-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ugx9zPZT33xH0qWw8TMSzSC5ccAvvQ0cCt/iaHnEOWF6WXxCm29EkfR6C1Mr+01d aViFwaOACxwUKWZLWFyd8Q== 0001017951-99-000113.txt : 19990802 0001017951-99-000113.hdr.sgml : 19990802 ACCESSION NUMBER: 0001017951-99-000113 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERSAILLES CAPITAL CORP /CO CENTRAL INDEX KEY: 0000818808 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841044910 STATE OF INCORPORATION: CO FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22865 FILM NUMBER: 99674054 BUSINESS ADDRESS: STREET 1: 21550 OXNARD STREET STREET 2: SUITE 830 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8186760404 MAIL ADDRESS: STREET 1: 1200 17TH STREET STREET 2: SUITE 1000 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: MAN O WAR INC /CO/ DATE OF NAME CHANGE: 19970714 10QSB 1 FORM 10-QSB DATED JUNE 30, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 1999 [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _____________ to _______________ Commission file number: 0-22865 ------- VERSAILLES CAPITAL CORPORATION - ------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Colorado 84-1044910 - ------------------------------------- --------------------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 21550 Oxnard Street, Suite 830, Woodland Hills, California 91367 - ------------------------------------------------------------------------- (Address of Principal Executive Offices) (818) 676-0404 - ------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) N/A - ------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of July 30, 1999, 43,042,856 shares of the issuer's Common Stock, -------------------------------------------------------------------- $0.05 par value per share, were outstanding. -------------------------------------------- Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PART I FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements: Consolidated Balance Sheet - March 31, 1999 and June 30, 1999 (unaudited). . . . . . . . . . . . . . . . . . . . . . . .2 Consolidated Statement of Operations - For the Three Months Ended June 30, 1998 and 1999 and Cumulative Amounts from Inception (April 10, 1998) through June 30, 1999 (unaudited). . . . . . . . . . . . . . . . . . . .3 Consolidated Statement of Stockholders' Equity - For the Period from Inception (April 10, 1998) through June 30, 1999 (unaudited). . . . . . . . . . . . . . . . . . . .4 Consolidated Statement of Cash Flows - For the Three Months Ended June 30, 1998 and 1999 and Cumulative Amounts from Inception (April 10, 1998) through June 30, 1999 (unaudited). . . . . . . . . . . . . . . . . . . .5 Notes to Unaudited Consolidated Financial Statements . . . . . . . . . .6 Item 2. Management's Discussion and Analysis or Plan of Operations . . 18 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 22 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 PART I Item 1. Financial Statements VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET MARCH 31, 1999 and JUNE 30, 1999 (unaudited) ASSETS
CURRENT ASSETS March 31, 1999 June 30, 1999 --------------- ------------ Cash and cash equivalents $ 2,614,523 $ 2,104,132 Advances to an affiliate 46,581 - Current portion of prepaid management fees - affiliated corporation 73,125 73,125 Other current assets 20,275 26,332 ------------ ------------ TOTAL CURRENT ASSETS 2,754,504 2,203,589 ------------ ------------ PROPERTY AND EQUIPMENT, NET 30,633 30,146 ------------ ------------ OTHER ASSETS Prepaid management fees - affiliated corporation 140,156 121,875 Loan receivable from an affiliate - 100,000 Deposits 3,040 3,040 ------------ ------------ 143,196 224,915 ------------ ------------ TOTAL ASSETS $ 2,928,333 $ 2,458,650 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 114,597 $ 110,099 Accrued liabilities 143,941 122,824 ------------ ------------ TOTAL CURRENT LIABILITIES 258,538 232,923 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY Preferred stock $0.10 par value, 50,000,000 shares authorized, no shares issued or outstanding Common stock $0.05 par value, 100,000,000 shares authorized, 43,042,856 shares issued and outstanding 4,852,452 4,852,452 Deficit accumulated during the development stage (2,182,657) (2,626,725) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,669,795 2,225,727 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,928,333 $ 2,458,650 ============ ============
See accompanying notes 2 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999 AND FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) TO JUNE 30, 1999 (unaudited)
Period Three Months Cumulative Ended Ended Amounts From COSTS AND EXPENSES June 30, 1998 June 30, 1999 Inception ------------- ------------- --------- Research and development $ 6,275 $ 259,533 $ 681,826 General and administrative 3,754 208,534 1,977,845 ------------ ------------ ------------ OPERATING LOSS (10,029) (468,067) (2,659,671) OTHER INCOME (EXPENSE) Interest income - 25,382 35,570 Interest expense - (583) (1,024) ------------ ------------ ------------ - 24,799 34,546 ------------ ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (10,029) (443,268) (2,625,125) PROVISION FOR INCOME TAXES 800 800 1,600 ------------ ------------ ------------ NET LOSS $ (10,829) $ (444,068) $ (2,626,725) ============ ============ ============ NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.00) $ (0.01) $ (0.08) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 21,936,982 43,042,856 31,122,586 ============ ============ ============
3 See accompany notes VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) TO JUNE 30, 1999 (unaudited)
