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Share Name | Share Symbol | Market | Type |
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Swiftsure International Inc (CE) | USOTC:HLMB | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.0325 | 0.00 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2007
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For transition period ___ to ____
Commission file number: 000-31129
HOLMES BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
88-0412635 (I.R.S. Employer Identification No.) |
8655 East Via De Ventura, Suite G-200, Scottsdale, Arizona (Address of principal executive offices) |
85258 (Zip Code) |
Registrants telephone number: 866-694-2803
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:
Large accelerated filer [ ] Non-accelerated filer [ ] |
Accelerated filed [ ] Smaller reporting company [X] |
1
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of shares of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrants most recently completed second fiscal quarter was approximately $29,058,412.
The number of shares outstanding of the registrants common stock as of April 4, 2008 was 49,060,247.
Documents incorporated by reference: None
TABLE OF CONTENTS
PART I
Item 1. Business
3
Item 1A. Risk Factors
6
Item 2. Properties
7
Item 3. Legal Proceedings
8
Item 4. Submission of Matters to a Vote of Security Holders
8
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
8
Item 6. Selected Financial Data
10
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
11
Item 8. Financial Statements and Supplementary Data
13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
45
Item 9A. Controls and Procedures
45
Item 9B. Other Information
45
PART III
Item 10. Directors, Executive Officers and Corporate Governance
46
Item 11. Executive Compensation
46
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
47
Item 13. Certain Relationships and Related Transactions, and Director Independence
49
Item 14. Principal Accountant Fees and Services
49
PART IV
Item 15. Exhibits, Financial Statement Schedules
50
Signatures
50
2
In this report references to Holmes Biopharma we, us, and our refer to Holmes Biopharma, Inc.
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
Except for historical information contained herein, this report contains express or implied forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. We may make written or oral forward-looking statements from time to time in filings with the Securities and Exchange Commission (SEC), in press releases, quarterly conference calls or otherwise. Our filings with the SEC may be accessed at the SEC's Web site, www.sec.gov.
The words "believes," "expects," "anticipates," "intends," "forecasts," "project," "plans," "estimates" and similar expressions identify forward-looking statements. Such statements reflect our current views with respect to future events and financial performance or operations and speak only as of the date the statements are made. Forward-looking statements involve risks and uncertainties and readers are cautioned not to place undue reliance on forward-looking statements. Our actual results may differ materially from such statements. Factors that cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this report.
PART I
ITEM 1. BUSINESS
Historical Development
Holmes Biopharma, Inc. (Holmes) was incorporated under the laws of the state of Nevada on December 3,1998 as Holmes Herbs, Inc., to engage in the distribution of herbal and natural medicine products. On May 20, 2005, we incorporated a subsidiary, Qualia Clinical Service Inc., a Nevada corporation (Qualia), for the purpose of developing a clinical drug research and development business.
On November 30, 2005, Qualia purchased Dr. Sohail Khattaks business plan for clinical drug research and development in exchange for 15,000,000 shares of Qualia common stock valued at $15,000. In December 2005 Dr. Khattak was appointed President and CEO of this subsidiary and Qualia issued 7,500,000 of its common shares to him for his participation in the business development of Qualia. Holmes Biopharma was issued 20,000,000 shares of Qualia common stock, resulting in Qualia remaining a majority-owned subsidiary of Holmes Biopharma.
Effective July 21, 2006, Holmes Herbs, Inc. changed its name to Holmes Biopharma, Inc. to more accurately reflect our new business operations in the clinical drug research industry. We also effected a 1-to-3 forward stock split of our common shares on July 21, 2006, increased our authorized common stock to 100,000,000 and changed our trading symbol to HLMB. We also have changed the name of our website to www.holmesbiopharma.com.
Our Business
Holmes is a holding company and Qualia is our majority-owned subsidiary. We intend to focus our efforts and resources on the development of Qualia as a contract research organization (CRO).
Qualia Clinical Services, Inc. Business
Qualias mission is to become a leading CRO by providing integrated and cost effective clinical development services that help the pharmaceutical industry introduce new drug products. Qualia offers services to support global research and development of biotechnology, pharmaceutical and medical device companies. In recent years pharmaceutical companies have increasingly relied on outside CROs as a means to lower their costs related to personnel and infrastructure. Management believes that this trend will continue and increase in coming years. Qualia intends to become a strategic partner of pharmaceutical clients rather than just a service vendor.
We rely on the expertise of Sohail Khattak, M.D., to lead Qualias clinical drug research business. Dr. Khattak has worked on research, design and supervision of Phase I, II, III and IV trials, organized first-in man studies, set up
3
bioequivalence, bioavailability and ADME studies. He has overseen the writing and implementation of clinical Standard Operating Procedures working with the Food and Drug Administration. He also has served on the advisory board of pharmaceutical companies such as Abbot, Novartis, Jansen Ortho and Shire Pharmaceuticals.
Since January 2006 Qualia has operated a day-use Phase III and IV clinical research facility in Toronto, Canada. In addition Qualia has established a comprehensive Data Management Center out of the same facility. These services provide timely delivery of testing results to customers. Until the fall of 2007 Qualia had outsourced this activity to a third party but management determined that this service could provide another revenue stream for the company. Subsequently, Qualia increased its staff complement to ten trained professionals dedicated to data management. This is also a service that can be contracted to other contract research organizations and large pharmaceutical companies on an outsourced basis, hence adding considerably to the overall profitability of the company.
In August 2006 Qualia opened a Phase I multi-bed clinical research facility in Omaha, Nebraska. In October 2006 the Omaha facility commenced work on its first contract, a Phase I trial for rheumatoid arthritis patients and during 2006 and 2007 Qualia has conducted 50 clinical projects and received requests for several follow-up projects with the same sponsors. In September 2007 Qualia expanded this facility by adding 10,000 square feet of clinic and administrative space bringing the total square footage to 33,000.
In September 2007 Qualia acquired 100% of Qualia Ukraine for the purpose of marketing and conducting clinical research trials in Eastern Europe. Qualia Ukraine was recently awarded its first research contract and has hired six employees and leases a facility with approximately 1,000 square feet for $7,000 per month.
Clinical Trial Industry
Management believes that the aging population will continue to drive the demand for drugs and that the rising medical costs will create a need for innovation in new drugs and the introduction of more generic drugs. New pharmaceutical products must undergo extensive testing and regulatory review to determine their relative safety and effectiveness. Companies seeking approval for these products are responsible for performing and analyzing the results of preclinical and multi-phase clinical trials. Preclinical trials typically last for up to three years and involve animal testing and laboratory analyses to determine the basic biological activity and safety of the drug. Upon successful completion of the preclinical phase, the drug undergoes a series of clinical tests in humans, including healthy volunteers as well as patients with the targeted disease. Clinical trials are conducted over a period typically lasting five to seven years and involve hundreds or thousands of human subjects.
Preclinical and clinical testing must comply with the requirements of Good Laboratory Practice (GLP), Good Clinical Practice (GCP) and other standards promulgated by the Food and Drug Administration (FDA) and other federal and state governmental authorities. GLP regulations mandate standardized procedures for controlling studies, recording and reporting data and retaining appropriate records for preclinical testing. GCP stipulates procedures designed to ensure the quality and integrity of data obtained from clinical testing and to protect the rights and safety of clinical subjects.
In the United States, a drug sponsor must file an Investigational New Drug (IND) application with the FDA before the commencement of human testing of a drug. The IND includes preclinical testing results and sets forth the sponsor's plans for conducting human clinical trials. The design of these plans, also referred to as the study protocol, is critical to the success of the drug development effort because the protocol must correctly anticipate the data and results that the FDA will require before approving the drug. In the absence of any comments from the FDA, human clinical trials may begin 30 days after the IND is filed. Clinical trials usually start on a small scale to assess safety and then expand to larger trials to test efficacy. Trials are usually grouped into four phases, with multiple trials generally conducted within each phase.
PHASE I: Phase I trials are conducted on healthy volunteers, typically 20 to 80 persons, to develop basic safety data relating to toxicity, metabolism, absorption and other pharmacological actions. These trials last an average of six months to one year.
4
PHASE II: Phase II trials are conducted on a small number of subjects, typically 100 to 400 patients, who suffer from the drug's targeted disease or condition. Phase II trials offer the first evidence of clinical efficacy, as well as additional safety data. These trials last an average of two years.
PHASE III: Phase III trials are conducted on a significantly larger population of several hundred to several thousand patients, some of whom suffer from the targeted disease or condition and some of whom are healthy. Phase III trials are designed to measure efficacy on a large scale as well as long-term side effects. These trials involve numerous sites and generally last two to three years.
PHASE IV: As a condition of granting marketing approval, the FDA may require that a sponsor continue to conduct additional clinical trials, known as Phase IV trials, to monitor long-term risks and benefits, study different dosage levels, or evaluate different safety and efficacy parameters in target patient populations. With the increasing importance of Phase IV trials has also come increased complexity in the scope of the trials (i.e., the number of patients tested) and the manner in which they are conducted (i.e., the number of sites at which testing is performed). Phase IV trials generally last one to four years.
Principal Services and Markets
Qualia offers complete services for the design, placement, performance and management of clinical trial programs, a critical element in obtaining regulatory approval for drugs and medical devices. It has the capability to manage every aspect of trials in Phases I through IV, including design of protocols, operations manuals, identification and recruitment of trial investigators, initiation of sites, monitoring for strict adherence to GCP, site visits to ensure compliance with protocol procedures and proper collection of data, interpretation of trial results and report preparation. Qualia generally is awarded contracts based, among other things, upon its response to requests for proposal received from pharmaceutical, biotechnology and medical device companies.
The outsourcing of preclinical and clinical trials for pharmaceutical, biotechnology and medical device products is estimated to be growing at least as much as the rate of growth in global research and development expenditures by major pharmaceutical companies. The contract research organization industry is highly fragmented with many small, limited-service providers as well as in-house research departments, universities and teaching hospitals, and other contract research organizations, many of which have substantially greater resources than Holmes and Qualia. However, we believe Qualia can take advantage of the trend toward outsourcing clinical trials based upon the quality of its staff and facilities.
Competition
Qualia primarily competes with pharmaceutical companies' own in-house research departments, other contract research organizations, universities and teaching hospitals. Our industry has full-service contract research organizations with global capacities, several mid-size contract research organizations and many small, limited-service providers. In recent years, several large, full-service competitors have emerged, some of which have substantially greater capital and other resources, are better known and have more experienced personnel than Qualia. Clients choose a contract research organization based on several factors, the most important of which is the quality of the work performed for existing clients.
Principal Suppliers
Tandem Research Labs is a major partner of Qualia and on an outsourced basis supplies bioanalytical services to Qualia that forms an intricate component of our complete range of services to our biotechnology sponsors.
5
Major Customers
There is no one customer that provides more than 10% of the companys revenue. However, Qualia has ongoing contracts with no fewer than 35 sponsors and of the 10 largest pharmaceutical companies in the world Qualia has secured contracts with a majority of them. Due to confidentiality, the names of these companies cannot be published into the public domain.
Government Regulation
The clinical investigation of new pharmaceutical, biotechnology and medical device products is highly regulated by governmental agencies. In the United States federal regulations ensure that only those products that have been proven to be safe and effective are made available to the public. The FDA has set forth regulations and guidelines that pertain to applications to initiate trials of products, approval and conduct of studies, report and record retention, informed consent, applications for the approval of new products, and post-marketing requirements. Pursuant to FDA regulations, contract research organizations that assume obligations of a drug sponsor are required to comply with applicable FDA regulations and are subject to regulatory action for failure to comply with such regulations. In the United States, the historical trend has been in the direction of increased regulation by the FDA. Qualia believes that many pharmaceutical, biotechnology and medical device companies do not have the staff and/or the available expertise to comply with all of the regulations and standards, and this has contributed and will continue to contribute to the growth of the contract research organization industry. The services provided by Qualia are ultimately subject to FDA regulation in the United States and comparable agencies in other countries, although the level of applicable regulation in other countries is generally less comprehensive than regulations present in the United States. Qualia is obligated to comply with FDA regulations governing such activities as selecting qualified investigators, obtaining required forms from investigators, verifying that patient informed consent is obtained, monitoring the validity and accuracy of data, verifying drug/device accountability, and instructing investigators to maintain records and reports. Qualia must also maintain records for each study for specified periods for inspection by the study sponsor and the FDA during audits. If such audits document that Qualia has failed to adequately comply with Federal regulations and guidelines, it could have a material adverse effect on the company. In addition, Qualias failure to comply with applicable regulations could possibly result in termination of ongoing research or the disqualification of data, either of which could damage Qualias reputation.
Employees
Holmes does not have any employees at this time and Qualia has 150 employees, 85% of which are full time. Qualias employees are not presently covered by any collective bargaining agreement. It has not experienced any work stoppages and believe that its relations with their employees are good.
ITEM 1A. RISK FACTORS
Factors Affecting Future Performance
Operating costs for clinical research are relatively fixed, but variations of the timing of contracts may lead to fluctuation in quarterly operating results.
Qualias quarterly operating results may fluctuate as a result of factors such as implementing or completing particular clinical trials, and termination of clinical trials, therefore, results of one quarter are not necessarily indicative of results for the next quarter. Since a high percentage of Qualias operating costs are relatively fixed while revenue recognition is subject to fluctuation, minor variations in the timing of contracts or the progress of trials may cause significant variations in quarterly operating results.
Clinical research involves a risk of liability for personal injury or death to patients from adverse reactions to the study drug.
Qualia monitors the testing of new drugs on human volunteers pursuant to study protocols in clinical trials. Clinical research involves a risk of liability for personal injury or death to patients from adverse reactions to the study drug,
6
some of whom may be seriously ill and are at great risk of further illness or death as a result of factors other than their participation in a trial. Qualia is contractually indemnified in any and all of these instances by the sponsor of the trial. Qualia believes that the risk of liability to patients in clinical trials is mitigated by various regulatory requirements, including the role of institutional review boards and the need to obtain each patient's informed consent. To reduce its potential liability, Qualia requires indemnity provisions in its contracts with clients. These indemnities generally do not, however, protect the company against certain of its own actions such as those involving negligence or misconduct. Qualia currently has in place professional liability insurance coverage should any unfortunate event occur. Also, these indemnities are contractual arrangements that are subject to negotiation with individual clients, and the terms and scope of such indemnities vary from client to client and from trial to trial.
Qualia is dependent upon the ability of third parties to fund research and development.
As a provider of preclinical and clinical research services to pharmaceutical, biotechnology and medical device clients, Qualias ability to win new outsourced contracts from the pharmaceutical industry is dependent upon the rate of research and development expenditure by that industry. This in turn can be influenced by a variety of factors, including mergers within the pharmaceutical industry, the availability of capital to the biotechnology industry, and, in the United States, by the impact of government reimbursement rates for Medicare and Medicaid programs. Consequently, the success of the company to grow and win new outsourced contracts is highly dependent upon the ability of the pharmaceutical and biotechnology industries to continue to spend on research and development at rates close to or at historical levels.
Clinical trial contracts may be terminated at any time, which may result in reduced revenues.
