate an offering either in Singapore or in the U.S. of our shares, as the company has insufficient liquidity to operate for the next six months. To the extent that we incur indebtedness or issue debt securities instead of a share offering, we will be subject to risks associated with incurring such indebtedness, including the risks that interest rates may fluctuate and that our cash flow may be insufficient to pay principal and interest on any such indebtedness. In addition because of our financial condition, we are uncertain if financing will be available to us on commercially reasonable terms, or at all. If we are unable to obtain financing, our ability to continue operations could be adversely affected. We also may be precluded from the equity market. If we are unable to raise additional funds, we will be unable to continue business operations or pay our current liabilities.
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Business Risks BECAUSE OF STRONG COMPETITION IN THE SALES OF OUR PRODUCTS OUR PROFIT MARGINS HAVE BEEN DECLINING The primary market for our products is Singapore where we have approximately 32% of the mushroom market but only a very small percent of the health food supplement market. Our mushrooms face stiff competition from the importation of Chinese grown mushrooms where the production costs are lower and from a panorama of health food supplements. Because of this competition, prices have been falling and our profit margins declining contributing to our overall loss. Our other market is the United Kingdom where we have less than a one-percent market share. Our competitors in Singapore are Kahsim, Be Fresh, Chan Kok Hong and MP Project who import fresh shitake mushrooms, principally from China. Our competitors in the United Kingdom are Liversey Brothers, TecFoods, Fruit of the Forest, and Smithy Mushrooms who import fresh shitake mushrooms from France, Holland and China. WE FACE SPOILAGE AND CREDIT RISKS IN THE DISTRIBUTING AND MARKETING OF FRESH MUSHROOMS, BOTH OF WHICH REDUCE OUR MARGINS AND INCREASE OUR LOSSES Fresh mushrooms are perishable products which require special low-temperature handling equipment for storage and transportation. Mishandling of our fresh mushrooms can lead to spoilage and a loss of income . In a typical year, this loss amounts to approximately 5% of the mushroom cost. Furthermore, our business is executed on a credit basis. Hence the receipt of payments will depend on the creditworthiness and financial standing of our customers. While we keep our credit polices tight, we still incur losses of approximately 1% of the credit extended. Any increase in either of these costs will increase our net operating losses or decrease our earnings. WE FACE COMPETITION IN OUR INTENDED OVERSEAS MARKETS EXPANSION WHICH COULD AFFECT OUR ABILITY TO GROW OR BECOME PROFITABLE IN SUCH MARKETS In the past, our operations have largely been confined to Singapore. As part of our business strategy, assuming the availability of capital, we intend to expand our business into other countries particularly Malaysia, England and Canada. However, in each of these countries we face still competition from entities which have been in these markets and are familiar with the neuances of each country whereas we have no prior history in such markets. This could significantly effect our ability to grow in such markets or to be profitable in such markets. IF OUR ASSOCIATED COMPANIES DO NOT PERFORM, WE WILL NOT HAVE THE ABILITY TO EXPAND OR FUND OUR EXPANSION An associated company is a non-subsidiary in which our ownership is 50% or less but in whose financial and operating policy decisions we exercises significant influence. We generally seek such arrangements in countries where we wish to expand. We enter into such arrangements because the other shareholder/investors provide the initial investment, working capital, and on site management while we contribute the technical know how and training. Although we have associated companies in Canada, Malaysia and Indonesia, none of these operations are yet material or are in the development stage. If we are unable to find partners for associated operations, we will not have the capital for expansion, or to continue to fund certain of our operations, and possibly even continue our business operations. (See also-Risk Factor-Only One of our Distributors is Generating Any Material Revenues - Page 7) IF GOVERNMENTAL REGULATIONS BECOME MORE STRENUOUS OUR OPERATING COSTS WILL INCREASE Although there are currently no governmental regulations affecting fresh food in our markets, there is no assurance such will not be enacated. To the extent our products are marketed as health foods or supplements, we are subject to various regulations which control any claims or benefits made on such products. While these regulations do not impose an economic risk, should more strenuous regulations be adoped in the future which would apply to our products, such could have an adverse economic impact by increasing our costs. OUR NEW PRODUCTS MAY NOT GAIN WIDESPREAD ACCEPTANCE We have developed a range of mushroom-based health foods and health food supplements for which there are no established markets. Many of our products are still under development and there can be no assurance that such products will be successfully developed or commercialized on a timely basis, or at all. Even if commercialized, there is no guarantee that such products will gain acceptance by consumers. The successful launch of our new products is dependent upon our ability to educate and create awareness of the potential benefits of such products among consumers and also the ability of our health products to suit the demands and needs of consumers. Our inability to achieve a significant level of market acceptance will negatively impact our future profitability and financial position.
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AVAILABILITY OF THE MAIN RAW MATERIAL WILL AFFECT OUR PRODUCTION AND PROFITABILITY Wood sawdust is the main raw material in our production of mushrooms under an artificial environment and constitutes 45% of our total material costs. Presently, we are not dependent on any single distributor for our supply of wood sawdust and our ability to switch to alternative suppliers allows us to take advantage of favorable pricing. Nevertheless, any shortage in the supply of wood sawdust will have a negative impact on our production output and consequently our profitability. 1 IF OUR DISTRIBUTORS DO NOT MARKET OUR PRODUCTS, WE WILL LOSE THE SALES OF MOST OF OUR NON-FRESH FOOD PRODUCTS We distribute some of our non-fresh food products through third-party distributors. Our agreements with these third-party distributors contains no minimum purchase requirements. Furthermore, these distributors were given exclusive marketing for a period of five years in a given geographic area Because these agreements are new, they have no proven track record with the company and we are reliant on their best efforts in selling our products. Because of the exclusivity and because of the newness of these arrangements, we are unable to predict the level of their sales success, if any. Therefore, there can be no assurance that we will be able to successfully maintain marketing, distribution or sales capabilities for these products. In addition we are launching a new line of MycoMed mushroom based health supplements through multi-level marketing. Our agreements with qualified distributors specifies only a low minimum purchase requirement. There is no guarantee that these distributors will actively sell the products or will continue to sell the products in either the medium or long term. This would negatively impact future sales and profits. ONLY ONE OF OUR DISTRIBUTORS IS GENERATING ANY MATERIAL REVENUES Although we have executed five distribution agreements only one is producing any material revenue. The agreement between Everbloom Mushroom Ptd Ltd. and Ben Choon Marketing Pte Ltd produced approximately 77% of our total sales for the year ended December 31, 2001. Under this agreement, we are obligated to reimburse Ben Choon Marketing Pte Ltd. all costs incurred in marketing and distribution of the products, plus 20% of the net profit. These expenses totaled approximately $505,000 and $567,000 for the year ended December 31, 2001 and 2000 respectively. Without the marketing by Ben Choon Marketing Pte. Ltd. we would loose approximately three quarters of our total sales and be unable to continue as a going concern. BECAUSE OUR MAJOR DISTRIBUTOR IS CONTROLLED BY A RELATED PARTY, OUR PROFITS COULD BE DIVERTED Our major distributor, Ben Choon Marketing Pte. Ltd. is controlled by Chin Hian Tan who owns 91% of the issued and outstanding shares. Chin Hian Tan is a director of Everbloom Mushroom Pte. Ltd. our subsidiary, and the brother of Dr. Kok Kheng Tan, our Chairman of the Board and Chief Executive Officer. Under the terms of this Distribution Agreement, we are required to reimburse Ben Choon Marketing Pte. Ltd. for all costs incurred in marketing and distributing of our products, plus 20% of the net profit. Because of this relationship, there is no assurance that the best prices are being received for our products, that all marketing and distribution prices are at the most favorable rate, or that 20% of the profit from sales under this agreement is a reasonable commission. If the prices received are not fair market value, or the costs incurred are not reasonable, profits will be diverted from the Company to the related party. IF WE LOSE OUR CONTRACT MANUFACTURERS, WE WILL BE UNABLE TO PRODUCE AND SELL SOME OF OUR PRODUCTS Our Linzir range of products such as Lingzhi-shiitake capsules and extracts must be approved by the Singapore Ministry of Health (MOH) before they can be sold in Singapore. We have appointed Beacon Chemicals Pte Ltd, a Ministry Of Health approved manufacturing company, to produce these products. We are dependent on this third-party production facility to ensure that the contents of these products meet the requirements of the Ministry Of Health, while maintaining product quality and acceptable manufacturing costs. Should this manufacturing relationship terminate or should any supplier not be able to satisfy our quality requirements, our supply for these goods will be affected, thus depriving us of a potential source of revenue and earnings.
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IF WE ARE UNABLE TO DEFEND OUR PROPIETARY TECHNOLOGY, WE WOULD BE UNABLE TO SELL OUR PRODUCTS OR SERVICES We regard our proprietary rights on the findings of our R&D activities and patents on mushroom cultivation technology such as the Everbloom Process as being critical to our success. However, there is no assurance that patents issued to us will not be invalidated or circumvented in the future or that the rights created there under will continue to provide a competitive advantage. Should we not be able to protect our proprietary rights sufficiently, our source of revenue will be adversely affected. We rely heavily on a combination of patents, copyrights, trademarks, non-disclosure agreements and licenses to protect our expertise. We also rely on confidentiality agreements with our employees and strive to limit access to the distribution of proprietary information. Despite these precautions, there is a possibility that unauthorized third parties may adopt, copy or modify certain of our research results, methodology and technology. In particular, we have granted exclusive rights to our joint venture partners and other third parties to access certain of our research results and technology. We enter into confidentiality agreements with all of these parties to reduce the access of such information to outside parties. We also require our staff to sign confidentiality agreements. However, there is no assurance that, after taking the appropriate steps to prevent such leakage of proprietary information, our competitors and other unauthorized third parties will not gain access to such information. Furthermore, the laws of some countries do not adequately protect our intellectual properties. In the event that patents expire, or in countries where patents have not been granted, we are also exposed to the risk of competitors attempting to duplicate our expertise. While we will seek legal redress when appropriate, there is no assurance such litigation would be successful. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies that are used by us. Litigation may be necessary to defend against alleged infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Future litigation may also be necessary to enforce and protect our traded secrets and other intellectual property rights owned by us. Any such litigation could be costly and may divert the management's attention, either of which could have a material adverse effect on our business, financial conditions and results of operations. Adverse determinations in such litigation could result in the loss of our proprietary rights and/or prevent us from manufacturing or selling our products or services, which could adversely disrupt the conduct of our business. However, we currently are not involved in any litigation involving our technology, nor have we been in the past. IT MAY BE DIFFICULT TO SERVE US WITH LEGAL PROCESS OR ENFORCE JUDGMENTS AGAINST US OR OUR MANAGEMENT. We are a Singapore holding company, and all or a substantial portion of our assets are located in Southeast Asia. In addition, all but one of our directors and officers are non-residents of the United States, and all or substantial portions of the assets of such individuals are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon such persons. Moreover, there is doubt as to whether the courts of Singapore, Malaysia or Indonesia would enforce: - judgements of United States courts against us, our directors or our officers based on the civil liability provisions of the securities laws of the United States or any state; or - in original actions brought in Singapore, Malaysia or Indonesia, for liabilities against us or non-residents based upon the securities laws of the United States or any state. In addition, it may be difficult for investors to enforce in the United States judgements obtained in United States courts based on the civil liability provisions of the United States federal securities laws against us or any of our non United States executive officer. Therefore, investors may have limited ability to redress any losses caused from a violation of United States Security Rules. We are a foreign private issuer within the meaning of the rules under the Securities and Exchange Act of 1934, as amended.("Exchange Act"). As such, we are not subject to certain provisions applicable to United States public companies, including: - the rules under the Exchange Act requiring the filing with the Securities & Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; - the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and - the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any "short-swing' trading transaction.
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Because of these exemptions, investors are not provided the same information which is generally available concerning public companies organized in the United States and therefore, may not be able to make as informed investment as decisions as that for the purchase of securities of a United States Public Company. Item 4. Information on the Company. A. History and Development of the Company. MycoBiotech Ltd is a group of companies involved in producing mushroom related health foods and health food supplements, mushroom based food products, including fresh mushrooms, biopharmaceutical products and technology-based cultivation processes. Approximately ninety percent (90%) of our revenues are derived from the growing and marketing of fresh mushrooms. The Company was incorporated under the Singapore Companies Act in Singapore on May 22, 1980 as a private company limited by shares under the name of Tan Mushroom Laboratories (Pte) Ltd. The name was subsequently changed to Everbloom Mushroom (Pte) Ltd in 1981, to Everbloom Biotechnology (Pte) Ltd in 1984 and to MycoBiotech Pte Ltd in November 1999. We changed the name again to MycoBiotech Limited on September 28, 2000 and became a public limited company. Our registered office address is 12 Science Park Drive #04-01, The Mendel Singapore Science Park 1, Singapore. In 1985, we incorporated another company, Everbloom Mushroom Pte Ltd ("Everbloom Mushroom"), to undertake mushroom cultivation while Everbloom Biotechnology focused on the R&D of the mushroom cultivation process as well as the medicinal properties of Shiitake mushroom. In 1988 we incorporated a new subsidiary, Everbloom International Technology Pte. Ltd., to handle the worldwide licensing of our patented mushroom cultivation technology, the Everbloom Process. Everbloom Biotechnology was the holding company of Everbloom International Technology Pte. Ltd., and Everbloom Mushroom Pte Ltd. In 1989 Everbloom Health Food Pte Ltd. was formed to conduct research and development of health food products and health food supplements. Building on our experience in the cultivation of Shiitake mushroom under artificial conditions, we started to expand overseas in 1998. In December 1998, we incorporated two companies in the U.K, MycoTechnology Ltd UK and Mycoceuticals Ltd - UK, with the intention of growing and selling of exotic mushrooms and the manufacture and trading of mushroom-based nutraceuticals and functional foods respectively in the U.K and Europe. In July 1999 MycoPharma was incorporated with the primary purpose of undertaking research and development of biopharmaceuticals and nutraceuticals products and the clinical trials of these products. In August 2000 we incorporated Everbloom Mushroom (Kent) Ltd to operate the mushroom facility in Kent, England. In September 2000, we invested into MedMyco Ltd, an Israeli Biotechnology company involved in the development and manufacturing of drugs and dietary supplements from edible and medicinal mushrooms. In June 2001, we entered a 50:50 joint venture with 936450 Ontario Ltd and Horus Capital Ltd for the right to use our Mushroom Technology in North America. Everbloom Biotechnology (Canada) Ltd, is a holding company for companies set up to grow and sell exotic mushroom in North America, as well as sell health foods and health food supplements. In 2002, the company acquired the intellectual property relating to the isolation and characterization of fungal growth hormones called Fungiflex and Fungiflex2 from Dr David Moore and Dr Lily Novak Frazer, two fungal developmental biologists from the University of Manchester, UK. The acquisition strengthens our knowledge-based of biopharmaceuticals and will assist in our research into and development of new fungicides.