DEFICIT COMMON STOCK ACCUMULATED ------------ DURING THE NUMBER DEVELOPMENT OF SHARES AMOUNT STAGE TOTAL --------- ------ ----- ----- Issuance of common stock to founders on October 24, 1998 at $0.001 per share 24,077,174 $ 3,650 $ - $ 3,650 Fair value of stock and an option issued on October 24, 1998 in exchange for services and trademark rights 7,704,696 814,000 - 814,000 Fair value of stock issued to prospective officers on October 24, 1998 677,728 142,500 - 142,500 Issuance of common stock in a private placement in November and December 1998 at $0.21 per share 1,426,790 300,000 - 300,000 Fair value of stock and an option transferred by a principal stockholder on February 16, 1999 in exchange for services - 452,000 - 452,000 Issuance of common stock in a private placement in February 1999 at $0.42 per share 7,872,352 3,050,302 - 3,050,302 Fair value of stock transferred to a prospective officer by a principal stockholder on February 23, 1999 - 90,000 - 90,000 Merger of Versailles Capital Corporation 1,284,116 - - - Net loss for the period from inception (April 10, 1998) through March 31, 1999 - - (2,182,657) (2,182,657) ----------- ----------- ----------- ----------- Balance, March 31, 1999 43,042,856 $ 4,852,452 $(2,182,657) $ 2,669,795 Net loss for the three months ended June 30, 1999 - - (444,068) (444,068) ----------- ----------- ----------- ----------- Balance at June 30, 1999 43,042,856 $ 4,852,452 $(2,626,725) $ 2,225,727 =========== =========== =========== ===========
4 See accompanying notes VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999 AND FOR THE PERIOD FROM APRIL 10, 1998 (Date of Inception) TO JUNE 30, 1999 (unaudited)
Period Three Months Cumulative Ended Ended Amounts From CASH FLOWS FROM OPERATING ACTIVITIES June 30, 1998 June 30, 1999 Inception ------------- ------------- --------- Net loss $ (10,829) $ (444,068) $ (2,626,725) ------------ ------------ ------------ ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES Noncash transactions: Depreciation and amortization - 2,765 2,765 Fair value of stock and an option issued in exchange for services and trademark rights - - 814,000 Fair value of stock issued to prospective officers - - 142,500 Fair value of stock transferred to a prospective officer by a principal stockholder - - 90,000 Fair value of stock and an option transferred by a principal stockholder in exchange for services - - 452,000 Changes in assets and liabilities: Advances from/to affiliates 10,029 46,581 - Other current assets - (6,057) (26,332) Prepaid management fees - 18,281 (195,000) Deposits - - (3,040) Accounts payable and accrued expenses 800 (25,615) 232,923 ------------ ------------ ------------ Total adjustments 10,829 35,955 1,509,816 ------------ ------------ ------------ NET CASH USED BY OPERATING ACTIVITIES - (408,113) (1,116,909) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment - (2,278) (32,911) Loan to an affiliate - (100,000) (100,000) ------------ ------------ ------------ - (102,278) (132,911) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from sale of common stock - - 3,353,952 ------------ ------------ ------------ NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS - (510,391) 2,104,132 ------------ ------------ ------------ CASH, BEGINNING BALANCE - 2,614,523 - ------------ ------------ ------------ CASH, ENDING BALANCE $ - $ 2,104,132 $ 2,104,132 ============ ============ ============
5 See accompanying notes VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 1. BUSINESS AND BASIS OF PRESENTATION BUSINESS AND ORGANIZATION Versailles Capital Corporation ("Versailles" or the "Company"), a publicly held company, was incorporated under the laws of Colorado on December 31, 1986. From 1991 through February 22, 1999, Versailles was inactive aside from seeking a business combination candidate. British Lion Medical, Inc. ("British Lion") was incorporated in California in August 1997 and commenced operations on April 10, 1998. British Lion was engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus ("HIV"). On February 17, 1999, Versailles, British Lion and Amerimmune, Inc. ("Amerimmune"), a newly organized, wholly owned subsidiary of Versailles, entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement on February 23, 1999, each share of British Lion's issued and outstanding no par value common stock (5,853,500 shares) was exchanged for 7.133978 newly issued shares (41,758,740 shares) of Versailles' $0.05 par value per share common stock. After the exchange, former British Lion stockholders acquired approximately 97% of the issued and outstanding voting shares of Versailles and Versailles acquired all of the issued and outstanding shares of British Lion through a merger of British Lion with and into Amerimmune, with Amerimmune as the surviving legal entity (the "Transaction"). Prior to the Transaction, Versailles had nominal assets and liabilities. Unless otherwise noted, all references to the number of common shares in these financial statements are based upon the equivalent post-exchange number of Versailles' common shares. For financial reporting purposes, the Transaction has been accounted for as a reverse acquisition whereby British Lion is deemed to have acquired Versailles. Since this is a reverse acquisition, the legal acquiror, Versailles, continues in existence as the legal entity whose shares represent the outstanding common stock of the combined entities. The acquisition has been accounted for as a recapitalization of British Lion based upon historical cost. The recapitalization was given retroactive effect. In connection with the Transaction, Amerimmune succeeded to the business of British Lion and became engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R). Versailles has assumed the obligations of British Lion including all outstanding stock options and warrants to purchase shares of British Lion's common stock and has agreed to issue equivalent shares of Versailles common stock under the same terms and conditions. 