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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-21595
ENAMELON, INC.
(Exact name of small business issuer 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)
Registrant's telephone number, including area code: (914) 237-1308
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
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 __ .
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]
Revenues for the fiscal year ended December 31, 1996: NONE
As of the close of business on March 19, 1997, there were outstanding
6,900,378 shares of registrant's Common Stock. The approximate aggregate market
value (based upon the closing sale price of such stock) of these shares held by
non-affiliates of the registrant as of March 19, 1997 was $71,511,278.
1. Transitional Small Business Disclosure Format (check one) Yes __ No X
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ENAMELON, INC.
FORM 10-KSB ANNUAL REPORT--1996
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business................................... 2
Item 2. Description of Property................................... 13
Item 3. Legal Proceedings......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders....... 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters... 14
Item 6. Management's Discussion and Analysis or Plan of
Operations................................................. 14
Item 7. Financial Statements ...................................... 16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act........... 17
Item 10. Executive Compensation...................................... 19
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 12. Certain Relationships and Related Transactions.............. 24
Item 13. Exhibits and Reports on Form 8-K............................ 24
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
See the "Glossary" appearing on page 12, for the definition of certain
terms used herein.
Enamelon, Inc. (the "Company") is focused on developing and marketing
over-the-counter oral care products based on proprietary formulations and
technologies. The Company's products are intended to stop cavities before they
begin. Its prototype formulations have been demonstrated in animal and in vitro
studies to strengthen tooth enamel. EnamelonTM toothpaste contains the active
ingredients sodium fluoride, plus calcium and phosphate ions, to enhance the
remineralization of tooth enamel.
The Company holds licenses from the American Dental Association Health
Foundation (the "ADAHF") to use patented technologies (the "ADAHF Patented
Technology") relating to a method for oral use of various amorphous calcium
phosphate compounds that enhance the natural activity of fluoride to prevent
tooth decay. The ADAHF has granted the Company (i) exclusive worldwide licenses
to develop, manufacture and market toothpaste, chewing gum, food and
confectionery products using the ADAHF Patented Technology and (ii) a
non-exclusive international license covering products not covered by the
Company's exclusive licenses (including oral spray, mouth rinse and professional
gel products) using the ADAHF Patented Technology. The Company's international
license is co-extensive with a non-exclusive international license granted to
SmithKline Beecham Corp. ("SmithKline"), which also obtained from the ADAHF an
exclusive United States license covering products not covered by the Company's
exclusive licenses. The Company will be required to pay the ADAHF royalties
under these license agreements. Provided that the Company satisfies minimum
royalty and certain sales requirements, the licenses and any exclusivity
thereunder will continue with respect to each such patent until its expiration.
The Company has developed additional proprietary technologies relating
to enhancing remineralization of tooth enamel, and has nine United States patent
applications pending with respect to certain of those technologies (the
"Enamelon Proprietary Technology").
The Company's objective is to become a leading niche marketer of a
variety of oral care, chewing gum, food and confectionery products based on the
ADAHF Patented Technology and/or Enamelon Proprietary Technology.
The significant events in the Company's progress to date include the
following:
o In 1992, the Company was organized and received from the
ADAHF exclusive worldwide licenses for toothpaste, chewing
gum, food and confectionery products, and a non-exclusive
international license for products not covered by the
exclusive licenses.
o In January 1995, the Company conducted successful in
vitro testing of a prototype formulation using the
Enamelon Technologies at the Oral Health Research
Institute of Indiana University.
o In October 1995, and January 1996, the Company conducted
successful animal studies of a prototype formulation using
the Enamelon Technologies at the School of Dentistry of
the University of Connecticut.
o In June 1996, the Company commenced preliminary intra
oral and clinical studies of its toothpaste intended to
establish additional advertising claims, for advertising
to consumers and dentists.
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o In October 1996, the Company completed its initial public
offering of 1,700,000 shares of common stock at $7.00 per
share receiving net cash proceeds of approximately $10.4
million. Concurrent with the public offering, 558,399
shares of redeemable preferred stock were automatically
converted into an equivalent number of shares of common
stock.
o In November 1996, the Company was granted its first
patent and in February 1997 was granted two additional
patents all of which relate to Enamelon Proprietary
Technology. See "Patents, Trademarks and Proprietary
Information".
o In March 1997, the Company began to test market Enamelon
toothpaste in selected United States markets.
The Company intends to continue its test market of Enamelon toothpaste
in several representative markets in selected United States households. In
addition, the Company currently is conducting intra oral and small scale
clinical studies to establish additional advertising claims to consumers and
dentists. Market testing is expected to continue throughout 1997, with a
national roll-out of Enamelon toothpaste in the first half of 1998. The Company
expects to continue to incur operating losses throughout this period and expects
to require additional financing to continue its operations thereafter.
The worldwide toothpaste market is estimated to exceed $5.0 billion in
annual retail sales. Annual toothpaste sales in the United States were
estimated at $1.7 billion in 1996 and are projected to reach $2.0 billion by
the turn of the century. Over the last five years, the toothpaste market has
become segmented as new, premium-priced products offering benefits such as
tartar control or whitening or containing ingredients such as baking soda have
steadily attracted consumers away from older, more mature products.
Technology
On a daily basis, teeth lose small amounts of calcium and phosphate,
the major structural ingredients of tooth enamel. This demineralization occurs
as plaque acids gradually dissolve tooth enamel.
Saliva contains low levels of calcium and phosphate ions to naturally
fight this demineralization process. The presence of fluoride in the saliva is
also known to facilitate remineralization of calcium and phosphate. However,
remineralization is limited by the small amounts of calcium and phosphate ions
normally present in the saliva. If the demineralization process is not balanced
by remineralization, it eventually dissolves the mineral structure of the tooth
and causes dental cavities, which can only be repaired by a dentist.
Enamelon toothpaste simultaneously supplies the active ingredient,
sodium fluoride, and high concentrations of ions of the inactive ingredients
calcium and phosphate in soluble form during brushing. The Company's in vitro
and animal studies have demonstrated that Enamelon anticavity fluoride
toothpaste enhances remineralization with a higher level of fluoride uptake, and
the tooth structure was shown to be strengthened and hardened having the added
calcium and phosphate. This makes the tooth less soluble and more resistant to
attacks by acids from decay-causing bacteria. The Company currently is
conducting intra oral and small scale clinical studies intended to establish
additional advertising claims, including comparative claims. See "Research and
Development".
Strategy
The Company's objective is to develop a variety of oral care, chewing
gum, food and confectionery products that prevent tooth decay at its earliest
stage and are based on the Enamelon Technologies. The Company has developed a
strategic plan to accomplish this goal. The Company's primary strategies are to:
o Focus Initially on Toothpaste. The Company is focusing on
completing the development of its toothpaste products and
packaging, along with the necessary manufacturing
processes required to achieve desired production speeds
while controlling manufacturing costs. The Company will
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seek to establish distinctive brand identity emphasizing
the enhanced remineralization benefits of its products,
which will be communicated to both consumers and dental
professionals.
o Conduct Further Testing. The Company believes that a
heightened understanding of the chemistry required for
effective remineralization of tooth enamel will lead to
stronger protection from competition. Clinical studies are
being conducted to establish additional marketing claims
for consumers and dentists.
o Collaborate with Corporate Partners in Certain Product
Areas and International Markets. The Company intends to
seek domestic and international strategic alliances with
consumer product companies that will assist in the
marketing and manufacturing of oral care products outside
United States.
o Capitalize on Additional Commercial Applications. The
Company believes that products such as gum, lozenges and
mints may provide benefits similar to those of its
toothpaste and represent large potential markets for the
application of the Enamelon Technologies.
Products
The Company plans to introduce toothpaste as its initial product line.
The Company also is exploring application of the Enamelon Technologies to oral
spray, mouth rinse, professional gel, chewing gum and food and confectionery
products, which it intends to develop after the successful commercialization of
its toothpaste. See "ADAHF Patents and Licenses," and "Patents, Trademarks and
Proprietary Information".
Toothpastes
The Company's introductory product is an all-family fluoride toothpaste
intended to stop cavities before they begin and to enhance remineralization of
tooth enamel by providing the active ingredient sodium fluoride. Product
development activities for the Company's all-family toothpaste were completed in
the end of 1996. The Company introduced its toothpaste into test markets
consisting of approximately 5% of United States households in the early part of
1997. Assuming the successful completion of test marketing, the Company intends
to begin a national roll-out of this product in the first half of 1998.
The Company is planning to follow-up this introduction with a
toothpaste for sensitive teeth. This toothpaste will provide cavity protection
and pain relieving properties while enhancing remineralization activity in
individuals with exposed dentin caused by receding gums. Other entries such as
tartar control and gum care toothpastes also are anticipated as future product
line extensions.
In order to dispense its toothpaste products, the Company also had
developed a patent pending, split system toothpaste tube that simultaneously
dispenses two formulations. The split system tube has dual chambers, maintaining
separation between two-component formulations until they are dispensed onto a
toothbrush. Unlike presently used split system toothpaste dispensing systems,
which employ expensive pumps, the Company's tube was designed to be filled with
conventional high-speed tube filling equipment, thus making the cost lower than
other dual chamber toothpaste dispensing systems. See "Manufacturing".
Additional Potential Products
Chewing Gum. Chewing gum stimulates saliva which helps neutralize some
of the acids remaining in the mouth after eating. The Company believes that
providing greater levels of calcium and phosphate in chewing gum may have the
two-fold benefit of reducing demineralization through the increased stimulation
of saliva while increasing remineralizaiton through the utilization of the
Enamelon Technologies. Accordingly, the Company believes that its proposed
chewing gum may be a beneficial supplement to brushing. Currently, the Company
does not have plans to develop and market independently a chewing gum.
Therefore, it may seek to sublicense or enter
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into joint ventures or strategic partnerships with major chewing gum
manufacturers or other entities that have appropriate sales and marketing
expertise to develop and market these products.
Oral Spray, Mouth Rinse and Professional Gels. The Company is pursuing
the development of other oral care products including oral sprays, mouthwash and
professional dental gels to be marketed outside of the United States.
Food and Confectionery. The Company believes that the addition of the
Enamelon Technologies to food and confectionery products, such as lozenges or
mints, can provide therapeutic effects similar to the Company's other proposed
products. The Company has begun to evaluate the possible uses of the Enamelon
Technologies in these areas and intends to explore such applications following
the commercialization of its toothpastes.
To date, the Company has concentrated development efforts on its
toothpaste products. Expansion of the Company's product development activities
with respect to other potential applications of the Enamelon Technologies will
require significant efforts and financial resources.
