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EQUALAN PHARMA, LLC
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BALANCE SHEETS
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December 31,
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2010
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2009
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ |
53,042 |
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$ |
39,052 |
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Account receivable - trade
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50,111 |
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38,692 |
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- related party
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388,693 |
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178,274 |
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Inventories
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238,904 |
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307,226 |
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Prepaid expenses and other current assets
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1,832 |
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- |
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Total current assets
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732,582 |
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563,244 |
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Other assets
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23,714 |
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30,577 |
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Total Assets
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$ |
756,296 |
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$ |
593,821 |
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LIABILITIES AND MEMBERS' EQUITY (DEFICIENCY)
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Current liabilities:
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Notes payable - bank
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231,904 |
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295,000 |
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Accounts payable - trade
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42,643 |
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49,806 |
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- related party
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411,816 |
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326,683 |
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Accrued expenses and other current liabilities
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15,169 |
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17,282 |
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Total current liabilities and total liabilities
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701,532 |
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688,771 |
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Members' equity (deficiency)
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54,764 |
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(94,950 |
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Total liabilities and members' equity (deficiency)
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$ |
756,296 |
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$ |
593,821 |
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The accompanying notes are an integral part of these financial statements.
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EQUALAN PHARMA, LLC
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STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' EQUITY (DEFICIENCY)
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For The Year Ended December 31,
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2010
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2009
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Sales
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$ |
852,465 |
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$ |
712,333 |
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Cost of sales
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326,348 |
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551,114 |
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Gross profit
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526,117 |
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161,219 |
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Operating Expenses:
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General and adminstrative expenses
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347,600 |
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345,337 |
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Income (Loss) from operations
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178,517 |
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(184,118 |
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Interest expense
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28,803 |
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21,789 |
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Net income
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149,714 |
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(205,907 |
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Members' equity (deficiency) beginning of year
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(94,950 |
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110,957 |
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Members' equity (deficiency) end of year
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$ |
54,764 |
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$ |
(94,950 |
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The accompanying notes are an integral part of these financial statements.
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EQUALAN PHARMA LLC
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STATEMENTS OF CASH FLOWS
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Year Ended December 31,
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2010
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2009
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Cash flows from operating activities
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Net income (loss)
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$ |
149,714 |
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$ |
(205,907 |
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Adjustment to reconcile net income (loss) to net cash
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provided by operating activities:
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Amortization
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7,824 |
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7,824 |
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Changes in operating assets and liabilities:
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Accounts receivable - trade
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(11,419 |
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52,673 |
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related party
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(210,419 |
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(19,874 |
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Inventories
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68,322 |
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232,316 |
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Prepaid expenses and other current assets
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(1,833 |
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- |
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Accounts payable - trade
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(7,522 |
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29,062 |
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related party
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85,133 |
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- |
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Accrued expenses and other current liabilities
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(1,752 |
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(6,834 |
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Net cash provided by operating activities
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78,048 |
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89,260 |
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Cash flows from investing activities
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Purchase of intangible assets
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(961 |
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Net cash used in investing activities
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(961 |
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- |
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Cash flows from financing activities
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Repayments of short-term loans
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(63,097 |
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(90,000 |
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Net cash used in financing activities
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(63,097 |
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(90,000 |
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Net increase (decrease) in cash and cash equivalents
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13,990 |
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(740 |
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Cash and cash equivalents - beginning of year
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39,052 |
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39,792 |
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Cash and cash equivalents - end of year
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$ |
53,042 |
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$ |
39,052 |
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Supplemental disclosures of cash flow information:
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Interest paid
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$ |
16,027 |
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$ |
21,789 |
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The accompanying notes are an integral part of these financial statements.
Equalan Pharma, LLC
Notes to Consolidated Financial Statements
December 31, 2010
NOTE 1 – Business
Equalan Pharma, LLC (the “Company”) was formed as a limited liability company under the laws of the State of California and is a California based specialty pharmaceutical company dedicated to dermatology. The focus of the company is to design, develop and market unique esthetic and dermatological products. The company has one proprietary brand called GLYDERM.
NOTE 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, the collectability of accounts receivable. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Cash and Cash Equivalents
We consider all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company's accounts at these institutions may, at times, exceed the Federally insured limits. The Company has not experienced any losses in such accounts
Revenue Recognition
The Company sells its merchandise directly to dermatologists and to an online retailer. The agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns is provided. We record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required.
We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary.
Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts. The Company has no allowance for doubtful accounts in 2010 and 2009.
Inventories
Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.
Fair Value Measurements
We adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Concentration of Credit Risk
Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash and cash equivalents. We maintain our cash accounts at high quality financial institutions with balances, at times, in excess of federally insured limits. The Company has not experienced any losses in such accounts.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.
Impairment of long lived assets
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Income Taxes
No provision for income taxes is made since the Company is treated as a partnership and the income or loss is passed through to the members.
NOTE 3 – Notes Payable – Bank
These obligations bear interest at an annual rate of Prime plus 0.5% payable monthly and are collateralized by a first priority lien on all of the borrower’s assets.
The obligations contain certain negative covenants, including prohibition on incurring any debt outside of the normal course of business, and certain events of default including breach of the negative covenants, certain bankruptcy or insolvency events or a change of ownership of more than 25% of the Company’s membership interests (see Note 6).
NOTE 4 – Related Parties
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Balances:
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December 31,
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2010
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2009
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Trade receivables from a company under common ownership, non-interest bearing and due on demand
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$ |
388,692 |
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$ |
178,274 |
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Trade payables to a company under common ownership, non-interest bearing and due on demand
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$ |
411,816 |
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$ |
326,683 |
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Transactions:
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Year Ended December 31,
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2010
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2009
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Payment to related party for use of warehouse
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$ |
33,000 |
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$ |
33,000 |
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Purchases from company under common ownership
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$ |
209,227 |
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$ |
157,891 |
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NOTE 5 – Concentrations
Approximately 12% and 12% of the Company’s sales for the year ended December 31, 2010 were made to two customers. Approximately 11% of the Company’s sales for the year ended December 31, 2009 were made to one customer.
NOTE 6 - Subsequent Events
On June 30, 2011, 100% of the Company’s membership interests were acquired by Biozone Pharmaceuticals, Inc.
On August 15, 2011, the holder of the notes payable – bank declared the entire unpaid balance and accrued interest of the notes immediately due and payable as a result of a default caused by the acquisition of the Company by BioZone Pharma referred to above. As of September 9, 2011, the notes and all accrued interest were paid in full.