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, 1998.
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.
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(Exact name of registrant as specified in its charter)
Delaware 41-1719104
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Lexington Avenue North
Arden Hills, Minnesota 55126
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(Address of principal executive offices) (Zip Code)
(651) 481-2105
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(Registrant's telephone number, including area code)
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(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--8,266,705 shares as of July 31, 1998.
1
INDEX
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1998 and December 31, 1997..................3
Statements of Operations - Three and Six months ended
June 30, 1998 and June 30, 1997 and for the period
November 17, 1987 (inception) through June 30, 1998...................4
Statements of Cash Flows - Six months ended
June 30, 1998 and June 30, 1997 and for the period
November 17, 1987 (inception) through June 30, 1998...................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...........12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURES.....................................................................19
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
June 30, 1998 December 31, 1997
------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,653,770 $ 155,908
Available-for-sale securities................................................. 2,850,087 7,511,619
Prepaid expenses.............................................................. 84,156 196,672
------------- ----------------
Total current assets........................................................... 5,588,013 7,864,199
Property, plant and equipment.................................................. 580,483 1,869,974
Less accumulated depreciation................................................. (217,243) (363,355)
------------- ----------------
363,240 1,506,619
Deferred expenses.............................................................. 127,282 158,953
------------- ----------------
Total assets................................................................... $ 6,078,535 $ 9,529,771
------------- ----------------
------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 605,787 $ 559,498
Note payable.................................................................. - 238,250
Accrued expenses.............................................................. 20,731 38,129
------------- ----------------
Total current liabilities...................................................... 626,518 835,877
Commitments
Convertible notes, net of discount............................................. 343,329 1,071,818
Note payable, long term portion................................................ - 923,998
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 - 8,243,705 at June 30, 1998; 7,234,974 at
December 31, 1997....................................................... 82,437 72,350
Additional paid-in capital.................................................... 60,800,279 59,669,586
Deficit accumulated during the development stage.............................. (55,641,924) (52,819,054)
Deferred compensation......................................................... (177,104) (269,804)
------------- ----------------
Total stockholders' equity.................................................... 5,063,688 6,653,078
------------- ----------------
Total liabilities and stockholders' equity..................................... $ 6,078,535 $ 9,529,771
------------- ----------------
------------- ----------------
See accompanying notes.
Note: The balance sheet at December 31, 1997 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.
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
PERIOD FROM
NOVEMBER 17, 1987
(INCEPTION) TO
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 JUNE 30,
-------------------------- -------------------------- -----------------
1998 1997 1998 1997 1998
------------ ----------- ------------ ----------- -----------------
Revenues:
Product sales. . . . . . . . . . . . . . . . $ 9,759 $ - $ 12,809 $ - $ 1,462,402
Product royalties. . . . . . . . . . . . . . - - - - 62,747
Research and development revenues. . . . . . - - - - 396,350
----------- ----------- ----------- ----------- ------------
9,759 - 12,809 - 1,921,499
Operating costs and expenses:
Cost of goods sold . . . . . . . . . . . . . 4,880 - 6,405 - 3,475,116
Research and development . . . . . . . . . . 810,141 1,036,352 1,418,509 2,155,566 28,549,862
General and administrative . . . . . . . . . 706,156 535,099 1,221,067 1,109,095 17,235,663
----------- ----------- ----------- ----------- ------------
1,521,177 1,571,451 2,645,981 3,264,661 49,260,641
----------- ----------- ----------- ----------- ------------
Operating loss . . . . . . . . . . . . . . . . (1,511,418) (1,571,451) (2,633,172) (3,264,661) (47,339,142)
Interest income. . . . . . . . . . . . . . . . 67,727 114,885 192,276 231,167 1,397,950
Interest expense . . . . . . . . . . . . . . . (162,084) - (381,974) - (3,009,309)
----------- ----------- ----------- ----------- ------------
Net loss before extraordinary gain . . . . . . (1,605,775) (1,456,566) (2,822,870) (3,033,494) (48,950,501)
Extraordinary gain on extinguishment of debt . - - - - 605,421
----------- ----------- ----------- ----------- ------------
Net loss for the period and deficit
accumulated during the development stage . . (1,605,775) (1,456,566) (2,822,870) (3,033,494) (48,345,080)
Less preferred stock dividends . . . . . . . . - - - - (7,296,844)
----------- ----------- ----------- ----------- ------------
Net loss applicable to common stockholders . . $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss per share applicable to common
stockholders
Basic and Diluted. . . . . . . . . . . . . . $ (0.20) $ (0.20) $ (0.36) $ (0.42) $ (20.74)
Weighted average number of common shares
outstanding
Basic and Diluted. . . . . . . . . . . . . . 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
See accompanying notes.
