SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ________________ to ________________.
Commission file number 0-27976.
GalaGen Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-1719104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Lexington Avenue North
Arden Hills, Minnesota 55126
(Address of principal executive offices) (Zip Code)
(612) 481-2105
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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 reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 par
value--7,187,849 shares as of July 31, 1997.
INDEX
GALAGEN INC.
(A Development Stage Company)
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1997 and December 31, 1996............. 3
Statements of Operations - Six months ended June 30, 1997
and June 30, 1996 and for the period
November 17, 1987 (inception) through June 30, 1997.............. 4
Statements of Cash Flows - Six months ended June 30, 1997
and June 30, 1996 and for the period
November 17, 1987 (inception) through June 30, 1997.............. 5
Notes to Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .............. 12
Item 6. Exhibits and Reports on Form 8-K ................................. 12
SIGNATURES................................................................. 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GALAGEN INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ...................................... $ 1,965,677 $ 3,869,549
Available-for-sale securities .................................. 5,415,655 7,498,343
Prepaid expenses .............................................. 60,115 87,274
------------ ------------
Total current assets ..................................... 7,441,447 11,455,166
Property, plant and equipment .................................... 1,859,283 1,687,838
Less accumulated depreciation ................................... (145,851) (195,483)
------------ ------------
1,713,432 1,492,355
Deferred financing expenses ...................................... -- 11,944
------------ ------------
Total assets ..................................................... $ 9,154,879 $ 12,959,465
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 677,528 $ 1,486,928
Accrued expenses ................................................. 67,595 192,633
------------ ------------
Total current liabilities ......................................... 745,123 1,679,561
Other long-term liabilities ....................................... 45,000 45,000
Stockholders' equity:
Preferred Stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - none ......................... -- --
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares --7,176,339 at
June 30, 1997 and 7,163,769 at December 31, 1996 .......... 71,763 71,638
Additional paid-in capital ....................................... 58,942,002 58,926,654
Deficit accumulated during the development stage ................. (50,217,414) (47,183,920)
Deferred compensation ............................................ (431,595) (579,468)
------------ ------------
Total stockholders' equity ....................................... 8,364,756 11,234,904
------------ ------------
Total liabilities and stockholders' equity ........................ $ 9,154,879 $ 12,959,465
============ ============
See accompanying notes.
Note: The balance sheet at December 31, 1996 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
3
GALAGEN INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS (Unaudited)
Period from
November 17, 1987
Three months Ended June 30 Six months Ended June 30 (inception) to
----------------------------------------------------------- June 30,
1997 1996 1997 1996 1997
----------------------------------------------------------------------------
Revenues:
Product sales ....................................... $ -- $ -- $ -- $ -- $ 1,449,593
Product royalties ................................... -- -- -- -- 62,747
Research and development revenues ................... -- -- -- -- 396,350
------------ ------------ ------------ ------------ ------------
-- -- -- -- 1,908,690
Operating costs and expenses:
Cost of goods sold .................................. -- -- -- -- 3,468,711
Research and development ............................ 1,036,352 1,088,862 2,155,566 1,785,721 25,351,102
General and administrative .......................... 535,099 437,419 1,109,095 912,670 15,157,690
------------ ------------ ------------ ------------ ------------
(1,571,451) (1,526,281) (3,264,661) (2,698,391) (43,977,503)
------------ ------------ ------------ ------------ ------------
Operating loss ....................................... (1,571,451) (1,526,281) (3,264,661) (2,698,391) (42,068,813)
Interest income ...................................... 114,885 202,865 231,167 207,945 988,519
Interest expense ..................................... -- (613,899) -- (918,102) (2,445,697)
------------ ------------ ------------ ------------ ------------
Net loss before extraordinary gain ................... (1,456,566) (1,937,315) (3,033,494) (3,408,548) (43,525,991)
Extraordinary gain on extinguishment of debt ......... -- -- -- -- 605,421
------------ ------------ ------------ ------------ ------------
Net loss for the period and deficit accumulated during
the development stage .............................. (1,456,566) (1,937,315) (3,033,494) (3,408,548) (42,920,570)
Less preferred stock dividends ....................... -- (7,296,844) -- (7,296,844) (7,296,844)
------------ ------------ ------------ ------------ ------------
Net loss applicable to common stockholders ........... $ (1,456,566) $ (9,234,159) $ (3,033,494) $(10,705,392) $(50,217,414)
============ ============ ============ ============ ============
Net loss per share applicable to common stockholders
Primary ............................................ $ (0.20) $ (1.30) $ (0.42) $ (1.75) $ (22.28)
Fully diluted ...................................... $ (0.20) $ (1.30) $ (0.42) $ (1.75) $ (17.43)
Weighted average number of common shares outstanding
Primary ............................................ 7,169,038 7,129,263 7,166,418 6,105,442 2,254,276
Fully diluted ...................................... 7,169,038 7,129,263 7,166,418 6,105,442 2,881,749
See accompanying notes.
