1
(conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 16, 2001
DEMEGEN, INC.
(Exact name of registrant as specified in this charter)
Colorado 0-25353 84-1065575
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1051 Brinton Road, Pittsburgh, PA 15221
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (412) 241-2150
2
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
On July 16, 2001, Demegen, Inc. (the "Corporation" or "Demegen") exercised its
option to purchase all of Periodontix, Inc.'s ("Periodontix") technologies and
rights in related clinical trials, except for Periodontix' photodynamic
technology with the issuance of 4.7 million restricted common shares of the
Company's Common Stock and warrants to purchase up to 4.7 million Common Shares
of the Company's Common Stock at an exercise price of $1.25 per share. The
Warrants have a five year term and is callable by the Company if the price of
the Company's common Stock trades above $2.50 per shares for twenty consecutive
trading days.
This completes the third share and warrant issuance relative to the Periodontix
transaction and results in the issuance of a total of 9 million restricted
common shares of the Company's Common Stock and warrants to purchase up to 9
million Common Shares of the Company's Common Stock.
ITEM 7 - FINANCIAL STATEMENTS & EXHIBITS
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information:
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
as of December 31, 2000 and 1999
Together with Auditors' Report
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Periodontix, Inc.:
We have audited the accompanying balance sheets of Periodontix, Inc. (a Delaware
corporation in the development stage) as of December 31, 2000 and 1999, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years then ended and for the period from inception (December 13, 1993)
to December 31, 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.
Subsequent to December 31, 2000, the Company entered into agreements with
Demegen, Inc. (Demegen) giving Demegen a short-term license to substantially all
of the Company's intellectual property as well as an option to purchase these
and substantially all other of the Company's assets. Demegen subsequently
exercised its rights under the option and purchased substantially all
intellectual property and other assets of the Company (see Note 8(b)). In
conjunction with these agreements, the Company ceased substantially all of its
operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Periodontix, Inc. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended and for the period from inception (December 13, 1993)
to December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN
Boston, Massachusetts
July 31, 2001
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5
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
DECEMBER 31,
ASSETS 2000 1999
Current Assets:
Cash and cash equivalents $ 350,359 $1,869,434
Prepaid expenses and other current assets 11,867 95,611
---------- ----------
Total current assets 362,226 1,965,045
---------- ----------
Fixed Assets, at cost:
Equipment under capital lease 327,637 362,539
Furniture and fixtures 32,332 32,332
Equipment 31,098 33,098
Leasehold improvements 4,044 4,044
---------- ----------
395,111 432,013
Less--Accumulated depreciation and amortization 312,743 282,685
---------- ----------
82,368 149,328
---------- ----------
Other Assets:
Deposits 15,000 27,985
---------- ----------
15,000 27,985
---------- ----------
$ 459,594 $2,142,358
========== ==========
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY 2000 1999
Current Liabilities:
Current portion of capital lease obligations $ 41,386 $ 43,974
Accounts payable 26,940 68,285
Accrued expenses 731,975 538,175
License deposit 50,000 --
Convertible subordinated notes payable 2,769,231 1,200,595
------------ ------------
Total current liabilities 3,619,532 1,851,029
------------ ------------
Capital Lease Obligations, net of current portion 51,351 84,722
------------ ------------
Commitments (Note 7)
Stockholders' (Deficit) Equity:
Series A convertible preferred stock, $0.001 par value-
Authorized--2,239,000 shares
Issued and outstanding--2,225,000 shares
(preference in
liquidation of $2,225,000) 2,218,800 2,218,800
Series B convertible preferred stock, $0.001 par value-
Authorized--1,782,992 shares
Issued and outstanding--1,775,000 shares (preference in
liquidation of $3,550,000) 3,523,876 3,523,876
Series C convertible preferred stock, $0.001 par value-
Authorized--3,518,160 shares
Issued and outstanding--3,518,160 shares
(preference in liquidation of $8,619,000) 8,281,748 8,281,748
Series D convertible preferred stock, $0.001 par value-
Authorized--2,000,000 shares
Issued and outstanding--1,111,266 shares
(preference in
liquidation of $2,500,000) 2,483,446 2,483,446
Common stock, $0.001 par value-
Authorized--14,120,000 shares
Issued--1,785,307 1,790 1,790
Additional paid-in capital 889,562 889,562
Treasury stock--33,687 shares, at cost (34) (34)
Deficit accumulated during the development stage (20,610,477) (17,192,581)
------------ ------------
Total stockholders' (deficit) equity (3,211,289) 206,607
------------ ------------
$ 459,594 $ 2,142,358
============ ============
The accompanying notes are an integral part of these financial statements.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
for the Years Ended December 31, 2000 and 1999 and for the Period
from Inception (December 13, 1993) to December 31, 2000
CUMULATIVE
FROM INCEPTION
(DECEMBER 13,
1993) TO
DECEMBER 31
2000 1999 2000
Revenues:
Collaborative research $ 185,000 $ 75,000 $ 260,000
------------ ------------ ------------
Operating Expenses:
Research and development 1,958,590 3,637,495 15,568,528
General and administrative 896,339 836,234 4,735,819
------------ ------------ ------------
Total operating expenses 2,854,929 4,473,729 20,304,347
------------ ------------ ------------
Loss from operations (2,669,929) (4,398,729) (20,044,347)
------------ ------------ ------------
Other Income (Expense)
Interest income 46,737 52,567 607,178
Interest expense (794,704) (342,278) (1,173,308)
------------ ------------ ------------
Other expense (747,967) (289,711) (566,130)
------------ ------------ ------------
Net loss $ (3,417,896) $ (4,688,440) $(20,610,477)
============ ============ ============
Basic and Diluted Net Loss per Common Share $ (1.91) $ (2.63)
============ ============
Weighted Average Basic and Diluted Shares 1,785,307 1,785,057
============ ============
The accompanying notes are an integral part of these financial statements.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholders' Equity (Deficit)
