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, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from __________ to ________.
Commission file number 0-27976.
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.)
1275 Red Fox Road
Arden Hills, Minnesota 55112-6943
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(Address of principal executive offices) (Zip Code)
(651) 634-4230
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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 -
10,408,535 shares as of July 29, 1999.
1
INDEX
GALAGEN INC.
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1999 and December 31, 1998................3
Statements of Operations - Three and six months ended
June 30, 1999 and June 30, 1998.....................................4
Statements of Cash Flows - Six months ended
June 30, 1999 and 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.........14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..........................15
Item 4. Submission of Matters to a Vote of Security Holders................15
Item 6. Exhibits and Reports on Form 8-K...................................15
SIGNATURES...................................................................22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALAGEN INC.
BALANCE SHEETS
JUNE 30, 1999 DECEMBER 31, 1998
--------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 3,005,077 $ 4,081,733
Available-for-sale securities................................. 493,287 -
Accounts receivable, net of allowance - $24,167 in
1999, $14,020 in 1998....................................... 184,671 314,579
Inventory..................................................... 692,353 303,150
Prepaid expenses.............................................. 114,064 197,994
------------ ------------
Total current assets............................................ 4,489,452 4,897,456
Property and equipment.......................................... 679,796 671,796
Less accumulated depreciation................................. (335,123) (270,418)
------------ ------------
344,673 401,378
Other assets.................................................... 687,628 774,659
Goodwill........................................................ 147,155 219,847
------------ ------------
834,783 994,506
Total assets.................................................... $ 5,668,908 $ 6,293,340
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 517,305 $ 641,922
Other current liabilities.......................................... 141,043 336,992
Convertible debentures............................................. - 193,333
------------ ------------
Total current liabilities............................................ 658,348 1,172,247
Commitments
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 in 1999 and 1998........... - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 10,408,535 in 1999;
8,948,446 in 1998............................................ 104,085 89,484
Additional paid-in capital......................................... 64,087,260 62,386,292
Accumulated deficit ............................................... (59,195,583) (57,339,283)
Deferred compensation.............................................. (30,202) (60,400)
------------ ------------
Total stockholders' equity......................................... 4,965,560 5,076,093
------------ ------------
Total liabilities and stockholders' equity........................... $ 5,668,908 $ 6,293,340
============ ============
See accompanying notes.
Note: The balance sheet at December 31, 1998 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
3
GALAGEN INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------
Revenues:
Product sales..................................... $ 481,237 $ 9,759 $ 916,779 $ 12,809
Product licensing and development revenues........ 127,205 - 275,196 -
------------- ------------- ------------- --------------
608,442 9,759 1,191,975 12,809
Operating expenses:
Cost of goods sold................................ 202,210 4,880 389,071 6,405
Selling, general and administrative............... 857,095 585,102 1,595,285 961,218
Product development............................... 403,308 751,547 782,254 1,272,062
Depreciation and amortization..................... 176,667 179,648 367,082 406,296
------------- ------------- ------------- -------------
1,639,280 1,521,177 3,133,692 2,645,981
------------- ------------- ------------- -------------
Operating loss..................................... (1,030,838) (1,511,418) (1,941,717) (2,633,172)
Interest income.................................... 40,919 67,727 96,144 192,276
Interest expense................................... (5,977) (162,084) (10,727) (381,974)
-------------- -------------- -------------- --------------
Net loss........................................... $ (995,896) $ (1,605,775) $ (1,856,300) $ (2,822,870)
============== ============== ============== ==============
Net loss per share
Basic and Diluted........................... $ (0.10) $ (0.20) $ (0.20) $ (0.36)
Weighted average number of common shares
outstanding
Basic and Diluted.................................. 10,042,618 8,096,548 9,498,555 7,803,123
See accompanying notes.
4
GALAGEN INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
-------------------------------
1999 1998
-------------------------------
OPERATING ACTIVITIES:
Net loss............................................. $ (1,856,300) $ (2,822,870)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation, amortization and other noncash........ 391,226 670,599
Changes in operating assets and liabilities......... (494,486) 101,130
-------------- -------------
Net cash used in operating activities................ (1,959,560) (2,051,141)
-------------- --------------
INVESTING ACTIVITIES:
Payment for asset purchase........................... (113,901) -
Purchase of property and equipment................... (8,001) (29,527)
Change in available-for-sale securities.............. (493,287) 4,661,532
-------------- -------------
Net cash provided (used) by investing activities... (615,189) 4,632,005
-------------- -------------
FINANCING ACTIVITIES:
Proceeds from common stock........................... 1,912,189 56,728
Payment for warrant repurchase...................... (375,000) -
Net payment on debt................................. (39,096) (139,730)
-------------- --------------
Net cash provided (used) by financing activities..... 1,498,093 (83,002)
------------- --------------
Increase (decrease) in cash.......................... (1,076,656) 2,497,862
Cash and cash equivalents at beginning of period..... 4,081,733 155,908
------------- -------------
Cash and cash equivalents at end of period........... $ 3,005,077 $ 2,653,770
============= =============
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible promissory notes, plus
related accrued interest, to common stock.......... $ 217,475 $ 1,021,552
Valuation of issued options and warrants............. - 62,500
Conversion of note to operating lease................ - 1,047,904
See accompanying notes.
