10QSB/A 1 v025530.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: June 30, 2005 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 333-43126 BIOACCELERATE HOLDINGS, INC. (Exact name of registrant as specified in its charter) NEVADA 87-0650219 ---------------------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 712 Fifth Avenue, 19th Floor New York, NY 10019 (Address of principal executive offices) (212) 897-6849 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. YES |_| NO |X| The number of $.001 par value common shares outstanding at August 1, 2005: 43,405,372 BIOACCELERATE HOLDINGS, INC TABLE OF CONTENTS Page ---- PART 1 - FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) 3 Item 2 Management's Discussion and Analysis or Plan of Operations 11 Item 3 Controls and Procedures 18 PART II - OTHER INFORMATION Item 1 Legal Proceedings 19 Item 2 Sales of Unregistered Equity Securities and Use of Proceeds 19 Item 3 Defaults Upon Senior Securities 19 Item 4 Submission of Matters to a Vote of Security Holders 19 Item 5 Other Information 19 Item 6 Exhibits 19 Signatures 20 -2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements BIOACCELERATE HOLDINGS, INC (A Development Stage Company) Consolidated Balance Sheet (Unaudited) June 30, 2005 ASSETS Current Assets Cash and cash equivalents $ 441,337 Prepaid expenses 575,977 Accounts receivable 218,218 Other accounts receivable 71,343 ------------- Total Current Assets 1,306,875 ------------- Property and equipment, net 933,897 ------------- Other Assets Other accounts receivable 11,406 Patents, net 619,916 Other long-term investments 2,202,871 ------------- 2,834,193 ------------- $ 5,074,965 ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current Liabilities Bank loans and overdrafts $ 959,566 Accounts payable 4,106,722 Accrued expenses 5,861,653 Due to related parties 779,217 Loans payable 14,138,757 Current portion of long-term debt 61,153 Other current liabilities 1,481,233 Deferred revenue 50,000 ------------- Total Current Liabilities 27,375,301 ------------- Deferred revenue 1,175,000 Long-term debt 5,066,665 ------------- Total Liabilities 6,241,665 ------------- Stockholders' (Deficit) Preferred Stock, par value $.001; 10,000,000 shares authorized; none issued and outstanding -- Common Stock, par value $.001; 100,000,000 shares authorized ; 43,155,372 & shares 43,155 issued and outstanding Additional paid in capital 182,240,532 (Deficit) accumulated in the development stage (210,553,810) Other comprehensive Income / (Loss) Currency translation adjustment (271,878) ------------- Total Stockholders' (Deficit) (28,542,001) ------------- Total liabilities and stockholders equity $ 5,074,965 ============= The accompanying notes are an integral part of these financial statements. - 3 - BIOACCELERATE HOLDINGS, INC (A Development Stage Company) Consolidated Statements of Operations (Unaudited)
From Inception (November 1, Six Months Ended Three Months Ended 1999 to June 30, June 30, June 30, June 30, June 30, 2005 2004 2005 2004 2005 ------------ ------------ ------------ ------------ ------------- Revenue $ 481,588 $ -- $ 467,288 $ -- $ 481,588 ------------ ------------ ------------ ------------ ------------- Operating expenses Research and development 10,244,817 -- 6,116,455 -- 52,922,891 General and administrative 6,871,311 1,253,852 3,892,792 785,546 12,092,786 Non cash stock compensation - general and administrative 20,777,765 -- 2,610,184 -- 85,278,471 ------------ ------------ ------------ ------------ ------------- 37,893,893 1,253,852 12,619,431 785,546 150,294 148 ------------ ------------ ------------ ------------ ------------- Net operating (Loss) (37,412,305) (1,253,852) (12,152,143) (785,546) (149,812,560) ------------ ------------ ------------ ------------ ------------- Other income (expenses) Interest and finance charges (245,339) 117,152 (140,179) 247,620 (245,339) Share of losses in affiliate -- -- -- -- (362,441) Interest and Finance charges non cash (12,800,000) -- -- -- (49,731,308) Minority interest share of losses in subsidiaries -- 160,578 -- 160,578 6,981,408 Impairment charges -- -- -- -- (17,383,570) ------------ ------------ ------------ ------------ ------------- (13,045,339) 277,730 (140,179) 408,198 (60,741,250) ------------ ------------ ------------ ------------ ------------- (Loss) attributable to common stockholders (50,457,644) (976,122) (12,292,322) (377,348) (210,553,810) Other Comprehensive Income (Loss) Foreign currency translation adjustments 201,370 -- 104,095 -- (271,878) ------------ ------------ ------------ ------------ ------------- TOTAL COMPREHENSIVE (LOSS) $(50,256,274) $ (976,122) $(12,188,227) $ (377,348) $(210,825,688) ============ ============ ============ ============ ============= Per Share Information-Basic and Diluted Net (Loss) Per Common Share $ (1.21) $ (0.03) $ (0.29) $ (0.01) ============ ============ ============ ============ Weighted Average Number of Shares Outstanding $ 41,551,336 $ 31,008,636 $ 42,936,847 $ 32,179,476 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. - 4 - BIOACCELERATE HOLDINGS, INC (A Development Stage Company) Consolidated Statements of Cash Flows
From Inception (November 1, 1999) to June 30 June 30 June 30 2005 2004 2005 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES : Net cash (used in) operating activities $ (11,969,759) $ (1,916,149) $ (11,454,330) ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES : Purchase of long-term investments (500,000) -- (4,089,472) Purchase of property and equipment (103,797) (50,480) (1,810,169) Investment in affiliate -- (4,001,815) (4,001,815) Payment for purchase of subsidiaries - net of cash acquired -- (16,623,688) (16,623,688) Increase in minority interest relating to subsidiaries Acquired during the period -- 6,820,830 -- ------------- ------------- ------------- Net cash (used in) investing activities (603,797) (13,855,153) (26,525,144) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES : Issuance of common stock for cash -- 15,445,820 15,445,820 Bank overdraft 922,692 -- 959,566 Proceeds from loans payable 11,147,975 1,242,783 22,287,303 ------------- ------------- ------------- Net cash provided by financing activities 12,070,667 16,688,603 38,692,689 ------------- ------------- ------------- Effect of changes in exchange rates 201,370 159,154 (271,878) ------------- ------------- ------------- Net increase in cash and cash equivalents (301,519) 1,076,455 441,337 Cash and cash equivalents at beginning of period 742,856 -- -- ------------- ------------- ------------- Cash and cash equivalents at end of period $ 441,337 $ 1,076,455 $ 441,337 ============= ============= ============= Supplemental cash flow information : Cash paid for interest $ -- $ -- $ -- ============= ============= ============= Cash paid for income taxes $ -- $ -- $ -- ============= ============= =============
The accompanying notes are an integral part of these financial statements. 5 BIOACCELERATE HOLDINGS, INC. (A Development Stage Company) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS June 30, 2005 NOTE 1. NATURE OF THE BUSINESS DESCRIPTION OF COMPANY: Bioaccelerate Holdings, Inc ("Bioaccelerate" or "Company"), formerly Mobile Design Concepts, Inc. ("Mobile"), acquired Bioaccelerate, Inc. ("BI") in an exchange of stock on September 23, 2004. Simultaneously with the exchange of stock, Mobile Design Concepts, Inc. changed its name to Bioaccelerate Holdings, Inc. Mobile was organized under the laws of the State of Nevada on March 10, 2000. Mobile was formed to design, manufacture, and lease mobile kiosks and other structures the operation was discontinued on December 31, 2002. The Company is examining opportunities in both start-up and emerging companies in the biopharmaceutical sector. The Company has not yet generated revenues and is considered a development stage company as defined in Statement of Financial Accounting Standards No.7. At the present time, the Company has not paid any dividends, and any dividends that may be paid in the future will depend upon the financial performance of its subsidiary, Bioaccelerate, Inc. BI was organized under the laws of the State of Delaware on December 29, 1995, as Tallman Supply Corp. On January 14, 1999, the Company changed its name to Westminster Auto Retailers, Inc. On July 25, 2003, the Company changed its name to Bioaccelerate, Inc. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: These consolidated financial statements include the accounts of Bioaccelerate Holdings, Inc. and its subsidiaries (the Company), with appropriate eliminations of inter-company balances and transactions. The financial statements are prepared by the Company on the accrual basis of accounting in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information, and in accordance with the instructions for form 10QSB. Certain information and footnote disclosures normally included in the Company's annual audited financial statements, as required by accounting principles generally accepted in the United States, have been condensed or omitted. The interim condensed financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position, results of operations and cash flows as of June 30, 2005, and the three months and six months then ended. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These interim condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2004, which are contained in the Company's 10KSB/A, and filed with the Securities and Exchange Commission. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual reports may differ from these estimates. Significant estimates in the financial statements include the assumption that the Company will continue as a going concern. CERTAIN RISKS AND UNCERTAINTIES: The Company is subject to risks common to companies in its industry, including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability and the need to obtain financing. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements presented herein include the accounts of the Company and its majority owned subsidiaries (collectively, the "Company"). The consolidated financial statements include the accounts of the following Companies: Amilar Pharma Inc. Anvira Inc. Bioaccelerate Holdings, Inc. (formerly Mobile Design Concepts, Inc.) Bioaccelerate, Inc. Bioaccelerate Limited 6 Bioaccelerate BVI Limited Biocardio Inc. CNS Thera Inc. Cynat Onclogy Inc. Enhance Biotech Inc. Evolve Oncology Inc. Genar Oncology Inc. Inncardio, Inc. Innova Lifestyle, Inc. Innovate Oncology, Inc. Oncbio Inc. The consolidated financial statements include the assets and liabilities of the majority owned subsidiaries, adjusted to allow for minority interests. All significant intercompany transactions have been eliminated. MARKETABLE SECURITIES: The Company will classify its holdings of free trading shares as marketable securities available for sale in accordance with the Statement of Financial Accounting Standard ("SFAS") No.115, "Accounting for Certain Investment in Debt and Equity Securities". The marketable securities will be reported at fair value with unrealized gains and losses recorded as a separate component of accumulated other comprehensive income and loss in stockholder's equity net of taxes. The specific identification method is used to determine gains and losses when securities are sold. A decline in the market value below cost that is deemed to be other than temporary would result in a change to earnings in the period the decline occurs. Currently the Company's holdings of quoted shares are restricted and have been included in the financial statements at cost. Loss per Share The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti dilutive. NOTE 3 - BASIS OF PRESENTATION The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced a significant loss from operations aggregating $12,292,322 and $210,553,810, for the three months ended June 30, 2005, and the period from inception to June 30, 2005. In addition, the Company has working capital and stockholders' deficits at June 30, 2005, of $26,068,426 and $28,542,001 as no significant revenue generating operations. The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing, utilize its credit facilities, increase ownership equity and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which the Company operates. The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to establish a revenue base. Failure to secure such financing or to raise additional equity capital and to establish a revenue base may result in the Company depleting its available funds and not being able pay its obligations. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. NOTE 4. LOANS PAYABLE 7 Credit Facilities During February 2004 the Company entered into a senior secured credit facility with Technology Finance, Inc. ("Technology") under which Technology shall provide the Company one or more loans in the aggregate principal amount of up to $7,500,000. Notwithstanding this Technology shall have no obligation to fund the Company, if one of the following have occurred: (i) there shall be a material change in the business, properties, assets, results of operations, prospects or financial condition of the Company since January 1, 2004; (ii) the Company shall be in breach of, or in default under any material contract, license agreement or instrument; or iii) there shall have occurred a disruption in the securities markets. Technology has the right to convert the outstanding balance into shares of the Company's common stock at $1.00 per share. The credit facility matures on the earliest of (i) the date on which a placement in which the Company receives at least $25,000,000 in gross proceeds for the issuance of debt or equity securities, (ii) the date on which an event of default occurs, or (iii) the date on which a change in control occurs. The advances bear interest at a rate equal to the Applicable Federal Rate, as defined in Section 1247(d) of the Internal Revenue Code and are secured by all of the Company's assets and assets acquired in the future. The credit facility contain certain affirmative and negative covenants including the Company furnishing Technology with audited financial statements within 90 days after its year end and unaudited financial statements with 45 days of each quarter excluding the Company's year end. In addition, the credit facility provides that at the date of signing there shall be no outstanding options, warrants or subscription rights for capital stock of the Company. As of the date hereof the Company is in default of the covenant to provide financial statements for the year ended December 31, 2004, and the quarters ended March 31, 2005, and June 30, 2005. In addition, there has been a material change in the financial condition of the Company since it last filed quarterly financial statements with the Securities and Exchange Commission. The Company has not been notified by Technology as to whether the credit facility will be called because of the defaults and the entire balance due has been classified as a current liability. The Company had a balance of $7,465,042 drawn against the balance of this credit facility at June 30, 2005, and as of June 30, 2005, the interest rate was 4%. During September 2004 the Company entered into a senior secured credit facility with Lifescience Ventures, Limited ("Lifescience") under which Lifescience shall provide the Company one or more loans in the aggregate principal amount of up to $12,500,000. Notwithstanding this Lifescience shall have no obligation to fund the Company, if one of the following have occurred: (i) there shall be a material change in the business, properties, assets, results of operations, prospects or financial condition of the Company since January 1, 2004; (ii) the Company shall be in breach of, or in default under any material contract, license agreement or instrument; or iii) there shall have occurred a disruption in the securities markets. As an inducement for extending the credit facility Lifescience received 1,000,000 warrants to purchase shares of the Company's common stock at $14 per share and 1,000,000 warrants to purchase shares of the Company's common stock for $28 per share and the credit facility contains a clause prohibiting the repricing of any outstanding options or warrants to a price which is less than the prices of the Lifescience warrants. The fair value of the warrants, determined using the Black-Scholes option pricing model, aggregates $12,800,000 and will be amortized as additional interest over the term of the credit facility commencing with the first draw. The credit facility matures on the earliest of (i) the date on which a placement in which the Company receives at least $50,000,000 in gross proceeds for the issuance of debt or equity securities, (ii) the date on which an event of default occurs, or (iii) the date on which a change in control occurs. The advances bear interest at a rate equal to the Applicable Federal Rate, as defined in Section 1247(d) of the Internal Revenue Code and are secured by all of the Company's assets and assets acquired in the future. The credit facility contain certain affirmative and negative covenants including the Company furnishing Lifescience audited financial statements within 90 days after its year end and unaudited financial statements with 45 days of each quarter excluding the Company's year end. In addition, the credit facility provides that at the date of signing there shall be no outstanding, options, warrants or subscription rights for capital stock of the Company. As of the date hereof the Company is in default of the covenant to provide financial statements for the year ended December 31, 2004, and the quarters ended March 31, 2005, and June 30, 2005. In addition, there has been a material change in the financial condition of the Company since it last filed quarterly financial statements with the Securities and Exchange Commission. No amounts are outstanding pursuant to this credit facility at June 30, 2005. 