<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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 000-23267
DEPOMED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3229046
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1170 B CHESS DRIVE
FOSTER CITY, CALIFORNIA 94404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(650) 513-0990
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange At 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
requirements for the past 90 days.
YES [X] NO [_]
The number of issued and outstanding shares of the Registrant's Common Stock,
no par value, as of December 10, 1997, was 5,463,438.
<PAGE>
DEPOMED, INC
PART I - FINANCIAL INFORMATION
Item 1. Financial.Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheets at September 30, 1997 and December 31, 1996.................... 3
Condensed Statements of Operations for the three and nine month periods ended
September 30, 1997 and 1996............................................................. 4
Condensed Statements of Cash Flows for the nine month periods ended September 30, 1997
and 1996................................................................................ 5
Notes to Unaudited Condensed Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................... 23
Signatures................................................................................... 25
</TABLE>
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<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
DepoMed, Inc.
(a development stage company)
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 200,955 $ 10,802
Accounts receivable 150,701 120,898
Other current assets 925,324 31,537
----------- -----------
Total current assets 1,276,980 163,237
Property and equipment, net 210,861 155,139
Other assets 10,431 14,751
----------- -----------
$ 1,498,272 $ 333,127
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 561,903 $ 51,746
Accrued compensation 335,576 291,374
Notes payable to shareholders 305,892 294,238
Notes payable 1,029,000 -
Capital lease obligation, current portion 28,225 19,803
Other current liabilities 16,015 22,764
----------- -----------
Total current liabilities 2,276,611 679,925
Capital lease obligation, non-current portion 44,039 34,634
Commitments
Shareholders' equity (net capital deficiency):
Preferred stock 961,259 682,759
Common Stock 526,300 284,250
Deferred Compensation (432,089) (275,000)
Deficit accumulated during the development stage (1,877,848) (1,073,441)
----------- -----------
Total shareholders' equity (net capital deficiency) (822,378) (381,432)
----------- -----------
$ 1,498,272 $ 333,127
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
DepoMed, Inc.
(a development stage company)
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1996 1997 1996
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Product development revenue $ 104,454 $ 249,113 $ 456,191 $ 249,113
Operating expenses:
Research and development 244,778 103,325 573,381 285,272
General and administrative 219,095 60,750 649,838 307,147
---------- ---------- ---------- ----------
Total operating expenses 463,873 164,075 1,223,219 592,419
(Loss) income from operations (359,419) 85,038 (767,028) (343,306)
Interest expense, net 17,269 3,082 37,379 4,649
---------- ---------- ---------- ----------
Net (loss) income $ (376,688) $ 81,956 $ (804,407) $ (347,955)
========== ========== ========== ==========
Pro forma net (loss) income per share $(0.08) $0.02 $(0.18) $(0.08)
---------- ---------- ---------- ----------
Shares used in computing pro forma
net (loss) income per share 4,482,758 4,331,731 4,482,758 4,329,875
========== ========== ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
DepoMed, Inc.
(a development stage company)
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (804,407) $(347,955)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 42,173 24,651
Accrued interest expense on notes 40,654 7,765
Amortization of deferred compensation expense 84,961 0
Changes in assets and liabilities:
Accounts receivable (29,803) (99,513)
Other current assets (893,787) (2,177)
Other assets 4,320 0
Accounts payable 510,157 3,255
Accrued compensation 44,202 121,211
Other current liabilities (6,749) (16,378)
----------- ---------
Net cash used in operating activities (1,008,279) (309,141)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (55,968) (24,595)
Sales of short-term investments - 79,582
----------- ---------
Net cash (used in) provided by investing activities (55,968) 54,987
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (24,100) (21,774)
Proceeds from bridge financing 1,000,000 -
Proceeds on issuance of common stock - 300
Proceeds on issuance of preferred stock 278,500 -
----------- ---------
Net cash provided by (used in) financing activities 1,254,400 (21,474)
----------- ---------
Net increase (decrease) in cash and cash equivalents 190,153 (275,628)
Cash and cash equivalents at beginning of period 10,802 338,007
----------- ---------
Cash and cash equivalents at end of period $ 200,955 $ 62,379
=========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Acquisition of property and equipment under capital lease $ 41,927 $ 48,752
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 10,911 $ 3,301
=========== =========
</TABLE>
See accompanying notes.
-5-
<PAGE>
DepoMed, Inc.
(a Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited condensed financial statements and the related footnote
information have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the accompanying interim unaudited condensed financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the periods presented.
The results for the interim period ended September 30, 1997 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1997 or future operating periods.
2. NET LOSS PER SHARE, HISTORICAL AND PRO FORMA
Net Loss Per Share
------------------
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares issued during the 12-month period
prior to the initial filing of the proposed offering at prices below the assumed
public offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for stock
options at the estimated public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD FROM INCEPTION YEAR ENDED SEPTEMBER 30,
(AUGUST 7, 1995) TO DECEMBER 31, -------------------------
DECEMBER 31, 1995 1996 1997 1996
<S> <C> <C> <C> <C>
Net loss per share $ (0.19) $ (0.13) (0.22) $ (0.10)
========== ========== ========= ==========
Shares used in computing
net loss per share 3,109,443 3,535,197 3,604,275 3,514,085
========== ========== ========= ==========
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that were
-6-
<PAGE>
DepoMed, Inc.
