UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
(AMENDMENT NO. 1)
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
/x/ Preliminary Information Statement
/ / Confidential, For Use of the Commission only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
AGE RESEARCH INC.
(Name of Registrant As Specified In Charter)
Not Applicable
(Name of Person(s) Filing the Information Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
1
AGE RESEARCH, INC.
31003 Rancho Viejo Road, #2102
San Juan Capistrano, California, 912675
NOTICE OF WRITTEN CONSENT OF SHAREHOLDERS
October 10, 2003
To Shareholders of AGE RESEARCH, Inc.:
NOTICE IS HEREBY GIVEN that the following actions will be taken pursuant to the
written consent of a majority of our shareholders, dated May 28, 2003, in lieu
of a special meeting of the shareholders. The following actions will be
effective on or about Oct ___, 2003:
1. To approve the acquisition of The Varsity Group, Inc., a
Missouri corporation, where the total consideration paid is
9,343,920 authorized and unissued post reverse split common
shares, where that number of shares is to equal 80% of the
total outstanding after the acquisition.
2. Amend our certificate of incorporation to change the Company
name from AGE Research, Inc. to Enstruxis, Inc., and
concurrently to change the Company's OTCBB trading symbol.
3. Amend our certificate of incorporation to provide for a stock
combination (reverse split) of the Common Stock in an exchange
ratio to be approved by the Board, ranging from one newly
issued share for each two outstanding shares of Common Stock
to one newly issued share for each thirty five outstanding
shares of Common Stock.
4. Amend our Certificate of Incorporation to increase the
authorized number of shares of our common stock from
100,000,000 to 750,000,000.
This Notice and the attached Information Statement are being circulated to
advise the shareholders of certain actions already approved by written consent
of the shareholders who collectively hold a majority of the voting power of our
common stock. Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934,
as amended, the proposals will not be effective until 20 days after the date
this Information Statement is mailed to the shareholders. Therefore, this Notice
and the attached Information Statement are being sent to you for informational
purposes only.
By Order of the Board of Directors,
/s/ Richard F. Holt
---------------
Richard F. Holt, Chief Accounting
Officer and Director.
2
AGE RESEARCH, INC.
31003 Rancho Viejo Road, #2102
San Juan Capistrano, California, 912675
INFORMATION STATEMENT
WRITTEN CONSENT OF SHAREHOLDERS
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement is furnished in accordance with the requirements of
Regulation 14C promulgated under the Securities Exchange Act of 1934, as
Amended, by AGE RESEARCH INC., a Delaware corporation, in connection with
certain actions to be taken by the written consent by the majority shareholders
of AGE RESEARCH, dated May 28, 2003.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended,
the actions will not be effective until 20 days after the date of this
Information Statement is mailed to the shareholders.
THE APPROXIMATE DATE OF MAILING OF THIS INFORMATION STATEMENT IS October __,
2003.
We anticipate that the actions contemplated by this Information Statement will
be affected on or about the close of business on October __, 2003.
The actions to be effective twenty days after the mailing of this Information
Statement, are as follows:
1. To approve the acquisition of The Varsity Group, Inc., a
Missouri corporation, where the total consideration to be paid
is 9,343,920 authorized and unissued post reverse split common
shares, where that number of shares is to equal 80% of the
total outstanding after the acquisition.
2. Amend our certificate of incorporation to change the Company
name from AGE Research, Inc. to Enstruxis, Inc., and
concurrently to change the Company's OTCBB trading symbol.
3. Amend our certificate of incorporation to provide for a stock
combination (reverse split) of the Common Stock in an exchange
ratio to be approved by the Board, ranging from one newly
issued share for each two outstanding shares of Common Stock
to one newly issued share for each thirty five outstanding
shares of Common Stock.
4. Amend our Certificate of Incorporation to increase the
authorized number of shares of our common stock from
100,000,000 to 750,000,000.
Shareholders of record at the close of business on May 28, 2003 (the "Record
Date") are entitled to notice of the action to be effective on or about October
__, 2003. As of the Record Date, our authorized capitalization consisted of
100,000,000 shares of common stock, par value $0.001 per share, of which
68,759,301 were issued and outstanding. Each share of our common stock entitles
its holder to one vote on each matter submitted to the shareholders. However,
because the shareholders holding at least a majority of the voting rights of all
outstanding shares of capital stock as of the Record Date have voted in favor of
3
the foregoing actions by resolution dated May 28, 2003; and having sufficient
voting power to approve such proposals through their ownership of the capital
stock, no other consents will be solicited in connection with this Information
Statement.
Shareholders of record at the close of business on May 28, 2003 are being
furnished copies of this Information Statement. The principal executive office
of the Company is located at 31103 Rancho Viejo Road, #2102, San Juan
Capistrano, California 92675 and the Company's telephone number is (800)
597-1970.
SHAREHOLDER DISSENTER'S RIGHT OF APPRAISAL
The General Corporate Law of Delaware does not provide for dissenter's rights of
appraisal in connection with the proposed actions.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS AND NO SHAREHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED IN THIS
INFORMATION STATEMENT.
MATTERS SET FORTH IN THE WRITTEN CONSENTS
The Written Consents contain:
(i) A Resolution dated May 28, 2003, to amend the Certificate of Incorporation
in order to provide for 1) change the Company name from AGE Research, Inc. to
Enstruxis, Inc., 2) to provide for a stock combination (reverse split) of the
Common Stock in an exchange ratio to be approved by the Board, ranging from one
newly issued share for each two outstanding shares of Common Stock to one newly
issued share for each thirty five outstanding shares of Common Stock, and 3) to
increase the authorized number of shares of our common stock from 100,000,000
shares to 750,000,000 shares.
(ii) a Resolution dated May 28, 2003, to approve the acquisition of The Varsity
Group, Inc., a Missouri corporation, where the total consideration to be paid is
9,343,920 authorized and unissued post reverse split common shares, where that
number of shares is to equal 80% of the total outstanding after the acquisition.
Shareholders representing 59.5% of the votes of the currently issued and
outstanding shares of Common Stock have executed the Written Consents, thereby
ensuring the stock combination. See "Other Information Regarding The Company -
Security Ownership of Certain Beneficial Owners and Management."
Set forth below is a table of the stockholders who have executed the Written
Consents and, to the best of the Company's knowledge, the number of shares of
Common Stock beneficially owned by such stockholders as of March 28, 2003:
Common Shr's Votes/Shr. Common Votes % of Total
Votes
- ------------------------------------ ----------------------- ------------------------
Total Common Issued and Outstanding
Votes Possible 1 68,759,301 100.00%
Votes by Written Consent
For all proposals
Beneficial Owner
- --------------------------------------------------------------------------------------
Wendy Holt 5,000,000 1 5,000,000 7.3%
Bonnie Holt and Richard F. Holt 10,651,833 1 10,651,833 15.5%
Richard B. Holt 5,400,000 1 5,400,000 7.8%
Jean S. Armstrong 8,665,050 1 8,665,050 12.6%
Mark Scharmann 5,193,100 1 5,193,100 7.5%
Eldridge D. Huntington 6,000,000 1 6,000,000 8.8%
Total 40,909,983 1 40,909,983 59.5%
4
VOTE REQUIRED
As of May 28, 2003 (the dates of the Written Consents), 68,759,301
shares of Common Stock were issued and outstanding with 40,909,983 votes
acquired thus, Stockholders representing no less than 34,379,651 votes from
Common Stock were required to execute the Written Consents to effect the matter
set forth therein. As discussed under "Matters Set Forth in the Written
Consents," shareholders owning approximately 40,909,986 votes, or 59.5% of the
votes of Common Stock, have executed the Written Consents and delivered them to
the Company as required by law within the 60 day period, thereby ensuring the
approval of the proposals.
5
Business of Age Research, Inc. (Registrant)
- -------------------------------------------
Since December 1987, Age Research, Inc. ("AGE") has marketed its RejuvenAge
products to physicians practicing skin therapy medical specialties. The
RejuvenAge products are non-prescription skin care products that do not contain
Retin-A or any other prescription drug. In addition to the RejuvenAge products,
Age sells a proprietary moisturizing shaving cream for sensitive or irritated
beard conditions called Bladium.
Age owns the formulations for both the RejuvenAge and Bladium products. The
products are manufactured by independent contractors.
The sales activity of Age is limited with sales for the prior years ending
December 31, 2002, 2001 and 2000 being $7,894, $8,277 and $14,257 respectively.
In May 2000, Age vacated its warehouse facility. Any current inventory is stored
at the president's house.
Age enters into Acquisition
---------------------------
Shareholders of Age holding a majority of Age's common stock approved the
acquisition of The Varsity Group, Inc., a Missouri corporation. The Varsity
Group, Inc., is based in St. Louis, Missouri. The Varsity Group provides Human
Resources services including payroll, benefits and employee-related
administration and support services to small business clients primarily in the
Midwest. The Varsity Group is incorporated in Missouri and has been in business
since 1992.
Consideration (terms) for the transaction
-----------------------------------------
The total consideration to be paid is 9,343,920 post reverse split AGE common
shares that will be issued to Varsity shareholders in exchange for 100% of
Varsity's issued and outstanding common shares. The AGE shares issued are to be
equal 80% of the Company's total shares outstanding upon completion of the
acquisition.
Reason for engaging in transaction
----------------------------------
We felt that putting a private company into Age would give the shareholders
their best chance to realize a favorable value and return from their investment.
Vote required for approval of the transaction
---------------------------------------------
Approval by the majority of the issued and outstanding shares is required for
this transaction. As of May 28, 2003 (the dates of the Written Consents),
68,759,301 shares of Common Stock were issued and outstanding with 40,909,983
votes acquired, thus, stockholders representing no less than 34,379,651 votes
from Common Stock were required to execute the Written Consents to effect the
matter set forth therein.
Material differences in the rights of Age's security holders as a
-----------------------------------------------------------------
result of this transaction.
---------------------------
There are no differences in the rights of Age's security holders as a result of
this transaction, however subsequent to the acquisition Age's security holders
will own a smaller percentage of Age's shares outstanding.
Accounting treatment of this transaction
----------------------------------------
6
In accordance with accounting principles generally accepted in the United
States, Age will account for the acquisition using the purchase method of
accounting. Under this method of accounting, Age will record the market value of
its common stock issued in the acquisition and the amount of direct transaction
costs associated with the acquisition as the estimated purchase price of
acquiring Varsity. Age will allocate the estimated purchase price to the net
tangible assets acquired, based on their respective fair values at the date of
the completion of the acquisition. Any excess of the estimated purchase price
over the fair value of net assets acquired will be accounted for as goodwill.
In accordance with the Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," goodwill resulting from the business
combination currently estimated at $1,661,305, will not be amortized but instead
will be tested for impairment at least annually (more frequently if certain
indicators are present).
In the event that Age's management determines that the value of goodwill has
become impaired, the combined company will incur an accounting charge for the
amount of impairment during the fiscal quarter in which the determination is
made. The amounts listed in the above paragraph are only preliminary estimates;
however, actual amounts may differ from these estimates.
Federal income tax consequences of the transaction, if material.
----------------------------------------------------------------
General
The following discussion describes the material U.S. federal income tax
consequences of the exchange of shares of Varsity's capital stock for Age common
stock pursuant to the acquisition that are generally applicable to holders of
Varsity capital stock. This discussion is based on currently existing provision
of the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to Varsity
stockholders as described herein. Neither Varsity nor Age has requested nor will
request a ruling from the Internal Revenue Service with regard to any of the tax
consequences of the acquisition.
Varsity stockholders should be aware that this discussion does not deal with all
U.S. federal income tax considerations that may be relevant to particular
Varsity stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, insurance
companies, tax-exempt organizations, financial institutions, or broker-dealers,
who hold their shares as part of a hedge, straddle, conversion or other
risk-reduction transaction, who do not hold their Varsity stock as capital
assets, who hold their Varsity stock through a partnership or other pass-through
entity or who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions. In particular, this
discussion does not discuss the tax consequences of payments that may be subject
to the "golden parachute" provisions of the Code. In addition, unless
specifically addressed below, the following discussion does not address the tax
consequences of the acquisition under foreign, state or local tax laws, the tax
consequences of transactions effectuated prior or subsequent to, or concurrently
with, the acquisition (whether or not any such transactions are undertaken in
connection with the acquisition), including without limitation any transaction
in which shares of Varsity capital stock are acquired or shares of Age common
stock are disposed of, or the tax consequences of any receipt of rights to
acquire Age common stock.
7
Accordingly, Varsity stockholders are urged to consult their own tax advisors as
to the specific tax consequences to them of the acquisition, including the
applicable federal, state, local and foreign tax consequences.
Federal Income Tax consequences if the Acquisition Qualifies as a Reorganization
Assuming the acquisition qualifies as a reorganization within the meaning of
Section 368(a) of the Code and the acquisition is completed under the current
terms of the acquisition agreement, the following U.S. federal income tax
consequences generally will result:
- - No gain or loss will be recognized by holders of Varsity capital stock
solely upon their receipt of Age common stock, in exchange for such
Varsity capital stock in the acquisition (except with respect to cash
received in lieu of fractional shares as discussed below)
- - The aggregate tax basis of the Age common stock received by each
Varsity stockholder in the acquisition will be the same as the
aggregate tax basis of the Varsity capital stock surrendered by such
Varsity stockholder in exchange therefore.
- - The holding period of the Age common stock received by each Varsity
stockholder in the acquisition will include the period for which the
Varsity capital stock surrendered in exchange therefore was considered
to be held, provided that the Varsity capital stock so surrendered is
held as a capital asset at the time of the acquisition.
- - Any cash payment received by a holder of Varsity capital stock in lieu
of a fractional share of Age common stock will be treated as if such
fractional share had been issued in the acquisition and then redeemed
by Age. A Varsity stockholder receiving such cash will recognize gain
or loss upon such payment, measured by the difference, if any, between
the amount of cash received and the basis in such fractional share. The
gain or loss will be capital gain or loss provided that the shares of
Varsity capital stock were held as capital assets and will be long-term
capital gain or loss if the Varsity capital stock exchanged for that
fractional share of Age common stock had been held for more than one
year at the time of the acquisition. However, if the receipt of cash
instead of fractional shares is essentially equivalent to a dividend
(determined by application of Section 302 of the Code on a stockholder
by stockholder basis), some or all of this gain may be treated as a
dividend and taxed as ordinary income.
