QSAM Biosciences, Inc. - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10K
ý ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended: March 31, 2009
or
¨ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from: _____________ to _____________
ANPATH
GROUP, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
333-123365
|
20-1602779
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification
No.)
|
116
Morlake Drive, Suite 201, Mooresville, North Carolina 28117
(Address
of Principal Executive Office) (Zip Code)
704-658-3350
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨
Yes ý No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. ¨ Yes ý No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 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. ý Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceeding 12 months (or for such shorter period that the
registrant was required to submit and post such files). ¨
Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to
this Form 10K. ý
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check
one):
|
Large
accelerated filer ¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer ¨ (Do not
check if a smaller reporting company)
|
Smaller
reporting company
ý
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). ¨ Yes ý No
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on September 30, 2008 (the last business
day of the registrant’s most recently completed second fiscal quarter), by
reference to the price at which the voting stock was last sold, or the average
bid and asked price of such voting stock, was $7,694,651.
On
July 10, 2009, the registrant had 16,503,654 shares of common
outstanding.
Documents
incorporated by reference: None.
|
PAGE
|
||
|
PART I
|
||
|
Item 1.
|
3
|
|
|
Item
1A.
|
14
|
|
|
Item
1B.
|
19
|
|
|
Item 2.
|
20
|
|
|
Item 3.
|
20
|
|
|
Item 4.
|
20
|
|
|
PART II
|
||
|
Item 5.
|
21
|
|
|
Item 6.
|
21
|
|
|
Item 7.
|
22
|
|
|
Item
7A.
|
28
|
|
|
Item
8.
|
28
|
|
|
Item 9.
|
28
|
|
|
Item
9A(T).
|
28
|
|
|
Item
9B.
|
29
|
|
|
PART III
|
||
|
Item 10.
|
30
|
|
|
Item 11.
|
32
|
|
|
Item 12.
|
36
|
|
|
Item 13.
|
37
|
|
|
Item 14.
|
37
|
|
|
PART IV
|
||
|
Item 15.
|
38
|
|
PART
I
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10K (including the Exhibits hereto) contains certain
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934,
and the Private Securities Litigation Reform Act of 1995, such as statements
relating to our financial condition, results of operations, plans, objectives,
future performance and business operations. Such statements relate to
expectations concerning matters that are not historical fact. Accordingly,
statements that are based on management's projections, estimates, assumptions
and judgments are forward-looking statements. These forward-looking statements
are typically identified by words or phrases such as "believe," "expect,"
"anticipate," "plan," "estimate," "approximately," "intend," and other similar
words and expressions, or future or conditional verbs such as "should," "would,"
"could," and "may." In addition, we may from time to time make such written or
oral "forward-looking statements" in future filings (including exhibits thereto)
with the Securities and Exchange Commission (the “Commission" or "SEC"), in our
reports to stockholders, and in other communications made by or with our
approval. These forward-looking statements are based largely on our current
expectations, assumptions, plans, estimates, judgments and projections about our
business and our industry, and they involve inherent risks and uncertainties.
Although we believe that these forward-looking statements are based upon
reasonable estimates and assumptions, we can give no assurance that our
expectations will in fact occur or that our estimates or assumptions will be
correct, and we caution that actual results may differ materially and adversely
from those in the forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties, contingencies and other factors that
could cause our or our industry's actual results, level of activity, performance
or achievement to differ materially from those discussed in or implied by any
forward-looking statements made by or on behalf of us and could cause our
financial condition, results of operations or cash flows to be materially
adversely effected. Accordingly, investors and all others are cautioned not to
place undue reliance on such forward-looking statements. In evaluating these
statements, some of the factors that you should consider include those described
below under “Item 1A Risk Factors” and elsewhere in this Annual Report on
Form 10K.
ITEM 1.
BUSINESS.
COMPANY
OVERVIEW
General
Anpath
Group, Inc. (“Anpath”,
the “Company”,
“we”
or “us”)
through our wholly-owned subsidiary EnviroSystems, Inc. (“ESI”),
produces disinfecting, sanitizing and cleaning products designed to help prevent
the spread of infectious microorganisms, while minimizing the harmful effects to
people, application surfaces and the environment. We believe that the
ability to destroy a wide-range of disease-causing microorganisms combined with
a favorable profile for health and environmental effects makes our products
ideal for use in a wide range of applications/markets that are in need of
disinfection/cleaning products that are safe to use and non-toxic.
We are
directed by our mission to “Provide a healthier today and a safer tomorrow
through knowledgeable people and innovative infection prevention,
decontamination, and health science technologies, products, and
services.” We intend to utilize our technology and resources to
develop products that reduce biological risks without introducing the attendant
chemical risks that are so prevalent today.
It is
this focus on developing safe infection prevention technologies that we believe
will position us in the forefront of the industry at a time when there is
rapidly growing awareness of the critical need to prevent biological risks —
both natural and man-made.
Our
headquarters is located at 116 Morlake Drive, Suite 201, Mooresville, North
Carolina 28117. Our telephone number is (704) 658-3350.
Recent
Developments
Private
Placement
June
2009, we issued to accredited investors an aggregate of $905,000 of units (each
a “Unit” and collectively, the “Units”) with each Unit consisting of (i) a
$10,000 principal amount 8% subordinated convertible promissory note,
convertible into shares of our common stock at an initial conversion price of
$0.50 per share, and (ii) a five year warrant to purchase up to 20,000 shares of
our common stock at an exercise price of $0.75 per share. We
received net proceeds of approximately $821,000 from the sale of the Units which
we have used for to repay certain indebtedness and to use for operating
funds.
1st Quarter FY ’10
Revenues
Our
revenues have increased significantly in the quarter following March 31, 2009.
Our unaudited revenues through June 22, 2009 were approximately $141,000. A
portion of the increase is due to orders of our products to combat the H1N1 flu
pandemic.
Forbearance Agreement with
ANPG Lending, LLC
On June
26, 2009 the Company agreed to reduce the exercise price of the 1,500,000
warrants outstanding to ANPG Lending LLC to $0.20 in exchange for ANPG Lending
LLC agreeing to extend the maturity date of the loans aggregating $1,500,000
from July 8, 2009 to September 8, 2009.
Primary
Technology Platform
We have
developed and have trade secret rights to what we believe to be a unique and
proprietary Parachlorometaxylenol (more commonly known as PCMX) based chemical
emulsion biocide technology platform. PCMX has been widely used as an
antimicrobial in surgical hand and skin scrubs. Based on this
technology, we have developed a portfolio of efficacious
disinfectants/sanitizers/cleaners that achieve bio-decontamination without using
toxic & corrosive chemicals. Our PCMX chemical emulsion biocides
have the following characteristics:
|
|
·
|
They
kill a wide range of infectious microorganism, including
MRSA;
|
|
|
·
|
They
minimize harmful effects to people and do not cause skin, eye, pulmonary,
oral or dermal irritation;
|
|
|
·
|
They
are non-corrosive (EnviroTru®/EnviroTru®
1453 are included in the Boeing Qualified Products List (QPL) and conform
with AMS-1452A, 1453 & D6-7127 Aircraft Corrosion Specifications);
and
|
In
addition to the foregoing benefits, we also believe that our proprietary PCMX
chemical emulsion biocide technology will act as a barrier to
competition.
Product Categories
We
believe that the concept of an easy-to-use and effective line of decontaminants
that fits with a favorable environmental profile offers us a unique opportunity
to differentiate our products in multiple infection prevention markets. It is
our intention to use the unique characteristics of our chemical emulsion
technology to build acceptance of our decontaminants as an alternative which is
significantly different from other biocidal products that currently dominate the
marketplace. We are exploiting our technology platform to establish a
broad product portfolio in the following categories:
|
·
|
Surface
care products - disinfectants, sanitizers and cleaners (including
wipes);
|
|
·
|
Animal
care products - skin and hoof care treatment and animal
shampoo;
|
|
·
|
Personal
care products – antimicrobial hand soaps, hand sanitizers and facial
scrubs (including wipes); and
|
|
·
|
Geo-Biocides
– biocides for use in the oil and gas
industry.
|
Surface
Care Products
We
believe that convenience, safety, the effect on air quality and environmental
responsibility are increasingly playing a greater role in the buying decision
for surface cleaners/disinfectants. We believe that consumers in general have
become more health conscious and at the same time have grown more concerned
about the effect that traditional cleaners/disinfectants have on internal and
external environments. Often consumers are required to settle for a
trade-off between effectiveness and environmental friendliness. We
believe that our surface care products will provide consumers with products that
are both efficacious and safe for the environment.
Our
surface care products include the following.
|
·
|
EnviroTru®
Disinfectant
& Cleaner Deodorizer, which is a
multi-purpose, ready-to-use disinfectant, sanitizer and deodorizing
cleaner for use on hard surfaces. EnviroTru® is
effective against numerous organisms without causing any adverse effects
to surfaces, humans or the environment. EnviroTru® is
registered by the Environmental Protection Agency (EPA) and meets EPA
requirements for Toxicity Category IV (minimal effects noted, no
precautionary or first aid statements required; no harmful dermal, ocular,
inhalation or ingestion effects). EnviroTru®
also conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for
non-corrosion and materials compatibility. EnviroTru®
has no special handling requirements, does not require protective
clothing, gloves or special ventilation and is
non-flammable.
|
EnviroTru® is also
effective for use in animal housing facilities, including veterinary clinics,
farms, equine farms, kennels, livestock houses, swine houses, poultry houses and
laboratories. When used as directed, EnviroTru® will
clean, deodorize and disinfect veterinary feeding and watering equipment,
utensils, instruments, cages, kennels, stables, catteries, etc.
|
·
|
EnviroTru®
1453 Disinfectant
& Cleaner Deodorizer, which is a
multi-purpose, ready-to-use disinfectant, sanitizer and deodorizing
cleaner for use on aircraft hard surfaces, including exterior and interior
surfaces such as cabins, toilets, sinks, faucets, counter tops and luggage
compartments. EnviroTru®1453
conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for
non-corrosion and materials compatibility. EnviroTru®1453
is registered by the Environmental Protection Agency (EPA) and meets EPA
requirements for Toxicity Category IV (minimal effects noted, no
precautionary or first aid statements required; no harmful dermal, ocular,
inhalation or ingestion effects). EnviroTru®1453
has no special handling requirements, does not require protective
clothing, gloves or special ventilation and is
non-flammable.
|
|
·
|
SurfaceTru™ Deodorizing
Cleaner, which is a powerful, multi-purpose cleaner and deodorizer
that’s safe for use on a variety of surfaces. SurfaceTru™ is
effective for removing dirt and grime and is gentle to application
surfaces, safe for the user and friendly to the environment. It has no
special handling requirements, does not require protective clothing,
gloves or special ventilation and is
non-flammable.
|
|
·
|
SurfaceTru™
Cleaning & Deodorizing Wipes, which are powerful cleaning and
deodorizing wipes that are packaged in their own individual foil wrappers
for easy portability. Each wipe opens to a large, 9” x 8” durable cloth
with a smooth finish that can be conveniently used on a variety of
surfaces. SurfaceTru™ Wipes can be carried with you for use when an
immediate need for an effective, yet gentle cleaner
arises.
|
|
·
|
Electrostatic
Sprayers. In addition to the foregoing products,
we also market electrostatic sprayers produced by Electrostatic Spraying
Systems, Inc. (“ESS”)
which may be used to apply our liquid surface care products to the target
surfaces. Electrostatic sprayers provide superior spray coverage by more
effectively dispensing solutions compared to conventional sprayers; tests
have demonstrated 4-10 times better coverage. Electrostatic sprayers
operate by producing highly charged spray droplets using a unique embedded
induction electrode design. This induction charging results in spray
droplets that have a force of attraction that is 75 times that of gravity.
This means droplets will reverse direction and move upwards, against
gravity, to coat hidden surfaces, and wrap around objects resulting in
complete, even coverage of the target. When using an electrostatic sprayer
it is possible to deliver ESI’s liquid disinfectants and cleaners to
difficult to reach locations that may harbor disease-causing
microorganisms.
|
In
October 2008, we announced that ESI entered into a prime distributor agreement
with ESS. Using ESS electrostatic sprayers in conjunction with our
EnviroTru®
Disinfectant Cleaner creates an electrostatically charged decontamination system
which provides an efficient system to quickly administer EnviroTru®
Disinfectant Cleaner to large areas, difficult to reach spaces, or to
high-traffic areas that require frequent treatment. This system substantially
improves the bio-availability of EnviroTru®. The
result is reduced manpower costs and simultaneously improved coverage, reducing
the threat of disease-causing microorganisms. In summary, the system
offers an extremely efficient, cost-effective way to realize the advantages of
EnviroTru®.
Future
Surface Care Products
We are
conducting research and development and are planning to reintroduce a hospital
grade disinfectant product to replace one of our earlier products called
EcoTru®. The reformulated disinfectant is expected to demonstrate
through testing that it will effectively kill numerous bacteria, fungi, and
viruses, including MRSA, Hepatitis B and C, HIV, herpes and influenza. Likewise,
in addition to being highly effective as a disinfectant, our reformulated
hospital grade product is expected to occupy a unique position in the market
place, combining this microbial effectiveness in a disinfectant product which
will also have a favorable profile for health and environmental
effects.
Animal
Care Products
We
believe that the microorganism killing properties of our products, combined with
their safety profile, make them ideally suited for use as a topical treatment
for skin ailments caused by microorganisms. We have worked to develop
products for use on animals and have focused initially on the equine market with
the introduction of EquineTru®
Skin and
Hoof Treatment. EquineTru® Skin & Hoof Treatment is an
antiseptic that may be used to rapidly, safely and effectively treat common skin
and hoof conditions caused by microorganisms without irritating a horse’s skin
or drying out its hoofs. The active ingredient used in EquineTru®
Skin and Hoof Treatment, PCMX, has been widely used as an antimicrobial in
surgical hand and skin scrubs and it is successfully used as a topical
antiseptic for skin and mucous membranes. It is also used as a
fungicide in a variety of applications. EquineTru® Skin and Hoof
Treatment has been reviewed and cleared for market by the Center for Veterinary
Medicine (CVM), a division of the U.S. Food and Drug Administration (FDA). Its
use is permitted for United States Equestrian Federation (USEF) and Fédération
Equestre Internationale (FEI) regulated competitions.
Future Animal Care Product
Considerations
We are
working on developing several variations of EquineTru® Skin and
Hoof Treatment for specific application, an animal shampoo and skin treatments
for household pets.
Personal
Care Products
Personal
care products such as antimicrobial hand soaps and hand sanitizers, have
traditionally been purchased by hospitals and health
clinics. However, due to an increased awareness of germs and
transmission of disease, individual consumers as well as institutional buyers
such as health clubs, schools, restaurants and grocery stores are increasingly
purchasing these products. These consumers, however, appear to have
little understanding of the benefits and/or adverse consequences of the products
they choose.
In
response to what we believe will be an increasing market for these products, we
are developing our KeraTru™ Personal
Care line of products which will include hand sanitizers and
antimicrobial soaps. Our KeraTru™ personal
care line of products are safe and include several alcohol free products and we
believe that they are more than or as effective as the leading
brands.
Geo
Biocides
In
response to requests from members of the oil & gas industry for a non-toxic
but effective disinfectant to replace toxic biocides used in hydraulic
fracturing, we developed GeoTru™
Concentrate designed to be used as a “down-hole” biocide in the oil &
gas industry. GeoTru™ Concentrate is a surfactant-based anionic
chemistry with extended shelf life that is effective when used under aerobic or
anaerobic conditions. It is active over a wide pH range and is
non-oxidizing and nonreactive with other down-hole chemistries and designed to
be used particularly in hydraulic fracturing.
Market
Opportunity
We
believe that in today’s environment there are heightened concerns about
microbial contamination, both natural and man-made. Microbial contaminants can
be the cause of minor infection, or potentially, of life threatening
illness. Increased awareness of the risk of potential disease
transmission, by both medical and lay communities and growing pressure to reduce
this risk, has resulted in increased demand for decontamination
products. At the same time, demand for products that are
environmental safe and non-toxic is also growing.
In
response to this increasing demand, a growing number of products designed to
kill potential contaminants are becoming available. Such products are
commonly used by the medical, veterinary, aviation, janitorial, food service and
leisure (hotels and cruise ships) industries, the military and recently the oil
and gas industry. However, we believe that the vast majority of these products
represent challenges to the environment as evidenced by the warnings on their
labels. This conflict between efficacy and safety has resulted in a dilemma for
the consumer and an opportunity for us.
Oil
and Gas Industry Opportunity
Although
we have not commenced sales of our Geo-Biocides, we believe that sales to the
oil and gas industry of our Geo-Biocides present perhaps the greatest market
opportunity for our products. Liquid biocides are utilized in the oil
and gas industry in a process referred to as “hydraulic
fracturing.” Hydraulic fracturing is a process which involves pumping
very large volumes of fluids into rock formations to improve oil and gas
extraction process. The fluids used in hydraulic fracturing generally
consist of water mixed with sand, friction reducers, scale inhibitors,
surfactants and biocides. The mixture is pumped into fractures of
rock formations containing oil and gas to open up the fractures and improve the
efficiency of the removal process.
Many of
the chemicals currently used to treat the water used in hydraulic fracturing are
considered toxic and potentially harmful by the EPA. This poses environmental
concerns since only about 82% of the solution returns to the
surface. We were approached by participants in this industry seeking
a better solution and a replacement for the toxic biocides used during hydraulic
fracturing and in response developed GeoTru™ Concentrate as a replacement for
the biocides used during hydraulic fracturing. Based upon preliminary
discussions with potential customers in the oil and gas industry, they estimate
that they would require approximately 700,000 gallons of liquid biocide on an
annual basis.
We
believe that in response to rising energy cost demand for well stimulation and
enhanced oil recovery methods to maximize output of existing oil and gas wells
will grow which will in turn provide a wide range of opportunities for the
suppliers of both formulated oilfield chemicals and their raw materials. We
believe that demand for well stimulation material will grow 14% annually through
2012 and we believe the US well stimulation material industry to be $2.8
billion, compared to the $5.4 billion oil-field chemical industry.
Surface
Care Products Opportunity
We
believe that nosocomial infections (infections acquired while an individual is
in a hospital) affect approximately 2 million people annually, cause
approximately 80,000 deaths in the US per year, and cost the economy over
$4.5 billion annually in direct costs. In addition, approximately
eighty million cases of food poisoning occur annually in the US with
associated costs of $7.6 — $23 billion. Threats of pandemic or bioterrorist
attack and health safety after hurricanes, tornadoes, and other natural
disasters pose enormous infection prevention challenges. Growing concerns over
the safety of cleaning and decontamination products currently used in public
places (causes for allergic and asthmatic type reactions) are also on the
rise. Many of these potential threats can be addressed through the
use of anti-microbial surface care products.
Our
infection prevention products will target a United States market for infection
prevention products and services estimated at $10.3 billion in 2006 and
expected to grow 4.6% annually to $11.8 billion in 2009. It is further
estimated that consumables/disposables constitute 91% of this market. The total
global demand is believed to be approximately 3-3.5 times that of the U.S. The
demand for disinfectants in the U.S. is estimated to be between
$2.2 billion and $2.5 billion in the same period. The
world demand is at least two (2) fold and growing at a similar
pace.
In the
U.S., although all-purpose surface cleaner sales are expected to dip to around
$1.3 billion by 2010, market researchers expect environmentally friendly and
non-toxic products to increasingly gain market share. Additionally, the market
for surface cleaner cloths and wipes is expected to grow to more than $500
million by 2010.
Recently
we announced the selection of our EnviroTru® Disinfectant and Deodorizing
Cleaner as the disinfectant of choice by the Washington, DC Metropolitan Area
Transit Authority (Metro), the second largest rail transit system and the fifth
largest bus network in the United States. Metro plans to intensify
its “Cleaning for Health” initiative utilizing EnviroTru®
Disinfectant and Deodorizing Cleaner in conjunction with electrostatic sprayers
to provide an electrostatically charged decontamination system. The Metro
program is a two-part program and includes a seasonal flu prevention program as
well as safe guarding the health of customers through regular application of
EnviroTru® to Metro
offices, stations, rail cars, buses and other vehicles. EnviroTru® will be
used on high hand contact areas within the system such as door handles, hand
rails, fare card machines, and other surfaces customers contact when passing
through the transit system. ESI had previously reported the signing of a
Prime Distributor Agreement with ESS. We think Metro is the model for cleaning
and infection prevention for transit systems everywhere and based on our
experience with Metro we intend to expand our unique decontamination solution to
other transit authorities worldwide.
Our
airline disinfectant cleaner, EnviroTru® 1453 is
used by multiple airlines, including several international carriers such as
Singapore Airlines, Korean Airlines, Asiana Airlines, Ryanair and Malaysian
Airlines. The product is a multi-purpose, ready-to-use disinfectant,
sanitizer and deodorizing cleaner designed for use on aircraft hard surfaces,
including exterior and interior surfaces, and conforms to AMS 1452A, AMS 1453
and Boeing D6-7127 specifications for non-corrosion and materials compatibility.
Even at a time when expenses have increased sharply based on the cost of fuel
there is a concern for safe infection prevention products and technologies in
the airline industry. EnviroTru® 1453
satisfies that need by killing a wide range of disease-causing microorganisms
and at the same time it meets the industry standards for non-corrosion and
material compatibility. Airline customers are also comfortable with
its extended use by their staff and in the presence of customers because of the
Toxicity Category IV rating.
We also
currently produce SurfaceTru™ cleaning
& deodorizing wipes that to date have primarily been sold to JetBlue
Airways.
While to
date most of our product sales have been from domestic sources we are actively
seeking to create international distribution channels. We recently
announced an agreement with our manufacturing partner, Minntech, to distribute
our products in Japan. We believe that our prior association with
Minntech coupled with Minntech’s organization in Japan will provide us with the
ability to shorten the required time to penetrate this sizeable and influential
market.
“Green”
Products Opportunity.
Positioned
strategically to satisfy the “green movement”, we announced earlier this year
the selection of its disinfectant, EnviroTru® for use by Every Supply Company,
Inc. (ESCI) of Mt. Vernon, N.Y. ESCI is one of the largest
maintenance supply companies in the New York City metro area, currently serving
over 1300 residential properties. Every Supply Company, Inc. is
focused on implementation of its Green Residential Cleaning program and is
presently educating and “retrofitting” its customer base with new cleaning
industry technologies that are safer, more efficient and environmentally
preferable. ESCI states they are the only company currently working with all
LEED certified high rise residential properties in New York City and have
converted over 50 properties from conventional to green cleaning methods. The
Leadership in Energy and Environmental Design (LEED) Green Building Rating
System™ encourages and accelerates global adoption of sustainable green building
and development practices through the creation and implementation of universally
understood and accepted tools and performance criteria. ESCI reports that their
products are currently in use at The Solaire, the first green residential tower
in the United States; The Helena, Tribeca Green, The Verdesian, The Vanguard
Chelsea, The Epic and Millenium Tower Residences. To meet the
increasing demand for those that desire to “live green” ESCI stated that several
more properties will soon join the growing list of residences that are dependent
upon the company to help provide environmentally sensitive
structures.