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The following chart illustrates our current organizational structure. MycoBiotech Ltd. Singapore 100% 100% 100% 100% 50% Everbloom Everbloom International Biotechnology Technology Pte Ltd (Candada) Ltd. (Singapore) MycoPharma Everbloom Everbloom Pte Ltd Mushroom Pte Health Food Pte (Singapore) Ltd. Ltd. (Singapore) (Singapore) 100% 30% Mycoceuticals Ltd. Ever-Bloom UK Nutraceuticals (M) Sdn Bhd (United Kingdom) (Malaysia) 25% 100% Medmyco MycoTechnology Ltd. Ltd. UK (Isreal) (United Kingdom) 50% 100% 30% PT Everbloom FFM- Randhoetatah Mushroom (Kent) Everbloom Cemerlang Ltd. Mushroom (Indonesia) (United Kingdom) (Malaysia)
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B. Business Overview General The Company was founded by Dr. Kok Kheng Tan to commercialize his research on technology-based production of Shiitake and other exotic mushrooms. This technology-based process uses a combination of specially formulated growing substance, principally a woodchip mixture and controlled environmental conditions. Business and Growth Strategy Our principal business is the cultivation and marketing of fresh mushrooms. This accounts for nearly 90% of our total sales. Our secondary business is the promotion and sale of health foods and health supplements. We believe that there is a long-term global trend towards preventive medicine as opposed to curative medicine. Therefore there should be a growing market in the health food and health supplement sector. The relaxation of certain labelling laws, particularly in the United States, allowing for certain health claims to be labelled on health supplements should further drive growth in the sector. Mushrooms have a long history of use in traditional Eastern (Chinese and Japanese) medicine, We will promote the potential benefits of mushroom-based health foods and health food supplements to an increasingly health conscious global population. Expansion of our business globally through joint ventures and acquisitions To increase our customer base and expand our market, we have entered joint ventures or acquired companies that are synergistic to our mushroom related businesses in Asia. These are our English and Canadian ventures, although the Canadian businesses are not yet operational. We also hope to shift the production of mushrooms to low-cost regions in order to capitalise on the lower cost of raw material, labour and power. We will distribute mushrooms and mushroom-based products through our overseas subsidiaries or associated companies which are located in Canada, Malaysia, England, and Indonesia. Each of these companies will be responsible for the management of its profitability, geographical areas of distribution and network of distribution agents. MycoTechnology Ltd, UK is responsible for the distribution of mushrooms and Mycoceuticals Ltd, UK for health foods and health supplement in Europe. Everbloom Canada will be responsible for the Canadian and the North America markets for all products. In Malaysia the distribution of all products is undertaken by our associate company, Everbloom Nutraceuticals Malaysia. We intend to engage distributors with proven track records in the respective geographical areas to gain access to supermarkets, health specialty shops and pharmacies. Our Indonesia subsidiary, PT Randhoetatah Cemerlang will leverage on Indonesia's low cost structure to grow mushrooms and manufacture certain of our Company's products. HEALTH FOODS AND HEALTH SUPPLEMENTS. Overview There are three regional markets targeted by the Company for mushroom-related health food and supplements in the year 2003; these are Singapore, Malaysia, and United Kingdom. Subsquent targeted markets will include North America, Europe, Australia, Korea, Japan, Thailand and Philippines. Current Products Health Supplements Presently we market three health supplements- Linzir capsules, Linzir Elixir extracts and Essence Of Shiitake. . Linzir capsules contain concentrated extracts of Lingzhi and Shiitake mushrooms. Linzir Elixir is a liquid extract of the Lingzhi and Shiitake mushrooms blended with honey. It is targeted to consumers who prefer liquid to capsules. It essentially contains all the health benefits found in the Linzir capsules.
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Essence of Shiitake is a concentrated liquid extract of Shiitake mushrooms hygienically packed, sterilised and sealed in a 2.5 oz glass bottle. It contains all the nutritional benefits of Shiitake mushrooms and has additional health benefits. Health Foods Our health foods may be summarised into six categories; 1. Mushroom Crunchies which are snacks made of vacuum fried mushrooms in 50gm canisters or packs and are available in four flavours. 2. Shiitake Superior Soups which are soups containing abalone, scallops and Shiitake mushrooms. Eight varieties have been formulated and commercialised for sale; 3. Shiitake Herbal Soups which contain Shiitake mushrooms and traditional Chinese herbs doubled-boiled with chicken. Six varieties are commercially available; 4. Shiitake Mushroom Sauces are pour-over sauces which combine Shiitake mushrooms with various other oriental and western sauces. Eight varieties are available commercially; 5. Oriental Gourmet and Exotic Mushroom Soups which contain Shiitake mushrooms and other mushrooms with local flavours and ingredients. Eighteen varieties are available commercially. 6. Mushroom Pickles are mushrooms preserved as pickles that are available in three varieties. Sales and Marketing We promote our health foods and health supplements by participating in trade fairs such as Vitafood International in Geneva, Natural Food Expo in England and the Natural Food Expo in the United States. We intend to raise our profile and increase the market exposure of our products by participating in additional trade shows and exhibitions as well as through publication of research findings and advertisements in selected journals and magazines in the field of science and biotechnology. We hope to place advertisements through the print media and broadcast media as well as stage special events and publicity programs and through our website, www.mycobiotech.com and www.mushroom-shop.com. Although we have executed five distribution agreements, only one is producing any material revenue. That is the agency agreement between Everbloom Mushroom PTE LTD ("EM") with BAN CHOON MARKETING PTE LTD (BAN CHOON). BAN CHOON is controlled by Chin Hian Tan, the brother of Dr. Tan, our president and is a director of Everbloom Mushroom Pte Ltd., our subsidiary. This agency agreement provides for BAN CHOON to be the exclusive distributor of certain products in the Singapore area. The agreement also provides for BAN CHOON to be paid for all costs incurred in the marketing and distribution of the products plus 20% of the net profit. During 2001, sales through BAN CHOON totaled approximately $2,654,000 or approximately 77% of our total sales. Expenses paid by BAN CHOON were approximately $505,000. Net income provided to the Company was approximately $67,700. During 2000, sales through BAN CHOON totaled approximately $2,352,600 or approximately 72% of total sales. Expenses paid by BAN CHOON were approximately $567,000. Net income provided to the Company was approximately $83,000. Governmental Regulations There are no governmental regulations which govern the importing or exporting of fresh mushrooms in Singapore or in England where our products are sold. In the sale of health supplements, there are currently no regulations other than labeling. These regulations require a listing of the products ingredients and weight, and limit the labeling of health benefits which can be claimed and require a listing of the name of the producer or manufacturer of the product. From time to time, proposals have been introduced to either regulate the claimed benefits of health supplements, or to have them registered as drugs (which would subject the products to all of the drug testing rules and approvals). However to date no such proposal has ever been enacted in any of the jurisdictions in which our products are marketed.
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Future Products The following new products are scheduled to be launched within the next twelve months. Lingzhi-Shiitake mushroom with Honey-Emulsion for kids. This is an extension product of the Linzir capsules but will be targeted to children. Gano-X B. In capsule form, this is a pure Lingzhi mushroom extract product. It will be promoted as a health supplement that aids in lowering high blood pressure, fighting diabetes, and slowing the aging process. Odorex B. In capsules form, this is an extract from the champignon mushroom. This product will be as a health supplement to eliminate body odour, bad breath and faecal smell. Product Pipeline Our biopharmaceutical products have been developed from research undertaken both by us and by third parties on various types of medicinal mushrooms and are the first products of their kind in the world. (a) MycoGlucan. This product has just been launched and is produced in capsule form and contains ingredients from five different mushrooms - Shiitake, Lingzhi, Yunzhi, Monkey Head and Maitake Mushrooms. These ingredients have been shown to enhance the immune system, stimulate appetite, and increase production of antibodies. Preclinical trials of Mycoglucan is being conducted in the laboratories of the Department of Microbiology at the University of Singapore. (b) MycoDiab. MycoDiab is produced in sterile conditions from the Yellow Brain mushroom. The main bioactive component in this product is the polysaccharide glucuronoxylomannan. MycoDiab will be marketed as a prevention for diabetes and also as a supplement to stimulate the immune system. Preclinical trials of this product have started in Israel, at the laboratory of Harlan Biotech. (c) Mycovastatin. Mycovastatin is produced from the Oyster mushroom. The product has been shown in preclinical trials to lower cholesterol in mice. The acquisition of the intellectual property relating to the isolation and characterisation of Fungal growth hormones called FungiFlex1 and FungiFlex2 will enable the Company to further research into and develop new fungicides for the world market. Mushrooms Overview We are a producer of cultivated mushrooms using our patented technology called the Everbloom Process. The growing of mushrooms using traditional methods normally takes ten to twelve (12) months before harvest under natural climatic conditions. Unfortunately, the natural production method makes it difficult to control the supply year round. The process of shortening the growing period using a sawdust supplemented substrate under environmentally controlled conditions was successfully developed by Dr Tan in 1979 at the then University of Singapore under a research grant from the International Foundation for Science, Stockholm. This discovery was commercialized in 1980 by Everbloom Biotechnology (Pte) Ltd. The Everbloom cultivation process has been patented and proven to be thirteen times more productive than the cultivation of mushrooms under natural climate condition. Our goal is to develop the Everbloom brand and a reputation for reliability and consistency in quality. Our business model is to license growers with the Everbloom process and grow mushrooms using our strains and stringent cultivation standards. This model releases our capital for other purposes while maintaining our control of the mushroom quality. Products Our primary product is the Shiitake mushroom. However, we also grow other mushrooms such as Nameko, Monkey Head and Pink and Yellow Oyster mushrooms. The sale of fresh mushrooms provides nearly ninety percent of our revenue.
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Sales & Marketing We target our fresh mushrooms to middle and upper income groups. We will concentrate our marketing efforts on providing more exposure of the benefits of mushrooms through cooking demonstrations, tasting sessions and the distribution of recipes at grocery chains. Our marketing message will focus on the health-enhancing qualities of mushrooms. Sales efforts will be focused on locating distributors with proven track records. And, the Company will source and develop relationships with distributors who have access to national grocery chains.
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Patents / Licenses / Contracts / Processes We have developed and patented our sawdust-based mushroom cultivation process. We regard our copyrights, trade marks, trade secrets and other intellectual property as important to our success. We rely on a combination of patent, trademark laws and contractual restrictions to protect our proprietary rights in products and services. The following is the table of our patents: A."Mushroom Cultivation" [Enlarge/Download Table] Publn/ Grant Date Country Proprietor Application Application Grant No. No. Date 1. US MycoBiotech(1) 536260 29/9/1983 4542608 24/9/1985 2. Sri Lanka MycoBiotech(2) 9769 8/6/1987 9769 24/7/87 B."Cultivation on Rubber Wood" Publn/ Grant Country Proprietor Application Application No. Grant Date No. Date 1. US MycoBiotech(1) 057335 2/6/1987 4833821 30/5/1989 2. UK MycoBiotech(2) 8923604.6 2/6/1987 2223922 5/12/1990 3. Singapore MycoBiotech(2) 9391282.2 1/12/1993 9391282.2 22/4/1994 4. Malaysia MycoBiotech(2) PI9002102 2/6/1987 MY-104548A 30/4/1994 C."Cultivation with Thermal Shock" Publn/ Country Proprietor Application Application Grant Grant Date No. Date No. 1. Singapore MycoBiotech(2) 9391281-4 1/12/1993 9391281-4 17/5/1994 2. US MycoBiotech(1) 277823 30/11/1988 4987698 29/1/1991 3. Philippines MycoBiotech(2) 35335 2/6/1987 28576 7/11/1994 4. Canada MycoBiotech(2) 538736 3/6/1987 1288371 3/9/1991 5. Australia MycoBiotech(2) 73748/87 2/6/1987 604707 24/4/1991 6. UK MycoBiotech(2) 8712904.5 2/6/1987 2191074 12/12/1990 7. New Zealand MycoBiotech(2) 220531 2/6/1987 220531 10/7/1990 8. Belgium MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 9. France MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 10. Germany MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992
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[Download Table] 11. Italy MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 12. Netherlands MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 13. Spain MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 14. Switzerland MycoBiotech(1) 87304869.8 2/6/1987 0248636 30/9/1992 15. Malaysia MycoBiotech(2) PI8700754 2/6/1987 MY-101739A 17/1/1992 D."Making Mushroom Spawn" [Enlarge/Download Table] Publn/ Country Proprietor Application Application Grant Grant Date No. Date No. 1. Australia Tan Kok Kheng and 19609/83 27/9/1983 564248 20/1/1988 MycoBiotech(1) 2. New Zealand Tan Kok Kheng and 205746 26/9/1983 205746 26/9/1983 MycoBiotech(1) 3. Belgium MycoBiotech(1) 83305709.4 26/9/1983 0107911 20/12/1989 4. France MycoBiotech(1) 83305709.4 26/9/1983 0107911 20/12/1989 5. Germany MycoBiotech(1) 83305709.4 26/9/1983 0107911 20/12/1989 6. Netherlands MycoBiotech(1) 83305709.4 26/9/1983 0107911 20/12/1989 7. UK MycoBiotech(1) 83305709.4 26/9/1983 0107911 20/12/1989 8. Canada Tan Kok Kheng & 83305709.4 28/9/1983 1207690 15/7/1986 MycoBiotech(1) 9. Singapore MycoBiotech(1) 9190118.1 20/2/1991 9190118.1 12/3/1991 10. Malaysia MycoBiotech(2) PI8701544 3/9/1987 MY-101013A 29/6/1991 Note:- (1) The patent is registered in the name of Everbloom Mushroom, the former name of the Company. (2) The patent is registered in the name of Everbloom Biotechnology, the former name of the Company. Patents are granted for an average period of 15 to 20 years from the application date, if periodically renewed during the life of the patents. The Everbloom Process We are a producer of cultivated mushrooms with our proprietary biotechnology, the Everbloom Process and an integrated producer of edible mushrooms and mushroom-based products. The Everbloom Process is used in all the mushroom farms operated by our licensees. We grow primarily Shiitake mushrooms. However, we also grow other mushrooms such as Nameko, Monkey Head and Pink and Yellow Oyster mushrooms, though in much smaller quantities.
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Our sawdust logs are logistically easier to handle than those involving bed logs the traditional product. Sawdust logs are short vertical logs approximately seven to eight inches high and weigh anywhere from two to seven pounds as opposed to bed logs which are approximately four feet long and weigh more than twenty-six pounds. Bed logs cultivation must be done outdoors, thereby restricting the farm to areas where the climate is conducive to cultivation. Sawdust logs can be placed on shelves in growing houses, permitting environmental control growing area, a reduced labor cost and better utilisation of real estate. Finally, sawdust logs reduce the time to incubation and first fruiting (harvest) to months instead of years. Generally, the entire yield from the sawdust log can be obtained within a year. Patents are granted for an average period of 15 to 20 years from the application date. Dr. Tan is named as a joint or the sole owner of a patent at the point of application due to the patent laws of certain countries. Dr. Tan has assigned all of his rights in the patents to Everbloom Biotechnology, and steps have been taken to record the Company as the sole owner. Four patents relating to fermentor culture of mushroom species for cholesterol lowering and for antidiabetes have been granted in the USA. We have also filed patents for this technology in Europe, Canada, Japan and Israel. Our patents cover the following four technologies: 1. A process for producing, methods and compositions of cholesterol lowering agents from higher Basidiomycetes mushrooms. 2. A process for higher Basidiomycetes Mushrooms grown (as biomass) in submerged culture. 3. A process for producing, methods and compositions of glucuronoxylomannan as a health food supplement from the Basidiomycetes of Mushrooms. 4. A process for higher Basidiomycetes Mushrooms grown (as one cell biomass) in a submerged culture. Trade Marks We own a number of trade marks worldwide, for marks comprising and including the words "EVERBLOOM", "LINZIR" (in the English and Chinese languages), "MYCOMED", "MYCOVITE", "MYCOGLUCAN" and "ELIXIR". These marks cover a variety of health foods, supplements and alternative medical products. Our trade marks are registered and pending registration in Singapore, Malaysia, Brunei, Indonesia, Japan, Korea, the Philippines, Taiwan and Thailand. The "LINZIR" trade marks were originally owned by Winthrop Products Inc., (except in Japan), where it is owned by Sterling Winthrop Inc. Winthrop Products was purchased by SmithKline Beecham Plc and the "LINZIR" trade marks were sold by SmithKline Beecham to Everbloom Biotechnology in 1998. Winthrop Products and SmithKline Beecham Plc are still registered as the owners of the "LINZIR" marks outside of Singapore. Proprietary Information Aside from patented technology, we also own certain proprietary information and know-how concerning techniques and methods relating to the patented inventions. Where proprietary information is held by Dr.Tan, such information has already been assigned by Dr.Tan to our Company. License Agreements A license agreement dated December 8, 1997 entered into between Everbloom International Technology Pte Ltd and Everbloom Mushroom (UK) Ltd; A license agreement dated May 30, 1998 entered into between Everbloom Biotechnology (Pte) Ltd and Everbloom International Technology Pte Ltd; A license agreement dated June 1, 1998 entered into between Everbloom Biotechnology (Pte) Ltd and Everbloom Health Food Pte Ltd;
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A license agreement dated December 9, 1998 entered into between Everbloom International Technology Pte Ltd and Everbloom Mushroom (UK) Ltd; A license agreement dated December 9, 1998 entered into between Everbloom Health Food Pte Ltd and Mycoceuticals Ltd; A license agreement dated January 21, 2000 entered into between Everbloom Health Food Pte Ltd and Ever-Bloom, Nutraceuticals (M) Sdn Bhd; A license agreement dated February 23, 2000 entered into between Everbloom International Technology Pte Ltd and Gulf Mushrooms Products Company (S.A.O.G.); and A licence agreement dated June 4, 2001 entered into between MycoBiotech Ltd and Everbloom Biotechnology (Canada) Ltd. Each of these license agreements are with subsidiaries or associated companies and require that we contribute our technology and train personnel. However, none of these licenses are currently producing revenues to us, but even if they did, our obligations are minimal. Although not a license agreement, there is an exclusive rights agreement with a third party whereby a subsidiary of the Company is required to purchase approximately $500,000 of product from such third party.
