FORM 10-QSB/A
AMENDMENT #2
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 September 30, 1997
( ) 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 Corp.
(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)
900 North Shore Drive Lake Bluff, IL 60044
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (847) 604-7555
(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 November 5, 1997, 9,736,641 shares of the registrant's common stock
(par value, $.001 per share) were outstanding.
<PAGE>
<TABLE>
PART I.
ITEM 1 - Financial Statements
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30,
1997
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 800,707
Prepaid Expenses 131,527
------------
TOTAL CURRENT ASSETS 932,234
Leasehold improvements and equipment, net of
accumulated amortization of $916,277. 99,019
Patent issuance costs, net of accumulated
amortization of $36,300. 260,382
------------
TOTAL ASSETS $ 1,291,635
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 252,988
------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value.
Authorized 100,000 shares;
none issued and outstanding --
Common stock, $.001 par value.
Authorized 50,000,000 shares;
issued 2,071,432; outstanding 1,952,790 2,071
Additional paid-in capital 13,674,776
(Deficit) accumulated during the development stage (12,194,450)
------------
1,482,397
Less:
Treasury Stock, at cost, 118,642 shares (443,750)
------------
TOTAL STOCKHOLDERS' EQUITY 1,038,647
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,291,635
============
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Cumulative from
Nine Months February 15, 1985
Ended September 30, (date of inception)
1997 1996 to September 30, 1997
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Expenses:
SBIR contract
research and
development -- -- 86,168
Proprietary research
and development 1,103,003 775,538 9,152,088
General and
administrative 738,889 292,692 3,705,146
------------ ------------ -------------
Total operating expenses 1,841,892 1,068,230 12,943,402
------------ ------------ -------------
(Loss) from operations (1,841,892) (1,068,230) (12,843,402)
Other income -- -- 1,512
Interest income 19,597 37,302 840,553
Interest expense (152,475) -- (193,113)
------------ ------------ -------------
Net loss $(1,974,770) $(1,030,928) $(12,194,450)
============ ============ =============
Net loss per share $ (1.49) $ (1.83) $ (38.66)
Weighted average
common shares
outstanding 1,329,322 562,655 315,392
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended September 30,
1997 1996
<S> <C> <C>
SBIR contract revenue $ -- $ --
Expenses:
SBIR contract
research and
development -- --
Proprietary research
and development 369,006 196,952
General and
administrative 226,211 137,979
----------- ------------
Total operating expenses 595,217 334,931
----------- ------------
(Loss) from operations (595,217) (334,931)
Other income -- --
Interest income 11,648 17,521
Interest expense (152,475) --
----------- ------------
Net loss $ (736,044) $ (317,410)
=========== ============
Net loss per share $ (0.41) $ (0.42)
Weighted average
common shares
outstanding 1,810,230 760,122
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
<PAGE>
<TABLE>
ENDOREX CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
Nine months February 15, 1985
ended September 30, (date of inception)
1997 1996 to September 30,
1997
<S> <C> <C> <C>
Net cash used in operating
activities $(1,733,686) $(1,030,928) $(12,046,904)
------------ ----------- -------------
INVESTING ACTIVITIES:
Patent issuance cost (64,945) (19,755) (397,688)
Organizational costs
incurred -- -- (135)
Deposit on leasehold
improvements -- -- (5,000)
Purchase of leasehold
improvements -- -- (414,671)
Purchases of office
and lab equipment (52,977) (5,219) (606,776)
Proceeds from assets
sold -- -- 1,000
----------- ----------- -------------
Net cash used in
investing activities (117,922) (24,974) (1,423,270)
----------- ----------- -------------
FINANCING ACTIVITIES:
Net proceeds from
issuance of common
stock 1,746,408 1,324,999 12,666,284
Proceeds from exercise
of options -- 132,049 134,236
Proceeds from borrowings
from President -- -- 41,433
Repayment of borrowings
from President -- -- (41,433)
Proceeds from borrowings
under line of credit 287,490 -- 587,490
Repayment of borrowings
under line of credit (287,490) -- (587,490)
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 provided by
financing activities 1,746,408 1,457,048 12,335,117
----------- ----------- -------------
Net increase (decrease)
in cash and cash
equivalents (105,200) 547,230 800,707
Cash and cash equivalents at
beginning of periods 905,907 1,146,351 --
----------- ----------- -------------
Cash and cash equivalents at
end of periods $ 800,707 $1,603,362 $ 800,707
=========== =========== =============
Supplemental Disclosure of Cash Flow:
Cash paid for interest $ 4,929 $ 45,577
<F/N>
See accompanying Condensed Notes to Financial Statements
</TABLE>
<PAGE>
ENDOREX CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements included herein
are prepared pursuant to the rules and regulations for reporting on
Form 10-QSB. Accordingly, certain information and footnote disclosures
normally accompanying the annual financial statements have been
omitted. The interim financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-KSB. In the
opinion of management, the consolidated financial statements include all
adjustments necessary for a fair statement of the results operations,
financial position and cash flows for the interim periods. All
adjustments were of a normally recurring nature. The results of operations
for interim periods are not necessarily indicative of the results for the
full fiscal year.
