8-K/A 1 nanobac8ka.txt FORM 8-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: September 3, 2003 Date of Earliest Event Reported June 4, 2003 NANOBAC PHARMACEUTICALS, INC. ----------------------------- (Exact name of Registrant as specified in its Charter) Florida 0-24696 59-3248917 ------- ------- ---------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 2707 W. Martin Luther King Blvd, Ste 850, Tampa, Florida 33609 -------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (813) 264-2241 -------------- Registrant's telephone number, including area code: AMERICAN ENTERPRISE CORPORATION ------------------------------- Former name, former address and former fiscal year, if changed since last report ================================================================================ ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS The Financial Statements required by Item 310 of Regulation S-B are stated in U.S. dollars and are prepared in accordance with U.S. Generally Accepted Accounting Principles. The following financial statements pertaining to Nanobac Pharmaceuticals, Inc. and Subsidiaries will be filed as an amendment to this filing with 60 days of the filing date of this report. (a) Financial statements of business acquired The audited financial statements of NanobacLab Pharmaceuticals, Inc. and Subsidiaries for the year ended December 31, 2002 and the period from inception (August 29, 2002) through December 31, 2002; the audited financial statements of nanobacLab LLC for the year ended December 31, 2001 and the period from inception (May 2, 2001) through December 31, 2001; and unaudited financial statements for the six months ended June 30, 2003 and the period from inception (August 29, 2002) through June 30, 2003. (b) Pro forma financial information Pro forma condensed combined financial statements of Nanobac Pharmaceuticals, Inc., formerly know as American Enterprise Corporation have been attached hereto at the end of this report. These pro forma financial statements have been derived from the above referenced NanobacLab Pharmaceuticals, Inc. and the Nanobac Pharmaceuticals, Inc. audited financial statements included in its annual filing on Form 10-KSB and the unaudited financial statements for the six months ended June 30, 2003 for both Nanobac Pharmaceuticals, Inc. and NanobacLabs Pharmaceuticals, Inc. (c) Exhibits None. NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES ------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS together with INDEPENDENT AUDITORS' REPORT DECEMBER 31, 2002 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES ------------------------- CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 TABLE OF CONTENTS PAGE ----------------- ---- INDEPENDENT AUDITORS' REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS - BALANCE SHEET 2 STATEMENT OF OPERATIONS 3 STATEMENT OF STOCKHOLDERS' (DEFICIT) 4 STATEMENT OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6-14 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 15 SCHEDULE OF OPERATING EXPENSES 16 INDEPENDENT AUDITORS' REPORT ---------------------------- Board of Directors and Stockholders NanobacLabs Pharmaceuticals, Inc. and Subsidiaries Tampa, Florida We have audited the accompanying consolidated balance sheet of NanobacLabs Pharmaceuticals, Inc and Subsidiaries (the "Company") as of December 31, 2002, and the related consolidated statements of operations, stockholders' (deficit), and cash flows for the period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NanobacLabs Pharmaceuticals, Inc and Subsidiaries as of December 31, 2002, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note J to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BAUMANN, RAYMONDO & COMPANY, P.A. July 31, 2003 1 NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES BALANCE SHEET AT DECEMBER 31, 2002 ASSETS CURRENT ASSETS Cash $ 35,790 Accounts receivable 7,627 Prepaid expenses 18,797 Inventory 51,678 Security deposit 62,500 ----------- Total current assets 176,392 ----------- INVESTMENT 683,273 ----------- FIXED ASSETS, at cost less accumulated depreciation 126,432 ----------- OTHER ASSETS Deferred offering costs 10,741 Security deposits 65,000 ----------- Total other assets 75,741 ----------- TOTAL ASSETS $ 1,061,838 =========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses $ 281,636 Accrued interest payable 15,276 Line of credit 82,961 Notes payable 1,190,958 ----------- Total current liabilities 1,570,831 ----------- STOCKHOLDERS' (DEFICIT) Common stock, $.0001 par value, 45,000,000 shares authorized, 7,450,000 issued and outstanding 745 Preferred stock, $.0001 par value, 5,000,000 shares authorized, 0 issued and outstanding -- Retained (deficit) (509,738) ----------- Total stockholders' (deficit) (508,993) TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 1,061,838 =========== The accompanying notes are an integral part of these financial statements. 2 NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES STATEMENT OF OPERATIONS FOR THE PERIOD AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002 REVENUES $ 2,560,913 COST OF GOODS SOLD 834,010 ----------- GROSS PROFIT 1,726,903 OPERATING EXPENSES 2,019,372 ----------- (LOSS) FROM OPERATIONS (292,469) INTEREST EXPENSE 31,135 ----------- (LOSS) BEFORE INCOME TAXES (323,604) INCOME TAXES -- ----------- NET (LOSS) $ (323,604) =========== The accompanying notes are an integral part of these financial statements. 3

NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE PERIOD FROM AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $(323,604) --------- Adjustments to reconcile net (loss) to net cash (used in) operating activities: Depreciation 16,267 (Increase) decrease in current assets Accounts receivable 5,425 Prepaid expenses (15,977) Inventory (51,678) Deposits (125,000) Deferred offering costs (10,741) Increase (decrease) in current liabilities Accounts payable 235,231 Accrued interest payable 12,610 --------- Total adjustments 66,137 --------- Net cash flows (used) in operating activities (257,467) --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment and leasehold improvements (120,389) --------- Net cash flows (used) in investing activities (120,389) --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable 401,685 Repayment of line of credit (97,667) --------- Net cash flows provided by investing activities 304,018 --------- NET DECREASE IN CASH (73,838) CASH, BEGINNING OF THE PERIOD 109,628 --------- CASH, END OF THE PERIOD $ 35,790 ========= The accompanying notes are an integral part of these financial statements. 5 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies is presented to assist in understanding the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Operations -------------------- NanobacLabs Pharmaceuticals, Inc was formed in Delaware in August 2002 to act as a holding company for its subsidiaries. The Company and its subsidiaries provide a right for the patient to use compound pharmaceutical products related to the treatment of nanobacteria infection to the medical industry with a heavy emphasis on heart disease. The subsidiaries also provide research and diagnostic capability. Currently the prescriptions are prescribed and sold throughout the United States of America and the plans are to expand throughout North America. NanobacLabs LLC, was organized in Florida in May 2001, and became the initial operating entity offering the compound pharmaceutical product to be prescribed to a patient. This entity had operations in 2001 and throughout all of 2002. NanobacLabs Research Institute, LLC, was organized in Delaware in August 2002. NanobacLabs Diagnostic, LLC, was organized in Florida in August 2002. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts and balances of NanobacLabs Pharmaceuticals, Inc. and its wholly owned subsidiaries, NanobacLabs, LLC, NanobacLabs Research Institute, LLC and NanobacLabs Diagnostics, LLC (collectively referred to as the "Company"). All significant intercompany accounts and transactions have been eliminated in the consolidating process. Revenue and Cost Recognition ---------------------------- For financial statement reporting, the Company recognizes income and the related costs when earned and incurred, respectively. All payments for product shipments are prepaid and authorized with credit cards. Cash and Cash Equivalents ------------------------- All highly liquid investments purchased with maturity of three months or less are considered cash equivalents. 6 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable ------------------- The Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense for the period ended December 31, 2002 was $145,251. Inventory --------- The Company keeps in inventory test kits to be used by the patient as often as directed by the patients' physician. The test kits are stated at the lower of cost (first-in, first-out) or market, are serially numbered and have a shelf life of two years. Fixed Assets ------------ Fixed assets consist of office and computer equipment, leasehold improvements and furniture and fixtures and are stated at cost and include expenditures that substantially increase the useful lives of existing equipment. Maintenance and repairs are charged to operations when incurred. Depreciation of the fixed assets is calculated using the straight-line method based on assets' estimated useful lives as follows: Office equipment 5 years Computer equipment 5 years Leasehold improvements 5 years Furniture and fixtures 5 years Deferred Offering Costs ----------------------- The Company is in the process of offering 2,400,000 shares of the Company's $.0001 par value common stock in a private placement memorandum. In connection with this filing, any offering costs (consisting of legal, accounting and filing fees) will be netted against the proceeds from the offering in the event the offering is successful. In the event the offering is unsuccessful or abandoned, any offering costs will be expensed. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. 