<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
Form 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period ended June 30, 1997
( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-21595
Enamelon, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3669775
(State of Incorporation) (I.R.S. Employer Identification No.)
15 Kimball Avenue, Yonkers, New York 10704
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (914) 237-1308
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 __
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 8,142,749 shares of common stock,
$.001 par value as of August 11, 1997.
Transitional Small Business Disclosure Format (check one):
Yes __ No X
<PAGE>
Part I Financial Information
Item 1. Financial Statements
Enamelon, Inc.
(A development stage company)
Balance Sheet
(Unaudited)
June 30,
1997
------------
Assets
Current:
Cash and cash equivalents $ 20,057,600
Accounts receivable 232,447
Prepaid expenses and other assets 232,838
Inventory 585,145
------------
Total current assets 21,108,030
Equipment, less accumulated depreciation of $100,856 1,075,756
Deferred costs, less accumulated amortization of $49,313 365,662
Other assets - security deposits 15,231
------------
Total assets $ 22,564,679
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts Payable $ 1,366,186
Accrued expenses 1,183,877
------------
Total current liabilities 2,550,063
------------
Commitments
Stockholders' equity (note 2 and 4)
Preferred stock, $0.01 par value - shares
authorized 4,172,750; none issued or outstanding --
Common stock, $0.001 par value - shares authorized
20,000,000; issued and outstanding 8,101,386 8,101
Additional paid-in capital 29,694,181
Accumulated deficit during the development stage (9,687,666)
------------
Total stockholders' equity 20,014,616
------------
Total liabilities and stockholders' equity $ 22,564,679
============
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months ended Six months ended June 9, 1992
June 30, June 30, (Inception) to
1997 1996 1997 1996 June 30, 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C><C> <C>
Expenses:
Marketing and selling $ 1,520,205 $ 37,604 $ 2,373,223 $ 41,604 $ 2,735,594
Research and development 593,344 200,805 1,339,400 673,986 3,970,705
Administrative and other 615,975 294,611 1,097,227 369,636 3,188,227
----------- ----------- ----------- ----------- -----------
Total expenses 2,729,524 533,020 4,809,850 1,085,226 9,894,526
Other charges (income):
Interest and dividends (109,641) (33,045) (240,597) (68,479) (476,829)
Write-off of deferred offering costs -- -- -- -- 269,969
----------- ----------- ----------- ----------- -----------
Net loss $(2,619,883) $ (499,975) $(4,569,253) $(1,016,747) $(9,687,666)
=========== =========== =========== =========== ===========
Net loss per common share (note 2) $ (0.38) $ (0.09) $ (0.66) $ (0.19)
=========== =========== =========== ===========
Weighted average common
shares outstanding 6,982,712 5,566,166 6,941,772 5,442,847
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statements of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Total
---------------------------- paid-in deficit during the stockholders'
Shares Par Value capital development stage equity
------------- ------------- ---------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,900,378 $ 6,900 $ 16,409,926 $ (5,118,413) $11,298,413
Options excercised 121,008 121 208,412 -- 208,533
Issuance of common stock at $13.00 per
per share in private placements,
net of cost 1,080,000 1,080 13,075,843 13,076,923
Net loss -- -- -- (4,569,253) (4,569,253)
------------- ------------- ---------------- --------------------- -----------------
Balance, June 30, 1997 8,101,386 $ 8,101 $ 29,694,181 $ (9,687,666) $20,014,616
============= ============= ================ ===================== =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Six Months ended June 30, 1992
June 30, (Inception) to
1997 1996 June 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,569,253) $ (1,016,747) $ (9,687,666)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Write-off of deferred offering costs -- -- 269,969
Stock issued for services -- 26,824 174,519
Depreciation and amortization 60,910 19,107 150,167
Change in operating assets and liabilities:
Accounts receivable (232,447) -- (232,447)
Prepaid expenses and other assets (45,840) (13,313) (249,201)
Inventory (531,962) -- (585,145)
Accrued expenses and accounts payable 1,493,175 168,402 2,281,192
------------ ------------ ------------
Accrued expenses and accounts payable (3,825,417) (815,727) (7,878,612)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment (686,934) (100,790) (1,176,612)
Patents, trademarks and licenses (69,016) (44,900) (367,197)
------------ ------------ ------------
Net cash used in investing activities (755,950) (145,690) (1,543,809)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 14,248,533 -- 29,992,850
Proceeds from sale of preferred stock -- 2,004,000 2,025,000
Offering costs (999,460) (383,559) (2,537,829)
------------ ------------ ------------
Net cash provided by financing activities 13,249,073 1,620,441 29,480,021
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 8,667,706 659,024 20,057,600
Cash and cash equivalents, beginning of period 11,389,894 1,790,666 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 20,057,600 $ 2,449,690 $ 20,057,600
============ ============ ============
Supplemental disclosures of noncash financing activities:
The Company issued common stock for professional services
performed by unrelated parties $ -- $ 26,824 $ 331,854
============ ============ ============
Accrued offering costs $ 86,040 $ --
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Notes to the Financial Statements
(unaudited)
1. Statement of information furnished
The accompanying unaudited 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 of normal
recurring accruals) necessary for a fair presentation have been included.
