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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Proteo Inc (GM) | USOTC:PTEO | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 179.80 | 0.00 | 01:00:00 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 000-30728
PROTEO, INC. (Name of Small Business Issuer in Its Charter) NEVADA 88-0292249 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2102 BUSINESS CENTER DRIVE, IRVINE, CA 92612 (Address of principal executive offices) (Zip Code) (949) 253-4616 (Issuer's telephone number, including area code) |
NONE
(Former name, former address and former fiscal year, if
changed since last report)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------------------ -------------------------------------------- None None |
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.001
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year. $ -0-
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days (based upon 10,949,350 shares held by non-affiliates and the closing price of $1.07 per share for the common stock on the over-the counter market as of April 7, 2008): approximately $11,715,804.00.
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 23,879,350 at April 7, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
PROTEO, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
TABLE OF CONTENTS
PART I Item 1. Description of Business Item 2. Description of Property Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Common Equity and Related Stockholder Matters and Purchaser of Equity Securities Item 6. Management's Discussion and Analysis or Plan of Operation Item 7 Financial Statements Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 8A (T) Controls and Procedures Item 8B Other Information PART III Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act Item 10. Executive Compensation Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12. Certain Relationships and Related Transactions, and Director Independence Item 13. Exhibits Item 14. Principal Accountant Fees and Services Signatures |
PART I
This Annual Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading "Management's Discussion and Analysis or Plan of Operations." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
ITEM 1 - DESCRIPTION OF BUSINESS
COMPANY OVERVIEW- HISTORY
Proteo, Inc. is a Nevada corporation formed on December 18, 1992. Proteo, Inc. has one wholly owned subsidiary, Proteo Biotech AG ("PBAG"), a German corporation (Proteo, Inc. and PBAG are hereinafter collectively referred to as the "Company" and "Proteo"). The Company's common stock is currently quoted on the Over-The-Counter Bulletin Board ("OTCBB") under the symbol "PTEO.OB". Effective December 31, 2004, the Company's other wholly owned subsidiary, Proteo Marketing, Inc. ("PMI") was merged into the Company.
PMI was incorporated in the State of Nevada and began operations on November 22, 2000. In December 2000, PMI entered into a reorganization and stock exchange agreement with PBAG, and as a result, PBAG became a wholly owned subsidiary of PMI.
During 2001, PMI entered into a Shell Acquisition Agreement (the "Acquisition Agreement") with Trivantage Group, Inc. ("Trivantage"), a public "shell" company, in a transaction accounted for as a reverse merger. In accordance with the Acquisition Agreement, PMI first acquired 176,660,280 shares (1,313,922 post-reverse split shares, as described below) of Trivantage's common stock representing 90% of the issued and outstanding common stock of Trivantage, in exchange for a cash payment of $500,000 to the sole shareholder of Trivantage. Secondly, Trivantage completed a one for one-hundred-fifty reverse stock split. Finally, effective April 25, 2002, the shareholders of PMI exchanged their shares of PMI for an aggregate of 20,286,512 shares of Trivantage to effect a reverse merger between PMI and Trivantage. Subsequently, Trivantage changed its name to Proteo, Inc.
DESCRIPTION OF BUSINESS
The Company seeks to identify potential drug candidates in the field of inflammation. The Company's focus is on natural occurring compounds which have proven superior biologic activity over almost all known compounds. The focus on natural occurring compounds is driven by the assumption that these compounds will have fewer side effects regarding metabolism and excretion. Whenever possible, human peptides and proteins, which have no allergenic potential, will be used.
The Company intends to develop, manufacture, promote, and market pharmaceuticals and other biotech products. However, we do not believe that any of our planned products will produce sufficient revenues in the next four years to support us financially. We currently expect to sell only small quantities of these products in the next few business years. As a result, we intend to identify and develop other potential products. To achieve profitable operations, the Company, independently or in collaboration with others, must successfully identify, develop, manufacture, and market proprietary products. The products and technologies we intend to develop will require significant commitments of personnel and financial resources.
Our business strategy is focused on the development of pharmaceuticals based on the body's own tools and weapons to fight inflammatory diseases. Specifically, we are focusing our research on the development of drugs based on the human protein Elafin. We strongly believe that Elafin will be useful in the treatment of cardiac infarction, serious injuries caused by accidents, post-surgery damage to tissue, and complications resulting from organ transplantation as well as other diseases.
Elafin is a human protein that naturally occurs in human skin, lungs and the mammary gland. Elafin is an elastase inhibitor which inhibits the activity of two enzymes, elastase and proteinase 3. Both of these enzymes are known to be involved in the breakdown of tissue in various inflammatory diseases. Elafin has proven in animal tests, that it protects tissue against destruction by these enzymes. We intend to utilize Elafin as a drug in the treatment of various diseases and injuries.
We believe a major indication for Elafin is as a drug in the treatment of cardiac infarction. Cardiac infarction appears as a result of deficiencies in the blood supply of heart muscles caused by damage to the supplying coronary vessels. As an immediate result, the heart weakens and the heart muscles are destroyed. Damage to tissue caused by cardiac infarction will slowly form scars. Current methods of treatment are aimed at restoring the blood supply to the heart, either by replacement with new blood vessels (bypass surgery) or by removal of blood-clots in the coronary vessels (lyse therapy). Animal experiments have shown that Elafin may be effective in protecting the heart muscles against destruction after blood supply was interrupted.
Elafin may also be useful in the treatment of the seriously injured. Similar to damage of heart muscles as described above, much of the damage caused by serious injuries appear after the injury causing event (e.g.: traffic accidents). In emergency treatment following accidents, the blood supply, nerve fibers and the stability of bones and joints are given priority. Due to blood supply deficiencies, inflammation will occur in injured muscles and in injured vessels. Because muscles may be destroyed by the inflammation, limbs may have to be amputated despite successful surgeries. Elafin may protect muscles against damage caused by inflammation. In animal experiments, rat legs treated with Elafin remained almost unaffected, although the blood supply of the leg was cut off for six hours.
Elafin may also be used in the course of heart transplantation. To transplant hearts successfully, simultaneous treatment with anti-inflammatory drugs is necessary. Inflammations of transplanted organs are mainly caused either by rejection of the organ by the immune system or by blood supply deficiencies during the transplantation. Although various drugs are used today to avoid the rejection of the organ, such rejections still occur quite often. Therefore, additional anti-inflammatory drugs are needed, which may potentially prevent damage caused by blood supply deficiencies. Tests carried out on rabbits at the University of Toronto have demonstrated the effectiveness of an infusion with Elafin after a heart transplant. In cases where Elafin was not administered, a substantial thickening of the coronary vessel walls occurred due to temporary circulation reduction. Thus, frequently the heart was not sufficiently supplied with blood. Inflammation and destruction of the heart musculature, which was partly replaced by functionless scar tissue, was the result. Treatment with Elafin has been shown to reduce such damage to a minimal level.
Other preliminary data indicate that Elafin may be useful in a broad range of other applications whether pharmaceutical or not. Therefore, we will attempt to encourage other scientists, research centers as well as other companies to do research and development on Elafin for applications other than those described above. For example, Elafin may also be effective in the treatment of lung diseases and defects, dermatological diseases and defects, or as an ingredient to coat medical devices, such as stents, or in cosmetics.
Proteo owns licenses to exclusively develop products based on patents and filings relating to Elafin, including fourteen issued patents. Of these issued patents, three were issued in the U.S.
Further, Proteo intends to engage in the research and development of other drugs and biotechnical products based on natural proteins. We may also be able to implement unique technologies and biotechnological production procedures that may enable the Company to offer related services to other companies. Additional research and development has already begun in the areas of Leech-derived Tryptase Inhibitors (LDTI), and Bis-acyl ureas. LDTI has been successfully expressed in yeast, and is an inhibitor of human mast cell tryptase. LDTI inhibits tryptase-induced human fibroblast proliferation. LDTI may be a drug candidate for the treatment of keloid formation, scleroderma and asthma.
Bis-acyl ureas have been identified as a relevant compound in yeasts able to induce inflammation. It activates human neutrophils in vitro and may be a potential candidate for immune system stimulation. Methods for isolation of bis-acyl urea from yeasts as well as synthetic production have been established. Bis-acyl ureas and LDTIs are in the early pre-clinical stage.
Proteo works closely with the interdisciplinary research unit at the University of Kiel in the identification of drug targets for the prevention and treatment of infections.
In 2001 we received a grant from the German State of Schleswig-Holstein in the approximate amount of 790,000 Euros for the research and pre-clinical development of our pharmaceuticals based on the human protein Elafin. The grant, as amended, covered the period from February 1, 2001 to March 31, 2004 if certain milestones were reached by November 15 of each year, with a possible extension as defined in the agreement. The grant required that we prove our economic ability to otherwise finance at least 52% of the projected costs on our own.
In May 2004 we received another grant from the German State of Schleswig-Holstein in the approximate amount of 760,000 Euros for further research and development of our pharmaceutical product Elafin. The 2004 grant covered the period from April 1, 2004 to March 31, 2007 if certain milestones were reached by September 30 of each year. The 2004 grant was extended through December 31, 2007. The 2004 grant covered 49.74% of eligible research and development costs and was subject to our ability to otherwise finance the remaining 50.26% of the costs. An additional condition of the grant was that the product had to be developed and subsequently produced in the German State of Schleswig-Holstein.
On November 15, 2004, we entered into an exclusive worldwide license and collaboration agreement with ARTES Biotechnology GmbH ("ARTES"). This license agreement enables us to economically produce Elafin on a large scale by using the sublicensed yeast HANSENULA POLYMORPHA as a high performance expression system. Rhein Biotech GmbH ("Rhein") has licensed the yeast to ARTES, who in-turn sublicensed it to us. The agreement has a term of 15 years with an annual license fee of 10,000 Euros or 2.5% royalties on the future sales of Elafin, if greater. Should the license agreement between Rhein and ARTES terminate, Rhein will assume the sublicense agreement with the Company under similar terms.
After developing a production procedure for Elafin, Proteo has initiated clinical trials to achieve governmental approval for the use of Elafin as a drug in Europe. For this purpose, Proteo has contracted Eurogentec, an experienced Contract Manufacturing Organization (CMO) located in Belgium to produce Elafin in accordance with GMP (good manufacturing practices) standards as required for clinical trials.
In December 2005, Proteo successfully completed a first Phase I trial for Elafin. Elafin was tested on 32 healthy male volunteers in a single-ascending-dose, double blind, randomized, placebo-controlled trial to evaluate its tolerability and safety at the Institut fur Klinische Pharmakologie in Kiel, Germany. All intravenously applied doses were well tolerated. No severe adverse events occurred.
In 2006, the Company gathered and evaluated additional data from the results of the Phase I study. In addition, during 2006, we established a procedure to incorporate Elafin as an active ingredient in cream.
In September 2006, Windhover Information, Inc., an established provider of business information for decision makers in the biotechnology and pharmaceutical industries, chose the Company's Elafin project as one of the top 10 most interesting cardiovascular projects. We presented the Elafin project at the "Windhover's Therapeutic Alliances Cardiovascular Conference" in Chicago on November 16, 2006.
In September 2006 we filed an application with the EMEA (European Medicines Agency) to obtain orphan drug status in the European markets for Elafin to be used in the treatment of pulmonary hypertension. Subsequent to December 31, 2006, the Committee for Orphan Medical Products (COMP) of the EMEA issued a positive opinion recommending the granting of orphan medicinal product designation for Elafin for treatment of pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. On March 20, 2007 the orphan drug designation became effective upon adoption of the recommendation by the European Commission.