7 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Costs ----------------- The Company expenses the production costs of advertising the first time the advertising takes place. Income Taxes ------------ Starting in August 2002, the Company will record its federal and state income tax liability in accordance with Financial Accounting Standards Board Statement No. 109 "Accounting for Income Taxes". Deferred taxes payable are provided for differences between the basis of assets and liabilities for financial statements and income tax purposes, using current tax rates. Deferred tax asset is the expected benefit of a net operating loss carryover that is available to offset future income taxes. From inception of the Company until August 2002, the Company was taxed as a Limited Liability Company under provisions of the Internal Revenue Code. These provisions provide that the income or loss generated by the Company will be passed through to the stockholders and taxed at their respective individual income tax rates. Concentration of Risk --------------------- Financial instruments which potentially expose the Company to concentrations of risk, as defined by FASB Statement No. 105, Disclosure of Information about Financial Instruments with Off-Balance- Sheet Risk and Financial Instruments with Concentration of Credit Risk, consist principally of cash and accounts receivable. The Company generally has receivables from participating physicians who agree to be part of a study on the effects of the compound drug on their patients. The physicians are advanced funds based upon the submission of patient medical data. The Company closely monitors these receivables, but does not generally require collateral. The Company maintains cash accounts with financial institutions that are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per account. The Company's deposits with financial institutions, which exceeded federally insured amounts at December 31, 2002 amounted to $0. 8 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE B - EQUIPMENT Equipment consist of the following at December 31, 2002: Office equipment $ 37,627 Computer equipment 25,869 Leasehold improvements 47,385 Furniture and fixtures 32,267 -------- 143,148 Less accumulated depreciation (16,716) -------- $126,432 ======== NOTE C - INVESTMENT On September 25, 2002, the Company agreed to purchase 4,500 shares or 27.27 % of Nanobac OY from three entities located in Finland in the amount of 11,430 Euros ($11,198). Nanobac OY is a company that performs the same type of research in nanobacteria infection that the Company does. The agreement also requires the Company to acquire convertible promissory note loans purchase agreements in Nanobac OY in the amount of 686,000 Euros ($672,075) which includes accrued interest. The promissory notes have a conversion feature that allows the promissory notes to convert into 17,723 shares of Nanobac OY. The title to the 4,500 shares does not transfer until such time as the Company has fully paid for the convertible promissory notes. The convertible promissory notes have a stated interest of 7.5% until the purchase price has been paid. The agreement requires installments to be made on the purchase price (in Euros) as follows: December 18,2002 176,000 March 17, 2003 170,000 June 16, 2003 170,000 September 15, 2003 170,000 ------- 686,000 ======= The Company has made only one installment payment of 176,000 Euros and that occurred on February 10,2003. NOTE D - LINE OF CREDIT The Company has a revolving line of credit facility with a local bank. Maximum borrowings under this facility are $100,000. The line of credit bears interest at prime plus 1 % (5.75 % at December 31) and is due on demand. The line of credit collateralized by inventory, accounts, equipment, contracts and general intangibles and also requires a compensating balance arrangement of $50,000 at all times. The line of credit is guaranteed by the majority shareholders. 9 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE E - NOTES PAYABLE The Company's notes payable consist of the following as of December 31, 2002: Promissory note payable to Custom Care Pharmacy, monthly and weekly installments of principal and interest in the amounts of $15,000 and 4,615, respectively, due November 1, 2003, guaranteed by the majority shareholder $ 382,685 The Finnish National Fund for Research and Development, Savon Teknia Oy and Savon Kasvurahasto I Ky; due in one installment of 176,000, Euro and three installments of 170,000 Euro on December 18,2002 and March 17, June 16 and September 15, 2003; and one installment of 11,430 on September 15, 2003;Interest at 7.5%. The Company is in default of the installment terms at December 31, 2002 683,273 Promissory notes, unsecured, interest at 10% per year, convertible to common stock at the option of the lender, principal and interest due December 19, 2003 125,000 ---------- Total current maturity of notes payable $1,190,958 ========== NOTE F - INCOME TAXES For income tax purposes the Company has a net operating loss carryover of $266,332, which can be used to offset future federal and state taxable income through 2022. The potential tax benefit of these losses is estimated as follows: Future tax benefit $ 79,900 Valuation allowance (79,900) ---------- Future tax benefit $ -- ========== At December 31, 2002 no deferred tax assets or liabilities were recorded in the accompanying financial statements. 