Qualias clients generally have the right to terminate a contract at any time during a clinical trial, potentially causing periods of excess capacity and reductions in net service revenue and net income. Trials may be terminated for various reasons, including unexpected or undesired results, inadequate patient enrollment or investigator recruitment, production problems resulting in shortages of the drug, adverse patient reactions to the drug or the client's decision to de-emphasize a particular trial. At this initial phase of Qualias operations, the termination of any one trial would have a material adverse impact on the company. The loss of a large trial or the simultaneous loss of multiple trials could result in unplanned periods of excess capacity and adversely affect Qualias future revenue and profitability. In most instances, if a contract is terminated, Qualia is entitled to receive revenue earned to date as well as, at times, a termination fee. However, because the company's contracts are predominately fixed price contracts, Qualia bears the risk of cost overruns.
The health care industry is subject to changing political, economic and regulatory influences that may affect the pharmaceutical and biotechnology industries.
In recent years, several comprehensive health care reform proposals were introduced in the United States Congress. The intent of the proposals was, generally, to expand health care coverage for the uninsured and reduce the growth of total health care expenditures. While none of the proposals were adopted, the United States Congress may again address health care reform. In addition, foreign governments may also undertake health care reforms in their respective countries. Implementation of government health care reform may adversely affect research and development expenditures by pharmaceutical and biotechnology companies, which could decrease the business opportunities available to Qualia. Qualia is unable to predict the likelihood of such or similar legislation being enacted into law or the effect such legislation would have on its operations.
ITEM 2. PROPERTIES
Holmes principal office is located in Scottsdale, Arizona and a secondary location for administration is in Vancouver, British Columbia, Canada. We pay a total of $1,500 on a month-to-month basis for this office space.
Qualia leases facilities in Omaha, Nebraska; Toronto, Ontario; and Kiev, Ukraine. It entered into a five year lease agreement for a 22,180 square foot facility in Omaha, Nebraska and pays approximately $13,000 per month for that facility. The lease includes an annual escalator and no rent for the six month period from March through August 2007 and expires February 28, 2011. Qualia has paid approximately $500,000 for its own tenant improvements. On
7
August 1, 2007, Qualia entered into a five year lease agreement that expanded its existing operations in Omaha to an additional 8,117 square feet in a similar facility directly across the street from the main clinic. The company negotiated the first six months free with approximately $3,600 per month plus operating expenses. Qualia paid its own modest tenant improvement costs that amounted to approximately $30,000.
Qualia has a five year lease for a 3,000 square foot facility in Toronto, Ontario, Canada used for its data management business for approximately $1,660 per month plus operating expenses.
Qualia has a 35 month lease for a clinical facility located in Kiev, Ukraine with approximately 1,000 square feet for approximately $7,000 per month.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any proceedings or threatened proceedings as of the date of this filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We have not submitted a matter to a vote of our security holders during the fourth quarter of 2007.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the OTC Bulletin Board under the symbol HLMB. The following table sets forth the range for each quarterly period during 2007 of the closing high and low bid as reported by Pink Sheets LLC. The quarterly periods for 2006 reflect the high and low bid prices of our common stock as reported by the OTC Bulletin Board. On July 31, 2006 we effected a 1-to-3 forward split of our common stock. The forward stock split is reflected in the quarterly periods ended September 30 and December 31, 2006. These quotations represent prices between dealers and may not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.
|
2007 |
|
2006 |
||
Fiscal Quarter Ended |
High |
Low |
|
High |
Low |
March 31 |
$ 1.35 |
$ 0.60 |
|
$ 5.50 |
$ 3.35 |
June 30 |
1.58 |
0.60 |
|
4.50 |
2.05 |
September 30 |
2.05 |
1.41 |
|
1.68 |
0.40 |
December 31 |
2.12 |
0.54 |
|
1.40 |
0.51 |
Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the penny stock rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rule provides that any equity security is considered to be a penny stock unless that security is:
$
registered and traded on a national securities exchange meeting specified criteria set by the SEC;
8
$
issued by a registered investment company;
$
excluded from the definition on the basis of price (at least $5.00 per share) or the issuers net tangible assets.
Trading in the penny stocks is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include certain institutional investors and individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of our securities and must have received the purchasers written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent to the purchaser disclosing recent price information for the penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares.
Investor Relations
On January 9, 2008, Holmes engaged Newport Capital Consultants, Inc. (Newport), a consulting and investment banking firm, to provide investor relations services for a term of one year. Under the consulting agreement, Newport will provide a broker relations program to Holmes and will communicate with brokers and market makers throughout the United States on behalf of the company. Holmes agreed to pay Newport $5,000 per month for consulting services, an aggregate of 200,000 shares of common stock to be issued per quarter, plus options to purchase 1,000,000 common shares pursuant to an agreed upon schedule. The agreement may be terminated at anytime with a 60-day notice.
Holders
As of April 4, 2008, we had approximately 76 shareholders of record, which does not include Regulation S shares held in Europe or common shares held in street accounts of securities brokers.
Dividends
We have not paid cash or stock dividends and have no present plan to pay any dividends. We intend to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely. However, our board of directors may revisit this matter from time to time and may determine our earnings, financial condition, capital requirements and other factors allow the payment of dividends.
Recent Sales of Unregistered Securities
On January 9, 2008 we granted options to purchase 1,000,000 common shares to Newport Capital Consultants, Inc. in consideration for investment relations services. The options have exercise prices ranging from $0.75 to $3.00 and vesting dates ranging from April 10, 2008 through January 10, 2010. On January 24, 2008 we issued 50,000 shares to Newport Capital Consultants, Inc. in consideration for investment relations services valued at approximately $50,000. We relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
On January 28, 2008 we issued an aggregate of 15,000 shares to two entities for investor relations services valued at approximately $15,000. We issued 12,750 shares to Baxter Capital Advisors, Inc. and 2,250 shares to MidSouth Capital. We relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
9
Issuer Purchase of Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is based on the consolidated financial statements of Holmes and its 56.5% interest in Qualia. The following chart summarizes our consolidated financial statements for the years ended December 31, 2007 and 2006 and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part II, Item 8, below. The 2006 year has been restated to reflect corrections made to the 2006 year (See Note 14 to the financial statements) and to reflect the forward common stock split effected July 21, 2006.
|
Year ended December 31 |
|
|
2007 |
2006 |
SUMMARY OF BALANCE SHEET |
|
(Restated) |
Cash |
$ 76,949 |
$ 626,444 |
Total current assets |
1,880,242 |
1,009,470 |
Total assets |
2,922,130 |
2,060,650 |
Total current liabilities |
2,829,202 |
1,075,131 |
Total liabilities |
2,829,202 |
1,075,131 |
Accumulated deficit |
(9,767,120) |
(6,951,488) |
Total stockholders equity |
$ 92,928 |
$ 985,519 |
|
|
|
SUMMARY OF OPERATING RESULTS |
|
|
Revenues, net |
$ 8,722,845 |
$ 441,285 |
Cost of revenues |
3,006,467 |
61,888 |
Gross profit |
5,716,378 |
379,397 |
General, selling and administrative expenses |
8,103,473 |
3,425,508 |
Net operating loss |
(2,387,095) |
(3,046,111) |
Total nonoperating income (expense) |
(428,537) |
(173,069) |
Income taxes |
- |
- |
Net loss |
(2,815,632) |
(3,219,180) |
Net loss per share |
$ (0.06) |
$ (0.07) |
10
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Executive Overview
During the past two years we have continued to focus on the development of Qualias clinical drug research and development business. For the year ended December 31, 2007 (2007) we recorded consolidated revenues of $8,722,845 compared to $441,285 for the year ended December 31, 2006 (2006). The second quarter of 2007 was a turning point when we recorded consolidated revenues of $1,628,600 and we have increased consolidated revenues during the remainder of 2007.
Our challenge for the next twelve months will be to continue Qualias revenue growth and to seek additional funding for Qualias continued operations.
Liquidity and Capital Resources
Prior to 2007 we had relied on sales of our common stock as a primary source of funding, but during 2007 we recorded significant consolidated revenues. However, our independent accounting firm expressed uncertainty that we can continue as a going concern because Qualia, which is the source of our revenues, has only recently started its clinical operations. All risks inherent to a new enterprise are inherent to Qualias operations. Although Qualia has increased its revenues, the revenues are not at a level to support continued growth of Qualia. Our management anticipates that we will continue to rely on loans and equity financings in addition to revenues to fund Qualias business plan.
Our sources of funding during 2007 and 2006 included revenues, proceeds from the sale of stock, loans and advances. We also issued common stock for services to avoid using our cash. We intend to use our cash for our operations and for advances to Qualia for further development of its operations.
During 2007 we relied on revenues, proceeds of $462,096 from the sale of stock, a loan of $100,000 and advances of $162,500 from a revolving bank line of credit. A portion of the stock sales were from a Regulation S offering we initiated in May 2005 in which we offered 10,000,000 shares under Regulation S with an aggregate offering price of $5,000,000. During 2007 we sold 1,246,557 shares of Regulation S stock for net proceeds of $177,096 and sold 85,000 common shares for $285,000. To avoid using our cash in 2007, we issued 127,750 common shares for various services valued at $262,000.
In 2006 our funding sources included our revenues, net proceeds of $2,013,698 from the sale 7,116,820 shares of Regulation S stock and a convertible debenture agreement for financing of $1,000,000, discussed below. We also issued 588,500 shares for services valued at $934,750 and paid loan fees with 125,000 common shares valued at $198,750.
We cannot assure you that we will be successful in raising the funds needed to meet our future cash requirements and if we are unable to obtain necessary funding through sales of our common stock, we may be forced to delay the further development of the Qualias clinical drug research and development business.
As a public reporting company, we have the right within the parameters of current federal and state security laws and the rules and regulations of the SEC and the NASD to make additional public offerings in strict compliance with all applicable laws and regulations. This is seen as a long-term plan to be undertaken if our growth warrants the need for additional capital, and if this need outweighs the dilution to our stockholders that would result from raising this additional capital.
Results of Operations
Our revenues increased significantly in 2007 when compared to 2006. Management anticipates that consolidated revenues will continue to increase based upon the contracts that Qualia has in place; however, there is no assurance that Qualia will maintain profitability. Revenue is recognized when services are performed. Our pharmaceutical
11
research services revenues are provided under the terms of long-term contracts that can extend from several months to several years. Revenues on these contracts are recognized using the percentage-of-completion method based on a proportional performance basis using output as a measure of performance. Amounts generally become billable upon the achievement of certain milestones or in accordance with predetermined payment schedules. Services performed in advance of billings are recorded as costs in excess of billings on contracts in progress pursuant to the contractual terms. In some cases, a portion of the contract fee is paid at the time the trial is initiated. These advances are reported as deferred revenue and recognized as revenue as services are performed or products are delivered. Changes in the scope of work generally result in a renegotiation of contract terms. Renegotiated amounts are not included in net revenues until earned and realization is assured.
In the case of fee-for-service contracts, revenue is recognized as services are performed based upon hours worked or samples tested. For long-term fixed-price service contracts, revenue is recognized as services are performed, with performance generally assessed using output measures, such as units-of-work performed to date as compared to the total units-of-work contracted. In some cases, a portion of the contract fee is paid at the time the trial is initiated. These advances are deferred and recognized as revenue as services are performed or products are delivered, as discussed above. Additional payments may be made based upon the achievement of performance-based milestones over the contract duration.
General, selling and administrative expenses increased significantly for 2007 compared to 2006 due to growth of Qualias operations. Increases in Qualias employees, along with increased insurance costs, advertising and marketing and travel expenses resulted in increased overall operating expenses. Management anticipates that these expenses will continue to increase in the short term.
In addition to expenses related to operations, we recorded interest expense of $410,782 for 2007 and $185,894 for 2006 that was primarily related to the interest expense and beneficial conversion expense of the convertible debenture agreement with Adlan Foundation.
Despite significant increases in revenues that have resulted in a net income for 2007, our consolidated operating expenses for 2007 have resulted in a net loss and a net loss per share for that period. While we are making progress, we cannot guarantee that we will remain profitable in the short term and anticipate that we will post net losses for the year end.
Commitments and Contingent Liabilities
Qualia holds monthly leases for four different office and/or clinic facilities. (See Part I, Item 2 Properties, above) The future minimum lease payments under the operating leases as of December 31, 2007 are $319,820 for December 31, 2008 and total $1,268,450 through 2012.
At December 31, 2007, our consolidated total current liabilities included accounts payable of $1,855,109, a note payable to a third party of $100,000, a bank line of credit debt of $162,500, deferred revenue of $204,243, accrued expenses of $413,507 and advances from future deposits of $93,843. The accounts payable are primarily related to costs associated with the expansion of Qualias operations. The note payable is related to a promissory note executed on June 18, 2007, payable to Abernathy, Mendelson & Associates Inc. The principal sum of the note is $100,000 USD, with interest of seven percent (7%) per annum. The principal and interest are due on or before June 17, 2008.
During 2007 Qualia entered into a line of credit arrangement with Wells Fargo Bank with a credit limit of $175,000 and an interest rate at 1.25% over the Wall Street Journal Prime Rate (The Wall Street Journal Prime Rate was 7.50% at December 31, 2007). This line of credit is not collateralized. There was $162,500 outstanding againstthis line of credit at December 31, 2007.
On August 10, 2006, we entered into a convertible debenture agreement with Adlan Foundation that provided us with a cash loan of $1,000,000. We paid a fee of $323,750 consisting of $125,000 cash and 125,000 shares of common stock valued at $198,750. The convertible debenture bears no interest and the term of the loan ended November 7, 2007. Under the terms of the convertible debenture agreement, the debenture holder, Lomnicky Finance Ltd, provided written notice during the term of the agreement to exercise its right to convert the loan
12
amount into common stock at the price of $1.00 per share. On November 7, 2007, our board of directors authorized the issuance of 1,000,000 shares to the debenture holder to convert this debt.
Off-balance Sheet Arrangements
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HOLMES BIOPHARMA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007 and 2006
INDEX
Reports of Independent Registered Public Accounting Firm
14
Consolidated Balance Sheets
16
Consolidated Statements of Operations and Comprehensive Income (Loss)
17
Consolidated Statements of Stockholders Equity (Deficit)
18
Consolidated Statements of Cash Flows
19
Notes to Consolidated Financial Statements
20
13
C hisholm B ierwolf & N ilson, LLC Certified Public Accountants |
Todd D. Chisholm, Audit Partner Nephi J. Bierwolf, Tax Partner Troy F. Nilson, Audit Partner |
533 West 2600 South, Suite 25 Bountiful, Utah 84010 Phone: (801) 292-8756 Fax: (801) 292-8809 www.cbncpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Holmes Biopharma, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Holmes Biopharma, Inc. and Subsidiary as of December 31, 2007 and the related consolidated statements of operations, stockholders equity and comprehensive loss and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the PCAOB (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Holmes Biopharma, Inc. and Subsidiary as of December 31, 2007, and the results of its consolidated operations and its consolidated cash flows for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming that Holmes Biopharma, Inc. and Subsidiary will continue as a going concern. As discussed in Note 2 to the financial statements, Holmes Biopharma, Inc. has had recurring net losses, negative cash flows from operations and working capital deficiencies during the periods presented which raises substantial doubt about the companys ability to continue as a going concern. Managements plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
April 2, 2008
_______________________________________________
Member of AICPA, UACPA & Registered with PCAOB
14
C hisholm B ierwolf & N ilson, LLC Certified Public Accountants |
Todd D. Chisholm, Audit Partner Nephi J. Bierwolf, Tax Partner Troy F. Nilson, Audit Partner |
533 West 2600 South, Suite 25 Bountiful, Utah 84010 Phone: (801) 292-8756 Fax: (801) 292-8809 www.cbncpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Holmes Biopharma, Inc. and Subsidiary
(formerly Holmes Herbs, Inc.)
