UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 22, 2003
INTEGRATED BIOPHARMA, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-28876 22-2407475
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
225 Long Ave., Hillside, New Jersey 07205
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (973) 926-0816
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
This Amendment No. 1 on Form 8-K amends the report on Form 8-K filed with the
Securities and Exchange Commission on August 6, 2003 by Integrated BioPharma,
Inc. (the "Company") reporting the acquisition by the Company of 97% of the
shares of the common stock of Paxis Pharmaceuticals, Inc. (f/k/a Tisorex Inc.),
a Delaware corporation ("Paxis") which was consummated on July 22, 2003.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Page
----
(a) Financial Statements of Business Acquired
The financial statements of Paxis Pharmaceuticals, Inc.
(f/k/a Tisorex Inc.) are filed herewith F-1 .. F-14
(b) Pro Forma Financial Information
(1) Introductory Note F-15
(2) Unaudited Pro Forma Condensed Balance Sheet
as of June 30, 2003 F-16
(3) Unaudited Pro Forma Condensed Statement of Operations
for the Year Ended June 30, 2003 F-17
(4) Notes to Unaudited Pro Forma Financial Statements F-18
(c) Exhibits.
Exhibit
Number Description
----- -----------
2.1 Purchase Agreement dated as of February 1, 2003 by and between
Integrated Health Technologies, Inc. and Trade Investment Services,
L.L.C. re: NatEx Georgia, L.L.C. (1)
2.2 Purchase Agreement dated as of February 1, 2003 by and between
Integrated Health Technologies, Inc. and Trade Investment Services,
L.L.C. re: TisorEx, Inc. (k/n/a Paxis Pharmaceuticals, Inc.). (1)
2.3 Assignment Agreement dated as of July 1, 2003 by and between
Integrated BioPharma, Inc., Trade Investment Services L.L.C., Vasili
Patarkalishvili, VAP LLC, The James S. Friedlander Revocable Trust,
Aqela LLC and Natela Patarkalishvili. (2)
2.4 Assignment and Assumption Agreement dated as of July 1, 2003 by and
among Integrated BioPharma, Inc., Trade Investment Services, L.L.C.
and Paxis Pharmaceuticals, Inc. (2)
99.1 Press Release dated July 22, 2003 reporting the acquisition by the
Integrated BioPharma, Inc. of 97% of the shares of Paxis
Pharmaceuticals, Inc. (2)
-------------------------
(1) Incorporated by reference from the Company's 8-K filed on February 26, 2003
as amended by an 8-K/A filed on April 25, 2003.
(2) Incorporated by reference from the Company's 8-K filed on August 6, 2003.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED BIOPHARMA, INC.
Date: October 3, 2003 By: /s/ Eric Friedman
-----------------
Name: Eric Friedman
Title: Vice President
3
Paxis Pharmaceuticals, Inc.
(formerly Tisorex, Inc.)
(A Development Stage Company)
For the period from August 29, 2001 (Date of Inception)
to June 30, 2002 and for the twelve
months ended June 30, 2003
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
--------------------------------------------------------------------------------
INDEX
Item 7: Financial Statements
Independent Auditors' Report ........................................F-3
Balance Sheet .......................................................F-4
Statements of Operations and Accumulated Deficit ....................F-5
Statements of Cash Flows ............................................F-6
Notes to Financial Statements ...................................... F-7 .. F-14
. . . . . . . .
F-2
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Paxis Pharmaceuticals, Inc.
We have audited the accompanying balance sheet of Paxis
Pharmaceuticals, Inc. (formerly Tisorex, Inc.) (a development stage company) as
of June 30, 2003, and the related statements of operations and accumulated
deficit, and cash flows for the period from inception (August 29, 2001) through
June 30, 2002, and for the twelve months ended June 30, 2003, and for the period
from inception (August 29, 2001) through June 30, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Paxis
Pharmaceuticals, Inc. as of June 30, 2003, and the results of their operations
and their cash flows for the period from inception (August 29, 2001) through
June 30, 2002, and for the twelve months ended June 30, 2003, and for the period
from inception (August 29, 2001) through June 30, 2003 in conformity with
accounting principles generally accepted in the United States.
/s/ Amper, Politziner & Mattia, P.C.
