UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-49620
(Commission file number)
COBALIS CORP.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1868007
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2445 MCCABE WAY, SUITE 150, IRVINE, CALIFORNIA 92614
(Address of principal executive offices)
(949) 757-0001
(Issuer's telephone number)
BIOGENTECH CORP.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 1, 2004 - 21,678,514
shares of common stock
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
COBALIS CORP.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Consolidated Balance Sheet as of June 30, 2004 (unaudited) 2
Consolidated Statements of Operations for the
three months ended June 30, 2004 and 2003 (unaudited) 3
Consolidated Statements of Stockholders' Deficit for the
three months ended June 30, 2004 (unaudited) 4
Consolidated Statements of Cash Flows for the
three months ended June 30, 2004 and 2003 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operations 12
Item 3. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Change in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COBALIS CORP. AND SUBSIDIARY
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30,
2004
------------
ASSETS
CURRENT ASSETS
Prepaid expenses and other current assets $ 13,509
Inventory 5,903
------------
TOTAL CURRENT ASSETS 19,412
DEBT ISSUE COSTS 60,949
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $53,511 58,547
WEBSITE DEVELOPMENT COSTS, net of accumulated amortization of $27,044 7,563
PATENTS, net of accumulated amortization of $184,453 720,862
DEPOSIT 40,000
------------
TOTAL ASSETS $ 907,333
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 27,801
Accounts payable 323,683
Accrued penalties 422,000
Accrued expenses, other 365,702
Due to related parties 1,205,761
Warrant liability 71,660
Convertible note payable, net of discount of $476,909 123,091
Demand loans payable 1,215,000
------------
TOTAL CURRENT LIABILITIES 3,754,698
7.5% CONVERTIBLE PREFERRED STOCK (dividends on arrears of $56,250)
$0.001 par value; 1,000 shares authorized; 1,000 shares issued and outstanding 885,000
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT
Common stock; $0.001 par value; 50,000,000 shares
authorized; 24,671,025 shares issued and 21,671,025 shares outstanding 21,671
Additional paid-in capital 6,903,152
Deficit accumulated during the development stage (10,657,188)
------------
TOTAL STOCKHOLDERS' DEFICIT (3,732,365)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 907,333
============
The accompanying notes are an integral part of these consolidated financial
statements.
2
Cobalis Corp. and Subsidiary
(FORMERLY BIOGENTECH CORP.)
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED CUMULATIVE FROM
------------------------------ NOVEMBER 21,
JUNE 30, JUNE 30, 2000 (INCEPTION) TO
2004 2003 JUNE 30, 2004
------------ ------------ ------------
(as restated)
NET SALES $ 359 $ 1,687 $ 5,514
COST OF SALES 1,120 439 29,962
------------ ------------ ------------
GROSS LOSS (761) 1,248 (24,448)
------------ ------------ ------------
OPERATING EXPENSES:
Professional fees 212,959 98,523 2,166,053
Salary and wages 75,504 239,687 1,777,198
Rent expense 32,186 20,729 315,445
Marketing and promotions 898 183,076 399,692
Depreciation and amortization 20,974 27,076 368,417
Impairment expense -- -- 2,331,522
Other operating expenses 78,703 100,161 769,890
------------ ------------ ------------
TOTAL OPERATING EXPENSES 421,224 669,252 8,128,217
------------ ------------ ------------
LOSS FROM OPERATIONS (421,985) (668,004) (8,152,665)
OTHER INCOME (EXPENSE)
Interest expense and financing costs (201,369) (6,949) (1,899,342)
Change in fair value of warrant liability 70,478 -- 279,819
------------ ------------ ------------
TOTAL OTHER EXPENSE (130,891) (6,949) (1,619,523)
------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (552,876) (674,953) (9,772,188)
PROVISION FOR INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS (552,876) (674,953) (9,772,188)
PREFERRED STOCK DIVIDENDS 18,750 -- 941,250
------------ ------------ ------------
NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS $ (571,626) $ (674,953) $(10,713,438)
============ ============ ============
NET LOSS PER SHARE:
BASIC AND DILUTED $ (0.03) $ (0.03) $ (0.58)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED 21,240,680 19,817,875 18,375,333
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
COBALIS CORP. AND SUBSIDIARY
(formerly Biogentech Corp.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Deficit
For the Period From November 21, 2000 (inception) to June 30, 2004
Common stock Additional
----------------------------- paid-in
Shares Amount capital
------------ ------------ ------------
Balance at inception (November 21, 2000) -- $ -- $ --
Issuance of founder's shares in exchange
for property and equipment 16,300,000 16,300 --
Issuance of common stock for cash - November 2000 @ $1.00 30,000 30 29,970
Issuance of common stock for cash - December 2000 @ $1.00 15,000 15 14,985
Issuance of common stock for cash - February 2001 @ $1.00 12,000 12 11,988
Issuance of common stock for cash - March 2001 @ $1.00 125,000 125 124,875
Issuance of common stock for services - March 2001 @ $1.00 10,000 10 9,990
Contributed capital -- -- 62,681
Net loss for the period from inception
(November 21, 2000) to March 31, 2001 -- -- --
------------ ------------ ------------
Balance at March 31, 2001, as restated 16,492,000 16,492 254,489
Issuance of common stock for cash - April 2001 @ $1.00 10,000 10 9,990
Issuance of common stock for telephone equipment -
April 2001 @ $1.00 6,750 7 6,743
Issuance of common stock for cash - May 2001 @ $1.00 11,000 11 10,989
Issuance of common stock for website development -
May 2001 @ $1.00 17,000 17 16,983
Issuance of common stock for legal services -
May 2001 @ $1.00 1,000 1 999
Issuance of common stock for cash - June 2001 @ $1.00 23,500 24 23,476
Issuance of common stock for cash - July 2001 @ $1.00 20,000 20 19,980
Issuance of common stock for cash - August 2001 @ $1.00 25,000 25 24,975
Issuance of common stock for services, related party -
