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 June 30, 2000
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE ACT
For the transition period from to
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Commission file Number 1-11055
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Epigen, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 04-3120712
------------------------------- ----------------------
(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
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(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 August 11, 2000 was 12,103,699.
Transitional 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 June 30, 2000 and December 31, 1999 ...................... 1
Statements of Operations
for the six month periods ended June 30, 2000
and June 30, 1999 and for the three month periods
ended June 30, 2000 and June 30, 1999, and cumulative
from Inception (January 28, 1987) to June 30, 2000 .......... 2
Statements of Cash Flows
for the six month periods ended June 30, 2000
and June 30, 1999 and cumulative from
Inception (January 28, 1987) to June 30, 2000 ............... 3
Notes to Financial Statements ................................ 4
Item 2. Management's Discussion and Analysis or Plan of Operations .... 7
PART II - OTHER INFORMATION
Item 2(b) Rights of Equity Holders ....................................... 10
Item 2(c) Information Regarding the Sale of Unregistered
Securities During the Three Month Period Ended
June 30, 2000 .................................................. 10
Item 3. Defaults Upon Senior Securities ................................ 11
Item 6. Exhibits and Reports on Form 8-K ............................... 11
SIGNATURES ............................................................... 12
<PAGE>
<TABLE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
BALANCE SHEETS
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................. $ 104,307 $ 521,766
Loan and interest receivable .......................... 157,097 --
------------ ------------
Total Current Assets ............................... 261,404 521,766
Office equipment, net of accumulated depreciation of
$52,274 and $49,272 .................................... 17,864 20,866
------------ ------------
Total Assets ....................................... $ 279,268 $ 542,632
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable demand ................................... $ 105,805 $ 120,805
Notes payable - 25% interest .......................... 75,000 200,000
Notes payable - prime plus 5% ......................... -- 250,000
Accrued interest-notes payable ........................ 126,960 245,163
Accrued direct research & development costs ........... 583,745 597,685
Accrued professional fees ............................. 301,286 316,534
Accrued payroll ....................................... 119,408 1,312,348
Other accrued expenses ................................ 2,045,264 526,353
------------ ------------
Total Current Liabilities .......................... 3,357,468 3,568,888
------------ ------------
Long Term Liabilities:
Note payable - Long term .............................. -- 750,000
------------ ------------
Total Liabilities .................................. 3,357,468 4,318,888
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock 15,000,000 shares authorized of which:
3,000,000 shares designated as Series A, $.001 par
value, issued and outstanding - 1,737,165 shares at
June 30, 2000 ..................................... 1,737 350
500,000 shares designated as Series B, $.001 par
value, issued and outstanding - 225,000 shares at
June 30, 2000 ..................................... 225 --
Common stock - 50,000,000 shares authorized,
$.001 par value, 5,814,476 shares issued and
outstanding at June 30, 2000 ........................ 5,814 5,811
Additional paid-in capital ............................ 17,933,851 16,323,298
Deficit accumulated during development stage .......... (21,019,827) (20,105,368)
Less 5 shares of common stock held in
treasury, at cost ................................... -- (347)
------------ ------------
Total Stockholders' Equity ......................... (3,078,200) (3,776,256)
------------ ------------
Total Liabilities & Stockholders' Equity ........... $ 279,268 $ 542,632
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 Six For the Six from
Months Ended Months Ended Months Ended Months Ended Inception to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research ................................. $ -- $ -- $ -- $ -- $ 5,000
Licensing fees .................................... -- -- -- -- 1,600
Management fee income ............................. -- -- -- -- 3,072
Interest income ................................... 25,630 -- 25,630 -- 245,341
------------ ------------ ------------ ------------ ------------
25,630 -- 25,630 -- 255,013
------------ ------------ ------------ ------------ ------------
Operating Costs & Expenses:
