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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-12416
APROGENEX, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 76-0269632
(State of incorporation) (I.R.S. Employer Identification Number)
8000 El Rio Street
Houston, TX 77054-4104
(Address of principal executive offices)
(713) 748-5114
(Issuer's telephone number)
Check whether the issuer: (1) 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:
As of April 30, 1997, there were 5,225,498 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one):
YES: NO: X
Total number of pages in this document: 13.
Exhibit Index is located on page: 13.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Aprogenex, Inc.
(A Delaware Corporation in the Development Stage)
Balance Sheets
<TABLE>
December 31, March 31,
1996 1997
(Unaudited)
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 327,400 $ 241,516
Accounts receivable and prepaid expenses 115,655 97,767
----------- -----------
Total current assets 443,055 339,283
Property and equipment, net 614,279 538,331
Other assets, net 96,632 80,905
----------- -----------
$ 1,153,966 $ 958,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 111,626 $ 138,638
Accrued liabilities 166,583 198,089
Capital lease obligations 185,742 136,713
---------- ----------
Total current liabilities 463,951 473,440
Convertible Notes Payable, including
accrued interest 2,069,126 2,128,907
Commitments and contingencies
Stockholders' equity:
Undesignated Preferred Stock, 10,320,000 shares
authorized, none issued -- --
Series A Convertible Preferred Stock, $.001
par value; 880,000 shares authorized; 444,000
shares issued and outstanding; liquidation
preference of $13 per share (aggregating
to $5,837,000) 444 444
Common Stock, $.001 par value; 20,000,000 shares
authorized; 5,225,498 shares
issued and outstanding 5,226 5,226
Additional paid-in capital 27,312,410 27,312,410
Deficit accumulated during the
development stage (28,941,077) (29,205,794)
Warrants to purchase Common and Preferred Stock 243,886 243,886
----------- -----------
Total stockholders' deficit (1,379,111) (1,643,828)
----------- -----------
$ 1,153,966 $ 958,519
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Aprogenex, Inc.
(A Delaware Corporation in the Development Stage)
Statements of Operations
(Unaudited)
<TABLE>
For the
Period From
Inception
For the Three (January 25,
Months Ended March 31, 1989) Through
------------------------ March 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Product Sales $ 17,345 $ 30,362 $ 132,131
License and Development Revenue -- 379,700 379,000
Other Revenues -- -- 142,085
----------- ----------- ------------
Total revenues 17,345 410,062 653,906
----------- ----------- ------------
Costs and expenses:
Research and development 520,697 295,086 17,391,840
Selling, general and administrative 269,543 311,730 11,379,073
----------- ----------- ------------
Total costs and expenses 790,240 606,816 28,770,913
----------- ----------- ------------
Loss before interest and other (772,895) (196,734) (28,117,007)
Interest expense (15,498) (67,685) (829,111)
Interest income and other, net 12,617 (278) 672,979
----------- ----------- ------------
Net loss $ (775,776) $ (264,717) $(28,273,139)
=========== =========== ============
Net loss per Common share $ (.15) $ (.05)
=========== ===========
Shares used in computing net
loss per Common share 5,179,248 5,225,498
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Aprogenex, Inc.