5
GALAGEN INC.
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, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. 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, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE
Prior to 1998 the Company was a development stage company.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NET LOSS PER SHARE
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("Statement 128"). Under Statement 128, basic earnings per share is computed
by dividing the net loss by the weighted average number of common shares
outstanding for the year. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock and resulted in the
issuance of common stock. Basic and diluted earnings per share are the same
in all periods presented as all potential common shares were antidilutive.
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. As of June 30, 1999 the investments were corporate
debt securities with a contractual maturity of less than one year.
6
INVENTORY
Inventories are stated at the lower of cost or market using the
first-in, first-out method. The Company evaluates the need for reserves
associated with obsolete inventory as needed. Inventory at June 30, 1999 and
December 31, 1998 consisted of the following (see Note 5 below):
1999 1998
--------------- --------------
Finished goods...................... $ 515,382 $ 235,155
Raw materials and supplies.......... 176,971 67,995
--------------- --------------
$ 692,353 $ 303,150
=============== ==============
3. EQUITY FINANCINGS
In April 1999, the Company raised $1,972,500 through the private
placement sale of 1,315,000 shares of common stock. The shares sold in the
private placement were at an 8% discount to the closing price of the common
stock on the Nasdaq National Market on the closing date.
In November 1997, the Company raised $1,500,000 through the private
placement sale of 6% convertible debentures (the "Debentures") to three
institutional investors. Costs associated with the Debentures were amortized
over the term of the Debentures. In 1999 and 1998, $200,000 and $1,300,000 of
Debenture principal plus accrued interest was converted into the aggregate
maximum of 139,927 shares and 1,260,073 shares of common stock, respectively.
Under the terms of the Debentures, there was a limitation on the maximum
number of shares of common stock that could be issued upon conversion of the
Debentures. That maximum was reached through the conversions in 1999 and as a
result the Company repaid remaining Debenture principal plus accrued interest
of approximately $39,000 in 1999.
4. OPERATING LEASE
In June 1997, the Company established a note payable for approximately
$1,319,000 for fixed assets with Transamerica Business Credit Corporation
("Transamerica"). In June 1998, the Company converted the note payable into
an operating lease. At the time of the conversion the net book value of the
associated assets approximated the note payable balance. Terms of the
operating lease include monthly payments through May 2001 of approximately
$36,000 with a final payment of $165,000 in June 2001. The operating lease is
secured by the Company's property and equipment. Transamerica received a
warrant for 40,000 shares of common stock exercisable at $2.50 per share as
part of the June 1997 transaction. The warrant was valued at approximately
$79,000 and was amortized to interest expense over the term of the note
payable.
5. SUBSEQUENT EVENT
In August 1999, the Company announced an agreement with American
Institutional Products, Inc. ("AIP"), a wholly-owned subsidiary of Hormel
Foods Corporation, to license the worldwide rights to manufacture,
distribute, market and sell the Company's clinical nutrition critical care
products. Under the terms of the agreement AIP will purchase the clinical
nutrition products inventory, and will pay royalties , subject to an annual
minimum royalty, to the Company based upon net sales of the clinical
nutrition products.
7
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. See also "Disclosure Regarding Forward-Looking Statements."
GENERAL
GalaGen's mission is to become the leading presence in foods, beverages
and dietary supplements that help enhance the immune system. To accomplish
this mission, the Company is focusing its efforts on channels that demand
immune-enhancing benefits in certain segments of the consumer food and
beverage products market and in certain segments of the clinical nutrition
products markets. A critical factor for success of the Company is its
immune-enhancing ingredient which is derived from colostrum, the highly
nutritious first milk from a dairy cow after its calf is born, which has been
branded Proventra(-TM-) Brand Natural Immune Components ("Proventra"). The
primary components found in Proventra are naturally-occurring broad spectrum
antibodies or specialized proteins that enhance the body's own immune system
to provide protection against harmful micro-organisms. Additional
immune-enhancing components found in Proventra include lactoperoxidase,
lactoferrin, growth factors and other substances to bolster the body's
resistance. The Company, in conjunction with strategic partners, continues to
expand applications for its technology and is developing a portfolio of
Proventra-based products that target the needs of consumers and the
healthcare market.
