<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 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)
366 LAKESIDE 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 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
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 July 31, 1998, was 6,463,438.
<PAGE>
DEPOMED, INC.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Unaudited Condensed Balance Sheet at June 30, 1998........................................... 3
Unaudited Condensed Statements of Operations for the three month periods ended
June 30, 1998 and 1997, the six month periods ended June 30, 1998 and 1997
and the period from inception (August 7, 1995) to June 30, 1998.......................... 4
Unaudited Condensed Statements of Cash Flows for the six month periods ended
June 30, 1998 and 1997 and the period from inception (August 7, 1995) to
June 30, 1998............................................................................ 5
Notes to Unaudited Condensed Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 8
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................................... 19
Signature...................................................................................... 20
</TABLE>
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
DEPOMED, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,676,314
Short-term investments 1,006,823
Accounts receivable 129,803
Other current assets 75,644
-----------
Total current assets 9,888,584
Property and equipment, net 531,702
Long-term investments 501,172
Other assets 35, 641
-----------
$10,957,099
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 78,359
Accrued compensation 69,009
Capital lease obligation, current portion 54,909
Other current liabilities 20,895
-----------
Total current liabilities 223,172
Capital lease obligation, non-current portion 94,180
Commitments
Shareholders' equity:
Common stock 14,514,701
Deferred compensation (485,603)
Deficit accumulated during the development stage (3,389,351)
-----------
Total shareholders' equity 10,639,747
-----------
$10,957,099
===========
</TABLE>
See accompanying notes to Unaudited Condensed Financial Statements.
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<PAGE>
DEPOMED, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30, Inception
------------------------------------- -------------------------------------- (August 7, 1995)
1998 1997 1998 1997 to June 30, 1998
------------------ ----------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Product development revenue $ 129,803 $ 224,698 $ 239,303 $ 351,737 $ 1,162,150
Operating expenses:
Research and development 442,008 192,815 839,315 328,603 2,221,751
General and 420,604 260,244 721,849 430,743 2,230,741
administrative
Purchase of in-process
research - - - - 298,154
and development ---------- ---------- ----------- ---------- -----------
Total operating expenses 862,612 453,059 1,561,164 759,346 4,750,646
Loss from operations (732,809) (228,361) (1,321,861) (407,609) (3,588,496)
Interest income (expense), 146,670 (15,640) 242,403 (20,110) 199,145
net ---------- ---------- ----------- ---------- -----------
Net loss $ (586,139) $ (244,001) $(1,079,458) $ (427,719) $(3,389,351)
========== ========== =========== ========== ===========
Basic and diluted net loss
per share
(Pro forma in 1997) $(0.09) $(0.06) $(0.17) $(0.10)
---------- ---------- ----------- ----------
Shares used in computing
basic and diluted net
loss per share
(Pro forma in 1997) 6,463,438 4,263,447 6,170,620 4,263,447
========== ========== =========== ==========
</TABLE>
See accompanying notes to Unaudited Condensed Financial Statements.
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<PAGE>
DEPOMED, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Six Months Ended June 30, (August 7, 1995)
1998 1997 to June 30, 1998
--------------------- ------------------ --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,079,458) $ (427,719) $(3,389,351)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 63,910 27,586 165,926
Accrued interest expense on notes - 21,793 13,618
Amortization of deferred compensation expense 93,511 52,646 209,847
Purchase of in-process research and development - - 298,154
Changes in assets and liabilities:
Accounts receivable 15,084 (65,977) (129,803)
Other current assets 25,035 (388,984) (75,644)
Other assets (25,242) 4,272 (35,657)
Accounts payable (200,897) 142,525 78,359
Accrued compensation 33,462 42,275 1,533
Other current liabilities (53,191) (6,583) 20,895
----------- ---------- -----------
Net cash used in operating activities (1,127,786) (598,166) (2,842,123)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (279,759) (45,896) (417,768)
Purchases of investments (1,507,995) - (1,587,577)
Proceeds from sale of investments - - 79,582
----------- ---------- -----------
Net cash used in investing activities (1,787,754) (45,896) (1,925,763)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (30,322) (18,651) (130,813)
Proceeds from issuance of notes - 1,000,000 1,050,000
Payments of notes - - (1,000,000)
Payment of shareholder loans - - (294,238)
Proceeds from issuance of common stock 7,492,631 278,500 13,819,251
----------- ---------- -----------
Net cash provided by financing activities 7,462,309 1,259,849 13,444,200
----------- ---------- -----------
Net increase in cash and cash equivalents 4,546,769 615,787 8,676,314
Cash and cash equivalents at beginning of period 4,129,545 10,802 -
----------- ---------- -----------
Cash and cash equivalents at end of period $ 8,676,314 $ 626,589 $ 8,676,314
=========== ========== ===========
</TABLE>
See accompanying notes to Unaudited Condensed Financial Statements.