On January 31, 1997, the Company changed its fiscal year end from January 31
to December 31. The Transition Period resulting from the change was
reported in the annual report on Form 10-KSB for the period ended
December 31, 1996.
On May 19, 1997, the Company entered into a senior line of credit agreement
with The Aries Funds, two of its major stockholders, pursuant to which the
Company could borrow up to $500,000 (the "Bridge Loan"). The Bridge Loan
accrued interest at the rate of 12% per annum and was due and payable
on August 19, 1997. In consideration of the Bridge Loan, the Company has
granted warrants to purchase an aggregate of 66,668 shares of Common Stock at
an initial exercise price equal to the Offering Price of the Company's
private placement. The exercise price of such warrants and the
number of shares of common stock purchasable thereunder are subject to
adjustment in certain circumstances. In connection with the issuance of
these warrants the Company recognized an expense in the amount of $147,546
This expense is included in interest expense in the accompanying consolidated
statements of operations. Such warrants are exercisable from May 19, 1997
until May 19, 2002. On July 18, 1997, the Company paid the outstanding
principal and interest on the Bridge Loan.
On June 11, 1997, the Company effected a one-for-fifteen reverse stock split
of its common stock. All share and per share amounts have been adjusted to
reflect such reverse stock split.
On July 16, 1997, the Company issued and sold an aggregate of 864,865 shares
of Common Stock to The Aries Funds for an aggregate consideration of
$2 million.
On July 29, 1997, the Company formed Wisconsin Genetics, Inc. ("WGI") a new
majority owned subsidiary devoted to the development of new drugs for the
prevention and treatment of cancer.
On August 13, 1997, the Company's warrants issued in connection with the
secondary offering on August 13, 1992 expired.
Pursuant to a Private Placement, the Company issued and sold an aggregate
of 7,783,851 shares of Common Stock on October 10 and October 16, 1997 to
certain accredited investors. The aggregate proceeds of the July 16,
October 10 and October 16, 1997 issuances were $20 million and the net
proceeds to the Company after deducting commissions and expenses were
$17,400,000. In connection with Private Placement, the Company issued
warrants to purchase 2,162,162 shares of Common Stock at an exercise
price of $2.54375 per share to Paramount Capital, Inc., the Placement
Agent. The warrants are exercisable after April 16, 1998 and expire on
April 16, 2003.
Common stock equivalents are excluded in the computation of primary earnings
per share on the face of the Consolidated Statements of Operations because
the effect would be anti-dilutive. Fully diluted earnings per share are not
disclosed on the face of the Consolidated Statement of Operations because
the effect is anti-dilutive.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Plan of Operation
The following "Plan of Operation" provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operation and financial condition. The discussion should be
read in conjunction with the Company's unaudited consolidated interim
financial statements and notes thereto and the Company's Annual Report on
Form 10-KSB. This report contains certain statements of a forward-looking
nature relating to future events or the future financial performance of
the Company. Investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, investors should carefully consider the various
factors identified in this report, which could cause actual results to differ
materially from those indicated from such forward-looking statements,
including those set forth in Exhibit 99 "Certain Factors that may Effect
Future Results, Financial Condition and the Market Price of Securities" of
this Quarterly Report on Form 10-QSB.