In July 2007, we entered into an agreement with the University of Alberta, Canada to cooperate in research on Elafin for the treatment of pulmonary diseases in neonates. Animal experiments on newborn rats will be carried out by Dr. Bernard Thebaud, associate professor at the Department of Pediatrics and Neonatology.
In August 2007, the Company's subsidiary entered into a license agreement with Rhein Minapharm ("Mina"), a well established Egyptian pharmaceutical company based in Cairo, for clinical development, production and marketing of Elafin. We have granted Mina the right to exclusively market Elafin in Egypt and certain Middle Eastern and African countries.
In January 2008, we entered into an agreement with Stanford University, California to cooperate in preclinical studies related to Elafin's treatment of pulmonary arterial hypertension.
Our goal is to obtain our first governmental regulatory approval for the first indication of our initial product in 2012. It should be noted that the first indication, if successfully developed, would have a market potential substantially smaller than the overall market of Elafin for more widespread applications such as for the treatment of cardiac infarction.
OUR SUBSIDIARY
PBAG, our operating subsidiary, was formed in Kiel, Germany on April 6, 2000. PBAG is in the business of developing pharmaceutical products based on the human protein called Elafin and possible by-products thereof as well as related technologies. The President and CEO of PBAG is currently Birge Bargmann. The directors of PBAG are Oliver Wiedow, MD, Barbara Kahlke, PhD and Florian Wegner. PBAG has five full-time employees and one part-time employee as of December 31, 2007.
To date, the Company has not had profitable operations. Furthermore, we do not anticipate that we will have profitable operations in the near future.
COLLABORATION WITH OTHER COMPANIES
In an effort to provide the Company with some revenue which will be utilized in the implementation of our business plan, our Subsidiary periodically may provide research and development and manufacturing services as a sub-contractor and/or consultant to unaffiliated companies which do not compete with the Company. We plan to explore such opportunities if deemed advantageous to the Company.
Further, the Company actively seeks outlicensing partners, co-development partnerships and other collaborations with third parties to generate revenues and/or to expedite the Company's product development. However, there can be no assurance that the Company's efforts to build such alliances will be successful at any time or in any way.
COMPETITION
The market for our planned products and technologies is highly competitive, and we expect competition to increase. We compete with many other health care research product suppliers, most of which are larger than Proteo. Some of our anticipated competitors offer a broad range of equipment, supplies, products and technology, including many of the products and technologies contemplated to be offered by us. To the extent that customers exhibit loyalty to the supplier that first supplies them with a particular product or technology, our competitors may have an advantage over us with respect to such products and technologies. Additionally, many of our competitors have, and will continue to have, greater research and development, marketing, financial and other resources than us and, therefore, represent and will continue to represent significant competition in our anticipated markets. As a result of their size and the breadth of their product offering, certain of these companies have been and will be able to establish managed accounts by which, through a combination of direct computer links and volume discounts, they seek to gain a disproportionate share of orders for health care products and technologies from prospective customers. Such managed accounts present significant competitive barriers for us. It is anticipated that we will benefit from their participation in selected markets, which, as they expand, may attract the attention of our competitors. The business of research and development of pharmaceuticals for the treatment of cardiac infarction is intensely competitive. Major companies with immense financial and personal resources are also engaged in this field.
Elastase inhibitors such as Elafin, have been under research and development in the pharmaceutical industry for more than ten years. Currently, there have been more than 200 related patents granted. Most of these substances are produced synthetically, and are not applicable in the treatment of cardiac infarctions. Three other elastase inhibitors, secretory leukoprotease inhibitor (SLPI), alpha-1-antitrypsin and recombinant monocyte/neutrophil elastase inhibitor (rM/NEI), are similar to Elafin in that they are of human descent and may be applied like Elafin principally. From the human protein inter-alpha-trypsin inhibitor a highly elastase inhibitor, depelestat, has been engineered. Four other substances, ZD8321, ZD0892, SSR69071 and ONO-5046, are artificial elastase inhibitors which may have effectiveness comparable to that of Elafin.
SECRETORY LEUKOPROTEASE INHIBITOR (SLPI)
Amgen, Inc. is the owner of the patent for SLPI. Amgen purchased this patent by
acquiring Synergen, Inc. SLPI is quite similar to Elafin. Nevertheless, SLPI has
some disadvantages in its intended application in the treatment of cardiac
infarctions and in the treatment of serious injuries. It is only effective
against one (leukocyte-elastase) of the two (leukocyte-elastase and proteinase
3) major enzymes which destroy tissue, while Elafin has shown effectiveness
against both. Therefore, Elafin is probably more effective. Furthermore, SLPI is
not as stable as Elafin, which is a disadvantage in its distribution as a drug.
SLPI was discovered much earlier than Elafin; therefore, the remaining term of
the covering patent should be shorter than that related to Elafin. Amgen has not
mentioned any further development of SLPI as a drug candidate since its annual
report for 1998.
ALPHA-1-ANTITRYPSIN
Human blood naturally contains relatively large amounts of alpha-1-antitrypsin. Research into the use of alpha-1-antitrypsin for the treatment of cardiac infarctions, shock and other serious inflammations has been ongoing for the last twenty years. Compared to Elafin, however, there are some substantial problems related to alpha-1-antitrypsin. For example, alpha-1-antitrypsin is not as stable as Elafin, and therefore, from the scientific point of view it is probably not as effective as Elafin. Alpha-1-antitrypsin has received approval for the use as a drug in genetic deficiency of alpha-1-antitrypsin and is currently produced from pooled human sera. Recombinant production of alpha-1-antitrypsin has been established by Arriva Pharmaceuticals Inc., and clinical trials for the use as an aerosol for the treatment of alpha-1-antitrypsin deficiency have been conducted by Baxter Bioscience.
RECOMBINANT MONOCYTE/NEUTROPHIL ELASTASE INHIBITOR (RM/NEI)
This compound of human descent is currently under development for the treatment of cystic fibrosis and to be applied by inhalation devices. IVAX Corporation has entered into a license option agreement with the Center for Blood Research, Inc. (CBR), an affiliate of the Harvard Medical School, which holds the rights to this compound.
ONO-5046 (SIVELESTAT)
Ono Pharmaceutical Co. Ltd., in Japan has developed the synthetic elastase inhibitor ONO-5046 (Sivelestat). Ono received approval in 2002 to use Sivelestat as a drug for the indication "Amelioration of acute lung disease accompanying generalized inflammatory syndrome" in Japan and in Korea (Dong-A, Pharmaceutical Co., Ltd., Seoul) in 2006.
DEPELESTAT
A further elastase inhibitor has been engineered from the Kunitz domain of human inter-alpha-trypsin inhibitor. This peptide was found to be a potent inhibitor of human elastase, however, other than in the case of Elafin, it is reported that no other proteases, including proteinase 3, were inhibited. Currently Depelestat is being clinically developed by Debiopharm for use as an aerosol in the treatment of cystic fibrosis.
GOVERNMENT REGULATION
The Company is, and will continue to be, subject to governmental regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, and other similar laws of general application, as to all of which we believe we are in material compliance. Any future change in, and the cost of compliance with, these laws and regulations could have a material adverse effect on the business, financial condition, and results of operation of the Company.
Because of the nature of our operations, the use of hazardous substances, and our ongoing research and development and manufacturing activities, we are subject to stringent federal, state and local and foreign laws, rules, regulations and policies governing the use, generation, manufacturing, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes. Although we believe that we are in material compliance with all applicable governmental and environmental laws, rules, regulations and policies, there can be no assurance that the business, financial conditions, and results of operations of the Company will not be materially adversely affected by current or future environmental laws, rules, regulations and policies, or by liability occurring because of any past or future releases or discharges of materials that could be hazardous.
Additionally, the clinical testing, manufacture, promotion and sale of a significant majority of the products and technologies of the Company, if those products and technologies are to be offered and sold in the United States, are subject to extensive regulation by numerous governmental authorities in the United States, principally the FDA and corresponding state regulatory agencies. Additionally, to the extent those products and technologies are to be offered and sold in markets other than the United States, the clinical testing, manufacture, promotion and sale of those products and technologies will be subject to similar regulation by corresponding foreign regulatory agencies. In general, the regulatory framework for biological health care products is more rigorous than for non-biological health care products. Generally, biological health care products must be shown to be safe, pure, potent and effective. There are numerous state and federal statutes and regulations that govern or influence the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising, distribution and promotion of biological health care products. Non-compliance with applicable governmental requirements can result in, among other things, fines, injunctions, seizures of products, total or partial suspension of product marketing, failure of the government to grant pre-market approval, withdrawal of marketing approvals, product recall and criminal prosecution.
PATENTS, LICENSES & ROYALTIES
The Company owns licenses to exclusively develop products based on patents and filings including fourteen patents already issued. The issued patents include three patents which have been issued in the United States of America. The Company does not have title to any patents; title to the patents rests with Dr. Wiedow.
Dr. Wiedow will receive three percent of the gross revenues of the Company from products based on patents of which he was the principal inventor. Further, Dr. Wiedow will receive license fees in the amount of 110,000 Euros per year for a period of six years through December 31, 2006, for an aggregate of 660,000 Euros, and refund all expenses to maintain the patents (patent fees, legal fees, etc.). Such license fees shall be reduced by any other royalties paid to Dr. Wiedow. As of the date of this annual report, 30,000 Euros (approx. $43,000) have been paid to Dr. Wiedow, and 630,000 Euros (approx. $928,000) have been accrued as a liability.
AstraZeneca Inc. (formerly Zeneca Inc., formerly ICI Pharmaceuticals Inc.) had held the patents for Elafin for several years and has significantly contributed to the current knowledge. Therefore, AstraZeneca Inc. will receive two percent of the net sales of the Company from products based on patents in which Dr. Wiedow was the principal inventor. Proteo holds an exclusive license for the following patents:
USA US 5464822 USA US 6245739 USA US 6893843 EU EP 0402068 Japan JP 2989853 Australia AU 636148 Canada CA 2018592 Finland FI 902880 Ireland IE 070520 Israel IL 094602 New Zealand NZ 233974 Norway NO 177716 Portugal PT 094326 South Africa ZA 9004461 |
EMPLOYEES
As of December 31, 2007 Proteo had five full-time employees, all working at our offices in Germany.
ITEM 2 - DESCRIPTION OF PROPERTY
In October 2001, the Company entered into several leases for office and laboratory facilities in Germany beginning January 2002 and expiring at dates through December 2011. One lease for office space at Kiel, Germany was canceled as of October 31, 2005. In June 2004 and in August 2005, we entered into leases for lab and office space and additional office space, respectively, expiring through December 2008. Certain leases have a rental adjustment in 2007 based on the consumer price index. The aggregate monthly rental under the foregoing leases is approximately $3,500.
ITEM 3 - LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any litigation which it believes could have a materially adverse effect on its financial condition or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND PURCHASER OF EQUITY SECURITIES
Our common stock is quoted on the OTC Bulletin Board under the symbol PTEO.OB. The table below gives the range of high and low bid prices of our common stock for the fiscal years ended December 31, 2007 and 2006 based on information provided by the OTC Bulletin Board. Such over-the-counter market quotations reflect inter-dealer prices, without mark-up, mark-down or commissions and may not necessarily represent actual transactions or a liquid trading market.