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Item 5. Operating and Financial Review and Prospects. A. Operating Results. Selected Financial Data [Enlarge/Download Table] Nine Months Nine Months Years Ended December 31, Ended September Ended September 30, 2002 30, 2001 2001 2000 1999 -------- -------- ------- ------- ------- Average Exchange Rate of Singapore Dollars 1.7960 1.7835 1.7917 1.7239 1.6929 ------ ------ ------ ------ ------ US `000 US `000 US `000 US `000 US `000 STATEMENT OF OPERATIONS Net Sales $2,652 2,627 3,456 3,707 1,256 Cost of Sales 2,414 1,836 (3,312) (2,478) (684) ----- ------ ------- ------- ----- Gross Profit 238 791 144 1,229 572 Operating Expenses (2,150) 2,155 (3,443) (4,556) (1,137) ------- ------ ------- ------- Loss from Operations (1,912) (1,364) (3,299) (3,327) (565) Other Income/(Expenses) (210) (454) (732) 37 (72) ----- ------ ----- -- ---- Net Loss Before Taxes (2,122) (1,818) (4,031) (3,364) (637) Taxation 0 0 0 44 31 - - - -- -- Net Loss after Tax (2,122) (1,818) (4,031) (3,408) (668) ======= ======= ======= ======= ===== Comprehensive income 27 109 102 65 62 Comprehensive loss (2,095) (1,709) (3,929) 3,345 (730) ======= ======= ======= ===== ===== Loss per common share ($0.09) ($0.11) $(0.26) $(0.26) (.07) ======= ======= ======= ======= ===== Average Weighted Number of Shares Outstanding 22,083,645 15,178,661 15,768.929 13,035,298 10,706,728 ========== ========== ========== ========== ========== Exchange Rate of Singapore Dollars as of the Balance Sheet Date US `000 US `000 US `000 US `000 ------- ------- ------- ------- BALANCE SHEET DATA 1.7760 1.7675 1.8445 1.7331 Working Capital (Deficit) 414 266 (374) (141) Total Assets 2,840 4,051 2,515 3,714 Long Term Debts 83 2,099 211 2,098 Shareholders' Equity (Deficit) 901 (734) (49) (734) The following discussion and analysis should be read in conjunction with our financial statements and notes to the financial statements appearing elsewhere. The amounts reflected in the following discussion are in United States Dollars. The functional currency of our operations in the Singapore Dollar. Management's Discussion and Analysis and Results of Operations Year Ended December 31, 2001 Compared With Year-Ended December 31, 2000. Sales of Mushroom Products. Sales of mushroom products for the year ended December 31, 2001 decreased by $251,043 or 6.8% to $3,455,930 from $3,706,973 for the year ended December 31, 2000. This decrease in sales resulted from a general slow down in the retail sector of the Singapore economy. Prices remained fairly constant through out the period with approximately a 1% average decrease in prices with the balances of the decreases in sales being in sales volume. Cost of Sales. Cost of sales for the year ended December 31, 2001 increased by $833,580 or 33.65% to $3,311,617 from $2,477,767 for the year ended December 31, 2000. This increase resulted from higher unit labor costs, newly designed packaging materials and additional freight cost. Gross Profit, as a percentage of sales decreased to 4.17% for the year ended December 31, 2001 from 33.15% for the year ended December 31, 2000 due to increased competition, a weak economy, a change in the product mix and higher costs of production.
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Operating Expenses. Operating expenses for the year ended December 31, 2001 decreased by $1,113,522 or 24.4% to $3,442,950 from $4,556,552 for the year ended December 31, 2000. The decrease in operating expenses resulted from decreases in depreciation and amortization of $30,547, a decrease in the write off of bad debts of $168,735 an absence of a write-off for an aborted public offering ($143,000) a decrease in stock option expenses of $1,332,257 a decrease in personnel expense of $200,500 which was partially offset by an increase in professional fees of $74,415, an increase in rent expenses of $196,749 principally from a full year of rental expense on the English facility compared to only several months in 2000 and an increase in other expenses, principally legal fees and marketing expenses from the new English operation of $490,353. . The decrease in personnel expenses resulted from the absent of bonus payments in the current year and from the company staffing up for an expansion which was delayed because a planned registration and fund raising in Singapore which did not materialize and therefore these additional staff persons were either terminated or resigned and not replaced which produced a reduction in payroll expense of $122,550. When these individuals were terminated no additional liability was booked because there was no residual payable as all terminated personnel had a short employment tenure with the Company and were not eligible for serverence payments. The remainder of the decrease in payroll expense was a decrease in bonuses of $78,000. The reduction in personnel will not have any impact on future operations. As a result of the foregoing, the net loss from operations for the year ended December 31, 2001 decreased by $28,679 or .9% to $3,298,637 from $3,327,316 for the year ended December 31, 2000. Other Income (loss). Other income (loss) consists principally of interest, changes in equity investments, impairments of investments and miscellaneous items. Other losses for the year ended December 31, 2001 increased by $695,524 or 1887.6% to 732,567 from $37,043 for the year ended December 31, 2000. This increase resulted from an increase of $4,343 in interest expense, an increase of equity investment loss from the Indonesian operation to $563,274 from $10,726 in 2000 and a $183,804 impairment of investments compared to zero in 2000 which were partially offset by an increase in other income of $55,897 principally that of other farm revenue. The impairment loss resulted from a write off of our investment in Medmyco Ltd, our Isreal operation. Written off was our investment of approximately $40,000 and the funds which were subsequently advanced. These subsequent advances were initially classified as a receivable and later reclassified to the investment account. Because the operations no longer has commercial viability, it was impaired. Income Taxes. There was no provision for income taxes for the year ended December 31, 2001. For the year ended December 31, 2000, there was a provision for income taxes of $43,878 even though the Company had an operating loss. Income tax expense was recorded in 2000 because of profit generated from the sale of a technology license by a British Subsidiary. Other Comprehensive Income. Other comprehensive income increased by $36,477 or 55.91% for the year ended December 31, 2001 to $101,716 from $65,239 for the year ended December 31, 2000. This increase resulted principally from an exchange of bonds for equity at a different exchange rate than when sold, and a writeoff of investments at a different exchange rate than at the date of investment. As a result of the foregoing, the comprehensive loss for the year ended December 31, 2001 increased by $586,490 or 17.5% to a loss of $3,929,488 from a loss of $3,342,998 for the year ended December 31, 2000. Liquidity and Capital Resources As of December 31, 2001, the Company had unrestricted cash of $47,108 and a deficiency in working capital of $374,097. This compares with unrestricted cash of $74,755 and a deficiency in working capital of $141,101 as of December 31, 2000. The Company has three credit facilities covering bank overdrafts and letters of credit. The credit facilities provide for bank overdraft protection of approximately $500,000 and for irrevocable letters of credit for approximately $400,000. The credit facilities are generally secured by cash, inventory, corporate guarantees, key-man insurance and personal guarantees of one of the Company's directors. The credit facilities are payable on demand. Interest rates range from one percent to one and one-half percent over the bank prime rates. Interest rates ranged from 6% to 7% at December 31, 2001. Other nominal charges may also apply.
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Cash flows used in operating activities increased by $564,757 to $2,380,556 for the year ended December 31, 2001 from $1,815,799 for the year ended December 31, 2000. This increase is attributable to increases in the net operating loss deferred offering costs and other expenses which were partially offset by reduced by increases in non-cash expenses and changes in the current accounts. Cash used in investing activities decreased by $1,210,727 to $161,471 for the year ended December 31, 2001 from $1,372,198 for the year ended December 31, 2000. This decrease resulted from a reduction in deposits and the absence of investment expenditures and fixed current expenditures in the current year as well as a slight decrease in the amount of restricted cash. Cash flows from financing activities decreased by $519,243 to $2,522,743 for the year ended December 31, 2001 from $3,041,986 for the year ended December 31, 2000. This decrease was the result of decreased bank overdrafts, a smaller decrease in short-term borrowings and fewer sales of common stock which was partially offset by increased funds from letters of credit, a grant and a small increase in long term leases. Because the company continues to generate losses from its operations, it is able to sustain itself only from the sale of its shares and from borrowings. However, in the future, there is no guaranty that the Company will continue to be able to sell its shares or borrow additional funds, without which we will have insufficient cash to find our operations for the next twelve months. Year Ended December 31, 2000 Compared With Year-Ended December 31, 1999. Sales of Mushroom Products. Sales of mushroom products for the year ended December 31, 2000 increased by $2,450,529 or 195% to $3,706,973 from $1,256,444 for the year ended December 31, 1999. This increase in sales resulted from the addition of a distributor to market the Company's products in 2000. Cost of Sales. Cost of sales for the year ended December 31, 2000 increased by $1,793,341 or 262.02% to $2,477,767 from $684,426 for the year ended December 31, 1999. This increase resulted from an increase in sales increased competition and higher production costs. Gross Profit, as a percentage of sales decreased to 33.15% for the year ended December 31, 2000 from 45.52% for the year ended December 31, 1999. The lower gross profit was due to a change in the sales mix to lower margin goods, higher production costs and increased competition. Operating Expenses. Operating expenses for the year ended December 31, 2000 increased by $3,419,530 or 300.8% to $4,556,522 from $1,136,992 for the year ended December 31, 1999. The increase in operating expenses resulted from an increase in stock option expense of $1,564,160, an increase in depreciation and amortization of $44,241, an increase in bad debt allowances of $165,029 an increase in professional fees of $150,210,( principally from an aborted attempt to list the Company's shares in Singapore), an increase in rent expenses of $174,677 (principally from moving to new corporate headquarters) and an increase in other expenses (principally advertising and promotion, distribution, and marketing expenses) of $484,415 and an increase in personnel expense of $836,798, (principally in bonuses) The increase in allowance for bad debts resulted from the economic turn down in the region which caused one of our customers to fail and us to write off our trade receivable from them. As a result of the foregoing, the net loss from operations for the year ended December 31, 2000 increased by $2,762,342 or 488.9% to $3,327,316 from $564,974 for the year ended December 31, 1999. Other Income (loss). Other income (loss) consists principally of interest, changes in equity investments, impairments of investments and miscellaneous items. Other losses for the year ended December 31, 2000 decreased by $34,619 or 48.3% to $37,043 from $71,662 for the year ended December 31, 1999. This decrease resulted from an increase of $2,032 in interest expense, an increase of equity investment loss of $10,726 from zero in 1999 which was partially offsetted by an increase in other income of $47,377 principally rental income and management fee. Income Taxes. The provision for income taxes for the year ended December 31, 2000 was $43,878 an increase of $15,893 or 50.5% from the year ended December 31, 1999. Even though the Company had an operating loss in both years, income tax expense was recorded in each year because of minimal profit on a separate company basis where one of the subsidiaries reported taxable income. Other Comprehensive Income. Other comprehensive income increased by $126,953 for the year ended December 31, 2000 to $65,239 from a loss of $61,714 for the year ended December 31, 1999. This resulted from a positive increase in the exchange rate from which the Company benefited in the redemption and exchange of certain bonds.
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As a result of the foregoing, the comprehensive loss for the year ended December 31, 2000 increased by $2,613,164 or 358.0% to a loss of $3,342,998 from a loss of $729,834 for the year ended December 31, 1999. Liquidity and Capital Resources As of December 31, 2000, the Company had unrestricted cash of $74,755 and a deficit in working capital of $141,101. This compares with cash of $192,275 and a deficit of working capital of $80,000 as of December 31, 1999. The Company has three credit facilities covering bank over drafts and letters of credit. The credit facilities provide for bank overdraft protection of approximately $500,000 and for irrevocable letters of credit of approximately $400,000. The credit facilities are generally secured by cash, inventory, corporate guarantees, key-man insurance and personal guarantees of one of the Company's directors. At December 31, 2000, the Company had $173,100 of restricted deposits with the banks as collateral. The credit facilities are payable on demand with interest rates ranging from one-percent to one and one-half percent over the bank prime rates. Other nominal charges may apply. Total interest expenses on these loans totaled $8,888 for the year ended December 31, 2000. There was no interest for the year ended December 31, 1999. Cash flows used in operating activities was virtually identical with the prior year increasing by $1,581 to $1,815,799 for the year ended December 31, 2000 from $1,814,218 for the year ended December 31, 1999. The increase in the net operating loss of 1,175,957 was offset almost in its entirety by increases in non-cash items and changes in the current accounts. Cash used in investing activities increased by $898,333 to $1,375,198 for the years ended December 31, 2000 from $473,865 for the year ended December 31, 1999. This increase resulted from increased deposits, increased investments, a slight increase in the purchase of fixed assets and an increase in restricted cash which was partially offset by a decrease in the purchase of intangibles. Cash flows from financing activities increased by $444,479 to $3,041,986 for the year ended December 31, 2000 from $ 2,597,507 for the year ended December 31, 1999. This increase resulted from increased bank overdraft, reduced short-term debt repayments and an increase in the proceeds from the sale of common stock which was partially offset by a decrease in funds from letter of credit and long-term leases. Although the Company's cash position improved slightly during the year-ended December 31, 2000, the Company continues to generate substantial net operating losses. The Company is only able to continue operations by borrowing funds or selling shares, without which we would have insufficient cash to fund our operations for the next twelve months. Nine Months Ended September 30, 2002 Compared With the Nine Months Ended September 30, 2001. Sales of Mushroom Products. Sales of mushroom products for the nine months ended September 30, 2002 increased by $24,517 or .9% to $2,651,861 from $2,627,344 for the corresponding period of the prior year. This increase in sales resulted from sales contributed by the British Subsidiary of $248,494 which was offset by a decrease in the sale of health foods and health food supplements due to weak demand. For the nine months ended September 30, 2002, 94.73% of our revenues were from the sale of fresh mushrooms and 85.4% of our total sales were through Ban Choon, a related party. During the first nine months of 2002, we sold $116,072 in health foods and health food supplements. We had no revenues from biopharmaceuticals. Cost of Sales. Cost of sales for the nine months ended September 30, 2002 increased by $577,393 or 31.4% to $2,413,679 from $1,836,286 for corresponding period of the prior year. This increase resulted from an increase in direct purchases, freight charges and increased production expenses. Gross profit, as a percentage of sales decreased to 8.98 % for the nine months ended September 30, 2002 from 30.10% for the corresponding period of the prior year. Operating Expenses. Operating expenses for the nine months ended September 30, 2002 decreased by $4,756 or .2% to $2,150,771 from $2,155,527 for the corresponding period of the prior year. The decrease in operating expenses resulted from a decrease in rental expense of $103,384 from the shuttering of the retail outlets which was partially offset by an increase in personnel expense of $7,696, depreciation and amortization of $791 and other expenses of $90,141 principally because of an increase in allowance for doubtful accounts. This increase resulted from the write off of the receivable from our associated company in Indonesia.
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As a result of the foregoing, the net loss from operations for the nine months ended September 30, 2002 increased by $548,120 or 40.17 % to a loss of $1,912,589 from a loss of $1,364,469 for the corresponding period of the prior year. Other Income (loss). Other income (loss) consists principally of interest, changes in equity investments, impairments of investments and miscellaneous items. Other income for the nine months ended September 30, 2002 decreased by $243,380 or 53.7% to a loss of $209,727 from a loss of $453,107 for the corresponding period of the prior year. This decrease resulted from a decrease of $254,907 in equity investment losses and a decrease of $51,074 in interest expenses from reduced borrowings which was partially offset by a decrease in other income of $62,601. Income Taxes. There was no provision for income taxes for the nine months ended September 30, 2002 and the corresponding period of the prior year. Other Comprehensive Income. Other comprehensive income decreased by $82,178 or 75.4% for the nine months ended September 30, 2002 to $26,882 from $109,060 for the corresponding period of the prior year. This decrease resulted from less foreign currency gains in the current year compared to the foreign currency gain in the prior year. As a result of the foregoing, the comprehensive loss for the nine months ended September 30, 2002 increased by $386,918 or 22.64% to a loss of $2,095,434 from a loss of $1,708,516 for the corresponding period of the prior year. Traditionally, inflation has had a limited impact on the Company, and management does not believe that it will have a material impact in the near future. Liquidity and Capital Resources As of September 30, 2002, the Company had unrestricted cash of $231,314 and working capital of $414,583. This compares with unrestricted cash of $47,108 and a deficiency in working capital of $374,097 as of December 31, 2001. The Company has three credit facilities covering bank overdrafts and letters of credit. The credit facilities provide for bank overdraft protection of approximately $500,000 and for irrevocable letters of credit for approximately $400,000. The credit facilities are generally secured by cash, inventory, corporate guarantees, key-man insurances and personal guarantees of one of the Company's directors. The credit facilities are payable on demand. Interest rates range from one percent to one and one-half percent over the banks prime rates. Interest rates ranged from 6% to 7% at December 31, 2001. Other nominal charges may also apply. Cash flows used in operating activities increased by $855,414 to $2,502,455 for the nine months ended September 30, 2002 from $1,647,041 for the corresponding period of the prior year. This increase resulted from an increased net operating loss and changes in the current accounts. Cash used in investing activities decreased by $55,081 to $97,828 for the nine months ended September 30, 2002 from $152,909 for the corresponding period of the prior year. This increase resulted from a reduction in deposits and investments on net sales of assets and an increase in restricted cash. Cash flows from financing activities increased by $1,072,460 to $2,757,607 for the nine months ended September 30, 2002 from $1,685,147 provided by financing activities for the corresponding period of the prior year. This increase resulted from a sale of $2,960,724 of common stock and additional stock subscription of $319,689 which was partially offset by repayments of bank borrowings and payments on long-term leases. Because the Company has continued to generate losses from operations, it has been able to sustain itself only from the sale of its shares. However, there is no guaranty that in the future it will be able to continue to sell its shares, without which the Company will have insufficient cash to fund its operations for the next twelve months.