6 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) BASIS OF PRESENTATION AND MANAGEMENT PLAN The accompanying consolidated financial statements of Versailles and its subsidiary have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-QSB. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this report. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair presentation. The results of operations for the three months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the period ended March 31, 1999 as filed with the Securities and Exchange Commission. All significant intercompany balances and transactions have been eliminated in consolidation. Versailles (hereinafter the term "Versailles" or the "Company" includes the predecessor entity to its current operations, British Lion) is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through June 30, 1999. Versailles has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. Versailles has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on research and development and allocates significant and increasing resources to clinical testing, marketing and other activities. In November and December 1998, the Company sold 1,426,790 shares of its common stock (at approximately $0.21 per share), for gross proceeds of $300,000, to certain accredited investors in a private placement. In December 1998, the Company began a second private placement of common stock to accredited investors, which was completed on February 22, 1999. The second private placement was made on a minimum/maximum "best efforts" basis. The Company raised the maximum amount of gross proceeds of $3,210,000 (7,633,364 common shares at approximately $.42 per share) and paid cash offering expenses of $159,698. Net cash proceeds from the private placement aggregated $3,050,302. Versailles believes that the funds received in these private placements will enable it to satisfy its cash requirements without the need to raise additional funds before March 31, 2000. Versailles anticipates that it will commence a tolerability, pharmacokinetics and dose-ranging study for Cytolin(R) now that a clinical protocol has been submitted to the Food and Drug Administration ("FDA") and the bulk drug has been manufactured and tested. Versailles is currently preparing manufacturing and packaging records for submission to the FDA. Versailles estimates that it may require significant additional funding over the next three years to successfully complete 7 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) the FDA approval process. Versailles does not presently anticipate any purchase or sale of plant and significant equipment or any significant changes in the number of employees. It is not possible to predict the success of management's efforts to raise sufficient capital to fund future operations. If management is unable to achieve its goals, Versailles may find it necessary to undertake actions as may be appropriate to continue operations and meet its financial commitments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. At June 30, 1999, substantially all cash and cash equivalents were on deposit with one financial institution. PROPERTY AND EQUIPMENT Office furniture and equipment is recorded at cost. Depreciation commences as items are placed in service and is computed on a straight-line method over their estimated useful lives of three to five years. Leasehold improvements are recorded at cost and amortized over the three-year term of the lease. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Payments related to the acquisition of technology rights, for which development work is in-process, are expensed and considered a component of research and development costs. ACCOUNTING FOR STOCK BASED COMPENSATION The Company's employee stock option plan is accounted for under Accounting Principles 8 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) Board Opinion No. 25, "Accounting for Stock Issued to Employees" which requires the recognition of expense when the option price is less than the fair value of the stock at the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The adoption of SFAS 123 disclosure provisions has no effect on either the Company's balance sheet or its statement of operations. NET LOSS PER SHARE Loss per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 ("SAB 98"). Basic earnings per share excludes dilution for common stock equivalents and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and resulted in the issuance of common stock. Pursuant to SAB 98, common stock issued for nominal consideration is required to be included in the calculation of basic and diluted earnings per share, as if they were outstanding for all periods presented. In accordance with the SAB 98 requirements, 21,936,981 of the founder's shares are considered to be nominal issuances and have been considered outstanding for the entire periods presented. All outstanding stock options and warrants have been excluded from the calculation of diluted loss per share, because such securities are antidilutive. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements and is effective for fiscal years beginning after December 15, 1997. To date, the Company has not had any transactions that are required to be reported in comprehensive income. SEGMENT INFORMATION In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This statement establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers based on the provisions of SFAS 131. The Company has determined that it does not have separately reportable operating segments. 9 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash is assumed to be its fair value because of the liquidity of the instrument. Accounts payable and accrued expenses and amounts due to affiliated corporations approximate fair value because of the short maturity of these instruments. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 3. COMMON STOCK INITIAL ISSUANCE OF SHARES During October 1998, the Company issued 24,077,174 shares of restricted common stock (at $0.001 per share) to founders for cash in connection with the execution of patent and license agreements. Another 4,280,387 shares were issued in exchange for rights to a trademark. The stockholders who were issued these shares have agreed not to sell any of their shares for a period of two years from the date of issuance of the shares. In addition, during October 1998, the Company issued 677,728 shares of restricted common stock (at $0.001 per share) for cash to prospective officers. The shares of stock issued were recorded based upon a value of $0.21 a share, the price of the shares subsequently sold in the initial private placement. In connection with these transactions, the Company recorded a non-cash, general and administrative expense of $142,500. These stockholders agreed not to sell any of their shares for a period of two years from the date of issuance of the shares. INITIAL PRIVATE PLACEMENT In November and December 1998, the Company sold 1,426,790 shares of its stock, at approximately $0.21 per share for total proceeds of $300,000, to certain accredited investors in an initial private placement ("Initial Private Placement"). FEBRUARY 22, 1999 PRIVATE PLACEMENT As described in Note 1, pursuant to the Merger Agreement, and as a condition precedent to the Transaction, the Company successfully completed a private placement of its common stock on February 22, 1999. Through this private placement, the Company raised net cash proceeds of $3,050,302 (gross proceeds of $3,210,000 less cash private placement expenses of $159,698). The Company also incurred non-cash expenses of $210,294 in connection with this private placement. The Company (i) issued 238,988 10 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) shares of its restricted common stock with a fair value of approximately $0.42 per share to an investor for assisting in this private placement of the Company's common stock ($100,500) and (ii) issued 515,308 warrants at a price of $0.42 per share to a private placement agent as commissions (the fair value of these warrants was estimated to be $109,794). The Company entered into an agreement with a financial consulting firm, Battersea Capital, Inc. ("Battersea"), to assist the Company in private placements and finding an appropriate public company into which the Company could merge. In connection with Battersea's consulting agreement with the Company, LMU & Company ("LMU") acquired the majority ownership of Versailles prior to the Transaction and facilitated the merger of British Lion with Versailles. The Company paid LMU a finder's fee of $100,000 from the proceeds of its second private placement in February 1999 for these services. Such amounts have been included in the accompanying statement of operations as general and administrative expenses. SHARES ISSUED FOR SERVICES Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the assets or services received in exchange for such shares. In consideration for Battersea's services described above, the Company issued 2,140,193 restricted shares of its stock to Battersea in October 1998 and granted Battersea an option to purchase an additional 1,426,794 shares of stock at a price of $0.42 per share for a five year period. The shares of stock issued were recorded at $450,000 based upon a value of $0.21 a share, the price of the shares sold in the Initial Private Placement. The stock option granted was recorded at $94,000, approximately $0.065 per share, using the Black-Scholes option pricing model. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $544,000. The shares issued and the shares underlying the option are covered by certain registration rights. In October 1998, the Company also issued 1,284,116 restricted shares to an attorney in exchange for cash of $180 and legal services provided to the Company. The shares of stock issued were recorded based upon a value of $0.21 a share, the price of the shares sold in the Initial Private Placement. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $270,000. This stockholder has also agreed not to sell any shares for a period of two years. In February 1999, a principal stockholder of the Company transferred 713,397 of its restricted shares of the Company's common stock to Battersea upon the completion of the Transaction. In addition, the same principal stockholder granted Battersea an option to purchase 713,397 shares of the Company's common stock at $0.42 per share from its own holdings. The shares of stock transferred were recorded at $300,000 based upon a value of $0.42 per share, the price of the shares sold in the February 22, 1999 private placement. The stock option granted was recorded at $152,000, approximately $0.21 per 11 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) share, using the Black-Scholes option pricing model. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $452,000. In February 1999, the same principal stockholder of the Company transferred 214,019 of its restricted shares of the Company's common stock to a prospective officer of the Company upon completion of the Transaction. The shares of stock transferred were recorded at $90,000 based upon a value of $0.42 per share, the price of the shares sold in the February 22, 1999 private placement. In connection with this transaction, the Company recorded a non-cash, general and administrative expense of $90,000. 4. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As a result of incurred net losses, no provision for income taxes was recognized other than the state minimum taxes of $800. The Company's income tax expense (benefit) differs from income tax computed at the U.S. federal statutory tax rate, because no income tax benefits were recorded for its losses and certain expenses recorded for financial reporting purposes are not deductible for income tax reporting purposes. A reconciliation of the statutory federal income tax rate to the effective tax rate, as a percentage of loss before income tax is as follows: Statutory federal income tax (benefit) rate (34) % Non-deductible expenses 23 Valuation allowance 11 ------- - % ======= The components of the Company's deferred tax assets at March 31, 1999 are as follows: Deferred tax assets Net operating loss carryforward $ 208,000 Patent rights 66,000 Valuation allowance (274,000) ---------- Net deferred tax assets $ - ========== Due to the uncertainty surrounding the timing of realizing the benefits of its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its otherwise recognizable deferred tax assets. 12 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) At March 31, 1999, the Company had operating loss carryforwards available to reduce future federal and state income of approximately $500,000, which expire in 2019 for federal income tax purposes and 2007 for state income tax purposes. 5. COMMITMENTS AND CONTINGENCIES TERMINATION, SALE AND SHAREHOLDER AGREEMENT Allen D. Allen ("Allen") is the present owner of all United States patent and foreign patent rights to the technology and know-how under the product Cytolin(R). In 1994, Allen granted CytoDyn of New Mexico, Inc. ("CytoDyn"), of which Allen owns 100% of the voting stock, an exclusive, worldwide license to use the patent rights and technology. In addition, CytoDyn obtained a trademark name for Cytolin(R). In August 1998, Allen and CytoDyn entered into a Termination, Sale and Shareholder Agreement ("the Purchase Agreement") with Three R Associates, Inc. ("Three R"), a corporation affiliated with the Company through its ownership by three of the Company's officers and directors. Pursuant to the terms of the Purchase Agreement, CytoDyn agreed to relinquish the exclusive license to use the technology and patents previously granted to it by Allen in exchange for 4,280,387 shares of the Company's common stock. In addition, Allen agreed to sell all United States Patent rights, foreign patent rights, and all technological know-how underlying the product, Cytolin(R), to Three R in exchange for $1,350,000, payable quarterly over a fifteen year period. Payments to Allen commenced subsequent to the Company's merger with Versailles, and the Company assumed the obligation to Allen upon completion of the Transaction. The obligation to pay Allen will be terminated as of the date the consulting agreement with Allen (described below) is terminated in the event the Company elects to terminate such consulting agreement. Accordingly, Allen is to be paid, at a minimum, $180,000 in scheduled quarterly installments through February 23, 2001. If the Company elects to terminate these payments to Allen after the minimum amounts are paid, it would abandon the rights acquired through the Purchase Agreement. CONSULTING AGREEMENT - RESEARCH AND DEVELOPMENT Allen also entered into a consulting agreement with Three R whereby Allen agreed to provide the Company with any new and additional similar technologies, if any, for a period of fifteen years in exchange for a consulting fee of $10,000 per year. Payments under the consulting agreement commenced subsequent to completion of the Transaction, and the Company assumed the obligation to Allen upon completion of the Transaction. The Company can terminate the consulting agreement with one year's notice beginning February 23, 2000, one year from the date of the Transaction. 13 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) PATENT AND TRADEMARK LICENSE AGREEMENT In October 1998, the Company entered into a Patent and Trademark License Agreement ("the Agreement") with Three R. The Company was granted an irrevocable, exclusive, worldwide license to use all present and future patent rights, know-how and background technology of Three R relating to Cytolin(R), which Three R had previously obtained from Allen and CytoDyn. In addition, the Agreement granted the Company a sublicense to the trademark name, Cytolin(R). The Agreement was consummated simultaneously with the Company's merger with Versailles. The Company issued 21,936,981 shares of its common stock to Three R upon execution of the Agreement, and the Company also assumed Three R's obligations to pay Allen under the agreements discussed above between Three R and Allen. During the period from inception (April 10, 1998) through June 30, 1999, the Company has accrued and recorded research and development expenses of $166,000 in connection with the minimum payments due to Allen through February 23, 2001. The payments have been discounted to their fair value of $166,000 by applying an imputed interest rate of 8% to future cash outflows. MANAGEMENT AGREEMENT In October 1998, the Company entered into a three year management agreement for $585,000 per year with Western Center for Clinical Studies, Inc. ("WCCS"), a corporation that is affiliated with the Company and is wholly- owned by three of the Company's officers and directors. The agreement is scheduled to expire on February 23, 2002. The management agreement provides services by WCCS to the Company for the purpose of assisting the Company in obtaining FDA approval to market Cytolin(R) for commercial use. The WCCS agreement was subsequently ratified by the disinterested directors of Versailles following its merger with the Company. MANUFACTURER AGREEMENT In December 1998, the Company entered into a letter of intent with a manufacturer to begin the production and testing of the drug Cytolin(R). The Company advanced the manufacturer $190,000 through June 30, 1999 (which has been charged to research and development expense) to commence the manufacturing process while a contract was being negotiated and developed between the parties. At June 30, 1999, the agreement had not been finalized. However, the Company has orally agreed to pay a total of $280,000 to the manufacturer (of which $190,000 has already been paid) in periodic installments through December 31, 1999. 