September 2001 @ $1.00 65,858 66 65,792
Issuance of common stock for cash - September 2001 @ $1.00 15,000 15 14,985
Issuance of common stock for services - September 2001 @ $1.00 11,000 11 10,989
Issuance of stock options for services - September 2001 -- -- 32,000
Issuance of common stock for cash - October 2001 @ $1.00 5,000 5 4,995
Issuance of common stock for cash - December 2001 @ $1.00 30,000 30 29,970
Issuance of common stock for services -
December 31, 2001 @ $1.00 33,000 33 32,967
Issuance of common stock for services, related party -
December 2001 @ $1.00 117,500 118 117,382
Issuance of common stock for prepaid advertising -
December 2001 @ $1.00 15,600 15 15,585
Issuance of common stock for property and equipment -
January 2002 @ $3.00 1,000 1 2,999
Issuance of common stock for services, related party -
January 2002 @ $1.00 33,000 33 32,967
Issuance of common stock for cash - February 2002 @ $2.00 20,000 20 39,980
Issuance of common stock for cash - March 2002 @ $2.00 12,500 12 24,988
Contributed capital -- -- 211,269
Deferred compensation -- -- --
Net loss -- -- --
------------ ------------ ------------
Balance at March 31, 2002, as restated 16,965,708 16,966 1,005,492
Issuance of common stock for services - April 2002 @ $2.00 3,000 3 5,997
Issuance of common stock for cash - April 2002 @ $1.00 10,000 10 9,990
Issuance of common stock for cash - April 2002 @ $2.00 17,500 17 34,983
Issuance of common stock for cash - May 2002 @ $1.00 10,000 10 9,990
Issuance of common stock for cash - May 2002 @ $2.00 16,000 16 31,984
Issuance of stock options for services - May 2002 -- -- 350,000
Contributed capital - bonus expense -- -- 50,000
Issuance of common stock for cash - June 2002 @ $1.00 5,000 5 4,995
Issuance of common stock for cash - June 2002 @ $2.00 5,000 5 9,995
Issuance of common stock for cash - July 2002 @ $1.00 5,000 5 4,995
Issuance of common stock for cash - August 2002 @ $2.00 10,000 10 19,990
Issuance of common stock for cash - September 2002 @ $2.00 10,000 10 19,990
Issuance of stock options below fair market value - November 2002 -- -- 250,000
Issuance of common stock for conversion of note - December 2002 @ 2.00 50,000 50 99,950
Issuance of common stock for cash - December 2002 @ $2.00 20,000 20 39,980
Issuance of common stock for services - December 2002 @ $2.00 15,000 15 29,985
Issuance of common stock for patents - December 2002 @ $2.00 2,000,000 2,000 1,285,917
Contributed capital -- -- 292,718
Issuance of common stock for exercise of options - December 2002 574,000 574 574,028
Deferred compensation -- -- --
Contributed capital -- -- 5,000
Issuance of common stock for services - January 2003 -- -- 25,000
Issuance of common stock for cash February 2003 @ $2.00 11,500 12 22,988
Issuance of common stock for cash March 2003 @ $2.00 5,000 5 9,995
Deferred compensation -- -- --
Net loss -- -- --
------------ ------------ ------------
Balance at March 31, 2003, as restated 19,732,708 19,733 4,193,962
Issuance of common stock for cash April 2003 @ $2.00 70,000 70 139,930
Issuance of common stock for cash May 2003 @ $2.00 30,000 30 59,970
Acquisition by Biogentech Corp of ("Togs for Tykes") 1,032,000 1,032 (101,032)
Issuance of common stock for penalties January 2004 @ $2.80 135,000 135 377,865
Issuance of common stock for services February 2004 @ $2.20 100,000 100 219,900
Issuance of common stock for services February 2004 @ $1.85 20,000 20 36,980
Value of beneficial converstion feature of convertible
debenture issued in September 2003 -- -- 346,870
Fair value allocated to warrant liability for detachable
warrants issued with preferred stock -- -- (181,849)
Dividend on preferred stock -- -- 885,000
Deferred compensation -- -- --
Net loss -- -- --
------------ ------------ ------------
Balance at March 31, 2004 21,119,708 21,120 5,977,596
Issuance of common stock for penalties May 2004 @ $1.85 (unaudited) 170,000 170 314,330
Issuance of common stock for services June 2004 @ $1.75 (unaudited) 10,000 10 17,490
Issuance of common stock for conversion of debt June 2004 @ $1.60 (unaudited) 371,317 371 593,736
Net loss (unaudited) -- -- --
------------ ------------ ------------
Balance at June 30, 2004 (unaudited) 21,671,025 $ 21,671 $ 6,903,152
============ ============ ============
Deficit
accumulated Total
during the stockholders'
Deferred development equity
compensation stage (deficit)
------------ ------------ ------------
Balance at inception (November 21, 2000) $ -- $ -- $ --
Issuance of founder's shares in exchange
for property and equipment -- -- 16,300
Issuance of common stock for cash - November 2000 @ $1.00 -- -- 30,000
Issuance of common stock for cash - December 2000 @ $1.00 -- -- 15,000
Issuance of common stock for cash - February 2001 @ $1.00 -- -- 12,000
Issuance of common stock for cash - March 2001 @ $1.00 -- -- 125,000
Issuance of common stock for services - March 2001 @ $1.00 -- -- 10,000
Contributed capital -- -- 62,681
Net loss for the period from inception
(November 21, 2000) to March 31, 2001 -- (223,416) (223,416)
------------ ------------ ------------
Balance at March 31, 2001, as restated -- (223,416) 47,565
Issuance of common stock for cash - April 2001 @ $1.00 -- -- 10,000
Issuance of common stock for telephone equipment -
April 2001 @ $1.00 -- -- 6,750
Issuance of common stock for cash - May 2001 @ $1.00 -- -- 11,000
Issuance of common stock for website development -
May 2001 @ $1.00 -- -- 17,000
Issuance of common stock for legal services -
May 2001 @ $1.00 -- -- 1,000
Issuance of common stock for cash - June 2001 @ $1.00 -- -- 23,500
Issuance of common stock for cash - July 2001 @ $1.00 -- -- 20,000
Issuance of common stock for cash - August 2001 @ $1.00 -- -- 25,000
Issuance of common stock for services, related party -
September 2001 @ $1.00 -- -- 65,858
Issuance of common stock for cash - September 2001 @ $1.00 -- -- 15,000
Issuance of common stock for services - September 2001 @ $1.00 -- -- 11,000
Issuance of stock options for services - September 2001 -- -- 32,000
Issuance of common stock for cash - October 2001 @ $1.00 -- -- 5,000
Issuance of common stock for cash - December 2001 @ $1.00 -- -- 30,000