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Item 6. Directors, Senior Management and Employees. The Executive Officers of the Company as of October 20, 2002 are as follows: Name Age Position ------- ------ ----------- Dr Kok Kheng Tan 55 Chairman of the Board, Director & Chief Executive Officer John Edward Smith 71 Chief Scientific Officer Eugene Lim 53 Chief Financial Officer & Secretary Yevindra Sepala Ilangakoon 48 Chief Operating Officer - Europe Richard Poh Pheng Chia 55 General Manager - Marketing Ronald Han Kiang Ang 62 General Manager - Marketing Franklin Leong Tian Chong 45 Group Accounts Manager Rajive Goonewardena 58 Production Manager Thye Aun Yong 67 Production Manager Victor Ang 56 Director Dr Alfred Wee Tiong Loh 56 Director David Soo Theng Lua 55 Director Chin Tiong Tan 54 Director Jin Soon Tan 67 Director Information on the business and working experience of our Directors are set out below: - Dr Kok Kheng Tan Dr Tan is the founder and Chief Executive Officer of Mycobiotech and its subsidiaries. He was educated at the University of Singapore where he obtained his B.Sc (First Class Honours) in Botany and at the University of Manchester where he obtained a Ph.D. in Mycology. He has carried out research in the field of biochemistry specializing in physiology and biochemistry of fungal development and in the cultivation of mushroom. Dr Tan had written many papers for international journals and other publications. He was a member of the Singapore Society for Microbiology, having served as its Vice President and President during the period from 1978 to 1980. He was formerly a lecturer in Biochemistry at the National University of Singapore from 1976 to 1995. Dr Tan was a director of Singapore Bus Services (1978) Ltd (now known as DelGro Corp), a company listed on the Stock Exchange of Singapore. He is currently director of CityCab Pte Ltd and various privately held companies. He is also a council member of the Singapore Confederation of Industries ("SCI") (formerly known as Singapore Manufacturers' Association) and serves as the Chairman of the Food & Beverage Industry Group. Dr Tan also sits on the committee of many public organizations. Among such committee include the Food Advisory Committee of Trade Development Board, Ministry of Environment and Productivity and Standards Board, the Council of National Healthy Lifestyle Committee, and the Ministry of Health's Nutrition Labeling Committee. Victor Ang Mr Ang is an independent Director of the Company. He is presently the Chairman and CEO of Chesapeake Technologies in Singapore and the Vice Chairman of IPP Financial Services Holding Ltd. He also sits on the board of a number of companies in the internet, multimedia, and financial services industries. He graduated from Nottingham University, England as a Shell Scholar with first-class honours in Chemical Engineering in 1968. He was previously with Shell Singapore, IBM (U.K) and Gulf Oil Europe. He was also General Manager of International Computers Ltd in the UAE (1979 to 1983), Managing Director of Hewlett-Packard, Asia Pacific (1983 to 1993), Managing Director of ERP (1993 to 1995), Managing Director of AT & T Global Information Solution (1995 to 1997), President and CEO of ST Computer Systems and Services Ltd (1997 to 2001). Dr. Alfred Wee Tiong Loh Dr. Loh is an independent Director of the Company. Dr Loh is the founding partner and Senior Clinical Director of the Raffles Medical Group, a medical practice listed on the main board of the Singapore Exchange (SGX). He is also a clinical tutor in Family Medicine in the National University of Singapore's Faculty of Medicine, and a clinical examiner of the School of Postgraduate Medical Studies for the Master of Medicine (Family Medicine) Examinations. Dr. Loh is the Chief Executive Officer ( CEO ) of the World Organisation of Family Doctors (WONCA) which has over 150,000 Family Physicians / General Practitioners in over 85 countries worldwide as its members. As CEO he oversees the running of the Wonca Secretariat in Singapore and the various programmes of the organization globally. He is a Fellow of the College of Family Physicians in Singapore and was its President from 1991 - 1996 .. He was recently elected to the Fellowship of Royal College of General Practioners, UK. Dr Loh also sits on various committees (including National Ethics Committee, Breast Cancer Working Committee, Medicine Advisory Committee) of the Ministry of Health, Singapore, and the Singapore Medical Association. Dr Loh is also involved in his family owned food trading business which is involved in the import and export of frozen products and grocery items to Western Malaysia, Brunei, Myanmar and Vietnam. Dr. Loh received his medical training in Singapore and graduated with the Degree of Bachelor of Medicine, Bachelor of Surgery ( MBBS ) from the University of Singapore in 1973. He also holds an MBA from the University of Hull ( UK )
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David Soo Theng Lua Mr Lua is an independent Director of the Company. Presently he is the chairman of ACPS Investmentt Pte Ltd. Previously he was the Acting Chief Operating Officer of Autron Ltd, a company listed on the Singapore Exchange, Director Institutional Sales, of Ong & Co Private Limited, a securities house which is a member of the Singapore Exchange. Mr Lua has had extensive experience in the areas of finance and general management having worked in diversified industries including engineering, manufacturing, - construction, publishing and printing industries. He had, in the past, held various senior management positions and directorships in publicly listed companies in Singapore and Malaysia. He was formerly Deputy Group Managing Director of Avimo Ltd, the Chief Excutive Officer of Lysaght Corrugated Pipes Pte Ltd, an Executive Director of United Engineers Bhd and the Financial Controller of Times Publishing Bhd, among other positions. Mr Lua is a qualified accountant and holds a Degree in Bachelor of Accountancy (Honours) from the University of Singapore (now known as the National University of Singapore) -, Mr Lua is also a Fellow of the Chartered Institute of Management Accountants (UK) and is a member of the Institute of Certified Public Accountants of Singapore. Prof Chin Tiong Tan Prof Tan is an independent Director of the Company. He is the Provost and professor of the Singapore Management University. He was educated in University of Singapore where he graduated with a B.B.A. (Hons) and in the US where he graduated with a Ph.D. in 1977 from Pennsylvania State University. He was Assistant Professor at the University of the Pacific (USA), from 1976 to 1978 and joined the National University of Singapore ("NUS") in 1978. He has held various positions at NUS and was Professor at the Faculty of Business Administration, and Director of the NUS Office for Continuing Education. Prof Tan was the former President of the Marketing Institute of Singapore. In addition, Prof Tan provides consultation and advisory services to many companies around the world. He currently sits on the board of several listed companies including Superior Metals Ltd, Hersing Corp and HMI Ltd. Jin Soon Tan Mr Tan is an independent Director of the MycoBiotech. He is presently the Executive Director of Singapore Article Number Council. Previously, he served 31 years with Sime Darby Singapore Ltd in various capacities. He served as a Director, International Trading (1989-1991), Business Development Director (1985-1989), Regional Director, Microcomputer Sime Darby Systems (1984-1985), Sales Director, Consumer Division (1982-1984) and as Director and General Manager of Sime Darby Edible Products (1974-1982). He sits on many international and government organization such as the Electronic Data Interchange ("EDI") and Food Standards Committee. Mr. Tan was a member of the Executive Committee of the Singapore Manufacturer's Association from 1991-1994. Mr. Tan was also a member of the Governing Council of Singapore Institute of Management from 1984 to 1989., and a member of the Court, University of Singapore (1972-1980). Mr. Tan graduated from the University of Malaya (Singapore) with a Bachelor of Arts (B.A) and is a member of the Chartered Institute of Marketing, UK, and the Singapore Institute of Management. Senior Management The day-to-day operations of the Company are entrusted to an experienced and qualified team of Executive Officers responsible for the different functions of the Group. Information on the business and working experience of our Executive Officers is given below: Dr Kok Kheng Tan Dr Tan is the founder and Chief Executive Officer of Mycobiotech and its subsidiaries. He was educated at the University of Singapore where he obtained his B.Sc (First Class Honours) in Botany and at the University of Manchester where he obtained a Ph.D. in Mycology. He has carried out research in the field of biochemistry specialising in physiology and biochemistry of fungal development and in the cultivation of mushroom. Dr Tan had written many papers for international journals and other publications. He was a member of the Singapore Society for Microbiology, having served as its Vice President and President during the period from 1978 to 1980. He was formerly a lecturer in Biochemistry at the National University of Singapore from 1976 to 1995.
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Dr Tan was a director of Singapore Bus Services (1978) Ltd (now known as DelGro Corp), a company listed on the Stock Exchange of Singapore. He is currently director of CityCab Pte Ltd and various privately held companies. He is also a council member of the Singapore Confederation of Industries ("SCI") (formerly known as Singapore Manufacturers' Association) and serves as the Chairman of the Food & Beverage Industry Group. Dr Tan also sits on the committee of many public organisations. Among such committee include the Food Advisory Committee of Trade Development Board, Ministry of Environment and Productivity and Standards Board, the Council of National Healthy Lifestyle Committee, and the Ministry of Health's Nutrition Labeling Committee. Prof John Edward Smith Prof Smith is the Group's Chief Scientific Officer responsible for the research and development of the medical properties of exotic mushrooms. He is a eminent fungal biotechnologist and an Emeritus Professor of Applied Microbiology at the University of Strathclyde, UK. He is a fellow of the Royal Society of Edinburgh and the Institute of Biology U.K. He was a professor of Applied Microbiology at the University of Strathclyde, Head of Department of Applied Microbiology from 1979-1985. He was also a member of Senate and Court of the University. Prof Smith also sits in various food and biotechnology committees in UK and Europe. Among these committees are the Advisory Committee on Novel Foods and Processes, International Scientific Panel of the Danish Research and Development Programme for Food Science and Technology. In addition, he has also served at various times on the councils of Society of General Microbiology and British Mycological Society, UK. He has authored and co-authored more than 180 scientific papers and some 20 books on fungi and fungal biotechnology including a very successful University textbook "Biotechnology" published by Cambridge University Press , and is on the editorial board of several major microbiological and biotechnology journals including International Journal of Medicinal Mushrooms. Eugene Lim Eugene is the Group Company Secretary and Chief Financial Officer. He is responsible for the Corporate finance and secretarial function including investor relations, finance and administration for all the companies in the Group. Mr. Lim is also responsible for the Group's corporate planning, human resource, legal and information technology and public relations activities. Mr Lim joined the Group in August 1998 as the General Manager (Finance & Administration) and is a qualified Chartered Accountant and is a Fellow of the Chartered Institute of Management Accountants (UK), the Institute of Company Accountants (UK), the Institute of Financial Accountants (UK) and the Institute of Commerce (UK). Mr Lim has over 28 years experience in financial management, administration, company secretarialship and general management. He has worked in various multinational companies and in various industries including the electronics, manufacturing, piling and civil engineering, music recording and retailing, car rental and travel industries. Mr Lim also holds various positions in community organisations. He is a member of Kampong Chai Chee Citizen Consultative Committee, and a council member of the South-East Community Development Council. He is also the Vice-President of the Chartered Institute of Management Accountants (Singapore Branch). Yevindra Sepala Ilangakoon Yevindra is the Chief Operating officer for Europe. He joined the Group in January 2000 and is responsible for the group companies in the U.K and Europe. He has 20 years of management experience of which 9 years was with Keels Agro Products Ltd ("KeelsAgro") which was producing Shiitake Mushrooms. During that time, the Company won the Presidential Export Award on 3 consecutive years and was placed 3rd in the National Productivity Awards. He was the Executive Director of Keels Agro for 4 years and thereafter the Managing director of Keels Agro for three years before joining Delmege Forsyth & Co. Ltd, marketing and distribution company as Deputy Managing Director where he worked for 3 years. Mr Yevindra graduated in Microbiology from the Manchester Metropolitan University in U.K. He also holds a postgraduate diploma in Business & Financial Administration from the Institute of Chartered Accountants Business School (Sri Lanka), a post graduate diploma in Marketing and a Master of Business Administration from the University of Jayawardenapura, Sri Lanka. Richard Poh Pheng Chia Richard is the General Manager (Marketing - Health Foods & Health Supplements). He joined the Group in November 1999. His responsibilities include the Mushroom Shop and for the strategic marketing of all health food products. Richard Chia has more than 15 years hands-on management experience in retail banking , wholesale banking, relationship management, developing new business and divisions and setting-up of joint venture companies in the food and beverages and property industries. He was the General Manager of First Ohio Food Systems Pte Ltd running the Ponderosa Chain of restaurants for 4 years and the Centre Director for KTL Properties Pte Ltd running Clarke Quay for one year. Richard Chia holds a Master in Business Administration from the University of Hull.
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Ronald Han Kiang Ang Ronald is the General Manager (Marketing - Mushrooms) of the Company. Mr Ang joined the Group in February 1992 and is responsible for the marketing and sales of mushrooms and other fresh produces. Mr Ang has more then thirty years of experience in food business and has been involved in many areas of food business including buying, selling, marketing, warehousing, retailing and distribution. He had worked with the Primary Production Department, Fitzpatrick's Food Supplies Pte Ltd, Ben Foods (S) Pte Ltd and Jardine Matheson (S) Ltd. He was responsible in setting up the 7-Eleven chain of convenience stores when he was with Jardine. Prior to joining the Group, he was the Operations Manager of New Mart chain of fresh produces. Franklin Leong Tian Chong Franklin is the Group Accounts Manager and is responsible for the accounts and financial functions of the Group. He joined the Company in January 2001. Franklin has more than 22 years of financial management experience. Prior to joining the Group, he was Regional Financial Controller for Hotel Equatorial International Ltd and worked in Asia Pacific Hotel Management Ltd, Hind Hotels International Ltd, Hotel Grand Central Ltd, Tung Mung Texile Pte Ltd and The English Pub Company Pte Ltd. Franklin has a Diploma in Accounting. Rajive Goonewardena Rajive is the Group's Senior Manager for production and technical support. He joined the Group in June 1996 and is responsible for the development of the mushroom growing technology. Rajive has more than twelve years of experience in mushroom growing. Prior to joining the Group he was the Production Manager of the shiitake farm of John Keells Holdings Ltd and before that the Farm Manager of the Belwood Farm. Rajive is a graduate of the National Institute of Business Management in Sri Lanka. Thye Aun Yong Yong is the Group's Senior Manager - mushroom production and joined the Group in July 2000. Mr Yong is responsible for running the Singapore Mushroom Farm and for R & D of mushroom production with the view of introducing new edible and medicinal mushrooms to the market. He is a graduate of Nanyang University with a B.Sc(Botany) degree and holds a Master of Science in Botany from the University of Auckland (New Zealand). Mr Yong worked in the Sembawang Field Experimental Station of the Primary Production Department for 25 years, and had been involved in mushroom and vegetable crop research since 1970. He was the Head of Mushroom Research (1985-1994), Head of Vegetable Agrotechnology Section (1989-1994), and Head of Vegetable and food Crop Section (1995). Mr Yong has also published 14 books on mushrooms and other agricultural topics. Term for Officers and Directors All directors are elected for a term of one-year. All officers serve at the discretion of the Board of Directors. Committee Membership Mr David Lua is the Chairman of the Audit Committee. The other members are Dr. Alfred Loh and Victor Ang. Dr Alfred Loh is the Chairman of the Compensation Committee. The other members are Prof Chin Tiong Tan, Victor Ang and Dr. Kok Kheng Tan. Mr David Lua is the Chairman of the Nominating Committee. The other members are Dr Kok Kheng Tan and Dr Alfred Loh. Executive Compensation. The following table sets forth information concerning cash and non-cash compensation paid or accrued for services in all capacities to the Company during the year-ended December 31, 2001 of each person who served as the Company's Chief Executive Officer during calendar year 2001. No other executive officers total annual salary and bonus exceeded $100,000 during the calendar year ended December 31, 2001 or for any of the two previous years. [Enlarge/Download Table] Long-Term Name and Principal Annual Compensation Compensation ------------------- Other Stock Plans Position Year Salary Bonus Auto Allowance (No. of Shares) -------- ---- ------ ----- -------------- --------------- Dr Kok Kheng Tan, CEO 2001 97,587 8,132 18,188 125,000 2000 103,860 8,655 19,812 125,000 1999 91,397 6,578 15,873 125,000
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Stock Option Grants Bonuses are determined at the discretion of the Board of Directors, but within the prescribed limits of the employment contract. At an Extraordinary General Meeting on July 6, 2000, the Company changed the name of its previous option plan from the MycoBiotech Executive Share Option Scheme 1997 to the MycoBiotech Share Option Scheme for Directors and Employees and the terms of the Scheme was extended to cover all employees including independent Directors. The total number of share options to be issued by the Company pursuant to the Plan will not exceed 20% of the issued ordinary share capital of the Company. Under the terms of the Plan, each share option entitles the Directors and the employees of the MycoBiotech Group to subscribe for one new ordinary share of S $1 each in the Company. The options are granted in consideration of S $1 each for all the shares in respect of which the option is granted. The option may be exercised at any time after the date of grant but no later than five years from the date the share option was granted. The shares under option may be exercised in full or in 1,000 shares or a multiple thereof on the payment of the exercise price. Options granted are cancelled when the option holder ceases to be a full-time employee of the Company or any corporation in the MycoBiotech Group subject to certain exceptions at the discretion of the Company. The following table sets forth information concerning the grant of stock options made during 2001 to each officer and director: [Enlarge/Download Table] Percent of Total Options Granted to Options Employees in Fiscal Price Per Expiration Options Name Granted Year Share Date Outstanding ---- ------- ---- ----- ---- ----------- Dr Kok Kheng Tan 125,000 15.15% 0.92 12-31-06 925,000 Eugene Lim 100,000 12.12% 0.92 12-31-06 510,000 Dr. Alfred Wee Tiong Loh 100,000 12.12% 0.92 12-31-06 250,000 David Soo Theng Lua 100,000 12.12% 0.92 12-31-06 320,000 Prof Chin Tiong Tan 100,000 12.12% 0.92 12-31-06 300,000 Jin Soon Tan 100,000 12.12% 0.92 12-31-06 200,000 Stock Option Exercised and Year-End Option Values Shares Acquired Name on Exercise (#) Exercise Price -------- ---------------- --------------- Dr Kok Kheng Tan 200,000 0.54 Dr. Alfred Wee Tiong Loh 50,000 0.54 Jin Soon Tan 100,000 0.54 All of the shares exercised were from previous option grants at $0.54.
