U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JANUARY 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-27865
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DISEASE SCIENCES, INC.
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(Name of small business issuer in its charter)
DELAWARE 13-264091
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
620 HERNDON PARKWAY, SUITE 360, HERNDON, VA 32081
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (703) 563-6565
Securities registered pursuant to Section 12(b) of the Securities
Exchange Act: NONE
Securities registered pursuant to section 12(g) of the Securities
Exchange Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
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
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proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $0
The aggregate market value of the shares of Common Stock held by non-affiliates
was $590,718 as of January 31, 2002. For purposes of the foregoing calculation
only, each of the issuer's officers and directors is deemed to be an affiliate.
The market value of the shares was calculated based on the reported last price
of shares traded on the National Quotation Bureau on January 31, 2002.
As of January 31, 2002 8,992,931 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Certain statements contained in this Annual Report on Form 10-KSB constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks,
uncertainties and other factors that may cause the Company or its industry's
actual results, levels of activity, performance or achievements to be materially
different than any expressed or implied by these forward-looking statements. In
some cases the reader can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology.
Although the Company's management believes that the expectations in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements.
BUSINESS DEVELOPMENT
Disease Sciences, Inc. ("DSSC" or the "Company") is a publicly traded
company(OTC BB: DSSC). The Company was originally incorporated in Delaware under
the name "Mediplex Corporation" on February 25, 1969. According to documents
filed in the State of Delaware, Mediplex corporation forfeited its Certificate
of Incorporation on December 3, 1973, as a result of not having named a
registered agent as required by Delaware law; however, the Company was renewed
and revived pursuant to a Certificate of Renewal and Revival filed on June 4,
1974. On June 5, 1974, the Company changed its name to the "The Lawton-York
Corporation." On January 31, 1975, the Company merged into it a New York
corporation of identical name, which had been incorporated on February 10, 1966.
The Company was the surviving corporation of that merger.
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The Company was, for many years, a wholesaler of custom one-, two-, three- and
four-color processed commercial printing, as well as disposable and durable
office equipment including stock paper, fax paper, fax and copy machines,
computers, file cabinets and safes. The Company conducted its business
throughout the United States of America and Puerto Rico from its headquarters in
New York.
On March 10, 1999, the Company changed the focus of its business and closed a
transaction by which it acquired 100% of the outstanding capital stock of North
Orlando Sports Promotions, Inc., a privately held Florida corporation ("NOSP"),
from the shareholders of NOSP. In connection with the transaction, the Company
adopted the name, "AuctionAnything.com, Inc.," (AAI) in order to more accurately
reflect its new core business. From 1999 until July 2001, AAI operated a variety
of Internet-related services however, they were unable to generate positive cash
flow from these Internet-related businesses. Following completion of the
acquisition of Disease SI, it became apparent to us that it would be in DSSC
best long term interest that the Internet operations be conducted apart from the
biopharmaceutical clinical diagnostics operations. On July 24, 2001, Disease
Sciences sold Mr. Hotaling North Orlando Sports Promotions, Inc., in exchange
for the assumption of all liabilities related to North Orlando and its
operations estimated at approximately $112,000, and which included the
forgiveness of $91,500 in accrued compensation. Included in the sale along with
the capital stock of North Orlando were fixed assets, rights to several domain
names and various contractual rights and obligations. On July 24, 2001, Messrs.
Hotaling and Meads resigned as members of DSSC Board of Directors.
On May 23, 2001, AuctionAnything.com, Inc. executed an Agreement and Plan of
Reorganization and Stock Purchase Agreement (the "Disease SI Agreement") with
Disease S.I., Inc., a Florida corporation ("Disease SI") and its shareholders
Dr. Wayne Goldstein and Mr. Brian S. John. Under the terms of the Disease SI
Agreement, AAI acquired 100% of the issued and outstanding stock of Disease SI
in exchange for 60,000,000 shares of AAI Common Stock. AAI issued Dr. Goldstein
and Mr. John a total of 21,209,384 shares at the closing, and agreed that the
balance of 38,790,616 shares would be delivered to them as soon as AAI amended
its Certificate of Incorporation to increase the authorized Common Stock in
order to permit such issuance as described herein. Giving effect to the
recapitalization, AAI had a total of 80,768,922 shares of Common Stock issued
and outstanding, of which 74.3% was owned by Dr. Goldstein and Mr. John.
Concurrent with the closing of the Disease SI Agreement, Messrs Martin Meads and
John Hotaling, who had been AAI's executive officers, resigned their positions
as officers but remained directors of AuctionAnything.com and officers of North
Orlando Sports Promotions, Inc., a wholly-owned subsidiary. Dr. Goldstein and
Mr. John were appointed the officers and directors of AuctionAnything.com. The
consummation of the transaction with Disease SI resulted in a change in control
of AuctionAnything.com. The transaction was accounted for as a reverse
acquisition under the purchase method for business combinations. Accordingly,
the combination of the two companies was
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recorded as a recapitalization of Disease S.I., Inc., pursuant to which Disease
S.I., Inc. was treated as the continuing entity.
On June 26, 2001, with the approval of the shareholders the Company changed its
name to Disease Sciences, Inc.
Disease Sciences, Inc.(DSSC) is a developmental stage biopharmaceutical clinical
diagnostics company planning to employ a broad array of technologies to detect,
identify and quantify substances in blood or other bodily fluids and tissues.
The Company's primary goal is to produce a Transmissible Spongiform
Encephalopathy ("TSE") test, useful in the diagnostics of TSE diseases such as
Bovine Spongiform Encephalopathy ("BSE") in cattle (commonly known as "mad-cow
disease"), Scrapie in sheep, Chronic Wasting Disease ("CWD") in humans. Test
results are to be used in the diagnosis, detection, evaluation, monitoring and
potential treatment of diseases and other medical conditions. The Company
intends to derive revenues from patent sub-licensing fees, royalties from
pharmaceutical sales, appropriate milestone payments and research and
development contracts.
On November 27, 2001 Disease Sciences acquired 9,050,833 shares of the common
stock of HealthSpan Sciences, Inc., a privately-held California corporation
("HealthSpan") in exchange for 400,000 shares of our common stock in a private
transaction exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of that act. This agreement was rescinded on March 21,
2002. As per the recission, Healthspan Sciences, Inc. has returned all of the
400,000 shares of DSSC and DSSC has returned all of the 9,050,833 shares of
Healthspan Sciences, Inc. Furthermore, neither DSSC or Healthspan Sciences, Inc.
has any financial obligations or indebtedness to each other.
On March 21, 2002, Disease Sciences, Inc. executed an Agreement and Plan of
Merger (DSSC Agreement) with IceWEB Communications, Inc., a Delaware Corporation
and its shareholders. Under the terms of the DSSC Agreement IceWEB was acquired
by and became a wholly owned subsidiary of DSSC. Pursuant to the DSSC Agreement,
each of the 22,720,500 shares of common stock of ICEWEB issued and outstanding
immediately prior to the Merger were converted into the right to receive 1.07
shares of restricted common stock of DSSC, for an aggregate of 24,311,000 DSSC
Common Shares. The source of the approximately 24,311,000 DSSC Common Shares
being exchanged for approximately 22,720,500 IceWEB Common Shares is as follows:
5,600,000 DSSC Common Shares were returned to the DSSC Treasury following the
redemption of DSSC Common Shares; and approximately 18,711,000 additional DSSC
Common Shares were issued from the DSSC Treasury. DSSC redeemed 5,600,000 Common
Shares from Dr. Goldstein and Brian Johns in consideration for (a) forgiveness
of $10,000 promissory notes owing by each to DSSC; and (b) payment of $55,000 by
DSSC to each of Goldstein and John. Each of the 5,441,000 warrants to purchase
ICEWEB Common Shares issued and outstanding immediately prior to the Merger but
not exercised were converted into the right to receive one warrant to purchase
1.07 Common Shares upon exercise of said warrant. The 6,980,000 warrants to
purchase DSSC Common Shares remain issued and outstanding. None of said warrants
has been exercised. Options to purchase ICEWEB Common Shares issued and
outstanding immediately prior to the Merger but not exercised shall be converted
into the right to receive one option to purchase 1.07 Common Shares upon
exercise of said options. Giving effect to the acquisition,
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the exchanging IceWEB Shareholders are the DSSC Controlling Shareholder after
the Merger. DSSC will have a total of 29,460,935 shares of Common Stock issued
and outstanding. The significant shareholders with 5% or more or the shares are
John R. Signorello with 61.7% or the shares and Michael VanPatten with 5.12% of
the shares. The closing of the agreement has resulted in a change in control of
Disease Sciences, Inc. Concurrent with the closing of the DSSC Agreement, the
pre-merger Directors and Officers of DSSC were replaced by the Directors and
Officers of IceWEB.