for the Period from Inception (December 13, 1993) to December 31, 2000
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
NUMBER OF REDEMPTION NUMBER OF REDEMPTION NUMBER OF REDEMPTION
SHARES VALUE SHARES VALUE SHARES VALUE
Issuance of Common Stock - $ - - $ - - $ -
Sale of Series A convertible preferred
stock, net of issuance costs of
approximately $6,000 1,675,000 1,668,800 - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 1,675,000 1,668,800 - - - -
Sale of Series A convertible
preferred stock 550,000 550,000 - - - -
Sale of common stock - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 2,225,000 2,218,800 - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 2,225,000 2,218,800 - - - -
Sale of Series B convertible preferred
stock, net of issuance costs of
approximately $26,000 - - 1,775,000 3,523,876 - -
Stock issued for services - - - - - -
Exercise of stock options - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 2,225,000 2,218,800 1,775,000 3,523,876 - -
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $16,000 - - - - 1,468,772 3,582,509
Stock issued for services - - - - - -
Exercise of stock options - - - - - -
Purchase of treasury stock - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 2,225,000 2,218,800 1,775,000 3,523,876 1,468,772 3,582,509
Exercise of stock options - - - - - -
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $312,000 - - - - 2,049,388 4,699,239
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 2,225,000 2,218,800 1,775,000 3,523,876 3,518,160 8,281,748
Exercise of stock options - - - - - -
Fair value of warrants issued in
conjunction with convertible
promissory notes - - - - - -
Sale of Series D convertible preferred
stock, net of issuance costs of
approximately $17,000 - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 2,225,000 2,218,800 1,775,000 3,523,876 3,518,160 8,281,748
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2000 2,225,000 $2,218,800 1,775,000 $3,523,876 3,518,160 $8,281,748
========== ========== ========== ========== ========== ==========
SERIES D CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
NUMBER OF REDEMPTION NUMBER OF $0.001 NUMBER OF
SHARES VALUE SHARES PAR VALUE SHARES COST
Issuance of Common Stock - $ - 1,366,750 $ 1,367 - $ -
Sale of Series A convertible preferred
stock, net of issuance costs of
approximately $6,000 - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 - - 1,366,750 1,367 - -
Sale of Series A convertible
preferred stock - - - - - -
Sale of common stock - - 347,335 347 - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 - - 1,714,085 1,714 - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 - - 1,714,085 1,714 - -
Sale of Series B convertible preferred
stock, net of issuance costs of
approximately $26,000 - - - - - -
Stock issued for services - - 4,000 4 - -
Exercise of stock options - - 2,500 3 - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 - - 1,720,585 1,721 - -
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $16,000 - - - - - -
Stock issued for services - - 52,222 52 - -
Exercise of stock options - - 1,250 1 - -
Purchase of treasury stock - - - - 33,687 (34)
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 - - 1,774,057 1,774 33,687 (34)
Exercise of stock options - - 10,750 11 - -
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $312,000 - - - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 - - 1,784,807 1,785 33,687 (34)
Exercise of stock options - - 500 5 - -
Fair value of warrants issued in
conjunction with convertible
promissory notes - - - - - -
Sale of Series D convertible preferred
stock, net of issuance costs of
approximately $17,000 1,111,266 2,483,446 - - - -
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 1,111,266 2,483,446 1,785,307 1,790 33,687 (34)
Net loss - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2000 1,111,266 $2,483,446 1,785,307 $ 1,790 33,687 $ (34)
========== ========== ========== ========== ========== ==========
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE EQUITY (DEFICIT)
Issuance of Common Stock $ - $ - $ 1,367
Sale of Series A convertible preferred
stock, net of issuance costs of
approximately $6,000 - - 1,668,800
Net loss - (292,523) (292,523)
---------- ------------ ----------
Balance, December 31, 1993 - (292,523) 1,377,644
Sale of Series A convertible
preferred stock - - 550,000
Sale of common stock - - 347
Net loss - (668,590) (668,590)
---------- ------------ ----------
Balance, December 31, 1994 - (961,113) 1,259,401
Net loss - (1,215,839) (1,215,839)
---------- ------------ ----------
Balance, December 31, 1995 - (2,176,952) 43,562
Sale of Series B convertible preferred
stock, net of issuance costs of
approximately $26,000 - - 3,523,876
Stock issued for services 5,996 - 6,000
Exercise of stock options 247 - 250
Net loss - (1,850,840) (1,850,840)
---------- ------------ ----------
Balance, December 31, 1996 6,243 (4,027,792) 1,722,848
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $16,000 - - 3,582,509
Stock issued for services 78,281 - 78,333
Exercise of stock options 124 - 125
Purchase of treasury stock - - (34)
Net loss - (3,570,825) (3,570,825)
---------- ------------ ----------
Balance, December 31, 1997 84,648 (7,598,617) 1,812,956
Exercise of stock options 1,139 - 1,150
Sale of Series C convertible preferred
stock, net of issuance costs of
approximately $312,000 - - 4,699,239
Net loss - (4,905,524) (4,905,524)
---------- ------------ ----------
Balance, December 31, 1998 85,787 (12,504,141) 1,607,821
Exercise of stock options 995 - 1,000
Fair value of warrants issued in
conjunction with convertible
promissory notes 802,780 - 802,780
Sale of Series D convertible preferred
stock, net of issuance costs of
approximately $17,000 - - 2,483,446
Net loss - (4,688,440) (4,688,440)
---------- ------------ ----------
Balance, December 31, 1999 889,562 (17,192,581) 206,607
Net loss - (3,417,896) (3,417,896)
---------- ------------ ----------
Balance, December 31, 2000 $ 889,562 $(20,610,477) $(3,211,289)
========== ============ ===========
The accompanying notes are an integral part of these financial statements.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
for the Years Ended December 31, 2000 and 1999 and for the Period
from Inception (December 13, 1993) to December 31, 2000
CUMULATIVE
FROM INCEPTION
(DECEMBER 13,
1993) TO
DECEMBER 31,
2000 1999 2000
Cash Flows from Operating Activities:
Net loss $ (3,417,896) $ (4,688,440) $(20,610,477)
Adjustments to reconcile net loss to net cash used in operating
activities-
Interest expense related to original issue discount 568,636 234,144 802,780