COMMON STOCK PRICES YEAR PERIOD HIGH LOW ------- -------- 2007 First Quarter $0.71 $0.36 Second Quarter 0.67 0.46 Third Quarter 0.65 0.28 Fourth Quarter 1.01 0.30 2006 First Quarter $1.55 $0.56 Second Quarter 1.01 0.51 Third Quarter 0.98 0.41 Fourth Quarter 0.75 0.36 |
On April 7, 2008, the last sales price of our common stock was $1.07 per share. No cash dividends have been paid on our common stock for the 2007 and 2006 fiscal years and no change of this policy is under consideration by the Board of Directors. The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including our Company's earnings (if any), financial requirements, and opportunities for reinvesting earnings (if any), business conditions, and other factors. There are otherwise no restrictions on the payment of dividends.
NUMBER OF SHAREHOLDERS
As of March 21, 2008, the number of shareholders of record of the Company's common stock was 1,808.
PENNY STOCK
Until we satisfy the initial listing requirements for the Nasdaq Stock Market and successfully apply to have our shares of common stock listed thereon, the public trading, if any, of our common stock will be on the OTCBB. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, our common stock. Our common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock rule." Section 15(g) sets forth certain requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines "penny stock" to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our common stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. "Accredited investors" are persons with a net worth exceeding $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse) in each of the two most recent fiscal years and reasonably expect to reach the same income level in the current year. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of a broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our shareholders to sell their shares.
DIVIDEND POLICY
To date, we have declared no cash dividends on our Common Stock, and do not expect to pay cash dividends in the near term. We intend to retain future earnings, if any, to provide funds for operation of our business.
EQUITY COMPENSATION PLAN INFORMATION
We have no equity compensation plans as of December 31, 2007.
RECENT SALES OF UNREGISTERED SECURITIES
On December 22, 2006, we entered into a Common Stock Purchase Agreement (the "Agreement") with FIDEsprit AG, a Swiss corporation (the "Investor"). Pursuant to the Agreement, we agreed to issue and sell to the Investor 1,500,000 shares of our common stock at a purchase price of $0.60 per share, for an aggregate purchase price of $900,000. In payment of the purchase price, the Investor delivered to us a promissory note in the principal amount of $900,000. The promissory note does not bear any interest, and is payable in five installments of $180,000, with the first payment due on the date the shares were issued, on December 22, 2006, followed by four quarterly payments commencing on March 31, 2007, June 30, 2007, September 30, 2007 and December 31, 2007. The aggregate purchase price of $900,000 has been paid in full in installments through December 14, 2007.
In November 2005, the Company entered into a common stock purchase agreement to sell 300,000 shares of the Company's restricted common stock at a price of $0.84 per share or $256,000 in exchange for a promissory note, bearing no interest. Payments under the promissory note must be made in four equal installments of $64,000 each, falling due on March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006, respectively. This promissory note has been paid in full.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENTS:
This Annual Report on Form 10-KSB contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. The Company intends that such forward-looking statements be subject to the safe harbors created by such statutes. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. Accordingly, to the extent that this Annual
Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company's actual financial condition, operating results and business performance may differ materially from that projected or estimated by management in forward-looking statements. The differences may be caused by a variety of factors, including but not limited to adverse economic conditions, intense competition, including intensification of price competition and entry of new competitors and products, adverse federal, state and local government regulation, inadequate capital, unexpected costs and operating deficits, increases in general and administrative expenses, and other specific risks that may be alluded to in this Annual Report or in other reports issued by the Company. In addition, the business and operations of the Company are subject to substantial risks that increase the uncertainty inherent in the forward-looking statements. The inclusion of forward looking statements in this Annual Report should not be regarded as a representation by management or any other person that the objectives or plans of the Company will be achieved.
The Company currently generates minor nonoperating revenue from its out-licensing activities and does not expect to report any significant operating revenue until the successful development and marketing of its planned pharmaceutical and other biotech products. Additionally, after the launch of the Company's products, there can be no assurance that the Company will generate positive cash flow and there can be no assurance as to the level of operating revenues, if any, the Company may actually achieve from its planned principal operations.
PLAN OF OPERATION
The Company specializes in the research, development and marketing of drugs for inflammatory diseases with Elafin as its first project. The Company's management deems Elafin to be one of the most prospective substances in the treatment of serious tissue and muscle damage. Independently conducted animal experiments have indicated that Elafin may have benefits in the treatment of tissue and muscle damage caused by insufficient oxygen supply and therefore may be useful in the treatment of heart attacks, serious injuries and in the course of organ transplants. Other applications have yet to be determined.
The Company intends to implement Elafin as a drug in the treatment of inflammatory diseases, and intends to achieve governmental approval in Europe first. Currently, management estimates that it will take at least four years to achieve its first governmental approval for the use of Elafin as a drug for the first indication.
The Company's success will depend on its ability to prove that Elafin is well tolerated by humans and its efficacy in the indicated treatment. There can be no assurance that the Company will be able to develop feasible production procedures in accordance with Good Manufacturing Practices ("GMP") standards, or that Elafin will receive any governmental approval for its use as a drug in any of the intended applications.
A necessary pre-requisite for the commencement of clinical trials was the production of Elafin according to GMP Standards. In anticipation of commencing clinical trials, on March 18, 2005 we entered into a contractual agreement with Eurogentec S.A., located in Liege, Belgium, an experienced Contract Manufacturing Organization (CMO), for the production of a required amount of Elafin according to GMP standards. The authorities demand strict standards for the manufacture of medicines for clinical testing, and the GMP production of Elafin for clinical trials must comply with a large number of rules and regulations. Eurogentec completed its required production run of Elafin which was used in our clinical trial discussed below.
In April 2005, we entered into an agreement with the German Institut fur klinische Pharmakologie ("IKP"), an experienced Contract Research Organization (CRO), to assist us with our initial clinical trial involving Elafin, to evaluate the tolerability, safety, pharmacokinetic and dynamics of Elafin pursuant to a clinical protocol [e.g. with healthy young men]. In November 2005 we commenced, and in December 2005, we successfully completed, a first Phase I trial for Elafin. Elafin was tested on 32 healthy male volunteers in a single-ascending-dose, double blind, randomized, placebo-controlled trial to evaluate tolerability and safety at the IKP in Kiel, Germany. All intravenously applied doses were well tolerated. No severe adverse events occurred.
During 2006, the Company gathered and evaluated additional data from the results of the Phase I study, and we are currently in the process of planning a Phase II clinical trial. The design of a first Phase II study, which is intended to prove Elafin's efficacy in a certain indication, is substantially complete. The realization of such Phase II study will depend widely on the Company's ability to acquire sufficient funds in its financial activities. In addition, during 2006, we established a procedure to incorporate Elafin as an active ingredient in cream.
In September 2006 we filed an application with the EMEA (European Medicines Agency) to obtain orphan drug status in the European markets for Elafin to be used in the treatment of pulmonary hypertension. Subsequent to December 31, 2006, the Committee for Orphan Medical Products (COMP) of the EMEA adopted a positive opinion recommending the granting of orphan medicinal product designation for Elafin for treatment of pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. The orphan drug designation became effective on March 20, 2007 upon adoption of the recommendation by the European Commission.
In September 2006, Windhover Information, Inc., an established provider of business information for decision makers in the biotechnology and pharmaceutical industries, chose our Elafin project as one of the top 10 unlicensed cardiovascular compounds. We presented the Elafin project at the "Windhover's Therapeutic Alliances Cardiovascular Conference" in Chicago, United States on November 16, 2006.
In July 2007, we entered into an agreement with the University of Alberta, Canada to cooperate in research on Elafin for the treatment of pulmonary diseases in neonates. Proteo will initially provide support for animal experiments with its lead product on newborn rats to be carried out by Dr. Bernard Thebaud, associate professor at the Department of Pediatrics and Neonatology and a recognized authority in this area, with profound knowledge of animal models and substantial clinical experience.
In August 2007, the Company's subsidiary entered into an agreement with Mina for clinical development, production and marketing of Elafin. We have granted Mina the right to exclusively market Elafin in Egypt and certain Middle Eastern and African countries. Proteo received an initial payment of $110,000 upon execution of the agreement, and may receive milestone-payments upon Mina's attainment of certain clinical milestones as well as royalties on future net product sales. In addition, Mina will take over the funding of clinical research activities for the designated region. The agreement schedules the transfer of the biotechnological production process of Elafin to Cairo.
In January 2008 we entered into an agreement with Stanford University, in California, to cooperate in preclinical studies related to Elafin's treatment of pulmonary arterial hypertension. Proteo will provide support for animal experiments conducted by Marlene Rabinovitch, Research Director of the Vera Moulton Wall Center for Pulmonary Vascular Disease at Stanford University who is a renowned expert in the field, and her group at the university.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception we have raised a total of approximately $4,983,000 from the sale of 20,065,428 shares of our common stock, of which 6,585,487 shares, 300,000 shares and 1,500,000 shares have been sold at $0.40 per share, $0.84 per share and $0.60 per share, respectively, under stock subscription agreements in the amount of approximately $2,035,000, $252,000 and $900,000, respectively.
In May 2004, the German State of Schleswig-Holstein granted Proteo Biotech AG approximately 760,000 Euros (the "2004 Grant") for further research and development of the Company's pharmaceutical product Elafin. The 2004 Grant, as amended, covers the period from April 1, 2004 to December 31, 2007 if certain milestones have been reached by September 30 of each year, with a possible extension as defined in the agreement. The 2004 Grant covers 49.74% of eligible research and development costs and is subject to the Company's ability to otherwise finance the remaining costs. An additional condition of the grant is that the product is to be developed and subsequently produced in the German state of Schleswig-Holstein.
The Company qualified to receive approximately 196,109 Euros and 225,000 Euros under the 2004 Grant in 2007 and 2006, respectively. In 2007, we received grant funds approximating 172,000 Euros and qualified for an additional 23,623 Euros recorded as a receivable as of December 31, 2007. We did not qualify for approximately 21,000 Euros under the 2004 Grant by December 31, 2007 which amount was not rolled forward and forfeited. As of December 31, 2007, management believes that all milestones required by the 2004 Grant have been satisfied.
The Company has cash approximating $803,000 as of December 31, 2007. This is a significant increase over the December 31, 2006 cash balance of approximately $269,000, due to receipts from the 2004 Grant, the payment received from Mina and the payments on the promissory note received from the Investor in connection with our stock sale in December 2006.
Management believes that the Company will not generate any significant revenues for at least the next four years, nor will it have sufficient cash to fund operations. As a result, the Company's success will largely depend on its ability to secure additional funding through the sale of its Common Stock and/or the sale of debt securities. There can be no assurance, however, that the Company will be able to consummate debt or equity financing in a timely manner, or on a basis favourable to the Company, if at all.
CAPITAL EXPENDITURES
None significant.
GOING CONCERN
The Company's independent registered public accounting firm has stated in their Auditor's Report included in this Form 10-KSB that the Company will require a significant amount of additional capital to advance the Company's products to the point where they may become commercially viable and has incurred significant losses since inception. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern.