4
GALAGEN INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Unaudited)
Period from
November 17, 1987
Six months Ended June 30 (inception) to
---------------------------- June 30,
1997 1996 1997
-------------------------------------------
Operating activities:
Net loss .............................................. $ (3,033,494) $(10,705,392) $(50,217,414)
Adjustments to reconcile net loss to cash (used in)
operating activities:
Depreciation and amortization ........................ 189,507 213,157 1,897,997
Preferred stock dividend ............................. -- 7,296,844 7,296,844
Warrants issued, net ................................. -- 768,064 907,064
Extraordinary gain on extinguishment of debt ......... -- -- (605,421)
Equity/debt issued for services ...................... -- -- 2,976,224
Changes in operating assets and liabilities .......... (895,064) (1,457,226) 1,569,725
------------ ------------ ------------
Net cash (used in) operating activities ............... (3,739,051) (3,884,553) (36,174,981)
------------ ------------ ------------
Investing activities:
Purchase of property, plant and equipment ............. (262,982) (149,509) (3,706,865)
Change in available-for-sale securities, net .......... 2,082,688 (6,460,894) (5,415,655)
------------ ------------ ------------
Net cash provided by (used in) investing activities .. 1,819,796 (6,610,403) (9,122,520)
------------ ------------ ------------
Financing activities:
Proceeds from sale of stock, net of offering costs .... 15,473 19,067,619 32,144,758
Proceeds/payment from/on note payable ................. -- (6,404) 15,118,420
------------ ------------ ------------
Net cash provided by financing activities ............. 15,473 19,061,215 47,263,178
------------ ------------ ------------
Increase (decrease) in cash ........................... (1,903,872) 8,566,259 1,965,677
Cash and cash equivalents at beginning of period ...... 3,869,549 509,339 --
------------ ------------ ------------
Cash and cash equivalents at end of period ............ $ 1,965,677 $ 9,075,598 $ 1,965,677
============ ============ ============
Schedule of noncash investing and financing activities:
Value of warrants issued with convertible debt ........ $ -- $ 33,333 $ 110,333
Deferred compensation recognized for employee options . -- -- 1,918,200
Conversion of convertible promissory notes plus related
Accrued interest, net of financing costs ........... -- 8,864,825 8,864,825
5
GALAGEN INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered necessary
for fair presentation have been included. Operating results for the six
months ended June 30, 1997, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. These financial
statements should be read in conjunction with the audited financial
statements and accompanying notes contained in the Annual Report of GalaGen
Inc. (the "Company") on Form 10-K for the fiscal year ended December 31,
1996.
2. CASH AND CASH EQUIVALENTS
Cash equivalents include short-term highly liquid investments
purchased at cost, which approximate market, with original maturities of
three months or less.