(A Delaware Corporation in the Development Stage)
Statements of Cash Flows
(Unaudited)
<TABLE>
For the
Period From
Inception
For the Three (January 25,
Months Ended March 31, 1989)Through
------------------------ March 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Operating Activities:
Net loss $ (775,776) $ (264,717) $(28,273,139)
Adjustments to reconcile to net cash
used by operating activities -
Depreciation and amortization 88,493 91,676 2,128,578
Interest expense accrued on
Convertible Notes, payable in 1998 -- 52,223 165,732
Amortization of discount
on Convertible Notes -- 7,558 23,175
Amortization of deferred compensation
related to certain stock options -- -- 94,300
Interest expense on notes payable
converted into preferred stock -- -- 186,154
Issuance of common stock, options, or
warrants for services -- -- 48,295
Non-cash portion of technology
acquisitions -- -- 2,421,875
Changes in assets and liabilities-
(Increase) decrease in prepaid
expenses, receivables and other 27,393 17,888 (118,331)
Increase (decrease) in accounts
payable and accrued liabilities (231,187) 58,517 336,726
----------- ----------- ------------
Net cash used by
operating activities (891,077) (36,855) (22,986,635)
----------- ----------- ------------
Investing Activities:
Purchases of marketable securities -- -- (5,018,891)
Disposition of marketable securities -- -- 5,018,891
Purchases of property and equipment (2,751) -- (2,239,113)
Proceeds from sale-leaseback agreement -- -- 982,416
Deferred organization costs -- -- (1,788)
----------- ----------- ------------
Net cash used by
investing activities (2,751) -- (1,258,485)
----------- ----------- ------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
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Aprogenex, Inc.
(A Delaware Corporation in the Development Stage)
Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
For the
Period From
Inception
For the Three (January 25,
Months Ended March 31, 1989)Through
------------------------ March 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Financing Activities:
Net proceeds from sale of
preferred stock $ -- $ -- $ 8,676,736
Net proceeds from sales of
common stock -- -- 10,511,178
Net proceeds from sales of
Convertible Notes -- -- 1,834,318
Exercise of stock options 915 -- 110,087
Proceeds from sale of warrants -- -- 183,886
Principal payments under
capital lease obligations (41,524) (49,029) (1,186,367)
Borrowings under notes payable
converted into preferred stock -- -- 4,363,048
Net borrowings under Bridge Loans -- -- 570,000
Repayment of Bridge Loans -- -- (570,000)
Purchase of treasury stock -- -- (6,250)
----------- ----------- ------------
Net cash provided (used)
by financing activities (40,609) (49,029) 24,486,636
----------- ----------- ------------
Increase (decrease) in cash
and cash equivalents (934,437) (85,884) 241,516
Cash and cash equivalents, beginning
of period 1,301,934 327,400 --
----------- ----------- ------------
Cash and cash equivalents,
end of period $ 367,497 $ 241,516 $ 241,516
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<Page 6>
Condensed Notes to Financial Statements
1. Description of Business and Certain Significant Risks
Aprogenex, Inc. ("Aprogenex" or the "Company") was incorporated as Molecular
Analysis Incorporated on August 1, 1988, and commenced operations on January
25, 1989. The Company was organized to research, develop, and market medical
diagnostic products using DNA probes to detect and identify diseases and
genetic disorders. The proprietary technology of Aprogenex includes methods
of in situ hybridization using synthesized DNA probes.
Aprogenex is in the development stage and has only generated limited revenues
from the sale of research-use-only products. The future success of the
Company is dependent upon many factors, including the protection of its
proprietary technology, the ability to practice its technology without
infringing patents issued to others, the successful identification and
development of saleable products using this technology, obtaining regulatory
approvals to market such products, the penetration of markets for these
products, and obtaining funds necessary to complete these activities and
finance its other activities.
The Company's technology can be utilized to develop products that serve
various markets ranging from genetics to infectious diseases. The potential
customers for the Company's product candidates are generally laboratories
throughout the world, and such laboratories may require a broader range of
products or instrumentation than is available from the Company. Additionally,
the Company's product candidates must compete with products from other
companies developed using similar technologies, as well as with products
developed using other technologies. Most competitors have substantially
greater resources than the Company, which will make penetration of markets for
the Company's products difficult.
The Company estimates that, as of March 31,1997, it has cash resources to fund
its normal operations into June of 1997. Accordingly, the Company will
require additional funding to complete its product development activities or
to sustain operations through the commercialization of such products. The
Company from time to time is engaged in activities to raise funds through the
sale of equity or debt or the license of portions of its technology. The
ability of the Company to continue its activities, to realize or recover its
investment in property and equipment, or to continue as a going concern is
dependent upon its ability to obtain additional funding. There can be no
assurance that the Company will be able to obtain such funding or, if such
funding is obtained, the terms or conditions of such funding.
