Quarterly Report — Form 10-Q Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report for the Period Ended 9/30/08 HTML 146K
2: EX-31.1 Certification of Stephen D. Ferrone, Chief HTML 16K
Executive Officer
3: EX-31.2 Certification of Douglas A. McClain Jr., Chief HTML 16K
Financial and Accounting Officer
4: EX-32.1 Certification of Stephen D. Ferrone, Chief HTML 9K
Executive Officer
5: EX-32.2 Certification of Douglas A. McClain Jr., Chief HTML 9K
Financial and Accounting Officer
10-Q — Quarterly Report for the Period Ended 9/30/08
(Registrant’s
telephone number, including area code)
Indicate
by checkmark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
[X]
No
q
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act). (Check one):
Large
Accelerated Filer
[
]
Accelerated
Filer
[
]
Non-Accelerated
Filer
[X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
x
No
[ ]
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of November 10,2008, the Company had 272,176,814 issued and outstanding shares of common
stock.
*Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act). (Check one):
Adjustments
to reconcile net loss to net cash used in operating
activities:
Depreciation
964
858
2,144
Imputed
interest on advances from affiliates
44,725
15,255
70,785
Services
rendered for stock
547,751
614,163
Changes
in:
Prepaid
expenses
42,380
(528)
(9,100)
Deposits
(1,661)
(6,303)
Accounts
payable
116,317
7,107
(268,010)
Accrued
expenses
(9,149)
7,568
Net
cash used in operating activities
(249,964)
(339,151)
(872,624)
Cash
flows from investing activities:
Purchase
of property and equipment
(6,433)
(6,433)
Net
cash used in investing activities:
-
(6,433)
(6,433)
Cash
flows from financing activities:
Advances
from affiliates
226,158
347,487
866,866
Sale
of common stock
-
-
12,500
Net
cash provided by financing activities
226,158
347,487
879,366
Net
change in cash
(23,806)
1,903
309
Cash
at beginning of period
24,115
9,232
-
Cash
at end of period
$
309
$
11,135
$
309
Supplemental
Disclosures
Cash
paid for interest
$
-
$
-
$
-
Cash
paid for income taxes
$
-
$
-
$
-
Non-Cash
Investing and Financing Activities
Stock
issued for license rights
$
-
$
-
$
400,000
See notes
to unaudited financial statements
4
Immunosyn
Corporation
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 –
BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of Immunosyn Corporation
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with Immunosyn’s audited 2007 year
end financial statements and notes thereto contained in Immunosyn’s Annual
Report on Form 10-KSB filed with the Securities and Exchange
Commission. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim period have been
reflected herein. The results of operations for interim periods are,
however, not necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which substantially duplicate
the disclosure contained in the audited financial statements for fiscal 2007 as
reported in the Company’s Annual Report on Form 10-KSB have been
omitted.
NOTE 2 –
GOING CONCERN
During
the nine months ended September 30, 2008 and since inception, Immunosyn has
been unable to generate cash flows sufficient to support its operations and has
been dependent on advances from its affiliates. Advances from
affiliates have not been sufficient to cover the Company’s expenses including
the salary of its Chief Executive Officer which the Company has been unable to
pay since August 2008. In addition to negative cash flow from
operations, Immunosyn has experienced recurring net losses, and has a negative
working capital.
These
factors raise substantial doubt about Immunosyn’s ability to continue as a going
concern. The financial statements do not include any adjustments that
might be necessary if Immunosyn is unable to continue as a going
concern.
NOTE 3 –
ADVANCES FROM AFFILIATES
Since
inception, Immunosyn has borrowed $849,615 from Argyll Equities, LLC and Argyll
Biotechnologies, LLC who together own approximately 60% of Immunosyn’s common
stock. These advances are unsecured and are to be repaid on
demand. Interest expense in the amount of $44,724 was imputed using
an interest rate of 7.5% for the nine months ended September 30, 2008 and
is included in additional paid in capital. Advances from Stephen D.
Ferrone, CEO and President of Immunosyn, in the amount of $8,559 are due and
payable on demand. These advances are unsecured and carry no interest
rate.
NOTE 4 –
COMMON STOCK
During
the nine months ended September 30, 2008, Immunosyn issued 6,814 shares of
restricted common stock to The Blaine Group pursuant to a contract entered into
on October 12, 2007 for The Blaine Group to provide financial relations and
investor relations services to Immunosyn. The total value of such
shares is $13,501.
