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EX-32.2 - Hydrogen Future Corp | v208251_ex32-2.htm |
EX-31.1 - Hydrogen Future Corp | v208251_ex31-1.htm |
EX-32.1 - Hydrogen Future Corp | v208251_ex32-1.htm |
EX-31.2 - Hydrogen Future Corp | v208251_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
þ ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Fiscal Year Ended September 30, 2010
¨ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number: 333-138927
A5
Laboratories, Inc.
(Name of
Registrant as specified in its charter)
Nevada
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20-5277531
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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10300 Chemin de la Cote-De-Liesse,
Lachine, Quebec, H8T 1A3
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(Address of principal executive offices)
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(514)
420-0333
(Issuer’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 the Securities Act. Yes ¨ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 last 90 days. Yes þ
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 (§232.405 of this
chapter) during the preceding 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 (§229.405 of this chapter) 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 10-K
or any amendment to this Form 10-K. Yes ¨ No þ
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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨
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Accelerated Filer ¨
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Non-Accelerated Filer ¨
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Smaller reporting company þ
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No þ
Issuer’s
revenues for its most recent fiscal year were approximately $0.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on January 19, 2011, based on a closing price
of $0.21 was approximately $6,132,352.17. As of January 19,
2011, the registrant had 48,201,677 shares of its common stock, par value $0.001
per share, outstanding.
Documents
Incorporated By Reference: None.
TABLE
OF CONTENTS
Page
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PART
I
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Item
1.
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Business.
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4
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Item
1A.
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Risk
Factors.
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10
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Item
1B.
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Unresolved
Staff Comments.
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14
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Item
2.
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Properties.
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14
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Item
3.
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Legal
Proceedings.
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15
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Item
4.
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(Removed
and Reserved).
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15
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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16
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Item
6.
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Selected
Financial Data.
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16
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Item
7.
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Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operation.
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16
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Item
7A.
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Quantitative
And Qualitative Disclosures About Market Risk.
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20
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Item
8.
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Financial
Statements.
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20
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Item
9.
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Changes
In And Disagreements With Accountants On Accounting And Financial
Disclosure.
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20
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Item
9A.
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Controls
And Procedures.
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21
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Item
9B.
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Other
Information.
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21
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PART
III
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Item
10.
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Directors,
Executive Officers And Corporate Governance.
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22
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Item
11.
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Executive
Compensation.
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23
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Item
12.
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Security
Ownership Of Certain Beneficial Owners And Management And Related
Stockholder Matters.
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23
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Item
13.
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Certain
Relationships And Related Transactions, And Director
Independence.
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25
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Item
14.
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Principal
Accounting Fees And Services.
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25
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PART
IV
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Item
15.
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Exhibits,
Financial Statements Schedules.
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25
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2
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included
in this Form 10-K are “forward-looking” statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot assure you that the
expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those
anticipated in forward-looking statements as a result of certain factors,
including matters described in the section titled “Risk
Factors.” Forward-looking statements include those that use
forward-looking terminology, such as the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,”
“should,” and similar expressions, including when used in the
negative. Although we believe that the expectations reflected in
these forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and we cannot assure you that actual results
will be consistent with these forward-looking statements. We
undertake no obligation to update or revise these forward-looking statements,
whether to reflect events or circumstances after the date initially filed or
published, to reflect the occurrence of unanticipated events or
otherwise.
3
PART
I
Item
1. Business.
Company
History
We were
incorporated in the State of Nevada on June 21, 2006, as El Palenque Nercery,
Inc. On June 30, 2006, we changed our name to El Palenque Vivero, Inc., and on
March 23, 2010, we changed our name to A5 Laboratories Inc. On April 8, 2010, we
effectuated a forward split of our issued shares of common stock on the basis of
10-for-1. Our business offices are located at 10300 Chemin de la Cote-de-Liesse,
Lachine, Quebec, H8T 1A3 and our telephone number is 514-420-0333.
Principal
Services
Contract
Research and Laboratory Services
We plan
to offer a full range of testing services to the pharmaceutical industry in a
variety of fields; all in compliance with Good Laboratory Practices (GLP) and
current Good Manufacturing Practices regulations (cGMP) through in-house and
outsourcing arrangements. The comprehensive services provided help to expedite
the development process by providing immediate resources and technical expertise
to help our clients meet timelines, pursue projects of varying priority and
risk, handle changes in workload, handle multiple projects, and pursue
developments without in-house resources. Our Custom Research Organization (CRO)
services can be divided into two sections: Analytical and Quality
Assurance.
Analytical
We plan
to offer a wide range of analytical services to support a client’s quality
control, product development, method development, validation and marketed
product activities. We are able to provide quantitative and qualitative as well
as consulting and analytical services in chemistry, microbiology and
chromatography to the pharmaceutical, biotechnology and cosmetics industries. At
our facility in Lachine, Quebec, we are able to perform a wide variety of
quality control tests on raw materials as well as finished products. We also
offer a full range of ICH stability conditions and provide total stability
management. In addition, we can develop and validate new methods, revalidate
existing methods to ensure compliance with current regulatory requirements and
perform technology transfers.
These
services can be broken down as follows:
Analytical
Services
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Stability
Testing and Storage
(I.C.H.
And Custom
Conditions)
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Method
Developments
and
Validation
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Microbiological
Testing
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Pharmaceutical
Synthesis
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Drug
Substance Testing
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Reverse
Engineering
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Formulation
Development
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Validated
Secondary Standard
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Consulting
Services
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Quality
Audits
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Submission
Support and
Documentation
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GLP
and GMP Audit and
Inspection
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Testing
Capabilities
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Chromatography
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H.P.L.C.
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G.C.
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Chiral
H.P.L.C.
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T.L.C.
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Semi-Prep
L.C.
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USP
and Compendial Testing
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UV-VIS
Spectrophotometry
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Dissolution/Disintegration
Physical
Testing
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Atomic
Absorption
Spectrophotometry
(AA)
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Fourier
Transform Infrared
Spectrophotometry
(FTIR)
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Polarimetry
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4
Microbiological
Analysis Services
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Antibiotic
Assays
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Stability
Testing
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Method
Development and
Validation
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Finished
Product and Raw
Material
Testing
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Manufacturing
Validation
Support
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Sample
Collection
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Micro
Testing Capabilities
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Speciation
(MIDI GC, API,
Biochemical
Tests)
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Microbial
Limits Testing
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Compendial
Testing (USP,
CFR,
SP, EP, JP, and BP)
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Bacterial
Endotoxin Testing
(LAL:
Gel Clot and Kinetic)
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Sterility
Testing
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Antimicrobial
Preservative
Efficacy
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Container/Closure
Testing
(Dye,
Ingression Microbial
Ingression)
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Bioburden
Testing
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Cleaning
Validation
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Antibiotic
Assay
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Filter
Retention Testing
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BI
Verificaiton (Titer and
Organism
ID)
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Dose
Audits of Sterile Fill Areas
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Environmental
Monitoring
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Quality Assurance and
Support Services
We will
also provide various support services via which clients receive quality testing
data on their products through compliance with Good Laboratory Practices (GLPs)
and Good Manufacturing Practices (cGMPs). The Quality Assurance department
independently audits and tracks every project to assure accurate and reliable
results. Every report includes a Quality Assurance Letter verifying and
qualifying data and compliance, which completes the audit trail. We can prepare
or help our customer to obtain all regulatory authorization to import and
distribute their pharmaceutical product via getting D.I.N ( drug identification
Number) or nutraceuticals products via getting N.P.N (natural product Number)
from Health Canada.
Interferon
The
normal function of the immune system is essential for health, and dysfunction of
the immune system leads to a wide diversity of diseases. Deficiency of immune
cell production or defective immune cell function can lead to a spectrum of
immunodeficiency diseases. Over-activity of various components of the immune
system leads to the development of allergic or autoimmune diseases. Leukemias
and lymphomas are the result of malignant transformation in cells of the immune
system. Cytokines are soluble mediators acting as cell-to-cell messengers in the
immune system. They are critical for normal immune system function, and their
expression may be perturbed in disease states. They are involved in the
regulation of the growth, development, and activation of immune system cells and
the mediation of the inflammatory response. In general, cytokines are pleotropic
in that they are capable of acting on many different cell types. This
pleotropism results from the presence of receptors for the same cytokine on
multiple cell types, leading to the formation of “cytokine
networks.”
Interferons
(IFNs) are cytokines that exhibit a broad spectrum of immune-modulating and
anti-proliferative properties. Alpha (leukocyte) IFN-a is made by white blood
cells; beta (fibroblast) IFN-b is made by skin cells and gamma (immune) IFN-g is
made by lymphocytes after stimulation by antigen. IFNs are not species-specific.
IFNs are coded by three distinct cell genes; they have important differences in
amino acid sequence, stimulus for induction, producer cell and role in the body.
The active substance is not IFN itself, but proteins that IFN causes to be
produced by other cells of the immune system.
Interferon-gamma
is produced by stimulated T-lymphocytes (CD4+ and CD8+) and natural killer (NK)
cells (both components of the immune system) in response to infection and
antigenic challenge. IFN-gamma shows little structural relationship to IFN-alpha
and IFN-beta. IFN-gamma has antiviral and antiproliferative properties and
several biological actions not shared with the other interferons. It alone is a
potent activator of macrophages and neutrophils, enhancing the production of
reactive oxygen species and the killing of microbacterial, fungal and protozoan
pathogens. Another important difference is its role as a primary mediator of the
immune response. Cytokines such as IFN-gamma play an essential role in the
mechanisms of immunity. When the host is challenged with a pathogen, cytokines
are synthesized in situ and it is the influence of these cytokines on the other
cells of the immune system, which contributes towards development of immunity to
that pathogen.
5
We have
acquired proprietary technology from Vida Nutra Pharma Inc., for cost effective
gamma interferon (IFN-g) production technology. The application of human gamma
interferon in immune-based
therapy has potential therapeutic applications in cancers, chronic
hepatitis B, opportunistic infections in HIV patients, antibiotic resistant
bacterial and fungal infections, parasite infections, sepsis, and diabetes.
Interferon (IFN)-gamma is a soluble protein produced by immune cells in response
to infection and antigenic challenge. IFN-gamma has antiviral and
antiproliferative properties and is a potent activator of macrophages and
neutrophils, enhancing killing of microbacterial, fungal and protozoan
pathogens.