In October 1998, the Company entered into a collaboration and license
agreement and a manufacturing and supply agreement with Wyeth-Ayerst
Laboratories ("Wyeth-Ayerst"), a division of American Home Products
Corporation. The two companies will develop and commercialize a proprietary
ingredient with unique antibacterial properties for use in pediatric formula
and other nutritional products.* The collaboration, during the research and
development phase of the product, will be funded by Wyeth-Ayerst through
payments to the Company.
In December 1998, the Company acquired a developed line of critical care
enteral nutrition products and formulas from NM Holdings, Inc. ("NMI"
formerly known as Nutrition Medical Inc.). These products are being sold to
the hospital healthcare industries. The Company is researching ways in which
to incorporate certain of its immune-enhancing ingredients into selected
products acquired from NMI to provide additional proprietary protection and
added benefits that are not currently available in that market segment (see
Note 5 of Notes to the Financial Statements).
In January 1999, the Company entered into a collaboration agreement with
General Nutrition Corporation, Inc. for product development, manufacturing,
supply and retail marketing of its Proventra. The agreement calls for the
two companies to develop and market a range of immune-enhancing dietary
supplements and nutrition formulas.
In March 1999, the Company entered into an agreement with Tropicana
Products, Inc., a division of PepsiCo Inc. Under this agreement, the two
companies will explore development of nutritious beverages for the
health-conscious consumer.
In March 1999, the Company also entered into a licensing and
distribution agreement with AIP. AIP licensed the manufacturing and
distribution rights for a new, clinically tested, cultured dairy beverage the
Company developed to improve the gastrointestinal health of patients in
hospitals and nursing homes. The product includes a patented ingredient
combination and will also incorporate the Company's Proventra (see Note 5 of
Notes to the Financial Statements).
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
GENERAL. The net loss decreased by $609,879, or 38.0%, for the three
months ended June 30, 1999 to $995,896 from $1,605,775 for the same period in
1998. The decrease was due primarily to increased product sales and product
development revenues, decreased product development expense due to the
discontinuation of the pharmaceutical program and reduced interest expense as
a result of the debt conversion. Cost of goods sold increased due to
increased product sales and selling, marketing and general and administrative
expense increased in support of the consumer and clinical nutrition product
programs.
REVENUES. For the three months ended June 30, 1999 revenues consisted
of approximately $465,000 of clinical nutrition product sales, approximately
$16,000 of consumer product sales and approximately $127,000 from product
development revenues. For the three months ended June 30, 1998 revenues
consisted of approximately $10,000 from consumer product sales.
COST OF GOODS SOLD. For the three months ended June 30, 1999 and 1998
the cost of goods sold of approximately $202,000 and $5,000, respectively,
was related to product sales. The increase in cost of goods sold was
primarily due to increased sales of the clinical nutrition products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $271,993, or 46.5%, for the three months
ended June 30, 1999 to $857,095 from $585,102 for the second quarter of 1998.
Approximately $192,000 of the increase is due to increased sales, marketing
and personnel expense for the Company's consumer and critical care nutrition
products, approximately $59,000 is due to increased outside service expense
and approximately $21,000 of the increase is due to operating lease expenses
associated with the Company's June 1998 note payable conversion (see Note 4
in Notes to the Financial Statements).
PRODUCT DEVELOPMENT EXPENSES. Expenses for product development
decreased $348,239, or 46.3%, for the three months ended June 30, 1999 to
$403,308 from $751,547 for the three months ended June 30, 1998. Expenses
related to the terminated pharmaceutical products program decreased
approximately $271,000 and associated personnel expense decreased
approximately $208,000. These decreases were offset by increased operating
lease
8
expense from the conversion of the Company's note payable in June 1998 of
approximately $84,000 (see Note 4 in Notes to the Financial Statements) and
increased expenses related to the clinical and consumer development programs
of approximately $47,000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended June 30, 1999 decreased $2,981, or 1.7%, to $176,667 from
$179,648 for the same period in 1998. The decrease was primarily due to
decreased depreciation expense related to the Company's operating lease
conversion (see Note 4 in Notes to the Financial Statements) partially offset
by increased intangible asset amortization related to the Company's
acquisition of certain assets from NMI.
INTEREST INCOME. Interest income for the three months ended June 30,
1999 decreased $26,808, or 39.6%, to $40,919 from $67,727 for the same period
in 1998. The decrease was primarily attributable to the decreased level of
invested funds.
INTEREST EXPENSE. Interest expense decreased $156,107, or 96.3%, for
the three months ended June 30, 1999 to $5,977 from $162,084 for the three
months ended June 30, 1998. For the three months ended June 30, 1998,
interest expense consisted primarily of amortization of the value of the
warrants plus the expense of the discount in connection with the Company's
convertible debentures issued in November 1997 (see Note 3 in Notes to the
Financial Statements) and interest expense associated with the Company's note
payable (see Note 4 of Notes to the Financial Statements).
