| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
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| FORM 10-QSB |
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| (Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 |
| [X] |
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OR 15(d) OF THE SECURITIES EXCHANGE ACT OF |
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1934 |
| For the quarterly period ended: August 31, 2006 |
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| Or |
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TRANSITION REPORT PURSUANT TO SECTION 13 |
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OR 15(d) OF THE SECURITIES EXCHANGE ACT OF |
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1934 |
| For the transition period from __________ to __________ |
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| Commission File Number: 000-31431 |
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| US BIODEFENSE, INC. |
| (Exact name of registrant as specified in its charter) |
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| Utah |
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33-0052057 |
| (State of Other Jurisdiction of Incorporation) |
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(IRS Employer Identification No.) |
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| 375 South 6th Avenue |
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| City of Industry, California |
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91746 |
| (Address of Principal Executive Offices) |
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(Zip Code) |
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| (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: 39,059,047 |
| US Biodefense, Inc. |
| Notes to Financial Statements |
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| Note 1 - Background and Summary of Significant Accounting Policies |
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| Background |
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| 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 nine months ended August 31, 2006, include the |
| accounts of the Company and its wholly-owned subsidiaries Stem Cell Research Institute, Inc. |
| and Emergency Disaster Systems, 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, 2006 of $323,256 and at August 31, 2006, had an accumulated deficit |
| of $4,164,613. 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. |
| |
| 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. |
| |
| -7- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| 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 |
| |
| Sales revenues and consulting revenues are realized or realizable and earned when all of the following |
| criteria are met - there is persuasive evidence that an arrangement exists; delivery has occurred, or services |
| have been rendered; the price to our customer is fixed or determinable; and collectibility is reasonably |
| assured. |
| |
| 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. |
| |
| Concentration of Credit Risk |
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| 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. |
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| Cash Equivalents |
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| 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 |
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| 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. |
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| -8- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
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| Fixed Assets |
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| 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). |
| |
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| 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 six months ended May 31, 2005 and May 31, |
| 2004, the Company has no items that represent other comprehensive income, and accordingly, |
| has not included a schedule of comprehensive income in the financial statements. |
| |
| Advertising Costs |
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| Advertising costs are expensed as incurred. There were no advertising costs for the nine month |
| periods ended August 31, 2006 or 2005. |
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| Income Taxes |
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| 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, |
| 2006 and August 31, 2005, the Company does not have any equity or debt instruments |
| outstanding that can be converted into common stock. |
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| -9- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
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| Stock-Based Compensation |
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| Stock-Based Compensation |
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| 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. |
| |
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| Prior to January 1, 2006, the Company measured compensation cost for stock-based employeee 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 January 2003, the FASB issued Interpretation No 46, "Consolidation of Variable Interest Entities" |
| (an interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidation Financial State- |
| ments). Interpretation 46 addresses consolidation by business enterprises of entities to which the |
| usual condition of consolidation described in ARB-5 does not apply. The Interpretation changes |
| the criteria by which one company includes another entity in its consolidated financial statements. |
| The general requirement to consolidate under ARB-51 is based on the presumption that an enter- |