4
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
PERIOD FROM
NOVEMBER 17, 1987
(INCEPTION) TO
SIX MONTHS ENDED JUNE 30 JUNE 30,
-------------------------------- -----------------
1998 1997 1998
------------ ---------------- -----------------
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,822,870) $(3,033,494) $(55,641,924)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 670,599 189,507 3,061,356
Preferred stock dividend. . . . . . . . . . . . . . . . . . . . . - - 7,296,844
Warrants issued, net. . . . . . . . . . . . . . . . . . . . . . . - - 907,064
Extraordinary gain on extinguishment of debt. . . . . . . . . . . - - (605,421)
Equity/debt issued for services . . . . . . . . . . . . . . . . . - - 2,990,615
Changes in operating assets and liabilities . . . . . . . . . . . 101,130 (895,064) 1,452,248
----------- ----------- ------------
Net cash (used in) operating activities . . . . . . . . . . . . . (2,051,141) (3,739,051) (40,539,218)
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment . . . . . . . . . . . . (29,527) (262,982) (3,752,416)
Change in available-for-sale securities, net. . . . . . . . . . . 4,661,532 2,082,688 (2,850,087)
----------- ----------- ------------
Net cash provided by (used in) investing activities. . . . . . . 4,632,005 1,819,706 (6,602,503)
----------- ----------- ------------
FINANCING ACTIVITIES:
Proceeds from sale of stock, net of offering costs. . . . . . . . 56,728 15,473 32,398,831
Proceeds/payment from/on note payable . . . . . . . . . . . . . . (139,730) - 17,396,660
----------- ----------- ------------
Net cash provided by financing activities . . . . . . . . . . . . (83,002) 15,473 49,795,491
----------- ----------- ------------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 2,497,862 (1,903,872) 2,653,770
Cash and cash equivalents at beginning of period. . . . . . . . . 155,908 3,869,549 -
----------- ----------- ------------
Cash and cash equivalents at end of period. . . . . . . . . . . . $ 2,653,770 $ 1,965,677 $ 2,653,770
----------- ----------- ------------
----------- ----------- ------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Discount valuation for convertible debentures . . . . . . . . . . $ - $ - $ 500,182
Valuation of issued options and warrants. . . . . . . . . . . . . 62,500 33,333 350,083
Deferred compensation recognized for employee options . . . . . . - - 1,657,000
Deferred compensation adjustment for canceled options . . . . . . - - 297,000
Conversion of note to operating lease . . . . . . . . . . . . . . 1,047,904 1,047,904
Conversion of convertible promissory notes plus related
accrued interest, net of financing costs. . . . . . . . . . . . 1,021,552 - 9,886,377
See accompanying notes.
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, 1998, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. 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,
1997.
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, 1998
-------------------
U.S. Government agency securities $ 2,350,533
Corporate debt securities 499,554
-------------
$ 2,850,087
--------------
--------------
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.
5. NET LOSS PER SHARE
Basic and diluted net loss per share is presented in conformance
with Financial Accounting Standards Board Statement No. 128.
6
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
6. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 established new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholder's equity.
7. CONVERTIBLE DEBENTURES
In November 1997, the Company raised $1,500,000 through the
private placement sale of 6% convertible debentures (the "Debentures") to
three institutional investors pursuant to Regulation D under the Securities
Act of 1933. The principal and interest of the Debentures can be converted
into shares of the Company's common stock at 82.5% of the lowest closing
bid price of the Company's common stock three days prior to conversion.