- - If a Varsity stockholder dissents to the acquisition and receives
solely cash in exchange for such stockholder's Varsity capital stock,
such cash generally will be treated as a distribution in redemption of
such stockholder's Varsity capital stock. Where such stockholder owns
no Age common stock either directly or by reason of certain attribution
rules set forth in the Code, the stockholder should recognize gain or
loss measured by the difference between the amount of cash received and
the adjusted tax basis of the Varsity capital stock surrendered.
Different tax consequences will apply to any interest awarded by a
court to a dissenting Varsity stockholder.
U.S. Federal Backup Withholding
A holder of Varsity capital stock may be subject, under some circumstances, to
backup withholding at a rate of 30% with respect to certain payments made in the
acquisition unless the holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
8
backup withholding rules are not an additional tax and may be refunded or
credited against the holder's U.S. federal income tax liability, provided the
required information is furnished to the Internal Revenue Service.
Regulatory approvals
--------------------
State of Federal regulatory approval is not required in connection with this
transaction.
Reports, opinions, appraisals
-----------------------------
No report, opinion or appraisal relating to this transaction was requested or
received.
Reports to security holders
- ---------------------------
Age is a reporting company under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and files all required reports with the Securities and Exchange
Commission.
The public may read and copy any materials Age files with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Also,
you may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains the reports, proxy and information statements, and other information
that Age files electronically with the SEC. The SEC website address is
http://www.sec.gov.
Description of Property
- -----------------------
Age does not possess any property. Age vacated its warehouse facility in May
2000. The remaining minimal inventory is stored at the president's house.
Legal Proceedings
- -----------------
None
Market for common equity and related stockholder matters
- --------------------------------------------------------
The table below sets forth, for the respective periods indicated, the prices for
Age's common stock in the over-the-counter market as reported by the NASD's OTC
Bulletin Board. Age's common stock was cleared for quotations on the OTCBB in
January 2000 under the symbol "AGER". The bid prices represent inter-dealer
quotations, without adjustments for retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions.
High Bid Low Bid
-------- -------
Fiscal Year Ended December 31, 2002
- -----------------------------------
First, Second, Third and Fourth Quarter .05 .00
Fiscal Year Ended December 31, 2001
- -----------------------------------
First, Second, Third, and Fourth Quarter .08 .03
Fiscal Year Ended December 31, 2000
- -----------------------------------
First, Second, Third, and Fourth Quarter .06 .03
9
Holders
-------
At March 31, 2003, the Company had approximately 275 shareholders of record
based on information provided by the Company's transfer agent.
Dividends
---------
Since its inception, Age has not paid any dividends on its Common Stock, and Age
does not anticipate that it will pay dividends in the foreseeable future.
Securities authorized for issuance under equity compensation plans
------------------------------------------------------------------
None.
Financial Statements - AGE Research, Inc.
- -----------------------------------------
1. Audited Consolidated Financial Statements a. Period Ending
December 31, 2002 - Exhibit B, page 25 b. Period Ending
December 31, 2001 - Exhibit C, page 33 c. Period Ending
December 31, 2000 - Exhibit D, page 43
2. Interim Consolidated Financial Statements Period Ending June
30, 2003 - Exhibit E. page 52
3. Proforma Consolidated financials -
a. Period Ending June 30, 2003 - Exhibit F, page 59 b. Period
Ending December 31, 2002 - Exhibit G, page 64
Selected financial Data - Age Research, Inc.
Year ending December 31, June 30,
------------------------ --------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Net sales $ 17,457 19,519 14,257 8,277 7,894 3,913
Income (loss) from continuing oper (7,988) (18,919) (7,861) (10,266) (11,633) (77,975)
Per common share (.0001) (.0003) (.00) (.00) (.00) (.04)
Total Assets 12,982 11,524 4,877 3,152 1,062 1,498
Long term liabilities 96,602* - - - - -
Total liabilities 127,691 5,130 6,344 14,885 16,929 22,101
* Notes due stockholders converted to equity in 1999
10
Supplementary financial information - Age Research, Inc.
- --------------------------------------------------------
Year 2001 Year 2002 Year 2003
--------- --------- ---------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
-- -- -- -- -- -- -- -- -- --
Net sales 2,122 2,208 820 3,127 3,073 1,888 1,670 1,263 2,182 1,731
Gross profit 1,781 1,857 724 2,769 2,614 1,623 1,421 1,025 1,852 1,529
Income (loss) (5,417) (572) (749) (3,528) (3,462) (2,367) (1,719) (4,085) (2,714) (75,261)
Per share .00 .00 .00 .00 .00 .00 .00 .00 .00 .03
Management's discussion and analysis of financial condition and results of
- --------------------------------------------------------------------------
operations.
- -----------
Results of Operations
- ------------------------------------------------------------------
Three and Six Months Ended June 30, 2003 compared to June 30, 2002
- ------------------------------------------------------------------
For the three and six month period ended June 30, 2003, our revenues were
approximately $1,731 and $3,913 respectively, for a decrease of $157 and $1,048
respectively from the same periods in 2002.
Cost of goods sold for the three and six month period ended June 30, 2003, were
$202 and $532 respectively, for a decrease of $63 and of $192 respectively from
the same periods in 2002.
Gross profit for products and services was $1,529 and $3,381 for the three and
six months ended June 30, 2003, a decrease of $94 and $856 the same periods
prior year.
Selling General & Administrative expense for three and six month period ended
June 30, 2003 were $76,700 and $80,328 respectively, for an increase of $72,819
and $71,263 from the same periods in 2002.
The net losses from operations for the three and six months ended June 30, 2003
were $75,171 and $76,947 respectively, for an increase of $72,913 and $72,119
from the same periods prior year.
- ----------------------------------------------------------
Year ended December 31, 2002 Compared to December 31, 2001
- ----------------------------------------------------------
Revenues and Costs of Sales. For the fiscal year ended December 31, 2002, the
Company had sales of $7,894, with cost of goods sold of $1,211. For the fiscal
year ended December 31, 2001, the Company had sales of $8,277, with cost of
goods sold of $1,146. Selling, general and administrative expenses for 2002 were
$17,059, compared to selling, general and administrative expenses for 2001 of
$16,400. Management believes that for the Company to have any significant
increase in sales volume the Company will require substantial expenditures in
advertising. The expenses in 2002 and 2001 are primarily attributable to the
preparation and filing of periodic reports under Section 13 and/or 15(d) of the
Exchange Act. The slightly higher expenses in 2002 were attributed primarily to
higher accounting and legal expenses. The net loss from operations for 2002 was
$10,375 compared to net loss from operations for 2001 of $9,269.
- ----------------------------------------------------------
Year ended December 31, 2001 Compared to December 31, 2000
- ----------------------------------------------------------
Revenues and Costs of Sales. For the fiscal year ended December 31, 2001, the
Company had sales of $8,277, with cost of sales of $1,146, for a gross profit
11
of $7,131. For the fiscal year ended December 31, 2000, the Company had sales of
$14,257, with cost of sales of $5,776, for a gross profit of $8,481. Sales
declined due to the lack of any marketing program. Cost of sales decreased as a
percentage of total sales, but management believes that such sales costs have
been reduced to a minimum already and cannot be decreased further. Management
believes that for the Company to have any significant increase in sales volume
the Company will require substantial expenditures in advertising.
General and Administrative Expense. Total operating expenses for 2001 were
$16,400, compared to total operating expenses for 2000 of $15,553. The expenses
in 2001 and 2000 are primarily attributable to the preparation and filing of
periodic reports under Section 13 and/or 15(d) of the Exchange Act. The higher
expenses in 2001 were attributed primarily to higher accounting and legal
expenses. The net loss from operations for 2001 was $9,269 compared to net loss
from operations for 2000 of $7,072.
- -------------------------------
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has financed its operations through a combination of
cash flow derived from operations and debt and equity financing. At June 30,
2003, we had a working capital deficit of $20,603 based on current assets of
$1,498 and current liabilities of $22,101. At December 31, 2002, the Company had
a working capital deficit of $15,867 based on current assets of $1,062
consisting of cash $310, and accounts receivable of $752, and current
liabilities $16,929, consisting of accounts payable and accrued expenses of
$8,429 and officers' loan of $8,500.
Based on its current marketing program and sales, it is clear that the Company
will have to increase its sales volume significantly in order to have profitable
operations. At this time, however, the Company does not have any working capital
to expand its marketing efforts.
The Company proposes to finance its needs for additional working capital through
some combination of debt and equity financing. Given its current financial
condition, it is unlikely that the Company could make a public sale of
securities or be able to borrow any significant sum from either a commercial or
private lender. The most likely method available to the Company would be the
private sale of its securities. There can be no assurance that the Company will
be able to obtain such additional funding as needed, or that such funding, if
available, can be obtained on terms acceptable to the Company.
12
Business of The Varsity Group (acquired Company)
- ------------------------------------------------
The Varsity Group, LLC ("VARSITY") was incorporated as a Missouri corporation in
August 1990. Varsity is a full service regional Administrative Employer
Organization. Varsity's primary service provides employee related administrative
and support services to approximately 65 small businesses clients in six states
in which we are licensed to provide these services. Our clients outsource their
employee related administrative duties to us in the areas of state and federal
regulatory compliance; payroll preparation and production; and employee health
and retirement benefits.
Varsity's income is derived from administrative fees earned by charging for the
production and processing of client's payroll. The fee is a percentage of the
client's payroll. The administrative fee percentage charged varies based on the
level of client risk we assume from our clients. Our clients with whom we
receive payment in advance of our payroll delivery represent a lower level of
risk and therefore pay a lower administrative fee than for those clients for
whom we carry their payroll awaiting payment which pay fees at a higher rate
based on a higher level of risk to our company.
Varsity also earns fees for providing advisory services to their small business
clients. To minimize risk, Varsity maintains a close relationship with its small
business clients. This customer-client relationship provides Varsity with a view
into the client's operations, including finance and marketing plus challenges
that our client's business is facing at that time. Using the knowledge gained,
Varsity has been able to offer advice and tailor support services in areas
beyond its core employee related services. These areas that Varsity has been
able to offer support include the areas of operations, finance and marketing.
Varsity expects revenue growth in these advisory areas.
Varsity feels that certain aspects of its business that is related to assumption
of payroll risk and providing structural advisory services differentiate it from
other firms in the industry who primarily specialize in human resource or
business process out-sourcing.
Varsity's mission is to provide its small business clients support services
which promote growth, access to capital and liquidity. Varsity's long term goal
is to assemble a national footprint to deliver its services to small business
throughout the United States. To this end, Varsity intends to establish a front
line sales presence in several (to be determined) keys growth markets throughout
the United States. The marketing identity for our larger national small business
financial services initiative is Enstruxis. Varsity's target market is small
businesses with fewer than 100 employees.
Varsity shareholders approve transaction
----------------------------------------
Shareholders of 100% of Varsity's common stock approved the transaction of being
acquired by Age Research, Inc.
Consideration (terms) for the transaction
-----------------------------------------
The total consideration to be received by Varsity is 9,343,920 post reverse
split common shares of Age research, Inc., which will be issued to Varsity
shareholders in exchange for 100% of Varsity's issued and outstanding common
shares. The AGE shares issued are to be equal 80% of the Company's total
outstanding shares after the acquisition.
Reason for engaging in transaction
----------------------------------
13
Varsity feels that being a public entity will facilitate its goal of growing on
a national basis as well as provide the means to attract funding if needed to
achieve its goal.
Vote required for approval of the transaction
---------------------------------------------
Varsity received approval from 100% of its shareholders.
Description of Property
- -----------------------
Varsity's principal offices are located at 12755 Olive Street, Suite 400, St.
Louis, Missouri, 63141, and the telephone number is (314) 317-7200. Varsity
leases 7,538 square feet on the first floor of the building through 7/31/2005.
Legal Proceedings
- -----------------
None
Financial Statements - The Varsity Group, Inc.
- ----------------------------------------------
1. Audited Consolidated Financial Statements Period Ending
December 31, 2002 and 2001 - Exhibit H, page 69
2. Interim Consolidated Financial Statements Period Ending June
30, 2003 - Exhibit I. page 81
Selected financial Data: The Varsity Group, Inc.
- ------------------------------------------------
_________($000)_________________
Year ending December 31, June 30,
1999 2000 2001 2002 2003
Net sales $ 29,421 $ 44,553 $ 64,158 $ 59,009 $ 25,210
Income (loss) from continuing oper 25 (209) (244) (623) (199)
Per common share - - - - -
Total Assets 2,189 1,976 2,581
Long term liabilities - - - - -
Total liabilities 3,520 2,908 4,141
Supplementary financial information
- -----------------------------------
_____________________($000,000)__________________
Year 2001 Year 2002 Year 2003
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
-- -- -- -- -- -- -- -- -- --
Net sales $16 $16 $16 $16 $14 $15 $14 $15 $13 $12
Gross profit .3 .4 .3 .3 .3 .4 .3 .3 .3 .2
Income (loss) (.4) (.5) (.4) (.4) (.5) (.6) (.6) (.6) (.1) (.1)
Per share .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
14
Management's discussion and analysis of financial condition and results of
- --------------------------------------------------------------------------
operations.
- -----------
Results of Operations
- ------------------------------------------------------------------
Three and Six Months Ended June 30, 2003 compared to June 30, 2002
- ------------------------------------------------------------------
For the three and six month period ended June 30, 2003, our revenues were
approximately $12,604,950 and $25,209,900 respectively, for a decrease of
$2,147,321 and $4,294,642 respectively, for the same periods in 2002.
Direct Costs for the three and six month period ended June 30, 2003, were
$12,352,801 and $24,705,602 respectively, for a decrease of $2,074,139 and
$4,148,278 respectively from the same periods in 2002.
Gross profit for services was $252,149 and $504,298 for the three and six months
ended June 30, 2003, a decrease of $73,182 and $146,364 over the same prior
periods. The gross profit percentage rate for the three and six month ended June
30, 2003 was 2.0% and 2.0% respectively compared to a gross profit percentage of
2.2% and 2.2% for the same prior year period.
Operating expenses for the three and six month period ended June 30, 2003 was
$414,257 and $828,514 respectively for a decrease of $163,541 and $327,082 from
the same period prior year. The decrease is attributable to the reduction of
General and Administrative expenses of $106,964 and $213,927 for the three and
six month ended June 30, 2003 compared to the same prior periods in 2002.
