1
(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 MARCH 31, 2000 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 April 24, 2000, there were 32,227,903 shares of the registrant's common
stock outstanding.
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DEMEGEN, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
(a) Condensed Balance Sheets as of March 31, 2000 (unaudited) and September 30, 1999 3
(b) Statements of Operations for the Six Months Ended March 31, 2000 and 1999 and
Inception (December 6, 1991) to March 31, 2000 (unaudited) 4
(c) Statements of Operations for the Three Months Ended March 31, 2000 and
1999 (unaudited) 5
(d) Statements of Cash Flows for the Six Months Ended March 31, 2000 and 1999
and Inception (December 6, 1991) to March 31, 2000 (unaudited) 6
(e) Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I. FINANCIAL INFORMATION
DEMEGEN, INC
CONDENSED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2000 1999*
---- -----
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 2,655,594 $ 583,585
Accounts receivable 106,651 22,546
Prepaid expenses and other current assets 273,994 2,057
------------ ------------
TOTAL CURRENT ASSETS 3,036,239 608,188
PROPERTY, PLANT AND EQUIPMENT 358,707 361,544
Less: accumulated depreciation (177,678) (151,219)
------------ ------------
181,029 210,325
INTANGIBLE ASSETS 493,436 493,436
Less: accumulated amortization (276,293) (227,444)
------------ ------------
217,143 265,992
------------ ------------
TOTAL ASSETS $ 3,434,411 $ 1,084,505
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Payable to employees and directors $ 76,823 $ 92,000
Accounts payable 323,733 354,988
Accrued liabilities and unearned revenue 77,661 154,351
------------ ------------
TOTAL CURRENT LIABILITIES 478,217 601,339
OTHER LONG-TERM LIABILITIES 465,400 270,254
------------ ------------
TOTAL LIABILITIES 943,617 871,593
Redeemable convertible preferred stock 1,900,467 1,768,846
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Common stock 31,928 26,362
Warrants 1,276,241 497,000
Additional paid-in capital 13,914,460 12,040,166
Deficit accumulated during the development stage (14,632,302) (14,119,462)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) 590,327 (1,555,934)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY) $ 3,434,411 $ 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 SIX MONTHS INCEPTION
ENDED MARCH 31, (DECEMBER 6,
-------------------------- 1991) TO
2000 1999 MARCH 31,2000
---- ---- -------------
INCOME $ 486,176 $ 881,397 $ 4,302,673
EXPENSES:
Research and development 418,271 635,189 5,911,156
General & administration 361,995 350,242 10,034,614
Interest 5,450 1,528 988,174
Depreciation and amortization 81,691 68,166 525,227
------------ ------------ ------------
TOTAL EXPENSES 867,407 1,055,125 17,459,171
------------ ------------ ------------
NET LOSS (381,231) (173,728) (13,156,498)
Preferred dividend and accretion amounts (131,609) (128,385) (1,475,804)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (512,840) $ (302,113) $(14,632,302)
============ ============ ============
LOSS PER SHARE OF COMMON STOCK, BASIC AND DILUTED $ (0.02) $ (0.01)
============ ============
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 27,213,528 26,150,470
============ ============
See accompanying notes to financial statements.
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DEMEGEN, INC
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------------
2000 1999
---- ----
INCOME $ 61,475 $ 238,997
EXPENSES:
Research and development 217,478 314,734
General & administration 192,796 177,690
Interest 4,439 655
Depreciation and amortization 40,314 36,236
----------- -----------
TOTAL EXPENSES 455,027 529,315
----------- -----------
NET LOSS (393,552) (290,318)
Preferred dividend and accretion amounts (66,007) (64,388)
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK $ (459,559) $ (354,706)
=========== ===========
LOSS PER SHARE OF COMMON STOCK, BASIC AND DILUTED $ (0.02) $ (0.01)
=========== ===========
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 28,074,516 26,226,453
=========== ===========
See accompanying notes to financial statements.
