| US BIODEFENSE, INC. |
| (Exact name of registrant as specified in its charter) |
| |
| Utah |
|
33-0052057 |
| (State of Other Jurisdiction of Incorporation) |
|
(IRS Employer Identification No.) |
| |
| 375 South 6th Avenue |
|
|
| City of Industry, California |
|
91746 |
| (Address of Principal Executive Offices) |
|
(Zip Code) |
| |
| (626) 961-0562 |
| (Registrant's telephone number, including area code) |
| |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
| |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the |
| Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was |
| required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
| Yes [X] No [ ] |
| |
| APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE |
| PRECEDING FIVE YEARS: |
| Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 |
| or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a |
| court. |
| Yes [ ] No [ ] |
| |
| APPLICABLE ONLY TO CORPORATE ISSUERS: |
| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable |
| date: 60,304,047 |
| ASSETS |
|
(Unaudited) |
|
|
| |
|
August 31, |
|
November 30, |
| |
|
2007 |
|
2006 |
| Current assets |
|
|
|
|
| Cash and cash equivalents |
|
$18,516 |
|
$22,663 |
| Marketable securities |
|
47,500 |
|
73,00 |
| Accounts receivable, net of allowance of $20,000 |
|
34,720 |
|
54,827 |
| Inventory |
|
66,691 |
|
75,355 |
| |
| Total current assets |
|
167,427 |
|
225,845 |
| |
| Property and equipment, net of accumulated depreciation |
|
1,800 |
|
2,418 |
| Customer list |
|
7,500 |
|
7,500 |
| Deposits |
|
1,000 |
|
1,000 |
| |
| Total assets |
|
177,727 |
|
236,763 |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
| |
| Current liabilities |
|
|
|
|
| Accounts payable and accrued expenses |
|
59,490 |
|
19,278 |
| Notes payable – Related party |
|
185,500 |
|
-- |
| Deferred revenues |
|
-- |
|
25,000 |
| |
| Total current liabilities |
|
244,990 |
|
44,278 |
| |
| Stockholders’ equity: |
|
|
|
|
| Common stock 100,000,000 shares authorized, $.0001 |
|
|
|
|
| par value, 60,304,047 and 39,059,047 share issued and outstanding |
|
6,030 |
|
3,906 |
| Additional paid in capital |
|
4,722,910 |
|
4,270,684 |
| Other comprehensive deficit |
|
(52,500) |
|
(27,000) |
| Accumulated deficit |
|
(4,743,703) |
|
(4,055,105) |
| |
| Total stockholders’ equity (deficit) |
|
(67,263) |
|
192,485 |
| |
| Total liabilities and stockholders’ equity (deficit) |
|
$177,727 |
|
$236,763 |
| |
| See accompanying notes to financial statements |
| |
| |
| -4- |
| |
|
2007 |
|
2006 |
| |
| Cash flows from operating activities |
|
|
|
|
| Net income (loss) |
|
$(688,598) |
|
$(323,256) |
| Adjustments to reconcile net loss to net cash used in |
|
|
|
|
| operating activities: |
|
|
|
|
| Depreciation |
|
618 |
|
59 |
| Impairment of assets |
|
-- |
|
22,500 |
| Stock issued for payroll – Related party |
|
100,000 |
|
-- |
| Stock issued for services |
|
354,350 |
|
270,200 |
| Changes in operating assets and liabilities: |
|
|
|
|
| Accounts receivable |
|
20,107 |
|
(15,727) |
| Inventory |
|
8,664 |
|
(73,447) |
| Prepaid expenses |
|
-- |
|
20,000 |
| Bank overdraft |
|
-- |
|
(3,947) |
| Accounts payable |
|
40,212 |
|
7,374 |
| Deferred revenues |
|
(25,000) |
|
(64,167) |
| |
| Net cash used for (provided by) operating activities |
|
(189,647) |
|
(160,411) |
| |
| Cash flows from financing activities |
|
|
|
|
| Advances from related party, net |
|
185,500 |
|
17,200 |
| Proceeds from sale of common stock |
|
-- |
|
200,000 |
| |
| Total cash flows from financing activities |
|
185,500 |
|
217,200 |
| |
| Cash flows from investing activities |
|
|
|
|
| Purchase of equipment |
|
-- |
|
(2,477) |
| Purchase of licenses |
|
-- |
|
(2,500) |
| |
| Total cash flows used for investing activities |
|
-- |
|
(4,977) |
| |
| Increase (decrease in) cash and cash equivalents |
|
(4,147) |
|
51,812 |
| |
| Cash and cash equivalents, beginning of year |
|
22,663 |
|
17,223 |
| |
| Cash and cash equivalents, end of year |
|
$18,516 |
|
$69,035 |
| |
| Income taxes paid |
|
$--- |
|
$--- |
| Interest expense paid |
|
$--- |
|
$--- |
| |
| Supplemental disclosure of non-cash financing activities |
|
|
|
|
| Common stock issued for services |
|
$100,000 |
|
$-- |
| Common stock issued for executive salaries |
|
354,350 |
|
270,200 |
| |
| See accompanying notes to financial statements |
| |
| |
| -6- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Note 1 - Background and Summary of Significant Accounting Policies |
| |
| Note 1 - Background and Summary of Significant Accounting Policies |
| |
| The accompanying unaudited financial statements have been prepared in accordance with |
| generally accepted accounting principles for interim financial information and pursuant to the |
| rules and regulations of the Securities and Exchange Commission ("SEC"). The accompany- |
| ing financial statements for the interim periods are unaudited and reflect all adjustments |
| (consisting only of normal recurring adjustments) which are, in the opinion of management, |
| necessary for a fair presentation of the financial statements and operating results for the |
| periods presented. These financial statements should be read in conjunction with the |
| Company's financial statements for the years ended November 30, 2006 and 2005 and notes |
| thereto contained in the Company's Annual Report on Form 10-KSB for the year ended |
| November 30, 2006 as filed with the SEC. The results of operations for the six months |
| ended August 31, 2007 are not necessarily indicative of the results of the full fiscal year |
| ending November 30, 2007. |
| |
| Background |
| |