Furthermore the decrease is attributable to the decrease in Salaries, Wages and
Benefit expense of $56,578 and $113,155 for the three and six month ended June
30, 2003.
Net loss for the three and six month period ended June 30, 2003, were $96,981
and $193,963 respectively, for a decrease $99,899 and $199,797 from the same
periods prior year.
- ----------------------------------------------------------
Year ended December 31, 2002 Compared to December 31, 2001
- ----------------------------------------------------------
For the fiscal year ended December 31, 2002, Varsity had revenues of
$59,009,084, for a decrease of $5,149,515, for the same period in 200l.
For the fiscal year ended December 31, 2002, Varsity had direct costs of
$57,707,761, for a decrease of $5,121,817, for the same period in 2001.
Gross profit for services was $1,301,323 for the year ended December 31, 2002, a
decrease of $27,698 over the prior fiscal year. The gross profit percentage rate
for the year ended December 31, 2002 was 2.2%, an increase of .1% for the same
period in 2001.
Operating expenses for the year ended December 31, 2002 was $2,311,192 for an
increase of $570,328 from the same prior period. The raise is attributable to
the increase of general and administrative expense of $322,344. In addition the
increase is due to the increase in and salaries, wages, benefits and payroll tax
expense of $247,984.
The net loss from operations for 2002 was $787,519 compared to the net loss from
operations for 2001 of $379,091.
15
- ----------------------------------------------------------
Year ended December 31, 2001 Compared to December 31, 2000
- ----------------------------------------------------------
For the fiscal year ended December 31, 2001, the Company had revenues of
$64,158,599, for an increase of $9,894,813, for the same period in 2000.
For the fiscal year ended December 31, 2002, the Company had direct costs of
$62,829,578, for an increase of $10,130,100, for the same period in 2000.
Gross profit for services was $1,329,021 for the year ended December 31, 2001, a
decrease of $235,287 over the prior fiscal year. The gross profit percentage
rate for the year ended December 31, 2001 was 2.1%, a decrease of .8% for the
same period in 2000.
Operating expenses for the year ended December 31, 2001 was $1,740,864 for an
increase of $478,777 for the same prior period. The raise is attributable to the
increase of general and administrative expense of $61,646. In addition the
increase is due to the raise in and salaries, wages, benefits and payroll tax
expense of $417,131.
The net loss from operations for 2001 was $379,091 compared to the net loss from
operations for 2000 of $313,347.
- -------------------------------
Liquidity and Capital Resources
- -------------------------------
On June 30, 2003 Varsity had assets of $2,729,295 compared to $2,159,844 on
December 31, 2002, an increase of $569,451. The raise is due to the increase of
$108,455 in prepaid expenses and $532,538 in accounts receivable. The increase
is slightly offset by a decrease in cash of $51,947.
On June 30, 2003 Varsity had liabilities of $4,283,932 compared to $3,520,518 on
December 31, 2002, an increase of $763,414. The increase is primarily a result
of a note payable increase and a bank overdraft of $449,630 and $483,827
respectively. In addition liabilities rose due to increases in accrued payroll
taxes and accrued benefits of $472,551 and $69,267 respectively. The overall
increase was offset by reduction in pre-funded payroll and accounts payable of
$330,176 and $525,877 respectively.
As of June 30, 2003 Varsity's working capital position decreased $193,963 from a
negative $1,360,674 at December 31, 2002 to a negative $1,554,637 at June 30,
2003.
Net cash used by operating activities for the six months ended June 30, 2003
amounted to $610,219, which mainly consists of the six month operating loss of
$193,632, payment of prepaid expenses of $108,454, account payable payment of
$330,176, pre-funded payment of $525,877 and a decrease in accounts receivable
of $532,538. Offset by a bank overdraft of $483,826, depreciation expense of
$26,421, and accrued expense of $571,009.
Net cash from investment activities for the six months ended June 30, 2003
amounted to $6,358 which was cash used to purchase equipment.
Financing activity for the six months ended June 30, 2003 generated net cash of
$564,630, consisting of advances from officers of $115,000 and a bank note of
$449,630.
16
- ---------------
Going Concern
- ---------------
As shown in the accompanying financial statements, Varsity incurred a net
loss of $787,519 during the year ended December 31, 2002, and as of that
date, the Company's current liabilities exceeded its current assets by
$1,543,966 and its total liabilities exceeded its total assets by
$1,360,674. Those factors create an uncertainty about the Company's ability
to continue as a going concern. Management of the Company is developing a
plan to reduce operating expenses and obtain an infusion of capital through
either public or private investment. The ability of the Company to continue
as a going concern is dependent on management's successful reduction of
operating expenses and successful capital infusion. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Summary of Investments--Other than Investments in Related Parties
- -----------------------------------------------------------------
NA
Real Estate and Accumulated Depreciation
- ----------------------------------------
NA
Mortgage Loans on Real Estate
- -----------------------------
NA
17
CHANGE NAME OF OUR COMPANY TO ENSTRUXIS, INC.
To reflect the new business and direction of the Company, we felt that a name
change was appropriate. The name chosen by the shareholders holding a majority
of Age's common stock was Enstruxis, Inc.
PURPOSES OF THE REVERSE SPLIT
The main purpose for the Reverse Split would be to provide for the acquisition
of the Varsity Group. The terms of the acquisition agreement call for the
Varsity shareholders to receive 80% of the outstanding shares of AGE. A reverse
split would reduce the number of the shares outstanding thus providing for an
adequate amount of shares to be available for the acquisition.
Another purpose of the Reverse Split would be to increase the market price of
our Common Stock. We believe a reverse split may increase the market price of
our stock which may help in making our common stock a more viable tool to
attract working capital and as a form of consideration for potential
acquisitions.
THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE REVERSE
SPLIT, THE COMPANY WILL BE ABLE TO MAINTAIN ITS MARKET PRICE PER SHARE AND THUS
UTILIZE ITS COMMON STOCK IN ORDER TO EFFECTUATE FINANCING OR ACQUISITION
TRANSACTIONS.
The Reverse Split will not change the proportionate equity interests of the
Company's stockholders at the time of the split, nor will the respective voting
rights and other rights of stockholders be altered, except for possible
immaterial changes due to rounding up to eliminate fractional shares. However,
shares issued in connection with the acquisition of The Varsity Group, acquiring
working capital, or future acquisitions would most likely dilute the value of
shares held by individual shareholders. There are no anti-dilution protections
for the debt holders. The Common Stock issued pursuant to the Reverse Split will
remain fully paid and non-assessable. The Company will continue to be subject to
the periodic reporting requirements of the Securities Exchange Act of 1934, as
amended.
CERTAIN EFFECTS OF THE REVERSE SPLIT
The following table illustrates the effect that the Reverse Split would have on
the 68,759,301 shares of Common Stock that were outstanding on May 28, 2003:
COMMON SHARES:
--------------
PRIOR TO AFTER 1 FOR 2 AFTER 1 FOR 35
NUMBER OF SHARES REVERSE REVERSE REVERSE
STOCK SPLIT STOCK SPLIT STOCK SPLIT
Common Stock:
Authorized....................................... 100,000,000 100,000,000 100,000,000
Shares Outstanding (1)........................ 68,759,301 34,379,651 1,964,551
Shares Available for Future
Issuance ..................................... 31,240,699 65,620,349 98,035,449
(1) Gives effect to the Reverse Split, excluding the new shares to be
issued in lieu of fractional shares. Stockholders should recognize that,
the reverse split will reduce the number of shares they own by a number
equal to the number of shares owned immediately prior to the filing of the
amendment regarding the reverse split divided by the Exchange Number (i.e.
divide by 2 if the reverse is two to one, as adjusted to include new shares
to be issued in lieu of fractional shares.
18
While a reverse split may result in an increase in the market price of the
Common Stock, there can be no assurance that the reverse split will
increase the market price of the Common Stock by a multiple equal to the
exchange number or result in a permanent increase in the market price
(which is dependent upon many factors, including the Company's performance
and prospects). Also, should the market price of the Company's Common Stock
decline after the reverse split, the percentage decline may be greater than
would be the case in the absence of the reverse split.
The possibility exists that liquidity in the market price of the Common
Stock could be adversely affected by the reduced number of shares that
would be outstanding after the Reverse Split. In addition, the Reverse
Split will increase the number of stockholders of the Company who own
odd-lots (less than 100 shares). Stockholders who hold odd-lots typically
will experience an increase in the cost of selling their shares, as well as
greater difficulty in effecting such sales. Consequently, there can be no
assurance that the Reverse Split will achieve the desired results that have
been outlined above.
INCREASE THE AUTHORIZED NUMBER OF SHARES OF OUR COMMON STOCK FROM
100,000,000 to 750,000,000
The holders of a majority of the shares of our outstanding common stock approved
in writing an amendment to our Certificate of Incorporation to increase our
authorized capital from 100,000,000 shares to 750,000,000 shares.
The increase in authorized capital was approved by shareholders who deemed it
advisable and in the company's best interests for reasons including the
following
o to provide for potential future acquisitions.
o to provide for the future raising of capital
o to provide a means to award company employees
Although there are no agreements respecting any merger or acquisition of another
business, a majority in interest of the shareholders believes that the increase
in the number of authorized shares of common stock is in the best interest of
AGE and that of our shareholders because additional shares of common stock will
provide us with the ability act when such opportunities are available.
Because of the Board of Directors' discretion in connection with an issuance of
additional shares of our common stock, the Board of Directors may, under certain
circumstances, possess timing and other advantages in responding to a tender
offer or other attempt to gain control of us, which may make such attempts more
difficult and less attractive. Any additional shares of common stock issued
would have the same rights and privileges as the currently outstanding shares of
common stock. For example, issuance of additional shares would increase the
number of shares outstanding and could necessitate the acquisition of a greater
number of shares by a person making a tender offer and could make such
acquisition more difficult since the recipient of such additional shares may
favor the incumbent management. Moreover, these advantages give the Board of
Directors the ability to provide any such holders with a veto power over actions
19
proposed to be taken by the holders of our common stock. This could have the
effect of insulating existing management from removal, even if it is in the best
interest of the common shareholders. Our management is not aware of any existing
or threatened efforts to obtain control of AGE Research Inc. other than the
proposed acquisition of The Varsity group. The issuance of any additional shares
of our common stock would also have the effect of diluting the equity interests
of existing shareholders and the earnings per share of existing shares of common
stock. Such dilution may be substantial, depending upon the number of shares
issued.
The increase in the authorized capital shall be effective on or about September
___, 2003, approximately twenty days after the mailing of this Information
Statement, and the amendment to our Certificate of Incorporation will thereupon
be filed.
OTHER INFORMATION REGARDING THE COMPANY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables sets forth the number of shares of the Company's Common
Stock, par value $0.001, held by each person who is believed to be the
beneficial owner of 5% or more of the 68,759,301 shares of the Company's common
stock outstanding at March 19, 2003, based on the Company's transfer agent's
list, and the names and number of shares held by each of the Company's officers
and directors and by all officers and directors as a group.
Title of Name and Address Amount and Nature of Percent
Class Of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------- --------------------- --------
Common Mark A. Scharmann(1) 5,193,100 7.55
1661 Lakeview Circle
Ogden, UT 84403
Common Wendy E. Holt (2) 5,000,000 7.27
205 1/2 Agate Street
Balboa Island, CA 92662
Common Richard B. Holt (3) 5,400,000 7.85
24382 Antilles Way
Dana Point, CA 92629
Common Jean Armstrong 8,026,050 11.67
P.O. Box 6743
Pine MTN. Club, CA 93222
Common Eldridge D. Huntington 6,000,000 8.73
5314 Anaheim Road
Long Beach, CA 90815
Common Richard F. Holt (4) 10,651,833 15.49
1 Strawberry Lane
San Juan Capistrano, CA 92675
Officers and Directors
- ----------------------
Common Richard F. Holt, ---- see above ----
President/director
20
Common Wendy E. Holt (2) ---- see above ----
Vice-president/director
All Officers, Directors,
as a Group (2 Persons) 15,651,833 22.76
==================== =====
- -----------------------
(1) Includes 13,100 held of record by Troika Capital Investments, an entity
controlled by Mr. Scharmann.
(2) Wendy E. Holt is the adult daughter of Richard F. Holt.
(3) Richard B. Holt is the adult son of Richard F. Holt.
(4) Richard F. Holt's share numbers include 6,537,290 shares held in a family
trust and 50,000 shares held in a trust by his spouse.
BOARD COMMITTEES
The Board of Directors does not currently maintain an Audit Committee or a
Compensation Committee, but plans to appoint an Audit Committee and a
Compensation Committee in the near future. During the fiscal year ended December
31, 2002, the Board of Directors held one meeting.
COMPENSATION OF DIRECTORS
The Company's Directors are not currently compensated for attendance at Board of
Directors meetings.
EXECUTIVE COMPENSATION
The Company has not had a bonus, profit sharing, or deferred compensation plan
for the benefit of its employees, officers or directors. Except as noted below,
the Company has not paid any salaries or other compensation to its officers,
directors or employees for the years ended December 31, 2002, 2001 and 2000, nor
at any time during 2002, 2001 or 2000. Further, the Company has not entered into
an employment agreement with any of its officers, directors or any other persons
and no such agreements are anticipated in the immediate future. It is intended
that the Company's directors may be compensated for services provided to the
Company. As of the date hereof, no person has accrued any compensation from the
Company.
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 2002, the
end of the Company's last completed fiscal year):
21
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
Richard F. Holt 2002 $ -0- -0- -0- -0- -0- -0- -0-
President 2001 $ -0- -0- -0- -0- -0- -0- -0-
2000 $ -0- -0- -0- -0- -0- -0- -0-
Options/SAR Grants in Last Fiscal Year
None.
Bonuses and Deferred Compensation
None.
Compensation Pursuant to Plans
None.
Pension Table
Not Applicable.
Other Compensation
None.
LEGAL PROCEEDINGS
None
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our president, Richard F. Holt, is currently making payments to purchase
inventory on behalf of the Company. As of December 31, 2002 and 2001, the
balance due him related the purchases were $1,231 and $223. The Company also has
notes payable to him in the amount of $8,500, accruing interest at 6% per annum.