| prise's financial statement should include all of the entities in which it has a controlling financial |
| interest (i.e., majority voting interest). Interpretation 46 requires a variable interest entity to receive |
| a majority of the entity's residual returns or both. A company that consolidated a variable interest |
| entity is called the primary beneficiary of that entity. In December 2003, the FASB concluded to |
| revise certain elements of FIN 46, primarily to clarify the required accounting for interests in variable |
| interest entities. FIN-46R replaces FIN-46. that was issued in January, 2003. FIN-46R exempts |
| certain entities from its requirements and provides for special effective dates for entities that have |
| fully or partially applied FIN-46 as of December 24, 2003. In certain situations, entities have the |
| option of applying or continuing to apply FIN-46 for a short period of time before applying IN-46R. |
| In general, for all entities that were previously considered special purpose entities, FIN 46 should |
| be applied for registrants who file under Regulation SX in periods ending after March 31, 2004, and |
| for registrants who file under Regulation SB, in periods ending after December 15, 2004. The |
| Company does not expect the adoption to have a material impact on the Company's financial |
| position or results of operations. |
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| -10- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on Derivative |
| Instruments and Hedging Activities", effective for contracts entered into or modified after |
| September 30, 2003, except as stated below and for hedging relationships designated after |
| September 30, 2003. In addition, except as stated below, all provisions of this Statement should |
| be applied prospectively. The provisions of this Statement that relate to Statement 133 Implement- |
| ation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should |
| continue to be applied in accordance with their respective effective dates. In addition, paragraphs |
| 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other |
| securities that do not yet exist, should be applied to both existing contracts and new contracts |
| entered into after September 30, 2003. The adoption of this statement had no impact on the |
| Company's financial statements. |
| |
| During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial Instruments with |
| Characteristics of both Liabilities and Equity", effective for financial instruments entered into or |
| modified after May 31, 2003, and otherwise is effective for public entities at the beginning of the |
| first interim period beginning after June 15, 2003. This Statement establishes standards for how |
| an issuer classifies and measures certain financial instrument with characteristics of both |
| liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is |
| within its scope as a liability (or an asset in some circumstances). Many of those instruments |
| were previously classified as equity. Some of the provisions of this Statement are consistent with |
| the current definition of liabilities in FASB Concepts Statement No. 6, Element of Financial |
| Statements. The adoption of this statement had no impact on the Company's financial statements. |
| |
| In December 2003, the FASB issued a revised SFAS No. 132, “Employers’ Disclosures about |
| Pensions and Other Postretirement Benefits” which replaces the previously issued Statement. The |
| revised Statement increases the existing disclosures for defined benefit pension plans and other |
| defined benefit postretirement plans. However, it does not change the measurement or recognition |
| of those plans as required under SFAS No. 88, “Employers’ Accounting for Settlements and |
| Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, |
| “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” Specifically, the |
| revised Statement requires companies to provide additional disclosures about pension plan assets, |
| benefit obligations, cash flows, and benefit costs of defined benefit pension plans and other |
| defined benefit postretirement plans. Also, companies are required to provide a breakdown of plan |
| assets by category, such as debt, equity and real estate, and to provide certain expected rates |
| of return and target allocation percentages for these asset categories. The Company has |
| implemented this pronouncement and has concluded that the adoption has no material impact |
| to the financial statements. |
| |
| In December, 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting |
| Bulletin (“SAB”) No. 104, “Revenue Recognition.” SAB 104 supersedes SAB 11, “Revenue |
| Recognition in Financial Statements.” SAB 104’s primary purpose is to rescind accounting |
| guidance contained in SAB 101 related to multiple element revenue arrangements, superseded |
| as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple |
| Deliverables.” Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial |
| Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101 that had |
| been codified in SEC Topic, 13, Revenue Recognition. Selected portions of the FAQ have been |
| incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance |
| of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the |
| issuance of SAB 104, which was effective upon issuance. The adoption of SAB 104 did not |
| impact the financial statements. |
| |
| -11- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| In March, 2004, the FASB approved the consensus reached on the Emerging Issues Task Forces |
| (ETIF) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to |
| Certain Investments.” The objective of this Issue is to provide guidance for identifying impaired |
| investments. EITF 03-1 also provides new disclosure requirements for investments for investments |