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Employment Contracts On January 31, 2000, the Company entered into an employment contract with Dr Kok Kheng Tan. The contract is effective from January 1, 2000 (the "Effective Date"). The principal terms of the service contracts are as follows: (i) employment will be for a period of five (5) years from the Effective Date or such later date as may be agreed in writing between the Company and the executive. The contract may be terminated by either party giving the other party not less than six months' notice in writing in salary in lieu of notice; (ii) he will be entitled to a monthly salary of $8,333; (iii) he shall, in respect of each financial year, be entitled to a bonus of an amount equivalent to not less than 1 months' salary and not more than 6 months' salary at the discretion of the Board. (iv) he shall, in respect of each financial year, be eligible to participate in the performance incentive bonus for management staff and to be remunerated in such quantum as the Board of Directors shall determine. (v) in addition, he shall be provided with and entitled to the sole use of a motor car. The Company shall reimburse the executive up to $2,778 per month for the up-keep and maintenance of such motor car, inclusive of gasoline, parking fees and all fees, charges and duties relating to road usage (including but not limited to Electronic Road Pricing charges imposed by the Land Transport Authority or other regulatory body in Singapore); (vi) the rate of the executive's salary shall be reviewed in January of each year and shall be adjusted by such amount as may be determined by the Board. C. Board Practices. Audit Committee Recognising the importance of corporate governance and the need to offer the highest standards of accountability to shareholders, the Audit Committee intends to adhere closely to the principles outlined in the Best Practices Guide issued by the Singapore Exchange and to meet periodically to perform the following functions:- (a) review the audit plans of the Company's external auditors; (b) review the external auditors' evaluation of the system of internal controls; (c) review the external auditors' reports; (d) review the co-operation given by the Company's officers to the external auditors; (e) review the financial statements of the Company and the Group before their submission to the board of Directors; (f) nominate external auditors for re-appointment; and (g) review interested party transactions. Apart from the duties listed above, the Audit Committee will hire and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringements of any Singapore law, rule or regulation which has or is likely to have a material impact on the Group's operating results and/or financial position. Compensation Committee The Compensation Committee of the Board of Directors establishes the general compensation policies of the Company with respect to stock options and the compensation plans and specific compensation levels for executives of the Company. The Compensation Committee consists of a majority of non-employee Directors who are not eligible to participate in any of the compensation plans or programs it administers, other than the options these individuals receive under the guidelines established for the granting of stock options to Board and Committee members. The primary consideration of the Compensation Committee in determining overall executive compensation is to motivate, reward and retain the best management team to achieve the company's objective and thus compensation is based upon a combination of overall financial performance of the company, the meeting of long term objectives and each individuals' experience and past performance, while considering salaries of other executives in similar companies.
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The executive compensation system consists of three major components: base salary, annual incentive - consisting of participation in a cash bonus program, and long term incentive compensation-consisting of stock option grants. Nominating Committee The Nominating Committee is charged with recommending persons to stand for election for the Board of Directors. It is the responsibility of the Committee to investigate potential nominees and to seek the best candidate possible. D. Facilities and Employees. We do not experience any significant seasonal fluctuations in the number of employees. Relationship between management and staff are good and there have not been any industrial disputes in the Company or its subsidiaries. The Company currently employs fifty-threein Singapore and eighteen people in England. We have experienced no difficulty in hiring or retaining personnel. With the exception of our operation in England, which is new, most of our personnel are long time employees. The Company has mushroom growing facilities in Singapore and England and Malaysia. The production of certain health supplements are subcontracted to Beacon Chemicals Pte Ltd. Health foods, such as soups and sauces are produced in the Food Process Technology Centre of the Productivity Standards Board (PSB) in Singapore. Description of Property Our principal executive offices are located at 12 Science Park Drive #04-01, The Mendel, Singapore Science Park, 1 Singapore 118225. We lease approximately 4,659 square feet of office space at this location at a months rental rate of approximately $5,855. We also have a mushroom growing facility in Singapore of approximately 65,340 square feet and rents for approximately $440 per month. In Kent, England we lease a farm with growing facilities. This facility comprises thirteen (13) acres and rents for approximately $11,667 per month. Item 7. Major Shareholders and Related Party Transactions. A. Major Shareholders. The following table sets out, as of October 20, 2002, the beneficial ownership of shares of the Company's common stock by each shareholder of the company who is known by the Company to be a beneficial owner of more than 5% of the Company's common stock and all officers and directors of the company. The company has only one class of stock and all shareholders have equal per share voting rights. [Download Table] Amount of Beneficial Changes in Prior Name Ownership Percent Three Years ------- ------------ ---------- -------------- Dr. Koh Kheng Tan 5,373,389(1) 21.00% 630,811 Professor Chin Tiong Tan 211,891 .83% 211,890 Dr. Alfred Wee Tiong Loh 191,011 .75% 191,010 Jin Soon Tan 120,000 .47 120,000 David Soo Theng Lua 63,001 .24 63,000
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[Download Table] Victor Ang 5,000 - 5,000 Eugene Lim 153,239 .60 153,238 Dr. Poon Liat Ang (2) 2,216,990 8.73 1,915,049 All officers and directors as a group (7 persons) 8,334,521 32.62 1. Include shares held by Dr. Irene Hwee Kwee Chua, his wife and Everbloom Investment Pte Ltd. And Everbloom Holdings Pte Ltd, entities controlled by the Tan family. 2. Include shares held by Dr. Eu Li Wu, his wife. B. Related Party Transactions. Save as disclosed below, none of our Directors, substantial shareholders of the Company and the Executive Officers has any interest in any material transactions undertaken by the Group in the past three financial years. (a) Sale and Purchase of Goods Since 1983, Everbloom Mushroom, a subsidiary of the Company, has been buying various types of mushrooms from Ban Choon Marketing Pte Ltd. Since 1998, Everbloom Mushroom also sells Shiitake mushrooms to Ban Choon. Mr Chin Hian Tan who holds 91.0 per cent. of the issued and paid up capital of Ban Choon Marketing Pte Ltd. Mr Tan is an outside Director of Everbloom Mushroom and a brother of Dr Kok Kheng Tan. The agency agreement provides for BAN CHOON to be the exclusive distributor of certain products in the Singapore area. The agreement also provides for BAN CHOON to be paid for all the costs incurred in the marketing and distribution of the products plus 20% of the net profit. EM owes BAN CHOON approximately $141,500 net of a commission owed to EM from BAN CHOON from prior years at December 31, 2001. During 2001, sales through BAN CHOON totalled approximately $2,645,000 or approximately 77% of total sales. Expenses paid by BAN CHOON were approximately $505,000. Net income provided to the Company was approximately $67,700. During 2000, sales through BAN CHOON totalled approximately $2,352,600 or approximately 72% of total sales. Expenses paid by BAN CHOON were approximately $567,000. Net income provided to the Company was approximately $83,000. The remaining amounts owed to related parties, approximately $137,000 as of December 31, 2001, is owed to Everbloom Holding Ltd. and Everbloom Investments Ltd. for advances to the Company. These entities are owned and controlled by the Tan Family. C. Interests of Experts and Counsel. None Item 8. Financial Information. A. Consolidated Statements and other Financial Information The consolidated financial statements are filed in this Report as Item 18. B. Significant Changes Not applicable
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Item 9. The Offer and Listing. A. Offer and Listing Details Because our shares are neither listed nor publicly trade, this provision is not applicable. B. Plan of Distribution Not applicable. However, when shares are registered, they will be issued as American Depository Receipts (ADR's) An ADR is a receipt for the shares of a foreign based corporation held in the vault of a U.S. bank, in this case the Bank of New York, entitling the shareholder to all dividends and capital gains; instead of buying shares of foreign based companies in overseas markets, Americans can buy shares in the U.S. in the form of an ADR. C. Market Because our shares are not yet registered in the United States, there is no current market for the shares nor are they listed on any exchange. D. Selling Shareholders Not applicable E. Dilution Not applicable F. Expenses of the Issuer Not applicable. Item 10. Additional Information. A. Share Capital. The Company is authorized to issue 50,000,000 shares of common stock at a par value of $1.00 (Singapore) (US$0.54). All shares are a single class. As of October 31, 2002, 25,593,548 shares of the Company's common stock had been issued and were outstanding. In addition 2,692,570 options for the purchase of shares were outstanding as of October 31, 2002. All of the outstanding shares have been fully paid and are non-assessable. As of December 31, 2001, the Company had 21,109,542 shares issued and outstanding. During the current year, options have been exercised for 304,930 shares and 4,324,006shares have been sold for cash. B. Memorandum and Articles of Association. Corporate Powers. We have been registered under the Company's act in the Republic of Singapore since May 22,1980. Our Memorandum of Association states that the object for which we are established are in essence to engage in any business which is not prohibited by law, enforced in the Republic of Singapore. Share Capital. The share capital of the Company is $50,000,000 Singapore Dollars (US$27,000,000) divided into 50,000,000 shares of common stock having a par value of $1.00 Singapore (US$0.54). All shares have the same rights with regards to dividends or distributions upon liquidation. The Company has the power to increase or reduce its capital to divide its shares into several classes and to attach to any class preferencial, differed, special rights, privileges or conditions. At present all shares have the same or equal rights and are entitled to one vote per share. The directors of the Company may convene meetings of the shareholders upon 14 days written notice. The general meeting shall be held at least once a year and special meetings may be held at any time. Measures should be passed by a majority of the shares entitled to vote. Restrictions on Rights to Own Securities. There are no limitations on the right to own securities of the Company. Change in Control Provisions. There are no provisions of our Memorandum of Association and Articles of Association that would have an effect of delaying, deferring or preventing a change in our control and that would operate only with respect to a merger, acquistion or corporate restructuring involving us. Disclosure of Share Ownership. There are no provisions governing the ownership threshold above which shareholder ownership must be disclosed. Applicable Law. Under the laws of most jurisdictions in the U.S., majority and controlling shareholders generally have certain "fiduciary" responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are obviously unreasonable may be declared null and void. Singapore law protecting the interest of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in the US jurisdictions.
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While Singapore law does permit a shareholder of a Singapore company to sue its directors derivatively, that is, in the name of and for the benefit of our company and to sue a company and its directors for his benefit and for the benefit of others similarly situated, the circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a Singapore company being more limited than those of shareholders of a company organized in the U.S. Our directors have the power to take certain actions without shareholder approval, including an amendment of our Memorandum of Association or Articles of Association or an increase or reduction in our authorized capital, which would require shareholder approval under the laws of most U.S. jurisdictions. In addtion, the directors of a Singapore corporation, subject in certain cases to court approval but without shareholder approval, may, among other things, implement a reorganization, certain mergers or consolidations, the sale, transfer, exchange or disposition of any assets, property, part of the business, or securities of the corporation, or any combination, if they determine it is in the best interest of the corporation, its creditors, or its shareholders. Our ability to amend our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our common stock at a premium over then current market prices. As in most US jurisdictions, the board of directors of a Singapore corporation is charged with the management of the affairs of the corporation. In most US jurisdictions, directors owe a fiduciary duty to the corporation and its shareholders, including a duty of care, under which directors must properly apprise themselves of all reasonably available information, and a duty of loyalty, under which they must protect the interests of the corporation and refrain from conduct that injures the corporation or its shareholders or that deprives the corporation or its shareholders of any profit or advantage. Many US jurisdictions have enacted various statutory provisions which permit the monetary liability of directors to be eliminated or limited. Under Singapore law, liability of a corporate director to the corporation is primarily limited to cases of willful malfeasance in the performance of his duties or to cases where the director has not acted honestly and in good faith and with a view to the best interests of the corporation. However, under our Articles of Association, we are authorized to indemnify any director or officer who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being one of our directors or officers, provided such person acted honestly and in good faith and with a view to our best interests and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. Our Articles of Association also enables us to indemnify any director or officer who is successful in such a proceeding against expense and judgements; fines and amounts paid in settlement and reasonably incurred in connection with the proceeding. The above description of certain differences between Singapore and US corporate laws is only a summary and does not purport to be complete or to address every applicable aspect of such laws. However, we believe that all material differences are disclosed above. Changes in Capital. Requirements to effect changes in capital are not more stringent than is required by law. C. Material Contracts. We generally have two types of contracts; marketing and distribution agreements which are described under Item 4, "Sale and Marketing" and license agreements which are listed under Item 4, "License Agreements". The company generates revenues from only one Sales and Marketing Agreement, that with BanChoon Marketing Ptd. Ltd. a related party. The company does not generate revenue from any of its current license agreements. Generally each license agreement provides for the license to provide the capital, the management and payment of a fee in exchange for our providing the mushroom growing technology and training. The license generally are for a specific geographic area, but are not limited by a fixed term. The Ban Choon agreement requires the Company to reimburse Ban Choon for all costs incurred in marketing and distributing our products, plus 20% of the net profit. The Company is also responsible for all credit risks. The Company has three credit facilities covering bank overdrafts and letters of credit. The credit facilities provide for bank overdraft protection of approximately $500,000 and for irrevocable letters of credit for approximately $400,000. The credit facilities are generally secured by cash, inventory, corporate guarantees, key-man insurance and personal guarantees of one of the Company's directors.