(a Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
automatically converted upon completion of the Company's November 5, 1997
initial public offering (see Note 7) (using the as-if-converted method) from the
original date of issuance.
Pro forma net loss per share for the period from inception (August 7, 1995)
to December 31, 1995 is as follows:
Pro Forma net loss per share $ (0.18)
==========
Shares used in computing pro forma net loss per share 3,317,824
==========
Impact of Recently Issued Accounting Pronouncements
---------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute loss per share and to restate all prior periods. The impact is
expected to result in no change to loss per share for any of the periods
presented and the nine-month periods ended September 30, 1997 and September 30,
1996.
3. SHAREHOLDERS' EQUITY
In January 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock and warrants to the public. Upon the date of the
initial public offering, all of the preferred stock outstanding was
automatically converted into 908,622 shares of common stock. Unaudited pro forma
shareholders' equity, as adjusted for the conversion of the preferred shares, is
set forth on the balance sheet.
Also, in January 1997, the Board of Directors of the Company authorized a 1-
for-3 reverse stock split, in which three shares of common stock would be
exchanged for one share of common stock. The stock split became effective of
July 30, 1997. All share and per share amounts, as well as the dividend and
liquidation preferences from the preferred stock, included in the accompanying
interim unaudited condensed financial statements have been retroactively
adjusted to reflect the reverse stock split.
In April 1997, the Board of Directors approved an increase of 250,000 shares
to the Company's 1995 Stock Option Plan.
-7-
<PAGE>
DepoMed, Inc.
(a Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
4. INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with Financial Accounting Standard Board Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"). No provision for income taxes is
expected for 1997 as the Company expects to incur a net loss for the year and
does not meet the criteria for recognizing an income tax benefit under the
provisions of FAS 109.
5. BRIDGE LOANS
In April 1997, the Company arranged a financing facility of $1,000,000 of
one-year notes to accredited investors (the "Bridge Financing"). The terms of
the borrowing included a mandatory payment requirement upon the closing of an
initial public offering prior to the Bridge Financing's maturity. The Bridge
Financing bore interest at a rate of 6% per annum and further provided for the
issuance of warrants (the "Bridge Warrants") upon the closing of an initial
public offering. The Bridge Warrants entitle the investors to purchase the
number of shares of common stock which equals 50% of their investment divided by
the initial public offering price of the common stock, exercisable at a price
equal to the initial public offering price of the common stock, The Bridge
Warrants may be exercised during the 4 year period beginning April 7, 1998.
6. COMMITMENT
In April 1997, the Company and Oakmont Pharmaceuticals, Inc. ("Oakmont")
signed a letter of intent to enter into an agreement pursuant to which Oakmont
would manufacture the Company's reduced irritation aspirin and enhanced
absorption calcium supplement products and have rights to distribute and sell
these products in territories to be determined. The letter of intent also
provides for the Company and Oakmont each to offer rights to future products to
the other party.
7. SUBSEQUENT EVENTS
The Company completed its initial public offering of Common Stock on November 5,
1997. The offering consisted of 1,200,000 units ("Units"), each unit consisting
of one share of common stock, no par value, and a redeemable warrant to purchase
one share of common stock at an exercise price of $7.625 per share. The Company
offered these units to the public at a price of $6.10 per unit. Upon the
completion of the initial public offering, all of the convertible preferred
shares outstanding as of the closing date were automatically converted into
908,622 shares of common stock based on the shares of convertible preferred
stock outstanding as of September 30, 1997. Pro forma
-8-
<PAGE>
DepoMed, Inc.
(a Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
shareholders' equity at September 30, 1997, as adjusted for the conversion of
preferred stock, is disclosed on the balance sheet.
On November 10, 1997, the Company filed amended and restated articles of
incorporation wherein the Company is authorized to issue 5,000,000 shares of
preferred stock and 25,000,000 shares of common stock.
The Bridge Financing notes and interest thereon were repaid on November
10, 1997 from part of the proceeds of the Company's initial public offering. The
Company subsequently issued to the Bridge Financing investors warrants to
purchase 81,254 shares exercisable at $6.00 per share and 2,084 shares
exercisable at $7.63 per share.
The shares and warrants comprising the Units were detached and began
trading separately on December 2, 1997. On December 8, 1997, the Units ceased
being quoted or traded.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
----------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations included with Company's Registration Statement on Form SB-2, filed on
- --------------------------------------------------------------------------------
April 18, 1997 as amended, and the Company's Financial Statements and related
- -----------------------------------------------------------------------------
Notes thereto appearing elsewhere in this Quarterly Report. Except for the
- --------------------------------------------------------------------------
historical information contained herein, the discussion in this Quarterly Report
- --------------------------------------------------------------------------------
contains certain forward-looking statements that involve risks and
- ------------------------------------------------------------------
uncertainties that could cause actual results to differ materially from those
- -----------------------------------------------------------------------------
discussed here. Factors that could cause or contribute to such differences
- --------------------------------------------------------------------------
include those discussed in "Risk Factors," as well as those discussed elsewhere
- -------------------------------------------------------------------------------
herein. The Company expressly disclaims any obligations or undertaking to
- -------------------------------------------------------------------------
release publicly any updates or revisions to any forward-looking statements
- ---------------------------------------------------------------------------
contained herein to reflect any changes in the Company's expectations with
- --------------------------------------------------------------------------
regard thereto or any change in events, conditions or circumstances on which any
- --------------------------------------------------------------------------------
such statement are based.
