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U.S. 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: March 31, 2000
[ ] 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
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DYNAGEN, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3029787
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Winter Street
Suite 2700
Waltham, MA 02451
(Address of principal executive offices)
(781) 890-0021
(Issuer's telephone number)
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 May 4, 2000 there were outstanding 70,495,344 shares of common stock, $.01
par value per share.
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<PAGE>
DYNAGEN, INC.
FORM 10-QSB
QUARTERLY REPORT
MARCH 31,2000
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Loss 5
Condensed Consolidated Statements of Changes
in Stockholders' Equity (Deficit) 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults on Senior Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
(*) The financial information at December 31, 1999 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
<PAGE>
PART I. FINANCIAL INFORMATION
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
-----------
ASSETS
March 31, December 31,
2000 1999
----------- -----------
Current assets:
Cash and cash equivalents $ 280,595 $ 310,549
Accounts receivable, net of
allowance for doubtful accounts of
$85,233 and $270,025 5,663,195 5,582,646
Rebates 390,665 262,380
Inventory 7,264,074 7,148,604
Notes receivable 110,000 85,000
Prepaid expenses and other current assets 859,318 395,726
----------- -----------
Total current assets 14,567,847 13,784,905
----------- -----------
Property and equipment, net 3,779,368 3,852,842
----------- -----------
Other assets:
Customer lists, net of accumulated
amortization 2,156,311 2,385,098
Deferred debt financing costs, net
of accumulated amortization 854,962 885,988
Deposits and other assets 283,670 320,794
----------- -----------
Total other assets 3,294,943 3,591,880
----------- -----------
$21,642,158 $21,229,627
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
-----------
March 31 December 31
2000 1999
------------ ------------
Current Liabilities:
Bank overdraft $ 1,419,321 $ --
Notes payable and current portion
of long-term debt 9,091,048 9,826,615
Accounts payable and accrued expenses 4,044,714 5,070,285
Warrant put liability, current portion 645,639 --
Settlement obligation, current portion 15,160 14,806
------------ ------------
Total current liabilities 15,215,882 14,911,706
Warrant put liability, less current portion 372,639 984,769
Long term debt, less current portion 4,188,875 4,190,000
Settlement obligation, less current portion 463,664 467,589
------------ ------------
Total liabilities 20,241,060 20,554,064
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, 49,654 and 55,924 shares
of Series A through L outstanding,
(liquidation value $5,327,024 and $6,468,214) 497 559
Common stock, $.01 par value, 75,000,000 shares
authorized, 70,495,344 and 63,854,946 shares
issued and outstanding 704,953 638,549
Additional paid-in capital 59,545,935 58,341,326
Accumulated deficit (58,850,287) (58,304,871)
------------ ------------
Total stockholders' equity 1,401,098 675,563
------------ ------------
$ 21,642,158 $ 21,229,627
============ ============
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
DYNAGEN, INC.
CONSOLIDATED STATEMENTS OF LOSS
-------------------------------
Three Months Ended,
-------------------------------
March 31, March 31,
2000 1999
------------ ------------
Sales, net $ 8,121,748 $ 7,024,798
Cost of sales 6,096,084 5,616,657
------------ ------------
Gross profit 2,025,664 1,408,141
------------ ------------
Operating expenses:
Selling, general and administrative 1,831,178 1,990,817
Research and development 307,750 176,354
Loss on impairment of customer lists -- 400,000
------------ ------------
Total operating expenses 2,138,928 2,567,171
------------ ------------
Operating loss (113,264) (1,159,030)
------------ ------------
Other income (expense):
Investment income, net 3,872 6,030
Interest and financing expense (447,449) (768,731)
Miscellaneous income 11,425 24,721
------------ ------------
Other income (expense), net (432,152) (737,980)
------------ ------------
Net loss (545,416) (1,897,010)
Less returns to preferred stockholders:
Beneficial conversion feature -- 191,750
Dividends paid and accrued 38,028 16,123
------------ ------------
Net loss applicable to common stock $ (583,444) $ (2,104,883)
============ ============
Net loss per share-basic $ (0.01) $ (0.05)
============ ============
Weighted average shares outstanding 66,266,687 40,003,490
============ ============
See accompanying notes to unaudited consolidated financial statements.
