U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
[ ] Transition Report under Section 13 or 15(d)of the Exchange Act For the Transition Period from ________ to ___________
Commission File Number: 000-30646
Industrial Enterprises of America, Inc.
(formerly known as Advanced Bio/Chem, Inc.)
(Exact name of registrant as specified in its charter)
Nevada 13-3963499
(State or jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
770 South Post Oak Lane, Suite 330 Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
(713) 622-2875
(Registrant’s telephone number, including area code)
Ciro International, Inc., 445 Fifth Avenue, Suite 11A, New York, New York 10016
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of October 15, 2004, 21,015,250 shares of the registrant’s Common Stock were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
Table of Contents
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Recent Developments………………………………………………………. |
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Part I |
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Item 1. Financial Statements….…………………………………………….. |
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Item 2. Management’s Discussion and Analysis or Plan of Operations …… |
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Item 3. Controls and Procedures…...……………………………………….. |
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Part II |
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Item 1. Legal Proceedings..…………………………..……………………… |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ……… |
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Item 3. Defaults Upon Senior Securities…………………………………….. |
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Item 4. Submission of Matters to a Vote of Security Holders ……………… |
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Item 5. Other Information…………………………………………………… |
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Item 6. Exhibits…………………………...…………………………………. |
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Recent Developments
Name Change and Adoption of Amended and Restated Bylaws
Effective as of December 9, 2004, Advanced Bio/Chem, Inc., a Nevada corporation, formerly Ciro International, Inc. (the “Company”), amended its Articles of Incorporation to change its name from “Advanced Bio/Chem, Inc.” to “Industrial Enterprises of America, Inc.” by filing a Certificate of Amendment with the Secretary of State of the State of Nevada.
Effective as of December 9, 2004, the Board of Directors of the Company adopted the Company’s Amended and Restated Bylaws. The Board of Directors desired to amend the existing bylaws mainly due to the fact that such bylaws were adopted by the Company’s predecessor, Mid-Way Medical and Diagnostic Center, Inc., in 1997.
Sale to Power3 Medical Products, Inc.
In May 2004, the Company entered into an Asset Purchase Agreement (the “Agreement”), among the Company, Power3 Medical Products, Inc., a New York corporation ("Power3"), and Steven B. Rash and Ira Goldknopf (collectively, the "Shareholders"). The sale was approved by the Company’s shareholders by proxy. As provided in the Agreement, the Company sold to Power3 all of the Company’s assets in consideration for 15,000,000 shares of the common stock, par value $.001 per share, of Power3. The assets disposed of by the Company included all tangible personal property, intellectual property, rights in contracts that the Company is a party to, along with intangible property, including goodwill. In consideration for the benefits that they received by virtue of the transaction, each of the Shareholders agre
ed to make the representations, warranties, and indemnifications in the Agreement jointly and severally, along with the Company, and each of the Shareholders agreed to enter into and be bound by a Non-Competition Agreement and an Employment Agreement containing, among other things, covenants respecting confidentiality, non-competition and non-solicitation. The terms of the Agreement were determined by arms' length negotiations between the parties.
Appointment of New Directors and Officers
In May 2004, Steven B. Rash, the Company’s Chief Executive Officer, and Ira Goldknopf, the Company’s Chief Science Officer, resigned. In July 2004, the sole director of the Company, Helen Park, resigned and Crawford Shaw was appointed as sole director, President and Chief Executive Officer. The Company’s current management has no information as to the departure or service of Eric Becker and Gene Thomas. The Company will continue to research to see if such information is available. In August 2004, John Mazzuto and Michael Collyer were appointed as directors to fill the vacancies on the Board of Directors. On October 15, 2004, the Board of Directors elected Crawford Shaw as the Company’s Chairman of the Board, Chief Executive Officer and President, John D. Mazzuto as Vice Chairman of the Board, Ch
ief Financial Officer and Assistant Secretary, Michael Collyer as Secretary and General Counsel, Dennis O’Neill as Controller and Ilene Engelberg as Assistant Controller. Unfortunately, Mr. Collyer, a director, member of the Company’s Compensation Committee and the Company’s Secretary and General Counsel, passed away on December 15, 2004.
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In August 2004, the Company’s Board of Directors approved the adoption of the 2004 Stock Option Plan. The 2004 Stock Option Plan permits the grant of (i) options exercisable for shares of the Company’s common stock, (ii) stock appreciation rights entitling the recipient to receive cash or shares of our common stock and (iii) restricted shares of our common stock to our officers and other employees, outside directors and consultants, upon such terms, including exercise price and conditions and vesting schedule, as may be determined by the Compensation Committee of our Board of Directors. The plan authorizes the granting of awards of up to a maximum of 15,000,000 shares of the Company’s common sto
ck.