10 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE G - COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases office space at one location in Carrollwood, Florida and two locations in Tampa, Florida under operating leases expiring in January 2002, May 2007 and July 2010, respectively. The lease that expires in May 2007 required a security deposit in the amount of $125,000. To the extent that the Company complies with the terms of the security deposit the deposit will be refunded to the Company as follows: June 1, 2003 $ 62,500 June 1, 2004 31,250 The annual lease payments for the lease agreements for the years ended December 31, are as follows: 2003 $ 176,718 2004 182,845 2005 158,190 2006 160,684 2007 96,026 Thereafter 125,139 ------------ $ 899,602 ============ Employment Agreements --------------------- On April 15, 2002 the Company entered into an employment agreement with its President and Chief Operating Officer. The term of the agreement is for a period of two years and also provides for a monthly housing and automobile allowance. The agreement also allows the employee to acquire the Company's stock on the first and second anniversary date. Amounts owed under this agreement as of December 31, 2003 and 2004 are $ 270,000 and 77,785, respectively. Independent Contractors ----------------------- The Company has a consulting agreement with Gary Mezo, the majority shareholder. The consulting fees are $25,000 per month beginning February 28, 2003 and continue for a period of five years. The Company paid the related party $300,000 in consulting fees for the period ended December 31, 2002. At December 31, 2002, the Company was indebted to the majority shareholder in the amount of $68,000. On August 19, 2002 the Company entered into an agreement with its Chief Clinical Director. The term of the agreement is for a period of two years and three months. Amounts owed under this agreement as of December 31, 2003 and 2004 are $ 150,000 and 225,000, respectively. 11 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE H - CONVERTIBLE DEBT AGREEMENT On September 26, 2001 the Company entered into an agreement with Custom Care Pharmacy. The agreement states that Custom Care Pharmacy would allow the Company to purchase 5000 units of nanobac TX at a price of $85 per unit which includes shipping. The Company would be required to make a weekly payment of $25 per unit shipped by Custom Care Pharmacy and the balance of $60 would be accrued against a $320,000 line of credit issued to the Company by Custom Care Pharmacy. The line of credit accrued interest at the rate of six percent (6%) per annum. The Company also issued a promissory note payable to Custom Care Pharmacy in the amount of $106,000 for prior shipments of nanobac TX and other working capital that was provided by Custom Care Pharmacy. The promissory note accrues interest at the rate of six percent (6%) per annum and is due on demand. As part of this entire agreement nanobacLabs, LLC granted Custom Care Pharmacy the option to purchase up to 20% of the Company at a price of $600,000. Should Custom Care Pharmacy elect to purchase less than 20%, the price would be reduced accordingly. Said price shall be paid to either nanobacLabs, LLC or to Gary S. Mezo and/or Nancy Mezo. The option purchase price expires September 30, 2002. The agreement also provides that Custom Care Pharmacy will provide the Company with the following price and volume commitments for units of nanobac TX: 5,000 units at $75 plus $10 shipping 100,000 units at $60 plus shipping 100,000 units at $55 plus shipping 100,000 units at $50 plus shipping 500,000 units at $48 plus shipping 500,000 units at $46 plus shipping All other quantities at $45 plus shipping On October 23, 2003 the line of credit of $320,000 and promissory note of $106,000 were converted to a consolidated promissory note in the amount of $471,887. NOTE I - SUBSEQUENT EVENTS Private Placement Memorandum ---------------------------- In June 2003, the Company completed the offering and issued approximately 1,229,500 shares of the Company's $.0001 par value common stock. Total proceeds received from the placement amounted to approximately $1,177,000. 12 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE I - SUBSEQUENT EVENTS (CONTINUED) Patent and Trademark License Agreement -------------------------------------- On January 1, 2003, the Company entered into a 30 year agreement with Gary Mezo the majority shareholder to be able to license the nanobac compound exclusively. Under the terms of this agreement the majority shareholder is due the following: 1. An annual renewal fee of $ 50,000. 2. A royalty fee of 5% of gross sales. If Dr. Mezo is no longer the Chairman of the Board, the royalty increases to 10 %. 