We have audited the accompanying consolidated balance sheet of Holmes Biopharma, Inc. and Subsidiary (formerly Holmes Herbs, Inc.) as of December 31, 2006 and the related consolidated statements of operations, stockholders equity and comprehensive loss and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the PCAOB (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Holmes Biopharma, Inc. and Subsidiary (formerly Holmes Herbs, Inc.) as of December 31, 2006, and the results of its consolidated operations and its consolidated cash flows for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming that Holmes Biopharma, Inc. and Subsidiary will continue as a going concern. As discussed in Note 2 to the financial statements, Holmes Biopharma, Inc. has had recurring net losses, negative cash flows from operations and working capital deficiencies during the periods presented which raises substantial doubt about the companys ability to continue as a going concern. Managements plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 14 to the consolidated financial statements, management discovered errors in the reporting of the Companys accounting for the beneficial conversion feature related to a convertible note during 2006, accounting for common stock issued for services rendered on behalf of the Company, and the reclassification of prepaid loan fees in stock to the equity section of the balance sheet. Accordingly, the consolidated financial statements as of and for the year ended December 31, 2006 have been restated to correct the errors.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah February 9, 2007 except for Notes 4, 5, 6 and 14 dated April 2, 2008.
______________________________________________
Member of AICPA, UACPA & Registered with PCAOB
15
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|||
CONSOLIDATED BALANCE SHEETS |
|
|
|
|||
DECEMBER 31, 2007 AND 2006 |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
12/31/06 |
|
|
|
|
12/31/07 |
|
(Restated) |
CURRENT ASSETS |
|
|
|
|||
|
Cash |
|
$ 76,949 |
|
$ 626,444 |
|
|
Receivables |
1,031,813 |
|
347,343 |
||
|
Costs and Earnings in Excess of Billings on Contracts in Progress |
771,480 |
|
30,184 |
||
|
Prepaid Expenses |
- |
|
5,499 |
||
|
|
Total Current Assets |
1,880,242 |
|
1,009,470 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|||
|
Computer Equipment |
182,371 |
|
87,958 |
||
|
Leasehold Improvements |
624,133 |
|
532,804 |
||
|
Office Furniture and Equipment |
475,907 |
|
377,677 |
||
|
|
Total Cost |
1,282,411 |
|
998,439 |
|
|
Less Accumulated Depreciation |
256,046 |
|
46,348 |
||
|
|
Net Book Value |
1,026,365 |
|
952,091 |
|
|
|
|
|
|
|
|
OTHER ASSETS |
15,523 |
|
99,089 |
|||
|
|
|
|
|
|
|
TOTAL ASSETS |
$ 2,922,130 |
|
$ 2,060,650 |
|||
|
|
|
|
|
|
|
|
|
|
LIABILITIES and STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|||
|
Revolving Bank Line of Credit |
$ 162,500 |
|
$ - |
||
|
Accounts Payable |
1,855,109 |
|
292,909 |
||
|
Bank Overdraft |
93,843 |
|
- |
||
|
Convertible Debentures Payable, Net of Debt Discount |
- |
|
597,507 |
||
|
Convertible Debentures Payable, Related Party |
- |
|
11,250 |
||
|
Note Payable |
100,000 |
|
- |
||
|
Note Payable, Related Party |
- |
|
2,025 |
||
|
Deferred Revenue |
204,243 |
|
141,124 |
||
|
Accrued Expenses |
413,507 |
|
30,316 |
||
|
|
Total Current Liabilities |
2,829,202 |
|
1,075,131 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
2,829,202 |
|
1,075,131 |
|||
|
|
|
|
|
|
|
|
COMMITMENTS |
|
|
|
||
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|||
|
|
|
|
|
|
|
COMMON STOCK |
|
|
|
|||
|
$0.001 Par Value, Authorized 100,000,000 Shares |
|
|
|
||
|
|
Issued and Outstanding, 49,002,247 and 46,342,940, respectively |
49,002 |
|
46,343 |
|
PAID IN CAPITAL |
9,813,292 |
|
8,023,832 |
|||
PREPAID EXPENSES |
- |
|
(135,254) |
|||
OTHER ACCUMULATED COMPREHENSIVE INCOME |
(2,246) |
|
2,086 |
|||
ACCUMULATED DEFICIT |
(9,767,120) |
|
(6,951,488) |
|||
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
92,928 |
|
985,519 |
||
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 2,922,130 |
|
$ 2,060,650 |
|||
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements .
16
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
|||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|||
For the Years Ended December 31, 2007 and 2006 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
Dec. 31, 2006 |
|
|
|
|
|
|
Dec. 31, 2007 |
|
(Restated) |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
8,722,845 |
$ |
441,285 |
|
|
||
Cost of Revenues |
|
3,006,467 |
|
61,888 |
|
|
||
|
Gross Profit |
|
5,716,378 |
|
379,397 |
|
|
|
|
|
|
|
|
|
|
|
|
General, Selling and Administrative |
|
|
|
|
|
|
||
|
Advertising and Marketing |
|
755,090 |
|
269,116 |
|
|
|
|
Depreciation and Amortization |
|
428,327 |
|
149,778 |
|
|
|
|
Insurance |
|
353,348 |
|
93,988 |
|
|
|
|
Contract Labor |
|
1,110,227 |
|
1,413,208 |
|
|
|
|
Professional and Consulting Fees |
|
366,169 |
|
289,698 |
|
|
|
|
Rent |
|
332,531 |
|
96,603 |
|
|
|
|
Office Expense |
|
875,431 |
|
202,864 |
|
|
|
|
Travel, Meals and Entertainment |
|
401,705 |
|
253,637 |
|
|
|
|
Salaries and Wages |
|
2,745,687 |
|
495,440 |
|
|
|
|
Payroll Taxes |
|
213,238 |
|
45,890 |
|
|
|
|
Telephone and Utilities |
|
278,300 |
|
98,232 |
|
|
|
|
Other |
|
243,420 |
|
17,054 |
|
|
|
|
|
Total General, Selling and Administrative |
|
8,103,473 |
|
3,425,508 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
(2,387,095) |
|
(3,046,111) |
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating Income (Expense) |
|
|
|
|
|
|
||
|
Miscellaneous Income (Expense) |
|
(17,755) |
|
12,825 |
|
|
|
|
Interest Expense - Beneficial Conversion |
|
(402,493) |
|
(185,894) |
|
|
|
|
Interest Expense - Other |
|
(8,289) |
|
- |
|
|
|
|
|
Total Nonoperating Income (Expense) |
|
(428,537) |
|
(173,069) |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes |
|
(2,815,632) |
|
(3,219,180) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
$ |
(2,815,632) |
$ |
(3,219,180) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share, Basic and Diluted |
$ |
(0.06) |
$ |
(0.07) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares of |
|
|
|
|
|
|
|
|
|
Common Stock Outstanding |
|
47,775,230 |
|
44,828,952 |
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
||
A summary of the components of other comprehensive income (loss) for the fiscal years ended December 31, 2007 and 2006 |
|
|
|
|
|
|||
: |
|
|
|
|
|
|
||
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Net loss |
|
(2,815,632) |
|
(3,219,180) |
|
|
|
|
Foreign currency translation adjustment |
|
(4,332) |
|
1,584 |
|
|
|
|
Comprehensive loss |
|
(2,819,964) |
|
(3,217,596) |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
17
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME |
|
|
|
|
||||
For the Period January 1, 2006 through December 31, 2007 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Common Stock |
Paid In |
Prepaid |
Comprehensive |
Accumulated |
|
|
|
|
Shares |
Amount |
Capital |
Expenses |
Income |
Deficit |
Total |
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2006 |
38,512,620 |
$ 38,513 |
$ 4,294,465 |
$ - |
$ 502 |
$ (3,732,308) |
$ 601,172 |
|
|
|
|
|
|
|
|
|
Issuance of Common Stock For Services |
588,500 |
588 |
934,161 |
- |
- |
- |
934,750 |
|
Issuance of Common Stock For Loan Fees |
125,000 |
125 |
198,625 |
(198,750) |
- |
- |
- |
|
Issuance of Reg S Stock, Net of Selling Expenses |
7,116,820 |
7,117 |
2,006,581 |
- |
- |
- |
2,013,697 |
|
Beneficial Conversion Feature of Convertible Debt |
- |
- |
590,000 |
- |
- |
- |
590,000 |
|
Amortization of Loan Fees |
- |
- |
- |
63,496 |
- |
- |
63,496 |
|
Foreign Currency Translation Adjustments |
- |
- |
- |
- |
1,584 |
- |
1,584 |
|
Net Loss, December 31, 2006 |
- |
- |
- |
- |
- |
(3,219,180) |
(3,219,180) |
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006, (Restated) |
46,342,940 |
46,343 |
8,023,832 |
(135,254) |
2,086 |
(6,951,488) |
985,519 |
|
|
|
|
|
|
|
|
|
Issuance of Reg S Stock, Net of Selling Expenses |
1,246,557 |
1,246 |
175,850 |
- |
- |
- |
177,096 |
|
Issuance of Common Stock For Services |
127,750 |
128 |
261,872 |
- |
- |
- |
262,000 |
|
Issuance of Common Stock For Cash |
285,000 |
285 |
284,715 |
- |
- |
- |
285,000 |
|
Value of Warrants Issued for Financing |
- |
- |
68,023 |
- |
- |
- |
68,023 |
|
Note Payable Conversion to Common Stock |
1,000,000 |
1,000 |
999,000 |
- |
- |
- |
1,000,000 |
|
Amortization of Loan Fees |
- |
- |
- |
135,254 |
- |
- |
135,254 |
|
Foreign Currency Translation Adjustments |
- |
- |
- |
- |
(4,332) |
- |
(4,332) |
|
Net Loss, December 31, 2007 |
- |
- |
-` |
- |
- |
(2,815,632) |
(2,815,632) |
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007 |
49,002,247 |
$ 49,002 |
$ 9,813,292 |
$ - |
$ (2,246) |
$ (9,767,120) |
$ 92,928 |
The accompanying notes are an integral part of these consolidated financial statements.
18
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
||||
For the Years Ended December 31, 2007 and 2006 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
2007 |
|
(Restated) |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
||||
|
Net Loss |
|
$ |
(2,815,632) |
$ |
(3,219,180) |
||
|
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|||
|
|
Used in Operating Activities |
|
|
|
|
||
|
|
|
Stock Issued for Services |
|
262,000 |
|
934,750 |
|
|
|
|
Depreciation and Amortization |
|
428,327 |
|
149,778 |
|
|
|
|
Impairment of Intangible Asset |
|
- |
|
15,000 |
|
|
|
|
Accretion of Convertible Debenture, Net |
|
404,106 |
|
185,894 |
|
|
|
|
Warrants Issued for Financing |
|
68,023 |
|
- |
|
|
|
|
Changes in Current Assets and Current Liabilities |
|
|
|
|
|
|
|
|
|
Decrease (Increase) in Receivables |
|
(684,392) |
|
(289,758) |
|
|
|
|
Decrease (Increase) in Costs and Earnings in Excess |
|
|
|
|
|
|
|
|
of Billings on Contracts in Progress |
|
(741,296) |
|
(30,184) |
|
|
|
|
Decrease in Prepaid Expenses |
|
5,499 |
|
3,047 |
|
|
|
|
Increase in Trade Accounts Payable |
|
1,562,200 |
|
226,581 |
|
|
|
|
Increase in Bank Overdrafts |
|
93,843 |
|
- |
|
|
|
|
Increase (Decrease) in Deferred Revenues |
|
63,119 |
|
141,124 |
|
|
|
|
Increase (Decrease) in Accrued Expenses |
|
383,191 |
|
25,542 |
|
|
Net Cash (Used in) Operating Activities |
|
(971,012) |
|
(1,857,406) |
||
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
||||
|
Cash Paid for Deposits |
|
(1,500) |
|
(14,023) |
|||
|
Purchase of Property and Equipment |
|
(283,972) |
|
(998,439) |
|||
|
|
Net Cash (Used in) Investing Activities |
|
(285,472) |
|
(1,012,462) |
||
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
||||
|
Issuance of Common Stock, Net of Offering Costs |
|
462,096 |
|
2,013,698 |
|||
|
Loan Fees Paid |
|
- |
|
(125,000) |
|||
|
Advances on Revolving Bank Line of Credit |
|
162,500 |
|
- |
|||
|
Proceeds From Issuance of Note Payable |
|
100,000 |
|
- |
|||
|
Repayments of Note Payable |
|
(13,275) |
|
- |
|||
|
Issuance of Convertible Debt |
|
- |
|
1,000,000 |
|||
|
|
Net Cash Provided by Financing Activities |
|
711,321 |
|
2,888,698 |
||
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash |
|
(4,332) |
|
1,584 |
||
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash |
|
(549,495) |
|
20,414 |
||
|
|
|
|
|
|
|
|
|
|
|
Cash, Beginning of Period |
|
626,444 |
|
606,030 |
||
|
|
|
|
|
|
|
|
|
|
|
Cash, End of Period |
$ |
76,949 |
$ |
626,444 |
||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
Cash Paid For |
|
|
|
|
||||
|
Interest |
|
$ |
22,039 |
$ |
- |
||
|
Taxes |
|
|
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions |
|
|
|
|
||||
|
Stock Issued for Services |
$ |
262,000 |
$ |
934,750 |
|||
|
Stock Issued in Conversion of Debt |
$ |
1,000,000 |
$ |
- |
The accompanying notes are an integral part of these consolidated financial statements.
19
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Basis of Presentation
Nature of business
Holmes Biopharma, Inc. (formerly Holmes Herbs, Inc.) was organized December 3, 1998 under the laws of the State of Nevada ( Holmes). Qualia Clinical Services, Inc. (Qualia) was organized May 20, 2005 under the laws of the State of Nevada as a subsidiary of the Company. The Company began operations during 2006 as a contract research organization performing various studies for pharmaceutical companies.
On November 20, 2005, Qualia purchased Dr. Sohail Khattaks business plan for clinical drug research and development in exchange for 15,000,000 shares of Qualia common stock valued at $15,000. In December 2005, Dr. Khattak was appointed President and CEO of this subsidiary and Qualia issued 7,500,000 of its commons shares to him for his participation in the business development of Qualia. Holmes Biopharma was issued 20,000,000 shares of Qualia common stock, resulting in Qualia remaining a majority-owned subsidiary of Holmes Biopharma.