Depreciation and amortization 62,741 99,558 408,728
Stock issued for services -- -- 84,333
Loss on sale of fixed assets 5,719 -- 5,719
Changes in assets and liabilities-
Prepaid expenses and other current assets 83,744 (27,295) (11,867)
Accounts payable (41,345) 13,866 26,940
Accrued expenses 193,800 19,154 731,975
License deposit 50,000 -- 50,000
------------ ------------ ------------
Net cash used in operating activities (2,494,601) (4,349,013) (18,511,869)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of fixed assets (1,500) (14,652) (238,406)
Decrease (increase) in other assets 12,985 5,000 (26,443)
------------ ------------ ------------
Net cash provided by (used in) investing activities 11,485 (9,652) (264,849)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from sale of convertible preferred stock, net of
issuance costs -- 2,483,446 16,507,870
Proceeds from issuance of convertible promissory notes 1,000,000 1,769,231 2,769,231
Proceeds from sale of common stock -- -- 1,714
Proceeds from exercise of stock options -- 1,000 2,525
Principal payments on capital lease obligation (35,959) (73,844) (311,839)
Proceeds from fixed assets sold under sale/leaseback arrangement -- 96,091 157,610
Purchase of treasury stock -- -- (34)
------------ ------------ ------------
Net cash provided by financing activities 964,041 4,275,924 19,127,077
------------ ------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,519,075) (82,741) 350,359
Cash and Cash Equivalents, beginning of period 1,869,434 1,952,175 --
------------ ------------ ------------
Cash and Cash Equivalents, end of period $ 350,359 $ 1,869,434 $ 350,359
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 13,871 $ 17,652 $ 67,849
============ ============ ============
Supplemental Disclosure of Noncash Financing Activities:
Fixed assets purchased under capital leases $ -- $ -- $ 327,637
============ ============ ============
The accompanying notes are an integral part of these financial statements.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
(1) ORGANIZATION AND OPERATIONS
Periodontix, Inc. (the Company) was incorporated in the State of
Delaware on August 18, 1993 and began operations on December 13, 1993.
The Company was formed to develop a line of products for the treatment
and prevention of periodontal disease.
The Company is in the development stage. Since inception, the Company
has devoted substantially all of its efforts toward product research
and development. Management anticipates that substantially all future
revenues will be derived from products under development or those
developed in the future. Principal risks to the Company include the
ability of the Company to obtain adequate financing to fund future
operations, dependence on key individuals, competition from substitute
products and larger companies, and the successful development and
marketing of commercial products.
During 2001, the Company sold substantially all its assets to Demegen,
Inc. in exchange for cash, common stock of Demegen, Inc. and warrants
to purchase Demegen, Inc.'s common stock (see Note 8(b)).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and amounts
invested in money market accounts. The Company considers all
highly liquid instruments with maturities of 90 days or less
at the time of acquisition to be cash equivalents.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
(c) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using
the straight-line method based on the estimated useful lives
of the related assets, as follows:
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
Equipment under capital lease Lease term
Furniture and fixtures 7 years
Equipment 3-7 years
Leasehold improvements Lease term
(d) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to
operations, as incurred, for financial reporting purposes.
(e) INCOME TAXES
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences of events
that have been included in the financial statements or in the
tax returns. The amount of deferred tax asset or liability is
based on the difference between the financial statement and
tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
be reflected in the tax return.
(f) DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and
cash equivalents, accounts payable, capital lease obligations
and convertible subordinated notes payable. The carrying
amounts of the Company's cash and cash equivalents and
accounts payable approximate fair value due to the short-term
nature of these instruments. The fair value of capital lease
obligations and convertible subordinated notes payable
approximates book value.
(g) NET LOSS PER SHARE
Basic loss per share has been computed by dividing net loss by
the weighted average number of shares outstanding during the
year. Diluted loss per share has been computed by excluding
the effect of outstanding stock options, warrants and
convertible securities that are all anti-dilutive given the
operating losses of the Company. The Company has outstanding
10,364,172 and 10,183,435 potential common shares related to
such options, warrants and convertible instruments at December
31, 2000 and 1999.
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PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
(h) COMPREHENSIVE INCOME
The Company applies the provisions of SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its
components in the financial statements. Comprehensive income
is defined as the change in equity of a business enterprise
during a period from transactions and other events and
circumstances from non-owner sources. As the Company had no
components of other comprehensive income, the reported net
loss is the same as comprehensive loss.
(i) IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-lived
Assets to Be Disposed of. SFAS No. 121 addresses accounting
and reporting requirements for impairment of long-lived assets
based on their fair value.
The carrying value of fixed assets is periodically reviewed by
the Company based on the expected future undiscounted
operating cash flows. There have been no impairments of
long-lived assets in the years ended December 31, 2000 and
1999.
(3) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31,:
2000 1999
Accrued interest $290,960 $ 90,482
Accrued severance 237,470 -
Accrued benefits 77,042 93,453
Accrued sponsored research 75,356 282,867
Other accrued expenses 51,147 71,373
-------- --------
$731,975 $538,175
======== ========
In connection with the agreements entered into with Demegen, Inc.
subsequent to December 31, 2000 (see Note 8(b)), the Company executed
severance agreements with substantially all its employees in 2000.