8 During September 2004 the Company entered into a senior secured credit facility with Jano Holdings Limited ("Jano") under which Jano shall provide the Company one or more loans in the aggregate principal amount of up to $12,500,000. Notwithstanding this Jano shall have no obligation to fund the Company, if one of the following have occurred: (i) there shall be a material change in the business, properties, assets, results of operations, prospects or financial condition of the Company since January 1, 2004; (ii) the Company shall be in breach of or in default under any material contract, license agreement or instrument; or iii) there shall have occurred a disruption in the securities markets. As an inducement for extending the credit facility Jano received 1,000,000 warrants to purchase shares of the Company's common stock at $14 per share and 1,000,000 warrants to purchase shares of the Company's common stock for $28 and the credit facility contains a clause prohibiting the repricing of any outstanding options or warrants to a price which is less than the prices of the Jano warrants. The fair value of the warrants, determined using the Black-Scholes option pricing model aggregates $12,800,000 and was charged to operations as non cash interest upon the initial draw as the credit facility has no specific due date and the Company was in default on the arrangement. The credit facility matures on the earliest of (i) the date on which a placement in which the Company receives at least $50,000,000 in gross proceeds for the issuance of debt or equity securities, (ii) the date on which an event of default occurs, or (iii) the date on which a change in control occurs. The advances bear interest at a rate equal to the Applicable Federal Rate, as defined in Section 1247(d) of the Internal Revenue Code and are secured by all of the Company's assets and assets acquired in the future. The credit facility contain certain affirmative and negative covenants including the Company furnishing Jano audited financial statements within 90 days after its year end and unaudited financial statements with 45 days of each quarter excluding the Company's year end. In addition, the credit facility provides that at the date of signing there shall be no outstanding options, warrants or subscription rights for capital stock of the Company. As of the date hereof the Company is in default of the covenant to provide financial statements for the year ended December 31, 2004, and the quarters ended March 31, 2005, and June 30, 2005. In addition, there has been a material change in the financial condition of the Company since it last filed quarterly financial statements with the Securities and Exchange Commission. The Company has not been notified by Jano as to whether the credit facility will be called because of the defaults and the entire balance due has been classified as a current liability. The Company had a balance of $6,673,715 drawn against the balance of this credit facility at June 30, 2005, and the interest rate was 4%. Convertible Loans During December 2004 the Company borrowed an aggregate of $3,100,000 with interest at Libor (3.50% at June 30, 2005). The loan is convertible into common shares of the Company at equivalent terms to the Company's next equity financing, of not less than $6,000,000. Should a financing not occur within 1 year, the loan shall accrue interest at Libor plus 10% and the loan will be convertible into common shares at a price to be determined between the parties. There is no specified repayment date on the loan. In 1999 and 2000, the Company formed two joint ventures with Elan Corporation ("Elan") that were terminated in 2002 and 2003. As part of the joint ventures Elan loaned the Company $1,925,028 in convertible debt financing, maturing on April 14, 2006. Interest accrues at 9% per annum, compounded on an annual basis. Elan has the right to convert outstanding debt into the number of common shares that is obtained by dividing outstanding principal and interest by $10.29. At June 30, 2005, accrued interest totaled $559,260. Notes payable The Company's borrowings under an equipment lease financing agreement are collateralized by the related equipment and furniture and fixtures, at interest rates between 12% and 13% with monthly payments of approximately $9,920. Future aggregate annual maturities are: 2005 $ 61,153 2006 41,637 -------- $102,790 ======== NOTE 5. INVESTMENT IN AFFILIATES Evolve Oncology Through December 2004, the Company acquired 23,857,000 common shares of Evolve Oncology Inc. ("Evolve") these shares were obtained initially through the acquisition of Pharma Manufacturing Services Ltd. and the sale of Antibody Technologies Inc. At June 30, 2005, the Company owned a 49.15% interest in Evolve. For accounting purposes, the Company is treating its capital investment in Evolve as a vehicle for research and development. Because the Company is solely providing financial support to further the research and development of Evolve, such amounts are being charged to expense as incurred by Evolve since Evolve presently has no ability to fund these activities and is dependent on the Company to fund its operations. In these circumstances, Evolve is considered a variable interest entity and has been consolidated. The creditors of Evolve do not have recourse to the general credit of the Company. Through June 30, 2005, the Company advanced Evolve an aggregate of $1,383,087. A summary of financial position (including intercompany balances due to Bioaccelerate Holdings, Inc.) and results of operations of Evolve as of June 30, 2005, and the three months then ended is as follows: Current assets $ -- Property and equipment 97,500 ----------- $ 97,500 =========== Current liabilities $ 2,537,465 Stockholders' (deficit) (2,439,965) ----------- $ 97,500 =========== Revenue $ -- =========== Net (loss) $ (118,565) =========== Minority interest in net (loss) $ -- =========== 9 Enhance Biotech At June 30, 2005 the Company holds a 22.4% interest in Enhance Biotech, Inc. ("Enhance"). For accounting purposes, the Company is treating its capital investment in Enhance Biotech as a vehicle for research and development. Because the Company is solely providing financial support to further the research and development of Enhance, such amounts are being charged to expense as incurred by Enhance since Enhance presently has no ability to fund these activities and is dependent on the Company to fund its operations. In these circumstances, Enhance is considered a variable interest entity and has been consolidated. The creditors of Enhance do not have recourse to the general credit of the Company. Through June 30, 2005, the Company advanced Enhance an aggregate of $4,068,194. A summary of financial position (including intercompany balances due to Bioaccelerate Holdings, Inc.) and results of operations of Enhance at June 30, 2005, is as follows: Current assets $ 483,395 Other assets 2,200,365 ----------- $ 2,683,760 =========== Current liabilities $ 7,439,950 Long-term liabilities 3,128,755 Stockholders'(deficit) (7,884,945) ----------- $ 2,683,760 =========== Revenue $ 222,430 =========== Net loss $(3,837,358) =========== NOTE 6 - INVESTMENTS During September 2004 the Company invested $2,000,000 in Advance Nanotech, Inc. ("Advance") in exchange for 2,000,000 common shares. The Company borrowed the funds for this transaction pursuant to the credit facility from Technology Finance, Inc. described in Note 4. The shares received are considered restricted securities and represent approximately 6% of the outstanding shares of