U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2001
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to________________
Commission File Number: 000-27865
DISEASE SCIENCES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-1095431
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
20283 State Road 7, Suite 400, Boca Raton, Florida 33498
(Address of Principal executive offices)
Issuer's telephone number, including area code: (561) 487-3655
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_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 91,669,002 issued and
outstanding at November 29, 2001.
Disease Sciences, Inc.
(formerly AuctionAnything.com, Inc.)
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - OCTOBER 31, 2001 2
Condensed Consolidated Statements of Operations
(unaudited) for the Three and Nine Months Ended
October 31, 2001 and 2000 and April 17, 2001 (inception)
to October 31, 2001 3
Condensed Consolidated Statement of Cash Flows
(unaudited) for the Nine Months Ended
October 31, 2001 and 2000 and April 17, 2001 (inception)
to October 21, 2001 4
Notes to Financial Statements 5-7
1
Item 1. Financial Statements
DISEASE SCIENCES, INC.
(formerly AuctionAnything.com, Inc.)
(A Development Stage Enterprise)
October 31, 2001
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
Current assets:
Cash $ 298,904
Investments 1,500
Other current assets 3,503
-------------
303,907
Equipment, net 1,624
-------------
$ 305,531
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 141,155
Notes payable 140,000
--------------
281,155
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 authorized,
87,469,002 issued 87,469
Additional paid in capital 573,270
Notes receivable (310,000)
Accumulated deficit (326,363)
-------------
Total stockholders' equity 24,376
-------------
$ 305,531
=============
See notes to financial statements
2
DISEASE SCIENCES, INC.
(formerly AuctionAnything.com, Inc.)
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000
APRIL 17, 2001(INCEPTION) TO OCTOBER 31, 2001
(UNAUDITED)
April 17,
2001
Three Months Ended Nine Months Ended (Inception)
October 31, October 31, to October
2001 2000 2001 2000 31, 2001
--------- ---------- --------- --------- ----------
OPERATING EXPENSES $ 257,921 $ - $326,363 $ - $ 326,363
--------- ---------- --------- --------- ----------
NET LOSS $ (257,921) $ - $(326,363) $ - $ (326,363)
========= ========== ========= ========= ==========
NET LOSS PER WEIGHTED AVERAGE
SHARES OUTSTANDING
BASIC AND DILUTED $ (-) $ (-) $ (-) $ (-) $ (-)
========= ========== ========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 85,187,042 28,790,669 61,416,265 28,520,131 28,520,131
========== ========== ========== ========= ==========
See notes to financial statements
3
DISEASE SCIENCES, INC.
(formerly AuctionAnything.com, Inc.)
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000
APRIL 17, 2001(INCEPTION) TO OCTOBER 31, 2001
(UNAUDITED)
April 17,
2001(Inception)
To October,
2001 2000 31, 2001
-------------- ------------ ---------------
NET LOSS $ (326,363) $ - $ (326,363)
-------------- ------------ ---------------
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation 147 - 147
Non cash compensation 110,000 - 110,000
Changes in assets and liabilities:
Increase in other assets (3,503) - (3,503)
Increase in accounts payable 31,155 - 31,155
-------------- ------------ ---------------
NET CASH USED IN OPERATIONS (188,564) - (188,564)
-------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment (1,500) - (1,500)
Purchase of equipment (1,771) - (1,771)
-------------- ------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (3,271) - (3,271)
-------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable 140,000 - 140,000
Repurchase of treasury stock (106,500) - (106,500)
Sale of common stock 457,239 - 457,239
-------------- ------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 490,739 - 490,739
-------------- ------------ ---------------
NET INCREASE IN CASH 298,905 - 298,905
-------------- ------------ ---------------
CASH, beginning of period - - -
-------------- ------------ ---------------
CASH, end of period $ 298,905 $ - $ 298,905
============== ============= ===============
Non-Cash Items:
Common Stock Issued for Notes Receivable $ 310,000 $ - $ -
============== ============= ===============
See notes to financial statements
4
Disease Science, Inc.
(formerly AuctionAnything.com, Inc.)
Notes to Condensed Consolidated Financials Statements unaudited
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statements
The unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
The results of operations for the three months and nine months ended are not
necessarily indicative of those for the full year. In the opinion of management,
the accompanying unaudited financial statements contain all adjustments
necessary to fairly present the financial position and the results of operations
for the periods indicated.
Certain information and footnote disclosures normally included in condensed
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended January 31, 2001.
Organization
Disease Sciences, Inc. (the "Company"), a Delaware corporation, is a
developmental stage biopharmaceutical/clinical diagnostics company. The
Company's long-term goal is to become a partially integrated pharmaceutical
company with capabilities in research, drug development, clinical investigation,
and regulatory affairs. The Company is planning to employ a broad array of
technologies to detect, identify and quantify substances in blood or other
bodily fluids and tissues. The Company intends to target and develop proprietary
pharmaceutical compounds and new technologies. Its primary goal will be to
develop a Transmissible Spongiform Encephalopathy (TSE) test, useful in the
diagnosis of TSE diseases such as scrapie in sheep, Bovine Spongiform
Encephalopathy (BSE) in cattle (commonly known as mad-cow disease), Chronic
Wasting Disease (CWD) in wild deer and elk and Creutzfeldt-Jakob Disease (CJD)
in humans. The Company believes these test results may be used in the diagnosis,
detection, evaluation, monitoring and potential treatment of diseases and other
medical conditions.