Research and Development
Since January 1994, the Company has centralized its internal research
and development activities at its research laboratory. The laboratory is
responsible for all technology, formulation, flavor, packaging and process
development, and stability evaluations. Much of the efficacy testing is
performed at leading universities and outside research facilities.
The Company's products are subject to regulation by the Food and Drug
Administration (the "FDA"). The FDA has published a final monograph, "Anticaries
Drug Products for Over-the Counter Human Use" (the "Monograph"), which covers
regulations relating to the Company's toothpaste. The toothpaste may be lawfully
marketed without filing a New Drug Application (an "NDA") with the FDA if the
sole active ingredient is one of the active fluoride ingredients permitted in
the Monograph. The Company is required to make labeling claims within those
permitted in the Monograph. Also, the Company must demonstrate the
bio-availability of fluoride using certain approved tests. The Company's
toothpaste is being developed with the sole active ingredient being sodium
fluoride, an active ingredient permitted under the Monograph, and the Company
intends to comply with the Monograph in all other respects. However there can be
no assurance that the FDA will determine that the Company's toothpaste meet all
the conditions of the Monograph.
The Company has conducted in vitro and animal studies to assess the
effectiveness of technology in its proprietary remineralization technology. The
results of these studies have demonstrated that the technology strengthens tooth
enamel and enhances fluoride uptake. The Company is continuing to perform
additional in vitro, animal, intra oral and small scale clinical studies at
leading independent oral research facilities in the United States to establish
benefits for the technology. The Company is also determining how the technology
can be applied to the development of other oral care products.
While studies to date indicate that the claims being made for the
toothpaste are truthful, there can be no assurance that additional studies will
be supportive, that additional claims can be made for the product, or that the
technology can be applied in other oral care products.
From the Company's inception to December 31, 1996, the Company expended
approximately $2,631,000 on its research and development activities, including
$547,000 for the year ended December 31, 1995 and $1,762,000 for the year ended
December 31, 1996. The Company expects the level of its research and development
expense to increase in the future.
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Manufacturing
The Company will not manufacture its toothpaste products for the United
States market at the outset, but will instead utilize contract manufacturers.
For the balance of the worldwide toothpaste markets, as well as for the
Company's other proposed products, the Company may seek to sublicense or enter
into joint ventures or strategic partnerships with major consumer product
companies or other third parties on either an exclusive or non-exclusive basis.
Manufacturing arrangements in these markets are likely to be reflected in any
agreements establishing such relationships and may place primary manufacturing
responsibilities on others.
The Company possesses laboratory size batching and tube filing
capabilities, enabling it to produce small quantities of its proposed products
at Enamelon's laboratory facility. The Company has contracted with an
FDA-approved manufacturer with facilities capable of providing proper batching
and high speed filling and packaging, according to the Company's specifications.
The Company purchases all packaging and raw materials and the manufacturer is
responsible for quality control.
The Company has purchased manufacturing equipment for the production of
its patent pending, split system toothpaste tube and for high speed tube
filling. The equipment is owned by the Company for use by the contract
manufacturer. The Company believes that this will provide greater long-term
flexibility, permitting it to change manufacturers or even to commence its own
manufacturing operations. As demand for the Company's products increases, it
will be necessary to utilize other contract manufacturers.
Marketing
The Company is focusing its initial marketing activities on entering
the toothpaste market. The toothpaste market is highly competitive and
constantly changing as consumers continue to be receptive to product
improvements, taste enhancements and innovative packaging changes. The Company
believes that cavity prevention remains one of the most important product
attributes to attract consumers, and it intends to emphasize these qualities of
its proposed toothpaste product.
In March 1997, the Company began to test market Enamelon all-family
toothpaste in selected United States markets. This test market introduction will
allow the Company to assess carefully all elements of the marketing mix and make
desired changes prior to launching its toothpaste nationally. Upon successful
completion of test marketing, the Company intends to initiate introduction of
its all-family toothpaste nationally in the first half of 1998.
The Company recognizes that the highly competitive nature of the
toothpaste market will require significant expenditures during the introductory
phase of marketing. However, the Company believes, based on management's
experience in the over-the-counter consumer products industry, that the claims
for its proposed toothpaste may permit development of unique product
advertising, thus enabling it to gain market share. Achieving and maintaining
market penetration will require significant efforts by the Company to create
awareness of and demand for the Company's proposed products.
The Company's ability to build its customer base will be dependent on
its developing a successful marketing program. To the extent the Company
sublicenses or enters into joint ventures or strategic partnerships with a
well-established company in international markets, its domestic marketing
capabilities may thereby be complemented and enhanced.
Professional Marketing
The Company presently anticipates establishing relationships with
dental professionals to create awareness and endorsements for its technology and
products. The Company's professional marketing activities are expected to
include placing advertisements and technical articles in professional journals
as well as attending professional conventions and distributing patient samples.
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Consumer and Trade Marketing
The Company plans to build retail distribution and obtain retail shelf
space in food, drug and mass merchandisers through recruiting and supervising
experienced food and drug brokers who have strong regional ties with major
retailers. These efforts will be supported by competitive trade allowances,
television advertising and introductory trial promotions including sampling and
couponing.
Foreign Marketing
The Company will initially focus its marketing activities in the United
States. Accordingly, the Company has only preliminary formulated plans for its
foreign marketing activities. However, the Company's role in marketing its
products in foreign countries will depend on the type of strategic relationships
it can develop with third parties.
Competition
The United States toothpaste industry is dominated by Procter & Gamble
Co.'s Crest, Colgate-Palmolive Company's Colgate, SmithKline's Aquafresh,
Chesebrough-Pond's USA Co.'s Mentadent, Church & Dwight Co., Inc.'s Arm & Hammer
Dental Care, and Block Drug Co., Inc.'s Sensodyne. The industry is led by
Procter & Gamble Co. and its leading brand, Crest, which established it position
as a market leader when it received the seal of the American Dental
Association's Council on Dental Therapeutics for its use of fluoride in the
early 1960's.
Although the toothpaste market is mature, in recent years new products
have captured market share from established brands. Market share gains have been
achieved by higher priced, more therapeutically oriented new products with
unique marketing positions. Consequently, the Company believes that the focus on
enhanced remineralization of tooth enamel will capture consumer and professional
interest.
If the Company attempts to develop a chewing gum using the Enamelon
Technologies, then it will be entering a highly competitive industry. The
chewing gum market in the United States is dominated by major competitors
including Wm. Wrigley Jr. Co., Warner-Lambert Company and RJR Nabisco, Inc. The
Company also intends to compete in the food and confectionery industries. To the
extent that the Company will sublicense or enter into joint ventures or
strategic partnerships with major consumer products companies, of which no
assurance can be given, it may be aligning itself with one or more of its major
competitors instead of competing with them. The Company will also be required to
comply with FDA's food labeling regulations, which may limit the claims that may
be made for the Company's proposed chewing gum.
Additionally, the Company is pursuing the development of its rights to
manufacture and market oral sprays, mouth rinses and professional gels outside
of the United States, in addition to its proposed toothpaste, chewing gum, food
and confectionery products. The international markets for these products are in
many ways similar to the United States markets in that consumers are becoming
increasingly aware of the importance of oral hygiene. Product innovation with
emphasis on therapeutic benefits is continuous. The Company's competition in
markets outside the United States will vary by product and from country to
country. However, in general, such markets tend to be highly competitive and
dominated by large multinational and domestic corporations. The Company does not
presently have the resources that are necessary to compete on a global scale and
intends to seek corporate partners and/or negotiate license agreements with
companies that have the resources to compete effectively in foreign markets.
Although the Company will attempt to form strategic alliances with global
companies, it may also seek to negotiate on a country-by-country basis with
major regional companies, as necessary or appropriate.
ADAHF Patents and Licenses
The United States patents and the pending foreign patent applications
covering the ADAHF Patented Technology (the "ADAHF Patent Rights") and the
Company's issued patents and pending patent applications (the "Enamelon Patent
Rights") (collectively with the ADAHF Patent Rights, the "Patent Rights") are
material to the Company's business.
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The ADAHF Patent Rights licensed to the Company relate to five United
States patents. Three of the issued patents cover formulations, including
toothpastes, chewing gums, mouth rinses and professional gels, containing gels,
containing or capable of producing Amorphous Calcium Phosphate ("ACP"),
Amorphous Calcium Phosphate Fluoride ("ACPF"), as well as the application of
these formulations to teeth. The other two patents cover advanced technology,
including Amorphous Calcium Phosphate Carbonate Fluoride ("ACPCF"), Amorphous
Calcium Fluoride ("ACF") compounds and other technology not covered in the first
three United States Patents. Foreign patent applications are pending with
respect to one of the United States pending applications in approximately 28
countries.
In June 1992, the Company entered into a License Agreement (the
"License Agreement") with the ADAHF. This License Agreement, as restated and
amended, grants the Company the exclusive United States licenses to manufacture
and sell toothpastes, chewing gum, food and confectionery products utilizing the
ADAHF Patented Technology. The License Agreement extends until three years after
the Company determines and thereafter notifies the ADAHF that the following two
conditions have been met: (i) The material claimed in the ADAHF patents and
patent application has been stabilized in the form to be used in toothpastes,
chewing gums, confections and foods to enable it to be stored and marketed in a
manner similar to other such products and (ii) a licensed product has received
the first FDA approval necessary if any for marketing to professionals or the
general public. Although neither of those conditions has been satisfied, they
will be required to be satisfied before the Company can market any of its
products. The exclusive license under the License Agreement may be extended by
the Company in additional four-year increments as to each of the product
categories or as to all such product categories, provided that the Company has
complied with its royalty and other obligations under the License Agreement and
has, as to each relevant product category or categories, sold products
generating more than $17,000 in royalties in the last year of the preceding
exclusivity period. Unless the License Agreement is otherwise terminated as
provided therein, it will extend for the term of the last to expire of any
patent licensed under the License Agreement in the United States, including
patents of improvements licensed as described below. If the period of
exclusivity under the License Agreement is not renewed, then the license becomes
non-exclusive for the remaining term of the agreement. The Company paid $5,000
as an initial license fee under the License Agreement.
The License Agreement may not be assigned, transferred or sublicensed
by the Company without the prior written consent of the ADAHF, which consent may
not be unreasonably withheld. However, the License Agreement may be assigned to
another company in which the Company owns more than 50% of the voting stock
without the prior written consent of the ADAHF.
The License Agreement provides that improvements that are used with or
that require use of toothpastes, chewing gum, foods or confections that embody
material claimed in the ADAHF Patent Rights, as well as any improvements and
inventions that are made jointly by the Company and the ADAHF that do not relate
to remineralization or commercialization of such products or of the subject
matter of the ADAHF Patent Rights, will be owned by the ADAHF and licensed to
the Company. The Company has the right to veto the granting of licenses relating
to such improvements and inventions that are developed in part by the Company.