| US Biodefense , Inc. (the "Company"), a Utah corporation is headquartered in the City of |
| Industry, California. The Company is a registered government contractor with the Department |
| of Defense Logistics Agency. The Company is focused on designing and developing |
| homeland security and biodefense products. |
| |
| The Company was originally incorporated under the name Teal Eye, Inc. in the state of |
| Utah on June 29, 1983. The Company then merged with Terzon Corp. and amended its |
| Articles of Incorporation to change the name to Terzon Corp. On September 7, 1984, |
| the Company amended its articles of incorporation changing its name to Candy Stripers |
| Corporation, Inc. On January 6, 1998, the Company amended its Articles of Incorporation |
| changing its name to Piedmont, Inc. On May 31, 2003, the Company amended its |
| articles of Incorporation and changed its name to US Biodefense, Inc. |
| |
| The accompanying financial statements for the six months ended May 31, 2007, include the |
| accounts of the Company and its wholly-owned subsidiary Stem Cell Research Institute, Inc. |
| All significant intercompany transactions and balances have been eliminated. |
| |
| Basis of Presentation |
| |
| The accompanying financial statements have been prepared in conformity with accounting |
| principles generally accepted in the United States of America, which contemplate continuation |
| of the Company as a going concern. The Company incurred a net loss for the nine months ended |
| August 31, 2007 of $688,598 and at August 31, 2007, had an accumulated deficit |
| of $4,743,703. In addition, the Company generates minimal revenue from its operations. |
| These conditions raise substantial doubt as to the Company's ability to continue as a growing |
| concern. These financial statements do not include any adjustments that might result from |
| the outcome of this uncertainty. These financial statements do not include any adjustments |
| relating to the recoverability and classification of recorded asset amounts, or amounts and |
| classification of recorded asset amounts, or amounts and classification of liabilities that might |
| be necessary should the Company be unable to continue as a going concern. |
| |
| |
| -7- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Management plans to take the following steps that it believes will be sufficient to provide the |
| Company with the ability to continue in existence. |
| |
| Management intends to raise financing through the issuance of its common stock or other means |
| and interests that it deems necessary, with a view to moving forward with the development of the |
| emergency preparedness, homeland security and biodefense products. |
| |
| 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 reported amounts of assets and liabilities, 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. Actual results could differ from those estimates. |
| |
| Fair Value of Financial Instruments |
| |
| For certain of the Company's financial instruments, including cash and cash equivalents, prepaid |
| expenses, accounts payable and deferred revenues, the carrying amounts approximate fair value |
| due to their short maturities. |
| |
| Revenue Recognition |
| |
| The Company recognizes revenue from the sale of products, and from the performance of services to both |
| related and non-related parties. The Company recognizes revenue from the sale of products on the gross |
| amount charged basis. Under this method of recording the sale of products, the cost of goods sold |
| reflects the cost of the goods sold to the customer plus the Company's cost of executing the transaction. |
| the Company has chosen this method since it takes ownership of the products that it purchases for |
| resale and assumes the risks and rewards of ownership of the goods. |
| |
| For sale of products, revenue is generally recognized when persuasive evidence of an arrangement exists, |
| delivery has occurred, the contract price is fixed or determinable, title and risk of loss has passed to the |
| customer and collection is reasonably assured. The Company's sales are typically not subject to rights |
| of return and, historically, sales returns have not been significant. |
| |
| Revenues from services are recognized upon provision of services to the customer. Unearned service |
| revenue is deferred and recognized ratably over the duration of the service term. |
| |
| Accounts receivable of the Company are reviewed to determine if their carrying value has become |
| impaired. The Company considers the assets to be impaired if the balances are greater than six months |
| old management regularly reviews accounts receivable and will establish an allowance for potentially |
| uncollectible amounts when appropriate. When accounts are written off, they will be charged against the |
| allowance. Receivables are not collateralized and do not bear interest. |
| |
| |
| -8- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Concentration of Credit Risk |
| |
| Financial instruments which subject the Company to concentrations of credit risk include cash |
| and cash equivalents. |
| |
| The Company maintains its cash in well-known banks selected based upon management's |
| assessment of the bank's financial stability. Balances may periodically exceed the $100,000 |
| federal depository insurance limit; however, the Company has not experienced any losses on |
| deposits. The Company extends credit based on an evaluation of the customer's financial condition, |
| generally without collateral. Exposure to losses on receivables is principally dependent on each |