Immunosyn
issued 150,000 shares of restricted common stock on August 14, 2008 to First
Montauk Securities Corp. or its designated affiliates pursuant to an advisory
agreement entered into on April 23, 2008 for First Montauk to provide financial
advisory services to Immunosyn. The total value of such shares is
$524,750.
On
September 29, 2008, Immunosyn entered into an agreement with Bear Creek
Advisors, LLC to receive services in exchange for 10,000 shares of restricted
common stock. These total value of such shares is
$9,500.
NOTE 5 –
COMMITMENTS AND CONTINGENT LIABILITIES
On
October 12, 2007, Immunosyn agreed to a 12 month contract with The Blaine Group,
Inc. (TBG) for TBG to undertake a national financial public relations and
investors relations campaign for Immunosyn. As part of this contract,
TBG agreed to handle all public relations matters, as agreed upon, for
Immunosyn. This contract shall continue until terminated by either
party with thirty days written notice. Immunosyn agreed to pay TBG
$10,000 as a monthly retainer fee. $8,500 of this retainer is payable
in cash and $1,500 in restricted stock to be valued at current market value on
the date of issue.
5
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Immunosyn
Corporation (“Immunosyn” or the “Company”) is a development stage company that
was formed in August 2006 and is headquartered in La Jolla,
California. In September 2006, it executed an exclusive license
agreement with an affiliated company, Argyll Biotechnologies, LLC (“Argyll
Biotech”), in exchange for 147,000,000 shares of its Common Stock or
approximately 53.44% of the outstanding shares of the Company’s Common
Stock. The license agreement was amended and restated in October
2007. Pursuant to the terms of the license agreement, as amended, the
Company has an exclusive worldwide license to market, distribute and sell a
biopharmaceutical drug product, currently referred to as SF-1019, for multiple
uses including the treatment of a variety of diseases, subject to the receipt of
appropriate regulatory approval in each jurisdiction where SF-1019 will be
marketed. Under the terms of its exclusive license, Immunosyn also
has a right of first offer to extend its exclusive license to include variants
of SF-1019 that may be approved by various regulatory authorities for treatment
of other diseases and pathologies. Argyll Biotech is responsible for
all research and product development, clinical testing, regulatory approvals,
production and product support. In accordance with the amended
license agreement, the parties agreed that the cost of SF-1019 to the Company
will be 40% of the gross sales price of SF-1019 as sold to a third party
customer by the Company.
As a
sales, marketing, and distribution channel for SF-1019, Immunosyn’s primary
business strategy is to build a sales and marketing force and related resources
so that if SF-1019 is approved for human use it can be sold; and secondly, to
increase awareness and acceptance of SF-1019 in the medical
community.
As of the
date of this report, we have no revenue and limited operations. Our
ability to obtain additional funding will determine our ability to continue as a
going concern. We have one principal asset, our exclusive license
from Argyll Biotech, and one full-time employee – a Chief Executive Officer
hired in October 2007 -- and one part-time employee -- a Chief Financial and
Accounting Officer. We have not had sufficient cash to pay our Chief
Executive Officer since August 2008. We do not expect to
commence full scale operations or generate revenues unless and until Argyll
Biotech completes development and obtains regulatory approval for
SF-1019. Since incorporation, we have not made any significant
purchases or sale of assets, nor have we been involved in any mergers,
acquisitions or consolidations.
Plan of
Operation
At
September 30, 2008, the Company had an accumulated deficit of $1,819,891 and a
working capital deficit of $(1,133,035). Based on its current cash
balance, management believes the Company cannot build its
operations. Currently, an affiliated company provides general support
services to the Company, without charge. In addition, since
inception, the Company has borrowed $858,174 from Argyll Equities LLC and Argyll
Biotech who together own approximately 60% of the Company’s Common
Stock. These advances are unsecured and will be repaid on
demand. See Note 3 of Notes to Financial Statements. In
October 2007, the Company hired both a Chief Executive Officer and a Chief
Financial Officer (who has since left the Company). The Company has
advances from the CEO as well which are due and payable. In addition,
the Company owes the CEO for salary since August 2008. See Note 3 of
Notes to Financial Statements. The Company needs additional financing
to continue its operations and may raise funds in the future privately or
publicly. This may be difficult to accomplish in the current economic
climate. The Company has listed its Common Stock on the OTC Bulletin
Board and trading commenced on October 26, 2007.