One-third of the Debentures can convert to common stock upon the effective
date of registration, one-third after five months from the closing date and
the remaining one third twelve months after the closing date or nine months
if the closing bid price of the common stock does not average at least
$2.50 per share in the eighth month after closing. An aggregate maximum of
1,400,000 discounted shares of common stock (the "Discounted Shares") can
be issued upon the conversion of the Debentures, with each investor owning
at any given time a maximum of 4.99% of the then issued and outstanding
shares of common stock. If there remains any unconverted principal and
accrued interest due to all the Discounted Shares being issued, the Company
has the obligation to repay the investors, in the aggregate, a maximum
principal of $500,000. The Debentures automatically convert into the
Discounted Shares eighteen months from the closing date. Five-year
warrants were issued to the investors to purchase, in the aggregate,
200,000 shares of common stock at $2.3375 per share which is 110% of the
market value of the common stock on the closing date. The value of the
warrants plus the value of the discount of the Discounted Shares was
$500,182, which the Company is amortizing to interest expense over the term
of the Debentures. A deferred expense was recorded for $144,467, which
represents costs associated with closing the Debentures. These deferred
expenses are being amortized until the Debentures are converted into
Discounted Shares. As of June 30, 1998, $1,000,000 of Debenture
principal plus accrued interest was converted into 977,848 shares of common
stock. The net carrying value of the Debentures approximates fair market
value.
8. NOTE PAYABLE
In June 1997, the Company established a note payable with
Transamerica Business Credit Corporation to purchase certain lab equipment,
computer equipment and tenant improvements. In June 1998, the Company
converted the note payable into an operating lease in accordance with
Financial Accounting Standards Board Statement 13 and as such the
applicable assets and the related note payable have been eliminated. At
the time of the conversion to an operating lease, the net book value of the
associated assets approximated the note payable balance. Payment schedules
and other terms of the operating lease are similar to the terms of the note
payable.
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 (the "Exchange Act").
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.
GENERAL
GalaGen is focusing its emphasis on nutritional products and is
utilizing its expertise in its platform antibody technology to develop a
portfolio of proprietary nutritional products, including dietary
supplements, which incorporate its Proventra-TM- Brand Natural Immune
Components ("Proventra-TM-"). These products will target needs of both
consumers and healthcare professionals. These antibodies used in
nutritional products are food proteins that are derived from the milk
collected in the first few milkings of a dairy cow after its calf is born
and their components are commonly found in dairy foods that are already
widely consumed. Using its proprietary procedures, the Company has
produced antibodies that target specific pathogens infecting the human
gastrointestinal tract, including bacteria and their toxins, parasites,
fungi and viruses.
RECENT DEVELOPMENTS
In December 1997, the Company introduced Basics Plus, a dietary
supplement product, in conjunction with its marketing and manufacturing
partner, Lifeway Foods, Inc. Basics Plus is the first product to emerge
from the collaboration with Lifeway Foods, Inc. and contains active
beneficial kefir cultures and Proventra-TM-.
In March 1998, the Company and Land O'Lakes, Inc. ("Land O'Lakes"),
the large food and agricultural cooperative from which GalaGen was spun-out
in 1992, signed an amended and restated license agreement (the "Restated
License") in which the Company has significantly broadened its rights to
develop and market functional foods, which include nutritional products.
Under the Restated License, the Company can use, improve, exploit, license
or share existing Procor Technologies, Inc. (the Company's predecessor,
"Procor") technology, Procor technology improvements and new technologies,
as defined, in all areas of functional foods except under certain "reserved
food product" and "first refusal food product" categories, as defined. If
the Company intends to engage in manufacturing or marketing any "first
refusal food product", the Company must give Land O'Lakes notice of its
intent, in which case Land O'Lakes can negotiate with the Company, in good
faith and within a defined period of time, to undertake any part of the
manufacturing or marketing areas. If the Company intends to engage in
manufacturing or marketing any "reserved food product", the Company must
give Land O'Lakes notice of its intent and must work only with Land O'Lakes
to undertake the manufacturing or marketing of such products.