On May 23, 2001, the Company completed the acquisition of 100% of the issued and
outstanding common stock of Disease S.I., Inc., a Florida corporation. The
Company acquired 100% of the issued and outstanding stock of Disease S.I. in
exchange for 60,000,000 shares of common stock.
The acquisition of Disease S.I. by has been accounted for as a reverse
acquisition under the purchase method for business combinations. The combination
of the two companies is recorded as a recapitalization of Disease S.I., pursuant
to which Disease S.I. is treated as the continuing entity.
Effective July 24, 2001, the Company completed the sale of North Orlando Sports
Promotions, a wholly owned subsidiary of the Company, and all operating lines of
business its former management group. Until the sale it was a service which
established and hosted auction and/or E-commerce web sites for other businesses
and organizations primarily in both the business-to-business and
business-to-consumer markets.
NOTE 2. 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 October 31, 2001,
the Company has accrued interest payable of $ 5,572 on these notes.
5
NOTE 3. 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.
NOTE 4. PRIVATE PLACEMENT
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. 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.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, FASB issued SFAS No. 141, Business Combinations. SFAS No. 141
requires the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The Company
believes that the adoption of SFAS No. 141 will not have a significant impact on
its financial statements.
In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets,
which is effective for fiscal years beginning after December 15, 2001. SFAS No.
142 requires, among other things, the discontinuance of goodwill amortization.
In addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company is currently assessing but has not yet determined the impact of SFAS No.
142 on its financial position and results of operations.
NOTE 6. EXERCISE OF STOCK OPTIONS AND NOTES RECEIVABLE
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 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.
6
NOTE 7. SUBSEQUENT EVENTS
On November 27, 2001 the Company acquired 9,050,833 shares of the common stock
of HealthSpan Sciences, Inc., a privately-held California corporation
("HealthSpan") in exchange for 4,000,000 shares of its 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 acquired in HealthSpan
represented approximately 51% of the currently issued and outstanding capital
stock. A broker/dealer which who had previously been engaged by HealthSpan to
act as its financial advisor received 200,000 of the shares of the Company's our
common stock issued to HealthSpan as compensation for its services to
HealthSpan. Bryant Villeponteau, Ph.D., the Company's Chief Scientific Officer
and a member of its Board of Directors, is an officer, Director and principal
shareholder of HealthSpan.
In October 2001 the Company had entered into a Research and Development
Agreement with HealthSpan covering the development of antioxidant drugs for
multiple degenerative diseases. The Research and Development Agreement provides
that it can be terminated by the mutual consent of the parties, or by the
Company for cause on 30 days prior notice if a mutually agreed upon group of
scientific experts review the research and development program and determine
that none of the potential analogs are likely to be approved for clinical
testing by the Food and Drug Administration. If the Research and Development
Agreement is terminated under any of these circumstances, HealthSpan will return
3,800,000 shares of the Company's common stock it received in the aforedescribed
transaction to the Company and the parties will have no further obligations to
each other.
The Company may also terminate the Research and Development Agreement without
cause on 30 days notice to HealthSpan, in which event the Company will retain a
number of shares of HealthSpan's common stock which is the sum of 9,050,883
divided by the number of months remaining in the 24 month term of the agreement,
and the Company will return to HealthSpan the remaining shares which it received
in the Stock Purchase Agreement. Contemporaneously, HealthSpan will retain a
number of shares of the Company's common stock which is the sum of 3,800,000
divided by the number of months remaining in the 24 month term of the agreement,
and it will return to the Company the remaining shares which it received in the
Stock Purchase Agreement less the 200,000 shares paid to the broker-dealer as
described above.
Finally, HealthSpan can terminate the agreement for cause if the Company fails
to provide the funding described in the agreement or under certain other
circumstances as described in the Research and Development Agreement. If
HealthSpan terminates the agreement for cause, each company will return a
proportionate number of shares of the other company's common stock acquired in
the Stock Purchase Agreement according to the aforedescribed formula.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read together with the information contained
in the financial statements and related notes included elsewhere in this report.
Plan of operation
From 1999 until July 2001, we operated a variety of Internet-related services.
We were, however, unable to generate positive cash flow from these
Internet-related businesses. On May 23, 2001, we acquired 100% of the issued and
outstanding stock of Disease SI, Inc. ("Disease SI"), a development stage
biopharmaceutical/clinical diagnostics company, in exchange for 60,000,000
shares of our common stock. Following completion of the acquisition of Disease
SI, it became apparent to us that it would be in our best long term interest
that the Internet operations be conducted apart from our
biopharmaceutical/clinical diagnostics operations. On July 24, 2001, we sold a
former director all of the capital stock of North Orlando Sports Promotions,
Inc., our wholly-owned subsidiary, 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.