Issuance of common stock for services -
December 31, 2001 @ $1.00 -- -- 33,000
Issuance of common stock for services, related party -
December 2001 @ $1.00 -- -- 117,500
Issuance of common stock for prepaid advertising -
December 2001 @ $1.00 -- -- 15,600
Issuance of common stock for property and equipment -
January 2002 @ $3.00 -- -- 3,000
Issuance of common stock for services, related party -
January 2002 @ $1.00 -- -- 33,000
Issuance of common stock for cash - February 2002 @ $2.00 -- -- 40,000
Issuance of common stock for cash - March 2002 @ $2.00 -- -- 25,000
Contributed capital -- -- 211,269
Deferred compensation (60,108) -- (60,108)
Net loss -- (1,144,249) (1,144,249)
------------ ------------ ------------
Balance at March 31, 2002, as restated (60,108) (1,367,665) (405,315)
Issuance of common stock for services - April 2002 @ $2.00 -- -- 6,000
Issuance of common stock for cash - April 2002 @ $1.00 -- -- 10,000
Issuance of common stock for cash - April 2002 @ $2.00 -- -- 35,000
Issuance of common stock for cash - May 2002 @ $1.00 -- -- 10,000
Issuance of common stock for cash - May 2002 @ $2.00 -- -- 32,000
Issuance of stock options for services - May 2002 -- -- 350,000
Contributed capital - bonus expense -- -- 50,000
Issuance of common stock for cash - June 2002 @ $1.00 -- -- 5,000
Issuance of common stock for cash - June 2002 @ $2.00 -- -- 10,000
Issuance of common stock for cash - July 2002 @ $1.00 -- -- 5,000
Issuance of common stock for cash - August 2002 @ $2.00 -- -- 20,000
Issuance of common stock for cash - September 2002 @ $2.00 -- -- 20,000
Issuance of stock options below fair market value - November 2002 (250,000) -- --
Issuance of common stock for conversion of note - December 2002 @ 2.00 -- -- 100,000
Issuance of common stock for cash - December 2002 @ $2.00 -- -- 40,000
Issuance of common stock for services - December 2002 @ $2.00 -- -- 30,000
Issuance of common stock for patents - December 2002 @ $2.00 -- -- 1,287,917
Contributed capital -- -- 292,718
Issuance of common stock for exercise of options - December 2002 -- -- 574,602
Deferred compensation 60,108 -- 60,108
Contributed capital -- -- 5,000
Issuance of common stock for services - January 2003 -- -- 25,000
Issuance of common stock for cash February 2003 @ $2.00 -- -- 23,000
Issuance of common stock for cash March 2003 @ $2.00 -- -- 10,000
Deferred compensation 54,000 -- 54,000
Net loss -- (2,148,008) (2,148,008)
------------ ------------ ------------
Balance at March 31, 2003, as restated (196,000) (3,515,673) 502,022
Issuance of common stock for cash April 2003 @ $2.00 -- -- 140,000
Issuance of common stock for cash May 2003 @ $2.00 -- -- 60,000
Acquisition by Biogentech Corp of ("Togs for Tykes") -- -- (100,000)
Issuance of common stock for penalties January 2004 @ $2.80 -- -- 378,000
Issuance of common stock for services February 2004 @ $2.20 -- -- 220,000
Issuance of common stock for services February 2004 @ $1.85 -- -- 37,000
Value of beneficial converstion feature of convertible
debenture issued in September 2003 -- -- 346,870
Fair value allocated to warrant liability for detachable
warrants issued with preferred stock -- -- (181,849)
Dividend on preferred stock -- (885,000) --
Deferred compensation 196,000 -- 196,000
Net loss -- (5,703,639) (5,703,639)
------------ ------------ ------------
Balance at March 31, 2004 -- (10,104,312) (4,105,596)
Issuance of common stock for penalties May 2004 @ $1.85 (unaudited) -- -- 314,500
Issuance of common stock for services June 2004 @ $1.75 (unaudited) -- -- 17,500
Issuance of common stock for conversion of debt June 2004 @ $1.60 (unaudited) -- -- 594,107
Net loss (unaudited) -- (552,876) (552,876)
------------ ------------ ------------
Balance at June 30, 2004 (unaudited) $ -- $(10,657,188) $ (3,732,365)
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
Cobalis Corp. and Subsidiary
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED CUMULATIVE FROM
---------------------------- NOVEMBER 21,
JUNE 30, JUNE 30, 2000 (INCEPTION) TO
2004 2003 JUNE 30, 2004
----------- ----------- -----------
(as restated)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (552,876) $ (674,953) $(9,772,188)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 20,974 27,076 373,637
Common stock issued for services 17,500 -- 581,858
Common stock issued for penalty 314,500 -- 692,500
Change in value of warrant liability (70,478) -- (279,819)
Amortization of debt issue costs 6,933 -- 22,551
Exercise of stock options for services -- -- 26,960
Amortization of discounts on notes 15,228 -- 313,219
Issuance of stock options for services -- -- 407,000
Capital contribution - bonus (related party) -- -- 50,000
Amortization of prepaid advertising -- -- 15,600
Amortization of deferred compensation -- 84,000 250,000
Discount on common stock issued for settlement of debt -- -- 50,000
Impairment expense -- -- 2,331,522
Changes in assets and liabilities:
Prepaid expenses and other assets (1,890) 2,941 (13,509)
Inventory -- 97 347
Accounts payable 211,728 95,320 732,073
Accrued expenses (159,382) -- 787,702
Amounts due to related parties 39,313 100,471 1,215,686
----------- ----------- -----------
Net cash used in operating activities (158,450) (365,048) (2,214,861)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (24,884) (86,007)
Increase in patent costs -- -- (24,711)
Increase in acquisition deposits -- -- (2,220,000)
Increase in other deposits -- -- (40,000)
Increase in capitalized website (3,532) -- (18,097)
----------- ----------- -----------
Net cash provided used in investing activities (3,532) (24,884) (2,388,815)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Cash overdraft, net 27,801 -- --
Payment on contract -- -- (161,000)
Proceeds from advances - related party 70,500 208,500 901,507
Proceeds from issuance of notes payable -- -- 1,215,000
Proceeds from sale of common stock -- 200,000 806,500
Proceeds from sale of preferred stock -- -- 885,000
Proceeds from convertible debenture -- -- 600,000
Capital contribution -- -- 571,668
Payment of debt issue costs -- -- (83,500)
Payments on advances - related party (12,500) (10,000) (159,300)