As previously disclosed in the Company's Form 10-KSB for the year ended
December 31, 1996, as filed with the Securities and Exchange Commission, the
opinion of Arthur Andersen LLP, the independent public accountants for the
Company, included an explanatory fourth paragraph that indicated that the
Company's continued operations is dependent upon its ability to obtain
additional working capital to complete the research and development and other
activities and to attain successful future operations.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures normally included
in the annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations. This financial information should be read in
conjunction with the Financial Statements included within the Company's Form
10-KSB for the year ended December 31, 1996.
In the opinion of the management of the Company, the accompanying financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of financial position
and the results of operations for the periods presented.
<Page 7>
3. HIV Collaboration
During March, 1997, the Company signed a licensing and co-development
agreement with Centocor, Inc. ("Centocor") to further develop HIV products for
use in the detection of viral load utilizing non-flow cytometry technologies.
The Company granted Centocor an exclusive worldwide license for the right to
use and sell the license products. As consideration for this license the
Company received a one-time cash payment in the amount of $250,000 During
March, 1997, Centocor also reimbursed the Company $55,700 related to co-
development costs pursuant to this agreement.
While this agreement supports the HIV technological approach; provides the
Company enough cash to support operations into June 1997; and provides long
term revenue potential via milestones and royalties, it is still years away
from FDA approval and will not provide sufficient funds over the next 2 to 3
years to support the continued operations of the Company.
4. Net Loss Per Share
In March, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Aprogenex will
adopt the provisions of the new statement, changing from its current method of
accounting for net loss per share as set forth in APB Opinion No. 15, for
interim and annual periods ending after December 15, 1997. Adoption of
Statement No. 128 will require retroactive revision of the presentation of net
loss per share in historical financial statements. The Company's net loss per
share presented in the accompanying financial statements as calculated under
the provisions of APB Opinion No. 15 are the same as those had basic net loss
per share under Statement No. 128 been presented. Additionally, net loss per
shares as presented herein are also the same as those had diluted net loss per
share under the provisions of Statement No. 128 been presented, since the
Company's outstanding stock options would not have been included in the
calculation because their effect would have been anti-dilutive.
5. Litigation
In September, 1996, a lawsuit styled Roy Fugman, Marilyn Fugman, Lillian O.
Fugman, and The Estate of George Oskvarek v. Aprogenex. Inc., Joel Bresser, J.
Donald Payne and Luis Cantarero was filed in United States District Court for
the Northern District of Illinois. See Part II, Item 1. "Legal Proceedings."
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
At March 31, 1997, the Company had cash resources of $241,516 available to it
and had net working capital deficit of $134,157.
To date, the Company has financed its operations primarily through private
placements of its equity and debt securities and its initial public offering
in 1993. The Company has raised approximately $25.7 million in net proceeds
through these transactions, including $4.5 million of such sales consummated
through the conversion of the Company's debt securities into equity.
Additionally, the Company has financed $1.3 million of its approximately $2.6
million of capital expenditures since inception through equipment leases.
The Company has expended and is expected to continue to expend in the future
substantial funds to license or acquire additional technologies or products,
to continue the research and development of its existing products which are in
various stages of development or of new products, conduct clinical
investigations, make capital expenditures, and manufacture and market its
products. Additional amounts will be expended in research activities,
continuing development of products, testing of these existing and other
products in field trials and clinical investigations, seeking regulatory
approval of successfully tested products, and the manufacturing and marketing
of products approved for sale. If regulatory approvals are obtained, the
Company expects to expend substantial funds on marketing and distribution
activities. The amount and timing of anticipated expenditures will depend
upon numerous factors both within and outside the Company's control. Factors
within the Company's control include the number of products under development,
the timing of the commencement of clinical investigations and regulatory
filings, and the extent of pre-marketing or marketing activities. Factors
generally beyond the control of the Company include the results of research
and development activities, the extent
<Page 8>
of clinical investigations and the regulatory process to obtain FDA or other
approvals of products and technological advances of, and products developed
by, its competitors. Moreover, even if the Company's activities are
successful, the ability to generate income from the sale of products will be
dependent upon, among other things, acceptance of products by customers,
access to distribution channels for products and the Company's ability to
obtain reimbursement approval from government and third-party payers. The
necessity for instrumentation to be used with the Company's diagnostic
products may also affect capital requirements. See Note 1 of "Condensed Notes
to Financial Statements" elsewhere herein.