Effective July 21, 2006, Holmes Herbs, Inc. changed its name to Holmes Biopharma, Inc. to more accurately reflect the new business operations in the clinical drug research industry. The Company also affected a 1-to-3 forward stock split of common shares on July 21, 2006, increased the authorized common stock to 100,000,000 and changed the trading symbol to HLMB. The Company also changed its website to www.holmesbiopharma.com .
Note 2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Holmes Biopharma, Inc. include the accounts of Holmes and its 54.8% - owned subsidiary, Qualia, collectively the "Company". All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition in Financial Statements ("SAB104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to monthly contracted amounts for services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured. The Companys pharmaceutical research services revenues are provided under the terms of long-term contracts that can extend from several months to several years. Revenues on these contracts are recognized using the percentage-of-completion method based on a proportional performance basis using output as a measure of performance. Amounts generally become billable upon the achievement of certain milestones or in accordance with predetermined payment schedules. Services performed in advance of billings are recorded as costs in excess of billings on contracts in progress pursuant to the contractual terms in the current section of the balance sheet. In some cases, a portion of the contract fee is paid at the time the trial is initiated. These advances are reported as deferred revenue and recognized as revenue as services are performed or products are delivered, as discussed
20
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
above. Changes in the scope of work generally result in a renegotiation of contract terms. Renegotiated amounts are not included in net revenues until earned and realization is assured.
Cash and Cash Equivalents
The Companys policy is to invest excess cash in income-producing investments. Cash equivalents consist of temporary cash investments with maturities of three months or less. For purposes of the statements of cash flows, the Company includes these amounts in cash and cash equivalents.
Trade Accounts Receivable
Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a periodic basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history, and current economic conditions. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.
Concentration of Credit Risk
The Company has two types of financial instruments subject to credit risk. The Company maintains a bank account in which the balance sometimes exceeds federally insured limits of $100,000. Trade accounts receivable also subject the company to credit risk.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for additions and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. The costs of assets disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains or losses from property disposals are recognized in the year of disposal. Leasehold Improvements are depreciated over the lesser of the life of the lease or managements estimate of useful life.
Depreciation is computed using the straight line method over the following estimated useful lives which vary from three to seven years. Depreciation expense amounted to $208,007 and $46,348 in 2007 and 2006, respectively. Property and equipment consists of the following at December 31, 2007 and 2006:
|
|
|
2007 |
|
2006 |
Computer Equipment |
|
$ |
182,371 |
$ |
87,958 |
Leasehold Improvements |
|
$ |
624,133 |
$ |
532,804 |
Office Furniture and Equipment |
|
$ |
475,907 |
$ |
377,677 |
Total Cost |
|
$ |
1,282,411 |
$ |
998,439 |
Less Accumulated Depreciation |
|
$ |
256,046 |
$ |
46,348 |
Net Book Value |
|
$ |
1,026,365 |
$ |
952,091 |
Expenditures for deposits, equipment and parts for additions or improvements to equipment are recorded as projects in progress and are depreciated when completed and placed into service. The Companys property and equipment is not pledged as collateral on any indebtedness at December 31, 2007 and 2006.
21
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company follows the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Going Concern
The Company's financial statements are prepared in accordance with accounting principals generally accepted in the United States of America applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company incurred cumulative net losses of approximately $9,700,000 from operations through December 31, 2007 and has recurring negative working capital and cash flow operations raising substantial doubt about the Company's ability to continue as a going concern.
The Company has committed over $3.6 million in funds for the Qualia facilities and has been successful in raising capital through the end of the year. The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives. The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company's business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Beneficial Conversion Feature
We have adopted Emerging Issues Task Force (EITF) Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. During 2005 and 2006 we incurred convertible debt which has been recorded as beneficial conversion features pursuant to EITF Issues No. 98-5 and 00-27. Expense recorded on our financial statements during the years ended December 31, 2007 and 2006 as a result of adoption of EITF issues No. 98-5 and 00-27 totaled $402,493 and $185,894, respectively. See Note 5
Stock Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123R), using the modified-prospective-transition method. Under this method, total compensation costs for all share-based payments granted subsequent to January 1, 2006, are based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. The fair value of any options granted will be calculated using the Black-Scholes option-pricing formula. Compensation expense for stock options will be recognized ratably over the options vesting period .
22
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments an Amendment of FASB Statements No. 133 and 140" ("SFAS No. 155"). SFAS No. 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders' election. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have a material impact on our consolidated financial condition or results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets an Amendment of FASB Statement No. 140" ("SFAS No. 156"). SFAS No. 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. This statement is effective for all transactions in fiscal years beginning after September 15, 2006. Management does not expect that the adoption of SFAS No. 156 will have a material impact on our consolidated financial condition or results of operations.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, or FIN 48, which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that the Company recognize in its financial statements the impact of a tax position, if that position will more likely than not be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 also provide a measurement attribute for the financial statement recognition of the tax position. FIN 48 will be effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of the adoption of FIN 48 on its financial condition and results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS No. 157, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the statement establishes a framework for measuring fair value and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company is currently evaluating the impact of the adoption of SFAS No. 157 on its financial condition and results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, or SAB 108, which requires that companies utilize a dual-approach when quantifying and evaluating the materiality of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently evaluating the impact of adopting SAB 108, but does not expect that it will have a material effect on its financial condition or results of operations.
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R), Business Combinations (SFAS 141R). SFAS 141R establishes the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for us on January 1, 2009, and is not expected to have a material effect on our consolidated financial statements .
23
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for us on January 1, 2009, and is not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for us on January 1, 2008, and is not expected to have a material effect on our consolidated financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R (SFAS 158). SFAS 158 requires employers that sponsor defined benefit pension and postretirement plans to recognize previously unrecognized actuarial losses and prior service costs in the statement of financial position and to recognize future changes in these amounts in the year in which changes occur through comprehensive income. As a result, the statement of financial position will reflect funded status of those plans as an asset or liability. Additionally, employers are required to measure the funded status of a plan as of the date of their year-end statements of financial position and provide additional disclosures. SFAS 158 became effective for us on January 1, 2007, but did not have a significant effect on our consolidated financial tatements.
Use of estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could 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 period. Actual results could differ from those reported.
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated at exchange rates prevailing at transaction dates. Carrying values of monetary assets and liabilities are adjusted at each balance sheet date to reflect the exchange rate at that date. Non-monetary assets and liabilities are translated at the exchange rate on the original transaction date. Gains and losses from restatement of foreign currency monetary assets and liabilities are included in the statement of operations. Revenues and expenses are translated at the rates of exchange prevailing on the dates such items are recognized in the statement of operations.
Impairment of long-lived assets
Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. If the long-lived asset or group of assets is considered to be impaired, an impairment change is recognized for the amount by which the carrying amount of the asset or group of assets exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. Long-lived assets were evaluated for possible impairment and determined not to be impaired as of December 31, 2007.
24
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents, receivables, accounts payable, convertible debt and accrued liabilities approximate carrying value based on their effective interest rates compared to current market prices.
Note 3. Intangible Asset
The Company follows SFAS 142 for the loan fees and other intangible assets which requires other intangible assets to be amortized only if they have defined useful lives. The useful lives of the intangible assets that are being amortized are evaluated each reporting period as to whether events and circumstances warrant a revision to the remaining period of amortization.
On August 10, 2006, the Company entered into a convertible debenture agreement (See Note 6) whereby the Company paid a fee of $125,000 in cash and 125,000 common shares of stock valued at $198,750 for a total of $323,750. These loan fees were fully amortized at December 31, 2007.
Note 4. Stockholders' Equity
Common stock (Restated )
On July 24, 2006 the Company issued an aggregate of 64,500 shares of common stock to consultants for services rendered to the Company. Compensation expense of $96,750 was recognized for the shares issued. The fair market share price at the date of grant was $1.50.
On July 27, 2006, the Company issued 4,000 shares to a consultant for services rendered to the Company. Compensation expense of $6,000 was recognized for the shares issued. The fair market share price at the date of grant was $1.60.
On August 8, 2006, the Company entered into consulting agreements under the Plan as described in Note 3. For the consulting agreements, the Company issued 520,000 shares of free trading common stock. Consulting expense of $832,000 was recognized as the fair market value of the shares. The fair market share price at the date of grant was $1.60.
On August 10, 2006 the Company issued 125,000 shares as a portion of a fee for a convertible debenture agreement described in Note 6. The shares were valued at $198,750.
On July 21, 2006, the Company's Board of Directors authorized a forward split of the common stock of the Company on a 3 for 1 basis. Prior period information has been restated to reflect the stock splits.
During 2007, the Company issued 127,750 shares of free trading common stock at an average share price of $2.05 per share. Compensation expense of $262,000 was recognized for the shares issued.
On March 5, 2007, the Company sold 185,000 shares to an investor for a total of $185,000 or $1.00 per share. The Company also issued stock warrants which expire one-year after the date of issuance allowing the investor to purchase 92,500 additional shares of Company stock at $1.50 per share. The warrants were valued through the Black-Scholes Model and expensed in the amount of $39,139.
25
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 30, 2007, the Company sold 100,000 shares to an investor for a total of $100,000 or $1.00 per share. The Company also issued stock warrants which expire one-year after the date of issuance allowing the investor to purchase 50,000 additional shares of Company stock at $1.50 per share. The warrants were valued through the Black-Scholes Model and expensed in the amount of $28,884.
During the years ended December 31, 2007 and 2006 the Company sold 1,246,557 and 7,116,820 shares of Regulation S common stock in the European market for proceeds of $177,096 and $2,013,697, respectively.
The Company has not authorized any preferred stock.
Net loss per common share (Restated)
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per Share." The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted averaged number of shares and dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised. Stock warrants of 142,500 were considered but not included due to their anti-dilutive effect.
As of December 31, 2007 and December 31, 2006, the Company had no dilutive potential common shares .
|
|
|
2007 |
|
2006 (Restated) |
Income (Loss) Numerator |
|
|
(2,815,632) |
|
(3,219,180) |
Weighted Average Common Shares (Denominator) |
|
47,775,230 |
|
44,828,952 |
|
Per Share Amount |
|
|
(0.06) |
|
(0.07) |
|
|
|
|
|
|
Note 5. Convertible Debentures Payable (Restated )
On August 10, 2006 the Company entered into a $1,000,000 Convertible Debenture Agreement with a foundation. The term of the agreement is fifteen months and it allows the lender the right to convert the principal to common stock at a value $1.00 per share, in whole or in part at any time during the term. If the lender does not convert the principal during the term, the Company shall have the right to either repay the principal without interest or convert the principal to common stock at a value of $.50 per share. In accordance with Emerging Issues Task Force ("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," the Company determined that a beneficial conversion feature existed at the date of issuing the convertible debt and recorded a discount on convertible debt totaling $590,000. The discount was expensed as interest expense over the term of the loan and was completely expensed during 2007.This note was converted to 1,000,000 shares of Common Stock in October of 2007.
During 2003 and 2004 the Company entered into a Convertible Debenture Agreement with related parties. The outstanding balance on these debentures was $0 and $11,250 at December 31, 2007 and 2006. The debentures are payable during 2007 and carry interest of 10% per annum. The Company determined that no beneficial conversion feature existed at the date of issuing the convertible debt. The outstanding principal and interest was paid in full on these debentures during 2007 .
26
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balances for notes payable and related accrued interest payable for the debentures are as follows:
|
|
|
2007 |
|
2006 |
Convertible Debt, Net of Unamortized debt discount, |
|
|
|
|
|
of $420,493, Non-interest bearing due October 2007, unsecured |
$ |
- |
$ |
597,507 |
|
|
|
|
|
|
|
Convertible debt, related party, due on demand, |
|
|
|
|
|
including interest at 10%, unsecured |
|
|
- |
|
11,250 |
|
|
|
|
|
|
Total Convertible debt, payable |
|
|
- |
|
608,757 |
|
|
|
|
|
|
Less: current portion |
|
|
- |
|
(608,757) |
|
|
|
|
|
|
Long-Term Convertible Debt Payable |
|
$ |
- |
$ |
- |
The convertible note was non-interest bearing and had a maturity date of October 2007 and therefore was reported as a current liability at December 31, 2006. Interest expense related to the beneficial conversion feature for the Convertible Debenture Agreement was approximately $402,493 and $185,894 for the years ended December 31, 2007 and 2006, respectively.
Note 6. Income Taxes (Restated)
The Company has adopted FASB 109 to account for income taxes. The Company currently has no issues that create timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty as to the utilization of net operating loss carry forwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded due to the net operating loss carryforward of approximately $7,200,000 as of December 31, 2007 that will be offset against further taxable income. No tax benefit has been reported in the financial statements.
Deferred tax assets and the valuation account as of December 31, 2007 are as follows :
|
2007 |
Deferred Tax Asset: |
|
Net operating loss carryforward |
$ 2,880,000 |
Valuation allowance |
(2,880,000) |
Net Deferred Tax Asset |
$ - |
27
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the Company's deferred tax asset as of December 31, 2006 are as follows:
|
2006 |
Deferred Tax Asset |
|
Net operating loss carryforward |
$ 2,086,063 |
Valuation allowance |
(2,086,063) |
Net deferred tax asset |
$ - |
The net federal operating loss carry forward will expire between 2016 and 2026. This carry forward may be limited upon the consummation of a business combination under IRC Section 381. The components of income tax expense are as follows:
|
||
|
December 31, 2007 |
2006 |
|
|
|
Current Federal Tax |
$ - |
$ - |
Current State Tax |
- |
- |
Change in NOL benefit |
793,937 |
821,279 |
Change in allowance |
$ (793,937) |
$ (821,279) |
|
$ - |
$ - |
Note 7. Lease commitment
Qualia entered into a building lease as a tenant on February 9, 2006. Under the terms of the lease agreement, Qualia occupies 22,180 square foot facility in Omaha Nebraska for 60 months beginning March 1, 2006. Qualia paid a security deposit of $14,023 and monthly payments of $12,938, plus operating expenses, beginning in September 2006. The agreement provides a schedule of increased rents each year and no rent for the six month period March through August of 2007. The agreement expires on February 28, 2011 and contains two five year options to extend the lease. Rent expense recorded under this lease agreement was $148,187 for the year ending December 31, 2007.
Qualia entered into a second building lease in Omaha, Nebraska as a tenant on August 1, 2007. Under the terms of the lease agreement, Qualia occupies 8,117 square feet for 60 months beginning August 1, 2007. Qualia paid a security deposit of $6,091 and monthly payments of $3,608, plus operating expenses, beginning in November 2006. The agreement provides a schedule of increased rents each year and no rent for the three month period August through October of 2007. The agreement expires on July 31, 2012 and contains two five year options to extend the lease. Rent expense recorded under this lease agreement was $10,957 for the year ending December 31, 2007.
On July 1, 2007 Qualia entered into a lease agreement in Toronto, Canada for 2442 square feet beginning on August 1, 2007 for a period of 60 months. The monthly rent is $1,660 plus operating expenses, a five percent management fee and applicable taxes. The agreement expires on July 31, 2012 and contains a five year option to extend the lease. Qualia has the option to terminate the lease if upon notice to the landlord, the landlord cannot provide additional space as indicated in such notice to landlord. If the lease is terminated early, Qualia is responsible for a pro rata share for the remaining life of the lease of the capital expenditures paid for by the landlord .