These agreements provided for salary and payroll taxes totaling
$237,470 to be paid through May 2001.
(4) CAPITAL LEASE AGREEMENT
During 1996, the Company entered into a capital lease agreement under
which the Company could borrow up to $100,000, with an option to expand
to $150,000, for the purchase of eligible equipment. Borrowings under
the agreement are subject to interest at a rate of 7% per annum and are
to be repaid over 30 months. During 1997, the Company purchased
additional equipment under this capital lease agreement. In connection
with entering this lease agreement, the Company issued
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12
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
to the lessor a warrant to purchase up to 7,992 shares of Series B
convertible preferred stock at an exercise price of $2.00 per share.
The value of the warrant was not material.
During 1998, the Company entered into a capital lease agreement under
which the Company could borrow up to $250,000 for the purchase of
eligible equipment. Borrowings under the agreements are subject to
interest at a rate of 8% per annum and are to be repaid over 48 months.
In connection with entering this lease agreement, the Company issued to
the lessor a warrant to purchase up to 6,123 shares of Series C
convertible preferred stock at an exercise price of $2.45 per share.
The value of the warrant was not material.
Future minimum lease payments as of December 31, 2000 under these
capital leases are as follows:
AMOUNT
2001 $ 49,829
2002 38,112
2003 16,446
--------
Total minimum lease payments 104,387
Less--Amount representing interest 11,650
--------
Capital lease obligations 92,737
Less--Current portion of capital lease
obligations 41,386
--------
$ 51,351
(5) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets or
liabilities are computed based on the differences between the financial
statement and income tax bases of assets and liabilities using the
enacted tax rates assumed to be in effect when these differences
reverse.
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13
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
The approximate tax effect of each type of carryforward, credit and
temporary difference that give rise to the Company's deferred tax asset
as of December 31, 2000 and 1999 is as follows:
2000 1999
Operating loss carryforwards $ 7,973,000 $6,784,000
Tax credit carryforwards 975,000 816,000
Temporary differences (15,000) 45,000
----------- ----------
8,933,000 7,645,000
Less--Valuation allowance 8,933,000 7,645,000
----------- ----------
$ - $ -
=========== ==========
The temporary differences consist principally of capitalized start-up
costs for federal and state income tax purposes. The Company has
established a valuation allowance equal to the amount of its deferred
tax assets, as the realization of such assets is uncertain.
At December 31, 2000, the Company had net operating loss carryforwards
for income tax purposes of approximately $19,932,000, which expire
through 2020. The Company also has approximately $567,000 and $408,000
of research and development credits available to offset future federal
and state income taxes, respectively, if any. The Tax Reform Act of
1986 contains provisions that may limit the utilization of net
operating loss carryforwards and credits available to be used in any
given year in the event of significant changes in ownership interests.
On July 16, 2001, the Company sold substantially all its assets to
Demegen, Inc. in exchange for cash, common stock of Demegen, Inc. and
warrants to purchase Demegen, Inc.'s common stock (see Note 8(b)). As a
result of this transaction, the Company expects to have a gain for
income tax purposes. However, management expects to be able to utilize
its net operating loss carryforwards to offset some or all such taxable
income.
(6) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
The Company's Board of Directors authorized the issuance of
14,120,000 shares of common stock.
RESTRICTED COMMON STOCK PURCHASE AGREEMENTS
The Company's Board of Directors has issued 1,136,585
shares of restricted common stock to employees and
consultants. These shares are subject to repurchase
agreements and vest ratably over four years. The
Company may purchase any unvested shares of common
stock held by these individuals upon the termination
of their employment or
13
14
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
consulting term at a price of $0.001 per share. At
December 31, 2000, no shares of the outstanding
common stock were subject to repurchase.
ISSUANCE OF COMMON STOCK FOR SERVICES
During 1997, the Company issued 52,222 shares of
common stock to a vendor at no cost for services
performed. The Company recorded a $78,333 charge to
general and administrative expenses for the issuance
of these shares.
STOCK OPTIONS
In 1994, the Company granted options to purchase
30,000 shares of common stock at $0.001 per share,
the fair value of common stock as determined by the
Board of Directors at the time of the grant. The
options vest ratably over four years.
14
15
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
During 1995, the Company adopted the 1995 Equity
Incentive Plan (the Plan), which provides for the
issuance of incentive and nonqualified options and
restricted stock awards for the purchase of up to
1,400,000 shares of the Company's common stock.