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The credit facilities are payable on demand. Interest rates range from one percent to one and one-half percent over the banks prime rates. Interest rates ranged from 6% to 7% at December 31, 2001. Other nominal charges may also apply. The Company has three lease agreements for property in Singapore, two for the form and one for its officer facilities. The form leases are for three years beginning on January 1, 2001 and January 1, 2003 respectively and call for annual rent of $9,708 (Singapore$) and $13,850 (Singapore $), respectively. The lease for the officer facilities is for a period of three years beginning on December 1, 1999 and calls for an annual rent of $128,801 (Singapore $). This lease has been extended for a period of one year. D. Exchange Controls. There are no material Singapore laws that impose foreign exchange controls on us or that effect our payment of dividends, interest or other payments to non resident holders of our capital stock. Singapore law and our Memorandum of Association and Articles of Association impose no limitations on the right of non-resident of foreign owners to hold or vote our common stock. E. Taxation. The following is a summary of anticipated material U.S. federal income and Singapore tax consequences of an investment in our common stock. The summary does not deal with all possible tax consequences relating to an investment in our common stock and does not purport to deal with the tax consequences applicable to all categories of investors, some of which, such as dealers in securities, insurance companies and tax-exempt entities, may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other non-U.S. and non-Singapore tax laws. Accordingly, each prospective investor should consult its own tax advisor regarding the particular tax consequences to it of any investment in the common stock. The discussion below is based upon laws and relevant interpretations in effect as of the date of this annual report, all of which are subject to change. United States Federal Income Taxation The following discussion addresses only the material U.S. federal income tax consequences to a U.S. person, defined as a U.S. citizen or resident, a U.S. corporation, or an estate or trust subject to U.S. federal income tax on all of its income regardless of source, making an investment in the common stock. For taxable years beginning after December 31, 1996, a trust will be a U.S. person only if: - a court within the U.S. is able to exercise primary supervision over its administration; and - one or more U.S. persons have the authority to control all of its substantial decisions. In addition, the following discussion does not address the tax consequences to a person who holds or will hold, directly or indirectly, 10% or more of our common stock, which we refer to as a "10% Shareholder". Non-U.S. persons and 10% Shareholders are advised to consult their own tax advisors regarding the tax considerations incident to an investment in our common stock. There are no withholding taxes on dividends paid by a Singapore Company to a non-Singapore resident. Therefore, a U.S. taxpayer would include in his/her/its taxable income the full amount of the dividend paid and pay the tax without offset or credit. There is no foreign tax credit as there was no withholding at source. Gain or loss on the sale or exchange of our common stock will be treated as capital gain or loss if our common stock is held as a capital asset by the U.S. investor. Such capital gain or loss will be long-term capital gain or loss if the U.S. investor has held our common stock for more than one year at the time of the sale of exchange. There is no Singapore tax to a non-Singapore resident on the sale or exchange of common stock. F. Dividends and Paying Agents. Not applicable
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G. Statement by Experts. Not applicable H. Documents On Display. The documents concerning our company which are referred to in this Report may be inspected at our principal executive offices at 12 Science Park Drive #04-01, The Mendel, Singapore, Science Park 1, Singapore 118225. I. Subsidiary Information. Not applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk. Net fair value of financial assets and liabilities The net fair value of all financial assets and liabilities approximates their carrying value which are disclosed in the balance sheets and notes to the financial statements. Interest rate exposures The Company's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates. The secured bank overdraft and letters of credit are subject to floating interest rates at prime plus 1% to 1.5% the secured letters of credit receipts facility is subject to a floating interest rate of prime plus 1.5%. However, based on borrowing levels at December 31, 2001, interest rate fluxutions are immaterial. Credit risk The Company's maximum exposure to credit risk at balance sheet date in relation to each class of recognized financial assets is the carrying amount, net of any provisions for doubtful debts, of those assets as indicated in the balance sheets and notes to the financial statements. Foreign currency risk The Company incurs foreign currency risk on sales and purchases that are denominated in a currency other than Singapore dollars. The currencies giving rise to this risk are primarily US dollars and Pounds Sterling. However, the Company maintains no accounts in U.S. Dollars and limited amounts in Pounds Sterling. As of December 31, 2000 our total exposures to Pounds Sterling expressed in U.S. Dollars was $0 and as of December 31, 2001 was $120,000 all in accrued liabilities. Therefore, the foreign currency risk is minimal as even a 10% change would only produce a $12,000 benefit or charge. The Company does not hedge its foreign currency risk. Item 12. Description of Securities Other than Equity Securities. Not applicable. Part II Item 13. Defaults, Dividend Arrearages and Delinquencies. Not applicable. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds. Not applicable.
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Part III Item 17. Financial Statements. Not applicable. Item 18. Financial Statements. MYCOBIOTECH, LTD AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS [Enlarge/Download Table] Pages -------- December 31, 2001 Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3-4 Consolidated Statements of Loss for the years ended December 31, 2001, 2000 and 1999 F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-7-8 Notes to Financial Statements F-9-22 September 30, 2002 (Unaudited) Consolidated Balance Sheet as of September 30, 2002 F-23-24 Consolidated Statements of Income for the Nine months ended September 30, 2002 and 2001 F-25 Consolidated Statements of changes in Shareholders' Equity for the Nine months ended September 30, 2002 F-26 Consolidated Statements of Cash Flows for the Nine months ended September 30, 2002 F-27-28 Notes to Financial Statements F-29 Schedule II - MycoBiotech, Ltd. and Subsidiaries Valuation and Qualifying Accounts Provision for Doubtful Accounts Item 19. Exhibits. 3.1* Articles and Memorandum of Association of MycoBiotech Ltd. 10.1* Service Contract with Dr. Koh Kheng Tan 10.2* MycoBiotech Share Option Scheme for Directors & Employees 10.3* A license agreement dated December 8, 1997 entered into between Everbloom International Technology Pte Ltd and Everbloom Mushroom (UK) Ltd; 10.4* A license agreement dated May 30, 1998 entered into between Everbloom Biotechnology (Pte) Ltd and Everbloom International Technology Pte Ltd; 10.5* A license agreement dated June 1, 1998 entered into between Everbloom Biotechnology (Pte) Ltd and Everbloom Health Food Pte Ltd; 10.6* A license agreement dated December 9, 1998 entered into between Everbloom International Technology Pte Ltd and Everbloom Mushroom (UK) Ltd; 10.7* A license agreement dated December 9, 1998 entered into between Everbloom Health Food Pte Ltd and Mycoceuticals Ltd; 10.8* A license agreement dated February 23, 2000 entered into between Everbloom International Technology Pte Ltd and Gulf Mushrooms Products Company (S.A.O.G.); and 10.9* A license agreement dated June 4, 2001 entered into between MycoBiotech Ltd and Everbloom Biotechnology (Canada) Ltd.
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10.10* A license agreement dated January 21, 2000 entered into between Everbloom Health Food Pte Ltd and Ever-Bloom, Nutraceuticals (M) Sdn Bhd; 10.11* Marketing & Distribution Agreement - Everbloom Health Food P/L & Ever-Bloom Nutraceuticals (M) Sdn Bhd 10.12* Marketing & Distribution Agreement - Everbloom Health Food P/L & Latin Asia Inc. 10.13* Distributorship Agreement - Everbloom Health Food P/L & Diethlem Singapore P/L 10.14* Distributorship Agreement - MycoBitech Ltd. and A. Clouet, Pty Ltd. 10.15* Distributorship Agreement - Everbloom Health Food P/L & Everbloom Biotechnology (Canada) Ltd. 10.16* Agency Agreement Everbloom Mushroom Pte Ltd. and BanChoon Marketing Pte Ltd. 10.17 Sale & Purchase Agreement - Everbloom International Technology P/L & P.T. Bank Paribas - BBD Indonesia 10.18* Assignment Agreement - Everbloom International Technology P/L & P.T Bank Paribas - BBD Inidonesia 10.19* Sale & Purchase Agreement - Everbloom International Technology P/L & P.T Rabobank Duta Indonesia 10.20* Assignment Agreement - Everbloom International Technology P/L & P.T Rabobank Duta Indonesia 10.21* Investor Relations Agreement - MycoBiotech Ltd. & Stoneside Development Limited 10.22* License Agreement between Everbloom Biotechnology (Canada) Ltd. and Everbloom - Ridge Mushroom Joint Venture date February 1, 2001 10.23* License Agreement between MycoBiotechnology Ltd. and Culture Technik Brabant dated December 8, 2000 10.24* Sale and Purchase Agreement between Everbloom International Technology Pte. Ltd. and P.T. Int:Mekar Sejati dated August 21, 2000 10.25* Letter from Beacons Pharmaceutical confirming that they act as contract manufacture for Linzir Capsules and Mycoglucan Capsules 10.26* Banking Agreement with United Overseas Bank 10.27* Banking Agreement with Keppel Tatlee Bank 10.28* Tenancy Agreement dated June 20, 2001 between Everbloom Mushroom Pte Ltd and the Government of Singapore 10.29* Tenancy Agreement dated November 27, 2002 between Everbloom Mushroom Pte Ltd and the Government of Singapore 10.30* Commercial Lease dated July 18, 2001 between Everbloom International Technology Pte Ltd. and Templar Investment Ltd. 10.31* Banking Agreement with Southern Bank Berhad 23.1 Consent of Certified Public Accountants * Denotes previously filed.
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SIGNATURES MYCOBIOTECH LTD. By: ------------------------------ Dr. Kok Kheng Tan, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signatures Title Date ---------------- -------- --------- Chairman of the Board and May ___, 2003 --------------------- Chief Executive Officer Dr Kok Kheng Tan Director May ___, 2003 --------------------- Victor Ang Director May ___, 2003 --------------------- Dr Alfred Wee Tiong Loh Director May ___, 2003 --------------------- David Soo Theng Lua Director May ___, 2003 --------------------- Professor Chin Tiong Tan Director May ___, 2003 --------------------- Jin Soon Tan Chief Financial Officer and May ___, 2003 --------------------- Secretary Eugene Lim
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MYCOBIOTECH, LTD AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Pages -------- December 31, 2001 Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3-4 Consolidated Statements of Loss for the years ended December 31, 2001, 2000 and 1999 F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-7-8 Notes to Financial Statements F-9-22 September 30, 2002 (Unaudited) Consolidated Balance Sheet as of September 30, 2002 F-23-24 Consolidated Statements of Income for the nine months ended September 30, 2002 and 2001 F-25 Consolidated Statements of Income for the three months ended September 30, 2002 and 2001 F-26 Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 F-27-28 Notes to Financial Statements F-29
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Independent Auditor's Report To the Board of Directors, MYCOBIOTECH, LTD Singapore We have audited the accompanying consolidated balance sheet of MYCOBIOTECH, LTD and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended December 31, 2001, 2000 and 1999. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of MYCOBIOTECH, LTD and subsidiaries, as of December 31, 2001 and 2000 and the results of its operations and its cash flows for the years ended December 31, 2001, 2000 and 1999, in conformity with generally accepted accounting principles accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a net working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. THOMAS LEGER & CO., L.L.P. Houston, Texas October 7, 2002
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNITED STATES DOLLARS) ASSETS December 31, 2001 2000 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 47,108 $ 74,755 Cash and bank balances - restricted 328,958 173,100 Trade receivables net of provision of $23,162 and $0 at December 31, 2001 and 2000 497,646 1,022,394 Stock subscription receivable 319,689 - Inventory 605,683 664,176 Prepaid expenses and deposits 68,366 270,546 Deferred offering expense 71,775 - Other 39,778 3,428 ----------- ----------- TOTAL CURRENT ASSETS 1,979,003 2,208,399 PROPERTY, PLANT AND EQUIPMENT 300,668 477,496 INVESTMENTS 38,368 807,122 INTANGIBLE 108,430 138,480 DEPOSIT TO SUPPLIER 88,255 82,642 ----------- ----------- TOTAL ASSETS $ 2,514,724 $ 3,714,139 =========== ===========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNITED STATES DOLLARS) LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, 2001 2000 ---- ---- CURRENT LIABILITIES Bank overdraft secured $ 352,110 $ 322,931 Short-term debt unsecured interest free 108,430 115,400 Open letters of credit 159,569 29,428 Trade payables 647,228 746,438 Other payables and accrued expenses 775,507 549,653 Income tax payable 31,700 127,964 Related parties 278,556 457,686 ---------- ----------- TOTAL CURRENT LIABILITIES 2,353,100 2,349,500 ---------- ----------- LONG-TERM LIABILITIES Unsecured convertible bonds 119,274 1,996,423 Grant 38,366 - Long-term lease obligations 53,356 102,198 ---------- ----------- TOTAL LONG-TERM LIABILITIES 210,996 2,098,621 SHAREHOLDERS' EQUITY Common stock , S $1.00 par value, 25,000,000 authorized; 21,109,542 and 14,002,000 issued and outstanding at December 31, 2001 and 2000 12,307,813 8,417,452 Paid-in capital 4,310,606 3,835,809 Retained deficit (16,773,032) (12,741,828) Treasury stock - (248,940) Accumulated other comprehensive income 105,241 3,525 ------------ ----------- Total Shareholders' Deficit (49,372) (733,982) ------------ ----------- Total Liabilities and Shareholders' Deficit $ 2,514,724 $ 3,714,139 ============ ===========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED LOSS STATEMENTS AND COMPREHENSIVE LOSS (UNITED STATES DOLLARS) December 31, 2001 2000 1999 ---- ---- ---- SALE OF MUSHROOM PRODUCTS $ 3,455,930 $ 3,706,973 $ 1,256,444 COST OF SALES 3,311,617 2,477,767 684,426 ---------- ---------- -------- GROSS PROFIT 144,313 1,229,206 572,018 DEPRECIATION AND AMORTIZATION 118,965 149,512 105,271 GENERAL AND ADMINISTRATIVE EXPENSES Bad debt 122,970 291,705 126,676 Personnel expense 1,138,961 1,482,511 645,713 Stock option expense 231,903 1,564,160 - Professional fees 258,084 183,669 33,459 Rent expense 407,757 211,008 36,331 Other 1,164,310 673,957 189,542 ---------- -------- -------- LOSS FROM OPERATIONS (3,298,637) (3,327,316) (564,974) OTHER INCOME (LOSS) Interest expense (145,174) (140,831) (138,799) Equity investment loss (574,000) (10,726) - Impairment of investments (183,804) - - Other 170,411 114,514 67,137 -------- -------- ------- LOSS BEFORE TAXATION (4,031,204) (3,364,359) (636,636) PROVISION FOR INCOME TAXES - (43,878) (31,484) -- -------- -------- NET LOSS (4,031,204) (3,408,237) (668,120) ----------- ----------- --------- OTHER COMPREHENSIVE INCOME Foreign currency translation 101,716 65,239 (61,714) -------- ------- -------- COMPREHENSIVE LOSS $ (3,929,488) $ (3,342,998) $ (729,834) ============= ============= =========== BASIC AND DILUTED LOSS PER SHARE $ (0.26) $ (0.26) $ (0.07) ======== ======== ======== BASIC WEIGHTED AVERAGE SHARES 15,768,929 13,035,298 10,706,728 =========== =========== ===========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 2001 AND 2000 (UNITED STATES DOLLARS) [Enlarge/Download Table] Accumulative other Tolal Common Common Paid-in Retained comprehensive Treasury Shareholder's Shares Stock capital deficit income stock deficit -------- -------- --------- --------- -------------- --------- ------------- Balance December 31, 1998 10,000,001 $ 6,064,208 $ 22,741 $ (8,665,471) $ - $ - $ (2,578,522) Issue shares for cash 2,205,999 1,303,089 224,470 - - - 1,527,559 Foreign currency translation - - - - (61,714) - (61,714) Net loss December 31, 1999 - - - (668,120) - - (668,120) ----------- ---------- --------- ---------- --------- ------ ------------ Balance December 31, 1999 12,206,000 7,367,297 247,211 (9,333,591) (61,714) - (1,780,797) ----------- ---------- --------- ---------- --------- ------ ------------ Issue shares for cash 1,350,000 783,902 2,024,438 - - - 2,808,340 Issue shares for investment 416,000 248,940 - - - (248,940) - Exchange shares for bonds 30,000 17,310 - - - - 17,310 Stock options granted - - 1,564,160 1,564,160 Foreign currency translation - - - - 65,239 - 65,239 Net loss December 31, 2000 - - - (3,408,237) - - (3,408,237) Adjustment - 3 - - - - 3 ----------- ---------- ----------- --------- --------- -------- ----------- Balance December 31, 2000 14,002,000 8,417,452 3,835,809 (12,741,828) 3,525 (248,940) (733,982) ----------- ---------- ---------- ------------ ------ --------- --------- Issue shares for cash 3,749,246 2,071,933 211,252 - - - 2,283,185 Issue shares for services 12,239 6,715 6,715 - - - 13,430 Stock options granted 231,903 231,903 Issue shares for investment - PTRC 64,000 11,060 - - - 248,940 260,000 Issue shares for investment in Medmyco 22,057 12,101 24,927 37,028 Exchange shares for bonds 3,260,000 1,788,555 - - - - 1,788,555 Foreign currency translation - - - - 101,716 - 101,716 Net loss December 31, 2001 - - - (4,031,204) - - (4,031,204) Adjustment - (3) - - - - (3) ---------- ---------- -------- ---------- ---------- --------- ---------- Balance December 31, 2001 21,109,542 $12,307,813 $4,310,606 $(16,773,032) $ 105,241 $ - $(49,372) =========== =========== =========== =========== ========== ========= ==========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNITED STATES DOLLARS) [Enlarge/Download Table] Year Ended December 31, 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,031,204) $ (3,408,237) $ (668,120) ------------- ------------- ----------- ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Depreciation and amortization 118,965 149,512 105,271 Issuance of stock for expenses 13,430 - - Stock options granted 231,903 1,564,160 - Impairment of investment 183,804 - - Equity investment loss 574,000 10,726 - (INCREASE) DECREASE IN ASSETS: Trade receivables 524,748 (629,057) (179,485) Inventory 58,493 (273,612) (146,748) Prepaid expenses and deposits 202,180 (162,308) - Deferred offering expenses (71,775) - - Other (36,350) 12,516 (124,182) INCREASE (DECREASE) IN LIABILITIES: Trade payables (99,210) 263,838 (495,044) Other payables and accrued expenses 225,854 220,898 (351,895) Purchased software Related parties (179,130) 442,675 15,011 Income tax payable (96,264) (6,910) 30,974 -------- ------- ------- Net cash used by operating activities (2,380,556) (1,815,799) (1,814,218) ----------- ----------- -----------
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNITED STATES DOLLARS) [Download Table] Year Ended December 31, 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES Deposit to supplier (5,613) (82,642) - Investment - (805,786) (1,336) Intangible - - (168,118) Purchase of fixed assets - (310,670) (304,411) Increase in restricted cash (155,858) (173,100) - --------- --------- --------- Cash provided for investing activities (161,471) (1,372,198) (473,865) --------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft - net 29,179 228,186 34,683 Short-term unsecured (6,970) (70,903) (937,744) Letters of credit - net 130,141 29,428 180,126 Grant 38,366 - - Long-term leases 48,842 46,935 55,264 Bonds - - 1,737,619 Sale of common stock 2,283,185 2,808,340 1,527,559 ---------- ---------- ---------- 2,522,743 3,041,986 2,597,507 ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND BANK BALANCES (19,284) (146,011) 247,710 Effects of exchange rate changes (8,363) (33,223) (61,714) Cash and bank balances, at beginning of period 74,755 253,989 6,279 ---------- ---------- ------ Cash and bank balances, at end of period $ 47,108 $ 74,755 $ 192,275 ========== ========== ========== SUPPLEMENTARY CASH FLOWS DISCLOSURES 1. Interst paid $145,172 $ 140,831 $ 107,099 ========== ========== ========== 2. Taxes paid $ 91,144 $ 45,043 $ - ========== ========== ========== 3. Stock subscription receivables totaling $319,689 were collected and deposited into the Company's accounts in January, 2002. 4. Effective December 31, 2001 approximately $1,788,555 of unsecured convertible bonds were exchanged for 3,240,000 shares of S $1 par value common stock. 5. Treasury stock (416,000 shares) for $248,940 and additional issue of 64,000 shares valued at $11,060 totaling 480,000 shares for $260,000 (combined value at par) were issued for the Company's investment in PT Randhoetatah Camerlangin July, 2001. See Note 7. 6. 22,057 shares of stock were issued at a value of $37,028 for the company's investment in Medmyco, Ltd. 7. 12,239 shares of stock were issued at a value of $13,430 for services. 8. Shares were issued in 2000 for approximately $248,940 and the transaction was rescinded during 2000. The shares were held in treasury until July, 2001. 9. Approximately $17,310 of unsecured convertible bonds were exchanged for 30,000 shares of S $1 par value common stock during 2000.
