**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM10-KSB/A**

**(Amendment No. 1 to Form10-KSB)**

 
| **(Mark  One)** |   |
|-----------------|--------|

 
| **ý** | **ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------|
|       |                                                                                      |
|       | **For the fiscal year ended December 31, 2001**                                           |

 

 

**OR**

 
| o      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                     |
|   | **For the transition period from                   to                  ** |

 

 

**Commissionfile number: 000-30252**

 

**GENESIS BIOVENTURES, INC.**

(Name of small business issuer in its charter)

 
| **New York**                                                               |   | **98-0163232**                       |
|----------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization)             |   | (I.R.S. Employer Identification No.) |
|                                                                       |
| **3033  King George Highway , Suite 1A  Surrey, British Columbia, Canada** |   | **V4P  1B8**                         |
| (Address of principal executive offices)                                   |   | (Zip / Postal Code)                  |
|                                                                       |
| **(604)  542-0820**                                                        |
| (Issuer’s telephone number, including area code)                      |

 

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Securities registered pursuantto Section 12(b) of the Act:

 
| **Common  Stock, $.0001 par value** |   | **American  Stock Exchange**           |
|-------------------------------------|--------|----------------------------------------|
| (Title of Class)                    |   | (Name of Exchange on which Registered) |

 

Securities registered pursuantto Section 12(g) of the Act:  None

 

Check whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ý No o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B is not contained in this form, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. ý

 

Issuer’s revenues for its most recent fiscal year were $Nil.

 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates of the Registrant, as of March 18, 2002, wasapproximately $13,025,794 (based upon the closing price for shares of theIssuer’s Common Stock as reported by The American Stock Exchange for the lasttrading date prior to that date). Shares of Common Stock held by each officer, director and holder of 5%or more of the outstanding Common Stock have been excluded in that such personsmay be deemed to be affiliates.  Thisdetermination of affiliate status is not necessarily a conclusive determinationfor other purposes.

 

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

As of March 18, 2002, 20,237,006 shares of the Issuer’s Common Stock,$.0001 par value, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE.

 

None.

 

Transitional Small BusinessDisclosure Format (Check one):  YES o  NO ý

 

EXPLANATORY NOTE

 

                The sole purpose of this Amendment No. 1 is to amendand restate Item 6 of Part II.

 

 

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**ITEM 6.            MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

 

YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OURFINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUALREPORT ON FORM 10-KSB.  ALL STATEMENTSIN THIS ANNUAL REPORT ON FORM 10-KSB RELATED TO GBI’s CHANGING FINANCIALOPERATIONS AND EXPECTED FUTURE GROWTH CONSTITUTE FORWARD-LOOKING STATEMENTS.  THE ACTUAL RESULTS MAY DIFFER MATERIALLYFROM THOSE ANTICIPATED OR EXPRESSED IN SUCH STATEMENTS.  SEE “SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS.”

 

**GENERAL**

 

In the last quarter of 2001, the Company purchased the remaining 50%interest in Biomedical Diagnostics, LLC from Biotherapies, Inc. making theCompany the sole owner of the LLC.

 

Under the Purchase Agreement, Biotherapies has sublicensed the MSAtechnology and will license pipeline technologies to the Company. In addition,the Company shall have a right to be notified of any new protein sequence andtechnology developed by Biotherapies applicable to product development ofdiagnostic tests for other cancers before such technology is disclosed to otherparties for possible licensing. Test formats and diagnostic products forprostate, ovarian, lung, colon and skin cancers are currently in thedevelopment pipeline.

 

Biomedical Diagnostics introduced its first breast cancer related bloodtest in June 2001.

 

The Company has committed to fund operating costs of BiomedicalDiagnostics of at least $1,000,000 in support of product development of themammastatin, prostate and ovarian technologies on or before November 30,2002.  As at December 31, 2001, $230,000has been contributed against this commitment.

 

As at December 31, 2001, the Company held a 33% equity investment inPrion Developmental Laboratories, Inc. (PDL), a privately held biotechnologycompany specializing in the development of rapid and inexpensive diagnostictests to detect “Mad Cow Disease”. PDL has developed the lateral flow striptest. It is similar to a home pregnancy test and is used on-site taking lessthan five minutes to complete. Currently there are no rapid tests that can beperformed at the slaughterhouse that will ensure that cattle with Mad CowDisease do not enter the human food chain. In addition to BSE, the PDL testplatform has also been used to successfully detect prion diseases in human andother animal brain tissue.