5
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DYNAGEN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------
Three Months Ended March 31, 2000
<TABLE><CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- --------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFECIT TOTAL
---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 55,924 $ 559 63,854,946 $ 638,549 $ 58,341,326 $(58,304,871) $ 675,563
Conversion of preferred stock (6,270) (62) 3,963,198 39,632 (39,570) -- --
Conversion of debt -- -- 786,000 7,860 441,767 -- 449,627
Stock and stock warrants
issued for services -- -- 1,151,000 11,510 765,264 -- 776,774
Stock options and warrants
exercised -- -- 740,200 7,402 37,148 -- 44,550
Net Loss -- -- -- -- -- (545,416) (545,416)
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 2000 49,654 $ 497 70,495,344 $ 704,953 $ 59,545,935 $(58,850,287) $ 1,401,098
========== ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(unaudited)
-----------
<TABLE><CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (545,416) $(1,897,010)
Adjustments to reconcile net loss to net cash used
for operating activities:
Loss on impairment of customer list -- 400,000
Beneficial conversion feature of convertible note -- 62,500
Stock, stock options and warrants issued for services 776,774 184,835
Depreciation and amortization 506,940 413,660
(Increase) decrease in operating assets:
Accounts receivable (80,549) (499,785)
Rebates (128,285) (35,050)
Inventory (115,470) (336,854)
Prepaid expenses and other current assets (463,592) 92,836
Deposits and other assets (15,116) (45,713)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (979,515) 538,303
Deferred revenue -- (11,966)
----------- -----------
Net cash used for operating activities (1,044,229) (1,134,244)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (57,904) (217,604)
(Increase) in notes receivable (25,000) --
Increase in deferred financing and acquisition costs (30,000) --
----------- -----------
Net cash used for investing activities (112,904) (217,604)
----------- -----------
Cash flows from financing activities:
Net proceeds from stock warrants and options 44,550 --
Net proceeds from debt placement -- 1,345,000
Repayment of debt obligations (141,077) (218,526)
Net change in line of credit (195,615) 77,980
Net change in accounts receivable factoring -- (29,190)
Increase in bank overdraft 1,419,321 284,312
----------- -----------
Net cash provided by financing activities 1,127,179 1,459,576
----------- -----------
Net change in cash and cash equivalents (29,954) 107,728
Cash and cash equivalents at beginning 310,549 97,045
----------- -----------
Cash and cash equivalents at end $ 280,595 $ 204,773
=========== ===========
Supplemental cash and flow information:
Interest paid $ 269,958 $ 187,514
Common stock issued for convertible
note payable and accrued interest 449,627 220,719
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DynaGen, Inc.
(the "Company") and its wholly-owned subsidiaries, Able Laboratories, Inc.
("Able"), which is engaged in the manufacture of generic pharmaceuticals,
Superior Pharmaceutical Company ("Superior") and Generic Distributors Inc.
("GDI") both of which are engaged in the distribution of generic pharmaceuticals
and Apex Pharmaceuticals, Inc. which is developing therapeutic products. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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
conformance with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31,1999 filed with the Securities and Exchange Commision.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
balance sheet date and reported amounts of revenues and expenses during the
reporting period. Material estimates that are particularly susceptible to
significant change in the near term relate to the carrying values of rebates
receivable and intangible assets, the valuation of equity instruments issued by
the Company and the amount of obligations due as a result of defaults on certain
debt obligations. Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
For all periods presented, options, warrants, put warrants, convertible
debt and convertible preferred stock were anti-dilutive and excluded from the
diluted earnings per share computations.