In addition to the foregoing, the Company's working capital requirements
during the next 12 months may vary depending upon numerous additional factors,
including the success of the Company's program to license or acquire
additional technologies or products, the progress of the Company's research
and development program, the results of laboratory testing, the time and cost
required to seek regulatory approvals, the need to obtain licenses to
proprietary rights held by others, any required adjustments to the Company's
operating plan to respond to the competitive pressures or technological
advances, the time of pre-marketing and marketing activities, and the success
of the Company in developing collaborative arrangements with others for the
development of its technology.
The Company's cash and marketable securities as of March 31, 1997, are
expected to be used as set forth in "Plan of Operations" below. The Company
anticipates that its resources will be sufficient to fund its activities into
June 1997. The report of the Company's independent auditors on the financial
statements for the year ended December 31, 1996 included an explanatory
paragraph with respect to the need for future financing. The Company is
seeking additional financing by June 1997 to fund its operations during 1997
and into 1998.
The Company will seek to obtain additional funds through equity or debt
financing, collaborative or other arrangements with corporate partners and
others, and from other sources. If additional funds are raised by issuing
equity securities, dilution to stockholders is expected to occur. The Board
of Directors of the Company is empowered, without stockholder approval (other
than in certain cases approvals of the holders of the Series A Convertible
Preferred Stock), to issue additional shares of Series A Preferred Stock or
other series of preferred stock with dividend, liquidation, conversion, voting
and other rights that could adversely affect the voting power or other rights
of the holders of the Company's securities. If debt securities are issued, a
portion of the Company's cash flow will have to be dedicated to payment of
principal and interest on such indebtedness and the Company may be subject to
certain restrictive financial and operating restrictions in the agreements and
instruments relating to such indebtedness. The Company believes that any
additional financing will require the Company to induce conversion of the
Company's outstanding Series A Preferred Stock and the Convertible Notes into
the Company's Common Stock. Such conversion is expected to be at or below the
then current market price of the Company's Common Stock and would result in a
substantial increase in the Company's outstanding Common Stock, resulting in
additional dilution to Common stockholders.
There can be no assurance that there will be significant sales of the
Company's products or that such revenues will be sufficient for operations.
In such event, the Company would also be required to seek additional funds.
There can be no assurance that additional financing, whenever required, will
be available when needed or on terms acceptable to the Company. If adequate
funds are not available, the Company may be required to delay or to eliminate
expenditures for certain of its products, to license to third parties the
rights to commercialize additional products or technologies that the Company
would otherwise seek to develop itself or if no other reasonable alternative
is available, to cease operations.
Additionally, depending on market conditions or future business opportunities,
the Company may decide to issue additional equity or debt securities for cash
or to acquire assets or technology of others. The working capital of the
Company may also be used to acquire such assets or technology, reducing the
funds available for alternative use.
The Company from time to time engages in discussions with diagnostic companies
regarding collaborative arrangements for the development and sale of
applications of the Company's technology which, depending upon the terms and
requirements of such arrangements, could expand the Company's research
activities. Such arrangements, if consummated, could significantly reduce the
amount of capital that would be required for the development and
commercialization of certain applications. It is possible, however, that the
net proceeds ultimately derived from any such arrangement could be less than
would be the case if the Company undertook and completed development of
<Page 9>
such products itself. There can be no assurance as to the ability of the
Company to consummate any such arrangement, or the terms or timing of any such
arrangement. Additionally, from time to time the Company engages in
exploratory discussions with others regarding mergers, acquisitions, joint
ventures, dispositions and other transactions. There can be no assurance,
however, that any such transaction will be effected by the Company or on what
terms.