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
GENERAL. The net loss decreased by $966,570, or 34.2%, for the six
months ended June 30, 1999 to $1,856,300 from $2,822,870 for the same period
in 1998. The decrease was due primarily to increased product sales and
product development revenues, decreased product development expense due to
the discontinuation of the pharmaceutical program and reduced interest
expense as a result of the debt conversion. Cost of goods sold increased due
to increased product sales and selling, marketing and general and
administrative expense increased in support of the consumer and clinical
nutrition product programs.
REVENUES. For the six months ended June 30, 1999 revenues consisted of
approximately $885,000 of clinical nutrition product sales, approximately
$32,000 of consumer product sales and approximately $275,000 from product
development revenues. For the six months ended June 30, 1998 revenues
consisted of approximately $13,000 from product sales.
COST OF GOODS SOLD. For the six months ended June 30, 1999 and 1998 the
cost of goods sold of approximately $389,000 and $6,000, respectively, was
related to the product sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $634,067, or 66.0%, for the six months
ended June 30, 1999 to $1,595,285 from $961,218 for the first six months of
1998. Approximately $532,000 of the increase is due to increased sales,
marketing and personnel expense for the Company's consumer and critical care
nutrition products, approximately $62,000 of the increase is from increased
outside service expense and approximately $40,000 of the increase is due to
operating lease expenses associated with the Company's June 1998 note payable
conversion (see Note 4 in Notes to the Financial Statements).
PRODUCT DEVELOPMENT EXPENSES. Expenses for product development
decreased $489,808, or 38.5%, for the six months ended June 30, 1999 to
$782,254 from $1,272,062 for the same period in 1998. Associated personnel
expense decreased approximately $353,000 and expenses related to the
terminated pharmaceutical products program decreased approximately $305,000.
These decreases were offset by increased operating lease expense from the
conversion of the Company's note payable in June 1998 of approximately
$168,000 (see Note 4 in Notes to the Financial Statements).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
six months ended June 30, 1999 decreased $39,214, or 9.7%, to $367,082 from
$406,296 for the same period in 1998. The decrease was primarily due to
decreased depreciation expense related to the Company's operating lease
conversion (see Note 4 in Notes to
9
the Financial Statements) partially offset by increased intangible asset
amortization related to the Company's acquisition of certain assets from NMI.
INTEREST INCOME. Interest income for the six months ended June 30, 1999
decreased $96,132, or 50.0%, to $96,144 from $192,276 for the same period in
1998. The decrease was primarily attributable to the decreased level of
invested funds.
INTEREST EXPENSE. Interest expense decreased $371,247, or 97.2%, for
the six months ended June 30, 1999 to $10,727 from $381,974 for the six
months ended June 30, 1998. For the six months ended June 30, 1998, interest
expense consisted primarily of amortization of the value of the warrants plus
the value of the discount in connection with the Company's convertible
debentures issued in November 1997 (see Note 3 in Notes to the Financial
Statements) and interest expense associated with the Company's note payable
(see Note 4 of Notes to the Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities decreased by $91,581, or 4.5%, for
the six months ended June 30, 1999 to $1,959,560 from $2,051,141 for the same
period in 1998. Cash used in operations for the six months ended June 30,
1999 was used primarily to fund operating losses, as well as operating
inventory and repayment of current obligations. Cash used in operations for
the same period in 1998 was used primarily to fund operating losses.
For the six months ended June 30, 1999, the Company invested $493,287
in available-for-sale securities and $8,001 in computer equipment and
manufacturing equipment in support of Company operations. In April 1999 the
Company invested $113,901 in purchased product development technology
relating to an asset purchase agreement with Marketing Ventures of America,
Inc., of which the president of the Company is a 100% shareholder. For the
same period in 1998, the Company redeemed $4,661,532 of its
available-for-sale securities and invested $29,527 in equipment related to
the Company's pilot plant manufacturing facility.
In April 1999, the Company completed the sale of newly issued common
stock that resulted in $1,972,500 of private placement funding. The stock was
sold at $1.50 per share. Also in April 1999, the Company repurchased three
warrants, that were initially granted to Chiron Corporation in March 1995,
for $375,000.