Purchase of EMC Packaging, Inc.
In October 2004, the Company purchased all of the issued and outstanding capital stock (the “EMC Shares”) of EMC Packaging, Inc., a Delaware corporation (“EMC”), from the holders of all of the issued and outstanding capital stock of EMC (the “EMC Stockholders”). On the effective date of the purchase of the EMC Shares, EMC became the Company’s wholly owned subsidiary. In consideration for their EMC Shares, the EMC Stockholders received an aggregate of 2,296,800 shares of the Company’s common stock.
Departure of Independent Auditors and Retention of New Independent Auditors
The independent auditors of Ciro International, Inc., Lazar Levine and Felix LLP, predecessor auditor of the legal acquirer, for accounting purposes, in a reverse merger, resigned as the independent auditors of Ciro International, Inc. effective December 7, 2004 because such auditors had no dealings with the Company since July 24, 2003. In October 2003, the Company filed a Form 15 with the Securities and Exchange Commission (the “Commission”) under Rule 12g-4(a)(1)(i) of Securities Exchange Act of 1934, as amended (
the “Exchange Act”), electing to become a non-reporting company on the basis that its common stock was held by fewer than 300 persons. On February 28, 2003, the board of directors of Advanced Bio/Chem, Inc., a Texas corporation (“ABC Texas”), approved the retention of Fitts, Roberts & Co., P.C to audit the financial statements of ABC Texas for the years ended December 31, 2002 and 2001. On June 3, 2004, the board of directors of ABC Texas again approved the retention of Fitts, Roberts & Co., P.C. to audit the financial statements of ABC Texas for the year ended December 31, 2003. On December 29, 2004, Fitts, Roberts & Co., P.C. informed the Company that it would not stand for reelection as the Company’s independent auditors. The Company received certain observations from Fitts, Roberts & Co., P.C., including, but not limited to, the following: (i) the Company lac
ks specific policies and a procedure guide; (ii) the separation of duties to support internal controls is lacking; (iii) there is poor documentation and a lack of trained accounting staff; and (iv) the Company has a lack of reconciliation of accounts and has a number of audit adjusting journal entries. On December 9, 2004, the Company’s Board of Directors approved the retention of Beckstead and Watts, LLP as the Company’s independent auditors going forward. There have been no disagreements with any of the Company’s independent auditors to the knowledge of the Company’s Board of Directors.
In September 2004, the Company offered and sold an aggregate of 1,000,000 shares of its common stock to several accredited investors for $0.05 per share. The purchasers in this private placement represented his or her intention to acquire the securities for investment only and not with a view toward distribution. These securities were not sold through an underwriter and there were no underwriting discounts or commissions involved. These sales and purchases in the private placement were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) and the regulations promulgated thereunder, on the basis that the private placement did not involve a public offering.
Item 1. Financial Statements.
Critical Accounting Policies
The Company believes that the following critical accounting policies reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements:
Revenue Recognition
The Company recognizes revenue principally from contract services performed in the area of protein identification as the services are completed. Payments by customers for services not yet performed are classified as deferred revenue. Revenue recognition, in part, depends on management’s assessment of when services are deemed completed.
Income Tax
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not. Management has determined as of December 31, 2003 that it is not probable that the Company will realize a future tax benefit from its deferred tax assets.
Accounting for Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” In accordance with the provisions of SFAS No. 123, the Company applies Accounting Principles Board Opinion 25 and related interpretations in accounting for stock issued to its employees and consultants. Management exercises judgment in its determination of when significant non-cash stock transactions have occurred.
Please see the Financial Statements beginning on page F-1.
Item 2. Management’s Discussion and Analysis or Plan of Operations.
Note Regarding Ciro and ABC Texas
The Company’s discussion and analysis of its financial condition for the three months ended March 31, 2004 treats the assets of Ciro International Inc. (the Company’s predecessor (“Ciro”), as existing prior to the merger (the “Merger”) between Ciro Acquisition Corp., a Texas corporation and a wholly owned subsidiary of Ciro formed for purposes of the Merger (“Ciro Acquisition”), and ABC Texas, consummated pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) among Ciro, Ciro Acquisition (which was inappropriately identified in the Merger Agreement as Advanced Bio/Chem Acquisition Corp. and ABC Texas, on their own, as immaterial, as illustrated in the Company’s unaudited financial statements contained herein. Under the Merger Agreement, Ciro Acqui
sition merged with and into ABC Texas in a tax free exchange of shares at which time ABC Texas became a wholly owned subsidiary of Ciro. Prior June 12, 2003, the effective date of the Merger, Ciro was in essence a “shell” company since, as of December 31, 2002, all licenses issued by the Company expired. Following the effectiveness of the Merger, the Company became a holding company for ABC Texas and all of the Company’s assets consisted of the assets of ABC Texas. As a result, comparisons of the three months ended March 31, 2004 and 2003 are solely of ABC Texas.