In May 1998, the Company announced that it has entered into a consumer
product development agreement with Land O'Lakes. Under terms of the
agreement, the two companies will collaborate on the development of yogurt
products containing Proventra-TM-. This collaboration will initially focus
on developing a yogurt product with unique benefits for women. GalaGen
will supply its Proventra-TM-, and possibly other active components, for
this product.* The Company expects to be in regional test markets with
this yogurt in early 1999, with Land O'Lakes providing the product
development, manufacturing, sales, distribution and marketing of the
product.* From this collaboration with Land O'Lakes, the Company expects
to incur increased marketing research expenses and increased marketing
consulting expenses.* The Company also expects to incur further product
development and marketing research expenses and outside legal expenses in
1998 associated with the further development of certain consumer
nutritional and clinical nutritional products.* The Company anticipates
that two products, including its yogurt product in conjunction with Land
8
O'Lakes, will be introduced in regional test markets in early 1999.*
In August 1997, the Company announced that it was placing its
Sporidin-G pharmaceutical clinical trial on hold due to continuing decline
in the patient population for the product's initial indication,
AIDS-related Cryptosporidium parvum infection. The decline was brought
about by the effectiveness and increased use of new AIDS therapies,
including protease inhibitors and earlier administration of combination
therapy. In May 1998, the Company also announced that it would limit
further spending on development of pharmaceutical products this year,
believing that applying its technology and resources toward nutritional
product development will provide superior shareholder value.* The Phase II
dose ranging study for Diffistat-G, a pharmaceutical treatment for
antibiotic-associated diarrhea, has now provided sufficient data for the
design of future studies necessary for approval by the U.S. Food and Drug
Administration. As previously announced, subsequent studies will only be
implemented in collaboration with a corporate partner.* The Company
remains positive about the long-term value of its pharmaceutical program
and products, but believes that pharmaceutical development can be best
supported from corporate alliances.* The Company will continue to seek
partners for all of its pharmaceutical development products.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL. The net loss applicable to common stockholders increased
$149,209 or 10.2%, for the three months ended June 30, 1998 to $1,605,775
from $1,456,566 for the same period in 1997. The increase was due
primarily to increased general and administrative expense and increased
interest expense offset by decreased research and development expense.
REVENUES. For the three months ended June 30, 1998 revenues consisted
of $9,759 from sales of the Company's Proventra-TM- for use in Basics Plus.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development decreased $226,211, or 21.8%, to $810,141 for the three months
ended June 30, 1998 from $1,036,352 for the three months ended June 30,
1997. The decrease was due primarily to decreased clinical trial expenses
associated with the Company's Sporidin-G of approximately $240,000 and
decreased personnel expense of approximately $173,000 offset by increased
clinical trial expenses associated with Diffistat-G of approximately
$132,000 and increased expense of approximately $55,000 relating to pilot
plant depreciation.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $171,057, or 31.9%, to $706,156 for the three months
ended June 30, 1998 from $535,099 for the same period in 1997. The increase
was due primarily to marketing expenses, including consulting and marketing
research, associated with the Company's nutritional products.
INTEREST INCOME. Interest income decreased to $67,727 for the three
months ended June 30, 1998 from $114,885 for the three months ended June
30, 1997. This $47,158 decrease, or 41.0%, is attributable to the
Company's decreased level of investable funds and a decreased earnings
rate.
INTEREST EXPENSE. Interest expense was $162,084 for the three months
ended June 30, 1998 and zero for the three months ended June 30, 1997.
The interest expense for the second quarter in 1998 consisted of
approximately $105,000 of amortization expense associated with the
Company's convertible debentures (see Note 7 in Notes to Financial
Statements), approximately $10,000 of accrued interest expense on the
outstanding convertible debentures and approximately $47,000 of interest
expense associated with the Company's note payable (see Note 8 in Notes to
Financial Statements).
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
GENERAL. The net loss applicable to common stockholders decreased
$210,624, or 6.9%, to $2,822,870 for the six months ended June 30, 1998
from $3,033,494 for the six months ended June 30, 1997. The decrease was
primarily due to decreased research and development expense offset by
increased interest expense and increased general and administrative
expense.
9
REVENUES. For the six months ended June 30, 1998 revenues consisted
of $12,809 from sales of the Company's Proventra-TM- for use in Basics
Plus.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development decreased $737,057, or 34.2%, to $1,418,509 for the six months
ended June 30,1998 from $2,155,566 for the six months ended June 30, 1997.