| customer's financial condition. The Company monitors its exposure for credit losses and maintains |
| allowances for anticipated losses, as required. |
| |
| Cash Equivalents |
| |
| For purposes of reporting cash flows, the Company considers all short-term investments with an |
| original maturity of three months or less to be cash equivalent. |
| |
| Inventory |
| |
| Inventory is stated at the lower of cost or market. Inventory consists of purchased items held for resale. |
| Inventory will be monitored by Company management for excess and obsolete items, and will make |
| the necessary valuation adjustment when required. |
| |
| Fixed Assets |
| |
| Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on |
| the straight-line method over the estimated useful lives of the assets, which is generally 3 to 10 years. |
| The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property |
| betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost |
| and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other |
| income (expense). |
| |
| The Company will periodically evaluate whether events and circumstances have occurred that may |
| warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed |
| assets should be evaluated for possible impairment. We use an estimate of the related undiscounted |
| cash flows over the remaining life of the fixed assets in measuring their recoverability. |
| |
| Comprehensive Income |
| |
| Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive |
| Income," establishes standards for the reporting and display of comprehensive income and its |
| components in the financial statements. For the nine months ended August 31, 2007, the Company |
| has items that represent other comprehensive income. |
| |
| Advertising Costs |
| |
| Advertising costs are expensed as incurred. Advertising costs totaled $26,330 and $-0- for the nine |
| months ended August 31, 2007 and 2006. |
| |
| |
| -9- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Shipping and Handling |
| |
| Costs incurred by the Company for shipping and handling are included in costs of revenues. |
| |
| Income Taxes |
| |
| The Company accounts for income taxes under SFAS 109, "Accounting for Income Taxes." Under |
| the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized |
| for the future tax consequences attributable to differences between the financial statements |
| carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax |
| assets and liabilities are measured using enacted tax rates expected to apply to taxable income |
| in the years in which those temporary differences are expected to be recovered or settled. |
| |
| Loss per Share |
| |
| In accordance with SFAS No. 128, "Earnings Per Share," the basic income / (loss) per common |
| share is computed by dividing net income / (loss) available to common stockholders by the |
| weighted average number of common shares outstanding. Diluted income per common share is |
| computed similar to basic income per share except that the denominator is increased to include |
| the number of additional common shares that would have been outstanding if the potential common |
| shares had been issued and if the additional common shares were dilutive. As of August 31, |
| 2007 and 2006, the Company does not have any equity or debt instruments outstanding that can be |
| converted into common stock. |
| |
| Stock-Based Compensation |
| |
| Effective January 1, 2006, the Company prospectively adopted FAS 123 R , Stock -Based Payments, |
| and related Securities and Exchange Commission rules included in Staff Accounting Bulletin No. 107. |
| Under this method, compensation cost recognized beginning January 1, 2006 will include costs related to |
| all share-based payments granted subsequent to December 31, 2005 based on the grant-date fair value |
| estimated in accordance with the provisions of FAS 123 R. Compensation cost for stock options granted |
| to employees is recognized ratably over the vesting period. |
| |
| Prior to January 1, 2006, the Company measured compensation cost for stock-based employee |
| compensation plans using the intrinsic value method of accounting as prescribed in Accounting |
| Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. |
| For non-employee stock based compensations, the Company recognizes expense in accordance with |
| FAS 123 and values the equity securities based on the fair value of the security on the date of grant. |
| |
| Recent Accounting Pronouncements |
| |
| In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" |
| ("SFAS 123R"). SFAS 123R will provide investors and other users of financial statements with |
| more compete and neutral financial information by requiring that the compensation costs relating to |
| share-based payment transactions be recognized in financial statements. That cost will be |
| measured based on the fair value of the equity or liability instruments issued SFAS 123R covers |
| a wide range of share-based compensation arrangements including share options, restricted |
| share plans, performance-based awards, share appreciation rights and employee share purchase |
| plans. SFAS 123R replaces SFAS No. 123, "Accounting for Stock-Based Compensation", and |
| supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as |
| |
| |
| -10- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| originally issued in 1995, established as preferable a fair-value-based method of accounting for |
| share-based payment transactions with employees. However, that statement permitted entities |
| the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial |
| statements disclosed what net income would have been had the preferable fair-value based method |