In November 1992, the Company entered into a Foreign License Agreement
(the "Foreign License Agreement"), which was subsequently restated and amended
with the ADAHF and grants the Company an exclusive license to manufacture and
sell toothpastes, chewing gum, food and confections using the inventions that
are the subject matter of foreign patent applications filed by the ADAHF in
approximately 28 countries. In addition, the Foreign License Agreement grants
the Company the non-exclusive right to manufacture and sell other products in
such countries using inventions that are the subject of such foreign patent
applications, including oral sprays, mouth rinses and professional gels. The
Foreign License Agreement expires upon the earlier of the termination of the
License Agreement, except as to those countries for which the royalty paid per
county in the preceding year exceeded $7,000, or the expiration of the last to
expire of any foreign patent licensed under the Foreign License Agreement or the
abandonment or lapse of all foreign patents and applications.
The Company was notified in July 1995 that the ADAHF entered into a
license agreement with SmithKline for exclusive rights in the United States for
the fields of use other than toothpastes, chewing gum, food and
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confections (including oral sprays, mouth rinse and professional gels) utilizing
the ADAHF Patented Technology. The Company's non-exclusive rights for these
additional applications outside of the United States are co-extensive with the
non-exclusive rights granted to SmithKline for these products outside of the
United States. Since SmithKline has substantially greater financial and other
resources than those of the Company, the Company may be limited in its ability
to compete effectively with SmithKline outside of the United States, unless the
Company enters into a strategic alliance with another company having financial
and other resources comparable to those of SmithKline.
The License Agreement and Foreign License Agreement are both subject to
(i) licenses granted to the United States, which are not transferable by the
government and (ii) rights retained by the ADAHF to make and use its inventions
for research and testing, but not to sell or use them commercially in fields
licensed exclusively to the company.
Under the Foreign License Agreement, as restated, the Company was also
granted an option and right of first refusal during the term of the Foreign
License Agreement, for a limited license under future patents and patent
applications for inventions and material covered by and claimed in the ADAHF's
foreign patent rights, for all territories not included within the United States
or licensed territories under the licenses, with respect to toothpastes, chewing
gum, food and confectionery products. Before granting such a license for a
territory to third-parties, the ADAHF must first notify the Company, which will
then have the right to obtain a license for that territory on terms consistent
with the Foreign License Agreement. To the extent the ADAHF has not granted a
license to a third-party notwithstanding the Company's failure to exercise its
right of first refusal, the Company has the additional option to receive a
license in any of such territories on terms consistent with the Foreign Licenses
Agreement.
Under the License Agreement, the Company is required to make royalty
payments of 4% of net sales, subject to minimum royalty payments of $3,000 in
1992, $5,000 in 1993 and $7,000 in each subsequent year. Under the Foreign
License Agreement, the Company is required to pay 7% of net sales (4% if such
sales are made by an entity that joint ventures with the Company) and bear the
costs of prosecution of foreign patent applications. If the Company sublicenses
a foreign patent, it is required to pay to the ADAHF 25% of the gross income
resulting from such sublicense actually received by the Company.
The ADAHF has made no representation or warranty, express or implied,
with respect to the efficacy or possible commercial exploitation of the
Company's proposed products.
Government Regulation
Under the Federal Food, Drug, and Cosmetic Act, as amended, and the
implementing regulations promulgated by the FDA, a non-prescription
(over-the-counter) drug may be marketed in one of two ways. The FDA has
established a program to promulgate "monographs" determining the conditions
under which most non-prescription drugs may be marketed without the requirement
of an NDA. The monographs establish those active ingredients that are safe and
effective at specified levels and all aspects of the labeling that are permitted
for these products. The monographs establish all of the conditions for marketing
a non-prescription drug without the need for an NDA. Any non-prescription drug
that does not comply with the final monograph may lawfully be marketed only if
it has an approved NDA. Because it is time consuming and costly to obtain FDA
approval of an NDA, most non-prescription drugs (except those that have recently
been switched from prescription to non-prescription status) are marketed
pursuant to an FDA over-the counter drug monograph.
The FDA has published the Monograph for over-the counter anticaries
drug products, the category of over-the-counter drug products covering the
Company's proposed oral care products. The Monograph establishes conditions
under which non-prescription drug products that aid in the prevention of dental
caries or cavities are generally recognized as being safe and effective and not
misbranded. The Company intends to rely on the advice of FDA counsel to satisfy
formulation and labeling requirements of the Monograph as they apply to the
Company's products.
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Although the Company intends to make only such packaging claims as are
permitted by the Monograph in order to avoid the substantial expense and time
required to receive FDA approval under an NDA, it may seek to file an NDA with
the FDA in order to make further claims not covered by the Monograph. If the
Company decides to or is required to make such additional claims, it may seek
strategic partners to assist in the financing of the NDA process. Further, the
Company may not have sufficient financing or other resources available to
complete the NDA process and assuming such financing and resources are
available, there is no assurance that the FDA will approve the NDA.
Each domestic drug product manufacturing facility must be registered
with the FDA. Each manufacturer must inform the FDA of every drug product it has
in commercial distribution and keep such list updated. Domestic manufacturing
facilities are also subject to at least biannual inspection by the FDA for
compliance with Good Manufacturing Practice ("GMP") regulations promulgated by
the FDA. Compliance with GMP regulations is required at all times during the
manufacture and processing of drug products. Accordingly, to the extent that the
Company utilizes contract manufacturers, such manufacturers must be in
compliance with all FDA requirements.
The Company is also subject to regulation under various federal and
state laws regarding, among other things, occupational safety, environmental
protection, hazardous substance control and product advertising and promotion.
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, storage, discharge, handling and disposal of
certain materials and wastes. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance. The Company does not
currently anticipate that any material capital expenditures will be required in
order to comply with federal, state and local environmental laws or that
compliance with such laws will have a material effect on the financial condition
or competitive position of the Company. The Company may also be subject to
foreign government regulations regarding over-the-counter drug products.
Accordingly, the Company intends to submit applications to foreign regulatory
agencies, if necessary, to make therapeutic health claims for its products to be
marketed abroad.
Patents, Trademarks and Proprietary Information
Patents
As of March 19, 1997, Enamelon has obtained three U.S. patents and has
fifteen pending patent applications, nine in the United States and six outside
the United States. The patents cover the Company's remineralization technology
as it could be applied to a broad range of oral care products including
toothpaste, mouth rinse, chewing gum, lozenges, and professional dental
treatments. The Enamelon patents may claim the effectiveness of ingredients that
do not fall under the Monograph. The Company's products currently under
development do not rely on those ingredients as active ingredients, but rely
only on sodium fluoride as the sole active ingredient.
The Company is unaware of the existence of any challenges to the
validity of its patents or of any claim made by a third-party of patent
infringement with respect to its products. However, no assurance can be given
that such challenges or claims will not be asserted in the future.
Trademarks
The Company intends to protect the names of certain of its products and
formulations by registration of its trademarks, where appropriate, both in the
United States and in foreign countries.
The Company has filed applications in the United States Patent and
Trademark Office to register the word mark ENAMELON, on the Principal Register,
for toothpaste, chewing gum, certain confection products, and various oral care
products, such as medicated mouth washes and professional dental gels. All of
the applications have been allowed, subject to use of the mark. The Company has
also registered or applied to register the ENAMELON mark for toothpaste, chewing
gum and certain confection products in eight foreign countries. It is possible
that prior registrations and/or uses of the mark (or a confusingly similar mark)
may exist in one or more countries, in which
10
<PAGE>
case the Company might thereby be precluded from registering and/or using the
ENAMELON mark is such countries. Accordingly, other trademarks are being
considered by the Company.
The Company has also applied to register its stylized "E" logo in the
United States and Canada, for toothpaste, chewing gum, certain confection
products, and various oral care products. All of the applications have been
approved, subject to use of the mark.
The Company has also filed applications in the United States and Canada
to register the word mark FLUOREMIN for toothpaste. Each of such applications
has been allowed, subject to use of the mark.
The Company recently filed applications in the United States and Canada
to register (i) the word mark LIQUID CALCIUM for toothpaste, various oral care
products, and in Canada, also various oral care products, and certain confection
products. Each of such applications is presently and awaiting examination.
In connection with its trademark protection and registration program,
the Company acquired from a third party its rights in and to the mark ENAMELINE,
for use in connection with chewing gum, including the United States registration
for such mark. The assignment was made on a quitclaim basis without any
representations or warranties as to the validity or subsistence of the rights
and registration so assigned, and the Company may or may not make use of the
mark ENAMELINE.
Proprietary Information
Much of the Company's technology is dependent upon the knowledge,
experience and skills of key scientific and technical personnel. To protect
rights to its proprietary know-how and technology, Company policy requires all
employees and consultants to execute confidentiality agreements that prohibit
the disclosure of confidential information to anyone outside the Company. These
agreements also require disclosure and assignment to the Company of discoveries
and inventions made by such persons while devoted to Company activities. There
can be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any such breach or that the Company's trade
secrets will not otherwise become known or be independently developed by
competitors. In addition, it is possible others may infringe the patent rights
of the Company.
Liability Insurance
The Company's business involves exposure to potential product liability
risks that are inherent in manufacturing and marketing of pharmaceutical
products. The Company currently has general liability insurance with coverage
limits of $1,000,000 per occurrence and $2,000,000 on an annual aggregate basis
and product liability insurance with coverage limits of $6,000,000 per
occurrence and $7,000,000 on an aggregate basis. While the Company's insurance
polices provide coverage on a "per occurrence" basis and are subject to annual
renewal, there can be no assurance that the Company will be able to maintain
such insurance on acceptable terms, that the Company will be able to secure
increased coverage or that any insurance will provide adequate protection
against potential liabilities.
Personnel
The Company has fifteen full-time employees and two part-time
employees.
11
<PAGE>
Glossary
The following glossary is intended to provide the reader with an
explanation of certain terms used in this Form 10-KSB.
Active Ingredient.................... Element responsible for the
therapeutic activity of a product.
However, other ingredients in the
product may enhance the
effectiveness of the active
ingredient. In Enamelon toothpaste,
the active ingredient is sodium
fluoride.
Calcium.............................. Important elemental constituent of
teeth and bones.
Caries............................... An oral disease caused by the
presence of cariogenic bacteria in
plaque. Signs of the disease are
lesions and/or cavities in the
teeth.