Approximately $610,000 of the decrease was due to decreased development and
clinical trial expenses associated with Sporidin-G, decreased associated
personnel expenses of approximately $383,000 and decreases in other
pharmaceutical research, quality and procurement expenses of approximately
$163,000. These decreases were offset by increased pilot plant depreciation
expense of approximately $173,000, increased clinical expense for
Diffistat-G of approximately $138,000 and increased expenses associated
with nutritional products of approximately $108,000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $111,972, or 10.1%, to $1,221,067 for the six months
ended June 30, 1998 from $1,109,095 for the six months ended June 30, 1997.
The increase was due to increased marketing related expenses, including
consulting and marketing research, for the Company's nutritional products
of approximately $179,000 offset by decreased outside service expenses of
approximately $67,000.
INTEREST INCOME. Interest income decreased to $192,276 for the six
months ended June 30, 1998 from $231,167 for the six months ended June 30,
1997. This $38,891 decrease, or 16.8%, is attributable to the decreased
level of investable funds offset by a slightly increased earnings rate.
INTEREST EXPENSE. Interest expense was $381,974 for the six months
ended June 30, 1998 and zero for the six months ended June 30, 1997. The
interest expense in 1998 consisted of approximately $256,000 of
amortization expense associated with the Company's convertible debentures
(see Note 7 in Notes to Financial Statements), approximately $29,000 of
accrued interest expense on the outstanding convertible debentures and
approximately $97,000 of interest expense associated with the Company's
note payable (see Note 8 in Notes to Financial Statements).
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. Since the Company's
inception through June 30, 1998, investments in the Company have totaled
approximately $53.1 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 Company's initial public offering (the "Offering"),
after deducting underwriting discounts and offering expenses, and
approximately $28.1 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.
Cash used in operating activities decreased by $1,687,910, or 45.1%,
for the six months ended June 30, 1998 to $2,051,141 from $3,739,051 for
the same period in 1997. Cash used in operations for the six month period
ended June 30, 1998 went primarily to fund operating losses, and for the
same period in 1997 cash was used to fund operating losses and for
repayment of current liabilities.
For the six months ended June 30, 1998 the Company redeemed $4,661,532
of its available-for-sale securities. The Company invested $29,527 in
equipment related to the Company's pilot plant manufacturing facility for
the six months ended June 30, 1998. For the same period in 1997 the
Company invested $204,456 in equipment and tennant improvements related to
the pilot plant manufacturing facility and $58,526 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
10
anticipated cash requirements through approximately the second quarter of
1999.* The Company's working capital and capital requirements will depend
upon numerous factors, including the progress of the Company's market
research, product development and ability to obtain partners with the
appropriate manufacturing, sales, distribution and marketing capabilities.*
The Company's capital requirements also will depend on the levels of
resources devoted to the development of manufacturing capabilities,
technological advances, the status of competitive products and the ability
of the Company to establish partners or strategic alliances to provide
funding to the Company for certain manufacturing, sales, product
development and marketing activities.*
The Company expects to incur substantial additional product
development and other costs, including costs related to clinical studies
and marketing activities.* Capital expenditures may be necessary to obtain
licensure of the existing pilot plant facility and to establish additional
commercial scale manufacturing facilities.* The Company will need to raise
substantial additional funds for longer-term product development,
manufacturing and marketing activities that may be required in the future.
The Company's ability to continue funding its planned operations beyond the
second quarter of 1999 is dependent upon its ability to generate product
revenues or to obtain additional funds through equity or debt financing,
strategic alliances, license agreements or from other financing sources.*
A lack of adequate revenues or 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 substantial dilution to the Company's
current stockholders.*
YEAR 2000 ISSUES
Certain of the Company's business systems may require updating to
continue to function properly beyond 1999. The Company believes that it
will have adequate resources for this purpose and does not expect to incur
significant expenditures to address this issue.*
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the second quarter ended June 30, 1998 contains
certain forward looking statements within the meaning of Section 21E of the
Exchange Act. Such forward-looking statements are based on the beliefs of
the Company's management as well as on assumptions made by and information
currently available to the Company at the time such statements were made.