There has been no bankruptcy, receivership or similar proceeding with respect to
the Company.
BUSINESS OF ICEWEB, INC.
In 2000, IceWEB Communications, Inc was founded to enable Interactive
Communications and Education on the Web. Market research confirmed the market
need and growth potential. Research also revealed that
o Streaming technology startups had created business models to fuel
growth for early market share. However by late 2001, secondary
financing became unavailable and many were forced into bankruptcy.
o Telecom startups along with established telecom companies created
costly Content Delivery Networks (CDNs) to handle the anticipated
volume of rich-media content. Several accumulated sizeable losses as
the planned traffic did not materialize
o Although residential broadband communications connections were still
inadequate for delivering quality rich-media presentations, business
broadband connections were already in place.
o The main limiting factor for streaming wasn't bandwidth, it was the
cost of designing and implementing a streaming project.
In June 2001, IceWEB Communications, Inc. acquired the assets in bankruptcy of
LearningStream, Inc. (LSI) of Silver Spring, MD, a provider of streaming
services. Reasons for this acquisition were
o LSI had over $3M invested in proprietary software, which they used to
make their development of custom streaming solutions more efficient and
effective. The software was considered to be competitive because it
helped remove the complexity and cost from the implementation of this
technology.
o Their customer list included "blue-chip" and Fortune 1000 companies.
Most of these accounts proved salvageable and have resumed buying
services from IceWEB, Inc.
o LSI key personnel were motivated to join IceWEB.
In September 2001 IceWEB relocated its offices to Herndon, VA which is in the
heart of Northern Virginia's Information Technology center.
IceWEB had sales of $212,104 and a net loss of $991,534 during its most recent
fiscal year ended September 30, 2001. Included in this is a one time charge for
the disposal of assets of $193,792 that included the write-off of impaired
goodwill.
Products and Services
IceWEB's core competency is in proprietary software that has been under
development since 1999. The software integrates audio, video, animated
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graphics, captioning, and indexing into a highly interactive, customizable
viewer interface seamlessly tied to a tightly integrated database backend.
IceWEB developers use the software to create interactive, multimedia
presentations in a fraction of the time it would ordinarily take others to do it
manually. The company has also incorporated technology into an entire suite of
products (all positioned to make the creation and delivery of streaming
applications easy and affordable). The product suite includes IceSHOWTM for
on-demand multimedia presentations and IceSLIDETM for PowerPoint to Flash
conversion.
Market
According to Streaming Media, Inc., the North American enterprise streaming
market is, by every measure, growing rapidly. They polled 111 US corporations
and discovered that in 2001, as compared with 2000:
o 45% more companies are streaming this year than last
o 86% increase in total enterprise streaming spending
o 35% increase in the number of people served
o 230% increase in the total number of stream hours delivered
o 465% increase in bytes transferred (suggesting the average bit rate
delivered has doubled)
Current applications range from live broadcasts of quarterly meetings, product
launches, sales conferences, and critical messages from senior executives to
on-demand training and delivery of marketing information to dealers or
resellers. The market for IceWEB's products and services is growing rapidly as
early adopters are now progressing from early trials into full-blown streaming
initiatives. This technology in North America alone is projected to grow at a
30% Compound Growth Rate for the next three years going from $318M in 2001 to
$1,329M in 2004. (Source: Streaming Media, Inc.) Organizations seek to lower
costs, increase revenues, improve productivity and shorten their time to market.
With IceWEB's software, they have the capability to do all this quickly, easily
and affordably.
Market Segments
The streaming industry is broken down into four markets. IceWEB targets three of
these segments: training, corporate communications, and advertising/marketing. A
report from Streaming Media, Inc., date July 2001, provides some valuable
metrics for each segment. IceWEB has significant customers in the training,
corporate communications and advertising/marketing segments. At present the
company does not target the entertainment segment.
Training - A typical customer has a widely dispersed organization with regular
training needs that include registration, quizzes, interactivity and a learning
management system to track progress, compliance and effectiveness. An ideal
customer might be a hotel chain wanting to train reservations clerks all over
the world. IceWEB is providing such services for the hotel brands within the
Cendant Corporation.
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Corporate Communications - A typical customer is a public corporation with sales
offices throughout the world. They use streaming technology for earnings calls,
company meetings, and press conferences. IceWEB's IceSHOW(TM) makes this
technology affordable for just about any organization. An ideal customer could
be national real estate firm with ongoing training, certification requirements
and general corporate communications. IceWEB has contracts with Cendant
companies to provide these services.
Advertising & Marketing - Streaming technology can be used to sell or market
just about any industrial or consumer product. IceWEB has successfully employed
this technology in a web conference for Software AG to launch a software
product. Over 1,200 people signed up for the live conference. .
Market Trends
The use of streaming media started in the entertainment industry, but it is also
demonstrating a natural adaptation for business. Slow implementation of
residential broadband has been an impediment to some business applications of
streaming media for business-to-customer product marketing and advertising.
Business-to-business is leading the way in streaming media adoption because
businesses have high rates of broadband access, the types of presentations used
in business are compression friendly; e.g., talking heads, the audiences are
captive and businesses have the capital and motivation to outperform their
competitors. The Security and Exchanges Regulation FD (Fair Disclosure)
stipulates that insiders and the general public all be notified simultaneously
of any disclosures made by a public company. This has stimulated public
companies to use Webcast streams for broadcasting their financial data to
everyone at the same time. Another key piece of legislation that opens a new
window of opportunity for IceWEB's streaming products and services is the
Section 508 of the Rehabilitation Act. Section 508 requires that all government
agencies include captioning in presentations they provide. IceWEB has
successfully implemented closed captioning and foreign language captioning in
several of its projects, most notably NASA, and can easily repeat the feature in
future offerings. In the advertising industry, a recent survey of 100 ad
agencies by the Yankee Group indicated that 65 percent intend to recommend
streaming media advertising to their clients. Further 90 percent of the clients
that have already used streaming will continue to use it over the next 12
months. Overall the streaming media industry is starting to mature. Customers
are more educated and are beginning to demand pricing and technology standards.
IceWEB has the ability to profitably sell its products and services while
innovating to comply with the leading technology standards. In addition,
IceWEB's B2B focus will allow it to market is products and services to the most
active streaming media viewing audience.
Applications
Organizations invest in streaming media applications to complement their
businesses' Internet strategy for promotions, customer acquisition, relationship
building and worldwide communications purposes.
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Strategic Advantages
Two major IceWEB competitive advantages are its lean business model with low
fixed costs and its favorable margin products and services. IceWEB's core
competency of digital media production is manifested in its IceSHOW(TM) product.
It was designed to make streaming media easy and affordable, the two factors
that are key for streaming media to fulfill its growth expectations.
Originally, IceWEB's software gave the Company a competitive edge when creating
custom solutions for its customers. Now, the software has been rewritten as a
Web-based application and made available to anyone who wants to create & deliver
rich-media presentations. Thus, IceWEB's selling proposition is making this
technology available and affordable to open up the world of streaming media for
any organization.
All this technology is focused on making the creation of interactive multimedia
presentations easy and affordable whether IceWEB is doing the work or the
customers are using one of IceWEB's products to do the work themselves. In
either case, the cost and complexity of the development is reduced
substantially. And, because IceWEB's products are relatively inexpensive, easy
to understand, sell and use, they lend themselves to distribution by third
parties such as audio/video production companies, business centers and
hosting/delivery vendors can resell them.