Results for the interim period ended June 30, 1997 are not necessarily
indicative of results for the entire year.
For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report filed on Form 10-KSB.
2. Amounts per share
Net loss per share is presented for the three and six months ended June 30,
1996 on a pro forma basis to give effect to the conversion of the redeemable
preferred stock as a result of the public offering consummated in October 1996.
The calculation of net loss per share reflects the conversion of the preferred
stock as if it occurred on January 1, 1996.
The weighted average number of common shares outstanding used in computing
the pro forma net loss per common share was adjusted for the effects of the
application of Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No.83. Pursuant to SAB No. 83, common stock issued by the Company
at a price less than the initial public offering price during the twelve months
immediately preceding the initial public offering, together with common stock
purchase warrants and options issued during such period with an exercise price
less than the initial public offering price, are treated as outstanding for all
periods presented. Earnings (loss) per share are computed using the treasury
stock method, under which the number of shares outstanding reflects an assumed
use of the proceeds from the issuance of such shares and from the assumed
exercise of such warrants and options, to repurchase shares of the Company's
common stock at the initial public offering price.
3. Inventory is summarized as follows:
June 30, 1997
-------------
Raw materials $183,924
Work in process 17,373
Finished goods 383,848
--------
$585,145
========
Inventories are valued at cost by the first-in, first-out method.
4. Private Placement
In June 1997, the Company completed a private placement of 1,080,000 shares
of common stock at $13.00 per share. Cash proceeds net of costs were
$13,077,000. In connection with the offering the Company filed a Registration
Statement on Form S-1 with the Securities and Exchange Commission on July 11,
1997, which became effective August 11, 1997.
<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing in the Company's Annual
Report on Form 10-KSB, for the year ended December 31, 1996.
General
The Company (a development stage company) was founded in June 1992 to
develop and market over-the-counter oral care products that prevent tooth decay
at its earliest stage and are based on proprietary formulations and
technologies.
The Company began to test market Enamelon(TM) anticavity fluoride
toothpaste in several representative markets in March 1997. Test marketing and
additional clinical human studies to substantiate expected marketing claims
including comparative advertising claims are expected to continue throughout
1997. Assuming the successful completion of test marketing, a national roll-out
of Enamelon(TM) anticavity fluoride toothpaste is expected to occur in the
first quarter of 1998, at which time management anticipates the Company
emerging from the development stage. The Company expects to continue to incur
operating losses at least through 1999 and may require additional financing to
continue its operations thereafter.
Results of Operations
Three Months ended June 30, 1997 Compared to
Three Months ended June 30, 1996.
Total expenses were approximately $2,730,000 for the three months ended
June 30, 1997, compared with total expenses of approximately $533,000 for the
same period in the prior year, an increase of $2,197,000. This increase was
primarily the result of higher marketing and selling expenses of $1,483,000,
higher research and development expenses of $393,000, and higher administrative
and other expenses of $321,000.
Marketing and selling expenses increased from $38,000 to $1,520,000
primarily as a result of the efforts to support the launch of the Company's
initial toothpaste product into test market. In addition, the Company had
expenditures relating to the consumer testing of its package design, product
appeal and product performance of Enamelon's initial formulation of its
toothpaste for sensitive teeth. The Company began to ship Enamelon(TM)
anticavity fluoride toothpaste into test market on March 26, 1997. For financial
reporting purposes the Company is still considered to be in the development
stage. Marketing expenses for the three months ended June 30, 1997 have been
offset by approximately $331,000 of revenues from Enamelon(TM) anticavity
fluoride toothpaste sold in test markets.