3. INVESTMENTS
Investments in debt securities with a remaining maturity of more than
three months at the date of purchase are classified as available-for-sale
securities. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of
each balance sheet date. The book value of the investments approximates
their estimated market value. The estimated market value of investments by
security type is as follows:
Estimated Market Value
as of June 30, 1997
-------------------
U.S. Government agency securities $2,548,984
U.S. Treasury securities 2,666,466
Investment grade debt securities 200,205
----------
$5,415,655
==========
All investments have a contractual maturity of one year or less.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for on the straight line method. At June 30,
1997, construction in progress consisted of leasehold improvements and
equipment in connection with the Company's pilot plant manufacturing
facility. At June 30, 1997, property, plant and equipment consisted of the
following:
Furniture, fixtures and equipment $ 412,001
Construction in progress 1,447,282
-----------
1,859,283
Less accumulated depreciation (145,851)
-----------
$ 1,713,432
===========
6
GALAGEN INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
5. LINE-OF-CREDIT
In June 1997, the Company established a $2,000,000 line-of-credit for
fixed assets with Transamerica Business Credit Corporation which extends
through June 1998. Terms of the line-of-credit include monthly payments
over four years equal to 2.5782% of each advance with a final balloon
payment of 12.5% at the end of the four year period. The line-of-credit is
secured by the Company's fixed assets. TransAmerica received a warrant for
40,000 shares of common stock granted at the fair market value on the date
of grant. The Company drew approximately $1,319,000 of the line-of-credit
in July 1997.
6. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the periods presented. The fully
diluted loss per share assumes the conversion of preferred shares
outstanding prior to the Company's initial public offering (the "Offering")
to common shares as of the beginning of the period. The loss per share for
periods prior to the closing date of the Offering also gives effect to the
requirements of Staff Accounting Bulletin No. 83 (SAB 83).
7
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The information presented in this Item contains forward-looking statements
within the meaning of the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties, including those discussed under "Risk Factors" below,
that could cause actual results to differ materially from those projected.
Because actual results may differ, readers are cautioned not to place undue
reliance on these forward-looking statements. Certain forward-looking statements
are indicated below by an asterisk.
Recent Developments
In August 1997, the Company announced it is increasing its development
efforts on Diffistat-G, its pharmaceutical product for the treatment of
antibiotic-associated diarrhea, and development efforts on its nutritional
products. At the same time, the Company announced that it was placing its
Sporidin-G clinical trial on hold due to continuing decline in the patient
population for the product's initial indication, AIDS-related Cryptosporidium
parvum infection, brought about by the effectiveness and increased use of new
AIDS therapies, including protease inhibitors and earlier administration of
combination therapy. The Company believes that its expenses and losses for the
three months ended September 30, 1997 will increase due to the costs associated
with placing the Sporidin-G clinical trial on hold. Thereafter, the Company
expects that expenses and losses for the three month periods ended December 31,
1997, March 31, 1998 and June 30, 1998 are expected to decrease to levels
experienced for the three month period ended June 30, 1997, as increased
expenses associated with the development efforts of Diffistat-G and certain
nutritional products offset the reduction of Sporidin-G expenses.* The Company
believes that significant expenses and losses will be incurred before any
material product revenues are generated.*
Results of Operations
Three Months Ended June 30, 1997 and 1996
General. The net loss before preferred stock dividends decreased $480,749,
or 24.8%, for the three months ended June 30, 1997 to $1,456,566 from $1,937,315
for the same period in 1996. The decrease was due primarily to decreased
interest expense offset by increased general and administrative expense and
decreased interest income.
Research And Development Expenses. Expenses for research and development
decreased $52,510, or 4.8%, to $1,036,352 for the three months ended June 30,
1997 from $1,088,862 for the three months ended June 30, 1996. The decrease was
due primarily to decreased clinical trial expenses associated with Sporidin-G of
approximately $312,000 offset by increased clinical trial expenses associated
with Diffistat-G of approximately $147,000 and increased expenses of
approximately $113,000 relating to the Company's other research and development
activities. As discussed above, the Company expects the research and development
expenses to increase for the three months ended September 30, 1997 due to the
expenses associated with placing the Sporidin-G clinical trial on hold, and
thereafter the expenses for the three month periods ended December 31, 1997,
March 31, 1998 and June 30, 1998 are expected to decrease to levels experienced
for the three month period ended June 30, 1997.
General And Administrative Expenses. General and administrative expenses
increased $97,680, or 22.3%, to $535,099 for the three months ended June 30,
1997 from $437,419 for the same period in 1996. Approximately $70,000 of the
increase was due to increased outside service charges. As discussed above, the
Company expects the general and administrative expenses to increase for the
three months ended September 30, 1997 due to the expenses associated with
placing the Sporidin-G clinical trial on hold , and thereafter the expenses for
the three month periods ended December 31, 1997, March 31, 1998 and June 30,
1998 are expected to decrease to levels experienced for the three month period
ended June 30, 1997.