Restricted stock awards or options to purchase the
Company's common stock may be granted to employees,
directors, officers, consultants and advisers and
vest over a period of generally four years. Options
for the purchase of 355,512 shares were available for
grant at December 31, 2000. A summary of stock option
activity is as follows:
NUMBER OF EXERCISE WEIGHTED
SHARES PRICE RANGE AVERAGE
Granted 30,000 $ 0.001 $0.001
----------
Outstanding, December 31, 1994 30,000 0.001 0.001
Granted 100,000 0.10 0.10
----------
Outstanding, December 31, 1995 130,000 0.001-0.10 0.08
Granted 407,704 0.20 0.20
Exercised (2,500) 0.10 0.10
----------
Outstanding, December 31, 1996 535,204 0.001-0.20 0.17
Granted 84,000 0.245 0.245
Exercised (1,250) 0.10 0.10
Terminated (7,500) 0.001-0.10 0.04
----------
Outstanding, December 31, 1997 610,454 0.001-0.245 0.18
Granted 314,268 0.245 0.245
Exercised (10,750) 0.10-0.20 0.11
Terminated (42,450) 0.10-0.245 0.20
----------
Outstanding, December 31, 1998 871,522 0.001-0.245 0.20
Granted 161,741 0.225-0.245 0.23
Exercised (5,000) 0.20 0.20
----------
Outstanding, December 31, 1999 1,028,263 0.001-0.245 0.21
Granted 186,540 0.225 0.225
Terminated (189,815) 0.10-0.245 0.18
---------- ------------- ------
Outstanding, December 31, 2000 1,024,988 $ 0.10-$0.245 $ 0.22
========== ============= ======
Exercisable, December 31, 1999 535,399 $0.001-$0.245 $ 0.19
========== ============= ======
Exercisable, December 31, 2000 764,149 $ 0.10-$0.245 $ 0.22
========== ============= ======
15
16
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
The following detail pertains to options of the Company at
December 31, 2000:
-----------------OUTSTANDING------------------ ----EXERCISABLE----
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
EXERCISE AVERAGE REMAINING AVERAGE
NUMBER OF PRICE EXERCISE CONTRACTUAL NUMBER OF EXERCISE
SHARES RANGE PRICE LIFE SHARES PRICE
35,000 $ 0.100 $0.10 5.0 35,000 $0.10
989,988 0.20-0.245 0.22 7.2 729,149 0.22
In October 1995, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the
fair value of stock options or warrants granted to employees
to be included in the statement of income or disclosed in the
notes to financial statements. The Company accounts for
stock-based compensation for employees under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and follows the disclosure-only alternative
under SFAS No. 123. The Company has computed the pro forma
disclosures required under SFAS No. 123 for options granted in
2000 and 1999 using the Black-Scholes option pricing model
prescribed by SFAS No. 123. The effect of SFAS No. 123 on pro
forma net loss was not material in 2000 and 1999. The weighted
average assumptions used for 2000 and 1999 are as follows:
2000 1999
Risk-free interest rate 6.27-6.72% 5.36-6.12%
Expected dividend yield - -
Expected lives 7 years 7 years
Expected volatility 0% 0%
(b) CONVERTIBLE PREFERRED STOCK
As of December 31, 2000, the Company has authorized and issued
the following shares of convertible preferred stock:
PAR SHARES SHARES
VALUE AUTHORIZED ISSUED
Series A $0.001 2,239,000 2,225,000
Series B $0.001 1,782,992 1,775,000
Series C $0.001 3,518,160 3,518,160
Series D $0.001 2,000,000 1,111,266
16
17
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
The rights, preferences and privileges of Series A, B, C and D
convertible preferred stock (preferred stock) are listed
below.
CONVERSION
Series A, B, C and D preferred stock are convertible
into common stock at prices of $1.00, $2.00, $2.45
and $2.25, respectively, adjustable for certain
dilutive events. Conversion is at the option of the
preferred stockholder, although conversion is
mandatory upon the earlier of (i) the consummation of
an initial public offering resulting in gross
proceeds to the Company of at least $10,000,000 at a
price of at least $6.00 per share and (ii) the date
on which there are issued and outstanding a number of
shares of preferred stock equal to less than 50% of
the total number of shares of preferred stock ever
issued.
LIQUIDATION PREFERENCE
The Series A, B, C and D preferred stockholders have
preference in the event of a liquidation or
dissolution of the Company equal to $1.00, $2.00,
$2.45 and $2.25 per share, respectively, plus
declared but unpaid dividends. The Series D preferred
stockholders have a preference in liquidation over
Series A, Series B and Series C preferred
stockholders. The Series C preferred stockholders
have a preference in liquidation over Series A and
Series B preferred stockholders. The Series B
preferred stockholders have a preference in
liquidation over the Series A preferred stockholders.
VOTING RIGHTS AND DIVIDENDS
The Series A, B, C and D preferred stockholders shall
be entitled to vote on all matters and are entitled
to the number of votes equal to the number of shares
of common stock into which each share is convertible.
The holders of the Series A, B, C and D preferred
stock are entitled to receive, when and as declared
by the Board of Directors, any dividend declared or
paid on any shares of common stock.
RIGHT OF FIRST REFUSAL
The Series A, Series B and Series C preferred
stockholders have the right of first refusal to
purchase a pro rata share of any new securities
offered by the Company, as defined. For the Series A,
Series B and Series C preferred stockholders, the
right of first refusal terminates on the earlier of
the closing of an initial public offering resulting
in gross proceeds to the Company of at least
$10,000,000 at a price greater than $6.00 per share,
or December 31, 2003, February 15, 2006 and June 27,
2007, respectively.
17
18
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
(c) WARRANTS
In 1997 in connection with the issuance of Series C preferred
stock, the Company issued warrants to purchase 78,150 shares
of common stock at an exercise price of $2.45 per share. The
Company determined the fair value of the warrants using the
Black-Scholes valuation method, utilizing a volatility factor
of 70%, risk-free interest rate of 6.38%, and expected life of
five years. The fair value of these warrants was not material.
In April 1999 in connection with the issuance of convertible
promissory notes (see Note 7(a)), the Company issued warrants
to purchase 132,802 shares of common stock at a price of $2.75
per share. The warrants were exercisable immediately and
expire on April 9, 2006. The Company determined the fair value
of the warrants using the Black-Scholes valuation method,
utilizing a fair value for the common stock of $0.275 per
share, volatility factor of 70%, risk-free interest rate of
5.03%, and expected life of five years. The fair value of
these warrants was not material.
In September 1999 in connection with the issuance of
convertible promissory notes (see Note 7(a)), the Company
issued warrants to purchase 1,572,680 shares of Series D
preferred stock at a price of $2.25 per share. The warrants
were exercisable immediately and expired 30 days after the
date on which the Company provides notice to the holders of
the results of the Company's Phase 2B trials of the Company's
Histawash Mouthwash product but no later than April 9, 2004.