----------- ----------- -----------
Net cash provided by financing activities 85,801 398,500 4,575,875
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (76,181) 8,568 (27,801)
CASH AND CASH EQUIVALENTS, Beginning of period 76,181 2,290 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ -- $ 10,858 $ (27,801)
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by Cobalis
Corp. (the "Company"), pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended March 31,
2004 included in the Company's Annual Report on Form 10-KSB. The results of the
three months ended June 30, 2004 are not necessarily indicative of the results
to be expected for the full year ending March 31, 2005.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company has incurred a net loss of $552,876 for the three months ended June 30,
2004 and as of June 30, 2004, the Company had a working capital deficit of
$3,735,286 and a stockholder deficit of $3,732,365. In addition, as of June 30,
2004, the Company has not developed a substantial source of revenue. These
conditions raise substantial doubt as to the Company's ability to continue as a
going concern. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. These
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company is currently attempting to raise additional debt and equity
financing for operating purposes.
The Company requires substantial capital to pursue its operating strategy, which
includes commercialization of its products, and currently has limited cash for
operations. Until the Company can obtain revenues sufficient to fund working
capital needs and additional research and development costs necessary to obtain
the regulatory approvals for commercialization, the Company will be dependent
upon external sources of financing.
There can be no assurances that sufficient financing will be available on terms
acceptable to the Company, or at all. If the Company is unable to obtain such
financing, the Company will be forced to scale back operations, which could have
an adverse effect on the Company's financial condition and results of
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern.
6
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Stock Options
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation issued to employees.
For options granted to employees where the exercise price is less than the fair
value of the stock at the date of grant, the Company recognizes an expense in
accordance with APB 25. For non-employee stock based compensation the Company
recognizes an expense in accordance with SFAS No. 123 and values the equity
securities based on the fair value of the security on the date of grant. For
stock-based awards the value is based on the market value for the stock on the
date of grant and if the stock has restrictions as to transferability a discount
is provided for lack of tradability. Stock option awards are valued using the
Black-Scholes option-pricing model.
The pro forma information regarding the effect on operations that is required by
SFAS 123 and SFAS 148 has not been presented since there is no pro forma expense
to be shown for the three months ended June 30, 2004 and 2003.
NOTE 2 - LOSS PER SHARE
The Company reports loss per share in accordance with SFAS No. 128, "Earnings
per Share." Basic loss per share is computed by dividing loss available to
common shareholders by the weighted average number of common shares available.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. Diluted loss per share has
not been presented since the effect of the assumed exercise of options and
warrants to purchase common shares would have an anti-dilutive effect. There
were 2,544,167 and 1,150,000 common equivalent shares outstanding related to the
options and warrants at June 30, 2004 and 2003, respectively. In addition, as of
June 30, 2004, 716,667 shares of common stock are issuable upon the conversion
of the convertible note payable and convertible preferred stock.
NOTE 3 - PROPERTY AND EQUIPMENT
The cost of property and equipment at June 30, 2004 consisted of the following:
Furniture and fixtures $ 71,500
Office equipment 40,558
---------------
112,058
Less accumulated depreciation and amortization (53,511)
---------------
$ 58,547
===============
NOTE 4 - DUE TO RELATED PARTIES
Due to related parties at June 30, 2004 consists of the following:
R&R Holdings, Inc. a) $ 1,053,052
Chaslav Radovich b) 31,250
Other officers/executives c) 121,459
---------------
$ 1,205,761
===============
7
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
a) On January 1, 2001, the Company entered into a consulting contract with R&R
Development, Inc. DBA R&R Holdings, Inc. ("R&R") whereby they would provide
managerial consulting services to the Company at the rate of $125,000 per year
and the rate shall increase to $135,000 per year when and if the Company
completes a merger with a public shell company. R&R is also a shareholder of the
Company. As of June 30, 2004, the Company had accrued $242,392 of consulting
fees relating to this agreement.
R&R advances the Company cash from time to time. As of June 30, 2004, the
Company owed R&R $560,857 related to these advances. The Company has accrued
interest on these advances at a rate of 10% per annum. Accrued interest at June
30, 2004 related to these advances totaled $61,906.
In September 2003, R&R advanced the Company an additional amount of $170,000 at
the rate of 10% per annum. These funds were specifically to provide the Company
with additional financing with regard to the InnoFood transaction. Accrued
interest at June 30, 2004 related to this advance was $17,897.
b) The Company currently owes its Chief Executive Officer $31,250 in past due
compensation. During the three months ended June 30, 2004, the Company's Chief
Executive Officer was issued 107,901 shares of the Company's common stock in
satisfaction of $154,500 of past due compensation plus interest. The Company is
accruing salary to its CEO at an annual rate of $125,000.
c) The Company currently owes other current and former executives a total of
$121,459 in past due compensation.