28
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 6, 2007 Qualia entered into a lease agreement in Kiev, Ukraine for 97 square meters beginning November 1, 2007 for a period of 35 months. The monthly rent is $6,900. The rent will be adjusted accordingly if there is more than a 20% increase in rent rates in Kiev according to the Blagovest Real Estate Agency or if the dollar decreases to less than 5.00 grivnas according to the National Bank of Ukraine. Qualia has the option to extend the agreement for one year.
The Company records rent on a straight line basis over the life of the lease in accordance with FTB 85-3.
The future minimum lease payments under these operating leases as of December 31, 2007 are as follows:
Year Ending December 31, |
|
2008 |
$ 319,820 |
2009 |
339,299 |
2010 |
325,695 |
2011 |
120,889 |
2012 |
54,251 |
|
$ 1,268,450 |
Note 8. Bank Line of Credit
The Company entered into a line of credit arrangement with Wells Fargo Bank with a credit limit of $175,000 and an interest rate at 8.75% over the Wall Street Journal Prime Rate (The Wall Street Journal Prime Rate was 7.50% at December 31, 2007). This line of credit is not collateralized. There was $162,500 outstanding against this line of credit at December 31, 2007, which was the total amount borrowed during 2007.
Note 9. Note Payable
During 2007, the Company received $100,000 from a corporation in return for a note payable. The note is payable in full on June 17, 2008 including interest at 7.00%.
In addition, the Company had a note payable to a related party with a balance of $2,025 at December 31, 2006, which was paid in full during 2007 .
|
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
Notes payable, related party, due on |
|
|
|
|
|
demand with interest at 10% |
$ |
- |
$ |
2,025 |
|
|
|
|
|
|
|
Notes payable, due June 2008 with interest at 7% |
|
100,000 |
|
- |
|
|
|
|
|
|
|
Less: Current Portion |
|
(100,000) |
|
(2,025) |
|
|
|
|
|
|
|
Long-Term Notes Payable |
$ |
- |
$ |
- |
|
|
|
|
|
|
29
HOLMES BIOPHARMA, INC .
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Related Party
The Company had outstanding convertible debentures due on demand to a related party, Rockridge Capital Corp, at December 31, 2006 for $11,250. Rockridge Capital Corp. is a stockholder of the Company. The debentures carried interest at 10% per annum and were paid in full during 2007. These debentures were issued in 2003 and 2004 and there were no transactions related to these debentures until 2007 when the debentures were paid in full.
The Company had a demand note payable to a stockholder, Peter Matthews, at December 31, 2006 for $2,025. The note carried interest at 10% and was paid in full during 2007. Prior to 2007, there were no transactions related to this note since 2004.
Note 11. Factoring
On December 11, 2007 Qualia entered into a Factoring and Security Agreement to sell accounts receivables to Inova Capital Funding ("Inova") with a maximum credit amount under the agreement of $2,500,000. The purchase price for each invoice sold is the face amount of the invoice less a discount of 1.8% to 3.7% based on the timing of the collection of the receivable. The advance rate is 85% of the invoice amount on the first three invoices per customer and 75% thereafter, with the remaining amount funded when the invoice is paid.
All accounts sold are with recourse by Inova. Inova has the authority to chargeback any receivable that is not collected within 71 days of the original invoice date. When Inova receives payment in full on an invoice, the additional amount owed to Qualia is computed by calculating the difference between 100% and the advance rate and subtracting from the difference the appropriate discount rate and charge factor applicable based on the collection period.
The initial term is open-ended but the agreement can be terminated by either party with 30 days written notice. The Company has recorded the transactions in accordance with SFAS 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The Company determined the receivables to be 100% collectible due to the collection history with customers, and therefore has recorded no recourse liability. A loss on sale of receivables in the amount of $24,793 was recorded for the year ended 12/31/07.
Note 12. Warrants
At December 31, 2007, we had outstanding warrants that allow the holders to purchase up to 142,500 shares of Common Stock at $1.50 per share. These warrants expire at various dates through May 2008.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123R), using the modified-prospective-transition method. Under this transition method, total compensation cost recognized in years beginning after December 31, 2005 includes compensation costs for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Accordingly, financing costs for issuance of warrants of $68,023 and $0 has been recognized in the accompanying consolidated statements of operations for 2007 and 2006, respectively. The Company has recognized no tax benefit associated with these amounts and has not capitalized any such cost as an asset. The Company estimated the fair value of the stock purchase warrants issued subsequent to January 1, 2006 using the Black-Scholes option-pricing formula. We record expense for warrants ratably over the warrants period. Results for prior periods have not been restated.
The fair value of each warrant issued has been estimated on the date of issuance using the Black-Scholes option valuation model, using the following weighted average assumptions: risk-free interest rates ranging from 4.89% to 4.96%, dividend yield of 0.00%, effective expected volatility of 99%, and expected life of 1 year .
30
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of our outstanding Common Stock warrants as of December 31, 2007 and 2006, and the changes during 2007 and 2006 are presented below:
|
|
Number of Shares |
|
Weighted Average Exercise Price |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
- |
$ |
- |
Warrants Granted |
|
142,500 |
$ |
1.50 |
Warrants Exercised |
|
- |
$ |
- |
Warrants Expired |
|
- |
$ |
- |
|
|
|
|
|
Outstanding at December 31, 2007 |
|
142,500 |
$ |
1.50 |
Exercisable at December 31, 2007 |
|
142,500 |
$ |
1.50 |
Warrants Outstanding |
Warrants Exercisable |
||||
Year |
Exercise Price |
Number of Shares Outstanding |
Weighted Average Contractual Life (Years) |
Number Exercisable |
Weighted Average Exercise Price |
|
|
|
|
|
|
2007 |
$ 1.50 |
142,500 |
.25 |
142,500 |
$ 1.50 |
Note 13. Subsequent Event
On January 9, 2008 the Company granted options to purchase 1,000,000 shares of common stock to a consulting firm in consideration for services. The options have exercise prices ranging from $0.75 to $3.00 and vesting dates ranging from April 10, 2008 through January 10, 2010.
On January 24, 2008 the Company issued 50,000 shares of common stock to a consultant in consideration for investment relations services. The shares were valued at $50,000.
On January 28, 2008 the Company issued an aggregate of 15,000 shares of common stock to two entities for investor relations services. The shares were valued at $15,000.
Note 14. Restatement and Reclassification
We have restated our financial statements for the year ended December 31, 2006 to reflect issues identified during 2007. The restatements also affected our 2007 quarterly filings which have also been restated as detailed below.
The following are descriptions of the revisions affecting the 2006 year end financial statements and the 2007 interim periods ending 3/31/07, 6/30/07, and 9/30/07:
·
During the year ended December 31, 2006, the Company included $30,184 of costs incurred in excess of billings on contracts in progress together with deferred revenue on the balance sheet. The restated balance sheet below separately reports this amount as an asset and reflects the correct amount of deferred revenue.
31
HOLMES BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
·
During 2006, the Company reported certain loan fees paid with cash and Company stock associated with the issuance of a convertible debenture during 2006 as Other Assets on the Companys balance sheet. A portion of these fees should have been reported as prepaid equity. On the restated balance sheets, the following amounts have been reclassified from Other Assets to Prepaid Equity:
Year End 2006 |
$ |
135,254 |
First Quarter 2007 |
$ |
96,113 |
Second Quarter 2007 |
$ |
56,537 |
Third Quarter 2007 |
$ |
16,526 |
|
|
|
·
The Company erroneously calculated the beneficial conversion feature on the convertible debt issued during 2006. Originally, it was calculated through the Black-Scholes model in the amount of $963,716. After calculating it through the intrinsic value method, per Emerging Issues Task Force ("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," the Company determined that a beneficial conversion feature at the date of issuing the convertible debt was $590,000. As a result, at 12/31/06, Paid In Capital was overstated by $373,716. Convertible Debentures Payable was understated and interest expense was overstated by the following amounts at the following period ends:
|
|
Convertible |
|
|
Debenture |
|
|
Payable |
|
|
Understatement |
|
|
|
Year End 2006 |
$ |
254,976 |
First Quarter 2007 |
$ |
181,256 |
Second Quarter 2007 |
$ |
108,830 |
Third Quarter 2007 |
$ |
37,697 |
|
|
|
|
|
|
|
|
Interest |
|
|
Expense |
|
|
Overstatement |
|
|
|
Year End 2006 |
$ |
118,740 |
First Quarter 2007$ |
$ |
73,719 |
Second Quarter 2007 |
$ |
146,145 |
Third Quarter 2007 |
$ |
217,278 |
·
The Company erroneously reported contract labor expense associated with stock issued for services during 2006. As a result, Contract Labor Expense and Paid In Capital were understated by $934,750.
32
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|||
CONSOLIDATED BALANCE SHEET |
|
|
|
|
|||
DECEMBER 31, 2006 |
As Previously |
|
|
|
|||
|
|
|
|
Reported |
As Restated |
Changes |
|
|
|
|
ASSETS |
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|||
|
Cash |
|
$ 626,444 |
$ 626,444 |
$ - |
|
|
|
Receivables |
347,343 |
347,343 |
- |
|
||
|
Costs and Earnings in Excess of Billings on Contracts in Progress |
- |
30,184 |
30,184 |
a |
||
|
Prepaid Expenses |
5,499 |
5,499 |
- |
|
||
|
|
Total Current Assets |
979,286 |
1,009,470 |
30,184 |
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|||
|
Computer Equipment |
87,958 |
87,958 |
- |
|
||
|
Leasehold Improvements |
532,804 |
532,804 |
- |
|
||
|
Office Furniture and Equipment |
377,677 |
377,677 |
- |
|
||
|
|
Total Cost |
998,439 |
998,439 |
- |
|
|
|
Less Accumulated Depreciation |
46,348 |
46,348 |
- |
|
||
|
|
Net Book Value |
952,091 |
952,091 |
- |
|
|
OTHER ASSETS |
234,343 |
99,089 |
(135,254) |
b |
|||
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ 2,165,720 |
$ 2,060,650 |
$ (105,070) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES and STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|||
|
Revolving Bank Line of Credit |
$ - |
$ - |
$ - |
|
||
|
Accounts Payable |
292,909 |
292,909 |
- |
|
||
|
Checks Drawn on Future Deposits |
- |
- |
- |
|
||
|
Convertible Debentures Payable, Net of Debt Discount |
353,781 |
608,757 |
254,976 |
c |
||
|
Note Payable |
2,025 |
2,025 |
- |
|
||
|
Deferred Revenue |
110,940 |
141,124 |
30,184 |
a |
||
|
Accrued Expenses |
30,316 |
30,316 |
- |
|
||
|
|
Total Current Liabilities |
789,971 |
1,075,131 |
285,160 |
|
|
TOTAL LIABILITIES |
789,971 |
1,075,131 |
285,160 |
|
|||
|
|
|
|
|
|
|
|
|
COMMITMENTS |
|
|
|
|
||
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|||
|
|
|
|
|
|
|
|
COMMON STOCK |
|
|
|
|
|||
|
$0.001 Par Value, Authorized 100,000,000 Shares |
|
|
|
|
||
|
|
Issued and Outstanding, 49,002,247 |
46,343 |
46,343 |
- |
|
|
PAID IN CAPITAL |
7,462,798 |
8,023,832 |
561,034 |
c,d |
|||
PREPAID EXPENSES |
- |
(135,254) |
(135,254) |
b |
|||
OTHER ACCUMULATED COMPREHENSIVE INCOME |
2,086 |
2,086 |
- |
|
|||
ACCUMULATED DEFICIT |
(6,135,478) |
(6,951,488) |
(816,010) |
|
|||
|
Total Stockholders' Equity |
1,375,749 |
985,519 |
(390,230) |
|
||
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 2,165,720 |
$ 2,060,650 |
$ (105,070) |
|
|||
|
|
|
|
|
|
|
|
a |
|
To reclassify cost in excess of billings on contracts in progress from deferred revenue |
|||||
b |
|
To reclassify prepaid equity from other assets |
|||||
c |
|
To properly record convertible debenture |
|||||
d |
|
To properly record stock issued for services and paid in capital received from sales of Reg S shares |
33
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
||||
CONSOLIDATED STATEMENT OF OPERATIONS |
|
|
|
|
||||
For the Year Ended December 31, 2006 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
Reported |
As Restated |
Changes |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ 441,285 |
$ 441,285 |
$ - |
|
|||
Cost of Revenues |
|
61,888 |
61,888 |
- |
|
|||
|
Gross Profit |
|
379,397 |
379,397 |
- |
|
||
General, Selling and Administrative |
|
|
|
|
|
|||
|
Advertising and Marketing |
|
269,116 |
269,116 |
- |
|
||
|
Depreciation and Amortization |
|
149,778 |
149,778 |
- |
|
||
|
Insurance |
|
93,988 |
93,988 |
- |
|
||
|
Contract Labor |
|
478,458 |
1,413,208 |
934,750 |
d |
||
|
Professional and Consulting Fees |
|
289,698 |
289,698 |
- |
|
||
|
Rent |
|
96,603 |
96,603 |
- |
|
||
|
Office Expense |
|
202,864 |
202,864 |
- |
|
||
|
Travel, Meals and Entertainment |
|
253,637 |
253,637 |
- |
|
||
|
Salaries and Wages |
|
495,440 |
495,440 |
- |
|
||
|
Payroll Taxes |
|
45,890 |
45,890 |
- |
|
||
|
Telephone and Utilities |
|
98,232 |
98,232 |
- |
|
||
|
Other |
|
17,054 |
17,054 |
- |
|
||
|
|
Total General, Selling and Administrative |
|
2,490,758 |
3,425,508 |
934,750 |
|
|
|
|
|
|
|
|
|
||
|