Interest Income. Interest income decreased to $114,885 for the three months
ended June 30, 1997 from $202,865 for the three months ended June 30, 1996. This
$87,890 decrease, or 43.4%, is attributable to the Company's decreased level of
investable funds.
8
Interest Expense. Interest expense was zero for the three months ended June
30, 1997 and $613,899 for the three months ended June 30, 1996. The interest
expense in 1996 was due to the valuation of warrants issued both to guarantors
of a line of credit for the Company and to purchasers of the Company's
Convertible Promissory Notes.
Preferred Stock Dividends. The preferred stock dividend expense of
$7,296,844 for the three months ended June 30, 1996 represents the value of the
additional shares issued during the period to holders of the Series D, Series E
and Series F-1 Preferred Stock upon conversion to Common Stock.
Six Months Ended June 30, 1997 and June 30, 1996
General. The net loss before preferred stock dividends decreased $375,054,
or 11%, to $3,033,494 for the six months ended June 30, 1997 from $3,408,548 for
the six months ended June 30, 1996. The decrease was primarily due to decreased
interest expense offset by increased research and development expense and
increased general and administrative expense.
Research And Development Expenses. Expenses for research and development
increased $369,845, or 20.7%. to $2,155,566 for the six months ended June
30,1997 from $1,785,721 for the six months ended June 30, 1996. Approximately
$153,000 was due to increased clinical trial expenses associated with
Diffistat-G, approximately $151,000 was due to increased personnel and
associated expenses, approximately $150,000 was attributable to an increase in
other research and development activities including expenditures associated with
nutritional products and an increase of approximately $86,000 was from increased
pilot plant operating expenses. These increases were offset by decreased
expenses of $182,000 related to Sporidin-G clinical trial activity.
General And Administrative Expenses. General and administrative expenses
increased $196,425, or 21.5%, to $1,109,095 for the six months ended June 30,
1997 from $912,670 for the six months ended June 30, 1996. The increase was due
to increased personnel related expenses of approximately $101,000 and increased
outside service expenses of approximately $95,000.
Interest Income. Interest income increased to $231,167 for the six months
ended June 30, 1997 from $207,945 for the six months ended June 30, 1996. This
$23,222 increase, or 11.2%, is attributable to increased interest income from
the investment of funds received by the Company from the Offering offset by
decreased interest income due to the decreased level of investable funds.
Interest Expense. Interest expense was zero for the six months ended June
30, 1997 and $918,102 for the six months ended June 30, 1996. The interest
expense in 1996 was due to interest associated with the Company's Convertible
Promissory Notes and to the value of warrants issued both to guarantors of a
line of credit for the Company and to purchasers of the Company's Convertible
Promissory Notes.
Preferred Stock Dividends. The preferred stock dividend expense of
$7,296,844 for the six months ended June 30, 1996 represents the value of the
additional shares issued during such period to holders of the Series D, Series E
and Series F-1 Preferred Stock upon conversion to Common Stock.
Liquidity and Capital Resources
The Company was incorporated in March 1992. On July 24, 1992, Procor, the
Company's predecessor, was merged with and into the Company (the "Procor-GalaGen
Merger"). At the time of the Procor-GalaGen Merger, Procor was a wholly-owned
subsidiary of Land O'Lakes, Inc. ("Land O'Lakes"). Since the Company's inception
through June 30, 1997, investments in the Company have totaled approximately
$50.6 million, including approximately $7.1 million of inter-company obligations
payable to Land O'Lakes which were forgiven and recorded as contributed capital
at the time of the Procor-GalaGen Merger, $17.9 million from the Offering (after
deducting underwriting discounts and offering expenses) and approximately $25.6
million from private placements of equity and convertible debt and from
conversion of accrued interest on such debt and the exercise of stock options
and warrants. The Company has invested funds received in the Offering and these
private placements in investment-grade, interest-bearing obligations.
In June 1997, the Company established a $2,000,000 line-of-credit for fixed
assets with Transamerica Business Credit Corporation which extends through June
1998. Terms of the line-of-credit include monthly payments over four years equal
to 2.5782% of each advance with a final balloon payment of 12.5% at the end of
four years. The
9
line-of-credit is secured by the Company's fixed assets. The Company currently
has approximately $1,700,000 of fixed assets in which it can receive advances
against, and drew approximately $1,319,000 of the line-of-credit in July 1997.