NOTE 5 - CONVERTIBLE NOTE PAYABLE
In September 2003, the Company sold a $600,000, three-year, 8% convertible note
payable, which is convertible into shares of the Company's common stock at the
initial conversion price of $2.00 per share. This price is subject to adjustment
should the Company issue shares of its common stock at a price less than $1.75
per share. The convertible note payable was sold with detachable three-year
warrants to purchase 90,000 shares of the Company's common stock at $2.88 per
share. The warrant exercise price is also subject to adjustment based on sales
of the Company's common stock below the current fair market value on the
contract date.
The Company also entered into a registration rights agreement whereby the
Company agreed to file a valid registration statement with the Securities and
Exchange Commission to register the shares of common stock underlying the
Convertible Debentures and Debenture Warrants. Pursuant to EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock", the relative fair value of the warrants has
been recorded as a short-term liability until the Company has obtained an
effective registration statement for these shares. If the Company does not file
such an effective registration statement within 30 days of the closing date, or
October 8, 2003, the Company is subject to penalties as follows: 1% of the
principal amount of the funding for the first 30 day period in which the Company
fails to file such registration statement, and 2% for each 30 day period
thereafter. At June 30, 2004, the Company had not filed such a registration
statement and accordingly is currently subject to a penalty of approximately
$102,000.
Per the terms of the note agreement, in the event of default, the Company is
subject to accrue interest at a default rate of 18% from the date of the
default. In addition, the Company is obligated to remit 125% of the outstanding
note balance upon the acceleration of repayment by the holder. During the three
months ended June 30, 2004, Company accrued interest of approximately $30,707 at
a default rate of 18%.
8
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition, the Company is required to report a value of the warrant as a fair
value and record the fluctuation to the fair value of the warrant liability to
current operations. During the three months ended June 30, the decrease of the
relative fair value of the warrants was $35,648. The relative fair value of the
warrants was $46,723 as of June 30, 2004.
This convertible debenture is presented in the accompanying balance sheet as a
current liability as the Company has not made required interest payment on this
convertible debenture which is an event of default that give the holder the
right to call the convertible debenture.
A rollforward of the convertible note payable is as follows:
Balance, March 31, 2004 $ 107,863
Conversions into equity --
Amortization of discounts 15,228
---------
Balance, June 30, 2004 $ 123,091
=========
NOTE 6 - CONVERTIBLE PREFERRED STOCK
In September 2003, the Company sold 1,000 shares of its 7.5% convertible
preferred stock for $1,000,000, less direct issuance costs of $115,000, which
were netted against the proceeds of the offering. The Convertible Preferred
Stock carries voting rights equivalent to the number of shares of common stock
into which it can be converted, and has liquidation preference of $1,000 per
share. The Convertible Preferred Stock is convertible into shares of the
Company's common stock at the initial conversion price of $2.40 per share. This
price is subject to change should the Company issue shares of its common stock
at a price less than $1.75 per share. Included with the Convertible Preferred
Stock were detachable three-year warrants to purchase 104,167 shares of the
Company's common stock at the price of $2.88 per share. The warrant exercise
price is also subject to adjustment based on sales of the Company's common stock
below the current fair market value on the contract date.
Since the intrinsic value of the beneficial conversion feature and relative fair
value of the warrants exceeds the proceeds of the convertible debt, the amount
of the discount assigned to the beneficial conversion feature and warrants is
limited to the amount of the proceeds of the convertible preferred stock. The
discount was recorded as a preferred stock dividend at the date of issuance. The
Company recognized $885,000 of preferred dividends related to the discount.
Pursuant to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock", the relative fair value
of the warrants, has been recorded as a short-term liability until the Company
has obtained an effective registration statement for these shares.
If the Company does not file such an effective registration statement within 30
days of the closing date, or October 25, 2003, the Company is subject to
penalties as follows: 1% of the value of the shares and the warrants paid by the
purchaser for the first 30 day period in which the Company fails to file such
registration statement, and 2% for each 30 day period thereafter. At June 30,
2004, the Company has not filed such a registration statement and accordingly is
currently subject to a penalty of $170,000.
In addition, the Company is required to report a value of the warrant as a fair
value and record the fluctuation to the fair value of the warrant liability to
current operations. During the three months ended June 30, 2004, the decrease of
the relative fair value of the warrants was $34,830. The relative fair value of
the warrants was $24,937 as of June 30, 2004.
9
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2004, there was $56,250 of dividends in arrears related to the
1,000 share of convertible preferred stock.
NOTE 7 - COMMON STOCK
During the three months ended June 30, 2004 the Company issued common stock for
the following:
o 170,000 shares valued at $314,500 related to a Forbearance Agreement
related to the convertible note payable;
o 10,000 shares valued at $17,500 for consulting services; and
o 371,317 shares valued at $594,107 for the conversion of certain
accounts payable and amount payable to related parties.
NOTE 8 - RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
The Company entered into agreements with GP LLC to purchase certain patents and
other assets. The Company previously had valued the patents based on the present
value of the minimum contractual obligations using a 6% discount rate. Per the
December 19, 2002 agreement, the Company issued to GP LLC 2,000,000 shares of
the Company's common stock in exchange for the minimum contractual payments. At
this time the Company valued the transaction based on the deemed current value
of the Company's common stock, which resulted in the Company increasing the
carrying value of the patents by $1,658,378. At the time the Company's stock was
not publicly traded so the Company valued its stock at $2.00 per share which was
the most recent price that the Company had sold shares for cash. After this
increase in the value of patents, the patents carrying value was $3,905,832. At
March 31, 2003, the patents were appraised at $3,850,000 which resulted in the
Company writing down the value of the patents by $55,832.
The Company has restated its previously issued financial statements to reflect
using a discount rate of 15.5% rather than 6% to value the minimum contractual
obligations and to value the 2,000,000 shares of common stock issued in the
December 19, 2002 transaction at the carrying value of the contractual
obligation that was exchanged for the shares rather than at the deemed current
value of the shares at the date of issuance.