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MYCOBIOTECH, LTD AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION AND PRINCIPAL ACTIVITIES MycoBiotech Ltd. ("Company") is a public limited company domiciled and incorporated in Singapore in 1980. The current principal activity of the Company is the sale of fresh mushroom and related mushroom products. The Company also licenses mushroom cultivation technology and know-how on production of nutraceuticals and functional foods. The Company has no reportable income from the sales of licenses and technology during the three year period ended December 31, 2001. The Company's management has identified only one reportable segment. 2. BASIS OF PRESENTATION The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory financial statements of subsidiaries which are prepared in accordance with the accounting principles generally accepted in Singapore. The following material adjustments were made to present the consolidated financial statements to conform with US GAAP: (Rounded to nearest $1,000) December 31, 2001 2000 1999 -------- -------- --------- Increase (decrease) Trade receivable (220,000) (450,000) - Inventory (413,000) - - Fixed Assets - (222,000) (269,000) Intangibles - (1,117,000) (998,000) Goodwill - (480,000) (531,000) Investments (1,050,000) (1,200,000) - Paid-in capital (884,000) 597,000 - Retained deficit (1,843,000) (1,569,000) (1,798,000) Sales - (450,000) (591,000) Inventory write-off 413,000 - - Other expense - (133,000) (591,000) Amortization - (142,000) (139,000) Research and development - (271,000) - Stock option expense 232,000 1,564,000 -
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MYCOBIOTECH, LTD AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 Consolidated Companies Domicile Ownership ----------------------- ---------- ----------- Everbloom Health Food Pte. Ltd Singapore 100% Everbloom International Technology Ptd. Ltd. Singapore 100% Everbloom Mushroom (Kent) Ltd. United Kingdom 100% Everbloom Mushroom Pte. Ltd. Singapore 100% Mycoceuticals Ltd. United Kingdom 100% MycoPharma Pte. Ltd. Singapore 100% MycoTechnology Ltd. United Kingdom 100% Associated company is defined as a Company, not being a subsidiary, in which the ownership is 50% or less and in whose financial and operating policy decisions, the Company exercises significant influence. Associated companies are accounted for under the equity method whereby the Company's share of profits and losses of these companies are included in the consolidated profit and loss account and the Company's investment account adjusted accordingly. Losses, of an associated company, in excess of the Company's investment are not recorded unless there is a legal obligation to commit additional funds (See Note 7 Investments for further discussion). Intercompany profits and losses are eliminated until realized by the Company as if the Company were consolidated. The Company reviews its investments periodically and an impairment loss, if any, is recorded. Associated Companies Domicile Ownership ------------------------------------ --------------- ----------- Everbloom Biotechnology (Canada) Ltd Canada 50% Ever-Bloom Nutraceuticals Sdn Bhd Malaysia 30% Medmyco. Ltd Israel 25% PT Randhoetatah Cemerlang Indonesia 50% 3. GOING CONCERN The Company has repeatedly suffered recurring losses from operations. The Company has been successful in the past raising working capital through the sale of stock and corporate borrowings. The Company raised approximately $2,050,000 in August and September of 2002 to fund operations for the remainder of the year and to implement the Company's business plan. Management believes sufficient funding will be available to meet operating needs and for the Company's business plan. 4. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements of the Company include the Company and its subsidiaries. All material intercompany balances have been eliminated.
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Economic and political risks The company faces a number of risks and challenges since its primary operations are in Singapore, Malaysia, Indonesia, and the United Kingdom. The financial statements have been prepared assuming the Company will continue as a going concern. Cash and cash equivalents The Company considers cash and cash equivalents to include cash on hand and demand deposits with banks with maturity dates of three months or less. Cash restricted The Company has restricted cash as a function of collateral for its bank debt. Inventory Inventories are stated at lower of cost or market on the first-in, first-out basis, and includes finished goods, raw materials, packaging material and product merchandise. Finished goods include costs of raw materials, packaging and labor used in production. The Company reviews its inventory quarterly to identify slow-moving, obsolete or otherwise impaired inventory. The Company's estimates for inventory write-downs are based on the best estimates of product sales prices and customer demand patterns, and/or its plans to transition its products. Property, plant and equipment Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. In accordance with Statement of Financial Accounting Standards, (SFAS) No. 144, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of ", the Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company does not believe the adoption of SFAS 144 will have a material effect on the Company's financial statements. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The percentages applied are: Leasehold improvements 10% Machines and equipment 20%-33% Vehicles 20% Office equipment 20% Intangible Intangibles, such as brand names, are amortized over their estimated useful life in accordance with SFAS 142, "Goodwill and Other Intangible Assets." The adoption of SFAS 142 did not effect the useful life or the amortization of intangibles.
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Income taxes Taxes are calculated in accordance with taxation principles currently effective in the individual company's domicile. Deferred income taxes are determined under the liability method as required by Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes". Foreign currency translation Conversion of currency from a Singapore dollar ("S $") into a United States dollar ("US$") has been made at the respective applicable rates of exchange. Assets and liabilities denominated in foreign currencies are converted into US$ at the applicable rate of exchange at the balance sheet date. Income and expense amounts are converted at the average rate of exchange. Conversion of currency from S $ into US $ has been made at the rate of exchange on December 31, 2001 and 2000: at US$1.00: S $1.8445: and US$1.00: S $1.7331, respectively. No representation is made that the S $ amounts could have been, or could be, converted into US$ at that rate. Income and expense items were converted at the average rates for the year. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates. Employee benefits Share Option Scheme - The Company has in place the MycoBiotech Share Option Scheme for granting of share options to Directors and full-time employees of the Company to subscribe for ordinary shares in the Company. The total number of share options to be issued by the Company pursuant to the scheme shall not exceed 20% of the issued ordinary share capital of the Company. The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees", and complies with the disclosure provisions of SFAS No.123, "Accounting for Stock-Based Compensation". The Company accounts for stock-based compensation using the intrinsic value method, whereby, compensation cost is recognized when the exercise price at the date of grant is less than fair market value of the Company's common stock. Options expire no later than five years from the date of grant. See Note 15 for further information. It is intended that this scheme will lapse when the Company's shares are listed on the Singapore Exchange or any other exchange and another scheme would be introduced to comply with the requirements of that exchange.
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Mandatory contributions - Mandatory contributions are made by the Company and its subsidiaries to the respective Government's Central Provident Fund schemes at the statutory rates in force during the period, based on gross salary payments. The cost of these payments is charged to the statement of income in the same period as the related salary cost. Revenue recognition Revenue is recognized when the earning process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred the same day as delivery or shipment of the product. However, exports require an irrevocable letter of credit. The letter of credit is realized by the Company upon presenting the relevant shipping documents to the bank and then the revenue is recognized. The Company has no significant sales returns or allowances. The sale of license is recognized upon measurable economic performance by the purchaser and collectibility is assured. However, expenses, if any, are charged to expense as incurred. Under the terms of a current agreement there is no instance in which revenue would be deferred. There have been no sales during the three year period ended December 31, 2001 for which economic performance was measurable. There were no sales to third parties for the three year period ended December 31, 2001. All related company sales of licenses have been eliminated. Accounts Receivable Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables resulting from the inability of customers to make required payments. The amount of the reserve is based on historical experience and an analysis of the accounts receivable outstanding. If the financial condition of the customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would result in an additional expense in the period such determination was made. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. There have been no material recoveries. Research and development Research and development expenditures are charged to expense as incurred. There were no significant research and development expenses incurred. Loss per share The company follows the statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". Under SFAS 128, basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common share assumed to be outstanding during the period of computation. Recent pronouncements In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain costs Incurred in a Restructuring).
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SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. 94-3. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not believe that the adoption of SFAS 146 will have a material effect on the Company's financial position, results of operations, or cash flows. 5. INVENTORIES Inventories are summarized as follows: December 31, ----------------------------------- 2001 2000 ---------- ----------- Raw materials $ 396,075 $ 347,469 Finished products 209,608 316,707 ---------- ---------- $ 605,683 $ 664,176 ========== ========== Certain inventory is pledged as collateral for loans. 6. PROPERTY, PLANT AND EQUIPMENT December 31, ----------------------------------- 2001 2000 ---------- ----------- Leasehold improvements $ 996,678 $ 996,678 Machinery and equipment 1,315,914 1,516,165 Other 131,824 188,483 ---------- ----------- 2,444,416 2,701,281 Less accumulated depreciation (2,143,748) (2,223,785) ---------- ----------- $300,668 $ 477,496 ========== =========== 7. INVESTMENTS The Company acquired a 50% equity interest in PT Randhoetatah Cemerlang ("PTRC"), in Indonesia, during July, 2001. The Company's original investment was represented by the issuance of 480,000 shares of common stock recorded at approximately $260,000 or par value. The Company made non-refundable payments to banks during 2000 and 2001 totaling $232,000 which the Company recorded as a receivable and subsequently reclassified as additional investment. The Company also made additional advances of $55,000. These amounts totaled $574,000.
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The Company entered into agreements with two banks during August 2000 to acquire outstanding loans, penalties and interest payable aggregating approximately $10,000,000 for approximately $1,500,000 payable in 90 days. The Company does not have any legal obligation to perform and its potential loss is limited to the cash paid. The Company renegotiated the agreements in February and July, 2002, and the Company continues to renegotiate the agreements. The Company paid an additional amount of $20,000 in July, 2002. These payments are non-refundable pursuant to the agreements. There can be no assurance the Company will be able to complete the transactions with the banks. The Company has no legal obligation to complete the transactions with the banks. The Company does not have sufficient working capital to complete the transaction under the current terms. The Company's investment of $574,000 was expensed during 2001 as Equity investment loss. The PTRC unaudited net loss for 2001 is approximately $2,500,000. The Company's portion would have been $1,250,000. The company did not record its prorata share of the loss since it has no legal obligation to advance any additional sums of money to either PTRC or to the banks. 8. INTANGIBLE The Company acquired the brand name Linzir and currently markets certain products under this name. The Company paid approximately $240,000 and is amortizing the cost over a ten-year period. December 31, -------------------------------- 2001 2000 ----------- ---------- Linzir Brand Name $ 216,860 $ 230,800 Accumulated Amortization (108,430) (92,320) ----------- ---------- $ 108,430 $ 138,480 =========== ========== 9. DEFERRED EXPENSES Deferred expenses are expenses incurred in the Company's public offering. The amount will be written off in the period the public offering becomes effective or is abandoned. 10. RELATED PARTY TRANSACTIONS Everbloom Mushroom PTE LTD ("EM") has an exclusive agency agreement dated January 2000 with BAN CHOON MARKETING PTE LTD (BAN CHOON). BAN CHOON is controlled by Chin Hian Tan, a shareholder of the Company and a director of Everbloom Mushroom Pte Ltd. The agency agreement provides for BAN CHOON to be the exclusive distributor of certain products in the Singapore area. The agreement also provides for BAN CHOON to be paid for all the costs incurred in the marketing and distribution of the products plus 20% of the net profit. EM owes BAN CHOON approximately $141,500 net of a commission owed to EM from BAN CHOON from prior years at December 31, 2001.
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During 2001, sales through BAN CHOON totaled approximately $2,645,000 or approximately 77% of total sales. Expenses paid by BAN CHOON were approximately $505,000. Net income provided to the Company was approximately $67,700. During 2000, sales through BAN CHOON totaled approximately $2,352,600 or approximately 72% of total sales. Expenses paid by BAN CHOON were approximately $567,000. Net income provided to the Company was approximately $83,000. The remaining amounts owed to related parties, approximately $137,000 as of December 31, 2001, is owed to Everbloom Holding Ltd. and Everbloom Investments Ltd. for advances to the Company. These entities are owned and controlled by the Tan Family. 11. UNSECURED CONVERTIBLE BONDS During 2001, unsecured convertible bonds of $1,788,555 were converted into ordinary shares of S $1 each in the capital of the Company. Each bond has an option to subscribe for one ordinary share of S $1 in the Company's common stock at an exercise price of S $1 exercisable at any time within five years from the date of issue or the date the Company receives in-principle approval from The Singapore Exchange Limited for a proposed listing of the shares of the Company, whichever is earlier. The shares under option may be exercised in blocks of 10,000 shares or an integral multiple thereof. The option expires at the end of five years from the date of issue of the bond. On maturity of the bonds, being five years from the date of issue, the face amount of the bonds and all unpaid interest accrued shall be repaid by the Company in full. The bonds bear interest at 5-6% per annum. Interest expense for the bonds for 2001, 2000 and 1999 was $108,000, $121,000, and $109,000, respectively. 12. GRANT Included in non-current liabilities is a grant received of $38,366 approved and funded by Singapore-Israel Industrial Research and Development Foundation ("SIIRDF") to a subsidiary company, Mycopharma Pte Ltd in respect of a project for the development and cultivation of medicinal mushrooms culture for nutraceuticals and biopharmaceuticals. This project is being undertaken by its associated company, MedMyco Ltd, in Israel. Under the terms of the agreement dated March 26, 2001 between SIIRDF, MedMyco Ltd and Mycopharma Pte Ltd (where Medmyco Ltd and Mycopharma Pte Ltd are collectively know as the "participants") SIIRDF agrees to fund the project by providing a grant of 50% of the actual expenses incurred for each qualifying item up to 50% of the qualifying cost for such qualifying items. The aggregate amount of the grant shall not exceed US$358,738 or 22% of the total "cost to project", i.e. US$1,161,825 and US$496,650 under the approved project budget of MedMyco Ltd and Mycopharma Pte Ltd respectively, whichever is lower.