We have
not yet created sufficient IFN-gamma to effectively test it across a large
enough animal or human population to generate any meaningful data on the
efficacy of IFN-gamma as a treatment method.
A large
number of experimental and clinical data indicate a wide spectrum of disease
states that are potentially amenable to IFN-gamma treatment. In several of the
diseases, IFN-gamma immune-based therapy is in
phase II or III clinical trials. Recombinant IFN-gamma immune-based therapy has been
approved for clinical therapy of three rare diseases. The major hurdle to
overcome in IFN-gamma treatment is the cost of dosages that can easily run into
tens of thousands of dollars for a single treatment. Cost has been the limiting
factor in the expansion of recombinant IFN-gamma to clinical settings treating
major diseases, and we believe that our technology may be able to significantly
lower this cost, by a factor of 10 to 1 or even 100 to 1 by the application of
our interferon production technology. We intend to focus on production of
natural human gamma interferon for clinical trials and therapeutics if we are
able to prove efficacy and efficiency, we expect to commercialize our
product.
Gamma
interferons are manufactured commercially in three ways: by genetic engineering,
by cell culture, and from human white blood cells. In the United States, only
one type of gamma interferon is approved for commercial sale: Actimmune, which
is a recombinant form of human IFN-gamma and is produced in E. coli
bacteria.
The
critical step in the production of natural IFNs involves activation by inducers
to stimulate IFNs secretion in spleen cells. In the past, inducers used for
stimulating IFN secretion were toxic agents such as bacterial endotoxins, plant
lectins (ConA, PHA), as well as viruses and the issue of safety was one of the
main factors that limited clinical application of natural IFNs.
Markets,
Customers and Distribution
Contract
Research and Laboratory Services
The drug
development process is a lengthy, expensive activity monitored and regulated by
a number of governing bodies. The identification of any new drug candidate
involves proving its safety and efficacy through a series of prescribed
laboratory experiments and tests including safety and biological activity
testing. The drug industry has been under increasing pressure from managed care,
industry consolidation and competition, and globalization to increase annual
output of new products and conduct the research in a more cost-effective and
time-efficient manner. The increasing pressure from managed care and industry
competition will continue forcing sponsors to expand their outsourcing to
contract research organizations. Stricter regulatory requirements both in the
United States and abroad have also made CROs a more attractive alternative to
in-house testing and management.
Market
situation appraisal for CRO indicates a market size of approximately $15 million
for the Quebec market, $20 million for the Ontario market, and $190 - 230
million for the US market.
We
provide services to a diverse client base consisting of emerging pharmaceutical
companies, biotechnology companies, large pharmaceutical companies, specialty
pharmaceuticals, drug delivery companies, and generics.
6
Interferon
Thus far,
IFN-gamma has been recognized as clinically effective in the prophylaxis of
chronic granulomatous disease, as adjunctive treatment in at least one systemic
intracellular infection, visceral leishmaniasis and in treatment of
osteopretosis. However, we believe that IFN-gamma treatment can prove to be
effective in all types of diseases ranging from cancer, viral infections,
sepsis, AIDS and diabetes.
Many of
the infectious diseases listed affect large segments of the world population and
could benefit from IFN-gamma as both first line therapy or as an adjunct therapy
in restoring proper immune system function.
Actimmune,
a recombinant human IFN-gamma currently approved for IFN-gamma immunotherapy is
expensive - ~ 3x106 IFN
Units or 100 micrograms cost $470 US (Sigma catalogue # I1520). In chronic
hepatitis B, for instance, treatment of a single patient requires 150 micrograms
per day for 4 weeks and costs $19,740 US. Treating 1000 patients would then cost
~ $20 million US. Cost reductions as function of number of patients to be
treated can be envisaged, however even a two-fold reduction would make little
difference in the cost of treating large number of chronic hepatitis B
sufferers. This same rationale applies to many of the diseases that are
potentially susceptible to IFN-gamma immunotherapy and currently limits the use
of IFN-gamma - making it at best a second line therapy.
Current
production of natural human IFN-gamma from 5 kg of spleen cells obtained from
10-20 human donors will yield 3X109 IFN
Units of IFN-gamma or 106 doses.
Based on the site visit, cost of production at laboratory scale can be set at
$100,000 US for 106 doses,
or $0.10 US per dose. However, this cost per dose will probably increase
ten-fold when manufactured under GMP (Good Manufacturing Practice) conditions.
The cost is then estimated at $1 US per dose when produced under GMP. Production
scaled up 100 fold without further increase in cost is challenging but
feasible.
We will
attempt market penetration at reduced price structures of natural IFN-gamma with
respect to Actimmune. Given the current number of infectious diseases as well as
cancer, for which IFN-gamma immune-based therapy may be effective, we believe we
will be able to find a market for our product if its efficacy is
proven.
Competition
CRO
We face
competition from various CRO companies ranging from small, private businesses to
large enterprises. Many of our competitors have longer operating
histories, better brand recognition and greater financial resources than we do.
In order for us to successfully compete in our industry we will need
to:
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·
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develop
awareness of our services among our client
base;
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continue
developing the scope of services we can provide and improve efficiency and
accuracy; and
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·
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increase
our financial resources.
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However,
there can be no assurance that even if we do these things we will be able to
compete effectively with the other companies in our industry.
We
believe that we will be able to compete effectively in our industry because
of:
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·
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the
established reputation of our President, Mr.
Azani;
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·
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well
diversified portfolio of services and testing procedures;
and
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·
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intimate
knowledge of local and international pharmaceutical
companies.
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7
However,
as we are a newly-established company, we face the same problems as other new
companies starting up in an industry, such as lack of available funds. Our
competitors may be substantially larger and better funded than us, and have
significantly longer histories of research, operation and development than us.
In addition, they may develop similar testing procedures to ours and use the
same methods as we do and generally be able to respond more quickly to new or
emerging technologies and changes in legislation and regulations relating to the
industry. Additionally, our competitors may devote greater resources to the
development, promotion and sale of their services than we do. Increased
competition could also result in loss of key personnel, reduced margins or loss
of market share, any of which could harm our business.
Interferon
We face
many of the same challenges in developing our Interferon technology. We face
competition from various pharmaceutical companies ranging from small, private
businesses to large multinational enterprises. Many of our
competitors have longer operating histories, better brand recognition and
greater financial resources than we do. In order for us to successfully compete
in our industry we will need to:
|
·
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further
development of our Interferon
technology;
|
|
·
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assure
that all of our technological progress is properly protected via
intellectual property mechanisms;
and
|
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·
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increase
our financial resources.
|
We
believe that we will be able to compete effectively in our industry due to the
potential inherent advantages of our technology. The following are some of the
potential advantages:
|
·
|
Fully
glycosylated natural IFN-gamma showed full or partial resistance against
crude granulocyte protease, elastase, cathepsin G and plasmin while
recombinant E. coli
human IFN-gamma was sensitive to all of these proteases that are
found in body. This data strongly implies that natural IFN-gamma is
expected to have a longer half-live in the body because of its greater
resistance to proteases than the currently marketed recombinant human
IFN-gamma.
|
|
·
|
Production
of human IFN-gamma is not efficient in E. coli bacteria as it
yields improperly folded species of the recombinant protein. Biological
efficacy depends on properly folded protein. Improperly folded protein is
a target for proteases in the body that rapidly degrade it. Although
recombinant human IFN-gamma is subject to a refolding protocol to restore
biological activity, this refolding process does not necessarily ensure a
homogeneously refolded protein. Higher doses of recombinant protein may
thus necessary to ensure adequate concentration of properly folded
species. By comparison, natural IFN-g, which is produced in spleen cells,
responsible for natural IFN-g production, is properly folded and thus
requires lower dosages for biological
response.
|
|
·
|
Natural
human IFN-gamma has fewer side-effects and better patient safety.
Long-term intra-muscular or subcutaneous injections of IFN-alpha, beta,
gamma in patients with chronic myelogeneous leukemia (CML) can cause
severe, long-lasting cutaneous complications consistent with necrotizing
vasculitis which frequently require surgical intervention. The high
concentrations of IFN at the injection site were suspected. We believe
that the absence of glycosylation may be responsible for the production of
interferon-neutralizing antibodies in these patients. Consequently, lower
dosages of IFN-gamma are expected to have fewer side effects, improved
patient compliance, and good market
acceptance.
|
To be
competitive and expand research into use of natural human gamma interferon, we
anticipate that a single dose of natural human IFN-gamma corresponding to 3,000
units will be priced at $50 US (an equivalent dose of 3X106 Units of
Actimmune costs $470 US). Assuming a dose of 4,500 IFN Units per patient for 4
weeks and 10,000 patients treated yields more than $20,000,000 in sales. A
further 10-fold price reduction and one million patients treated, i.e. $5 US per
dose to reach an even larger market, gives more than $200,000,000 in sales
potential. A sliding scale will be used in making the transition in cost
reduction to maximize profitably. The inventory of IFN-gamma doses remaining
after projected sales is 50% of total doses produced in each scenario, allowing
an additional margin in price reduction.
If we are
unable to establish these competitive advantages or if we are not able to
develop our interferon technology to the point that it is commercially viable,
it is likely that we will not be able to continue this business.
8
Intellectual
Property
We have
filed for a provisory patent with the U.S. patent office in order to preserve
our natural gamma interferon technology (U.S. provisional Patent No. US
61-400719). We do own copyrights on all of the content of our website:
www.a5labs.com.
Research
and Development
We did
not incur any research and development expenses from our inception to September
30, 2010.
Reports
to Security Holders
We are
subject to the reporting and other requirements of the Exchange Act and we
intend to furnish our shareholders with annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
The
public may read and copy any materials that we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. The address of that site is
www.sec.gov.
Government
Regulations
We are
not aware of any government regulations which would have a significant impact on
our operations.
Environmental
Regulations
We are
not aware of any material violations of environmental permits, licenses or
approvals that have been issued with respect to our operations. We expect to
comply with all applicable laws, rules and regulations relating to our business,
and at this time, we do not anticipate incurring any material capital
expenditures to comply with any environmental regulations or other
requirements.
While our
intended projects and business activities do not currently violate any laws, any
regulatory changes that impose additional restrictions or requirements on us or
on our potential customers could adversely affect us by increasing our operating
costs or decreasing demand for our products or services, which could have a
material adverse effect on our results of operations.
Employees
As of
September 30, 2010, we had 4 employees, with all of them being engaged on a full
time basis.