The Company determined the fair value of the warrants,
$802,780, using the Black-Scholes valuation method, utilizing
a fair value for the Series D preferred stock of $2.25 per
share, a volatility factor of 70%, risk-free interest rate of
5.75%, and expected life of two years. This amount has been
included as a separate component of stockholders' deficit and
as a discount on the convertible promissory note.
The results of the Company's Phase 2B trials of the Histawash
Mouthwash product were provided to holders of warrants to
purchase Series D preferred stock on November 2, 1999. As a
result, on December 2, 1999, warrants to purchase 1,111,266
shares of Series D preferred stock were exercised resulting in
gross proceeds of approximately $2.5 million and the remaining
warrants to purchase Series D preferred stock expired.
In connection with an extension of the maturity date of
convertible promissory notes (see Note 7(a)), the Company
issued warrants to purchase an additional 110,678 shares of
common stock at a price of $2.25 per share. The warrants are
exercisable immediately and expire on April 9, 2004. The
Company determined the fair value of the warrants using the
Black-Scholes valuation method, utilizing a fair value for the
common stock of $0.225 per share, a volatility factor of 70%,
risk-free interest rate of 6.27%, and expected life of five
years. The fair value of these warrants is not material.
18
19
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
(7) COMMITMENTS
(a) CONVERTIBLE SUBORDINATED NOTES PAYABLE
From April 1999 to September 1999, the Company raised
approximately $1.7 million through the issuance of convertible
subordinated notes payable, which bear interest at 8% per
annum and mature one year from date of issuance. The
outstanding principal and accrued interest on the notes shall
convert (i) upon a financing event, into the type and class of
shares of the Company's equity securities sold in that
financing, provided such financing raises at least $2 million
from new investors, or (ii) upon a sale event, as defined,
into common stock at a price of $2.25 per share. Upon
conversion as a result of a financing event, the holders of
the notes shall be entitled to a number of shares of Company
stock issued in the offering determined by dividing the (i)
the outstanding principal amount and unpaid accrued interest,
by (ii) the price per share of the Company's stock paid by the
purchaser of such shares in connection with the sale. These
notes are subordinated to all senior indebtedness, as defined,
and are collateralized by substantially all assets of the
Company.
Because warrants were issued in conjunction with the
convertible notes, the notes are shown on the balance sheet at
a discount, which is being amortized over the term of the
notes as additional interest expense. The Company calculated
the value of the warrants, using the Black-Scholes option
pricing model, as $802,780 (see Note 6(c)).
During 2000, the Company extended the maturity date of the
notes several times to January 2001. In conjunction with the
extensions, the interest rate was increased to 12% per annum
and additional warrants for the purchase of common stock were
issued (see Note 6(c)).
(b) SUBORDINATED NOTES PAYABLE
In July 2000, the Company issued subordinated notes payable in
the amount of $1,000,000, which bear interest at 12% per annum
and mature one year from the date of issuance. In the event
the Company consummates a sale event, as defined, prior to the
maturity date, the Company must repurchase the notes at 300%
of the principal amount plus accrued and unpaid interest. A
transaction meeting the definition of a sales event occurred
subsequent to December 31, 2000 (see Note 8(b)). These notes
are subordinated to all senior indebtedness, as defined,
including the convertible subordinated notes payable described
above and are collateralized by certain intellectual property
of the Company.
(c) LICENSE AGREEMENT
In 1995, the Company entered into a license agreement to use
certain patented technology. Under the terms of the agreement,
the Company is obligated to pay royalties ranging from 1.0% to
3.0% of product revenue for products sold that incorporate the
licensed technology. The Company is also
19
20
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
obligated to pay a minimum annual maintenance fee of $10,000
per year through the life of the licensed patent rights, which
is creditable against royalties due for that year. No
royalties were paid under this agreement in 2000 and 1999.
(d) RESEARCH CONTRACTS
In 1999, the Company entered into research contracts with
certain universities and laboratories. During 2000 and 1999,
the Company recorded approximately $355,000 and $1,366,000 of
research and development expense relating to these contracts,
respectively.
(e) FACILITY
The Company conducts its operations in a leased facility and
is obligated to pay monthly rent through June 2003, subject to
a termination clause, as defined in the lease. Rent expense
charged to operations in 2000 and 1999 was approximately
$214,000 and $257,000, respectively.
As of December 31, 2000, the approximate minimum future lease
payments under this agreement are as follows:
Year Ending December 31,
2001 275,000
2002 275,000
2003 137,000
---------
$ 687,000
=========
Subsequent to December 31, 2000, this lease was assumed by
Demegen, Inc. (see Note 8(b)).
(8) SUBSEQUENT EVENTS
(a) OPTION AGREEMENT
On February 1, 2001, the Company entered into an option
agreement with Biolitec AG for the licensing of its technology
related to its PhotoDynamic(TM) Antimicrobial System. The
Company received total consideration of $137,500. This option
expired unexercised.
(b) LICENSE, OPTION AND ASSET PURCHASE AGREEMENTS
On February 16, 2001, the Company entered into a license
agreement with Demegen, Inc. (Demegen) for substantially all
of the Company's technology and intellectual property. This
license terminates on the earlier of (i) the expiration or
termination of the option agreement (see below), or (ii)
exercise of the option and the closing of the asset purchase
agreement (see below).
20
21
PERIODONTIX, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 2000
On February 16, 2001 in connection with the license agreement
described above, the Company also entered into an option
agreement with Demegen. This option gives Demegen the right to
purchase substantially all assets of the Company, including
those covered by the license agreement. The option agreement
has an expiration date of July 31, 2001, which can be extended
by Demegen until January 31, 2002. Demegen has the right,
under certain circumstances, to terminate both the license and
option agreements prior to April 2, 2001. In connection with
the license and option agreements, Demegen also agreed to
sublease the Company's facility, hire certain of the Company's
employees and pay certain other operating expenses of the
Company effective January 1, 2001.