14 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) PLACEMENT AGENT AGREEMENT On February 9, 1999, in connection with its second private placement, the Company entered into an agreement with a nonexclusive agent to act on a "best efforts basis" in the offer and sale of its common stock. The Company paid the agent commissions of 10% of the proceeds of its sales ($108,350) and issued to the agent warrants to purchase 20% of the total number shares of common stock sold by the agent at an exercise price of $0.42 per share for a period of five years from the date of grant. The shares underlying the warrants are covered by certain registration rights. At the completion of the Company's private placement on February 22, 1999, the Company issued 515,308 warrants to the agent which were valued at $0.21 per warrant for a total value of $109,794. LEASE COMMITMENTS The Company's office facilities are located in Woodland Hills, California. Beginning February 1, 1999, the facilities were rented under the terms of a three year noncancellable operating lease agreement, assigned to the Company by an affiliate, WCCS. The lease is scheduled to expire on January 31, 2002. Minimum future rental payments required over the lease term are as follows: Year Ended March 31 ------------------- 2000 $ 36,480 2001 41,896 2002 33,368 ----------- $ 111,744 =========== 6. RELATED PARTY TRANSACTIONS During the period from inception (April 10, 1998) through June 30, 1999, the Company incurred expenses of $170,560 (of which $127,920 was incurred during the three months ended June 30, 1999) as a result of services performed by an affiliate, WCCS, on behalf of the Company. The Company also advanced $219,375 to WCCS to commence certain services in connection with the development of Cytolin(R) to be performed over a three year period beginning when the management agreement between the parties became effective. As of June 30, 1999, management fees of $42,640 due to WCCS were included in accounts payable. During the period from inception (April 10, 1998) through June 30, 1999, the Company paid consulting fees of $56,026 (of which $9,667 was paid during the three months ended June 30, 1999) to Allen for providing scientific expertise regarding the development of Cytolin(R) and $45,000 (of which $22,500 was paid during the three months ended June 30, 15 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) 1999) pursuant to the Patent and Trademark License Agreement. During the period from inception (April 10, 1998) through June 30, 1999, the Company incurred legal expenses of $10,000 (of which $7,500 was incurred during the three months ended June 30, 1999) for an attorney who is also a director of the Company. Since inception, the Company has used part of an office facility and administrative services provided by WCCS at no cost. On February 1, 1999, the Company was assigned a long-term noncancellable operating lease agreement with an unrelated party by WCCS. During June 1999, the Company loaned CytoDyn $100,000 to facilitate payment by CytoDyn of certain legal and office expenses and to facilitate repayment to the Company by CytoDyn of previous advances. This loan bears interest at a rate of 8% per annum and is due together with accrued interest on or before February 23, 2001. Such loan is secured by 300,000 shares of Company common shares which are owned by CytoDyn. The Company believes that this loan is fully recoverable. 7. STOCK OPTION PLAN In December 1998, the Company established an employee stock-based compensation plan, the 1998 Omnibus Stock Incentive Plan ("the Plan"), under which the Company may grant options for up to 7,133,970 shares of common stock. Options granted under the Plan are generally exercisable for a period of ten years from the date of grant at an exercise price not less than the fair market value of the shares at the date of grant. Options granted under the Plans generally vest over a one to three year period from the date of the grant. During the period from inception (April 10, 1998) through June 30, 1999, options for 2,432,684 shares to Directors of the Company and employees were granted at an exercise price of $0.42 per share, and options for 50,000 shares were granted to Medical Advisory Board members at an exercise price of $2.50 per share. No options were exercised or canceled during this period. At June 30, 1999, options for 4,651,286 additional shares were available for future grants under the Plan. At June 30, 1999, no options were exercisable. As of June 30, 1999, in addition to the 2,482,684 Director, employee and Medical Advisory Board stock options, the Company had an additional option for 1,426,794 shares and an aggregate of 515,308 warrants outstanding to purchase shares of the Company's common stock which are exercisable at a price of $0.42 per share. 