BEN
EFFECT filings are notice's of effectiveness of POS AM's and some S filings ie: S-1, SB-2. The EFFECT filing comes prior to the 424B3 filing we see when the shares enter the market.
We continue to fund our operations and research and development through the
notes payable proceeds we receive from Dutchess. On March 6, 2006, we issued to
Dutchess a promissory note in the amount of $1,500,000 for a purchase price of
$1,200,000. The note is due and payable in full on March 6, 2007. Other than the
$300,000 discount inherent in the purchase price, the note is
non-interest-bearing. The note will be repaid using the proceeds of each put
notice delivered by us to Dutchess under the September 2004 Investment
Agreement.
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On April 17, 2006, we issued to Dutchess a promissory note in the amount of
$1,470,000 for a purchase price of $1,175,000. The note is due and payable in
full on April 17, 2007. Other than the $295,000 discount inherent in the
purchase price, the note is non-interest-bearing. The note will be repaid using
the proceeds of each put notice delivered by us to Dutchess under the September
2004 Investment Agreement.
On May 18, 2006, we issued to Dutchess a promissory note in the amount of
$1,300,000 for a purchase price of $1,000,000. The note is due and payable in
full on May 18, 2007. Other than the $300,000 discount inherent in the purchase
price, the note is non-interest-bearing. The note will be repaid using the
proceeds of each put notice delivered by us to Dutchess under the September 2004
Investment Agreement.
On June 30, 2006, we issued to Dutchess a promissory note in the amount of
$1,495,000 for a purchase price of $1,150,000. The note is due and payable in
full on June 29, 2007. Other than the $345,000 discount inherent in the purchase
price, the note is non-interest-bearing. The note will be repaid using the
proceeds of each put notice delivered by us to Dutchess under the September 2004
Investment Agreement
In connection with the notes, we paid Dutchess facility fees of $310,000 and
convertible debentures totaling $1,353,750. We also paid approximately $181,000
of fees to Athena.
In order to continue to use our $35 million funding facility with Dutchess
Equity Partners to fund our operations and complete future acquisitions, during
April 2006 we filed a registration statement to register 600,000,000 shares of
our common stock for this facility. The registration statement was declared
effective on May 1, 2006. On September 14, 2006, we filed a registration
statement to register 260,281,228 shares of our common stock of which
175,000,000 shares were for the shares underlying the convertible debentures
held by Dutchess and 45,000,000 shares were for the shares underlying the
convertible debentures held by La Jolla. The SEC is in the process of reviewing
this filing.
The Dutchess Agreement provides that we from time to time may deliver a notice
to Dutchess that will state the dollar amount of common stock that we desire it
to purchase. The maximum amount permitted pursuant to any such notice is
$600,000, and we can give approximately three such notices per month. Upon
receipt of the notice, Dutchess is obliged to purchase the dollar amount of
common stock set forth in the notice at a purchase price equal to 96% of the
average of the two lowest closing bid prices of the common stock during the five
trading days after the notice. We are not permitted to provide a notice to
Dutchess, and Duchess is not obliged to purchase any of our shares, in the event
that we do not have sufficient authorized shares available for purchase to
fulfill such commitment. In accordance with the outstanding notes we issued to
Dutchess, we are required to use 100% of the proceeds from these puts as payment
on the notes.
On October 30, 2006, Biofrontera, AG registered its stock on the Dusseldorf and
Frankfurt, Germany stock exchanges. We anticipate that we will be able to get a
line of credit facility by using the shares we own in Biofrontera, AG as
collateral.
We have formed DNAPrint Pharmaceuticals, Inc., a wholly-owned pharmaceutical
subsidiary focused on personalized medicine. This new company will be focused on
pharmacogenomics -- personalized medicine based on a patient's DNA. To finance
our pharmacogenomics products, we will also be seeking funding for DNAPrint
Pharmaceuticals.
We do not expect our revenue stream to be sufficient to cover costs of
operations in the immediate future. We anticipate that the funding we expect to
receive from the Dutchess agreement and from borrowing funds using the shares we
own in Biofrontera, AG as collateral will fund our operating activities through
2006. We will continue to use the $35 million Dutchess facility to provide
additional cash in the future to fund future acquisitions, if any, and provide
operating cash flow. If our share price is sufficiently low, or if any number of
adverse factors or events occur, we will not have enough equity to complete
future acquisitions or possibly to continue operations beyond 2006. Management
is adequately confident that equity financing or debt will be available to fund
our operations until revenue streams are sufficient to fund operations; however,
the terms and timing of such equity or debt cannot be predicted.
We have issued securities, including our convertible debentures and our
convertible preferred stock, that are convertible into our common stock at a
continuously adjustable conversion price based on a discount on the trading
price of our common stock. In addition, our Investment Agreement with Dutchess
requires us, in order to raise capital from it, to sell our common stock to it
at a continuously adjustable conversion price at a discount to the trading price
of our common stock. As we draw down advances under the Investment Agreement
with Dutchess and more of our common stock is sold pursuant thereto, the market
price of our common stock could decrease significantly and make further advances
impractical or impossible during time periods in which we may need to raise
capital to fund our operations and market and sell our products and services. In
addition, the issuance of our common stock upon exercise or conversion of our
other securities may create a downward pressure on the market price of our
common stock.
Our consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. We have incurred losses since our
inception, and have experienced and continue to experience negative cash flows
from operations. In addition, we have a working capital deficiency of $9,306,279
at September 30, 2006, and will continue to have ongoing requirements for
substantial additional capital investment to accomplish our business plan over
the next several years. Over the past few years, our operations have been funded
through related party funding, sales of common stock and preferred stock,
issuance of notes, line of credit, put notices with Dutchess and the issuance of
convertible debentures and the exercise of non-detachable warrants. We continue
to experience some success generating operating revenues, and we anticipate, but
cannot assure, that our existing funding sources will fund our operating
activities through 2006. These factors, among others, indicate that we may be
unable to continue as a going concern for a reasonable period of time.