- ------------------------
GENERAL
Since its inception in August 1995, the Company has devoted substantially all
its efforts to research and development conducted on its own behalf and through
collaborations with pharmaceutical partners in connection with the gastric
retention and reduced irritation systems (the "DepoMed Systems"). The Company's
primary activities since inception (August 7, 1995) have been, in addition to
research and development, establishing its offices and research facilities,
recruiting personnel, filing patent applications, developing a business strategy
and raising capital. To date, the Company has received only limited revenue, all
of which has been from collaborative research and feasibility arrangements. At
its inception in 1995, the Company acquired $298,154 of in-process research and
development technology. This amount was recognized as operating expense in 1995.
There was no such expense in 1996. The Company has generated a cumulative net
loss of $1,877,848 for the period from its inception through September 30, 1997.
The Company intends to continue investing in the further development of its
drug delivery technologies and the DepoMed Systems. The Company also intends to
develop over the counter ("OTC") and/or off-patent drug products, such as a
reduced irritation aspirin product and an enhanced absorption calcium supplement
product, internally. Depending upon a variety of
-10-
<PAGE>
factors, including collaborative arrangements, available personnel and financial
resources, the Company will conduct or fund clinical trials on such products and
will undertake the associated regulatory activities. The Company will need to
make additional capital investments in laboratories and related facilities,
including the purchase of laboratory and pilot scale manufacturing equipment. As
additional personnel are hired, expenses can be expected to increase from their
1997 levels. Within the next 12 months, the Company will also require additional
space for laboratory, testing and pilot manufacturing facilities.
RESULTS OF OPERATIONS
The Company commenced operations in August 1995. Because of the difference in
the length of the reported periods, the comparison of the period from inception
to December 31, 1995 to the year ended December 31, 1996 is not meaningful and
has not been presented.
Nine Months Ended September 30, 1996 and 1997
---------------------------------------------
Revenue for the nine months ended September 30, 1997 was $456,191 and
consisted entirely of amounts earned under a research and development
arrangement with Bristol Myers-Squibb ("BMS"). Revenue for the nine months
ended September 30, 1996 was $249,113 and consisted entirely of amounts earned
under research and development arrangements, primarily with BMS.
Research and development expenses for the nine months ended September 30, 1997
were $573,381 compared to $285,272 during the nine months ended September 30,
1996. The increase was due to the hiring of additional employees and related
expenses.
General and administrative expenses for the nine months ended September 30,
1997 were $649,838, compared to $307,147 during the nine months ended September
30, 1996. The increase was due to the hiring of additional employees and related
expenses.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations primarily from the sale
of stock and the issuance of debt. During the nine-months ended September 30,
1997, the Company received $1,278,500 from financing activities, consisting of
$278,500 from equity financings and $1,000,000 from a bridge financing. In
November 1997, the Company received net proceeds of approximately $5,800,000
upon closing of the of initial public offering, of which approximately
$1,600,000 was used to repay indebtedness. See Note 7 of the Notes to Financial
Statements, "Subsequent Events."
-12-
<PAGE>
Cash used in operations in the nine months ended September 30, 1997 was
$1,008,879 compared to $309,141 for the nine months ended September 30, 1996.
During the nine months ended September 30, 1997 the net loss and increases in
capitalized offering costs more than offset increases in accounts payable and
amortization of deferred compensation. The offering costs were capitalized as
expenses of the Company's initial public offering completed in November 1997.
During the nine months ended September 30, 1996 increases in accrued
compensation were partially offset by the net loss and an increase in accounts
receivable.
Cash used in investing activities in the nine months ended September 30, 1997
totaled $55,968 and consisted of purchases of laboratory equipment, furniture
and office equipment. Cash provided by investing activities in the nine months
ended September 30, 1996 totaled $54,987 and consisted of sales of short term
investments partially offset by purchases of laboratory equipment. Capital
expenditures during the next 12 months may include pilot manufacturing
equipment, such as tablet presses for proof of principle, and product
development and quality control laboratory equipment. In the future the Company
may seek lease financing for certain additional equipment.
-13-
<PAGE>
The Company anticipates that existing capital resources, including the net
proceeds from its initial public offering, will enable it to meet its capital
and operational requirements for at least the next 12 months. Cash needs of the
Company may vary materially from those now planned because of results of
research and development, relationships with exisitng and possible future
collaborative partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances,
results of clinical testing, requirements of the FDA and comparable foreign
regulatory processes and other factors. The Company will require substantial
funds of its own or from third parties to conduct research and development,
preclinical and clinical testing, and to manufacture (or have manufactured) and
market (or have marketed) the products utilizing the DepoMed Systems. The
Company's existing capital resources, including those obtained through the
initial public offering, are not expected to be sufficient to fund the Company's
operations through commercialization of products yielding sufficient revenues to
support the Company's operations. The Company has no credit facility or other
committed sources of capital. To the extent capital resources are insufficient
to meet future capital requirements, the Company will have to raise additional
funds to continue the development of its technologies. There can be no assurance
that such funds will be available on favorable terms, or at all. To the extent
that additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities could result in dilution to the
Company's shareholders. If adequate funds are not available, the Company may be
required to curtail operations significantly or to obtain funds through entering
into collaboration agreements on unattractive terms. The Company's inability to
raise capital would have a material adverse effect on the Company.