16 VERSAILLES CAPITAL CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (CONTINUED) 8. PROPERTY AND EQUIPMENT Office furniture and equipment $ 26,891 $ 28,404 Leasehold improvements 3,742 4,507 ------------ ------------ 30,633 32,911 Less accumulated depreciation - (2,765) and amortization ------------ ------------ $ 30,633 $ 30,146 ============ ============ 17 PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION. Some of the statements made in this Form 10-QSB and the documents incorporated herein by reference that are not historical facts, such as anticipated results of clinical trials, may constitute "forward-looking statements," which forward looking statements are made pursuant to the safe harbor provisions in the federal securities laws. These statements often can be identified by the use of terms such as "may," "will," "expect," "anticipate," "estimate," "should," "could," "experts," "plans," "believes," "predicts," "potential," or "continue," or the negative thereof. Such forward-looking statements speak only as of the date made. Forward-looking statements are subject to risks, uncertainties and other factors beyond the control of the Company that could cause actual results, levels of activity, performance, achievements, and events to differ materially from historical results of operations, levels of activity, performance, achievements, and events and any future results, levels of activity, performance, achievements and events implied by such forward- looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, achievements, or events. Moreover, neither the Company nor any other person assumes responsibility for the accuracy or completeness of such statements. The Company disclaims any obligation to revise any forward- looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. PLAN OF OPERATION The Company (for purposes of this section, the term the "Company" includes the predecessor entity to its current operations, British Lion) is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through June 30, 1999. The Company is engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus (HIV). The Company believes that Cytolin(R) is an important drug for the growing number of patients who have not been receiving treatment, for those who are on multi-drug therapy, and for those who have become resistant to drugs currently used to treat the HIV/AIDS virus. The Company intends to seek governmental approval from the Food and Drug Administration ("FDA") for Cytolin(R). The Company expects FDA approval for regular sales of Cytolin(R) to take at least three years. The Company has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. The Company has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on research and development and allocates significant and increasing resources to clinical testing, marketing and other activities. In November and December 1998, the Company sold 1,426,790 shares of its stock (at approximately $0.21 per share), for gross proceeds of $300,000, to certain accredited investors in a private 18 placement. In December 1998, the Company began another private placement of common stock to accredited investors, which was completed on February 22, 1999. The subsequent private placement was made on a minimum/maximum "best efforts" basis. The Company raised the maximum amount of gross proceeds of $3,210,000 (7,633,364 shares at approximately $0.42 per share) and paid cash private placement expenses of $159,698. Net cash proceeds from the private placement aggregated $3,050,302. The Company believes that its success in these private placements will enable it to satisfy its cash requirements without the need to raise additional funds before March 31, 2000. The Company anticipates that it will commence a tolerability, pharmacokinetic and dose-ranging study for Cytolin(R) now that a clinical protocol has been submitted to the FDA and the bulk drug has been manufactured and tested. The Company is currently preparing manufacturing and packaging records for submission to the FDA. The Company estimates that it may require significant additional funding over the next three years to successfully complete the FDA approval process. The Company does not presently anticipate any purchase or sale of plant and significant equipment or any significant changes in the number of employees over the remainder of 1999. It is not possible to predict the success of management's efforts to raise sufficient capital to fund future operations. If management is unable to achieve its goals, the Company may find it necessary to undertake actions as may be appropriate to continue operations and meet its financial commitments. In October 1998, the Company entered into a three year management agreement for $585,000 per year with WCCS. The agreement is scheduled to expire on February 23, 2002. The management agreement provides services by WCCS to the Company for the purpose of assisting the Company in obtaining FDA approval to market Cytolin(R) for commercial use. RESULTS OF OPERATIONS From April 10, 1998 to March 31, 1999, the Company has incurred expenses of $422,293, in research and development expenses, $1,769,311 in general and administrative expenses and $8,947 net in interest income and other expenses, resulting in a loss of $2,182,657 (which included significant non-cash, general and administrative expenses aggregating $1,498,500 related primarily to issuance of securities in exchange for services) for the period ended March 31, 1999. The expenses incurred during this period relate primarily to the commencement of business operations, the acquisition of a license, fundraising activities and merger expenses. For the three months ended June 30, 1999, the Company has incurred expenses of $259,533 in research and development expenses, $208,534 in general and administrative expenses and $23,999 net in interest income and other expenses, resulting in a net loss of $444,068. The expenses incurred during this period relate primarily to commencement of research activities, regulatory and administrative expenses. For the period from inception (April 10, 1998) through June 30, 1998, the Company incurred a net loss of $10,829 which relates to the