The Company anticipates that its existing resources and interest
thereon will be sufficient to satisfy its anticipated cash requirements
through approximately the third quarter of 2000.* The Company's working
capital and capital requirements will depend upon numerous factors, including
revenue from product sales, 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 marketing expense
and product development expense.* Capital expenditures may be necessary to
establish additional commercial scale manufacturing facilities.* The Company
will need to raise substantial additional funds for longer-term product and
marketing activities that may be required in the future. The Company's
ability to continue funding its planned operations beyond the third quarter
of 2000 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 it 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 the Company does not have an immediate need for such
additional capital at such time.* If the Company has not raised funds prior
to when its needs for funding become immediate, the Company may be forced to
raise funds when conditions are unfavorable, which could result in
significant dilution for current stockholders.*
10
YEAR 2000 ISSUES
The Company began the process of assessing its risks associated with
Year 2000 date conversion in 1998. This assessment included three main areas:
- the business hardware and software applications, mainly certain
accounting applications and the office network, the Company's
Information Technology ("IT") and
- manufacturing facilities and
- external third party business partners or suppliers.
Prior to the asset acquisition of NMI's critical care nutrition
products, the Company completed its preliminary assessment and concluded that
the Year 2000 risk was focused mainly in the area of its business computer
hardware and computer software applications. Subsequent to the NMI asset
purchase, the Company undertook a reassessment and determined that the
exposure associated with non-compliant external business partners and
suppliers had significantly increased.
The Company has addressed Year 2000 risks by:
- installing new network server hardware and software, specifically
for its accounting applications and office network. This remediation
process was completed with total costs of approximately $60,000. The
manufacturers of the hardware and software have stated that these
products are Year 2000 compliant. In planning for the worst case
scenarios, the Company has addressed this issue in its plan. The
Company believes that its hardware and software systems for its
business will be operational for Year 2000, but it may experience
isolated incidences of non-compliance.*
- identifying its key business partners and suppliers, particularly
relating to its critical care nutrition business, and assessing
their readiness for Year 2000 to mitigate the risk to the Company
if they are not Year 2000 compliant. The Company also recognizes
the risks from other key suppliers if utilities, communications,
banking and government are not ready for Year 2000, but does not
believe the Company will be materially adversely impacted. *
The Company's manufacturing facility, completed and operational in
mid-1997, has been Year 2000 compliant since inception and no further work is
considered necessary. The most reasonably likely worst case scenario would be
the inability of the Company to have its critical care nutrition products
manufactured and distributed on a timely basis, which could result in
significantly decreased revenues.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the six months ended June 30, 1999 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
1998 ("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 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 achieve a profitable level of operations, to generate sufficient working
capital and obtain necessary financing to meet capital requirements, loss of
Nasdaq National Market listing, the Company's ability to form strategic
alliances with marketing and distribution partners, the Company's exposure to
product liability claims, delays or high costs in product developments,
consumers' perception of product safety and quality, the
11
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, the Company's ability to manufacture an acceptable
product on a commercial scale and risks associated with the Year 2000
computer issue. 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.
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.
WE MAY NOT EVER ACHIEVE A PROFITABLE LEVEL OF OPERATIONS.
Our ability to achieve profitable operations depends in large part on:
- - entering into agreements to develop products and establish markets for
those products; and
- - making the transition from a research company to an operating and
marketing company.
We cannot be sure we will be successful in ever achieving either
result. We have experienced significant operating losses in each year since
our inception in 1987. We have an accumulated deficit of more than $59
million as of June 30, 1999. We may continue to lose money in the future.
IF WE CANNOT OBTAIN CONTINUING FUNDING, WE MAY BE UNABLE TO IMPLEMENT
OUR BUSINESS PLANS.
If we cannot find adequate funding, we may have to delay or eliminate
some of our product development plans. We may be required to grant licenses
to others to establish markets for products or technologies that we would
otherwise seek to market ourselves.
Our cash requirements for working capital depend on numerous factors.
These factors include:
- our spending on marketing activities, including clinical marketing
trials;
- our progress in finding partners to help us develop products and
market those products;
- the willingness and ability of our partners to provide funding for
our activities;
- our spending on product development programs;
- the rate of technological advances in the production of our products;
- our spending on facilities, equipment and personnel to make our
products; and
- the status of competitive products.
Our long-term ability to continue funding our planned operations
depends on our ability to obtain additional funds through:
- product revenues;
- equity or debt financing;
- finding partners to help us develop products and market those
products;
- license agreements; or
- other financing sources.
Because of our significant long-term capital requirements, we may seek
to raise funds when conditions are favorable. We may do so even if we do not
have an immediate need for the capital at the time we raise it. If we have
not raised funds prior to when our needs for funding become immediate, we may
be forced to raise funds when conditions are unfavorable. This could result
in significant dilution of our current stockholders.
IF WE DO NOT ACHIEVE A PROFITABLE LEVEL OF OPERATIONS AND CANNOT FIND
FUNDING IN THE FUTURE, WE COULD EVENTUALLY BECOME INSOLVENT OR BANKRUPT.
If we do not achieve a profitable level of operations and we do not
obtain necessary funding from some
12
source other than operations, we could eventually deplete our cash reserves
and become insolvent or bankrupt.