The Company is a development stage enterprise and expects no significant
revenue from the sale of products in the near future. The Company's
proprietary immunomodulator, ImmTher, has completed some Phase II clinical
trials for cancer with limited response in gross metastatic disease and its
immuno-adjuvant, Theramide, has completed a Phase I clinical trial
for cancer. The Company plans to initiate new Phase II clinical trials for
ImmTher in treating micro-metastasis in pediatric sarcomas with two major
cancer centers and new preclinical programs as an anti-infective agent in
immuno-compromised patients. For Theramide, the Company is completing
preclinical data for new Phase I trials as an adjuvant for a vaccine
program.
Orasomal Technologies, Inc. ("Orasomal"), a majority-owned subsidiary, has
initiated preclinical evaluation of at least one new product utilizing its
proprietary oral and mucosal delivery system, and plans to expand, during
1997, its oral vaccine program and oral therapeutics program. Orasomal plans
to select products for this program that are only available in injectable
form and for which oral therapy is not available. Orasomal believes its
technology, if effective, will increase patient compliance and ease of
administration of therapy and is currently evaluating a range of therapies
including insulin, allergens, vaccines and cancer chemotherapy. Orasomal
is also evaluating several vaccines of other biotechnology companies in its
proprietary delivery system and expects to license its Orasome technology for
oral and/or mucosal delivery of other companies' products in the near future.
On August 1, 1997, WGI signed an exclusive worldwide license agreement with
the Wisconsin Alumni Research Foundation ("WARF"), a non-profit organization
dedicated to receive and license new discoveries made by University of
Wisconsin-Madison researchers, for the development of a new cancer therapy.
The new drug, perillyl alcohol, is completing Phase I human trials sponsored
by the National Cancer Institute (NCI) at several cancer centers. WGI plans
to initiate NCI-sponsored Phase II trials for breast, prostate and ovarian
cancer in the near future. The Company has the option to license another
perillyl alcohol analog with WARF.
On September 30, 1997 and December 31, 1996, the Company had cash and cash
equivalents of $800,707 and $905,907, respectively, and working capital
of $679,246 and $824,821, respectively. On October 16, 1997, the Company
sold Common Stock which, net of commissions and expenses, raised approx-
imately $15.7 million.
The Company's current level of research and development activities requires
the expenditure of approximately $250,000 per month. The Company may be
required to seek additional financing in the future to continue operations
during such period in the event of cost overruns, unanticipated expenses, a
determination to pursue additional research projects, or the failure to
receive funds anticipated from other sources. In addition to the net
proceeds from the Offering, the Company will require substantial additional
funds to finance its business activities on an ongoing basis. The Company's
actual future capital requirements will depend on numerous factors,
including, but not limited to, costs associated with technologies and
products which it may license from third parties, progress in its research
and development programs, including preclinical and clinical trials, costs of
filing and prosecuting patent applications and, if necessary, enforcing
issued patents or obtaining additional licenses to patents, competing
technological and market developments, the cost and timing of regulatory
approvals, the ability of the Company to establish collaborative
relationships, and the cost of establishing manufacturing, sales and marketing
capabilities. The Company has no current commitment to obtain other
additional funds and is unable to state the amount or potential source of any
other additional funds.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings whenever conditions are favorable, even
if it does not have an immediate need for additional capital at that time.
There can be no assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, will be obtainable
on reasonable terms. Any such additional funding may result in significant
dilution to existing stockholders. If adequate funds are not available, the
Company may be required to accept unfavorable alternatives, including (i) the
delay, reduction or elimination of research and development programs, capital
expenditures, and marketing and other operating expenses, (ii) arrangements
with collaborative partners that may require the Company to relinquish material
rights to its products that it would not otherwise relinquish, or (iii) a
merger of the Company or a sale of the Company or its assets.
