FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-11572
Endorex Corporation
(Exact name of registrant as specified in its charter)
Delaware 41-1505029
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3233 15th Street South, Fargo, ND 58104
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (701) 232-9575
ImmunoTherapeutics, Inc.
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
At September 8 1996, 16,262,047 shares of the registrant's common stock
(par value, $.001 per share) were outstanding.
<PAGE>
ENDOREX CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of October 31, 1996 2
Statements of Operations for the three
and nine month periods ended October 31, 1996
and October 31, 1995 3
Statements of Cash Flows for the
nine month periods ended October 31, 1996
and October 31, 1995 4
Condensed Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8K 10
Signatures 10
1
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(UNAUDITED)
<CAPTION>
October 31,
1996
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,339,901
Prepaid Expenses 42,608
TOTAL CURRENT ASSETS $ 1,382,509
Office and lab equipment, Net of Accumulated Depreciation of
$425,084. $ 104,734
Patent issuance costs, Net of Accumulated Amortization of
$30,188 167,855
TOTAL ASSETS $ 1,655,098
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable and accrued expenses $ 41,118
TOTAL CURRENT LIABILITIES $ 41,118
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value. Authorized 500,000 shares;
none issued and outstanding $ --
Common stock, $.001 par value. Authorized 50,000,000 shares;
issued 18,041,675; outstanding 16,262,047 18,081
Additional paid-in capital 11,519,812
(Deficit) accumulated during the development stage (9,480,163)
Total $ 2,057,730
Treasury Stock, at cost, 1,779,628 shares (443,750)
TOTAL STOCKHOLDERS' EQUITY $ 1,613,980
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,655,098
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
2
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Three Months Ended October 31, (date of inception)
1996 1995 to October 31, 1996
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Operating expenses:
SBIR contract research
and development $ -- $ -- 86,168
Proprietary research
and development 287,985 $ 235,308 7,348,574
Rent expenses 13,809 $ 12,877 385,969
General and Admini-
strative expenses $ 252,409 $ 53,742 2,535,352
Total Operating Expenses $ 554,202 $ 301,927 10,356,061
(Loss) from Operations $ (554,202) $ (301,927) $(10,256,061)
Other Income $ -- $ -- $ 1,512
Interest Income $ 17,256 $ 16,956 $ 815,024
Interest Expense $ -- $ -- $ (40,638)
Net (Loss) $ (536,946) $ (284,971) $ (9,480,163)
Net (Loss) per share $ (0.03) $ (0.05)
Weighted average common
shares outstanding 16,262,047 5,272,048
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
3
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS (cont.)
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Nine Months Ended October 31, (date of inception)
1996 1995 to October 31, 1996
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Operating expenses:
SBIR contract research
and development $ -- $ -- 86,168
Proprietary research
and development 796,818 $ 646,853 7,348,574
Rent expenses 30,566 $ 29,284 385,969
General and Admini-
strative expenses $ 434,926 $ 268,910 2,535,352
Total Operating Expenses $ 1,262,308 $ 945,047 10,256,061
(Loss) from Operations $ (1,262,308) $ (945,047) $ (10,256,061)
Other Income $ -- $ -- $ 1,512
Interest Income $ 38,948 $ 62,397 $ 815,024
Interest Expense $ -- $ -- $ (40,638)
Net (Loss) $ (1,223,360) $ (882,650) $ (9,480,163)
Net (Loss) per share $ (0.75) $ (0.17)
Weighted average common
shares outstanding 16,262,047 5,272,048
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
3a
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Nine Months ended October 31, (date of inception)