WHERE
YOU CAN FIND MORE INFORMATION
You are
advised to read this Form 10-K in conjunction with other reports and documents
that we file from time to time with the SEC. In particular, please read our
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from
time to time. You may obtain copies of these reports directly from us or from
the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington,
D.C. 20549, and you may obtain information about obtaining access to the
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains information for electronic filers at its website
http://www.sec.gov.
9
Item
1A. Risk Factors.
This
Annual Report contains forward-looking statements that involve risks and
uncertainties. These statements can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “intends,” “plans,” “may,” “will,”
“should,” or “anticipation” or the negative thereof or other variations thereon
or comparable terminology. Actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Annual Report. The
following risk factors should be considered carefully in addition to the other
information in this Annual Report.
Risks
Related to our Business and Industry
WE
MAY BE REQUIRED TO PERFORM ADDITIONAL CLINICAL TRIALS OR CHANGE THE LABELING OF
OUR PRODUCTS IF SIDE EFFECTS OR MANUFACTURING PROBLEMS ARE IDENTIFIED AFTER OUR
PRODUCTS ARE ON THE MARKET.
If side
effects are identified after any of our products are on the market, or if
manufacturing problems occur, regulatory approval may be withdrawn and product
recalls, reformulation of products, additional clinical trials, changes in
labeling of products, and changes to or re-approvals of our manufacturing
facilities may be required, any of which could have a material adverse effect on
sales of the affected products and on our business and results of
operations.
After
products are approved for commercial use, we or regulatory bodies could decide
that changes to the product labeling are required. Label changes may be
necessary for a number of reasons, including the identification of actual or
theoretical safety or efficacy concerns by regulatory agencies or the discovery
of significant problems with a similar product that implicates an entire class
of products. Any significant concerns raised about the safety or efficacy of our
products could also result in the need to recall products, reformulate those
products, to conduct additional clinical trials, to make changes to the
manufacturing processes, or to seek re-approval of the manufacturing facilities.
Significant concerns about the safety and effectiveness of a product could
ultimately lead to the revocation of our marketing approval. The revision of
product labeling or the regulatory actions described above could be required
even if there is no clearly established connection between the product and the
safety or efficacy concerns that have been raised. The revision of product
labeling or the regulatory actions described above could have a material adverse
effect on sales of the affected products and on our business and results of
operations.
IF
WE OR OUR SUPPLIERS ARE UNABLE TO COMPLY WITH ONGOING AND CHANGING REGULATORY
STANDARDS, SALES OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED.
Virtually
all aspects of our business, including the development, testing, manufacturing,
processing, quality, safety, efficacy, packaging, labeling, record-keeping,
distribution, storage and advertising and promotion of our products and disposal
of waste products arising from these activities, are subject to extensive
regulation by federal, state and local governmental authorities in the United
States, including the FDA and the Department of Health and Human Services Office
of Inspector General (HHS OIG). Our business is also subject to similar and/or
additional regulation in other countries. Compliance with these regulations is
costly and time-consuming.
Our
manufacturing facilities and procedures and those of our suppliers are subject
to ongoing regulation, including periodic inspection by the FDA and other
regulatory agencies. For example, manufacturers of pharmaceutical products must
comply with detailed regulations governing current good manufacturing practices,
including requirements relating to quality control and quality assurance. We
must spend funds, time and effort in the areas of production, safety, quality
control and quality assurance to ensure compliance with these regulations. We
cannot assure that our manufacturing facilities or those of our suppliers will
not be subject to regulatory action in the future.
Our
products generally must receive appropriate regulatory clearance before they can
be sold in a particular country, including the United States. We may encounter
delays in the introduction of a product as a result of, among other things,
insufficient or incomplete submissions to a regulatory agency for approval of a
product, objections by another company with respect to our submissions for
approval, new patents by other companies, patent challenges by other companies
that result in a 180-day exclusivity period, and changes in regulatory policy
during the period of product development or during the regulatory approval
process. Regulatory agencies have the authority to revoke drug approvals
previously granted and remove from the market previously approved products for
various reasons, including issues related to current good manufacturing
practices for that particular product or in general. We may be subject from time
to time to product recalls initiated by us or by regulatory
authorities.
10
Our
inability or the inability of our suppliers to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines, consent
decrees restricting or suspending our manufacturing operations, delay of
approvals for new products, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of sales and criminal prosecution. Any of
these or other regulatory actions could materially adversely affect our business
and financial condition.
WE
DEPEND ON THIRD PARTIES TO SUPPLY RAW MATERIALS AND OTHER COMPONENTS AND MAY NOT
BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS, WHICH WILL LIMIT OUR
ABILITY TO MANUFACTURE OUR PRODUCTS ON A TIMELY BASIS AND HARM OUR OPERATING
RESULTS.
The
manufacture of Interferon requires, and our product candidates will require, raw
materials and other components that must meet stringent regulatory requirements.
Some of these raw materials and other components are available only from a
limited number of sources. Obtaining approval to change, substitute or add a raw
material or component, or the supplier of a raw material or component, can be
time consuming and expensive, as testing and regulatory approval are
necessary.
OTHER
COMPANIES MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY OR
PROPRIETARY RIGHTS, WHICH COULD CAUSE US TO INCUR SIGNIFICANT EXPENSES OR
PREVENT US FROM SELLING OUR PRODUCTS.
Our
success depends in part on our ability to operate without infringing the patents
and proprietary rights of third parties. The manufacture, use and sale of new
products with conflicting patent rights have been subject to substantial
litigation in the pharmaceutical industry. These lawsuits relate to the validity
and infringement of patents or proprietary rights of third parties. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions may have filed patent applications or may have been granted patents
that cover aspects of our products or our licensors’ products, product
candidates or other technologies.
Future or
existing patents issued to third parties may contain claims that conflict with
our products. We may be subject to infringement claims from time to time in the
ordinary course of our business, and third parties could assert infringement
claims against us in the future. Litigation or interference proceedings could
force us to:
|
·
|
stop
or delay selling, manufacturing or using products that incorporate or are
made using the challenged intellectual
property;
|
|
·
|
pay
damages; or
|
|
·
|
enter
into licensing or royalty agreements that may not be available on
acceptable terms, if at all.
|
Any
litigation or interference proceedings, regardless of their outcome, would
likely delay the regulatory approval process, be costly and require significant
time and attention of key management and technical personnel.
We may
not be able to prevent third parties from infringing or using our intellectual
property. We generally control and limit access to, and the distribution of, our
product documentation and other proprietary information. Despite our efforts to
protect this proprietary information, however, unauthorized parties may obtain
and use information that we regard as proprietary. Other parties may
independently develop similar know-how or may even obtain access to these
technologies.
The laws
of some foreign countries do not protect proprietary information to the same
extent as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary information in
these foreign countries.
The U.S.
Patent and Trademark Office and the courts have not established a consistent
policy regarding the breadth of claims allowed in pharmaceutical patents. The
allowance of broader claims may increase the incidence and cost of patent
interference proceedings and the risk of infringement litigation. On the other
hand, the allowance of narrower claims may limit the value of our proprietary
rights.
11
THE
STRATEGY TO LICENSE RIGHTS TO OR ACQUIRE AND COMMERCIALIZE PROPRIETARY,
BIOLOGICAL INJECTABLE OR OTHER SPECIALTY INJECTABLE PRODUCTS MAY NOT BE
SUCCESSFUL AND WE MAY NEVER RECEIVE ANY RETURN ON OUR INVESTMENT IN THESE
PRODUCTS.
We may
license rights to or acquire products or technologies from third parties. Other
companies, including those with substantially greater financial and sales and
marketing resources, will compete with us to license rights to or acquire these
products and technologies. We may not be able to license rights to or acquire
these proprietary or other products or technologies on acceptable terms, if at
all. Even if we obtain rights to a pharmaceutical product and commit to payment
terms, including, in some cases, significant up-front license payments, we may
not be able to generate product sales sufficient to create a profit or otherwise
avoid a loss.
A product
candidate may fail to result in a commercially successful drug for other
reasons, including the possibility that the product candidate may:
|
·
|
be
found during clinical trials to be unsafe or
ineffective;
|
|
·
|
fail
to receive necessary regulatory
approvals;
|
|
·
|
be
difficult or uneconomical to produce in commercial
quantities;
|
|
·
|
be
precluded from commercialization by proprietary rights of third parties;
or
|
|
·
|
fail
to achieve market acceptance.
|
WE
MAY BECOME SUBJECT TO FEDERAL OR STATE FALSE CLAIMS OR OTHER SIMILAR LITIGATION
BROUGHT BY PRIVATE INDIVIDUALS AND THE GOVERNMENT.
The
Federal False Claims Act (and equivalent state statutes) allows persons meeting
specified requirements to bring suit alleging false or fraudulent Medicare or
Medicaid claims and to share in any amounts paid to the government in fines or
settlement. These suits, known as qui tam actions, have
increased significantly in recent years and have increased the risk that a
health care company will have to defend a false claim action, pay fines and/or
be excluded from Medicare and Medicaid programs. False claims litigation can
lead to civil monetary penalties, criminal fines and imprisonment and/or
exclusion from participation in Medicare, Medicaid and other federally funded
health programs. Other alternate theories of liability may also be available to
private parties seeking redress for such claims. A number of parties have
brought claims against numerous pharmaceutical manufacturers, and we cannot be
certain that such claims will not be brought against us, or if they are brought,
that such claims might not be successful.
WE
MAY NEED TO CHANGE OUR BUSINESS PRACTICES TO COMPLY WITH CHANGES TO, OR MAY BE
SUBJECT TO CHARGES UNDER, THE FRAUD AND ABUSE LAWS.
We are
subject to various federal and state laws pertaining to health care fraud and
abuse, including the federal Anti-Kickback Statute and its various state
analogues, the federal and state False Claims Act and additional marketing and
pricing laws. Violations of these laws are punishable by criminal and/or civil
sanctions, including, in some instances, imprisonment and exclusion from
participation in federal and state health care programs such as Medicare and
Medicaid. We may have to change our advertising and promotional business
practices, or our existing business practices could be challenged as unlawful
due to changes in laws, regulations or rules or due to administrative or
judicial findings, which could materially adversely affect our
business.
12
WE
FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT AND HEALTH CARE
REFORM.