The Company intends to fund operations through grant proceeds and increased equity financing arrangements which management believes may be insufficient to finance its capital expenditures, working capital and other cash requirements for the fiscal year ending December 31, 2008. Therefore, the Company will be required to seek additional funds to finance its long-term operations. The successful outcome of future activities cannot be determined at this time and there is no assurance that if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.
INFLATION
Management believes that inflation has not had a material effect on the Company's results of operations.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not currently have any off balance sheet arrangements.
ACCOUNTING MATTERS
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants list their three to five most "critical accounting policies" in Item 6 of this Annual Report. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the Company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit this definition:
GRANTS - GENERAL
The Company received grants from the German government which are used to fund research and development activities and the acquisition of equipment. Grants for the reimbursement of research and development expenses are offset against research and development expenses in the accompanying consolidated statements of operations when the related expenses are incurred. Grants related to the acquisition of tangible property are recorded as a reduction of the property's historical cost.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's German operations are translated into U.S. dollars at period-end exchange rates. Grants and expenses are translated at weighted average exchange rates for the period. Net exchange gains or losses resulting from such translation are excluded from net loss but are included in comprehensive income and loss and accumulated in a separate component of stockholders' equity (deficit). Such amount approximated $370,000 at December 31, 2007.
The Company records payables related to a licensing agreement in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Quarterly commitments under such agreement are denominated in Euros. For each reporting period, the Company translates the quarterly amount to US dollars at the exchange rate effective on that date. If the exchange rate changes between when the liability is incurred and the time payment is made, a foreign exchange gain or loss results. The Company paid approximately $43,000 under this licensing agreement during the year ended December 31, 2007, and did not realize any significant foreign currency exchanges gains or losses. Prior to 2007 the Company made no payments under such agreement.
Additionally, the Company computes a foreign exchange gain or loss at each balance sheet date on all recorded transactions denominated in foreign currencies that have not been settled. The difference between the exchange rate that could have been used to settle the transaction at the date it occurred, and the exchange rate at the balance sheet date, is the unrealized gain or loss recognized in current operations. The Company recorded an unrealized foreign currency transaction loss of approximately $101,000 for the year ended December 31, 2007. The Company recorded an unrealized foreign currency transaction loss of approximately $81,000 for the year ended December 31, 2006.
RISKS AND UNCERTAINTIES
The Company maintains its cash in foreign accounts and not in bank depository accounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts.
The Company's research and development activities and most of its assets are located in Germany. The Company's operations are subject to various political, economic, and other risks and uncertainties inherent in Germany and the European Union ("EU").
INCOME TAXES
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
In July 2006, the FASB issued Financial Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The Company did not recognize any additional liability for unrecognized tax benefit as a result of the implementation.
The Company will recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2007 the Company has not recognized liabilities for penalty and interest as the Company does not have liability for unrecognized tax benefits.
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130 "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. Total comprehensive income (loss) represents the net change in stockholders' equity (deficit) during a period from sources other than transactions with stockholders and as such, includes net earnings or loss. For the Company, the components of other comprehensive income (loss) are the foreign currency translation adjustments that are recorded as components of stockholders' equity (deficit).
GRANTS
In May 2004 PBAG received a grant from the German State of Schleswig-Holstein in
the approximate amount of 760,000 Euros for further research and development of
our pharmaceutical product Elafin. The grant covered the period from April 1,
2004 to March 31, 2007 if certain milestones had been reached by September 30 of
each year. In November 2006, the grant was extended through December 31, 2007.
PBAG qualified to receive approximately 217,000 Euros (approximately $320,000)
of the New Grant in 2007. New Grant funds approximating 196,000 Euros ($289,000)
have been received (or were due at year end). The remaining amount of
approximately 21,000 Euros was forfeited.
ITEM 7 - FINANCIAL STATEMENTS
The consolidated financial statements and corresponding notes to the consolidated financial statements called for by this item appear under the caption Index to Financial Statements (Page F-1 hereof).
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 8A(T) - CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including to Birge Bargmann our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including Birge Bargmann our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007. Based on that evaluation, Ms. Bargmann concluded that as of December 31, 2007, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended because of the material weakness described below.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company's internal control over financial reporting and include in this Annual Report on Form 10-KSB a report on management's assessment of the effectiveness of our internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including Ms. Bargmann our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation and assessment led to the identification of a material weakness in our internal control over financial reporting as indicated below:
We lack the necessary depth of personnel with sufficient technical U.S. accounting expertise to ensure that our interim and annual financial statements (including the required footnote disclosures)can be prepared without material misstatements.
Our plan to remediate the material weakness as of December 31, 2007 is to utilize an outside consulting resource to prepare and review interim and annual financial statements.
This annual report does not include an audit report of our registered public accounting firm regarding internal control over financial reporting. In addition, Management's report on internal control over financial reporting is not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTIng.
During the fiscal year ended December 31, 2007, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 8B - OTHER INFORMATION
None.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names and ages of the current and incoming directors and executive officers of the Company and the principal offices and positions with the Company held by each person. The Board of Directors elects the executive officers of the Company annually. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors.
NAME AGE POSITIONS Birge Bargmann 46 President, Chief Executive Officer, Chief Financial Officer and Director Dr. Barbara Kahlke 43 Secretary Joerg Alte 47 Director Professor Oliver Wiedow, MD. 50 Director Holger Pusch 51 Director Hartmut Weigelt, Ph.D. 62 Director |
BIOGRAPHICAL INFORMATION:
Birge Bargmann has served as our President, Chief Executive Officer and Chief Financial Officer since November 2005 and a Director of the Company since December 2000. In November 2005, she was appointed CEO and CFO of the Company and its subsidiary. Ms. Bargmann was a member of the Supervisory Board of Proteo Biotech AG from 2002 to 2005. Since 1989, Ms. Bargmann has worked as a medical technique assistant engaged in the Elafin project at the dermatological clinic of the University of Kiel. She co-developed and carried out procedures to detect and to purify Elafin.
Dr. Barbara Kahlke has served as our Secretary since August 2004. She has been a member of the Supervisory Board of Proteo Biotech AG since May 2002, and a scientific researcher for Proteo Biotech AG since May 2000. Dr. Kahlke is a biologist, having received her doctorate from Christian-Albrechts-University in Kiel, Germany. Since 1994, Dr. Kahlke has worked for a medium-sized German pharmaceutical company with responsibilities in molecular biology and in protein production in compliance with GMP. She discovered the biological activity of bis-acyl urea.
Joerg Alte has served as a Director of the Company since December 2000. Mr. Alte served as our President, Chief Executive Officer and Chief Financial Officer from 2000 to 2003. Mr. Alte is a German lawyer by training and practice. After studying law and passing his second state examination, he worked for more than three years at a German law office predominantly engaged in economic and corporate laws with both public and private company clients engaged in international business. Subsequently, Mr. Alte worked as a legal advisor with a German diagnostic company, where he also practiced German and U.S. securities laws. From November 1998 to April 2000, Mr. Alte served as President and CEO for Sangui Biotech International, Inc., a publicly traded company. Since September 2007, Mr. Alte has served as managing director of FIDEsprit AG, a Swiss investment company.
Prof. Oliver Wiedow, M.D. has served as a Director of the Company since December 2000. Professor Wiedow served as our President, Chief Executive Officer and Chief Financial Officer from January 2004 to June 2004 and has served as a member of the Supervisory Board of Proteo Biotech AG since 2000. Since 1985 Professor Wiedow has served as physician and scientist at the University of Kiel, Germany. Prof. Wiedow discovered Elafin in human skin and has researched its biological effects.
Holger Pusch has served as a Director of the Company since December 2000. For the last 23 years, Mr. Pusch worked in different marketing and sales functions for major German companies. Mr. Pusch is currently the Managing Director of Lupus Imaging & Media GmbH & Co. KG, a company in the photo business, a position he has held since October 2006. From March 1, 2006 to October 2006, Mr. Pusch worked for Connect Consulting GmbH, in Bonn Germany. From October 1989 to March 2006 he worked for Agfa Geveart AG and its successor as a result of a spin-off in November 2004, AgfaPhoto GmbH.
Hartmut Weigelt, Ph.D. has served as a Director of the Company since December 2000. Dr. Weigelt was a member of the Supervisory Board of Proteo Biotech AG from 2000 to 2003. Since 1996, Dr. Weigelt has served as the managing director of Eco Impact GmbH which he co-founded. Dr. Weigelt was a co-founder of the first German private university, Witten/Herdecke and he is currently a Director of the Life Technologies Ruhr e.v. Mr. Weigelt studied chemistry and biology and graduated with a M.Sc., Ph.D., and D.Sc. in biology.
AUDIT COMMITTEE AND FINANCIAL EXPERT:
Proteo, Inc. is not a "listed company" under SEC rules and is therefore not
required to have an audit committee comprised of independent directors. We do
not currently have an audit committee, however, for certain purposes of the
rules and regulations of the SEC and in accordance with the Sarbanes-Oxley Act
of 2002, our board of directors is deemed to be its audit committee and as such
functions as an audit committee and performs some of the same functions as an
audit committee including: (1) selection and oversight of our independent
accountant; (2) establishing procedures for the receipt, retention and treatment
of complaints regarding accounting, internal controls and auditing matters; and
(3) engaging outside advisors. Our board of directors has determined that its
members do not include a person who is an "audit committee financial expert"
within the meaning of the rules and regulations of the SEC.
The board of directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's financial sophistication. Accordingly, the board of directors believes that each of its members has sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee would have.
FAMILY RELATIONSHIPS
There are no family relationships between or among the directors, executive officers or persons nominated by the Company to become directors or executive officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best of the Company's knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Exchange Act requires the Company's directors and executive officers and persons who own more than ten percent of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial owners of our common stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on the review of copies of such reports furnished to the Company and written representations that no other reports were required, the Company has been informed that all Section 16(a) filing requirements applicable to the Company's officers, directors and greater than ten percent beneficial owners of our common stock were complied with.
CODE OF ETHICS
The Company maintains a code of ethical conduct applicable to all employees, officers and directors. The Company will also provide to any person without charge, and upon request, a copy of the Code of Ethics by making a request in writing to: info@proteo.de.
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the overall compensation earned over each of the past two fiscal years ending December 31, 2007 by each person who served as the principal executive officer of Proteo during fiscal year 2007. There were no other executive officers who had compensation of $100,000 or more during fiscal year 2007.
SUMMARY COMPENSATION TABLE NON-QUALIFIED NON-EQUITY DEFERRED ALL OTHER TOTAL STOCK OPTION INCENTIVE PLAN COMPENSATION COMPEN- COMPEN- NAME AND SALARY BONUS AWARDS AWARDS COMPEN-SATION EARNINGS SATION SATION PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) ($) ------------------------------------------------------------------------------------------------------------------------------------ Birge Bargmann 2007 $ 64,000 -0- -0- -0- -0- -0- -0- $ 64,000 (Chief Executive Officer and Chief 2006 $ 6,000 -0- -0- -0- -0- -0- -0- $ 6,000 Financial Officer) |
COMPENSATION OF DIRECTORS
The Directors have not received any compensation for serving in such capacity, and the Company does not currently contemplate compensating its Directors in the future for serving in such capacity.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December 31, 2007, certain information with respect to the Company's equity securities owned of record or beneficially by (i) each director and executive officer; (ii) each person who owns beneficially more than 5% of each class of the Company's outstanding equity securities; and (iii) all directors and executive officers as a group. The address for all of the following individuals is c/o Proteo, Inc., 2102 Business Center Drive, Irvine, California 92612.