1996 1995 to October 31, 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (1,223,360) $ (882,650) $ (8,943,217)
Adjustments to Reconcile
Net (Loss) to Cash
Provided by Operating
Activities:
Depreciation and
Amortization $ 121,824 $ 144,371 851,097
Amortization of
Discounted Note
Receivable -- -- --
Amortization of
Deferred Revenue -- -- --
Amortization of
Deferred Compensation -- 13,500 131,786
Excess of Fair Market
Value Over Option
Price on Non-Qualified
Stock Options Granted -- (5,474) 283,680
Gain on Sale of Assets -- -- (740)
Write-off on Patent
Issuance Cost -- -- 101,006
Changes in Assets and
Liabilities:
(Increase) Decrease in:
Prepaid Expenses 1,697 (38,457) (42,610)
(53,826)
Increase (Decrease) in:
Accounts Payable and
Accrued Expenses (43,109) (51,605) 104,273
Accrued Salaries 26,868 124 26,868)
Accrued Payroll Taxes (114) -- (114)
Deleware Franchise Tax $ -- $ (4,151) $ --
Total Adjustments $ 107,156 $ (131,222) $ 1,485,120
NET CASH - OPERATING
ACTIVITIES - Forward $ (1,116,204) $ (747,438) $ (7,795,043)
INVESTING ACTIVITIES:
Patent Issuance Cost $ (6,176) $ (60,959) $ (299,049)
Organizational Costs
Incurred -- -- (135)
Deposit on Leasehold
Improvements -- -- (5,000)
Purchase of Leasehold
Improvements -- -- (414,671)
Purchases of Office
and Lab Equipment (18,988) (6,628) (535,970)
Proceeds from Assets Sold -- -- 1,000
NET CASH - INVESTING
ACTIVITIES - Forward $ (25,164) $ (67,587) $ (1,253,765)
<F/N>
See Accompanying Condensed Notes to Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Nine Months ended October 31, (date of inception)
1996 1995 to October 31, 1996
<S> <C> <C> <C>
NET CASH - OPERATING
ACTIVITIES - Forwarded $ (1,116,204) $ (747,428) $ (7,795,043)
NET CASH - INVESTING
ACTIVITIES - Forwarded $ (25,164) $ (67,587) $ (1,253,765)
FINANCING ACTIVITIES:
Net Proceeds from
Issuance of Common Stock $ 1,314,609 $ -- $ 10,909,485
Proceeds from Exercise of
Options 144,540 -- 144,627
Proceeds from Borrowings
from President -- -- 41,333
Repayment of Borrowings
from President -- -- (41,333)
Proceeds from Borrowings
Under Line of Credit -- -- 300,000
Repayment of Borrowings
Under Line of Credit -- -- (300,000)
Proceeds from Note
Payable to Bank -- -- 150,000
Payments on Note
Payable to Bank -- -- (150,000)
Proceeds from Borrowings
from Stockholders -- -- 15,867
Repayment of Borrowings
from Stockholders -- -- (15,867)
Advances from Parent
Company -- -- 135,000
Payments to Parent
Company -- -- (135,000)
Repayment of Long-Term
Note Receivable -- 50,315
Repayment of Note Payable
Issued in Exchange for
Legal Service -- -- (71,968)
Purchase of Treasury
Stock $ -- $ -- $ (443,750)
NET CASH - FINANCING
ACTIVITIES $ 1,459,149 $ -- $ 10,588,709
NET (DECREASE)INCREASE
IN CASH AND CASH
EQUIVALENTS $ 317,781 $ (815,015) $ 1,339,901
CASH AND CASH EQUIVALENTS-
BEGINNING OF PERIODS $ 1,022,119 $ 2,236,156 $ --
CASH AND CASH EQUIVALENTS -
END OF PERIODS $ 1,339,901 $ 1,421,141 $ 1,339,901
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash paid during
the periods for:
Interest $ -- $ -- $ --
<F/N>
See accompanying Condensed Notes to Financial Statements
</TABLE>
5
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Statements
The Balance Sheet as of October 31, 1996, the Statements of Operations
for the three and nine periods ended October 31, 1996 and 1995; and the
cumulative period from February 15, 1985 (date of inception) to October 31,
1996; and the Statements of Cash Flows for the nine month periods ended
October 31, 1996 and October 31, 1995 have been prepared by the Company without
audit. In the opinion of management, all adjustments necessary to present
fairly the financial position at October 31, 1996 and the results of operations
and cash flows for the periods ended October 31, 1996 and October 31, 1995 have
been made. All adjustments were of a normally recurring nature. The results
of operations for interim periods are not necessarily indicative of the full
fiscal year.