In August 1997, the Company announced it is increasing its development
efforts on Diffistat-G, its pharmaceutical product for the treatment of
antibiotic-associated diarrhea, and development efforts on its nutritional
products. At the same time, the Company announced that it was placing its
Sporidin-G clinical trial on hold due to continuing decline in the patient
population for the product's initial indication, AIDS-related Cryptosporidium
parvum infection, brought about by the effectiveness and increased use of new
AIDS therapies, including protease inhibitors and earlier administration of
combination therapy. The Company believes that its expenses and losses for the
three months ended September 30, 1997 will increase due to the costs associated
with placing the Sporidin-G clinical trial on hold. Thereafter, the Company
expects that expenses and losses for the three month periods ended December 31,
1997, March 31, 1998 and June 30, 1998 are expected to decrease to levels
experienced for the three month period ended June 30, 1997, as increased
expenses associated with the development efforts of Diffistat-G and certain
nutritional products offset the reduction of Sporidin-G expenses.* The Company
believes that significant expenses and losses will be incurred before any
material product revenues are generated.*
Cash used in operating activities decreased by $53,966, or 1.4%, for the
six months ended June 30, 1997 to $3,830,587 from $3,884,553 for the same period
in 1996. Cash used in operations for the six month periods ended June 30, 1997
and 1996 went primarily to fund operating losses and for repayment of current
liabilities.
For the six months ended June 30, 1997 the Company redeemed $2,082,688 of
its available-for-sale securities. The Company invested $204,456 in equipment
and tenant improvements related to the Company's pilot plant manufacturing
facility for the six months ended June 30, 1997 and $129,064 for the same period
in 1996. The Company invested $58,526 for the six months ended June 30, 1997 and
$20,445 for the same period in 1996 in lab equipment, computer equipment and
software and furniture used primarily to support the Company's operations.
The Company anticipates that its existing resources and interest thereon
will be sufficient to satisfy its anticipated cash requirements through
approximately the third quarter of 1998.*
The Company expects to incur significant additional research and
development and other costs, including costs related to clinical studies, as
well as capital expenditures necessary to obtain licensure of the existing GMP
pilot plant facility and to establish additional commercial scale GMP
manufacturing relationships, before any material revenues are generated. The
Company will need to raise substantial additional funds for longer term product
development, manufacturing and marketing activities it plans to undertake in the
future. The Company's ability to continue funding its planned operations beyond
the third quarter of 1998 is dependent upon its ability to obtain additional
funds through equity or debt financing, strategic alliances, license agreements
or from other financing sources. A lack of adequate funding could eventually
result in the insolvency or bankruptcy of the Company. At a minimum, if adequate
funds are not available, the Company may be required to delay or to eliminate
expenditures for certain of its product development efforts or to license to
third parties the rights to commercialize products or technologies that the
Company would otherwise seek to develop itself. Because of the Company's
significant long-term capital requirements, it may seek to raise funds when
conditions are favorable, even if it does not have an immediate need for such
additional capital at such time. If the Company has not raised funds prior to
such time as the Company's needs for funding become immediate, the Company may
be forced to raise funds when conditions are unfavorable which could result in
dilution to the Company's current stockholders.
Risk Factors
Certain statements made above, including those indicated by an asterisk
(some of which are summarized below), are forward-looking statements that
involve risks and uncertainties, and actual results may differ. Factors that
could cause actual results to differ include those identified below.
Expectation that expenses and losses will increase for the three months
ending September 30, 1997 and thereafter decrease for the three month periods
ending December 31, 1997, March 31, 1997 and June 30, 1998 to levels experienced
during the three months ended June 30, 1997. The Company's products in
development will require additional research and development and extensive
clinical testing and regulatory approval prior to any commercial sales. The
amount and timing of expenses associated with product development may be
affected by any changes to trial protocols required by the U.S. Food and Drug
Administration ("FDA"), the rate at which patients meeting trial criteria can be
found and enrolled, the impact of any new, competitive therapies on the target
patient
10
population and any other problems encountered in clinical trials, some of which
could cause the Company or the FDA to suspend clinical trials. The Company or
the FDA may suspend clinical trials at any time if the subjects or patients
participating in such trials are thought to be exposed to unacceptable health
risks. Factors that could effect anticipated expenses associated with placing
the Sporidin-G trial on hold include closing certain trial sites, closing a
laboratory testing site and certain clinical analysis that may be performed.