IF WE RELY ON INACCURATE MARKET INFORMATION, WE COULD MAKE DECISIONS
THAT HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
Because we are currently developing our products and markets for those
products, we are particularly reliant on market data. If that data is
inaccurate, we may commit resources to product development and marketing
efforts that do not become profitable. Product development and marketing
efforts that do not become profitable may have a material adverse effect on
our business and financial condition. We have obtained market and related
data from a competitive-market analysis firm. We have not independently
verified the accuracy of that information. In any event, the methodology
typically used in compiling market and related data makes it subject to
inherent uncertainties and estimations. As a result, we cannot be sure as to
the accuracy or completeness of our market information.
INADEQUATE PROVENTRA PRODUCTION COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND FINANCIAL CONDITION.
Given our limited experience in manufacturing Proventra, we cannot be
sure that we will be successful in producing Proventra of acceptable quality
on a commercial scale and at acceptable costs in our pilot plant facility. If
we cannot, our business and financial condition could be materially adversely
affected. Our production of Proventra will be regulated by the Minnesota
Department of Agriculture. We believe that our current manufacturing facility
will meet the anticipated requirements for the production of Proventra for
use in consumer and clinical nutritional products through the year 2000.
Further, we believe that contract manufacturers would be available to
increase our Proventra production capacity quickly, if required. However,
until we begin producing Proventra on a commercial scale, we cannot be sure
that our production capabilities will be adequate
FAILURE OF OUR COLLABORATIONS TO DEVELOP AND MARKET PRODUCTS CONTAINING
PROVENTRA COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL
CONDITION.
We are relying on collaborations with larger, more established
companies to develop and market products containing Proventra. Our or our
collaborators' inability to bring products to market could have a material
adverse effect on our business and financial condition. We anticipate that
products containing Proventra will be introduced in particular markets in the
last half of 1999 through collaborations we have established with other
companies. However, introduction of these products to test markets on
schedule depends on our ability and our collaborators' ability to accomplish
the following:
- finalize market research;
- finalize product development;
- establish product manufacturing;
- initiate marketing, sales and distribution activities related to our
products; and
- provide the funding necessary to accomplish these activities.
DELAYS OR HIGH COSTS IN PRODUCT DEVELOPMENT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
If we, or our strategic partners, cannot obtain accurate marketing data
or develop a product responsive to the needs identified by that data, our
business and financial condition could be materially adversely affected. The
amount of time it will take us, together with our strategic partners, to
develop consumer and clinical nutrition products and the associated costs of
developing those products depends on, among other things, the results of our
market research for consumer and clinical products. It also depends on our
discussions with end users or purchasers of the potential products. Market
research and discussions may give us indications of potential customers, what
types of products they may desire and what clinical information is necessary
for effective marketing and sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to material risks for
interest rates, foreign currency exchange rates, commodity prices or other
market price risks.
13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has issued the following equity securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended
(the "Securities Act"). All such sales were made in reliance upon the
exemptions from registration provided under Sections 3(b) and 4(2) of the
Securities Act.
In April 1999, the Company raised $1,972,500 through the private
placement sale of 1,015,000 shares of common stock to Lombard Odier & Cie,
200,000 shares of common stock to Winston R. Wallin, a director of the
Company, 50,000 shares of common stock to H. L. Severance, 35,000 shares of
common stock to H. L. Severance, Inc. Profit Sharing Plan and Trust and
15,000 shares of common stock to H. L. Severance, Inc. Pension Plan and
Trust. The shares of common stock were issued at $1.50 per share. Each such
investor certified that such investor was an "accredited investor" as that
term is defined in Rule 501 of Regulation D adopted under the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1998 Annual Meeting of Stockholders held on May 12,
1999, 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
---------------- --------- --------------
Robert A. Hoerr, M.D., Ph.D. 6,648,867 17,580
Henry J. Cardello 6,648,867 17,580
Austen S. Cargill II, Ph.D. 6,647,667 18,780
Ronald O. Ostby 6,648,867 17,580
Winston R. Wallin 6,637,667 28,780
(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, 1999. The proposal received 6,642,087 votes
for, and 5,800 votes against, ratification. There were 18,560
abstentions and 0 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) EXHIBITS
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
3.1 Intentionally left blank.
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.3 Intentionally left blank.
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2-4.5 Intentionally left blank.
14
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
4.6 Form of Common Stock Warrant to purchase shares of Incorporated By
Common Stock of the Company, issued in connection with Reference
the sale of Convertible Promissory Notes.(1)
4.7-4.10 Intentionally left blank.