Number of Shares Percent of Title of Class Name of Beneficial Owner Beneficially Owned (1) Class -------------- ------------------------- ---------------------- ---------- Common Stock Prof. Oliver Wiedow, M.D. 10,680,000 44.7% Common Stock Birge Bargmann 2,000,000 8.4% Common Stock Joerg Alte 140,000(2) * Common Stock Dr. Barbara Kahlke 10,000 * Common Stock Holger Pusch 20,000 * Common Stock Hartmut Weigelt, Ph.D. 80,000 * Common Stock All officers and directors 12,930,000 54.2% as a group (6 persons) |
* less than 1%
(1) Based on 23,879,350 shares outstanding as of March 28, 2008.
(2) Mr. Alte has loaned all 140,000 shares to a broker, which shares must be
returned to Mr. Alte on or before December 31, 2007. Such shares were
not returned as of December 31, 2007.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Pursuant to a 30-year license agreement we have agreed to pay Dr. Wiedow three percent of the gross revenues of the Company from products based on patents where he was the principal inventor. Furthermore, we agreed to pay licensing fees of 110,000 Euro per year, for a term of six years through the year ending December 31, 2006, for a total of 660,000 Euros. This equated to annual license fees of approximately $130,000 for the year ending December 31, 2005 and $140,000 for the year ending December 31, 2006. We also agreed to refund all expenses needed to maintain such patents (e.g., patent fees, legal fees, etc).
At December 31, 2007, we have accrued $927,900 of licensing fees payable to Dr. Wiedow. During 2004, the licensing agreement was amended to require annual payments of 30,000 Euros, to be paid on July 15 of each year, beginning on July 15, 2004. Such amount can be increased up to 110,000 Euros by June 1 of each year based on an assessment of the Company's financial ability to make such payments. The annual payments will continue until the entire obligation of 660,000 Euros has been paid. In December 2007, the Company paid to Dr. Wiedow 30,000 Euros (approx. $43,000). No other payments have been made to Dr. Wiedow as of December 31, 2007, which is a technical breach of the agreement. Dr. Wiedow waived such breach and deferred the prior year payments to 2008.
On September 28, 2006, Dr. Wiedow entered into an agreement to contribute 50,000 Euros (approximately $63,000) to PBAG for a 15% non-voting interest in PBAG, in accordance with certain provisions of the German Commercial Code.
Dr. Wiedow will receive 15% of profits, as determined under the agreement, not to exceed in any given year 30% of the capital contributed. Additionally, he will be allocated 15% of losses, as determined under the agreement, not to exceed the capital contributed. Dr. Wiedow is under no obligation to provide additional capital contributions to the Company. During the years ended December 31, 2007 and 2006, losses of $3,978 and $59,026, respectively, were allocated against the contributed capital account, which is presented as minority interest in the profits and losses of Proteo Biotech on the accompanying statements of operations and comprehensive loss.
The disclosure requirements of Item 407(a) of Regulation S-B are not applicable to this filing.
ITEM 13 - EXHIBITS
EXHIBIT NO. DESCRIPTION 2.1* Agreement and Plan of Share Exchange 3.1* Articles of Incorporation, dated December 18, 1992 3.2* Amendment to Articles of Incorporation, dated October 31, 1996 3.3* Amendment to Articles of Incorporation, dated February 12, 1998 3.4* Amendment to Articles of Incorporation, dated May 18, 1999 3.5* Amendment to Articles of Incorporation, dated July 18, 2001 3.6* Amendment to Articles of Incorporation, dated January 11, 2002 3.7* Articles of Share Exchange, dated April 25, 2002 3.8* By-Laws, dated December 18, 1992 10.3* Common Stock Purchase Agreement 10.4* Promissory Note with Guaranty 10.5* Common Stock Purchase Agreement 10.6* Promissory Note 10.7* License Agreement dated August 9, 2007, between Proteo Biotech AG and Rhein Minapharm Biogenetics SAE 14.1* Code of Ethics 21** Subsidiaries of Small Business Issuer 31.1** Certification of Chief Executive Officer Pursuant to Section 302 31.2** Certification of Chief Financial Officer Pursuant to Section 302 32** Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 ________________________ |
* Previously filed.
** Filed herewith.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES:
We were billed approximately $84,000 and $70,000 for the fiscal years ended December 31, 2007 and 2006, respectively, for professional services rendered by the principal accountant for the audit of the our annual consolidated financial statements and the review of our quarterly unaudited consolidated financial statements.
AUDIT RELATED FEES:
None
TAX FEES:
We were billed approximately $6,000 and $6,000 for the fiscal years ended December 31, 2007 and 2006, respectively, for professional services rendered by the principal accountant for tax compliance and tax advice.
ALL OTHER FEES:
There were no other professional services rendered by our principal accountant during the two years ended December 31, 2007 that were not included in the three categories above.
All of the services provided by our principal accountant were approved by our Board of Directors. No more than 50% of the hours expended on our audit for the last fiscal year were attributed to work performed by persons other than full-time employees of our principal accountant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 11, 2008
PROTEO, INC.
(Registrant)
BY: /s/ BIRGE BARGMANN ---------------------------------------------- BIRGE BARGMANN CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER |
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Capacity Date ------------------------------- ---------------------------- ------------------- /s/ Birge Bargmann Chief Executive Officer and April 11, 2008 Birge Bargmann Chief Financial Officer ------------------------------- ---------------------------- ------------------- /s/ Joerg Alte Director April 11, 2008 Joerg Alte ------------------------------- ---------------------------- ------------------- /s/ Oliver Wiedow, M.D. Director April 11, 2008 Oliver Wiedow, M.D. ------------------------------- ---------------------------- ------------------- /s/ Holger Pusch Director April 11, 2008 Holger Pusch ------------------------------- ---------------------------- ------------------- /s/ Hartmut Weigelt, Ph.D. Director April 11, 2008 Hartmut Weigelt, Ph.D. ------------------------------- ---------------------------- ------------------- |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Proteo, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Proteo, Inc. and Subsidiary (collectively the "Company"), a Development Stage Company, as of December 31, 2007, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit) and cash flows for the years ended December 31, 2007 and 2006, and for the period from November 22, 2000 (Inception) to December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (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 was 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 Company's 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 consolidated financial position of Proteo, Inc. and Subsidiary as of December 31, 2007, and the consolidated results of their operations and their cash flows for the years ended December 31, 2007 and 2006, and for the period from November 22, 2000 (Inception) to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reported in the accompanying consolidated financial statements, the Company is a development stage enterprise which has experienced significant losses since inception with no operating revenues. As discussed in Note 1 to the consolidated financial statements, a significant amount of additional capital will be necessary to advance the development of the Company's products to the point at which they may become commercially viable. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Squar, Milner, Peterson, Miranda & Williamson, LLP ------------------------------------------------------ April 11, 2008 Newport Beach, California |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2007 -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 802,745 Research supplies inventory 127,557 Prepaid expenses and other current assets 80,542 ----------- Total Current Assets 1,010,844 Property and Equipment, net 376,542 ----------- TOTAL ASSETS $ 1,387,386 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable and accrued liabilities $ 123,518 Accrued licensing fees 927,900 ----------- Total Current Liabilities 1,051,418 Commitments and Contingencies (Note 6) STOCKHOLDERS' DEFICIT Preferred stock, par value $0.001 per share; 20,000,000 shares authorized; no shares issued or outstanding -- Common stock, par value $0.001 per share; 300,000,000 shares authorized; 23,879,350. shares issued and outstanding 23,880 Additional paid-in capital 4,968,234 Accumulated other comprehensive income 370,378 Deficit accumulated during development stage (5,026,524) ----------- Total Stockholders' Deficit (335,968) ----------- Total Liabilities and Stockholders' Deficit $ 1,387,386 =========== -------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-2 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 -------------------------------------------------------------------------------------------- November 22, 2000 (Inception) Through December 31, 2007 2006 2007 ------------ ------------ ------------ REVENUES $ -- $ -- $ -- EXPENSES General and administrative 347,825 552,115 3,528,303 Research and development, net of grants 133,286 100,490 1,616,264 ------------ ------------ ------------ 481,111 652,605 5,144,567 OTHER INCOME (EXPENSE) Interest income 6,334 3,192 40,758 Miscellaneous income, net 126,717 21,519 239,367 Foreign currency transaction loss (101,087) (81,000) (225,087) ------------ ------------ ------------ 31,964 (56,289) 55,038 ------------ ------------ ------------ NET LOSS BEFORE MINORITY INTEREST (449,147) (708,894) (5,089,529) MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY, NET OF TAXES 3,978 59,026 63,004 ------------ ------------ ------------ NET LOSS AVAILABLE TO COMMON SHAREHOLDERS (445,169) (649,868) (5,026,525) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 89,987 61,737 370,378 ------------ ------------ ------------ COMPREHENSIVE LOSS $ (355,183) $ (588,131) $ (4,656,147) ============ ============ ============ BASIC AND DILUTED LOSS AVAILABLE TO COMMON SHAREHOLDERS PER COMMON SHARE $ (0.02) $ (0.03) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 23,879,000 23,842,000 ============ ============ -------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-3 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------------------------------------------- Deficit Accumulated Accumulated Common Stock Additional Stock Other During ------------------------- Paid-in Subscriptions Comprehensive Development Shares Amount Capital Receivable Income (Loss) Stage Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - November 22, 2000 (Inception) -- $ -- $ -- $ -- $ -- $ -- $ -- Common stock subscribed at $0.001 per share 4,800,000 4,800 -- (4,800) -- -- -- Common stock issued for cash at $3.00 per share 50,000 50 149,950 -- -- -- 150,000 Reorganization with Proteo Biotech AG 2,500,000 2,500 6,009 -- -- -- 8,509 Net loss -- -- -- -- -- (60,250) (60,250) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2000 7,350,000 7,350 155,959 (4,800) -- (60,250) 98,259 Common stock issued for cash at $3.00 per share 450,000 450 1,349,550 -- -- -- 1,350,000 Cash received for common stock subscribed at $0.001 per share -- -- -- 4,800 -- -- 4,800 ----------------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-4 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------------------------------------------- (continued) Deficit Accumulated Accumulated Common Stock Additional Stock Other During ------------------------- Paid-in Subscriptions Comprehensive Development Shares Amount Capital Receivable Income (Loss) Stage Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Common stock issued for cash at $0.40 per share 201,025 $ 201 $ 80,209 $ -- $ -- $ -- $ 80,410 Common stock subscribed at $0.40 per share 5,085,487 5,086 2,029,109 (2,034,195) -- -- -- Common stock issued for cash to related parties at $0.001 per share 7,200,000 7,200 -- -- -- -- 7,200 Other comprehensive loss -- -- -- -- (20,493) -- (20,493) Net loss -- -- -- -- -- (374,111) (374,111) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2001 20,286,512 20,287 3,614,827 (2,034,195) (20,493) (434,361) 1,146,065 Common stock issued in connection with reverse merger 1,313,922 1,314 (1,314) -- -- -- -- Cash received for common stock subscribed at $0.40 per share -- -- -- 406,440 -- -- 406,440 ----------------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-5 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------------------------------------------- (continued) Deficit Accumulated Accumulated Common Stock Additional Stock Other During ------------------------- Paid-in Subscriptions Comprehensive Development Shares Amount Capital Receivable Income (Loss) Stage Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Other comprehensive income -- $ -- $ -- $ -- $ 116,057 $ -- $ 116,057 Net loss -- -- -- -- -- (1,105,395) (1,105,395) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2002 21,600,434 21,601 3,613,513 (1,627,755) 95,564 (1,539,756) 563,167 Common stock issued for cash at $0.60 per share 66,667 67 39,933 -- -- -- 40,000 Cash received for common stock subscribed at $0.40 per share -- -- -- 387,800 -- -- 387,800 Other comprehensive income -- -- -- -- 164,399 -- 164,399 Net loss -- -- -- -- -- (620,204) (620,204) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2003 21,667,101 21,668 3,653,446 (1,239,955) 259,963 (2,159,960) 