Edison, New Jersey
September 9, 2003
F-3
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
BALANCE SHEET AS OF JUNE 30, 2003
-------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 92,235
Deposit on Inventory 1,148,507
Inventory 59,926
Prepaid Expenses and Other Current Assets 18,880
-----------
Total Current Assets 1,319,548
-----------
Property and Equipment - Net 1,768,847
-----------
Other Assets:
Intellectual Property 401,374
Prepaid Rent 130,000
Security Deposits and Other Assets 132,113
-----------
Total Other Assets 663,487
-----------
Total Assets $ 3,751,882
===========
Liabilities and Stockholders' Deficiency:
Current Liabilities:
Loan Payable-Stockholders $ 4,672,260
Accounts Payable 598,413
Due to Integrated BioPharma, Inc. 400,000
Accrued Expenses and Other Current Liabilities 27,881
Capital Lease Obligation 135,479
-----------
Total Current Liabilities 5,834,033
-----------
Commitments and Contingencies [12] --
-----------
Stockholders' Deficiency:
Common Stock - Authorized 5,000 Shares,
$.01 Par Value, 2,128 Shares Issued and Outstanding 21
Accumulated Deficit (2,082,172)
-----------
Total Stockholders' Deficiency (2,082,151)
-----------
Total Liabilities and Stockholders' Deficiency $ 3,751,882
===========
See accompanying notes to financial statements.
F-4
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
--------------------------------------------------------------------------------
For the period from inception (August 29, 2001) through June 30, 2002,
for the twelve months ended June 30, 2003 and for the period from
inception (August 29, 2001) through June 30, 2003
Period from Period from
Inception Inception
(August 29, 2001) Twelve (August 29,2001)
Through Months Ended Through
June 30, 2002 June 30, 2003 June 30, 2003
------------- ------------- -------------
Sales $ -- $ -- $ --
Cost of Sales -- -- --
------------ ------------- -------------
Gross Profit -- -- --
Selling and Administrative Expenses -- 2,015,569 2,015,569
Interest Expense -- 66,603 66,603
------------ ------------- -------------
Net Loss -- (2,082,172) (2,082,172)
Retained Earnings, beginning -- -- --
------------ ------------- -------------
Accumulated Deficit, ending $ -- $ (2,082,172) $ (2,082,172)
============ ============= =============
See accompanying notes to financial statements.
F-5
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
For the period from inception (August 29, 2001) through June 30, 2002,
for the twelve months ended June 30, 2003 and for the period from
inception (August 29, 2001) through June 30, 2003
Period From Inception Twelve Period From Inception
(August 29, 2001) Months Ended (August 29, 2001)
Through June 30, 2002 June 30, 2003 Through June 30, 2003
--------------------- ------------- ---------------------
Operating Activities:
Net Loss $ -- $ (2,082,172) $ (2,082,172)
------------- ------------- --------------
Adjustment to Reconcile Net Income [Loss] to Net Cash
Provided By [Used for] Operating Activities: --
Depreciation and Amortization -- 6,348 6,348
Changes in Assets and Liabilities
[Increase] Decrease in:
Deposit on Inventories -- (1,148,507) (1,148,507)
Inventory -- (59,926) (59,926)
Prepaid Expenses and Other Current Assets -- (18,880) (18,880)
Security Deposits and Other Assets -- (262,113) (262,113)
[Decrease] Increase in:
Accounts Payable -- 598,413 598,413
Accrued Expenses and Other Liabilities -- 27,881 27,881
------------- ------------- --------------
Total Adjustments -- (856,784) (856,784)
------------- ------------- --------------
Net Cash - Operating Activities -- (2,938,956) (2,938,956)
------------- ------------- --------------
Investing Activities:
Proceds from loans from Stockholders -- 4,672,260 4,672,260
Proceeds from Integrated BioPharma, Inc. -- 400,000 400,000
Purchase of Intellectual Property -- (401,374) (401,374)
Purchase of Property and Equipment -- (1,639,716) (1,775,195)
------------- ------------- --------------
Net Cash-Investing Activities -- 3,031,170 3,031,170
------------- ------------- --------------
Financing Activities:
Issuance of Capital Stock -- 21 21
------------- ------------- --------------
Net Cash-Financing Activities -- 21 21
------------- ------------- --------------
Net Increase in Cash and Cash Equivalents -- 92,235 92,235
Cash and Cash Equivalents - Beginning of Periods -- -- --
------------- ------------- --------------
Cash and Cash Equivalents - End of Periods $ -- $ 92,235 $ 92,235
============= ============= ==============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 11,388 $ 11,388
Supplemental Schedule of Investing and Financial Activities:
Equipment acquired under the terms of a capital lease $ 137,689 $ 137,689
See accompanying notes to financial statements.