The loss applicable to common stockholders has been increased by the stated
dividends on the convertible preferred stock and the amortization of discounts
on convertible preferred stock due to beneficial conversion features.
8
<PAGE>
2. INVENTORY
Inventory consists of the following:
March 31, December 31,
2000 1999
---------- ----------
Raw Materials $ 706,955 $ 752,627
Work-in-progress 16,138 35,345
Finished goods 6,540,981 6,360,632
---------- ----------
$7,264,074 $7,148,604
========== ==========
3. PROPERTY AND EQUIPMENT
March 31, December 31,
2000 1999
---------- ----------
Machinery and equipment $2,884,066 $2,811,296
Furniture, fixtures, and computer 1,121,563 1,146,223
Leasehold improvements 1,276,635 1,266,846
---------- ----------
5,282,264 5,224,365
Less accumulated depreciation
and amortization (1,502,896) (1,371,523)
---------- ----------
$3,779,368 $3,852,842
========== ==========
4. DEBT
Notes payable consist of the following:
March 31, December 31,
2000 1999
---------- ----------
Bridge loans $ 466,437 $1,006,389
Machinery & equipment financing 150,000 150,000
9% convertible debenture 980,000 980,000
NJEDA bonds 2,000,000 2,000,000
Working capital loan - BankBoston 7,434,611 7,630,226
Senior subordinated debt 2,248,875 2,250,000
---------- ----------
Total 13,279,923 14,016,615
Less current portion 9,091,048 9,826,615
---------- ----------
Long-term debt $4,188,875 $4,190,000
========== ==========
WORKING CAPITAL LOAN - BANKBOSTON
As of March 31, 2000, the Company was in default of certain loan covenants,
as a result the Company and the bank have agreed to limit the borrowing on this
line to $8.5 million. The Company has indicated to the bank that it will seek a
replacement lender to maximize its borrowing on its assets.
5. SUBSEQUENT EVENTS
During April and May 2000, the Company received $500,000 through the sale
of 500 shares of its Series J Preferred Stock. The shares of Series J Preferred
Stock are convertible into common stock at 80% of the average closing bid price
of common stock for the five trading days immediately proceeding the conversion
notice from the investor. The conversion can take place on the earlier of (1) 90
days from original issue date, or (2) the date on which a registration statement
is declared effective by the Securities Exchange Commission.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial performance
of the Company. However, from time to time, information provided by the Company
or statements made by its employees may contain "forward-looking" information
that involves risks and uncertainties. In particular, statements contained in
this Form 10-QSB which are not historical facts constitute forward-looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate," "continue" and similar words. You should read statements that
contain these words carefully because they: (1) discuss our future expectations;
(2) contain projections of our future operating results or financial condition;
or (3) state other "forward-looking" information. Various factors listed below,
as well as any cautionary language in this prospectus, provide examples of
risks, uncertainties and events that may cause our actual results to be
materially worse than the expectations we describe in our forward-looking
statements.
Each forward-looking statement should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1, of this
Quarterly Report and with the information contained in Item 2, including, but
not limited to, the factors set forth below, together with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
In addition to the risks and uncertainties posed generally by the generic
drug industry, we face the following risks and uncertainties:
o our auditors have expressed doubt about our ability to continue as a going
concern;
o if we cannot raise significant additional funds, then we will have to
substantially curtail our operations and investors could lose their
investment;
o if we continue to incur losses, then the value of our common stock will
likely decline; we face intense competition from other manufacturers of
generic drugs;
o if the Boston Stock Exchange were to delist our common stock, we will have
greater difficulty raising the capital we need to continue operations;
o if our common stock becomes subject to penny stock rules, investors may
have greater difficulty selling their shares;
o we are obligated to issue a large number of shares of common stock;
o the value of the common stock fluctuates widely and investors could lose
money on your investment in our stock;
o we may face product liability for which we are not adequately insured;
o and intense regulation by government agencies may delay our efforts to
commercialize our proposed drug products.