Operating Loss |
|
(2,111,361) |
(3,046,111) |
(934,750) |
|
||
|
|
|
|
|
|
|
||
Nonoperating Income (Expense) |
|
|
|
|
|
|||
|
Miscellaneous Income (Expense) |
|
12,825 |
12,825 |
- |
|
||
|
Interest Expense |
|
(304,634) |
(185,894) |
118,740 |
c |
||
|
|
Total Nonoperating Income (Expense) |
|
(291,809) |
(173,069) |
118,740 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes |
|
(2,403,170) |
(3,219,180) |
(816,010) |
|
||
|
Income Taxes |
|
- |
- |
- |
|
||
|
Net Loss |
|
$ (2,403,170) |
$ (3,219,180) |
$ (816,010) |
|
||
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share, Basic and Diluted |
|
$ (0.05) |
$ (0.07) |
$ (0.02) |
|
||
|
|
|
|
|
|
|
|
|
|
Average Number of Shares of Common Stock Outstanding |
44,828,952 |
44,828,952 |
- |
|
|||
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|||
A summary of the components of other comprehensive income (loss) |
|
|
|
|||||
for the fiscal years ended December 31, 2006: |
|
|
|
|
|
|||
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
2006 |
2006 |
|
|
|
|
Net loss |
|
(2,403,170) |
(3,219,180) |
(816,010) |
|
||
|
Foreign currency translation adjustment |
|
1,584 |
1,584 |
- |
|
||
|
Comprehensive loss |
|
(2,401,586) |
(3,217,596) |
(816,010) |
|
||
|
|
|
|
|
|
|
|
|
C |
|
To properly record convertible debenture |
|
|
|
|
|
|
D |
|
To properly record stock issued for services and paid in capital received from sales of Reg S shares |
||||||
|
|
|
34
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
||||
CONSOLIDATED STATEMENT OF CASH FLOWS |
|
|
|
|
|
||||
For the Year Ended December 31, 2006 |
|
As Previously |
|
|
|
||||
|
|
|
|
|
|
Reported |
As Restated |
Changes |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
||||
|
Net Loss |
|
|
$ (2,403,170) |
$ (3,219,180) |
$ (816,010) |
|
||
|
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
|||
|
|
Used in Operating Activities |
|
|
|
|
|
||
|
|
|
Stock Issued for Services |
|
1,005,749 |
934,750 |
(70,999) |
d |
|
|
|
|
Depreciation and Amortization |
|
149,778 |
149,778 |
- |
|
|
|
|
|
Impairment of Intangible Asset |
|
15,000 |
15,000 |
- |
|
|
|
|
|
Accretion of Convertible Debenture, Net |
|
127,167 |
185,894 |
58,727 |
c |
|
|
|
|
Warrants Issued for Financing |
|
- |
- |
- |
|
|
|
|
|
Changes in Current Assets and Current Liabilities |
|
|
|
|
|
|
|
|
|
|
Increase in Receivables |
|
(289,758) |
(289,758) |
- |
|
|
|
|
|
Increase in Costs and Earnings in Excess of |
|
|
|
|
|
|
|
|
|
Billings on Contracts in Progress |
|
- |
(30,184) |
(30,184) |
a |
|
|
|
|
Decrease in Prepaid Expenses |
|
3,047 |
3,047 |
- |
|
|
|
|
|
Increase in Trade Accounts Payable |
|
230,232 |
226,581 |
(3,651) |
e |
|
|
|
|
Increase in Checks Drawn Against Future Deposits |
|
- |
- |
- |
|
|
|
|
|
Increase (Decrease) in Deferred Revenues |
|
110,940 |
141,124 |
30,184 |
a |
|
|
|
|
Increase (Decrease) in Accrued Expenses |
|
25,542 |
25,542 |
- |
|
|
|
Net Cash (Used in) Operating Activities |
|
(1,046,260) |
(1,878,193) |
(831,933) |
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
||||
|
Cash Paid for Deposits |
|
- |
(14,023) |
(14,023) |
e |
|||
|
Purchase of Property and Equipment |
|
(998,439) |
(998,439) |
- |
|
|||
|
|
Net Cash (Used in) Investing Activities |
|
(998,439) |
(1,012,462) |
(14,023) |
|
||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
||||
|
Issuance of Common Stock, Net of Offering Costs |
|
1,191,697 |
2,013,698 |
822,001 |
d |
|||
|
Loan Fees Paid |
|
(125,000) |
(125,000) |
- |
|
|||
|
Net Advances on Revolving Bank Line of Credit |
|
- |
- |
- |
|
|||
|
Proceeds From Issuance of Note Payable |
|
- |
- |
- |
|
|||
|
Repayments of Note Payable |
|
- |
- |
- |
|
|||
|
Issuance of Convertible Debt |
|
1,000,000 |
1,000,000 |
- |
|
|||
|
|
Net Cash Provided by Financing Activities |
|
2,066,697 |
2,888,698 |
822,001 |
|
||
|
|
Effect of Exchange Rate Changes on Cash |
|
(1,584) |
(1,584) |
- |
|
||
|
|
Net Increase (Decrease) in Cash |
|
20,414 |
20,414 |
- |
|
||
|
|
Cash, Beginning of Period |
|
606,030 |
606,030 |
- |
|
||
|
|
Cash, End of Period |
|
$ 626,444 |
$ 626,444 |
$ - |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
||||||
|
Interest Paid |
|
$ - |
$ - |
$ - |
|
|||
|
Taxes Paid |
|
$ - |
$ - |
$ - |
|
|||
|
Stock Issued for Services |
|
$ 1,005,749 |
$ 934,750 |
$ (70,999) |
d |
|||
|
|
|
|
|
|
|
|
|
|
a |
|
To reclassify cost in excess of billings on contracts in progress from deferred revenue |
|||||||
b |
|
To reclassify prepaid equity from other assets |
|||||||
c |
|
To properly record convertible debenture |
|||||||
d |
|
To properly record stock issued for services and paid in capital received from sales of Reg S shares |
|||||||
e |
|
Other reclassifications |
35
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|||
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|||
MARCH 31, 2007 |
|
|
|
|
|||
(Unaudited) |
As previously |
As |
|
|
|||
|
|
|
|
Reported |
Restated |
Changes |
|
|
|
|
ASSETS |
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|||
|
Cash |
|
$ 398,176 |
$ 398,176 |
|
|
|
|
Receivables |
103,564 |
103,564 |
|
|
||
|
|
Total Current Assets |
501,740 |
501,740 |
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|||
|
Computer Equipment |
87,958 |
87,958 |
|
|
||
|
Leasehold Improvements |
532,804 |
532,804 |
|
|
||
|
Office Furniture and Equipment |
395,019 |
395,019 |
|
|
||
|
|
Total Cost |
1,015,781 |
1,015,781 |
|
|
|
|
Less Accumulated Depreciation |
72,506 |
72,506 |
|
|
||
|
|
Net Book Value |
943,275 |
943,275 |
|
|
|
OTHER ASSETS |
170,585 |
74,472 |
96,113 |
b |
|||
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ 1,615,600 |
$ 1,519,487 |
$ 96,113 |
|
|||
|
|
|
LIABILITIES |
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|||
|
Revolving Bank Line of Credit |
$ 20,206 |
$ 20,206 |
|
|
||
|
Accounts Payable |
294,520 |
294,520 |
|
|
||
|
Deferred Revenue |
68,411 |
68,411 |
|
|
||
|
Accrued Expenses |
43,831 |
43,831 |
|
|
||
|
|
Total Current Liabilities |
426,968 |
426,968 |
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|||
|
Convertible Debentures Payable, Net of Debt Discount |
532,634 |
713,890 |
(181,256) |
a |
||
|
|
Total Long-Term Liabilities |
532,634 |
713,890 |
(181,256) |
|
|
|
Total Liabilities |
959,602 |
1,140,858 |
(181,256) |
|
||
|
|
|
|
|
|
|
|
COMMITMENTS |
|
|
|
|
|||
|
|
|
|
|
|||
STOCKHOLDERS' EQUITY |
|
|
|
|
|||
|
|
|
|
|
|
|
|
COMMON STOCK |
|
|
|
|
|||
|
$0.001 Par Value, Authorized 100,000,000 and 50,000,000 |
|
|
|
|
||
|
|
Shares Respectively; Issued and Outstanding, 47,774,497 |
47,774 |
47,774 |
|
|
|
PAID IN CAPITAL |
7,856,831 |
8,417,865 |
(561,034) |
a |
|||
PREPAID EXPENSES |
- |
(96,113) |
96,113 |
b |
|||
ACCUMULATED DEFICIT |
(7,250,411) |
(7,992,701) |
742,290 |
|
|||
FOREIGN CURRENCY TRANSLATION ADJUSTMENT |
1,804 |
1,804 |
|
|
|||
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
655,998 |
378,629 |
277,369 |
|
||
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 1,615,600 |
$ 1,519,487 |
$ 96,113 |
|
|||
|
|
|
|
|
|
|
|
|
a |
|
To properly record convertible debenture |
|
|
|
|
|
b |
|
To reclassify prepaid equity from other assets |
|
|
|
|
36
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
|||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|||||||||||
(unaudited) |
|
|
|
|
||||||||||||
|
|
|
|
3 Months Ended |
3 Months Ended |
|
|
|||||||||
|
|
|
|
March 31, 2007 |
March 31, 2007 |
|
|
|||||||||
|
|
|
|
As Reported |
As Restated |
Changes |
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenues |
|
$ 436,725 |
$ 436,725 |
|
|
|||||||||||
Cost of Revenues |
|
202,834 |
202,834 |
|
|
|||||||||||
|
Gross Profit |
|
233,891 |
233,891 |
|
|
|
|||||||||
General, Selling and Administrative |
|
|
|
|
|
|||||||||||
|
Advertising and Marketing |
|
170,301 |
170,301 |
|
|
||||||||||
|
Depreciation and Amortization |
|
88,225 |
88,225 |
|
|
||||||||||
|
Insurance |
|
66,842 |
66,842 |
|
|
||||||||||
|
Contract Labor |
|
95,089 |
95,089 |
|
|
||||||||||
|
Professional and Consulting Fees |
|
75,072 |
75,072 |
|
|
||||||||||
|
Rent |
|
61,055 |
61,055 |
|
|
||||||||||
|
Office Expense |
|
71,073 |
71,073 |
|
|
||||||||||
|
Travel, Meals and Entertainment |
|
94,086 |
94,086 |
|
|
||||||||||
|
Salaries and Wages |
|
305,251 |
305,251 |
|
|
||||||||||
|
Payroll Taxes |
|
27,231 |
27,231 |
|
|
||||||||||
|
Other |
|
63,711 |
63,711 |
|
|
||||||||||
|
|
Total Operating Expenses |
|
1,117,936 |
1,117,936 |
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Operating Loss |
|
(884,045) |
(884,045) |
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Income (Expense) |
|
|
|
|
|
|||||||||||
|
Miscellaneous Income (Loss) |
|
(37,164) |
(37,164) |
|
|
||||||||||
|
Interest Expense |
|
(193,724) |
(120,005) |
(73,719) |
a |
||||||||||
|
|
Total Other Income (Expense) |
|
(230,888) |
(157,169) |
|
|
|||||||||
|
Net Loss Before Minority Interest |
|
(1,114,933) |
(1,041,214) |
(73,719) |
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
Loss of Subsidiary |
|
- |
- |
|
|
|||||||||
|
Net Loss Before Income Taxes |
|
(1,114,933) |
(1,041,214) |
(73,719) |
|
||||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Income Taxes |
|
- |
- |
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Net Loss |
|
(1,114,933) |
(1,041,214) |
(73,719) |
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Net Loss Per Share, Basic and Diluted |
|
$ (0.02) |
$ (0.02) |
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Average Number of Shares of |
|
|
|
|
|
|
|||||||||
|
|
Common Stock Outstanding |
|
46,795,015 |
46,795,015 |
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|||||||||||
A summary of the components of other comprehensive income (loss) for the three months ended March 31, 2007 and 2006 |
|
|
|
|
|
|||||||||||
|
|
|
|
March 31, 2007 |
March 31, 2007 |
|
|
|||||||||
|
Net loss |
|
(1,114,933) |
(1,041,214) |
(73,719) |
|
|
|||||||||
|
Foreign currency translation adjustment |
|
(282) |
(282) |
- |
|
|
|||||||||
|
Comprehensive loss |
|
(1,115,215) |
(1,041,496) |
(73,719) |
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
a |
To reclassify prepaid equity from other assets |
|
|
|
|
|
37
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Three Months Ended |
|
|
|
|
|
|
|
|
March 31, 2007 |
March 31, 2007 |
|
|
|
|
|
|
|
|
As Reported |
As Restated |
Changes |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
||||
|
Net Loss |
|
|
$ (1,114,933) |
$ (1,041,214) |
$ (73,719) |
a |
||
|
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
|||
|
|
Used in Operating Activities |
|
|
|
|
|
||
|
|
|
Depreciation and Amortization |
|
88,225 |
88,225 |
|
|
|
|
|
|
Warrants Issued For Financing |
|
39,139 |
39,139 |
|
|
|
|
|
|
Accretion of Convertible Debenture, Net |
|
190,103 |
116,384 |
73,719 |
a |
|
|
|
|
Minority Interest in Loss of Subsidiary |
|
|
|
|
|
|
|
|
|
Changes in Current Assets and Current Liabilities |
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in Receivables |
|
243,779 |
243,779 |
|
|
|
|
|
|
Increase in Deposits |
|
|
|
|
|
|
|
|
|
Decrease in Prepaid Expenses |
|
5,499 |
5,499 |
|
|
|
|
|
|
Increase in Trade Accounts Payable |
|
1,611 |
1,611 |
|
|
|
|
|
|
Decrease in Deferred Revenues |
|
(42,529) |
(42,529) |
|
|
|
|
|
|
Increase in Accrued Expenses |
|
13,515 |
13,515 |
|
|
|
|
|
|
Net Cash Used in Operating Activities |
|
(575,591) |
(575,591) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
||||
|
Purchase of Property and Equipment |
|
(16,215) |
(16,215) |
|
|
|||
|
|
|
|
|
|
(16,215) |
(16,215) |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
||||
|
Issuance of Common Stock, Net of Offering Costs |
|
356,325 |
356,325 |
|
|
|||
|
Advances on Revolving Bank Line of Credit |
|
20,206 |
20,206 |
|
|
|||
|
Repayments of Notes Payable |
|
(2,025) |
(2,025) |
|
|
|||
|
Repayments of Convertible Debt |
|
(11,250) |
(11,250) |
|
|
|||
|
|
Net Cash Provided by Financing Activities |
|
363,256 |
363,256 |
|
|
||
|
|
Effect of Exchange Rate Changes on Cash |
|
282 |
282 |
|
|
||
|
|
Net Increase (Decrease) in Cash |
|
(228,268) |
(228,268) |
|
|
||
|
|
Cash, Beginning of Period |
|
626,444 |
626,444 |
|
|
||
|
|
Cash, End of Period |
|
$ 398,176 |
$ 398,176 |
|
|
||
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
||||
|
Interest Paid |
|
$ - |
$ - |
|
|
|||
|
Taxes Paid |
|
$ - |
$ - |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
a |
To reclassify prepaid equity from other assets |
|
|
|
|
|
38
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|||
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|||
June 30, 2007 (restated) |
|
|
|
|
|||
(Unaudited) |
As previously |
As |
|
|
|||
|
|
|
|
Reported |
Restated |
Changes |
|
|
|
|
ASSETS |
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|||
|
Cash |
|
$ 120,623 |
$ 120,623 |
|
|
|
|
Receivables |
660,573 |
660,573 |
|
|
||
|
|
Total Current Assets |
781,196 |
781,196 |
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|||
|
Computer Equipment |
127,290 |
127,290 |
|
|
||
|
Leasehold Improvements |
532,804 |
532,804 |
|
|
||
|
Office Furniture and Equipment |
396,776 |
396,776 |
|
|
||
|
|
Total Cost |
1,056,870 |
1,056,870 |
|
|
|
|
Less Accumulated Depreciation |
98,886 |
98,886 |
|
|
||
|
|
Net Book Value |
957,984 |
957,984 |
|
|
|
OTHER ASSETS |
106,827 |
50,290 |
56,537 |
b |
|||
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ 1,846,007 |
$ 1,789,470 |
$ 56,537 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|||
|
Revolving Bank Line of Credit |
$ 15,644 |
$ 15,644 |
|
|
||
|
Accounts Payable |
578,986 |
578,986 |
|
|
||
|
Note Payable |
100,000 |
100,000 |
|
|
||
|
Accrued Expenses |
52,179 |
52,179 |
|
|
||
|
|
Total Current Liabilities |
746,809 |
746,809 |
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|||
|