F-6
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
[1] Business
Paxis Pharmaceuticals, Inc. (formerly known as Tisorex, Inc.) the ("Company") is
a Delaware corporation incorporated on August 29, 2001.The Company was formed to
manufacture and distribute Paclitaxel, which is the primary chemotherapeutic
agent in the treatment of breast cancer. To date the Company has devoted the
majority of its efforts in raising capital and setting up operations. The
Company is in the development stage, and accordingly, the financial statements
are prepared in a format prescribed for a development stage company.
The Company was inactive until July 2002 when it acquired from Hauser Inc.
("Hauser") its cGMP-(company good manufacturing practices) compliant Paclitaxel
production facilities, processing equipment, and intellectual assets. The
acquisition included key solvent-handling assets, including bulk unloading
facilities, storage tanks, pumps and piping as well as process automation
equipment, key chromatography assets and process automation equipment and
software, clean room crystallization equipment where finished product is
manufactured and packaged per United States Food and Drug Administration (FDA)
standards and a significant portion of Hauser's Paclitaxel documentation system
that was designed for the plant, which is needed for rapid FDA approval. The
Company also purchased Paclitaxel intellectual property ("Technology") from
Hauser. Hauser had developed an improved process that was taken through pilot
processing but never to full scale production, as Hauser chose to exit the
Paclitaxel marketplace following the expiration of a Bristol Myers patent. This
new process allows high recoveries of the active ingredient, resulting in fewer
processing steps, and utilizes a single non-chlorinated solvent system. This
enables lower costs, higher yields, and increased plant production volumes
compared with other patented processes being used by competitors.
The Company is subject to various risks associated with a start-up operation,
including, among others, setting up and operating manufacturing facilities,
complying with regulatory requirements for manufacturing pharmaceutical
products, manufacturing cGMP API Paclitaxel, marketing and selling the cGMP
Paclitaxel to customers, and operating profitably. The Company can give no
assurance that it can be operated profitably.
[2] Liquidity
As of June 30, 2003 the majority of the funding has been provided by Trade
Investment Services, LLC, a 50% owner of the Company. On July 22, 2003,
Integrated BioPharma, Inc. completed its acquisition of 97% of the common stock
of the Company. All future funding will be provided by Integrated BioPharma,
Inc.
[3] Summary of Significant Accounting Policies
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety
of methods and assumptions, which are based on estimates of market conditions
and risks existing at the time. For certain instruments,
F-7
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS , Sheet #2
--------------------------------------------------------------------------------
[3] Summary of Significant Accounting Policies [Continued]
including cash and cash equivalents, deposits, accounts payable, and accrued
expenses, it was estimated that the carrying amount approximated fair value
because of the short maturities of these instruments. All debt is based on
current rates at which the Company could borrow funds with similar remaining
maturities and approximates fair value.
Cash and Cash Equivalents- Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Inventories-Inventory is valued at the lower of cost or market and is made up of
raw material inventory.
Depreciation- The Company follows the general policy of depreciating the cost of
property and equipment over the following estimated useful lives:
Leasehold Improvements 15 Years
Machinery and Equipment 7 Years
Machinery and Equipment Under Capital Leases 7 Years
Machinery and equipment are depreciated using accelerated methods while
leasehold improvements are amortized on a straight-line basis. Depreciation
expense for the twelve months ended June 30, 2003 was $6,348. Amortization of
equipment under capital leases will be included with depreciation expense.
Estimates- The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition- The Company has not completed its renovation of the
manufacturing facilities as of June 30, 2003 and has not recognized any income
to date. The Company intends to recognize revenue upon shipment of the product.
The Company believes that recognizing revenue at shipment will be appropriate
because the Company's sales policies will meet the four criteria of SAB 101
which are: (i) persuasive evidence that an arrangement exists, (ii) delivery has
occurred, (iii) the seller's price to the buyer is fixed and determinable and
(iv) collectability is reasonably assured. The Company's sales policy will be to
require customers to provide purchase orders establishing selling prices and
shipping terms, which are F.O.B shipping point with the title and risk of loss
passing to the customer at point of shipment. The Company will evaluate the
credit risk of each customer and establish an allowance of doubtful accounts for
any credit risk. Sales returns and allowances will be estimated upon shipment.