Research and development expenses increased from $201,000 to $593,000
primarily as a result of studies performed at universities and research
facilities and development activities to broaden the additional marketing claims
for consumers and dentists. The Company is continuing to expand its clinical
testing after successfully conducting in vitro and animal studies and starting
intraoral and small scale human clinical studies. The Company feels that the
results from the initial intraoral and pilot clinical programs are encouraging.
Based on the results of these studies, the Company has initiated larger,
longer-term clinicals using the more promising techniques and ideas generated in
the initial clinical testing phase.
Administrative and other expenses increased from $295,000 to $616,000
primarily attributable to increased payroll and benefits, consulting and other
administrative office expenses, which resulted from the Company's expanded
operations.
Interest and dividend income increased from $33,000 to $110,000 primarily
due to the increase in cash and cash equivalents from the initial public
offering in October, 1996.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(continued)
Six Months ended June 30, 1997 Compared to Six Months ended June 30, 1996.
Total expenses were approximately $4,810,000 for the six months ended
June 30, 1997, compared with total expenses of approximately $1,085,000 for the
same period in the prior year, an increase of $3,725,000. This increase was
primarily the result of higher marketing and selling expenses of $2,332,000,
higher research and development expenses of $665,000, and higher administrative
and other expenses of $728,000.
Marketing and selling expenses increased from $42,000 to $2,373,000
primarily as a result of the efforts to support the launch of the Company's
initial toothpaste product into test market. The Company began to ship
Enamelon(TM) anticavity fluoride toothpaste into test market on March 26, 1997.
For financial reporting purposes the Company is still considered to be in the
development stage. Marketing expenses for the six months ended June 30, 1997
have been offset by approximately $346,000 of revenues from Enamelon(TM)
anticavity fluoride toothpaste sold in test markets.
Research and development expenses increased from $674,000 to $1,339,000
primarily as a result of studies performed at universities and research
facilities and development activities to broaden the additional marketing claims
for consumers and dentists. The Company is continuing to expand its clinical
testing after successfully conducting in vitro and animal studies and starting
intraoral and small scale human clinical studies.
Administrative and other expenses increased from $370,000 to $1,097,000
primarily attributable to increased payroll and benefits, consulting and other
administrative office expenses, which resulted from the Company's expanded
operations.
Interest and dividend income increased from $68,000 to $241,000 primarily
due to the increase in cash and cash equivalents from the initial public
offering in October, 1996.
Liquidity and Capital Resources
Since its inception in June 1992, the Company has financed its operations
primarily through private placements of Series A Preferred Stock and Common
Stock and a public offering of Common Stock totaling approximately $29.5
million, net of expenses. In June 1997, the Company completed a Private
Placement of 1,080,000 shares of Common Stock at $13.00 per share. Net cash
proceeds from this offering were approximately $13,077,000. At June 30, 1997,
the Company had cash and cash equivalents of approximately $20.1 million and
working capital of $18.6 million. The Company had no outstanding debt (other
than accounts payable and accrued expenses) or available lines of credit as of
June 30, 1997.
Since its inception and through June 30, 1997, the Company has incurred
losses aggregating approximately $9.7 million and had available net operating
loss carryforwards as of December 31, 1996 of approximately $5.1 million. The
net operating loss carryforwards will expire if not used by the period from 2007
through 2011 and may be limited by United States federal tax law as a result of
future changes in ownership. The Company expects to continue to incur operating
losses at least through 1999 while it continues clinical testing and initial
toothpaste marketing efforts. In March 1997, the Company began to test market
Enamelon(TM) anticavity fluoride toothpaste in selected United States markets.
Assuming the successful completion of test marketing, the Company intends to
begin a national roll-out of this product in the first quarter of 1998.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(continued)
Since its inception and through June 30, 1997, the Company has paid
$1,177,000 for the purchase of equipment and approximately $368,000 for costs
associated with obtaining patents, trademarks and license rights. The Company
intends to use during remaining months in 1997 approximately $800,000 of its
cash to purchase additional manufacturing equipment for the production of the
Company's patent pending, split system toothpaste tube, high-speed filling
equipment, computer equipment and software to support operations.
The Company's cash requirements may vary materially from those now planned
depending on numerous factors, including the status of the Company's marketing
efforts, the Company's business development activities, the availability of
alternative financing for the acquisition of manufacturing equipment, the
results of clinical trials, the regulatory process and competition. The Company
currently estimates that cash and cash equivalents on hand, will be sufficient
to finance its operating losses, working capital and other requirements for a
period of approximately 15 months which includes the test marketing period.