Cavity................................ Area of the tooth where mineral
loss, due to demineralization, has
been extensive, resulting in
collapse of the tooth structure. A
cavity cannot be remineralized and
must be filled by a dentist.
Demineralization...................... Chemical process whereby acids,
produced by cariogenic bacteria in
plaque, dissolve and remove calcium
and phosphate from tooth enamel
and/or dentin, making the tooth
weaker and more porous. If allowed
to continue, demineralization will
eventually cause the tooth structure
to collapse and a cavity to be
formed.
Dentin................................ An underlying tooth material that
contains minerals and organic
matter. Dentin is covered by enamel
in the crown and cementum in the
root.
Enamelon Technologies................. The ADAHF Patented Technology
together with the Enamelon
Proprietary Technology as described
in Item 1, "Description of
Business".
Fluoride.............................. Inorganic form of the element
fluorine in combination with other
elements.
Inactive Ingredient................... Element not responsible for the
therapeutic activity of the product.
Inactive ingredients may be
important for other product
attributes and may substantially
enhance the effectiveness of the
active ingredient.
Interproximal Lesions................. Lesions that occur between the
teeth.
In Vitro.............................. Literally means "in glass" (Latin) .
Refers to experimental studies
carried out under laboratory
conditions that do not involve
living species.
In Vivo............................... Literally means "in life" (Latin).
Refers to experimentation
performed on live animals or humans.
Ions.................................. Dissolved particles bearing a
positive or negative charge. Because
of their charges, ions attract a
sphere of water molecules around
themselves, which helps to keep them
in solution.
Lesions............................... Defects in teeth resulting from loss
of tooth mineral due to
demineralization in localized areas
of the tooth. Lesions often, but not
always, show up as visible white or
colored spots on teeth. They may or
not be detected by x-rays.
12
<PAGE>
Phosphate............................ Combination of the elements
phosphorous and oxygen in ionic form
or part of an inorganic or organic
compound. An important constituent
of teeth and bones.
Plaque................................ Soft sticky film formed on teeth and
between teeth due to eating
sugar-containing foods. Contains a
very high concentration of bacteria.
Plaque Acids........................ Acidic materials formed by the
break-down of sugars due to the
action of plaque bacteria. Plaque
acids, primarily lactic and acetic
acid, are highly corrosive to the
tooth mineral structure, and cause
demineralization of the tooth.
Professional Gels.................... Therapeutic materials applied to
the teeth for the prevention,
arrestment, or reversal of lesions
or cavities. Applied directly by a
qualified dental practitioner or
supplied to the user through a
prescription supplied by a
qualified dental practitioner.
Remineralization..................... Chemical process whereby calcium and
phosphate, lost during
demineralization, are replaced into
tooth enamel and dentin, thereby
rebuilding, restoring and
restrengthening the tooth.
Sodium Fluoride...................... Compound consisting of the element
sodium combined with the element
fluorine and which provides
fluoride ions when dissolved in
water. Sodium fluoride is an
accepted active ingredient in anti-
caries products for over-the-
counter use.
Tooth Enamel......................... Outer hard mineral layer of the
crown, which is the part of the
tooth that emerges from the gum.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently subleases office facilities located at 15 Kimball
Avenue, Yonkers, New York from an affiliate. The Company leases office and
laboratory facilities in East Brunswick, New Jersey which expires December 31,
1998. The combined amount of space which relate to the above leased premises
total approximately 5,200 square feet.
The Company believes it will need to lease an additional 5,000 square
feet for its product development needs beginning in the second quarter of 1997
and anticipates signing such lease in the second quarter.
The Company believes that these properties are sufficient for its
administrative and research and development needs for the foreseeable future.
Since the Company presently intends to rely on outside manufacturers to
manufacture its products, it does not have a manufacturing facility.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Data
Since October 24, 1996, the Company's Common Stock has traded on the
Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "ENML".
Set forth below is the trading range of the high and low prices for the
Common Stock during fiscal 1996 as reported on the Nasdaq Stock Market.
Fiscal 1996:
High Low
Quarter Ended:
December 31, 1996 $ 7 1/8 $ 5 3/8
Nasdaq Trading
As of December 31, 1996, the Company complied with all of the
requirements of the National Association of Securities Dealers, Inc. ("NASD")
for continued listing of the Common Stock on the Nasdaq Stock Market.
Holders
The approximate number of holders of record of the common stock, as of
March 19, 1997, was 286.
Dividends
The Company has not paid any dividends on its Common Stock since its
inception and for the foreseeable future intends to follow a policy of retaining
all of its earnings, if any, to finance the development and continued expansion
of its business. There can be no assurance that dividends will ever be paid by
the Company. Any future determination as to payment of dividends will depend
upon the Company's financial condition, results of operations and such other
factors as the Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included in Item 7 to this
report.
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. To date, the Company has not commenced any product
commercialization or realized any operating revenues.
The Company's strategic plan for accomplishing this objective is to (i)
begin to market its proposed toothpaste products in compliance with the Food and
Drug Administration requirements, (ii) conduct further product testing in humans
to establish additional advertising claims (iii) collaborate with corporate
partners in certain other product areas and international markets and (iv)
capitalize on additional commercial applications of both the ADAHF Patented
Technology and the Enamelon Proprietary Technology.
14
<PAGE>
The Company has completed formulation of the product and intends to
begin to test market Enamelon toothpaste in selected United States markets. The
Company will continue test market of Enamelon toothpaste in several
representative markets, comprising approximately 5% of all United States
households. Test marketing and additional clinical human studies to establish
additional marketing claims for consumers and dentistsss are expected to
continue throughout 1997, with a national roll-out of Enamelon toothpaste in the
first half of 1998. The Company expects to continue to incur operating losses
throughout this period and may require additional financing to continue its
operations thereafter.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total operating expenses were approximately $3,120,000 for the year
ended December 31, 1996, compared with total expenses of $1,081,000 in the prior
year, an increase of $2,039,000. This increase was primarily the result of
higher marketing and selling expenses of $362,000, higher research and testing
expenses of $1,215,000 and higher administrative and other expenses of $462,000.
Additionally, the Company anticipates that total expenses will increase over the
next few years as the Company increases its product development, manufacturing
and marketing activities. Such increased business activities will require
additional personnel and payments to third parties.
The increase of $362,000 in marketing and selling expenses resulted
from marketing creative fees necessary to bring the Company's product to test
market.
The increase in research and testing expenses from $547,000 to
$1,762,000 resulted from the expansion of the Company's research and development
program at its laboratory facility and clinical testing at various independent
oral care research facilities in the United States.
The increase in administrative and other expenses from $534,000 to
$996,000 is primarily attributable to increased consulting and administrative
office expenses, associated with the hiring of additional personnel.
These increases were offset in part by $195,000 of interest and
dividend income earned from $10,425,000 of net proceeds from the Company's
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 its initial public offering totaling approximately $16.2
million, net of expenses. At December 31, 1996, the Company had cash and cash
equivalents of approximately $11.4 million and working capital of $10.5 million.
The Company has no outstanding debt (other than accounts payable and accrued
expenses) or available lines of credit as of December 31, 1996.
Since its inception and through December 31, 1996, the Company has
incurred losses aggregating approximately $5.1 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 1998 while it continues clinical
testing and initial toothpaste marketing efforts. In March 1997, the Company
began to test market Enamelon all family 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 half of 1998.
Since its inception and through December 31, 1996, the Company has paid
$490,000 for the purchase of equipment and approximately $298,000 for costs
associated with obtaining patents, trademarks and licenses rights. The Company
intends to use approximately $1.5 million of its cash to purchase additional
manufacturing equipment
15
<PAGE>
for the production of the Company's patent pending, split system toothpaste tube
and for high-speed filling equipment, and for computer equipment and software to
support operations.
In May 1995, the Company issued an aggregate of 93,750 shares of its
common stock and warrants to purchase 93,750 shares of common stock at an
exercise price of $1.33 per share to private investors, officers and directors
of the Company for an aggregate consideration of $125,000. On various dates
through December 31, 1995, the Company issued an aggregate 648,723 shares of its
common stock pursuant to a private placement memorandum dated June 20, 1995 to
private investors, officers and directors of the Company for an aggregate
consideration of $2,504,672, net of expenses.
In January 1996, the Company issued 500,000 units at $4.00 per unit,
each consisting of 1.103 shares of 5% convertible preferred stock (the "Series A
Preferred Stock") and 1 common stock purchase warrant, exercisable at $5.75 per
share. In April 1996, the Company issued an additional 6,250 units at $4.00 per
unit. The Company received proceeds of $2,025,000 for these issuances.
In October 1996, the Company completed the initial public offering of
1,700,000 shares of common stock at $7.00 per share. Cash proceeds net of costs
was $10,425,000. Concurrent with the public offering, 558,399 shares of
redeemable preferred stock were automatically converted into an equivalent
number of shares of common stock.
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 the cash on hand, together
with its projected cash flow from operations, if any, will be sufficient to
finance its 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 product and otherwise reduce the
proposed operations.
Recently issued accounting standards may affect the Company's Financial
Statements in the future. See the section "Financial Statements" in Item 7 of
this report.
ITEM 7. FINANCIAL STATEMENTS
The Company's Financial Statements appear beginning on page F-1
following Item 13 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The following table sets forth information regarding the Company's
directors and executive officers as of December 31, 1996:
Name Age Position
Dr. Steven R. Fox 42 Chairman of the Board and Chief Executive
Officer
D. Brooks Cole 57 President and Chief Operating Officer
Norman Usen 55 Vice President-Operations, Vice
President-Product Development and Secretary
Anthony E. Winston 51 Vice President-Technology and Clinical
Research
Edwin Diaz 34 Chief Financial Officer, Vice President-
Finance and Treasurer
Dr. S.N. Bhaskar 74 Director
Dr. Bert D. Gaster 69 Director
Richard A. Gotterer 33 Director
Eric D. Horodas, Esq. 43 Director
The business experience, principal occupations and employment, as well
as the periods of service of each of the directors and executive officers of the
Company during at least the last five years are set forth below.
Steven R. Fox, D.D.S., F.I.C.D., F.A.C.D, is the founder of the
Company, and has been the Chairman of the Board of Directors and Chief Executive
Officer of the Company since June 1992. From June 1992 through December 1995 and
from June 1992 through August 1996, respectively, Dr. Fox was also the Company's
President and Treasurer. Dr. Fox is a member of the faculty of the Harvard
School of Dental Medicine. Since July 1978, Dr. Fox has been a practicing
dentist and currently practices dentistry on a part-time basis. Dr. Fox was an
Assistant Clinical Professor at New York University's College of Dentistry from
1979 to 1987. Dr. Fox has been active in various professional organizations,
including the International Dental Research Society, the American Dental
Association and the Ethics Committee of the Ninth District Dental Society.