Because of the foregoing and other factors, we may experience material
fluctuations in its future operating results on a quarterly or annual basis
which could materially adversely affect its business, financial condition,
operating results and stock price.
OVERVIEW
DynaGen makes and sells generic drugs for the human health care market. In
1996, we shifted our business focus from being a development and licensing
company to building a company focused on the manufacture and distribution of
generic drug products and specialty pharmaceuticals. In August 1996, we acquired
the tablet business of Able Laboratories, Inc., a generic pharmaceutical product
subsidiary of Alpharma, Inc. In addition, we acquired Superior Pharmaceutical
Company, a distributor of generic pharmaceuticals, in June 1997. In March 1998,
we acquired Generic Distributors Limited Partnership through our wholly-owned
subsidiary, Generic Distributors, Incorporated.
We have financed our operating losses primarily through the proceeds from
public and private stock offerings and debt offerings. We anticipate that
revenues from product sales may not be sufficient to fund our current operations
and produce an operating profit in fiscal 2000. We have incurred losses since
inception and may incur additional losses in the future.
Our history of operating losses raises substantial doubt about our ability
to continue operations. If we are unable to secure significant additional
financing or to renegotiate our agreements with our existing creditors, we will
have to curtail or suspend research and development and other business
activities. Our independent auditors issued an opinion on our financial
statements as of December 31, 1999 and for the year then ended which included an
explanatory paragraph expressing substantial doubt about our ability to continue
as a going concern. See "-- Certain Factors That May Affect Future Results."
Results of Operations Three Months Ended March 31, 2000
- -------------------------------------------------------
Revenues for the three-month period ended March 31, 2000 were $8,121,748
compared to $7,024,798 for the period ended March 31, 1999. The increase of
$1,096,950 or 16% is primarily the result of improved sales due to introduction
of two new products at Able.
Cost of product sales was $6,096,084, or 75% of product sales for the
three-month period ended March 31, 2000, compared to $5,616,657, or 80% of
product sales for the period ending March 31, 1999. The increase in the gross
profit margin to 25% is due to the higher margins of new products being
manufactured at Able Laboratories.
10
<PAGE>
Research and development expenses for the three-month period ended March
31,2000 were $307,750 compared to $176,354 for the three-month period ended
March 31, 1999. All of these expenses relate to research which is currently
being conducted at Able Laboratories to develop generic drugs. Able currently
has eight new products pending approval with the FDA and will be increasing its
research and development activities for a broad range of products over the next
several months.
Selling, general and administrative expenses for the three-month period
ended March 31, 2000 were $1,831,178 compared to $1,990,817 for the three-month
period ended March 31, 1999. The decrease of $159,639 in expenses is due to our
corporate wide effort to reduce expenses.
We recorded a $400,000 loss on impairment of Superior's customer lists in
the first quarter of 1999 based on our revised projections of Superior's cash
flows after reviewing Superior's performance during the first quarter of 1999.
Interest and financing expenses of $447,449 for the three-month period
ended March 31, 2000, compared to $768,731 for the three-month period ended
March 31, 1999, relate primarily to private placements of debt instruments. We
issued several warrants in connection with debt placements, the values of which
are included in our financing costs. The decrease of $321,282 is due to
favorable lending rate for our new line of credit, the reduction of interest
expenses on debt to Superior selling shareholders and also due to the
elimination of any factoring expenses.
