FORM 10-Q
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 QUARTERLY PERIOD
ENDED: September 30, 1996; 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 1-11352
DynaGen, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3029787
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS EmployerIdentification No.)
incorporation or organization)
99 Erie Street
Cambridge, MA 02139
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 491-2527
------------------------------------------------------------
(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 filing
requirements for the past 90 days.
Yes [ X ] No[ ]
As of November 11, 1996, there were outstanding 28,877,436 shares of common
stock, $.01 par value per share.
DYNAGEN, INC.
FORM 10-Q
QUARTERLY REPORT
----------
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Loss 5
Condensed Consolidated Statements of Changes
in Stockholders' Equity 6
Condensed Consolidated Statements of
Cash Flows 7
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
(*) The financial information at June 30, 1996 has been derived from the
audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents
(including interest-bearing
deposits of $227,000 and
$154,000) $ 510,379 $ 375,948
Investment securities available
for sale at fair value 7,075,778 10,087,918
Accounts receivable 27,618 89,703
Inventory (Note 3) 380,118 -
Notes receivable 75,000 75,000
Accrued interest receivable 118,594 86,873
Prepaid expenses and other
current assets 681,505 221,283
------------- ------------
Total current assets 8,868,992 10,936,725
------------- ------------
Property and equipment, net of
accumulated depreciation and
amortization of $295,468 and $281,362 520,218 143,350
------------- ------------
Other assets:
Patents and trademarks, net of
accumulated amortization of
$59,990 and $54,341 271,489 277,138
Deferred debt financing costs,
net of accumulated amortization
of $91,568 and $57,230 183,137 217,475
Deposits 67,873 1,978
------------- ------------
Total other assets 522,499 496,591
------------- ------------
$ 9,911,709 $ 11,576,666
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 556,788 $ 519,624
Accrued payroll and
payroll taxes 175,749 147,441
Deferred revenue 31,772 65,967
------------- ------------
Total current liabilities 764,309 733,032
Convertible note payable 2,000,000 2,000,000
------------- ------------
Total liabilities 2,764,309 2,733,032
------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value,
40,000,000 shares authorized,
28,661,412 and 28,559,999 shares
issued and outstanding 286,614 285,600
Additional paid-in capital 28,645,454 28,567,068
Accumulated deficit (21,787,097) (20,009,051)
------------- ------------
7,144,971 8,843,617
Unrealized gain on
investment securities 2,429 17
------------- ------------
Total stockholders' equity 7,147,400 8,843,634
------------- ------------
$ 9,911,709 $ 11,576,666
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenues:
Fees and royalties $ - $ 250,000
Product sales 58,693 18,872
------------- -------------
Total revenues 58,693 268,872
------------- -------------
Costs and expenses:
Cost of sales 25,313 8,202
Research and development 760,062 470,099
Selling, general and
administrative 1,072,573 570,779
------------- -------------
Total costs and expenses 1,857,948 1,049,080
------------- -------------
Operating loss (1,799,255) (780,208)
------------- -------------
Other income (expense):
Investment income, net 95,547 54,283
Interest expense (40,000) -
Amortization of debt
financing costs (34,338) -
------------- -------------
Other income, net 21,209 54,283
------------- -------------
Net loss $ (1,778,046) $ (725,925)
============= =============
Net loss per share $ (.06) $ (.03)
============= =============
Weighted average shares outstanding
(Note 2) 28,616,450 21,807,563
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Unrealized
Additional Gain (Loss) on
Paid-in Accumulated Investment
Shares Amount Capital Deficit Securities Total
------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1995 21,448,487 $214,485 $19,236,300 $(14,911,632) $(12,339) $ 4,526,814
Decrease in unrealized loss
on investment securities - - - - 6,517 6,517
Exercise of
underwriters' warrants 404,552 4,045 (4,045) - - -
Exercise of
public warrants 7,485 75 14,385 - - 14,460
Net loss - - - (725,925) - (725,925)
---------- -------- ----------- ------------ -------- ------------
Balance at
September 30, 1995 21,860,524 $218,605 $19,246,640 $(15,637,557) $ (5,822) $ 3,821,866
========== ======== =========== ============ ======== ============
Balance at
June 30, 1996 28,559,999 $285,600 $28,567,068 $(20,009,051) $ 17 $ 8,843,634
Exercise of stock options 80,767 808 14,942 - - 15,750
Stock issued for
interest obligation 20,646 206 39,794 - - 40,000
Stock options issued
for services - - 23,650 - - 23,650
Increase in unrealized
gain on investment
securities - - - - 2,412 2,412
Net loss - - - (1,778,046) - (1,778,046)
---------- -------- ----------- ------------ -------- ------------
Balance at
September 30, 1996 28,661,412 $286,614 $28,645,454 $(21,787,097) $ 2,429 $ 7,147,400
========== ======== =========== ============ ======== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 30, September 30,
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,778,046) $ (725,925)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Depreciation and amortization 54,093 15,934
Amortization and accretion
of (discounts) premiums on
investment securities (19,261) 4,838
Stock issued for
interest obligation 40,000 -
Stock options issued
for services 23,650 -
(Increase) decrease in operating
assets:
Accounts receivable 62,085 4,571
Inventory (66,818) -
Prepaid expenses and
other current assets (491,943) 89,227
Increase (decrease) in operating
liabilities:
Accounts payable and
accrued expenses 65,472 (37,425)
Deferred revenue (34,195) (150,000)
------------- -------------
Net cash used for
operating activities (2,144,963) (798,780)
------------- -------------
Cash flows from investing activities:
Purchase of investment securities (2,567,444) (2,374,903)
Proceeds from sales and maturities
of investment securities 5,601,257 3,200,000
Purchase of wholly-owned
subsidiary (700,000) -
Purchase of property and equipment (4,274) -
Increase in deposits (65,895) (19,866)
------------- -------------
Net cash provided by
investing activities 2,263,644 805,231
------------- -------------
</TABLE>
(Continued)
See accompanying notes to unaudited consolidated financial statements.