OTHER MATTERS
The Board of Directors of the Company is not aware that any matter other than
those described in this Information Statement is to be presented for the consent
of the shareholders.
ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934 and in accordance with the requirements thereof, file reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). Copies of these reports, proxy statements and other information can be
obtained at the SEC's public reference facilities at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C., 20549. Additionally, these filings may
be viewed at the SEC's website at http://www.sec.gov.
22
DISTRIBUTION OF INFORMATION STATEMENT
The cost of distributing this Information Statement has been borne by us and
certain shareholders that consented to the action taken herein. The distribution
will be made by mail.
Pursuant to the requirements of the Exchange Act of 1934, as amended, the
Registrant has duly caused this Information Statement to be signed on its behalf
by the undersigned hereunto authorized.
By Order of the Board of Directors
/s/ Richard F. Holt
-----------------------------------
Richard F. Holt, Chief Accounting
Officer and Director.
October __, 2003
San Juan Capistrano, California
23
EXHIBIT A
AGE RESEARCH INC.
NOTICE PUSUANT TO SECTION 228 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
TO: ALL STOCKHOLDERS
1. PLEASE TAKE NOTICE THAT Stockholders owning at least a majority of the
outstanding stock of AGE RESEARCH Inc., by written consent dated May 28, 2003
have duly adopted the following resolutions:
"a resolution approving the following:
1. To approve the acquisition of The Varsity Group, Inc., a
Missouri corporation, where the total consideration paid is
9,343,920 authorized and unissued post reverse split common
shares, where that number of shares is to equal 80% of the
total outstanding after the acquisition.
2. Amend our certificate of incorporation to change the Company
name from AGE Research, Inc. to Enstruxis, Inc., and
concurrently to change the Company's OTCBB trading symbol.
3. Amend our certificate of incorporation to provide for a stock
combination (reverse split) of the Common Stock in an exchange
ratio to be approved by the Board, ranging from one newly
issued share for each two outstanding shares of Common Stock
to one newly issued share for each thirty five outstanding
shares of Common Stock.
4. Amend our Certificate of Incorporation to increase the
authorized number of shares of our common stock from
100,000,000 to 750,000,000."
DATE: October __, 2003
24
Exhibit B
Audited Consolidated Financial Statements
Periods Ending December 31, 2002
HAROLD Y. SPECTOR
Certified Public Accountant
(888)584-5577 80 S. LAKE AVENUE
FAX (626)584-6447 SUITE 723
hspectorcpa@earthlink.net PASADENA, CA 91101
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and stockholders of Age Research, Inc.
I have audited the accompanying balance sheet of Age Research, Inc. (a
Delaware corporation) as of December 31, 2002, and the related statements of
operations, changes in stockholders' deficit, and cash flows for the years ended
December 31, 2002 and 2001. These financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally
accepted in the United States. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Age Research, Inc.
as of December 31, 2002, and the results of its operations and its cash flows
for the years ended December 31, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating losses raises
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are also described in Note 2. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Harold Y Spector, CPA
Pasadena, California
March 12, 2003
25
AGE RESEARCH, INC.
BALANCE SHEET
December 31, 2002
ASSETS
Current Assets
Cash $ 310
Accounts Receivable 752
-----------
Total Current Assets 1,062
-----------
Property and Equipment, net of
accumulated depreciation of $7,354 -
-----------
TOTAL ASSETS $ 1,062
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 8,429
Officers' Loan 8,500
-----------
Total Current Liabilities 16,929
-----------
Stockholders' Deficit
Common stock, $.001 par value, 100,000,000
shares authorized, 68,759,301 shares
issued and outstanding 68,759
Paid-in Capital 736,264
Accumulated Deficit (820,890)
-----------
(15,866)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,062
===========
See notes to financial statements.
26
AGE RESEARCH, INC.
STATEMENTS OF OPERATIONS
For the years ended December 31, 2002 and 2001
2002 2001
------------- ----------------
Sales $ 7,894 $ 8,277
Cost and Expenses
Cost of Goods Sold 1,211 1,146
Selling General and Administrative
Expenses 17,059 16,400
------------- ----------------
18,269 17,546
Operating (loss) (10,375) (9,269)
Other Income (Expense)
Interest Income 0 6
Interest Expense (458) (203)
------------- ----------------
Total Other Income (Expenses) (458) (197)
------------- ----------------
Net (loss) before taxes (10,833) (9,466)
Provision for Income Taxes 800 800
------------- ----------------
Net (loss) $ (11,633) $ (10,266)
============= ================
Net (loss) per share-Basic and Diluted $ (0.00) $ (0.00)
============= ================
Weighted Average Number of Shares 67,884,301 67,259,301
============= ================
See notes to financial statements.
27
AGE RESEARCH, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For The Years Ended December 31, 2002 and 2001
Paid
Common in Accumulated
Shares Stock Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 67,259,301 $ 67,259 $ 730,264 $ (798,990) $ (1,467)
Net (loss) (10,266) (10,266)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 67,259,301 67,259 730,264 (809,256) (11,733)
Issuance of stock for cash 1,500,000 1,500 6,000 7,500
Net (loss) (11,633) (11,633)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 68,759,301 $ 68,759 $ 736,264 $ (820,889) $ (15,866)
============ ============ ============ ============ ============
See notes to the financial statements.
28
AGE RESEARCH, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2002 and 2001
2002 2001
------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (11,633) $ (10,266)
Adjustment to reconcile net income to
net cash provided by operating
activities
Depreciation - 65
Decrease in:
Accounts Receivable 177 884
Inventory 253 923
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (256) 2,341
------------- ----------------
Net cash flows (used in) Operating
activities (11,459) (6,053)
------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 7,500 -
Proceeds from Officers' Loan 2,300 6,200
------------- ----------------
Net Cash Provided by Financing
Activities 9,800 6,200
------------- ----------------
NET INCREASE (DECREASE)IN CASH (1,659) 147
CASH AT BEGINNING OF YEAR 1,970 1,823
------------- ----------------
CASH AT END OF YEAR $ 310 $ 1,970
============= ================
Supplemental Disclosure of Cash Flow
Information:
Income Taxes Paid $ 800 $ 800
See notes to financial statements.
29
AGE RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES
Nature of Business. Age Research, Inc. (the "Company') produces and sells a line
of premium skin care products to physicians and mail order. The Company has
developed its own line of dermatologist-formulated skin care products including
moisturizers, cleaners, sunscreens, and anti-aging emollients with glycolic
acid. The products are sold under the name of RejuvenAge, which is trademarked
in United States and United Kingdom, and name of Bladium, which is trademarked
in United States. The trademark in United Kingdom will be expired in September
2006.
Use of estimates. The preparation of the accompanying financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
Revenue Recognition. The Company generally recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collection is probable. In instances where final
acceptance of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. No provisions were established for
estimated product returns and allowances based on the Company's historical
experience.
Accounts Receivable. Management of the Company considers accounts receivable to
be fully collectible, accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged to operations
when that determination is made. Bad debt expense for years ended December 31,
2002 and 2001 was $97 and $105, respectively.
Computation of Net Income (Loss) per Share. Basic net income (loss) per share is
computed using the weighted average number of common stock outstanding during
the period. Diluted net income per share is computed using the weighted average
number of shares and dilutive potential common shares outstanding during the
period. Diluted net loss per share is computed using the weighted average number
of common shares and excludes dilutive potential common shares outstanding, as
their effect is anti-dilutive.
Other Significant Accounting Policies
Cash Equivalents. For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments. The carrying amounts of the financial
instruments have been estimated by management to approximate fair value.
Inventories. Inventory consists of products already packaged and ready for
shipments to customers, and are stated at cost, using the first-in, first-out
method.
30
AGE RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (Continued)
Property and Equipment. Property and Equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line method based on the following estimated useful lives of the
assets: 5 to 7 years for computer and office equipment, and 7 years for
furniture and fixtures. Depreciation expense was $0 and $65 for 2002 and 2001,
respectively. Property and Equipment are fully depreciated as of 12/31/01.
Income Taxes. Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Shipping and Handling Costs. The Company historically has included inbound
shipping charges in cost of sales and classified outbound shipping charges as
operating expenses. For years ended December 31, 2002 and 2001, the outbound
shipping charges included as operating expenses were $747 and $830,
respectively.
Derivatives. In June 1998, Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 138,
which was issued in June 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments. The Company currently does not use
derivative financial products for hedging or speculative purposes and as a
result, does not anticipate any impact on the Company's financial statements.
New Accounting Standards:
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, "Interim Financial Reporting," to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion 25.
In June 2002, FASB issued Statement No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance provided by EITF Issue No. 94-3, "Liability
31
AGE RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (Continued)
Recognition for Certain employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring) is replaced by
this Statement. Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. Management does not anticipate
that the adoption of this Statement will have a significant effect on the
Company's financial statements.
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement updates, clarifies and simplifies existing accounting pronouncements.
The provisions of this Statement related to the rescission of Statement No. 4
are to be applied for fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishments of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in Opinion No. 30 for
classification as an extraordinary item should be reclassified. Provisions of
the Statement related to the amendment of Statement No. 13 should be applied for
transactions occurring after May 15, 2002, and all other provisions should be
applied for financial statements issued on or after May 15, 2002. Management
does not anticipate that the adoption of this Statement will have a significant
effect on the Company's financial statements.
In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Statement supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, however it retains the fundamental provisions of that statement related to
the recognition and measurement of the impairment of long-lived assets to be
"held and used." In addition, SFAS No. 144 provides more guidance on estimating
cash flows when performing a recoverability test, requires that a long-lived
asset (group) to be disposed of other than by sale (e.g., abandoned) be
classified as "held and used" until it is disposed of, and establishes more
restrictive criteria to classify an asset (group) as "held for sale." The
adoption of SFAS No. 144 did not have an impact on the Company.
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. As shown in the accompanying
financial statements, the Company suffered losses of $11,633 and $10,266 for
years ended December 31, 2002 and 2001, respectively, and as of December 31,
2002, the Company's current liabilities exceeded its current assets by $15,867
and its total liabilities exceeded its total assets by $15,866.
In the near term, the Company expects operating costs to continue to exceed
funds generated from operations. As a result, the Company expects to continue to
incur operating losses and may not have enough money to grow its business in the
future. The Company can give no assurance that it will achieve profitability or
be capable of sustaining profitable operations. As a result, operations in the
near future are expected to continue to use working capital.
32
AGE RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN (Continued)
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Currently the Company does not stock any inventory. Purchases are incurred and
charged through loan from an officer when products are sold to customer. In
addition, the Company has generated approximately $7,500 in additional operating
capital through sales of its common stock during August 2002.
NOTE 3 - INCOME TAXES
Provision for income tax for years ended December 31, 2002 and 2001 consisted of
$800 minimum state franchise tax each year.
As of December 31, 2002, the Company has net operating loss carryforwards,
approximately, of $654,408 to reduce future taxable income. To the extent not
utilized, the carryforwards will begin to expire through 2022. The Company's
ability to utilize its net operating loss carryforwards is uncertain and thus a
valuation reserve has been provided against the Company's net deferred tax
assets.
The deferred net tax assets consist of the following at December 31:
2002 2001
----------- -----------
Net Operating Loss Carryforwards $ 227,644 $ 218,813
Valuation Allowance (227,644) (218,813)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
NOTE 4 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net (loss)
per share:
2002 2001
----------- -----------
Numerator:
Net (Loss) $ (11,633) $ (10,266)
----------- -----------
Denominator:
Weighted Average Number of Shares 67,884,301 67,259,310
----------- -----------
Loss per share-Basic and Diluted $ (0.00) $ (0.00)
33
AGE RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the Company has only one segment; accordingly, detailed
information of the reportable segment is not presented.
NOTE 6 - RELATED PARTY TRANSACTIONS
An officer is currently making payments to purchase inventory on behalf of the
Company. As of December 31, 2002 and 2001, the balance due to the officer
related the purchases was $1,231 and $223. The Company also has notes payable to
the officer in the amount of $8,500, accruing interest at 6% per annum.
34
Exhibit C
Audited Consolidated Financial Statements
Periods Ending December 31, 2001
HAROLD Y. SPECTOR
Certified Public Accountant
(888)584-5577 80 S. LAKE AVENUE
FAX (626)584-6447 SUITE 723
hspectorcpa@earthlink.net PASADENA, CA 91101
Independent Auditor's Report
To the Board of Directors and Stockholders of Age Research, Inc.
I have audited the accompanying balance sheet of Age Research, Inc.(a Delaware
Corporation), as of December 31, 2001, and the related statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
2001 and 2000. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits have a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Age Research, Inc. as of December
31, 2001, and the results of its operations and its cash flows for the years
ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company's significant operating losses raises
substantial doubt about its ability to continue as a going concern.
Management's plan regarding those matters are also described in Note 9. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Harold Y. Spector
Pasadena, CA
March 11, 2002
35
AGE RESEARCH, INC.
BALANCE SHEET
December 31, 2001
ASSETS
Current Assets
Cash $ 1,970
Accounts Receivable 929
Inventory 253
-----------
Total Current Assets 3,152
-----------
Property and Equipment
Furniture and Fixtures 5,560
Machinery and Equipment 1,794
-----------
7,354
Less: Accumulated Depreciation (7,354)
-----------
Total Property and Equipment -
-----------
TOTAL ASSETS $ 3,152
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 8,685
Officers' Loan 6,200
-----------
Total Current Liabilities 14,885
-----------
Long-Term Liabilities 0
-----------
Total Liabilities 6,344
-----------
Stockholders' Equity
Common stock, $.001 par value, 100,000,000
shares authorized and 67,259,301 shares
issued and outstanding 67,259
Paid-in Capital 730,264
Accumulated Deficit (809,256)
-----------
Total Stockholders' Deficit (11,733)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,152
===========
The accompanying notes are an integral part of these financial statements.
36
AGE RESEARCH, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2001 and 2000
2001 2000
------------- ----------------
SALES $ 8,277 14,257
COST OF SALES - Schedule A 1,146 5,776
------------- ----------------
GROSS PROFIT 7,131 8,481
OPERATING EXPENSES 16,400 15,553
------------- ----------------
INCOME (LOSS) FROM OPERATIONS (9,269) (7,072)
------------- ----------------
OTHER INCOME (EXPENSES)
Interest Income 6 11
Interest Expenses (203) -
------------- ----------------
Total Other Income (Expenses) (197) 11
------------- ----------------
NET LOSS BEFORE TAXES (9,466) (7,061)
PROVISION FOR INCOME TAXES 800 800
------------- ----------------
NET LOSS $ (10,266) $ (7,861)
============= ================
NET LOSS PER SHARE $ (0.00) $ (0.00)
============= ================
WEIGHTED AVERAGE NUMBER OF SHARES 67,259,301 66,706,793
============= ================
The accompanying notes are an integral part of these financial statements.