We recorded an operating loss of $113,264 for the three months ended March
31, 2000, compared to an operating loss of $1,159,030 for the three months ended
March 31, 1999, a decrease of approximately 90%. We record a net loss applicable
to common stock of $545,416, or $0.01 per share, for the three months ended
March 31, 2000, compared to a net loss applicable to common stock of $2,104,883
or $0.05 per share for the three months ended March 31, 1999, a decrease of
approximately 74%. The improved results were primarily due to increased revenues
and decreased selling, general and administrative expense, as well as the fact
that the $400,000 impairment loss and $191,750 beneficial conversion feature
recorded in the 1999 period did not recur in the 2000 period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had a working capital deficit of $648,035 compared
to a working capital deficit of $1,126,801 at December 31, 1999. Cash was
$280,595 at March 31, 2000 compared to $310,549 at December 31, 1999. Working
capital increased primarily as a result of conversions of debt to equity and
stock and warrants issued for services. We expect our cash needs for the next 12
months to be approximately $4,000,000. We expect to generate the needed cash
through additional financing activities. If we are not able to raise the needed
financing, we will be forced to curtail or suspend our research and development
and other business activities. See "Certain Factors That May Affect Future
Results."
On June 23, 1999, Able Laboratories, Inc., completed an Industrial
Development Revenue Bond offering through the New Jersey Economic Development
Authority. The bonds consist of series 1999A $1,700,000, 8% non-taxable and
series 1999B $300,000, 8.25% taxable. Series 1999A bonds will mature in 15 years
and series 1999B bonds will mature in 4 years. The total cost of the bond issue
was $216,000. Able used the net proceeds for the acquisition, installation and
commissioning of equipment and machinery. In connection with these bonds, we
entered into various agreements with the New Jersey Economic Development
Authority and the bondholders, including an escrow agreement pursuant to which
we have deposited into escrow amounts intended to cover our obligations under
the bond documents for periods of between two and six months.
In November 1999, we secured a line of credit for working capital from
BankBoston N.A. Borrowings under the line are secured by substantially all the
assets of DynaGen and its subsidiaries. Under this agreement, we can borrow up
to 85% of our eligible accounts receivable and 60% of our eligible inventory.
The bank has also extended a term loan secured by the equipment at Able. This
loan is being amortized over 12 months and the BankBoston credit facility has
replaced the three separate lenders (Huntington National Bank, Fleet Bank and K
& L Financial) that were providing credit separately to our three different
operating facilities. Consolidating this borrowing has removed the cash flow
restrictions we were under, so that now cash can be transferred between DynaGen
and the operating subsidiaries. We use this line of credit primarily for our
working capital needs. As of May 8, 2000, we had borrowed the maximum available
amount of approximately $7,699,000 under this facility.
As of March 31, 2000, we were in default of certain loan covenants, and as
a result we have agreed to limit the borrowing on this line to $8.5 million. We
have indicated to the bank that we will seek a replacement lender to maximize
our ability to borrow on our assets. We expect to achieve this in the next
several months.
To date we have met substantially all of our capital requirements through
the sale of securities and loans convertible into common stock. The negative
impact of events in 1997, 1998 and 1999, has limited our ability to raise
capital in a conventional sale of our securities. However, we continue to pursue
additional sources of capital
11
<PAGE>
in order to fund the growth of Able's generic drug business and its product
development efforts. If we are unable to obtain such additional financing, our
ability to maintain our current level of operations would be materially and
adversely affected and we would be required to reduce or eliminate certain
expenditures, including research and development activities with respect to
certain proposed products. We cannot give any assurance that we will raise the
needed financing. If we cannot raise such financing, we will not have adequate
working capital for our operations. Under such circumstances, we may have to
seek protection of the bankruptcy courts. See "Certain Factors That May Affect
Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 12, 1999, we commenced a civil lawsuit against Kali Laboratories,
Inc., its principal officer, and two of its employees in the Superior Court of
New Jersey, Chancery Division, in Middlesex County. The litigation arises out of
the Company's 1997 agreement with Kali for the development and marketing of
seven products. The Complaint sought to 1) recover monetary damages for
defendants' breaches of contract and confidentiality, misappropriation of
DynaGen's intellectual property, and unfair dealing and 2) enjoin the defendants
from using DynaGen's intellectual property for their purposes. In May of 1999,
the defendants filed counterclaims against DynaGen and three of our corporate
officers. In its counterclaim, Kali claims monetary damages for breach of
contract, and alleges ownership of the intellectual property. The employee
defendants, who are former employees of DynaGen, claim to have been defamed and
wrongfully terminated. DynaGen and its officers share a common legal defense to
these counterclaims, and we intend vigorously to defend against them.