Technology
The majority of IceWEB's applications are based on client-server technology. The
authoring and content management application software has been developed using a
combination of ColdFusion, Javascript, ASP, VBscript, Java, and Flash. Since a
majority of the processing is done on the server the client only needs a browser
to author and manage their presentations. In addition, ICEWEB has developed a
proprietary desktop product called IceSlideTM for automatic batch conversion of
PowerPoint slides directly into Flash. IceWEB also uses IceSlideTM technology in
IceSHOW(TM) to convert slides after they have been synchronized with the media
stream. IceWEB is in the process of ensuring its course software code is
compliant with AICC and SCORM computer-based training standards. IceWEB will be
able to integrate its solutions with leading Learning Management System
providers such as Saba, Docent, 360 Training, Vuepoint, Verilogix and Pathlore.
IceWEB's software is designed for Microsoft's Windows Operating Systems and
applications that use Microsoft's SQL 7 database software.
Products
All IceWEB's products utilize its original technology in one form or another. By
leveraging the code of existing products, IceWEB uniquely decreases new product
development costs, shortens time to market and is therefore able to realize new
revenues from new products quickly.
IceSHOW - the company's core offering, is a unique multimedia creation and
delivery platform. IceSHOW's powerful feature set and intuitive viewer interface
are designed for ease of use - offering great flexibility and convenience to
non-technical users. In addition, by delivering the product via an Application
Service Provider (ASP) model
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with bundled storage, delivery and support services, IceSHOW(TM) enables the
user to transform existing videos and slides into rich-media presentations over
the Internet. Anyone with encoded media and MS Powerpoint slides can publish a
multimedia presentation over the Internet within a matter of minutes at an
affordable price using IceSHOW(TM). IceSHOW(TM) further reduces costs through an
online production center. A "wizard" literally steps users through the process
of uploading and converting existing media components, then stitching them
together seamlessly. There are options for adding a branded interface and other
interactive elements as well. Taking only minutes to complete (depending on the
presentation length), the resulting show is ready for distribution via the
Internet or an intranet.
IceSlide - A PowerPoint-to-Flash format conversion tool, IceSLIDE(TM) makes your
PowerPoint show small enough to distribute via the Internet. IceSLIDE(TM)
creates a compact, easily distributed Flash-format file with high quality vector
graphics. Many animations are retained and the file is protected against
unwanted editing. The resulting file can be easily e-mailed or posted on a Web
site or intranet. IceSLIDE(TM) was developed from the slide conversion
technology built into IceSHOW(TM). However, IceSLIDE(TM) is a standalone
application that runs on the viewer's PC. The files it creates can be uploaded
into a IceSHOW presentation.
Services
Consulting - IceWEB's consulting staff has years of experience in providing
custom rich-media solutions to all size organizations. IceWEB consulting
services include personalized project management, multimedia development,
synchronization of all media assets, application design and development,
software integration, instructional design, graphic design, foreign language
translations and delivery methods
IceSTUDIO Productions - IceWEB's production professionals provide audio/video
studio services that a customer would need to repurpose existing media assets to
the Web. Production services include audio/video production, live Webcasting,
audio/video editing, audio/video encoding, audio/video transcription, and
voiceovers.
Storage & Distribution - IceWEB offers a competitive level of data security,
backup and disaster recovery in order to ensure the integrity of our clients'
data. We have redundant production services; a 3-tier development cycle; weekly
tape backups; load balancing; and, redundant connectivity.
Sales & Marketing
Strategy
The ultimate users of IceWEB's products and services are organizations in both
the public and private sectors with large, dispersed audiences of customers,
employees, or partners. IceWEB reaches these "users" directly with its own sales
organization and through "Strategic and Channel Partners" who resell IceWEB
Services and Standard Products. Most of IceWEB products and services are sold
direct in the local market (Washington DC Metropolitan Statistical Area). Other
markets require a Strategic and/or Channel Partner.
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Marketing
Streaming technology offers any organization marketing opportunities. A
four-color print brochure has been created to communicate the overall corporate
message. The brochure is designed to accommodate a business-card-size,
demonstration CD. The demo CD content will also reside on the IceWEB Website.
Direct mail, email, and outbound telemarketing are used to uncover new prospects
and invite them to view the IceWEB website and browse the gallery of Webcasts.
The direct mail and email campaigns are also vertical/niche driven. The goal is
to not only raise the company's profile, but also establish IceWEB as an expert
source in the streaming media arena. IceWEB has three geographic markets: Local
- Washington DC metro area; Regional - Massachusetts to Georgia; National -
United States. The company has initially targeted larger firms and/or those who
can resell IceWEB's products and services.
Sales
Custom services are sold directly by IceWEB consultative sales personnel to the
organizations utilizing the services or to intermediaries. Sales personnel are
assigned target accounts within target markets. Some specific target markets
are:
o Repeat LearningStream, Inc. customers
o Training and Marketing Departments of companies (with annual revenues of
$100M or more) in the DC metropolitan area and select companies in the
nearby regional states.
o Companies with expensive, complex products are specifically targeted for
IceWEB's web conferencing services.
o Audio & Video Production (A/V), Advertising, Promotional and Trade Show
services companies who add lceWEB IceSHOW products and services to their
standard offerings and resell them to their clients.
o Users of IceWEB products. These customers may choose to have IceWEB's
Custom Services organization help them use IceWEB's products effectively.
IceWEB products and services range in price from approximately $49 dollars to
over $49,000. In order to sell/license these products in volume requires a
distribution channel(s).
Financial
IceWEB is currently seeking additional funding from a variety of sources. The
company has created and is delivering proprietary software products and
services. The funding will be used to:
o Protect the company's intellectual property through US Patent Applications
o Capital equipment acquisitions and additional production equipment
o Additional technical personnel to accelerate new product development
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o Additional marketing personnel, advertising & promotions to stimulate
sales.
o Strategic acquisitions
IceWEB, Inc.'s prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets. IceWEB
will encounter various risks in implementing and executing its business strategy
and we can provide no assurance that it will be successful in addressing such
risks, and the failure to do so could have a material adverse effect on our
business. Our current cash forecast indicates that there will be negative cash
flow from our operations for the foreseeable future.
As of March 21, 2002, IceWEB employed a total of 14 employees, all of whom work
full-time. IceWEB has no collective bargaining agreements with any unions and
believes that the overall relations with its employees are excellent.
ITEM 2 - DESCRIPTION OF PROPERTY
OFFICE SPACE
DSSC leased approximately 1,000 square feet of space on a month to month lease
for approximately $700 per month at 20283 State Road 7, Suite 400, Boca Raton,
Florida 33498. IceWEB leases approximately 6,933 square feet of office space on
a two year lease that ends on April 30, 2004 for an average of approximately
$6,933 per month at 620 Herndon Parkway, Suite 360, Herndon, Virginia, 20170.
IceWEB believes that these facilities are adequate to meet current and
foreseeable requirements and that suitable additional or substitute space will
be available on commercially reasonable terms if needed.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than those
stated below:
On December 27, 2001, an action was instituted in the Circuit Court for the
Fifteenth Judicial Circuit for Palm Beach County, Florida, entitled Christopher
Mayr v. Disease Science, Inc. f/k/a Auction Anything.com, Inc. The Complaint
seeks damages in an undisclosed amount from the Company arising out of an
incentive Stock Option Agreement dated August 25, 2000 held by a former employee
who blames the Company for his failure to exercise his option on a timely basis
following his departure from employment.
On February 5, 2002, the Company received a Notice of Demand for Arbitration
from Investek Holding, LLC claiming the Company violated a no-reverse stock
split provision in their agreement with the Company. Documentation involving
this transaction is incomplete and somewhat contradictory, but stock records for
the Company reflect Investek Holdings maintaining 1,000 shares of common stock
(i.e., 10,000 shares pre-reverse stock split). No formal arbitration has been
requested by Investek.
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On November 15, 2001, the Securities and Exchange Commission ("SEC")issued an
order instituting a cease-and-desist proceeding against Disease Sciences, Inc.