535,162 Common stock issued for cash at $0.40 per share 412,249 412 164,588 -- -- -- 165,000 ----------------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-6 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------------------------------------------- (continued) Deficit Accumulated Accumulated Common Stock Additional Stock Other During ------------------------- Paid-in Subscriptions Comprehensive Development Shares Amount Capital Receivable Income (Loss) Stage Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash received for common stock subscribed at $0.40 per share -- $ -- $ -- $ 680,000 $ -- $ -- $ 680,000 Other comprehensive income -- -- -- -- 93,186 -- 93,186 Net loss -- -- -- -- -- (639,746) (639,746) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2004 22,079,350 22,080 3,818,034 (559,955) 353,149 (2,799,706) 833,602 Common stock subscribed at $0.84 per share 300,000 300 251,700 (252,000) -- -- -- Cash received for common stock subscribed at $0.40 per share -- -- -- 435,284 -- -- 435,284 Other comprehensive income -- -- -- -- (134,495) -- (134,495) Net loss -- -- -- -- -- (1,131,781) (1,131,781) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2005 22,379,350 22,380 4,069,734 (376,671) 218,654 (3,931,487) 2,610 ----------------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-7 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------------------------------------------- (continued) Deficit Accumulated Accumulated Common Stock Additional Stock Other During ------------------------- Paid-in Subscriptions Comprehensive Development Shares Amount Capital Receivable Income (Loss) Stage Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Common stock subscribed at $0.60 per share 1,500,000 $ 1,500 $ 898,500 $ (900,000) $ -- $ -- $ -- Cash received for common stock subscribed at $0.40 per share -- -- -- 414,590 -- -- 414,590 Other comprehensive income -- -- -- -- 61,737 -- 61,737 Net loss -- -- -- -- -- (649,868) (649,868) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2006 23,879,350 23,880 4,968,234 (862,081) 280,391 (4,581,355) (170,931) Cash received for common stock subscribed -- -- -- 862,081 -- -- 862,081 Other comprehensive income -- -- -- -- 89,987 -- 89,987 Net loss -- -- -- -- -- (445,169) (445,169) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 2007 23,879,350 $ 23,880 $ 4,968,234 $ -- $ 370,378 $(5,026,524) $ (335,968) =========== =========== =========== =========== =========== =========== =========== ----------------------------------------------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-8 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------- November 22, 2000 (Inception) Through December 31, 2007 2006 2007 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (445,169) $ (649,868) $(5,026,524) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 54,578 53,104 275,399 Loss on disposal of equipment 4,518 -- 4,518 Foreign currency transaction gain 101,087 81,000 225,087 Changes in operating assets and liabilities: Research supplies inventory (24,547) 8,083 (138,451) Prepaid expenses and other current assets (24,518) (18,671) (70,699) Accounts payable and accrued liabilities 17,851 (4,335) 84,991 Accrued licensing fees (44,187) 139,000 702,813 ----------- ----------- ----------- Net cash used in operating activities (360,387) (391,687) (3,942,867) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (6,294) -- (608,022) Cash of reorganized entity -- -- 27,638 ----------- ----------- ----------- Net cash used in investing activities (6,294) -- (580,384) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock -- -- 1,792,610 Proceeds for subscribed stock 862,081 414,590 3,190,995 ----------- ----------- ----------- Net cash provided by financing activities 862,081 414,590 4,983,605 EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 37,863 18,802 342,391 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 533,263 41,705 802,745 CASH AND CASH EQUIVALENTS - beginning of period 269,482 227,777 -- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - end of period $ 802,745 $ 269,482 $ 802,745 =========== =========== =========== (continued) ----------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-9 |
PROTEO, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006, AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2007 ----------------------------------------------------------------------------------------------- November 22, 2000 (Inception) Through December 31, 2007 2006 2007 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Common stock issued for subscriptions receivable $ -- $ 900,000 $ 1,627,755 =========== =========== =========== Net assets (excluding cash) of reorganized entity received in exchange for equity securities $ -- $ -- $ 8,509 =========== =========== =========== See the accompanying notes to consolidated financial statements for more information on non-cash investing and financing activities during the years ended December 31, 2007 and 2006, and for the period from November 22, 2000 (Inception) through December 31, 2007. ----------------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-10 |
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION/NATURE OF BUSINESS
Proteo, Inc. (formerly TriVantage Group, Inc.) and Proteo Marketing, Inc. ("PMI"), a Nevada corporation, which began operations in November 2000, entered into a reorganization and stock exchange agreement in December 2000 with Proteo Biotech AG ("PBAG"), a German corporation, incorporated in Kiel, Germany. Pursuant to the terms of the agreement, all of the shareholders of PBAG exchanged their common stock for 2,500,000 shares of PMI common stock. As a result, PBAG became a wholly owned subsidiary of PMI. Proteo Inc.'s common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "PTEO.OB".
During 2001, PMI entered into a Shell Acquisition Agreement (the "Acquisition Agreement") with Trivantage Group, Inc. ("Trivantage"), a public "shell" company, in a transaction accounted for as a reverse merger. In accordance with the Acquisition Agreement, PMI first acquired 176,660,280 shares (1,313,922 post-reverse split shares, as described below) of Trivantage's common stock representing 90% of the issued and outstanding common stock of Trivantage, in exchange for a cash payment of $500,000 to the sole shareholder of Trivantage. Secondly, Trivantage completed a one for one-hundred-fifty reverse stock split. Finally, effective April 25, 2002, the shareholders of PMI exchanged their shares of PMI for an aggregate of 20,286,512 shares of Trivantage to effect a reverse merger between PMI and Trivantage. Subsequently, Trivantage changed its name to Proteo, Inc. Effective December 31, 2004, PMI merged into Proteo, Inc.. PBAG and Proteo, Inc. are hereinafter collectively referred to as the "Company."
The Company intends to develop, manufacture, promote and market pharmaceuticals and other biotech products. The Company is focused on the development of pharmaceuticals based on the human protein Elafin. Elafin is a human protein that naturally occurs in human skin, lungs, and mammary glands. The Company believes Elafin may be useful in the treatment of cardiac infarction, serious injuries caused by accidents, post surgery damage to tissue and complications resulting from organ transplants.
Since its inception, the Company has primarily been engaged in the research and development of its proprietary product Elafin. Once the research and development phase is complete, the Company will begin to manufacture and obtain the various governmental regulatory approvals for the marketing of Elafin. The Company is in the development stage and has not generated any revenues from product sales. The Company believes that none of its planned products will produce sufficient revenues in the near future. As a result, the Company plans to identify and develop other potential products. There are no assurances, however, that the Company will be able to produce such products, or if produced, that they will be accepted in the marketplace.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEVELOPMENT STAGE AND GOING CONCERN MATTERS
The Company has been in the development stage since it began operations on November 22, 2000 and has not generated any revenues from operations. There is no assurance of any future revenues. Additionally, at December 31, 2007, the Company has a working capital deficit of approximately $41,000 and a stockholders' deficit of approximately $1,387,000.
The Company will require substantial additional funding for continuing research and development, obtaining regulatory approval and for the commercialization of its products.
Management has taken action to address these matters. They include:
o Retention of experienced management personnel with particular
skills in the commercialization of such products.
o Attainment of technology to develop additional biotech products.
o Raising additional funds through the sale of debt and/or equity
securities.
The Company's products, to the extent they may be deemed drugs or biologics, are governed by the Federal Food, Drug and Cosmetics Act and the regulations of state and various foreign government agencies. The Company's proposed pharmaceutical products to be used with humans are subject to certain clearance procedures administered by the above regulatory agencies. There can be no assurance that the Company will receive the regulatory approvals required to market its proposed products elsewhere or that the regulatory authorities will review the product within the average period of time.
Management plans to generate revenues from product sales, but there are no purchase commitments for any of the proposed products. In the absence of significant sales and profits, the Company may seek to raise additional funds to meet its working capital requirements through the additional sales of debt and/or equity securities. There is no assurance that the Company will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to the Company.
These circumstances, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CONCENTRATIONS
The Company maintains substantially all of its cash in bank accounts in Germany and not in United States bank depository accounts insured by the Federal Deposit Insurance Corporation. Under German law, the bank accounts are insured by the Deposit Protection Fund. Each bank customer is insured for up to seven billion Euros. The Company has not experienced any losses in these accounts.
The Company's research and development activities and most of its assets are located in Germany. The Company's operations are subject to various political, economic, and other risks and uncertainties inherent in Germany and the European Union.
OTHER RISKS AND UNCERTAINTIES
The Company's line of future pharmaceutical products being developed by its German subsidiary are considered drugs or biologics, and as such, are governed by the Federal Food and Drug and Cosmetics Act and by the regulations of state agencies and various foreign government agencies. There can be no assurance that the Company will obtain the regulatory approvals required to market its products. The pharmaceutical products under development in Germany will be subject to more stringent regulatory requirements because they are in vitro products for humans. The Company has no experience in obtaining regulatory clearance on these types of products. Therefore, the Company will be subject to the risks of delays in obtaining or failing to obtain regulatory clearance and other uncertainties, including financial, operational, technological, regulatory and other risks associated with an emerging business, including the potential risk of business failure.
As substantially all of the Company's operations are in Germany, they are exposed to risks related to fluctuations in foreign currency exchange rates. The Company does not utilize derivative instruments to hedge against such exposure.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Proteo, Inc. and its wholly owned subsidiary. The operations of PBAG, acquired on December 30, 2000, are included in the accompanying consolidated statements of operations and comprehensive loss from such date. All significant intercompany accounts and transactions have been eliminated in consolidation.
STARTUP ACTIVITIES
Statement of Position No. 98-5, "REPORTING THE COSTS OF STARTUP ACTIVITIES" requires that all non-governmental entities expense the costs of startup activities as incurred, including organizational costs. This standard has not materially impacted the Company's financial position or results of operations.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GRANTS
The Company receives grants from the German government which are used to fund
research and development activities and the acquisition of equipment (see Note
6). Grant receipts for the reimbursement of research and development expenses
are offset against such expenses in the accompanying consolidated statements of
operations and comprehensive loss when the related expenses are incurred. Grants
related to the acquisition of tangible property are recorded as a reduction of
such property's historical cost.
Funds are available at the earliest from January 1 of each budget year with a funds request submitted on or before December 5 of the preceding year. Funds reserved for each budget year may not be assigned, and funds not requested by December 5 of each budget year will expire.
USE OF ESTIMATES
The Company prepares its consolidated financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues (if any) and expenses during the reporting period. Significant estimates made by management include, among others, realizability of long-lived assets and estimates for deferred tax asset valuation allowances. Actual results could materially differ from such estimates.
FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107 "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS" requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. Management believes that the carrying amounts of the Company's financial instruments, consisting primarily of cash and accounts payable and accrued expenses, approximate their fair value at December 31, 2007 due to their short-term nature.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's German operations are translated from Euros (the functional currency) into U.S. dollars (the reporting currency) at period-end exchange rates. Expense and grant receipts are translated at weighted average exchange rates for the period. Net exchange gains or losses resulting from such translation are excluded from the consolidated statements of operations and are included in comprehensive loss and accumulated in a separate component of stockholders' equity (deficit). Such accumulated amount approximated $370,000 at December 31, 2007.
The Company records payables related to a licensing agreement (see Note 6) in accordance with SFAS No. 52, "FOREIGN CURRENCY TRANSLATION." Quarterly commitments under such agreement are denominated in Euros. For each reporting period, the Company translates the quarterly amount to US dollars at the exchange rate effective on that date. If the exchange rate changes between when the liability is incurred and the time payment is made, a foreign exchange gain or loss results. The Company paid approximately $43,000 under this licensing agreement during the year ended December 31, 2007, and did not realize any significant foreign currency exchanges gains or losses. Prior to 2007 the Company made no payments under such agreement.
Additionally, the Company computes a foreign exchange gain or loss at each balance sheet date on all recorded transactions denominated in foreign currencies that have not been settled. The difference between the exchange rate that could have been used to settle the transaction on the date it occurred and the exchange rate at the balance sheet date is the unrealized gain or loss that is currently recognized. The Company recorded unrealized foreign currency transaction losses of approximately $101,000 and $81,000 for the years ended December 31, 2007 and 2006, respectively.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of deposits with banks and short-term certificates of deposit.
RESEARCH SUPPLIES INVENTORY
Research supplies inventory is stated at cost, and is entirely comprised of research supplies and materials that are expensed as consumed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the straight-line method over their expected useful lives, which range from 3 to 14 years. Leasehold improvements are amortized over the expected useful life of the improvement or the remaining lease term, whichever is shorter. Expenditures for normal maintenance and repairs are charged to income, and significant improvements are capitalized. The cost and related accumulated depreciation or amortization of assets are removed from the accounts upon retirement or other disposition; any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss.
LONG-LIVED ASSETS
The Financial Accounting Statements Board ("FASB") has issued SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of certain long-lived assets, and requires that certain long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS No. 144 also requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to shareholders) or is classified as held for sale. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LONG-LIVED ASSETS (continued)
Management believes that no indicators of impairment existed as of or for the years ended December 31, 2007 or 2006. There can be no assurance, however, that market conditions or demand for the Company's products or services will not change which could result in long-lived asset impairment charges in the future.
REVENUE RECOGNITION
It is the Company's intent to recognize revenues from future product sales at the time of product delivery. In December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") No. 104, "REVENUE RECOGNITION," which provides guidance on the recognition, presentation and disclosure of revenue in the financial statements. The Company believes that once significant operating revenues are generated, the Company's revenue recognition accounting policies will conform to SAB No. 104.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. Grant funds received are reported as a reduction of research and development costs (see Note 6).
PATENTS AND LICENSES
The Company does not own any patents or patents pending related to the Elafin technology and instead operates under a technology license agreement with a related party (see Note 6). Under such license agreement, the Company does not hold title to any patents but must pay for all costs related to new patents, patents pending, and patent maintenance associated with the Elafin technology. The Company expenses such costs as incurred.
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, "ACCOUNTING FOR INCOME TAXES." Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be recovered.
Management evaluates the Company's tax positions for measurement and recognition using the guidance set forth in FASB Interpretation No. 48 ("Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109"), which is more fully described below.
The Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The Company did not recognize any additional liability for unrecognized tax benefit as a result of the implementation. As of December 31, 2007, the Company did not increase or decrease liability for unrecognized tax benefit related to uncertain tax positions in prior period nor did the Company increase its liability for any uncertain tax positions in the current year. Furthermore, there were no adjustments to the liability or lapse of statute of limitation or settlements with taxing authorities.
The Company expects resolution of unrecognized tax benefits, if created, would occur while the full valuation allowance of deferred tax assets is maintained; therefore, the Company does not expect to have any unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company will recognize interest and penalty related to unrecognized tax benefits and penalties as income tax expense. As of December 31, 2007, the Company has not recognized liabilities for penalty and interest as the Company does not have liability for unrecognized tax benefits.
The Company is subject to taxation in the US and various states. The Company's tax years for 2004, 2005, and 2006 are subject to examination by the taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by taxing authorities for years before 2004.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING FOR STOCK-BASED COMPENSATION
From inception to December 31, 2007, the Company has not granted any stock options, stock warrants, or adopted any stock option plan.
BASIC AND DILUTED LOSS PER COMMON SHARE
The Company computes loss per common share using SFAS No. 128 "EARNINGS PER SHARE." Basic loss per common share is computed based on the weighted average number of shares outstanding for the period. Diluted loss per common share is computed by dividing net loss by the weighted average shares outstanding assuming all dilutive potential common shares were issued. There were no dilutive potential common shares at December 31, 2007 or 2006. Additionally, for purposes of calculating diluted loss per common share, there were no adjustments to net loss. See Note 7 for additional information.
COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", established standards for
reporting and display of comprehensive income (loss) and its components in a
full set of general-purpose financial statements. Total comprehensive income
(loss) represents the net change in stockholders' equity (deficit) during a
period from sources other than transactions with stockholders and as such,
includes net earnings or loss. For the Company, the components of other
comprehensive income (loss) are the foreign currency translation adjustments,
which are recorded as components of stockholders' equity (deficit).
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION", established standards for how public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the countries in which it holds material assets and reports material revenues, and its major customers. The Company considers itself to operate in one segment and has had no operating revenues from inception. See Note 2 for information on long-lived assets located in Germany.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB STATEMENT NO. 109."
This interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS No.
109. FIN No. 48 prescribes a more-likely-than-not recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken (or expected to be taken) in an income tax return. It also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The requirement to
assess the need for a valuation allowance on net deferred tax assets is not
affected by FIN No. 48. This pronouncement was effective for fiscal years
beginning after December 31, 2006.
In September 2006, the FASB issued SFAS No.157, "FAIR VALUE MEASUREMENTS," which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 simplifies and codifies related guidance within GAAP, but does not require any new fair value measurements. The guidance in SFAS No. 157 applies to derivatives and other financial instruments measured at estimated fair value under SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" and related pronouncements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management does not expect the adoption of SFAS No. 157 to have a significant effect on the Company's financial position or results of operation.
On February 15, 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." This standard permits an entity to measure many financial
instruments and certain other items at estimated fair value. Most of the
provisions of SFAS No. 159 are elective; however, the amendment of SFAS No. 115
("Accounting for Certain Investments in Debt and Equity Securities") applies to
all entities that own trading and available-for-sale securities. The fair value
option created by SFAS No. 159 permits an entity to measure eligible items at
fair value as of specified election dates. Among others, eligible items exclude
(1) financial instruments classified (partially or in total) as permanent or
temporary stockholders' equity (such as a convertible debt security with a
non-contingent beneficial conversion feature) and (2) investments in
subsidiaries and interests in variable interest entities that must be
consolidated. A for-profit business entity will be required to report unrealized
gains and losses on items for which the fair value option has been elected in
its statements of operations at each subsequent reporting date.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity (i) makes that choice in the first 120 days of that year, (ii) has not yet issued financial statements for any interim period of such year, and (iii) elects to apply the provisions of SFAS No. 157. The adoption of SFAS No. 159 is not expected to have a significant impact on the Company's future financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "BUSINESS COMBINATIONS." This pronouncement will significantly change the accounting for business combinations, expand the concept of a business combination (such that a transfer of consideration is not necessarily required to trigger acquisition-method accounting), and amend the GAAP definition of a "business" to include development stage enterprises. SFAS No. 141(R) will also impact accounting for the initial consolidation of a variable interest entity that is a business, and accounting for bargain purchases (as defined) and step acquisitions. When a business combination constitutes a change in control of the acquiree, the purchasing entity will generally be required to recognize all (and only) the assets acquired, liabilities assumed, and noncontrolling interests (formerly known as "minority interests") at their full fair value as of the acquisition date, even when the controlling interest acquired is less than a 100% interest.
SFAS No. 141(R) includes substantial new disclosure requirements, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 14, 2008. Earlier adoption is prohibited. Such pronouncement must be adopted concurrently with SFAS No. 160 (see discussion in the following two paragraphs). Management is currently evaluating what effect SFAS No. 141(R) will have on the Company's future financial statements.
In December 2007, the FASB also issued SFAS No. 160, "NONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB No. 51." SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this pronouncement requires that a noncontrolling interest (minority interest) be reported in the stockholders' equity section of the consolidated balance sheet, with separate identification to distinguish such interest from the parent company's equity. The components of net income or loss attributable to the noncontrolling interest will be included in the consolidated results of operations in their "natural" classifications, and must be disclosed on the face of the income statement; however, earnings-per-share data will continue to be based exclusively on amounts attributable to the parent company. SFAS No. 160 clarifies that changes in a parent company's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the event does not result in a loss of control.
In addition, SFAS No. 160 requires that a parent company recognize gain or loss when a subsidiary is deconsolidated; such gain or loss will be measured using the estimated fair value of the noncontrolling equity investment on the deconsolidation date. A deconsolidation transaction also establishes a new fair value basis in any retained noncontrolling ownership interest, requiring gain/loss recognition for the difference between such new basis and the historical carrying amount of the remaining ownership interest. This pronouncement includes expanded disclosure requirements regarding the interests of the parent company and noncontrolling interests in its subsidiaries. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 14, 2008; earlier adoption is prohibited. Management is currently evaluating what effect this pronouncement will have on the Company's future financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
2. PROPERTY AND EQUIPMENT
Property and equipment, all located in Kiel, Germany, consist of the following at December 31, 2007:
Technical and laboratory equipment $ 441,813 Plant 217,671 Leasehold improvements 5,476 Office equipment 32,378 --------- 697,338 Less accumulated depreciation and amortization (320,796) --------- $ 376,542 ========= |
3. STOCKHOLDERS' DEFICIT
COMMON STOCK
The Company is authorized to issue 300,000,000 shares of $0.001 par value common stock. The holders of the Company's common stock are entitled to one vote for each share held of record on all matters to be voted on by those stockholders.
In November 2000, the Company sold and issued 4,800,000 shares of restricted common stock at $0.001 per share for $4,800 in cash, which was received in fiscal 2001; therefore the issuance was accounted for as a stock subscription receivable at December 31, 2000. During the year ended December 31, 2001, the Company sold and issued an additional 7,200,000 shares of restricted common stock to related parties at $0.001 per share for $7,200 in cash.
In November 2000, the Company sold and issued 50,000 shares of restricted common stock at $3.00 per share for $150,000 in cash.
In December 2000, the Company issued 2,500,000 shares of restricted common stock in connection with the reorganization and stock exchange agreement with PBAG (see "Organization/Nature of Business" in Note 1).