We
believe that the market for “green” cleansing and disinfecting products is
growing and that consumers are increasingly looking to purchase natural
cleansers. However, although many so-called natural cleaners may be
relatively harmless to the environment, we believe that they are less effective
for cleaning and disinfection than our products. As a result,
consumers looking for a “green” alternative to more toxic cleansers are forced
to sacrifice effectiveness in order to avoid so-called toxic chemicals. For
example, the “active” ingredients in two commonly used cleaners that present
themselves as “non-toxic,” Seventh Generation and Clorox’s Green Works, are
coconut oil and water.
Formulations
that disinfecting and cleaning action with gentleness and are environmentally
safe and sustainable are preferred. In addition to our current products ESI has
formulated, developed, and evaluated several formulations with pending patent
applications that employ natural, naturally derived, and sustainable
disinfecting, sanitizing, and cleaning ingredients including surfactants meeting
the “CleanGredients” list and/or those chemicals noted as GRAS
(Generally Recognized As Safe).
We intend
to target natural food distribution chains to market our products because we
believe that consumers that shop at natural food stores are particularly
concerned about the toxicity of the cleaners they purchase. These
informed buyers present us with a potentially large niche opportunity for our
products. We intend to partner with a distributor that will offer
EnviroTru® as a solution that is “natural,” safe, eco-friendly and effective
through the natural foods channels.
Institutional
Opportunity
We have
broken down the potential institutional market into three segments –
foodservice, janitorial and medical. All three segments prefer all-purpose
cleaners to reduce the amount of time spent cleaning, as well as storage space.
Also safety, particularly in the food services area, is paramount. The current
cleaners on the market have forced these customers to make trade-offs in
effectiveness versus safety.
Institutional
customers are expected to be the fastest growing segment in this greater than $5
billion market, with surface cleaners comprising roughly 34% of the market,
according to Kline & Co., a consulting and market research
firm.
Animal Care Opportunity
An
economic study conducted by Deloitte Consulting LLP for the American Horse
Council Foundation in 2005 reported that the equine industry contributed more
than $25 billion to the annual U.S. gross domestic product with over 9.5 million
horses in the U.S. and more than 2 million horse owners, making the equine
market an important and lucrative segment of the animal care
market.
Pet
products are the fastest growing retail category with a growth rate of 6%
annually, and eco-friendly pet products are beginning to take hold. For example,
sales of pet body care products continue to grow through natural food stores,
from $303 million in 2002 to more than $1.2 billion in 2005.
Our
initial animal care product, EquineTru® Skin and Hood Treatment continues to be
embraced and endorsed by leading riders, trainers, owners and veterinarians as a
valuable tool in controlling difficult-to-treat skin and hoof conditions and is
now featured in the SmartPak catalog and has been chosen to be featured in the
Dover Saddlery catalog, internet catalog and company-owned stores. EquineTru®
was reviewed and cleared for market by the Center for Veterinary Medicine (CVM),
a division of the U.S. Food and Drug Administration (FDA). Further, its use is
permitted for Unites States Equestrian Federation and Fédération Equestre
Internationale (FEI) regulated competitions.
Micro
Chemical Emulsion Technology
Our
disinfectant products are manufactured using our micro-emulsion technology.
Through the use of micro-emulsion technology, we are able to create a highly
efficient delivery mechanism for parachlorometaxylenol, which is the
antimicrobial ingredient used in our chemical emulsion formulations. We believe
that our micro-emulsion technology allows our products to specifically target
infectious microorganisms without harming higher life forms or the
environment.
Parachlorometaxylenol
(“PCMX”)
PCMX is
the active antimicrobial ingredient in our EcoTru®,
EnviroTru®, EnviroTru® 1453,
EquineTru®,
GeoTru™, and
SurfaceTru™
products. PCMX has been used as an effective antimicrobial disinfectant
ingredient for over five decades, both in the United States and in Europe. PCMX
has been demonstrated to be effective against bacteria, virus, and fungal
species. In other formulations using PCMX, its biocide activity has been limited
due to the inability of such formulations to deliver PCMX because a water
barrier exists between PCMX and microorganism membranes, which are both oily.
Our chemical emulsion technology efficiently enables the delivery of PCMX across
this barrier to the cell membranes.
In
addition to its broad spectrum of activity, PCMX has a very low instance of
allergic response (it has been used by the cosmetics industry for many years as
a preservative) and it is degraded in the environment in both the presence and
the absence of oxygen.
Micro-particle
Anatomy
Observing
the ESI chemical emulsions under a very high degree of magnification, one would
see a suspension of micro-particles moving very rapidly in de-ionized water.
Many of these particles are about 1/200th the
width of a human hair. The center of the particles is oily or lipophilic, as is
the target microbial membrane.
Incorporated
into these micro-particles is PCMX biocide. The surface of each particle has a
negative surface charge that is crucial to the targeting mechanism. There is an
electrostatic attraction between these particles and the microbes. The selective
targeting of the microbes by these micro-particles is the basis for the efficacy
of our chemical emulsion products.
Micro-Emulsion
Mechanism
The use
of PCMX in an emulsion is the basis for our products efficacy. We believe that
the physical/chemical properties of the emulsion particles and the electrostatic
charge on the surface allows the particles to successfully target pathogenic
microorganisms and deliver the biocide directly to the microorganisms' cell
membrane, thereby improving efficacy.
By
delivering the PCMX directly to the cell membrane, we have been able to reduce
the concentration of the biocide PCMX to 0.2% and yet achieve disinfectant
efficacy not seen at 15 to 25 fold higher concentrations.
In
addition, we believe by targeting the microorganism membrane, it is not
necessary to use an oxidizing biocide to kill the organism. Oxidizing biocides,
such as bleach and hydrogen peroxide, are effective biocides but are
indiscriminate, can be corrosive and require direct access to the microorganism.
Also, a difference in cell surface architecture, which is the key to cellular
identity, provide the mechanism by which our disinfectants micro-particles
discriminate between microorganisms and provides the foundation and focal point
for the antimicrobial effect of ESI disinfectants.
Manufacturing
Our
liquid products are manufactured by Minntech Corporation, an EPA and FDA listed
manufacturer. Effective August 2006, ESI entered into an agreement with
Minntech, pursuant to which Minntech agreed to establish a dedicated
manufacturing line at its manufacturing facility for our products. The agreement
with Minntech has a term of three years, commencing after the date of the first
shipment of commercial quantities of our product and provides for one year
renewals. Our first shipment of commercial quantities occurred in
September 2007. The agreement may be terminated by either of the parties
upon ninety days notice.
Our
agreement with Minntech also includes dedicated warehousing facilities and
distribution services for our products. Additionally, we may elect to utilize
other customer and technical services offered by Minntech and we have the
ability to expand our relationship with Minntech to take advantage of Minntech’s
international manufacturing capabilities.
We
believe that Minntech has the capabilities to continue to meet our volume
requirements and specifications through the next several years and until we are
ready to conduct our own in-house manufacturing and/or identify another contract
manufacturer. All lots of product produced are subject to quality assurance
standards established by EnviroSystems and Minntech provides a Certificate of
Analysis with each lot produced, certifying inspection results and quality
standards compliance. Additionally, we monitor vendor testing of raw materials
and review production records to ensure EnviroSystems' procedures and
specifications are followed throughout production.
Our
cleansing wipes are manufactured by Diamond Wipes, headquartered in Ontario,
CA.
Future
Possible Self Manufacture Capability
Upon
achieving sufficient levels of sales and revenues, we may pursue the development
of in-house manufacturing capabilities which we believe might reduce our cost of
goods sold and improve our control over our trade secrets. We believe that such
a facility would cost approximately $2 million to develop and require
approximately 20,000 to 80,000 square feet. Any such facility that we developed
would also include quality assurance and research and development facilities in
addition to manufacturing facilities adequate to produce our
products.
Research
and Development
During
our most recent fiscal year, we have devoted approximately $500,106 to research
and development activities, much of which have been focused on returning our
hospital grade product to the market. While the return of the hospital grade
product is our clear priority, we have ongoing development programs focused on
expanding our chemical emulsion product platform. We remain opportunistic
regarding synergistic product line extensions and we are pursing next generation
disinfectants as well as a line of soaps, cleansers and hand sanitizers
including products based on essential oils
Government
Regulation
Products
that make biocide claims are regulated by either the United States Environmental
Protection Agency (“EPA”) or the United States Food and Drug Administration
(“FDA”). Generally the line of demarcation is the intended use of the biocide;
those used on inanimate objects are regulated by the EPA and those intended for
use on living beings are regulated by the FDA. Disinfectant products such as
ours are classified as “pesticides” and are subject to regulation by the United
States Environmental Protection Agency (“EPA”), pursuant to the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) as amended by the Food
Quality Protection Act (FQPA) of 1996. FIFRA generally requires that before any
person can sell or distribute any pesticide in the United States, they must
obtain a registration from the EPA. After completing the registration process
and submission of all required data, an applicant's proposed product
label is stamped when accepted by EPA and returned to the registrant for use
upon the registered product package. Anyone who sells/distributes a pesticide
(including antimicrobial products) also must register that product in every
state in which they intend to sell/distribute the product.
Facilities
at which a pesticide is produced also must be listed with the EPA. Upon
registration, an establishment number is assigned. Annual pesticide production
reports are required to be submitted to the EPA and other books and records must
be maintained indicating the amount produced, repackaged/relabeled for the past
year, amount sold/distributed for the past year within and outside of the U.S.,
and the amount to be produced/repackaged/ relabeled for the current year.
Pesticide maintenance fees are required for registered products. Failure to pay
registration and annual maintenance fees or provide necessary test data when
requested by the EPA could result in the cancellation of an EPA
registration.
EPA
regulations also require registrants to report to the EPA new information
concerning adverse effects associated with their products.
Three (3)
of our products are registered with the United States Environmental Protection
Agency and have EPA registered labels and have been assigned EPA Registration
Nos. 70791-1 and 70791-2. They are EcoTru®, EnviroTru®, and
EnviroTru®
1453. In addition, EnviroTru® and
EnviroTru® 1453 are
registered in all of the 50 States in the United States, the District of
Columbia and Puerto Rico.
The FDA
is an agency of the United States Department of Health and Human Services and is
responsible for the safety regulation of most types of foods, dietary
supplements, drugs, vaccines, biological medical products, blood products,
medical devices, radiation-emitting devices, veterinary products, and
cosmetics.
We have
one current product cleared by the FDA, EquineTru® Skin
& Hoof Treatment. EquineTru® was
reviewed and cleared for market use by the Center for Veterinary Medicine (CVM);
the branch of the FDA which regulates food, food additives, and drugs that are
given to animals, including food animals and pets.
Like the
EPA, facilities that produce drugs must be listed with the FDA and are open to
inspection. FDA regulations also require producers to report information
concerning adverse effects associated with their products.
Foreign
Regulation
Although
to date we have not had substantial international sales of our products, when we
do sell products in foreign jurisdictions, we will be subject to foreign
regulations. We expect that we will have to register our products in other
foreign jurisdictions before we can realize substantial sales in such
jurisdictions. Compliance with foreign requirements could require substantial
expenditures and effort.
Competition
The
market for products such as ours is highly competitive and we face competition
from a number of companies, most of which have substantially greater brand name
recognition and financial, research and development, production and other
resources than we do.
Consumer, Institutional, Hospitality
and Military
In the
consumer and institutional markets our primary competitors include Johnson &
Johnson, Ecolab, Inc., Clorox, Sensible Life Products, and Proctor & Gamble,
and others all of which have products with recognized national brands that
include Clorox, Lysol, Pine Sol, and industry specific products. Products used
in the consumer markets and certain institutional markets like the hospitality
industry generally compete based upon price. To date, relatively higher per unit
costs of our product as compared to our competitors has limited our ability to
compete in these markets. We believe an increased awareness of the need for
safer biocides with environmentally correct profiles will aid our principal
competitive advantages; comparatively favorable toxicity profile, efficacy, and
environmental profile.
Oil
and Gas
There are
34 dominant major oilfield chemical suppliers, led by the likes of Dow Chemical,
BASF and Rhodia, with a remaining fragmented set of smaller competitors. Current
competitive products are conventional biocides: Glutaraldehydes, Sodium
hypochlorite (bleach) and chlorine dioxide. All are toxic and not eco-friendly.
Electrochemically activated salt water has been used and is available; a green
technology, but expensive. The relevant trend is toward a reduction
in the use of toxic biocides as increased environmental regulations make biocide
applications more and more costly, and the potential for regulation requiring
“greener” biocides a real possibility.
Animal
Care
Our
EquineTru® Skin
& Hoof Treatment product competes in a market occupied by a wide range of
large and small companies. Products in this market are largely sold through
catalogs and by way of endorsements and word-of-mouth. To compete in this
market, we must establish ourselves as a known entity and gain credibility, a
process that we expect to be slow. However, we believe that because of our
product’s toxicity profile we have the advantage of offering one product for
both skin and hoof conditions. Many hoof care products are too toxic to use on
the skin.
Healthcare
Our
competitors in the Healthcare market include Johnson & Johnson, Clorox,
STERIS Corporation, Caltech Industries, Sybron Dental Specialties, Inc., Reckitt
Benkiser, Sensible Life Products, and Ecolab, Inc.
We
believe that few competitive products have the same low-toxicity classifications
assigned by the EPA to proprietary EcoTru®
formulation, as well as the efficacy against a broad range of microorganisms and
virulent pathogens that EcoTru®'s
reissued labeling is expected to reflect.
Personal
Care
Smaller
companies typically account for less than 15% of sales in the liquid soap
category while the consumer hand sanitizer category is dominated by the Purell
(Pfizer) brand and Dial. Private label products represent a third of sales.
Purell (GoJo) currently owns the institutional side of the market.
ESI’s
planned KeraTru™ is
expected to compete against current products based on greater effectiveness a
lack of reactions and increased safety for kids. Alcohol-based
products lose their effectiveness within seconds of being applied to the skin;
KeraTru™ hand
products remain active well after being applied and leaves the skin feeling
soft. KeraTru™ hand
products are also antiseptic and hypoallergenic, benefits not included with
alcohol-based products. Finally, an alcohol-free, rinse free, and
fragrance free KeraTru™ hand
sanitizer is non-toxic and not dangerous for kids or adults (when properly
applied).
Competitive
Advantage.
Though
there are many disinfectant products that are EPA-registered, when used as
directed, the majority of these products incorporate chemicals that can be
toxic, corrosive and potentially damaging to the environment. ESI eliminates the
effectiveness-safety trade-off faced by consumers in the current market
place.
Through a
proprietary formulation method using parachlorometaxylenol (PCMX), the company
offers effective disinfecting solutions with active ingredient concentration
levels at one-to-two orders of magnitude lower than those of other
disinfectants, eliminating any toxic or corrosive effects.
Unlike
many competing products, ESI’s PCMX based chemical emulsion products do not
require special handling or precautions, including no precautions for skin, eye,
pulmonary, oral or dermal irritation. Additionally, products are nonflammable
and environmentally responsible.
Intellectual
Property
We
have not applied for patent protection for our proprietary PCMX formulation or
for our micro-emulsion technology and instead rely upon trade secret protection
for protection of our formula, formulation, micro-emulsion technology and
manufacturing process. We continue to review our intellectual property
protection policy and have evaluated the use of patent versus trade secret
protection for our intellectual property. While we chose not to apply for
patents on our formulation or micro-emulsion technology, in the future we may
seek other available patent protection. In addition, based upon our review of
industry practice, we determined that it is more common to rely upon trade
secret protection, rather than patents to protect intellectual property,
particularly when such intellectual property involves processes such as ours. We
have instituted strict internal procedures to protect the trade secrets and have
confidentiality and non-disclosure agreements in place with our current contract
manufacturers as well as our potential new manufacturing partner.
We will
continue to evaluate our current trade secret protection and may decide in the
future, if available, to submit use or design patents in certain areas that will
not require us to disclose the trade secrets that give our chemical emulsion
products or future potentially patentable derivative products a competitive
advantage. For example, we have several pending patent application for new
product formulas that are produced through more traditional processes than our
chemical emulsion technology. In addition, we submitted both the
early and the current versions of EcoTru® to a
major U.S. de-formulation laboratory to see if they could reverse engineer our
products. Despite their best efforts to reverse engineer our product, they were
not able to provide us with an accurate report of the micro-emulsion ingredients
or manufacturing process. As new products are brought to market, we intend to
carefully analyze each for the methodology to be employed in protection of the
intellectual property.
Pursuant
to an Intellectual Property Assignment Agreement, effective as of July 30,
1996, between EnviroSystems, American Children's Foundation, Richard M. Othus,
Andrew D.B. Lambie and Cascade Chemical Corporation, each of American Children’s
Foundation, Mr. Othus, Mr. Lambie and Cascade Chemical Corporation
irrevocably assigned to us all of their rights to the chemical formula which we
use in the manufacture of our product. In consideration thereof, we agreed to
pay to each of Messrs. Othus and Lambie a royalty equal to 0.25% of gross
revenues received by us from sales of our products throughout the world, less
credits and returns, for as long as we sell products which embody the assigned
formula.
Our
products are sold under a variety of trademarks and trade names. We own all of
the trademarks and trade names we believe to be material to the operation of our
business. EcoTru® is
currently registered in the United States, Japan, and Taiwan. We expect to file
additional registrations in the European Union countries and Canada. Likewise we
have filed to register EnviroTru®,
EquineTru®,
SurfaceTru™
KeraTru™,
GeoTru™ and
Anpath.
Except
for the trademarks referred to above, we do not believe any single trademark is
material to the operations of our business as a whole.
Employees
As of
March 31, 2009, we had a total of 5 full time employees. None of our employees
are represented by a trade union. We anticipate hiring additional full time
employees within the next twelve months.
Customers
We have
traditionally sold the majority of our products to customers in the healthcare
industry, including hospitals, dental offices, physicians' offices, reference
laboratories, long term care facilities and veterinary offices. In addition, we
also have also sold our products to the aviation industry, janitorial industry,
local and federal government, education and customers in the hospitality
industry. For the fiscal year ended March 31, 2009, sales to our top ten
customers represented approximately 98.58%.
Sales,
Marketing, Distribution
Our
strategy has been to market and sell our products primarily through third party
distributors and to a lesser extent through direct sales. For the twelve months
ended March 31, 2009, sales through distributors accounted for approximately
43.72% of our sales. We have entered into distribution agreements with
distributors that service the industry segments that we have targeted for sales
of our products. In the transportation industry, we have entered into a
distribution agreement with Andpak, a distributor to the aviation industry which
markets our EnviroTru™ 1453 and
SurfaceTru™ cleaning
wipes to the same industry.
We have
also entered into distribution agreements with distributors to market our
products outside of the United States. To date we have had minimal international
sales of our products. However, recent sales to both the Korean and
Japanese markets are encouraging.
Our
direct sales efforts were traditionally focused on healthcare
facilities. More recently we have emphasized those locations that
require a disinfectant/cleaner with a strong efficacy and safety profile, such
as transit systems, schools, government facilities and green
buildings. Our efforts are intended primarily to help gain market
acceptance, attract major distributors and establish our Company branding. For
the twelve months ended March 31, 2009, direct sales to customers accounted for
38.87% of our sales.
The
majority of our products are shipped to customers from our contract
manufacturers’ facilities in Minneapolis, MN and Morgan Hill, CA. We
use third party carriers to deliver our products. From time to time, we will
arrange for shipments directly from our contract manufacturer.
Insurance
Matters
We
maintain a general business liability policy and other coverage specific to our
industry and operations. We also maintain general products liability coverage
and directors and officers liability coverage. We believe that our insurance
program provides adequate coverage for all reasonable risks associated with
operating our business.
Corporate
History
We were
incorporated in the State of Delaware in August 2004, and prior to
January 10, 2006, we had no material assets and/or operations. Effective
January 10, 2006, we acquired EnviroSystems, Inc. in a reverse merger
transaction. In connection therewith, we issued to the preferred stockholders of
EnviroSystems 6,400,000 shares of our common stock in exchange for all of the
issued and outstanding preferred stock of EnviroSystems. See “Description of the
Merger” below. Effective as of January 10, 2006 our business became that of
EnviroSystems. On January 12, 2007, we amended our certificate of
incorporation to change our name from Telecomm Communications, Inc. to Anpath
Group, Inc. to more closely align our name with our business.
EnviroSystems
was incorporated in the State of Nevada in 1996 and historically its business
has been the development, marketing and distribution of cleaning and
disinfecting products intended to reduce the spread of infectious disease
without adverse effects to people, equipment or the environment. EnviroSystems'
products were sold into the healthcare, aviation, government and marine industry
segments.
The
Merger
Effective
January 10, 2006, pursuant to the terms of an Agreement and Plan of Merger
(the “Merger
Agreement”), dated as of November 11, 2005 between us, our wholly
owned subsidiary TSN Acquisition Corporation and ESI TSN merged with and into
ESI with ESI as the surviving corporation (the “Merger”).
Pursuant
to the terms of the Merger Agreement, we issued an aggregate of 6,400,000 shares
of our restricted common stock to the holders of ESI preferred stock (including
holders of options and warrants to purchase ESI preferred stock), which we refer
to herein collectively as the “ESI Security holders.” Each outstanding share of
EnviroSystems common stock was cancelled and extinguished in connection with the
Merger. The shares of common stock issued in connection with the merger were
issued in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act
of 1933, as amended (the “Securities Act”) and corresponding provisions of state
securities laws, which exempts transactions by an issuer not involving any
public offering.
ESI
Preferred Stock Conversion
Immediately
prior to the Merger, the ESI preferred stockholders held 2,524,472 shares of ESI
preferred stock and warrants and options to purchase up to an additional 838,850
shares of ESI preferred stock, for an aggregate of 3,363,322 shares of ESI
preferred stock on a fully diluted basis. All of such preferred shares,
including preferred shares underlying options and warrants, were exchanged for
6,400,000 shares of our common stock. Accordingly, of the 6,400,000 shares of
our common stock issued in the Merger, 4,833,469 shares represented shares
issued in exchange for shares of preferred stock, 583,201 shares represented
shares of common stock issuable upon the exercise of warrants to purchase ESI
preferred stock and 983,329 shares represented shares issuable upon the exercise
of options to purchase ESI preferred stock.