In both
domestic and foreign markets, sales of our products will depend in part on the
availability of reimbursement from third-party payers such as government health
administration authorities, private health insurers, health maintenance
organizations and other health care-related organizations. However,
reimbursement by such payers is presently undergoing reform, and there is
significant uncertainty at this time how this will affect sales of certain
pharmaceutical products. There is possible U.S. legislation or regulatory action
affecting, among other things, pharmaceutical pricing and reimbursement,
including under Medicaid and Medicare, the importation of prescription drugs
that are marketed outside the U.S. and sold at prices that are regulated by
governments of various foreign countries.
Medicare,
Medicaid and other governmental reimbursement legislation or programs govern
drug coverage and reimbursement levels in the United States. Federal law
requires all pharmaceutical manufacturers to rebate a percentage of their
revenue arising from Medicaid-reimbursed drug sales to individual
states.
Both the
federal and state governments in the United States and foreign governments
continue to propose and pass new legislation, rules and regulations designed to
contain or reduce the cost of health care. Existing regulations that affect the
price of pharmaceutical and other medical products may also change before any of
our products are approved for marketing. Cost control initiatives could decrease
the price that we receive for any product we develop in the future. In addition,
third-party payers are increasingly challenging the price and cost-effectiveness
of medical products and services and litigation has been filed against a number
of pharmaceutical companies in relation to these issues. Additionally,
significant uncertainty exists as to the reimbursement status of newly approved
injectable pharmaceutical products. Our products may not be considered cost
effective or adequate third-party reimbursement may not be available to enable
us to maintain price levels sufficient to realize an adequate return on our
investment.
WE
MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES FOR PRODUCT LIABILITY
CLAIMS.
Product
liability is a major risk in testing and marketing biotechnology and
pharmaceutical products. We may face substantial product liability exposure in
human clinical trials and for products that we sell after regulatory approval.
We maintain insurance coverage for product liability claims in the aggregate
amount of $100 million, including primary and excess coverage, which we believe
is reasonably adequate coverage. Product liability claims, regardless of their
merits, could exceed policy limits, divert management’s attention and adversely
affect our reputation and the demand for these products.
WE
DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND RESEARCH AND
DEVELOPMENT TEAMS, THE LOSS OF WHOM COULD HARM OUR BUSINESS.
We depend
heavily on the principal members of our management and research and development
teams, including Dr. Richard Azani, Executive Chairman, and Gisele Matni.
Each of the members of the executive management team is employed “at will.” The
loss of the services of any member of the executive management team may
significantly delay or prevent the achievement of product development or
business objectives.
TO
BE SUCCESSFUL, WE MUST ATTRACT, RETAIN AND MOTIVATE KEY EMPLOYEES, AND THE
INABILITY TO DO SO COULD SERIOUSLY HARM OUR BUSINESS AND
OPERATIONS.
To be
successful, we must attract, retain and motivate executives and other key
employees. We face competition for qualified scientific, technical and other
personnel, which may adversely affect our ability to attract and retain key
personnel. We also must continue to attract and motivate employees and keep them
focused on our strategies and goals.
Risks
Related to Our Common Stock
THERE
IS NO LIQUID MARKET FOR OUR COMMON STOCK.
Our
shares are traded on the OTCBB and the trading volume has historically been very
low. An active trading market for our shares may not develop or be sustained. We
cannot predict at this time how actively our shares will trade in the public
market or whether the price of our shares in the public market will reflect our
actual financial performance.
13
OUR
COMMON STOCK MAY BE CONSIDERED “A PENNY STOCK” AND MAY BE DIFFICULT FOR YOU TO
SELL.
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock has been for much of its trading history and may
continue to be less than $5.00 per share, and therefore may be designated as a
“penny stock” according to SEC rules. This designation requires any broker or
dealer selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of investors to sell their shares.
COMPLIANCE
AND CONTINUED MONITORING IN CONNECTION WITH CHANGING REGULATION OF CORPORATE
GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure may create uncertainty regarding compliance matters. New or changed
laws, regulations and standards are subject to varying interpretations in many
cases. As a result, their application in practice may evolve over time. We are
committed to maintaining high standards of corporate governance and public
disclosure. Complying with evolving interpretations of new or changed legal
requirements may cause us to incur higher costs as we revise current practices,
policies and procedures, and may divert management time and attention from the
achievement of revenue generating activities to compliance activities. If our
efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to
uncertainties related to practice, our reputation might be harmed which would
could have a significant impact on our stock price and our business. In
addition, the ongoing maintenance of these procedures to be in compliance with
these laws, regulations and standards could result in significant increase in
costs.
OUR
PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY
NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS.
The
Company’s Chairman, President, and Chief Executive Officer controls
approximately 39.42% of its current outstanding shares of voting common stock.
He may be able to exert significant control over our management and affairs
requiring stockholder approval, including approval of significant corporate
transactions. This concentration of ownership may expedite approvals of company
decisions, or have the effect of delaying or preventing a change in control,
adversely affect the market price of our common stock, or be in the best
interests of all our stockholders.
YOU
COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As of
January 19, 2011, we had 48,201,677 shares of common stock
outstanding and no shares of preferred stock outstanding. We are
authorized to issue up to 100,000,000 shares of common stock and 100,000,000
shares of preferred stock. To the extent of such authorization, our board of
directors will have the ability, without seeking stockholder approval, to issue
additional shares of common stock or preferred stock in the future for such
consideration as the board of directors may consider sufficient. The issuance of
additional common stock or preferred stock in the future may reduce your
proportionate ownership and voting power.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Description of Property.
We
currently rent an office totaling 10,000 square feet in area and we pay $10,000
in rent on a monthly basis. The lease expires in January 2012 and the
Company has the option to renew for successive one year periods.
14
Item
3. Legal Proceedings.
We are
not aware of any legal proceedings to which we are a party or of which our
property is the subject. None of our directors, officers, affiliates, any owner
of record or beneficially of more than 5% of our voting securities, or any
associate of any such director, officer, affiliate or security holder are (i) a
party adverse to us in any legal proceedings, or (ii) have a material interest
adverse to us in any legal proceedings. We are not aware of any other legal
proceedings that have been threatened against us.
Item
4. (Removed and Reserved).
15
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Market
Information
Our
shares of common stock trade on the OTCBB under the symbol
“AFLB.OB”.
The
following table sets forth the high and low trade information for our common
stock for each quarter since the Company changed business plans on July 5, 2010.
The prices reflect inter-dealer quotations, do not include retail mark-ups,
markdowns or commissions and do not necessarily reflect actual
transactions.
Quarter ended
|
|
Low Price
|
|
|
High Price
|
|
||
September
30, 2010
|
$
|
0.60
|
$
|
1.23
|
||||
December
31, 2010
|
$
|
0.18
|
$
|
0.87
|
Holders
of the Company’s Common Stock
As of
January 19, 2011, a total of 48,201,677 shares of the Company’s common stock are
currently outstanding held by approximately 55 shareholders of
record.
Dividends
We have
not declared or paid any dividends on our common stock and intend to retain any
future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying dividends on our
common stock for the foreseeable future. There are no restrictions on
our present ability to pay dividends to stockholders of our common stock, other
than those prescribed by Nevada law.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operation.
THE
FOLLOWING DISCUSSION OF OUR RESULTS OF OPERATION SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS,
THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE
INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.
Plan
of Operation
A5
Laboratories Inc. is a development stage company specializing in production of
natural interferons using a unique technology allowing us to produce interferons
for the human and animal health market. In order to execute our
business plan, we need to raise additional capital to avoid the interruption of
our current CRO and CRO related software sales operations.
16
On [enter
date], the Company filed a provisory patent with the U.S. Patent office in order
to preserve our technology for the production of natural gamma interferons. Over
the next 12 months, the Company plans to produce interferon in different
research centers worldwide. The Company currently has two research labs engaged
to produce interferons using our own technology. The first lab in Europe has
finished their work and the results will be published soon. The second lab in
North America will start immediately after the publication of the first set of
results. Although this technology has been previously tested, the Company is
currently focused on producing interferons in different independent
laboratories.
After
completion of lab scale production of interferons using our technology in North
America and with the assurance of repeatability of our technology in various
centers, we will begin producing interferon for in vitro testing at our own
facility in Montreal. Simultaneously, we plan to proceed with the
necessary regulatory efforts needed in Europe to register our product for
veterinary use. If successful, we plan on introducing the interferon
for one species (bovine or porcine). The Company also hopes to begin
clinical trials in United States, including satisfying various FDA requirements,
by the end of 2011.
Results
of Operation
Our
results of operations are summarized below:
Year Ended
September 30, 2010 ($)
|
Year Ended
September 30, 2009 ($)
|
|||||||
Revenue
|
None
|
None
|
||||||
Expenses
|
351,790 | 19,076 | ||||||
Net Loss from
Operations
|
(351,790 | ) | (19,076 | ) | ||||
Loss Per
Share
|
(0.01 | ) | (0.00 | ) |
Results
of Operations for the year ended September 30, 2010
During
the year ended September 30, 2010, we did not earn any revenues. We have not
earned any revenues since our inception and there is no assurance that we will
be able to earn any revenues in the future.
Our
expenses for the years ended September 30, 2010 and 2009 can be summarized as
follows:
|
For the Year Ended
|
|||||||||||
|
September 30,
|
|||||||||||
|
2010
|
2009
|
Difference
|
|||||||||
|
($)
|
($)
|
($)
|
|||||||||
Professional
Fees
|
31,398 | 12,717 | 18,681 | |||||||||
Rent
|
72,581 | 0.00 | 72,581 | |||||||||
General
and administrative
|
247,811 | 4,477 | 243,334 |
For the
year ended September 30, 2010, we incurred a net loss of $351,790. During the
same period in 2009 we incurred a net loss of $19,076. Our expenses during the
year ended September 30, 2010, consisted of $247,811 in general and
administrative expenses, $72,581 in rent and $31,398 in professional fees.
Comparatively, our expenses during the year ended September 30, 2009, consisted
of $4,477 in general and administrative expenses, $0 in rent and $12,717 in
professional fees. General and administrative expenses consist of management
fees, transfer agent fees, consulting fees, investor relations expenses and
general office expenses. Professional fees include legal, accounting and
auditing fees. The increase in expenses during the period ended in 2010 was
mostly due to the issuance of common stock for services rendered to consultants
and legal fees associated with a change of control transaction and associated
expenses. In addition, our company located to new premises in Quebec, Canada and
incurred rent of $72,581 for the period rent
expense is paid to an affiliate of our Chief Executive
Officer.