Advance subsequent to a private placement by Advance at $2.00 per share in February and March 2005. The shares are carried at the lower of cost or market of $2,000,000. The market value of the Advance shares as quoted on the OTCBB was $5.00 and $6.20 at June 30, 2005, and August 30, 2005. Through December 2004 the Company acquired an aggregate of 3,928,804 common shares of Neuro Bioscience, Inc. ("Neuro"). The shares which were obtained as an inducement to provide future financing and have no cost basis. These shares are carried at the lower of cost or market of $0. The market value of the Neuro Bioscience shares as quoted on the Pink Sheets was $1.20 and $1.20 at June 30, 2005, and August 30, 2005. During November 2004 the Company invested $1,366,536 in Australian Cancer Technology ("ACT") in exchange for 4,893,301 common shares. The Company borrowed the funds for this transaction pursuant to the credit facility from Technology Finance, Inc. described in Note 6. The shares received are considered restricted securities and represent approximately 4% of the outstanding shares of ACT. The shares are carried at the lower of cost or market of $191,083. The market value of the ACT shares as quoted on the ASX was $.13 and $.14 at June 30, 2005 and August 30, 2005. During August 2004 the Company invested $222,936 in JPS Holdings ("JPS"), a private Company. No trading information or financial information is available for JPS and the Company carries its investment at the lower of cost or market of $0. The Company holds an investment carried at cost of $11,788. NOTE 7. STOCKHOLDERS' (DEFICIT) From January through March 2005 the Company issued an aggregate of 2,880,146 shares of common stock valued at their fair market value of $18,167,581 for consulting services and purchased research and development. The value of these shares was charged to operations. In addition, the Company charged the fair value of options issued to Jano Holdings, Inc. in connection with the loan facility referred to in Note 4 to interest expense. 10 From April through June 2005 the Company issued an aggregate of 480,864 shares of common stock valued at their fair market value of $2,610,184 for consulting services. The value of these shares was charged to operations. NOTE 8 - RELATED PARTY TRANSACTIONS At June 30, 2005, the Company had an aggregate of $329,553 due to affiliates. These advances have no specified due date or interest rate. In addition, Enhance had an aggregate of $449,664 in amounts due to affiliates for unpaid salary and consulting fees. NOTE 9. SUBSEQUENT EVENTS On April 6, 2005, the Company filed a Definitive Information Statement disclosing that the Directors and majority of common stock holders had approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock of the Company par value $0.001 from 50 million to 100 million shares and the increase the number of authorized shares of preferred stock par value $0.001 of the Company from 1 million shares to 10 million shares. Through August 30, 2005, the Company borrowed an additional $6,980,328 pursuant to its credit facilities described in Note 4. Item 2: Management's Discussion & Analysis or Plan of Operations FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED This disclosure contains forward-looking statements. The forward-looking statements include all statements that are not statement of historical fact. The forward-looking statements are often identifiable by the use of words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," "seek," "contemplate," "hope," "suggest," "envision," or "continue," or comparable language, or the negative or other variation of those or comparable terms. Our actual results could differ materially from the anticipated results described with forward-looking statements. These forward-looking statement are based largely on our expectation and are subject to a number of risks and uncertainties, including but not limited to: those risks associated with out ability to identify and raise additional capital to complete our product development programs; our allocation of resources as necessary to continue operations; our ability to generate cash flow from revenue or other sources; our ability to use our capital stock for acquisitions, paying expenses or other disbursements, attracting personnel or contracts and other business uses. Many of these factors are beyond our management's control. These uncertainties could cause our actual results to differ materially from the expectations reflected in these forward-looking statements. In light of these risks and uncertainties, we cannot be certain that the forward- looking information contained herein will, in fact, occur. Interested persons should consider carefully the previously stated factors as well as the more detailed information contained elsewhere herein. Plan of Operations. Business Bioaccelerate (or "The Company") acquires and develops pharmaceutical compounds that have substantial medical and commercial value. The companies in which Bioaccelerate currently has interests focus on five vertical therapeutic areas; Oncology, Specialty Pharma, Central Nervous System, Cardiovascular and Infection. These therapeutic areas represent a current combined market opportunity in excess of $250 billion. Reducing risk, accelerating speed to market Bioaccelerate uses a virtual development network to accelerate the development of multiple early stage compounds to Phase II/III clinical development. The Company believes that this strategy creates a lower risk business model, since its network enables the timely and cost effective passage from the discovery process up to Phase II/III where substantial incremental value is created. Innovation complemented by a diverse partner network Bioaccelerate's innovative approach focuses on the use of latest technologies to cut development costs and reduce the amount of time that a drug spends in development. Bioaccelerate's key objective is to create value through its aggressive development of existing companies and compounds, as well as; o Identifying additional compounds for portfolio companies; o Entering into partnering, co-development and marketing agreements with large pharmaceutical and other biotech companies, speeding time to market for the compounds being developed; o Using industry expertise, business contacts and insights of in-house scientific and business management to develop synergies and establish collaborative agreements; o Orchestrating a network of development resource to ensure efficiency in the development process; o Creating substantial shareholder value through the development of existing and further portfolio companies, via the deep asset base of identified compounds that Bioaccelerate has access to via established relationships. 11 A strategic approach to creating value Large pharmaceutical companies need additional products to fill depleted pipelines. Bioaccelerate believes it has developed a cost effective process which provides a link between early stage drug candidates and large pharmaceutical companies. Currently, funding is increasingly only available from the capital markets for later stage companies. Bioaccelerate develops and consolidates multiple early stage products in standalone companies in vertical therapeutic areas until critical mass and development milestones are achieved. At this stage the company is then ready to access further funding from the capital markets. This affords orphan/individual technologies an opportunity to be developed while giving academic institutions and scientists access to development capital for early stage compounds. Bioaccelerate's drug development strategy includes in-licensing compounds from various academic, research and medical centers where the company has developed extensive relationships. Bioaccelerate is constantly reviewing these development opportunities to establish which products offer the best strategic fit with other companies in its portfolio. A proven depth of expertise Bioaccelerate has a proven management team with a broad base of experience in pharmaceutical & biotechnology companies as well as capital markets. The management team is responsible for company-wide initiatives, significant operating decisions and policymaking. This team works alongside a scientific advisory board whose function is to advise the Company on scientific aspects of product selection and development. Bioaccelerate conducts its business directly and through its subsidiaries. Bioaccelerate Holdings inc. currently holds 100% of Bioaccelerate inc. ,Bioaccelerate Ltd. and Bioaccelerate Ltd (BVI), and through these subsidiaries a significant equity interest in the following fourteen biotech companies: Oncology: Evolve Oncology, Inc. (49.1%), Genar Oncology, Inc. (94%), Innovate Oncology, Inc. (90%), OncBio, Inc. (90%) Cynat Oncology, Inc. (94%) Specialty Pharma: Innova Lifestyle, Inc. (94%), Amilar Pharmaceuticals Inc (94%), Genaderm Inc.