During the year ended December 31, 2001, the Company issued and sold 450,000 shares of restricted common stock at $3.00 per share to Euro-American GmbH for $1,350,000 in cash.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
3. STOCKHOLDERS' DEFICIT (continued)
COMMON STOCK (continued)
During the year ended December 31, 2001, the Company entered into a subscription agreement and note receivable for 6,000,000 shares of the Company's restricted common stock with Euro-American GmbH, valued at $2,400,000. During the year ended December 31, 2001, 5,286,512 shares of Company common stock were issued under such subscription, of which approximately $435,000, $680,000, and $794,000 was received against this receivable during the years ended December 31, 2005, 2004, and the period from Inception through December 31, 2003, respectively. In May 2003, FID-Esprit AG ("FID-Esprit") assumed the common stock subscription agreement with Euro-American GmbH. The Company received the outstanding balance in installments through March 28, 2006.
During the year ended December 31, 2002, the Company issued 1,313,922 shares of restricted common stock in conjunction with the reverse merger with PMI (see "Organization/Nature of Business" in Note 1).
Additionally, the Company entered into a common stock purchase agreement with FID-Esprit to purchase up to 1,000,000 shares of the Company's restricted common stock. Under the agreement, the Company agreed to sell its common stock at a price per share equal to 40% of the average ask price for the 20 trading days previous to the date of subscription, as quoted on a public market. However, the price per share will be no less than $0.40. During the years ended December 31, 2004 and 2003, the Company issued 412,249 and 66,667 shares, respectively, at $0.40 and $0.60 per share, respectively, for cash. Such agreement was not renewed after it expired on December 31, 2004.
In November 2005, the Company entered into a common stock purchase agreement with FID-Esprit to sell 300,000 of the Company's restricted common shares at $0.84 per share, or $252,000. Concurrent with such transaction, FID-Esprit issued a promissory note to the Company for $252,000 to be paid in four installments of $63,000 each, due on March 31, 2006, June 30, 2006, September 30, 2006, and December 31, 2006. The promissory note was paid in full during the year ended December 31, 2006.
In December 2006, the Company entered into a common stock purchase agreement with FID-Esprit to sell 1,500,000 of the Company's restricted common shares at $0.60 per share, or $900,000. Concurrent with such transaction, FID-Esprit issued a promissory note to the Company for $900,000 to be paid in five installments of $180,000 each through December 31, 2007. FID-Esprit made a partial payment of $37,894 against the note in December 2006. FID-Esprit paid the remaining balance in 2007.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
3. STOCKHOLDERS' EQUITY (continued)
PREFERRED STOCK
The Company is authorized to issue up to 20,000,000 shares of preferred stock, $0.001 par value per share. The Board of Directors has not designated any liquidation value, dividend rates or other rights or preferences with respect to any such shares of preferred stock. No preferred stock has been issued as of December 31, 2007.
4. MINORITY INTEREST
On September 28, 2006, a shareholder of the Company entered into an agreement to contribute 50,000 Euros (approximately $63,000) to PBAG for a 15% non-voting interest in PBAG, in accordance with certain provisions of the German Commercial Code. The party will receive 15% of profits, as determined under the agreement, not to exceed in any given year 30% of the capital contributed. Additionally, the party will be allocated 15% of losses, as determined under the agreement, not to exceed the capital contributed. The party is under no obligation to provide additional capital contributions to the Company. During the years ended December 31, 2007 and 2006, losses of $3,978 and $59,026, respectively, were allocated against the minority stockholder's capital account, which has been reported as minority interest in net loss of Proteo Biotech on the accompanying statements of operations.
5. INCOME TAX PROVISION
There is no material income tax expense recorded for the years ended December 31, 2007 or 2006, due to the Company's net losses.
Income tax expense for the years ended December 31, 2007 and 2006 differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent for the following reasons:
2007 2006 --------- --------- Income tax benefit at U.S. federal statutory rates $(151,000) $(221,000) Change in valuation allowance 151,000 221,000 State and local income taxes, net of federal income tax effect 800 800 --------- --------- $ 800 $ 800 ========= ========= |
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
5. INCOME TAX PROVISION (continued)
The Company has a deferred tax asset and like amount of valuation allowance of approximately $1,374,000 at December 31, 2007, relating primarily to tax net operating loss carryforwards, as discussed below, and timing differences related to the recognition of accrued licensing fees..
As of December 31, 2007, the Company had tax net operating loss carryforwards ("NOLs") of approximately $632,000 and $3,607,000 (2,449,000 Euros) available to offset future taxable Federal and foreign income, respectively. The Federal NOL expires in varying years through 2025. The foreign net operating loss relates to Germany and does not have an expiration date.
In the event the Company were to experience a greater than 50% change in ownership, as defined in Section 382 of the Internal Revenue Code, the utilization of the Company's tax NOLs could be severely restricted.
6. COMMITMENTS AND CONTINGENCIES
GRANTS
In 2001, the German state of Schleswig-Holstein granted Proteo Biotech AG approximately 760,000 Euros for the research and development of the Company's pharmaceutical product Elafin. The grant, as amended, covered the period from February 1, 2001 to March 31, 2004 if certain milestones were reached by November 15 of each year, with a possible extension as defined in the agreement. Such amounts have been reported as a reduction of research and development expenses in the year of receipt. During the term of this Grant, the Company received 100% of the expected funds.
In May 2004, the German State of Schleswig-Holstein granted Proteo Biotech AG approximately 760,000 Euros (the "New Grant") for further research and development of the Company's pharmaceutical product Elafin. The New Grant, as amended, covers the period from April 1, 2004 to December 31, 2007 if certain milestones have been reached by September 30 of each year, with a possible extension as defined in the agreement. The New Grant covers approximately 50% of eligible research and development costs and is subject to the Company's ability to otherwise finance the remaining costs. An additional condition of the New Grant is that the product is to be developed and subsequently produced in the German state of Schleswig-Holstein.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. COMMITMENTS AND CONTINGENCIES (continued)
GRANTS (continued)
The Company qualified to receive approximately 217,000 Euros and 225,000 Euros (approximately $320,000 and $298,000, respectively) of the New Grant in 2007 and 2006, respectively. New Grant funds approximating 196,000 Euros and 225,000 Euros ($289,000 and $298,000, respectively) have been received (or were due at year end) and reported as a reduction of research and development expenses for the years ended December 31, 2007 and 2006, respectively. The remaining approximately 21,000 Euros (approximately $27,000) expired as of December 31, 2007 and were forfeited. As of December 31, 2007, management believes that all milestones required by the New Grant have been satisfied.
DR. WIEDOW LICENSE AGREEMENT
On December 30, 2000, the Company entered into a thirty-year license agreement, beginning January 1, 2001, with Dr. Oliver Wiedow, MD, the owner and inventor of several patents, patent rights and technologies related to Elafin. In exchange for an exclusive worldwide license for the intellectual property, the Company agreed to pay Dr. Wiedow a licensing fee of 110,000 Euros per year, for a term of six years for a total obligation of 660,000 Euros. Such licensing fees shall be reduced by payments to Dr. Wiedow during such term for any royalties and for 50% of any salary. Royalties are to be paid quarterly for the term of the agreement to Dr. Wiedow in the amount of three percent of gross revenues earned from the sale of products based on the licensed technology. Dr. Wiedow has not been paid any salary since execution of the agreement.
During 2004, the licensing agreement was amended to require annual payments of 30,000 Euros, to be paid on July 15 of each year, beginning on July 15, 2004. Such amount can be increased to 110,000 Euros by June 1 of each year based on an assessment of the Company's financial ability to make such payments. The annual payments will continue until the entire obligation of 660,000 Euros has been paid. In December 2007, the Company paid to Dr. Wiedow 30,000 Euros (approximately $43,000). No other payments have been made to Dr. Wiedow as of December 31, 2007, which is a technical breach of the agreement. Dr. Wiedow waived such breach and deferred the prior year payments to calendar 2008. Expense related to such license totaling $0, $139,000, and $747,000 is included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss for the years ended December 31, 2007 and 2006, and for the period November 22, 2000 (inception) to December 31, 2007, respectively. No royalty expense has been recognized under the agreement since the Company has yet to generate any related revenues. At December 31, 2007, the Company has accrued $927,900 of licensing fees payable to Dr. Wiedow.
Dr. Wiedow, who is a director of the Company, beneficially owned approximately 45% of the Company's outstanding common stock as of December 31, 2007.
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. COMMITMENTS AND CONTINGENCIES (continued)
DR. WIEDOW LICENSE AGREEMENT
On October 4, 1999, Dr. Wiedow and AstraZeneca PLC (formerly Zeneca Limited) entered into an agreement to assign all patents and technology related to Elafin to Dr. Wiedow in exchange for a royalty of 2% of any future net sales from such patents and technology. The Company, under its December 30, 2000 licensing agreement with Dr. Wiedow discussed above, assumed such 2% royalty obligation.
ARTES BIOTECHNOLOGY LICENSE AGREEMENT
On November 15, 2004, the Company entered into an exclusive worldwide license and collaboration agreement with ARTES Biotechnology GmbH ("ARTES"). This agreement enables the Company to economically produce Elafin on a large scale by using the sublicensed yeast HANSENULA POLYMORPHA as a high performance expression system. Rhein Biotech GmbH ("Rhein") has licensed the yeast to ARTES, who in-turn sublicensed it to the Company. The agreement has a term of 15 years with an annual license fee equal to the greater of 10,000 Euros (approximately $15,000 at December 31, 2007) or 2.5% royalties on the future sales of Elafin. Should the license agreement between Rhein and ARTES terminate, Rhein will assume the sublicense agreement with the Company under similar terms.
RHEIN MINAPHARM AGREEMENT
In August 2007, the Company's subsidiary entered into an agreement with Rhein Minapharm ("Mina") for clinical development, production and marketing of Elafin. The Company has granted Mina the right to exclusively market Elafin in Egypt and certain Middle Eastern and African countries. Under this agreement, the Company recognized $110,000 of miscellaneous income and may receive additional milestone-payments upon Mina's attainment of certain clinical milestones as well as royalties on any future net product sales.
LEASES
The Company has entered into several leases for office and laboratory facilities in Germany, expiring at dates through December 2012. Certain leases have a rental adjustment in 2007 based on the consumer price index.
Future minimum rental payments under non-cancelable operating leases, in Euros and equivalent U.S. dollars (based on the December 31, 2007 exchange rate), approximate the following for the years ending December 31:
(euro) $ -------------- -------- 2008 (euro) 18,000 $ 27,000 2009 18,000 27,000 2010 18,000 27,000 2011 18,000 27,000 2012 18,000 27,000 -------------- -------- (euro) 90,000 $135,000 ============== ======== |
PROTEO, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. COMMITMENTS AND CONTINGENCIES (continued)
LEASES (continued)
The Company also leases office space in Irvine, California on a month-to-month basis. Total rental expense for all facilities for the years ended December 31, 2007 and 2006, and for the period November 22, 2000 (inception) to December 31, 2007 approximated $38,000, $40,000 and $290,000, respectively.
LEGAL
The Company may from time to time be involved in various claims, lawsuits, disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation which it believes could have a material adverse effect on its financial condition or results of operations.
7. LOSS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted loss per common share computations for the years ended December 31, 2007 and 2006:
2007 2006 ------------ ------------ Numerator for basic and diluted loss per common share: Net loss charged to common stockholders $ (445,170) $ (649,868) Denominator for basic and diluted loss per common share: Weighted average number of common shares outstanding 23,879,000 23,842,000 ------------ ------------ Basic and diluted loss per common share $ (0.02) $ (0.03) ============ ============ |
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