Convertible Debentures Payable, Net of Debt Discount |
722,737 |
831,567 |
(108,830) |
a |
||
|
|
Total Long-Term Liabilities |
722,737 |
831,567 |
(108,830) |
|
|
|
|
Total Liabilities |
1,469,546 |
1,578,376 |
(108,830) |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS |
|
|
|
|
|||
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|||
|
|
|
|
|
|
|
|
COMMON STOCK |
|
|
|
|
|||
|
$0.001 Par Value, Authorized 100,000,000 Shares; |
|
|
|
|
||
|
|
Issued and Outstanding, 47,902,247 |
47,902 |
47,902 |
|
|
|
ADDITIONAL PAID IN CAPITAL |
8,012,203 |
8,573,237 |
(561,034) |
a |
|||
PREPAID EXPENSES |
- |
(56,537) |
56,537 |
b |
|||
ACCUMULATED DEFICIT |
(7,655,751) |
(8,325,615) |
669,864 |
|
|||
OTHER COMPREHENSIVE LOSS |
(27,893) |
(27,893) |
|
|
|||
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
376,461 |
211,094 |
165,367 |
|
||
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 1,846,007 |
$ 1,789,470 |
$ 56,537 |
|
|||
|
|
|
|
|
|
|
|
|
a |
|
To properly record convertible debenture |
|
|
|
|
|
b |
|
To reclassify prepaid equity from other assets |
|
|
|
|
39
HOLMES BIOPHARMA AND SUBSIDIARY |
|
|
|
|
|
|
|||
CONSOLIDATED STATEMENTS OF OPERATIONS) |
|
|
|
|
|
|
|||
(Unaudited |
3 Months Ended |
3 Months Ended |
|
|
6 Months Ended |
6 Months Ended |
|
|
|
|
|
June 30, 2007 |
June 30, 2007 |
|
|
June 30, 2007 |
June 30, 2007 |
|
|
|
|
As Reported |
As Restated |
Changes |
|
As Reported |
As Restated |
Changes |
|
Revenues |
$ 1,628,600 |
$ 1,628,600 |
|
|
$ 2,065,325 |
$ 2,065,325 |
|
|
|
Cost of Revenues |
298,315 |
298,315 |
|
|
501,149 |
501,149 |
|
|
|
Gross Profit |
1,330,285 |
1,330,285 |
|
|
1,564,176 |
1,564,176 |
|
|
|
General, Selling & Administrative |
|
|
|
|
|
|
|
|
|
Advertising and Marketing |
192,147 |
192,147 |
|
|
362,448 |
362,448 |
|
|
|
Depreciation and Amortization |
90,138 |
90,138 |
|
|
178,363 |
178,363 |
|
|
|
Insurance |
138,556 |
138,556 |
|
|
205,398 |
205,398 |
|
|
|
Contract Labor |
255,395 |
255,395 |
|
|
350,484 |
350,484 |
|
|
|
Professional & Consulting Fees |
93,222 |
93,222 |
|
|
168,294 |
168,294 |
|
|
|
Rent |
39,121 |
39,121 |
|
|
100,176 |
100,176 |
|
|
|
Office Expense |
95,472 |
95,472 |
|
|
166,545 |
166,545 |
|
|
|
Travel, Meals & Entertainment |
118,331 |
118,331 |
|
|
212,417 |
212,417 |
|
|
|
Salaries and Wages |
467,984 |
467,984 |
|
|
773,235 |
773,235 |
|
|
|
Payroll Taxes |
36,671 |
36,671 |
|
|
63,902 |
63,902 |
|
|
|
Other |
50,737 |
50,737 |
|
|
114,448 |
114,448 |
|
|
|
|
Total Operating Expenses |
1,577,774 |
1,577,774 |
|
|
2,695,710 |
2,695,710 |
|
|
Operating Loss |
(247,489) |
(247,489) |
|
|
(1,131,534) |
(1,131,534) |
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
Miscellaneous Income (Loss) |
4,503 |
4,503 |
|
|
(4,912) |
(4,912) |
|
|
|
Interest Expense |
(190,103) |
(117,677) |
(72,426) |
b |
(383,827) |
(237,682) |
(146,145) |
a |
|
|
Total Other Income (Expense) |
(185,600) |
(113,174) |
(72,426) |
|
(388,739) |
(242,594) |
(146,145) |
|
Net Loss Before Minority Interest |
(433,089) |
(360,663) |
(72,426) |
|
(1,520,273) |
(1,374,128) |
(146,145) |
|
|
|
Loss of Subsidiary |
- |
- |
|
|
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes |
(433,089) |
(360,663) |
(72,426) |
|
(1,520,273) |
(1,374,128) |
(146,145) |
|
|
Income Taxes |
- |
- |
|
|
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
$ (433,089) |
$ (360,663) |
$ (72,426) |
|
$ (1,520,273) |
$ (1,374,128) |
$ (146,145) |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share Basic and Diluted |
$ (0.01) |
$ (0.01) |
|
|
$ (0.03) |
$ (0.03) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares of Common |
|
|
|
|
|
|
|
|
|
Stock Outstanding |
47,807,626 |
47,807,626 |
|
|
47,304,118 |
47,304,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
||
A summary of the components of other comprehensive income (loss) for |
|
|
|
|
|
||||
the three and six Months ended June 30, 2007 and 2006: |
|
|
|
|
|
||||
|
|
Three Months |
Three Months |
|
|
Six Months |
Six Months |
|
|
|
|
Ended |
Ended |
|
|
Ended |
Ended |
|
|
|
|
June 30, 2007 |
June 30, 2007 |
|
|
June 30, 2007 |
June 30, 2007 |
|
|
Net loss |
(433,089) |
(360,663) |
(72,426) |
|
(1,520,273) |
(1,374,128) |
(146,145) |
|
|
Foreign currency translation adjustment |
(1,948) |
(1,948) |
|
|
(29,979) |
(29,979) |
|
|
|
Comprehensive loss |
(435,037) |
(362,611) |
(72,426) |
|
(1,550,252) |
(1,404,107) |
(146,145) |
|
|
|
|
|
|
|
|
|
|
|
|
a |
To properly record convertible debenture |
|
|
|
|
|
|
|
40
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
||||
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 |
|
|
|
|
|
||||
(unaudited) |
|
|
|
|
|
||||
|
|
|
|
|
|
Six Months |
Six Months |
|
|
|
|
|
|
|
|
Ended |
Ended |
|
|
|
|
|
|
|
|
June 30, 2007 |
June 30, 2007 |
|
|
|
|
|
|
|
|
As Reported |
As Restated |
Changes |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
||||
|
Net Loss |
|
|
$ (1,520,273) |
$ 1,374,128) |
$ (146,145) |
a |
||
|
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
|||
|
|
Used in Operating Activities |
|
|
|
|
|
||
|
|
|
Depreciation and Amortization |
|
178,363 |
178,363 |
|
|
|
|
|
|
Stock Issued for Services |
|
55,500 |
55,500 |
|
|
|
|
|
|
Warrants Issued For Financing |
|
39,139 |
39,139 |
|
|
|
|
|
|
Minority Interest in Loss of Subsidiary |
|
- |
- |
|
|
|
|
|
|
Accretion of Convertible Debenture, Net |
|
380,206 |
234,061 |
146,145 |
a |
|
|
|
|
Changes in Assets and Liabilities |
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in Receivables |
|
(312,666) |
(312,666) |
|
|
|
|
|
|
Decrease (Increase) in Prepaid Expenses |
|
5,499 |
5,499 |
|
|
|
|
|
|
Decrease (Increase) in Deposits |
|
- |
- |
|
|
|
|
|
|
Increase (Decrease) in Trade Accounts Payable |
|
286,077 |
286,077 |
|
|
|
|
|
|
Increase (Decrease) in Deferred Revenue |
|
(110,940) |
(110,940) |
|
|
|
|
|
|
Increase (Decrease) in Accrued Expenses |
|
21,863 |
21,863 |
|
|
|
|
|
|
Net Cash Used in Operating Activities |
|
(977,232) |
(977,232) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
||||
|
Purchase of Property and Equipment |
|
(57,304) |
(57,304) |
|
|
|||
|
|
Net Cash Used in Investing Activities |
|
(57,304) |
(57,304) |
|
|
||
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
||||
|
Issuance of Common Stock, Net of Offering Costs |
|
456,325 |
456,325 |
|
|
|||
|
Advances on Revolving Bank Line of Credit |
|
20,206 |
20,206 |
|
|
|||
|
Repayments on Revolving Bank Line of Credit |
|
(4,562) |
(4,562) |
|
|
|||
|
Proceeds From Issuance of Note Payable |
|
100,000 |
100,000 |
|
|
|||
|
Repayments of Notes Payable |
|
(2,025) |
(2,025) |
|
|
|||
|
Repayments of Convertible Debt |
|
(11,250) |
(11,250) |
|
|
|||
|
|
Net Cash Provided by Financing Activities |
|
558,694 |
558,694 |
|
|
||
|
|
Effect of Exchange Rate Changes on Cash |
|
(29,979) |
(29,979) |
|
|
||
|
|
Net Decrease in Cash |
|
(505,821) |
(505,821) |
|
|
||
|
|
Cash, Beginning of Period |
|
626,444 |
626,444 |
|
|
||
|
|
Cash, End of Period |
|
$ 120,623 |
$ 120,623 |
|
|
||
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
||||
|
Interest Paid |
|
$ - |
$ - |
|
|
|||
|
Taxes Paid |
|
$ - |
$ - |
|
|
|||
|
Shares Issued for Services |
|
$ 55,500 |
$ 55,500 |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
a |
To properly record convertible debenture |
|
|
|
|
|
41
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
||||
CONSOLIDATED BALANCE SHEET |
|
|
|
|
||||
SEPTEMBER 30, 2007 (restated) |
|
|
|
|
||||
(unaudited) |
As previously |
As |
|
|
||||
|
|
|
|
Reported |
Restated |
Changes |
|
|
|
|
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
||||
|
Cash |
|
$ 90,016 |
$ 90,016 |
|
|
||
|
Receivables |
1,587,471 |
1,587,471 |
|
|
|||
|
|
Total Current Assets |
1,677,487 |
1,677,487 |
|
|
||
PROPERTY AND EQUIPMENT |
|
|
|
|
||||
|
Computer Equipment |
145,451 |
145,451 |
|
|
|||
|
Leasehold Improvements |
578,508 |
578,508 |
|
|
|||
|
Office Furniture and Equipment |
442,920 |
442,920 |
|
|
|||
|
|
Total Cost |
1,166,879 |
1,166,879 |
|
|
||
|
Less Accumulated Depreciation |
129,850 |
129,850 |
|
|
|||
|
|
Net Book Value |
1,037,029 |
1,037,029 |
|
|
||
OTHER ASSETS |
43,069 |
26,543 |
16,526 |
b |
||||
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ 2,757,585 |
$ 2,741,059 |
$ 16,526 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
||||
|
Accounts Payable |
$ 1,175,445 |
$ 1,175,445 |
|
|
|||
|
Note Payable - Related |
100,000 |
100,000 |
|
|
|||
|
Deferred Revenue |
67,092 |
67,092 |
|
|
|||
|
Accrued Expenses |
1,997 |
1,997 |
|
|
|||
|
|
Total Current Liabilities |
1,344,534 |
1,344,534 |
|
|
||
LONG-TERM LIABILITIES |
|
|
|
|
||||
|
Convertible Debentures Payable, Net of Debt Discount |
912,840 |
950,537 |
(37,697) |
a |
|||
|
|
Total Long-Term Liabilities |
912,840 |
950,537 |
(37,697) |
|
||
|
|
Total Liabilities |
2,257,374 |
2,295,071 |
(37,697) |
|
||
|
|
|
|
|
|
|
|
|
COMMITMENTS |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
COMMON STOCK |
|
|
|
|
||||
|
$0.001 Par Value, Authorized 100,000,000 Shares; |
|
|
|
|
|||
|
|
Issued and Outstanding, 47,902,247 |
47,902 |
47,902 |
|
|
||
ADDITIONAL PAID IN CAPITAL |
8,012,203 |
8,573,237 |
(561,034) |
a |
||||
PREPAID EXPENSES |
- |
(16,526) |
16,526 |
b |
||||
ACCUMULATED DEFICIT |
(7,563,212) |
(8,161,943) |
598,731 |
|
||||
OTHER COMPREHENSIVE INCOME |
3,318 |
3,318 |
- |
|
||||
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
500,211 |
445,988 |
54,223 |
|
|||
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 2,757,585 |
$ 2,741,059 |
$ 16,526 |
|
||||
|
|
|
|
|
|
|
|
|
|
a |
|
To properly record convertible debenture |
|
|
|
|
|
|
b |
|
To reclassify prepaid equity from other assets |
|
|
|
|
42
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
|
|
||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
||||||||
(unaudited) |
|
|
|
|
|
|
|
|
|||||||
|
|
|
3 Months Ended |
3 Months Ended |
|
|
9 Months Ended |
9 Months Ended |
|
|
|||||
|
|
|
September 30, 2007 |
September 30, 2007 |
|
|
September 30, 2007 |
September 30, 2007 |
|
|
|||||
|
|
|
As Reported |
As Restated |
Changes |
|
As Reported |
As Restated |
Changes |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues |
$ 3,013,658 |
$ 3,013,658 |
|
|
$ 5,078,983 |
$ 5,078,983 |
|
|
|||||||
Cost of Revenues |
866,784 |
866,784 |
|
|
1,367,933 |
1,367,933 |
|
|
|||||||
|
Gross Profit |
2,146,874 |
2,146,874 |
|
|
3,711,050 |
3,711,050 |
|
|
||||||
General, Selling and Administrative |
|
|
|
|
|
|
|
|
|||||||
|
Advertising and Marketing |
168,236 |
168,236 |
|
|
530,684 |
530,684 |
|
|
||||||
|
Depreciation and Amortization |
94,720 |
94,720 |
|
|
273,083 |
273,083 |
|
|
||||||
|
Insurance |
70,881 |
70,881 |
|
|
276,279 |
276,279 |
|
|
||||||
|
Contract Labor |
181,507 |
181,507 |
|
|
531,991 |
531,991 |
|
|
||||||
|
Professional and Consulting Fees |
89,224 |
89,224 |
|
|
257,518 |
257,518 |
|
|
||||||
|
Rent |
89,122 |
89,122 |
|
|
189,298 |
189,298 |
|
|
||||||
|
Office Expense |
192,829 |
192,829 |
|
|
359,374 |
359,374 |
|
|
||||||
|
Travel, Meals and Entertainment |
116,100 |
116,100 |
|
|
328,517 |
328,517 |
|
|
||||||
|
Salaries and Wages |
662,972 |
662,972 |
|
|
1,436,207 |
1,436,207 |
|
|
||||||
|
Payroll Taxes |
46,846 |
46,846 |
|
|
110,748 |
110,748 |
|
|
||||||
|
Other General and Administrative |
149,168 |
149,168 |
|
|
263,616 |
263,616 |
|
|
||||||
|
|
Total Operating Expenses |
1,861,605 |
1,861,605 |
|
|
4,557,315 |
4,557,315 |
|
|
|||||
|
Operating Income (Loss) |
285,269 |
285,269 |
|
|
(846,265) |
(846,265) |
|
|
||||||
Other Income (Expense) |
|
|
|
|
|
|
|
|
|||||||
|
Miscellaneous Income (Loss) |
4,427 |
4,427 |
|
|
(485) |
(485) |
|
|
||||||
|
Interest Expense |
(197,157) |
(126,024) |
(71,133) |
b |
(580,984) |
(363,706) |
(217,278) |
a |
||||||
|
|
Total Other Income (Expense) |
(192,730) |
(121,597) |
(71,133) |
|
(581,469) |
(364,191) |
(217,278) |
|
|||||
|
Net Income (Loss) Before Minority Interest |
92,539 |
163,672 |
(71,133) |
|
(1,427,734) |
(1,210,456) |
(217,278) |
|
||||||
|
|
Income (Loss) of Subsidiary |
- |
- |
|
|
- |
- |
|
|
|||||
|
Net Income (Loss) Before Income Taxes |
92,539 |
163,672 |
(71,133) |
|
(1,427,734) |
(1,210,456) |
(217,278) |
|
||||||
|
Income Taxes |
- |
- |
|
|
- |
- |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net Income (Loss) |
$ 92,539 |
$ 163,672 |
(71,133) |
|
$ (1,427,734) |
$ (1,210,456) |
(217,278) |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net Income (Loss) Per Share, Basic and Diluted |
$ 0.00 |
$ 0.00 |
|
|
$ (0.03) |
$ (0.03) |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Weighted Average Number of Shares of |
|
|
|
|
|
|
|
|
||||||
|
|
Common Stock Outstanding |
47,902,247 |
47,902,247 |
|
|
47,505,685 |
47,505,685 |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|||||||
A summary of the components of other comprehensive income (loss) for the three |
|
|
|
|
|
|
|
||||||||
and nine months ended September 30, 2007 and 2006: |
|
|
|
|
|
|
|
||||||||
|
|
|
Three Months Ended |
Three Months Ended |
|
|
Nine Months Ended |
Nine Months Ended |
|
||||||
|
|
|
September 30, |
September 30, |
|
|
September 30, |
September 30, |
|
||||||
|
|
|
2007 |
2007 |
|
|
2007 |
2007 |
|
||||||
|
Net Income (Loss) |
92,539 |
163,672 |
(71,133) |
|
(1,427,734) |
(1,210,456) |
(217,278) |
|||||||
|
Foreign currency translation adjustment |
1,251 |
1,251 |
|
|
1,232 |
1,232 |
|
|||||||
|
Comprehensive Income (Loss) |
93,790 |
164,923 |
|
|
(1,426,502) |
(1,209,224) |
|
|||||||
|
|
|
|
|
|
|
|
|
|
||||||
a |
|
To properly record convertible debenture |
|
|
|
|
|
|
|
43
HOLMES BIOPHARMA, INC. AND SUBSIDIARY |
|
|
|
|
|
||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 |
|
|
|
|
|
||||
(unaudited) |
|
|
Nine Months |
Nine Months |
|
|
|||
|
|
|
|
|
|
Ended |
Ended |
|
|
|
|