When used in this Form 10-Q, the words "anticipate", "believe", "estimate",
"expect", "intend" and similar expressions, as they relate to the Company,
are intended to identify such forward-looking statements. Although the
Company believes these statements are reasonable, readers of this Form 10-Q
should be aware that actual results could differ materially from those
projected by such forward-looking statements as a result of the risk
factors listed below and set forth in the Company's Annual Report on Form
10-K for 1997 ("Form 10-K") under the caption "Risk Factors." Readers of
this Form 10-Q should consider carefully the factors listed below and under
the caption "Risk Factors" in the Company's Form 10-K, as well as the other
information and data contained in this Form 10-Q. The Company cautions the
reader, however, that such list of factors under the caption "Risk Factors"
in the Company's Form 10-K may not be exhaustive and that those or other
factors, many of which are outside of the Company's control, could have a
material adverse effect on the Company and its results of operations.
Factors that could cause actual results to differ include, without
limitation, the Company's ability to generate sufficient working capital
and obtain necessary financing, the Company's ability to form strategic
alliances with marketing and distribution partners, the Company's exposure
to product liability claims, consumers' perception of product safety and
quality, the Company's reliance on flawed market research, potential
competitors that are larger and financially stronger, the Company's ability
to receive regulatory approval for its products and the Company's ability
to manufacture an acceptable product on a commercial scale. All
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements set forth hereunder and under the caption "Risk Factors" in the
Company's Form 10-K.
11
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 TWO ADDITIONAL PRODUCTS WILL BE IN REGIONAL TEST
MARKETS IN EARLY 1999. The timing of product introduction into test markets
is dependent upon the Company's ability to successfully finalize market
research and product development, with or without a partner or strategic
alliance, and to obtain a partner that has the ability to either provide
final product manufacturing, marketing, sales and distribution activities or
the ability to provide the funding necessary to obtain those activities. The
inability of the Company to bring these two additional products to regional
test markets in early 1999 could have a material adverse effect on the
Company.
THE COMPANY ALSO EXPECTS TO INCUR FURTHER PRODUCT DEVELOPMENT AND
MARKETING RESEARCH EXPENSES AND OUTSIDE LEGAL EXPENSES IN 1998 ASSOCIATED
WITH THE FURTHER DEVELOPMENT OF CERTAIN CONSUMER NUTRITIONAL AND CLINICAL
NUTRITIONAL PRODUCTS. The Company's product development length and cost is
dependent upon, to a certain degree, results of the Company's market research
which may give the Company certain indications of whom the Company's target
customers may be and what types of products they may desire .
ABILITY OF THE COMPANY TO SATISFY ITS ANTICIPATED CASH REQUIREMENTS
THROUGH APPROXIMATELY THE END OF THE SECOND QUARTER OF 1999. The Company's
working capital and capital requirements will depend upon numerous factors,
including the progress of the Company's product development programs and the
timing and cost of market research. 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 funding to the Company for certain manufacturing, sales,
product development and marketing activities. The inability of the Company
to satisfy its cash requirements could have a material adverse effect on the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
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 13, 1998,
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 4,939,974 17,329
Stanley Falkow, Ph.D. 4,940,774 16,529
Robert A. Hoerr, M.D., Ph.D. 4,940,574 16,729
Ronald O. Ostby 4,939,974 17,329
Winston R. Wallin 4,940,774 16,529
(b) 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, 1998. The proposal received 4,936,608 votes for, and 5,860
votes against, ratification. There were 14,835 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 the Incorporated By
Company issued to Piper Jaffray Inc., dated January 26, 1993.(1) Reference
4.3 Warrant to purchase 20,312 shares of Common Stock of the Incorporated By
Company issued to Gus A. Chafoulias, dated October 12, 1993.(1) Reference
4.4 Warrant to purchase 20,312 shares of Common Stock of the Incorporated By
Company issued to John Pappajohn, dated October 12, 1993.(1) Reference
4.5 Warrant to purchase 9,479 shares of Common Stock of the Incorporated By
Company issued to Cato Holding Company, dated June 21, 1994.(1) Reference
4.6 Form of Common Stock Warrant to purchase shares of Common Incorporated By
Stock of the Company, issued in connection with the sale of Reference
Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
13
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
4.8 Warrant to purchase 42,856 shares of Series F-2 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds VI, Inc. (IAI Emerging Reference
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 Regional Reference
Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.14 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Edgewater Private Equity Fund, L.P., dated Reference
February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Incorporated By
Company issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
4.16 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 6% Convertible Debenture Purchase Agreement dated Incorporated By
November 18, 1997 among the Company and the Purchasers named Reference
therein.(8)
4.20 Registration Rights Agreement dated November 18, 1997 among Incorporated By
the Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Incorporated By
Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued to Libertyview Incorporated By
Plus Fund dated November 18, 1997.(11) Reference
4.23 6% Convertible Debenture due May 18, 1999 issued to Libertyview Incorporated By
Fund, LLC dated November 18, 1997.(12) Reference
14
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated Incorporated By
November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Plus Fund dated Incorporated By
November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC dated Incorporated By
November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(16) Reference
4.28 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998. Electronic
Transmission
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998. Electronic
Transmission
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998. Electronic
Transmission
#10.1 License Agreement between the Company and Land O'Lakes dated Incorporated By
May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated Incorporated By
May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated Incorporated By
May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Land O'Lakes Incorporated By
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 Company and Incorporated By
Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company and Incorporated By
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 Minnesota, Incorporated By
N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Leasing Incorporated By
15
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
Corporation, dated June 5, 1996. (2) Reference
10.12 Master Equipment Lease between the Company and Cargill Leasing Incorporated By
Corporation, dated June 6, 1996. (2) Reference
10.13 Agreement for Progress Payments between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land O'Lakes, dated Incorporated By
June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated September 14, 1996. Incorporated By
(3) Reference
#10.16 Agreement with Colorado Animal Research Enterprises, Inc. dated Incorporated By
November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated December 27, Incorporated By
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 Compensation Incorporated By
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 Business Incorporated By
Credit Corporation dated June 8, 1997. (7) Reference
10.23 Amended and Restated License Agreement between the Company and Incorporated By
Land O'Lakes dated March 11, 1998. (19) Reference
##10.24 License Agreement between the Company and Metagenics, Inc. dated Electronic
April 7, 1998. Transmission
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
23.1 Consent of Ernst & Young LLP. (19) Incorporated By
Reference
27.1 Financial Data Schedule for Quarter ended June 30, 1998. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, Incorporated By
1996. (19) Reference
16
(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).
(7) 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, 1997 (File No. 0-27976).
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3(Registration No. 333-41151).
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(19) 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,
1997 (File No. 0-27976).
17
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# Contains portions for which confidential treatment has been granted to
the Company.
## Contains portions for which confidential treatment has been requested
by the Company.
(b.) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
18
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 13, 1998 By: /s/ ROBERT A. HOERR
-------------------
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 By: /s/ GREGG A. WALDON
-------------------
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
19
EXHIBIT INDEX
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
3.2 Restated Certificate of Incorporation Incorporated By
of the Company.(3) 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 Incorporated By
of the Company issued to Piper Jaffray Inc., Reference
dated January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of common stock Incorporated By
of the Company issued to Gus A. Chafoulias, Reference
dated October 12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of common stock Incorporated By
of the Company issued to John Pappajohn, Reference
dated October 12, 1993.(1)
4.5 Warrant to purchase 9,479 shares of common stock Incorporated By
of the Company issued to Cato Holding Company, Reference
dated June 21, 1994.(1)
4.6 Form of common stock Warrant to purchase shares Incorporated By
of common stock of the Company, issued in Reference
connection with the sale of Convertible
Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series Incorporated By
F-1 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series Incorporated By
F-2 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series Incorporated By
F-3 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series Incorporated By
F-3 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of common stock Incorporated By
of the Company issued to IAI Investment Funds Reference
VI, Inc. (IAI Emerging Growth Fund),
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of common stock Incorporated By
of the Company issued to IAI Investment Funds Reference
IV, Inc. (IAI Regional Fund), dated January
30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to John Pappajohn, Reference
dated February 2, 1996.(1)
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
4.14 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Edgewater Private Reference
Equity Fund, L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of common stock Incorporated By
of the Company issued to Joseph Giamenco, Reference