6
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company is a development stage enterprise and expects no significant
revenue from the sale of products for the current fiscal year.
At January 31, 1996, and October 31, 1996, the Company had cash and cash
equivalents of $1,022,120 and $1,339,900, respectively, and working capital
of $1,008,943 and $1,341,391, respectively.
The Company's current level of research and development activities r
equires the expenditure of approximately $150,000 per month. Additional
expenses will be incurred in outside expanded clinical trials to accomplish
the necessary data collection and clinical trials required by the FDA for
the commercial production, marketing and distribution of the Company's first
proposed product. Management of the Company believes that its current cash
resources will be sufficient to support its current level of operations for
at least through January 31, 1997. The Company's cash resources will not be
sufficient to permit the Company to complete the clinical trials of its
initial proposed product necessary to obtain any FDA approvals. Accordingly,
the Company may be required to collaborate with one or more large
pharmaceutical companies which will provide the necessary financing and
expertise to obtain regulatory approvals, complete clinical development,
manufacture and market such product. Alternatively, the Company will be
required to seek additional funds from other sources not now identified.
There can be no assurance that the Company will be able to enter into the
collaborative agreements or raise additional capital necessary to complete
its clinical trials, obtain necessary regulatory approvals, or fully develop
or commercialize its proposed product on acceptable terms. In such event,
if the Company was unable to obtain from alternative sources the substantial
financing necessary on acceptable terms, it would be unable to complete the
development or commercialize any products.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Dominion Resources, Inc. ("Dominion") pursuant to which Dominion agreed
to purchase and the Company agreed to sell 5,000,000 shares of the Company's
Common Stock at a purchase price per share of $.065 or an aggregate purchase
price of $325,000. Such shares were sold in three approximately equal
installments at closings held on March 18, April 15, and May 15, 1996. The
purchase agreement contains various representations and warranties concerning
the Company and its activities and also various affirmative and negative
covenants, including a covenant to elect as a Director of the Company one
person designated by Dominion. Mr. William McManus, President and a Director
of Dominion, was elected as a Director of the Company to serve as Dominion's
designee to the Company's Board of Directors and served until June 14, 1996.
The purchase agreement also grants to Dominion the right to have registered
7
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2 (Cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
under the Securities Act of 1933, as amended, the shares sold to Dominion to
enable the public offer and sale of those shares. The agreement restricts
the Company from entering into mergers, acquisitions or sales of its assets
without the prior approval of Dominion's representative on the Company's
Board of Directors. The purchase price was paid from Dominion's working
capital.
On June 13, 1996, Dominion entered into an agreement with Aries Fund, a
Cayman Island Trust, and the Aries Domestic Fund, L.P., a Delaware limited
partnership ("The Aries Fund" and the "Aries Domestic Fund, L.P." are
collectively referred to as "Aries"), with the Company a party to the
agreement, whereby Dominion sold and Aries purchased an aggregate of
4,000,000 shares of the Company's Common Stock at a price of $.10 per share.