Escrow
and Lock-Up Agreement/Settlement Agreement
All
6,400,000 shares of our common stock were placed in an escrow account to be held
according to the terms of an escrow and lock-up agreement (the “Escrow
and Lock-Up Agreement”). Pursuant to the terms of the Escrow and Lock-Up
Agreement, if any options or warrants to purchase ESI preferred stock expire
unexercised, the shares of our common stock that would have been issued to such
holders upon exercise were allocated pro-rata among the remaining ESI preferred
stockholders.
The
Escrow Lock-Up Agreement provided that for a period of one year after the
closing of the Merger, the shares of common stock held in escrow (the “Escrow
Shares”) were available to satisfy indemnification obligations, if any,
of the ESI Security holders under the Merger Agreement to us and to MV Nanotech
Corp. as indemnified parties. Pursuant to the terms of the Escrow and Lock-Up
Agreement, in the event that an indemnified party incurred losses as a result of
a breach of any covenants, agreements, representations or warranties in the
Merger Agreement, then such party has the right to require the ESI Security
holders to deliver out of the escrow account to such indemnified party that
number of Escrow Shares equal in value to the amount of damages.
In
November 2006 we elected to exercise our right to seek indemnification and
sent to representatives of the ESI preferred stockholders, a Claim Notice for
indemnification under the Escrow and Lock-Up Agreement seeking the return of all
6,400,000 Escrow Shares. In July 2007, we settled our claim and entered
into a settlement agreement (the “Settlement
Agreement”), dated as of July 6, 2007 between us, MV Nanotech Corp.
(“MV Nanotech”), The Ferguson Living Trust UTD 8/13/74 (the “Ferguson
Trust”) and Daniel Ferguson in his capacity as the shareholder agent (the
“Shareholder
Agent”), pursuant to which we resolved any and all claims that we or MV
Nanotech may have had against the ESI Security holders or the Escrow Shares with
respect to our Claim Notice. Pursuant to the terms of the Settlement
Agreement, the Ferguson Trust authorized the escrow agent to return to us for
cancellation 2,500,000 Escrow Shares. Upon cancellation of the 2,500,000
Escrow Shares, we issued the Ferguson Trust a warrant to purchase 2,500,000
shares of our common stock at an exercise price of $2.70 per share. In addition,
the Ferguson Trust entered into a lock-up agreement (the “Lock-Up
Agreement”), pursuant to which the Ferguson Trust agreed not to sell or
otherwise transfer any shares of our common stock, including common stock
issuable upon exercise of such options or warrants owned by the Ferguson Trust
for a period of 12 months from the date of the Lock-Up Agreement without our
prior written consent.
Immediately
following the execution and delivery of the Settlement Agreement, we and the
Shareholder Agent instructed the Escrow Agent to immediately release and deliver
to the ESI Security holders certificates representing the remaining Escrow
Shares held pursuant to the Escrow Agreement (other than shares required to be
held by the Escrow Agent for issuance upon exercise of any options or warrants
to purchase ESI preferred stock which shall be otherwise released to the
appropriate party and at the time specified in the Merger Agreement and Escrow
and Lock-Up Agreement). In connection with the settlement and the release of the
Escrow Shares, holders of approximately one million Escrow Shares have
entered into lock-up agreements pursuant to which they have agreed not to sell
the shares of common stock for periods of either 12 to 24 months without our
prior consent.
As of
March 31, 2009, approximately 1,701,703 shares remained in escrow consisting of
3,914 shares issuable upon the exercise of warrants to purchase shares of ESI
preferred stock and 136,187 shares issuable upon the exercise of options to
purchase ESI preferred stock, and 1,561,602 shares of common stock which will be
released upon receipt of transfer documents from the persons who will be
receiving such shares.
Under the
Escrow Lock-Up Agreement, the ESI Security holders are entitled to vote the
Escrow Shares on all matters brought to a vote of our stockholders and shall be
entitled to receive dividends, if and when declared, on our common stock and
have the right to demand registration of their share of common stock if, after
the release of the shares of common stock, such shares are not freely
tradable.
You
should carefully consider the following risk factors and the other information
included herein before investing in our common stock. If any of the following
risks occur, our business, financial condition or results of operations could be
materially and adversely affected. In that case, the trading price of our common
stock could decline, and you could lose all of your investment.
Risks
Related To Our Business
Our
products will continue to be subject to periodic random inspection and testing
by the EPA and we cannot assure that such tests will not result in further EPA
letters of inquiry or other actions.
Our
products will continue to be subject to periodic inspection and testing by the
EPA and other authorities, where applicable, and must comply at all times with
the EPA and state regulations. If we fail an EPA inspection and/or test, or
otherwise fail to comply with statutory and regulatory requirements we
could be subject to possible legal or regulatory action, such as suspension of
sales, suspension of manufacturing, and seizure of products or voluntary recall
of products. Further, such a failure could result in the imposition of market
restrictions through labeling changes or in product removal. If compliance with
regulatory requirements is not maintained or if problems concerning safety or
effectiveness of our products occur following reauthorization by the EPA our
ability to market our products may be withdrawn. Further, if products selected
for random testing by the EPA have not been properly stored, then the EPA tests
may result in a finding that our products do not meet the efficacy standards on
our labels. If EPA testing results in findings that our products do not
meet EPA standards, it could have a material adverse effect on our business,
reputation and results of operation.
We
have not applied for patents on our proprietary technology and instead rely upon
trade secret protection to protect our intellectual property; it may be
difficult and costly to protect our proprietary rights and we may not be able to
ensure their protection.
We have
not applied for patent protection for our proprietary formulas and
micro-emulsion technology and have decided instead to rely upon trade secret
protection to protect such intellectual property. Trade secrets are difficult to
protect and while we use reasonable efforts to protect our trade secrets, we
cannot assure that our employees, consultants, contractors or scientific
advisors will not, unintentionally or willfully, disclose our trade secrets to
competitors or other third parties. In addition, courts outside the United
States are sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop equivalent knowledge, methods and
know-how. If we are unable to defend our trade secrets from illegal use, or if
our competitors develop equivalent knowledge, it could have a material adverse
effect on our business.
Any
infringement of our proprietary rights could result in significant litigation
costs, and any failure to adequately protect our proprietary rights could result
in our competitors' offering similar products, potentially resulting in loss of
a competitive advantage and decreased revenue. Existing patent, copyright,
trademark and trade secret laws afford only limited protection. In addition, the
laws of some foreign countries do not protect our proprietary rights to the same
extent as do the laws of the United States. Therefore, we may not be able to
protect our proprietary rights against unauthorized third party use. Enforcing a
claim that a third party illegally obtained and is using our trade secrets could
be expensive and time consuming, and the outcome of such a claim is
unpredictable. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of resources and could materially
adversely affect our future operating results.
Potential
claims alleging infringement of third party's intellectual property by us could
harm our ability to compete and result in significant expense to us and loss of
significant rights.
From time
to time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to our business.
Any claims, with or without merit, could be time-consuming, result in costly
litigation, divert the efforts of our technical and management personnel, cause
product shipment delays, disrupt our relationships with our customers or require
us to enter into royalty or licensing agreements, any of which could have a
material adverse effect upon our operating results. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us. If a
claim against us is successful and we cannot obtain a license to the relevant
technology on acceptable terms, license a substitute technology or redesign our
products to avoid infringement, our business, financial condition and results of
operations would be materially adversely affected.
To
date we have had significant operating losses, an accumulated deficit and have
had limited revenues and do not expect to be profitable for at least the
foreseeable future, and cannot predict when we might become profitable, if
ever.
We have
been operating at a loss each year since our inception, and we expect to
continue to incur substantial losses for the foreseeable future. As of March 31,
2009, we had an accumulated deficit of approximately $28,921,873. We also
have had limited revenues. Revenues for the twelve months ended March 31, 2009
and March 31, 2008, were $85,969 and $115,284, respectively. Further,
we may not be able to generate significant revenues in the future. In addition,
we expect to incur substantial operating expenses in order to fund the expansion
of our business. As a result, we expect to continue to experience substantial
negative cash flow for at least the foreseeable future and cannot predict when,
or even if, we might become profitable. We will need to generate
significant revenues in order to achieve and maintain profitability. We may not
be able to generate sufficient revenue to fund our operations or achieve
profitability in the future. Even if we do achieve profitability, we may not be
able to sustain or increase profitability. If we are not able to generate
revenues sufficient to fund our operations through product sales or if we are
not able to raise sufficient funds through investments by third parties, it
could result in our inability to continue as a going concern and, as a result,
our investors could lose their entire investment.
We
operate in a highly regulated industry, which may delay the introduction of new
products, cause withdrawal of products from the market, and have other adverse
consequences.
Pursuant
to applicable environmental and safety laws and regulations, we are required to
obtain and maintain certain governmental permits and approvals for our products.
Permits and approvals may be subject to revocation, modification or denial under
certain circumstances. While we believe we are in compliance in all material
respects with such environmental and safety laws, there can be no assurance that
our operations or activities will not result in administrative or private
actions, revocation of required permits or licenses, or fines, penalties or
damages, which could have an adverse effect on us. In addition, we cannot
predict the extent to which any legislation or regulation may affect the market
for our products or our cost of doing business. See “Business - Government
Regulation.”
We
have relied almost entirely on external financing to fund our operations and
acquisitions to date.
Because
we have never generated meaningful revenue and currently operate at a loss, we
are completely dependent on the continued availability of financing in order to
continue our business. There can be no assurance that financing sufficient to
enable us to continue our operations will be available to us. Our failure to
obtain financing or to produce levels of revenue to meet our financial needs
could result in our inability to continue as a going concern and, as a result,
our investors could lose their entire investment.
We
may need to raise capital to fund our operations, and our failure to obtain
funding when needed may force us to delay, reduce or eliminate our product
development efforts.
If in the
future, if we are not capable of generating sufficient revenues from operations
and our capital resources are insufficient to meet future requirements, we may
have to raise funds to continue the commercialization, marketing and sale of our
products. We cannot be certain that funding will be available on acceptable
terms, or at all. To the extent that we raise additional funds by issuing equity
securities, our stockholders may experience significant dilution. Any debt
financing, if available, may involve restrictive covenants that impact our
ability to conduct our business. If we are unable to raise additional capital if
required or on acceptable terms, it may have to significantly delay, scale back
or discontinue the development and/or commercialization of one or more of our
products, restrict our operations or obtain funds by entering into agreements on
unattractive terms.
Our
independent registered auditors have expressed doubt about our ability to
continue as a going concern.
Our
audited financial statements for the fiscal years ended March 31, 2009 and 2008,
each included an explanatory footnote that such financial statements were
prepared assuming that we would continue as a going concern.
We
rely upon third party manufacturers to produce our products which make us
vulnerable to supply disruption, which could harm our business.
We rely
upon third party manufactures to produce our products. If our third party
manufactures are unable to provide us with our products in quantities we require
or that meet our specifications, or if they raise their prices it could have a
material adverse effect on our sales and results of operation. In
addition, in the event of any of the foregoing, we could be required to seek new
manufactures. In such event, we cannot assure that we will find alternative
third party manufactures who will supply us with our products on similar
economic terms, which could increase our costs of goods sold and have an adverse
effect on our sales and results of operations.
In
addition, if our manufactures encounter problems during manufacturing as a
result of, among other things, failure to follow our protocols and procedures,
failure to comply with applicable regulations, or equipment malfunction, any of
which could delay or impede their ability to meet our demand, it could have a
material adverse effect on our business. Further, any interruption or delay in
the supply of products or our inability to obtain such goods from alternate
sources at acceptable prices in a timely manner, could impair our ability to
meet our customers demand and cause them to cancel orders or switch to
competitive products, which would harm our business.
We
rely upon a single supplier for parachlorometaxylenol (PCMX), the active
ingredient in our products.
We rely
upon a single supplier, Clariant Corporation, to provide us with PCMX, which is
the biocide used in our products. Clariant Corporation is one of the largest
suppliers of PCMX in the United States. If Clariant Corporation is unable to
supply us with PCMX in the quantities and on the economic terms that we require,
it could have a material adverse effect on our business. We have no written
agreement with Clariant.
We lack sales, marketing and
distribution capabilities and depend on third parties to market our
product.
We do not
have an internal sales organization dedicated solely to sales and marketing of
our product and therefore we must rely upon third party distributors to market
and sell our product. These third parties may not be able to market our product
successfully or may not devote the time and resources to marketing our product
that we require. We also rely upon third party carriers to distribute and
deliver our product. As such, our deliveries are to a certain extent out of our
control. If we choose to develop our own sales, marketing or distribution
capabilities, we will need to build a marketing and sales force with technical
expertise and with supporting distribution capabilities, which will require a
substantial amount of management and financial resources that may not be
available. If we or a third party are not able to adequately sell and distribute
our product, our business will be materially harmed.
We may face product liability for the
products we manufacture
and sell.
Manufacturing,
marketing and sale of our products may subject us to product liability claims.
We currently have insurance coverage against product liability risks up to an
aggregate annual limit of approximately
$1,000,000. However,
such insurance coverage may not be adequate to satisfy any liability that may
arise. Regardless of merit or eventual outcome, product liability claims may
result in decreased demand for a product, injury to our reputation and loss of
revenues. As a result, regardless of whether we are insured, a product liability
claim or product recall may result in losses that could be material to
us.
Substantially all of our operations
are conducted at a single location. Any disruption at our facility could
adversely affect our operations and increase our
expenses.
Substantially
all of our operations are currently conducted at a single location in
Mooresville, South Carolina. We take precautions to safeguard our facility,
including insurance, health and safety protocols. However, a natural disaster,
such as a fire, flood or earthquake, could cause substantial delays in our
operations, damage or destroy our books and records, computer systems, or
inventory, and cause us to incur additional expenses. The insurance we maintain
against fires, floods, earthquakes and other natural disasters may not be
adequate to cover our losses in any particular case.
We
depend upon third parties to sell our product both in the United States and
internationally and if we are unable to establish sufficient sales and marketing
capabilities or enter into and maintain appropriate arrangements with third
parties to sell, market and distribute our product, our business will be
harmed.
We depend
upon third parties to sell our product both in the United States and
internationally. To achieve commercial success, we must develop sales and
marketing capabilities and enter into and maintain successful arrangements with
others to sell, market and distribute our products. If we are unable
to establish and maintain adequate sales, marketing and distribution
capabilities, independently or with others, we may not be able to generate
product revenue and may not become profitable. If our current or future partners
do not perform adequately, or we are unable to locate or retain partners, as
needed, in particular geographic areas or in particular markets, our ability to
achieve our expected revenue growth rate will be harmed.
We
face competition in our markets from a number of large and small companies, some
of which have greater financial, research and development, production and other
resources than we have.
Our
products face competition from products which may be used as an alternative or
substitute therefore. In addition we compete with several large companies in the
disinfectant business. To the extent these companies, or new entrants into the
market, offer comparable disinfectant products at lower prices, our business
could be adversely affected. Our competitive position is based principally on
our micro-emulsion technology, product quality and product safety. Our
competitors can be expected to continue to improve the design and performance of
their products and to introduce new products with competitive performance
characteristics. There can be no assurance that we will have sufficient
resources to maintain our current competitive position. See “Business -
Competition.”
We
may not be able to manage our growth effectively, which could adversely affect
our operations and financial performance.
The
ability to manage and operate our business as we execute our development and
growth strategy will require effective planning. Significant growth could strain
our internal resources and could adversely affect our financial performance. We
expect that our efforts to grow will place a significant strain on our
personnel, management systems, infrastructure and other resources. Our ability
to manage future growth effectively will also require us to successfully
attract, train, motivate, retain and manage new employees and continue to update
and improve our operational, financial and management controls and procedures.
If we do not manage our growth effectively, our operations could be adversely
affected, resulting in slower growth and a failure to achieve or sustain
profitability.
Our
future success depends on retaining our existing key employees and hiring and
assimilating new key employees. The loss of key employees or the inability to
attract new key employees could limit our ability to execute our growth
strategy, resulting in lost sales and a slower rate of growth.
Our
success depends in part on our ability to retain key employees including our
executive officers. We have only entered into an employment agreement with one
of our executives. Also, we do not currently carry "key man" insurance on our
executives but intend to obtain it in the near future. It would be difficult for
us to replace any one of these individuals. In addition, as we grow we may need
to hire additional key personnel. We may not be able to identify and attract
high quality employees or successfully assimilate new employees into our
existing management structure.
We
cannot predict the impact of our proposed marketing efforts. If these efforts
are unsuccessful we may not earn enough revenue to become
profitable.
Our
success will depend on investing in marketing resources and successfully
implementing our marketing plan. Our proposed business plan includes hiring
marketing personnel and a dedicated sales force and developing a comprehensive
marketing plan for our product. Such a marketing plan may include attending
trade shows and making private demonstrations, advertising and promotional
materials, advertising campaigns in both print and broadcast media, and
advertising/promotion-related operations. We cannot give any assurance that
these marketing efforts will be successful. If they are not, revenues may be
insufficient to cover our fixed costs and we may not become
profitable.
Our business was acquired in January
2006, which means that we have a limited operating history upon which you can base your
investment decision.
Prior to
January 2006, we were a shell company with no operations and minimal assets. In
January 2006, we acquired EnviroSystems and, as a result, our business became
that of EnviroSystems. Accordingly, we have a limited operating history upon
which an evaluation of our prospects can be made. Our strategy is unproven and
the revenue and income potential from our strategy is unproven. We may encounter
risks and difficulties frequently encountered by companies that have grown
rapidly through acquisition, including the risks described elsewhere in this
section. Our business strategy may not be successful and we may not be able to
successfully address these risks. If we are unsuccessful in the execution of our
current strategic plan, we could be forced to reduce or cease our
operations.
Relationship
with Principal Stockholders
Four
holders of our common stock beneficially own approximately 42% of our common
stock (assuming exercise of warrants). As a result, such persons will have
substantial influence in all matters requiring a vote of our stockholders. This
concentration of ownership could also have the effect of delaying or preventing
a change in our control or discouraging a potential acquirer from attempting to
obtain control of us, which in turn could have a material adverse effect on the
market price of the common stock or prevent our stockholders from realizing a
premium over the market price for their shares of common stock.
Our
business may be affected by factors outside of our control.
Our
ability to increase sales, and to profitably distribute and sell our products,
is subject to a number of risks, including changes in our business relationships
with our principal distributors, competitive risks such as the entrance of
additional competitors into our markets, pricing and technological competition,
risks associated with the development and marketing of new products in order to
remain competitive and risks associated with changes in demand for disinfectants
which can be affected by economic conditions, health care reform and government
regulation.
As
a result of our sale of Notes in April through June 2009, we have incurred
significant additional indebtedness and if we are unable to generate sufficient
cash flow from which to make payments on the Notes or out other indebtedness, we
will be required to seek additional financing.
As a
result of our sale of Notes in April through June 2009, we incurred indebtedness
of $895,000 in addition to our prior outstanding indebtedness of
$1,758,210. The degree to which we are leveraged could, among other
things:
|
|
·
|
make
it difficult for us to make payments on our Notes and other
indebtedness;
|
|
|
·
|
make
it difficult for us to obtain financing for working capital, acquisitions
or other purposes on favorable terms, if at
all;
|
|
|
·
|
make
us more vulnerable to industry downturns and competitive pressures;
and
|
|
|
·
|
limit
our flexibility in planning for, or reacting to changes in, our
business.
|
We expect
to incur substantial net operating losses for the foreseeable future and we may
not have sufficient funds to pay any amounts due on any or all of our
indebtedness. If we are unable to pay the amounts due on our
indebtedness, we may be required to refinance all or a portion of the Notes and
our other indebtedness or seek additional financing. There can be no
assurance that we will be able to refinance any of our indebtedness or obtain
additional financing on commercially reasonable terms, if at all. If
we are required to refinance our indebtedness or seek additional financing, we
may be required to severely curtail or cease our operations.
Risks
Related To Our Common Stock
If
we fail to remain current in our reporting requirements, our common stock could
be removed from the OTC Bulletin Board which would limit the ability of
broker-dealers to sell our securities and the ability of our stockholders to
sell their common stock in the secondary market.
In order
for an issuer to have its securities quoted on the OTC Bulletin Board, it must
be required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended. Thereafter, in order to maintain
price quotation privileges on the OTC Bulletin Board, issuers are required to
file complete annual and quarterly reports in a timely fashion. An issuer whose
securities are quoted on the OTC Bulletin Board that fails to file a complete
annual or quarterly by the applicable due date for such report three times
within a two year period, will have its securities removed from the OTC Bulletin
Board and will be ineligible to have their securities quoted on the OTC Bulletin
Board for a one year period. If we fail to remain current on our reporting
requirements for the next two years, we will be removed from the OTC Bulletin
Board. As a result, the market liquidity for our securities could be severely
adversely affected by limiting the ability of broker-dealers to sell our
securities and the ability of stockholders to sell their securities in the
secondary market.
The
price of our common stock may fluctuate significantly, which could lead to
losses for stockholders.
The
securities of public companies can experience extreme price and volume
fluctuations, which can be unrelated or out of proportion to the operating
performance of such companies. We expect our common stock price will be subject
to similar volatility. Any negative change in the public's perception of the
prospects of our company or companies in our market could also depress our
common stock price, regardless of our actual results. Factors affecting the
trading price of our common stock may include:
|
|
·
|
regulatory
actions;
|
|
|
·
|
variations
in our operating results;
|
|
|
·
|
announcements
of technological innovations, new products or product enhancements,
strategic alliances or significant agreements by us or by our
competitors;
|
|
|
·
|
recruitment
or departure of key personnel;
|
|
|
·
|
litigation,
legislation, regulation or technological developments that adversely
affect our business;
|
|
|
·
|
changes
in the estimates of our operating results or changes in recommendations by
any securities analysts that elect to follow our common stock;
and
|
|
|
·
|
market
conditions in our industry, the industries of our customers and the
economy as a whole.
|
If
securities analysts do not publish research or reports about our business or if
they downgrade our stock, the price of our stock could decline.
The
trading market for our common stock may be affected by research and reports that
industry or financial analysts may in the future publish about us or our
business, over which we will have no control. There are many large,
well-established publicly traded companies active in our industry and market,
which means it will unlikely that we will receive widespread, if any, analyst
coverage. Furthermore, if one or more of the analysts who in the future elect to
cover us, downgrade our stock, our stock price would likely decline
rapidly.
We
have no intention to pay dividends on our common stock.