3. A minimum annual royalty of $500,000. The agreement also allows Dr. Mezo to purchase up to 5% the preferred stock of the Company. Employment Agreement -------------------- On February 3, 2003 the Company entered into an employment agreement with its Director of Scientific Research & Development. The term of the agreement is for a period of five years. The agreement also allows the employee to acquire the Company's stock during each year of employment. Amounts owed under this agreement as of December 31, are as follows: 2003 $ 181,370 2004 200,000 2005 200,000 2006 200,000 2007 200,000 2008 18,630 ------------ $ 1,000,000 ============ Merger ------ An acquisition of the majority ownership of the Company was completed by American Enterprise Corporation ("AMER") partially on June 2, 2003 concluding on June 4, 2003. On June 4, 2003, AMER acquired 6,100,000 shares from Doctor Gary S. Mezo and Mrs. Nancy M. Schriewer-Mezo representing approximately 74.4% of the Company in exchange for 24,400,000 restricted AMER no par value common shares together with a loan in the amount of $300,000 and a commitment to provide additional equity capital during the twelve months following the acquisition. Dr. Mezo is Chairman of the Company's Board of Directors. 13 NANOBACLABS PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE I - SUBSEQUENT EVENTS (CONTINUED) Merger (Continued) ------------------ In addition, AMER has agreed to acquire the remaining 2,089,500 outstanding shares of the Company for 8,358,000 AMER shares and, if exercised, 500,000 options to acquire the Company's shares for 2,000,000 AMER shares. The option holder is not obligated to exercise its option. In the event all Nanobac shares are converted, AMER will have issued an aggregate of 34,758,000 shares and shall have issued and outstanding a total of 72,408,395 shares. In such an event, the owners of Nanobac will own approximately 48% of AMER. NOTE J - GOING CONCERN The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $323,604 for 2002 and has incurred a net loss in the last fiscal year. At December 31, 2002, current liabilities exceeded current assets by $1,364,439 and total liabilities exceeded total liabilities by $508,993. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence 14 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION --------------------------------------------------------- To the Members' NanobacLabs Pharmaceuticals, Inc. and Subsidiaries Tampa, Florida Our report on our audit of the basic financial statements of NanobacLabs Pharmaceuticals, Inc. and Subsidiaries for the period ended December 31, 2002, appears on page 1. The audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on page 16 for the period ended December 31, 2002 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. BAUMANN, RAYMONDO & COMPANY, P.A. July 31, 2003 15 NANOBACLABS PHARMACEUTICALS INC. AND SUBSIDIARIES SCHEDULE OF OPERATING EXPENSES FOR THE PERIOD FROM AUGUST 29, 2002 (INCEPTION) TO DECEMBER 31, 2002 Automobile $ 10,394 Bad debt expense 145,251 Bank service charges 1,790 Cleaning 6,814 Contributions 9,500 Depreciation 13,333 Dues and subscriptions 3,826 Equipment rental 561 Filing fees 920 Insurance 9,626 Licenses and permits 50 Marketing 30,676 Medical director fee 92,500 Miscellaneous 3,653 Office expenses 7,689 Physician fees 237,580 Postage and delivery 13,120 Printing and reproduction 21,858 Professional fees 386,593 Rent 114,994 Repairs and maintenance 3,944 Research expense 29,086 Salaries and wages 737,277 Supplies 43,513 Storage 938 Taxes 4,007 Telephone 42,365 Temporary services 1,547 Training and education 87 Travel and entertainment 44,636 Utilities 1,244 ---------- $2,019,372 ========== The accompanying notes are n integral part of these financial statements. 16 nanobacLabs, LLC -------------------- FINANCIAL STATEMENTS together with INDEPENDENT AUDITORS' REPORT DECEMBER 31, 2001 nanobacLabs, LLC ------------------------- FINANCIAL STATEMENTS DECEMBER 31, 2001 TABLE OF CONTENTS PAGE ----------------- ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS - BALANCE SHEET 2 STATEMENT OF OPERATIONS AND MEMBERS' (DEFICIT) 3 STATEMENT OF CASH FLOWS 4 NOTES TO FINANCIAL STATEMENTS 5-11 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 12 SCHEDULE OF OPERATING EXPENSES 13 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Members' nanobacLabs, LLC Tampa, Florida We have audited the accompanying balance sheet of nanobacLabs, LLC as of December 31, 2001, and the related statement of operations and members' (deficit), and cash flows for the period May 2, 2001 (inception) to December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of nanobacLabs, LLC as of December 31, 2001, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America. BAUMANN, RAYMONDO & COMPANY, P.A. July 31, 2003 1 nanobacLabs, LLC BALANCE SHEET AT DECEMBER 31, 2001 ASSETS CURRENT ASSET Cash $ 109,628 Accounts receivable, net of allowance of $69,500 2,202 Prepaid expenses 2,820 --------- Total current assets 114,650 FIXED ASSETS, at cost less accumulated depreciation 22,847 OTHER ASSETS 2,500 --------- TOTAL ASSETS $ 139,997 ========= LIABILITIES AND MEMBERS' (DEFICIT) CURRENT LIABILITIES Accounts payable $ 46,405 Accrued interest payable 2,666 Line of credit 171,060 Note payable 106,000 --------- Total current liabilities 326,131 MEMBERS' (DEFICIT) (186,134) --------- TOTAL LIABILITIES AND MEMBERS' (DEFICIT) $ 139,997 ========= The accompanying notes are an integral part of these financial statements. 2 nanobacLabs, LLC STATEMENT OF OPERATIONS AND MEMBER'S (DEFICIT) FOR THE PERIOD MAY 2, 2001 (INCEPTION) to DECEMBER 31, 2001 REVENUES $ 959,889 COST OF GOODS SOLD 379,622 --------- GROSS PROFIT 580,267 OPERATING EXPENSES 763,735 --------- (LOSS) FROM OPERATIONS (183,468) INTEREST EXPENSE 2,666 --------- NET (LOSS) (186,134) MEMBER'S (DEFICIT) - BEGINNING OF PERIOD -- --------- MEMBERS' (DEFICIT) - END OF PERIOD $(186,134) ========= The accompanying notes are an integral part of these financial statements. 