The purchase price was paid from Aries general funds. As part of the
transaction, Dominion transferred to Aries certain of its rights under the
March 1, 1996 agreement including, among others, the right to designate a
Director of the Company and rights to have the shares registered under the
Securities Act of 1933, as amended. Upon completion of the sale of the
4,000,000 shares, Mr. Steve Kanzer was elected a Director of the Company as
the designee of Aries and Mr. McManus resigned. Also concurrently with the
completion of the transaction, the Company redeemed its outstanding rights
under the Shareholders Rights Agreement dated as of September 23, 1994. On
June 26, 1996, Aries purchased from the Company an additional 5,000,000
shares of the Company's Common Stock at a price of $.20 per share or an
aggregate of $1,000,000. The purchase price was paid from Aries' general
funds. The purchase agreement relating to such shares contains various
representations and warranties concerning the Company and its activities and
also various affirmative and negative covenants. The purchase agreement
grants to Aries the right to have registered under the Securities Act of
1933, as amended, the shares sold to Aries to enable the public offer and
sale of those shares. The agreement restricts the Company from entering
into mergers, acquisitions or sales of its assets without the prior approval
of Aries.
On October 25, 1996, the Company entered into an Employment Agreement with
Michael S. Rosen to serve as the President, Chief Executive Officer and a
Director of the Company. Mr. Rosen's employment with the Company commenced
on August 19, 1996 and terminates on August 30, 2000. Mr. Rosen's initial
salary pursuant to the agreement is $200,000. Mr. Rosen was elected a
Director of the Company on August 22, 1996. Mr. Rosen was also granted a
seven-year option to purchase 700,000 shares of the Company's Common Stock
at an exercise price of $1.25 per share with such option to vest as to
100,000 shares on August 19, 1996 and quarterly thereafter at the rate of
25,000 shares per quarter through June 30, 1997, 37,500 shares per quarter
through September 30, 2000, and 12,500 shares on December 31, 2000 at which
time the option shall be fully vested. If Mr. Rosen's employment terminates
prior to December 31, 2000 the option shall be exercisable thereafter only
to the extent exercisable on the date of termination. The agreement
contains other provisions, including, among others, a covenant restricting
Mr. Rosen's ability to engage in activities competitive with the Company for
the term of the agreement and for 18 months thereafter.
8
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2 (Cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On October 31, 1996, Dr. Gerald Vosika, the Chairman of the Board and a
Director of the Company, purchased an aggregate of 2,100,000 shares of
Common Stock on exercise of options.
The Company intends, from time to time in the future, to seek to expand
its research and development activities into other immunopharmaceutical
agents that it either may license from other persons or seek to develop.
There can be no assurance that the Company will be successful in this
regard. Any such activities may require the expenditure of funds not
presently available to the Company. The Company intends to seek to obtain
these funds from possible future public or private sales of its securities
or other sources, none of which have been presently identified.
Results of Operations
Nine Months Ended October 31, 1996 Compared With Nine Months Ended
October 31, 1995.
Total operating expenses for the nine months ended October 31, 1996 were
$1,262,308 compared to $945,047 in the preceding year representing an increase
of $317,261 or 34%.
Proprietary research and development expenses increased by $149,965 to
$769,818 in 1996 compared to $646,853 in 1995, due to the increase in
research and development activities. Rent also increased by $1,282 reflecting
a periodic increase per the lease agreement. Total general and administrative
expenses decreased by $166,016 or 62% reflecting an increase in management
personel and associated office facilities.
Interest income decreased from $62,397 to $38,948, reflecting the decrease
in the Company's cash balances resulting from its activities.
The Company's net loss increased from $882,650 to $1,223,360 or 39%,
reflecting the Company's increase in administrative personnel and travel.
9
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-k
None.
10
<PAGE>
SIGNATURES
Pursuant to 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.
ENDOREX CORPORATION
By _/s/____________________________________
Gerald J. Vosika
President and Director of the Company
Date December 5, 1996
By _/s/___________________________________
James Burrow
Chief Financial Officer
11
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMMENDED FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED
STATEMENTS
OF OPERATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,339,901
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,382,509
<PP&E> 42,608
<DEPRECIATION> 121,824
<TOTAL-ASSETS> 1,655,098
<CURRENT-LIABILITIES> 41,118
<BONDS> 0
<COMMON> 18,081
0
0
<OTHER-SE> 1,613,980
<TOTAL-LIABILITY-AND-EQUITY> 1,655,098
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