-14-
<PAGE>
NET OPERATING LOSSES
The Company has not generated any taxable income to date. At December 31,
1996, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $500,000. Because the Company has
experienced ownership changes, future utilization of carry forwards may be
limited in any fiscal year pursuant to Internal Revenue Code regulations. The
carryforwards expire at various dates beginning in 2010 through 2011 if not
utilized. As a result of the annual limitation, anticipated and future losses,
all or a portion of these carryforwards may expire before becoming available to
reduce the Company's federal income tax liabilities.
ADDITIONAL FACTORS THAT COULD AFFECT OPERATING RESULTS
The following factors, among others, could affect the Company's actual future
results, including product development and capital requirements, and could cause
them to differ from any forward looking statements made by or on behalf of the
Company.
EARLY STAGE OF DEVELOPMENT; WORKING CAPITAL DEFICIT; LIMITED REVENUES; LIMITED
OPERATING HISTORY
The Company is at an early stage of development and is subject to all business
risks associated with a new enterprise, including constraints on the Company's
financial and personnel resources, lack of established credit facilities and
collaborative partnering relationships, and uncertainties regarding product
development and future revenues. At September 30, 1997, the Company had an
accumulated deficit of $1,877,848 and a working capital deficit of $999,631.
The Company anticipates that it will continue to incur substantial additional
operating losses for at least the next several years and expects cumulative
losses to increase as the Company's research and development efforts expand.
The Company has had only minimal revenues to date from collaborative research
and development arrangements and feasibility studies, and no revenues from
product sales. There can be no assurance as to when or whether it will be able
to develop significant sources of revenue or that its operations will become
profitable, even if it is able to commercialize any products. The Company has
only a limited history of operations, consisting primarily of development of its
products and sponsorship of research.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's research and development programs are at an early stage of
development. Substantial additional research and development will be necessary
in order for the Company to develop the DepoMed Systems, and there can be no
assurance that the DepoMed Systems will be developed or that products utilizing
the DepoMed Systems will be commercialized by the Company or third parties in a
timely manner or at all. In addition to further research and development
related to the DepoMed Systems, products utilizing the DepoMed Systems will
require clinical testing, regulatory approval and substantial additional
investment prior to commercialization. There can be no assurance that products
utilizing the DepoMed Systems will be successfully developed, prove to be safe
and efficacious in clinical trials, meet applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable costs, be
eligible for third-party reimbursement from governmental or private insurers, be
successfully marketed or achieve market acceptance. Further, the DepoMed
Systems may prove to have undesirable or unintended side effects that may
prevent or limit their commercial use. The Company or its collaborative
partners may find that products that appeared promising in preclinical studies
do not demonstrate efficacy in larger-scale clinical trials and/or that such
products will not receive regulatory approvals. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time which could have a material adverse effect on the
Company.
-15-
<PAGE>
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS
The Company anticipates that its existing capital resources, including the net
proceeds from its recently completed public offering, will enable it to meet its
capital and operational requirements for at least the next 12 months. However,
this expectation is based on the Company's current operating plan which can
change as a result of many factors, and the Company could require additional
funding sooner than anticipated. The Company's cash needs may also vary
materially from those now planned because of results of research and
development, relationships with possible collaborative partners, changes in the
focus and direction of the Company's research and development programs,
competitive and technological advances, results of clinical testing,
requirements of the United States Food and Drug Administration ("FDA") and
comparable foreign regulatory agencies and other factors. The Company will
require substantial funds of its own or from third parties to conduct research
and development, preclinical and clinical testing, and to manufacture (or have
manufactured) and market (or have marketed) the products utilizing the DepoMed
Systems. The Company's existing capital resources are not expected to be
sufficient to fund the Company's operations through commercialization of
products yielding sufficient revenues to support the Company's operations. The
Company has no credit facility or other committed sources of capital. To the
extent capital resources are insufficient to meet future capital requirements,
the Company will have to raise additional funds to continue the development of
the DepoMed Systems. There can be no assurance that such funds will be available
on favorable terms, or at all. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution to the Company's shareholders. If adequate
funds are not available, the Company may be required to curtail operations
significantly or to obtain funds through entering into collaboration agreements
on unattractive terms. The Company's inability to raise capital would have a
material adverse effect on the Company.
DEPENDENCE ON AND NEED FOR COLLABORATIVE PARTNERS
The Company's strategy for the research, development, clinical testing,
manufacturing and commercialization of products utilizing the DepoMed Systems
requires entering into collaborative arrangements with pharmaceutical and
biotechnology companies. The Company has received substantially all of its
revenues since inception from Bristol-Meyers Squibb ("BMS") and GalaGen, Inc.