(100%) Enhance Biotech, Inc. (22.4%) Central Nervous System: CNS Thera, Inc. (94%), NeuroBioscience, Inc (19%), Cardiovascular disease: InnCardio, Inc. (94%) BioCardio, Inc. (50 %) Anti-infective: Anvira, Inc. (94%) The Company also has investments in Advance Nanotech Inc (AVNA.OB), Australian Cancer Technologies Ltd (ACU.AX), JPS Holdings, Inc and Llama Biotech Ltd Our management believes that large pharmaceutical companies need additional drugs to fill depleted drug development pipelines, particularly since many existing products of large pharmaceutical companies will soon be losing patent protection. Increasingly those companies seek to fill that gap by in-licensing drugs at the middle to late stages of development rather than acquiring compounds at an earlier stage. We believe that the large in-house basic and applied research staffs of those large pharmaceutical companies increase the overhead of those companies and may also engender institutional resistance to acquisition or development of in- licensed drugs, resulting in costs and delays in development of new drugs by those companies. It also appears to us that that many individual scientists and medical research institutions may lack the expertise or resources to develop promising early stage drug candidates. Bioaccelerate's business goal is to act as a cost-effective pharmaceutical development organization, identifying commercially viable early-stage compounds from academic, research and medical centers where Bioaccelerate has forged strong relationships, and utilizing our expedited product development structure to provide a cost-effective link between early-stage drug candidates and large pharmaceutical companies. Bioaccelerate achieves its value by providing management expertise and funding to develop the products assigned to its portfolio companies and achieves shareholder value by taking the portfolio companies public and benefiting from the upside in share price of those portfolio companies as and when milestones are achieved in the development of the compounds. Strategy Bioaccelerate and its subsidiaries select, in-license and group, early- stage compounds which their respective managements deem promising in the stand-alone companies which Bioaccelerate has organized by vertical therapeutic areas. Bioaccelerate may utilize its own resources for the initial operations of a newly-formed subsidiary, including its initial in- licensing. However, when a subsidiary company's product pipeline reaches critical mass and achieves certain development milestones, it is intended that the subsidiary company will seek additional funding from the capital markets on its own. Since funding is often only available for later-stage compounds, Bioaccelerate's development resources make it possible for academic institutions and scientists to pursue early- and mid-stage develop of orphaned compounds and technology. 12 Bioaccelerate generally favors in-licensing compounds in the early- to mid- stages of development to reduce the risks and costs associated with new molecular entity (NME) and new chemical entity (NCE) development. Bioaccelerate will continue to advance its clinical development strategy, balancing in-licensing and reformulations with NME and NCE development when it feels it is appropriate. Bioaccelerate enters into development, marketing and partnership agreements with laboratories, industry experts and large pharmaceutical companies to develop, test and seek regulatory approval for drug candidates. By relying primarily upon contracts with third parties for research, clinical development and project management rather than doing that work in-house, Bioaccelerate is able to maintain a limited infrastructure, particularly as compared with large pharmaceutical companies. Our management believes that this strategy offers a lower risk model for achieving incremental value for investors in new drug products, allows us to accelerate the time it takes for new products to reach the critical Phase II/III clinical trials level, and creates an efficient and cost-effective route from discovery to commercializing a product. Research and Development The structure of our research and development activity is designed to enable the best choices to be made as to where and how the projects are run and resourced. Each is managed as a discreet project with its own budget and project manager. Where and when possible projects make common use of the resources and contracted facilities enlisted at each stage. We manage our projects through ongoing review of scientific data, making use of our broadly experienced Management and Scientific Advisory Board to assist in this process and by supplementing these programs with our cost allocations as required to move toward regulatory approval. Our cost allocations are based primarily on pre-established development budgets set out in our agreements with research and co-development partners. Costs attributed to Research and Preclinical projects largely represent our pipeline generating activities. See Item 6. "Management Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of research and development spending trends. OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE 1. ONCOLOGY Oncology is the therapeutic market with the largest portfolio of products in development by Bioaccelerate and its subsidiaries. Reuters Business Insight forecasts the global cancer treatment market to grow from $34.3 billion in 2002 to $42.8 billion in 2007. Their research also indicates that the innovative cancer therapy market will triple from $4.3 billion in 2001 to $12.3 billion in 2007. EVOLVE ONCOLOGY. Evolve Oncology seeks to acquire, develop and commercialize drugs to treat various types of cancer and cancer pain management. Evolve Oncology's product development portfolio targets lung, breast and other types of cancer. Evolve Oncology's management believes its focus on innovative treatments should benefit from the market opportunity created by multiple patent expirations, particularly in hormonal and cytostatic therapies facing the large pharmaceutical companies. Bioaccelerate will also seek to develop niche drugs passed over by large pharmaceutical companies. ONCBIO. OncBio seeks to acquire, develop and commercialize drugs to treat multiple cancers such as breast, lung and chronic myelogenous leukemia. OncBio's product development pipeline focuses on new, innovative compounds as well as enhanced formulations of existing compounds. GENAR ONCOLOGY. Genar Oncology seeks to acquire, develop and commercialize a broad platform of compounds to fight cancers. Bioaccelerate's product development portfolio targets multiple cancers, such as a single product one for solid tumors prevalent in breast, lung and colorectal cancer. Management believes these multiple-use products will enhance the drugs' value in the marketplace. INNOVATE ONCOLOGY. Innovate Oncology seeks to acquire, develop and commercialize compounds targeted at multiple cancers and oncology-related conditions. Some of the oncology related conditions we seek to address are reversing chemo resistance and treating common side effects such as nausea and vomiting. Innovate Oncology's pre-clinical product development portfolio is all based upon scientific approaches which our management believes are innovative. Bioaccelerate through it's subsidiaries is developing a platform of compounds which have been selected to target multiple cancers, instead of focusing on only one specific disease area. This approach management believes will enhance the compounds future values and give the drugs a greater chance of success. 2. SPECIALTY PHARMA The specialty pharma segment of the global pharmaceutical marketplace is projected to grow from $22.9 billion in 2002 to $29 billion by 2007, according to Reuters Business Insight. Bioaccelerate's management believes its three lifestyle drug subsidiary companies are poised to take advantage of some of the most potentially lucrative segments, including sexual dysfunction, skin diseases and addiction. ENHANCE BIOTECH. Enhance Biotech acquires, develops and commercializes drugs to treat lifestyle disorders. Enhance's portfolio of seven products under development target male sexual dysfunction and dermatology, two of the seven major therapeutic segments in the lifestyle drug market. Enhance's lead product targets premature ejaculation, which is the most widespread indication in male sexual dysfunction (MSD). 