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(conformed)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 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 0-25353
DEMEGEN, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1065575
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1051 BRINTON ROAD, PITTSBURGH, PENNSYLVANIA 15221
(Address of principal executive offices) (Zip Code)
412-241-2150
(Registrant's telephone number, including area code)
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 ___ No _X_
As of January 23, 2000, there were 26,361,899 shares of the registrant's common
stock outstanding.
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DEMEGEN, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements and Notes to Financial Statements
(a) Condensed Balance Sheets as of December 31, 1999 (unaudited) and
September 30, 1999 3
(b) Statements of Operations for the Three Months Ended December 31, 1999
and 1998 and Inception (December 6, 1991) to December 31, 1999 (unaudited) 4
(c) Statements of Cash Flows for the Three Months Ended December 31, 1999 and
1998 and Inception (December 6, 1991) to December 31, 1999 (unaudited) 5
(d) Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
DEMEGEN, INC
CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1999 1999*
---- -----
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 700,432 $ 583,585
Accounts receivable 41,361 22,546
Prepaid expenses and other current assets 2,557 2,057
------------ ------------
TOTAL CURRENT ASSETS 744,350 608,188
PROPERTY, PLANT AND EQUIPMENT 363,272 361,544
Less: accumulated depreciation (168,171) (151,219)
------------ ------------
195,101 210,325
INTANGIBLE ASSETS 493,436 493,436
Less: accumulated amortization (251,868) (227,444)
------------ ------------
241,568 265,992
------------ ------------
TOTAL ASSETS $ 1,181,019 $ 1,084,505
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to employees and directors $ 76,823 $ 92,000
Accounts payable 327,967 354,988
Accrued liabilities and unearned revenue 100,856 154,351
------------ ------------
TOTAL CURRENT LIABILITIES 505,646 601,339
OTHER LONG-TERM LIABILITIES 450,134 270,254
------------ ------------
TOTAL LIABILITIES 955,780 871,593
Redeemable convertible preferred stock 1,834,448 1,768,846
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Common stock 26,362 26,362
Warrants 497,000 497,000
Additional paid-in capital 12,040,166 12,040,166
Deficit accumulated during the development stage (14,172,737) (14,119,462)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (CAPITAL DEFICIENCY) (1,609,209) (1,555,934)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,181,019 $ 1,084,505
============ ============
*Derived from audited financial statements.
See accompanying notes to financial statements.
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DEMEGEN, INC
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS INCEPTION
ENDED DECEMBER 31, (DECEMBER 6,
------------------ 1991) TO
DECEMBER 31,
1999 1998 1999
---- ---- ----
INCOME $ 424,701 $ 642,400 $ 4,241,198
EXPENSES:
Research and development 200,793 320,455 5,693,678
General & administration 169,199 172,552 9,841,818
Interest 1,011 873 983,735
Depreciation and amortization 41,377 31,930 484,913
------------ ------------ ------------
Total expenses 412,380 525,810 17,004,144
------------ ------------ ------------
NET INCOME (LOSS) 12,321 116,590 (12,762,946)
Preferred dividend and accretion amounts (65,602) (63,997) (1,409,791)
------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (53,281) $ 52,593 $(14,172,737)
============ ============ ============
INCOME (LOSS) PER SHARE OF COMMON STOCK, BASIC AND DILUTED $ 0.00 $ 0.00
============ ============
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 26,361,899 26,076,138
============ ============
See accompanying notes to financial statements.
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DEMEGEN, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCEPTION
FOR THE THREE MONTHS (DECEMBER 6,
ENDED DECEMBER 31, 1991) TO
------------------ DECEMBER
1999 1998 31, 1999
---- ---- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,321 $ 116,590 $(12,762,946)
Adjustments to Reconcile Net Income
to Cash:
Depreciation and amortization 41,377 31,930 484,913
Stock issued for services -- -- 1,729,058
Issuance of stock options to employees and directors -- -- 1,777,440
Warrants issued for interest -- -- 286,434
Other -- -- 82,542
Changes in Assets and Liabilities
Other than Cash:
Accounts receivable (18,815) 42,637 (41,361)
Prepaid expenses and current assets (500) 6,174 (2,557)
Accounts payable and other liabilities (46,052) (76,643) 1,379,993
Unearned revenue (22,917) (22,916) 68,750
-------- ---------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (34,586) 97,772 (6,997,734)
CASH FLOWS FROM INVESTING ACTIVITIES:
Intangible assets -- -- (238,324)
Purchase of property, plant and equipment (1,729) (14,909) (385,104)
-------- ---------- ------------
NET CASH USED BY INVESTING ACTIVITIES (1,729) (14,909) (623,428)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 150,000 -- 1,298,609
Principal payments on debt (2,133) -- (70,222)
(Decrease) increase in payable to employees and directors 5,295 16,236 2,678,707
Net proceeds from issuance of equity instruments -- -- 4,309,500
Proceeds from exercise of stock options -- 12,500 105,000
-------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 153,162 28,736 8,321,594
-------- ---------- ------------
Net Increase in Cash and Equivalents 116,847 111,599 700,432
Cash and Cash Equivalents, Beginning of Period 583,585 1,686,658 0
-------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $700,432 $1,798,257 $ 700,432
======== ========== ============
See accompanying notes to financial statements.
