U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
( X ) Quarterly report under Section 13 of 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended NOVEMBER 30, 1999 or
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ___________ to ____________.
Commission file number 0-19866
CELOX LABORATORIES, INC.
(Exact name of small business issuer
as specified in its charter)
MINNESOTA 36-3384240
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1311 HELMO AVENUE, SAINT PAUL, MINNESOTA 55128
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuers telephone number, including area code: (651) 730-1500
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter periods that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No___
State the number of shares outstanding of each the issuer's classes of common
equity, as of the latest practicable date.
THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING ON
DECEMBER 31, 1999 WAS 2,909,169.
Transitional small business format disclosure:
Yes ___ No _X_
1
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Table of Contents
CELOX LABORATORIES, INC.
Report on Form 10-QSB
for fiscal quarter ended
November 30, 1999
PART I -- FINANCIAL INFORMATION Page
----
ITEM 1. Financial Statements
Balance Sheet as of August 31, 1999
and November 30, 1999 3
Statement of Operations -- Three months ended
November 30, 1999 and November 30, 1998 5
Statement of Changes in Shareholders' Equity
for the year ended August 31, 1999 and the
three months ended November 30, 1999 6
Statement of Cash Flows -- Three months ended
November 30, 1999 and November 30, 1998 7
Notes to Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 9
PART II -- OTHER INFORMATION 13
2
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CELOX LABORATORIES, INC.
BALANCE SHEET
November 30, August 31,
ASSETS 1999 1999
--------- ---------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 81,382 $ 150,824
Certificates of deposit 378,514 378,514
Trade receivables 25,491 20,653
Officer note receivable 9,124 9,124
Accrued interest receivable 6,979 4,218
Inventories 54,138 57,906
Prepaid expenses 2,356 1,583
--------- ---------
Total current assets 557,984 622,822
--------- ---------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Laboratory and production equipment 225,242 219,724
Office furniture and equipment 93,359 93,359
Leasehold improvements 138,426 138,426
--------- ---------
457,027 451,509
Less accumulated depreciation (329,511) (321,410)
--------- ---------
127,516 130,099
OTHER ASSETS
Patents, net 54,481 55,356
--------- ---------
TOTAL ASSETS $ 739,981 $ 808,277
========= =========
See Notes to Financial Statements.
3
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CELOX LABORATORIES, INC.
BALANCE SHEET
November 30, August 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
----------- -----------
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable $ 32,696 $ 12,828
Accrued liabilities 31,848 28,066
Bank note payable - current 74,924 75,745
----------- -----------
Total current liabilities 139,468 116,639
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 29,092 29,092
Additional contributed capital 5,312,486 5,312,486
----------- -----------
5,341,578 5,341,578
Accumulated deficit (4,741,065) (4,649,940)
----------- -----------
Total shareholders' equity 600,513 691,638
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 739,981 $ 808,277
=========== ===========
See Notes to Financial Statements.
4
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CELOX LABORATORIES, INC.
STATEMENT OF OPERATIONS
(Unaudited)
- ----------------------------------------------------------------------------
Three months ended
November 30, November 30,
1999 1998
- ----------------------------------------------------------------------------
REVENUES
Net sales $ 52,375 $ 48,541
Cost of products sold 19,393 22,397
- ----------------------------------------------------------------------------
GROSS MARGIN 32,982 26,144
- ----------------------------------------------------------------------------
OPERATING EXPENSES
Research and development 35,855 45,418
Marketing and sales 23,931 24,643
Administration 68,711 55,920
- ----------------------------------------------------------------------------
Total operating expenses 128,497 125,981
OPERATING LOSS (95,515) (99,837)
OTHER INCOME (EXPENSE)
Interest and investment income 4,998 8,983
Other income 350 7,904
Interest expense (958) (1,183)
- ----------------------------------------------------------------------------
Total other income, net 4,390 15,704
NET LOSS ($ 91,125) ($ 84,133)
============================================================================
BASIC AND DILUTED LOSS PER
COMMON SHARE ($ 0.03) ($ 0.03)
============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,909,169 2,744,169
============================================================================
See Notes to Financial Statements.