For the
foreseeable future, we intend to retain future earnings, if any, to finance our
operations and do not anticipate paying any cash dividends with respect to our
common stock. As a result, investors should not expect to receive dividends on
any of the shares of our common stock purchased by them, for a long period of
time, if ever.
Our common stock is quoted on the OTC
Bulletin Board and there may be a limited trading market for our common
stock.
Our
common stock is quoted on the OTC Bulletin Board. There is extremely limited and
sporadic trading of our common stock and no assurance can be given, when, if
ever, an active trading market will develop or, if developed, that it will be
sustained. As a result, investors in our common stock may be unable to sell
their shares.
Future
issuances of shares of our common stock pursuant to the exercise of options and
warrants and conversion of convertible securities may decrease the market price
of our common stock.
As of
March 31, 2009, we had 16,203,654 shares of common stock outstanding, which
includes 3,914 shares issuable upon the exercise of warrants and 136,187 shares
issuable upon the exercise of options held in escrow which are issuable to
holders of warrants and options to acquire EnviroSystems preferred stock. If
such options and/or warrants expire unexercised, the shares of common stock
issuable to such holders will be distributed pro rata among the EnviroSystems
Security holders. We also have 637,500 shares of common stock issuable upon
exercise of warrants issued in our January Offering, 2,800,000 shares of
common stock issuable upon the exercise of warrants originally issued to MV
Nanotech Corp., 2,500,000 shares of common stock issuable upon exercise of a
warrant issued pursuant to our Settlement Agreement, 1,500,000 shares of common
stock issuable upon exercise of warrants issued pursuant to a financing
agreement with ANPG Lending, LLC and 1,790,000 shares of common stock issuable
upon the exercise of warrants issued in April through June 2009. In
addition, the Notes issued in April through June 2009 are convertible into up to
1,790,000 shares of common stock. Further, we have up to an
additional 3,700,000 shares of common stock reserved for future issuance under
our 2004 Equity Compensation Plan and our 2006 Incentive Stock Plan. If any of
our stockholders either individually or in the aggregate cause a large number of
securities to be sold in the public market, or if the market perceives that
these holders intend to sell a large number of securities, such sales or
anticipated sales could result in a substantial reduction in the trading price
of shares of our common stock and could also impede our ability to raise future
capital.
The
application of the “penny stock” rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
As long
as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the “penny stock”
rules. The penny stock rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of
$1 million or annual income exceeding $200,000 or $300,000 together with
their spouses). For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of securities and have
received the purchaser’s written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common stock, and may result in decreased
liquidity of our common stock and increased transaction costs for sales and
purchases of our common stock as compared to other securities.
Not
applicable.
Facilities
Our
principal executive offices are located at 116 Morlake Drive, Suite 201,
Mooresville, North Carolina 28117. We entered into a lease for this space, which
is approximately 2,800 square feet in June 2006. The original
term of the lease was for two years commencing on August 15, 2006, with an
option to renew for an additional two years. In August 2008, we
exercise our option and renewed the lease. Rent is $5,200 per month,
with no common charges. We have renegotiated our lease commitment and
after July 31, 2009 we are free to relocate from our current offices, we are
currently in the process of seeking less expensive alternative office
space. As a result of current economic conditions we believe that we
can significantly reduce our monthly cost for our executive
offices.
In
June 2006 we entered into a lease for a laboratory facility in Mentor,
Ohio. The space is approximately 1,440 square feet. The lease has a two year
term, commencing on August 1, 2006 and ending in June 2008 and the
rent is $900 per month.
ITEM 3. LEGAL
PROCEEDINGS.
We are
not a party to any pending legal proceedings.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART
II
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Market
Information
Since
March 6, 2007, our common stock has traded on the OTC Bulletin Board under
the stock symbol “ANPG.” Prior thereto, our common stock had traded on the OTC
Bulletin Board under the stock symbol “TNSW.” The first day on which our shares
were traded was September 1, 2005. The following table shows the reported
high and low closing bid prices per share for our common stock based on
information provided by the OTC Bulletin Board. The over-the-counter market
quotations set forth for our common stock reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
|
High
|
Low
|
|||||||
|
Period
from January 1, 2009 to March 31, 2009
|
$ | 0.30 | $ | 0.15 | ||||
|
Period
from October 1, 2008 to December 21, 2008
|
$ | 0.73 | $ | 0.24 | ||||
|
Period
from July 1, 2008 to September 30, 2008
|
$ | 0.84 | $ | 0.50 | ||||
|
Period
from April 1, 2008 to June 30, 2008
|
$ | 0.90 | $ | 0.50 | ||||
|
Period
from January 1, 2008 to March 31, 2008
|
$ | 1.01 | $ | 0.55 | ||||
|
Period
from October 1, 2007 to December 31, 2007
|
$ | 2.25 | $ | 0.91 | ||||
|
Period
from July 1, 2007 to September 30, 2007
|
$ | 2.25 | $ | 1.60 | ||||
|
Period
from April 1, 2007 to June 30, 2007
|
$ | 3.00 | $ | 1.80 | ||||
Number
of Stockholders
As of
March 31, 2009, there were approximately 650 holders of record of our common
stock.
Dividend
Policy
Historically,
we have not paid any dividends to the holders of our common stock and we do not
expect to pay any such dividends in the foreseeable future as we expect to
retain our future earnings for use in the operation and expansion of our
business .
Recent Sales of Unregistered
Securities
During
the fiscal year ended March 31, 2009 we sold 113,636 shares of restricted
common stock to OGP Group LLC, a Delaware limited liability company (“OGP”) for
aggregate consideration of $100,000 and issued to OGP a five year warrant to
purchase up to an aggregate of 113,636 shares of our common stock at an exercise
price of $0.88 per share pursuant to the terms of a Securities Purchase
Agreement between us and OGP (the “Purchase Agreement”). The
securities were issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. We made this determination based on the representations
by OGP to us in the Purchase Agreement that it was, among other things, an
“accredited investor” within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act, and that it was acquiring such securities for
investment purposes for its own account and not as a nominee or agent, and not
with a view to resale or distribution, and that it understood such securities
may not be sold or otherwise disposed of without registration under the
Securities Act or an applicable exemption therefrom.
|
SELECTED
FINANCIAL DATA.
|
This item
is not applicable because we are a smaller reporting company.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
|
The following discussion and
analysis of our financial condition and results
of operations should be read in conjunction
with our Consolidated Financial Statements and the related notes
included in this report. Those statements in the
following discussion that are not historical in nature should be
considered to be forward-looking statements that are inherently
uncertain. See “Forward-Looking Statements.”
Overview
From our
inception in August 2004, until our acquisition of EnviroSystems in a
reverse merger transaction in January 2006, we had no material assets
and/or business operations. As a result of the merger, EnviroSystems became our
wholly owned subsidiary and our business became that of EnviroSystems.
EnviroSystems was incorporated in the State of Nevada in 1996.
Through
EnviroSystems, we produce disinfecting, sanitizing and cleaning products
designed to help prevent the spread of infectious microorganisms, while
minimizing the harmful effects to people, application surfaces and the
environment. We have developed and have trade secret rights to what
we believe to be a unique and proprietary Parachlorometaxylenol (more commonly
known as PCMX).
We are
exploiting our technology platform to establish a broad product portfolio in the
following categories:
|
·
|
Surface
care products - disinfectants, sanitizers and cleaners (including
wipes);
|
|
·
|
Animal
care products - skin and hoof care treatment and animal
shampoo;
|
|
·
|
Personal
care products – antimicrobial hand soaps, hand sanitizers and facial
scrubs (including wipes); and
|
|
·
|
Geo-Biocides
– biocides for use in the oil and gas
industry.
|
Among our
near-term priorities, we intend to continue to work to reintroduce a hospital
grade disinfectant product to replace the product called EcoTru®. This product
had historically been EnviroSystems’ primary product and accounted for a
majority of its revenue, but was removed from the market in 2006. The
reformulated EcoTru® is expected to demonstrate through testing that it will
effectively kill numerous bacteria, fungi, and viruses, including Hepatitis B
and C, HIV, herpes and influenza. Likewise, in addition to being highly
effective as a disinfectant, our reformulated EcoTru® is expected to occupy a
unique position in the market place in that it will combine this microbial
effectiveness in a disinfectant product which also will have a favorable profile
for health and environmental effects.
Overview
Through
our wholly-owned subsidiary EnviroSystems, Inc., we produce cleaning and
disinfecting products that we believe will help prevent the spread of infectious
microorganisms while minimizing the harmful effects to people, equipment or the
environment.
Products. Our infection
prevention products will target a United States market for infection prevention
products and services estimated at $11.8 billion in 2009. It is further
estimated that consumables/disposables constitute 91% of this market. The total
global demand is believed to be approximately 3-3.5 times that of the U.S. The
demand for disinfectants in the U.S. is estimated to be $2.2 billion to
$2.5 billion in the same period.
Primary
Technology Platform
We have
developed and have trade secret rights to what we believe to be a unique and
proprietary Parachlorometaxylenol (more commonly known as PCMX) based chemical
emulsion biocide technology platform. PCMX has been widely used as an
antimicrobial in surgical hand and skin scrubs. Based on this
technology, we have developed a portfolio of efficacious
disinfectants/sanitizers/cleaners that achieve bio-decontamination without using
toxic & corrosive chemicals. Our PCMX chemical emulsion biocides
have the following characteristics:
|
|
·
|
They
kill a wide range of infectious microorganism, including
MRSA;
|
|
|
·
|
They
minimize harmful effects to people and do not cause skin, eye, pulmonary,
oral or dermal irritation;
|
|
|
·
|
They
are non-corrosive (EnviroTru®/EnviroTru®
1453 are included in the Boeing Qualified Products List (QPL) and conform
with AMS-1452A, 1453 & D6-7127 Aircraft Corrosion Specifications);
and
|
In
addition to the foregoing benefits, we also believe that our proprietary PCMX
chemical emulsion biocide technology will act as a barrier to
competition.
Product Categories
We
believe that the concept of an easy-to-use and effective line of decontaminants
that fits with a favorable environmental profile offers us a unique opportunity
to differentiate our products in multiple infection prevention markets. It is
our intention to use the unique characteristics of our chemical emulsion
technology to build acceptance of our decontaminants as an alternative which is
significantly different from other biocidal products that currently dominate the
marketplace. We are exploiting our technology platform to establish a
broad product portfolio in the following categories:
|
·
|
Surface
care products - disinfectants, sanitizers and cleaners (including
wipes);
|
|
·
|
Animal
care products - skin and hoof care treatment and animal
shampoo;
|
|
·
|
Personal
care products – antimicrobial hand soaps, hand sanitizers and facial
scrubs (including wipes); and
|
|
·
|
Geo-Biocides
– biocides for use in the oil and gas
industry.
|
Surface
Care Products
We
believe that convenience, safety, the effect on air quality and environmental
responsibility are increasingly playing a greater role in the buying decision
for surface cleaners/disinfectants. We believe that consumers in general have
become more health conscious and at the same time have grown more concerned
about the effect that traditional cleaners/disinfectants have on internal and
external environments. Often consumers are required to settle for a
trade-off between effectiveness and environmental friendliness. We
believe that our surface care products will provide consumers with products that
are both efficacious and safe for the environment.
Our
surface care products include the following.
|
·
|
EnviroTru®
Disinfectant
& Cleaner Deodorizer, which is a
multi-purpose, ready-to-use disinfectant, sanitizer and deodorizing
cleaner for use on hard surfaces. EnviroTru® is
effective against numerous organisms without causing any adverse effects
to surfaces, humans or the environment. EnviroTru® is
registered by the Environmental Protection Agency (EPA) and meets EPA
requirements for Toxicity Category IV (minimal effects noted, no
precautionary or first aid statements required; no harmful dermal, ocular,
inhalation or ingestion effects). EnviroTru®
also conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for
non-corrosion and materials compatibility. EnviroTru®
has no special handling requirements, does not require protective
clothing, gloves or special ventilation and is
non-flammable.
|
EnviroTru® is also
effective for use in animal housing facilities, including veterinary clinics,
farms, equine farms, kennels, livestock houses, swine houses, poultry houses and
laboratories. When used as directed, EnviroTru® will
clean, deodorize and disinfect veterinary feeding and watering equipment,
utensils, instruments, cages, kennels, stables, catteries, etc.
|
·
|
EnviroTru®
1453 Disinfectant
& Cleaner Deodorizer, which is a
multi-purpose, ready-to-use disinfectant, sanitizer and deodorizing
cleaner for use on aircraft hard surfaces, including exterior and interior
surfaces such as cabins, toilets, sinks, faucets, counter tops and luggage
compartments. EnviroTru®1453
conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for
non-corrosion and materials compatibility. EnviroTru®1453
is registered by the Environmental Protection Agency (EPA) and meets EPA
requirements for Toxicity Category IV (minimal effects noted, no
precautionary or first aid statements required; no harmful dermal, ocular,
inhalation or ingestion effects). EnviroTru®1453
has no special handling requirements, does not require protective
clothing, gloves or special ventilation and is
non-flammable.
|
|
·
|
SurfaceTru™ Deodorizing
Cleaner, which is a powerful, multi-purpose cleaner and deodorizer
that’s safe for use on a variety of surfaces. SurfaceTru™ is
effective for removing dirt and grime and is gentle to application
surfaces, safe for the user and friendly to the environment. It has no
special handling requirements, does not require protective clothing,
gloves or special ventilation and is
non-flammable.
|
|
·
|
SurfaceTru™
Cleaning & Deodorizing Wipes, which are powerful cleaning and
deodorizing wipes that are packaged in their own individual foil wrappers
for easy portability. Each wipe opens to a large, 9” x 8” durable cloth
with a smooth finish that can be conveniently used on a variety of
surfaces. SurfaceTru™ Wipes can be carried with you for use when an
immediate need for an effective, yet gentle cleaner
arises.
|
|
·
|
Electrostatic
Sprayers. In addition to the foregoing products,
we also market electrostatic sprayers produced by Electrostatic Spraying
Systems, Inc. (“ESS”)
which may be used to apply our liquid surface care products to the target
surfaces. Electrostatic sprayers provide superior spray coverage by more
effectively dispensing solutions compared to conventional sprayers; tests
have demonstrated 4-10 times better coverage. Electrostatic sprayers
operate by producing highly charged spray droplets using a unique embedded
induction electrode design. This induction charging results in spray
droplets that have a force of attraction that is 75 times that of gravity.
This means droplets will reverse direction and move upwards, against
gravity, to coat hidden surfaces, and wrap around objects resulting in
complete, even coverage of the target. When using an electrostatic sprayer
it is possible to deliver ESI’s liquid disinfectants and cleaners to
difficult to reach locations that may harbor disease-causing
microorganisms.
|
In
October 2008, we announced that ESI entered into a prime distributor agreement
with ESS. Using ESS electrostatic sprayers in conjunction with our
EnviroTru®
Disinfectant Cleaner creates an electrostatically charged decontamination system
which provides an efficient system to quickly administer EnviroTru®
Disinfectant Cleaner to large areas, difficult to reach spaces, or to
high-traffic areas that require frequent treatment. This system substantially
improves the bio-availability of EnviroTru®. The
result is reduced manpower costs and simultaneously improved coverage, reducing
the threat of disease-causing microorganisms. In summary, the system
offers an extremely efficient, cost-effective way to realize the advantages of
EnviroTru®.
Future
Surface Care Products
We are
conducting research and development and are planning to reintroduce a hospital
grade disinfectant product to replace one of our earlier products called
EcoTru®. The reformulated disinfectant is expected to demonstrate
through testing that it will effectively kill numerous bacteria, fungi, and
viruses, including MRSA, Hepatitis B and C, HIV, herpes and influenza. Likewise,
in addition to being highly effective as a disinfectant, our reformulated
hospital grade product is expected to occupy a unique position in the market
place, combining this microbial effectiveness in a disinfectant product which
will also have a favorable profile for health and environmental
effects.
Animal
Care Products
We
believe that the microorganism killing properties of our products, combined with
their safety profile, make them ideally suited for use as a topical treatment
for skin ailments caused by microorganisms. We have worked to develop
products for use on animals and have focused initially on the equine market with
the introduction of EquineTru®
Skin and
Hoof Treatment. EquineTru® Skin & Hoof Treatment is an
antiseptic that may be used to rapidly, safely and effectively treat common skin
and hoof conditions caused by microorganisms without irritating a horse’s skin
or drying out its hoofs. The active ingredient used in EquineTru®
Skin and Hoof Treatment, PCMX, has been widely used as an antimicrobial in
surgical hand and skin scrubs and it is successfully used as a topical
antiseptic for skin and mucous membranes. It is also used as a
fungicide in a variety of applications. EquineTru® Skin and Hoof
Treatment has been reviewed and cleared for market by the Center for Veterinary
Medicine (CVM), a division of the U.S. Food and Drug Administration (FDA). Its
use is permitted for United States Equestrian Federation (USEF) and Fédération
Equestre Internationale (FEI) regulated competitions.
Future Animal Care Product
Considerations
We are
working on developing several variations of EquineTru® Skin and
Hoof Treatment for specific application, an animal shampoo and skin treatments
for household pets.
Personal
Care Products
Personal
care products such as antimicrobial hand soaps and hand sanitizers, have
traditionally been purchased by hospitals and health
clinics. However, due to an increased awareness of germs and
transmission of disease, individual consumers as well as institutional buyers
such as health clubs, schools, restaurants and grocery stores are increasingly
purchasing these products. These consumers, however, appear to have
little understanding of the benefits and/or adverse consequences of the products
they choose.
In
response to what we believe will be an increasing market for these products, we
are developing our KeraTru™ Personal
Care line of products which will include hand sanitizers and
antimicrobial soaps. Our KeraTru™ personal
care line of products are safe and include several alcohol free products and we
believe that they are more than or as effective as the leading
brands.
Geo
Biocides
In
response to requests from members of the oil & gas industry for a non-toxic
but effective disinfectant to replace toxic biocides used in hydraulic
fracturing, we developed GeoTru™
Concentrate designed to be used as a “down-hole” biocide in the oil &
gas industry. GeoTru™ Concentrate is a surfactant-based anionic
chemistry with extended shelf life that is effective when used under aerobic or
anaerobic conditions. It is active over a wide pH range and is
non-oxidizing and nonreactive with other down-hole chemistries and designed to
be used particularly in hydraulic fracturing.
Our
headquarters is located at 116 Morlake Drive, Suite 201, Mooresville, North
Carolina 28117. Our telephone number is (704) 658-3350. Our website address
is
www.envirosi.com.
Results
of Operations
Year
Ended March 31, 2009 compared to Year Ended March 31,
2008
Revenues. Our
revenues for the year ended March 31, 2009 and 2008 were $85,969 and
$115,284, respectively. This is a decrease of $29,315. This decrease is directly
attributive to larger initial orders from our distributors to stock
our EnviroTru® and
EnviroTru 1453® which
initially became available for sale in September 2007. Subsequent
reorders from our distributors have been smaller in comparison to the initial
orders placed. Revenues from the sales of SurfaceTru® Cleaning
& Deodorizing Wipes for the year ended March 31, 2009 and 2008 were $25,475
and $53,994. Revenues from the sales of EnviroTru® and
EnviroTru 1453® for
the year ended March 31, 2009 and 2008 were $39,572 and $59,945. Revenues from
the sales of the Electro-Static Sprayer for the year ended March 31, 2009 and
2008 $16,800 and $-0-. The Electro-Static Sprayer was not available for sale in
the prior year.
Revenues
for the year ended March 31, 2009 and 2008 were composed of the
following:
|
Year
Ended March 31,
|
||||||||
|
Products
|
2009
|
2008
|
||||||
|
SurfaceTru®
|
0.79 | % | - | |||||
|
SurfaceTru®
Cleaning & Deodorizing Wipes
|
29.63 | % | 46.85 | % | ||||
|
EnviroTru®
and EnviroTru 1453®
|
45.41 | % | 52.00 | % | ||||
|
EquineTru®
|
4.63 | % | 1.15 | % | ||||
|
Electro-Satic
Sprayer
|
19.54 | % | - | |||||
Cost of Sales. Cost of sales
for the Nine Months ended December 31, 2009 and 2008 were $77,612 and $139,537,
respectively, a decrease of $61,925. As a percentage of revenues, for
the Nine Months ended December 31, 2009 and 2008, cost of sales represented 90%
and 121% of revenues, respectively. Cost of sales for the year ended
March 31, 2009 and 2008 includes $5,019 and $15,840 for disposal cost of
material that scrapped and $10,706 and $46,269 of raw material cost from
inventory we produced prior to our inventory production contract with Minntech.
Under the production contract with Minntech, they are responsible for the
procurement of raw materials. During the year ended March 31, 2009 and 2008,
depreciation expense in the amount of $34,371 and $27,742 was recorded for
manufacturing equipment that sat idle and is included as part of Operating
Expenses on the Consolidated Statement of Operations.
Operating Expenses. Total
operating expenses for the year ended March 31, 2009 and 2008 were
$3,920,599 and $4,543,564, respectively, a decrease of $622,965 or 13.71%. The
decrease was attributed to an increase in marketing and sales department
expenses of $30,440, a decrease in product development expenses of $66,550, a
decrease in corporate expenses of $369,212, a decrease in finance and
administrative expenses of $39,957, a decrease in consulting expenses of
$749,112, a decrease in compensation cost for re-pricing warrants of $349,937
and an increase in financing expenses of $921,363.
Marketing and
Sales. During the year ended March 31, 2009, the Company’s
expenditures on its marketing and sales efforts increased from the prior year.
For the years ended March 31, 2009 and 2008 the costs and expenses in this
area was $339,697 and $309,257, an increase of $30,440 or 9.84%. The
increase in cost includes amounts for an additional sales associate in our sales
department to help in the promotion of our products. Other increases include
amounts spent on advertising and marketing efforts. Decreases included amounts
incurred for consultants in the prior period that were not employed in the
current period.
Product Development. Product
development costs decreased to $433,556 for the year ended March 31, 2009
as compared to $500,106 for the year ended March 31, 2008, a decrease of
$66,550 or 13.31%. This decrease was primarily the result of decreased testing
of our products and development of potential products.
Corporate. Corporate
cost decreased to $729,268 for the year ended March 31, 2009 as compared to
$1,098,480 for the year ended March 31, 2008, a decrease of $369,212 or
33.61%. The decrease is attributed to the intrinsic cost of issuing Stock
options and stock warrants which is calculated using the Black-Scholes Option
pricing model. Expenses related to the Black-Scholes valuation method in the
years ended March 31, 2009 and 2008 amounted to $33,798 and $320,245,
respectively. The decrease also includes the cost of fees paid for
registering our products with the EPA and in the states where our products are
registered and sold and the professional fees paid to process the registrations.