37
AGE RESEARCH, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Years
Ended December 31, 2001 and 2000
Paid
Common in Accumulated
Shares Stock Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 63,994,251 $ 63,944 $ 733,579 $ (791,129) $ 6,394
Issuance of stock for debt 3,315,050 3,315 (3,315) 0
Net Loss (7,861) (7,861)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 67,259,301 67,259 730,264 (798,990) (1,467)
Net Loss (10,266) (10,266)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 67,259,301 $ 67,259 $ 730,264 $ (809,256) $ (11,733)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
38
AGE RESEARCH, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001 and 2000
2001 2000
------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (10,266) $ (7,861)
Adjustment to reconcile net income to
net cash provided by operating
activities
Depreciation 65 231
(Increase) Decrease in:
Accounts Receivable 884 1,448
Inventory 923 5,776
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 2,341 1,214
------------- ----------------
Net Cash Provided (Used) by Operating
Activities (6,053) 808
------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Officers' Loan 6,200 -
------------- ----------------
Net Cash Provided (Used) by Financing
Activities 6,200 -
------------- ----------------
NET INCREASE (DECREASE)IN CASH 147 808
CASH AT BEGINNING OF YEAR 1,823 1,015
------------- ----------------
CASH AT END OF YEAR $ 1,970 $ 1,823
============= ================
SUPPLEMENTARY DISCLOSURES:
Cash paid for:
Interest paid $ - $ -
============= ================
Income Taxes Paid $ 800 $ 800
============= ================
Noncash investing and financing activities:
In 2000, the Company issued 3,315,050 shares of stock to complete 1999 debt
conversion.
The accompanying notes are an integral part of these financial statements.
39
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2001 and 2000
NOTE 1 - NATURE OF OPERATIONS
Age Research, Inc. ("the Company"), fka Volt Research, Inc., was incorporated
under the laws of Utah on July 10, 1984. In April, 1987, the Company changed its
name to Age Research, Inc., and changed its state of domicile to Delaware. Age
Research, Inc. produces and sells a line of premium skin care products to
physicians and mail order. The Company has developed its own line of
dermatologist-formulated skin care products including moisturizers, cleaners,
sunscreens, and anti-aging emollients with glycolic acid. The products are sold
under the name of RejuvenAge, which is trademarked in U.S. and U.K., and name of
Bladium, which is trademarked in U.S.. The trademark in U.K. will be expired in
September, 2006.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
- ----------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Revenue Recognition
- -------------------
Revenue from sales is recognized when the products are shipped. The Company
adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements"("SAB 101") in the fourth quarter of 2000. The adoption of SAB 101
did not have a material impact on the Company's operating results or financial
positions.
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with of maturity of three months or less to be cash
equivalents.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of the financial instruments have been estimated by
management to approximate fair value.
Accounts Receivable
- -------------------
Management of the Company considers accounts receivable to be fully collectible,
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made. Bad debt expense for years ended December 31, 2001 and 2000 was $105 and
$116, respectively.
40
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2001 and 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
- -----------
Inventories consist of products already packaged and ready for shipments to
customers, and are stated at cost, using the first-in, first-out method.
In 2000, the Company wrote off obsolete inventory of $1,333, which was charged
to cost of goods sold. None was in 2001.
Property and Equipment
- ----------------------
Property and Equipment are stated at cost. Depreciation is computed over their
estimated useful lives using straight-line method for financial reporting, and
accelerated methods for tax reporting, therefore, temporary differences exist.
Expenditures for major renewals and betterment that extend the useful lives of
the assets are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred.
Depreciation expense was $65 and $231 for the years ended December 31, 2001 and
2000, respectively.
Income Taxes
- ------------
Income Tax expense is based on pretax financial accounting income. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.
Shipping and Handling Costs
- ---------------------------
In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any, represent revenue and
should be classified as revenue. The Company historically has classified
shipping charges to customers as revenue. With respect to the classification of
costs related to the shipping and handling incurred by the seller, EITF
determined that the classification of such costs is an accounting policy
decision that should be disclosed. It also determined that if such costs are
significant and are not included in cost of sales, a company should disclose
both the amount(s) of such costs and the line item(s) on the income statement
that include them. The Company historically has included inbound shipping
charges in cost of sales and classified outbound shipping charges as operating
expenses. For years ended December 31, 2001 and 2000, the outbound shipping
charges included as operating expenses were $830 and $1,249, respectively.
Recent Accounting Pronouncement
- -------------------------------
In June 2001, Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" was issued establishing accounting and reporting
standards requiring all business combinations initiated after June 30, 2001, to
be accounted for using the purchase method. SFAS No. 141 is effective for the
Company for the fiscal quarter beginning July 1, 2001. The impact of this
statement is dependent on future acquisition activity.
41
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS For The Years Ended
December 31, 2001 and 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Also in June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was
issued effective for the first period of all fiscal years beginning after
December 15, 2001, with early adoption permitted for entities with Fiscal
years beginning after March 15, 2001. SFAS 142 requires goodwill to be tested
for impairment under certain circumstances, and written off when impaired,
rather than being amortized as previous standards required. The Company
currently does not own any intangible assets and as a result, does not
anticipate any impact on the Company's consolidated financial statements.
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued effective for
all related transactions occurring after March 31, 2001. The statement
replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". The new statement, while largely
including the provisions of SFAS No. 125, revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain additional disclosure. The statement was effective for the
Company for the fiscal quarter beginning April 1, 2001 and the Company believes
the adoption will not have a significant impact on its financial position.
In June 1988, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, which was
issued in June 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments. The Company currently does not use derivative
financial products for hedging or speculative purposes and as a result does not
anticipate any impact on the Company's financial statements.
NOTE 3 - COMMON STOCK TRANSACTIONS
On December 13, 1999, the Board of Directors approved to convert notes payable
of $96,602 plus accrued interest of $36,000 into 3,315,050 shares of the
Company's common stock. The transaction was recorded as paid-in capital in 1999.
In March 2000, all 3,315,050 shares were issued. There was no stock issued
during 2001.
42
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2001 and 2000
NOTE 4 - INCOME TAXES
Provision for income tax for years ended December 31, 2001 and 2000 consisted of
$800 minimum state franchise tax each year.
As of December 31, 2001, the Company has net operating losses carryforwards,
approximately, of $643,568 to reduce future taxable income. To the extent not
utilized, the loss carryforwards will begin to expire through 2021. The
Company's ability to utilize its net operating loss carryforwards is uncertain
and thus a valuation reserve has been provided against the Company's net
deferred tax assets.
The deferred net tax assets consist of the following at December 31:
2001 2000
----------- -------------
Net Operating Loss Carryforwards $ 218,813 $ 107,946
Depreciation - (6)
Valuation Allowance (218,813) (107,940)
----------- -------------
Net deferred tax assets $ - $ -
=========== =============
NOTE 5 - NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Basic net loss per share was $0.00
for both years ended December 31, 2001 and 2000. Diluted net loss per share is
the same as basic net loss per share due to the lack of dilutive items in the
Company.
2001 2000
----------- -----------
Numerator:
Net loss $ (10,266) $ (7,861)
=========== ===========
Denominator:
Weighted Average No. of Shares 67,259,301 66,706,793
=========== ===========
Loss per share - Basic and Diluted $ (0.00) $ (0.00)
=========== ===========
NOTE 6 - SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the subsidiary did not have any assets and operations in 2000
or 1999, and all income are derived from the Company, accordingly, detailed
information of the reportable segment is not presented.
43
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2001 and 2000
NOTE 7 - RELATED PARTY LOANS
An officer has advanced loans which are payable on demand with no due date.
Interest is being charged at 6% per annum. The balance of these notes at
December 31, 2001 and 2000 was $6,200 and $0, respectively.
NOTE 8 - LEASES
The Company leases a warehouse facility for $234 per month on a month-to-month
basis. At the end of May 2000, the Company vacated the warehouse. Rent expense
for 2001 and 2000 was $0 and $2,785, respectively.
NOTE 9 - GOING CONCERN
The accompanying financial statements are presented on the basis that the
Company is going concern. Going concern contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business over a
reasonable length of time. As shown in the accompanying financial statements,
the Company suffered losses of $10,266 and $7,861 for years ended December 31,
2001 and 2000, respectively, and as of December 31, 2001, the Company's current
liabilities exceeded its current assets by $11,733 and its total liabilities
exceeded its total assets by $11,733.
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company's continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
44
Exhibit D
Audited Consolidated Financial Statements
Periods Ending December 31, 2000
Harold Y. Spector
Certified Public Accountant
80 South Lake Avenue, Suite 723
Pasadena, California 91101
Independent Auditor's Report
To the Board of Directors and Stockholders of Age Research, Inc.
I have audited the accompanying balance sheet of Age Research, Inc.(a Delaware
Corporation), as of December 31, 2000 and 1999, and the related statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 2000 and 1999. These financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits have a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Age Research, Inc. as of December
31, 2000 and 1999, and the results of its operations and its cash flows for the
years ended December 31, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company's significant operating losses raises
substantial doubt about its ability to continue as a going concern. Management's
plan regarding those matters are also described in Note 9. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Harold Y. Spector
Pasadena, CA
March 2, 2001
45
AGE RESEARCH, INC.
BALANCE SHEET
December 31, 2000
ASSETS
Current Assets
Cash $ 1,823
Accounts Receivable 1,813
Inventory 1,176
-----------
Total Current Assets 4,812
-----------
Property and Equipment
Furniture and Fixtures 5,560
Machinery and Equipment 1,794
-----------
7,354
Less: Accumulated Depreciation (7,289)
-----------
Total Property and Equipment 65
-----------
TOTAL ASSETS $ 4,877
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 5,944
Accrued Expenses 400
-----------
Total Current Liabilities 6,344
-----------
Long-Term Liabilities 0
-----------
Total Liabilities 6,344
-----------
Stockholders' Equity
Common stock, $.001 par value, 100,000,000
shares authorized and 67,259,301 shares
issued and outstanding 67,259
Paid-in Capital 730,264
Accumulated Deficit (798,990)
-----------
Total Stockholders' Deficit (1,467)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,877
===========
The accompanying notes are an integral part of these financial statements.
46
AGE RESEARCH, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2000 and 1999
2000 1999
------------- ----------------
SALES $ 14,257 19,519
COST OF SALES - Schedule A 5,776 5,111
------------- ----------------
GROSS PROFIT 8,481 14,408
OPERATING EXPENSES 15,553 23,635
------------- ----------------
INCOME (LOSS) FROM OPERATIONS (7,072) (9,227)
------------- ----------------
OTHER INCOME (EXPENSES)
Interest Income 11 7
Interest Expenses 0 (8,899)
------------- ----------------
Total Other Income (Expenses) 11 (8,892)
------------- ----------------
NET LOSS BEFORE TAXES (7,061) (18,119)
PROVISION FOR INCOME TAXES 800 800
------------- ----------------
NET LOSS (7,861) (18,919)
============= ================
NET LOSS PER SHARE $ (0.00) $ (0.00)
============= ================
WEIGHTED AVERAGE NUMBER OF SHARES 66,706,793 63,944,251
============= ================
The accompanying notes are an integral part of these financial statements.
47
AGE RESEARCH, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 2000 and 1999
Paid
Common in Accumulated
Shares Stock Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 63,994,251 $ 63,994 $ 593,477 $ (772,210) $ (114,789)
Proceeds from stock subscription
receivable 7,500 7,500
Conversion of Debt 132,602 132,602
Net Loss (18,919) (18,919)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 63,994,251 $ 63,944 $ 733,579 $ (791,129) $ 6,394
Issuance of stock for debt 3,315,050 3,315 (3,315) 0
Net Loss (7,861) (7,861)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 67,259,301 $ 67,259 $ 730,264 $ (798,990) $ (1,467)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
48
AGE RESEARCH, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000 and 1999
2000 1999
------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (7,861) $ (18,919)
Adjustment to reconcile net income to
net cash provided by operating
activities
Depreciation 231 358
(Increase) Decrease in:
Accounts Receivable 1,448 (758)
Inventory 5,776 (123)
Increase (Decrease) in:
Accounts Payable 1,328 1,967
Accrued Expenses (114) 8,074
------------- ----------------
Net Cash Provided (Used) by Operating
Activities 808 (9,401)
------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES 0 0
------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stocks 0 7,500
------------- ----------------
Net Cash Provided (Used) by Financing
Activities 0 7,500
------------- ----------------
NET INCREASE (DECREASE)IN CASH 808 (1,901)
CASH AT BEGINNING OF YEAR 1,015 2,916
------------- ----------------
CASH AT END OF YEAR $ 1,823 $ 1,015
============= ================
SUPPLEMENTARY DISCLOSURES:
Cash paid for:
Interest paid $ 0 $ 0
============= ================
Income Tax Paid $ 800 $ 800
============= ================
Noncash investing and financing activities:
In 2000, the Company issued 3,315,050 shares of stock to complete 1999 debt
conversion.
In 1999, conversion of notes payable of $96,602 and accrued interest of $36,000
into equity.
The accompanying notes are an integral part of these financial statements.
49
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
NOTE 1 - NATURE OF OPERATIONS
Age Research, Inc. ("the Company"), fka Volt Research, Inc., was incorporated
under the laws of Utah on July 10, 1984. In April, 1987, the Company changed
its name to Age Research, Inc., and changed its state of domicile to Delaware.
Age Research, Inc. produces and sells a line of premium skin care products to
physicians and mail order. The Company has developed its own line of
dermatologist-formulated skin care products including moisturizers, cleaners,
sunscreens, and anti-aging emollients with glycolic acid. The products are
sold under the name of RejuvenAge, which is trademarked in U.S. and U.K., and
name of Bladium, which is trademarked in U.S.. The trademark in U.K. will be
expired in September, 2006.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
- ----------------
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
- -------------------
Revenue from sales is recognized when the products are shipped.
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with of maturity of three months or less to be cash
equivalents.