13 OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE (Continued) The disorder affects 29% of the adult male population and represents a potential $6 billion market, according to Reuters Business Insight. Enhance Biotech recently acquired Ardent Pharmaceuticals Inc., a privately held biotechnology company with an extensive research and development pipeline that includes a number of pre- clinical and clinical drug candidates in the areas of moderate to severe pain, urinary incontinence, premature ejaculation, depression and cardio protection. Pursuant to the merger agreement, Ardent became a wholly- owned subsidiary of Enhance Biotech and the former Ardent stockholders received Enhance Biotech securities amounting, on a fully- diluted basis, to 45% of Enhance Biotech's outstanding equity securities, post- merger. Shareholders of Enhance Biotech own 55 % of the merged entity. INNOVA LIFESTYLE. Innova Lifestyle seeks to acquire, develop and commercialize drugs for lifestyle disorders including acne, alcohol addiction and female sexual dysfunction. Awareness has been increasing about the need for effective and safe female stimulants to treat female sexual dysfunction. Analysts at Reuters Business Insight say this disorder is still poorly defined and understood, evidenced by their research that indicates that between 19% and 43% of women in the general population suffer from sexual dysfunction. Despite that prevalence, only 26% of women across the major markets seek treatment. Bioaccelerate believes treatment for female sexual dysfunction may be a major market opportunity following in the footsteps of the strong public response to male erectile and premature dysfunction treatments coming to market now. AMILAR PHARMACEUTICALS. Amilar Pharmaceuticals seeks to acquire, develop and commercialize drugs to treat lifestyle disorders. Bioaccelerate's portfolio of products under development concentrates on treatments for alcohol addiction, osteoarthritis, interstitial cystitis, osteoarthritis and irritable bowel syndrome. Alcohol addiction affects a patient population of 47 out of every 1000 adults. The current market for this product is estimated to be $300 million. 3. CENTRAL NERVOUS SYSTEM The worldwide population with CNS disorders is rising steadily. This increase is being driven by an aging population, improving diagnostic techniques, increasing physician and patient awareness and a gradual shift away from the social stigma traditionally attached to many psychiatric conditions. As the prevalence of CNS disorders rises, so does the cost. In the U.S., it is estimated that more than 20% of healthcare spending is directed towards CNS-related disorders, according to Reuters Business Insight. Alzheimer's disease alone is estimated to cost the U.S. economy $100 billion annually, with a prevalent population of more than 4 million. Bioaccelerate is seeking to tap the potential in this market by developing subsidiaries with diversified products to target the broad range of CNS diseases. CNS THERA. CNS Thera seeks to acquire, develop and commercialize compounds targeted against various central nervous system disorders. Bioaccelerate's portfolio of products under development focuses on some of the largest potential markets such as Alzheimer's disease, epilepsy, multiple sclerosis and Parkinson's disease. 4. CARDIOVASCULAR DISEASE Among the cardiovascular diseases, a disorder of lipid metabolism called dyslipidemics has had the fastest growth in global sales. In 2002, the global anti-dyslipidemics market generated sales of $21.86 billion and Reuters Business Insight forecasts annual sales to rise to $32.6 billion by 2008. Dyslipidemics is often used as a blanket term to describe any imbalance in the level of blood lipids (fats) and a variety of conditions characterized by either excessively high or excessively low levels of certain lipids in the bloodstream, including cholesterol and triglycerides. Within cardiovascular disease, hypercholester-olemia is the most common risk, with an average prevalence rate of 43.8% in the seven major markets. BIOCARDIO. Biocardio seeks to acquire, develop and commercialize therapies to treat cardiovascular and metabolic diseases. Bioaccelerate's products under development target heart disease, cholesterol imbalances and chronic obstructive pulmonary disorder (COPD). COPD is lung damage caused by smoking and has the third largest burden of disease in the world. Bioaccelerate believes its novel therapy, if successfully developed and approved, will fill a largely unmet need for treatment. INNCARDIO. Inncardio seeks to acquire, develop and commercialize therapies to treat cardiovascular and metabolic diseases including diabetes, artherosclerosis and myocardial ischemia. Approximately 60 million people in seven major markets suffer from diabetes, 17 million in the U.S. alone. 5. ANTI-INFECTIVES The global anti-virals market, which is a subset of anti-infective, is forecast to grow from $8.7 billion in 2001 to $14 billion in 2007, according to Reuters Business Insight. Much of that growth comes from the high incidence of viral infections and currently available drugs that are not efficacious. Another growth factor for this therapeutic area is a strategy by big pharmaceutical companies that increasingly target patients in developing countries. Bioaccelerate believes this change creates an opportunity to develop its anti-infective portfolio. 14 OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE (Continued) ANVIRA. Anvira seeks to acquire, develop and commercialize anti- infective products for common diseases such as ear and throat infections as well as pneumonia and bronchitis. Bioaccelerate's current portfolio of products under development consists of reformulations of off- patent anti- infectives. Product Development A major element of the Company's product development strategy is to use third-party or contract research organizations ("CROs") to assist in the conduct of safety and efficacy testing and clinical studies, to assist the Company in guiding products through the FDA and EMEA regulatory review and approval processes, and to manufacture and distribute any FDA and EMEA approved products. The Company believes that maintaining a limited infrastructure will enable it to develop products efficiently and cost effectively. On November 1st, 2004 the Company entered into a contract with Faustus Forschungs Cie, Translational Cancer Research GMBH for the co development of nine compounds targeted at various forms of Cancer. The Company believes the use of third-parties to develop and manufacture its products has several advantages. This approach generally allows a greater pool of resources to be concentrated on a product than if these functions were preformed by internal personnel who were required to support all of the Company's product development activities. Although this approach will allow the Company to avoid the expense associated with developing a large internal infrastructure to support its product development efforts, it will result in the Company being dependent on the ability of outside parties to perform critical functions for the Company. Over time, the Company expects to build internal capabilities to replace certain development functions now contracted to outside parties. This contract approach to product development requires project management by professionals with substantial industry experience. The Company will continue to evaluate prospective additions to its in-house expertise, as well as opportunities for contract and advisory services in areas of critical importance to all of its proposed products, including the management of current development teams. These areas include regulatory affairs, marketing and sales, quality assurance, manufacturing, clinical trials management, finance, information systems and general management. The product development process is designed to identify problems associated with a proposed product's safety and effectiveness. The Company attempts to reduce the risk that a proposed product will not be accepted in the marketplace by conducting market research and defining commercial strategy for each product candidate. A drug development portfolio cannot be completely