In October 1997, the Company completed a private placement of Common Stock
with gross proceeds of $20 million. However, the Company may be required
to seek additional financing to continue operations in the event of cost
overruns, unanticipated expenses, a determination to pursue additional
research projects, or failure to receive funds anticipated from other sources.
The Company has no current commitment to obtain other additional funds and
is unable to state the amount or potential source of any other funds.
The Company does not intend to significantly increase employees during the
next twelve months, but will recruit some key personnel to accelerate
preclinical development of products.
The Company uses a number of outside consultants skilled in the area of
government regulatory management, clinical trial management, Good
Manufacturing Practices ("GMP") and business development. The Company also
formed a Scientific Advisory Board for Orasomal and in January appointed as
co-chairman Robert Langer, Ph.D., Professor of Biomedical Engineering of
M.I.T. and Henry Brem, M.D., Director of Neurosurgical Oncology at Johns
Hopkins Hospital. Both individuals are recognized leaders in drug delivery
systems. Dr. Langer is a co-inventor of the Orasome(TM) technology currently
under development by Orasomal and licensed from M.I.T. WGI is currently
assembling s Scientific Advisory Board to be comprised of a select group of
oncologists to guide the clinical development of perillyl alcohol.
<PAGE>
Impact of New Accounting Standards
During 1996, the Financial Accounting Standards Board ("FASB")issued a new
pronouncement, SFAS No. 128 "Earnings per Share" which is relevant to the
Company's operations. The statement is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company intends to adopt SFAS
No. 128 at year end 1997 and expects no significant effect on loss per
share.
During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information". The Company has not determined the effect of the adoption of
these pronouncements.
<PAGE>
PART II.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Company's Annual Meeting of Stockholders was held on July 16, 1997.
c) The motions before the stockholders were:
1) To elect four directors:
<TABLE>
<CAPTION>
Votes Votes Votes
Broker
Name of Director For Against Withheld Abstentions
Nonvotes
<S> <C> <C> <C> <C> <C>
Michael S. Rosen 12,217,403 21,331 - - -
Gerald J. Vosika, MD 12,221,472 17,262 - - -
Steve H. Kanzer, Esq. 12,221,272 17,462 - - -
Kenneth F. Tempero, MD 12,221,472 17,262 - - -
</TABLE>
2) To ratify the appointment of Coopers & Lybrand L.L.P. as
independent public accountants for the year ending
December 31, 1997.
Votes For: 12,229,277
Votes Against: 5,750
Votes Withheld: -
Abstentions: 3,707
Broker Nonvotes: -
3) To ratify a Private Placement of the sale of up to 60 units of the
Company's securities for a purchase price of $100,000 per unit.
Votes For: 3,702,143
Votes Against: 19,982
Votes Withheld: -
Abstentions: 6,017,132
Broker Nonvotes: 2,499,477
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
a)Exhibits: 4(i)(c) Warrant for the Purchase of 864,865 shares of
Common Stock (1)
4(i)(d) Warrant for the Purchase of 1,297,297 shares of
Common Stock (1)
10.13 Placement Agency Agreement between the Registrant
and Paramount Capital, Inc. dated July 1, 1997 (1)
10.14 Side Letter #1 to Placement Agency Agreement (1)
10.15 Form of Subscription Agreement for the purchase
of Common Stock (1)
10.16 Financial Advisory Agreement between the Registrant
and Paramount Capital, Inc. dated October 16, 1997 (1)
27 Financial Data Schedule.
99 Certain Factors that may Effect Future Results,
Financial Condition and the Market Price of
Securities.
(1) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1997.
b)Reports on Form 8-K:
None.
<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 CORP.
/s/ Michael S. Rosen
Michael S. Rosen
President and CEO
/s/ David G. Franckowiak
David G. Franckowiak
Vice President, Finance and Administration
(principal financial and accounting officer)
</PAGE>