Accounts Receivable
- -------------------
Management of the Company considers accounts receivable to be fully collectible,
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made. Bad debt expense for years ended December 31, 2000 and 1999 was $116 and
$442, respectively.
Inventories
- -----------
Inventories consist of products already packaged and ready for shipments to
customers, and are stated at cost, using the first-in, first-out method.
In 2000 and 1999, the Company wrote off obsolete inventory of $1,333 and $956,
respectively. Both losses were charged to cost of goods sold.
50
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
- ----------------------
Property and Equipment are stated at cost. Depreciation is computed over their
estimated useful lives using straight-line method for financial reporting, and
accelerated methods for tax reporting, therefore, temporary differences exist.
Expenditures for major renewals and betterment that extend the useful lives of
the assets are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred.
Depreciation expense was $231 and $358 for the years ended December 31, 2000 and
1999, respectively.
Income Taxes
- ------------
The Company accounts income taxes in accordance with Financial Accounting
standards Board Statement No. 109. "Accounting For Income Taxes" (SFAS No. 109).
SFAS No. 109 requires a company to recognize deferred tax liabilities and assets
for the expected future income tax consequences of events that have been
recognized in the Company's financial statements. Under this method, deferred
tax assets and liabilities are determined based on temporary differences between
the financial carrying amounts and the tax bases of assets and liabilities using
the enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
Reclassification
- ----------------
Certain reclassification have been made to the 1999 financial statements to
conform with the 2000 financial statement presentation. Such reclassification
had no effect on net loss as previously reported.
Recent Accounting Pronouncement
- -------------------------------
In June 1988, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, which was
issued in June 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments. The Company currently does not use derivative
financial products for hedging or speculative purposes and as a result does not
anticipate any impact on the Company's financial statements.
In September 2000, the Emerging Issues Task Force (EITF) reach a final consensus
on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This
consensus requires that all amounts billed to customer in a sale transaction
related to shipping and handling, if any, represent revenue and should be
classified as revenue. The Company historically has classified shipping charges
to customers as revenue. With respect to the classification of costs related to
the shipping and handling incurred by the seller, the EITF determined that the
classification of such costs is an accounting policy decision that should be
disclosed. It also determined that if such costs are significant and are not
included in cost of sales, a company should disclose both the amount(s) of such
costs and the line items(s) on the income statement that include them. The
Company historically has included inbound shipping charges in cost of sales and
classified outbound shipping charges as operating expenses. For years ended
December 31, 2000 and 1999, the outbound shipping charges included as operating
expenses were $1,249 and $1,779, respectively.
51
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
NOTE 3 - SUBSIDIARY
The Company has a wholly-owned subsidiary, Evergreen Skin Care Centers of
America, Inc. which is inactive with no assets and liabilities, and has no
activity either in 2000 or 1999.
NOTE 4 - COMMON STOCK TRANSACTIONS
On December 13, 1999, the Board of Directors approved to convert notes payable
of $96,602 plus accrued interest of $36,000 into 3,315,050 shares of the
Company's common stock. The transaction was recorded as paid-in capital in 1999.
In March 2000, all 3,315,050 shares were issued.
NOTE 5 - INCOME TAXES
Provision for income tax for years ended December 31, 2000 and 1999 consisted of
$800 minimum state franchise tax each year.
As of December 31, 2000, the Company has net operating losses carryforwards,
approximately, of $719,640 to reduce future taxable income. To the extent not
utilized, the loss carryforwards will begin to expire in 2001. The Company's
ability to utilize its net operating loss carryforwards is uncertain and thus a
valuation reserve has been provided against the Company's net deferred tax
assets.
NOTE 5 - INCOME TAXES (CONTINUED)
The deferred net tax assets consist of the following at December 31:
2000 1999
----------- -------------
Net Operating Loss Carryforwards $ 107,946 $ 106,778
Depreciation (6) (20)
Valuation Allowance (107,940) (106,758)
----------- -------------
Net deferred tax assets $ 0 $ 0
=========== =============
NOTE 6 - NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Basic net loss per share was $0.00
for both years ended December 31, 2000 and 1999. Diluted net loss per share is
the same as basic net loss per share due to the lack of dilutive items in the
Company.
NOTE 7 - SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the subsidiary did not have any assets and operations in 2000
or 1999, and all income are derived from the Company, accordingly, detailed
information of the reportable segment is not presented.
52
AGE RESEARCH, INC.
NOTES OF FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
NOTE 8 - LEASES
The Company leases a warehouse facility for $234 per month on a month-to-month
basis. Rent expense for 2000 and 1999 was $2,785 and $2,896, respectively.
NOTE 9 - GOING CONCERN
The accompanying financial statements are presented on the basis that the
Company is going concerns. Going concern contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business over a
reasonable length of time. As shown in the accompanying financial statements,
the Company incurred net losses of $7,864 and $18,919 in 2000 and 1999,
respectively, and as of December 31, 2000, the Company had an accumulated
deficit of $798,993.
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
53
Exhibit E
AGE RESEARCH, INC.
Interim Consolidated Financial Statements
Period Ending June 30, 2003
(Unaudited)
54
Exhibit E
AGE RESEARCH, INC.
Interim Consolidated Financial Statements
ITEM 1. FINANCIAL STATEMENTS
AGE RESEARCH, INC.
BALANCE SHEET
June 30, 2003 and December 31, 2002
ASSETS June 30, 2003 December 31, 2002
(unaudited) (audited)
Current Assets
Cash $ 455 $ 310
Accounts Receivable 1,043 752
----------- -----------
Total Current Assets 1,498 1,062
----------- -----------
Property and Equipment, net of accumulated
depreciated of $7,354 - -
----------- -----------
TOTAL ASSETS $ 1,498 $ 1,062
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 8,401 $ 8,429
Officer's loan 13,700 8,500
----------- -----------
Total Current Liabilities 22,101 16,929
----------- -----------
Stockholders' Deficit
Common stock, $.001 par value, 100,000,000
shares authorized, 81,759,301 shares and
68,759,301 issued and outstanding respectively 81,759 68,759
Paid-in Capital 853,264 736,264
Unamortized Expenses (56,761) -
Accumulated Deficit (898,865) (820,890)
----------- ------------
Total Stockholders' Deficit (20,603) (15,866)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,498 $ 1,062
=========== ============
See notes to interim unaudited financial statements.
55
AGE RESEARCH, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months ended Six Months ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
SALES $ 1,731 $ 1,888 $ 3,913 $ 4,961
COST OF GOODS SOLD 202 265 532 724
---------- ---------- ---------- ----------
GROSS PROFIT 1,529 1,623 3,381 4,237
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 76,700 3,881 80,328 9,065
---------- ---------- ---------- ----------
OPERATING (LOSS) (75,171) (2,258) (76,947) (4,828)
OTHER INCOME (EXPENSES)
Interest and other income 97 - 97 -
Interest expense (187) (109) (325) (201)
---------- ---------- ---------- ----------
(90) (109) (228) (201)
NET LOSS BEFORE TAXES (75,261) (2,367) (77,175) (5,029)
PROVISION FOR INCOME TAXES - - 800 800
---------- ---------- ---------- ----------
NET LOSS $ (75,261) (2,367) (77,975) (5,829)
========== ========== ========== =========
LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.00) $ (0.04) $ (0.00)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES 77,425,968 67,259,301 73,092,634 67,259,301
========== ========== ========== ==========
See notes to interim unaudited financial statements.
56
AGE RESEARCH, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended
June 30,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 77,975) $ (5,829)
Adjustment to reconcile net
(loss)to net cash (used in)
operating activities:
Stock for services 130,000 -
(Increase) Decrease in:
Accounts Receivable (291) (341)
Inventory - 158
Unamortized stock expenses (56,761) -
Increase (Decrease)in:
Accounts Payable and Accrued Expenses (28) 2,087
------------- --------------
Net Cash Flows (Used in)
Operating Activities (5,055) (3,925)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Officer's Loan 5,200 2,300
------------- --------------
Net Cash Flows Provided by
Financing Activities 5,200 2,300
------------- --------------
NET INCREASE(DECREASE) IN CASH 145 (1,625)
CASH AT BEGINNING OF PERIOD 310 1,970
------------- --------------
CASH AT END OF PERIOD $ 455 $ 345
============= ==============
See notes to interim unaudited financial statements.
57
AGE RESEARCH, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS Age Research, Inc. (the "Company") produces and sells a line
of premium skin care products to physicians and mail order. The Company has
developed its own line of dermatologist-formulated skin care products including
moisturizers, cleaners, sunscreens, and anti-aging emollients with glycolic
acid. The products are sold under the name of RejuvenAge, which is trademarked
in United States and United Kingdom, and name of Bladium, which is trademarked
in United States. The trademark in United Kingdom will be expired in September
2006.
PRESENTATION OF INTERIM INFORMATION: The financial information at June 30, 2003
and for the three and six months ended June 30, 2003 and 2002 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of the financial
information set forth herein, in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") for interim financial
information, and with the instructions to Form 10-QSB. Accordingly, such
information does not include all of the information and footnotes required by
U.S. GAAP for annual financial statements. For further information refer to the
Financial Statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002.
The results for the six months ended June 30, 2003 may not be indicative of
results for the year ending December 31, 2003 or any future periods.
NET LOSS PER SHARE Basic net loss per share includes no dilution and is computed
by dividing net loss available to common stockholders by the weighted average
number of common stock outstanding for the period. Diluted net loss per share
does not differ from basic net loss per share due to the lack of dilutive items
in the Company.
NEW ACCOUNTING STANDARDS: In April 2003, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," which is generally effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. SFAS 149 clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative as discussed in SFAS No.
133, clarifies when a derivative contains a financing component, amends the
definition of an "underlying" to conform it to the language used in FASB
Interpretation No. 45, "Guarantor Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" and amends
certain other existing pronouncements. The Company does not have any derivative
financial instruments. The Company does not anticipate that the adoption of SFAS
No. 149 will have an impact on its balance sheet or statements of operations and
cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This Statement
requires that certain instruments that were previously classified as equity on
the Company's statement of financial position now be classified as liabilities.
The Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company currently has no
instruments impacted by the adoption of this statement and therefore the
adoption did not have an effect on the Company's financial position, results of
operations or cash flows.
58
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and may
not have enough money to grow its business in the future. The Company can give
no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 3 - PENDING BUSINESS COMBINATION
In May 2003, the Company announced to acquire all the issued and outstanding
shares of common stock of The Varsity Group, Inc. ("VARS", a Missouri
corporation) in exchange for 9,343,920 post split shares of the Company's common
stock. This acquisition will be accounted for as a purchase and is expected to
close in the third quarter of fiscal 2003.
NOTE 4 - PENDING REVERSE SPLIT
In connection with the acquisition, the Board of Directors authorized a reverse
stock split of 1 for 35 shares of stock prior to the closing date of acquisition
and increases the capitalization to 750,000,000 shares.
NOTE 5 - NONCASH EXPENSES
On May 22, 2003, the Company issued 13,000,000 shares of the Company's common
stock for services rendered by nonemployees. The stocks are fully vested and
nonforfeitable. The Company recorded the stock transactions at their fair market
value, capitalized the costs of transactions, and amortized them over the length
of the services. The total cost for the services was $130,000. As of June 30,
2003, the balance of unamortized expense was $56,761. The unamortized expense
was included in equity section as a contra-equity.
NOTE 6 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share for the periods:
Three Months ended Six Months ended
June 30, June 30,
2003 2002 2003 2002
------------------------------------------------------------
Numerator:
Net (Loss) $ (75,261) $ (2,367) $ (77,975) $ (5,829)
------------- ------------- ------------- --------------
Denominator:
Weighted Average Number of Shares 77,425,968 67,259,301 73,092,634 67,259,301
------------- ------------- ------------- --------------
Loss per share-Basic and Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
59
NOTE 7 - SEGMENT INFORMATION
The Company is currently managed and operated as one business. The entire
business is managed by a single management team that reports to the Company's
President. The Company does not operate separate lines of business or separate
business entities with respect to any of its product candidates. Accordingly,
the Company does not prepare discrete financial information with respect to
separate product areas or by location and dose not have separately reportable
segments as defined by SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information".
NOTE 8 - RELATED PARTY TRANSACTIONS
An officer is currently making payments to purchase inventory on behalf of the
Company. As of June 30, 2003, the balance due to the officer related the
purchases were $1,813. The Company also has notes payable to the officer in the
amount of $13,700, accruing interest at 6% per annum. Accrued interest to the
officer as of June 30, 2003 is $986.
60
Exhibit F
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
JUNE 30, 2003
61
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
JUNE 30, 2003
- -------------
ASSETS "AGER" "VARS" Adjustments Pro Forma
------ ------ ------ ----------- ---------
Cash $ 455 $ 229,756 $ 230,211
Accounts receivable 1,043 1,883,845 1,884,888
Prepaid expenses and other current assets - 309,786 309,786
------------------------------ ----------------
Total current assets 1,498 2,423,387 2,424,885
Property and equipment, net - 157,945 (7,945) (1) 150,000
Goodwill - - 1,661,305 (1) 1,661,305
------------------------------ ----------------
TOTAL ASSETS $ 1,498 $ 2,581,332 $ 4,236,190
============================== ================
LIABILITIES AND
SHAREHOLDERS' DEFICIT
Accounts payable $ 4,187 $ 440,500 $ 444,687
Accrued expenses 4,214 1,414,189 1,418,403
Accrued payrolls and related taxes - 1,616,137 1,616,137
Short-term notes payable - 499,140 499,140
Notes payable to officers 13,700 171,287 184,987
------------------------------ ----------------
Total current liabilities 22,101 4,141,253 4,163,354
Shareholders' capital 878,262 49,721 43,718 (1) 971,701
Accumulated deficit (898,865) (1,609,642) 1,609,642 (1) (898,865)
------------------------------ ----------------
(20,603) (1,559,921) 72,836
$ 1,498 $ 2,581,332 $ 4,236,190
============================== ================
See notes to pro forma condensed consolidated financial statements (unaudited)
62
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the six months ended June 30, 2003
AGER VARS Adjustments Pro Forma
--------------- --------------- ------------------ -----------------
Revenues $ 3,913 $ 25,209,900 $ 25,213,813
Cost and expenses:
Cost of revenues 532 24,705,602 24,706,134
Selling, general and administrative 80,328 833,172 913,500
--------------------------------- -----------------
80,860 25,538,774 25,619,634
--------------------------------- -----------------
Operating (loss) (76,947) (328,874) (405,821)
Other income (expenses)
Other income and Interest income 97 130,253 130,350
Interest expenses (325) (626) (951)
--------------------------------- -----------------
Total other income (expenses) (228) 129,627 129,399
--------------------------------- -----------------
(Loss) before income taxes (77,175) (199,247) (276,422)
Income taxes 800 - 800
--------------------------------- -----------------
Net (loss) $ (77,975) $ (199,247) $ (275,622)
================================= =================
Net (loss) per share-basic and diluted $ (0.04) $ (0.02)
================ =================
Weighted average number of shares (2) 2,088,361 11,432,281
See notes to pro forma condensed consolidated financial statements (unaudited)
63
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATION (Unaudited)
For the six months ended June 30, 2003
- --------------------------------------
NOTE 1 - BASIS OF PRESENTATION
On May 22, 2003, Age Research, Inc. ("the Company" or "AGER") announced to
acquire all the issued and outstanding shares of common stock of The Varsity
Group, Inc. ("VARS") in exchange for 9,343,920 post split shares of the
Company's common stock. The acquisition will be accounted for as a purchase,
with the assets acquired and liabilities assumed recorded at fair values, and
the results of VARS operations included in the Company's consolidated financial
statements from the date of acquisition.