3 nanobacLabs, LLC STATEMENT OF OPERATIONS AND MEMBER'S (DEFICIT) FOR THE PERIOD MAY 2, 2001 (INCEPTION) to DECEMBER 31, 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $(186,134) --------- Adjustments to reconcile net (loss) to net cash (used in) operating activities: Depreciation 3,383 (Increase) decrease in assets Accounts receivable (2,202) Prepaid expenses (2,820) Deposits (2,500) Increase (decrease) in liabilities Accounts payable 46,405 Accrued interest payable 2,666 --------- Total adjustments 44,932 --------- Net cash flows (used) in operating activities (141,202) --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of computer and office equipment (26,230) --------- Net cash flows (used in) investing activities (26,230) --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable 106,000 Proceds from line of credit 171,060 --------- Net cash flows provided by investing activities 277,060 --------- NET INCREASE IN CASH 109,628 CASH, BEGINNING OF THE PERIOD -- --------- CASH, END OF THE PERIOD $ 109,628 ========= The accompanying notes are an integral part of these financial statements. 4 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies is presented to assist in understanding the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Operations -------------------- nanobacLabs LLC (the" Company") was organized in Florida in May 2001. The Company provides a right for the patient to use compound pharmaceutical products related to the treatment of nanobacteria infection to the medical industry with a heavy emphasis on heart disease. Currently the prescriptions are prescribed and sold throughout the United States of America and the plans are to expand into worldwide distribution of the products. Revenue and Cost Recognition ---------------------------- For financial statement reporting, the Company recognizes income and the related costs when earned and incurred, respectively. All payments for product shipments are prepaid and authorized with credit cards. Cash and Cash Equivalents ------------------------- All highly liquid investments purchased with maturity of three months or less are considered cash equivalents. Accounts Receivable ------------------- The Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense for the period ended December 31, 2001 was $70,900. Office and computer equipment ----------------------------- Office and computer equipment are stated at cost and include expenditures that substantially increase the useful lives of existing equipment. Maintenance and repairs are charged to operations when incurred. Office and computer equipment (continued) ----------------------------------------- Depreciation of office and computer equipment is calculated using the straight-line method based on assets' estimated useful lives as follows: Office equipment 5 years Computer equipment 5 years Read independent auditors' report. 5 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Costs ----------------- The Company expenses the production costs of advertising the first time the advertising takes place. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Income Taxes ------------ The Company is taxed as a Limited Liability Company under provisions of the Internal Revenue Code. These provisions provide that the income or loss generated by the Company will be passed through to the members' and taxed at their respective individual income tax rates. There is, therefore, no provision for income taxes included in the 2001 financial statements. Concentration of Risk --------------------- Financial instruments which potentially expose the Company to concentrations of risk, as defined by FASB Statement No. 105, Disclosure of Information about Financial Instruments with Off-Balance- Sheet Risk and Financial Instruments with Concentration of Credit Risk, consist principally of cash and accounts receivable. The Company generally has receivables from participating physicians who agree to be part of a study on the effects of the compound drug on their patients. The physicians are advanced funds based upon the submission of patient medical data. The Company closely monitors these receivables, but does not generally require collateral. The Company maintains cash accounts with financial institutions that are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per account. The Company's deposits with financial institutions, which exceeded federally insured amounts at December 2001, amounted to $50,775. Historically, the Company has not experienced any losses on its deposits. Read independent auditors' report. 