5
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CELOX LABORATORIES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1997 2,742,169 $ 27,422 $ 5,251,756 ($3,983,371) $ 1,295,807
Options exercised 2,000 20 2,980 3,000
Net loss for the year (302,604) (302,604)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT AUGUST 31, 1998 2,744,169 $ 27,442 $ 5,254,736 ($4,285,975) $ 996,203
Shares issued in
private placement 165,000 1,650 57,750 59,400
Net loss for the year (363,965) (363,965)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT AUGUST 31, 1999 2,909,169 $ 29,092 $ 5,312,486 ($4,649,940) $ 691,638
Net loss for the period (91,125) (91,125)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1999 2,909,169 $ 29,092 $ 5,312,486 ($4,741,065) $ 600,513
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
CELOX LABORATORIES, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
November 30,
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period ($ 91,125) ($ 84,133)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 8,976 12,448
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (4,838) (5,280)
Accrued interest receivable (2,761) (4,497)
Inventories 3,768 4,451
Prepaid expenses (773) (966)
Officer note receivable 0 (11,000)
Increase (decrease) in:
Accounts payable 19,868 10,477
Accrued liabilities 3,782 934
- --------------------------------------------------------------------------------------
Net cash used in operating activities (63,103) (77,566)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,518) 0
- --------------------------------------------------------------------------------------
Net cash from investing activities (5,518) 0
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Principal payments on bank note payable (821) (2,518)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (821) (2,518)
Net decrease in cash
and cash equivalents (69,442) (80,084)
CASH AND CASH EQUIVALENTS:
Beginning of period 150,824 350,120
- --------------------------------------------------------------------------------------
End of period $ 81,382 $ 270,036
======================================================================================
</TABLE>
See Notes to Financial Statements.
7
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CELOX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- NOVEMBER 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
included.
The organization and business of the Company, accounting policies followed
by the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's August 31, 1999 Form 10-KSB.
This quarterly report should be read in connection with such annual report.
NOTE B - CASH AND CASH EQUIVALENTS
For purposes of reporting the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
NOTE C - SHORT-TERM INVESTMENTS
As of November 30,1999 the Company had investments of $378,514 in
certificates of deposit. Certificates of deposit are made only with the highest
rated banks. The Company also utilizes a money market fund, which is restricted
by its charter to Tier 1 instruments, for a portion of its investments. At times
throughout the year, the Company's cash, cash equivalents and certificates of
deposit in financial institutions may exceed FDIC insurance limits. The Company
has not experienced any losses in such accounts.
NOTE D - NOTES PAYABLE BANK
During April, 1997 the Company borrowed $100,000 from a local bank with the
proceeds used for financing a portion of the tenant improvements in the
Company's new facility. The loan is secured by a certificate of deposit at this
bank. The interest rate for this loan, currently 5.6%, is tied to the
certificate of deposit rate. The loan was renewed for a one-year term in
February, 1999.
NOTE E - LOSS PER COMMON SHARE
Basic loss per share is computed based upon the weighted average number of
common shares outstanding during the period. Stock options for 212,000 shares
were not included in the computation of diluted loss per share as the results
were antidilutive. Implementation of SFAS No. 128 in fiscal 1998 had no effect
on previously reported EPS.
8
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
a. BACKGROUND AND PRODUCTS
Celox Laboratories, Inc. ("Celox" or the "Company") is a cell technology
company formed in 1985 that researches, develops, manufactures and markets cell
biology products used in the propagation of cells derived from mammals,
including humans, and other species. These specialized cell growth products are
used primarily in academic, pharmaceutical, diagnostic and other commercial
laboratories to improve the growth condition, productivity and quality of
cell-derived medical and other biological products such as vaccines, monoclonal
antibodies, interferons and human growth factor. The Company focuses primarily
on solving the fundamental problems associated in culturing cells with the use
of serum, which is derived from the whole blood of animals and humans. The
Company's research activities have resulted in proprietary technology which has
been used to commercialize its non-serum growth media, cell freezing solutions
and other cell biology products.
The Company markets over 25 different products. The Company's proprietary
products consist of six different serum-free supplements: TCM(TM), TM-235(TM),
TCH(TM), Nephrigen(TM), HemaPro(TM) and VaxMax(TM)and two cell freezing
solutions, Cellvation(TM) and a newly introduced product, pZerve(TM).
VaxMax(TM), introduced in September of 1993, was developed specifically for use
in the production of veterinary vaccines. Nephrigen(TM) was introduced in fiscal
1998 and is a serum-free growth medium developed specifically for the culturing
of Human Embryonic Kidney (293) cells. As part of the Nephrigen(TM) system, the
Company also introduced a non-enzymatic dissociation solution that is used
instead of an enzyme such as trypsin. HemaPro(TM) was also introduced in fiscal
1998 and is a low protein, serum-free medium for clonogenic assays or EX VIVO
expansion of human progenitor cells. The Company intends to obtain IN VITRO
diagnostic status for HemaPro(TM). pZerve(TM) was introduced in 1999 and is used
primarily for cryopreserving human cells. pZerve(TM) is used as a research
product only, it is not for human use. An additional proposed clinical product,
ViaStem(TM), has completed preclinical testing. This product was developed to
improve the preservation of critical cells (e.g., stem cells), which are
required for bone marrow transplantation.