Direct research & development ..................... 194,880 13,307 336,433 34,452 8,333,986
General & administrative .......................... 279,903 192,538 497,174 406,938 10,850,846
Fees due to General Partner of the Predecessor
& affiliates, forgiven and contributed to capital -- -- -- -- 1,188,893
Interest expense, net ............................. 31,877 61,035 106,483 119,167 901,116
------------ ------------ ------------ ------------ ------------
Total Operating Costs & Expenses ............. 506,660 266,880 940,090 560,557 21,274,841
------------ ------------ ------------ ------------ ------------
Net (loss) ......................................... $ (481,030) $ (266,880) $ (914,460) $ (560,557) $(21,019,828)
============ ============ ============ ============ ============
Net loss per common share .......................... $ (0.08) $ (0.05) $ (0.16) $ (0.11)
============ ============ ============ ============
Weighted average
Number of shares of common stock outstanding ....... 5,848,170 5,082,475 5,832,187 4,992,949
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
For the Six For the Six from
Months Ended Months Ended Inception to
June 30, June 30, June 30,
2000 1999 2000
(unaudited) (unaudited) (unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .............................................. $ (914,460) $ (560,557) $(21,019,828)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization expense ................ 3,002 4,127 113,220
Non-cash expenses paid in equity interest ............ 4 -- 2,811,417
Non-cash compensation expense associated
with the grant of stock options and warrants ........ -- -- 427,964
Debt converted to equity .............................. 1,387,165 76,680 2,332,996
Changes in operating assets and liabilities:
Increase (decrease) in accrued direct
research and development costs ....................... (13,940) 20,307 583,745
Increase (decrease) in accrued professional fees ...... (15,248) (66,014) 301,286
Increase (decrease) in accrued payroll ................ (1,192,940) 242,391 119,408
Increase (decrease) in accrued expenses to
affiliates, printing charges and other expenses ...... 1,400,708 160,863 2,172,224
------------ ------------ ------------
Net cash provided by (used in) operating activities 654,291 (122,203) (12,157,568)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of office equipment .......................... -- (1,072) (74,133)
Retirement of treasury stock .......................... 347 -- --
Decrease (increase) in note receivable from
an officer/shareholder ............................... (157,097) -- (157,097)
Decrease (increase) in other assets ................... -- -- (3,025)
Increase in organizational costs ...................... -- -- (53,925)
------------ ------------ ------------
Net cash used in investing activities ............. (156,750) (1,072) (288,180)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock ................ -- 296 9,557,650
Capital contributions ................................. -- 209,715 2,141,600
Proceeds from issuance of preferred stock ............. 225,000 -- 670,000
Increase (decrease) in note payable-demand ............ (15,000) (15,000) 105,805
Net decrease in notes payable - other ................. (1,125,000) -- 75,000
------------ ------------ ------------
Net cash provided by (used in) financing activities (915,000) 195,011 12,550,055
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ... (417,459) 71,736 104,307
Cash and cash equivalents, beginning period ............ 521,766 24,215 --
------------ ------------ ------------
Cash and cash equivalents, end of period ............... $ 104,307 $ 95,951 $ 104,307
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<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 June 30, 2000 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 six month periods ended June
30, 2000 and June 30, 1999 and the three month periods ended June 30, 2000
and June 30, 1999 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 was originally licensed from Boston Biomedical
Research Institute (BBRI). In 1993, BBRI transferred ownership of all
licensed technology to Epigen, Inc. Conditions in the transfer of ownership
provide for royalty payments not to exceed $10,000,000 per year to BBRI
equal to 3% of the net selling price. The royalty 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 for 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% for the net selling price of any covered product
for which a royalty is also payable to the University.
4
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. Licensing Agreements (cont.):
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
received 433,705 shares of the Company's Common Stock. In addition, Vacold
is to receive a 3% royalty on Epigen's sales that include any IgG
antibodies developed in Vacold's laboratory. A second contract has been
negotiated with Vacold for ongoing R&D. Currently, Vacold is to be
responsible for the optimization and demonstration of the new assay to
prospective strategic partners.
