U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE ACT
For the transition period from __________ to __________
Commission file Number 1-11055
Epigen, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 04-3120713
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Tower Lodge, North Tower Hill Road, Box L, Millbrook, NY 12545
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 677-5317
-----------------------------------------------
(Issuer's telephone number including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the 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 [_]
The number of shares outstanding of the issuer's common stock, par value $.001
per share, at November 12, 1999 was 5,810,315.
Traditional Small Business Disclosure Format (check one)
Yes [X] No [_]
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
INDEX
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
at September 30, 1999 and December 31, 1998 . . . . . . . . . 1
Statements of Operations
for the nine month periods ended September 30, 1999
and September 30, 1998, and for the three month periods
ended September 30,1999 and September 30, 1998, and
cumulative from Inception (January 28, 1987)to
September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Cash Flows
for the nine month periods ended September 30,
1999 and September 30, 1998 and cumulative from
Inception (January 28, 1987) to September 30, 1999 . . . . . . 3
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 4 - 6
Item 2. Management's Discussion and Analysis or Plan of Operations . . 7 - 8
PART II OTHER INFORMATION
Item 2(c)Information regarding the sale of Unregistered Securities
During the Three Month Period Ended September 30, 1999 . . . . 9
Item 6. Exhibits and Reports of Form 8-K . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
i
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
BALANCE SHEETS
September 30, December 31,
1999 1998
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents .................. $ 7,772 $ 24,215
------------ ------------
Total Current Assets .................... 7,772 24,215
Office equipment, net of accumulated
depreciation of $47,215 and $41,043 ......... 22,922 28,022
Other assets, net of accumulated
amortization of $3,025 and $3,205 ........... -- --
------------ ------------
$ 30,694 $ 52,237
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable demand ......................... 125,805 145,805
Notes payable - 25% interest ................ 200,000 200,000
Notes payable - prime plus 5% ............... 250,000 250,000
Accrued interest-note payable demand ........ 221,121 150,697
Accrued direct research and development
costs ...................................... 549,988 430,973
Accrued professional fees ................... 301,285 357,535
Accrued payroll ............................. 1,236,965 1,173,520
Other accrued expenses ...................... 354,622 368,749
------------ ------------
Total Current Liabilities ............... 3,239,786 3,077,279
Stockholders' Equity:
Preferred Stock - Class A ................... 350,000 --
Common stock $.001 par value
5,810,315 shares outstanding at
September 30, 1999 ......................... 5,810 4,787
Additional paid-in capital .................. 15,973,648 15,484,456
Deficit accumulated during development
stage ...................................... (19,538,203) (18,513,938)
Less 5 shares of common stock held in
treasury, at cost .......................... (347) (347)
------------ ------------
Total Stockholders' Equity .............. (3,209,092) (3,025,042)
------------ ------------
$ 30,694 $ 52,237
============ ============
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
For the Three For the Three For the Nine For the Nine from
Months Ended Months Ended Months Ended Months Ended Inception to
September 30, September 30, September 30, September 30, September 30,
1999 1998 1999 1998 1999
---------- ---------- ---------- ---------- ------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research ......... $ 5,000 $ -- $ 5,000 $ -- $ 5,000
Licensing fees ............ -- 1,600 -- 1,600 1,600
Interest income ........... -- -- -- -- 219,711
---------- ---------- ---------- ---------- ------------
5,000 1,600 5,000 1,600 226,311
---------- ---------- ---------- ---------- ------------
Operating Costs & Expenses:
Direct research and
development .............. 206,777 77,107 241,229 261,150 7,732,202
General and administrative 199,360 219,343 606,298 616,154 10,116,599
Fees due to General Partner
of the Predecessor and
affiliates, forgiven and
contributed to capital ... -- -- -- -- 1,188,893
Interest expense, net ..... 62,571 29,922 181,738 88,996 726,820
---------- ---------- ---------- ---------- ------------
Total Operating Costs
and Expenses ......... 468,708 326,372 1,029,265 966,300 19,764,514
---------- ---------- ---------- ---------- ------------