| |
| In March, 2005, the SEC issued guidance on FASB SFAS 123R, "Share-Based Payments" ("SFAS |
| No. 123R"). Staff Accounting Bulletin No. 107 ("SAB 107") was issued to assist preparers by simpli- |
| fying some of the implementation challenges of SFAS No. 123R while enhancing the information |
| that investors receive. SAB 107 creates a framework that is premised on two themes: (a) consider- |
| able judgment will be required by preparers to successfully implement SFAS no. 123R, specifically |
| when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may |
| conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 |
| include (a) valuation models - SAB 107 reinforces the flexibility allowed by SFAS No. 123R to |
| choose an option-pricing model that meets the standard's fair value measurement objective; (b) |
| expected volatility - SAB 107 provides guidance on when it would be appropriate to rely exclusively |
| on either historical or implied volatility; and ( c) expected term - the new guidance includes examples |
| and some simplified approaches to determining the expected term under certain circumstances. |
| The Company will apply the principles of SAAB 107 in conjunction with its adoption of SOFAS No. |
| 123R. |
| |
| In June, 2005, the Emerging Issues Task Force (EAT) issued No. 05-06, "Determining the Abort- |
| inaction Period of Leasehold Improvements Acquired in a Business Combination" (EAT No. 05-06). |
| EAT No. 05-06 provides that the amortization period for leasehold improvements acquired in a |
| business combination or purchased after the inception of a lease to be the shorter of (a) the useful |
| life of the assets or (b) a term that includes required lease periods and renewals that are reason- |
| ably assured upon the acquisition of the purchase. The guidance in EAT No. 05-06 will be applied |
| prospectively and is effective for periods beginning afar June 29, 2005. The Company does not |
| believe its adoption will have a material impact on its consolidated results of operations or |
| financial position. |
| |
| In June, 2005, the Financial Accounting Standards Board ('FASB") issued SFAS No. 154, Account- |
| ing Changes and Error Corrections - a replacement of APB No. 20 and FAS No. 3" ("SFAS No. 154"). |
| SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and |
| error corrections. It establishes, unless impracticable, retrospective application as the required |
| method for reporting a change in accounting principle in the absence of explicit transition require- |
| mints specify to the newly adopted accounting principle. SFAS No. 154 also provides guidance |
| for determining whether retrospective application of a change in a accounting principle is impractical- |
| able. The correction of an error in previously issued financial statements is not an accounting |
| change. However, the reporting of an error correction involves adjustments to previously issued |
| financial statements similar to those generally applicable to reporting an accounting change retro- |
| spectively. Therefore, the reporting of a correction of an error by restating previously issued financial |
| is also addressed by SFAS No. 154. SFAS No. 154 is required to be adopted in fiscal years |
| beginning after December 15, 2005. The Company does not believe its adoption in fiscal year 2007 |
| will have a material impact on its results of operations or financial position. |
| |
| In February, 2006, the Financial Accounting Standards Board (the "FASB") issued Statement of |
| Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Instruments" (SFAS 155), |
| which amends SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," and |
| SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of |
| Liabilities." SFAS 155 allows financial instruments that have embedded derivatives to be accounted |
| for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to |
| |
| |
| -11- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain |
| other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments |
| acquired or issued in the fiscal years beginning after September 15, 2006. The Company does not |
| expect its adoption of this new standard to have a material impact on the Company's financial |
| position, results of operations or cash flows. |
| |
| In March, 2006, the FASB issued SFAS No. 156 "Accounting for Servicing of Financial Assets - |
| an amendment of FASB Statement No. 140" ("SFAS 156"). This statement was issued to simplify |
| the accounting for servicing assets and liabilities, such as those common with mortgage securitization |
| activities. The statement addresses the recognition and measurement of separately recognized servicing |
| assets and liabilities and provides an approach to simplify hedge-like (offset) accounting. SFAS 156 |
| clarifies when an obligation to service financial assets should be separately recognized (as servicing |
| asset or liability), requires initial measurement at fair value and permits an entity to select either the |
| Amortization Method of the Fair Value Method. This statement is effective for fiscal years beginning |
| after September 15, 2006. The Company does not expect it adoption of this new standard to have a |
| material impact on the Company's financial position, results of operations or cash flows. |
| |
| In July, 2006, the FASB issued interpretation No. 48, "Accounting for Uncertainty in Income Taxes", |
| ("FIN 48"), which is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the |
| accounting for uncertainty in income taxes recognized in the financial statements in accordance with |