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<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 of DepoMed, Inc. (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
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
June 30, 1998 are not necessarily indicative of results to be expected for the
entire year ending December 31, 1998 or future operating periods.
2. CASH AND CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Cash and cash equivalents consist of cash on deposit with banks, and money
market instruments with maturities of 90 days or less. Short and long-term
investments consist of debt securities with original maturities between 90 days
and 2 years. The debt securities are all classified as available-for-sale.
3. NET LOSS PER SHARE, HISTORICAL AND PRO FORMA
Basic and Diluted Net Loss Per Share (Historical)
-------------------------------------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("FAS 128"). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share are very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been restated to
conform to the FAS 128 requirements. Except as noted below, net loss per share
is computed using the weighted average number of shares of common stock
outstanding. Common stock equivalent shares from convertible preferred stock
and from stock options and warrants are not included as the effect is
antidilutive.
Pro forma
---------
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 automatically converted upon completion of the Company's
November 5, 1997 initial public offering, using the as-if-converted method from
the original date of issuance.
The following table sets forth the computation of basic and diluted loss per
share, on an historical and pro forma basis.
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (586,139) $ (244,001) $(1,079,458) $ (427,719)
========== ========== =========== ==========
Numerator for basic and diluted
loss per share (586,139) (244,001) (1,079,458) (427,719)
========== ========== =========== ==========
Denominator:
Denominator for basic and diluted
loss per share
Historical 6,463,438 3,354,825 6,170,620 3,354,825
========== ===========
Adjustments to reflect the effect
of the assumed conversion of
convertible preferred stock from
the date of issuance 908,622 908,622
---------- ----------
Denominator for computing basic
and diluted net loss per share
Pro forma 4,263,447 4,263,447
========== ==========
Basic and diluted net loss per share -
Historical $ (0.09) $ (0.07) $ (0.17) $ (0.13)
========== ========== =========== ==========
Basic and diluted net loss per share -
Pro Forma $ (0.06) $ (0.10)
========== ==========
</TABLE>
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130").
FAS 130 establishes new rules for the reporting and displaying of comprehensive
income and its components; however, the adoption of this statement had no
material impact on the Company's net loss or shareholders' equity.
5. COMMITMENTS
In March 1998, the Company entered into a two-year sublease, which
includes an option to renew, subject to approval by the Company and the
sublessor, for two additional terms of twelve and ten months, respectively.
Future payments under the sublease for 1998, 1999 and 2000 are $138,600,
$277,200 and $69,300, respectively.
-7-
<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 the Company's Annual Report on Form 10-KSB for the
- ------------------------------------------------------------------------------
year ended December 31, 1997, 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 "Factors That May Affect Future Results" and elsewhere herein; as
- ------------------------------------------------------------------------------
well as in the Company's Annual Report on Form 10-KSB for the year ended
- ------------------------------------------------------------------------
December 31, 1997 and in other reports filed with the SEC from time to time.