Registration fees and professional fees for the EPA and similar States agencies
were $31,607 and $31,552 for the year ended March 31, 2009 and 2008, a decrease
of 50,055. The decrease also includes a reduction in Directors and Officers
insurance. Directors and Officers insurance was $49,365 and $69,767 for the year
ended March 31, 2009 and 2008, a decrease of 20,402.
Finance and
administrative. Finance and administrative cost decreased to $403,284 for
the year ended March 31, 2009 as compared to $443,241 for the year
ended March 31, 2008, a decrease of $39,957 or 9.02%. Expenses that
decreased from the prior period included fees for professional services of
$45,168 and an increase in compensation expenses of $12,461 for options issued
to employees.
Consulting.
Consultants are usually compensated through the issuance of
restricted stock or the issuance of common stock warrants. Consulting cost
decreased to $261,375 for the year ended March 31, 2009 as compared to
$1,098,480 for the year ended March 31, 2008, a decrease of $749,112 or
68.20%. Restricted stock was issued in the year ended March 31, 2009 and 2008 in
the amounts of $204,500 and $-0-. A portion of the decrease is attributed to the
intrinsic cost of issuing Stock warrants which are calculated using the
Black-Scholes Option pricing model. Expenses related to the Black-Scholes
valuation method in the years ended March 31, 2009 and 2008 amounted to
$56,875 and $940,487, respectively, a decrease of $925,104. In the
years ended March 31, 2009 and 2008 we paid cash compensation of $70,000
and $-0-, respectively.
Compensation Cost for
Re-Pricing Warrants. Compensation Cost for Re-Pricing Warrants decreased
to $582,056 for the year ended March 31, 2009 as compared to $931,993 for
the year ended March 31, 2008, a decrease of $349,937 or 37.55%. The
decrease is attributed to the intrinsic cost of re-pricing of existing warrants
which is calculated using the Black-Scholes Option pricing model. Expenses
related to the Black-Scholes valuation method in the years ended March 31,
2009 and 2008 amounted to $582,056 and $931,933, respectively.
Financing Expense.
Financing cost increased to $1,171,363 from $250,000 for the years ended
March 31, 2009 and 2008, an increase of $921,363 or 368.55%. The
increase is attributed to the intrinsic cost of detachable warrants issued with
convertible debt in the years ended March 31, 2009 and 2008.
Liquidity
and Capital Resources
For the
year ended March 31, 2009, we used $922,166 in operating activities,
compared with $1,968,057 used in operating activities for the year ended
March 31, 2008, a decrease of $1,045,891 or 53.14%. A portion of the
decrease includes increase in the balance of accounts payable and accrued
expenses of $273,798, an increase in the balance of accrued interest payable of
$116,693 and an increase in the balance of wages payable of
$188,840.
We had
net cash provided by financing activities of $581,770 for the year ended
March 31, 2009 compared with $628,608 provided by financing activities for
the year ended March 31, 2008. Cash provided by financing activities for
the year ended March 31, 2009, includes $135,000 in proceeds from the sale
of common stock, $188,560 from the exercise and re-pricing of common stock
warrants, and net proceeds of 258,210 from notes payable.
We had
net cash used in investing activities of $-0- and $21,811 for the year ended
March 31, 2009 and 2008. This amount was used in the purchase of research
equipment for our product development department.
At
March 31, 2009 and 2008, we had cash and cash equivalents available in the
amounts of $11,231 and $351,627, a decrease of $340,396.
Contractual
Obligations
Operating
Leases
We have
entered into two lease agreements for office and laboratory facilities. The
lease agreement for our laboratory facility located in Mentor, Ohio required us
to pay $10,800 for the year July 31, 2007 to July 31, 2008. We are now
leasing this facility on a month to month basis for $917 per month. The lease
for our office space in Mooresville, North Carolina required us to pay $73,200
during the fiscal year ended March 31, 2009. In August 2008, we
renewed this lease and in April 2009 we renegotiated this lease. At September
30, 2009, this lease will terminate and we will be leasing on a month to month
basis for $2,200 per month.
Rent
expense relating to operating space leased was approximately $84,166 and
$111,124 for the years ended March 31, 2009 and 2008, respectively.
Payments
Due by Period
|
Contractual Obligations
|
Total
|
Less
than
1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
|||||||||||||||
|
Office
Lease
|
$ | 35,400 | $ | 35,400 | — | — | — | |||||||||||||
|
Laboratory
Lease (1)
|
— | — | — | — | — | |||||||||||||||
|
Total
Contractual Cash Obligations
|
$ | 35,400 | $ | 35,400 | — | — | — | |||||||||||||
(1) The
laboratory lease has expired and the Company continues leasing these premises on
a month to month basis
Executive Employment
Contracts
The
Company has entered into a three year employment contract with a key Company
executive that provides for the continuation of salary to the executive if
terminated for reasons other than cause, as defined in those agreements. At
January 9, 2009 the contract expired and has not been renewed. The
Company also issued 750,000 stock options to purchase 750,000 common stock
shares at $2.50 per share. All of these were fully vested at March 31,
2009.
Manufacturing
Contract
Effective
August 1, 2006, EnviroSystems, Inc., the wholly owned subsidiary of Anpath
Group, Inc. entered into a manufacturing agreement with Minntech Corporation, a
Minnesota corporation pursuant to which Minntech has agreed to be the exclusive
U.S. manufacturer of EnviroSystems' disinfectant product.
The
Manufacturing Agreement provides the terms and conditions pursuant to which
Minntech will manufacture and supply to ESI all of ESI's requirements for the
Product. Manufacturing of the Product commenced in September 2007. The
Manufacturing Agreement has a term of three years commencing after the first
shipment of commercial quantities of the Product by Minntech to ESI, provides
for automatic one year renewals if not terminated by one of the parties. The
Manufacturing Agreement may be terminated by either party upon 90 days prior
written notice.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements. These statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America. All inter-company balances and transactions have been
eliminated in consolidation.
Use
of estimates in preparation of financial statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, based on
historical experience, and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values 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 following critical
accounting policies rely upon assumptions, judgments and estimates and were used
in the preparation of our consolidated financial statements:
Trade
Secret
The trade
secret of the formula/formulation of EnviroSystems' product, at the time
acquired by us was based upon the valuation of an independent
appraiser.
Impairment
of Long Lived Assets
We assess
potential impairment of our long lived assets, which include our property and
equipment and our identifiable intangibles such as our trade secrets under the
guidance of Statement of Financial Standards No. 144 Accounting for the
Impairment or Disposal of Long Lived Assets. Once annually, or
as events and circumstances indicate that an asset may be impaired, we assess
potential impairment of our long lived assets. We determine impairment by
measuring the undisclosed future cash flows generated by the assets, comparing
the results to the assets' carrying value and adjusting the assets to the lower
of the carrying value to fair value and charging currant operations for any
measured impairment.
Revenue
Recognition
Revenue
is generally recognized and earned when all of the following criteria are
satisfied: a) persuasive evidence of sales arrangements exists; b) delivery has
occurred; c) the sales price is fixed or determinable, and d) collectibility is
reasonably assured.
Persuasive
evidence of an arrangement is demonstrated via a purchase order from our
customers. Delivery occurs when title and all risks of ownership are transferred
to the purchaser which generally occurs when the products are shipped to the
customer. No right of return exists on sales of product except for defective or
damaged products. The sales price to the customer is fixed upon acceptance of
purchase order. To assure that collectibility is reasonably assured we perform
ongoing credit evaluations of all of our customers.
Contingent
Liability
In
accordance with Statement of Financial Accounting Standards Interpretation
No. 14, we may have certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings. We accrue
liabilities when it is probable that future cost will be incurred and such cost
can be measured.
Off
Balance Sheet Arrangements
We
currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
This item
is not applicable because the Company is a smaller reporting
company.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
The full
text of our audited consolidated financial statements for the fiscal year ended
March 31, 2009 begins on page F-1 of this Annual Report.
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
Not
applicable.
|
ITEM 9A
(T).
|
CONTROLS
AND PROCEDURES.
|
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
In
connection with the preparation of this annual report on Form 10K, Anpath’s
management, under the supervision and with the participation of the Company’s
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”), as of the end of the period covered by this
report. Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to management, including the Chief Executive
Officer and the Chief Financial Officer, to allow timely decisions regarding
required disclosures.
During
the evaluation of disclosure controls and procedures as of March 31, 2009,
management identified a material weakness in internal control over financial
reporting, which management considers an integral component of disclosure
controls and procedures. The material weakness identified relates to a lack of
appropriate accounting policies and related procedures. As a result
of the material weakness identified, management concluded that Anpath’s
disclosure controls and procedures were ineffective.
Notwithstanding
the existence of this material weakness, Anpath believes that the consolidated
financial statements in this annual report on Form 10K fairly present, in all
material respects, Anpath’s financial condition as of March 31, 2009 and 2008,
and the results of its operations and cash flows for the years ended March 31,
2009 and 2008, in conformity with United States generally accepted accounting
principles (GAAP).
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Anpath is responsible for establishing and maintaining adequate internal
control over financial reporting. Anpath’s internal control over financial
reporting is a process, under the supervision of the Chief Executive Officer and
the Chief Financial Officer, designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the Company’s
financial statements for external purposes in accordance with United States
generally accepted accounting principles (GAAP). Internal control over financial
reporting includes those policies and procedures that:
|
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of the financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management and the
Board of Directors; and
|
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Anpath’s
management conducted an assessment of the effectiveness of the Company’s
internal control over financial reporting as of March 31, 2009, based on
criteria established in
Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). As a result
of this assessment, management identified a material weakness in internal
control over financial reporting.
A
material weakness is a control deficiency, or a combination of deficiencies, in
internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely
basis.
The
material weakness identified is disclosed below:
Lack of Appropriate Accounting
Policies and Related Procedures. Management has not established
with appropriate rigor accounting policies or procedures for evaluating complex
transactions and determining appropriate application of accounting principles,
including accounting policies related to complex financing transactions such as
convertible debt. As a result, the auditors identified a material
misstatement in the financial statements related to a complex financing
transaction executed by the Company during the fiscal year.
As a
result of the material weakness in internal control over financial reporting
described above, Anpath management has concluded that, as of March 31, 2009,
Anpath’s internal control over financial reporting was not effective based on
the criteria in Internal
Control – Integrated Framework issued by the
COSO.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. We were not required to have, nor have we, engaged our
independent registered public accounting firm to perform an audit of internal
control over financial reporting pursuant to the rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
annual report.
The
Company intends, as capital resources allow, to remedy its material weaknesses
by identifying steps that can be taken in the process of documenting and
evaluating the applicable accounting treatment for non-routine or complex
transactions as they may arise. Despite the Company’s intention to
remedy its material weaknesses in the manner described, the actions required to
accomplish these objectives may require the Company to engage additional
personnel which actions may not be possible in the near term due to our limited
financial resources and operations.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As of the
end of the period covered by this report, there have been no changes in internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act) during the quarter ended March 31, 2009, that materially
affected, or are reasonably likely to materially affect, Anpath internal control
over financial reporting.
|
ITEM
9B.
|
OTHER
INFORMATION.
|
Not
applicable.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
|
Directors
and Executive Officers
Set forth
below are the names, ages, and positions of each of our and EnviroSystems'
executive officers and directors, together with such person's business
experience during the past five (5) years.
|
Name
|
Age
|
Position(s)
|
|
J.
Lloyd Breedlove
|
61
|
President,
Chief Executive Officer, Chairman of the Board of
Directors
|
|
Stephen
Hoelscher
|
50
|
Chief
Financial Officer, Secretary, Director
|
|
Paul
S. Malchesky
|
62
|
Chief
Science Officer, EnviroSystems
|
|
Jeff
Savino
|
55
|
Vice
President, Marketing and Sales,
EnviroSystems
|
J.
Lloyd Breedlove
J. Lloyd
Breedlove has been our and EnviroSystems' President, Chief Executive Officer and
Chairman of the board of directors since January 10, 2006 and since 2004,
he has served as a member of the board of directors of EnviroSystems. From
June 2003 to 2006, he was the President and Chief Executive Officer of
Imalux Corporation a corporation in the medical imaging equipment industry.
Prior thereto, from December 2000 to May 2003 he was the President and
Chief Executive Officer of KIVALO, Inc. a healthcare technology company with
emphasis on disease management. From 1991to 1999, Mr. Breedlove served as
the Executive Vice President and Group President of Steris Corporation, a
developer and manufacturer of infection and contamination control products. From
1989 to 1991, he was the President and Chief Executive Officer of Catheter
Research Inc. (CRI), a developer of a vascular surgery products and prior
thereto he was the Director of Sales and held other sales and management
positions at Mallinckrodt, Inc., a diverse company focusing on supplying
products to the healthcare industry. Mr. Breedlove has a wide range of
experience working with companies in various stages of development from
start-ups to companies with global operations. During Mr. Breedlove's
tenure at Steris, annual sales increased from $13 million to greater than
$820 million. He has served on numerous advisory and corporate boards, with
an emphasis on establishing healthcare businesses. Mr. Breedlove received
an MBA from Western Carolina University. Serving in Viet Nam, he was awarded the
Bronze Star, Bronze Star with Oak Leaf Cluster, Vietnamese Cross of Gallantry,
Air Medal and Purple Heart.
Stephen
Hoelscher
Mr. Hoelscher
has been our and EnviroSystems' Chief Financial Officer, Secretary and a member
of our board of directors since January 10, 2006. Mr. Hoelscher is a
Certified Public Accountant and has 29 years of accounting and auditing
experience. Mr. Hoelscher is a 5% owner of, and also the CFO for, Mastodon
Ventures, Inc., a financial consulting business in Austin, Texas, a position
that he has held since 2000. Mastodon Ventures, Inc. is an affiliate of MV
Nanotech Corp. which previously made loans to us in the aggregate amount of
$850,000, which amount (plus accrued but unpaid interest) was repaid out of the
net proceeds of our private offering completed in January 2006. Since May,
2004, Mr. Hoelscher has also served as the Chief Financial Officer of
EnXnet, Inc, a Tulsa, Oklahoma based publicly traded technology company, and he
has provided accounting consulting services to EnXnet since January 2001.
Mr. Hoelscher will continue to provide limited consultation to Mastodon and
will continue to consult with EnXnet but will devote such time as necessary to
the performance of his duties to us. From 1997 to 2000, Mr. Hoelscher was
the Controller for Aperian, Inc. an Austin, Texas based publicly traded company.
Prior to joining Aperian, he was the controller for Protos Software Company in
Georgetown, Texas from 1996 to 1997. Mr. Hoelscher was Audit Manager with
Brown, Graham and Company, P.C. from 1989 to 1996. Mr. Hoelscher received a
Bachelor of Business Administration from West Texas A&M University (formerly
West Texas State University) in Canyon, Texas in 1981.
Paul
S. Malchesky
Paul S.
Malchesky, D. Eng. has served as the Chief Science Officer of our subsidiary,
EnviroSystems, since January, 2006. Dr. Malchesky is a former Vice President of
Operations and Discovery and Development for NanoScale Materials, Inc. in
Manhattan, KS. Previously, he served as Vice President of Investigational
Research at STERIS Corporation, Mentor, OH, and Staff Member at the Cleveland
Clinic Foundation in Artificial Organs in Cleveland, OH. As an academician, Dr.
Malchesky is Associate Professor of Surgery, Baylor College of Medicine,
Houston, Texas, and Adjunct Staff in Biomedical Engineering, Cleveland Clinic
Foundation, and Adjunct Professor in Chemical Engineering at Kansas State
University. He is also President of the International Center for Artificial
Organs and Transplantation (ICAOT). Dr. Malchesky is also the Editor-in-Chief
of Artificial
Organs and Managing Editor of Therapeutic Apheresis
and Dialysis. He holds a Doctorate in Engineering from
Cleveland State University, M.S. degrees in Chemistry from Case Western Reserve
University and in Chemical Engineering from Cleveland State University and a
B.S. Degree in Chemistry from St. Francis College (PA).
Jeff
Savino
Jeff
Savino has served as the Vice President of Marketing & Sales of our
subsidiary, EnviroSystems, since January, 2006. Mr. Savino has nearly
thirty years of proven experience in medical marketing and sales, spanning from
small to large corporations. His background includes new product introductions,
operations experience, and international commerce and business Most recently he
built and managed a national distribution network at Boehringer Labs.
Previously, Mr. Savino held a number of responsible positions in his ten
years of service with STERIS Corporation, including Vice President,
International Health Care, and Latin American Operations. His marketing and
sales career began with Baxter. Mr. Savino holds a B.S. Degree in Biology
from City University of New York.
Election
of Directors and Officers
Holders
of our common stock are entitled to one (1) vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Cumulative voting with respect to the election of directors is not
permitted by our certificate of incorporation.
The board
of directors shall be elected at the annual meeting of the stockholders or at a
special meeting called for that purpose. Each director shall hold office until
the next annual meeting of stockholders and until the director's successor is
elected and qualified. If a vacancy occurs on the board of directors, including
a vacancy resulting from an increase in the number of directors, then the
stockholders may fill the vacancy at the next annual meeting or at a special
meeting called for the purpose, or the board of directors may fill such
vacancy.
Compensation
of Directors
It is
intended that each member of our board of directors who is not also an employee
(a “non-employee director”) will receive an annual retainer in shares of our
common stock as determined by our board of directors and all directors will be
reimbursed for costs and expenses related to attending meetings of the board of
directors or committees of the board of directors on which they
serve.
Our
employee directors will not receive any additional compensation for serving on
our board of directors or any committee of our board of directors, and our
non-employee directors will not receive any compensation from us for their roles
as directors other than the stock option grants described above.
Committees
of the Board of Directors
Our board
of directors does not have any committees. We do not have a
nominating committee because the board has determined that since the board
consists of two members it was not necessary to have a nominating
committee. Our board of directors, which consists of Mr. Breedlove
and Mr. Hoelscher, participates in the consideration of director
nominees.
Our board
of directors does not have a separately-designated standing audit committee and
our entire board serves as the audit committee. We have not adopted an audit
committee charter or made a determination as to whether any of our directors
would qualify as an audit committee financial expert.
Code
of Ethics.
The
Company has not yet adopted a code of ethics applicable to its chief executive
officer and chief accounting officer, or persons performing those functions,
because of the small number of persons involved in management of the
Company.
Family
Relationships
There are
no family relationships among our officers or directors.
Legal
Proceedings
Based on
our inquiries of all of our officers and directors, we are not aware of any
pending or threatened legal proceedings involving any of our officers or
directors that would be material to an evaluation of our
management.
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
The
following table sets forth certain information concerning all cash and non-cash
compensation awarded to each named executive officer for the fiscal years ended
March 31, 2009 and 2008.
|
|
Nonqualified
|
||||||||||||||||||||||||||||||||
|
|
Non-Equity
|
Deferred
|
All
|
||||||||||||||||||||||||||||||
|
|
Stock
|
Option
|
Incentive
Plan
|
Compensation
|
Other
|
||||||||||||||||||||||||||||
|
Name
and Principal
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|||||||||||||||||||||||||
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||||||||||
|
(A)
|
|||||||||||||||||||||||||||||||||
|
J.
Lloyd Breedlove,
|
2009
|
$
|
260,041
|
(1)
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
260,041
|
|||||||||||||||
|
Pres.,
CEO and
|
2008
|
$
|
260,041
|
$
|
-0-
|
$
|
-0-
|
$
|
242,060
|
(2)
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
502,101
|
|||||||||||||||
|
Director
(1)
|
|||||||||||||||||||||||||||||||||
|
Stephen
Hoelscher,
|
2009
|
$
|
140,016
|
(2)
|
$
|
-0-
|
$
|
-0-
|
$
|
62,885
|
(4)
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
202,901
|
||||||||||||||
|
CFO,
Secretary and Director
|
2008
|
$
|
140,016
|
$
|
-0-
|
$
|
-0-
|
$
|
62,885
|
(4)
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
202,901
|
|||||||||||||||
(A) The
Company used the Black-Scholes option price calculation to value the options
issued to the officers using the following assumptions: risk-free rate of 4.50%;
volatility of 63%; zero dividend yield; the actual exercise term of the options
issued and the exercise price of options issued.
(1) The
company was unable to pay Mr. Breedlove his full salary and all unpaid salary
has been accrued. As of March 31, 2009, Mr. Breedlove’s accrued unpaid executive
compensation was $97,500.
(2) An
option for the purchase of 750,000 shares of common stock at an exercise price
of $2.50 per share was granted to Mr. Breedlove on January 10, 2006. This option
became fully vested and exercisable on January 9, 2008. This option has a
termination date of January 9, 2011.
(3) The
company was unable to pay Mr. Hoelscher his full salary and all unpaid salary
has been accrued. As of March 31, 2009, Mr. Hoelscher’s accrued unpaid executive
compensation was $58,340.
(4) An
option for the purchase of 200,000 shares of common stock at an exercise price
of $2.20 per share was granted to Mr. Hoelscher on December 18, 2006. This
option becomes vested over a four year vesting schedule; 25% at the January 17,
2007and the remainder vesting in 36 equal monthly amounts through December 17,
2010. This option has a termination date of December 17, 2016.
Employment
Agreements
We are
party to an employment agreement with J. Lloyd Breedlove, pursuant to which
Mr. Breedlove agreed to serve as our President, Chief Executive Officer and
Chairman of the Board, effective January 10, 2006. The agreement has a 3
year term, commencing as of January 10, 2006. The agreement provides for a
base salary of $225,000 during the first year of its term and $250,000 during
each of the second and third years of its term. In addition, we paid to
Mr. Breedlove a signing bonus of $50,000 and granted to Mr. Breedlove
4 year options to purchase up to 750,000 shares of our common stock at an
exercise price of $2.50 per share, vesting over a three year period in equal
installments. Under the agreement, we have the right to terminate
Mr. Breedlove without cause upon 12 months prior written notice. If
Mr. Breedlove is terminated without cause by us, he will be entitled to
receive a lump sum payment equal to the lesser of 12 months of the base salary
then in effect or the balance of this base salary due under the agreement for
the remainder of the term of the agreement. In addition, Mr. Breedlove is
entitled to participate in all our benefit programs in effect during the term of
the agreement Mr. Breedlove’s employment agreement expired in January 2009 and
has not been renewed as of march 31, 2009.
Other
Compensation
In
addition to our employment agreement with J. Lloyd Breedlove, we pay
Mr. Hoelscher $140,000 per year in consideration for Mr. Hoelscher
serving as our Chief Financial Officer. We have not entered into an employment
agreement with Mr. Hoelscher.