7
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Exercise of warrants and options $ 15,750 $ 14,460
------------- -------------
Net cash provided by
financing activities 15,750 14,460
------------- -------------
Net change in cash and cash equivalents 134,431 20,911
Cash and cash equivalents,
beginning of period 375,948 263,956
------------- -------------
Cash and cash equivalents,
end of period $ 510,379 $ 284,867
============= =============
Supplemental cash flow information is presented in Note 4.
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the
accounts of DynaGen, Inc. and its wholly-owned subsidiary, Able Laboratories,
Inc. Significant intercompany balances and transactions have been eliminated in
consolidation. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformity with the accounting policies, reflected in the financial statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share is calculated based on the weighted average number
of common shares outstanding for the three month periods ended September 30,
1996 and 1995. The effect of all common stock equivalents have been excluded
from the calculation of the weighted average number of common shares outstanding
since their inclusion would be anti-dilutive.
3. INVENTORY
Inventory at September 30, 1996 consists of the following:
Raw material $ 248,311
Work in-process 81,372
Finished goods 50,435
---------
$ 380,118
=========
9
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Continued)
4. ACQUISITION OF ABLE LABORATORIES, INC.
On August 19, 1996, the Company acquired certain assets of Able
Laboratories, Inc., consisting primarily of machinery and equipment, raw
materials and finished goods inventory, and other assets of the tablet business.
The assets were transferred by the Company to a newly formed and wholly-owned
subsidiary named Able Laboratories, Inc. ("Able"). The purchase price consisted
of $550,000 in cash and acquisition costs of $150,000. The acquisition has been
accounted for as a purchase in accordance with the Accounting Principles Board
Opinion No. 16. The Company allocated $313,300 of the purchase price to
inventory and $386,700 to property and equipment. The results of operations
related to Able have been included with those of the Company since August 19,
1996.
Unaudited proforma consolidated operating results for the Company,
assuming the acquisition of Able had been made as of July 1, 1995 are as
follows:
Three Months Ended
---------------------------------
September 30, September 30,
1996 1995
------------ ------------
Revenues $ 77,518 $ 1,439,981
Net loss (1,905,811) (1,130,004)
Net loss per share (.07) (.05)
The unaudited proforma information is not necessarily indicative either of the
results of operations that would have occurred had the purchase been made on
July 1, 1995 or of future results of operations of the combined companies.
10
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed in the Liquidity and Capital
Resources section below contain potential risks and uncertainties, including,
without limitation, risks related to the Company's ability to successfully
develop, test, produce and market its proposed products, specifically
NicErase(R)-SL; obtain governmental approvals in a timely manner; identify and
attract marketing partners to help commercialize the Company's products; attract
and retain key employees; obtain meaningful patent protection or otherwise over
the Company's proprietary technology; protect itself from product liability
risks or limitations imposed due to potential health care reform; raise capital
for future operations and commercialization of its products; successfully
integrate the Company's Able Laboratories, Inc. ("Able") subsidiary; and
successfully respond to technological changes in the marketplace. Specifically,
regulatory approvals of the Company's products are subject to factors beyond the
Company's control, and there can be no assurance that such approvals will not be
delayed or ultimately denied. The Company will need to attract marketing
partners in order to exploit its products, and there can be no assurance that
the Company will be successful in attracting such partners. Additional
information on potential factors which could affect the Company's financial
results are included in the Company's public filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
Three-Month Period Ended September 30, 1996
As Compared With The Three-Month Period Ended September 30, 1995
Revenues in the first quarter of the year ending June 30, 1997 ("Fiscal
1997") were $59,000 versus $269,000 for the first quarter of the year ended June
30, 1996 ("Fiscal 1996"). This decrease of $210,000 is a result of a decrease in
fees of $250,000 offset by an increase in product sales of $40,000. The decrease
in fee revenue is due to one-time fees from Bristol-Myers Products recognized in
Fiscal 1996. The increase in product sales resulted from greater product
shipments, primarily MycoDot(R), in the first quarter of Fiscal 1997 compared to
the same period of Fiscal 1996. In the first quarter of Fiscal 1997, the Company
realized limited product sales from its Able subsidiary since its acquisition on
August 19, 1996.