From June
21, 2006 (Inception) to September 30, 2010, our deficit
accumulated during the development stage was
$408,656.
17
Liquidity
and Capital Resources
As of
September 30, 2010 we had cash and cash equivalents of $17,794, other
receivables of $34,164, current liabilities of $33,122, and a working capital
surplus of $18,836.
For the
year ended September 30, 2010, we used net cash of $204,266 in operating
activities, compared to net cash of $17,168 spent on operating activities during
the same period in 2009. From our inception on June 21, 2006 to September 30,
2010 we used net cash of $256,132 in operating activities.
During
the year ended September 30, 2010, we received $362,500 in cash from financing
activities compared to $0 for the same period in 2009. From our inception on
June 21, 2006 to September 30, 2010 we received $464,500 through financing
activities; entirely from the sale of our common shares.
Our cash
level increased by $17,794 from inception to September 30, 2010.
We
anticipate that we will meet our ongoing cash requirements by selling our equity
securities or through shareholder loans. Our management has changed our business
focus to the acquisition of operating assets and we estimate that our expenses
over the next 12 months (beginning September 2010) will be approximately
$150,000 as described in the table below. These estimates may change
significantly depending on the nature of our future business activities and our
ability to raise capital from shareholders or other sources.
Estimated
|
Estimated Expenses
|
|||||
Description
|
Completion Date
|
($)
|
||||
Legal
and accounting fees
|
12
months
|
40,000 | ||||
Due
diligence expenses
|
12
months
|
60,000 | ||||
General
and administrative expenses
|
12
months
|
50,000 | ||||
Total
|
150,000 |
Off-Balance Sheet
Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to stockholders.
Inflation
The
amounts presented in the financial statements do not provide for the effect of
inflation on our operations or financial position. The net operating losses
shown would be greater than reported if the effects of inflation were reflected
either by charging operations with amounts that represent replacement costs or
by using other inflation adjustments.
Critical Accounting
Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Our company bases our estimates on assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates.
18
Fair
Value of Financial Instruments
ASC 820
defines fair value, provides a consistent framework for measuring fair value
under generally accepted accounting principles and expands fair value financial
statement disclosure requirements. ASC 820’s valuation techniques are based on
observable and unobservable inputs. Observable inputs reflect readily obtainable
data from independent sources, while unobservable inputs reflect our market
assumptions. ASC 820 classifies these inputs into the following
hierarchy:
|
Ÿ
|
Level
1 inputs: Quoted prices for identical instruments in active
markets.
|
|
Ÿ
|
Level
2 inputs: Quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not
active; and model-derived valuations whose inputs are observable or whose
significant value drivers are
observable.
|
|
Ÿ
|
Level
3 inputs: Instruments with primarily unobservable value
drivers.
|
Income
Taxes
Under ASC
740, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Under ASC 740-10-25, recognition and
measurement of uncertain income tax positions is required using a “more likely
than not” approach. Management evaluates their tax positions on an annual basis
and has determined that as of September 30, 2010, no additional accrual for
income taxes is necessary.
Foreign
Currency Transactions
Foreign
currency transactions are translated at the exchange rate effective on the
invoice date. If the exchange rate changes between the time of purchase and the
time actual payment is made, a foreign exchange transaction gain or loss results
which is included in determining net income for the period.
19
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
We do not
hold any derivative instruments and do not engage in any hedging
activities.
Item
8. Financial Statements and Supplementary Data.
Our
financial statements are contained in pages 1 through 16 which appear at
the end of this Annual Report.
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There
were no changes in or disagreements with accountants on accounting and financial
disclosure other than those matters disclosed on Form 8-K for the year ended
September 30, 2010.
20
Item
9A. Controls and Procedures.
Disclosure
Controls and Internal Controls Over Financial Reporting
Management
has carried out an evaluation, including its principal executive officer and
principal financial officer, of the effectiveness of its disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal controls over financial reporting. Based upon that evaluation, and due
to a lack of segregation of duties and lack of management override of controls,
management has concluded that, during the period covered in this report, such
internal controls and procedures were not effective at ensuring that information
required to be disclosed in reports filed under the Securities and Exchange Act
of 1934 is recorded, processed, summarized and reported within the required time
periods and is accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosure.
Management,
including our company’s principal executive officer and principal financial
officer, does not expect that internal controls and procedures or will prevent
all error or fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of controls must be
considered relative to their costs. Due to the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. Our
company performed additional analysis and other post-closing procedures in an
effort to ensure the consolidated financial statements included in this
quarterly report have been prepared in accordance with generally accepted
accounting principles. Accordingly, management believes that the financial
statements included in this report fairly present in all material respects our
financial condition, results of operations and cash flows for the periods
presented.
Changes
in Internal Control
There
were no changes in our company’s internal control over financial reporting (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the
quarterly period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Item
9B. Other Information.
None.
21
PART
III
Item
10. Directors, Executive Officers, and Corporate
Governance.
The
following table and biographical summaries set forth information, including
principal occupation and business experience, about our directors and executive
officers at September 30, 2010. There is no familial relationship between or
among the nominees, directors or executive officers of the Company.
NAME
|
|
AGE
|
|
POSITION
|
|
OFFICER AND/OR
DIRECTOR SINCE
|
Richard
Azani
|
52
|
President,
Chief Executive Officer, Chief Financial Officer, Director
|
March
2010
|
|||
Gisele
Matni
|
47
|
Director
and Vice President of Operations
|
August
2010
|
The
Company’s directors serve in such capacity until the first annual meeting of the
Company’s shareholders and until their successors have been elected and
qualified. The Company’s officers serve at the discretion of the Company’s board
of directors, until their death, or until they resign or have been removed from
office.
There are
no agreements or understandings for any director or officer to resign at the
request of another person and none of the directors or officers is acting on
behalf of or will act at the direction of any other person. The activities of
each director and officer are material to the operation of the Company. No other
person’s activities are material to the operation of the Company.
Richard
Azani, age 52, President, Chief Executive Officer, Chief Financial Officer,
Director
Richard
Azani has been the president and chief executive officer of Vida nutra pharma
since 2003. From 1996 to 2006 Richard was the president and chief
executive officer of Actilab Pharma Inc. and from 1994 to 1996 was the
vice-president of Analex Laboratory.
Richard
Azani received his B.Sc in Biochemistry and Analytical Chemistry and his M.Sc in
Structural determination of protein using N.M.R. and X-Ray at the University of
Toulouse – France. Mr. Azani also received his Ph.D at the University
of Toulouse – France and his Post-Doctorate at McGill University – Montreal
Canada.
Gisele
Matni, age 47, Vice President of Operations and Director
Dr. Matni
holds a doctorate in Pharmacy, a master degree in Biochemistry from University
of Montreal and a Ph.D. in Analytical chemistry from McGill
University.
Dr. Matni
brings over 15 years experience in management of pharmaceutical and
biotechnology related projects, including in-vitro potency analysis of
therapeutic proteins. In addition she has extensive knowledge in identification,
specification, extraction, separation and analyses of actives proteins from
various source of materials and pharmaceutical drugs.
Dr. Matni
has held research scientist positions at Environment Canada where in 1996 she
worked on Microwave-Assisted Process technology. From 1997 to 2005 Dr. Matni
held a senior management position at Actilab Pharma as director of laboratory
operations, quality control/quality assurance of pharmaceutical analyses. Dr.
Matni’s experience and education in pharmaceutical and biotechnology industry
are the reasons the Company appointed her to its board of
directors.
Dr. Matni
will remain the Company’s director and Vice President of Operations until the
next annual meeting of the Company’s shareholders at which directors will be
voted on or until the Company’s board of directors appoints her replacement. Dr.
Matni is the spouse of Dr. Azani, our director and President. During the last
five years Dr. Matni has not held any other directorships in any company with a
class of securities registered pursuant to section 12 of the Exchange Act or
subject to the requirements of section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, 15
U.S.C. 80a-1, et seq., as amended.
22
Family
Relationships
Richard
Azani and Gisele Matni are husband and wife.
Subsequent
Executive Relationships
No
director or executive officer has been a director or executive officer of any
business which has filed a bankruptcy petition or had a bankruptcy petition
filed against it during the past five years. No director or executive officer
has been convicted of a criminal offense or is the subject of a pending criminal
proceeding during the past five years. No director or executive officer has been
the subject of any order, judgment or decree of any court permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities during the past five
years. No director or officer has been found by a court to have violated a
federal or state securities or commodities law during the past five
years. None of our directors or executive officers or their
respective immediate family members or affiliates are indebted to
us.
Item
11. Executive Compensation.
The table
below lists the aggregate amount of payments that were made to executive
officers during the year ended September 30, 2010.
Fees
|
Non-
|
|||||||||||||||||||||||||||
Earned
|
Equity
|
Nonqualified
|
||||||||||||||||||||||||||
or
|
Incentive
|
Deferred
|
||||||||||||||||||||||||||
Paid in
|
Stock
|
Option
|
Plan
|
Compensation
|
All Other
|
|||||||||||||||||||||||
Cash
|
Awards
|
Awards
|
Comp.
|
Earnings
|
Compensation
|
|||||||||||||||||||||||
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)(1)
|
Total ($)
|
|||||||||||||||||||||
Richard
Azani
|
$ | 9,378.14 | - | - | - | - | - | $ | 9,378.14 | |||||||||||||||||||
Gisele
Matni
|
$ | 7,024.47 | - | - | - | - | - | $ | 7,024.47 |
Director
Compensation
The table
below lists the aggregate amount of payments that were made to directors during
the year ended September 30, 2010.
Non-
|
||||||||||||||||||||||||||||
Fees
|
Equity
|
Nonqualified
|
||||||||||||||||||||||||||
Earned or
|
Incentive
|
Deferred
|
||||||||||||||||||||||||||
Paid in
|
Stock
|
Option
|
Plan
|
Compensation
|
All Other
|
|||||||||||||||||||||||
Cash
|
Awards
|
Awards
|
Comp.
|
Earnings
|
Compensation
|
|||||||||||||||||||||||
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)(1)
|
Total ($)
|
|||||||||||||||||||||
Richard
Azani
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Gisele
Matni
|
- | - | - | - | - | - | - |
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
As of
September 30, 2010, our authorized capitalization was 200,000,000 shares of
capital stock, consisting of 100,000,000 shares of common stock, $0.001 par
value per share and 100,000,000 shares of preferred stock, par value
$0.001. As of September 30, 2010, there were 48,201,677 shares of our
common stock outstanding, all of which were fully paid, non-assessable and
entitled to vote. Each share of our common stock entitles its holder to one vote
on each matter submitted to the stockholders.