dated February 2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Gus A. Chafoulias, Reference
dated February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to JIBS Equities, Reference
dated February 2, 1996.(1)
4.18 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Land O'Lakes, Inc., Reference
dated February 2, 1996.(1)
4.19 6% Convertible Debenture Purchase Agreement Incorporated By
dated November 18, 1997 among the Company and Reference
the Purchasers named therein.(8)
4.20 Registration Rights Agreement dated November Incorporated By
18, 1997 among the Company and the Holders Reference
named therein.(9)
4.21 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to CPR (USA) Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to Libertyview Plus Fund dated November Reference
18, 1997.(11)
4.23 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to Libertyview Fund, LLC dated November Reference
18, 1997.(12)
4.24 Stock Purchase Warrant issued to CPR (USA) Incorporated By
Inc. dated November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Incorporated By
Plus Fund dated November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Incorporated By
Fund, LLC dated November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(16) Reference
4.28 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as Electronic
of April 13, 1998. Transmission
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
4.31 Warrant issued to Henry J. Cardello dated as Electronic
of April 30, 1998. Transmission
4.32 Warrant issued to Henry J. Cardello dated as of Electronic
June 19, 1998. Transmission
#10.1 License Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company Incorporated By
and 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 Incorporated By
the Company and Chiron Corporation dated March Reference
20, 1995.(1)
#10.8 License and Collaboration Agreement between Incorporated By
the Company and Chiron Corporation dated March Reference
20, 1995.(1)
*10.9 GalaGen Inc. Employee Stock Purchase Plan, Incorporated By
as amended. (2) Reference
10.10 Credit Agreement between the Company and Incorporated By
Norwest Bank Minnesota, N.A., dated as of Reference
January 24, 1996.(1)
10.11 Commitment Letter between the Company and Incorporated By
Cargill Leasing Corporation, dated June 5, Reference
1996. (2)
10.12 Master Equipment Lease between the Company Incorporated By
and Cargill Leasing Corporation, dated June 6, Reference
1996. (2)
10.13 Agreement for Progress Payments between the Incorporated By
Company and Cargill Leasing Corporation, dated Reference
June 6, 1996. (2)
10.14 Agreement for Lease between the Company and Incorporated By
Land O'Lakes, dated June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated Incorporated By
September 14, 1996.(3) Reference
#10.16 Agreement with Colorado Animal Research Incorporated By
Enterprises, Inc. dated November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., Incorporated By
dated December 27, 1996. (4) Reference
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
*10.18 Consulting agreement with Stanley Falkow, Incorporated By
Ph.D., dated January 15, 1997. (4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Incorporated By
Cash Compensation Plan. (4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Incorporated By
Option Compensation Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan. (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with Incorporated By
TransAmerica Business Credit Corporation dated Reference
June 8, 1997. (7)
10.23 Amended and Restated License Agreement between Incorporated By
the Company and Land O'Lakes dated March 11, Reference
1998. (19)
##10.24 License Agreement between the Company Electronic
and Metagenics, Inc. dated April 7, 1998. Transmission
11.1 Statement re: computation of per share Electronic
earnings (loss). Transmission
23.1 Consent of Ernst & Young LLP. (19) Incorporated By
Reference
27.1 Financial Data Schedule for quarter ended June Electronic
30, 1998. Transmission
27.2 Restated Financial Data Schedule for Quarter Incorporated By
ended March 31, 1996. (19) Reference
- ------------------------------
(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).
(7) 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, 1997 (File No. 0-27976).
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(19) 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,
1997 (File No. 0-27976).
* Management contact or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# Contains portions for which confidential treatment has been granted to
the Company.
## Contains portions for which confidential treatment has been requested
by the Company.
EXHIBIT 11.1---STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
PERIOD FROM
NOVEMBER 17,
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED 1987 (INCEPTION)
-------------------------- ------------------------ TO JUNE 30,
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 1998
------------- ------------- ------------- ------------- ----------------
BASIC LOSS PER SHARE:
Weighted average shares outstanding 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss applicable to common
stockholders $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Basis net loss per share applicable
to common stockholders $(0.20) $(0.20) $(0.36) $(0.42) $(20.74)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
DILUTED LOSS PER SHARE:
Weighted average shares outstanding 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
Dilutive potential common shares - - - - -
----------- ----------- ----------- ----------- ------------
Total 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss applicable to common
stockholders $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Diluted loss per share
applicable to common stockholders $(0.20) $(0.20) $(0.36) $(0.42) $(20.74)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------