D. Brooks Cole has been the President and Chief Operating Officer of
the Company since January 1996. Commencing in September 1993 and continuing
through December 1995, Mr. Cole was retained by the Company as a consultant.
Mr. Cole was an independent consultant on projects and assignments relating to
consumer and packaged goods marketing from 1992 to December 1995. Mr. Cole has
over thirty-five years of experience in the marketing of over-the counter
drugs, oral care products and cosmetics. Mr. Cole was employed by the
Mentholatum Company, Inc., an over-the-counter drug company, in various
positions from 1980 to 1993, most recently as President of the United States
Division, and a member of the Executive Committee and the Board of Directors
from 1983 to 1993. Mr. Cole was a Vice President of the Non Prescription Drug
Manufactures Association and served on its Board of Directors and Executive
Committee from 1990 to 1993.
Norman Usen had been the Vice President-Research and Development and
Product Development of the Company since July 1993. In May 1995, Mr. Usen
became the Company's Vice President-Product Development, Vice
President-Operations and Secretary. Mr. Usen specializes in consumer product
development and has over thirty years experience. From 1992 to April 1995, Mr.
Usen, as President and sole stockholder of Nu-Products, Inc. ("NP"), was an
independent consultant. From August 1993 through April 1995, NP was retained by
the Company as consultant on a part-time basis to coordinate product
development. See "Management - Employment and Consulting Agreements."
17
<PAGE>
Anthony E. Winston has been the Vice President-Technology and Clinical
Research since January 1995. Mr. Winston has over 25 years of technology
development and clinical research experience most recently as Technical Director
for Church & Dwight Co., Inc., a consumer products manufacturer, where he was
responsible for technology development, clinical research, ADA and FDA
interface, claim substantiation and patent protection for Arm & Hammer's baking
soda toothpastes, including their latest introduction: Peroxy Care<K174>. Mr.
Winston was employed at Church & Dwight Co., from 1970 to 1995. Mr. Winston is
the holder or co-holder of more than 60 United States patents, of which 16 are
for toothpaste products, with several additional oral care patents pending.
Edwin Diaz has been the Chief Financial Officer, Vice President-Finance
and Treasurer of the Company since August 1996. Prior to joining the Company,
Mr. Diaz was the Corporate Controller of NYCOR, Inc., a manufacturer of devices
used in heating and cooling systems, from September 1994 to August 1996. He was
the Controller of Lancer Industries, Inc., a company specializing in the
acquisition of distressed and under-performing companies, from 1990 until August
1994. Mr. Diaz was employed by the Alfieri Organization, a real estate
development company, as Assistant Controller from 1988 until 1990 and by the
accounting firm of Arthur Young & Company from 1986 until 1988. Mr. Diaz is a
certified public accountant.
S.N. Bhaskar, D.D.S., M.S., Ph.D., Major General U.S. Army (Ret.) has
been a director of the Company since August 1994 and the Chairman of the
Scientific Advisory Board since August 1992. Since 1981 Dr. Bhaskar has been in
a private dental practice in Monterey and Salinas, California. From January
1955 to December 1980, Dr. Bhaskar was Major General, Dental Corps in the United
States Army Dental Corps. He is an Honorary Fellow of the Academy of General
Dentistry, a Diplomat to the American Board of Oral Medicine and the American
Board of Oral Pathology, and a member of the Dental Research Advisory Committee
to the United States Army. Dr. Bhaskar is a former Vice Chairman of Atrix
Laboratories, Inc. and a consultant to the Board of Directors at Vipont, Inc., a
publicly-traded company engaged in the development and marketing of oral care
products.
Bert D. Gaster, D.D.S., M.S.D. has been a director of the Company since
November 1992 and has been a tenured Associate Professor at New York
University's College of Dentistry since 1970. Dr. Gaster has held various
faculty positions with New York University's College of Dentistry since 1970,
including that of Clinic (Module) Director for 16 years. Dr. Gaster is a past
President of the American College of Prosthodontics, New York section, has
served on the Budget Policy Development Committee and currently is President
elect of the New York University Dental Alumni Association. Dr. Gaster is
currently an attending Prosthodontist with four hospitals in the New York
metropolitan area.
Richard A. Gotterer has been a director of the Company since November
1992 and has been a portfolio manager of fixed income securities at Schroder
Capital Management Inc., an investment banking firm, since September 1993. Mr.
Gotterer was a private investor from June 1990 through August 1993. Mr. Gotterer
was the Vice President of Finance and Chief Financial Officer of Channel
American LPTV Holdings, Inc., an entertainment company, from February 1988 to
May 1990. He was a financial analyst with Oppenheimer & Co., Inc., an investment
banking firm, from October 1985 to October 1987.
Eric D. Horodas, Esq. has been a director of the Company since November
1992. Mr. Horodas has been President of Markev Realty Corporation since
September 1994, and has been Vice President and Secretary of Baco Realty
Corporation since June 1995, both of which are actively engaged in originating,
managing and servicing commercial real estate and mortgage investments. He has
formerly acted as a consultant to various insurance regulators and insurance
industry members in connection with the restructuring and rehabilitation of
financially troubled insurance companies from November 1993 through May 1995,
and was a founding partner and member of the Management Committee of the law
firm of Rubinstein & Perry, from February 1988 until October 1993.
All directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Officers are elected annually
by, and serve at the discretion of, the Board of Directors.
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<PAGE>
Committees of the Board of Directors
The Audit Committee, established in July 1993, currently consists of
Dr. Bhaskar and Mr. Gotterer (Chairman). The functions of the Audit Committee
are to recommend annually to the Board of Directors the appointment of the
independent public accountants of the Company, review the scope of their annual
audit and other services they are asked to perform, review the report on the
Company's financial statements following the audit, review the accounting and
financial policies of the Company and review management's procedures and
policies with respect to the Company's internal accounting controls.
The Compensation Committee, also established in July 1993, currently
consists of Dr. Gaster and Mr. Horodas (Chairman). The functions of the
Compensation Committee are to review and approve salaries, benefits and bonuses
for all executive officers of the Company, and to review and recommend to the
Board of Directors matters relating to employee compensation and employee
benefit plans. The Compensation Committee also administers the Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
Common Stock are required to file certain reports, within specified time
periods, indicating their holdings of and transactions in the Common Stock and
derivative securities. Based solely on a review of such reports provided to the
Company and written representations from such persons regarding the necessity to
file such reports, the Company is not aware of any failures to file reports or
report transactions in a timely manner during the Company's fiscal year ended
December 31, 1996, except that Dr. Fox, Mr. Cole, Dr. Bhaskar, Dr. Gaster, Mr.
Gotterer and Mr. Horodas each filed one late report concerning one transaction.
ITEM 10. EXECUTIVE COMPENSATION
The table below summarizes the compensation received by the Company's
Chief Executive Officer and each other executive officer who received a salary
and bonus in excess of $100,000 ("named executive officers") for services
rendered during the fiscal year ended December 31, 1996. No other executive
officer of the Company received compensation in excess of $100,000 during such
year.
Summary Compensation Table
Long-Term
Compensation
Securities
Name and Annual Compensation Underlying
Principal Position (1) Year Salary ($) Bonus($) Options (#)
- --------------------------------------- ----- ---------- -------- ----------
Steven R. Fox.......................... 1996 $175,000 $75,000 50,000
Chairman of the Board,
and Chief Executive Officer (2) (3)
D. Brooks Cole......................... 1996 $150,000 $22,500 50,000
President and Chief Operating Officer (3)
Anthony E. Winston..................... 1996 $135,000 $20,250 -
Vice President -
Technology and Clinical Research
Norman Usen............................ 1996 $115,000 $17,000 -
Vice President - Product Development
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<PAGE>
(1) See "Management - Employment and Consulting Agreements" for a
description of Dr. Fox's employment agreement with the Company as
Chairman of the Board and Chief Executive Officer which commenced
on January 1, 1994; Anthony E. Winston's employment agreement with
the Company as the Company's Vice President - Technology and
Clinical Research which commenced on January 1, 1995; D. Brooks
Cole's employment agreement with the Company whereby Mr. Cole
became the Company's President and Chief Operating Officer as of
January 1, 1996; and Norman Usen's employment agreement with the
Company as the Company's Vice President - Research and Development
and Vice President Operations.
(2) Dr. Fox resigned as the Company's President effective in January
1996, and as Treasurer effective August 1996.
(3) Options granted on December 11, 1996 issued at $6.875 for Dr.
Fox and $6.25 for Mr. Cole vest 25% as of December 11, 1997 and
an additional 25% on December 11 in each successive year.
The following table sets forth the individual grants of stock options
made during the fiscal year ended December 31, 1996 to each of the named
executive officers.
Option Grants in Last Fiscal Year
(Individual Grants)
--------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh)(1) Date
- ------------------ ------------ -------------- ----------- ----------
Steven R. Fox 50,000 31.3% $6.875 12/10/01
D. Brooks Cole 50,000 31.3% $6.25 12/10/06
Anthony E. Winston - - - -
Norm Usen - - - -
(1) Options granted on December 11, 1996 vest 25% as of December 11,
1997 and an additional 25% each successive year.
The following table sets forth the number of exercisable or vested and
unexercisable or unvested options during the fiscal year ended December 31, 1996
held by each of the named executive officers and the year-end value of such
options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values
Value of Unexercised
Number of Unexercised Options In-The-Money Options
at Fiscal Year-End (#) at Fiscal Year-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
--------- ----------------------------- -------------------------
Steven R. Fox 450,000/50,000 $ 1,462,500/0
D. Brooks Cole 135,000/50,000 $ 498,870/0
Anthony E. Winston 160,000/0 $ 360,000/0
Norm Usen 168,762/30,000 $ 830,309/147,600
At December 31, 1996, the market price of the Company's common stock was $6.25
per share.
20
<PAGE>
At March 19, 1997, the market price of the Company's common stock was
$19.50 per share. On such date the value of Dr. Fox's exercisable options was
$7,425,000 and the value of Dr. Fox's unexercisable options was $631,250. On
such date the value of Mr. Cole's exercisable options was $2,287,620 and the
value of Mr. Cole's unexercisable options was $662,500. On such date the value
of Mr. Winston's exercisable options was $2,880,500. All of Mr. Winston's
options were execercisable. On such date the value of Mr. Usen's exercisable
options was $3,066,406 and the value of Mr. Usen's unexercisable options was
$545,100.