23
The
following table sets forth, as of September 30, 2010, the number of shares of
our common stock owned by (i) each person who is known by us to own of
record or beneficially five percent (5%) or more of our outstanding shares,
(ii) each of our directors, (iii) each of our executive officers and
(iv) all of our directors and executive officers as a group. Unless
otherwise indicated, each of the persons listed below has sole voting and
investment power with respect to the shares of our common stock beneficially
owned.
Title of
Class
|
Name of Beneficial Owner (1)
|
Number of
shares
|
Percent of
Class
|
|||||||
Common
|
Richard
Azani, Chairman. Chief Executive Officer, Chief Financial
Officer
|
19,000,000 | 39.42 | % | ||||||
Common
|
Gisele
Matni, Vice President of Operations, Director
|
0 | 0 | % | ||||||
All
officers and directors as a group (2 persons)
|
19,000,000 | 39.42 | % |
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3 of the Exchange Act
and generally includes voting or investment power with respect to
securities.
|
Changes
in Control
We are
not aware of any arrangements that may result in a change in control of the
Company.
Description
of Securities
General
Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value $0.001, and 100,000,000 shares of preferred stock, par value $0.001 (none
of which are issued and outstanding).
Common
Stock
The
shares of our common stock presently outstanding, and any shares of our common
stock issues upon exercise of stock options and/or warrants, will be fully paid
and non-assessable. Each holder of common stock is entitled to one vote for each
share owned on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event we liquidate,
dissolve or wind-up our operations, the holders of the common stock are entitled
to share equally and ratably in our assets, if any, remaining after the payment
of all our debts and liabilities and the liquidation preference of any shares of
preferred stock that may then be outstanding. The common stock has no preemptive
rights, no cumulative voting rights, and no redemption, sinking fund, or
conversion provisions. Since the holders of common stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of our Directors, and the holders of the remaining shares by themselves cannot
elect any directors. Holders of common stock are entitled to receive dividends,
if and when declared by the board of directors, out of funds legally available
for such purpose, subject to the dividend and liquidation rights of any
preferred stock that may then be outstanding.
Voting
Rights
Each
holder of common stock is entitled to one vote for each share of common stock
held on all matters submitted to a vote of stockholders.
Dividends
Subject
to preferences that may be applicable to any then-outstanding shares of
preferred stock, if any, and any other restrictions, holders of common stock are
entitled to receive ratably those dividends, if any, as may be declared from
time to time by the Company’s board of directors out of legally available funds.
The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any
future payment of any dividends on common stock.
24
Item
13. Certain Relationships and Related Transactions.
The
Company is currently a party to a sublease agreement with Vida Nutra Pharma,
Inc., a company controlled by Richard Azani, the Company’s Chief Executive
Officer. The sublease pertains to the office space the Company
currently occupies (See Item 3).
Director
Independence
The
common stock of the Company trades on the OTCBB, aquotation system which
currently does not have director independence requirements. As
of September 30, 2010, none of the Company’s directors were considered to be
“independent.”
Item
14. Principal Accounting Fees and Services.
a. Audit
Fees: Aggregate fees billed by Berman & Co. for professional services
rendered for the audit of our annual financial statements for the year ended
September 30, 2010, were approximately $8,500.
Aggregate
fees billed by Saturna Group Chartered Accountants, LLP, for professional
services rendered for review of our financial statements included in Form 10-Q
for the year ended September 30, 2010, was approximately $3,981.60.
Aggregate
fees billed by Seale & Beers, CPA’s, LLC, for professional services rendered
for review of our financial statements included in Form 10-Q for the year ended
September 30, 2010, was approximately $4,650.
b.
Audit-Related Fees: No fees were billed for assurance and related services
reasonably related to the performance of the audit or review of our financial
statements and not reported under “Audit Fees” above in the year ended September
30, 2010.
c. Tax
Fees: Aggregate fees billed by Berman & Co. for tax services for the year
ended September 30, 2010, were approximately $0.
d. All
Other Fees: Aggregate fees billed for professional services other than those
described above were approximately $28,224 in the year ended September 30,
2010.
Item
15. Exhibits.
(a) The
following documents are filed as a part of this Report.
Exhibit No.
|
Description
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) certification of Principal Executive
Officer*
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) certification of Principal Accounting
Officer*
|
|
32.1
|
Certification
pursuant to 18 USC, section 1350 of Principal Executive
Officer*
|
|
32.2
|
Certification
pursuant to 18 USC, section 1350 of Principal Accounting
Officer*
|
* filed
herewith
25
SIGNATURES
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.
A5
LABORATORIES INC.
|
|||
Dated:
January 20, 2011
|
By:
|
/s/ Richard
Azani
|
|
Richard
Azani
Chief
Executive Officer
|
|||
(Principal
Executive Officer)
|
Dated:
January 20, 2011
|
By:
|
/s/ Richard
Azani
|
|
Richard
Azani
|
|||
Chief
Financial Officer
|
|||
(Principal
Accounting Officer)
|
In
accordance with the 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.
Signature
|
Title
|
Date
|
||
/s/
Richard Azani
|
Chief
Executive Officer, Chief Financial Officer, President,
Director
|
January
20, 2011
|
||
Richard
Azani
|
||||
/s/Gisele
Matni
|
Director,
Vice President of Operations
|
January
20, 2011
|
||
Gisele
Matni
|
26
INDEX
TO FINANCIAL STATEMENTS
A5
Laboratories, Inc.
(A
Development Stage Company)
Financial
Statements
September
30, 2010
CONTENTS
Page(s)
|
||
Report
of Independent Registered Public Accounting Firm
|
1
|
|
Balance
Sheets – As of September 30, 2010 and 2009
|
2
|
|
Statements
of Operations –
|
||
Years
Ended September 30, 2010 and 2009, and
|
||
from
June 21, 2006 (Inception) to September 30, 2010
|
3
|
|
Statement
of Stockholders’ Equity –
|
||
Years
Ended September 30, 2010 and 2009, and
|
||
from
June 21, 2006 (Inception) to September 30, 2010
|
4
|
|
Statements
of Cash Flows –
|
||
Years
Ended September 30, 2010 and 2009, and
|
||
from
June 21, 2006 (Inception) to September 30, 2010
|
5
|
|
Notes
to Financial Statements
|
|
6 - 16
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of:
A5
Laboratories, Inc.
We have
audited the accompanying balance sheet of A5 Laboratories, Inc. as of September
30, 2010, and the related statements of operations, stockholders’ equity and
cash flows for the year then ended, and for the period from June 21, 2006
(inception) to September 30, 2010. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of A5 Laboratories, Inc. as of September 30, 2009, were
audited by other auditors whose report dated December 7, 2009, expressed an
unqualified opinion on those financial statements.
We
conducted our audit 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 audit 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 audit provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of A5 Laboratories, Inc. as of
September 30, 2010, and the results of its operations and its cash flows for the
period from June 21, 2006 (inception) to September 30, 2010, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has a net loss of $351,790 and net cash used in
operations of $204,266 for the year ended September 30, 2010. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plan in regards to these matters is also described in Note
2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Berman
& Company, P.A.
Boca
Raton, Florida
January
12, 2011
A5
Laboratories, Inc.
(A
Development Stage Company)
Balance
Sheets
September 30, 2010
|
September 30, 2009
|
|||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 17,794 | $ | 50,134 | ||||
Other
receivables
|
34,164 | - | ||||||
Total
Current Assets
|
51,958 | 50,134 | ||||||
Property
& Equipment
|
1,565,805 | - | ||||||
Total
Assets
|
$ | 1,617,763 | $ | 50,134 | ||||
Liabilities and Stockholders'
Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 33,122 | $ | 5,000 | ||||
Total
Current Liabilities
|
33,122 | 5,000 | ||||||
Stockholders'
Equity
|
||||||||
Preferred
stock, $0.001 par value, 100,000,000 shares authorized; none issued and
outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 100,000,000 shares authorized; 47,739,177 and
45,500,000 shares issued and outstanding
|
47,739 | 45,500 | ||||||
Additional
paid-in capital
|
1,948,637 | 56,500 | ||||||
Deficit
accumulated during the development stage
|
(408,656 | ) | (56,866 | ) | ||||
Accumulated
other comprehensive loss
|
(3,079 | ) | - | |||||
Total
Stockholders' Equity
|
1,584,641 | 45,134 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 1,617,763 | $ | 50,134 |
See
accompanying notes to financial statements
2
A5
Laboratories, Inc.
(A
Development Stage Company)
Statements of
Operations
June
21, 2006
|
||||||||||||
Year
Ended September 30,
|
(Inception)
to
|
|||||||||||
2010
|
2009
|
September 30, 2010
|
||||||||||
General
and administrative
|
$ | 351,790 | $ | 19,076 | $ | 408,656 | ||||||
Net
Loss
|
$ | (351,790 | ) | $ | (19,076 | ) | $ | (408,656 | ) | |||
Net
loss per common share - basic and diluted
|
$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | |||
Weighted
average number of common shares outstanding during the period - basic and
diluted
|
45,934,427 | 45,500,000 | 40,857,737 |
See
accompanying notes to financial statements
3
A5
Laboratories, Inc.