 

As of December 31, 2001, the Company held a 26.3% equity interest inBiotherapies, a privately held biotechnology company specializing in thedevelopment of innovative cancer diagnostic and therapeutic products.Biotherapies holds the exclusive rights, through the University of Michigan, topatents pending for the use of Mammastatin as a diagnostic and therapeutic forbreast cancer.

 

**CRITICALACCOUNTING POLICIES**

 

The Company’s discussion and analysis of its financial condition andresults of operations, including the discussion on liquidity and capitalresources, are based upon the Company’s financial statements,

 

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which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financialstatements requires the Company to make estimates and judgements that affectthe reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities.  On an ongoing basis, management re-evaluates its estimates andjudgements, particularly those related to the determination of the impairmentof its equity investments and intangible assets.  Actual results could differ from the estimates. The Companybelieves the following critical accounting policies require its more significantjudgement and estimates used in the preparation of the consolidated financialstatements.

 

The consolidated financial statements have been prepared on the goingconcern basis, which assumes the realization of assets and liquidation ofliabilities in the normal course of operations.  If the Company were not to continue as a going concern, it wouldlikely not be able to realize on its assets at values comparable to thecarrying value or the fair value estimates reflected in the balances set out inthe preparation of the consolidated financial statements.  As described elsewhere in this report, atDecember 31, 2001, there are certain conditions that currently exist whichraise substantial doubt about the validity of this assumption.  While the Company anticipates raisingadditional private placement funds to remove the substantial doubt, theseprivate placements are not assured. Failure to raise additional funds may result in the Company curtailingoperations or writing assets and liabilities down to liquidation values, orboth.

 

The Company’s investee companies are recorded using the equity method.These companies are development stage biotechnology companies that do not havelong-established products or proven technologies. Therefore, these investmentsmay be subject to write-down for impairment whenever events or changes incircumstances indicate that a loss in value is other than temporary.

 

When the Company acquires technology, the rights to manufacture andsell a product, it records the purchase price less the value of relatedliabilities assumed as intangible assets. The Company uses the assistance ofexperts to help allocate the purchase price to the fair value of the variousintangible assets acquired. Then, the Company estimates the economic usefullife of each of these intangible assets in order to amortize their cost as anexpense in the statement of operations over the estimated economic useful lifeof the related asset. The factors that drive the actual economic useful life ofa pharmaceutical product are inherently uncertain, and include patentprotection, competition by similar products, future introductions of competingproducts, the impact of promotional efforts and many other issues. The Companyuses all of these factors in initially estimating the economic useful lives ofits products, and also continuously monitors these factors to assess if changesin estimates are required.

 

In July 2001, the Financial Accounting Standards Board issued SFAS No.142 “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill andindefinite lived intangible assets are no longer amortized. Separate intangibleassets that are not deemed to have an indefinite life will continue to beamortized over their useful lives. SFAS No. 142 also establishes a new methodof testing goodwill and other intangible assets for impairment on an annualbasis or on an interim basis if an event occurs or circumstances change thatwould reduce the fair value of that goodwill or other intangible asset belowits carrying value. The amortization provisions of SFAS No. 142 apply togoodwill and other intangible assets acquired after June 30, 2001.

 

**RESULTSOF OPERATIONS**

 

Year ended December 31, 2001 compared to December 31, 2000:

 

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For the year ended December 31, 2001, the Company incurred a net lossafter extraordinary items of $15,368,941 compared to $5,868,006 for the yearended December 31, 2000, an increase of $9,500,935.

 

Amortization is calculated on the Company’s property and equipment andmedical technology licenses. Amortization increased by $190,547 in the year ended December 31, 2001due to the amortization of acquired medical technology licenses acquiredpursuant to the LLC acquisition in November, 2001.

 

Investor relations are costs incurred by the company for generalfinancing services and investor relations. These costs increased by $194,231 for the year ended December 31, 2001due to the fair value of warrants and options issued to service providers of$394,206 and the fair value of common shares issued of $91,500.  Investor relations expenses have increasedas the Company has added additional consultants to increase the Company’spublic exposure.