The SEC found that Disease Sciences did on October 16, 2001 issue a press
release headlined "Disease Sciences, In. Ultra High Pressure Pulse Technology
Kills Conventional Pathogens Including Anthrax." Among other things, the press
release stated that using High Pressure Pulse ("HPP") technology Disease
Sciences "may be able to develop a simple, inexpensive method for cleaning our
food and water supplies should they come under attack from bio-terrorism, as
well as sterilize other items, such as mail and packages that could be
accommodated in the pressure apparatus." On October 17, 2001, Disease Sciences
issued a press release stating that "Disease Sciences is presently investigating
a commercially viable project" using HPP technology. The Disease Sciences press
releases omitted to state that at the time of the press releases, HPP had not
been tested for or shown to be practical or economical for the uses suggested in
the Disease Sciences October 16 press release; and Disease Sciences did not yet
have a license to use HPP for any of the uses suggested in the October 16 press
release. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit,
in connection with the purchase or sale of any security, making any untrue
statement of a material fact or omitting to state a material fact necessary to
make the statements made in light of the circumstances under which they were
made, not misleading. Disease Sciences issued publicly the statements set forth
above. Disease Sciences knew, or was reckless in not knowing, that these
statements were false and misleading at the time they were made. Accordingly,
the Commission found that Disease Sciences violated Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder. No further actions have been taken
against the Company from the SEC regarding this matter, furthermore, in the
opinion of management there is no need for an accrual.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has submitted no matters to a vote of security holders during the
fourth quarter of the fiscal year ended January 31, 2002, through the
solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
As of January 31, 2002, the Company had 8,992,931 shares of Common Stock issued
and outstanding with a par value of $0.001 per share. According to the records
of the Company's transfer agent, Olde Monmouth Stock Transfer Co., Inc., a total
of 8,429,931 of those shares were freely tradable over the counter. The Common
Stock of the Company has been traded on the over-the-counter market since
September 1998, initially under the symbol, LWTN. The stock began trading under
the symbol, UBUY, on March 22, 1999 and has traded under the symbol, DSSC since
June 2001. The high and low bid prices each fiscal quarter, in fraction and
decimal form, since the first quarter of 2000 are as follows:
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High Low
1st Quarter 2000 1- 1/32 (1.03125) 1/2 (0.50)
2nd Quarter 2000 7/8 (0.875) 1/8 (0.125)
3rd Quarter 2000 15/32 (0.46875) 1/16 (0.0625)
4th Quarter 2000 27/128 (0.2109375) 1/32 (0.03125)
1st Quarter 2001 .07 .03
2nd Quarter 2001 .26 .03
3rd Quarter 2001 .55 .18
4th Quarter 2001 .38 .06
1st Quarter 2002 .80 .07
Note: The Company's fiscal year end is January 31, but the above prices are by
calendar quarter.
The quotations above reflect reported historical quotes obtained from
Bigcharts.com, without retail markup, mark down or commission, and may not
represent actual transactions.
According to the Company's transfer agent, as of January 31, 2002 the Company
had over 344 Shareholders on record of its Common Stock. The Company has not
previously paid cash dividends on its Common Stock. The payment of cash
dividends from current earnings is not prohibited by any agreements to which the
Company is a party, but is subject to the discretion of the Board of Directors
and will be dependent upon many factors, including the Company's earnings, its
capital needs and its general financial condition. The Company currently does
not intend to pursue a policy of payment of dividends, but rather to utilize any
excess proceeds to finance the development and expansion of its business.
RECENT SALES OF UNREGISTERED SECURITIES
The Company completed a private placement of 4,700,000 Units (the "Units)" in
August of 2001. Each Unit consisted of one share of common stock and four common
stock purchase warrants designated Series A, Series B, Series C and Series D
common stock purchase warrants (collectively the "Warrants"). The Series A
Warrant included in each Unit entitles the holder to purchase one share of
common stock of the Company at a purchase price of $.30 per share. The Series B
Warrant included in each Unit entitles the holder to purchase one share of
common stock of the Company at a purchase price of $.60 per share. The Series C
Warrant included in each Unit entitles the holder to purchase one share of
common stock of the Company at a purchase price of $1.00 per share. The Series D
Warrant included in each Unit entitles the holder to purchase one share of
common stock of the Company at the purchase price of $2.00 per share.
13
The Warrants will expire on May 1, 2006. The Company may call any Warrant series
or all of the Warrants at a call price of $.001 per underlying share should the
Company's common stock trade at or above $5.00 per share, based on the reported
closing bid price of the common stock, for 10 consecutive trading days following
15 days prior written notice of the Company's intention to call the Warrants. In
the event the Warrants or Warrant series subject to call have not been exercised
by written notice within such 15-day notice period, the Warrants will cease to
exist.
The Company was involved in a second private placement of up to 4,000,000 units
as of January 31, 2002. Each Unit consists of one share of common stock and
three common stock purchase warrants designated Series E, Series F and Series G
Common Stock Purchase Warrants (collectively, the "Warrants"). Each Series E
Warrant entitles the holder to purchase one share of common stock at a purchase
price of $.75 per share. Each Series F Warrant entitles the holder to purchase
one share of common stock at a purchase price of $1.50 per share. Each Series G
Warrant entitles the holder to purchase one share of common stock at a purchase
price of $3.00 per share. The Warrants are immediately exercisable and will
expire on October 1, 2005. Upon 15 days written notice, the Company may call any
Warrant series or all of the Warrants at a call price of $.001 per underlying
share should the common stock trade at or above $5.00 per share for 10
consecutive trading days prior to the date of such notice. The Company had sold
1,822,500 units as of March 21, 2002. The Company received a double payment from
one investor for $7,000 in March 2002; the amount has been recorded as a Note
Payable to the investor for $7,000.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
The statements contained in this report that are not historical facts are
forward-looking statements that involve certain risks and uncertainties. These
forward-looking statements include the plans and objectives of management for
future operations relating to the products and future economic performance of
the Company.
The forward-looking statements are based on assumptions that the Company will
continue to develop and market its products and services competitively. The
forward-looking statements are also based upon assumptions that (a) competitive
conditions within the streaming media and software business will not change
materially or adversely; (b) demand for IceWEB products will grow; and (c) the
market will accept the Company's new products and services. Assumptions relating
to the foregoing are difficult or impossible to predict accurately and many are
beyond the control of the Company. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
CRITICAL ACCOUNTING POLICIES
We have identified the policies outlined below as critical to our business
operations and an understanding of our results of operations.
14
The listing is not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States, with no need for management's judgment in their application. The impact
and any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see the Notes to the Financial Statements. Note that
our preparation of the financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses during the
reporting period. There can be no assurance that actual results will not differ
from those estimates.
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000, to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
GENERAL
IceWEB enables public and private organizations to deliver interactive,
streaming multimedia information to their employees, customers and business
partners at any time and place they choose. IceWEB's software integrates audio,
video, animated graphics, captioning, and indexing into a highly interactive
presentation for training, marketing, or communications. IceWEB's mission is to
enable easy and affordable interactive communications and education over the
web. Using proprietary technology, IceWEB allows for the creation of
interactive, multimedia presentations. Designed specifically to address the key
issues of cost and complexity, IceWEB's product line includes software for both
self-service and full service clients. As a result, IceWEB delivers quality
streaming solutions in a smaller amount of time its competitors take. Further,
customers can "do it themselves" with IceWEB's IceSHOWTM services. Customers use
IceWEB products and services to webcast information over the Internet for
training, to increase productivity, reinforce brand equity, and shorten time to
market. IceWEB's core competency is in proprietary software that has been under
development since 1999. The software integrates audio, video, animated graphics,
captioning, and indexing into a highly interactive, customizable viewer
interface seamlessly tied to an integrated database backend. The company has
also incorporated technology into an entire
15
suite of products (all positioned to make the creation and delivery of streaming
applications easy and affordable). The product suite includes IceSHOWTM for
on-demand multimedia presentations, IceSLIDETM for PowerPoint to Flash
conversion, webconferences with direct marketing support. New IceWEB customers
are acquired through direct and indirect sales channels.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
To date, the Company has incurred substantial costs to create, introduce and
enhance its services, and to grow its business. Consequently, it has incurred
operating losses in each fiscal quarter since it was formed. The Company expects
operating losses and negative cash flows to continue for the foreseeable future.