| FASB Statement No. 109, "Accounting for Income Taxes." This interpretation prescribes a |
| comprehensive model for how a company should recognize, measure, present, and disclose in its |
| financial statements uncertain tax positions that the company has taken or expects to take on a tax |
| return. The Company does not expect that the implementation of FIN 48 will have a material impact |
| on its financial position, results of operations or cash flows. |
| |
| In September, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which defines |
| fair value, establishes a framework for measuring fair value in generally accepted accounting |
| principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal |
| years beginning after November 15, 2007. Management is currently evaluating the impact that the |
| adoption of this statement will have on the Company's consolidated financial statements. |
| |
| In September, 2006, the FASB issued SFAS No. 158 "Employers' Accounting for Defined Pension and |
| Other Postretirement Plans." This Statement requires recognition of the funded status of a single- |
| employer defined benefit postretirement plan as an asset or liability in its statement of financial |
| position. Funded status is determined as the difference between the fair value of plan assets and the |
| benefit obligation. Changes in that funded status should be recognized in other comprehensive income. |
| This recognition provision and the related disclosures are effective as of the end of the fiscal year ending |
| after December 15, 2006. The Statement also requires the measurement of plan assets and benefit |
| obligations as of the date of the fiscal year-end statement of financial position. This measurement |
| provision is effective for fiscal years ending after December 15, 2008. The Company does not expect |
| its adoption of this new standard to have a material impact on the Company's financial position, results |
| of operations or cash flows. |
| |
| On September 13, 2006 the Securities and Exchange Commission ("Sec") issued Staff Accounting |
| Bulletin No. 108 ("SAB 108") which provides interpretive guidance on how the effects of the carryover |
| or reversal of prior year misstatements should be considered in quantifying a current year misstatement. |
| SAB 108 is effective for fiscal years ending after November 15, 2006. The Company does not expect |
| this pronouncement to have a material impact on the Company's financial statements. |
| |
| |
| -12- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Note 2 - Marketable Securities Available For Sale |
| |
| On May 11, 2005, the Company entered into an agreement with a Partner. The Company will assist |
| the Partner in identifying opportunities for commercialization of their listed technologies, while main- |
| taining the confidentiality of the Partner. |
| |
| As compensation for providing these services, the Partner gave the Company 5,000,000 shares of |
| Section 144 stock which is restricted from sale for twelve months from date of issue, May 11, 2005. |
| The agreement is for a period of twenty four months. |
| |
| The Company recorded the stock at the value of the services to be provided which is estimated to be |
| $100,000. The Company recorded revenue for the six month period from May through November, |
| 2005 in the amount of $25,000, $50,000 for the year ended November 30, 2006, and $25,000 |
| for the nine months ended August 31, 2007. |
| |
| The Company has adopted SFAS 130 as required by the Financial Accounting Standards Board. |
| SFAS 130 requires that securities that are available for sale be presented at market value on the |
| balance sheet date. Unrealized gains and losses are recognized as a separate component of |
| stockholders' equity. The specific identification method is used in calculating realized gains and |
| losses. SFAS 30 also requires a statement of comprehensive income which adjusts net income |
| for the unrealized activity. At May 31, 2007, the fair market value of common equity securities |
| with a cost of $100,000 was $47,500. The unrealized loss of $52,500, is included as a |
| component of other comprehensive income. |
| |
| Note 3 - Licenses |
| |
| The Company has agreed to exercise options to license stem cell technology through the University |
| of British Columbia under two option agreements. |
| |
| Having passed the initial validation phase, the Company is working toward a full licensing relation- |
| ship and will begin pre-clinical analysis of how the cell line can be utilized. The Company is |
| considering investigating the stem cells applications in combating ALS and Parkinson's disease. |
| |
| The licenses are for periods of ten to twenty years. The Company will review the licenses at least |
| annually. When necessary, we record changes for impairments of long-lived assets for the amount |
| by which the present value of future cash flows, or some other fair value measure, is less than the |
| carrying value of the respective asset. |
| |
| As of August 31, 2006, the Company management determined that the value of the licenses had become |
| impaired since the Company was no longer pursuing stem cell research. This determination was based |
| on the resignation of the head of the Company's stem cell research department and the inability to locate |
| a replacement at an economically feasible compensation package. The resignation was effective during |
| the Company's third quarter. |
| |
| Balance, May 31, 2006 |
|
$ 30,000 |
|
|
| Additions |
|
2,500 |
|
|
| License balance due, but cancelled |
|
(10,000) |
|
|
| |
|
$ 22,500 |
|
|
| |
| |
| -13- |
| Note 5 - Comprehensive income |
