From the 10-QSB:
STEROIDOGENESIS INHIBITORS INTERNATIONAL, INC.
Notes to interim financial statements
1. Summary of Accounting Policies:
a. The Company:
In October, 1997, WEBX Media, Inc., a non-operating public shell, entered into an exchange of stock with the owners of Steroidogenesis Inhibitors, Inc. (SI), a company incorporated in Nevada in September, 1994. Subsequent to the transaction, WEBX Media, Inc., changed its name to Steroidogenesis Inhibitors International, Inc.(STGI). Technically, SI is a subsidiary of STGI. For accounting purposes, however, because STGI was a non-operating shell, SI is treated as the parent of STGI. Therefore, the financial statements include the
activity of SI from inception. See also Note 2.
The Company is engaged in securing the patent for and the licensing of a drug called ANTICORT, a trademarked, proprietory drug. The product was developed by Cortisol Medical Research, Inc., the majority shareholder from whom the Company purchased the rights. Anticort was developed for the treatment of disorders and ailments related to cortisol diseases.
The Company is actively seeking additional capital to complete the testing required for FDA approval and an international patent filing. Successful completion of the drug approval endevors is dependent upon raising sufficient capital to continue its efforts.
Adjustments and disclosures have been made so that the interim financial statements are not misleading.
b. Basis of Consolidation:
The accompanying financial statements include the accounts of STGI and SI. All intercompany balances and transactions have been eliminated in consolidation.
The stock exchange occurred October 21, 1997. In accordance with generally accepted accounting principles, the results of WEBX Media, Inc., through the acquisition date are not included in the consolidated operating statements.
c. Plant, Property, and Equipment:
Fixed assets purchased are recorded at cost. Depreciation is provided using the straight line method over the estimated useful lives of the assets. Depreciation expense was approximately $3,566 and $3.948 for the nine months ended September 30, 1998 and 1999, respectively.
d. Intangibles:
1) Legal fees associated with registering Anticort, and derivative patents are recorded at cost. Amortization, once the patent is approved, will be calculated using the straight-line method, over the estimated useful lives of the patents.
2) Purchased technology rights are recorded at cost and are being amortized using the straight line method over the estimated useful life of the technology. Amortization of purchased technology was approximately $8,172 for the nine months ended September 30, 1998 and 1999, respectively.
e. Earnings per share:
The Company calculates earnings per share in accordance with SFAS 128. At September 30, 1998, there were no potentially dilutive warrants or options outstanding.
f. Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
2. Reverse Acquisition:
On October 21, 1997, SI secured WEBX Media through a reorganization agreement. Under the agreement, the principal shareholders of the SI exchanged their stock on a share for share basis for the stock of WEBX. At the time of the acquisition, WEBX was non-operating public shell with no significant assets.
The Company has accounted for this transaction as a capital transaction; a retirement of SI shares and issuance of STGI shares (formerly WEBX). Because STGI shares have stated par value of $.001 compared to SI shares at $.0001, the exchange resulted in a reclassification from 'additional paid in capital' to 'par value'.
At the transaction date, approximately 88% of SI's shareholders exchanged SI stock for STGI stock. The Company reserved additional STGI shares to convert the balance of the remaining SI shareholders as they were located. During 1998, an additional 10% of the shareholders of record at the acquisition date had converted their shares.
Such conversion have continued through September 30, 1999.
3. Convertible debentures, detachable warrants, and long term debt:
During the nine months ended September 30, 1999, the Company raised capital approximating $802,500 through convertible debentures, some of which had detachable warrants. The Company allocated the proceeds between the debentures and the warrants premised upon the difference in the exercise price and the trading price of the stock at the date the warrants were issued.
Debentures of $618,500 were converted by September 30, 1999, through the issuance of approximately 1.175 million shares of common stock. Of the 150,000 warrants issued, 100,000 were converted by September 30, 1999.
At September 30, 1999, the Company had drawn $50,000 of a $500,000 loan. The loan is due August, 2001 with interest at 8%.