In addition, the Company did not amortize the value of its patents prior to
January 1, 2004. The consolidated financial statements have been restated to
reflect the amortization of the Company's patents over the estimated useful life
of the patents using the straight line method.
The effects of the restatement as of June 30, 2003 and three months ended June
30, 2003 are as follows:
As previously
filed As restated
------------ -------------
June 30, 2004
-------------
Patents $ 3,850,000 $ 1,125,466
Accumulated amortization of patents $ - $ 214,136
Total Stockholders' equity $ 2,949,739 $ 11,069
Net loss $ (653,126) $ (674,953)
10
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superseded as a result of the issuance of
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers ("the FAQ") issued with SAB
101 that had been codified in SEC Topic 13, Revenue Recognition. Selected
portions of the FAQ have been incorporated into SAB 104. While the wording of
SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue
recognition principles of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The adoption of SAB 104 did not
impact the consolidated financial statements.
11
COBALIS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW
BioGentec Incorporated ("BG"), a private Nevada corporation, was incorporated on
November 21, 2000 according to the laws of Nevada, under the name St Petka, Inc.
On May 4, 2001, St Petka, Inc. formally changed its name to BioGentec
Incorporated. On July 2, 2003, BG was merged into Togs for Tykes Acquisition
Corp.("TTAC"), a wholly owned subsidiary formed for the purpose of acquiring BG.
TTAC is the wholly owned subsidiary of the registrant, formerly Togs for Tykes,
Inc. and most recently, BioGentech Corp. As allowed under SFAS 141, "Business
Combinations" ("SFAS 141"), we designated a date of convenience of the closing
for accounting purposes as June 30, 2003. Under the terms of the merger
agreement, all of BG's outstanding common stock (19,732,705 shares of $0.001 par
value stock) will be exchanged for 19,732,705 shares newly issued shares of
$0.001 par value stock of BioGentech Corp. common stock. At the date of the
transaction, we had 5,532,000 shares of common stock outstanding of which
4,500,000 will be cancelled as part of the transaction leaving 23,864,708 shares
outstanding.
This transaction was consummated with the filing of the Articles of Merger with
the State of Nevada on July 2, 2003 BG shareholders then effectively controlled
approximately 95% of the issued and outstanding common stock of Cobalis. Since
the shareholders of BG obtained control of Cobalis, according to SFAS 141, this
acquisition has been treated as a recapitalization for accounting purposes, in a
manner similar to reverse acquisition accounting. On July 6, 2004, BioGentech
Corp. changed its name to Cobalis Corp.
12
GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with in accordance with accounting principles generally accepted in
the United States of America, which contemplate continuation as a going concern.
We incurred a net loss of $552,876 for the three months ended June 30, 2004 and
as of June 30, 2004, we had a working capital deficit of $3,735,286 and a
stockholder deficit of $3,732,365. In addition, as of June 30, 2004, we have not
developed a substantial source of revenue. These conditions raise substantial
doubt as to our ability to continue as a going concern. These consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. These consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should we be unable to continue as a going concern.
We are currently attempting to raise additional debt and equity financing for
operating purposes. We require substantial capital to pursue our operating
strategy, which includes commercialization of our products, and currently has
limited cash for operations. Until we can obtain revenues sufficient to fund
working capital needs and additional research and development costs necessary to
obtain the regulatory approvals for commercialization, we will be dependent upon
external sources of financing.
There can be no assurances that sufficient financing will be available on terms
acceptable to us, or at all. If we are unable to obtain such financing, we will
be forced to scale back operations, which could have an adverse effect on our
financial condition and results of operations.
CRITICAL ACCOUNTING POLICY AND ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, management evaluates its estimates
and judgments, including those related to revenue recognition, accrued expenses,
financing operations, and contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The most
significant accounting estimates inherent in the preparation of our consolidated
financial statements include estimates as to the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources, primarily valuation of patent costs and stock-based compensation. The
methods, estimates and judgments we use in applying these most critical
accounting policies have a significant impact on the results we report in our
consolidated financial statements.
13
Patent Cost Valuation. The determination of the fair value of certain acquired
assets and liabilities is subjective in nature and often involves the use of
significant estimates and assumptions. Determining the fair values and useful
lives of intangible assets especially requires the exercise of judgment. While
there are a number of different generally accepted valuation methods to estimate
the value of intangible assets acquired, we primarily use the weighted-average
probability method outlined in SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This method requires significant management
judgment to forecast the future operating results used in the analysis. In
addition, other significant estimates are required such as residual growth rates
and discount factors. The estimates we have used are consistent with the plans
and estimates that we use to manage our business, based on available historical
information and industry averages. The judgments made in determining the
estimated useful lives assigned to each class of assets acquired can also
significantly affect our net operating results.
Stock-based Compensation. We record stock-based compensation to outside
consultants at fair market value in general and administrative expense. We do
not record expense relating to stock options granted to employees with an
exercise price greater than or equal to market price at the time of grant. We
report pro-forma net loss and loss per share in accordance with the requirements
of SFAS 123 and 148. This disclosure shows net loss and loss per share as if we
had accounted for our employee stock options under the fair value method of
those statements. Pro-forma information is calculated using the Black-Scholes
pricing method at the date of grant. This option valuation model requires input
of highly subjective assumptions. Because our employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of fair value of our employee
stock options.
Estimate of Litigation-based Liability. We are defendant in certain claims and
litigation in the ordinary course of business. We accrue liabilities relating to
these lawsuits on a case-by-case basis. We generally accrue attorney fees and
interest in addition to the liability being sought. Liabilities are adjusted on
a regular basis as new information becomes available. We consult with our
attorneys to determine the viability of an expected outcome. The actual amount
paid to settle a case could differ materially from the amount accrued.