| are deemed to be temporarily impaired. In September 204, the FASB issued a FASB Staff |
| Position (FSP) EITF 03-1-1 that delays the effective date of the measurement and recognition |
| are effective only for annual periods ending after June15,2004. The Company has evaluated the |
| impact of the adoption of the disclosure requirements of EITF 03-1 and does not believe it will have |
| an impact to the Company’s overall combined results of operations or combined financial position. |
| Once the FASB reaches a final decision on the measurement and recognition provisions, the |
| Company will evaluate the impact of the adoption of EITF 03-1. |
| |
| In November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of ARB |
| No. 43, Chapter 4 (“SFAS No. 151”. The amendments made by SFAS 151 clarify that abnormal |
| amount of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be |
| recognized as current-period charges and require the allocation of fixed production overheads to |
| inventory based on the normal capacity of the production facilities. The guidance is effective for |
| inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is |
| permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The |
| Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact |
| will be significant to the Company’s overall results of operations or financial position. |
| |
| In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing |
| Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS 152") SFAS 152 |
| amends SFAS No. 66, "Accounting for Sales of Real Estate", to reference the financial accounting |
| and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement |
| of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also |
| amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects", |
| to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate |
| projects does not apply to real estate time-sharing transactions. The accounting for those operations |
| and costs is subject to the guidance in SOP04-2. SFAS 152 is effective for financial statements |
| for fiscal years beginning after June 15, 2005, with earlier applications encouraged. The Company |
| has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be |
| significant to the Company's overall results of operations or financial position. |
| |
| In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Asset, an |
| amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions." The amendments |
| made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be |
| measured based on the fair value of the assets exchanged. Further, the amendments eliminate |
| the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a |
| broader exception for exchanges of nonmonetary assets that do not have commercial substance. |
| Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a |
| similar productive asset or an equivalent interest in the same or similar productive asset should be |
| based on the recorded amount of the asset relinquished. Opinion 29 provided an exception to its |
| basis measurement principle (fair value) for exchanges of similar productive assets. That exception |
| required that some nonmonetary exchanges, although commercially substantive, to be recorded on |
| a carryover basis. By focusing the exception on exchanges that lack commercial substance, the |
| FASB believes SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal |
| periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset |
| |
| -12- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of SFAS |
| No. 153 shall be applied prospectively. The Company has evaluated the impact of the adoption of |
| SFAS 153, and does not believe the impact will be significant to the Company's overall results of |
| operations or financial position. |
| |
| 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 |
| 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 |
| been used. Public entities (other than those filing as small business issuers) will be required to |
| apply SFAS 123R as of the first interim or annual reporting period that begins after June 15, 2005. |
| The Company has evaluated the impact of the adoption of SFAS 123R and does not believe the |
| impact will be significant to the Company's overall 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 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. |
| |
| -13- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| 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. |
| |
| 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, and $37,500 for the nine month period ended August 31, 2006. The |
| balance of $37,500 is included as deferred revenues on the balance sheet. |
| |
| 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 November 30, 2005, the fair market value of common equity securities |
| with a cost of $100,000 was $150,000. The unrealized loss of $50,000, net of the related income tax |
| benefit $19,150 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. |
| |
| -14- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| 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. |
| |
| At 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. The balance of $27,500 has |
| been charged to operations, and is included in expenses on the operating statement for the nine months |
| ended August 31, 2006. |
| |
| Note 4 - Notes Payable (Including Related Parties) |
| |
| As of November 30, 2005, an officer and director of the Company loaned the Company a total of |
| $4,313 to pay for general and administrative expenses. The loan bears no interest and is due |
| upon demand. As of August 31, 2006, the amount owed is $1,313. |
| |
| In July, 2006, an officer of the Company loaned the Company $17,700. The loan bears no interest |
| and is due upon demand. As of August 31, 2006, the amount owed is $17,700. |
| |