("GalaGen") and intends to enter into collaborative arrangements with other
companies to fund the continued development of the DepoMed Systems,
commercialize potential products utilizing the DepoMed Systems and assist in
obtaining regulatory approval. Although the Company has entered into a joint
research agreement with BMS and a feasibility study with GalaGen, there can be
no assurance that either BMS or GalaGen will choose to continue to fund these
projects or enter into arrangements to commercialize products utilizing the
DepoMed Systems or, if they do, that any products utilizing the DepoMed Systems
will be successfully developed or commercialized. In August 1997, GalaGen
announced that the clinical development program of one of its immunoglobulin
products was put on hold. There can be no assurance that GalaGen will choose to
resume development of that product. Although the Company has
-16-
<PAGE>
entered into a letter of intent with Oakmont pursuant to which Oakmont
Pharmaceuticals, Inc. ("Oakmont") will manufacture the Company's reduced
irritation aspirin and enhanced absorption calcium supplement products and have
rights to distribute and sell these products in certain territories, there can
be no assurance that the Company and Oakmont will enter into a definitive
agreement or, if they do, that the Company will be successful in developing
these products or Oakmont will be successful in manufacturing, distributing or
marketing them. Further, there can be no assurance that any of the Company's
present or future collaborative partners will perform their obligations as
expected or will devote sufficient resources to the development, clinical
testing or marketing of the Company's potential products developed under the
collaborations or that the Company will be able to negotiate future
collaborative arrangements on acceptable terms, if at all, or that such
collaborations will be successful. Any parallel development by a collaborative
partner of alternative technologies or products, preclusion of the Company from
entering into competitive arrangements, failure to obtain timely regulatory
approvals, premature termination of an agreement, or failure by a collaborative
partner to devote sufficient resources to the development and commercialization
of products utilizing the DepoMed Systems could have a material adverse effect
on the Company.
The Company's agreements with its collaborative partners are likely to be
complex. There may be provisions within such agreements which give rise to
disputes regarding the rights and obligations of the parties. These and other
possible disagreements could lead to delays in collaborative research,
development or commercialization of potential products, or could require or
result in litigation or arbitration, which would be time-consuming and
expensive, and could have a material adverse effect on the Company.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly operating results will depend upon variations in
revenues recognized under existing and possible future collaborative agreements,
including milestones, royalties, license fees and other contract revenues, and
the timing of any future product introductions by the Company and its
collaborative partners. The Company's quarterly operating results may also
fluctuate significantly depending on other factors, including the introduction
of new products by the Company's competitors, regulatory actions, market
acceptance of the DepoMed Systems, adoption of new technologies, manufacturing
costs and capabilities, changes in government funding, and third-party
reimbursement policies.
COMPETITION; TECHNOLOGICAL CHANGE
Competition in the areas of pharmaceutical products and drug delivery systems
is intense and is expected to become more intense in the future. Other
companies that have oral drug delivery technologies that are competitive with
the DepoMed Systems include ALZA Corporation, Elan Corporation plc, Jago Pharma
AG, Kos Pharmaceuticals, Inc. and Flamel Aromatic SA, all of which have oral
tablet products designed to release the incorporated drugs over time. Each of
these companies has a patented technology with attributes different from those
of the Company's, and in some cases with different sites of delivery to the GI
tract. These competing technologies may prove superior, either generally or in
particular market segments, in terms of factors such as cost, consumer
satisfaction or drug delivery profile.
The Company's principal competitors in the business of developing and applying
drug delivery systems all have substantially greater financial, technological,
marketing, personnel and research and development resources than the Company.
In addition, the Company may face competition from pharmaceutical and
biotechnology companies that may develop or acquire drug delivery systems or
technologies. Many of the Company's potential collaborative partners have
devoted and are continuing to devote significant resources in the development of
their own drug delivery systems and technologies. Potential products utilizing
the DepoMed Systems will compete both with products employing advanced drug
delivery systems and with products in conventional dosage forms. New drugs or
future developments in alternative technologies may provide therapeutic or cost
advantages over products utilizing the DepoMed Systems. There can be no
assurance that developments by others will not render the Company's potential
products utilizing the DepoMed Systems or technologies noncompetitive or
obsolete. In addition, the Company's competitive success will depend heavily on
entering into collaborative relationships on reasonable commercial terms,
commercial development of products utilizing the DepoMed Systems, regulatory
approvals, protection of intellectual property and market acceptance of such
products.
-17-
<PAGE>
NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION
FDA Approval Process. In the United States, pharmaceutical products,
including any drugs utilizing the DepoMed Systems, are subject to rigorous
regulation by the FDA. If a company fails to comply with applicable
requirements, it may be subject to administrative or judicially imposed
sanctions such as civil penalties, criminal prosecution of the company or its
officers and employees, injunctions, product seizure or detention, product
recalls, total or partial suspension of production, FDA withdrawal of approved
applications or FDA refusal to approve pending premarket approval applications,
or supplements to approved applications.
Prior to commencement of clinical studies involving human beings, preclinical
testing of new pharmaceutical products is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of the product.