It may also incur additional costs and expenses related to technology, marketing
or acquisitions of businesses and technologies to respond to changes in this
rapidly changing industry. These costs could have an adverse effect on the
Company's future financial condition or operating results. See "Liquidity and
Capital Resources."
IceWEB had sales of $212,104 and a net loss of $991,534 during its most recent
fiscal year ended September 30, 2001. Included in this is a one time charge for
the disposal of assets of $193,792 that included the write-off of impaired
goodwill.
As a result of the Company's inability to generate positive cash flow, the
Company has depleted substantially all of its available cash and is facing
continuing losses. See "Liquidity and Capital Resources."
The Company's financial position and results of operations are subject to
fluctuations due to a variety of factors. The Company's historical results of
operations are not necessarily indicative of future results.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to experience operating expenses that use more cash than
they generate. In the six months ending March 31, 2002 IceWEB's operations (not
including DSSC) generated $132,325 in revenues and $497,917 in expenses for a
net loss of $365,592. These losses follow the historic inability of the Company
to generate positive cash flow. Consequently, the Company has depleted
substantially all of its available cash and is facing continuing losses. IceWEB
has several products and services that could produce high gross margin sales in
sufficient volume to support the low operating costs of the Company if customer
demand materializes. The Company may also consider a sale or merger with another
Company as a possible solution to their cash and liquidity situation. They are
also considering another offering of equity securities in the public market and
are working to obtain the funding of a venture capitalist. None of these options
may meet with the level of success desired by the company.
PLAN OF OPERATION
Due to its continuing losses, the Company is focused on its pursuit of all
financing alternatives. Until such an alternative is implemented, the Company
intends to continue its everyday business until such point that it is no longer
possible to sustain operations. IceWEB plans to
16
have some of its IceShow products ready for sale by the 3rd calendar quarter of
this year. If these products perform as desired and if they win acceptance in
the marketplace, the company may have high margin sales to help support its
operations and growth.
SELECTED BALANCE SHEET ITEMS
For the fiscal year ended January 31, 2002 DSSC experienced losses as a result
of the Company's efforts to invest in the actual and anticipated growth of the
business. Because of the continued need for substantial amounts of working
capital to fund the growth of the business, DSSC was projected to continue to
experience significant negative operating and investing cash flows for the
foreseeable future, which have had a significant impact on the balance sheet
items.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents was $188,526 at January 31, 2002. This amount resulted
from the ongoing private placement described above.
ACCOUNTS RECEIVABLE
Accounts receivable were $0 as a result of not having any sales.
INVENTORY
Inventory was $0; the business model that did not rely on having inventory.
OTHER ASSETS
There were no Other Assets
DUE FROM RELATED PARTIES
The amount due from related parties was the Note Receivable from two officers
for the purchase of stock options.
EQUIPMENT
Equipment was $0 at January 31, 2002.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses were $201,724 at January 31, 2002. This resulted primarily from
partially deferred salaries for the Company Officers and professional expenses.
UNEARNED REVENUE
Unearned revenue was $0 at January 31, 2002.
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Common stock and additional paid-in capital increased from $28,791 and
$1,256,084 respectively at January 31, 2001 to $8,876 and $750,863
17
respectively at January 31, 2002. This change resulted principally from the sale
of additional securities in the first private placement conducted primarily from
July - September 2001. There is a Note Receivable due from Company officers for
the purchase of stock options in the amount of $310,000 that is included in the
Equity section.
RESULTS OF OPERATIONS FOR FISCAL YEAR ENDED JANUARY 31, 2002
SALES AND INCOME FROM OPERATIONS
There were no sales or income from operations
COST OF SALES
There were no cost of sales
OPERATING EXPENSES
Operating expenses were $598,500 for the fiscal year ended January 31, 2002.
Salaries for the Company's employees was $258.650 for the fiscal year ended
January 31, 2002. Professional fees for legal and accounting expenses were
$110,706 for the fiscal year ended January 31, 2002. Advertising & Marketing
expenses were $49,287 for the fiscal year ended January 31, 2002 and insurance
expense was $9,624 for the fiscal year ended January 31, 2002.
OTHER INCOME
Other income was $3,837 for the fiscal year end January 31, 2002. The result of
more Company funds from the two private placement offerings being deposited in
interest bearing accounts.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense was $0 for the fiscal year ended January
31, 2002. The Disease Sciences, Inc. business model that did not require the
investment in plant, property and equipment.
CAPITAL LOSSES
There were no Capital losses for the fiscal year ended January 31, 2002.
INTEREST
Interest expense was $8,275 for the fiscal year ended January 31, 2002. This
resulted principally due to the accrued interest on the $140,000 note payable.
ITEM 7 - FINANCIAL STATEMENTS
18
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Disease Sciences, Inc:
We have audited the accompanying balance sheet of Disease Sciences, Inc. (a
development stage company) as of January 31, 2002 and the related statements of
operations, stockholders' deficit and cash flows for the period from April 17,
2001 (inception) to January 31, 2002. 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 provide 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 Disease Sciences, Inc. at
January 31, 2002 and the results of their operations and their cash flows for
the period from April 17 2001 (inception) to January 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 7. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ DASKAL BOLTON LLP
---------------------
May 14, 2002
Boca Raton, FL
19
DISEASE SCIENCES, INC.
A Developmental Stage Company
Balance Sheet
January 31, 2002
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 188,526
Total Assets ................................................. $ 188,526
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accrued expenses .................................... $ 201,724
Notes payable ....................................... 140,000
---------
Total Liabilities ............................................ $ 341,724
---------
Stockholders' deficit:
Common stock, par value $.001
100,000,000 shares authorized
8,992,931 issued and outstanding ............................. $ 8,993
Additional paid in capital ................................... 440,746
Accumulated deficit .......................................... (602,937)
---------
Total stockholders' deficit .................................. (153,198)
---------
Total liabilities and stockholders' deficit .................. $ 188,526
=========
See accompanying notes to financial statements.
20
DISEASE SCIENCES, INC.
A Developmental Stage Company
Statement of Operations
For the Period April 17, 2001 (Inception)
To January 31, 2002
Operating Expenses:
Salaries & employee benefits ..................... $ 258,650
Professional fees ................................ 110,706
Marketing and advertising ........................ 49,287
Insurance ........................................ 9,623
Other Selling, General and
Administrative ................................... 170,234
-----------
Operating loss ............................................ (598,500)
Interest income ........................................... 3,838
Interest expense .......................................... 8,275
Net loss .................................................. ($ 602,937)
===========
Loss per share ............................................ ($ 0.07)
Weighted average shares
Outstanding basic and diluted ............................. 8,553,591
See accompanying notes to financial statements.
21
DISEASE SCIENCES, INC.
A Developmental Stage Company
Statement of Stockholders' Deficit
For the Period April 17, 2001 (Inception)
To January 31, 2002
Common Stock Additional Accumulated
Shares Amount Paid in capital Deficit Total
----------- --------- --------------- ----------- ---------
Balance at 2-1-01 ................ $ 0 $ 0 $ 0 $ 0 $ 0
Common stock issued .............. 6,000,000 6,000 14,240 0 20,240
Acquisition of assets ............ 2,879,100 2,879 (86,983) 0 (84,104)
Common stock issued .............. 566,000 566 480,839 0 481,405
Common stock options exercised
200,000 200 309,800 0 310,000
Notes receivable for stock options
0 0 (310,000) 0 (310,000)
Common stock issued for services
150,000 150 32,850 0 33,000
Treasury stock retired
(802,169) (802) 0 0 (802)
Net loss for year ................ 0 0 0 (602,937) (602,937)
----------- --------- --------- --------- ---------
Balance at 1-31-02 ............... 8,992,931 $ 8,993 $ 440,746 ($602,937) ($153,198)
=========== ========= ========= ========= =========
See accompanying notes to financial statements
22
DISEASE SCIENCES, INC.