Compensation of Directors
Each non-employee member of the Board of Directors presently receives
$500 plus reimbursement of expenses for each board meeting attended. See
"Management - Employee Benefits Plans" and " - Employment and Consulting
Agreements" for a description of options granted to members of the Board of
Directors. Each member of the Audit Committee and the Compensation Committee
receives $250 for each committee meeting attended together with reimbursement of
expenses.
Employment and Consulting Agreements
The Company has entered into an employment agreement with Dr. Steven R.
Fox, pursuant to which Dr. Fox is employed as Chairman of the Board of Directors
and Chief Executive Officer for a term of five years commencing on January 1,
1994. The agreement, as amended, provides that Dr. Fox shall devote such time to
the Company as necessary to perform his responsibilities thereunder, but no less
then forty hours per week, in consideration of an annual salary which was
increased by the Board to $175,000 in 1996 and $250,000 per year in January 1997
subject to adjustment. The employment agreement acknowledges that Dr. Fox shall
be entitled to maintain his dental practice and see patients on a basis that
does not interfere with the performance of his duties thereunder. Dr. Fox
continues to practice dentistry on a part-time basis. Pursuant to the agreement,
if Dr. Fox opposes a change of control of the Company, as defined in the
agreement, and thereafter elects to terminate his employment with the Company,
he is entitled to a one time payment of either (i) two and nine-tenths (2.9)
times the sum of Dr. Fox's current base annual salary plus any amounts due to
him under the Company's Incentive Compensation Plan if a majority of the
Company's Board of Directors opposed the change of control or (ii) two and
one-half (2.5) times the sum of Dr. Fox's current base annual salary plus any
amounts due to him under the Company's Incentive Compensation Plan if a majority
of the Company's Board of Directors voted in favor of the change of control.
However, such payment shall not exceed the maximum payment permitted by Section
280G of the Internal Revenue Code of 1986, as amended. Pursuant to the Company's
Incentive Compensation Plan, Dr. Fox shall be entitled to 50% of all amounts
allocated to such plan. See "Employee Benefit Plans" below.
The Company has entered into an employment agreement with D. Brooks
Cole, pursuant to which Mr. Cole is employed as President and Chief Operating
Officer. The agreement, as amended, provides that Mr. Cole is required to devote
all of his business time to the Company in consideration of an annual salary of
$150,000 in 1996 and $175,000 in 1997, subject to adjustment. In addition, Mr.
Cole will be entitled to 15% of all amounts allocated to the Company's Incentive
Compensation Plan. Mr. Cole serves at the pleasure of the Board of Directors;
however, if the Company elects to terminate the agreement, Mr. Cole is entitled
to six months severance pay including all salary and benefits. Pursuant to the
employment agreement, Mr. Cole was granted a seven-year option to purchase
99,000 shares of Common Stock at an exercise price equal to $3.00 per share,
immediately exercisable from the date of the grant, and expiring seven years
thereafter. See "Employee Benefit Plans" below.
The Company entered into an employment agreement with Norman Usen,
pursuant to which Mr. Usen is employed full-time as Vice President-Product
Development and Vice President-Operations for a term of three years commencing
on May 1, 1995. The consulting agreement between the Company and NP, a company
controlled by Mr. Usen, terminated upon the commencement of Mr. Usen's
employment agreement. Pursuant to the employment agreement, Mr. Usen will devote
full time to the Company in consideration of an annual salary of $105,000 in the
first year of the term, $115,000 in the second year of the term and $125,000 in
the third year of the term. If Mr. Usen is terminated from the Company without
cause, as defined in the agreement, then he will be entitled to continue to
21
<PAGE>
receive his salary and benefits until the end of the term of the agreement. As
additional compensation, Mr. Usen will be entitled to 12.5% of all amounts
allocated to the Company's Incentive Compensation Plan. Pursuant to the
employment agreement, Mr. Usen was granted seven-year options to purchase an
aggregate 90,000 shares of Common Stock at an exercise price equal to $1.33 per
share. The options previously granted to NP were terminated and reissued to Mr.
Usen. See "Certain Transactions."
The Company has entered into an employment agreement with Anthony E.
Winston, as amended, pursuant to which Mr. Winston is employed full-time as Vice
President-Technology and Clinical Research for a term of three years expiring in
January 2000. Pursuant to the employment agreement, Mr. Winston will devote his
full time to the Company in consideration of an annual salary of $143,000 in
1997, $151,000 in 1998 and $160,000 in 1999. If Mr. Winston is terminated from
the Company without cause, as defined in the agreement, then he shall be
entitled to continue to receive his salary and benefits until the end of the
term of the agreement. As additional compensation, Mr. Winston shall be entitled
to 10% of all amounts allocated to the Company's Incentive Compensation Plan.
Pursuant to the employment agreement, Mr. Winston was granted ten-year options
to purchase an aggregate 150,000 shares of Common Stock at an exercise price
equal to $1.33 per share.
The Company has entered into an employment agreement with Edwin Diaz
pursuant to which Mr. Diaz is employed full-time as Vice President-Finance and
Chief Financial Officer at the discretion of the Company's Board of Directors.
Pursuant to the employment agreement, Mr. Diaz will devote his full time to the
Company in consideration of an annual salary of $89,000, subject to adjustment.
In addition, Mr. Diaz will be entitled to not less than 5% of all amounts
allocated to the Company's Incentive Compensation Plan. If the Company
terminates Mr. Diaz's employment without cause, as defined in the agreement, he
will be entitled to six months severance pay, including all salary and benefits.
If, after a change of control of the Company, Mr. Diaz's employment is
terminated without cause or he terminates his employment, he will be entitled to
receive one year's compensation, including salary and benefits. In connection
with his employment, Mr. Diaz was granted options to purchase 25,000 shares of
the Company's Common Stock at an exercise price of $7.00 per share, half of
which vest on the first anniversary of his employment and the balance of which
vest on the second anniversary of his employment.
Employee Benefits Plans
1993 Stock Option Plan
In July 1993, the Board of Directors adopted the Plan which was
approved by the Company's stockholders in September 1993. The Plan provides for
the grant to qualified employees (including officers and directors) of the
Company of options to purchase shares of Common Stock. A total of 1,500,000
shares of Common Stock have been reserved for issuance upon exercise of stock
options granted under the Plan. The Plan is administered by the Board of
Directors or a committee of the Board of Directors (the "Committee") whose
members are not entitled to receive options under the Plan (excluding options
granted exclusively for directors fee). The Committee has complete discretion to
select the optionee and to establish the terms and conditions of each option,
subject to the provisions of the Plan. Options granted under the Plan may or may
not be "incentive stock options" as defined in Section 422 of the Internal
Revenue Code ("Incentive Options") depending upon the terms established by the
Committee at the time of grant, but the exercise price of options granted may
not be less than 100% of the fair market value of the Common Stock as of the
date of grant (110% of the fair market value if the grant is an Incentive Option
granted to an employee who owns more than 10% of the outstanding Common Stock).
Options may not be exercised more than 10 years after the grant (five years if
the grant is an Incentive Option to any employee who owns more than 10% of the
outstanding Common Stock). Options granted under the Plan are not transferable
and may be exercised only by the respective grantees during their lifetimes or
by their heirs, executors or administrators in the event of death. Under the
Plan, shares which are the subject of canceled or terminated options are
reserved for subsequently granted options. The number of options outstanding and
the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends.
As of the date of this report, the Company has granted options
exercisable for periods of three to ten years to purchase an aggregate of
1,376,306 shares of Common Stock, at an exercise price ranging from $1.33 to
$8.00 per
22
<PAGE>
share (subject to adjustment), to certain employees, officers and directors of
the Company, including options to purchase an aggregate of 450,000 shares at
$3.00 per share, and 50,000 shares at $6.875 granted to the Company's Chairman
of the Board, options to purchase an aggregate of 144,515 shares granted to
other members of the Company's Board of Directors at prices ranging from $3.06
to $6.25 per share, and options to purchase an aggregate of 47,079 shares
granted to members of the Company's Scientific Advisory Board other than members
of the Company's Board of Directors at prices ranging from $2.00 to $4.40 per
share. See "Employment and Consulting Agreements" above for a description of
options granted to an affiliate of an officer of the Company.
Incentive Compensation Plan
The Company has established a five-year incentive compensation program
to award officers and key employees for their efforts on behalf of the Company
as measured by yearly increases in the net income (before income taxes and
extraordinary items) generated by the Company. The program provides for
incentive compensation utilizing an objective formula based upon guidelines in
accordance with the Company's goals. The Company will establish a yearly bonus
pool commencing with the closing date of the offering, equal to five percent of
its net income before income taxes including the amount provided for by the
incentive compensation plan, and extraordinary items ("ICP Income"), to be
distributed to officers and key employees. For the subsequent four fiscal years,
such bonus pool shall only be established in the event the Company's ICP Income
equals or exceeds by at least 5% the Company's ICP Income for the prior fiscal
year. Amounts remaining in the yearly bonus pool which are not distributed do
not carry over into the subsequent year's pool. The maximum amount an executive
or key employee may receive from the bonus pool is limited to two times such
person's salary.
ITEM 11. SECURITY BY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
Principal Stockholders
The following table sets forth, as of March 19, 1997, certain
information, with respect to the beneficial ownership of shares of Common Stock
by (i) each person known by the Company to be the owner or more than 5% of the
outstanding shares of Common Stock, (ii) each director, (iii) each named
executive officer and (iv) all directors and executive officers as a group:
Amount and
Nature of Percentage of
Name and Address Beneficial Outstanding Shares
of Beneficial Owners Ownership (1) Owned (2)
- -------------------- ------------- -------------------
Dr. Steven R. Fox (3) (4)............. 3,543,240 48.2%
Dr. Bert Gaster (5)................... 25,253 *
Mr. Richard Gotterer (5).............. 90,512 1.3%
Mr. Eric Horodas (5) (6).............. 109,262 1.6%
Dr. S.N. Bhaskar (7).................. 68,756 1.0%
Mr. Anthony E. Winston (8)............ 160,000 2.3%
Mr. D. Brooks Cole (9)................ 135,000 1.9%
Mr. Norman Usen (10).................. 198,762 2.8%
All directors and executive officers
as a group (8 persons) (11) ...... 4,330,785 54.1%
* Represents less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed
to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
23
<PAGE>
(2) Based on 6,900,378 shares issued and outstanding on March 19, 1997.
(3) The address of Mr. Fox is c/o Enamelon, Inc., 15 Kimball Avenue,
Yonkers, NY 10704.
(4) Includes 36,348 shares held in trust for the benefit of Dr. Fox's
minor children. Also includes 450,000 shares issuable upon exercise
of currently exercisable stock options.