6 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE B - FIXED ASSETS Equipment consists of the following at December 31, 2001: Office equipment $ 15,962 Computer equipment 10,268 -------- 26,230 Less accumulated depreciation (3,383) -------- $ 22,847 ======== NOTE C - COMMITMENTS AND CONTINGENCIES The Company leases office space in Tampa, Florida. The term of the lease is five years commencing on January 15, 2000 through January 14, 2005. The lease agreement required a security deposit in the amount of $2,500. The annual lease payments for this lease agreement is as follows for the years ending December 31: 2002 $ 29,091 2003 30,255 2004 31,465 2005 and thereafter 1,363 -------- $ 92,174 ======== NOTE D - CONVERTIBLE DEBT AGREEMENT On September 26, 2001 the Company entered into an agreement with Custom Care Pharmacy. The agreement states that Custom Care Pharmacy would allow the Company to purchase 5000 units of nanobac TX (test kits) at a price of $85 per unit, which includes shipping. The Company would be required to make a weekly payment of $25 per unit shipped by Custom Care Pharmacy and the balance of $60 would be accrued against a $320,000 line of credit issued to the Company by Custom Care Pharmacy. The line of credit accrues interest at the rate of six percent (6%) per annum. The Company also issued a promissory note payable to Custom Care Pharmacy in the amount of $106,000 for prior shipments of nanobac TX and other working capital that was provided by Custom Care Pharmacy. The promissory note accrues interest at the rate of six percent (6%) per annum and is due on demand. As part of this entire agreement the Company granted Custom Care Pharmacy the option to purchase up to 20% of the Company at a price of $600,000. Should Custom Care Pharmacy elect to purchase less than 20%, the price would be reduced accordingly. Said price shall be paid to either the Company or to Gary S. Mezo and/or Nancy Mezo. The option purchase price expires September 30, 2002. Read independent auditors' report. 7 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE D - CONVERTIBLE DEBT AGREEMENT (CONTINUED) The agreement also provides that Custom Care Pharmacy will provide the Company with the following price and volume commitments for units of nanobac TX: 5,000 units at $75 plus $10 shipping 100,000 units at $60 plus shipping 100,000 units at $55 plus shipping 100,000 units at $50 plus shipping 500,000 units at $48 plus shipping 500,000 units at $46 plus shipping All other quantities at $45 plus shipping NOTE E - PURCHASE OPTION On July 9, 2001 the Company entered into an agreement with Benedict S. Maniscalco, MD that appointed him as Cardiology Director of the Company. The compensation for these services are $5,000 per month paid to him as an Independent Contractor. Also with this agreement the Company issued a purchase option to Benedict S. Maniscalco, MD to purchase 5% ownership of the Company for $150,000. The option expires on June 1, 2002. If 5% ownership is granted through performance being met according to the terms in the following paragraph, the option to purchase 5% is eliminated. The ownership of 5% would not be allowed to be pledged, assigned, promised, transferred or sold to anyone without the express written permission of the Company. The Company also has the first right of to purchase the ownership at its original value of $150,000. On June 1,2002 the Company extended the option to purchase 5% ownership until September 30, 2002. The option was not exercised. At the point in time that 1,500 patients involved in the nanobacTX - ACES II Cardiology Trials have completed 4 months of treatment, nanobacLabs, LLC will issue Benedict S. Maniscalco, MD 5% ownership, except if he has exercised his purchase option of 5% he is not entitled to the additional 5% ownership. NOTE F - RELATED PARTY TRANSACTIONS The Company has a consulting agreement with Gary Mezo, the majority shareholder. The consulting fees are $25,000 per month beginning February 28, 2003 and continue for a period of five years. The Company paid the related party $165,000 in consulting fees for the period ended December 31, 2001. Reade independent auditors' report. 8 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE G - SUBSEQUENT EVENTS Operating Leases On April 17, 2002 the Company entered into a long-term lease for office space located in Tampa, Florida. The term of the lease is five years commencing on June 1, 2002 through May 31, 2007. The lease agreement required a security deposit in the amount of $125,000. The security deposit will be refunded to the Company as follows: June 1, 2003 $ 62,500 June 1, 2004 31,250 On September 1, 2002 the Company rented additional space in the office building located in Tampa, Florida. The annual aggregate lease payments for these lease agreements are as follows: 2002 $ 73,292 2003 146,463 2004 151,380 2005 156,827 2006 160,684 2007 and thereafter 221,165 --------- $ 909,811 ========= Investment On September 25, 2002, the Company agreed to purchase 4,500 shares or 27.27 % of Nanobac OY from three entities located in Finland in the amount of 11,430 Euros ($11,198). Nanobac OY is a company that performs the same type of research in nanobacteria infection that the Company does. The agreement also requires the Company to acquire convertible promissory note loans purchase agreements in Nanobac OY in the amount of 686,000 Euros ($672,075) which includes accrued interest. The title to the 4,500 shares of Nanobac OY does not transfer until such time as the Company has fully paid for the convertible promissory notes. The convertible promissory notes have a stated interest of 7% until the entire purchase price has been paid. The agreement requires installments to be made on the purchase price (in Euros) as follows: December 18,2002 176,000 March 17, 2003 170,000 June 16, 2003 170,000 September 15, 2003 170,000 ------- 686,000 ======= The Company has made only one installment payment of 176,000 Euros and that occurred on February 10,2003. Read independent auditors' report. 