A Developmental Stage Company
Statement of Cash Flows
For the Period April 17, 2001 (Inception)
To January 31, 2002
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss ...................................................... ($602,937)
Adjustments to reconcile net loss to net cash in operating
activities:
Common stock issued for services .............................. 33,000
Changes in assets and liabilities:
Accrued expenses .............................................. 201,724
---------
NET CASH USED IN OPERATING ACTIVITIES: ............................ (368,213)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note Payable .................................... 140,000
Proceeds from issuance of Common Stock ........................ 416,739
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ......................... 556,739
NET INCREASE IN CASH .............................................. 188,526
CASH AND EQUIVALENTS - beginning of year .......................... 0
CASH AND EQUIVALENTS - end of year ................................ $ 188,526
Supplemental disclosure of cash flows information:
Non cash transactions affecting financing activity:
Common Stock issued for notes receivable $310,000
See accompanying notes to financial statements.
23
DISEASE SCIENCES, INC.
A Developmental Stage Company
Financial Statements
January 31, 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Disease Sciences, Inc. is a developmental stage biopharmaceutical clinical
diagnostics company.
On May 23, 2001, the Company executed an agreement and plan of reorganization
and stock purchase agreement (the Agreement) with Disease Sciences, Inc. a
Florida Corporation. Under the terms of the agreement the Company acquired 100%
of the issued and outstanding stock of Disease Science, Inc. in exchange for
6,000,000 shares of the Company's common stock. The transaction has been
accounted for as a reverse acquisition under the purchase method for business
combinations. Accordingly, the combination of the two company's is recorded as a
recapitalization of Disease Sciences, Inc. pursuant to which Disease Science,
Inc. is treated as the continuing entity.
On March 21, 2002, Disease Sciences, Inc. executed an Agreement and Plan of
Merger (DSSC Agreement) with IceWEB Communications, Inc., a Delaware Corporation
and its shareholders. Under the terms of the DSSC Agreement IceWEB was acquired
by and became a wholly owned subsidiary of DSSC. Pursuant to the DSSC Agreement,
each of the 22,720,500 share of common stock of ICEWEB issued and outstanding
immediately prior to the Merger were converted into the right to receive 1.07
shares of restricted common stock of DSSC, for an aggregate of 24,311,000 DSSC
Common Shares. The source of the approximately 24,311,000 DSSC Common Shares
being exchanged for approximately 22,720,500 IceWEB Common Shares is as follows:
5,600,000 DSSC Common Shares were returned to the DSSC Treasury following the
redemption of DSSC Common Shares; and approximately 18,711,000 additional DSSC
Common Shares were issued from the DSSC Treasury. DSSC redeemed 5,600,000 Common
Shares from Dr. Goldstein and Brian Johns in consideration for (a) forgiveness
of $10,000 promissory notes owing by each to DSSC; and (b) payment of $55,000 by
DSSC to each of Goldstein and John. Each of the 5,441,000 warrants to purchase
ICEWEB Common Shares issued and outstanding immediately prior to the Merger but
not exercised were converted into the right to receive one warrant to purchase
1.07 Common Shares upon exercise of said warrant. The 6,980,000 warrants to
purchase DSSC Common Shares remain issued and outstanding. None of said warrants
has been exercised. Options to purchase ICEWEB Common Shares issued and
outstanding immediately prior to the Merger but not exercised shall be converted
into the right to receive one option to purchase 1.07 Common Shares upon
exercise of said options. Giving effect to the recapitalization, the exchanging
IceWEB Shareholders will be the DSSC Controlling Shareholder after the Merger.
DSSC will have a total of 29,460,935 shares of Common Stock issued and
outstanding. The significant shareholders with 5% or more or the shares are John
R. Signorello with 61.7% or the shares and Michael VanPatten with 5.12% of the
shares. The closing of the agreement has resulted in a change in
24
control of Disease Sciences, Inc. Concurrent with the closing of the DSSC
Agreement, the pre-merger Directors and Officers of DSSC were replaced by the
Directors and Officers of IceWEB.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with original
maturities of three months or less at the time of purchase to be cash
equivalents. There were no cash equivalents at January 2002. At January 31, 2002
the company's cash balance at one bank exceeded the federally insured limit by
approximately $94,000.
(c) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(d) REVENUE RECOGNITION
The Company has not earned any revenue during the fiscal year
ended January 31, 2002. Revenue recognitions policies are in accordance with
Generally Accepted Accounting Principles.
(e) EARNINGS PER SHARE
The Company computes earnings per share in accordance with
Statement of Accounting Standards No. 128, "Earnings per Share("SFAS No. 128").
Under the provisions of SFAS No. 128, basic earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common and potentially dilutive common shares outstanding
during the period. Potentially dilutive common shares consist of the common
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method) and upon the conversion of convertible preferred stock
(using the if-converted method). Potentially dilutive common shares are excluded
form the calculation if their effect is antidilutive.
(f) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000, to
account for its fixed plan stock options. Under this method,
25
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected
to continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
(g) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) RELATED PARTY TRANSACTIONS
In August 2001 two Directors of the Company exercised stock options
previously granted to them under the Company's stock option plan to each acquire
100,000 shares of the Company's common stock. As consideration for the exercise
price of $1.55 per share, each of the Directors issued to the company a one year
unsecured promissory note in the principal amount of $155,000 bearing interest
at 5.5% per annum. This amount was written off against paid in capital as part
of the Plan of Merger with IceWEB.
In March 2002, two Directors entered into a share exchange agreement with
DSSC the result of which shall be that they shall exchange 5,600,000 shares of
DSSC Common Stock in consideration for (a) forgiveness of $10,000 promissory
notes owing by each to DSSC; and (b) payment of $55,000 by DSSC to each of them.
(3) SEC ADMINISTRATIVE PROCEEDING
On November 15, 2001, the Securities and Exchange Commission
("SEC")issued an order instituting a cease-and-desist proceeding against Disease
Sciences, Inc. The SEC found that Disease Sciences did on October 16, 2001 issue
a press release headlined "Disease Sciences, In. Ultra High Pressure Pulse
Technology Kills Conventional Pathogens Including Anthrax." Among other things,
the press release stated that using High Pressure Pulse ("HPP") technology
Disease Sciences "may be able to develop a simple, inexpensive method for
cleaning our food and water supplies should they come under attack from
bio-terrorism, as well as sterilize other items, such as mail and packages that
could be accommodated in the pressure apparatus." On October 17, 2001, Disease
Sciences issued a press release stating that "Disease Sciences is presently
investigating a commercially viable project" using HPP technology. The Disease
Sciences press releases omitted to state that at the time of the press releases,
HPP had not been tested for or shown to be practical or economical for the uses
suggested in the Disease Sciences October 16 press release; and Disease Sciences
did not yet have a license to use HPP for any of the uses suggested in the
October 16 press release. Section 10(b) of the Exchange Act and Rule 10b-5
thereunder prohibit, in connection with the purchase or sale of any security,
making any untrue statement of a
26
material fact or omitting to state a material fact necessary to make the
statements made in light of the circumstances under which they were made, not
misleading. Disease Sciences issued publicly the statements set forth above.
Disease Sciences knew, or was reckless in not knowing, that these statements
were false and misleading at the time they were made. Accordingly, the
Commission found that Disease Sciences violated Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder. No further actions have been taken against the
Company from the SEC regarding this matter, furthermore, in the opinion of
management there is no need for an accrual.
(4) ACQUISITIONS
On November 27, 2001 Disease Sciences acquired 9,050,833 shares of the
common stock of HealthSpan Sciences, Inc., a privately-held California
corporation ("HealthSpan") in exchange for 400,000 shares of our common stock in
a private transaction exempt from registration under the Securities Act of 1933
in reliance on Section 4(2) of that act. The shares which we acquired in
HealthSpan represented approximately 51% of the currently issued and outstanding
capital stock. Granite Financial Group, Inc., a broker/dealer which had
previously been engaged by HealthSpan to act as its financial advisor, received
200,000 of the shares of our common stock issued to HealthSpan as compensation
for its services to HealthSpan. From time to time Granite Financial Group, Inc.
has provided investment advisory services to us. This agreement was rescinded on
March 21, 2002. As per the recission Healthspan Sciences, Inc. has returned all
of the 400,000 shares of DSSC and DSSC has returned all of the 9,000,000 shares
of Healthspan Sciences, Inc. Furthermore, neither DSSC or Healthspan Sciences,
Inc. has any financial obligations or indebtedness to each other.