(5) Includes 25,253 shares issuable upon exercise of currently exercisable
stock options.
(6) Includes 9,375 shares issuable upon exercise of warrants.
(7) Includes 68,756 shares issuable upon exercise of stock options
(8) Includes 160,000 shares issuable upon exercise of stock options.
(9) Includes 135,000 shares issuable upon exercise of stock options.
(10)Includes 198,762 shares issuable upon exercise of stock options.
(11)Includes 1,088,277 shares issuable upon exercise of currently stock
options and 9,375 shares issuable upon exercise of currently
exercisable warrants.
By virtue of his ownership of shares of Common Stock and position with
the Company, Steven R. Fox may be deemed a "parent" and a "founder" of the
Company as such terms are defined under the federal securities laws.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has subleased its office facilities without a written
agreement, since December 1, 1992, from Dr. Steven R. Fox, the Chairman of the
Board, at a rent of $600 per month. Commencing January 1, 1996 for a period of
one year, the Company entered into a lease with a relative of Dr. Fox for
additional office facilities at a rent of $2,500 per month. See Item 2
"Description of Property" for a description of such facilities.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended (1)
3.2 Amended and Restated By-Laws of the Registrant (1)
4.1 Specimen Copy of Stock Certificate for shares of Common Stock (1)
4.2 Form of Registration Rights Agreement between the Registrant
and certain purchasers of units (1)
10.1 Restated Patent License Agreement by and between the Registrant
and the American Dental Association Health Foundation dated as
of June 24, 1995 (1)
10.2 Amendment Agreement by and between the Registrant and the
American Dental Association Health Foundation dated as of June
12, 1995 (1)
10.3 Restated Foreign Patent License Agreement by and between the
Registrant and the American Dental Association Health
Foundation dated as of November 18, 1992 (1)
10.4 Foreign License Amendment Agreement by and between the
Registrant and the American Dental Association Health
Foundation dated as of June 14, 1995 (1)
10.5 The Registrant's 1993 Stock Option Plan (1)
10.6 The Registrant's Incentive Compensation Plan (1)
10.7 Employment Agreement between the registrant and Dr. Steven R.
Fox, as amended as of June 15, 1996 (1)
24
<PAGE>
10.8 Amended and Restated Employment Agreement between the
Registrant and D. Brooks Cole dated as of June 1, 1995 (1)
10.9 Employment Agreement between the Registrant and Norman Usen and
Nu-Products dated as of May 1, 1995 (1)
10.10 Employment Agreement between the Registrant and Anthony E.
Winston dated as of January 17, 1995 (1)
10.11 Employment Agreement between the Registrant and Edwin Diaz dated
July 29, 1996 (1)
10.12 Lease Agreement with Unum Life Insurance Company of America
dated December 27, 1993 (1)
10.13 Lease Agreement with East Brunswick Woods Associates, L.P. dated
November 1995 (1)
10.14 Amendment dated January 1, 1997 to D. Brooks Cole Employment
Agreement
10.15 Amendment dated January 17, 1997 to Anthony Winston Employment
Agreement
27.1 Financial Data Schedule
(1) Incorporated by reference to the Company's registration
statement on Form S-1 (file no. 333-06455) effective on
October 24, 1996.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the quarter
ended December 31, 1996.
25
<PAGE>
ENAMELON, INC.
( A development stage company)
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants............... F-2
Financial Statements:
Balance Sheets......................................... F-3
Statements of Operations............................... F-4
Statements of Stockholders' Equity..................... F-5
Statements of Cash Flow................................ F-6
Notes to Financial Statements.......................... F-7 to F-15
F-1
<PAGE>
Report of Independent Certified Public Accountants
Enamelon, Inc.
Yonkers, New York
We have audited the accompanying balance sheets of Enamelon, Inc. (A
Development Stage Company) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended and for the period from June 9, 1992 (inception) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Enamelon, Inc., as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended and for the period from June 9, 1992 (inception)
to December 31, 1996 in conformity with generally accepted accounting
principles.
New York, New York BDO Seidman, LLP
February 11, 1997
F-2
<PAGE>
ENAMELON, INC.
(A development stage company)
Balance Sheets
December 31,
1995 1996
Assets
Current:
Cash and cash equivalents (Note 1)..............$ 1,790,666 $11,389,894
Prepaid expenses and other assets............... 11,077 193,290
Inventory....................................... -- 53,183
------------ ----------
Total current assets.......................... 1,801,743 11,636,367
Equipment, net (Note 1 and 2)................... 58,077 438,348
Deferred costs, net (Note 1 and 3).............. 172,157 308,030
Other assets ................................... 8,939 8,939
------------ ----------
Total assets $ 2,040,916 $12,391,684
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................$ -- $ 553,377
Accrued expenses................................ 173,939 539,894
----------- ----------
Total current liabilities..................... 173,939 1,093,271
----------- ----------
Commitments (Notes 6 and 7)
Stockholders' equity (Note 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 4,635,273 and 6,900,378........... 4,635 6,900
Additional paid-in capital...................... 4,055,925 16,409,926
Accumulated deficit during the development stage..(2,193,583) (5,118,413)
------------ -----------
Total stockholders' equity.................... 1,866,977 11,298,413
------------ -----------
Total liabilities and stockholders equity $ 2,040,916 $12,391,684
=========== ===========
See accompanying notes to financial statements.
F-3
<PAGE>
ENAMELON, INC.
(A development stage company)
Statements of Operations
Period from
June 9, 1992
Year ended December 31, (Inception) to
--------------------- December 31,
1995 1996 1996
---- ---- ----
Expenses:
Marketing and selling.......... $ -- 362,371 $ 362,371
Research and testing........... 546,994 1,761,718 2,631,305
Administrative and other....... 533,587 996,160 2,091,000
--------- ------------ -----------
Total expenses............... 1,080,581 3,120,249 5,084,676
Other charges (income):
Interest and dividends......... (19,663) (195,419) (236,232)
Write-off of deferred
offering costs (Note 1)........ -- -- 269,969
----------- ----------- -----------
Net loss......................... $(1,060,918) $(2,924,830) $(5,118,413)
============ =========== ============
Net loss per common share
(Note 1)....................... $ (0.20) $ (0.52)
=========== ===========
Weighted average common shares
outstanding.................... 5,234,289 5,636,935
=========== ===========
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTON>
Enamelon, Inc.
(A development stage company)
Statements of Stockholders' Equity (Note 4)
Common Stock Additional Accumulated Total
------------ paid-in defecit during the stockholders'
Shares Par Value capital development stage equity
------ --------- --------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock in June and December 1992 .... 3,331,458 $ 3,331 $ 111,684 $ -- $ 115,015
Issuance of common stock for legal services rendered .. 9,792 10 29,960 -- 29,970
Net loss .............................................. -- -- -- (37,070) (37,070)
--------- --------- ----------- -------------- -------------
Balance, December 31, 1992............................. 3,341,250 3,341 141,644 (37,070) 107,915
Issuance of common stock at $3.06 per share in
private placement, net of costs ..................... 293,619 294 868,648 -- 868,942
Issuance of common stock for legal services rendered .. 17,268 17 63,348 -- 63,365
Net loss .............................................. -- -- -- (296,671) (296,671)
--------- --------- ----------- ------------- ------------
Balance, December 31, 1993............................. 3,652,137 3,652 1,073,640 (333,741) 743,551
Issuance of common stock at $1.33 per share in
private placement, net of costs ..................... 118,125 118 141,783 -- 141,901
Issuance of common stock for legal services rendered .. 14,538 15 63,985 -- 64,000
Net loss .............................................. -- -- -- (798,924) (798,924)
--------- --------- ----------- ------------- ------------
Balance, December 31, 1994............................. 3,784,800 3,785 1,279,408 (1,132,665) 150,528
Issuance of common stock at $1.33 per share in
private placement, net of cost ....................... 93,750 94 124,906 -- 125,000
Issuance of common stock at $4.00 per share in
private placement, net of cost........................ 648,723 648 2,504,024 -- 2,504,672
Issuance of common stock for professional services
rendered ............................................. 108,000 108 147,587 -- 147,695
Net loss ............................................... -- -- -- (1,060,918) (1,060,918)
--------- --------- ----------- ---------- -----------
Balance, December 31, 1995.............................. 4,635,273 4,635 4,055,925 (2,193,583) 1,866,977
Issuance of common stock for legal services
rendered.............................................. 6,706 7 26,817 -- 26,824
Issuance of common stock in public offering, net of
costs ................................................. 1,700,000 1,700 10,423,572 -- 10,425,272
Conversion of preferred stock to common stock........... 558,399 558 1,903,442 -- 1,904,000
Warrants exercised ..................................... -- -- 170 -- 170
Net loss................................................ -- -- -- (2,924,830) (2,924,830)
--------- --------- ----------- ------------- ------------
Balance, December 31, 1996.............................. 6,900,378 $ 6,900 $16,409,926 $ (5,118,413) $ 11,298,413
========== ========= =========== ============= ============
F-5
</TABLE>
<PAGE>
ENAMELON, INC.
(A development stage company)
Statements of Cash Flow
Period from
June 9, 1992
Year ended December 31, (Inception) to
--------------------- December 31,
1995 1996 1996
---- ---- ----
Cash flows from operating activities:
Net loss ............................$ (1,060,918) $ (2,924,830) $ (5,118,413)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Write-off of deferred offering costs. -- -- 269,969
Stock issued for services........... 147,695 26,824 174,519
Depreciation and amortization....... 23,490 45,488 89,257
Increase in prepaid expenses and
other assets....................... (2,203) (182,213) (202,228)
Increase in inventory............... -- (53,183) (53,183)
Increase in deferred costs.......... -- -- (1,133)
Increase in accrued expenses and
account payable..................... 59,287 616,078 788,017
------------ ----------- -----------
Net cash used in operating activities. (832,649) (2,471,836) (4,053,195)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of equipment ............... (28,949) (411,056) (489,678)
Patents, trademarks and licenses...... (27,505) (150,575) (298,181)
------------ ----------- -----------
Net cash used in investing
activities......................... (56,454) (561,631) (787,859)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock... 2,718,459 11,900,000 15,744,317
Proceeds from sale of preferred stock. -- 2,025,000 2,025,000
Offering costs......................... (88,787) (1,292,305) (1,538,369)
------------ ----------- -----------
Net cash provided by financing
activities......................... 2,629,672 12,632,695 16,230,948
------------ ----------- -----------
Net increase in cash and cash
equivalents........................... 1,740,569 9,599,228 11,389,894
Cash and cash equivalents, beginning
of period............................ 50,097 1,790,666 --
------------ ----------- -----------
Cash and cash equivalents, end of
period............................ $ 1,790,666 $ 11,389,894 $ 11,389,894
============ ============ ============
Supplemental disclosures of noncash
financing activities:
The Company issued common stock for
professional services performed by
unrelated parties................... $ 147,695 $ 26,824 $ 331,854
============ ============ ============
Accrued offering cost........... $ -- $ 282,423 --
============ ============ ============
See accompanying notes to financial statements.