Anticipated increase in development efforts on nutritional products and
associated expenses. The Company has, under a license agreement with Land
O'Lakes, agreed not to compete for 15 years in the area of nutritional products
based on polyclonal antibody technology except in the area of infant formula.
Accordingly, the development of nutritional products would require the consent
of Land O'Lakes. In March 1997, Land O'Lakes granted rights to the Company for
the commercialization of nutritional kefir-based products. In May 1997, the
Company signed an agreement with Lifeway Foods, Inc. to commercialize
kefir-based products. No assurance can be given that such consent would be given
by Land O'Lakes in a particular case. The Company may curtail proposed
development efforts in nutritional foods if appropriate consents are not
obtained.
Ability of the Company to satisfy its anticipated cash requirements through
approximately the third quarter of 1998. The Company's working capital and
capital requirements will depend upon numerous factors, including the progress
of the Company's clinical trials and research and development programs and the
timing and cost of obtaining regulatory approvals. The Company's capital
requirements also will depend on the levels of resources devoted to the
development of manufacturing and marketing capabilities, technological advances,
the status of competitive products and the ability of the Company to establish
strategic alliances to provide research and development funding to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1997 Annual Meeting of Stockholders held on May 14, 1997,
the stockholders approved the following:
(a) the election of directors to serve until their successors are duly elected.
Each nominated director was elected as follows:
Director-Nominee Votes For Votes Withheld
- ---------------- --------- --------------
R. David Spreng 5,544,349 17,540
Arthur D. Collins, Jr. 5,545,149 16,740
Stanley Falkow, Ph.D. 5,551,149 10,740
Robert A. Hoerr, M.D., Ph.D. 5,544,949 16,940
Ronald O. Ostby 5,544,349 17,540
Winston R. Wallin 5,550,749 11,140
(b) a proposal to adopt the GalaGen Inc. 1997 Incentive Plan. The proposal
received 4,520,859 votes for, and 271,434 votes against, adoption. There
were 8,135 abstentions and 761,461 broker non-votes.
(c) a proposal to amend the GalaGen Inc. Employee Stock Purchase Plan. The
proposal received 4,542,339 votes for, and 268,354 votes against,
amendment. There were 8,135 abstentions and 743,061 broker non-votes.
(d) a proposal to ratify the appointment of Ernst & Young LLP to serve as
independent public accountants of the Company for the year ending December
31, 1997. The proposal received 5,056,088 votes for, and 451,526 votes
against, ratification. There were 54,275 abstentions and 0 broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2 Warrant to purchase 13,541 shares of Common Stock of Incorporated By
the Company issued to Piper Jaffray Inc., dated Reference
January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of Common Stock of Incorporated By
the Company issued to Gus A. Chafoulias, dated October Reference
12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of Common Stock of Incorporated By
the Company issued to John Pappajohn, dated October 12, Reference
1993.(1)
4.5 Warrant to purchase 9,479 shares of Common Stock of the Incorporated By
Company issued to Cato Holding Company, dated June 21, Reference
1994.(1)
4.6 Form of Common Stock Warrant to purchase shares of Incorporated By
Common Stock of the Company, issued in connection with Reference
the sale of Convertible Reference Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated Reference March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of Incorporated By
the Company issued to IAI Investment Funds VI, Inc.(IAI Reference
Emerging Growth Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds IV, Inc. (IAI Reference
Regional Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to John Pappajohn, dated February 2, Reference
1996.(1)
12
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
4.14 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Edgewater Private Equity Fund, Reference
L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of Incorporated By
the Company issued to Joseph Giamenco, dated February Reference
2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Gus A. Chafoulias, dated February Reference
2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to JIBS Equities, dated February 2, Reference
1996.(1)
4.18 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Land O'Lakes, Inc., dated Reference
February 2, 1996.(1)
#10.1 License Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. (5) Incorporated By
Reference
10.7 Stock and Warrant Purchase Agreement between the Incorporated By
Company and Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended. (2) Incorporated By
Reference
10.10 Credit Agreement between the Company and Norwest Bank Incorporated By
Minnesota, N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Incorporated By
Leasing Corporation, dated June 5, 1996. (2) Reference
10.12 Master Equipment Lease between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.13 Agreement for Progress Payments between the Company Incorporated By
and Cargill Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land Incorporated By
O'Lakes, dated June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated September Incorporated By
14, 1996. (3) Reference
13
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
*10.16 Agreement with Colorado Animal Research Enterprises, Incorporated By
Inc. dated November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated Incorporated By
December 27, 1996. (4) Reference
*10.18 Consulting agreement with Stanley Falkow, Ph.D., dated Incorporated By
January 15, 1997. (4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Incorporated By
Compensation Plan. (4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Incorporated By
Compensation Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with TransAmerica Electronic
Business Credit Corporation dated June 18, 1997. Transmission
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
27 Financial Data Schedule. Electronic
Transmission
99 Press release regarding Diffistat-G and Sporidin-G, Electronic
dated August 14, 1997. Transmission
- ----------
(1) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1996 (File No. 0-27976).