The results of these studies are submitted to the FDA as a part of an
Investigational New Drug ("IND") application, which must become effective
before clinical testing in humans can begin. Typically, clinical evaluation
involves a time consuming and costly three-phase process. In Phase I, clinical
trials are conducted with a small number of subjects to determine the early
safety profile, the pattern of drug distribution and metabolism. In Phase II,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large-scale, multi-center, comparative trials
are conducted with groups of patients afflicted with a target disease in order
to provide enough data to demonstrate the efficacy and safety required by the
FDA. The FDA closely monitors the progress of each of the three phases of
clinical testing and may, at its discretion, reevaluate, alter, suspend or
terminate the testing based upon the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient.
The results of the preclinical and clinical testing on a drug are submitted to
the FDA in the form of a New Drug Application ("NDA") for approval prior to
commencement of commercial sales. In responding to an NDA, the FDA may grant
marketing approval, request additional information or deny the application if
the FDA determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all. Failure to receive approval for any products utilizing the
DepoMed Systems could have a material adverse effect on the Company.
Most OTC products are subject to an OTC monograph issued by the FDA. If an
OTC product complies with an FDA monograph, it will not require the submission
and approval of an NDA to be lawfully marketed. Such products are subject to
various FDA regulations such as FDA's current good manufacturing practices
("cGMP") requirements, general and specific OTC labeling requirements
(including warning statements), the restriction against advertising for
conditions other than those stated in product labeling, and the requirement that
in addition to active ingredients OTC drugs contain only safe and suitable
inactive ingredients. Facilities which manufacture OTC products are subject to
FDA inspection and failure to comply with applicable regulatory requirements may
lead to administrative or judicially imposed penalties. If an OTC product
differs from the terms of a monograph, it will, in most cases, require FDA
approval of an NDA for the product to be marketed.
Other Regulations. Even if required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must also be
obtained prior to marketing the product internationally. Foreign approval
varies from country to country and the time required for approval may delay or
prevent marketing. In certain instances the Company or its collaborative
partners may seek approval to market and sell certain of its products outside of
the United States before submitting an application for United States approval to
the FDA. The regulatory procedures for approval of new pharmaceutical products
vary significantly among foreign countries. The clinical testing requirements
and the time required to obtain foreign regulatory approvals may differ from
that required for FDA approval. Although there is now a centralized European
Union ("EU") approval mechanism in place, each EU country may nonetheless
impose its own procedures and requirements, many of which are time consuming and
expensive, and some EU countries require price approval as part of the
regulatory process. Thus, there can be substantial delays in obtaining required
approvals from both the FDA and foreign regulatory authorities after the
relevant applications are filed, and approval in any single country may not be a
meaningful indication that the product will thereafter be approved in another
country.
-18-
<PAGE>
The Company is also subject to regulation under various federal and state laws
regarding, among other things, occupational safety, environmental protection,
hazardous substance control and product advertising and promotion. In
connection with its research and development activities and its manufacturing,
the Company is subject to federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes.
NO MANUFACTURING, MARKETING OR SALES CAPABILITIES
The Company does not have internal manufacturing, marketing or sales
resources. The Company does not intend to acquire or establish its own dedicated
manufacturing facilities for the foreseeable future. Rather, the Company's
manufacturing strategy will be to utilize the facilities of its collaborative
partners or to develop manufacturing relationships with established contract
manufacturers to make products utilizing the DepoMed Systems. In addition, the
Company does not intend to establish an internal sales and marketing capability,
but will seek to rely on its collaborative partners or distributor arrangements
to market and sell the products utilizing the DepoMed Systems. In April 1997,
the Company and Oakmont signed a letter of intent to enter into an agreement
pursuant to which Oakmont will manufacture the Company's reduced irritation
aspirin and enhanced absorption calcium supplement products and to have rights
to distribute and sell these products in territories to be determined. There can
be no assurance that the Company will be able to enter into manufacturing,
marketing or sales agreements on reasonable commercial terms, or at all, with
Oakmont or any other third party. Failure to do so could have a material adverse
effect on the Company.
Manufacturers of products utilizing the DepoMed Systems will be subject to
applicable cGMP requirements prescribed by the FDA or other rules and
regulations prescribed by foreign regulatory authorities. There can be no
assurance that the Company will be able to enter into manufacturing agreements
either domestically or abroad with companies whose facilities and procedures
comply with cGMP or applicable foreign standards. Should such agreements be
entered into, the Company will be dependent on such manufacturers for continued
compliance with cGMP and applicable foreign standards. Failure by a
manufacturer of products utilizing the DepoMed Systems to
maintain cGMP or applicable foreign standards could result in significant time
delays or the inability of the Company to commercialize the DepoMed Systems and
could have a material adverse effect on the Company. At the present time, due to
ongoing consolidation in the chemical and pharmaceutical industries, the Company
believes there is a worldwide excess of manufacturing capacity available to the
Company. As a result, the Company believes that it will be able to enter into
agreements with suppliers and manufacturers on reasonable commercial terms.
However, there can be no assurance that there will be manufacturing capacity
available to the Company at the time the Company is ready to commercialize the
DepoMed Systems. There also can be no assurance that any products utilizing the
DepoMed Systems can be manufactured at a cost or in quantities required to make
it commercially viable. The Company's inability to contract on acceptable terms
and with qualified suppliers for the manufacture of any products utilizing the
DepoMed Systems or delays or difficulties in its relationships with
manufacturers, would have a material adverse effect on the Company.