| Note 5 - Deferred Revenues (Including Related Parties) |
| |
| On May 1, 2004, the Company entered into an agreement with Financialnewsusa.com, Inc., to |
| develop content for its' Biodefense Industry News. Financialnewsusa.com, Inc. is a |
| related party due to a common officer and director. |
| |
| The deferred portion of the agreement described in Note 2 totals $37,500 at August 31, 2006. |
| |
| Note 6 - 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 year ended November 30, |
| 2005 are unrealized holding gain on available for sale securities, net of tax benefit of $19,150, for a net |
| comprehensive loss of $30,850. |
| |
| -15- |
| US Biodefense, Inc. |
| Notes to Financial Statements |
| |
| Note 7 - Income Taxes |
|
|
|
|
| |
| The income tax provision reflected in the statement of operations consists of the following components |
| for the year ended November 30, 2005: |
|
|
|
|
| |
| Current income taxes payable: |
|
|
|
|
| Federal |
|
$8,780 |
|
|
| State |
|
816 |
|
|
| |
|
9,596 |
|
|
| |
| Deferred tax expense relating to change in |
|
|
|
|
| unrealized gains (losses) on available |
|
|
|
|
| for-sale securities: |
|
|
|
|
| Federal |
|
17,500 |
|
|
| State |
|
1,550 |
|
|
| |
|
19,050 |
|
|
| |
| 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 |
|
(12,742) |
|
35.00% |
| State tax, net of federal effect |
|
815 |
|
-2.24% |
| Permanent differences |
|
70,020 |
|
-192.33% |
| Net operating loss deduction |
|
(48,497) |
|
133.21% |
| |
| |
|
9,596 |
|
-26.36% |
| |
| Note 8 - Earnings per share |
|
|
|
|
| |
| Basic earnings per share are calculated by dividing net income by the weighted average number |
| of common shares outstanding during the period. |
|
|
|
|
| |
| Note 9 - Concentrations |
|
|
|
|
| |
| Financialnewsusa.com, Inc. is a related party due to a common officer and director, and represented |
| 40% of the revenues generated by the Company for the nine months period ended August 31, 2006. |
| |
| Note 10- Other Information |
|
|
|
|
| |
| During August, 2006, the Company incorporated Emergency Disaster Systems, Inc. The Company is a |
| retailer of emergency disaster equipment. |
|
|
|
|
| |
| Note 11 - Common Stock Transactions |
|
|
|
|
| |
| During the nine months ended August 31, 2006, the Company issued 2,000,000 shares of common stock |
| and received proceeds of $200,000. |
|
|
|
|
| |
| During the nine months ended August 31, 2006, the Company issued 6,755,000 shares of common stock |
| to three entities as consulting fees totaling $270,200. |
|
|
|
|
| -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. |
| |
| On August 7, 2006, we completed the acquisition of Emergency Disaster Systems, Inc., a California |
| corporation engaged in the business of disaster mitigation and emergency preparedness. We purchased a 100% interest |
| in EDS for an aggregate of $25,000 in cash. EDS was originated by Charles Wright in 1989 to provide earthquake |
| preparedness supplies to communities in California. 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. EDS is currently a wholly-owned subsidiary of |
| US Biodefense. |
| |
| Results of Operations |
| |
| Revenues |
| |
| Our aggregate revenues for the three months ended August 31, 2006 were $75,469. Revenues consisted of |
| $6,667 attributable to the October 15, 2005 renewal of the agreement with Financialnewsusa.com, a related party, to |
| provide consulting services to them in exchange for $40,000, for which we were paid in advance the entire balance of |
| the contract. We also recognized $37,500 in deferred revenues attributed to stock received in advance for services to be |
| provided, which stock was received on May 11, 2005. The remainder of revenues earned in the three and nine months |
| ended August 31, 2006, $31,302, was generated from our wholly-owned subsidiary, Emergency Disaster Systems, Inc., |
| which we acquired in August of 2006. After accounting for cost of sales for the three month period ended August 31, |
| 2006, in the amount of $25,415, our gross profit was $50,054. |
| |
| During the three month period ended August 31, 2005, we generated revenues of $25,000, which we earned |
| from our October 15, 2005 agreement with Financialnewsusa.com. Without cost of sales incurred during the period, our |
| gross profit was $25,000. |
| -17- |
| In the nine months ended August 31, 2006, we generated total revenues of $115,469, of which $31,302 was |
| generated from sales by EDS, our wholly-owned subsidiary, $37,500 was earned from our May 11, 2005 agreement, for |
| which stock was received as payment and $46,667 was earned from our October 15, 2006 agreement with |
| Financialnewsusa.com. Taking into consideration cost of sales of $25,415 during the nine month period ended August |
| 31, 2006, our gross profit was $90,054. |
| |
| We generated $104,167 in revenues during the nine month period ended August 31, 2005. All of these |
| revenues were earned from our service agreements with Financialnewsusa.com, a related party. Our resultant gross |
| profit was $104,167 during this period. |
| |
| We cannot guarantee that we will be able to attract future customers and continue to generate sales. In the year |
| ago period, we did not generate any revenues. |
| |
| Expenses |
| |
| Total expenses for the three months ended August 31, 2006 were $379,438, consisting materially of $270,200 |
| for stock issued to consultants for services and $86,738 in general and administrative expenses. Additionally, we have |
| recorded $22,500 as an impairment to our license agreements related to stem cell research. In the comparable year ago |
| three month period ended August 31, 2005, our total expenses were $45,217, consisting primarily of $42,217 in general |
| and administrative expenses and $3,000 in general and administrative expenses paid to a related party. We believe total |