| |
| Accounting principles generally require that recognized revenues, expenses, gains and losses be |
| included in net income. Although certain changes in assets and liabilities, such as unrealized gains |
| and losses on available for sale securities are reported as a separate component of the equity section |
| of the balance sheet, such items, along with net income, are components of comprehensive income. |
| |
| The components of other comprehensive income and related tax effects for the six months ended August 31 |
| 2007 are unrealized holding loss on available for sale securities in the amount of $52,500. |
| |
| Note 6 - Income Taxes |
| |
| The income tax provision reflected in the statement of operations consists of the following components |
| for the year ended November 30, 2006: |
|
|
|
|
| |
| Current income taxes payable: |
|
|
|
|
| Federal |
|
$(8,780) |
|
|
| State |
|
(816) |
|
|
| |
|
(9,596) |
|
|
| |
| The items accounting for the difference between income taxes computed at the federal statutory |
| rate and the provision for income taxes as follows: |
|
|
|
|
| |
|
|
|
Impact on |
| |
|
Amount |
|
Rate |
| Income tax at federal rate |
|
(72,812) |
|
35.00% |
| State tax, net of federal effect |
|
(12,825) |
|
6.00% |
| Net operating loss deduction |
|
78,041 |
|
-45.00% |
| |
| |
|
(9,596) |
|
-4.00% |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| During the three months ended May 31, 2007, the Company issued 9,245,000 shares of common stock |
| to two entities as consulting fees totaling $337,350. |
| |
| During the three months ended May 31, 2007, the Company issued 10,000,000 shares of common stock |
| to its Chief Executive Officer for salary totaling $100,000. |
| |
| During the three months ended August 31, 2007, the Company issued 2,000,000 shares of common stock |
| to an individual as consulting fees totaling $17,000. |
| |
| Note 11 - Other Information |
| |
| The Company has filed an information statement on Schedule 14C to formally announce that all shareholders |
| of record of U.S. BioDefense, Inc. as of September 7, 2007 will receive a dividend share distribution of |
| one (1) share of Emergency Disaster Systems, Inc. for every one hundred (100) shares of U.S. BioDefense, |
| Inc. owned. The actions were approved by the Board of Directors and are expected to be ratified by the |
| majority shareholder on or before September 27, 2007. |
| |
| |
| -16- |
| Item 2. Management's Discussion and Plan of Operation |
| |
| Forward-Looking Statements |
| |
| This Quarterly Report contains forward-looking statements about US Biodefense, Inc.’s business, financial |
| condition and prospects that reflect management’s assumptions and beliefs based on information currently available. |
| We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of |
| our management’s assumptions should prove incorrect, or if any of the risks and uncertainties underlying such |
| expectations should materialize, UBDE’s actual results may differ materially from those indicated by the forward- |
| looking statements. |
| |
| The key factors that are not within our control and that may have a direct bearing on operating results include, |
| but are not limited to, acceptance of our services, our ability to expand our customer base, managements’ ability to raise |
| capital in the future, the retention of key employees and changes in the regulation of our industry. |
| |
| There may be other risks and circumstances that management may be unable to predict. When used in this |
| Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar |
| expressions are intended to identify forward-looking statements, although there may be certain forward-looking |
| statements not accompanied by such expressions. |
| |
| Overview |
| |
| We were incorporated in the State of Utah on June 29, 1983, under the name Teal Eye, Inc. We merged with |
| Terzon Corporation and changed our name to Terzon Corporation in 1984. We subsequently changed our name to |
| Candy Stripers Candy Corporation. We were engaged in the business of manufacturing and selling candy and gift items |
| to hospital gift shops across the country. We were traded Over-the-Counter Bulletin Board for several years. In 1986 |
| we ceased the candy manufacturing operations and filed for Chapter 11 Bankruptcy protection. After emerging from |
| Bankruptcy in 1993, we remained dormant until January 1998, when we changed our name to Piedmont, Inc. On May |
| 13, 2003, we filed an amendment to our Articles of Incorporation to change our name from Piedmont, Inc. to US |
| Biodefense, Inc. We are a registered government contractor with the Department of Defense Logistics Agency that is |
| focused on designing ad developing homeland security and biodefense products. |
| |
| During the year ended November 30, 2006, we impaired various licenses related to our stem cell research |
| operations. This impairment was due to the resignation of our stem cell research department head and our inability to |
| engage a replacement. As a result, we do not intend to continue to pursue stem cell research initiatives. However, we |
| do intend to continue to evaluate additional biological research programs for the possibility of commercialization. |
| |
| On August 7, 2006, we completed the acquisition of Emergency Disaster Systems, Inc., a California |
| corporation incorporated on July 19, 2006. EDS provides mitigation services, emergency preparedness, and first |
| response products to communities, government agencies, corporations and healthcare organizations. We purchased a |
| 100% interest in EDS for an aggregate of $25,000 in cash. The EDS system, encompassing CERT bags, containers and |