License of Technology-The Company has a limited, non-exclusive license to use
the "Technology" acquired from Hauser for a term of ten years. The Company is
obligated to pay a License Fee of $90,000 payable within ten days from the date
Hauser provides the Company with written notice that it has demonstrated that
the Technology can be used to manufacture lab scale Paclitaxel from taxus
canadensis, or Canadian yew trees. In addition the Company is obligated to pay a
fee of $50,000 upon the commercial sale by the Company of products comprising
Paclitaxel extracted, isolated or purified using the Technology. The Company is
also obligated to pay an annual license maintenance fee of $250,000 (the annual
maintenance fee) one year after the first commercial sale. The Company is
further obligated to pay a royalty fee based on a percentage of sales, less the
annual maintenance fee.
F-8
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS , Sheet #3
--------------------------------------------------------------------------------
[3] Summary of Significant Accounting Policies [Continued]
At the conclusion of the License Term the Technology License shall be considered
fully paid and the Company shall have the rights granted under the Technology
License without further payment of an annual royalty.
As of June 30, 2003, approximately $401,000 has been paid to Hauser under this
agreement which has been recorded as intellectual property. The Company has not
amortized this amount since operations have not commenced, but will begin
amortizing over the remaining period of the 10 year agreement when operations
have commenced.
Income Taxes-The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax basis of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred taxes for which it does not consider
realization of such assets to be more likely than not.
[4] Inventories
At June 30, 2003, inventory of $59,926 consists of raw materials to be used in
the manufacturing process.
[5] Deposits on Inventory
The Company has advanced to Natex Georgia LLC, a related party, $1,148,507 for
the purchase of biomass to be used by the Company for the production of
Paclitaxel.
[6] Property and Equipment
Leasehold Improvements $ 599,788
Machinery and Equipment 1,016,279
Machinery and Equipment Under Capital Leases 159,128
-----------
Total 1,775,195
Less: Accumulated Depreciation 6,348
-----------
Total $ 1,768,847
----- ===========
[7] Due to Integrated BioPharma, Inc.
At June 30, 2003 the Company had received an advance of $400,000 from Integrated
BioPharma, Inc. The advance is non-interest bearing and will be repaid when the
funds are available. The advance has been classified as a current liability.
[8] Loan Payable-Stockholders
Demand Loan, provided by TIS to the Company, dated July 1, 2002 with interest at
9%. Interest has been accrued through December 31, 2002. Interest for the period
from January 1, 2003 through June 30, 2003 has been waived.
F-9
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS , Sheet #4
--------------------------------------------------------------------------------
[9] Capital Lease
The Company acquired laboratory equipment under the provisions of a long-term
lease. The lease expires in January 2004. The equipment under the capital lease
as of June 30, 2003 has a cost of $159,128 and accumulated depreciation of $-0-
with a net book value of $159,128.
The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at June 30, 2003 are as follows:
Total Minimum Lease Payments $ 137,689
Amount Representing Interest (2,210)
----------
Present Value of Net Minimum Lease Payments 135,479
Current Portion (135,479)
----------
Long-Term Capital Lease Obligation $ -0-
---------------------------------- ==========
[10] Income Taxes
Deferred tax resulting from differences between financial accounting amounts and
tax basis of assets and liabilities at June 30, 2003:
Non-current assets
Net operating loss carryfoward $ 769,000
Valuation allowance (769,000)
----------
Net noncurrent deferred tax asset (liability) $ --
==========
The Company has net losses for financial reporting purposes. Recognition of
deferred tax assets will require generation of future taxable income. There can
be no assurance that the Company will generate earnings in future years.
Therefore, the Company established a valuation allowance on deferred tax assets
of $769,000 as of June 30, 2003.
The Company has net operating loss carryforwards for federal and state tax
purposes of approximately $2,078,000 expiring at various times from years ending
2022 through 2023.
The utilization of these net operating loss carryforwards may be significantly
limited under the Internal Revenue Code as a result of ownership changes due to
the Company's stock and ownership changes.