LIQUIDITY AND CAPITAL RESOURCES
We had a cash and cash equivalents of $0 at June 30, 2004. We also had $13,509
in prepaid and other current assets and $5,903 in inventory making our total
current assets at June 30, 2004 equal to $19,412. We also had the following long
term assets: $60,949 in debt issue costs; $58,547 in property and equipment,
net, $7,563 in net website development costs, and $720,862 represented by net
value of our patents, $40,000 in deposits. Our total assets as of June 30, 2004
were $907,333.
Our total current liabilities were $3,754,698 at June 30, 2004, which was
represented by a cash overdraft of $27,801, accounts payable of $323,683 and
accrued expenses of 787,702, due to related parties of $1,205,761, warrant
liability of $71,660, convertible note payable of $123,091, net of a discount of
$476,909 and demand loans payable for $1,215,000. Our liabilities exceeded our
assets by $2,847,365 as of June 30, 2004.
We have financed our operations primarily through cash generated from related
party debt financing and from the private placement sales of equity securities,
as well as issuing a convertible debenture. During the three months ended June
30, 2004, we received an additional $58,000 from a related party and issued
371,317 shares of our common stock as payment for certain accounts payable and
past due salaries to certain related parties.
Our cash used in investing activities was $3,532 for the three months ended June
30, 2004, as compared to $24,884 for the same period ended in 2003, a decrease
of $21,352.
Our net cash provided by financing activities was $85,801 for the three months
ended June 30, 2004 compared to $398,500 for the same period in 2003. The
decrease of $312,699 is primarily due to fewer advances from a related party and
no proceeds from the sale of our common stock
14
RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
We entered into agreements with GP LLC to purchase certain patents and other
assets. We previously had valued the patents based on the present value of the
minimum contractual obligations using a 6% discount rate. Per the December 19,
2002 agreement, we issued to GP LLC 2,000,000 shares of our common stock in
exchange for the minimum contractual payments. At this time we valued the
transaction based on the deemed current value of our common stock, which
resulted in us increasing the carrying value of the patents by $1,658,378. At
the time our stock was not publicly traded so we valued our stock at $2.00 per
share which was the most recent price that we sold shares for cash. After this
increase in the value of patents, the patents carrying value was $3,905,832. At
March 31, 2003, the patents were appraised at $3,850,000 which resulted in us
writing down the value of the patents by $55,832.
We have restated our previously issued financial statements to reflect using a
discount rate of 15.5% rather than 6% to value the minimum contractual
obligations and to value the 2,000,000 shares of common stock issued in the
December 19, 2002 transaction at the carrying value of the contractual
obligation that was exchanged for the shares rather than at the deemed current
value of the shares at the date of issuance.
In addition, we did not amortize the value of our patents prior to January 1,
2004. The consolidated financial statements have been restated to reflect the
amortization of our patents over the estimated useful life of the patents using
the straight line method.
The effects of the restatement as of June 30, 2003 and three months ended June
30, 2003 are as follows:
As previously
filed As restated
--------------- ----------------
Patents $ 3,850,000 $ 1,125,466
Accumulated amortization of patents $ - $ 214,136
Total Stockholders' equity $ 2,949,739 $ 11,069
Net loss $ (653,126) $ (674,953)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AS COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 2003
REVENUES AND COST OF SALES
We had no significant revenues for the three months ended June 30, 2004 and June
30, 2003 as we are undertaking a Phase III clinical trial in order to obtain FDA
approval of PreHistin (TM) as an over the counter drug. Our net revenues were
$359 less $1,120 for cost of revenues for a gross loss of $761 for the three
months ended June 30, 2004 as compared net sales of $1,687 less $439 for cost of
sales for a gross profit of $1,248 for the restated three months ended June 30,
2003.
15
OPERATING EXPENSES
Operating expenses for the three months ended June 30, 2004 were $421,224
compared to $669,252 for the three months ended June 30, 2003. For both periods,
expenses incurred were for two major purposes: i) ongoing development of our
PreHistin (TM) product and related product management and ii) general management
and fund raising efforts. For the three months ended June 30, 2004, this amount
was represented by $20,974 in depreciation and amortization, $212,959 in
professional fees, $75,504 in salary and wages, $32,186 in rent expense, $898 in
marketing and promotions, and $78,703 in other operating expenses, as compared
to the three months ended June 30, 2003, where we had $27,076 in depreciation
and amortization, $98,523 in professional fees, $239,687 in salary and wages,
$20,729 in rent expense, $183,076 in marketing and promotions, and $100,161 in
other operating expenses. Our operating expenses decreased due primarily to our
lack of funds to pay for our operating expenses.
Interest expense and financing costs for the three months ended June 30, 2004
were $201,369 compared to $6,949 for the three months ended June 30, 2003. The
significant increase is due to the interest on the convertible note payable, the
demand note payable and the advances from related parties. In addition, the
amortization of debt issue costs and debt discounts and penalties for not
registering shares underlying the conversion of the convertible note payable and
convertible preferred stock.
The change in the fair value in the warrant liability relates to the decrease in
the value of the detachable warrants issued in connection with the convertible
note payable and convertible preferred stock. Due to the decline our stock
price, the fair value of these warrants has decreased resulting in the decrease
of the warrant liability.
OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
Over the next 12 months, we plan to continue moving forward with the Phase III
clinical trials of our allergy prevention product, PreHistin (TM), followed
immediately by submission of an application to the FDA for marketing approval of
PreHistin (TM) as an over the counter ("OTC") allergy medication. We hope to
receive approval from the FDA in late 2005, enabling our US marketing launch of
the product for the spring 2006 allergy season.
While continuing with the US FDA approval process, we are working to finalize
the international launch strategy in the primary global markets. Discussions are
progressing with potential joint venture partners for marketing, manufacturing,
regulatory approval and distribution throughout the world, the most advanced of
which are with companies in Japan and Canada.
In addition to seeking approval from the FDA for the primary indication of
seasonal allergic rhinitis (hay fever) for PreHistin (TM), we plan to conduct
additional studies to validate the viability of approval for supplemental
indications and alternative delivery mechanisms. The tests will be a combination
of clinical trials and laboratory analyses.