(5) NOTES PAYABLE
On May 23, 2001 the Company borrowed a total of $140,000 from two
unaffiliated third parties. The notes are unsecured, payable upon demand and
bear interest at 9% per annum. For the period since the date of the notes to
January 31, 2002, the Company has accrued interest payable of $8,400 on these
notes.
(6) TREASURY STOCK
In May 2001, the Company, repurchased an aggregate of 8,021,694 shares of
its common stock owned from a former director of the Company, and a company
which he controls, for an aggregate purchase price of $106,500. These shares
have been cancelled and returned to the status of authorized but unissued shares
of common stock.
(7) PRIVATE PLACEMENT
The Company completed a private placement of 470,000 Units (the "Units)"
in August of 2001. Each Unit consisted of one share of common stock and four
common stock purchase warrants designated Series A, Series B, Series C and
Series D common stock purchase warrants (collectively the "Warrants"). The
Series A Warrant included in
27
each Unit entitles the holder to purchase one share of common stock of the
Company at a purchase price of $.30 per share. The Series B Warrant included in
each Unit entitles the holder to purchase one share of common stock of the
Company at a purchase price of $.60 per share. The Series C Warrant included in
each Unit entitles the holder to purchase one share of common stock of the
Company at a purchase price of $1.00 per share. The Series D Warrant included in
each Unit entitles the holder to purchase one share of common stock of the
Company at the purchase price of $2.00 per share. The Warrants will expire on
May 1, 2006. The Company may call any Warrant series or all of the Warrants at a
call price of $.001 per underlying share should the Company's common stock trade
at or above $5.00 per share, based on the reported closing bid price of the
common stock, for 10 consecutive trading days following 15 days prior written
notice of the Company's intention to call the Warrants. In the event the
Warrants or Warrant series subject to call have not been exercised by written
notice within such 15-day notice period, the Warrants will cease to exist.
Approximately $470,000 was collected from investors for this private placement.
The Company was involved in a second private placement of up to 400,000 units as
of January 31, 2002. Each Unit consists of one share of common stock and three
common stock purchase warrants designated Series E, Series F and Series G Common
Stock Purchase Warrants (collectively, the "Warrants"). Each Series E Warrant
entitles the holder to purchase one share of common stock at a purchase price of
$.75 per share. Each Series F Warrant entitles the holder to purchase one share
of common stock at a purchase price of $1.50 per share. Each Series G Warrant
entitles the holder to purchase one share of common stock at a purchase price of
$3.00 per share. The Warrants are immediately exercisable and will expire on
October 1, 2005. Upon 15 days written notice, the Company may call any Warrant
series or all of the Warrants at a call price of $.001 per underlying share
should the common stock trade at or above $5.00 per share for 10 consecutive
trading days prior to the date of such notice. The Company had sold 1,822,500
units as of March 21, 2002. Approximately $96,000 had been collected for the
issuance of 96,000 shares as of January 31, 2002.
(8) STOCK OPTION PLAN
On August 21, 2000, the Company adopted a stock option plan (the
"Plan")pursuant to which the Company's Committee appointed by the Board of
Directors may grant options to officers and key employees. The Plan authorizes
grant of options to purchase up to 10,000,000 shares of authorized but unissued
common stock.
The exercise price, term and vesting schedule for options granted under
the Plan are set by the Committee, subject to certain limitations. Under the
Plan, the exercise price of the options may not be less than the fair market
value of the share of common stock at the grant date (110% if the incentive
stock option ("ISO") is granted to a greater than 10% stockholder) and the term
of an option may not exceed 3 years (10 years if an ISO is granted to a greater
than 10% stockholder.) Options generally terminate three months after the
termination of the option holder's employment unless terminated for cause.
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Stock option activity during the period is indicated as follows:
SHARES EXERCISE PRICE
------- --------------
Balance at January 31, 2001 25,000 $ 2.00
Granted ................... 100,000 1.55
Exercised ................. 200,000 2.00
Balance at January 31, 2002 25,000 2.00
Weighted average fair value of options outstanding at year end $37,500
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased by $350,000.
The effects of applying SFAS No. 123 for the presentation of pro forma
disclosures are not necessarily indicative of the effects on reported net income
for future years. The fair value of the options granted were estimated using the
Black-Scholes option pricing model as of the date of grant with the following
assumptions:
Expected dividend yield ....... 0.0%
Risk-free interest rate ....... 4.5%
Expected volatility ........... 444.0%
Term (vesting period- in years) 1
(9) INCOME TAXES
The following is a reconciliation between expected income tax benefit and actual
using the applicable statutory federal income tax rate for the period ended
January 31, 2002.
Expected tax benefit ........ $(199,000)
Change in valuation allowance 156,000
Other ....................... 43,000
---------
$ 0
=========
The tax effect of temporary differences that give rise to the deferred tax
assets as of January 31, 2002 are as follows:
Deferred tax asset:
Net operating loss carryforward $ 156,000
Less valuation allowance ...... (156,000)
Net deferred tax asset ............ $ 0
=========
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In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making these assessments. Based upon the
level of historical taxable income and projections for future taxable income
over the periods in which deferred tax assets are deductible, management
believes it is more likely than not that the Company will not realize the
benefits of these deductible differences. The benefit of the net operating loss
carryforward might be limited due to changes in ownership as defined in the
Internal Revenue Code and Regulations thereunder. The net operating loss
carryforward is derived from an approximate $415,000 taxable loss for the period
ending January 31, 2002 and will expire in 2017.
(10) LIQUIDITY
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
However, since inception, the Company's operating and investing activities have
used more cash than they have generated. Because of the continued need for
substantial amounts of working capital to fund the growth of the business, the
Company expects to continue to experience significant negative operating and
investing cash flows for the foreseeable future. The Company may need to raise
additional capital in the future to meet the operating and investing cash
requirements. The Company may not be able to find additional financing, if
required, on favorable terms or at all. If additional funds are raised through
the issuance of equity, equity-related or debt securities, these securities may
have rights, preferences or privileges senior to those of the rights of the
common stock, and the stockholders may experience additional dilution to their
equity ownership. Since there are no assurance that such financing will be
available when and as needed to satisfy current obligations, substantial doubt
exists as to whether the Company will continue as a going concern.
(11) COMMON STOCK REVERSE SPLIT
On December 3, 2001, the Company effected a 1 for 10 reverse stock split
of its common stock. The total number of authorized shares and the par value did
not change. The total number of issued and outstanding shares of its common
stock on the record date were 91,669,002; given effect to the stock split, the
company has 8,992,931 shares of common stock issued and outstanding as of
January 31, 2002. The financial statements have been adjusted to retroactively
show a 1 for 10 reverse stock split.
(12) LITIGATION
The company is involved in various claims and lawsuits arising in the normal
course of business. At this time, any outcome cannot be estimated and the
results may be material to the Company's financial position.
30
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
At a meeting held on May 10, 2002, the Board of Directors of Disease Sciences,
Inc. (the "Company") approved the engagement of Daszkal Bolton, LLP as
independent auditors of the Company for the fiscal year ended January 31, 2002,
to replace Feldman Sherb & Co., who were dismissed as the Company's auditors
effective on May 10, 2002.
The reports of independent auditors of Feldman Sherb on the Compnay's financial
statements for the two years ended January 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope, or accounting principles; however, Feldman Sherb's
opinion dated August 15, 2001 relative to the financial statements as of and for
each of the two years ended January 31, 2001 included an explanatory paragraph
relative to Disease Sciences, Inc.'s ability to continue as a going concern.
During the two fiscal years ended January 31st, there were no disagreements with
Feldman Sherb on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Feldman Sherb would have caused Feldman Sherb to make
reference to the subject matter in their report.