4.11 Warrant to purchase 18,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth Fund), Reference
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund), dated Reference
January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.14 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Edgewater Private Equity Fund, Reference
L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Company Incorporated By
issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
4.16 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 Incorporated By
among the Company and the Purchasers named therein.(8) Reference
4.20 Registration Rights Agreement dated November 18, 1997 among the Incorporated By
Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. Incorporated By
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
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, Incorporated By
1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Plus Fund dated Incorporated By
November 18, 1997.(14) Reference
15
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
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 December 1,1997.(16) Incorporated By
Reference
4.28 Warrant issued to CLARCO Holdings dated as of December 1,1997.(17) Incorporated By
Reference
4.29 Intentionally left blank.
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998. (20) Incorporated By
Reference
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998. (20) Incorporated By
Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998. (20) Incorporated By
Reference
4.33 Warrant issued to William Young and Rebecca Young dated as of Incorporated By
August 12, 1998.(24) Reference
4.34 Warrant issued to Henry J. Cardello dated as of September 30, Incorporated By
1998.(24) Reference
Warrant issued to American Home Products Corporation dated as of Incorporated By
4.35 October 15, 1998.(24) Reference
4.36 Form of Registration Rights Agreement dated April 20, 1999.(25) Incorporated By
Reference
4.37 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Lombard Odier & Cie).(26) Reference
4.38 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. Leigh Severance).(27) Reference
4.39 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Profit Sharing Plan and Trust).(28) Reference
4.40 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Pension Plan and Trust).(29) Reference
4.41 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Winston R. Wallin).(30) Reference
#10.1 License Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
16
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
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
10.6-10.7 Intentionally left blank.
#10.8 License and Collaboration Agreement between the Company and Chiron Incorporated By
Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended. (2) Incorporated By
Reference
10.10-10.11 Intentionally left blank.
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
10.15-10.18 Intentionally left blank.
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan. (4) Incorporated By
Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Incorporated By
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 Land Incorporated By
O'Lakes dated March 11, 1998. (19) Reference
#10.24 License Agreement between the Company and Metagenics, Inc. dated Incorporated By
April 7, 1998. (20) Reference
10.25 Intentionally left blank.
10.26 Asset Purchase Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.27 Intentionally left blank.
10.28 Asset Purchase Agreement Amendment 1 between the Company and Incorporated By
Nutrition Medical, Inc., dated October 28, 1998.(22) Reference
17
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
10.29 Asset Purchase Agreement Amendment 2 between the Company and Incorporated By
Nutrition Medical, Inc., dated December 23, 1998.(23) Reference
#10.30 Collaboration and License Agreement between the Company and Incorporated By
American Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division, dated October 15, 1998. (24)
#10.31 Manufacturing and Supply Agreement between the Company and American Incorporated By
Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division dated October 15, 1998.(24)
#10.32 Product Development Collaboration, Manufacturing and Supply, and Incorporated By
Retail Marketing Agreement between the Company and General Reference
Nutrition Corporation, dated December 22, 1998.(24)
*10.33 Letter agreement with Henry J. Cardello, dated January 1, 1999.(31) Incorporated By
Reference
10.34 Repurchase Agreement by and between GalaGen Inc. and Chiron Incorporated By
Corporation, dated April 1, 1999.(31) Reference
#10.35 Licensing and Distribution Agreement by and between GalaGen Inc. Incorporated By
and American Institutional Products, Inc., dated March 15, 1999.(31) Reference
27.1 Financial Data Schedule for the six months ended June 30, 1999. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, 1996. Incorporated By
(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).
18
(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) Intentionally not used.
(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).
(20) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998 (File No. 0-27976).
(21) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 0-27976).
(22) Incorporated herein by reference to Exhibit No. 2.2 to the
Company's Report on Form 8-K, dated December 23, 1998
(File No. 0-27976).
(23) Incorporated herein by reference to Exhibit No. 2.3 to the
Company's Report on Form 8-K, dated December 23, 1998
(File No. 0-27976).
(24) 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, 1998 (File No. 0-27976).
(25) Incorporated herein by reference to Exhibit No. 4.5 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(26) Incorporated herein by reference to Exhibit No. 4.6 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
19
(27) Incorporated herein by reference to Exhibit No. 4.7 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(28) Incorporated herein by reference to Exhibit No. 4.8 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(29) Incorporated herein by reference to Exhibit No. 4.9 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(30) Incorporated herein by reference to Exhibit No. 4.10 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(31) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1999 (File No. 0-27976).
* 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.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
20
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 12, 1999 By: /s/ Robert A. Hoerr
-------------------
Robert A. Hoerr,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1999 By: /s/ Frank L. Kuhar
------------------
Frank L. Kuhar
Chief Financial Officer
(Principal Financial and Accounting
Officer)
21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
3.1 Intentionally left blank.
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.3 Intentionally left blank.
Incorporated By
3.4 Restated Bylaws of the Company.(1) Reference
Incorporated By
4.1 Specimen Common Stock Certificate.(1) Reference
4.2-4.5 Intentionally left blank.