initial commencement of operations. The Company's activities to date are not as broad in depth or scope as the activities it 19 must undertake in the future, and the Company's historical operations and financial information are not indicative of its future operating results or financial condition or its ability to operate profitably as a commercial enterprise if and when it succeeds in bringing any product to market. CAPITAL RESOURCES AND LIQUIDITY From the commencement of operations of April 10, 1998 to June 30, 1999, the Company had no operating revenues and incurred net losses of $2,626,725. At June 30, 1999, the Company had working capital of $1,970,666. The Company requires significant capital to conduct the research and development and preclinical and clinical testing of Cytolin(R) that is necessary in order to complete the FDA approval process. Management of the Company does not expect to generate revenue from operations within the next year. The Company's continued existence and its ability to fund its future operations and meet its financial obligations is dependent on its ability to obtain additional equity or debt financing. In December 1998, the Company entered into a letter of intent with a manufacturer to begin the production and testing of the drug Cytolin(R). The Company advanced the manufacturer $190,000 through June 30, 1999 to commence the manufacturing process while a contract was being negotiated and developed between the parties. At June 30, 1999, the agreement had not been finalized. However, the Company has agreed to pay a total of $280,000 to the manufacturer (of which $190,000 has already been paid) in periodic installments through December 31, 1999. The manufacturer has successfully completed the majority of the work it agreed to perform and continues to work on the remaining tasks. In October 1998, the Company entered into a Patent and Trademark License Agreement (the "Agreement") with Three R. The Company was granted an irrevocable, exclusive, worldwide license to use all present and future patent rights, know-how and background technology owned by Three R relating to the product, Cytolin(R). In addition, the Agreement granted the Company a sublicense to the trademark Cytolin(R). The Agreement was consummated simultaneously with the Company's acquisition of British Lion. The Company issued 21,936,981 shares of its common stock at $.001 per share to Three R upon execution of the Agreement, and the Company also agreed to assume Three R's obligations to pay Mr. Allen $1,350,000, payable quarterly over a fifteen year period, and fees of $10,000 per year for consulting services under the agreements discussed above between Three R and Mr. Allen. The Company could abandon their patent rights with no further obligations after minimum payments aggregating $180,000 to Allen, with one year's notice beginning February 23, 2000. Effect of Inflation and Foreign Currency Exchange - ------------------------------------------------- The Company has not experienced material unfavorable effects on its results of operations due to currency exchange fluctuations with any foreign suppliers or material unfavorable effects upon its results of operations as a result of domestic inflation. 20 Year 2000 Issue - --------------- The Company's management believes that the Company will not be materially adversely affected by the computer software Year 2000 issue. The Company's systems do not have significant exposure to the Year 2000 issue. The Company's vendors and suppliers may have some exposure to the issue but at this time, management does not anticipate a material adverse impact on the Company's operations. 21 PART II ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings which management believes to be material, and there are no such proceedings which are known to be contemplated. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 2.1 Agreement and Plan of Merger, dated February 17, 1999, by and among Versailles Capital Corporation, Amerimmune, Inc. and British Lion Medical, Inc. (2) 3.1 Amended and Restated Articles of Incorporation. (1) 3.2 Amended and Restated By-Laws. (1) 3.3 Articles of Merger, as filed with the Colorado Secretary of State on February 23, 1999. (2) 27 Financial Data Schedule __________________________________________________________________________ (1) Incorporated by reference to the Registrant's Registration Statement on Form 10-SB, as filed with the Commission on July 22, 1997. (2) Incorporated by reference from the Registrant's Current Report on Form 8-K, dated March 10, 1999. (b) Reports on Form 8-K ------------------- During the three months ended June 30, 1999, the Company filed one Current Report on Form 8-K as follows: Form 8-K/A, dated April 7, 1999, amending Form 8-K dated March 10, 1999, reporting under Items 2, 5 and 7 of such form. The financial statements of British Lion Medical, Inc., for the period ending December 31, 1998, were filed as part of such form 8-K. 22 SIGNATURES ---------- In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VERSAILLES CAPITAL CORPORATION Signatures Title Date ---------- ----- ---- /s/ Michael A. Davis President, Chief July 30, 1999 - ------------------------------------- Executive Officer, Michael A. Davis, M.D., Sc.D., M.B.A. and Director /s/ Wellington A. Ewen Chief Financial July 30, 1999 - ------------------------------------- Officer Wellington A. Ewen, M.B.A., C.P.A. 23 EX-27 2 FINANCIAL DATA SCHEDULE FOR JUNE 30, 1999
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FORM. 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 2,104,132 0 0 0 0 2,203,589 32,911 2,765 2,458,650 232,923 0 0 0 4,852,452 0 2,458,650 0 0 0 0 442,685 0 583 443,268 800 (444,068) 0 0 0 (444,068) (.01) (.01)
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