| cabinets was initially designed and originated by Charles Wright in 1989 to provide earthquake preparedness supplies to |
| communities in California. EDS provides mitigation services, emergency preparedness, and first response products to |
| communities, government agencies, corporations and healthcare organizations. The basic kits contain a three day |
| supply of food and water rations, in addition to first aid, lighting, hygiene and personal care items and can be scaled for |
| individual use or for a family. EDS also sells a stand-alone emergency radio siren product. We believe these items help |
| mitigate a person’s vulnerability to disasters such as fires, floods and earthquakes. EDS currently serves Emergency |
| Medical Services and mass casualty rapid response systems, as well as local communities, government agencies and |
| Fortune 500 companies with innovative emergency preparedness technology, systems and services. Charles Wright, |
| with his 18 years of experience, currently serves as Vice President and Director of Emergency Disaster Systems, Inc., |
| which is a wholly-owned subsidiary of US Biodefense. |
| |
| On September 28, 2007, we distributed to all shareholders of record as of September 7, 2007, a dividend share |
| distribution of one share of Emergency Disaster Systems, Inc. for every 100 shares of U.S. BioDefense, Inc. owned. |
| Shareholders that would own fractional shares were paid in cash for the estimated market value of the EDS stock, or |
| $0.80 per share. |
| |
| |
| -17- |
| Results of Operations |
| |
| Revenues |
| |
| Our revenues are derived primarily from three sources: sales of tangible products, services and related parties. |
| Sales of tangible products are attributable solely to Emergency Disaster Systems, Inc., our wholly-owned subsidiary that |
| we acquired on August 7, 2006. Revenue from services is derived from the recognition of deferred revenues from stock |
| received in advance for services to be performed by us to Diamond I. Finally, revenue from related parties is solely |
| from our October 15, 2005 contract with Financialnewsusa.com, a related party, to provide biodefense-related industry |
| news and information to them in exchange for $40,000, for which we were paid in advance the entire balance of the |
| contract. |
| |
| During the three months ended August 31, 2007, we generated aggregate revenues of $34,864, compared to |
| total revenues of $75,469 during the year ago three month period ended August 31, 2006. This 54% decrease in total |
| revenues, or $40,605, is materially attributable to the full recognition of revenues from our previously prepaid contracts |
| for services with Diamond I and Financialnewsusa.com, which contributed $44,167 in revenues during the three month |
| period ended August 31, 2006. Despite the overall decline in revenues, however, revenue from tangible products |
| attributable to EDS increased $3,562, or 11% from the prior period. |
| |
| Gross Profit |
| |
| In association with sales of tangible products related specifically to our EDS operations, we incurred cost of |
| goods sold in the amount of $21,316 during the three months ended August 31, 2007. This amount represents a margin |
| of approximately 39% on sales of tangible products, and a gross margin of 39% on total revenues for the period ended |
| August 31, 2007. After factoring cost of goods sold, our gross profit was $13,548 during the three months ended |
| August 31, 2007. |
| |
| In the year ago period ended August 31, 2006, cost of goods sold amounted to 25,415, attributable solely to |
| sales recognized from EDS. Our gross margin on sales of tangible products is therefore approximately 19%, and a gross |
| margin of 66% on total revenues for the period ended August 31, 2006. After factoring cost of goods sold, our gross |
| profit was $50,054 during the three months ended August 31, 2006. |
| |
| Expenses |
| |
| General and administrative expenses during the three months ended August 31, 2007 and 2006 were comprised |
| of three main categories: (1) expenses paid in the form of common stock in lieu of cash for services, (2) expenses |
| incurred related to the impairment of assets and (3) miscellaneous expenses related to the general operation of our |
| business. General and administrative expenses decreased by 73%, or $276,174, year over year from $379,438 in the |
| quarter ended August 31, 2006 to $103,264 in the three months ended August 31, 2007. Or management believes the |
| decrease in these expenditures are correlated with our reduction in the number of employees and compensation paid |
| with common stock in lieu of cash. General and administrative expenses remained comparatively stable, with $86,264 |
| incurred in the three months ended August 31, 2007, and $86,738 incurred in the year ago three months ended August |
| 31, 2006. Despite the overall decline in expenses, we expect to continue to incur general and administrative expenses |
| for the foreseeable future, although we cannot estimate the extent of these costs. |
| |
| Losses |
| |
| Our net loss from operations totaled $89,716 for the three months ended August 31, 2007, compared to a net |
| loss of $329,384 for the three months ended August 31, 2006. This represents a narrowing deficit of 73%, or $239,668, |
| in a year-to-year comparison. Although we anticipate incurring ongoing operating losses, we expect these losses to |
| continue narrow in year-to-year comparison as we generate increased revenues and as expenses plateau over the next |
| several years. However, we cannot guarantee the accuracy of our expectations. |