In connection with the acquisition, the Board of Directors authorized a reverse
split of 1 for 35 shares of stock prior to the closing date of acquisition and
increases the capitalization to 750,000,000 shares.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of June 30,
2003 is based on the historical balance sheets of the Company and VARS as of
that date and assumes the acquisition took place on that date. The condensed
consolidated statements of operations for the six months then ended are based on
the historical statements of operations of the Company and VARS for those
periods. The pro forma condensed consolidated statements of operations assume
the acquisition took place on January 1, 2003.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the acquisition. In particular, the pro forma condensed
consolidated financial statements are based on management's current estimated of
the allocation of the purchase price, the actual allocation of which may differ.
The accompanying condensed consolidated pro forma financial statements should be
read in connection with the historical financial statements of the Company and
VARS.
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro forma adjustments to the unaudited condensed consolidated balance sheet
are as follows:
(1) To reflect the acquisition of The Varsity Group, Inc. and the
allocation of the purchase price on the basis of the fair
values of the assets acquired and liabilities assumed.
See notes to pro forma condensed consolidated financial statements (unaudited)
64
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATION (Unaudited)
For the six months ended June 30, 2003
- --------------------------------------
The total purchase cost is as follows:
Value of 9,343,920 common stock issued at $0.01 per share $ 93,439
--------------
Total purchase cost 93,439
Allocation of purchase price:
Stockholders' deficit of VARS 1,559,921
Decrease in property and equipment 7,945
--------------
Cost in excess of net assets acquired-Goodwill $ 1,661,305
==============
NOTE 2 - PRO FORMA ADJUSTMENTS (Continued)
The pro forma adjustments to the condensed consolidated statements of operations
are as follows:
(2) To adjust retroactively to reflect the reverse split of 1 for
35 shares of common stock in connection with the acquisition.
See notes to pro forma condensed consolidated financial statements (unaudited)
65
EXHIBIT G
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
DECEMBER 31, 2002
66
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
DECEMBER 31, 2002
- -----------------
ASSETS "AGER" "VARS" Adjustments Pro Forma
------ -------------- ----------- ----------- ---------------
Cash $ 310 $ 423,914 $ 424,224
Accounts receivable 752 846,231 846,983
Loan receivable from officers - 2,575 2,575
Prepaid expenses and other current assets - 121,669 121,669
------------------------------ ----------------
Total current assets 1,062 1,394,389 $ 1,395,451
Property and equipment, net - 183,292 (33,292) (1) 150,000
Goodwill - - 1,487,406 (1) 1,487,406
------------------------------ ----------------
TOTAL ASSETS $ 1,062 $ 1,577,681 $ 3,032,857
============================== ================
LIABILITIES AND
SHAREHOLDERS' DEFICIT
---------------------
Accounts payable $ 6,678 $ 439,468 $ 446,145
Accrued expenses 1,751 931,698 933,450
Accrued payrolls and related taxes - 1,517,679 1,517,679
Short-term notes payable - 49,510 49,510
Notes payable to officers 8,500 - 8,500
------------------------------ ----------------
Total current liabilities 16,929 2,938,356 2,955,284
Shareholders' capital 805,023 49,721 43,718 (1) 898,462
Accumulated deficit (820,890) (1,410,395) 1,410,395 (1) (820,890)
------------------------------ ----------------
(15,866) (1,360,674) 77,573
$ 1,062 $ 1,577,681 $ 3,032,857
============================== ================
See notes to pro forma condensed consolidated financial statements (unaudited)
67
AGE RESEARCH, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 2002
- ------------------------------------
"AGER" "VARS" Adjustments Pro Forma
--------------- ------------ ---------------- ----------------
Revenues $ 7,894 $ 59,009,084 $ 59,016,978
Cost and expenses:
Cost of revenues 1,211 57,666,185 57,667,396
Selling, general and administrative 17,059 2,352,767 2,369,825
--------------------------------- -----------------
18,269 60,018,952 60,037,222
Operating (loss) (10,375) (1,009,868) (1,020,243)
Other income (expenses) (458) 222,350 221,892
--------------------------------- -----------------
(Loss) before income taxes (10,833) (787,518) (798,351)
Income taxes 800 - 800
--------------------------------- -----------------
Net (loss) $ (11,633) $ (787,518) $ (797,551)
================================= =================
Net (loss) per share-basic and diluted $ (0.01) $ (0.07)
================ =================
Weighted average number of shares(2) 1,939,551 11,283,471
See notes to pro forma condensed consolidated financial statements (unaudited)
68
NOTE 1 - BASIS OF PRESENTATION
On May 22, 2003, Age Research, Inc. ("the Company" or "AGER") announced to
acquire all the issued and outstanding shares of common stock of The Varsity
Group, Inc. ("VARS") in exchange for 9,343,920 post split shares of the
Company's common stock. The acquisition will be accounted for as a purchase,
with the assets acquired and liabilities assumed recorded at fair values, and
the results of VARS operations included in the Company's consolidated financial
statements from the date of acquisition.
In connection with the acquisition, the Board of Directors authorized a reverse
split of 1 for 35 shares of stock prior to the closing date of acquisition and
increases the capitalization to 750,000,000 shares.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of December
31, 2002 is based on the historical balance sheets of the Company and VARS as of
that date and assumes the acquisition took place on that date. The condensed
consolidated statements of operations for the year then ended are based on the
historical statements of operations of the Company and VARS for those periods.
The pro forma condensed consolidated statements of operations assume the
acquisition took place on January 1, 2002.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the acquisition. In particular, the pro forma condensed
consolidated financial statements are based on management's current estimated of
the allocation of the purchase price, the actual allocation of which may differ.
The accompanying condensed consolidated pro forma financial statements should be
read in connection with the historical financial statements of the Company and
VARS.
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro forma adjustments to the unaudited condensed consolidated balance sheet
are as follows:
(3) To reflect the acquisition of The Varsity Group, Inc. and the
allocation of the purchase price on the basis of the fair
values of the assets acquired and liabilities assumed.
69
NOTE 2 - PRO FORMA ADJUSTMENTS (Continued)
The total purchase cost is as follows:
Value of 9,343,920 common stock issued at $0.01 per share $ 93,439
------------
Total purchase cost 93,439
Allocation of purchase price:
Stockholders' deficit of VARS 1,360,674
Decrease in property and equipment 33,292
------------
Cost in excess of net assets acquired-Goodwill $ 1,487,406
============
The pro forma adjustments to the condensed consolidated statements of operations
are as follows:
(4) To adjust retroactively to reflect the reverse split of 1 for
35 shares of common stock in connection with the acquisition.
70
Exhibit H
THE VARSITY GROUP, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 2002 AND 2001
71
HAROLD Y. SPECTOR, CPA SPECTOR & WONG, LLP 80 SOUTH LAKE AVENUE
CAROL S. WONG, CPA Certified Public Accountants SUITE 723
1- (888) 584-5577 PASADENA, CA 91101
FAX (626) 584-6447
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and stockholders
of The Varsity Group, Inc.
We have audited the accompanying balance sheets of The Varsity Group Inc. (a
Missouri corporation), as of December 31, 2002 and 2001, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Varsity Group, Inc. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company's operating losses and a net capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/Spector & Wong, LLP
Pasadena, California
October 1, 2003
72
THE VARSITY GROUP, INC.
BALANCE SHEETS
December 31,
ASSETS 2002 2001
- -------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 287,128 $ 192,804
Restricted cash 219,416 155,612
Accounts receivable 1,349,507 1,665,391
Loan to employee 2,600 12,850
Receivable-officer 58,862 58,862
Prepaid expenses - 10,294
----------- -----------
Total Current Assets 1,917,513 2,095,813
----------- -----------
Property and Equipment, net of accumulated depreciation
of $213,639 and $146,570 183,292 145,853
----------- -----------
Other Assets
Receivable from others 20,000 20,000
Refundable Deposits 121,669 121,669
----------- -----------
Total Other Assets 141,669 141,669
----------- -----------
TOTAL ASSETS $ 2,242,474 $ 2,383,335
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 651,706 $ 160,389
Accrued expenses 931,698 907,023
Accrued compensation and related taxes 1,589,467 1,879,903
Prefunded payroll 525,877 -
Line of Credit 49,510 -
Officers' Loan 56,287 -
----------- -----------
Total Current Liabilities 3,804,545 2,947,315
----------- -----------
Stockholders' Deficit
Common Stock, $1 par value, 30,000 shares authorized,
402 shares issued and 200 shares outstanding 402 402
Paid-in Capital 49,521 49,521
Accumulated Deficit (1,611,792) (613,701)
Treasury stock - 202 shares at cost (202) (202)
----------- -----------
Total Shareholders' Deficit (1,562,071) (563,980)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,242,474 $ 2,383,335
=========== ===========
See Notes to Financial Statements
73
THE VARSITY GROUP, INC.
STATEMENTS OF OPERATIONS
For years ended December 31, 2002 2001
- ------------------------------------------------------------------------------
Revenues $ 59,009,084 $ 64,158,599
Cost and Expenses
Cost of Revenues 57,919,999 62,829,578
Selling, General and Administrative Expenses 2,308,405 1,740,405
------------ ------------
Total cost and expenses 60,228,404 64,569,983
Operating (loss) (1,219,320) (411,384)
------------ ------------
Other Income (Expenses)
Recovery of Bad Debt 152,500 -
Other Income 67,751 30,621
Interest Income 3,765 11,306
Interest Expenses (2,787) (459)
------------ ------------
Total Other Income (Expenses) 221,229 41,468
------------ ------------
Net (loss) $ (998,091) $ (369,916)
============ ============
Net (loss) per share-Basic and Diluted $ (4,990) $ (1,850)
============ ============
Weighted Average Number of Shares 200 200
See Notes to Financial Statements
74
THE VARSITY GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For years ended December 31, 2002 and 2001
- ------------------------------------------
Common Stock Paid-in Accumulated Treasury
-----------------------------
Shares Amount Capital Deficit Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 402 $ 402 $ 49,521 $ (243,785) $ (202) $ (194,064)
Net (loss) (369,916) (369,916)
----------------------------------------------------------------------------------------
Balance at December 31, 2001 402 402 49,521 (613,701) (202) (563,980)
Net (loss) (998,091) (998,091)
----------------------------------------------------------------------------------------
Balance at December 31, 2002 402 $ 402 $ 49,521 $ (1,611,792) $ (202) $(1,562,071)
========================================================================================
See Notes to Financial Statements
75
THE VARSITY GROUP, INC.
STATEMENTS OF CASH FLOWS
For years ended December 31, 2002 2001
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) $ (998,091) $ (369,916)
Adjustments to reoncile net (loss) to net cash provided by
operating activities:
Depreciation 67,069 58,525
Bad debts 106,754 143,441
Decrease (Increase) in:
Restricted cash (63,804) (155,612)
Accounts receivable 209,130 (247,871)
Prepaid expenses 10,294 (95,189)
Increase (Decrease) in:
Accounts payable and accrued expenses 225,556 958,699
Prefunded payroll 525,877 -
--------------- --------------
Net cash flows provided by operating activities 82,785 292,077
--------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Loan to employee 10,250 -
Receivable - officer - (21,511)
Purchase of property and equipment (104,508) (95,355)
--------------- --------------
Net cash flows (used in) investing activities (94,258) (116,866)
--------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from line of credit 49,510 -
Proceeds from Officers' Loan 56,287 -
--------------- --------------
Net cash flows provided by financing activities 105,797 -
--------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 94,324 175,211
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 192,804 17,593
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 287,128 $ 192,804
=============== ==============
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 2,787 $ 459
=============== ==============
See Notes to Financial Statements
76
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
NOTE 1 - NATURE OF BUSINESS
The Varsity Group, Inc. (the "Company) is a professional employer organization
("PEO"), which provides professional employer services for small to medium-sized
businesses nationwide. The company provides a broad range of services, including
human resources consulting, payroll administration, risk management, benefits
administration, and unemployment services to their clients. Additionally, the
Company offers health and dental, insurance, defined contribution retirement
plan, and cafeteria plan benefits to clients.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates The preparation of the accompanying financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
Revenue Recognition The accompanying financial statements have been prepared on
the accrual basis of accounting, and accordingly, revenues and direct costs are
recorded in the period in which the work-site employee works. Management fee is
recorded when the service has been rendered.
The Company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). The adoption of SAB 101 did not have a
material impact on the Company's operating results or financial positions.
Allowance for Doubtful Accounts The Company provides an allowance for doubtful
accounts equal to the estimated losses that will be incurred in the collection
of receivables. These estimated losses are based on historical experience in
addition to a review of current year status. For the years ended December 31,
2002 and 2001, management believes all accounts are collectible; therefore, an
allowance for doubtful accounts has not been provided. During 2002 and 2001
uncollectible accounts of $106,754 and 143,441, respectively, have been charged
to operations.
In prior years, the Company incurred a bad debt loss of approximately $331,000.
The amount is currently being collected and will be recognized as other income.