Net (loss) ................. (463,708) (324,772) (1,024,265) (964,700) (19,538,203)
========== ========== ========== ========== ============
Net loss per common share .. $ (0.09) $ (0.07) $ (0.20) $ (0.24)
========== ========== ========== ==========
Weighted average
Number of shares of common
stock outstanding ......... 5,325,088 4,714,915 5,092,591 3,961,473
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
2
</TABLE>
<PAGE>
<TABLE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
For the Nine For the Nine from
Months Ended Months Ended Inception to
September 30, September 30, September 30,
1999 1998 1999
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ..................................... $ (1,024,265) $ (964,700) $(19,538,203)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization expense ....... 6,172 4,083 108,161
Non-cash expenses paid in equity interest ... -- -- 2,810,878
Non-cash compensation expense associated
with the grant of stock options and warrants -- -- 427,964
Debt converted to equity ..................... 379,680 -- 945,830
Changes in operating assets and liabilities
Increase(decrease) in accrued direct
research and development costs .............. 119,015 110,410 549,988
Increase(decrease) in accrued professional
fees ........................................ (56,250) 3,733 301,285
Increase(decrease) in accrued payroll ........ 63,445 75,503 1,236,965
Increase(decrease) in accrued expenses to
affiliates, printing charges and other
expenses .................................... 56,297 63,605 575,743
------------ ------------ ------------
Net Cash Used in Operating Activities .... (455,906) (707,366) (12,581,389)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of office equipment ................. (1,072) (29,135) (74,132)
Purchase of treasury stock ................... -- -- (347)
Decrease(increase) in note receivable from
an officer/shareholder ...................... -- (34,830) --
Decrease(increase) in other assets ........... -- -- (3,025)
Increase in organizational costs ............. -- -- (53,925)
------------ ------------ ------------
Net Cash Used in Investing Activities .... (1,072) (63,965) (131,429)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock ....... 1,004 1,946 9,148,654
Capital contributions ........................ 409,531 765,606 2,551,131
Proceeds from issuance of preferred stock .... 50,000 -- 445,000
Increase (decrease) in note payable-demand ... (20,000) 175,000 125,805
Net increase in notes payable - demand ....... -- -- 450,000
------------ ------------ ------------
Net Cash Provided by Financing Activities 440,535 942,552 12,720,590
------------ ------------ ------------
Net increase(decrease) in cash and cash
equivalents .................................. (16,443) 171,221 7,772
Cash and cash equivalents, beginning period ... 24,215 64,809 --
------------ ------------ ------------
Cash and cash equivalents, end of period ...... $ 7,772 $ 236,030 $ 7,772
============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation:
The financial statements as of September 30, 1999 are unaudited, but
include all adjustments (consisting of normal, recurring adjustments)
which the Company considers necessary for a fair presentation of such
interim financial statements. The results of operations for the nine
month periods ended September 30, 1999 and September 30, 1998 and the
three month periods ended September 30, 1999 and 1998 are not
necessarily indicative of the results for the entire year. The
financial statements and notes are presented as permitted by Form
10-QSB and do not contain certain information included in the Company's
annual financial statements and notes.
2. Cash and Cash Equivalents:
Cash and cash equivalents include all funds held in checking and money
market bank accounts.
3. Net Loss per Share:
Net loss per share is based on the weighted average number of shares of
common stock outstanding during the period. All outstanding warrants
and options have been excluded from the calculation as they are
antidilutive.
4. Licensing Agreements:
The Company's technology is used under an exclusive license from Boston
Biomedical Research Institute ("BBRI"). Pursuant to the terms of this
license agreement, the Company has been granted an exclusive, worldwide
license to manufacture, use, lease, sell or otherwise transfer (a) any
products utilizing any patents obtained by BBRI, or (b) any products
resulting from the Company-sponsored research at BBRI, or (c)
compositions containing such products. The agreement provides for
royalty payments not to exceed $10,000,000 per year to BBRI equal to 5%
of the net selling price and subject to certain reductions described
below. The agreement expires the later of ten years from the first
commercial sale of any such products or the expiration of any
applicable patent.