(A
Development Stage Company)
Statement
of Stockholders' Equity
Years Ended September 30,
2010 and 2009
Additional
|
Deficit
Accumulated
|
Accumulated
|
Total
|
|||||||||||||||||||||
Common
Stock, $0.001 Par Value
|
Paid
In
|
During
the
|
Other
Comprehensive
|
Stockholders'
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Development
Stage
|
Loss
|
Equity
|
|||||||||||||||||||
Proceeds
from the issuance of common stock - founder
($0.0005/share)
|
10,000,000 | $ | 10,000 | $ | (5,000 | ) | $ | - | $ | - | $ | 5,000 | ||||||||||||
Proceeds
from the issuance of common stock - founders
($0.001/share)
|
15,000,000 | 15,000 | - | - | - | 15,000 | ||||||||||||||||||
Net
loss for the period from June 21, 2006 (Inception) to September 30,
2006
|
- | - | - | (2,631 | ) | - | (2,631 | ) | ||||||||||||||||
Balance
- September 30, 2006
|
25,000,000 | 25,000 | (5,000 | ) | (2,631 | ) | - | 17,369 | ||||||||||||||||
Proceeds
from the issuance of common stock ($0.004/share)
|
20,500,000 | 20,500 | 61,500 | - | - | 82,000 | ||||||||||||||||||
Net
loss for the year ended September 30, 2007
|
- | - | - | (16,960 | ) | - | (16,960 | ) | ||||||||||||||||
Balance
- September 30, 2007
|
45,500,000 | 45,500 | 56,500 | (19,591 | ) | - | 82,409 | |||||||||||||||||
Net
loss for the year ended September 30, 2008
|
- | - | - | (18,199 | ) | - | (18,199 | ) | ||||||||||||||||
Balance
- September 30, 2008
|
45,500,000 | 45,500 | 56,500 | (37,790 | ) | - | 64,210 | |||||||||||||||||
Net
loss for the year ended September 30, 2009
|
- | - | - | (19,076 | ) | - | (19,076 | ) | ||||||||||||||||
Balance
- September 30, 2009
|
45,500,000 | 45,500 | 56,500 | (56,866 | ) | - | 45,134 | |||||||||||||||||
Proceeds
from the issuance of common stock ($0.65/share)
|
250,000 | 250 | 162,250 | - | - | 162,500 | ||||||||||||||||||
Proceeds
from the issuance of common stock ($0.80/share)
|
250,000 | 250 | 199,750 | - | - | 200,000 | ||||||||||||||||||
Common
stock issued for consulting services ($0.80/share)
|
20,000 | 20 | 15,980 | - | - | 16,000 | ||||||||||||||||||
Common
stock issued for consulting services ($0.90/share)
|
150,000 | 150 | 134,850 | - | - | 135,000 | ||||||||||||||||||
Common
stock issued to acquire software ($0.88/share)
|
1,569,177 | 1,569 | 1,379,307 | - | - | 1,380,876 | ||||||||||||||||||
Net
loss for the year ended September 30, 2010
|
- | - | - | (351,790 | ) | - | (351,790 | ) | ||||||||||||||||
Translation
loss
|
- | - | - | - | (3,079 | ) | (3,079 | ) | ||||||||||||||||
Accumulated
other comprehensive loss
|
- | - | - | - | - | (354,869 | ) | |||||||||||||||||
Balance
- September 30, 2010
|
47,739,177 | $ | 47,739 | $ | 1,948,637 | $ | (408,656 | ) | $ | (3,079 | ) | $ | 1,584,641 |
See
accompanying notes to financial statements
4
A5
Laboratories, Inc.
(A
Development Stage Company)
Statements of Cash
Flows
June
21, 2006
|
||||||||||||
Year
Ended September 30,
|
(Inception)
to
|
|||||||||||
2010
|
2009
|
September 30, 2010
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (351,790 | ) | $ | (19,076 | ) | $ | (408,656 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
2,566 | - | 2,566 | |||||||||
Share
based payments
|
151,000 | - | 151,000 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
(Increase)/Decrease
in:
|
||||||||||||
Other
receivables
|
(34,164 | ) | - | (34,164 | ) | |||||||
Increase/(Decrease)
in:
|
||||||||||||
Accounts
payable and accrued liabilities
|
28,122 | 1,908 | 33,122 | |||||||||
Net
Cash Used In Operating Activities
|
(204,266 | ) | (17,168 | ) | (256,132 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase
of property & equipment
|
(187,495 | ) | - | (187,495 | ) | |||||||
Net
Cash Used in Investing Activities
|
(187,495 | ) | - | (187,495 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from issuance of common stock
|
362,500 | - | 464,500 | |||||||||
Net
Cash Provided By Financing Activities
|
362,500 | - | 464,500 | |||||||||
Net
Increase (Decrease) in Cash
|
(29,261 | ) | (17,168 | ) | 20,873 | |||||||
Effect
of Exchange Rate on Cash
|
(3,079 | ) | - | (3,079 | ) | |||||||
Cash
- Beginning of Period/Year
|
50,134 | 67,302 | - | |||||||||
Cash
- End of Period/Year
|
$ | 17,794 | $ | 50,134 | $ | 17,794 | ||||||
SUPPLEMENTARY
CASH FLOW INFORMATION:
|
- | |||||||||||
Cash
paid during the period/year for:
|
||||||||||||
Income
taxes
|
$ | - | $ | $ | - | |||||||
Interest
|
$ | - | $ | $ | - | |||||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
||||||||||||
Common
stock issued to acquire software
|
$ | 1,380,876 | $ | - | $ | 1,380,876 |
See
accompanying notes to financial statements
5
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Note 1 Nature of Operations
and Summary of Significant Accounting Policies
Nature
of Operations
A5
Laboratories Inc., (the “Company”) was incorporated in the State of Nevada on
June 21, 2006. The Company was originally incorporated as El Palenque Nercery,
Inc. and changed its name to El Palenque Vivero, Inc. on June 30, 2006. On March
23, 2010, the Company changed its name to A5 Laboratories Inc. and is based in
Lachine Quebec, Canada.
The
Company intends to provide contract research and laboratory services to the
pharmaceutical industry. To date, the activities of the Company have been
limited to implementing the business plan and raising capital. The Company is
still in its development stage.
The
Company’s fiscal year end is September 30.
Risks
and Uncertainties
The
Company intends to operate in an industry that is subject to rapid change. The
Company's operations will be subject to significant risk and uncertainties
including financial, operational, technological, regulatory and other risks,
including the potential risk of business failure.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.
Such
estimates for the years ended September 30, 2010 and 2009, and assumptions
affect, among others, the following:
·estimated
carrying value, useful lives and related impairment of property and
equipment;
·estimated valuation allowance for deferred tax assets, due
to continuing losses; and
·estimated fair value of share based
payments
Making
estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which
management considered in formulating its estimate could change in the near term
due to one or more future confirming events. Accordingly, the actual results
could differ significantly from estimates.
6
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of
three months or less and money market accounts to be cash equivalents. At
September 30, 2010 and 2009, respectively, the Company had no cash
equivalents.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At September 30, 2010
and 2009, there were no balances that exceeded the federally insured
limit.
Property
and Equipment
Property
and equipment (including related party purchases) is stated at cost, less
accumulated depreciation computed on a straight-line basis over the estimated
useful lives. Maintenance and repairs are charged to operations when
incurred. Betterments and renewals are capitalized when deemed
material. When property and equipment are sold or otherwise disposed
of, the asset account and related accumulated depreciation account are relieved,
and any gain or loss is included in operations.
Property
and equipment is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There were no impairment charges taken during the years ended
September 30, 2010 and 2009.
Earnings
per share
In
accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss)
per share is computed by dividing net income (loss) by weighted average number
of shares of common stock outstanding during each period. Diluted
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during the period.
The
Company had the following potential common stock equivalents at September 30,
2010 and 2009:
September 30, 2010
|
September 30, 2009
|
|||||||
Warrants
|
250,000 | - |
Income
Taxes
The
Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC Topic 740, “Income Taxes,” which requires
that the Company recognize deferred tax liabilities and assets based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities, using enacted tax rates in effect in the years the
differences are expected to reverse. Deferred income tax benefit (expense)
results from the change in net deferred tax assets or deferred tax liabilities.
A valuation allowance is recorded when it is more likely than not that some or
all deferred tax assets will not be realized.
7
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Accounting
guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax
Allocation,” clarifies the accounting for uncertainties in income taxes
recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for
the recognition, de-recognition and measurement in financial statements of
income tax positions taken in previously filed tax returns or tax positions
expected to be taken in tax returns, including a decision whether to file or not
to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any
liability created for unrecognized tax benefits is disclosed. The application of
FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities
and therefore may change or create deferred tax liabilities or assets. The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense. At September 30, 2010 and 2009, the Company did not
record any liabilities for uncertain tax positions.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, other
receivables, accounts payable and accrued expenses, approximate fair value due
to the relatively short period to maturity for these
instruments.
Share-based
payments
Generally,
all forms of share-based payments, including stock option grants, warrants,
restricted stock grants and stock appreciation rights are measured at their fair
value on the awards’ grant date, based on the estimated number of awards that
are ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded in cost of goods sold or general and administrative expense in the
consolidated statement of operations, depending on the nature of the services
provided.
Foreign
Currency Transactions
The
Company’s functional currency is the Canadian Dollar. The Company’s
reporting currency is the U.S. Dollar. All transactions initiated in
Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20
“Foreign Currency
Translation” as follows:
|
(i)
|
Monetary
assets and liabilities at the rate of exchange in effect at the balance
sheet date;
|
|
(ii)
|
Equity
at historical rates; and
|
(iii)
|
Revenue
and expense items at the average exchange rate prevailing during the
period.
|
Adjustments
arising from such translations are deferred until realization and are included
as a separate component of stockholders’ equity (deficit) as a component of
comprehensive income (loss). Therefore, translation adjustments are
not included in determining net income (loss) but reported as other
comprehensive income (loss).
8
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
For
foreign currency transactions, the Company translates these amounts to the
Company’s functional currency at the exchange rate effective on the invoice
date. If the exchange rate changes between the time of purchase and
the time actual payment is made, a foreign exchange transaction gain or loss
results which is included in determining net income for the period.
No
significant realized exchange gains or losses were recorded from June 21, 2006
(Inception) to September 30, 2010.
Comprehensive
Income (Loss)
ASC Topic
No. 220, “Comprehensive
Income,” establishes standards for the reporting and display of
comprehensive loss and its components in the financial
statements. Comprehensive income or loss is comprised of net earnings
or loss and other comprehensive income or loss, which includes certain changes
in equity, excluded from net earnings, primarily foreign currency translation
adjustments.
Foreign
Country Risks
The
Company may be exposed to certain risks as its operations are being conducted in
Canada. These include risks associated with, among others, the
political, economic and legal environment, as well as foreign currency exchange
risk. The Company’s results may be adversely affected by change in
the political and social conditions in Canada due to governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversions and remittances abroad, and rates and methods of taxation, among
other things. The Company does not believe these risks to be
significant, and no such losses have occurred in the current or prior years
because of these factors. However, there can be no assurance those
changes in political and other conditions will not result in any adverse impact
in future periods.
Reclassifications
Certain
amounts in the year 2009 financial statements have been reclassified to conform
to the year 2010 presentation. The results of these reclassifications did not
materially affect the Company’s financial position, results of operations or
cash flows.