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31, 1996
(File No. 0-27976).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
* Management contract or compensatory plan or arrangement.
# Contains portions for which confidential treatment has been granted to the
Company.
14
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GalaGen Inc.
(Registrant)
Date: August 14, 1997 By: /s/ Robert A. Hoerr
-------------------
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ Gregg A. Waldon
-------------------
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
16
Exhibit Index
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2 Warrant to purchase 13,541 shares of Common Stock of Incorporated By
the Company issued to Piper Jaffray Inc., dated Reference
January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of Common Stock of Incorporated By
the Company issued to Gus A. Chafoulias, dated October Reference
12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of Common Stock of Incorporated By
the Company issued to John Pappajohn, dated October 12, Reference
1993.(1)
4.5 Warrant to purchase 9,479 shares of Common Stock of the Incorporated By
Company issued to Cato Holding Company, dated June 21, Reference
1994.(1)
4.6 Form of Common Stock Warrant to purchase shares of Incorporated By
Common Stock of the Company, issued in connection with Reference
the sale of Convertible Reference Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated Reference March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of Incorporated By
the Company issued to IAI Investment Funds VI, Inc.(IAI Reference
Emerging Growth Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds IV, Inc. (IAI Reference
Regional Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to John Pappajohn, dated February 2, Reference
1996.(1)
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
4.14 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Edgewater Private Equity Fund, Reference
L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of Incorporated By
the Company issued to Joseph Giamenco, dated February Reference
2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Gus A. Chafoulias, dated February Reference
2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to JIBS Equities, dated February 2, Reference
1996.(1)
4.18 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Land O'Lakes, Inc., dated Reference
February 2, 1996.(1)
#10.1 License Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. (5) Incorporated By
Reference
10.7 Stock and Warrant Purchase Agreement between the Incorporated By
Company and Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended. (2) Incorporated By
Reference
10.10 Credit Agreement between the Company and Norwest Bank Incorporated By
Minnesota, N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Incorporated By
Leasing Corporation, dated June 5, 1996. (2) Reference
10.12 Master Equipment Lease between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.13 Agreement for Progress Payments between the Company Incorporated By
and Cargill Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land Incorporated By
O'Lakes, dated June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated September Incorporated By
14, 1996. (3) Reference
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
*10.16 Agreement with Colorado Animal Research Enterprises, Incorporated By
Inc. dated November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated Incorporated By
December 27, 1996. (4) Reference
*10.18 Consulting agreement with Stanley Falkow, Ph.D., dated Incorporated By
January 15, 1997. (4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Incorporated By
Compensation Plan. (4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Incorporated By
Compensation Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with TransAmerica Electronic
Business Credit Corporation dated June 18, 1997. Transmission
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
27 Financial Data Schedule. Electronic
Transmission
99 Press release regarding Diffistat-G and Sporidin-G, Electronic
dated August 14, 1997. Transmission
- ----------
(1) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1996 (File No. 0-27976).
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31, 1996
(File No. 0-27976).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
* Management contract or compensatory plan or arrangement.
# Contains portions for which confidential treatment has been granted to the
Company.