- -----------------------------------------------------------------------------
The Company expressly disclaims any obligation 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 System (the "GR System") and the Reduced Irritation
System (the "RI System" and together, the DepoMed Systems "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 subsequent
years. The Company has generated a cumulative net loss of $3,389,351 for the
period from inception (August 7, 1995) through June 30, 1998.
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 products based on generic and over-the-counter compounds,
such as a reduced irritation aspirin product and an enhanced absorption calcium
supplement product, internally. Depending upon a variety of 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
acquisition of laboratory and pilot scale manufacturing equipment. As additional
personnel are hired in 1998 and beyond, expenses can be expected to increase
from their 1997 levels.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
Revenues for the three months ended June 30, 1998 and 1997 were
approximately $129,800 and $224,700, respectively. These revenues consisted
entirely in 1998 of amounts earned under the feasibility arrangement with R. W.
Johnson Pharmaceutical Research Institute ("PRI") and consisted entirely in 1997
of amounts earned under the research and development arrangement with Bristol-
Myers Squibb Company ("BMS"). The Company does not anticipate additional
research and development revenues from the BMS arrangement as the Company has
completed its activities for BMS.
Research and development expenses for the three months ended June 30,
1998 were approximately $442,000 compared to approximately $192,800 during the
three months ended June 30, 1997. The increase was due to the hiring of
additional employees and related expenses, and increased
-8-
<PAGE>
laboratory supplies. In March 1998 the Company entered into a sublease for
additional space, and in June 1998, relocated its offices and laboratories to
the new facility. Part of the increased occupancy expense is allocated to
research and development. The Company plans to hire additional laboratory
personnel and, accordingly, anticipates that research and development salaries,
benefits, supplies and related expenses will continue to increase in 1998.
General and administrative expenses for the three months ended in June 30,
1998 were approximately $420,600 compared to approximately $260,200 during the
three months ended June 30, 1997. The increase was due to costs associated with
becoming a public company, including directors' and officers' insurance, key
person life insurance and investor relations. The Company entered into a
sublease for additional space in March 1998, which resulted in higher occupancy
expense.
Net interest income was approximately $146,700 for the three months ended in
June 30, 1998 compared to a net interest expense of approximately $15,600 during
the three months ended June 30, 1997. The increase was due to increased
interest income earned on funds raised in the Company's initial public offering
in November 1997 and a private placement in February 1998 and includes
immaterial gains realized on sale of securities.
Six Months Ended June 30, 1998 and 1997
Revenues for the six months ended June 30, 1998 and 1997 were approximately
$239,300 and $351,700, respectively. In 1998, these revenues consisted of
amounts earned under the research and development, and feasibility, arrangements
with BMS and PRI, respectively. In 1997, revenues consisted entirely of amounts
earned under the research and development arrangement with BMS. Research and
development payments from BMS declined as a result of the Company having
completed its activities for BMS in March 1998.
Research and development expenses for the six months ended June 30, 1998 were
approximately $839,300 compared to approximately $328,600 during the six months
ended June 30, 1997. The increase was due to the hiring of additional employees
and related expenses, and increased laboratory supplies. Research and
development allocation of occupancy expense also increased due to the Company's
sublease of larger facilities in March 1998.
General and administrative expenses for the six months ended in June 30, 1998
were approximately $721,800 compared to approximately $430,700 during the six
months ended June 30, 1997. The increase was due to expenses for insurance and
investor relations incurred as a result of becoming a public company and the
increased occupancy expense of the Company's newly subleased facility.
Net interest income was approximately $242,400 for the six months ended in
June 30, 1998 compared to a net interest expense of approximately $20,100 during
the six months ended June 30, 1997. The increase was due to increased interest
income earned on funds raised in the Company's initial public offering in
November 1997 and a private placement in February 1998 and includes immaterial
gains realized on sale of securities.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations in the six months ended June 30, 1998 was
approximately $1,127,800 compared to approximately $598,200 for the six months
ended June 30, 1997. During the six months ended June 30, 1998 the net loss and
decreases in accounts payable and other current liabilities more than offset the
increases in other current assets and accrued compensation and the decreases in
other assets and accounts receivable. During the six months ended June 30, 1997
the net loss and increases in capitalized offering costs and accounts receivable
more than offset increases in accounts payable and amortization of deferred
compensation.