Prior to engaging Daszkal Bolton, LLP, the Company did not consult Daszkal
Bolton, LLP regarding the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements or any other financial
presentation whatsoever.
The Company requested Feldman Sherb to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. Feldman Sherb
provided this letter, dated May 16, 2002 and it was filed as an exhibit to
Current Report Form 8-K filed with the Commission on May 16, 2002.
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PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following presents directors, executive officers, promoters and control
persons of the Company as of April 30, 2002:
NAME AGE TITLE TERM OF OFFICE
---- --- ----- --------------
John R. Signorello 36 Chairman Ind
Chief Executive Officer
Director 1
John R. Signorello has served as President and CEO and a member of the Board of
Directors since October 1999. From 1991 until September 1997, Mr. Signorello
served as the Chief Executive Officer of STMS -"Solutions That Make Sense" - a
private technology company he founded that specialized in computer networks,
systems integration and information technology. In September 1997, the company
was acquired by Steelcloud Company, formerly known as Dunn Computer Corporation
(Nasdaq:SCLD), and Mr. Signorello remained as Vice President of Sales and
Marketing until November 1998. From December 1998 to September 1999 he was
involved with several internet companies. Prior to founding STMS, Mr. Signorello
served as a business consultant for Applied Accounting Technology. Mr.
Signorello, an accomplished musician, is also a principal in New York City
Lights Entertainment. Mr. Signorello received a B.B.A. in Marketing from Radford
University in 1989.
To the knowledge of Management, no director, executive officer, promoter or
control person has been involved in any legal proceedings during the past five
years that are material to an evaluation of the ability or integrity of such
director, person nominated to become a director, executive officer, promoter or
control person of the Company. None of the individuals listed in this Item 9 has
had a bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of such
bankruptcy, if any, or within two years prior to that time. No director,
executive officer, promoter or control person was or has been convicted in a
criminal proceeding or is subject to a pending criminal proceeding or subject to
any order, judgment, or decree, not subsequently reversed, suspended, or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, borrowing, or otherwise limiting his or her involvement in any type
of business, securities or banking activities. No director, executive officer,
promoter or control person has been found by a court of competent jurisdiction
in a civil action to have violated federal or state securities or commodities
laws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
John R. Signorello filed initial Statements of Beneficial Ownership of
Securities on Form 3 on April 11, 2002
32
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the last fiscal year
to the officers of DSSC. All of the DSSC executive officers of the Company have
served since April 17, 2001.
Name & Position Year Salary Bonus Options Total
--------------- ---- ------ ----- ------- -----
Dr. Wayne Goldstein 01 $68,444 $0 1,000,000 $68,444
Brian S. John 01 $49,094 $5,000 1,000,000 $54,094
EMPLOYMENT CONTRACTS
As of January 31, 2002 there were no existing employment contracts.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Based on information from the Company's transfer agent, the Company believes
that the following individuals/entities hold five percent (5%)or more of the
outstanding voting stock of the Company as of March 21, 2002. No other
individual or any group is known to the Company to be the beneficial owner of
more that five percent (5%) of any class of the Company's voting securities.
Title of Class Name and Address Amount & Nature %
-------------- ---------------- --------------- ---
Common Stock John R. Signorello 18,179,300 Direct 62%
620 Herndon Parkway
Suite 360
Herndon, VA 20170
Common Stock Michael VanPatten 1,508,700 Direct 5%
620 Herndon Parkway
Suite 360
Herndon, VA 20170
(b) As of March 21, 2002 all management shareholders of record are shown above
in (a). The number of shares of Common Stock owned by all officers and directors
as a group (directly or indirectly as of January 31, 2002) is believed by
management to be 20,758,000 shares, or approximately 70.5% of the outstanding
shares of Common Stock.
(c) As stated in Item 6 above, the Company's inability to generate positive cash
flow has forced the Company to pursue all possible financing alternatives,
including the sale of the Company, a merger or a reverse merger. On March 21,
2002, the Company executed an Agreement and Plan of Merger acquire IceWEB, Inc.
The terms of the Agreement are stated in Item 7 above.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 2001 two Directors of the Company exercised stock options
previously granted to them under the Company's stock option plan to each acquire
1,000,000 shares of the Company's common stock. As consideration for the
exercise price of $.155 per share, each of the
33
Directors issued to the company a one year unsecured promissory note in the
principal amount of $155,000 bearing interest at 5.5% per annum.
IceWEB had Notes Receivable from a corporation related through common ownership
and separately from a shareholder of the Company. The Note Receivable appearing
on IceWEBs books was from a corporation related through common ownership in the
amount of $4,242 at September 30, 2001. The advance is non-interest bearing and
due on demand. During the year ended September 30, 2001, IceWEB had advanced a
shareholder $150,000. This advance is non-interest bearing and due on demand.
During the year ended September 30, 2001, a shareholder of the Company was
advanced $20,080 and provided monies to help fund operations in the amount of
$66,873. The advance remains non-interest bearing and due on demand.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits to
previous filings with the Commission and are incorporated herein by this
reference:
EXHIBIT NO. EXHIBIT
----------- -------
2.1 Agreement and Plan of Reorganization (FILED AS EXHIBIT TO
CURRENT REPORT ON FORM 8-K ON JUNE 6, 2001, AND INCORPORATED
BY REFERENCE
2.2 Agreement and Plan of Merger (FILED AS EXHIBIT TO CURRENT
REPORT ON FORM 8-K ON APRIL 4, 2002, AND INCORPORATED BY
REFERENCE
5 Atlas Pearlman Legal Opinion of Registration Statement on Form
S-8; Disease Sciences (FILED AS EXHIBIT 5 TO REGISTRATION
STATEMENT ON FORM S-8 ON AUGUST 17, 2001, AND INCORPORATED
HEREIN)
10.1 Asset Purchase Agreement (FILED AS EXHIBIT 10.1 TO CURRENT
REPORT ON FORM 8-K ON JULY 26, 2001, AND INCORPORATED HEREIN)
10.2 Form of Stock Purchase Agreement (FILED AS EXHIBIT 10.1 TO
CURRENT REPORT ON FORM 8-K ON DECEMBER 4, 2001, AND
INCORPORATED HEREIN)
10.3 Research and Development Agreement (FILED AS EXHIBIT 10.2 TO
CURRENT REPORT ON FORM 8-K ON DECEMBER 4, 2001, AND
INCORPORATED HEREIN)
16.1 Change of Certifying Accountant (FILED AS EXHIBIT TO CURRENT
REPORT ON FORM 8-K ON JUNE 7, 2001, AND INCORPORATED HEREIN BY
REFERENCE
16.2 Change of Certifying Accountant (FILED AS EXHIBIT TO CURRENT
REPORT ON FORM 8-K ON MAY 16, 2002, AND INCORPORATED HEREIN BY
REFERENCE)
34
23.1 Consent of Independent Auditors (FILED AS EXHIBIT 23.1 TO
REGISTRATION STATEMENT ON FORM S-8 ON AUGUST 17, 2001, AND
INCORPORATED HEREIN)
99.1 Independent Auditors Report (FILED AS EXHIBIT 99.1 TO CURRENT
REPORT ON FORM 8-KA ON JUNE 29, 2001 AND INCORPORATED HEREIN)
99.2 Unaudited Pro Forma Combined Financial Statements (FILED AS
EXHIBIT 99.2 TO CURRENT REPORT ON FORM 8-KA ON JUNE 29, 2001,
AND INCORPORATED HEREIN)
(b) Reports on Form 8-K
The Company filed ONE report on Form 8-K during the last quarter of the fiscal
year ENDED January 31, 2002. The Company filed ONE report on Form 8-K during the
first quarter ENDED April 30, 2002.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DISEASE SCIENCES, INC.
By: /s/ BRIAN S. JOHN
------------------------
Brian S. John, President
Date: May 15, 2002
In accordance with the Exchange Act, this report has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ JOHN R. SIGNORELLO Chief Executive Officer
---------------------- Principal Financial Officer
John R. Signorello Director
35