4.6 Form of Common Stock Warrant to purchase shares of Incorporated By
Common Stock of the Company, issued in connection with Reference
the sale of Convertible Promissory Notes.(1)
4.7-4.10 Intentionally left blank.
4.11 Warrant to purchase 18,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth Fund), Reference
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund), dated Reference
January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.14 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Edgewater Private Equity Fund, Reference
L.P., dated February 2,
1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Company Incorporated By
issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
4.16 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 Incorporated By
among the Company and the Purchasers named therein.(8) Reference
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
4.20 Registration Rights Agreement dated November 18, 1997 among the Incorporated By
Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. Incorporated By
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
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, Incorporated By
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 December 1,1997.(16) Incorporated By
Reference
4.28 Warrant issued to CLARCO Holdings dated as of December 1,1997.(17) Incorporated By
Reference
4.29 Intentionally left blank.
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998. (20) Incorporated By
Reference
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998. (20) Incorporated By
Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998. (20) Incorporated By
Reference
4.33 Warrant issued to William Young and Rebecca Young dated as of Incorporated By
August 12, 1998.(24) Reference
4.34 Warrant issued to Henry J. Cardello dated as of September 30, Incorporated By
1998.(24) Reference
4.35 Warrant issued to American Home Products Corporation dated as of Incorporated By
October 15, 1998.(24) Reference
4.36 Form of Registration Rights Agreement dated April 20, 1999.(25) Incorporated By
Reference
4.37 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Lombard Odier & Cie).(26) Reference
4.38 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. Leigh Severance).(27) Reference
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
4.39 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Profit Sharing Plan and Trust).(28) Reference
4.40 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Pension Plan and Trust).(29) Reference
4.41 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Winston R. Wallin).(30) Reference
#10.1 License Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
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
10.6-10.7 Intentionally left blank.
#10.8 License and Collaboration Agreement between the Company and Chiron Incorporated By
Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended. (2) Incorporated By
Reference
10.10-10.11 Intentionally left blank.
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
10.15-10.18 Intentionally left blank.
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan. (4) Incorporated By
Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Incorporated By
Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan. (6) Incorporated By
Reference
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
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 Land Incorporated By
O'Lakes dated March 11, 1998. (19) Reference
#10.24 License Agreement between the Company and Metagenics, Inc. dated Incorporated By
April 7, 1998. (20) Reference
10.25 Intentionally left blank.
10.26 Asset Purchase Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.27 Intentionally left blank.
10.28 Asset Purchase Agreement Amendment 1 between the Company and Incorporated By
Nutrition Medical, Inc., dated October 28, 1998.(22) Reference
10.29 Asset Purchase Agreement Amendment 2 between the Company and Incorporated By
Nutrition Medical, Inc., dated December 23, 1998.(23) Reference
#10.30 Collaboration and License Agreement between the Company and Incorporated By
American Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division, dated October 15, 1998. (24)
#10.31 Manufacturing and Supply Agreement between the Company and American Incorporated By
Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division dated October 15, 1998.(24)
#10.32 Product Development Collaboration, Manufacturing and Supply, and Incorporated By
Retail Marketing Agreement between the Company and General Reference
Nutrition Corporation, dated December 22, 1998.(24)
*10.33 Letter agreement with Henry J. Cardello, dated January 1, 1999.(31) Incorporated By
Reference
10.34 Repurchase Agreement by and between GalaGen Inc. and Chiron Incorporated By
Corporation, dated April 1, 1999.(31) Reference
#10.35 Licensing and Distribution Agreement by and between GalaGen Inc. Incorporated By
and American Institutional Products, Inc., dated March 15, 1999.(31) Reference
27.1 Financial Data Schedule for the six months ended June 30, 1999. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, 1996. Incorporated By
(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) Intentionally not used.
(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).
(20) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998 (File No. 0-27976).
(21) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 0-27976).
(22) Incorporated herein by reference to Exhibit No. 2.2 to the
Company's Report on Form 8-K, dated December 23, 1998
(File No. 0-27976).
(23) Incorporated herein by reference to Exhibit No. 2.3 to the
Company's Report on Form 8-K, dated December 23, 1998 (File
No. 0-27976).
(24) 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, 1998 (File No. 0-27976).
(25) Incorporated herein by reference to Exhibit No. 4.5 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(26) Incorporated herein by reference to Exhibit No. 4.6 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(27) Incorporated herein by reference to Exhibit No. 4.7 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(28) Incorporated herein by reference to Exhibit No. 4.8 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(29) Incorporated herein by reference to Exhibit No. 4.9 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(30) Incorporated herein by reference to Exhibit No. 4.10 to Amendment
No. 2 to the Company's Registration Statement on Form S-3/A
(Registration No. 333-71883).
(31) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1999 (File No. 0-27976).
* 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.