The Company has received its first Drug Master File classification from the
Food and Drug Administration (FDA) for TCM(TM). This classification will
expedite the FDA approval process for customers who want to use the Company's
TCM(TM) product in the manufacture of drugs or drug substances for human use.
The Company is in the process of gaining similar status for several of its other
proprietary products.
The Company also manufactures eleven basal media formulations, a series of
buffered saline solutions, other cell biology reagents, and a variety of custom
formulations.
In February, 1999 the Company announced the formation of Protide
Pharmaceuticals, Inc., (Protide), a wholly owned subsidiary. Celox owns all of
the four million outstanding shares of Protide. Protide was formed in connection
with the further development of ViaStem(TM) and other clinically related cell
therapy and transfusion products.
9
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b. VIASTEM(TM)
In March 1995, the Company filed a patent application for ViaStem(TM) with
the U.S. Patent and Trademark Office. The Company received the U.S. Patent in
early December 1996. This patent provides protection of the Company's
ViaStem(TM) technology through March of 2015. A second U.S. Patent was received
in August, 1998. This second patent broadened the patented uses of ViaStem(TM)
in bone marrow transplantation and related therapies. The Company has also filed
the documents needed for an International Patent Application as required by the
Patent Cooperation Treaty. In October, 1998 the Company received notice from the
New Zealand and Australia Patent Office that a patent on ViaStem(TM) had been
granted by each of the respective countries. In April, 1999 the Company received
notice from the Russian Patent Office that a patent had been granted. Initial
reports from other countries that have reviewed the International Patent
Application have been positive. Due to the unique nature of ViaStem(TM)and its
applications, the Company pursued the patent process for this product.
c. DISTRIBUTION/MARKETING
The Company has a non-exclusive world-wide distribution agreement with ICN
Pharmaceuticals, Inc. (NYSE:ICN), Costa Mesa, CA. Under the agreement, ICN is
marketing Celox' TCM(TM), TCH(TM), TM-235(TM) serum replacement products as well
as Cellvation(TM). The Company has also entered into an agreement with ICN to
custom manufacture certain of the Company's basal media and balanced salt
solutions to ICN for worldwide distribution. ICN manufactures and markets a
broad range of prescription and over-the-counter pharmaceuticals, medical
diagnostic products and biotechnology research products in North and Latin
America, Eastern and Western Europe and the Pacific Rim countries.
In 1997, the Company began providing its proprietary products to Sigma
Chemical Company (NASDAQ:SIAL), St. Louis, MO. under a private label
distribution agreement.
In 1997, the Company entered into a non-exclusive distribution agreement
with TaKaRa Shuzo Co., Ltd., Biomedical Group, Kyoto, Japan. Under the
agreement, TaKaRa will initially market Celox' proprietary product
Cellvation(TM). TaKaRa's Biomedical Group leads the industry in several areas
owing to the international scope of its research operations which span from the
People's Republic of China to North America and Europe. TaKaRa will market
Cellvation(TM) in Japan, Taiwan, Korea and People's Republic of China.
The Company also has distribution of its products in Japan through
Funakoshi Co., LTD, a well established Japanese distributor.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations.
At this time, no material problems have been encountered due to the Year
2000 issue.
10
<PAGE>
RESULTS OF OPERATIONS
During the quarter ended November 30, 1999, the Company had net sales of
$52,375 which was an increase of $3,834 or 8% from $48,541 reported in the same
quarter for the prior year. The increase between years results primarily from
the amount and timing of custom orders as well as orders received from
distributors and customers.
The Company had a net loss of $91,125 for the quarter ended November 30,
1999 compared to a net loss of $84,133 for the same period in the previous year.
On a per share basis, the loss for the current quarter equaled 3 cents versus a
3 cent loss in the comparable period in fiscal 1998.
The cost of products sold was 37% of net sales for the three months ended
November 30, 1999, as compared to 46% of net sales for the three months ended
November 30, 1998. The decrease between the reporting periods results from
strict cost controls over labor, raw materials and other production costs.
The mix of products sold also impacts the cost of sales comparisons.
An operating loss of $95,515 was generated for the quarter ended November
30, 1999 compared to an operating loss of $99,837 for the same period in the
previous year. The decrease between years resulted from a decrease in research
and development expense as compared to the previous year offset by increased
administrative expenses. Research and development expenses will vary based upon
the status of preclinical and clinical trials for ViaStem(TM).
The Company received interest and investment income of $4,998 during the
quarter ended November 30, 1999 as compared to $8,983 in the prior year.
Investment income is derived primarily from the investment of the proceeds of
the Company's March 1992 initial public offering. The decrease in investment
income during the quarter compared to the previous year results from reduced
investment balances as the Company uses capital in its operations, as well as
lower effective interest rates received on bank certificates of deposit.