[11] Significant Risks and Uncertainties
Concentrations of Credit Risk-Cash- The Company maintains balances at one
financial institution. The account is insured by the Federal Deposit Insurance
Corporation up to $100,000. At June 30, 2003, the Company's uninsured cash
balance totaled approximately $14,000.
F-10
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
--------------------------------------------------------------------------------
[12] Commitments and Contingencies
[A] Leases- The Company leases manufacturing and office facilities through March
31, 2007. The lease was effective on April 1, 2002 and provided for minimum
monthly rental of $32,500 per month through March 31, 2007 plus increases in
real estate taxes and building operating expenses. Rent expense has been
straight-lined over the life of the lease. At its option, the Company has the
right to renew the lease for an additional five year period. On August 27, 2002
the lease was amended reducing the square footage from approximately 32,500 to
22,500 and reducing the monthly rent to $22,483 per month for the balance of the
lease. Rent expense for the twelve months ended June 30, 2003 was $326,444.
Other Lease Commitments-
The minimum rental commitment for long-term non-cancelable leases is as follows:
Twelve Months Lease
Ending June 30, Commitment
-------------- ----------
2004 $ 269,796
2005 269,796
2006 202,347
2007 --
Thereafter --
----------
Total $ 741,939
----- ===========
Total rent expense, including real estate taxes and maintenance charges, was
approximately $456,444 for the twelve months ended June 30, 2003.
[B] Consultant Agreement- The Company has oral agreements with subcontractors to
supply labor on an as needed basis.
[13] Related Party Transactions-The Company has a consulting agreement with EVJ,
LLC, a limited liability company controlled by Robert Kay, a 17% shareholder in
the Company. The total consulting expense recorded per this verbal agreement was
$180,000 for the twelve months ended June 30, 2003.
[14] New Accounting Pronouncement
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
effective July 1, 2002. Under SFAS 142, goodwill is not amortized but is tested
for impairment on an annual basis. The impairment test is a two-step process.
The first step identifies potential impairment by comparing an entity's fair
value, including goodwill, to its carry amount. If the entity's carrying amount
exceeds its fair value, a second step is performed which compares the fair value
of the entity's goodwill to the carrying amount of that goodwill. If the
carrying amount of goodwill exceeds the fair value, an impairment loss is
recognized. Upon adoption, any impairment loss identified is presented as a
change in accounting principle and recorded as of the beginning of the fiscal
year adoption. After adoption, any impairment loss recognized is recorded as a
charge to income from operations. The adoption of SFAS 142 did not have a
significant impact on the Company's financial statements.
F-11
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
--------------------------------------------------------------------------------
[14] Accounting Pronouncement [Continued]
Effective July 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment Or Disposal of Long Lived Assets," which is effective for financial
statements issued for fiscal years beginning after December 15, 2001. SFAS 144
supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption of
SFAS 144 did not have a significant impact on the Company's financial
statements.
In April 2002, the Financial Accounting Standard Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections." SFAS No. 145 provides guidance for
income statement classification of gains and losses of debt and accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 requires that gains and losses from
extinguishment of debt be classified as extraordinary items only if they meet
the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30").
SFAS No. 145 is effective for years beginning after December 15, 2002. The
Company does not expect any impact from adoption of this statement, which
applied to the Company commencing on July 1, 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit of Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
EITF.
Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. There
was no impact from the adoption of this statement.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation", which amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock based compensation. It also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock based employee compensation. Finally, SFAS No. 148 amends APB Opinion No.
28, "Interim Financial Reporting", to require disclosure of those effects in
interim financial statements. SFAS No. 148 is effective for fiscal years ended
after December 15, 2002, but early adoption is permitted. There was no impact
from the adoption of this statement.
In November 2002, the FASB issued interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", which requires that guarantees within the
scope of FIN 45 issued or amended after December 31, 2002, a liability for the
fair value of the obligation undertaken in issuing the guarantee, be recognized
at the inception of the guarantee. Disclosures required by FIN 45 are included
in the accompanying financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities," which is effective for interim periods beginning after June 15, 2003.