9
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Recent Accounting
Pronouncements
In
January 2010, FASB issued updated guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. This update
requires new disclosures on significant transfers of assets and liabilities
between Level 1 and Level 2 of the fair value hierarchy (including the
reasons for these transfers) and the reasons for any transfers in or out of
Level 3. This update also requires a reconciliation of recurring
Level 3 measurements about purchases, sales, issuances and settlements on a
gross basis. In addition to these new disclosure requirements, this update
clarifies certain existing disclosure requirements. For example, this update
clarifies that reporting entities are required to provide fair value measurement
disclosures for each class of assets and liabilities rather than each major
category of assets and liabilities. This update also clarifies the requirement
for entities to disclose information about both the valuation techniques and
inputs used in estimating Level 2 and Level 3 fair value measurements.
This update will become effective for the interim and annual reporting period
beginning January 1, 2010, except for the requirement to provide the
Level 3 activity of purchases, sales, issuances, and settlements on a gross
basis, which will become effective for the interim and annual reporting period
beginning January 1, 2011. The Company will not be required to provide the
amended disclosures for any previous periods presented for comparative purposes.
Other than requiring additional disclosures, adoption of this update will not
have a material effect on the Company’s consolidated financial
statements.
Note 2 Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $351,790 and net cash used in operations of $204,266 for the year ended
September 30, 2010.
The
ability of the Company to continue as a going concern is dependent on
Management's plans, which include potential asset acquisitions, mergers or
business combinations with other entities, further implementation of its
business plan and continuing to raise funds through debt or equity raises. The
Company will likely rely upon related party debt or equity financing in order to
ensure the continuing existence of the business.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
10
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Note 3 Fair
Value
The fair
value of the Company's financial assets and liabilities reflects the Company's
estimate of amounts that it would have received in connection with the sale of
the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In
connection with measuring the fair value of its assets and liabilities, the
Company seeks to maximize the use of observable inputs (market data obtained
from sources independent from the Company) and to minimize the use of
unobservable inputs (the Company's assumptions about how market participants
would price assets and liabilities). The following fair value hierarchy is used
to classify assets and liabilities based on the observable inputs and
unobservable inputs used in order to value the assets and
liabilities:
Level 1:
|
Quoted
prices in active markets for identical assets or liabilities. An active
market for an asset or liability is a market in which transactions for the
asset or liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.
|
|
Level 2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs
include quoted prices in active markets for similar assets or liabilities
and quoted prices for identical assets or liabilities in markets that are
not active.
|
|
Level 3:
|
Unobservable
inputs based on the Company's assessment of the assumptions that market
participants would use in pricing the asset or
liability.
|
At
September 30, 2010, the Company classified the fair value of software acquired
in exchange for stock issued as level 2. The fair value of this asset is
$1,380,876.
The
Company has no instruments that require additional disclosure for September 30,
2009.
Note 4 Other
Receivables
As of
September 30, 2010, the Company has receivables of $34,164 for taxes paid on
products and services. Under Canadian law, the Company is required to
pay GST (Goods and Services Tax) and PST (Provincial Sales Tax) on goods and
services that are consumed, used or supplied in the course of their business
activities. The Company is eligible to receive credit for both taxes
and has submitted a request with the Canadian Revenue Agency to be reimbursed.
The Company expects reimbursement during fiscal
2011.
11
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Note 5 Property and
Equipment
Property
and equipment consists of the following:
Estimated
|
||||||||||||
September
30, 2010
|
September
30, 2009
|
Useful
Lives
|
||||||||||
Computer
equipment
|
$ | 11,057 | $ | - | 5 | |||||||
Lab
equipment
|
81,705 | - | 10 | |||||||||
Leasehold
improvements
|
94,733 | - | * | |||||||||
Software
development
|
1,380,876 | - | 3 | |||||||||
1,568,371 | - | |||||||||||
Less:
Accumulated depreciation
|
(2,566 | ) | - | |||||||||
Property
and equipment - net
|
$ | 1,565,805 | $ | - |
*The
lesser of the estimated useful life, or the life of the operating
lease.
The
leasehold improvements were not completed at September 30, 2010, and the Company
may incur additional costs in order to complete these
improvements. The Company expects to place the leasehold improvements
in service during fiscal 2011.
The
Company purchased $79,765 from an entity controlled by the Company’s Chief
Executive Officer during 2010.
See Note
7 for software purchase.
Note 6 Income
Taxes
The
Company recognizes deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carryforwards. The Company has
established a valuation allowance to reflect the likelihood of the realization
of deferred tax assets.
The
Company has a net operating loss carryforward for tax purposes totaling
approximately $231,000 at September 30, 2010, expiring through 2030.
U.S. Internal Revenue Code Section 382 places a limitation on the amount of
taxable income that can be offset by carryforwards after a change in control
(generally greater than a 50% change in ownership). Temporary
differences, which give rise to a net deferred tax asset, are as
follows:
12
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Significant
deferred tax assets at September 30, 2010 and 2009 are approximately as
follows:
2010
|
2009
|
|||||||
Gross
deferred tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | (79,000 | ) | $ | (19,900 | ) | ||
Total
deferred tax assets
|
79,000 | 19,900 | ||||||
Less:
valuation allowance
|
(79,000 | ) | (19,900 | ) | ||||
Net
deferred tax asset recorded
|
$ | - | $ | - |
The
valuation allowance at September 30, 2009 was approximately $79,000. The net
change in valuation allowance during the year ended September 30, 2010 was an
increase of approximately $59,100. In assessing the reliability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred income tax assets will not be
realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on consideration of these items, management
has determined that enough uncertainty exists relative to the realization of the
deferred income tax asset balances to warrant the application of a full
valuation allowance as of September 30, 2010.
The
actual tax benefit differs from the expected tax benefit for the periods ended
September 30, 2010 and 2009 (computed by applying the U.S. Federal Corporate tax
rate of 34% to income before taxes) as follows:
2010
|
2009
|
|||||||
Expected
tax expense (benefit) – Federal
|
$ | (110,400 | ) | $ | (6,900 | ) | ||
Non-deductible
stock compensation
|
51,300 | - | ||||||
Change
in valuation allowance
|
59,100 | 6,900 | ||||||
Actual
tax expense (benefit)
|
$ | - | $ | - |
The
Company is also required to file tax returns pursuant to the Rules and
Regulations of Canada.
Note 7 Stockholders’
Equity
Stock
issued in 2010
On March
9, 2010, the Board authorized a 10 for 1 forward split of its common stock
effective April 8, 2010. Each stockholder of record on April 7, 2010 received
ten new shares of the Company’s $0.001 par value stock for every one old share
outstanding. The effects of the split have been retroactively applied to all
periods presented in the accompanying financial statements.
On June
3, 2010, the Company issued 250,000 shares of common stock for $162,500
($0.65/share).
13
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
On July
20, 2010, the Company issued 1,569,177 shares of common stock, having a fair
value of $1,380,876 ($0.88/share), based upon the closing trading price, to
acquire software from an affiliate of the Company’s Chief Executive
Officer.
On July
30, 2010, the Company issued 125,000 shares of common stock for $100,000
($0.80/share). In addition, the stockholder received a 2 year warrant for
125,000 shares with an exercise price of $1.20.
On August
18, 2010, the Company issued 125,000 shares of common stock for $100,000
($0.80/share). In addition, the stockholder received a 2 year warrant for
125,000 shares with an exercise price of $1.20.
On August
23, 2010, the Company issued 20,000 shares of common stock to a consultant,
having a fair value of $16,000 ($0.80/share), based upon the closing trading
price. At September 30, 2010, the Company expensed this stock
issuance as a component of general and administrative expense.
On
September 17, 2010, the Company issued 150,000 shares of common stock to a
consultant, having a fair value of $135,000 ($0.90/share), based upon the
closing trading price. At September 30, 2010, the Company expensed
this stock issuance as a component of general and administrative
expense.
Stock
issued in 2007
During
2007, the Company issued 20,500,000 shares of common stock for $82,000
($0.004/share).
Stock
issued in 2006
On June
21, 2006 (Inception), the Company issued 10,000,000 shares of common stock for
$5,000 ($0.0005/share) to directors and officers of the Company.
On August
1, 2006, the Company issued 15,000,000 shares of common stock for $15,000
($0.0001/share) to directors and officers of the Company.
14
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
The
following is a summary of the Company’s warrants that are outstanding and
exercisable at September 30, 2010 and 2009:
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual Life
in Years
|
Intrinsic
Value
|
|||||||||||||
Balance
– September 30, 2009
|
- | - | ||||||||||||||
Granted
|
250,000 | $ | 1.20 | |||||||||||||
Forfeited/Cancelled
|
- | - | ||||||||||||||
Exercised
|
- | - | ||||||||||||||
Balance
– September 30, 2010 - outstanding
|
250,000 | $ | 1.20 | 1.92 – 1.94 | $ | - | ||||||||||
Balance
– September 30, 2010 - exercisable
|
250,000 | $ | 1.20 | 1.92 – 1.94 | $ | - |
Note 8 Commitments and
Contingencies
(A)
|
Contingencies
|
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise that may harm its business. The Company is currently not aware
of any such legal proceedings or claims that they believe will have,
individually or in the aggregate, a material adverse affect on its business,
financial condition or operating results.
(B)
|
Operating
Lease – Related Party
|
The
Company has subleased office space from a company controlled by the Company’s
Chief Executive Officer for a term of two years through March 31,
2012.
Rent
expense will be translated in future periods at the balance sheet dates for
purposes of financial statement reporting. The following minimum
lease payments are presented using the translation rate as of September 30,
2010:
2011
|
$ | 175,000 | ||
2012
|
44,000 | |||
Total
minimum lease payments
|
$ | 219,000 |
Rent
expense for the years ended September 30, 2010 and 2009 was $72,580 and $0,
respectively.
15
A5
Laboratories, Inc.
(A
Development Stage Company)
Notes
to Financial Statements
September 30, 2010 and
2009
Note 9 Subsequent
Events
On
November 12, 2010, the Company issued 156,250 shares of common stock for $50,000
($0.32/share).
On
December 12, 2010, the Company issued 156,250 shares of common stock for $50,000
($0.32/share).
On
December 15, 2010, the Company issued 150,000 shares of common stock to a
consultant, having a fair value of $51,000 ($0.34/share), based upon the closing
trading price. The Company expensed this stock issuance as a
component of general and administrative expense.
16