The
Company intends to raise working capital through one or more financings to meet
the following requirements:
·
paying
current administrative staff;
·
hiring
staff, a full-time controller and five sales and marketing
personnel;
·
purchasing
capital equipment, including securing its principal offices, both
executive and sales, and distribution
facilities;
·
monitoring
the progress of the research and development effort conducted by Argyll
Biotech;
·
developing
a marketing plan for the sale and distribution of
SF-1019;
·
hiring
industry consultants to assist in developing a channel strategy for sales
and marketing of SF-1019, including direct sales, third party
distributors, and strategic
partnerships;
·
developing
market awareness in the patient and medical community and educating those
effected with various diseases including CIDP, diabetic neuropathy and
diabetic ulcers and other diseases;
and
·
selecting
and compensating board members.
6
The
Company requires substantial future sources of capital in order to meet such
anticipated expenditures and to continue its operations during the period Argyll
Biotech seeks regulatory approval from the United States Food and Drug
Administration (the “FDA”) and foreign regulatory authorities. The
Company currently anticipates this process to be between three and five years
and the amount of funds required to be between $14 million and $24
million.
The
Company believes that significant funding will be required to provide adequate
sources of working capital during that period. There can be no
assurance that the Company will be able to raise any or all the capital required
for its operations. Failure to obtain future financing will require
the Company to delay or substantially curtail its operations or close its
business, resulting in a material adverse effect on the Company.
Off Balance Sheet
Arrangements
None.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
Item
4T. Controls and Procedures.
Controls and
Procedures
The
Company’s management is responsible for establishing and maintaining disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended) that are designed to ensure that information
required to be disclosed by the Company in reports it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and
that such information is accumulated and communicated to the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial
and Accounting Officer, as appropriate, to allow timely decisions regarding
required disclosures. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. As of the end of the period covered
by this report, and under the supervision and with the participation of
management, including its Chief Executive Officer and Chief Financial and
Accounting Officer, who are responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act, management evaluated the
effectiveness of the design and operation of these disclosure controls and
procedures. Based on this evaluation and subject to the foregoing,
the Company’s Chief Executive Officer and Chief Financial and Accounting Officer
concluded that the Company’s disclosure controls and procedures are not
effective because there are material weaknesses in the Company’s internal
control over financial reporting. A material weakness is a
deficiency, or a combination of control deficiencies, in internal control over
reporting such that there is a reasonable possibility that a material
misstatement of Immunosyn’s annual or interim financial statements will not be
prevented or detected on a timely basis.
The
material weakness relates to the monitoring and review of work preformed by
Immunosyn’s Chief Financial and Accounting Officer in the preparation of audit
and financial statements, footnotes and financial data provided to Immunosyn’s
registered public accounting firm in connection with the annual
audit. All of Immunosyn’s accounting functions including financial
reporting are carried out by our Chief Financial and Accounting Officer with
review functions provided by our Chief Executive Officer and we do not have an
audit committee at this time. The lack of accounting staff results in
a lack of segregation of duties and technical accounting experience necessary
for an effective internal control system.
Immunosyn
recognizes the importance of internal controls. As Immunosyn is
currently a development stage company with limited ongoing financial operations,
management is making an effort to mitigate this material weakness to the fullest
extent possible. At present this is done by having the Chief
Executive Officer review Immunosyn’s financial statements, account
reconciliations and accounts payable reports that have been prepared by Chief
Financial and Accounting Officer for reasonableness. All unexpected
results are investigated. At any time, if it appears that any control
can be implemented to continue to mitigate such weakness, it will be immediately
implemented. As Immunosyn grows in size and as its finances allow,
management will hire sufficient accounting staff and implement appropriate
procedures for monitoring and review of work performed by our Chief Financial
and Accounting Officer.
Changes in Internal
Controls
During
the quarter ended September 30, 2008, there have not been any changes in the
Company’s internal controls that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting. However, please note the discussion
above.