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DEMEGEN, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying financial statements of Demegen, Inc.'s (the "Corporation") are
unaudited. However, in the opinion of management, they include all adjustments
necessary for a fair presentation of financial position, results of operations
and cash flows. All adjustments made during the three months ended December 31,
1999 were of a normal, recurring nature. The amounts presented for the three
months ended December 31, 1999 are not necessarily indicative of results of
operations for a full year. Additional information is contained in the Annual
Report on Form 10-KSB of the Corporation for the year ended September 30, 1999
dated December 21, 1999, which should be read in conjunction with this quarterly
report.
NOTE 2 -- FEDERAL INCOME TAXES
No federal or state income tax has been provided for the three months ended
December 31, 1999 and 1998 due to existence of unused net operating loss
carryforwards.
The Corporation did not pay any income taxes during the three months ended
December 31, 1999 and 1998.
NOTE 3 -- NOTE PAYABLE
In December 1999, the Corporation received $150,000 from a local foundation to
fund program related research. The loan matures on February 28, 2005 with a
balloon payment due at that time. The loan is at an interest rate of 5% with
interest due February 28 of each year. The loan contains call provisions which
could result in the loan becoming due before its planned maturity. The
Corporation does not foresee, at this time, the call provisions becoming
effective.
The Corporation paid interest costs totaling approximately $1,001 and $850
during the three months ended December 31, 1999 and 1998, respectively.
NOTE 4 -- NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1999 1998
--------------------------
NUMERATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Net Income $ 12,321 $ 116,590
Preferred stock dividends and accretion amounts (65,602) (63,997)
----------- -----------
Numerator for basic and diluted earnings per share--income
available to common stockholders $ (53,281) $ 52,593
=========== ===========
DENOMINATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Denominator for basic and diluted earnings per share--
weighted average shares 26,361,899 26,076,138
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.00 $ 0.00
=========== ===========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
During the three months ended December 31, 1999 ("Fiscal 2000"), grants, license
fees and other income decreased to $0.42 million compared to $0.64 million in
the three months ended December 31, 1998 ("Fiscal 1999"). The decrease was due
to the Corporation receiving a $250,000 grant in the fiscal 1999 period with no
similar grants being received in the fiscal 2000 period. In the Fiscal 2000
period the Corporation received a $150,000 program related loan from a local
charity. Had this been a grant, revenues would have been comparable for the
quarterly periods
Total expenses decreased to $0.41 million from $0.53 million in the
corresponding prior fiscal quarter. The decrease was due to the timing of
preclinical development activities.
Research and development expenditures decreased to $0.2 million from $0.32
million in the prior fiscal quarter for the aforementioned reason. General and
administrative expenses remained relatively constant at $0.17 million for the
two comparable quarters.
During the quarters ended December 31,1999 and 1998, the Corporation made no
provision for federal or state income taxes due to the existence of net
operating loss carryforwards for financial reporting purposes.
The Corporation reported income of $0.01 million for the three months ended
December 31, 1999 compared to income of $0.12 million for the three months ended
December 31, 1998 as a direct result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1999, the Corporation's cash
increased by $0.12 million to $0.70 million. The cash increase was due to $0.15
million of cash provided by financing activities partially offset by $0.03
million of cash used by operating activities. The $0.15 million of cash provided
by financing activities consisted of a $0.15 million received from a local
foundation. The loan matures on February 28, 2005 with interest at 5%. The loan
is to fund program related research.
Cash flows used by operating activities totaled $0.03 million in the three
months ended December 31, 1999. Cash outflows included a $0.02 million increase
in accounts receivables, a $0.05 million decrease in accounts payable and other
liabilities and a $0.02 million decrease in unearned revenue. These cash
outflows were partially offset by cash inflows which principally included $0.04
million of depreciation and amortization and net income of $0.01 million
During the three months ended December 31, 1998, the Corporation's cash
increased by $0.11 million to $1.8 million. The increase in cash and cash
equivalents during the first quarter of fiscal 1999 is attributable to cash
inflows from operations of $0.1 million and $0.03 million of cash provided by
financing activities offset by cash outflows from investment activities of $0.01
million for the purchase of property, plant and equipment.
Cash flows provided by operating activities totaled $0.1 million in the three
months ended December 31, 1999. Cash inflows included $0.03 million of
depreciation and amortization, net income of $0.12 million and a a $0.04 million
decrease in accounts receivables. The cash inflows were partially offset by a
$0.08 million decrease in accounts payable and other liabilities and a $0.02
million decrease in unearned revenue.
Cash provided by financing activities consisted of $0.01 million from the
exercise of employee stock options and $0.02 million due to the increase in the
payable to employees and directors.
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The $0.01 million expended for the purchase of property, plant and equipment
primarily related to furnishing the lab at the Corporation's new office.
The Corporation believes that it has adequate liquidity to fund its operations
in Fiscal 2000 if the expected milestone, research support, license and
sub-license payments are received from Dow Agro Sciences as expected. Should the
expected payments be delayed or not forthcoming, the Corporation would scale
back its level of expenditures to maintain cash flow to fund basic operations.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
27. Financial data schedule
(b) Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended December 31, 1999.
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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.
DEMEGEN, INC.
By /s/Richard D. Ekstrom
------------------------------------------
Richard D. Ekstrom
Chairman and Chief Executive Officer
Date: January 27, 2000
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