We are also involved in certain other legal proceedings from time to time
incidental to our normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, we do not believe the ultimate
resolution of any existing matters should have a material adverse effect on our
financial position or results of operations
ITEM 2. CHANGE IN SECURITIES
a. Not applicable
b. Sales of Unregistered Securities. In the three months ended March 31,
2000, we sold the following securities:
In February, 2000, we issued seven warrants to purchase a total of 97,500
shares of common stock at an exercise price of $0.25 pursuant to the conversion
of certain debt obligations.
In February, 2000, we also issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $0.25 in connection with consulting
services provided during the first quarter.
In March, 2000, we issued 786,000 shares of common stock as a result of
conversion of its 12% promissory notes together with accrued interest.
In March, 2000, we issued 1,111,000 shares of common stock to a public
relations firm for services to be provided during the twelve months following
the date of issue.
During the quarter ending March 31, 2000, we issued 4,743,398 shares of
common stock upon the exercise of options and warrants and conversion of
preferred stock.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
In November 1999, we secured a line of credit for working capital from
BankBoston N.A. Borrowings under the line are secured by substantially all the
assets of DynaGen and its subsidiaries. The bank also extended a term loan
secured by equipment at Able, which is being amortized over 12 months. As of
March 8, 2000, we had borrowed the maximum available amount of approximately
$7,699,000 under this facility.
As of March 31, 2000, we were in default of certain loan covenants, and as
a result we have agreed with the bank to limit the borrowing on this line to
$8.5 million. We have indicated to the bank that we will seek a replacement
lender in order to maximize our ability to borrow on our assets. We expect to
achieve this in the next several months.
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) List of Exhibits
The following exhibits, required by Item 601 of Regulation S-B, are filed
as part of this Quarterly Report on Form 10-QSB. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-B.
Exhibit
No. Item
- ------- ----
3.1 Restated Certificate of Incorporation (filed as Exhibit 3a to the
Company's Report on Form 10-Q for the Quarter ended June 30, 1998,
as amended on September 14, 1998, and incorporated herein by
reference).
3.2 By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and incorporated
by reference).
27.1 Financial Data Schedule
- ----------------
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
------------------------
Dhananjay G. Wadekar
Duly Authorized Officer and
Principal Financial and
Accounting Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
No. Item
- ------- ----
3.1 Restated Certificate of Incorporation (filed as Exhibit 3a to the
Company's Report on Form 10-Q for the Quarter ended June 30, 1998,
as amended on September 14, 1998, and incorporated herein by
reference).
3.2 By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and incorporated
by reference).
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 280,595
<SECURITIES> 0
<RECEIVABLES> 5,748,428
<ALLOWANCES> 85,233
<INVENTORY> 7,264,074
<CURRENT-ASSETS> 14,567,847
<PP&E> 5,282,264
<DEPRECIATION> 1,502,896
<TOTAL-ASSETS> 21,642,158
<CURRENT-LIABILITIES> 15,215,882
<BONDS> 0
0
497
<COMMON> 704,953
<OTHER-SE> 695,648
<TOTAL-LIABILITY-AND-EQUITY> 21,642,158
<SALES> 8,121,748
<TOTAL-REVENUES> 8,121,748
<CGS> 6,096,084
<TOTAL-COSTS> 2,138,928
<OTHER-EXPENSES> (15,297)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447,449
<INCOME-PRETAX> (545,416)
<INCOME-TAX> 0
<INCOME-CONTINUING> (545,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (545,416)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