 

Legal and Accounting expenses increased by $102,877****for the year ended December31, 2001 due to increased financial reporting requirements from the Company’sacquisitions and the defence of legal matters.

 

Management and consulting fees increased by $2,667,159 for the yearended December 31, 2001.  The increaseis due primarily to an increase of $2,079,595 of non-cash compensationprimarily related to stock compensation costs for options and other equityinstruments issued to management and consultants of the company for services inthe year and additional consultants hired for general financing and other services.

 

Rent and occupancy costs increased by $198,499 due to the lease of asecond office in fiscal year 2001. Management is currently attempting to sublease this location, and hasaccrued the estimated net future cash outflows of $160,000 for this premises atDecember 31, 2001.

 

Salaries and benefits increased by $122,712 for the year ended December31, 2001 reflecting salary and severance costs of three full-time office staffhired for one-half of the year and subsequently terminated.

 

In-process research and development increased by $750,000 for the yearended December 31, 2001 relating to the estimated fair value of in-processresearch and development acquired in the acquisition of the remaining 50% ofLLC.

 

Research and development expenses of $102,396 were recorded in the yearended December 31, 2001 relating to the expenses incurred by the LLC for theone month ended December 31, 2001.

 

Interest and bank charges increased by $965,209 for the year endedDecember 31, 2001 due to the increase in the deemed discounts related to equityinstruments issued along with promissory notes.  The fair value of the equity instruments issued along withpromissory notes is amortized to interest expense over the term of the promissorynotes.

 

Equity in loss of investments increased by $3,301,346 for the yearended December 31, 2001.  Equity in lossin LLC increased by $1,306,346 due to the pickup 50% of the losses incurred byDiagnostics in the eleven month period ending November 30, 2001 and theamortization of excess investments in

 

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LLC.  Equity in loss of PDLincreased by $1,009,135 due to the pickup of 25% of the losses incurred by PDLup to August 31, 2001 and 33% of the losses incurred for the remainder of theyear ended December 31, 2001, the amortization of excess investments in PDL,and the write-down of the other than temporary decline in the value of PDL of$441,668.  Equity in loss ofBiotherapies increased by $985,865 due to the pickup of 26% of the losses incurredby Biotherapies for the year ended December 31, 2001 and the amortization ofexcess investments in Biotherapies.

 

The Company incurred extraordinary losses on debt settlements duringthe year ended December 31, 2001 of $870,354. No similar losses were incurred during fiscal year 2000.

 

Loss per share was ($1.02) in 2001 compared to ($0.65) in 2000. Theincrease in loss per share is due to the increase in the loss during thecurrent 2001 year. The weighted average number of shares outstanding for theyear ended December 31, 2001 was 15,107,237 compared to 9,209,570 for the yearended December 31, 2000.

 

The Company’s total assets as at December 31, 2001 totaled $15,179,029compared to total assets of $10,658,071 as at December 31, 2000. The increasein the Company’s total assets in 2001 is the result of the acquisition of theremaining 50% of Biomedical Diagnostics LLC.

 

During 2001 the Company’s investment in Biotherapies Incorporated wasreduced from a 26.6% equity interest to a 26.3% equity interest as BiotherapiesIncorporated issued shares under private placements.  The Company also increased its equity interest in PrionDevelopmental Laboratories to 33% for consideration of $400,000. In August2001, the Company issued 600,000 common shares of the Company with a fairmarket value of $1,680,000 to Biotherapies Incorporated as full satisfaction ofthe original Biomedical Diagnostics LLC Operating Agreement.

 

Stockholder equity as at December 31, 2001 was $9,660,743 compared to$7,300,225 as at December 31, 2000.

 

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Cash flows used in operating activities totaled ($1,437,240) for theyear ended December 31, 2001 compared to ($1,655,216) for the year endedDecember 31, 2000. The decrease in cash flows used during 2001 relatesprimarily to the increases in accounts payable and accrued liabilities atDecember 31, 2001 compared to 2000 and additional non-cash stock basedcompensation used in 2001.