In
connection with their hiring, we granted to each of Dr. Malchesky and
Mr. Savino, options under our 2006 Stock Incentive Plan to purchase up to
200,000 shares of our common stock at an exercise price of $1.55 per
share.
We may
also issue to our officers and directors stock options on terms and conditions
to be determined by the Compensation Committee of our board of
directors.
Stock
Option Plans
2004
Equity Compensation Plan
We
adopted our 2004 Equity Compensation Plan on September 1, 2004. The plan
provides for the grant of options intended to qualify as “incentive stock
options”, options that are not intended to so qualify or “nonstatutory stock
options” and restricted stock. The total number of shares of common stock
reserved for issuance under the plan is 1,300,000 shares, subject to adjustment
in the event of stock split, stock dividend, recapitalization or similar capital
change. No grants have been made under the plan.
The plan
is administered by our board of directors, which selects the eligible persons to
whom options or stock awards shall be granted, determines the number of shares
subject to each option or stock award, the exercise price therefore and the
periods during which options are exercisable, interprets the provisions of the
plan and, subject to certain limitations, may amend the plan. Each option or
stock award granted under the plan shall be evidenced by a written agreement
between us and the optionee.
Grants
may be made to our employees (including officers) and directors and to certain
consultants and advisors.
The
exercise price for incentive stock options granted under the plan may not be
less than the fair market value of the common stock on the date the option is
granted, except for options granted to 10% stockholders which must have an
exercise price of not less than 110% of the fair market value of the common
stock on the date the option is granted. The exercise price for nonstatutory
options is determined by the Compensation Committee of our board of directors.
Incentive stock options granted under the plan have a maximum term of ten years,
except for grants to 10% stockholders which are subject to a maximum term of
five years. The term of nonstatutory stock options is determined by the
Compensation Committee of our board of directors. Options granted under the plan
are not transferable, except by will and the laws of descent and
distribution.
2006
Stock Incentive Plan
In
connection with the merger, our board of directors adopted, subject to
stockholder approval, the 2006 Stock Incentive Plan (the “2006 Plan”). The 2006
Plan was approved by our stockholders of record as November 15, 2006 at our
special meeting of stockholders which occurred on January 8, 2007. The 2006
Plan provides for the grant of incentive stock options, non-statutory stock
options, restricted stock awards and stock appreciation rights. The number of
shares of common stock that may be issued under the 2006 Plan is 2,400,000
shares.
The 2006
Plan is administered by our board of directors, which will select the eligible
persons to whom options or stock awards shall be granted, determine the number
of shares subject to each option or stock award, the exercise price therefore
and the periods during which options are exercisable, interpret the provisions
of the plan and, subject to certain limitations, may amend the plan. Each option
or stock award granted under the plan shall be evidenced by a written agreement
between us and the optionee.
Grants
may be made to our employees (including officers) and directors and to certain
consultants and advisors.
The
exercise price for incentive stock options granted under the 2006 Plan may not
be less than the fair market value of the common stock on the date the option is
granted, except for options granted to 10% stockholders which must have an
exercise price of not less than 110% of the fair market value of the common
stock on the date the option is granted. The exercise price for nonstatutory
options will be determined by the Compensation Committee of our board of
directors. Incentive stock options granted under the 2006 Plan will have a
maximum term of ten years, except for grants to 10% stockholders which are
subject to a maximum term of five years. The term of nonstatutory stock options
will be determined by the Compensation Committee of our board of directors.
Options granted under the plan are not transferable, except by will and the laws
of descent and distribution.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
OPTION
AWARDS
Number of
Securities Underlying Unexercised Options (#)
|
Name
|
Exercisable
(Vested)
|
Unexercisable
(Uvested)
|
Option Exercise Price
($)
|
Option
Expiration Date
|
|||||||||
|
J.
Lloyd Breedlove
|
750,000 | (1) | -0- | $ | 2.50 |
01/10/2011
|
|||||||
|
Stephen
Hoelscher
|
150,000 | (2) | 50,000 | $ | 2.20 |
12/17/2016
|
|||||||
(1) An
option for the purchase of 750,000 shares of common stock at an exercise price
of $2.50 per share was granted to Mr. Breedlove on January 10, 2006. This option
became fully vested and exercisable on January 9, 2008. This option has a
termination date of January 9, 2011.
(2) An
option for the purchase of 200,000 shares of common stock at an exercise price
of $2.20 per share was granted to Mr. Hoelscher on December 18, 2006. This
option becomes vested over a four year vesting schedule; 25% at the January 17,
2007and the remainder vesting in 36 equal monthly amounts through December 17,
2010. This option has a termination date of December 17, 2016.
OPTIONS
EXERCISED and STOCK VESTED
No
named executive officer exercised options in the fiscal years ended March
31, 2009 or March 31, 2008. Options held by the following named executive
officers vested during the years ended:
|
March
31,
|
March
31,
|
|||||||
|
Name
|
2009
|
2008
|
||||||
|
J.
Lloyd Breedlove
|
-0-
|
250,000
|
||||||
|
Stephen
Hoelscher
|
50,000
|
50,000
|
||||||
Compensation
of Directors
|
DIRECTOR
COMPENSATION
|
||||||||||||||||||||||||||||
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Non-Qualified
Deferred Compensation Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
J.
Lloyd Breedlove (1)
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Stephen
Hoelscher (1)
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Stephen
A. Schneider (2)
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Paul
A. Boyer (2)
|
— | — | $ | 2,088 | — | — | — | $ | 2,088 | |||||||||||||||||||
|
David
V. Gilroy (2)
|
— | — | $ | 2,088 | — | — | — | $ | 2,088 | |||||||||||||||||||
(1) Board
members who are also officers are not individually compensated for being on the
Board of Directors.
(2) Mr.
Schneider, Mr. Boyer, and Mr. Gilroy resigned from the Board of Directors on
March 5, 2009.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table shows information about securities authorized for issuance under
our equity compensation plans as of March 31, 2009:
|
Plan
Category
|
Number
of
Securities
to
be
issued upon
exercise
of
outstanding
options
(a)
|
Weighted-
average
exercise
price
of
outstanding
(b)
|
Number
of Securities
remaining
for future issuance
under
equity compensation
plans
(excluding securities
reflected
in column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
1,390,000 | $ | 2.34 | 2,310,000 | * | |||||||
|
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
1,390,000 | $ | 2.34 | 2,310,000 | ||||||||
*
Represents remaining shares issuable under the 2004 Equity Compensation Plan and
the 2006 Stock Incentive Plan.
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
The
following table sets forth certain information as of June 29, 2009 regarding the
beneficial ownership of our common stock by (i) each person who, to our
knowledge, beneficially owns more than 5% of our Common Stock; (ii) each of our
directors and named executive officers; and (iii) all of our named executive
officers and directors as a group:
|
Name
and address of Beneficial Owner
|
Amount
(1)
|
Percent
of
Class
|
||||||
|
Directors
and Named Executive Officers (2):
|
||||||||
|
J.
Lloyd Breedlove (3)
|
1,128,545 | 6.4 | % | |||||
|
Stephen
Hoelscher (4)
|
284,024 | 1.7 | % | |||||
|
All
directors and named executive officers as a group (two
persons)
|
1,413,569 | 8.1 | % | |||||
|
Other
5% or Greater Beneficial Owners
|
||||||||
|
The
Ferguson Living Trust UDT 8/13/74 (5)
2100
Gold Street
San
Jose, CA 95164
|
2,915,562 | 15.0 | % | |||||
|
Alma
and Gabriel Elias (6)
509
Spring Avenue
Elkins
Park, PA 19027
|
1,485,000 | 8.7 | % | |||||
|
Other
Stockholders
|
||||||||
|
MV
Nanotech Corp. (7)
600
Congress Avenue, Suite 1220
Austin,
TX 78701
|
241,753 | 1.4 | % | |||||
|
ANPG
Lending LLC (8)
c/o
Romulus Holdings
2200
Fletcher Avenue
Fort
Lee, NJ 07024
|
3,224,137 | 4.9 | % | |||||
|
(1)
|
Beneficial
ownership is calculated based on 16,503,654 shares of our common stock
issued and outstanding as of June 29, 2009. Beneficial ownership is
determined in accordance with Rule 13d-3 of the Securities and
Exchange Commission. The number of shares beneficially owned by a person
includes shares of common stock subject to options or warrants held by
that person that are currently exercisable or exercisable within 60 days
following the date hereof. The shares issuable pursuant to those options
or warrants are deemed outstanding for computing the percentage
ownership of the person holding these options and warrants but are not
deemed outstanding for the purposes of computing the percentage
ownership of any other person. The persons and entities named in the table
have sole voting and sole investment power with respect to the shares set
forth opposite the stockholder's name, subject to community property laws,
where applicable.
|
|
(2)
|
The
address for the directors and named executive officers is c/o Anpath
Group, Inc., 116 Morlake Drive, Suite 201, Mooresville, North Carolina
28117.
|
|
(3)
|
Includes
200,775 common stock shares, 750,000 shares of common stock issuable upon
the exercise of options at an exercise price of $2.50 per share and
116,146 shares of common stock issuable upon the exercise of options
at an exercise price of $0.88 per share. Also includes 62,624 shares of
common stock issuable upon exercise of options to purchase shares of
EnviroSystems preferred stock, using a conversion ratio of 1.956994 shares
of our common stock for each share of EnviroSystems preferred stock
issuable upon exercise. Mr. Breedlove holds options to purchase
32,000 shares of EnviroSystems preferred stock which are exercisable to
purchase up to 62,624 shares of our common stock based on the conversion
ratio. Such number of shares was determined assuming the exercise of all
options and warrants to purchase EnviroSystems preferred stock. In the
event such options and/or warrants expire without being exercised, then
any shares of common stock issuable upon exercise shall be distributed
pro-rata among the EnviroSystems preferred stockholders. In the event of
such a pro-rata distribution, Mr. Breedlove would be eligible to
receive additional shares of common stock. This amount does not include
750,000 shares of common stock issuable upon the exercise of options at an
exercise price of $0.24 per share which have not
vested.
|
|
(4)
|
Includes
110,540 common stock shares, 166,666 shares of common stock issuable upon
the exercise of options at an exercise price of $2.20 per share and
6,818 shares of common stock issuable upon the exercise of options at
an exercise price of $0.88 per share. Mr. Hoelscher is a 5% owner and
the CFO of Mastodon Ventures, Inc. Such shares do not include the shares
of common stock issuable upon exercise of warrants to purchase common
stock held by MV Nanotech Corp, a subsidiary of Mastodon Ventures, Inc.
This amount does not include 33,334 shares of common stock issuable upon
the exercise of options at an exercise price of $2.20 per share which have
not vested. This amount does not include 200,000 shares of common stock
issuable upon the exercise of options at an exercise price of $0.24 per
share which have not vested.
|
|
(5)
|
Includes
2,500,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock. Also includes 415,562 shares of common stock issued
in exchange for shares of EnviroSystems preferred
stock.
|
|
(6)
|
Includes
1,000,000 shares of common stock owned by Alma and Gabriel Elias and also
includes 485,000 shares of common stock owned by Wholesale Realtors
Supply. Gabriel Elias has voting control over the shares held by Wholesale
Realtors Supply.
|
|
(7)
|
Includes
241,753 shares of common stock issuable upon the exercise of warrants held
by MV Nanotech Corp.
|
|
(8)
|
Such
shares include 735,000 shares of common stock out of a total of
approximately 3,224,137 shares of common stock issuable upon the
conversion of convertible promissory notes (the “Notes”) and 1,500,000
issuable upon the exercise of warrants (the “Warrants”). The Notes have an
aggregate principal balance of $1,500,000 and are convertible into shares
of common stock at a price of $0.87 per share, subject to adjustment
pursuant to anti-dilution provisions in the Notes. The Warrants have an
exercise price of $0.87 per share, subject to adjustment pursuant to
anti-dilution provisions in the Warrants. The Notes and Warrants have
limits on exercise and conversion. According to the terms of the Notes and
the Warrants held by ANPG Lending LLC, it is prohibited from converting
the Notes or exercising its Warrants if after such exercise or conversion,
ANPG Lending LLC’s percentage ownership of common stock would exceed
4.9%. If there were no such restrictions in the Notes and Warrants, and
ANPG Lending LLC had the right to exercise such Notes and Warrants for all
3,224,137 shares, ANPG Limited LLC would be deemed to own approximately
16.3% of our common stock.
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Certain
Relationships and Related Party Transactions
Other than
the compensation and employment arrangements described
above, we have not entered into
any transactions with any of our directors or executive
officers or their immediate family members during the fiscal ended March 31,
2009.
Director
Independence
The
Company’s board of directors reviewed the independence of the directors using
the criteria established by the American Stock Exchange. As of March 31,
2009, the Board determined that none of its directors are independent based upon
such criteria.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Williams
& Webster, P.A. was our independent registered public accounting firm for
fiscal years ended March 31, 2009 and 2008. Set forth below are the fees
and expenses for Williams & Webster, P.A. for each of the last two years for
the following services provided to us:
|
2009
|
2008
|
|||||||
|
Audit
Fees
|
$ | 65,130 | $ | 45,844 | ||||
|
Audit
Related Fees
|
— | — | ||||||
|
Tax
Fees
|
— | — | ||||||
|
All
Other Fees
|
— |
—
|
||||||
Except as
described above, we have not been billed for any services by Williams &
Webster, P.A. Our Board of Directors acts as our audit committee. Our Board of
Directors has not authorized Williams & Webster, P.A. to provide any other
services for us.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
| (a) |
(1)
|
Financial Statements. |
The
financial statements listed in the Index to Consolidated Financial Statements
appearing on page F-1 of this Form 10K are filed as a part of this
report.
|
(2)
|
Financial Statement Schedules |
There are
no financial statement schedules included in this annual report.
|
(3)
|
The
exhibits listed below are filed as part of this annual
report.
|
|
Exhibit
Number
|
Exhibit Description
|
|
|
3.1
|
Composite
Certificate of Incorporation (11)
|
|
|
3.2
|
By-Laws
(1)
|
|
|
4.1
|
Specimen
Certificate of Common Stock (1)
|
|
|
4.2
|
Form of
Warrant (5)
|
|
|
4.3
|
Warrant,
dated July 6, 2007 (8)
|
|
|
4.4
|
Form of
Note (10)
|
|
|
4.5
|
Form of
Warrant (10)
|
|
|
10.1
|
2004
Equity Compensation Plan (1)
|
|
|
10.2
|
Securities
Purchase Agreement, dated as of October 31, 2005 between MV Nanotech
Corp. and Telecomm Sales Network, Inc. (2)
|
|
|
10.3
|
Agreement
and Plan of Merger, dated as of November 11, 2005 by and between
Telecomm, TSN Acquisition Corporation and EnviroSystems, Inc. (Nonmaterial
schedules and exhibits identified in the Agreement and Plan of Merger have
been omitted pursuant to Item 601b.2 of Regulation S-K. Telecomm
Sales Network, Inc. agrees to furnish supplementally to the Commission
upon request by the Commission a copy of any omitted schedule or exhibit.)
(3)
|
|
|
10.4
|
Escrow
and Lock-Up Agreement, dated as of November 11, 2005 by and between
Telecomm, Daniel Ferguson, as shareholder agent, EnviroSystems and Jerold
K. Levien, Esq. as escrow agent.(4)
|
|
|
10.5
|
Form of
Registration Rights Agreement between Telecomm Sales Network, Inc. and the
other signatories thereto. (5)
|
|
|
10.6
|
Commercial
Lease Agreement dated June 6, 2006 by and between Morlake Executive
Suites and EnviroSystems, Inc. (5)
|
|
|
10.7
|
Telecomm
Sales Network, Inc. 2006 Stock Incentive Plan (5)+
|
|
|
10.8
|
Form of
Incentive Stock Option Agreement (5)+
|
|
|
10.9
|
Form of
Non-Qualified Stock Option Agreement (5)+
|
|
|
10.10
|
Form of
Restricted Stock Agreement (5)+
|
|
|
10.11
|
Employment
Agreement made as of January 19, 2006 between Telecomm Sales Network,
Inc. and J. Lloyd Breedlove(4)
|
|
|
10.12
|
Manufacturing
Agreement dated as of August 1, 2006 between EnviroSystems, Inc. and
Minntech Corporation (6) *
|
|
|
10.13
|
Intellectual
Property Assignment Agreement between EnviroSystems, Inc. American
Children’s Foundation, Richard H. Othus, Andrew D.B. Lambie and Cascade
Chemical Corporation.(9)
|
|
|
10.14
|
Consent
Agreement and Final Order with United States Environmental Protection
Agency (6)
|
|
|
10.15
|
Securities
Purchase Agreement dated as of March 7, 2007 between MV Nanotech
Corp., the Singer Children’s Management Trust and, solely with respect to
sections 4 and 8, Anpath Group, Inc.
|
|
|
10.16
|
Settlement
Agreement dated as of July 6, 2007 by and among Anpath Group, Inc.,
MV Nanotech Corp. and The Ferguson Living Trust UTD 8/13/74 and Daniel
Ferguson in his capacity as Shareholder Agent (8)
|
|
|
10.17
|
Lock-Up
Agreement made and entered into as of July 6, 2007
(8)
|
|
|
10.18
|
Loan
and Security Agreement dated as of January 8, 2008 by and between
Anpath Group, Inc. and ANPG Lending LLC (without exhibits or
schedules).(10)
|
|
|
10.19
|
Securities
Repurchase Agreement dated as of January 8, 2008 by and between
Anpath Group, Inc, ANPG Lending LLC and the Singer Children’s Management
Trust (without exhibits or schedules) (10).
|
|
|
10.20
|
||
|
10.21
|
||
|
10.22
|
||
|
10.23
|
||
|
21.1
|
||
|
31.1
|
||
|
31.2
|
||
|
32.1
|
||
|
(1)
|
Filed
as an exhibit to the registrant’s Registration Statement on Form SB-2
filed on March 16, 2005 and incorporated herein by
reference.
|
|
(2)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
November 11, 2005 and incorporated herein by
reference.
|
|
(3)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
November 17, 2005 and incorporated herein by
reference.
|
|
(4)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
January 12, 2006 and incorporated herein by
reference.
|
|
(5)
|
Filed
as an exhibit to the registrant’s Transition Report on Form 10KSB
filed on June 29, 2006 and incorporated herein by
reference.
|
|
(6)
|
Filed
as an exhibit to the registrant’s Form 10-QSB for the quarter ended
September 30, 2006 filed on November 15,
2006.
|
|
(7)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
January 17, 2007 and incorporated herein by
reference.
|
|
(8)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
July 10, 2007 and incorporated herein by
reference.
|
|
(9)
|
Filed
as an exhibit to Amendment 2 to the registrant’s registration statement on
Form SB-2 filed on April 16, 2007 and incorporated herein by
reference.
|
|
(10)
|
Filed
as an exhibit to the registrant’s Current Report on Form 8-K filed on
January 14, 2008 and incorporated herein by
reference
|
|
(11)
|
Filed
as an exhibit to the registrant’s Transition Report on Form 10K filed
on July 9, 2008 and incorporated herein by
reference.
|
|
(12)
|
Filed
herein
|
+ Denotes
a management contract or compensatory plan or arrangement
* Pursuant to a request for
confidential treatment which has been granted by the SEC, certain confidential
portions of this document have been omitted and furnished separately to the SEC
in accordance with Rule 406(b).
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
July
10, 2009
|
ANPATH
GROUP, INC.
|
|
By:
/s/ J. Lloyd
Breedlove
|
|
|
Name:
J. Lloyd Breedlove
|
|
|
Title:
President and CEO
|
|
In
accordance with the Securities Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
|
July
10, 2009
|
/s/
J. Lloyd
Breedlove
|
|
J.