Thereafter, or sooner if conditions necessitate, the Company may need to raise
additional funds through public or private financings. If adequate funds are not
available, then the Company may be required to delay, reduce the scope of, or
eliminate the commercial introduction of its toothpaste products and otherwise
reduce the proposed operations.
The foregoing discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this report and in the
Company's Form 10-KSB for the year ended December 31, 1996 and its Quarterly
Report on Form 10-QSB for the three months ended March 31, 1997. Except for the
historical information contained herein, the foregoing discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those projected in the
forward-looking statements discussed herein. Factors that could cause actual
results to differ materially include, but are not limited to, the following:
acceptance of the Company's products by consumers; the Company's ability to
procure additional financing from time to time as necessary to maintain its
operations until it becomes profitable; changes if Food and Drug administration
and Federal Trade Commission regulations as they apply to the Company's
products; and challenges to patents either licensed to or held directly by the
Company. Those and other risks are described in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
Effect of New Accounting Pronouncement
In February 1997, the FASB issued SFAS No. 128 "Earning Per Share". In
accordance with this statement, basic earnings per share are based on the
weighted average shares outstanding during the period and diluted earnings per
share are based on the weighted average number of common shares and all delutive
potential common shares that were outstanding during the period. Effective
December 15, 1997, the Company will adopt this statement. The effect of the
adoption will not have a material impact on the Company's net loss per share
previously reported.
<PAGE>
Part II. - Other Information
Item 4. Submission of Matter to Vote of Security Holders.
(a) The Registrant held an annual meeting of its shareholders on May 20,
1997 (the "Annual Meeting.")
(b) The Annual Meeting involved the election of directors. The directors
elected at the meeting included Dr. Steven Fox, Dr. S.N. Bhaskar,
Dr. Bert D. Gaster, Mr. Richard A. Gotterer and Mr. Eric D. Horodas.
There are no other directors of the Registrant.
(c) Three matters were voted on at the Annual Meeting, as follows:
(i) The election of nominees Dr. Steven Fox, Dr. S.N. Bhaskar, Dr.
Bert D. Gaster, Mr. Richard A. Gotterer and Mr. Eric D.
Horodas as Directors of the Registrant until the next Annual
Meeting
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTE
--------- ------- ------- -------- --------
Dr. Steven Fox 5,497,523 N/A N/A 3,000 -0-
Dr. S.N. Bhaskar 5,494,523 N/A N/A 6,000 -0-
Dr. Bert Gaster 5,494,723 N/A N/A 5,800 -0-
Mr. Richard Gotterer 5,497,523 N/A N/A 3,000 -0-
Mr. Eric Horodas 5,497,523 N/A N/A 3,000 -0-
Each nominee was elected a Director of the Registrant.
(ii) To approve the 1997 Incentive Stock Option Plan which
authorizes the grant of options to purchase an aggregate of
750,000 shares of Common Stock.
FOR AGAINST ABSTAIN WITHHELD BROKER NON-VOTE
--------- ------- ------- -------- ---------------
4,524,817 82,012 43,429 N/A 850,265
This matter was passed by the required majority of votes cast.
(iii) The ratification of the appointment of BDO Siedman, LLP as the
Registrant's independent public auditors for the fiscal year
ending December 31, 1997. The votes were cast for this matter
as follows:
FOR AGAINST ABSTAIN WITHHELD BROKER NON-VOTE
--------- ------- ------- -------- ---------------
5,454,035 32,036 14,452 N/A -0-
This matter was passed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Enamelon, Inc.
Date August 13, 1997 By /S/ Dr. Steven R. Fox
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date August 13, 1997 By /S/ Edwin Diaz
Vice President-Finance,
Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Enamelon, Inc. Balance Sheet as of June 30, 1997 and the Condensed Statement
of Operations for the six months ended June 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,057,600
<SECURITIES> 0
<RECEIVABLES> 239,636
<ALLOWANCES> 7,189
<INVENTORY> 585,145
<CURRENT-ASSETS> 21,108,030
<PP&E> 1,176,612
<DEPRECIATION> 100,856
<TOTAL-ASSETS> 22,564,679
<CURRENT-LIABILITIES> 2,550,063
<BONDS> 0
0
0
<COMMON> 8,101
<OTHER-SE> 20,006,515
<TOTAL-LIABILITY-AND-EQUITY> 22,564,679
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,809,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (240,597)
<INCOME-PRETAX> (4,569,253)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,569,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,569,253)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