7
PART II – OTHER
INFORMATION
Item
1. Legal Proceedings.
Pursuant
to a subpoena dated January 20, 2006 issued by the Securities and Exchange
Commission to an affiliate of Argyll Biotech in proceedings captioned In the
Matter of Directors Financial Group, Ltd. and In The Matter of Prime Bank
Securities, and pursuant to subpoenas issued by the SEC to affiliates of Argyll
Biotech on March 30, 2006 and to Immunosyn on December 15, 2006 in a proceeding
captioned In The Matter of The Argyll Group, LLC, Immunosyn and its affiliates
have been asked to produce all documents concerning a wide variety of topics
including many related directly to Immunosyn. Immunosyn and Argyll Biotech’s
affiliates actively cooperated with the SEC and produced documents responsive to
these subpoenas, completing their responses in early August 2007. The
Directors Financial Group matter was resolved in June 2006 through a settlement
between the SEC and the parties to the proceeding, and, accordingly, Immunosyn
will not be required to respond further to that subpoena. Immunosyn
has had no further communication with the SEC regarding the remaining subpoenas
since January 2007.
On
December 19, 2007, a shareholder of Immunosyn, Leon S. Segen, commenced an
action in the Southern District of New York derivatively on behalf of Immunosyn
to recover alleged short-swing profits from several alleged statutory insiders
of Immunosyn, including Immunosyn officer and director Douglas A. McClain Jr.
This action is in the discovery phase. The action includes Immunosyn
as a nominal defendant only and does not allege any claims of liability against
Immunosyn.
On March19, 2008, a shareholder of the Company, Deborah Donoghue, commenced two actions
-- one in the U.S. District Court for the Southern District of California and
the other in the U.S. District Court for the Southern District of New York –
derivatively on behalf of the Company to recover alleged short-swing profits
from several alleged statutory insiders of the Company, including Company
officer and director Douglas A. McClain Jr. The actions include the
Company as a nominal defendant only and do not allege any claims of liability
against the Company. Donoghue withdrew the New York action in April
2008 and the California action has been stayed pending resolution of the related
earlier-filed action by shareholder Leon Segen currently pending in the
Southern District of New York.
On or
about July 27, 2006, Daval International Limited filed suit in the High Court of
Justice, Chancery Division in London, England against Argyll Biotech and seven
of Argyll Biotech’s research scientists and others, including Douglas McClain,
Sr., seeking an injunction and damages or an account of profits based on
allegations of breach by the scientists and Mr. McClain of confidentiality
agreements with Daval, breaches by such persons of their fiduciary duties and
conspiracy by Argyll Biotech and certain of its shareholders to wrongfully
disclose and use Daval’s alleged trade secrets. Argyll Biotech has filed its
defenses and continues to investigate the merits of the suit and the basis of
its defenses including, among other grounds, that one of the active ingredients
in SF-1019 disclosed in Argyll Biotech’s 603 Application is based on independent
research by Argyll Biotech’s research scientists, and the method of producing
SF-1019 is materially different from Daval’s process. The action is listed for
trial in the UK in January 2009. Immunosyn is not involved in this
litigation.
Item
1A. Risk Factors.
Reference
is made to Item 1A (the Risk Factors section) in the Company’s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2007previously filed with
the Securities and Exchange Commission.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
(a) The
Company did not sell any unregistered equity securities during the three months
ended September 30, 2008. As previously reported, the Company
has agreed to pay The Blaine Group $1,500 per month in restricted common stock
of the Company, Basic Investors, Inc. up to 10,000 shares of restricted common
stock of the Company, First Montauk Securities Corp. 150,000 shares of
restricted common stock of the Company and Bear Creek Advisors, LLC 10,000
shares of restricted common stock and the Company accrued a liability for such
shares due to The Blaine Group, Basic Investors, First Montauk Securities and
Bear Creek Advisors during the three months ended September 30,2008. See Note 4 of Notes to Financial Statements.
(b) Not
Applicable
(c) Not
Applicable
Item
3. Defaults Upon Senior Securities.
None.
8
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
(a) A
Physician Sponsored IND Application to the Food and Drug Administration in the
U.S. for a Phase II Clinical Trial for Multiple Sclorosis utilizing SF-1019 has
been submitted. If the submitting doctor is successful in gaining
approval for his Clinical Trial, Argyll Biotech intends to supply SF-1019 at no
cost to the physician for use in the trial. The FDA response timeline guidance
would suggest that it would take approximately three to six months from the date
of submission until approval and commencement of a trial for MS.
Certification
of Stephen D. Ferrone, Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2*
Certification
of Douglas A. McClain Jr., Chief Financial and Accounting Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1*
Certification
of Stephen D. Ferrone, Chief Executive Officer, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2*
Certification
of Douglas A. McClain Jr., Chief Financial and Accounting Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Exhibit
filed with this Report.
9
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