Lloyd Breedlove, President, Chief Executive Officer and Director
(principal executive officer)
|
|
|
July
10, 2009
|
/s/
Stephen
Hoelscher
|
|
Stephen
Hoelscher, Chief Financial Officer and Director (principal financial and
accounting officer)
|
|
To the
Board of Directors and
Stockholders
of Anpath Group, Inc.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We have
audited the accompanying consolidated balance sheets of Anpath Group, Inc. and
subsidiaries as of March 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then
ended. 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 audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Anpath Group, Inc. and subsidiaries
as of March 31, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses and has an
accumulated deficit at March 31, 2009 and 2008. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
July 10,
2009
|
Year
Ended
|
||||||||
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 11,231 | $ | 351,627 | ||||
|
Accounts
receivable, net
|
10,241 | 16,880 | ||||||
|
Prepaid
expenses
|
4,817 | 96,061 | ||||||
|
Inventory
|
22,354 | 49,399 | ||||||
|
TOTAL
CURRENT ASSETS
|
48,643 | 513,967 | ||||||
|
PROPERTY
AND EQUIPMENT
|
||||||||
|
Furniture
& fixtures
|
205,694 | 205,694 | ||||||
|
Machinery
& equipment
|
195,137 | 195,137 | ||||||
|
Capitalized
software
|
3,210 | 3,210 | ||||||
|
Less
accumulated depreciation
|
(205,676 | ) | (138,712 | ) | ||||
|
TOTAL
FIXED ASSETS
|
198,365 | 265,329 | ||||||
|
OTHER
ASSETS
|
||||||||
|
Trade
secrets
|
1,026,000 | 1,026,000 | ||||||
|
Deposits
|
198,082 | 244,338 | ||||||
|
TOTAL
OTHER ASSETS
|
1,224,082 | 1,270,338 | ||||||
|
TOTAL
ASSETS
|
$ | 1,471,090 | $ | 2,049,634 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 395,525 | $ | 121,727 | ||||
|
Accrued
interest payable
|
135,570 | 23,877 | ||||||
|
Wages
payable
|
188,840 | — | ||||||
|
Current
maturities of long term debt, net of discount
|
1,484,357 | — | ||||||
|
TOTAL
CURRENT LIABILITIES
|
2,204,292 | 145,604 | ||||||
|
LONG
TERM LIABILITIES
|
||||||||
|
Notes
payable, net of discount
|
— | 250,000 | ||||||
|
TOTAL
LONG TERM LIABILITIES
|
— | 250,000 | ||||||
|
TOTAL
LIABILITIES
|
— | 395,604 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
— | — | ||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Preferred
stock, $0.0001 par value; 5,000,000 shares authorized,
|
||||||||
|
no
shares issued and outstanding
|
— | — | ||||||
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized,
|
||||||||
|
16,203,654
and 14,249,889 shares issued and outstanding
|
1,620 | 1,425 | ||||||
|
Additional
paid-in capital
|
28,863,063 | 27,226,561 | ||||||
|
Accumulated
deficit
|
(29,597,885 | ) | (25,573,956 | ) | ||||
|
TOTAL
STOCKHOLDERS' EQUITY
|
(733,202 | ) | 1,654,030 | |||||
|
TOTAL
LIABILITIES AND
|
||||||||
|
STOCKHOLDERS'
EQUITY
|
$ | 1,471,090 | $ | 2,049,634 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
ANPATH
GROUP, INC
Consolidated
Statements of Operations
For
the fiscal years ended March 31, 2009 and 2008
|
Years
Ended
|
||||||||
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUES
|
$ | 85,969 | $ | 115,284 | ||||
|
COST
OF SALES
|
77,612 | 139,537 | ||||||
|
Gross
Profit
|
8,357 | (24,253 | ) | |||||
|
EXPENSES
|
||||||||
|
Sales
|
339,697 | 309,257 | ||||||
|
Product
development
|
433,556 | 500,106 | ||||||
|
Corporate
|
729,268 | 1,098,480 | ||||||
|
Finance
and administrative
|
403,284 | 443,241 | ||||||
|
Consultants
|
261,375 | 1,010,487 | ||||||
|
Compensation
cost for re-pricing warrants
|
582,056 | 931,993 | ||||||
|
Financing
expense
|
1,171,363 | 250,000 | ||||||
|
Total
Expenses
|
3,920,599 | 4,543,564 | ||||||
|
LOSS
FROM OPERATIONS
|
(3,912,242 | ) | (4,567,817 | ) | ||||
|
OTHER
INCOME (EXPENSE)
|
||||||||
|
Interest
expense
|
(111,693 | ) | (23,877 | ) | ||||
|
Interest
income
|
6 | 17,742 | ||||||
|
Impairment
of long lived assets
|
— | (374,000 | ) | |||||
|
Total
Other Income (Expense)
|
(111,687 | ) | (380,135 | ) | ||||
|
LOSS
BEFORE TAXES
|
(4,023,929 | ) | (4,947,952 | ) | ||||
|
INCOME
TAX EXPENSE
|
— | (349 | ) | |||||
|
NET
LOSS
|
$ | (4,023,929 | ) | $ | (4,948,301 | ) | ||
|
BASIC
AND DILUTED NET LOSS PER SHARE
|
$ | (0.28 | ) | $ | (0.33 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF
|
||||||||
|
COMMON
SHARES OUTSTANDING,
|
||||||||
|
BASIC
AND DILUTED
|
14,650,443 | 14,793,058 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
ANPATH
GROUP, INC
Consolidated
Statements of Shareholders' Equity
For
fiscal years ended March 31, 2009 and 2008
|
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Stockholders'
|
||||||
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
Equity
|
||||||
|
Balance,
March 31, 2007
|
16,299,889
|
$
|
1,630
|
$
|
23,789,948
|
$
|
(20,625,655)
|
$
|
3,165,923
|
|
|
Common
stock issued at a price of $1.25 per sharein the exercise of
warrants
|
200,000
|
20
|
249,980
|
—
|
250,000
|
|||||
|
Common
stock issued for services
|
500,000
|
50
|
877,450
|
—
|
877,500
|
|||||
|
Common
stock surrendered in Settlement Agreement
|
(2,500,000)
|
(250)
|
250
|
—
|
—
|
|||||
|
Common
stock purchased and held in Treasury
|
(250,000)
|
(25)
|
(624,975)
|
—
|
(625,000)
|
|||||
|
Stock
options granted and warrants issued
|
—
|
—
|
2,001,915
|
—
|
2,001,915
|
|||||
|
Warrants
re-priced
|
—
|
—
|
931,993
|
—
|
931,993
|
|||||
|
Net
loss for the year ended March 31, 2008
|
—
|
—
|
—
|
(4,948,301)
|
(4,948,301)
|
|||||
|
Balance,
March 31, 2008
|
14,249,889
|
1,425
|
27,226,561
|
(25,573,956)
|
1,654,030
|
|||||
|
Common
stock issued at a price of $.20 per share in the exercise of
warrants
|
675,000
|
68
|
134,932
|
—
|
135,000
|
|||||
|
Common
stock issued for services
|
1,165,129
|
116
|
325,886
|
—
|
326,002
|
|||||
|
Common
stock and warrants issued at a price of $.88 per share for
cash
|
113,636
|
11
|
99,989
|
—
|
100,000
|
|||||
|
Stock
options granted and warrants issued
|
—
|
—
|
405,079
|
—
|
405,079
|
|||||
|
Warrants
re-priced for cash at $.20 per warrant
|
—
|
—
|
88,560
|
—
|
88,560
|
|||||
|
Warrants
re-priced in exchange for services rendered
|
—
|
—
|
582,056
|
—
|
582,056
|
|||||
|
Net
loss for the year ended March 31, 2009
|
—
|
—
|
—
|
(4,023,929)
|
(4,023,929)
|
|||||
|
Balance,
March 31, 2009
|
16,203,654
|
$
|
1,620
|
$
|
28,863,063
|
$
|
(29,597,885)
|
$
|
(733,202)
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
|
Year
Ended
|
||||||||
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
loss
|
$ | (4,023,929 | ) | $ | (4,948,301 | ) | ||
|
(Gain)
loss on disposal of assets
|
— | — | ||||||
|
Depreciation
and amortization
|
66,964 | 54,542 | ||||||
|
Stock
issued for services
|
326,002 | 877,500 | ||||||
|
Stock
options granted and warrants issued
|
363,587 | 2,933,908 | ||||||
|
Warrants
re-priced in exchange for services
|
623,548 | — | ||||||
|
Financing
expense
|
1,171,363 | 250,000 | ||||||
|
Adjustments
to reconcile net loss to net cash used by operations:
|
||||||||
|
Decrease
(increase) in accounts receivable
|
6,639 | 491 | ||||||
|
Decrease
(increase) in prepaid expenses
|
91,244 | (65,568 | ) | |||||
|
Decrease
(increase) in inventory
|
27,045 | 48,680 | ||||||
|
Decrease
in trade secrets
|
— | 374,000 | ||||||
|
Decrease
(increase) in deposits
|
46,256 | (33,480 | ) | |||||
|
Increase
(decrease) in accounts payable & accrued
expenses
|
273,798 | 67,170 | ||||||
|
Increase
(decrease) in accrued interest payable
|
111,693 | — | ||||||
|
Increase
(decrease) in wages payable
|
188,840 | — | ||||||
|
Increase
(decrease) in discount on note payable
|
(195,216 | ) | (1,500,000 | ) | ||||
|
Increase
(decrease) in product recall reserve
|
— | (26,999 | ) | |||||
|
Net
cash used by operating activities
|
(922,166 | ) | (1,968,057 | ) | ||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase
of equipment
|
— | (21,811 | ) | |||||
|
Net
cash provided (used) in investing activities
|
— | (21,811 | ) | |||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Proceeds
from note payable
|
393,210 | 1,500,000 | ||||||
|
Payments
on notes payable
|
(135,000 | ) | — | |||||
|
Proceeds
from the re-price of warrants
|
88,560 | — | ||||||
|
Proceeds
from exercise of warrants
|
100,000 | 250,000 | ||||||
|
Sale
(Purchase) of common stock
|
135,000 | (625,000 | ) | |||||
|
Net
cash provided by financing activities
|
581,770 | 628,608 | ||||||
|
NET
INCREASE (DECREASE) IN CASH
|
(340,396 | ) | (864,868 | ) | ||||
|
CASH
- Beginning of period
|
351,627 | 1,216,495 | ||||||
|
CASH
- End of period
|
$ | 11,231 | $ | 351,627 | ||||
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES:
|
||||||||
|
Interest
expense
|
$ | — | $ | — | ||||
|
Income
taxes
|
$ | — | $ | 349 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Anpath
Group, Inc. (hereinafter “the Company”) was incorporated in the State of
Delaware on August 26, 2004. The principal business of the Company is a
holding company. The Company’s sole subsidiary is EnviroSystems, Inc.
(hereinafter “ESI”) The Company’s name was changed to Anpath Group, Inc on
January 8, 2007. Formerly name was Telecomm Sales Network, Inc. The Company’s
headquarters is located in Mooresville, North Carolina and its year end is March
31.
ESI
provides infection control products on an international basis through both
direct sales and channels of distribution. While ESI’s current focus is on the
health care market, products are also sold to transportation, military and
industrial/institutional markets. ESI products are manufactured utilizing
chemical-emulsion technology, designed to make the products effective against a
broad spectrum of harmful organisms while safe to people, equipment and
habitat.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the Company’s financial statements. The financial statements and
notes are representations of the Company’s management, which is responsible for
their integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and have been
consistently applied in the preparation of the financial
statements.
Accounting
Method
The
Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
Cash and Cash
Equivalents
The
Company considers all unrestricted cash, short-term deposits, and other
investments with original maturities of no more than ninety days when acquired
to be cash and cash equivalents for the purposes of the statement of cash
flows
Accounts
Receivable
Accounts
receivable are uncollateralized customer obligations due under normal trade
terms requiring payment within thirty days from the invoice date or as specified
by the invoice and are stated at the amount billed to the customer. Customer
account balances with invoices dated over ninety days or ninety days past the
due date are considered delinquent.
The
carrying amount of accounts receivable is reduced by a valuation allowance that
reflects management's best estimate of the amount that will not be collected.
Management reviews all accounts receivable balances that are considered
delinquent and, based on an assessment of current credit worthiness, estimates
the portion, if any, of the balance that will not be collected. In addition,
management periodically evaluates the adequacy of the allowance based on the
Company's past experience. Allowance for doubtful accounts amounted to $-0- and
$889 at March 31, 2009 and 2008, respectively.
Advertising
The
Company expenses advertising costs as they are incurred and are included as part
of Sales expense. For the years ended March 31, 2009 and 2008 the
Company incurred $13,902 and $5,150, respectively in advertising
cost.
Basic and Diluted Loss Per
Share
Loss per
share was computed by dividing the net loss by the weighted average number of
shares outstanding during the period. The weighted average number of shares was
calculated by taking the number of shares outstanding and weighting them by the
amount of time that they were outstanding. At March 31, 2009 and 2008, basic and
diluted net loss per share are the same, as for the years ended March 31, 2009
and 2008, potentially dilutive securities have not been included in the diluted
loss per common share calculation as they would have been anti-dilutive. As of
March 31, 2009 and 2008, the Company had stock equivalents of 9,051,465 and
9,333,815 outstanding.
Compensated
Absences
Employees
earn personal leave time based on hours worked and longevity. These benefits are
vested when earned but cannot be carried over from calendar year to calendar
year. Benefits are accrued as they are earned and are reflected in the financial
statements. Accrued compensated absences at March 31, 2009 and 2008 were $31,636
and $28,289, respectively.
Contingent
Liability
In
accordance with Statement of Financial Accounting Standards Interpretation No.
14, the Company may have certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings. The Company
accrues liabilities when it is probable that future cost will be incurred and
such cost can be measured.
Derivative
Instruments
The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB No. 133”, SFAS
No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging
Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative
Instruments and Hedging Activities”, which is effective for the Company as of
its inception. These statements establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. They require that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value.
If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. The Company has not entered into
derivatives contracts to hedge existing risks or for speculative purposes as of
March 31, 2009 and 2008.
Fair Value of Financial
Instruments
The
Company's financial instruments as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments," may
include cash, receivables, and advances, accounts payable and accrued expenses.
All such instruments are accounted for on a historical cost basis, which, due to
the short maturity of these financial instruments, approximates fair value at
March 31, 2009 and 2008.
SFAS No.
157, “Fair Value Measurements(“SFAS 157), define fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 establishes a three-tier fair value hierarchy which prioritizes
the inputs used in measuring fair value as follows:
Level 1.
Observable inputs such as quoted prices in active markets for identical
assets or liabilities that are accessible at the measurement date. The Company
has no Level 1 assets or liabilities; and
Level 2.
Inputs from other than quoted prices in active markets that are observable
either directly or indirectly. The Company has no Level 2 assets or liabilities;
and
Level 3.
Unobservable inputs in which there is little of no market data, which
require the reporting entity to develop its own assumptions. The Company has no
Level 3 assets or liabilities.
The
Company has not applied the provisions of SFAS No. 157 to non-financial assets
and liabilities that are of a nonrecurring nature in accordance with FASB Staff
Position (FSP) Financial Accounting Standard 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2). FSP 157-2 delayed the effective date of
application of SFAS 157 to non-financial assets and liabilities that are of a
nonrecurring nature until January 1, 2009. FSP 157-2 will not have a material
effect on the Company’s financial position, results of operations and cash
flows.
Fixed
Assets
Equipment
is recorded at cost. Depreciation and amortization are provided using the
straight-line method over the useful lives of the respective assets, typically
3-7 years. Major additions and betterments are capitalized. Upon retirement or
disposal, the cost and related accumulated depreciation or amortization is
removed from the accounts and any gain or loss is reflected in
operations.
The
following table summarizes the Company's fixed assets:
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Office
Equipment
|
$ | 51,347 | $ | 51,347 | ||||
|
Furniture
& Fixtures
|
11,825 | 11,825 | ||||||
|
Marketing/Trade
Shows
|
2,659 | 2,659 | ||||||
|
Manufacturing
Equipment
|
195,138 | 195,138 | ||||||
|
Laboratory
Equipment
|
139,138 | 118,051 | ||||||
|
Capitalized
Software
|
3,210 | 3,210 | ||||||
| 382,230 | 382,230 | |||||||
|
Allowance
for Depreciation
|
( 205,676 | ) | (138,712 | ) | ||||
|
Fixed
Assets, net
|
$ | 198,365 | $ | 265,329 | ||||
Depreciation
expense for the year ended March 31, 2009 and 2008 was $66,964 and $54,542,
respectively.
Depreciation
expense on manufacturing equipment is included as a part of Cost of Sales on the
Consolidated Statement of Operations. During the year ended March 31, 2009 and
2008, depreciation expense on manufacturing equipment was $2,733 and
$3,618.
Depreciation
expense in the amount of $34,371 and $27,742 for the years ended March 31, 2009
and 2008 was recorded for manufacturing equipment that sat idle and is included
as part of Expenses on the Consolidated Statement of Operations.
Depreciation
expense on all other equipment is included as part of Expenses on the
Consolidated Statement of Operations.
Going
Concern
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.
As shown
in the financial statements, the Company incurred a net loss for the years ended
March 31, 2009 and 2008, and has an accumulated deficit since the inception of
the Company. These factors indicate that the Company may be unable to continue
in existence. The financial statements do not include any adjustments related to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue existence. The Company anticipates its projected business plan
will require a minimum of approximately $1,800,000 to continue operations for
the next twelve months.
Impairment of Long Lived
Assets
The
Company assesses potential impairment of its long lived assets, which include
its property and equipment and its identifiable intangibles such as its trade
secrets under the guidance of Statement of Financial Standards No. 144,
“Accounting for the Impairment or Disposal of Long Lived Assets.” On an annual
basis, or as events and circumstances indicate that an asset may be impaired,
the Company assesses potential impairment of its long lived assets. The Company
determines impairment by measuring the undisclosed future cash flows generated
by the assets, comparing the results to the assets’ carrying value and adjusting
the assets to the lower of the carrying value to fair value and charging current
operations for any measured impairment. The Company determined that the Trade
Secrets was impaired by $374,000 during the year ended March 31, 2008 and has
taken a charge for this amount. As of March 31, 2009 no further impairment of
this trade secret was deemed necessary.
Concentration
Risk
Sales to
our top ten customers represented approximately 98.58% and 98.45% of our sales
for the years ended March 31, 2009 and 2008. During the years ended March 31,
2009 and 2008 approximately 51% and 53% of our sales came from the EnviroTru
products while 29% and 47% came from cleaning wipes. In the year ended march 31,
2009 we started selling an electrostatic sprayer and approximately 20% of our
revenues came from the sales of sprayers.
Suppliers
We rely
upon a single supplier to provide us with PCMX, which is the biocide used in our
chemical emulsion disinfectant products. Although there are other suppliers of
this material, a change in suppliers would cause a delay in the production
process, which could ultimately affect operating results.
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiary. All significant intercompany transactions and balances have been
eliminated in consolidation. References herein to the Company include the
Company and its subsidiaries, unless the context otherwise
requires.
Recent Accounting
Pronouncements
SFAS 165
In
May 2009, the FASB issued Statements of Financial Standards No. 165
(“SFAS No. 165”), Subsequent Events. SFAS
No. 165 requires all public entities to evaluate subsequent events through
the date that the financial statements are available to be issued and disclose
in the notes the date through which the Company has evaluated subsequent events
and whether the financial statements were issued or were available to be issued
on the disclosed date. SFAS No. 165 defines two types of subsequent events,
as follows: the first type consists of events or transactions that provide
additional evidence about conditions that existed at the date of the balance
sheet and the second type consists of events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
that date. SFAS No. 165 is effective for interim and annual periods ending
after June 15, 2009 and must be applied prospectively.
EITF
07-03
In
September 2007, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 07-03, Accounting for
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities ("EITF Issue No. 07-03"). EITF Issue
No. 07-03 addresses the diversity which exists with respect to the
accounting for the nonrefundable portion of a payment made by a research and
development entity for future research and development activities. Under EITF
Issue No. 07-03 an entity would defer and capitalize nonrefundable advance
payments made for research and development activities until the related goods
are delivered or the related services are performed. The Company's adoption of
EITF Issue No. 07-03 as of April 1, 2008 did not have a material
impact on its financial position or results of operations.
SFAS
157-3
In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a
Financial Asset in a Market That is Not Active (FSP 157-3), which
clarifies the application of SFAS 157 when the market for a financial asset
is inactive. Specifically, FSP 157-3 clarifies how (1) the company's
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker
quotes or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 is effective immediately. The adoption of FSP 157-3 did not have a
material effect on the Company's financial statements.
F-9
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
Reclassifications
Certain
amounts have been reclassified from the prior financial statements for
comparative purposes.
Revenue
Recognition
Revenue
is generally recognized and earned when all of the following criteria are
satisfied: a) persuasive evidence of sales arrangements exists; b) delivery has
occurred; c) the sales price is fixed or determinable; and d) collectibility is
reasonably assured.
Persuasive
evidence of an arrangement is demonstrated via a purchase order from our
customers. Delivery occurs when title and all risks of ownership are transferred
to the purchaser which generally occurs when the products are shipped to the
customer. No right of return exists on sales of product except for defective or
damaged products. The sales price to the customer is fixed upon acceptance of
purchase order. To assure that collectability is reasonably assured, credit
evaluations are performed on all customers.
Research and
Development
Research
and development costs are charged to expense as incurred.
Stock Based
Compensation
The
Company measures compensation cost for its stock based compensation plans under
the provisions of Statement of Financial Accounting Standards No. 123(R),
“Accounting for Stock Based Compensations.” This statement supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related
implementation guidance. This statement establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity’s equity instruments or that may be settled by the issuance of
those equity instruments. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) , "Accounting for Stock-Based Compensation",
requires companies to include expenses in net income (loss) and earnings (loss)
for each issuance of options and warrants. The Company uses the Black-Scholes
option valuation model to value its issuance of options and warrants. The
Company recorded compensation expense of $949,550 and $1,433,908 for years ended
March 31, 2009 and 2008, respectively.
Trade
Secret
The
recorded value of the Company’s trade secret relating to the formula/formulation
of ESI’s products at the time acquired by the Company was based upon the
valuation of an independent appraiser. In accordance with SFAS No. 142, the
Company has determined that its trade secret has an indefinite life.
Accordingly, it is not subject to amortization, but is subject to the Company’s
annual assessment of prospective impairment. The Company determined that the
Trade Secrets was impaired by $374,000 during the year ended March 31, 2008 and
has taken a charge for this amount. As of March 31, 2009 no further impairment
of this trade secret was deemed necessary.
Use of
Estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
NOTE
3 - CONCENTRATION OF CREDIT RISK
The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash. The Company places its cash and cash equivalents
with what management believes to be high credit quality financial institutions.
At times such investments may be in excess of the FDIC insurance limit. The
Company maintains cash balances at several financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation up to
$250,000. At March 31, 2009 and 2008, the Company’s uninsured cash balances
total was $-0- and $256,142, respectively.
F-10
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
NOTE 4 -
INVENTORIES
Inventories
are stated at the lower of cost or market (first-in, first out basis) and
include purchased raw materials, work-in-process and finished goods and consist
of the following:
|
|
March
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Raw
material
|
$ | 22,354 | $ | 36,540 | ||||
|
Work-in-progress
|
— | — | ||||||
|
Finished
goods
|
— | 12,859 | ||||||
|
Inventory,
net
|
$ | 22,354 | $ | 43,399 | ||||
NOTE
5 - INCOME TAXES
Income
taxes are provided based upon the liability method of accounting pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under this approach, deferred income taxes are recorded to
reflect the tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end. A valuation allowance is recorded against deferred tax assets if
management does not believe the Company has met the "more likely than not"
standard imposed by SFAS 109 to allow recognition of such an asset.
At March
31, 2009 and 2008, the Company had deferred tax assets calculated at an expected
rate of 34% of approximately $10,063,000 and $8,695,000, principally arising
from net operating loss carryforwards and stock compensation. As management of
the Company cannot determine that it is more likely than not that the Company
will realize the benefit of the deferred tax asset, a valuation allowance equal
to the deferred tax asset has been recorded.
The
significant components of the deferred tax assets at March 31, 2009 and 2008
were as follows:
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
operating loss carryforward:
|
$ | 29,598,000 | $ | 25,574,000 | ||||
|
Deferred
tax asset
|
$ | 10,063,000 | $ | 8,695,000 | ||||
|
Deferred
tax asset valuation allowance
|
(10,063,000 | ) | (8,695,000 | ) | ||||
|
Net
deferred tax asset
|
$ | — | $ | — | ||||
At March
31, 2009 and 2008, the Company has net operating loss carryforwards of
approximately $29,598,000 and $25,574,000, respectively, which begin to expire
in the year 2014 through 2029. The change in valuation allowance from March 31,
2008 to March 31, 2009 is $1,368,000.
Although
we believe that our estimates are reasonable, no assurance can be given that the
final tax outcome of these matters will not be different than that which is
reflected in our tax provisions. Ultimately, the actual tax benefits to be
realized will be based upon future taxable earnings levels, which are very
difficult to predict.