 

The Company expects to incur losses for at least the next few years,primarily due to the operation of Biomedical Diagnostics LLC. The Companyexpects the LLC to incur substantial research and development, sales, marketingand other expenses. The Company expects that losses will fluctuate from quarterto quarter and that such fluctuations may be substantial.

 

The Company’s short-term funding requirements are currently being metthrough private placements and short-term convertible promissory notes. Themajority of the promissory notes are placed with a significant shareholder ofthe Company. There can be no guarantee that the shareholder will continue tolend funds or that any other lender will provide short-term funds.

 

As discussed above, the Company is committed to funding BiomedicalDiagnostics’ operating activities of at least $1,000,000 on or before November30, 2002. The majority of the Company’s

 

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short-term convertible debt has already or will mature within the next6 months. Because of these capital requirements, the Company intends to raisefunds through registered offerings or exempt transactions.

 

The Company is currently reviewing its options to raise additionalcapital.  It has entered into anagreement with an NASD registered broker/dealer whereby the broker/dealer willassist the Company on a “best efforts” basis in conducting a private placementoffering with gross proceeds of between $1,000,000 and $8,000,000.  The parties anticipate issuing preferredstock in the placement, which will be convertible into common stock.  It is expected that the private placementoffering will commence in approximately the next 30 days and be completedapproximately 90 days thereafter, and that the offering will be made solely toaccredited investors.  The partiesfurther intend for the issuance of the securities to qualify for an exemptionfrom the registration provisions of the Securities Act of 1933, as amended,specifically under Section 4(2) and/or Regulation D thereunder.  There can be no assurance that the placementwill be completed.  The securities arebeing offered without registration in reliance on Section 4(2) of theSecurities Act of 1933 and/or Regulation D promulgated thereunder.  The offering will not be reviewed, approvedor disapproved, nor will the accuracy or adequacy of the information set forthin the offering documents be passed upon by the Securities and ExchangeCommission or any state securities commission. Any representation to the contrary is a criminal offense.

 

A summary of the Company’s financial commitments are set out below:

 

Payments Due by Period

 
| **Contractual Obligations**        |   | **Total** |      | **Less than 1 year** |   | **1 - 3 years** |   | **4 - 5 years** |    | **After 5 years** |   |
|------------------------------------|--------|-----------|-----------|----------------------|--------|-----------------|--------|-----------------|---------|-------------------|--------|
| Short-term debt                    |   | $         | 2,007,310 |                 | $      | 2,007,310       |   | $               | —  |              | $      | — |   | $ | — |   |
| Operating leases                   |   | $         | 424,700   |                 | $      | 128,230         |   | $               | 273,910 |              | $      | 22,560 |   | $ | — |   |
| Unconditional purchase obligations |   | $         | 1,500,000 |                 | $      | 1,500,000       |   | $               | —  |              | $      | — |   | $ | — |   |
| Total contractual cash obligations |   | $         | 3,932,010 |                 | $      | 3,635,540       |   | $               | 273,910 |              | $      | 22,560 |   | $ | — |   |

 

As of December 31, 2001, the Company had cash on hand of approximately$238,333 and a working capital deficiency of $4,527,725.  In the opinion of management, cash on handis sufficient for the next 4 months.

 

The Company, through the wholly-owned subsidiary BiomedicalDiagnostics, LLC, is planning to increase its operating budget for 2002 toprovide for an additional 9 full-time employees and to purchase additionallaboratory equipment necessary for increased research and developmentactivities. The Company has budgeted approximately $1,600,000 for theseadditional expenditures.

 

The Company’s future capital requirements will depend on many factors,including advancement of the Company’s LLC research and development programs;payments made to secure and develop additional cancer diagnostics technologies;the cost and availability of third-party financing for development andcommercialization activities; and administrative and legal expenses. Should theCompany not be able to secure additional financing when needed, it may berequired to slow down or suspend its growth or reduce the scope of its currentoperations, any of which would have a material adverse effect on its business.

 

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**SIGNATURES**

 

                Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                |   | GENESIS  BIOVENTURES, INC. |
|---------------------|--------|----------------------------|
|                |   |                       |   |
| Dated:  May 8, 2002 |   | By:                        | /s/  E.G. McCartney |
|                |   |                       | E.G. McCartney |
|                |   |                       | Chairman,  President and Chief Executive Officer |

 

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