This interpretation changes the method of determining whether certain entities
should be included in the Company's consolidated financial statements. An entity
is subject to FIN 46 and is called a variable interest entity ("VIE") if it has
(1) equity that is insufficient to permit the
F-12
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
--------------------------------------------------------------------------------
[14] Accounting Pronouncement [Continued]
entity to finance its activities without additional subordinated financial
support from other parties, or (2) equity investors that cannot make significant
decisions about the entity's operations or that do not absorb the expected
losses or receive the expected returns of the entity. All other entities are
evaluated for consolidation under SFAS No. 94, "Consolidation of All
Majority-Owned Subsidiaries." A VIE is consolidated by its primary beneficiary,
which is the party involved with the VIE that has a majority of the expected
losses or a majority of the expected residual returns or both. The Company is
currently evaluating the impact of FIN 46.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of SFAS 33 on
Derivative Instruments and Hedging Activities." SFAS 149 is intended to result
in more consistent reporting of contracts as either freestanding derivative
instruments subject to SFAS 133 in its entirety, or as hybrid instruments with
debt host contracts and embedded derivative features. In addition, SFAS 149
clarifies the definition of a derivative by providing guidance on the meaning of
initial net investments related to derivatives. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. The Company does not
believe the adoption of SFAS 129 will have a material effect on its financial
position, results of operations, or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. SFAS 150 is effective for all financial instruments created or
modified after May 31, 2003. The Company currently does not have any such
instruments. There was no impact from the adoption of this statement.
[15] Subsequent Event
Integrated BioPharma, Inc. Acquisition- On July 22, 2003, Integrated BioPharma,
Inc. ("INB") completed its acquisition of ninety-seven (97%) percent of the
shares of common stock of the Company. INB acquired 47% of the shares of the
Company in exchange for its 50% interest in Natex Georgia LLC ("Natex"), a
company organized in the Republic of Georgia to harvest from Georgian government
lands organic biomass from which Paclitaxel is made. INB acquired 50% of the
shares of the Company from Trade Investment Services, LLC ("TIS"), which funded
Paxis' and Natex's development, pursuant to the terms of a certain Purchase
Agreement dated as of February 1, 2003 (the "Purchase Agreement"), in
consideration for TIS receiving from the INB $500,000 and twenty-five (25%)
percent of the after-tax profits of the Company until TIS has received an
additional $49,500,000.
In addition, TIS assigned to INB a loan receivable from the Company, and INB
assumed the Company's loan payable in the principal amount of $4,500,000 to the
Bank of America, pursuant to an Assignment and Assumption Agreement dated as of
July 1, 2003 by and among INB, TIS and the Company. INB also assumed an
obligation of approximately $200,000 advanced by TIS to the Company. INB expects
to acquire the remaining three (3%) percent of the Company's shares currently
held by Dean P. Stull, President of the Company, during the next several months.
E. Gerald Kay, the Chief Executive Officer of INB and beneficial owner of
approximately fifty percent (50%) of the stock of INB (or, approximately
sixty-two percent (62%) if family trusts of which he is a trustee are attributed
to him), is the owner of one-third (1/3) of the equity of TIS. Robert Kay, the
brother of E. Gerald Kay, is also the owner of one-third (1/3) of the equity of
TIS. Carl DeSantis, the father or Dean DeSantis who is a director of INB, is the
owner of one-third (1/3) of the equity of TIS.
F-13
PAXIS PHARMACEUTICALS, INC. (formerly Tisorex, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
--------------------------------------------------------------------------------
[15] Subsequent Events [Continued]
INB anticipates that the accounting for the Paxis acquisition will follow
controlled related party carryover basis accounting. The excess of the debt of
$4,500,000 assumed plus the $500,000 cash paid plus the approximately $200,000
obligation assumed (totaling $5,200,000) over the net assets acquired of
approximately $2,600,000 will be recorded as a dividend of approximately
$2,600,000. At this time, the Company is unable to estimate the amount or timing
of any potential contingent payments. The amount due to INB of $400,000 will be
eliminated in consolidation.
Paxis has also entered into a letter of intent dated July 16, 2003 with Chatham
Biotec, Ltd. ("Chatham"), a Canadian company in the biomass harvesting and
drying business, to form a Canadian-based joint venture to produce extract and
intermediate precursor Paclitaxel from Canadian Taxus trees. Chatham is to
supply the Canadian Taxus trees using Paxis' extraction expertise in an existing
extraction facility currently controlled by Chatham. The joint venture will be
required to supply Paxis' requirements for extract at no cost from which Paxis
will produce its Paclitaxel and related products, and the joint venture will
sell extract and intermediate products to third parties.