| |
| |
| -18- |
| Liquidity And Capital Resources |
| |
| We have limited cash on hand, and may be unable to continue operations for the next at least 12 months if we |
| are unable to generate greater revenues or obtain capital infusions by issuing equity or debt securities in exchange for |
| cash. As of August 31, 2007, we had $18,516 in cash, $47,500 in marketable securities, $34,720 in net accounts |
| receivables and $66,691 in saleable inventory. If we are unable to generate sufficient cash flows from sales of our |
| products and services, collect outstanding accounts receivable, or to obtain capital through issuances of equity or debt, |
| David Chin, a shareholder and President of our company, has verbally agreed to loan us cash, which shall bear no |
| interest and be due upon demand. As of August 31, 2007, David Chin loaned us a total of $185,500 to pay for general |
| and administrative expenses. The loan bears no interest and is due upon demand. As of August 31, 2007, the amount |
| owed was $185,500. We have no formal written agreement with Mr. Chin for any further loans, and we cannot |
| guarantee you that we will be able to enforce our verbal agreement. Notwithstanding this, there can be no assurance |
| that we will be able to secure additional funds in the future to stay in business. Our independent registered public |
| accountants have expressed substantial doubt about our ability to continue as a going concern because we have limited |
| operations. |
| |
| There are no known trends, events or uncertainties that have had or that are reasonably expected to have a |
| material impact on our revenues from continuing operations. |
| |
| Our management does not anticipate the need to hire additional full- or part- time employees over the next 12 |
| months, as the services provided by our officers and directors appear sufficient at this time. We believe that our |
| operations are currently on a small scale that is manageable by a few individuals. While we believe that the addition of |
| employees is not required over the next 12 months, we intend to hire independent contractors to perform research |
| activities and market any potential products and services we may develop. |
| |
| We do not have any off-balance sheet arrangements. |
| |
| We currently do not own any significant plant or equipment that we would seek to sell in the near future. |
| |
| We have not paid for expenses on behalf of any of our directors. Additionally, we believe that this fact shall |
| not materially change. |
| |
| |
| -19- |
| Item 3. Controls and Procedures |
| |
| We maintain a set of disclosure controls and procedures designed to ensure that information required to be |
| disclosed in our reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within |
| the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of |
| ensuring that this information is accumulated and communicated to our management, including our chief executive |
| officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. |
| |
| Based upon their evaluation as of the end of the period covered by this report, David Chin, who serves as our |
| chief executive officer and chief financial officer, concluded that our disclosure controls and procedures are not |
| effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, |
| summarized, and reported within the time periods specified in the SEC rules and forms. |
| |
| Our board of directors was advised by E. Randall Gruber, CPA, PC, our independent registered public |
| accounting firm, that during their performance of audit procedures for 2006 E. Randall Gruber, CPA, PC identified a |
| material weakness as defined in Public Company Accounting Oversight Board Standard No. 2 in our internal control |
| over financial reporting. |
| |
| This deficiency consisted primarily of inadequate staffing and supervision that could lead to the untimely |
| identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews. |
| However, our size prevents us from being able to employ sufficient resources to enable us to have adequate segregation |
| of duties within our internal control system. Our management is required to apply their judgment in evaluating the cost- |
| benefit relationship of possible controls and procedures. |
| |
| PART II - OTHER INFORMATION |
| |
| Item 6. Exhibits and Reports on Form 8-K |
| |
| 3 |
|
Articles of Incorporation & By-Laws |
| |
|
a. |
|
Articles of Incorporation of Teal Eyes, Inc. * |
| |
|
b. |
|
Amendment to Articles of Incorporation of Teal Eyes, Inc. * |
| |
|
c. |
|
Amendment to Articles of Incorporation of Terzon Corporation. * |
| |
|
d. |
|
Amended and Restated Articles of Incorporation of Candy Stripers Candy Corp. * |
| |
|
e. |
|
By-Laws of the Company. * |
| |
|
f. |
|
Certificate of Amendment to Articles of Incorporation filed May 13, 2003 ** |
| |
| 10 |
|
Material Contracts |
| |
|
a. |
|
Stock Purchase Agreement with Charles Wright *** |
| |
|
b. |
|
Stock Purchase Agreement with Equity Solutions *** |
| |
|
c. |
|
Consulting Agreement with Charles Wright **** |
| |
| 31 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
| |
| 32 |
|
Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) |
| |
| * |
|
Incorporated by reference herein filed as en exhibit to Form 10SB12G filed on September 1, 2000. |
| ** |
|
Incorporated by reference herein filed as Exhibit 3 to Form 10-QSB filed on July 15, 2003. |
| *** |
|
Incorporated by reference herein filed as an exhibit to Form 8-K filed on August 14, 2006 |
| **** |
|
Incorporated by reference herein filed as an exhibit to Form 8-K filed on August 30, 2006 |
| |
| |
| -20- |