Contract manufacturers must adhere to cGMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must generally pass a pre-approval plant inspection
before the FDA will approve an NDA. Certain material manufacturing changes that
occur after approval are also subject to FDA review and clearance or approval.
There can be no assurance that the FDA or other regulatory agencies will approve
the process or the facilities by which any of the products utilizing the DepoMed
Systems may be manufactured. The Company's dependence on third parties for the
manufacture of products utilizing the DepoMed Systems may adversely affect the
Company's ability to develop and deliver products utilizing the DepoMed Systems
on a timely and competitive basis.
-19-
<PAGE>
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
United States and foreign jurisdictions. The Company currently holds two issued
United States and three pending United States patent applications, and has
applied for patents in numerous foreign countries, some of which have been
granted and others are still pending. No assurance can be given that the
Company's patent applications will be approved or that any issued patents will
provide competitive advantages for the DepoMed Systems or the Company's
technologies or will not be challenged or circumvented by competitors. With
respect to already issued patents and any patents which may issue from the
Company's applications, there can be no assurance that claims allowed will be
sufficient to protect the DepoMed Systems or the Company's technologies. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for technology covered by the Company's pending applications or
that the Company was the first to file patent applications for such technology.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compounds or
processes that may block the Company's patent rights or compete without
infringing the patent rights of the Company. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Although
potential collaborative partners and the Company's research partners and
consultants are not given access to proprietary trade secrets and know-how of
the Company until they have executed confidentiality agreements, these
agreements may be breached by the other party thereto or may otherwise be of
limited effectiveness or enforceability.
The ability to develop the DepoMed Systems or the Company's technologies and
to commercialize products using the DepoMed Systems or such technologies will
depend on not infringing the patents of others. Although the Company is not
aware of any claim of patent infringement against it, claims concerning patents
and proprietary technologies determined adversely to the Company could have a
material adverse effect on the Company. In addition, litigation may also be
necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third-party proprietary rights. There can be
no assurance that the Company's issued or licensed patents would be held valid
by a court of competent jurisdiction. Whether or not the outcome of litigation
is favorable to the Company, the cost of such litigation and the diversion of
the Company's resources during such litigation could have a material adverse
effect on the Company.
The pharmaceutical industry has experienced extensive litigation regarding
patent and other intellectual property rights. Accordingly, the Company could
incur substantial costs in defending itself in suits that may be brought against
the Company claiming infringement of the patent rights of others or in asserting
the Company's patent rights in a suit against another party. The Company may
also be required to participate in interference proceedings declared by the
United States Patent and Trademark Office for the purpose of determining the
priority of inventions in connection with the patent applications of the Company
or other parties. Adverse determinations in litigation or interference
proceedings could require the Company to seek licenses (which may not be
available on commercially reasonable terms) or subject the Company to
significant liabilities to third parties, and could therefore have a material
adverse effect on the Company.
-20-
<PAGE>
RELATIONSHIPS OF ADVISORS WITH OTHER ENTITIES
Certain members of the Company's Policy Advisory Board and Development
Advisory Board are employed on a full-time basis by academic or research
institutions. In some cases, members of the Policy Advisory Board and
Development Advisory Board also act as consultants to the other companies. In
addition, except for work performed specifically for and at the direction of the
Company, any inventions or processes discovered by such persons will be the
intellectual property of their institutions or other companies. If the Company
desires access to inventions which are not its property, it will be necessary
for the Company to obtain licenses to such inventions from these institutions or
companies. In addition, invention assignment agreements executed by such
persons in connection with their relationships with the Company may be subject
to the rights of their primary employers or other third parties with whom they
have consulting relationships.
HEALTHCARE REFORM; UNCERTAIN AVAILABILITY OF HEALTHCARE REIMBURSEMENT
The healthcare industry is changing rapidly as the public, government, medical
professionals, third-party payors and the pharmaceutical industry examine ways
to contain or reduce the cost of health care. Changes in the healthcare
industry could impact the Company's business, particularly to the extent that
the Company develops the DepoMed Systems for use in prescription drug
applications. In certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control
or cost containment, particular with respect to Medicare payments. In addition,
emphasis on managed care in the United States has increased and is expected to
continue to increase the pressure on pharmaceutical pricing. While the Company
cannot predict whether any such legislative or regulatory proposals will be
adopted or the effect such proposals or managed care efforts may have on its
business, the announcement of such proposals or efforts could have a material
adverse effect on the Company's ability to raise capital, and the adoption of
such proposals or efforts could have a material adverse effect on the Company.
Further, to the extent that such proposals or efforts have a material adverse
effect on pharmaceutical and biotechnology companies or other healthcare
providers that are prospective collaborative partners for the Company, the
Company's ability to establish collaborations may be adversely affected. In
addition, in both domestic and foreign markets, sales of products utilizing the
DepoMed Systems will depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities, private
health insurers and other organizations. Third-party payors are increasingly
challenging the price and cost-effectiveness of prescription pharmaceutical
products. Significant uncertainty exists as to the reimbursement status of
newly approved healthcare products. There can be no assurance that products
utilizing the DepoMed Systems will be considered cost effective or that adequate
third-party reimbursement will be available to the Company's collaborators to
maintain price levels sufficient to realize an appropriate return on the
Company's investment in the DepoMed Systems.