Following the sale of North Orlando, our long-term goal is to become a partially
integrated pharmaceutical company with capabilities in research, drug
development, clinical investigation, and regulatory affairs. Since May 2001,
working capital to fund our operations was generated from the proceeds of
approximately $470,000 received by us from the private placement of our
securities. During the balance of fiscal 2001 our plan of operation includes
further research and development of a TSE screening test, and the extension of
its technologies to several other forms of TSE. We are planning clinical
studies, the costs of which will be borne by us. In furtherance of thereof, in
August 2001 we agreed to fund a research grant of approximately $280,000 for a
two year study on the efficacy of incineration to inactive scrapie prions. In
October 2001 we signed a clinical trials agreement with a company for a urine
diagnostic test for BSE, CJD and other TSEs. Finally, as described elsewhere
herein, in November 2001 we acquired 51% of HealthSpan Sciences, Inc. and had
previously entered into a research and development agreement with HealthSpan. We
are, at this time however, unable to project the total costs of these clinical
studies due to the early stage of our focus in this area.
For the nine months ended October 31, 2001, we reported no revenues. During this
period we reported operating expenses of $326,363, which includes approximately
$21,000 of consulting fees, approximately $31,000 in marketing expenses,
approximately $68,000 in salaries, and approximately $64,000 in legal and
accounting fees, as well as approximately $110,000 for accrued but unpaid cash
compensation to our officers and directors. For the balance of this fiscal year
we anticipate that these operating expenses will remain constant, and we will
begin to incur additional expenses related to the development of our products as
described above.
We do not expect operating revenue in the foreseeable future. We expect to
generate losses resulting principally from costs incurred in conjunction with
our research and development initiatives, including costs related to scientific
and laboratory personnel, clinical studies and reagents and supplies used in the
development of our technologies, and we expect that the cost of our research and
development activities will increase substantially as the implementation of our
business plan continues. In addition, as we continue to implement our plan of
operation, we expects general and administrative expenses to increase
significantly as we hires additional personnel and builds our infrastructure to
support future projected growth. These general and administrative expenses are
expected to consist primarily of non-research personnel salaries, office
expenses and professional fees. We are unable at this time to project the total
costs of these additional general and administrative expenses.
In October, we made a determination based on our own enthusiasm and optimism
and, perhaps, some misplaced confidence in the articulated positions and
commitments of certain members of the biomedical community. Following September
11, 2001, people became greatly concerned over a potential outbreak of Anthrax.
At this time, we found that one of our technologies, Multi-pulse High Pressure,
could be effective in curing the Anthrax bacteria. Our scientist believed it
could do so because the process has already killed Bacillus Streptomopholis, the
toughest Bacillus strain, so it made scientific sense that it would also kill
Anthrax. However, the process was not actually tested on Anthrax as it is a
bio-terrorism tool and not readily available for empirical testing until we
completed the licensing arrangements. Although we believe the statements made in
our press release on the subject was based on fact and supported by scientific
literature, since we had not independently confirmed the efficacy of the
process, we agreed with the SEC to the entry of an Order wherein we agreed to
cease making any claims without appropriate support. Because of the sensitive
nature of the subject and in our effort to conserve our research dollars, we do
not believe it is in our interest to pursue the program notwithstanding its
potential commercial and societal benefits.
8
In order to provide sufficient working capital to fund our ongoing operations we
will be required to raise additional capital to fund these anticipated costs.
There are no assurances that we will be able to obtain the additional capital in
which event our future operations would be materially and adversely affected.
Liquidity and Capital Resources
Our working capital at October 31, 2001 was $22,752, and increase of $47,051
from January 31, 2001. This increase is attributable to approximately $457,000
in working capital raised in August 2001 in a private placement of our
securities. Other than our existing working capital, we do not have any other
internal sources of working capital.
Since inception, our 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, to meet our commitment for
research funding and to pay our operating expenses, we expects to continue to
experience significant negative operating and investing cash flows for the
foreseeable future. Our existing working capital will not be sufficient to fund
the continued implementation of our plan of operation during the next 12 months
and to meet our capital commitments and general operating expenses. We are
unable to predict at this time the exact amount of additional working capital we
will require, however, in order to provide any additional working capital which
we may require, we will in all likelihood be required to raise additional
capital through the sale of equity or debt securities. We currently have no
commitments to provide us with any additional working capital. If we do not have
sufficient working capital to implement our plan of operation described above,
it is likely that we will cease operations.
9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On December 4, 2001 we filed a report on Form 8-K pertaining to the
share exchange with HealthSpan Sciences, Inc.
10
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.
Disease Sciences, Inc.
By: /s/ Wayne Goldstein
-------------------
Dated: December 17, 2001 Dr. Wayne Goldstein,
President and CEO
11