insulated from potential clinical and market failures. It is likely that some proposed products selected for development by the Company will not produce the clinical or revenue results expected. Research Product Pipeline The Company will continue to invest in the research and development of existing and new products, including those that could extend the applications of existing technologies. The Company is currently evaluating a number of product candidates arising from various academic facilities and other biotech companies. Market Overview The pharmaceutical industry is characterized by ongoing convergence and consolidation. Large pharmaceutical companies continue to experience depleted product pipelines and reduced research and development ("R&D") productivity, as measured by declining numbers of approved new chemical entities despite year-on-year increases in R&D spending. ONCOLOGY Cancer is not a single disease, but a set of several hundred distinct neoplastic entities that together represent the third largest disease burden of any therapeutic area. According to the 2003 Facts and Figures report issued by the American Cancer Association, men in the United States have an approximately 1 in 2 chance of developing cancer during their lifetime. The increasing age of the population and the continuing morbidity and mortality associated with this disease confirm the need for continued scientific research and the development of new therapies. o In 2004 over 10 million people were diagnosed with cancer, by 2015 this is forecast to reach 15 million. Six million people die from cancer every year, representing 12% of deaths worldwide. o The National Cancer Institute estimates the overall cost of cancer in the U.S. to be in excess of $100 billion. Treatment of breast, lung and prostate cancers accounts for over half the direct medical costs. o The global cancer market was valued at $34.3 billion in 2002, a 16.5% increase on previous year's sales of $29.5 billion. Cytotoxic drugs were the largest class, followed by hormonal therapeutics. A fast growing category was a class that includes cytokines and monoclonal OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE (Continued) antibodies. This class, known as the innovative therapy category, was driven by widespread physician uptake which led to growth of over 57%. o Oncology is currently the most active area of research for multi-national pharmaceutical companies. BMS is currently the leading player in the oncology market in revenue terms, with total oncology sales of $3.71 billion equating to a 10% market share. 15 SPECIALTY PHARMA Specialty pharma (including `lifestyle' drugs) enhance or improve human function in individuals who believe that their problems - from sexual dysfunction to diabetes, incontinence and obesity - negatively affect normal aspects of everyday living. These conditions should be capable of being defined and diagnosed with reference to measurable characteristics, of known etiology, and prospective patients must be capable of being targeted and convinced of the value of pharmacotherapy. o The appeal of Specialty drugs lies in their ability to improve physical and mental well-being and as an alternative to making lifestyle changes. o The ability to create new disease markets, as is currently happening in the area of female sexual dysfunction, will cause the overall Specialty pharma market to expand significantly over the next two decades. o When developing and defining a new Specialty condition: (a) the disorder must be capable of being clearly defined and diagnosed with reference to measurable characteristics, (b) the epidemiology of the condition must be known, and (c) prospective patients must be capable of being targeted and convinced of the value of pharmacotherapy. o According to definition and included conditions, the global market for Specialty/lifestyle medicines is estimated at close to $22 billion. Leading contributors to this total include Sexual function, ED ($2.5 billion); Smoking, alcohol ($1.5 billion); Oral contraceptives ($4.0 billion); Obesity ($1 billion); Selected dermatological conditions ($4.0 billion); Inflammatory Bowel Disease ($2.0 billion); and Fatigue ($2.0 billion). CENTRAL NERVOUS SYSTEM CNS (Central Nervous System) products represent a large and fast-growing sector of the pharmaceutical market. The segment is based on neurological and psychiatric conditions, which have been estimated to account for over 15% of the disease burden within the world's developed economies. Conditions include Alzheimer's Disease, Depression, Epilepsy, Migraine, Multiple Sclerosis, Pain, Parkinson's Disease and Schizophrenia. o The worldwide population with CNS disorders is steadily rising. This is being driven by an aging population, improving diagnostic techniques, increasing physician and patient awareness and a gradual shift away from the social stigma traditionally attached to many psychiatric conditions. o As the prevalence of CNS disorders rises, so does the cost. In the US, it is estimated that over 20% of healthcare expenditure is directed towards CNS related disorders. Alzheimer's disease alone is estimated to cost the US economy $100 billion annually, with a prevalent population of over 4m. o Neuroscience (CNS) world market value is over $98 billion, growing at 11% per annum. o The global CNS market is dominated by four major players, GlaxoSmithKline, Eli Lilly, Pfizer and Janssen, who hold a combined market share of 38.8%. CARDIOVASCULAR The Cardiovascular market is one of the largest of all pharmaceutical sectors. Cardiovascular disease includes heart failure, atrial fibrillation, stable angina and peripheral arterial disease. Acute thrombotic events, including unstable angina, myocardial infarction, deep vein thrombosis, pulmonary embolism and stroke also contribute to the burden of disease. Risk factors including hypercholesterolemia, hypertension, diabetes and obesity predispose the development of cardiovascular disease in later life. o Cardiac therapy holds enormous potential for new drugs due to high unmet need within substantial patient populations. o Cardiovascular world market value is currently valued at $116 billion. Cardiovascular disease accounts for 17 million deaths globally each year. The Statin market has a world market value of $26 billion o Antithrombotics sales grew to just under $10 billion in 2002, with antiplatelet therapies representing a 58% share of the class. o Pfizer is the dominant player in the global cardiovascular market with a 19% market share. 16 OUR PRODUCT DEVELOPMENT PORTFOLIO AND PIPELINE (Continued) INFECTION Infectious diseases continue to be a leading cause of morbidity and mortality across the globe. They are a leading cause of death, accounting for a quarter to a third of the estimated 54 million deaths worldwide in 1998. However, new and re-emerging infectious diseases may pose a rising global health risk. The spread of infectious diseases can result as much from changes in human behaviour - from lifestyles, land use patterns, increased trade and travel to inappropriate use of antibiotic drugs - as from mutations in pathogens. o The three main types of infections for which there is a significant market are, in terms of Causitive Micro-organisms; - bacterial - fungal viral In terms of the total anti-infective market, the contribution of the anti-infective segment increased from 14% in 1996 to 22% in 2001. o The Infection world market in 2004 was valued at $53 billion. o There are around 30 key drugs in the Infection market. There are a number a very large selling broad spectrum antibiotics dominating the Infection market, such as Zithromax (Pfizer), Cipro (Bayer) and Augmentin (GSK) The Intron franchise of Schering-Plough, which is used for the treatment of hepatitis C infections, dominates the antiviral drugs market with a share of around 17%. Combivir, GlaxoSmithKline's combination drug for the treatment of HIV, is the second leading antiviral drug and has a market share of 10%. o The major players in the Infection market are GlaxoSmithKline, Schering-Plough, Bristol Myers Squibb, Hoffman La Roche, Merck, Abbott Laboratories, Pfizer, J&J and Bayer. GlaxoSmithkline is the market leader with a share of 20%. Pfizer is the second largest player with a market share of 10%. GENERAL Management's Discussion and Analysis presents a review of our consolidated operating results and financial condition for the period ended June 30, 2005. This discussion and analysis is intended to assist in understanding the financial information of the Company presented elsewhere herein. This section should be read in conjunction with our consolidated financial statements and the related notes, as well as ITEM 1. Description of Business, of this Form 10-QSB. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified two accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgments. (1) GOING CONCERN As shown in the accompanying financial statements, the Company has incurred significant losses and needs additional capital to finance its operations. These factors create substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company intends to finance its operations through sales of its securities as well as entering into loans and other types of financing arrangements such as convertible debenture. There is no assurance that the company will be successful in its efforts. (2) RESEARCH AND DEVELOPMENT The Company conducts its research and development with numerous academic research facilities, other biotechnology companies and clinical research organizations. Such expenses are expensed as incurred. Any disruption in the Company's relationship with these entities could have a material impact on the Company's future operations. RESULTS OF OPERATIONS During the three months ended June 30, 2005, work continued on the product development programs as planned and the individual items are detailed below. The period ended June 30, 2005, compared to the period ended June 30, 2004: 17 During the period the following events took place : On March 24, 2005, Inncardio Inc entered into an Agreement and Plan of Merger (the "Agreement and Plan of Merger") among Inncardio Inc, Cengent Acquisition Corp. ("CAC"), a wholly-owned subsidiary of Inncardio Inc, and Cengent Therapeutics Inc. ("Cengent"), a privately held company. Pursuant to the Merger Agreement, CAC will merge with and into Cengent, and as a consequence of the merger (the "Merger") Cengent will become a wholly owned subsidiary of the Registrant. The Merger is expected to be consummated in the Fall of 2005 $467,288 revenues were generated in the period and revenues of $481,588 have been generated in the six months to June 30, 2005 General and administrative expenses in the quarter ended June 30, 2004 and June 30, 2005 were $785,546 and $3,892,792 and $1,253,852 and $6,871,311 for the six months to June 30 2004 and 2005. The main reason for the increase was the significant development of the Company's infrastructure to support its planned growth. Such costs were primarily wages and consulting fees. Research & Development expenses for the quarter ended June 30, 2004, compared with the quarter ended June 30, 2005 were nil$ and $6,116,455. For the six months ended June 30, 2004 compared with June 30, 2005 expenses were nil$ and $10,244,817. The majority of these expenses were in connection with the development of an increased number of our product candidates and to a charge of $1.35 million for research and development at Enhance Biotech and Cengent Technologies. Non cash stock compensation was $2,610,184 for the quarter ended June 30, 2005 compared with nil for the same period in the previous year.The comparable figures for the six months ended June 30, 2004 and 2005 were $nil and $20,777,765. These amounts were due to payments made for services by the issue of shares at market prices. Options issued to Jano Holdings for provision of a credit facility of $12.5 million were expensed in the six months resulting in a non cash charge of $12,800,000 there was no comparable expense in previous periods. The Company has incurred substantial trading losses of $12,292,322 for the quarter to June 30, 2005 compared with $377, 348 in the same period last year and $50,457,644 for the six months to June 30, 2005 compared with $976, 122 in the same period in 2004. The accumulated deficit since inception amounts to $210,553,810 as at June 30, 2005. Liquidity & Capital Resources Since our inception, we have financed our operation through the sale of stock and the issuance of debt. The Company has a $32,500,000 line of credit facility as of June 30, 2005. $14,138,757 of the line is outstanding. The facility accrues interest at the Applicable Federal Rate, as defined in Section 1247(d) of the Internal Revenue Code. As of June 30, 2005, the interest rate was 4.0%. At June 30, 2005 cash and cash equivalents totalled approximately $441,337. The Company expects to incur substantial additional research and development expenses and general administrative expenses, including personal-related costs, cost related to preclinical testing and clinical trials. The Company intends to seek additional funding through the sale of debt and equity securities, increases in our credit facilities and with suitable potential collaborators Item 3. Controls and Procedures. The issuer's principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the issuer and have: designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the periodic reports are being prepared; designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; evaluated the effectiveness of the issuer's disclosure controls and procedures as of the end of the fiscal quarter (the "Evaluation Date"). Based on their evaluation as of the Evaluation Date, their conclusions about the effectiveness of the disclosure controls and procedures were that nothing indicated: any significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize and report financial data; any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; or any material weaknesses in internal controls that have been or should be identified for the issuer's auditors and disclosed to the issuer's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function). Changes in internal control over financial reporting. There was no significant change in the issuer's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting. 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any material pending legal proceedings. No such action is contemplated by the Company nor, to the best of its knowledge, has any action been threatened against the Company. Item 2. Sales of Unregistered Equity Securities and Use of Proceeds (a) There were no sales of unregistered securities in the period (b) During the period covered by this report, there were no securities that the issuer sold by registering the securities under the Securities Act. (c) During the period covered by this report, there was no repurchase made of equity securities registered pursuant to section 12 of the Exchange Act. None of the issuer's securities is registered pursuant to section 12 of the Exchange Act Item 3. Defaults upon Senior Securities None Item 4. Submission of matters to a vote of Security holders None Item 5. Other Information - Changes in Registrant's Certifying Accountant. As of April 29, 2005, the Registrant has appointed new auditors. Registrant terminated F E Hanson Limited as the company's auditor. The decision to change auditors was approved by the Board of Directors. The former accountant only acted for the Registrant from November 2004. The prior accountant did not render any report on the financial statements for the past two years which contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. During the Registrant's two most recent fiscal years and any subsequent interim period preceding the termination there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Simultaneously with the termination of its relationship with F E Hanson Limited., Registrant retained Stark, Winter, Schenkein, & Co., LLP, as registrant's independent auditors. Stark, Winter, Schenkein, & Co LLP's address is 7535 East Hampden Avenue, Suite 109, Denver, CO, 80231 Item 6. Exhibits and Reports Filed on Form 8-K. The registrant filed a Form 8-K on 4th May, 2005 reporting that it had terminated FE Hanson Limited as the company's auditors and appointed Stark, Winter, Schenkein & Co, LLP as the company's auditor. This form 8-K is hereby incorporated by reference. Exhibit Index - Exhibits required by Item 601 of Regulation S-B. (31) Certifications required by Rules 13a-14(a) or 15d-14(a). (32) Section 1350 Certifications 19 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bioaccelerate Holdings, Inc. Date: September 16, 2005 By: /s/ Lee Cole ------------------ -------------------------------------------- Lee Cole, CEO, President and Director Date: September 16, 2005 By: /s/ Linden Boyne ------------------ -------------------------------------------- Linden Boyne, CFO, Secretary-Treasurer & Director 20