-9-
<PAGE>
Cash used in investing activities in the six months ended June 30, 1998
totaled approximately $1,787,800 and consisted primarily of purchases of short-
term investments as well as laboratory equipment, fixtures and office equipment.
Net cash and sales used in investing activities in the six months ended June 30,
1997 totaled approximately $45,900 and consisted of purchases of laboratory
equipment, fixtures and office equipment. The Company expects that future
capital expenditures may include pilot manufacturing equipment, and product
development and quality control laboratory equipment.
Cash provided by financing activities in the six months ended June 30, 1998
was approximately $7,462,300, which consisted almost entirely of the proceeds
recognized in February 1998, when the Company completed a private placement of
1,000,000 shares of Common Stock at a price of $8.00 per share, with net
proceeds of approximately $7,492,200. Cash provided by financing activities in
the six months ended June 30, 1997 was approximately $1,259,800, which consisted
primarily of a bridge loan financing and of the net proceeds from the Series B
Preferred financing which was subsequently converted into common stock in
connection with the initial public offering.
The Company anticipates that its existing capital resources will enable it to
meet its capital and operational requirements through the end of 1999. Cash
needs of the Company may 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 U.S. Food and Drug Administration ("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 may not 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 may
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.
NET OPERATING LOSSES
The Company has not generated any taxable income to date. At June 30, 1998,
the net operating losses available to offset future taxable income for federal
income tax purposes were approximately $2,313,000. 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 2012 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
EARLY STAGE OF DEVELOPMENT; WORKING CAPITAL DEFICIT; LIMITED REVENUES; LIMITED
OPERATING HISTORY
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<PAGE>
The Company is at an early stage of development and is subject to all the
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 June 30, 1998, the Company
had an accumulated deficit of approximately $3,389,300. 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.
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS
The Company anticipates that its existing capital resources will enable it to
meet its capital and operational requirements through the end of 1999. 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 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
-11-
<PAGE>
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/or
biotechnology companies. The Company has received substantially all of its
revenues since inception from its collaborative partners and intends to enter
into additional collaborative arrangements 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
PRI, there can be no assurance that either BMS or PRI 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. For example,
pursuant to the research and development arrangement, BMS's option to license
the DepoMed GR System expires in April 1999. There can be no assurance,
however, that BMS will exercise such option or, even if such option is
exercised, that products will be developed or commercialized. In addition, in
May 1996, the Company and GalaGen Inc. ("GalaGen") entered into a feasibility
study involving the use of the GR System to deliver oral immunoglobulin products
developed by GalaGen. Although the study demonstrated the effectiveness of the
GR System in protecting GalaGen's incorporated product while the GR System was
in simulated gastric fluid, GalaGen has not chosen to enter into a product
development agreement with the Company. 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
Other companies that have oral drug delivery technologies 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. The Company believes that it is the only drug delivery company that is
currently developing products for oral drug delivery systems both for enhanced
retention in the stomach of an orally administered tablet (the GR System) and
the safer oral administration of otherwise locally irritating drugs (the RI
System). The Company believes that this combination of oral drug delivery
technologies differentiates the Company from other oral drug delivery companies
and will enable the Company to interest pharmaceutical companies in
incorporating their
-12-
<PAGE>
proprietary drugs into the DepoMed Systems and also to differentiate any OTC
and/or off-patent drugs that utilize the DepoMed Systems from those of other
drug delivery companies.