The Company's liquidity will be reduced as amounts are expended for continuing
activities. While not currently anticipated, the Company's liquidity could
also be substantially reduced if significant amounts are expended for
additional facilities, equipment or to license or acquire proprietary
technology owned by others or to legally defend its proprietary technology.
Plan of Operations
During the next 12 months, the principal focus of the Company's activities is
expected to be (i) the in-licensing, acquisition and development of additional
technologies, (ii) the development and manufacturing of HIV diagnostic
products for Centocor, (iii) the marketing of DNA probe products for
"Research-Use Only" and to other companies for use in their genetics programs,
and (iv) if any of the foregoing development activities are successful,
conducting field trials for, seeking any required regulatory approvals of, and
the marketing of these products. These planned activities reflect an
increased emphasis on the acquisition and development of new non diagnostic
medical technologies. Such planned activities may change depending upon
business opportunities that present themselves, the success of development
activities, the financial position of the Company and other matters that may
arise in the future.
The Company expects to renew its lease for its facilities in 1997; however,
diagnostic operations will be consolidated into one-half the current space or
approximately 6000 square feet. Capital expenditures of other equipment are
not expected to exceed $500,000 during the next 12 months. However, all such
expenditures will vary based on the success of the Company's efforts, its
financial resources, changes in manufacturing, research or development
programs, relocation of its facilities and other factors.
The Company does not believe that it is likely that the sales of its "For
Research Use Only" genetic testing products or HIV collaborations will provide
sufficient commercialization to fund its operations. There can be no
assurance that the Company will ever achieve profitability or that its
products will be marketed successfully or become commercially viable. There
can be no assurance that the Company will not encounter substantial expenses
related to further testing and development, regulatory compliance, production
and marketing problems, and competition or defense of the Company's license
and patent rights.
As of March 31, 1997, the Company employed 6 full-time employees, 1 part-time
employee and engaged 2 contract employees. If the Company is successful in
its development and marketing activities, the number of employees and
temporary personnel will increase. The number of such personnel will depend
on the progress of the Company's efforts and cannot be forecast with
certainty.
The foregoing plan of operation includes certain objectives of the Company,
and there can be no assurance that these objectives will be achieved within
the stated period, if at all. Furthermore, this plan of operation is subject
to change based on future events and circumstances, many of which are beyond
the control of the Company.
Results of Operations
The Company's net losses for the three month periods ended March 31, 1996,
December 31, 1996 and March 31, 1997 were $776,000, $612,000 and $265,000
respectively. The Company expects to incur substantial operating losses in
1997 as it continues the development and testing of its products and acquired
technologies. The Company expects to incur additional losses thereafter until
such time, if ever, as there is sufficient commercialization of its products
to offset its research and development activities. As of March 31, 1997, the
Company had an accumulated deficit of $29 million. There can be no assurance
that the Company will be able to achieve or sustain profitability.
Revenues for the three month periods ended March 31, 1996, December 31, 1996
and March 31, 1997 were $17,000, $17,000 and $410,000, respectively. Product
sale
<Page 10>
revenues in the first quarter of 1997 totaled $30,000. Such amounts were
obtained from "Research Use Only" sales of the Company's genetic testing
products. Revenues for the quarter ended March 31, 1997 also include license
and co-development revenue of $379,700, which includes a one-time license fee
of $250,000 from Centocor. (See Note 3 of "Condensed Notes to Financial
Statements" elsewhere herein). For a discussion of the market for the
Company's products, see the Company's Form 10-KSB for the year ended December
31, 1996.