4. Deferred revenue:
SI received $250,000 from Steroidogenesis Inhibitors Canada, Inc., ( SI- Canada) for a licensing agreement prior to the acquisition date. The licensing agreement has a duration of ten years beginning with the date the drug is approved for use in Canada. Pursuant to the agreement, the Company has agreed to provide assistance in securing such approval.
During the nine month ended September 30, 1999, the Company earned $50,000 from SI-Canada pursuant to an agreement which called for a payment of $50,000 once SI-Canada became a public company.
5. Commitments and Contingencies:
The Company has contracted with the Aids Research Alliance to perform clinical testing required pursuant to the Company's efforts to secure FDA approval for Anticort. Approximately $227,000 of the $650,000 contract was paid during March 1999. The Company is seeking additional capital to complete the contract payments.
6. Income taxes:
Both STGI and SI have incurred substantial tax losses since inception.
Realization of the tax benefits of such are dependent upon future taxable income within the period of time permitted by the tax code (20 years from the year of loss). Because future earnings are uncertain, the future benefits of carryforward losses have not been accrued.
7. Stock transactions:
a. Stock warrants and options:
The Company had outstanding stock options at September 30, 1999 & 1998.
A summary of the status of the Company's outstanding warrants and options at September 30, 1999 and 1998, and changes during the nine months ended on those dates is presented below: (See 10-Q for table)
During the nine months ended September 30, 1999, 100,000 options issued in March 1999, were exercised. The options were issued with convertible debentures and allocated a value of $149,000.The options' exercise price was $.01/share. At the date of grant, shares were trading for approximately $1.50/share.
Also granted were 50,000 warrants which remain outstanding at September 30, 1999. These were also granted with debentures. The debentures were subsequently converted. The options were allocated a value of approximately $3,125. At the date of grant, shares were trading for approximately $1.00/share. The exercise price is $.9375/share. This warrant contains a cashless exercise feature which
adjusts the number of shares to be issued dependent upon the market share of the stock.
b. Stock as compensation:
The Company issues stock for services, valuing such issues premised upon the fair market value of the stock or the services, whichever is more clearly determinable.
During the nine months ended September 30, 1998, the Company issued 300,000 shares for services rendered by related parties. The Company valued those shares at the share price of an offering in progress on the date of grant, $1.00/share.
During the nine months ended September 30, 1999, the Company issued 3,569,250 shares as compensation valuing such compensation in aggregate at $496,947. Of these share, 3,223,000 shares were issued to directors. These shares have limitations regarding their trade and other restrictions.
c. Stock option plan
The Company has a stock option plan under which 2,500,000 shares are reserved. At September 30, 1999, no options have been granted pursuant to the plan.
8. Related party transactions:
SI purchased the technology rights (Note 1.d.2) from an entity controlled by the president of the Company for $108,968. SI-Canada, subsequent to securing the licensing agreement with the Company (Note 4), issued 300,000 share to the president of the Company.
Also, during 1998, consulting fees of $24,000 were paid to an entity owned by a family member of the president.
A director and officer of the Company owns the investment company which received 1,000,000 shares and options as compensation for consulting pursuant to the acquisition.
Directors of the Company received shares of common stock of compensation for consulting services during 1998 which were valued at $300,000. During the nine months ended September 30, 1999, directors received stock valued at $161,150 for services.
9. Risks and uncertainties:
Marketability of the product is dependent, among other things, upon securing additional capital to successfully complete the clinical testing of the product, securing FDA approval, and procurement of viable patents.
10. Subsequent Event:
Beginning in September, 1999, negotiations were underway with a company named Pashua for funding of up to $10,000,000 for the licenses to the Anticort product.
At the end of October, 1999, the Company filed a lawsuit in Las Vegas, Nevada, its corporate headquarters, against SI-Canada seeking the assistance of the court, damages, and other relief to a dispute and action taken by SI-Canada. The Company is contending that SI-Canada is interfering with the Company and the intended transaction with Pashua.
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