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SIIRDF has the right to revoke the award of the grant and/or terminate the agreement at any time if there are any adverse material changes in the implementation of the project. It is agreed between parties under the agreement that participants shall, jointly or severally, repay SIIRDF such grants obtained based on gross sales derived from the sale, leasing or other marketing or commercial exploitation of such innovation, including service or maintenance contract, commencing with the first such commercial transaction and on the repayment schedules as stipulated in the agreement, free of interest. 13. BANK DEBT The Company has three credit facilities covering bank overdrafts and letters of credit. The credit facilities provide for bank overdraft protection of approximately $500,000 and for irrevocable letters of credit for approximately $400,000. The credit facilities are generally secured by cash, inventory, corporate guarantees, key-man insurance and personal guarantees of one of the Company's directors. The Company has restricted deposits with the banks as collateral totaling $328,958 and $173,100 at December 31, 2001 and 2000, respectively. The credit facilities are payable on demand. Interest rates range from one percent to one and one-half percent over the banks prime rates. Interest rates ranged from 6% to 7% at December 31, 2001. Other nominal charges may also apply. Interest expense to the banks was $20,822 and $8,888 for December 31, 2001 and 2000, respectively. No interest was paid to banks under these agreements in 1999. 14. FINANCE LEASE CREDITORS Obligations under finance lease contract are as follow: 2001 2000 --------- --------- Minimum lease installments payable within one financial year $ 46,290 $ 54,450 after one financial year but within five financial years 51,615 115,217 ---------- --------- 97,905 169,667 Finance charges allocated to future periods (13,605) (18,492) ----------- --------- Present value of finance lease liabilities $ 84,300 $151,175 =========== ========= Due within 12 months $ 30,944 $ 48,978 =========== ========= Due after 12 months $ 53,356 $102,197 =========== =========
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15. THE MYCOBIOTECH SHARE OPTION SCHEME FOR DIRECTORS AND EMPLOYEES ("SCHEME") The Company adopted a share option scheme in 1997 and amended the plan in 2000 to cover all employees and Directors. Share options are offered for a period of thirty days to the directors and employees. The directors and employees have to pay the Company only one S $ (approximately $.54) upon acceptance of the offer. The date of acceptance is considered the grant date for purposes of evaluating compensation to be recognized by the Company. The Company takes into consideration recent sales for cash to third parties in valuing the stock option. The option may be exercised at any time after the date of grant by paying the exercise price but no later than five years from the date the share option was granted. The shares under option may be exercised in full or in 1,000 shares or a multiple thereof on the payment of the exercise price. Options granted are cancelled when the option holder ceases to be a full-time employee of the Company or any corporation in the MycoBiotech Group subject to certain exceptions at the discretion of the Company. It is intended that this scheme will lapse when the Company's shares are listed on an Exchange and another scheme would be introduced to comply with the requirements of the Exchange.
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A summary of the status of the company's share options as of December 31, 2001, 2000, and 1999 and the changes during the years ended on those dates are presented below: Weighted Average Shares Exercise Price Per Share -------- ------------------------ Outstanding and exercisable at January 1, 1999 170,000 S$ 1.00 Granted 240,000 S$ 1.00 Exercised - - Forfeited (10,000) - Expired - - ----------- Outstanding and exercisable at December 31, 1999 400,000 S$ 1.00 Granted 1,070,000 S$1.00 Exercised - - Forfeited (63,500) - Expired - - ----------- Outstanding and exercisable at December 31, 2000 1,406,500 S$ 1.00 Granted 2,191,000 S$ 1.44 Exercised (510,000) S$ 1.00 Forfeited - Expired - ----------- Outstanding and exercisable at December 31, 2001 3,087,500 S$ 1.31 Weighted-average fair value of options granted in 2001 S $ 0.41 Weighted-average fair value of options granted in 2000 S $ 2.85 Weighted-average fair value of options granted in 1999 S $ 0.16
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The following table summarizes information about the stock options outstanding at December 31, 2001: Weighted Average Remaining Exercise Prices Options Contractual Life ------------------ ---------- ------------------- S$ 1.00 1,702,500 3.5 years S$ 1.70 1,385,000 5 years ----------- ------------ 3,087,500 4.2 years =========== ============ Under SFAS 123, the fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model. The Company's stock options have characteristics significantly different from those of traded options. The following assumptions were used for the grants in the years ended December 31, 2001, 2000 and 1999: risk-free interest rates between 3.16% to 3.96%; dividend rates of zero; expected lives of 5 years. In determining the "minimum value," SFAS 123 does not require the volatility of the Company's common stock underlying the options to be calculated or considered because the Company is not publicly traded as of December 31, 2001. During 2001 and 2000, the Company has incurred compensation expense of $231,903 and $1,564,160 respectively under APB No.25 for the difference between the fair value and the exercise price of grants. Had the compensation cost for stock options granted to employees been determined under SFAS 123, net loss and basic and diluted net loss per share for the years ended December 31, 2001, 2000 and 1999 would have changed as indicated in the following pro forma amounts: 2001 2000 1999 ------ ------ ------- Net loss $ (4,031,204) $(3,408,237) $(688,120) As reported $ 4,298,580 $(3,508,926) $(690,274) Proforma Basic and diluted net loss per share $ (0.26) $ (0.26) $ (0.07) As reported $ (0.27) $ (0.28) $ (0.07) Proforma 16. TAXATION Taxes are calculated in accordance with regulations in which the Company and its subsidiaries are located. Taxes are calculated on a separate entity basis since consolidation is not allowed.
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The provisions for income taxes for the years ended December 31 are summarized as follows: 2001 2000 1999 -------- -------- --------- Current $ - $ 43,878 $ 31,484 Deferred - - - -------- -------- --------- $ - $ 43,878 $ 31,484 Deferred income taxes are provided for the temporary differences between financial reporting and tax basis of the Company's assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 2001 2000 --------- --------- Deferred tax assets: Net operating losses $2,941,000 $ 574,859 Capital allowances 3,141 - Valuation allowances (2,944,141) (574,859) ------------- ----------- Deferred tax liabilities $ - $ - ============= =========== The net operating losses and capital allowances do not expire under current regulations. A reconciliation of income tax computed at the nominal statutory corporate tax rate to the provision for income taxes at December 31 is as follows: 2001 2000 1999 -------- -------- -------- Income taxes at nominal rate $ (1,016,667) $ (852,059) $ (167,030) Permanent and valuation differences 1,016,667 895,937 198,514 ----------- ---------- ---------- $ - $ 43,878 $ 31,484 =========== ========== ========== 17. COMMITMENTS At December 31, 2001, there were the following commitments: Exclusive rights commitments In accordance with the terms of an agreement dated August 21, 2000, a subsidiary company is required to purchase approximately $500,000 of a product from a third party supplier over the next 2 years in return for the exclusive rights for the supply of mushrooms produced by the supplier.
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Bank loans commitments Under the terms of the agreements with the banks as disclosed in Note 7, the Company is required to make further payments of $1,236,000 to effect the assignment of these loans. Operating lease commitments At December 31, 2001, there were future minimum lease payments under a non-cancelable operating lease in subsequent accounting period as follows: Amount ---------- 2002 $ 219,000 2003 146,000 2004 141,000 2005 141,000 2006 70,000 The disclosed commitments are based on existing rental rates. The lease agreements provide for periodic revision of such rates in the future. 18. FINANCIAL INSTRUMENTS Net fair value of financial assets and liabilities The net fair value of all financial assets and liabilities approximates their carrying value. The Company does not hedge its risk. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the balance sheets and in the notes to the financial statements. 19. SUBSEQUENT EVENTS STOCK RIGHTS ISSUE The Company issued 3,649,776 shares of S $1.00 par for approximately $2,050,000 in August and September of 2002 as per a rights issue to shareholders. INVESTOR RELATIONS AGREEMENT The Company is planning to go public on the capital market in the United States of America through this issuance of American Depository Receipts ("ADR") to be arranged by the Bank of New York. The Company entered into an Investor Relations Agreement ("Agreement") on August 6, 2002 with Stoneside Development Limited of the United States of America. The Agreement provides for investor relations and stock promotion for a twelve-month period. The Agreement provides for payment of $92,000 over the twelve-month period.
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (UNITED STATES DOLLARS) ASSETS September 30, December 31, 2002 2001 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 231,314 $ 47,108 Cash and bank balances - restricted 306,661 328,958 Trade receivables 480,814 497,646 Stock subscription receivable - 319,689 Inventory: Raw material 40,633 264,956 Finished goods 302,867 200,386 Packing materials 152,909 140,341 Prepaid expenses and deposits 80,890 68,366 Deferred offering expense 270,576 71,775 Other 43,916 39,778 ------------ ----------- TOTAL CURRENT ASSETS 1,910,580 1,979,003 PROPERTY, PLANT AND EQUIPMENT 341,636 300,668 INVESTMENTS 39,849 38,368 INTANGIBLE 95,892 108,430 DEPOSIT TO SUPPLIER 92,064 88,255 ------------ ----------- TOTAL ASSETS $ 2,480,021 $ 2,514,724 ============ ===========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (UNITED STATES DOLLARS) LIABILITIES AND SHAREHOLDERS' DEFICIT September 30, December 31, 2002 2001 ------- --------- CURRENT LIABILITIES Bank overdraft secured $ 140,193 $ 352,110 Short-term debt unsecured interest free - 108,430 Open letters of credit 159,569 Trade payables 686,536 647,228 Other payables and accrued expenses 565,571 775,507 Income tax payable 4,355 31,700 Related parties 99,342 278,556 ------------- ------------- TOTAL CURRENT LIABILITIES 1,495,997 2,353,100 ------------- ------------- LONG-TERM LIABILITIES Unsecured convertible bonds 33,785 119,274 Grant 39,847 38,366 Long-term lease obligations 8,984 53,356 ------------- ------------- TOTAL LONG-TERM LIABILITIES 82,616 210,996 SHAREHOLDERS' EQUITY Common stock , S $1.00 par value, 50,000,000 authorized; 25,593,548 and 21,109,542 issued and outstanding at September 30, 2002 and December 31, 2001 14,865,787 12,307,813 Paid-in capital 4,798,845 4,310,606 Retained deficit (18,895,348) (16,773,032) Accumulated other comprehensive income 132,124 105,241 ------------- ------------- Total Shareholders' Equity (Deficit) 901,408 (49,372) ------------- ------------- Total Liabilities and Shareholders' Deficit $ 2,480,021 $ 2,514,724 ============= =============
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED LOSS STATEMENTS AND COMPREHENSIVE LOSS (UNAUDITED) (UNITED STATES DOLLARS) Nine months ended September 30, 2002 2001 ---- ---- SALE OF MUSHROOM PRODUCTS $ 2,651,861 $ 2,627,344 COST OF SALES 2,413,679 1,836,286 ------------- ----------- GROSS PROFIT 238,182 791,058 DEPRECIATION AND AMORTIZATION 86,405 85,614 GENERAL AND ADMINISTRATIVE EXPENSES Personnel expense 882,366 874,670 Rent expense 219,806 323,190 Other 962,194 872,053 ------------- ----------- LOSS FROM OPERATIONS (1,912,589) (1,364,469) OTHER INCOME (LOSS) Interest expense (57,877) (108,951) Equity investment loss (177,076) (431,983) Other 25,226 87,827 -------------- ------------ LOSS BEFORE TAXATION (2,122,316) (1,817,576) PROVISION FOR INCOME TAXES - - -------------- ------------ NET LOSS (2,122,316) (1,817,576) -------------- ------------ OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation 26,882 109,060 -------------- ------------ COMPREHENSIVE LOSS $ (2,095,434) $ (1,708,516) ============== ============= BASIC AND DILUTED LOSS PER SHARE $ (0.09) $ (0.11) ============== ============= BASIC WEIGHTED AVERAGE SHARES 22,083,645 15,178,661 ============== =============
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED LOSS STATEMENTS AND COMPREHENSIVE LOSS (UNAUDITED) (UNITED STATES DOLLARS) Three months ended September 30, 2002 2001 ---- ---- SALE OF MUSHROOM PRODUCTS $ 817,319 $ 880,970 COST OF SALES 811,428 428,507 -------- -------- GROSS PROFIT 5,891 452,463 DEPRECIATION AND AMORTIZATION 26,404 21,108 GENERAL AND ADMINISTRATIVE EXPENSES Personnel expense 329,542 221,594 Rent expense 66,862 83,757 Other 319,891 529,218 -------- -------- LOSS FROM OPERATIONS (736,808) (403,214) OTHER INCOME (LOSS) Interest expense (30,992) (34,382) Equity investment gain/loss (90,105) (431,983) Other 21,431 38,942 -------- --------- LOSS BEFORE TAXATION (836,474) (830,637) PROVISION FOR INCOME TAXES - - -------- --------- NET LOSS (836,474) (830,637) -------- --------- OTHER COMPREHENSIVE INCOME Foreign currency translation (6,281) (114,778) -------- --------- COMPREHENSIVE LOSS $ (842,755) $ (945,415) ======== ========== BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.06) ======== ========== BASIC WEIGHTED AVERAGE SHARES 23,582,224 16,621,005 =========== ===========
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (UNITED STATES DOLLARS) Nine months ended September 30, 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,122,316) $(1,817,576) ------------ ----------- ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Depreciation and amortization 86,405 85,614 (INCREASE) DECREASE IN ASSETS: Trade receivables 16,832 360,423 Inventory 109,274 (334,007) Prepaid expenses and deposits (12,524) 194,014 Deferred offering expenses (198,801) (21,779) Other (4,138) (46,874) INCREASE (DECREASE) IN LIABILITIES: Trade payables 39,308 (103,037) Other payables and accrued expenses (209,936) 142,000 Related parties (179,214) (47,252) Income tax payable (27,345) (58,567) ----------- ---------- Net cash used by operating activities (2,502,455) (1,647,041) ----------- -----------
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MYCOBIOTECH, LTD AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (UNITED STATES DOLLARS) Nine months ended September 30, 2002 2001 ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES Deposit to supplier (3,809) (9,861) Investment (1,481) 3,727 (Purchase) disposition of fixed assets (114,835) 19,588 Increase in restricted cash 22,297 (166,363) --------- --------- Cash provided for investing activities (97,828) (152,909) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft - net (352,110) 23,641 Short-term unsecured 31,763 (2,246) Letters of credit - net (159,569) 75,084 Grant 1,482 - Long-term leases (44,372) (69,366) Sale of common stock 2,960,724 1,658,034 Stock subscription receivable 319,689 - ----------- ----------- Cash provided for (used by) financing activities 2,757,607 1,685,147 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND BANK BALANCES 157,324 (114,803) Effects of exchange rate changes 26,882 109,060 Cash and bank balances, at beginning of period 47,108 74,755 ------- ------- Cash and bank balances, at end of period $ 231,314 $ 69,012 ========== =========
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MYCBIOTECH LTD AND SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 NOTE 1. - BASIS OF PRESENTATION The accompanying unaudited financial statements of MycoBiotech, LTD and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10Q and Item 8 of Form 20-F. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the financial statements and footnotes, which are included as part of financial statements for the year ended December 31, 2001.
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MYCOBIOTECH, LTD AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS PROVISION FOR DOUBTFUL ACCOUNTS Balance at Balance at Beginning of Charged to end of Period Expense Deductions Period $ - $ 126,676 (1) $ - $ - 12/31/99 - 291,705 (1) - - 12/31/00 - 23,16 (2) - 23,162 12/31/01 99,80 (1) 23,162 - 7,074 (3, 5) 16,08(5) 9/30/02 (1) Direct write-off used for those years and for some trade accounts receivable in year 2001. There were no accounts receivable which required a reserve for doubtful accounts at December 31, 1999 and 2000. (2) Provision for doubtful accounts for trade accounts receivable at December 31, 2001. (3) Write-off of trade accounts receivable reserved at December 31, 2001. (4) Direct write-off of funds advanced during third quarter of 2002 to an associated company totaled $108,889. This amount is not included above. Associated company does not have the ability to repay the advance. (5) Unaudited

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