| expenses for the three months ended August 31, 2006 were significantly higher than the comparable period ended |
| August 31, 2005 because of our acquisition of EDS and the hiring of independent consultants in an effort to increase our |
| revenue generating potential and explore additional business ventures. |
| |
| During the nine months ended August 31, 2006, we incurred $413,310 in total expenses, of which $270,200 is |
| attributable to stock issued for consulting services, $93,939 was paid for general and administrative costs, research and |
| development costs of $23,171 was paid, $22,500 was recorded as an impairment of license agreements and $3,500 was |
| paid to a related party for general and administrative fees. In the year ago nine month period ended August 31, 2005, |
| we incurred $114,385 in total expenses, all of which was related to general and administrative expenses in the amount |
| of $111,385 and general and administrative expenses paid to a related party in the amount of $3,000. As was the case |
| during the three months ended August 31, 2006, our acquisition of EDS and the hiring of outside consultants |
| contributed to the significant increase in aggregate expenses. |
| |
| Net Income (Loss) |
| |
| We incurred a net loss of $329,384 for the most recent quarter ended August 31, 2006. In comparison, we |
| incurred a net loss from operations in the amount of $20,217 in the year ago three month period. The key factor |
| providing this change: namely, our expenses were significantly higher in the current period as opposed to a year ago |
| because of stock issued to consultants and the impairment of assets. |
| |
| For the nine months ended August 31, 2006, we incurred a net loss of $323,256, as opposed to a net loss of |
| $10,218 in the prior nine month period ended August 31, 2005. The difference is attributable mainly to the level of |
| expenditures in the period ended August 31, 2006 being higher in the current period. |
| |
| Liquidity and Capital Resources |
| |
| We have limited cash on hand, in the amount of $69,035 as of August 31, 2006, and may be unable to continue |
| operations for the next at least 12 months if we are unable to generate revenues or obtain capital infusions by issuing |
| equity or debt securities in exchange for cash. If we are unable 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, 2006, David Chin loaned us a total of $4,312 to pay for general and |
| administrative expenses. The loan bears no interest and is due upon demand. As of August 31, 2006, the amount owed |
| is $1,313. 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. |
| |
| On August 7, 2006, we sold 2,000,000 shares of our restricted common stock at a price per share of $0.10, for |
| gross cash proceeds of $200,000, to Equity Solutions, Inc., a California corporation. This sale was conducted privately |
| between US Biodefense and Equity Solutions, not involving any solicitation or advertising, and was not underwritten. |
| |
| -18- |
| Notwithstanding cash provided by our President and received from Equity Solutions, 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. |
| |
| We have also paid outside consultants with our common stock in lieu of cash for services provided to us. As |
| of August 31, 2006, we have issued an aggregate of 6,775,000 shares of our common stock for aggregate consulting |
| fees in the amount of $270,200. |
| |
| 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. |
| |
| 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 2005 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. |
| |
| -19- |
| PART II - OTHER INFORMATION |
| |
| Item 2. Unregistered Sales of Equity Securities |
| |
| On August 7, 2006, we sold 2,000,000 shares of our restricted common stock at a price per share of $0.10, for |
| gross cash proceeds of $200,000, to Equity Solutions, Inc., a California corporation, pursuant to a Stock Purchase |
| Agreement. This sale was conducted privately between US Biodefense and Equity Solutions, not involving any |
| solicitation or advertising, and was not underwritten. At the time of the issuance, Equity Solutions was given, and had |
| fair access to, information about our company. The shares bear a restrictive transfer legend. The issuance of stock to |
| Equity Solutions was made in accordance with an exemption from registration contained in Section 4(2) of the |
| Securities Act of 1933. |
| |
| Item 6. Exhibits and Reports on Form 8-K |
| |
| Exhibit |
|
|
| Number |
|
Name and/or Identification of Exhibit |
| |
| 3 |
|
Articles of Incorporation & By-Laws |
| |
|
a. Articles of Incorporation of Teal Eyes, Inc. Incorporated by reference herein filed as Exhibit |
| |
|
(a) to Form 10SB12G filed on September 1, 2000. |
| |
|
b. Amendment to Articles of Incorporation of Teal Eyes, Inc. Incorporated by reference herein |
| |
|
filed as Exhibit (b) to Form 10SB12G filed on September 1, 2000. |
| |
|
c. Amendment to Articles of Incorporation of Terzon Corporation. Incorporated by reference |
| |
|
herein filed as Exhibit (c) to Form 10SB12G filed on September 1, 2000. |
| |
|
d. Amended and Restated Articles of Incorporation of Candy Stripers Candy Corp. Incorporated |
| |
|
by reference herein filed as Exhibit (d) to Form 10SB12G filed on September 1, 2000. |
| |
|
e. By-Laws of the Company. Incorporated by reference herein filed as Exhibit (e) to Form |
| |
|
10SB12G filed on September 1, 2000. |
| |
|
f. Certificate of Amendment to Articles of Incorporation filed May 13, 2003. Incorporated by |
| |
|
reference herein filed as Exhibit 3 to Form 10-QSB filed on July 15, 2003. |
| |
| 31 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
| |
|
David Chin |
| |
| 32 |
|
Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) |
| |
| |
| Date of |
|
|
| Form 8-K |
|
Item(s) Reported |
| |
| 08/14/2006 |
|
Items 2.01, 3.02 and 9.01 |
| |
| 08/30/2006 |
|
Items 1.01, 5.02 and 9.01 |
| |
| -20- |