Deposit on Inventory - The Company has received a non-interest bearing
Promissory Note dated July 1, 2003 in the amount of $1,300,000.The Principal
Amount of the note shall be deemed to be repaid in connection with the delivery
of biomass from Natex (see note 5). Payments to the extent that the Principal
Amount has not been fully repaid as a result of the delivery of biomass, shall
be made in cash.
F-14
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Effective July 22, 2003, Integrated BioPharma, Inc. (the "Company") acquired
ninety-seven (97%) percent of the shares of common stock of Paxis
Pharmaceuticals, Inc. a Delaware corporation ("Paxis"). The Company acquired
forty-seven (47%) percent of the shares of Paxis in exchange for its fifty (50%)
percent interest in Natex Georgia LLC, a company organized in the Republic of
Georgia. The Company acquired fifty (50%) percent of the shares of Paxis from
Trade Investment Services, LLC ("TIS"), which funded Paxis' and Natex's
development, pursuant to the terms of a certain Purchase Agreement dated as of
February 1, 2003 (the "Purchase Agreement"), in consideration for TIS receiving
from the Company $500,000 and twenty-five (25%) of the after-tax profits of
Paxis until TIS has received an additional $49,500,000.
In addition, TIS assigned to the Company a loan receivable from Paxis, and the
Company assumed Paxis' loan payable in the principal amount of $4,500,000 to the
Bank of America, pursuant to an Assignment and Assumption Agreement dated as of
July 1, 2003 by and among the Company, TIS and Paxis. The Company also assumed
an obligation of $172,260 advanced by TIS to Paxis. The Company expects to
acquire the remaining three (3%) percent of the Paxis shares currently held by
Dean P. Stull, President of Paxis, during the next several months.
E. Gerald Kay, the Chief Executive Officer of INB and beneficial owner of
approximately fifty percent (50%) of the stock of INB (or, approximately
sixty-two percent (62%) if family trusts of which he is a trustee are attributed
to him), is the owner of one-third (1/3) of the equity of TIS. Robert Kay, the
brother of E. Gerald Kay, is also the owner of one-third (1/3) of the equity of
TIS. Carl DeSantis, the father or Dean DeSantis who is a director of INB, is the
owner of one-third (1/3) of the equity of TIS.
The accounting treatment for the Paxis acquisition will follow controlled
related party carryover basis accounting. The excess of the debt of $4,500,000
assumed plus the $500,000 cash paid plus the $172,260 obligation assumed
(totaling $5,172,260) over the net assets acquired of $2,590,109 is recorded as
a dividend of $2,660,151.
The unaudited pro forma condensed balance sheet and statement of operations are
presented to give effect to the Paxis acquisition. As noted in footnote (1)
herein, the pro forma condensed balance sheet and the pro forma condensed
statement of operations assumes that the purchase occurred as of June 30, 2003.
The pro forma financial information is not necessarily indicative of the actual
results of operations or financial position that would have occurred had the
acquisition occurred on the assumed dates nor do they represent any indication
of future performance. The pro forma adjustments give effect to available
information and assumptions that we believe are reasonable. The pro forma
financial information should be read in conjunction with our audited financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on From 10-KSB for the fiscal year
ended June 30, 2003.