Results of Operations
The Company had net revenues of $137,837 for the three ended March 31, 2004 which approximates net revenue of $136,554 in the same period in 2003.
Total operating expenses (including depreciation) for the three months ended March 31, 2004 were $167,727 compared to $284,740 for the same period in 2003. The major decrease being salaries and contract labor in the three of 2004 compared to 2003.
The net loss from operations for the three months ended March 31, 2004 was $(81,832) or $(0.01) per share (basic and diluted) compared to a net loss of $(195,811) or $(0.05) loss per share in the same periods in 2003 primarily for reason discussed above.
Liquidity and Capital Resources
The Company had a working capital deficit of $(1,745,622) as at March 31, 2004. This compares to a working capital deficit of $(1,977,216) at the fiscal year end, December 31, 2003.
The majority of the decrease in the deficit is attributed to decreased accrued salaries ($165,017) and deferred revenue ($129,577) offset by Increased accrued interest ($51,799) and accounts payable.
Net cash provided by operations for the three months ended March 31, 2004 was a negative $(269,535) compared to a negative cash flow in the same period in 2003 of $(13,885). The majority of this difference is attributed to increase in working capital changes offset by deceased loss.
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The Company obtained funds to operate in the three months ended March 31,2004 from the issuance of common stock in the amount of $265,000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
It should be noted that in this Management's Discussion and Analysis or Plan of Operations contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms "believe", "anticipate", "intend", "goal", "expect" and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including the Company's dependence on weather-related fact
ors, introduction and customer acceptance of new products, the impact of competition and price erosion, as well as supply and manufacturing constraints and other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period being reported (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were not effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Such officers reached this conclusion because the Company’s records, prior to the recent change in management, had not been maintained and processed to meet both financial reporting and other C
ommission disclosure needs and requirements. Management has reviewed the recommendations set forth in a letter from the Company’s auditors and have set March 30, 2005 as a deadline to bring the Company’s disclosure controls and procedures in line with such recommendations. The Company’s independent auditors have made a number of recommendations including, but not limited to, the following: (i) the Company should improve accounting controls through the formalization of accounting practices through promulgation of accounting policies and procedures, and (ii) additional recommendations related to improving internal controls through the separation of duties within the accounting function. Management has hired outside consultants to help with this process.
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Changes in Internal Controls
No significant changes in the Company's internal controls or in other factors that could significantly affect these controls following the date of evaluation came to management's attention.
PART II
Item 1. Legal Proceedings.
As of March 31, 2004, the Company was neither a party nor were any of its properties subject to any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following sets forth information relating to all sales of our common stock during the quarter ended March 31, 2004, which sales were not registered under the Securities Act.
During the quarter ended March 31, 2004, the Company sold an aggregate of 3,576,666 shares of its common stock in a private placement to accredited investors as well as for accrued interest and services rendered, at prices between $0.001 and $0.80 per share. Each of the purchasers in this private placement represented his or her intention to acquire the securities for investment only and not with a view toward distribution. None of the shares of the Company’s common stock were sold through an underwriter and there were no underwriting discounts or commissions involved. These sales and purchases in the private
placement were exempt from registration under the Securities Act pursuant to Section 4(2) and the regulations promulgated thereunder, on the basis that the private placement did not involve a public offering.
Other than the securities mentioned above, the Company did not issue or sell any securities during the quarter ended March 31, 2004.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
Please see “Recent Developments” on page 1.
Exhibit Index
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31.1 |
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a). |
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31.2 |
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a). |
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32.1 |
Section 1350 Certification of the Chief Executive Officer. |
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32.2 |
Section 1350 Certification of the Chief Financial Officer. |
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Signatures
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Industrial Enterprises of America, Inc.
(Registrant)
Date: December 31, 2004
By: /s/ John D. Mazzuto
John D. Mazzuto, Chief Financial
Officer, Vice Chairman of the Board, Assistant Secretary and a Director
Date: December 31, 2004
By: /s/ Crawford Shaw
Crawford Shaw, Chief Executive Officer,
Chairman of the Board, President and a Director
Date: December 31, 2004
By: /s/ Dennis O’Neill
Dennis O’Neill, Controller
On July 28, 2004, the sole director of the Company, Helen Park, resigned and Crawford Shaw was appointed as sole director, president and chief executive officer. In August 2004, John Mazzuto and Michael Collyer were added as directors.