During 1992, the Company entered into a contract with the University of
Oslo (the "University") in close collaboration with BBRI for the
characterization of the Human Carcinoma Antigen. The agreement calls
for payment to the University of 1% of net sales of any human
therapeutic product utilizing these patent or biological material
rights sold to third parties. Pursuant to the Company's agreement with
BBRI, the royalty payable to BBRI is reduced to 4.5% of the net selling
4
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
4. Licensing Agreements (cont.):
price of any covered product for which a royalty is also payable to
the University.
During 1993, the Company entered into an agreement with Massachusetts
General Hospital ("MGH") to license certain antibodies for use in
developing the in vitro diagnostic test, the in vivo imaging agent and
the therapeutic vaccine. Under the agreement, the Company is required
to pay royalties ranging from 2% to 5% of the net sales price, as
defined, depending on the country in which the product is sold. The
term of the agreement expires, on a country-by-country basis, eight
years after the first commercial sale or for the life of a valid patent
in a country, whichever occurs first. Pursuant to the Company's
agreement with BBRI, if royalties are to be paid to both BBRI and MGH,
the royalty otherwise payable to BBRI will be reduced so that the total
royalty paid to BBRI and MGH does not exceed 6% of the net selling
price of any licensed product or process. On June 12, 1995, MGH agreed
to reduce royalty payments due pursuant to the June 1, 1993 agreement
by 50%.
The Company entered into an agreement dated as of March 31, 1999 with
Vacold, LLC for the creation of an IgG antibody. In lieu of cash,
Vacold is to receive 5% of the Company's Common Stock, plus a 3%
royalty on Epigen's sales that include any IgG antibodies developed in
Vacold's laboratory. A second contract with Vacold for ongoing R&D has
been negotiated at standard industry rates. Vacold is to be responsible
for the optimization and demonstration of the new assay to prospective
strategic partners.
5. Equity Transactions During the Quarter Ended September 30, 1999 were as
follows:
The Company sold 50,000 shares of Class A preferred stock at $1.00 per
share. These shares were recorded at $1.00 per share.
On July 9, 1999, Donald Fresne converted $300,000 debt to equity in
exchange for 300,000 shares of the Company's Class A preferred stock.
These shares were recorded at $1.00 per share.
The Company sold 200,000 shares of common stock to investors at $1.00
per share with five year warrants attached to each share with an
exercise price of $3.00. These shares were recorded at par value with
the additional investment credited to paid in capital.
5
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
5. Equity Transactions During the Quarter Ended September 30, 1999 were as
follows (cont.):
On September 8, 1999, a creditor converted $3,000 debt to equity in
exchange for 3,000 shares of the Company's common stock. These shares
were recorded at par value with the additional value credited to paid
in capital.
The Company issued 433,705 shares of common stock to Vacold, LLC, a
Delaware Corporation, in satisfaction of the Company's obligation under
its March 31, 1999 Agreement. These shares were recorded at par value.
The Company issued 21,685 shares of common stock as a commission to Mr.
Ransel Potter, representing 5% of the number of shares issued to
Vacold, LLC. These shares were recorded at par value.
The Company issued 50,000 shares of common stock to two of the
Directors of the Company at 25,000 shares each in recognition of
substantial services. These shares were recorded at par value.
The Company recorded the issuance of 20,000 shares of common stock to
two of the doctors at 10,000 shares each as a stock award to these
doctors engaged in the development of the IgG antibody for the
Company's technology. These shares were recorded at par value.
The Company reclassified 560 shares of the Company's common stock to a
liability account pending the issuance. These shares were originally
recorded at par value.
6
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company presently is insolvent and unable to pay its debts as they become
due. The officers have agreed temporarily to allow part of their salaries to
accrue. Currently, liabilities exceed assets. Should a sufficient number of the
Company's creditors pursue the obligations owed them, the Company might be
forced into a voluntary or involuntary bankruptcy.
The Company does not presently have the resources to complete the development
of, conduct prospective clinical trials for, manufacture and market, the COD
Test. The Company continues to seek funding for future development and clinical
trials of its products. Certain potential strategic partners and other sources
for such funding are currently reviewing the efficacy of such products.