Competition in the areas of pharmaceutical products and drug delivery
systems is intense and is expected to become more so in the future. 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 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. Products
incorporating the Company's technologies will compete both with products
employing advanced drug delivery systems and with products in conventional
dosage forms. New drugs or future developments in alternate drug delivery
technologies may provide therapeutic or cost advantages over any potential
products which utilize the DepoMed Systems. There can be no assurance that
developments by others will not render any potential products utilizing the
DepoMed Systems 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
incorporating the DepoMed Systems, regulatory approvals, protection of
intellectual property and market acceptance of such products.
GOVERNMENT REGULATION
The Company is subject to regulation under various federal laws regarding
pharmaceutical products and also 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, 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. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance.
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 new drug applications, 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 application ("IND"), 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 and the pharmacokinetic pattern of a drug. 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 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, re-evaluate, 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.
-13-
<PAGE>
The results of the preclinical and clinical testing on drugs are submitted
to the FDA in the form of an 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.
OTC products that comply with monographs issued by the FDA are subject to
various FDA regulations such as 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 approved active ingredients OTC drugs contain
only safe and suitable inactive ingredients. OTC products and manufacturing
facilities 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.
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 procedures vary 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 U.S.
before submitting an application for U.S. 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 approval 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.
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 and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes.
MANUFACTURING, MARKETING AND SALES
The Company intends to develop products utilizing the DepoMed Systems for
its collaborators and, in some cases, retain rights to manufacture commercial
quantities of such products. The manufacture and incorporation of drugs into
hydrophilic (readily absorbing moisture), polymer matrix pellets used in the
DepoMed Systems is accomplished by using a variety of standard techniques. These
include direct compression, compression using high speed rotary tablet press or,
alternatively, by an extrusion/spheronization process, which results in very
small spherical bodies. The Company does not have any internal manufacturing,
marketing or sales resources. Although the Company intends to acquire pilot
manufacturing equipment, 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 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
expired without a definitive agreement having been reached. There can be no
assurance that the Company will be able to enter into
-14-
<PAGE>
manufacturing, marketing or sales agreements on reasonable commercial terms, or
at all, with third parties. 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 current good manufacturing practices ("cGMP") requirements prescribed
by the United States Food and Drug Administration ("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 products utilizing 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
them commercially viable. The Company's inability to contract on acceptable
terms and with qualified suppliers for the manufacture of any products 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 a New Drug Application (an "NDA"). Certain material
manufacturing changes that occur after such 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 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 such products on a timely and competitive basis.
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 of which 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 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.
-15-
<PAGE>
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 entered into confidentiality agreements with the
Company, these agreements may be breached by them or may otherwise be of limited
effectiveness or enforceability.
The ability to develop the Company's technologies and to commercialize
products using 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.
RELATIONSHIPS OF ADVISORS WITH OTHER ENTITIES
The Company has two groups of advisors (the Policy Advisory Board and
Development Advisory Board) that advise the Company on business and scientific
issues and on future opportunities. As compensation for these services, the
Company has granted the advisors options to purchase shares of Common Stock and,
in certain cases, pays them consulting fees. 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 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
-16-
<PAGE>
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.
PRODUCT LIABILITY
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 for 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 the DepoMed Systems proceeds or that any insurance will
provide adequate protection against potential liabilities.
YEAR 2000
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. In brief, many existing application software
products in the marketplace were designed to accommodate only a two digit date
position which represents the year (e.g., "95" is stored on the system and
represents the year 1995). As a result, the year 1999 (i.e., "99") could be the
maximum date value systems will be able to accurately process. Management is in
the process of working with its software consultants to assure that the Company
is prepared for the year 2000. Management does not anticipate that the Company
will incur significant operating expenses or be required to invest heavily in
computer system improvements to be year 2000 compliant.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS FROM REGISTERED SECURITIES
On November 4, 1997, a Registration Statement on Form SB-2 (No. 333-25445) was
declared effective by the SEC pursuant to which the Company issued 1,200,000
units consisting of one share of Common Stock ("the Units") and one Common Stock
Purchase Warrant (the "Warrants"). The Units were sold for the account of the
Company at a price of $6.10 per Unit, generating $7,320,000 in gross proceeds to
the Company. On December 1, 1997, the Common Stock and Warrants commenced
trading separately, and on December 8, 1997, the Units ceased trading. The
initial public offering was managed by National Securities Corporation.