|
|
|
|
September 30, |
September 30, |
|
|
|
|
|
|
|
|
2007 |
2007 |
|
|
|
|
|
|
|
|
As Reported |
As Restated |
Changes |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
||||
|
Net Loss |
|
|
$ (1,427,734) |
$ (1,210,456) |
$ 217,278) |
a |
||
|
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
|||
|
|
Used in Operating Activities |
|
|
|
|
|
||
|
|
|
Depreciation and Amortization |
|
273,083 |
273,083 |
|
|
|
|
|
|
Stock Issued for Services |
|
55,500 |
55,500 |
|
|
|
|
|
|
Warrants Issued For Financing |
|
39,139 |
39,139 |
|
|
|
|
|
|
Minority Interest in Loss of Subsidiary |
|
- |
- |
|
|
|
|
|
|
Accretion of Convertible Debenture, Net |
|
570,309 |
353,031 |
$ 217,278 |
a |
|
|
|
|
Changes in Assets and Liabilities |
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in Receivables |
|
(1,239,564) |
(1,239,564) |
|
|
|
|
|
|
Decrease (Increase) in Prepaid Expenses |
|
5,499 |
5,499 |
|
|
|
|
|
|
Increase (Decrease) in Trade Accounts Payable |
|
883,663 |
883,663 |
|
|
|
|
|
|
Increase (Decrease) in Deferred Revenue |
|
(43,848) |
(43,848) |
|
|
|
|
|
|
Increase (Decrease) in Accrued Expenses |
|
(28,319) |
(28,319) |
|
|
|
|
|
|
Net Cash Used in Operating Activities |
|
(912,272) |
(912,272) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
||||
|
Purchase of Property and Equipment |
|
(168,438) |
(168,438) |
|
|
|||
|
|
Net Cash Used in Investing Activities |
|
(168,438) |
(168,438) |
|
|
||
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
||||
|
Issuance of Common Stock, Net of Offering Costs |
|
456,325 |
456,325 |
|
|
|||
|
Advances on Revolving Bank Line of Credit |
|
20,206 |
20,206 |
|
|
|||
|
Repayments on Revolving Bank Line of Credit |
|
(20,206) |
(20,206) |
|
|
|||
|
Proceeds From Issuance of Note Payable - Related |
|
100,000 |
100,000 |
|
|
|||
|
Issuance of Convertible Debt |
|
- |
- |
|
|
|||
|
Repayments of Notes Payable |
|
(2,025) |
(2,025) |
|
|
|||
|
Repayments of Convertible Debt |
|
(11,250) |
(11,250) |
|
|
|||
|
|
Net Cash Provided by Financing Activities |
|
543,050 |
543,050 |
|
|
||
|
|
Effect of Exchange Rate Changes on Cash |
|
1,232 |
1,232 |
|
|
||
|
|
Net Increase (Decrease) in Cash |
|
(536,428) |
(536,428) |
|
|
||
|
|
Cash, Beginning of Period |
|
626,444 |
626,444 |
|
|
||
|
|
Cash, End of Period |
|
$ 90,016 |
$ 90,016 |
|
|
||
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
||||
|
Interest Paid |
|
$ 977 |
$ 977 |
$ - |
|
|||
|
Taxes Paid |
|
$ - |
$ - |
$ - |
|
|||
|
Stock Issued for Services |
|
$ 55,500 |
$ 55,500 |
$ - |
|
|||
|
|
|
|
|
|
|
|
|
|
|
a |
To properly record convertible debenture |
|
|
|
|
|
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 2, 2006 we filed a current report on Form 8-K disclosing that we dismissed Kyle Tingle, CPA, LLC as our independent registered public accounting firm, effective August 9, 2006. In that same report we disclosed the we had engaged Chisholm, Bierwolf & Nilson, LLC, Certified Public Accountants, as our independent registered public accounting firm, effective August 9, 2006.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. Our Chief Financial Officer, who also is our principal executive officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, he concluded that during the year ended December 31, 2007 our disclosure controls and procedures were effective.
Managements Annual Report on Internal Control over Financial Reporting
Our Chief Financial Officer is responsible to design or supervise a process to be effected by our board of directors that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:
$
maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets,
$
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and
$
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
For the year ended December 31, 2007, management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), Internal Control - Integrated Framework, issued in 1992, to evaluate the effectiveness of our internal control over financial reporting and based upon that framework management has determined that our internal control over financial reporting is effective. However, during the course of the 2007 audit, management became aware of certain errors in the financial statements for the year ended December 31, 2006 which carry through our 2007 financial numbers. (See Note 14 to the financial statements.) We intend to file a Current Report on Form 8-K informing the public that they should not rely on previously issued financial statements for 2006 and we intend to file an amendment to our annual report on Form 10-KSB for the year ended December 31, 2006.
Our management determined that there were no changes made in our internal controls over financial reporting during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the our registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only managements report in this annual report.
45
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our executive officer and director and his age, term of office and biographical information are set forth below. Our bylaws require at least one director but no more than nine directors to serve until each is replaced by an elected or qualified director. Our executive officers are chosen by our board of directors and serve at its discretion.
Name |
Age |
Position Held |
Director Term of Office |
John F. Metcalfe |
59 |
President, Secretary/Treasurer Chief Financial Officer and Director |
From January 2002 until next annual meeting |
Mr. Metcalfe has been our President since January 2002. He has a background in business development and marketing. He was employed for five years by Moore Corporation, a designer and supplier of business forms and related office solutions, where he held the position of Director of Marketing and Consulting Services. He also has business experience as a officer and director of an anti-virus software company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. Officers, directors and greater than ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file and provide written representation that no Form 5 is required. Based upon a review of these forms furnished to us for the fiscal year ended December 31, 2007, we believe John F. Metcalfe filed late two Forms 4 related to six transactions and Rockridge Capital Corp. filed late one Form 4 related to one transaction.
Code of Ethics
Due to the fact that we have only one officer and director and minimal operations, we have not adopted a code of ethics for our principal executive and financial officers. Our board of directors will revisit this issue in the future to determine if adoption of a code of ethics is appropriate. In the meantime, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
Committees
We are a smaller reporting company with one director and officer and as a result, we do not have a standing nominating committee for directors, nor do we have an audit committee with an audit committee financial expert serving on that committee. Mr. Metcalfe acts as our audit committee.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officer Compensation
46
The following table shows the compensation paid to our principal executive officer for the fiscal years ended December 31, 2007 and 2006.
SUMMARY COMPENSATION TABLE |
||||
Name and Principal Position |
Year |
Salary |
All Other Compensation |
Total |
John F. Metcalfe President |
2007 |
$ 112,269 (1) |
$ 110,000 (2) |
$ 222,269 |
2006 |
$ 42,250 |
$ 150,000 (3) |
$ 192,250 |
(1)
Represents cash and non-cash compensation received by Mr. Metcalfe from Qualia.
(2)
Represents the fair value of 50,000 common shares issued to Mr. Metcalfe.
(3)
Represents fair value of 100,000 common shares issued to Mr. Metcalfe.
We have not entered into employment contracts with our executive officer and his compensation is determined at the discretion of our board of directors. However, Mr. Metcalfe entered into a consulting agreement with Holmes on August 10, 2006 under which he agreed to provide consulting services related to business plan review and on-going strategic corporate planning. Under the consulting agreement Mr. Metcalfe was issued 100,000 shares of common stock valued at $150,000 based on the trading price of our common stock on that day. The consulting agreement expired December 31, 2006.
On October 31, 2007 we issued 50,000 shares to Mr. Metcalfe in consideration for services rendered on our behalf valued at approximately $110,000.
Outstanding Equity Awards
For the fiscal year ended December 31, 2007, we have not granted any equity or stock awards to our named executive officer.
Retirement Benefits or Other Arrangements
We do not offer a retirement benefit plan to our executive officer, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officers responsibilities following a change in control.
Compensation of Directors
We do not have any standard arrangement for compensation of our director for any services provided as director, including services for committee participation or for special assignments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table lists the securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders.
47
EQUITY COMPENSATION PLAN INFORMATION |
|||
Plan category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders |
0 |
$ 0 |
3,299,000 |
Equity compensation plans not approved by security holders |
0 |
$ 0 |
0 |
Total |
0 |
$ 0 |
3,299,000 |
2005 Equity Incentive Plan
On May 21, 2005, our board of directors adopted "The 2005 Equity Incentive Plan of Holmes Herbs, Inc." (the "Plan"). The purpose of the Plan is to aid the company in maintaining and continuing its development of a quality management team, in attracting qualified employees, consultants, and advisors who can contribute to our future success, and in providing such individuals with an incentive to use their best efforts to promote our growth and profitability.
Pursuant to the Plan, the Board may authorize the issuance of common stock or options to purchase common stock up to an aggregate of five million (5,000,000) shares over a maximum of a five year period, although the Board may shorten this period. Any options granted under the Plan are "non-qualified" stock options. The Board shall determine which employees are eligible to receive shares or options under the Plan. The term "Employee" includes any employee, director, officer, or consultant or advisor of the company or any of its subsidiaries, provided that bona fide services are rendered by consultants and advisors and such services are not rendered in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for our common stock.
On May 26, 2005, we filed a registration statement on Form S-8 (Registration No. 333-125265) which registered the 5,000,000 common shares to be issued under the Plan. As of December 31, 2007, our Board has granted 1,701,000 common shares to consultants and advisors pursuant to the Plan.
Beneficial Ownership
The following table sets forth the beneficial ownership of our outstanding common stock by our management and by each person or group known by us to own beneficially more than 5% of our outstanding common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 49,060,247 shares of common stock outstanding as of April 4, 2008.
48
CERTAIN BENEFICIAL OWNERS |
||
Name and address of beneficial owners |
Amount and nature of beneficial owner |
Percent of class |
Rockridge Capital Corp 1 Beim Antonskraiz Bridel 8116 Luxembourg |
22,500,000 |
45.9 |
MANAGEMENT |
||
Name and address of beneficial owners |
Amount and nature of beneficial owner |
Percent of class |
John F. Metcalfe 8655 East Via De Ventura, Suite G-200 Scottsdale, AZ 85258 |
50,000 |
Less than 1% |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Since the beginning of the last fiscal year we have not engaged in, nor have we proposed to engage in, any transactions involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons.
Director Independence
We do not have an independent director serving on our board of directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Accountant Fees
The following table presents the aggregate fees billed or accrued for each of the last two fiscal years by our independent registered public accounting firm, Chisholm, Bierwolf & Nilson LLC, in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
|
2007 |
2006 |
Audit fees |
$ 34,208 |
$ 9,195 |
Audit-related fees |
0 |
0 |
Tax fees |
0 |
0 |
All other fees |
0 |
0 |
Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
49
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other categories.
Audit Committee Pre-approval Policies
We do not have an audit committee currently serving, and as a result, our board of directors performs the duties of an audit committee. We do not rely on pre-approval policies and procedures. Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits
No.
Description
3.1
Articles of Incorporation of Holmes Biopharma, Inc. as amended (Incorporated by reference to exhibit 3.1 to Form 10-QSB filed August 21, 2006)
3.2
Bylaws of Holmes Biopharma, Inc. (Incorporated by reference to exhibit 3.2 to Form 10-QSB filed August 21, 2006)
10.1
Consulting Agreement between Holmes and Newport Capital Consultants, Inc., dated January 9, 2008
21.1
Subsidiaries of Holmes Biopharma (Incorporated by reference to exhibit 21 to Form 10-QSB, filed August 17, 2005)
31.1
Principal Executive Officer Certification
31.2
Chief Financial Officer Certification
32.1
Section 1350 Certification
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized
HOLMES BIOPHARMA, INC.
By: /s/ John F. Metcalfe
John F. Metcalfe
President, Secretary/Treasurer
Chief Financial Officer and Director
Date: April 11, 2008
50
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