F-11
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
NOTE
6 - NOTES, LOANS AND CONVERTIBLE DEBT
Notes
payable consists of the following:
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
7%
note due July 8, 2010 payable to ANPG Lending, LLC
|
$ | 1,500,000 | $ | 1,500,000 | ||||
|
6%
notes due on or before May 10, 2009 payable to our CEO
|
102,210 | - | ||||||
|
6%
notes due on or before February 24, 2009 payable to Arthur Douglas &
Associates
|
85,000 | - | ||||||
|
6%
notes due December 29, 2008 payable to our CFO
|
6,000 | - | ||||||
|
10%
note due April 8, 2009 payable to an unrelated individual
|
25,000 | - | ||||||
|
10%
note due June 10, 2009 payable to an unrelated individual
|
20,000 | - | ||||||
|
10%
note due June 24, 2009 payable to an unrelated individual
|
20,000 | - | ||||||
|
Discount
on notes payable
|
(273,853 | ) | (1,250,000 | ) | ||||
| $ | 1,484,357 | $ | 250,000 | |||||
During
the year ended March 31, 2009 the Company borrowed from various parties the
aggregate amount of $393,210. These loans are due on demand after 90 days and
bear interest of 6% to 10% payable at maturity. Each note is convertible into
common stock of the Company at a conversion rate of $.20 to $.88 per share. The
loans are initially convertible into 697,966 shares of the Company’s common
stock. Detachable warrants were also issued with each note giving the holder the
right to purchase an aggregate 512,966 shares of the Company’s common stock at
an exercise rice of $.20 to $.88 per share.
In
accordance with EITF 00-27, the Company recognized the beneficial conversion
feature associated with the notes convertibility into shares and warrants. The
total value of warrants was determined using the Black Scholes Option Price
Calculation. In employing this model, the following assumptions were used the
actual three month T-Bill rate on the advance dates for the risk-free rate. The
actual share price on advance dates; expected volatility of 67.36%, no dividends
and a five year horizon in all Black Scholes Option Price calculations. The
total value of warrants was $122,173 and the total value of shares was
$73,142.
Following
the guidance provided by EITF 00-27 the Company allocated proceeds first to the
warrants issuable upon conversion of the note. The value of the warrants was
recorded on the balance sheet as debt discounts and increases to shareholder’s
equity. The debt discounts are being amortized over the remaining life of the
convertible note.
On
January 8, 2008, the Company completed a financing transaction with ANPG
Lending, LLC, (the “LLC”) pursuant to the terms of a Loan and Security Agreement
by and between the Company and the LLC. Pursuant to the Loan Agreement,
the Company issued to the LLC convertible promissory notes for an aggregate
principal amount of $1,500,000. The Loan Agreement also provides that the LLC
may make up to an additional $500,000 in advances to the Company in the
discretion of the LLC. In addition to the Notes, the Company issued to the
LLC warrants to purchase up to an aggregate of 750,000 shares of the Company’s
common stock. The Warrants have terms of 5 years and are exercisable at an
initial exercise price $0.87 per share, subject to certain anti-dilution
adjustments.
Pursuant
to the Loan Agreement, the Company granted to the LLC a security interest in the
Company’s assets and properties to secure the Company’s obligations under the
Notes to the LLC.
As a
condition to obtaining the Financing, the Company entered into a Securities
Repurchase Agreement by and between the Company, the LLC and the Singer
Children’s Management Trust (the “Trust”) pursuant to which the Company
repurchased from the Trust 250,000 shares of the Company’s common stock and
warrants to purchase up to an aggregate of 750,000 shares of the Company’s
common stock at an exercise price of $2.50 per share for an aggregate purchase
price of $625,000. The Company used $625,000 from the LLC to pay the
purchase price for the Securities and used $30,000 to pay the lenders legal
expenses of the transaction. Pursuant to the Repurchase Agreement, the Company
issued to the LLC three additional Warrants to purchase up to an aggregate of
750,000 shares of our common stock. The Warrants have terms of 5 years and are
exercisable at an initial exercise price $0.87 per share, subject to certain
anti-dilution adjustments. The warrants can be exercised using a cashless
exercise exchange and will automatically be exercised at the termination of the
term if the price of the Company’s common stock on such date is above $0.87 per
share, subject to certain adjustments.
As a
result of the foregoing transactions, the Company was able to obtain net
proceeds of approximately $845,000 to be used for general working capital
purposes.
The Notes
are due and payable on July 8, 2009. The Notes bear interest at a rate of
7% per annum and interest accrues and is payable on the maturity date of the
Notes. The Notes are convertible into shares of common stock of the
Company at an initial conversion price of $0.87. The conversion price is
subject to certain anti-dilution adjustments.
In
accordance with EITF 00-27, the Company recognized the beneficial conversion
feature associated with the notes convertibility into shares and warrants. The
total value of warrants was determined using the Black Scholes Option Price
Calculation. In employing this model, the following assumptions were used the
actual three month T-Bill rate on the advance dates for the risk-free rate; the
actual share price on advance dates; expected volatility of 63%, no dividends
and a five year horizon in all Black Scholes Option Price calculations. The
total value of warrants was $778,500 and the total value of shares was
$721,500.
Following
the guidance provided by EITF 00-27 the Company allocated proceeds first to the
warrants issuable upon conversion of the note. The value of the warrants was
recorded on the balance sheet as debt discounts and increases to shareholder’s
equity. The debt discounts are being amortized over the remaining life of the
convertible note. The value of warrants in excess of the actual debt advance
amounts were expensed as financing fees.
NOTE
7 - COMMITMENT AND CONTINGENCIES
Operating
Leases
The
Company has formal operating leases for all of its office and laboratory
space. Rent expense relating to operating space leased was approximately $84,166
and $111,124 for the years ended March 31, 2009 and 2008,
respectively.
|
|
Payments
Due by Period
|
|||||||||||||||||||
|
Contractual Obligations
|
Total
|
Less
than
1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
|||||||||||||||
|
Office
Lease
|
$ | 35,400 | $ | 35,400 | — | — | — | |||||||||||||
|
Laboratory
Lease (1)
|
— | — | — | — | — | |||||||||||||||
|
Total
Contractual Cash Obligations
|
$ | 35,400 | $ | 35,400 | — | — | — | |||||||||||||
(1) The
laboratory lease has expired and the Company continues leasing these premises on
a month to month basis
Executive Employment
Contracts
The
Company has entered into a three year employment contract with a key Company
executive that provides for the continuation of salary to the executive if
terminated for reasons other than cause, as defined in those agreements. At
January 9, 2009 the contract expired and has not been renewed. The
Company also issued 750,000 stock options to purchase 750,000 common stock
shares at $2.50 per share. The Company valued the options using the
Black-Scholes option pricing calculation model and recognized $242,060 of
compensation expense in the year ended March 31, 2008. All of these were fully
vested at March 31, 2009.
NOTE
8 - PREFERRED STOCK AND COMMON STOCK
Preferred
Stock
The
Company is authorized to issue 5,000,000 shares of $0.0001 par value preferred
stock, which may be issued in one or more series at the sole discretion of the
Company’s board of directors. The board of directors is also authorized to
determine the rights, preferences, and privileges and restrictions granted to or
imposed upon any series of preferred stock. As of March 31, 2009 and 2008, no
preferred stock has been issued by the Company.
Common
Stock
The
Company is authorized to issue 100,000,000 shares of $0.0001 par value common
stock. All shares have equal voting rights, are non-assessable and have one vote
per share. Voting rights are not cumulative and, therefore, the holders of more
than 50% of the common stock could, if they choose to do so, elect all of the
directors of the Company.
Common Stock and Warrants
issued for Cash
On June
26, 2008, the Company entered into a Securities Purchase Agreement with The OGP
Group LLC, a Delaware limited liability company (“OGP”) pursuant to which the
Company sold to OGP 113,636 shares of restricted common stock of the Company at
a price of $0.88 per Share. In addition, the Company issued to OGP a
five year warrant to purchase up to an aggregate of 113,636 shares of the
Company’s common stock at an exercise price of $0.88 per share. (See
Note 11 Related Party Transactions)
Common Stock Issued for
Services
On March
31, 2009 the Company issued 565,129 shares to four officers in lieu of salaries
of $121,502 for the months of February and March 2009.
On
October 1, 2008, the Company entered into a consulting agreement with Arthur
Douglas and Associates, Inc for investment relations services. The Company
agreed to pay compensation to Arthur Douglas and Associates, Inc of 100,000
shares of restricted common stock per month for a period of 12 months. During
the year ended March 31, 2009, the Company issued 600,000 shares of restricted
common stock valued at $204,500 to Arthur Douglas and Associates.
On
January 1, 2008, the Company entered into a consulting agreement with Arthur
Douglas and Associates, Inc for investment relations services. The Company
agreed to pay compensation to Arthur Douglas and Associates, Inc of 250,000
shares of restricted common stock for services for a six month period. The
Company issued 250,000 shares of restricted common stock valued at $227,500 to
Arthur Douglas and Associates.
On May
27, 2007, the Company entered into a consulting agreement with Arthur Douglas
and Associates, Inc for investment relations services. The Company agreed to pay
compensation to Arthur Douglas and Associates, Inc of 250,000 shares of
restricted common stock for services for a six month period. The Company issued
250,000 shares of restricted common stock valued at $650,000 to Arthur Douglas
and Associates.
Conversion of Note Payable
for Common Stock
On
December 17, 2008, MV Nanotech Corporation called its notes payable in the
amount of $135,000 in exchange for the exercise of 675,000 common stock
warrants. The Company issued 675,000 shares of restricted common stock in this
transaction.
Warrant
Exercise
On
October 17, 2007, the Board of Directors agreed to re-price 800,000 warrants
held by MV Nanotech Corporation. The original warrants had an exercise price of
$2.50 per warrant. The new exercise price was set at $1.25 per warrant.
Subsequently, MV Nanotech Corporation assigned the warrants to two unaffiliated
entities who exercised 200,000 of the warrants. The Company received proceeds
from the exercise of the warrants in the amount of $250,000. Due to the
re-pricing, the Company recorded $701,192 in expense, calculated using the
Black-Scholes option pricing method.
Refinancing
On
January 8, 2008, the Company completed a financing transaction with ANPG
Lending, LLC, (the “LLC”) pursuant to the terms of a Loan and Security Agreement
by and between the Company and the LLC. As a condition to obtaining the
Financing, the Company entered into a Securities Repurchase Agreement by and
between the Company, the LLC and the Singer Children’s Management Trust (the
“Trust”) pursuant to which the Company repurchased from the Trust 250,000 shares
of the Company’s common stock and warrants to purchase up to an aggregate of
750,000 shares of the Company’s common stock at an exercise price of $2.50 per
share for an aggregate purchase price of $625,000.
NOTE
9 - STOCK PURCHASE WARRANTS
On
November 20, 2008, the Board of Directors approved the re-pricing of outstanding
stock purchase warrants held by MV Nanotech Corporation and Arthur Douglas and
Associates in connection with their assistance in raising capital funds for the
Company. A total of 2,147,655 stock purchase warrants originally
priced from $2.50 to $1.25 were re-priced to $.20 per stock purchase warrant.
The Company valued the re-priced stock purchase warrants using the Black-Scholes
option price calculation method. The Company recorded a charge of $582,056 for
re-pricing these stock purchase warrants.
On
November 26, 2008, the Board of Directors authorized the re-pricing of all
outstanding stock purchase warrants as a means for raising additional capital.
During December 2008, the Company received proceeds of $88,560 to re-price
442,801 stock purchase warrants to a new price of $.20 per stock purchase
warrant. The original price of these stock purchase warrants ranged from $1.25
to $2.50 per stock purchase warrant.
The
following is a summary of all common stock warrant activity during the two years
ended March 31, 2009:
|
Number
of
Shares
Under
Warrants
|
Exercise
Price
Per
Share
|
Weighted
Average
Exercise
Price
|
||||||||||
|
Warrants
issued and exercisable at:
March
31, 2007
|
4,713,533 | $ | 2.50-5.00 | $ | 2.89 | |||||||
|
Warrants
issued
|
4,250,000 | 0.87 – 2.70 | 1.97 | |||||||||
|
Warrants
expired
|
(823,191 | ) | 5.00 | 5.00 | ||||||||
|
Warrants
exercised
|
(200,000 | ) | 1.25 | 1.25 | ||||||||
|
Warrants
issued and exercisable at:
March
31, 2008
|
7,940,342 | $ | 0.87-5.00 | $ | 2.25 | |||||||
|
Warrants
issued
|
626,600 | 0.87-2.70 | 1.97 | |||||||||
|
Warrants
expired
|
(248,928 | ) | 5.00 | 5.00 | ||||||||
|
Warrants
exercised
|
(675,000 | ) | 0.20 | 0.20 | ||||||||
|
Warrants
issued and exercisable at:
March
31, 2009
|
7,643,014 | $ | 0.20-5.00 | $ | 2.25 | |||||||
The
following represents additional information related to common stock warrants
outstanding and exercisable at March 31, 2009:
|
Outstanding
and Exercisable
|
|||||||||
|
Range
of Exercise Price
|
Number
of
Shares
Under
Warrants
|
Weighted
Average
Remaining
Contract
Life in
Years
|
Weighted
Average
Exercise
Price
|
||||||
|
$0.20
- 5.00
|
641,414
|
0.77
|
$
|
2.38
|
|||||
|
$0.20
- 2.50
|
2,125,000
|
1.03
|
0.95
|
||||||
|
$0.20
- 2.70
|
4,250,000
|
3.42
|
1.97
|
||||||
|
$0.20
– 0.88
|
626,600
|
4.52
|
0.56
|
||||||
|
7,643,014
|
2.62
|
$
|
1.55
|
||||||
The
Company used the Black-Scholes option price calculation to value the warrants
issued in the year ending March 31, 2009 and 2008 using the following
assumptions: risk-free rate of 1.00-4.50%; volatility of 63-67%; zero dividend
yield; the actual exercise term of the warrants issued and the exercise price of
warrants issued.
NOTE
10 - EQUITY COMPENSATION PLAN
The
Company has two stock option plans: (a) the 2006 Stock Incentive Plan and (b)
the 2004 Equity Compensation Plan both which has been approved by the Board of
Directors and the shareholders. Aggregate amounts of common stock that may be
awarded and purchased under the Plans are 3,700,000 shares of the Company's
common stock.
The
exercise price for incentive stock options granted under the 2006 and 2004 Plans
may not be less than the fair market value of the common stock on the date the
option is granted, except for options granted to 10% stockholders which must
have an exercise price of not less than 110% of the fair market value of the
common stock on the date the option is granted. The exercise price for
non-statutory options is determined by the Compensation Committee of our Board
of Directors. Incentive stock options granted under the plans have a maximum
term of ten years, except for grants to 10% stockholders which are subject to a
maximum term of five years. The term of non-statutory stock options is
determined by the Compensation Committee of our Board of Directors. Options
granted under the plans are not transferable, except by will and the laws of
descent and distribution.
Under the
Plans during the years ended March 31, 2009 and 2008, the Company granted 42,000
and 98,200 stock options to employees and directors. The options were granted
with an exercise prices $0.63-2.85 and will fully vest from one to four years of
service. The options were valued using the fair value method as prescribed by
SFAS No. 123 (R), resulting in a total value associated with these options for
the year ended March 31, 2009 and 2008 of $15,000 and $86,612. Pursuant to SFAS
No. 123(R), this amount will be accrued to compensation expense over the
expected service term as vested. The accrued compensation expense related to
these options for the year ended March 31, 2009 and 2008 is $210,861 and
$455,817 and has been expensed in the years ended March 31, 2009 and 2008,
respectively pursuant to the application of SFAS No. 123(R), and credited to
additional paid-in capital.
As of
March 31, 2009 there were 2,310,000 remaining options available to be issued in
the 2006 Stock Incentive Plan and the 2004 Equity Compensation
Plan.
The
following is a summary of all common stock option activity during the two years
ended March 31, 2009:
|
Shares
Under
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
|||||||
|
Options
outstanding at March 31, 2007
|
2,578,255 | $ | 2.73 | |||||
|
Options
granted
|
98,200 | 1.75 | ||||||
|
Options
expired
|
— | — | ||||||
|
Options
exercised
|
— | — | ||||||
|
Options
outstanding at March 31, 2008
|
2,676,455 | 2.75 | ||||||
|
Options
granted
|
42,000 | 0.63 | ||||||
|
Options
expired or canceled
|
(1,169,903 | ) | 3.01 | |||||
|
Options
exercised
|
— | — | ||||||
|
Options
outstanding at March 31, 2009
|
1,548,552 | $ | 2.49 | |||||
F-16
ANPATH
GROUP, INC
Consolidated
Statement of Cash Flows
For
the fiscal years ended March 31, 2009 and 2008
|
Options
Exercisable
|
Weighted
Average
Exercise
Price
per
Share
|
|||||||
|
Options
exercisable at March 31, 2008
|
2,298,955 | $ | 2.75 | |||||
|
Options
exercisable at March 31, 2009
|
1,548,552 | $ | 2.49 | |||||
The
following represents additional information related to common stock options
outstanding and exercisable at March 31, 2009:
|
Range
of
Exercise
Price
|
Number
Outstanding
at
March
31,
2009
|
Weighted
Average
Remaining
Contractual
Life
Years
|
Weighted
Average
Exercise
Price
(Total
Shares)
|
Number
Exercisable
At
March
31,
2009
|
Weighted
Average
Exercise
Price
(Exercisable
Shares)
|
|||||||||||||||||
| $ | 3.40 | 63,854 | 5.59 | $ | 3.40 | 63,854 | $ | 3.40 | ||||||||||||||
| $ | 5.00 | 72,333 | 1.64 | $ | 5.00 | 72,333 | $ | 5.00 | ||||||||||||||
| $ | 1.61 - 2.95 | 22,365 | 7.21 | $ | 2.06 | 22,365 | $ | 2.06 | ||||||||||||||
| $ | 2.00 - 2.85 | 1,390,000 | 4.30 | $ | 2.32 | 1,217,500 | $ | 2.34 | ||||||||||||||
| $ | 1.61 - 5.00 | 1,548,552 | 4.27 | $ | 2.49 | 1,376,052 | $ | 2.53 | ||||||||||||||
Total
compensation cost related to non-vested stock options as of March 31, 2009 and
2008 was $178,101 and $409,158, respectively.
Weighted
average period of non-vested stock options was 7.31 years as of March 31,
2009.
The
Company used the Black-Scholes option price calculation to value the options
granted in the year ended March 31, 2009 and 2008 using the following
assumptions: risk-free rate of 1.0% to 4.5%; volatility of 63%; zero dividend
yield; half the actual term and exercise price of warrants granted.
NOTE
11 – RELATED PARTY TRANSACTIONS
The
Company’s CFO, and member of the Board of Directors, is a 5% owner and CFO of
Mastodon Ventures, Inc. Mastodon provides office space and incidentals for the
CFO at no cost to the Company. On June 26, 2008 Mastodon advanced the Company
$35,000 in a short-term advance. On June 30, 2008, the Company returned to
Mastodon $35,000 in repayment of the June 26, 2008 advance and on that date had
no balances outstanding with Mastodon.
On July
29, and August 12, 2008, MV Nanotech Corporation, a subsidiary of Mastodon made
loans to the Company in the amounts of $75,000 and $60,000,
respectively. The loans are due on demand after 90 days and bear
interest at 6%. In addition, the Company issued to Mastodon five year warrants
to purchase up to an aggregate of 153,409 shares of the Company’s common stock
at an exercise price of $0.88 per share. MV Nanotech transferred 100,000 of
these warrants to a non-affiliated individual. On November 20, 2008, the Board
of Directors re-priced all outstanding warrants held by MV Nanotech to $.20 per
warrant. On December 17, 2008, MV Nanotech Corporation called its notes payable
in the amount of $135,000 in exchange for the exercise of 675,000 common stock
warrants. The Company issued 675,000 shares of restricted common stock in this
transaction. At March 31, 2009, the Company does not owe MV Nanotech Corporation
any amounts.
During
the year ended March 31, 2009, the Company’s CEO, made loans to the Company in
the amount of $102,210. The loans are due on demand after 90 days and
bear interest at 6%. In addition, the Company issued to the CEO five year
warrants to purchase up to an aggregate of 116,146 shares of the Company’s
common stock at an exercise price of $0.88 per share. At March 31, 2009 the
balance owed to the CEO on these loans was $102,210 plus accrued interest of
$2,863.
On
September 30, 2008, the Company’s CFO, made a loan to the Company in the amounts
of $6,000. The loan is due on demand after 90 days and bear interest
at 6%. In addition, the Company issued to the CFO a five year warrant to
purchase up to an aggregate of 6,818 shares of the Company’s common stock at an
exercise price of $0.88 per share. At March 31, 2009 the balance owed to the CFO
on this loan was $6,000 plus accrued interest of $182.
At March
31, 2009 the CEO and CFO have deferred their salaries in the amount $97,500 and
$58,340, respectively.
On June
26, 2008, The OGP Group LLC, purchased 113,636 shares of restricted common stock
of the Company at a price of $0.88 per Share. In addition, the
Company issued to OGP a five year warrant to purchase up to an aggregate of
113,636 shares of the Company’s common stock at an exercise price of $0.88 per
share. In a separate agreement between OGP and MV Nanotech
Corporation, a subsidiary of Mastodon Ventures, Inc in which our CFO is a 5%
owner and CFO, MV Nanotech has agreed to sell to OGP 50,000 shares of our
Company common stock that MV Nanotech owns for $100. In addition after September
24, 2008, OGP has the right to present to MV Nanotech up to 113,636 shares of
our common stock for purchase at a price of $1.00 per share.
NOTE
12 – SUBSEQUENT EVENTS
Private
Placement
On
December 11, 2008, the Company commenced a private offering, to accredited
investors only, of up to 500 of its units (each a "Unit" and collectively, the
"Units"), at a price of $10,000 per Unit, each Unit consisting of (i) an 8%
subordinated convertible promissory note in the principal amount of $10,000,
convertible into shares of the Company's common stock ("Common Stock") at an
initial conversion price of $0.50 per share, maturing in one year, and (ii) a
five year warrant to purchase up to 20,000 shares of Common Stock at an exercise
price of $0.75 per share.
Through
July 6, 2009 the Company has completed several rolling closings of the private
offering. In the closings, Anpath sold approximately 90.5 units and received net
proceeds of approximately $821,000 after payment of fees.
Forbearance Agreement with
ANPG Lending, LLC
On June
26, 2009 the Company agreed to reduce the exercise price of the 1,500,000
warrants outstanding to ANPG Lending LLC to $0.20 in exchange for ANPG Lending
LLC agreeing to extend the maturity date of the convertible loans aggregating
$1,500,000 from July 8, 2009 to September 8, 2009 and the conversion price to
$0.20 as well.