Cost of product sales was 43% of product sales for the first quarter of
Fiscal 1997. This percentage is comparable to the same period of Fiscal 1996.
11
DYNAGEN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------------------------------------------
Research and development expenses for the first quarter of Fiscal 1997
were $760,000 versus $470,000 for the same period of Fiscal 1996, an increase of
$290,000. This increase is primarily attributable to costs associated with the
ongoing NicErase-SL Phase 3 clinical trial and the Company's efforts to complete
clinical trials and file a 510(k) application with the U.S. Food and Drug
Administration for its NicCheck(R) product. The Company also conducted early
stage research on bacterial extract for the treatment of infectious diseases.
Selling, general and administrative expenses for the first quarter of
Fiscal 1997 were $1,073,000 versus $571,000 for the same period of Fiscal 1996,
an increase of $502,000. The increase in selling, general and administrative
expenses is primarily due to the acquisition of Able which resulted in
additional payroll and plant operating costs of approximately $312,000. In
addition, certain DynaGen staff members directed their efforts towards the Able
integration, which resulted in costs of approximately $60,000. The Company
incurred $89,000 in costs towards the use of business consultants to develop,
seek and obtain business alliances for certain Company products. The remainder
is due to a net increase in other operating expenses.
Investment income increased by $41,000 from $54,000 to $95,000 for the
first quarter of Fiscal 1996 as compared to Fiscal 1997, as the Company had
greater funds available for investment during the Fiscal 1997 period compared to
the same period of Fiscal 1996. The Company incurred interest expense of $40,000
and amortized debt financing costs of $34,000 both associated with a $2,000,000
convertible note issued in 1996.
12
DYNAGEN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of $8,105,000
versus working capital of $10,204,000 at June 30, 1996. Cash and investment
securities were $7,586,000 at September 30, 1996 as compared to $10,464,000 at
June 30, 1996. The decreases in working capital, cash and investment securities
are primarily the result of $2,145,000 utilized in the Company's research and
development efforts and operating activities and the $700,000 purchase price for
the Able acquisition.
Management anticipates that the available working capital will be
sufficient to fund the current level of operations, including Able, through June
1997. In the past, the Company has realized limited revenues from license fees
and the sale of its diagnostic products. Its future prospects and revenue
potential from product sales cannot be determined with any certainty at this
time. The Company continues to explore additional sources of capital in order to
fund the growth of its generic drug business and its product development
efforts. There can be no assurance that the Company will be able to secure
additional financing or that financing will be available on favorable terms. If
the Company is unable to obtain such other additional financing, the Company's
ability to maintain its current level of operations could be materially and
adversely affected and the Company may be required to reduce or eliminate
certain expenditures, including its research and development activity with
respect to certain proposed products.
13
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
The following exhibits, required by Item 601 of Regulation
S-K, are filed as part of this quarterly Report on Form 10-Q.
Exhibit numbers, where applicable, in the left column
correspond to those of Item 601 of Regulation S-K.
Exhibit
No. Description of Exhibits
------- ------------------------------------------
27 Financial Data Schedule (filed herewith in
electronic format only).
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, the Company filed
on August 23, 1996 a Current Report on Form 8-K dated August
19, 1996 reporting the purchase of substantially all the
assets of Able Laboratories, Inc. On September 23, 1996, the
Company filed Amendment No. 1 to the Current Report on Form
8-K dated August 19, 1996 providing the financial statements
related to the business of Able Laboratories, Inc. and the
unaudited proforma combined financial information of the
Company.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAGEN, INC.
By: /s/ Indu A. Muni
-------------------------
Indu A. Muni, Ph.D.
President, Chief Executive Officer, and
Treasurer (Principal Executive, Financial, and
Accounting Officer)
Date: November 14, 1996
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 510,379
<SECURITIES> 7,075,778
<RECEIVABLES> 27,618
<ALLOWANCES> 0
<INVENTORY> 380,118
<CURRENT-ASSETS> 8,868,992
<PP&E> 815,686
<DEPRECIATION> 295,468
<TOTAL-ASSETS> 9,911,709
<CURRENT-LIABILITIES> 764,309
<BONDS> 2,000,000
0
0
<COMMON> 286,614
<OTHER-SE> 6,860,786
<TOTAL-LIABILITY-AND-EQUITY> 9,911,709
<SALES> 58,693
<TOTAL-REVENUES> 58,693
<CGS> 25,313
<TOTAL-COSTS> 1,857,948
<OTHER-EXPENSES> (95,547)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,338
<INCOME-PRETAX> (1,778,046)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,778,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,778,046)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