Research and development expenditures have varied with the nature and scope of
the Company's research activities. These amounts include the costs of basic
and product-related research, product development efforts, and costs
associated with field trials. Research and development expenditures for the
three month periods ended March 31, 1996, December 31, 1996, and March 31,
1997 were $521,000, $316,000 and $295,000, respectively. Such amounts
declined in 1996 and 1997 as the Company shifted its research efforts from
genetics to HIV products. The Company previously was engaged in the
development of a complete prenatal genetic testing product using maternal
blood, including an enrichment or cell separation component. During 1996, the
Company ceased development efforts for the cell separation component and began
a strategy of collaboration with others developing such systems.
The Company expects the level of research and development expenditures,
exclusive of acquisition costs, during the next twelve months to depend on its
financial resources, the success of its development and testing activities for
certain products, and market acceptance of its products and the need for
product enhancements, and such expenditures may increase as a result of such
activities. Expenses could increase as a result of any additional
acquisitions of intellectual property or other research costs.
The cost of materials sold is currently included in research and development
costs because such materials manufactured are principally used for development
activities. The costs associated with products sold in 1996 and in the
quarter ending March 31, 1997 were not material.
Selling, general and administrative expenses for the three month periods ended
March 31, 1996, December 31, 1996 and March 31, 1997 were $270,000, $227,000
and $312,000, respectively. The increase from the first quarter of 1996 to
the first quarter of 1997 is principally attributable to additional legal fees
incurred and the recording of a liability which the Company anticipates is
sufficient to cover any potential damages related to a lawsuit. (See Part II,
Item 1 "Legal Proceeding" elsewhere, herein).
The Company's selling expenses are included in selling, general and
administrative expenses, but have not been material to date. The Company
currently intends to employ distributors for certain products or market
through collaborative partners, and selling expenses will vary depending upon
the success of this strategy.
Interest expense is principally attributable to loans from investors and the
interest portion of capital lease obligations. Interest expense for the three
month periods ended March 31, 1996, December 31, 1996 and March 31, 1997 were
$16,000, $70,000 and $68,000, respectively. Interest expense for the quarter
ended March 31, 1996 was principally interest on capitalized leases. Interest
expense for the quarters ended December 31, 1996 and March 31, 1997 increased
from prior quarters as a result of interest on the Convertible Notes, which
were outstanding during the full periods. Such amounts are payable upon
maturity of the Convertible Notes in 1998.
Interest income and other, net for the three month periods ended March 31,
1996, December 31, 1996 and March 31, 1997 were $13,000, $(16,000) and $(300),
respectively. This decline is principally the result of a reduction in the
funds available for investment.
As of December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $24.5 million. These
carryforwards will begin to expire in 2004 if not otherwise used.
Additionally, the Company has $625,000 of research and development tax credit
carryforwards for tax purposes which expire in varying amounts beginning in
2004. The Company's ability to utilize substantially all of its tax loss and
credit carryforwards is limited by the "change in ownership," as such term is
defined by federal income tax laws and regulations, that occurred upon the
closing of the initial public offering in October 1993. The amount of such
operating loss and/or credit carryforward as of that date that may be utilized
each year to offset future taxable income from operations is limited to
approximately $1.5 million. Any portions of the annual limitation that are
not utilized in a tax year may be carriedforward against future taxable
income. As of December 31, 1996, the Company estimates that use of
<Page 11>
approximately $2 million of its net operating loss carryforward is subject to
such limitation. Additionally, gains from certain limited categories of
licensing activities that may arise subsequent to October 1993, could also
result in the utilization of additional amounts of the carryforward. Losses
generated subsequent to October 1993, are not limited by the October 1993
change in ownership. However, any future change in ownership, including such
changes that may occur as a result of the Company's 1997 funding activities,
may further restrict or substantially eliminate the ability to utilize tax
carryforwards against future taxable income.