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DEMEGEN, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCEPTION
FOR THE SIX MONTHS (DECEMBER 6,
ENDED MARCH 31, 1991) TO
--------------------------------- MARCH
2000 1999 31, 2000
---- ---- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (381,231) $ (173,728) $(13,156,498)
Adjustments to Reconcile Net Loss
to Cash:
Depreciation and amortization 81,691 68,166 525,227
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 2,125 -- 84,667
Changes in Assets and Liabilities
Other than Cash:
Accounts receivable (54,105) 28,611 (76,651)
Prepaid expenses and current assets 10,065 6,990 8,008
Accounts payable and other liabilities (31,211) (53,834) 1,394,834
Unearned revenue (45,834) (45,833) 45,833
---------- ---------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (418,500) (169,628) (7,381,648)
CASH FLOWS FROM INVESTING ACTIVITIES:
Intangible assets -- -- (238,324)
Purchase of property, plant and equipment (5,671) (134,672) (389,046)
---------- ---------- ------------
NET CASH USED BY INVESTING ACTIVITIES (5,671) (134,672) (627,370)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 150,000 -- 1,298,609
Principal payments on debt (4,286) -- (72,375)
(Decrease) increase in payable to employees and directors 3,355 38,248 2,676,767
Net proceeds from issuance of equity instruments 2,347,111 -- 6,656,611
Proceeds from exercise of stock options -- 12,500 105,000
---------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,496,180 50,748 10,664,612
---------- ---------- ------------
Net Increase (Decrease) in Cash and Equivalents 2,072,009 (253,552) 2,655,594
Cash and Cash Equivalents, Beginning of Period 583,585 1,686,658 0
---------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,655,594 $1,433,106 $ 2,655,594
========== ========== ============
See accompanying notes to financial statements.
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DEMEGEN, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying financial statements of Demegen, Inc. (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 and six months ended March
31, 2000 were of a normal, recurring nature. The amounts presented for the six
months ended March 31, 2000 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 and in the Quarterly Report on Form 10-QSB of the
Corporation for the quarter ended December 31, 1999 dated January 27, 2000,
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 six months ended March
31, 2000 and 1999 due to existence of unused net operating loss carryforwards.
The Corporation did not pay any income taxes during the six months ended March
31, 2000 and 1999.
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 $3,575 and $1,431
during the six months ended March 31, 2000 and 1999, respectively.
NOTE 4 -- NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE SIX MONTHS
ENDED MARCH 31,
2000 1999
---- ----
NUMERATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Net Loss $ (381,231) $ (173,728)
Preferred stock dividends and accretion amounts (131,609) (128,385)
----------- -----------
Numerator for basic and diluted earnings per share--income
available to common stockholders $ (512,840) $ (302,113)
=========== ===========
DENOMINATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Denominator for basic and diluted earnings per share--
weighted average shares 27,213,528 26,150,470
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.02) $ (0.01)
=========== ===========
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FOR THE THREE MONTHS
ENDED MARCH 31,
2000 1999
---- ----
NUMERATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Net Loss $ (393,552) $ (290,318)
Preferred stock dividends and accretion amounts (66,007) (64,388)
----------- -----------
Numerator for basic and diluted earnings per share--income
available to common stockholders $ (459,559) $ (354,706)
=========== ===========
DENOMINATOR FOR BASIC AND DILUTED EARNINGS PER SHARE:
Denominator for basic and diluted earnings per share--
weighted average shares 28,074,516 26,226,453
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.02) $ (0.01)
=========== ===========
NOTE 5 -- PRIVATE PLACEMENT OF SECURITIES
During the second quarter of Fiscal 2000, the Corporation closed on a private
placement of its securities to institutional and other accredited investors
raising $2.78 million of which $0.38 million was in the form of prepaid services
with the remainder of $2.4 million in cash. The private placement resulted in
the sale of 5.56 million restricted shares of common stock and warrants to
purchase an additional 5.56 million shares of the Corporation's common stock.
The investors were offered one unit at $0.50 per unit. Each unit consisted of
one share of restricted common stock and a warrant to purchase one share of the
Corporation's common stock for $0.75 per share. The warrant expires the earlier
of March 31, 2005 or 60 days after a call by the Corporation. The Corporation
may call the warrants at any time after March 31, 2001, provided that the price
of the Corporation's common stock has been in excess of $1.50 per share for each
of the forty consecutive trading days immediately preceding the date of the
call. Upon receipt of the call, warrant holders shall have sixty days to elect
to exercise all or a portion of the warrants.
The Corporation has agreed to file a registration statement with the Securities
& Exchange Commission to register all common stock which comprise the unit and
the common stock issuable from the exercise of the warrant on or before March
31, 2001.
Pricing of the securities was determined based on several factors, including
reference to market price of the Corporation's common stock, the holding period
requirement of restricted stock, and the Corporation's need for additional
funding for development of pharmaceutical products.
Funds raised will be utilized to fund the Corporation's product development
efforts.
NOTE 6 -- SUBSEQUENT EVENT
Effective April 1, 2000 the Corporation hired a Chief Operating Officer --
Pharmaceutical Products. His employment agreement is for an initial term of
three years and provides for the issuance of 300,000 shares of restricted common
stock upon joining the Corporation and options to purchase up to 1,400,000
shares of the Corporation's common stock at exercise prices of $0.45 and $0.90
per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
During the six months ended March 31, 2000 ("Fiscal 2000"), grants, license fees
and other income decreased to $0.49 million compared to $0.88 million in the six
months ended March 31, 1999 ("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 more comparable for the six-month
periods.