The Company continues to pursue its business plan to the extent resources
permit. The Company has entered into arrangements with (i) a group of physicians
from several leading hospitals to obtain prostate serum samples in order to
conduct both retrospective and prospective clinical trials on the Company's in
vitro blood test that will be used to confirm the presence of prostate cancer,
and (ii) is in discussions with major biopharmaceutical firms to participate in
these retrospective and prospective clinical trials for prostrate cancer
patients. The Company has entered into a collaboration with leading hospitals to
gather additional serum samples to demonstrate the efficiency of the Company's
in vitro blood test to confirm the presence of breast cancer on patients who
have positive mammograms. Mammograms have 66% false positives. If such tests
yield sufficiently positive results, the Company believes that it will be able
to enter into a strategic alliance. There can be no assurance that such test
results will yield sufficiently positive results. The results of such tests will
determine to a significant extent the Company's ability to structure potential
strategic alliances.
The Company is currently in preliminary negotiations with several major
biopharmaceutical companies, and in the event positive results are achieved in
either the prostate or breast clinical trials, the Company expects to form a
strategic alliance with one of these companies. There can be no assurance,
however, that the Company will be successful in such endeavor.
Phase 1 and 2 clinical trials will commence on its therapeutic vaccine at
Columbia Presbyterian Hospital under the auspices of Dr. Carl Olsson as soon as
funds are available. Work on the Company's in vivo imaging agent is being
delayed until sufficient funds are available to continue such work.
The Company entered into an Agreement dated March 31, 1999 with Vacold, LLC for
the creation of the first IgG antibody. Pursuant to this Agreement, 433,705
shares of the Company's Common Stock were issued to Vacold, LLC. In addition,
Vacold, LLC is entitled to a 3% royalty on Epigen's sales that incorporate the
use of any IgG antibodies developed in Vacold's laboratory.
7
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
Item 2. Management's Discussion and Analysis or Plan of Operation (Cont.):
A second contract with Vacold for ongoing R&D has been negotiated at standard
industry rates. Vacold is to raise new IgG antibodies, create a sandwich assay,
produce some necessary reagents, purify the antibodies, and optimize and
demonstrate the new assay to our prospective strategic partners. The
demonstration of these new antibodies is expected in the first quarter of 2000.
8
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
PART II OTHER INFORMATION
Item 2(c) Information Regarding the Sale of Unregistered Securities During the
Three Month Period Ended September 30, 1999.
In July 1999, Registrant sold an aggregate of 200,000 shares of its Common Stock
at a price of $1.00 per share. Registrant also issued its Series H Warrants to
purchase an additional 200,000 shares of its Common Stock to the purchasers of
such Common Stock. Such warrants have an exercise price of $3.00 per share and
are exercisable through June 30, 2004. The proceeds of such sales were used by
Registrant for working capital.
In September 1999, Registrant issued to providers of research and development,
accounting and consulting services an aggregate of 458,390 shares of its Common
Stock. Of such shares, 3,000 were issued to Registrant's former independent
accountant in satisfaction of $3,000 of unpaid accounting fees. The balance of
the shares of Common Stock were issued at par value.
In September 1999, Registrant issued an aggregate of 50,000 shares of its Common
Stock to two directors as a stock bonus for services rendered. Such shares of
Common Stock were issued at par value.
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended, in
issuing all such shares in light of the fact that such shares were issued on a
limited basis, without publication and the recipients of such shares were either
engaged in commercial relationships with Registrant or otherwise familiar with
Registrant and its operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
month period ended September 30, 1999.
9
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 12, 1999
EPIGEN, INC.
By: /s/: Donald C. Fresne
-------------------------------
Donald C. Fresne, Chief
Executive Officer, Chairman
of the Board of Directors and
President
By: /s/: L. Courtney Schroder
-------------------------------
L. Courtney Schroder, Treasurer
and Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 7,772
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 70,138
<DEPRECIATION> 47,216
<TOTAL-ASSETS> 30,694
<CURRENT-LIABILITIES> 3,239,785
<BONDS> 0
0
350,000
<COMMON> 5,791
<OTHER-SE> (3,564,882)
<TOTAL-LIABILITY-AND-EQUITY> 30,694
<SALES> 5,000
<TOTAL-REVENUES> 5,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 847,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,738
<INCOME-PRETAX> (1,024,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,024,245)
<EPS-BASIC> (0.20)
<EPS-DILUTED> 0
</TABLE>