Operating expenses increased $2,516 (2%) to $128,497 from $125,981 for the
quarter ended November 30, 1999 as compared to the prior year. The increase
results from higher administrative costs, offset partially by lower research and
development expenses
Research and development costs decreased by $9,563 (21%) to $35,855 from
$45,418 in the current quarter as compared to the previous fiscal year. The
decrease results from the timing of expenditures in the areas of salaries and
wages, professional fees and preclinical testing incurred in connection with the
ViaStem(TM) product. The Company expects the costs of research and development
to fluctuate based on the status of preclinical and clinical trials for
ViaStem(TM).
Marketing expenses decreased by $712 (3%) to $23,931 from $24,643 for the
quarter ended November 30 , 1999 as compared to the previous year. The small
decrease is attributable to the timing of certain promotional expenditures. The
Company expects that marketing and sales expenses could trend higher during
subsequent quarters as new studies, programs and advertising materials are
developed.
Administrative expenses increased by $12,791 (23%) for the quarter ended
November 30, 1999 compared to the previous fiscal year to $68,711 from $55,920.
The increase for the three month reporting period is due to the timing of legal
expenditures connected with the introduction of new products and certain matters
related to ViaStem(TM) as well as higher operating expenses due to fully
assessed real estate taxes.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Capital resources on hand at November 30, 1999 include cash and short-term
investments of $459,896 and net working capital of $418,516. This represents a
decrease of $69,442 (13%) in cash and short-term investments and a decrease of
$87,667 (17%) in net working capital as compared to August 31, 1999.
The Company is leasing approximately 9,500 square feet of office,
laboratory and warehouse space in St. Paul, MN under a seven year lease. The
Company moved into the new facility during March, 1997. As partial payment for
tenant improvements in the new facility, the Company borrowed $100,000 from a
local bank. The loan is secured by a certificate of deposit at the bank. The
interest rate for this loan (currently at 5.6%) is tied to the certificate of
deposit rate. The loan was renewed for a one year term with a maturity in
February, 2000. The balance of the tenant improvements over this amount was paid
with Company funds.
During fiscal 1999 Company raised $59,400 in additional capital by selling
55,000 units at $1.00 per unit to five accredited investors through a private
placement. Each unit consisted of one share of common stock and a warrant to
purchase an additional two shares of common stock at an exercise price of $0.04
per share. The units were sold at a premium to the share price on the OTC
Bulletin Board at the time of the placement. The additional funds raised will be
primarily used for advancing ViaStem(TM) through the necessary testing before
FDA approval can be obtained. The Company currently is in the process of
obtaining additional financing, subject to prevailing market conditions. There
is no guarantee however, that the Company will be able to successfully raise an
adequate amount of additional funds. In addition, there can be no assurance that
the Company will be able to obtain the necessary FDA approvals for ViaStem(TM).
The Company anticipates spending approximately $50,000 during fiscal 2000
on capital expenditures. Through November 30, 1999 the Company has made capital
expenditures in the amount of $5,518. The majority of the planned expenditures
will be used to fund additional sales, research and development, manufacturing
growth, as well as computer upgrades. The Company believes that its capital
resources on hand at November 30, 1999 together with revenues from product
sales, will be sufficient to meet its cash requirements for the fiscal year.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-QSB contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include the Company's ability to obtain FDA approval for its
clinical products, the ability of the Company to raise additional capital and
the ability to execute its business plan.
12
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PART II -- OTHER INFORMATION
ITEM I. -- LEGAL PROCEEDINGS
The Company is not presently involved in any material legal proceedings.
ITEM 2. -- CHANGES IN SECURITIES
None
ITEM 3. -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. -- OTHER INFORMATION
None
ITEM 6. -- (A) EXHIBITS
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CELOX LABORATORIES, INC.
Dated: January 12, 1999 By: /S/ Milo R. Polovina
----------------------------------
Milo R. Polovina, President & CEO
(Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 81,382
<SECURITIES> 378,514
<RECEIVABLES> 25,491
<ALLOWANCES> 0
<INVENTORY> 54,138
<CURRENT-ASSETS> 557,984
<PP&E> 457,027
<DEPRECIATION> 329,511
<TOTAL-ASSETS> 739,981
<CURRENT-LIABILITIES> 139,468
<BONDS> 0
0
0
<COMMON> 29,092
<OTHER-SE> 600,513
<TOTAL-LIABILITY-AND-EQUITY> 739,981
<SALES> 52,375
<TOTAL-REVENUES> 52,375
<CGS> 19,393
<TOTAL-COSTS> 43,324
<OTHER-EXPENSES> 104,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 958
<INCOME-PRETAX> (91,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (91,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,125)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