For the year ended December 31, 2002, the Company had collected $152,500.
Cash and Cash Equivalents For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include prefunded payroll amounts of $525,877 received from
customers.
77
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Restricted Cash Restricted cash includes deposits restricted by agreement with
the insurance company providing worker's compensation insurance. Deposits of
$219,416 and $155,612 are restricted at December 31, 2002 and 2001,
respectively.
Fair Value of Financial Instruments The carrying amounts of the financial
instruments approximates fair value due to the short-term maturities of these
instruments.
Property and Equipment Property and equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line and accelerated methods based on the estimated useful lives
of the assets, generally 3 to 39 years. Depreciation expense for years ended
December 31, 2002 and 2001 was $67,069 and 58,525, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The components of property and equipment were as follows:
December 31
2002 2001
----------------- --------------
Computer Equipment $ 158,063 $ 134,713
Computer Software 39,311 32,951
Furniture and Fixtures 126,952 74,851
Office Equipment 57,714 43,329
Leasehold Improvements 14,891 6,579
----------------- --------------
396,931 292,423
Less: Accumulated Depreciation (213,639) (146,570)
----------------- --------------
$ 183,292 $ 145,853
================= ==============
Advertising Costs All advertising costs are expensed as incurred. Advertising
expense for the years ended December 31, 2002 and 2001 was $13,040 and $15,566,
respectively.
Major Customers For the years ended December 31, 2002 and 2001, two customers
comprised 40% and 33% respectively, of the Company's sales.
Concentration of Credit Risk The Company maintains cash deposits in several
banks. Cash in these accounts at times exceeded the federally insured limits of
up to $100,000. The risk is managed by maintaining all deposits in a high
quality institution.
Income Taxes The stockholders of the Company have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. No provision for
federal income taxes has been recorded in these financial statements because the
stockholders are personally liable for such taxes on their individual income tax
returns.
78
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Derivatives In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 138, which was issued in June 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. The Company
currently does not use derivative financial products for hedging or speculative
purposes and as a result, does not anticipate any impact on the Company's
financial statements.
Loss Per Common Share The Company accounts for income (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires that
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common stock outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. Diluted net loss per common share does not
differ from basic net loss per common share due to the lack of dilutive items in
the Company.
Reclassification Certain reclassifications have been made for comparative
purposes to conform with the presentation in the current year financial
statement. Such reclassification had no effect on net income as previously
reported.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." The standard
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance provided by EITF Issue No. 94-3,
"Liability Recognition for Certain employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring) is
replaced by this Statement. SFAS No. 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. Management does not
anticipate that the adoption of this Statement will have a significant effect on
the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement updates, clarifies and simplifies existing
accounting pronouncements. The provisions of this Statement related to the
rescission of Statement No. 4 are to be applied for fiscal years beginning after
79
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
May 15, 2002. Any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the criteria
in Opinion No. 30 for classification as an extraordinary item should be
reclassified. Provisions of the Statement related to the amendment of Statement
No. 13 should be applied for transactions occurring after May 15, 2002, and all
other provisions should be applied for financial statements issued on or after
May 15, 2002. Management does not anticipate that the adoption of this Statement
will have a significant effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method, the disclosure provisions of SFAS No. 148 are applicable
to all companies with stock-based employee compensation, regardless of whether
they account for that compensation using the fair value method of SFAS No. 123
or the intrinsic value method of APB Opinion 25.
In March 2002, the EITF discussed again Issue 00-18, "Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees". The issues are (a) the grantor's accounting for a
contingent obligation to issue equity instruments (subject to vesting
requirements) when a grantee performance commitment exists but the equity
instrument has not yet been issued, (b) the grantee's accounting for the
contingent right to receive an equity instrument when a grantee performance
commitment exists prior to the receipt (vesting) of the equity instrument, and
(c) for equity instruments that are fully vested and nonforfeitable on the date
the parties enter into an agreement, the manner in which the issuer should
recognize the fair value of equity instruments. However, the EITF did not reach
a consensus on any of these issues, and further discussion of Issue 00-18 is
expected at a future meeting. The Company is currently evaluating the impact of
Issue 00-18.
NOTE 3- GOING CONCERN
The Company has incurred substantial losses, has accumulated deficit, and needs
additional working capital. Those matters raise substantial doubt about the
Company's ability to continue as a going concern. Management of the Company is
developing a plan to reduce operating expenses and obtain an infusion of capital
through either public or private investment. The ability of the Company to
continue as a going concern is dependent on management's successful reduction of
operating expenses and successful capital infusion. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 4 - RELATED PARTY TRANSACTIONS
Advances made to a shareholder of the Company were $58,862 as of December 31,
2002 and 2001. There are no formalized repayment terms or due dates, however,
the Company believes that full collectibility of these balances will be realized
in the ordinary course of business.
80
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Advances made by a shareholder of the Company totalling $56,287 at December 31,
2002 are recorded as notes payable to officer on the balance sheet. There is no
formalized repayment terms or due dates related to the advances.
NOTE 5 - LINE OF CREDIT
The Company had a line of credit with a bank in the amount of $50,000. The line
carries an interest rate of bank's prime rate (4.25% at December 31, 2002), and
requires monthly interest payments. The line is unsecured. The outstanding
borrowing against on this line as of December 31, 2002 was $49,510. On September
10, 2003, the balance is in default.
NOTE 6 - OPERATING LEASES
The Company occupies office facilities and leases automobiles under operating
leases which expire in various years through 2005. Rent expense was $140,185 and
$90,856 and automobile lease expense was $16,320 and $20,457 in 2002 and 2001,
respectively. Future minimum annual payments under non-cancelable operating
leases as of December 31, 2002 are as follows:
Year ending
December 31, Amount
--------------
2003 $ 145,372
2004 132,046
2005 77,583
$ 355,001
==============
NOTE 7 - NET (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
For years ended December 31,
2002 2001
--------- ---------
Numerator:
Net (loss) $(998,091) $(369,916)
--------- ---------
Denominator:
Weighted Average of Common Shares 200 200
--------- ---------
Per share of common stock:
Net (loss) per share-basic and diluted $ (4,990) $ (1,850)
========= =========
81
THE VARSITY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
NOTE 8 - CONTINGENT LIABILITIES
The company has secured a letter of credit in the amount of $450,000, personally
guaranteed by the shareholders, in connection with insurance coverage. As of
December 31, 2002, the letter of credit had not been drawn upon, and the Company
does not expect draws against the letter of credit in the foreseeable future.
The Company has a self-insurance program for medical and dental coverage for its
internal and worksite employees. The Company attempts to limit its losses
through the use of stop-loss insurance policies. Although the Company feels
adequate insurance coverage is in place and liabilities of future claims are
adequately accrued, actual results could differ from these estimates.
During the year ended December 31, 2002, the Company entered into a purchase
agreement with an unrelated business entity in the amount of $150,000. The terms
of the purchase agreement include $75,000 to be paid upon the execution of the
purchase agreement and $75,000 to be paid in equal instalments over the next six
quarters. The Company determined that the asset has recognized significant
depreciation and therefore has suspended payments. The opposing party has
initiated the litigation process to recover the balance of the agreement. The
Company is vigorously defending their position and management believes they will
prevail.
The Company is involved in various litigations arising in the ordinary course of
business. Outside counsel for the Company has advised that an opinion cannot be
offered as to the probable outcome of the litigation. In the opinion of
management, the outcome of litigation will not materially affect the Company's
financial position, based on the merits of their position, and the underlying
levels of insurance in force.
NOTE 9 - SUBSEQUENT EVENT
On May 22, 2003, the Company enter into an acquisition agreement with Age
Research, Inc. ("Buyer"). The Company shall sell and transfer to Buyer all of
the Company's issued and outstanding common stock in exchange of 9,343,920 post
reverse split shares of the common stock of the Buyer. The acquisition will be
accounted for as a purchase. As of the report date, the acquisition is not
completed yet.
82
Exhibit I
THE VARSITY GROUP, INC.
INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
83
THE VARSITY GROUP, INC.
BALANCE SHEET
(Unaudited)
ASSETS June 30, 2003
- ---------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 9,872
Restricted cash 219,884
Accounts receivable 1,883,845
Loan to employee 800
Receivable-officer 58,862
-----------
Total Current Assets 2,173,263
-----------
Property and Equipment, net of accumulated depreciation
of $245,344 and $213,639 157,945
-----------
Other Assets
Receivable from others 20,000
Refundable Deposits 230,124
-----------
Total Other Assets 250,124
-----------
TOTAL ASSETS $ 2,581,332
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank overdraft $ 258,519
Accounts payable and accrued expenses 1,513,541
Accrued compensation and related taxes 1,687,926
Line of credit 49,510
Bank Loan 449,630
Officers' Loan 171,287
-----------
Total Current Liabilities 4,130,413
-----------
Stockholders' Deficit
Common Stock, $1 par value, 30,000 shares authorized,
402 shares issued and 200 shares outstanding 402
Treasury stock - 202 shares at cost (202)
Paid-in Capital 49,521
Accumulated Deficit (1,598,802)
-----------
Total Shareholders' Deficit (1,549,081)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,581,332
===========
See Notes to Interim Unaudited Financial Statements
84
THE VARSITY GROUP, INC.
STATEMENT OF OPERATIONS
(Unaudited)
For the six months ended June 30, 2003
- -------------------------------------------------------------
Revenues $ 25,209,900
Cost and Expenses
Direct costs 24,493,364
Selling, General and Administrative Expenses 833,798
------------
Total cost and expenses 25,327,162
Operating (loss) (117,262)
Other Income 130,253
------------
Net income $ 12,991
============
Net income per share-Basic and Diluted $ 65
============
Weighted Average Number of Shares 200
See Notes to Interim Unaudited Financial Statements
85
THE VARSITY GROUP, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended June 30, 2003
- -----------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 12,991
Adjustments to reoncile net income to net cash (used in)
operating activities:
Depreciation 31,705
Decrease (Increase) in:
Accounts receivable (534,338)
Loan to employees 1,800
Other assets (108,924)
Increase (Decrease) in:
Accounts payable and accrued expenses 28,596
Bank overdraft 258,519
Prefunded payroll (525,877)
---------
Net cash flows (used in) operating activities (835,528)
---------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,358)
---------
Net cash flows (used in) investing activities (6,358)
---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from bank loan 449,630
Proceeds from Officers' Loan 115,000
---------
Net cash flows provided by financing activities 564,630
---------
NET (DECREASE) IN CASH (277,256)
CASH AT BEGINNING OF YEAR 287,128
---------
CASH AT END OF YEAR $ 9,872
=========
See Notes to Interim Unaudited Financial Statements
86
NOTE 1 - NATURE OF BUSINESS
The Varsity Group, Inc. (the "Company) is a professional employer organization
("PEO"), which provides professional employer services for small to medium-sized
businesses nationwide. The company provides a broad range of services, including
human resources consulting, payroll administration, risk management, benefits
administration, and unemployment services to their clients. Additionally, the
Company offers health and dental, insurance, defined contribution retirement
plan, and cafeteria plan benefits to clients.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Interim Information: The financial information at June 30, 2003
and for the six months ended June 30, 2003 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial information set
forth herein, in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") for interim financial information.
Accordingly, such information does not include all of the information and
footnotes required by U.S. GAAP for annual financial statements.
The results for the six months ended June 30, 2003 may not be indicative of
results for the year ending December 31, 2003 or any future periods.
Use of Estimates The preparation of the accompanying financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
Allowance for Doubtful Accounts The Company provides an allowance for doubtful
accounts equal to the estimated losses that will be incurred in the collection
of receivables. These estimated losses are based on historical experience in
addition to a review of current year status. For the six months ended June 30,
2003, management believes all accounts are collectible; therefore, an allowance
for doubtful accounts has not been provided.
In prior years, the Company incurred a bad debt loss of approximately $331,000.
The amount is currently being collected and will be recognized as other income.
For the six months ended June 30, 2003, the Company had collected $121,400.
Loss Per Common Share The Company accounts for income (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires that
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common stock outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. Diluted net loss per common share does not
differ from basic net loss per common share due to the lack of dilutive items in
the Company.
See Notes to Interim Unaudited Financial Statements
87
NOTE 3- GOING CONCERN
The Company has incurred substantial losses, has accumulated deficit, and needs
additional working capital. Those matters raise substantial doubt about the
Company's ability to continue as a going concern. Management of the Company is
developing a plan to reduce operating expenses and obtain an infusion of capital
through either public or private investment. The ability of the Company to
continue as a going concern is dependent on management's successful reduction of
operating expenses and successful capital infusion. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 4 - RELATED PARTY TRANSACTIONS
Advances made to a shareholder of the Company were $58,862 as of June 30, 2003.
There are no formalized repayment terms or due dates, however, the Company
believes that full collectibility of these balances will be realized in the
ordinary course of business.
Advances made by a shareholder of the Company totalling $171,287 at June 30,
2003 are recorded as notes payable to officer on the balance sheet. There is no
formalized repayment terms or due dates related to the advances.
NOTE 5 - LINE OF CREDIT
The Company had a line of credit with a bank in the amount of $50,000. The line
carries an interest rate of bank's prime rate (4 % at June 30, 2003), and
requires monthly interest payments. The line is unsecured. The outstanding
borrowing against on this line as of June 30, 2003 was $49,510. On September 10,
2003, the balance is in default.
NOTE 6 - NET (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
June 30, 2003
Numerator:
Net income $ 12,991
-------------
Denominator:
Weighted Average of Common Shares 200
-------------
Per share of common stock:
Net (loss) per share-basic and diluted $ 65
=============
See Notes to Interim Unaudited Financial Statements
88
NOTE 7 - BANK LOAN
The company has secured a letter of credit in the amount of $450,000, personally
guaranteed by the shareholders, in connection with insurance coverage. As of
June 30, 2003, the letter of credit had an outstanding balance of $449,630.
NOTE 8 - PENDING BUSINESS COMBINATION
On May 22, 2003, the Company enter into an acquisition agreement with Age
Research, Inc. ("Buyer"). The Company shall sell and transfer to Buyer all of
the Company's issued and outstanding common stock in exchange of 9,343,920 post
reverse split shares of the common stock of the Buyer. The acquisition will be
accounted for as a purchase. As of the report date, the acquisition is not
completed yet.
See Notes to Interim Unaudited Financial Statements
89