F-15
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2003
Integrated Paxis
Biopharma, Pharmaceutials Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ------------ ------------- ------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 10,406,390 $ 92,235 (3) $ (500,000) $ 9,998,625
Accounts Receivable - Net 1,863,906 1,863,906
Deposit on Inventory 1,148,507 1,148,507
Deferred Income Taxes 57,000 57,000
Inventories-Net 4,300,025 59,926 4,359,951
Prepaid Expenses and Other Current Assets 749,027 18,880 767,907
------------ ------------ ------------- ------------
Total Current Assets 17,376,348 1,319,548 (500,000) 18,195,896
------------ ------------ ------------- ------------
Property and Equipment - Net 2,293,861 1,768,847 4,062,708
------------ ------------ ------------- ------------
Other Assets:
Deferred Tax Asset 80,000 80,000
Due from Paxis Pharmaceuticals, Inc., related party 400,000 (6) (400,000)
Patents and Unpatented Technological Expertise, net 487,000 401,374 888,374
Security Deposits and Other Assets 190,028 262,113 452,141
------------ ------------ ------------- ------------
Total Other Assets 1,157,028 663,487 (400,000) 1,420,515
------------ ------------ ------------- ------------
Total Assets $ 20,827,237 $ 3,751,882 $ (900,000) $ 23,679,119
============ ============ ============= ============
Liabilities and Stockholders' Equity:
Current Liabilities:
Loan Payable-Stockholders $ $ 4,672,260 (2) $ (4,672,260) $
Loan Payable-related party (2) 172,260 172,260
Accounts Payable 1,977,578 598,413 2,575,991
Accrued Expenses and Other Current Liabilities 258,809 27,881 286,690
Due to Integrated BioPharma, Inc. 400,000 (6) (400,000)
Customer Advances 281,646 281,646
Obligations under Capital Leases 135,479 135,479
Federal and State Income Taxes Payable 53,769 53,769
------------ ------------ ------------- ------------
Total Current Liabilities 2,571,802 5,834,033 (4,900,000) 3,505,835
------------ ------------ ------------- ------------
Non-Current Liabilities:
Loan Payable-Bank of America (1) 4,500,000 4,500,000
------------ ------------ ------------- ------------
Total Non-Current Liabilities 4,500,000 4,500,000
------------ ------------ ------------- ------------
Minority Interest (5) 78,000 78,000
------------ ------------ ------------- ------------
Stockholders' Equity 18,255,435 (2,082,151) (4) 2,082,151 15,595,284
(2) 4,500,000
(3) (500,000)
(4) (2,082,151)
(5) (78,000)
(1) (4,500,000)
------------ ------------ ------------- ------------
Total Liabilities and Stockholders' Equity $ 20,827,237 $ 3,751,882 $ (900,000) $ 23,679,119
============ ============ ============= ============
See accompanying notes to unaudited condensed pro forma financial statements
F-16
Unaudited Pro Forma Condensed Combined Financial Information
Statement of Operations
For the Year Ended June 30, 2003
Integrated Paxis
Biopharma, Pharmaceuticals, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ------------ ------------- ------------
Sales $ 22,235,306 $ $ $ 22,235,306
Cost of Sales 17,106,125 17,106,125
------------ ------------ ------------- ------------
Gross Profit 5,129,181 5,129,181
Selling and Administrative Expenses
General and Administrative 3,832,885 2,015,569 5,848,454
------------ ------------ ------------- ------------
Total 3,832,885 2,015,569 5,848,454
------------ ------------ ------------- ------------
Operating Income [Loss] 1,296,296 (2,015,569) (719,273)
------------ ------------ ------------- ------------
Other Income [Expense]:
Gain on Sale of Equipment 24,346 24,346
Other 315,801 315,801
Interest Expense (5,057) (66,603) (71,660)
Interest and Investment Income 28,301 28,301
------------ ------------ ------------- ------------
Total Other Income [Expense] 363,391 (66,603) 296,788
------------ ------------ ------------- ------------
Income [Loss] Before Income Taxes 1,659,687 (2,082,172) (422,485)
Income Tax Expense 765,570 765,570
------------ ------------ ------------- ------------
Net Income [Loss] $ 894,117 $(2,082,172) $ $(1,188,055)
============ ============ ============= ============
Net Income [Loss] Per Common Share:
Basic $ .12 $ (.15)
============ ============ ============= ============
Diluted $ .09 $ (.15)
============ ============ ============= ============
Weighted Average Common Shares Outstanding 7,765,051 7,765,051
Dilutive Potential Common Shares:
Warrants and Options 2,636,392 2,636,392
Convertible Preferred Stock 19,521 19,521
------------ ------------ ------------- ------------
Weighted Average Common Shares
Outstanding-assuming dilution 10,420,964 10,420,964
============ ============ ============= ============
See accompanying notes to unaudited condensed pro forma financial statements.
F-17
(1) Basis of Presentation
The accompanying pro forma condensed balance sheet as of June 30, 2003 and
statement of operations for the year ended June 30, 2003 are presented to give
effect to the acquisition of ninety-seven (97%) of the shares of Paxis
Pharmaceuticals, Inc.
Pro Forma Adjustments-Condensed Balance Sheet
1. Adjustment to reflect the assumption of the Bank of America debt
2. Adjustment to reclassify the Trade Investment Services, Inc. debt
3. Adjustment to record the payment of cash at the closing
4. Adjustment to eliminate the equity of acquired company
5. Adjustment to record 3% minority interest
6. Adjustment to eliminated inter-company receivable and payable
F-18