5. Loan and Interest Receivable:
On June 7, 2000, Donald C. Fresne, Chairman of the Board and Chief
Executive Officer of the Company, issued a Promissory Note to Epigen, Inc.
in the amount of $156,214. The aggregate of principal and interest due
through June 30, 2000 is $157,097.
6. Loan and Interest Payable:
Included in other accrued expenses is a Promissory Note dated June 7, 2000
issued by Epigen, Inc. to Donald C. Fresne, Chairman of the Board and Chief
Executive Officer of the Company, in the amount of $356,214. The aggregate
of principal and interest due through June 30, 2000 is $358,228.
5
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
7. Equity Transactions During the Quarter Ended June 30, 2000 were as follows:
On June 6, 2000, the Company reduced the number of outstanding shares of
common stock by 44,926 shares to reflect the adopted listing of record
ownership by the Company's transfer agent, American Stock Transfer & Trust
Company.
On June 6, 2000, the Company retired the 25,795 shares of common stock
issued and held as treasury shares by the Company.
8. Preferred Stock:
(a) Series A Preferred:
On June 28, 2000, Donald Fresne converted $1,387,165 of debt into
1,387,165 shares of the Company's Series A Preferred Stock.
(b) Series B Preferred:
On June 28, 2000, there were 225,000 shares of the Company's Series B
Preferred Stock issued for net proceeds of $225,000.
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.
During the period from June 28, 2000 through August 2, 2000, however, the
Company completed a series of transactions which reduced its outstanding
liabilities by an aggregate of $2,966,415 from $4,607,906 to $1,641,491. As a
result of such transactions, the Company issued an aggregate of 2,393,114 shares
of its Common Stock, and 1,493,306 shares of its Series A Preferred Stock.
The Company continues to pursue funding from a variety of sources. However,
there can be no assurance that the Company will be successful in its efforts to
raise additional capital.
The Company believes that it has produced enough data indicating that the COD
Test can be used as a confirmatory test for prostate cancer to allow the Company
to negotiate a license agreement.
The Company does not presently have the resources to complete the development
of, or conduct prospective clinical trials on, new products. It has never been
part of the Company's strategy to manufacture or market any of its products. The
Company's plan is to enlist a strategic partner to complete the
commercialization of products, design the protocol for clinical trials, assume
responsibility for FDA approval, and subsequently manufacture and market the
Company's assay. The Company continues to seek funding for future development of
its products through certain potential strategic partners and other sources of
funding. The Company is pursuing a license agreement with several major
biopharmaceutical companies. The biopharmaceutical company may be responsible
for obtaining all regulatory approvals in all the countries in which our product
is to be sold. The Company anticipates that our partner will manufacture,
market, and have the right to sublicense the technology. No assurances can be
made that the Company will be successful in negotiating such a license
agreement.
The Company continues to pursue its business plan to the extent resources
permit.
7
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
The Company, through collaborations with hospitals in the Northeast and a major
biopharmaceutical company, has completed a large clinical study on over 400
prostate cancer patients. The Company believes that the results demonstrate the
viability of the COD Test as a diagnostic aid. The study reveals the following
results in a comparison between its HCA and PSA:
Parameter HCA PSA
--------- --- ---
Sensitivity 96.4% (94%, 99%) 81.5%
Specificity 92.2% (89%, 96%) 51.6%
PPV(1) 90.9% (87%, 95%) 57.5%
NPV(2) 97% (95%, 99%) 77.6%
(1) Positive Predictive Value
(2) Negative Predictive Value
The above table was developed in collaboration with a major biopharmaceutical
company.
Sensitivity is a measure of true positive or false negative. If there are 100
lesions and a test identifies 80 of these, the sensitivity is 80%. True (+) 80,
false negative (20).
Specificity is a measure of true negative or false positive. If there are 100
patients with no lesions and a test identifies 20 lesions, the specificity is
80%. True (-) 80, false (+) 20.
The study was done using IgM antibodies. Because of their smaller size and
faster reactivity, the industry prefers IgG antibodies. The Company has
successfully raised IgG antibodies that are 20% of the size of IgM antibodies.