Forward-Looking Statements
The statements contained in all parts of this document regarding future
products and product developments, financial performance, future regulatory
approvals, business strategies, market acceptance, business arrangements, and
results and other statements which are not historical facts are forward-
looking statements. The words "expect," "project," "estimate," "predict,"
"anticipate," "believes," and similar expressions are also intended to
identify forward-looking statements. The forward-looking statements involve
risks and uncertainties, including, but not limited to, those relating to: the
Company's products being in the early stage of development; uncertainty of
developing markets; the need for additional financing and limited access to
capital funding; the Company's limited operating history; its accumulated
deficit and anticipated losses; government regulation (including that the
Company's products are subject to extensive regulation and required government
approvals, that there is no assurance of regulatory approvals and that failure
to obtain such approvals will have an adverse effect; uncertainty of the type
of, timing or receipt of FDA approval; that the Company will be subject to
numerous international regulations and that other regulations may adversely
affect the Company); the Company's reliance on distributors and collaborative
partners; license patents and trade secrets (including the uncertainty of
domestic and international patent protection, the possibility of patent
infringement claims against the Company, the Company's reliance on trade
secrets and proprietary know-how and that there is no assurance of
confidentiality); the potential adverse effects of technological change and
competition; potential of limited third-party reimbursement; use of hazardous
materials; possibility of product liability claims; dependence on key
personnel; limited manufacturing and marketing experience; uncertainty
relating to health care reform measures; and other factors detailed in the
Company's Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1996, a lawsuit styled Roy Fugman, Marilyn Fugman, Lillian O.
Fugman, and The Estate of George Oskvarek v. Aprogenex. Inc., Joel Bresser, J.
Donald Payne and Luis Cantarero was filed in United States District Court for
the Northern District of Illinois. In general, the plaintiffs allege that
their transactions in the Company's stock were made in reliance upon a
stockbroker's recommendations and analyses which, in turn, were allegedly
predicated on misleading or erroneous information provided to the stockbroker
by officers of Aprogenex. The complaint alleges among other things that
officers of the Company made oral statements inconsistent with the Company's
careful and cautious written public disclosures and that the stockbroker was
persuaded by the Company's representatives to disregard warnings in public
disclosures and, instead, to rely on other assurances of Aprogenex personnel.
The plaintiffs in this lawsuit allege that the defendants (the Company and
certain former officers and directors) employed devices, schemes and artifices
to defraud; made untrue statements of material fact or omitted to state
material facts necessary in order to make statements made, in light of the
circumstances under which they were made, not misleading; or engaged in acts
or practices in a course of business that operated as a fraud or deceit upon
plaintiff and others similarly situated in connection with their purchases and
sales of Aprogenex stock and that such alleged actions violated Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10(b) 5 promulgated
thereunder. The plaintiffs have requested damages, costs of suit and such
other and further relief, at law or in equity, to which they may be entitled
and have alleged aggregate net losses in excess of $175,000. As of May, 1997,
no
<Page 12>
settlement has been reached, however; the Company has recorded a liability
they anticipate is sufficient to cover any potential damages related to this
lawsuit.
Item 5. Other Information
On February 24, 1997, the Company's Vice President - Finance resigned. The
Company does not expect to replace this individual at this time and his duties
will be assumed by others within the Company. Additionally, Phillipe Sommer
and Dr. Robert DeCresce resigned as members of the Board of Directors on
February 14, and March 13, 1997, respectively.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Exhibit
Number Document Description
27 Financial Data Schedule.
<Page 13>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Aprogenex, Inc.
May 15, 1997 By: /s/ David M. Leech
--------------------------
David M. Leech
President and
Chief Executive Officer
<Page 14>
Exhibit Index
Exhibit
Number Document Description
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 241,516
<SECURITIES> 0
<RECEIVABLES> 97,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 339,283
<PP&E> 538,331<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 958,519
<CURRENT-LIABILITIES> 473,440
<BONDS> 0
0
444
<COMMON> 5226
<OTHER-SE> (1,649,498)
<TOTAL-LIABILITY-AND-EQUITY> 958,519
<SALES> 30,362
<TOTAL-REVENUES> 410,062
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 295,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (67,685)
<INCOME-PRETAX> (264,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,717)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<FN>
<F1>NET OF ACCUMULATED DEPRECIATION
</FN>
</TABLE>