On July 16, 2001, Demegen exercised its rights under the
option agreement and executed an asset purchase agreement with
the Company. As a result, the Company sold to Demegen
substantially all of the Company's intellectual property and
other assets.
In consideration for the license and option agreements
described above, the Company received during the period from
February 16, 2001 to July 16, 2001 4,300,000 shares of
Demegen's common stock, warrants to purchase 4,300,000 share
of Demegen's common stock and cash of $55,000. Of the
4,300,000 shares of Demegen's common stock received, 2,040,000
shares were placed in escrow, as security for the Company's
indemnification, 1,610,000 shares of Demegen common stock were
released from escrow on April 2, 2001 and up to 430,000 of
those shares are scheduled to be released on February 16,
2002. Of the warrants to purchase 4,300,000 shares of Demegen
common stock, warrants to purchase 1,840,000 shares of Demegen
common stock were placed in escrow and released on April 2,
2001. The common stock of Demegen received by the Company is
restricted and may be disposed of by the Company no earlier
than one year from the date of receipt.
In consideration for Demegen exercising its rights under the
option agreement and executing the asset purchase agreement,
the Company received 4,700,000 shares of Demegen's common
stock and warrants to purchase 4,700,000 shares of Demegen's
common stock. Of the 4,700,000 shares of Demegen's common
stock received, 470,000 were placed in escrow and are
scheduled to be released on February 16, 2002.
The warrants issued in conjunction with the agreements
described above are exercisable into Demegen's common stock at
a price of $1.25 per share and expire on January 4, 2006. The
expiration date may be accelerated by Demegen in the event
that Demegen's common stock trades at or above $2.50 per share
for 20 consecutive trading days. In that event, the warrants
expire 60 days after the warrant holders have received notice.
The total fair value of all consideration received by the
Company under the license, option and asset purchase
agreements is approximately $7,300,000, as measured on the
date of receipt. As a result of the restrictions on the
Demegen common stock and warrants described above, the actual
proceeds received by the Company may be different from this
fair value and may not be sufficient to repay the debtholders
as well as to satisfy the liquidation preferences of all
preferred stockholders.
21
22
PRO FORMA CONSOLIDATED FINANCIAL DATA
OF DEMEGEN, INC. ("DEMEGEN") AND
PERIODONTIX, INC. ("PERIODONTIX")
The unaudited pro forma condensed combined financial data as of June 30, 2001
and for the nine months ended June 30, 2001 and the twelve months ended
September 30, 2000 give effect to the acquisition by Demegen, Inc. of certain
assets of Periodontix ("the Acquisition"), accounted for under the "purchase"
accounting method. The unaudited pro forma condensed combined financial data is
based upon the historical financial statements of Demegen and Periodontix, under
the assumptions and adjustments set forth in the notes to such proforma
financial data.
The unaudited pro forma condensed combined balance sheet data assumes that the
Acquisition was consummated on June 30, 2001; the unaudited pro forma condensed
combined statement of operations for the nine months ended June 30, 2001 assumes
that the Acquisition was consummated on October 1, 2000; and the unaudited pro
forma condensed combined statement of operations for the fiscal year ended
September 30, 2000 assumes that the Merger was consummated on October 1, 1999.
The unaudited pro forma condensed combined balance sheet on June 30, 2001
included the balance sheet of Demegen at June 30, 2001 and the December 31, 2000
balance sheet of Periodontix as Demegen began operating Periodontix on January
1, 2001 under the license agreement. The unaudited pro forma condensed combined
statement of operations for the nine months ended June 30, 2001 included the
operations of Periodontix for the three months ended December 31, 2000.
Beginning January 1, 2001, Demegen operated the Periodontix operation under a
License Agreement incurring in its financial statements all expenses associated
with Periodontix' on-going operations.
For purposes of presenting the unaudited pro forma condensed combined balance
sheet data, Periodontix' assets and liabilities have been recorded at their
estimated fair market values and the excess purchase price has been assigned to
goodwill. The fair value of Periodontix' assets and liabilities are based on
preliminary estimates. Upon completion of a detailed valuation of assets and
liabilities, including intangibles, certain adjustments may be required to
finalize the purchase accounting adjustments. The unaudited pro forma condensed
combined statement of operation data excludes any benefits that may result due
to synergies that may be derived and the elimination of duplicative efforts in
connection with the acquisition of Periodontix.
The unaudited pro forma condensed combined financial statement data may not be
indicative of the results that actually would have occurred if the acquisition
of Periodontix had been consummated on the dates indicated or which may be
obtained in the future. The unaudited pro forma condensed combined financial
statement data should be read in conjunction with the historical consolidated
financial statements of Demegen and Periodontix.