Total expenses decreased to $0.87 million from $1.06 million in the
corresponding prior fiscal six month period. The decrease was due to the timing
of preclinical development activities.
Research and development expenditures decreased to $0.42 million from $0.64
million in the prior fiscal six month period for the aforementioned reason.
General and administrative expenses remained relatively constant at $0.36
million and $0.35 million, respectively, for the two comparable six month
periods.
During the six months ended March 31, 2000 and 1999, the Corporation made no
provision for federal or state income taxes due to the existence of net
operating loss carryforwards.
The Corporation reported a loss of $0.38 million for the six months ended March
31, 2000 compared to a loss of $0.17 million for the six months ended March 31,
1999 as a direct result of the factors discussed above.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
During the three months ended March 31, 2000 ("Fiscal 2000"), grants, license
fees and other income decreased to $0.06 million compared to $0.24 million in
the three months ended March 31, 1999 ("Fiscal 1999"). The decrease was due to
the Corporation receiving a $150,000 research support payment in the fiscal 1999
period with no similar payment being received in the fiscal 2000 period.
Total expenses decreased to $0.46 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 $0.21 million from $0.31
million in the prior fiscal quarter for the aforementioned reason. General and
administrative expenses remained relatively constant at $0.19 million and $0.18
million, respectively, for the two comparable quarters.
During the quarters ended March 31, 2000 and 1999, the Corporation made no
provision for federal or state income taxes due to the existence of net
operating loss carryforwards.
The Corporation reported a loss of $0.39 million for the three months ended
March 31, 2000 compared to a loss of $0.29 million for the three months ended
March 31, 1999 as a direct result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 2000, the Corporation's cash increased by
$2.07 million to $2.66 million. The cash increase was due to $2.5 million of
cash provided by financing activities partially offset by $0.42 million of cash
used by operating activities.
The $2.5 million of cash provided by financing activities consisted of $2.35
million net proceeds from the
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private placement of securities and $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 $0.42 million in the six months
ended March 31, 2000. Cash outflows included the net loss of $0.38 million, a
$0.05 million increase in accounts receivables, a $0.03 million decrease in
accounts payable and other liabilities and a $0.05 million decrease in unearned
revenue. These cash outflows were partially offset by cash inflows which
principally included $0.08 million of depreciation and amortization.
During the six months ended March 31, 1999, the Corporation's cash decreased by
$0.26 million to $1.43 million. The decrease in cash and cash equivalents during
the first six months of fiscal 1999 is attributable to cash outflows from
operations of $0.17 million and cash outflows from investment activities of
$0.13 million for the purchase of property, plant and equipment. These cash
outflows were partially offset by $0.05 million of cash provided by financing
activities.
Cash flows used by operating activities totaled $0.17 million in the six months
ended March 31, 1999 Cash outflows included the net loss of $0.17 million, a
$0.05 million decrease in accounts payable and other liabilities and a $0.05
million decrease in unearned revenue. The cash outflows were partially offset by
$0.07 million of depreciation and amortization and a $0.03 million decrease in
accounts receivables.
Cash provided by financing activities consisted of $0.01 million from the
exercise of employee stock options and $0.04 million due to the increase in the
payable to employees and directors.
The $0.13 million expended for the purchase of property, plant and equipment
primarily related to furnishing the lab at the Corporation's new office.
The Company believes that the recent cash received from the placement of
securities (Note 5 to Financial Statements) in conjunction with the anticipated
receipts under the agreements with Dan Agro Sciences will be sufficient to meet
liquidity need for the foreseeable short-term period. In the long-term, the
Corporation will need to rely upon additional capital infusions until it
emerges from the development stage and commences to produce cash flow from
operations.
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PART II-- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 18, 2000 the Annual Meeting of the Stockholders of Demegen, Inc. was
held in Pittsburgh, PA. At the meeting all of management's nominees were elected
directors of the Corporation were elected and Ernst & Young, LLC was ratified as
the Corporation's auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
4. Supplemental Agreement Between Demegen, Inc. and CEO Venture Fund III
dated February 8, 2000 concerning Warrant No. 1 held by CEO Venture
Fund.
10. Employment Agreement of S. Robert Fatora dated March 6, 2000.
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 March 31, 2000.
On April 7, 2000, the registrant filed a current report on Form 8-K announcing
the completion of a private placement of securities.
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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: May 8, 2000
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