DEPENDENCE ON MANAGEMENT AND OTHER KEY EMPLOYEES
The success of the Company is dependent in large part upon the continued
services of John W. Shell and John W. Fara, its Chairman and Chief Scientific
Officer, and President and Chief Executive Officer, respectively, and other
members of the Company's executive management, and on the Company's ability to
attract and retain key management and operating personnel. The Company has
applied for key man life insurance on the lives of Drs. Shell and Fara in the
amount of $2,000,000 each. Management and scientific personnel are in high
demand and are often subject to competing offers. In particular, the Company's
success will depend, in part, on its ability to attract and retain the services
of its executive officers and scientific and technical personnel. The loss of
the services of one or more members of management or key employees or the
inability to hire additional personnel as needed may have a material adverse
effect on the Company.
-21-
<PAGE>
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF PRODUCT LIABILITY
INSURANCE
The Company's business involves exposure to potential product liability risks
that are inherent in the production and manufacture of pharmaceutical products.
Any such claims could have a material adverse effect on the Company. The
Company does not currently have any product liability insurance. Although the
Company has applied to obtain product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that the Company will be able to secure increased coverage as
the commercialization of its potential products utilizing the DepoMed Systems
proceeds or that any insurance will provide adequate protection against
potential liabilities. Claims or losses in excess of the limit of any liability
insurance coverage obtained by the Company could have a material adverse effect
on the Company.
PRICE VOLATILITY
The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of
many publicly traded pharmaceutical or biotechnology companies have in the past
been, and can in the future be expected to be, especially volatile.
Announcements of technological innovations or new products by the Company or its
competitors, developments or disputes concerning patents or proprietary rights,
publicity regarding actual or potential medical results relating to products
under development by the Company or its competitors, regulatory developments in
both the United States and foreign countries, delays in the Company's testing
and development schedules, public concern as to the safety of biopharmaceutical
or biotechnology products and economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results, may have a
significant impact on the market price of the Company's securities.
-22-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of computation of earnings per share.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
-23-
<PAGE>
Exhibit Index
Exhibit Description
11.1 Statement of computation of earnings per share
27.1 Financial Data Schedule
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
-24-
<PAGE>
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.
Date: December 19, 1997 DEPOMED
By /s/ John W. Fara
---------------------------
John W. Fara
President, Chief Executive
Officer and Director
By /s/ John F. Hamilton
---------------------------
John F. Hamilton
Vice President and
Chief Financial Officer
-25-
<PAGE>
EXHIBIT 11.1
DepoMed, Inc.
(a development stage company)
Statement Regarding the Computation of Net (Loss) Income
and Pro Forma Net (Loss) Income Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net (loss) income $ (376,688) $ 81,956 $ (804,407) $ (347,955)
Shares used in the net (loss) income
per share computation:
Weighted-average shares of common
stock outstanding 3,354,825 3,266,491 3,354,825 3,264,635
Shares related to Staff Accounting
Bulletin Topic 4D cheap stock 249,450 249,450 249,450 249,450
---------- ---------- ---------- ----------
Shares used in net (loss) income
per share computation 3,604,275 3,515,941 3,604,275 3,514,085
========== ========== ========== ==========
Net (loss) income per share $ (0.10) $ 0.02 $ (0.22) $ (0.10)
========== ========== ========== ==========
Calculation of shares outstanding for
computing pro forma net (loss) income
per share:
Shares used in computing historical
net (loss) income per share
(from above) 3,604,275 3,515,941 3,604,275 3,514,085
Adjustments to reflect the effect
of the assumed conversion of
convertible preferred stock
from the date of issuance 878,484 815,789 878,484 815,789
---------- ---------- ---------- ----------
Shares used in computing pro forma
net (loss) income per share 4,482,759 4,331,731 4,482,759 4,329,874
---------- ---------- ---------- ----------
Pro forma net (loss) income per share $ (0.08) $ 0.02 $ (0.18) $ (0.08)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 200,995 200,995
<SECURITIES> 0 0
<RECEIVABLES> 150,701 150,701
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,276,890 1,276,980
<PP&E> 210,861 210,861
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,498,272 1,498,272
<CURRENT-LIABILITIES> 2,276,611 2,276,611
<BONDS> 0 0
0 0
961,259 961,259
<COMMON> 526,300 526,300
<OTHER-SE> (432,089) (432,089)
<TOTAL-LIABILITY-AND-EQUITY> 1,498,272 1,498,272
<SALES> 0 0
<TOTAL-REVENUES> 104,454 456,191
<CGS> 0 0
<TOTAL-COSTS> 463,873 1,223,219
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,269 37,379
<INCOME-PRETAX> (376,688) (804,407)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (376,688) (804,407)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (376,688) (804,407)
<EPS-PRIMARY> (0.08) (0.18)
<EPS-DILUTED> (0.08) (0.18)
</TABLE>