22
23
DEMEGEN, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA
JUNE 30, 2001
HISTORICAL PRO FORMA
---------- ---------
DEMEGEN PERIODONTIX COMBINED
6/30/01 12/31/00 ADJUSTMENTS 6/30/01
-------- -------- ----------- -------
CASH $ 822,556 $ 350,359 $ (350,359)(A) $ 822,556
OTHER CURRENT ASSETS 13,534 11,867 (11,867)(A) 13,534
------------ ------------ ------------ ------------
836,090 362,226 (362,226) 836,090
NET FIXED ASSETS 133,197 82,368 -- 215,565
IN-PROCESS RESEARCH & DEVEL -- -- 1,500,000(D) 1,500,000
NET INTANGIBLE ASSETS 317,994 -- 500,000(D) 817,994
NET DEFERRED LICENSE FEE 924,284 -- -- 924,284
OTHER ASSETS 27,016 15,000 (15,000)(A) 27,016
GOODWILL -- -- 575,379(D) 575,379
------------ ------------ ------------ ------------
$ 2,238,581 $ 459,594 $ 2,198,153 $ 4,896,328
============ ============ ============ ============
PAYABLES $ 639,166 $ 26,940 $ (26,940)(A) $ 639,166
UNEARNED REVENUE 160,000 -- -- 160,000
LICENSE DEPOSIT -- 50,000 (50,000) --
ACCRUED LIABILITIES 79,241 731,975 (731,975) 79,241
CURRENT PORTION OF LEASES -- 41,386 (41,386)(A) --
CONVERTIBLE NOTES -- 2,769,231 (2,769,231)(A) --
------------ ------------ ------------ ------------
878,407 3,619,532 (3,619,532) 878,407
OTHER LONG-TERM LIABILITIES 469,681 51,351 (51,351)(A) 469,681
REDEEMABLE CONVERTIBLE
PREFERRED STOCK 2,237,074 0 -- 2,237,074
CONVERTIBLE PREFERRED STOCK -- 16,507,870 (16,507,870)(B) --
COMMON STOCK 38,541 1,790 2,910(B)(C) 43,241
WARRANT 3,522,354 -- 566,247(C) 4,088,601
PAID IN CAPITAL 17,745,335 889,562 1,197,238(B)(C) 19,832,135
DEFERRED COMPENSATION (279,496) -- -- (279,496)
SUBSCRIPTION RECEIVABLE (244,344) -- -- (244,344)
TREASURY STOCK 0 (34) 34(B) 0
DEFICIT (22,128,971) (20,610,477) 20,610,477(B) (22,128,971)
------------ ------------ ------------ ------------
(1,346,581) (3,211,289) 5,869,036 1,311,166
------------ ------------ ------------ ------------
$ 2,238,581 $ 459,594 $ 2,198,153 $ 4,896,328
============ ============ ============ ============
(A) Removal of assets not purchased and liabilities not assumed from
Periodontix.
(B) Represents the elimination of Periodontix' historic equity accounts.
(C) Represents issuance of 4,700,000 shares of Demegen common stock valued at
$2,091,500 and a warrant to purchase 4,700,000 shares of Demegen's common
stock valued at $566,247.
(D) Represents preliminary allocation of purchase price of $2,657,747, net of
$82,368 of net book value of fixed assets purchased..
23
24
DEMEGEN, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
YEAR ENDED SEPTEMBER 30, 2000
HISTORICAL PRO FORMA
---------- ---------
DEMEGEN PERIODONTIX COMBINED
9/30/00 12/31/00 ADJUSTMENTS 9/30/00
------- -------- ----------- -------
INCOME $ 763,765 $ 231,737 $ (46,737)(A) $ 948,765
EXPENSES:
RESEARCH & DEVELOPMENT 1,560,981 1,927,220 -- 3,488,201
GENERAL & ADMINISTRATIVE 709,533 864,968 -- 1,574,501
INTEREST 14,207 794,704 (794,704)(A) 14,207
DEPRECIATION & AMORTIZATION 134,526 62,741 160,530(C) 357,797
------------ ------------ ------------ ------------
TOTAL EXPENSES 2,419,247 3,649,633 (634,174) 5,434,706
------------ ------------ ------------ ------------
NET LOSS (1,655,482) (3,417,896) 587,437 (4,485,941)
PREFERRED DIVIDEND & ACCRETION
AMOUNTS (264,933) 0 -- (264,933)
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON $ (1,920,415) $ (3,417,896) $ 587,437 $ (4,750,874)
============ ============ ============ ============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED $(0.06) $(0.12)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 29,759,153 9,000,000(B) 38,759,153
============ ============ ============
(A) Represents elimination of interest income and expense associated with
Periodontix
(B) Represents issuance of 9 million shares of Demegen common stock for license
agreement and purchase agreement relating to Periodontix
(C) Represents amortization of patents over eleven year average life ($45,454
per year) and amortization of goodwill over five year life ($115,076).
24
25
DEMEGEN, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED JUNE 30, 2001
HISTORICAL PRO FORMA
---------- ---------
DEMEGEN PERIODONTIX COMBINED
6/30/01 6/30/01 ADJUSTMENTS 6/30/01
------- ------- ----------- -------
INCOME $ 946,107 $ 53,186 $ (8,186)(A) $ 991,107
EXPENSES:
RESEARCH & DEVELOPMENT 2,040,432 276,546 -- 2,316,978
GENERAL & ADMINISTRATIVE 729,098 259,449 -- 988,547
INTEREST 15,187 198,676 (198,676)(A) 15,187
DEPRECIATION & AMORTIZATION 4,047,192 10,504 (3,802,818)(B)(D) 254,878
------------ ------------ ------------ ------------
TOTAL EXPENSES 6,831,909 745,175 (4,001,494) 3,575,590
------------ ------------ ------------ ------------
NET LOSS (5,885,802) (691,989) 3,993,308 (2,584,483)
PREFERRED DIVIDEND & ACCRETION
AMOUNTS (203,287) -- -- (203,287)
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON $ (6,089,089) $ (691,989) $ 3,993,308 $ (2,787,770)
============ ============ ============ ============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED $(0.17) $(0.06)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 34,955,214 9,000,000(C) 43,955,214
============ ============ ============
(A) Represents elimination of interest income and expense associated with
Periodontix
(B) To eliminate amortization associated with Periodontix license as it is of a
non-recurring nature
(C) Represents issuance of 9 million shares of Demegen common stock for license
agreement and purchase agreement relating to Periodontix.
(D) Represents amortization of patents over eleven year average life ($45,454
per year) and amortization of goodwill over five year life ($115,076).
25
26
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: September 28, 2001
26