These antibodies have faster reactivity and obviate problems indigenous to IgM
antibodies. The Company is now optimizing its assay, i.e., testing the various
combinations of IgG antibodies to determine which combination gives the best
results, which has led to discussions with certain major biopharmaceutical
companies for a license agreement.
The Company has also entered into other collaborations with hospitals to develop
a confirmatory test for breast cancer. The hospitals are to collect serum
samples from patients who have had positive mammograms and subsequent biopsies.
This will allow the Company to demonstrate the ability of the COD Test to
differentiate between cancer and normals, and confirm the presence of a
carcinoma. It is generally accepted that mammograms have a 66% false positive
rate. The COD Test should drop this false positive rate to 5 - 10%. The Company
believes from in-house preliminary data that the COD Test should be an effective
confirmatory test for breast cancer. As soon as these data are available, a
presentation will be made to prospective strategic partners with the intent to
license the technology. If successful, this Test will eliminate the need for
unnecessary sonograms and biopsies, reduce stress experienced by patients who
have false positives, and result in substantial savings to the health care
industry.
8
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
In-vitro testing regarding the Company's therapeutic has shown that the vaccine
kills cancer cells within an hour without harm to normal cells. Research on the
Company's vaccine at Columbia Presbyterian has been deferred until funding is
available. Work on the Company's in-vivo imaging agent is being delayed until
sufficient funds are available to continue such work.
9
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
PART II OTHER INFORMATION
Item 2(b) Rights of Equity Holders
------------------------
During June 2000, Registrant issued shares of its Series B Preferred Stock. The
terms of such Series B Preferred Stock were amended prior to issuance to provide
that the holders of such shares are entitled to a liquidation preference of
$1.00 per share, which preference is senior to the rights of holders of all
other classes of Registrant's securities in the event of Registrant's
liquidation.
Item 2(c) Information Regarding the Sale of Unregistered Securities During the
Three Month Period Ended June 30, 2000
--------------------------------------------------------------------
In June 2000, Registrant issued to Donald C. Fresne, its Chairman, President and
Chief Executive Officer, 1,387,165 shares of its Series A Preferred Stock in
exchange for the contribution to Registrant's capital of an aggregate of
$1,387,164.85 of accrued but unpaid salary and interest and other unpaid
expenses incurred by him on behalf of Registrant.
In June 2000, Registrant issued to three of its existing shareholders an
aggregate of 225,000 shares of its Series B Preferred Stock at a price of $1.00
per share.
Information regarding the foregoing transactions is contained in Registrant's
Report on Form 8-K dated June 28, 2000 which is incorporated herein by
reference.
In June 2000, Registrant issued options to purchase 37,000 shares of Common
Stock at $.50 per share to Richard E. Kent, Registrant's Vice Chairman and
Secretary pursuant to Mr. Kent's employment agreement with Registrant.
In June 2000, Registrant issued 12,000 shares of its Common Stock to each of
Richard E. Kent and L. Courtney Schroder in lieu of accrued director's fees of
$12,000 owed to each of them.
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 are
familiar with Registrant and its operations.
10
<PAGE>
EPIGEN, INC.
(Formerly COD Associates, L.P.)
(A Development Stage Company)
Item 3. Defaults Upon Senior Securities
-------------------------------
Registrant presently is in default with respect to the payment of principal and
interest on an aggregate of $75,000 of principal amount of Registrant's 25%
Unsecured Promissory Notes. Aggregate accrued but unpaid interest thereon as of
June 30, 2000 is $52,896.69. The principal amount of such Notes matured on
September 8, 1998.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits-None
(b) Reports on Form 8-K
Registrant filed a report on Form 8-K dated June 28, 2000 in
connection with a series of transactions resulting in the
satisfaction of its secured debt to the Bank of Millbrook and the
issuance of various classes of Registrant's securities in
connection therewith.
11
<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: August 11, 2000
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
12