-17-
<PAGE>
From the effective date of the Registration Statement to June 30, 1998, the
Company incurred approximately $586,000 in underwriting discounts and
commissions, approximately $231,000 of expenses paid to or for the underwriters,
and approximately $679,600 in other related expenses. The net proceeds of the
offering, after deducting the foregoing expenses, were approximately $5,823,400.
Approximately $1,650,000 of the proceeds of the initial public offering were
used to repay indebtedness of the Company, including repayment of indebtedness
of approximately $308,000 to certain related parties. In addition, upon
consummation of the Initial Public Offering, the Company paid Dr. John Fara, the
Company's Chief Executive Officer, an incentive bonus of $100,000.
From the effective date of the Registration Statement to June 30, 1998, the
Company has used approximately $1,498,000 to fund ongoing operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 18, 1998 (the
"Annual Meeting") to consider and vote on the following proposals: (i) election
of directors until the next Annual Meeting (Proposal 1), (ii) amendment to the
company's 1995 Stock Option Plan (the "Plan") increasing the number of shares
available for issuance from 666,667 to 1,000,000 (Proposal 2), (iii) amendment
to the Plan limiting the number of shares that may be granted to any participant
in any one-year period (Proposal 3), and (iv) ratification of Ernst & Young LLP
as the Company's independent auditors (Proposal 4).
Proposal 1 Drs. John W. Shell, John W. Fara, Mr. John N. Shell, Mr. G. Steven
----------
Burrill and Dr. Leigh Thompson, each of whom was a director of the Company prior
to the Annual Meeting, were elected as directors of the Company to serve until
the next annual meeting of the shareholders of the Company. Of the 5,084,737
shares voted at the Annual Meeting, 5,084,737 shares were voted for the election
of Drs. Shell, Fara and Thompson and 5,082,737 shares were voted for the
election of Messrs. Shell and Burrill with 2,000 shares voting against Messrs.
Shell and Burrill.
Proposal 2 The shareholders of the Company approved Proposal 2 with a vote of
----------
3,192,157 shares voted for, 1,205,196 shares against, 2,750 abstaining and
684,634 shares not voting.
Proposal 3 The shareholders of the Company approved Proposal 3 with a vote
----------
of 3,883,411 shares for, 1,198,826 shares against with 2,500 shares abstaining.
Proposal 4 The shareholders of the Company approved Proposal 4 with a vote of
----------
5,080,237 for, 500 shares against with 4,000 shares abstaining.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-19-
<PAGE>
SIGNATURE
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: August 3, 1998 DEPOMED, INC.
By /s/ John F. Hamilton
-----------------------
John F. Hamilton
Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Accounting
and Financial Officer)
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<PAGE>
Exhibit Index
Exhibit Description
27.1 Financial Data Schedule
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 8,676,314 8,676,314
<SECURITIES> 1,006,823 1,006,823
<RECEIVABLES> 129,803 129,803
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,888,584 9,888,584
<PP&E> 531,702 531,702
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 10,957,099 10,957,099
<CURRENT-LIABILITIES> 223,172 223,172
<BONDS> 0 0
0 0
0 0
<COMMON> 14,514,701 14,514,701
<OTHER-SE> (485,603) (485,603)
<TOTAL-LIABILITY-AND-EQUITY> 10,957,099 10,957,099
<SALES> 0 0
<TOTAL-REVENUES> 129,803 239,303
<CGS> 0 0
<TOTAL-COSTS> 862,612 1,561,164
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 146,670 242,403
<INCOME-PRETAX> (586,139) (1,079,458)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (586,139) (1,079,458)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (586,139) (1,079,458)
<EPS-PRIMARY> (0.09) (0.17)
<EPS-DILUTED> (0.09) (0.17)
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