We are also actively pursuing the acquisition and development of products that
we hope will enable us to leverage our resources. Areas of focus are OTC
pharmaceutical products and nutritional supplements.
As of June 30, 2004, we had a cash overdraft of $27,801. To fully execute our
business plan for the next 12 months, we will need to raise additional funds in
order to complete the Phase III clinical trials, submit the PreHistin (TM)
application to the United States FDA and execute a marketing launch of the
PreHistin (TM) product. We will also need to raise funds to execute studies for
the further development of the PreHistin (TM) product line and to complete the
acquisition of additional products. Along with our investment bankers, we plan
to raise these funds through private and institution or other equity offerings.
We may attempt to secure other loans from lending institutions or other sources.
There is no guarantee that we will be able to raise additional funds through
offerings or other sources. If we are unable to raise funds, our ability to
continue with product development will be hindered.
16
Other than the research and development related to our PreHistin (TM) product,
we do not plan to engage in any other research and development unless we are
able to raise additional funds. We do anticipate the purchase of significant
equipment within the next 12 months for our PreHistin (TM) product. We do not
anticipate any significant hiring over the next 12 months.
Off-balance sheet arrangements. There are no off balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
ITEM 3. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There were no changes in our internal control over
financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change in legal proceedings during the three months ended June 30, 2004.
IBCG. We retained Callari & Summers as our litigation counsel to file an action
in Los Angeles County Superior Court against International Business Consultants,
GmbH ("IBCG"). The complaint, filed on April 16, 2004, alleged the following: In
July 2003, pursuant to a loan agreement, IBCG was issued 3,000,000 shares of our
common stock (the "Stock") as collateral for a loan. However, in breach of the
agreement, IBCG did not deliver the loan proceeds and refuses to return the
Stock. By means of this lawsuit, we sought to rescind the loan agreement and
obtain a court order requiring the return or cancellation of the Stock. As of
July 9, 2004, these shares were cancelled pursuant to the Court's order.
ITEM 2. CHANGE IN SECURITIES
During the three months ended June 30, 2004, the Company issued the following
shares of its common stock:
o 170,000 shares related to a Forbearance Agreement related to the
convertible note payable;
o 10,000 shares for consulting services;
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is currently in default on terms of its convertible note payable for
failing to register the shares underlying the conversion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 27, 2004, the Shareholders of the Company approved a motion to change the
Company's name from BioGentech Corp. to Cobalis Corp.
ITEM 5. OTHER INFORMATION
Not applicable
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
------------------- ------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
------------------- ------------------------------------------------------------
3.1 Articles of Incorporation (1)
------------------- ------------------------------------------------------------
3.1.1 Certificate of Amendment to Articles of Incorporation (1)
------------------- ------------------------------------------------------------
3.1.2 Certificate of Amendment to Articles of Incorporation (2)
------------------- ------------------------------------------------------------
3.1.3 Certificate of Amendment to Articles of Incorporation (3)
------------------- ------------------------------------------------------------
3.2 Bylaws (1)
------------------- ------------------------------------------------------------
4.1 Convertible Note with Gryphon Master Fund LP (4)
------------------- ------------------------------------------------------------
10.1 Asset Purchase Agreement between BioGentec Inc.,
(fka St. Petka, Inc.) and Gene Pharmaceuticals,
LLC, (fka Allergy Limited, LLC,) as amended (4)
------------------- ------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer and Chief Financial Officer of the Company (5)
------------------- ------------------------------------------------------------
32.1 Section 906 Certification by Chief Executive Officer and
Chief Financial Officer (5)
------------------- ------------------------------------------------------------
----------
(1) Incorporated by reference to the exhibits to the registrant's registration
statement on Form 10-SB filed on February 8, 2002.
(2) Incorporated by reference to the exhibits to the registrant's information
statement on schedule 14C filed on June 10, 2003.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K, filed July 8, 2004. (4) Incorporated by reference to
the exhibits to the registrant's annual report on Form 10-KSB for the
fiscal
year ended March 31, 2004.
(5) Included herein.
(b) Reports on Form 8-K
On April 1, 2004, the Registrant filed a Current Report on Form 8-K announcing
that on November 18, 2003, a suit was filed against the Registrant in the US
District Court for the District of Massachusetts by Biogen Idec MA Inc.,
("Biogen") alleging trademark infringement and unfair competition, under docket
number CA No. 03-12305 PBS. Subsequently, a default was entered against the
Registrant on February 9, 2004. On March 22, 2004, the Registrant and Biogen
agreed to settle the dispute, and on March 23, 2004, Biogen undertook to file a
motion for stay of consideration of its motion for entry of default judgment and
has prepared a consent judgment to be filed with the court wherein the
Registrant will be enjoined from using "Biogentec" or "Biogentech" or any
phonetic equivalent. Pursuant to the terms of that settlement agreement, the
Registrant will undertake to change its corporate name to Cobalis Corp. as soon
as practicable, and to discontinue all uses of the trade name and trademarks and
domain names containing "Biogentech," or "Biogentec" and transfer the rights to
any domain names it may own containing "Biogentech" or "Biogentec" to Biogen.
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In addition, a suit was filed against the Registrant and our president on
December 17, 2003 in the Superior Court of California, County of San Mateo for
breach of contract by Consumer Survey Center, Inc. ("CSC") in regard to market
research and product pricing research services rendered by CSC. CSC is
apparently claiming that the Registrant owes $34,900 for services provided by
CSC. CSC is also claiming that the Registrant's president, Chaslav Radovich,
personally guaranteed the debt. The Registrant has reached a tentative verbal
agreement with CSC to accept stock in exchange for the debt as of the date of
this filing.
On April 29, 2004, the Registrant filed a Current Report on Form 8-K announcing
that at the request of the Registrant's auditors, the Registrant is
re-evaluating the carrying value of its patent.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COBALIS CORP.
August 23, 2004 By: /s/ Chaslav Radovich
------------------------------------------------
Chaslav Radovich
Principal Executive Officer, President,
Treasurer, Secretary, Director
20