9 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE G - SUBSEQUENT EVENTS (CONTINUED) Employment Agreements --------------------- On April 15, 2002 the Company entered into an employment agreement with its President and Chief Operating Officer. The term of the agreement is for a period of two years and also provides for a monthly housing and automobile allowance. The agreement also allows the employee to acquire the Company's stock on the first and second anniversary date. Amounts owed under this agreement as of December 31, 2003 and 2004 are $ 270,000 and $ 77,785, respectively. On February 3, 2003 the Company entered into an employment agreement with its Director of Scientific Research & Development. The term of the agreement is for a period of five years. The agreement also allows the employee to acquire the Company's stock during each year of employment. Amounts owed under this agreement as of December 31, are as follows: 2003 $ 181,370 2004 200,000 2005 200,000 2006 200,000 2007 200,000 2008 18,630 ----------- $ 1,000,000 =========== Independent Contractor ---------------------- August 19, 2002 the Company entered into an employment agreement with its Chief Clinical Director. The term of the agreement is for a period of two years and three months. Amounts owed under this agreement as of December 31, 2002, 2003 and 2004 are $20,192, $150,000 and $225,000, respectively. Patent and Trademark License Agreement -------------------------------------- On January 1, 2003, the Company entered into a 30 year agreement with Gary Mezo the majority shareholder to be able to license the nanobac compound exclusively. Under the terms of this agreement the majority shareholder is due the following: 1. An annual renewal fee of $ 50,000. 2. A royalty fee of 5% of gross sales. If Dr. Mezo is no longer the Chairman of the Board, the royalty increases to 10 %. 3. A minimum annual royalty of $100,000. The agreement also allows Dr. Mezo to purchase up to 5% the preferred stock of the Company. Read independent auditors' report. 10 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE G - SUBSEQUENT EVENTS (CONTINUED) Merger ------ On August 29, 2002, a parent company (NanobacLabs Pharmaceuticals, Inc.) and two additional subsidiaries (NanobacLabs Research Institute LLC and NanobacLabs Diagnostic, LLC) were formed. An acquisition of the majority ownership of NanobacLabs Pharmaceuticals, Inc. was completed by American Enterprise Corporation ("AMER") partially on June 2, 2003 concluding on June 4, 2003. On June 4, 2003, AMER acquired 6,100,000 shares from Doctor Gary S. Mezo and Mrs. Nancy M. Schriewer-Mezo representing approximately 74.4% of NanobacLabs Pharmaceuticals, Inc. in exchange for 24,400,000 restricted AMER no par value common shares together with a loan in the amount of $300,000 and a commitment to provide additional equity capital during the twelve months following the acquisition. Dr. Mezo is Chairman of the NanobacLabs Pharmaceuticals, Inc. Board of Directors. In addition, AMER has agreed to acquire the remaining 2,089,500 outstanding shares of the Company for 8,358,000 AMER shares and, if exercised, 500,000 options to acquire the Company's shares for 2,000,000 AMER shares. The option holder is not obligated to exercise its option. In the event all NanobacLabs Pharmaceuticals, Inc. shares are converted, AMER will have issued an aggregate of 34,758,000 shares and shall have issued and outstanding a total of 72,408,395 shares. In such an event, the owners of NanobacLabs Pharmaceuticals Inc. will own approximately 48% of AMER. Read independent auditors' report. 11 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION --------------------------------------------------------- To the Members' nanobacLabs, LLC Tampa, Florida Our report on our audit of the basic financial statements of nanobacLabs, LLC, for the period ended December 31, 2001, appears on page 1. The audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on page 13 for the period ended December 31, 2001 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. BAUMANN, RAYMONDO & COMPANY, P.A. July 31, 2003 Read independent auditors' report. 12 nanobacLabs, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 SUPPLEMENTARY INFORMATION Advertising $ 7,030 Automobile 6,472 Bad debt expense 70,900 Consulting 165,822 Depreciation 3,383 Donations 100 Dues and subscriptions 3,125 Insurance 8,194 Medical director fee 65,980 Office expenses 29,727 Physician fees 163,335 Postage and delivery 680 Professional fees 5,878 Rent 18,366 Repairs and maintenance 1,000 Salaries and wages 146,093 Taxes 29,897 Telephone 13,714 Travel and entertainment 24,014 Utilities 25 -------- $763,735 ======== Read independent auditors' report. 13

NANOBAC PHARMACEUTICALS INC 8-K/A