F-6
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements
1. Organization and Summary of Accounting Policies
Organization
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. To date, the Company has not commenced any product
commercialization or realized any operating revenues.
The Company completed formulation of its all-family toothpaste and the
testing required by the monograph published by the Food and Drug Administration
during 1996. The Company intends to begin in the early part of 1997 to test
market Enamelon toothpaste in several representative markets comprising
approximately 5% of all United States households. Test marketing and additional
clinical human studies to establish additional marketing claims for consumers
and dentistsss are expected to continue throughout 1997, with a national
roll-out of Enamelon toothpaste in the first half of 1998. The Company expects
to continue to incur operating losses throughout this period and may require
additional financing to continue its operations thereafter.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, prepaid expenses and accrued expenses
approximate fair value because of the short maturity of these items.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid debt
instruments with original maturities of three months or less, principally
Treasury Bills and money market accounts.
Equipment
Equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method.
Deferred Costs
Organization costs are amortized using the straight-line method over a
sixty-month period.
Licensing costs and patent rights are amortized using the straight-line
method over seventeen years, which is the term of the licensing agreements and
the estimated useful lives of the patents, respectively.
F-7
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
Trademarks are being amortized using the straight-line method over
seventeen years.
Deferred offering costs related to a proposed private placement had
been deferred until the proceeds of the private placement were raised. Since the
related private placement transaction did not occur as expected, these costs
were expensed in 1994.
Income Taxes
Income taxes are computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires, among other things, a liability approach to
calculating deferred income taxes. SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets must be reduced by a valuation allowance to amounts expected
to be realized.
Earnings Per Share
Earnings per share are presented for 1995 on a pro forma basis to give
retroactive effect to the conversion of the redeemable preferred stock as a
result of the public offering discussed in Note 4. The calculation of earnings
per share reflects the conversion of the preferred stock as if it occurred in
January 1, 1995.
The weighted average number of common shares outstanding used in
computing the net loss per common share for the year ended December 31, 1996 was
adjusted for the effects of the application of Securities and 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 filing of the
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 a 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 average market price outstanding
since the initial public offering.
Recent Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that certain long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicated that the carrying amount
may not be recoverable. The adoption of this pronouncement in 1996 did not have
a significant effect on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which allows the choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options. The Company has selected the option to continue the use
of the current intrinsic value method.
F-8
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
Presentation of Prior Year Data
Certain reclassifications have been made to conform prior year data
with the current presentation.
2. Equipment
Equipment is summarized as follows: December 31, Estimated Useful Life
------------
1995 1996
---- ----
Furniture and fixtures $ 6,691 $ 27,334 5 - 7 years
Equipment 71,931 462,344 3 - 10 years
------- -------
78,622 489,678
Less: Accumulated depreciation 20,545 51,330
------- --------
$58,077 $438,348
======= ========
3. Deferred Costs
Deferred costs are summarized as follows:
December 31,
------------
1995 1996
Patent rights $ 132,207 $ 256,557
Trademarks 43,082 67,840
Licensing costs 18,962 18,962
Organization cost 1,133 2,600
--------- --------
195,384 345,959
Less: Accumulated amortization 23,227 37,929
--------- ---------
$ 172,157 $ 308,030
========= =========
4. Stockholders' Equity
Redeemable Preferred Stock
In January 1996, the Company issued 500,000 units at $4.00 per unit,
each consisting of 1.103 shares of 5% convertible Series A preferred stock and 1
common stock purchase warrant, exercisable at $5.75 per share. In April 1996,
the Company issued an additional 6,250 units at $4.00 per unit. The Company
received proceeds of $2,025,000 for these issuances. In October 1996, the
558,399 shares of Series A Preferred Stock were converted into common stock
and retired upon the consummation of the initial public offering.
In connection with the placement of the transaction, the Company issued
warrants to purchase 100,000 shares at an exercise price of $4.80 and 23,750
shares at $3.60 per share, which expire January 23, 2003.
F-9
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
Common Stock
In November 1992, the Board of Directors amended the Company's
Certificate of Incorporation to increase the number of authorized common shares
from 15,000 shares to 3,000,000 shares and effected a 100-for-one stock split.
The Company effectuated a 1.19688-for one reverse stock split of its common
stock in July 1993, a one-for-1.65068 stock split of its common stock in
September 1994 and a three-for-one stock split in June 1995. All common shares,
common stock options and price per share information disclosed in the financial
statements and notes thereto have been adjusted to give retroactive effect for
these stock splits. The Board of Directors amended the Company's Certificate of
Incorporation to increase the Company's authorized shares of common stock from
3,000,000 to 20,000,000.
In December 1992, 9,792 shares of stock were issued for services
performed by unrelated parties. In September 1993, November 1993 and January
1994, an additional 4,545 share, 12,723 shares and 14,538 shares, respectively,
were issued for services performed by unrelated parties. In May and June 1995,
an additional 105,000 shares and 3,000 shares, respectively, were issued for
services performed by unrelated parties. In January 1996, an additional 6,706
shares were issued for services performed by unrelated parties. Common stock
issued for services was valued at the estimated fair value of the stock issued.
In January 1993, the Company issued an aggregate 293,619 shares of its
common stock to private investors, officers and directors of the Company for the
aggregate consideration of $900,000.
In September 1994, the Company sold 118,125 shares of common stock and
warrants to purchase 59,064 shares of common stock at an exercise price of $1.33
per share for an aggregate amount of $157,500.
In May 1995, the Company issued an aggregate 93,750 shares of its
common stock and warrants to purchase 93,750 shares of common stock at an
exercise price of $1.33 per share to private investors, officers and directors
of the Company for an aggregate consideration of $125,000.
On various dates through December 31, 1995, the Company issued an
aggregate 648,723 shares of its common stock pursuant to a private placement
memorandum dated June 20, 1995 to private investors, officers and directors of
the Company for an aggregate consideration of $2,504,672, net of expenses. In
connection with the private placement, the Company authorized the issuance of
warrants to purchase 26,276 shares of common stock at an exercise price of $4.00
per share, and 1,562 shares of common stock at an exercise price of $3.60 per
share, which expire December 14, 2000, to representatives in the offering.
Initial Public Offering
In October 1996, the Company completed the initial public offering of
1,700,000 shares of common stock at $7.00 per share. Cash proceeds net of costs
was $10,425,000. Concurrent with the public offering, 558,399 shares of
redeemable preferred stock were automatically converted into an equivalent
number of shares of common stock.
F-10
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
Stock Option Plan
In 1993, the Company adopted the 1993 Stock Option Plan (the "Option
Plan"). The Option Plan provides for the grant of options to qualified employees
(including officers and directors) of the Company to purchase an aggregate of
1,500,000 shares of common stock. The Option Plan is administered by the Board
of Directors or a committee of the Board of Directors (the "Compensation
Committee") whose members are not entitled to receive options under the Option
Plan (excluding options granted exclusively for directors' fees). Options
granted under the Plan may or may not be "incentive stock options" as defined in
the Internal Revenue Code ("Incentive Options") depending upon the terms
established by the Compensation Committee at the time of grant. The exercise
price shall not be less than the fair market value of the Company's common stock
as of the date of grant (110% of the fair market value if the grant is an
Incentive Option to an employee who owns more than 10% of the Company's
outstanding common stock). Options granted under the Plan are subject to a
maximum term of 10 years.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in SFAS No.
123. The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants during the period from January 1,
1995 to October 24, 1996 ("pre IPO"), and October 25, 1996 to December 31, 1996
("post IPO"), respectively; no dividend yield for both years; expected
volatility of .01 and 35 percent; risk-free interest rates of 6.5 and 6.2
percent and expected lives of 6.3 and 6.8 years for the options.
Under the accounting provisions of SFAS No. 123, the Company's net loss
and loss per share would have been reduced to the pro forma amounts indicated
below:
1995 1996
---- ----
Net loss
As reported $1,060,918 $2,924,830
Pro forma $1,735,766 $3,365,581
Loss per share
As reported $(0.20) $(0.52)
Pro forma $(0.33) $(0.60)
F-11
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
A summary of activity for the Company's Plan, including those options
granted pursuant to the terms of certain employment and other agreements (see
Note 7), is as follows:
Weighted average
Option shares Exercise price
------------- ----------------
Balance, January 1, 1995 380,487 $3.02
Granted 937,081 2.35
Exercised -- --
Cancelled (108,762) 3.37
---------- ----
Balance, December 31, 1995 1,208,806 2.50
Granted 160,000 6.51
Exercised -- --
Cancelled -- --
--------- -----
Balance, December 31, 1996 1,368,806 $2.97
========= =====
December 31,
------------
1995 1996
---- ----
Options exercisable 1,148,806 1,192,806
Weighted average exercise
price of option exercisable $ 2.56 $ 2.57
Weighted average fair value of
options granted during the year $ 674,848 $ 440,751
The following table summarized information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ------------- ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$1.33 to $2.67 405,213 6.2 $1.37 375,213 $1.38
$3.00 to $4.00 803,593 3.1 $3.07 803,593 $3.07
$5.81 to $7.00 160,000 7.5 $6.51 14,000 $6.25
--------- ---------
$1.33 to $7.00 1,368,806 4.6 $2.97 1,192,806 $2.57
========= =========
F-12
</TABLE>
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
5. Income Taxes
At December 31, 1996, the Company had a deferred tax asset of
approximately $2,047,000 primarily attributable to net operating loss
carryforwards. The deferred tax asset has been fully reserved by a valuation
allowance of the same amount.
The net operating loss carryforwards at December 31, 1996 totaling
approximately $5,118,000 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.
6. Commitments
Leases
The Company leases office facilities in New York from a related party
and laboratory facilities in New Jersey. The lease for the laboratory facilities
includes provisions requiring the Company to pay a proportionate share of the
increase in real estate taxes and operating expenses over base period amounts.
The minimum rents for the leased property for the subsequent years are as
follows:
Year ending December 31,
1997 $ 79,000
1998 52,000
-----------
$ 131,000
===========
Rent expense for the years ended December 31, 1995 and 1996 was $35,500
and $83,028 respectively, and $160,483 for the period from June 9, 1992
(inception) to December 1996.
Patent License Agreements
In June 1992, the Company entered into a patent licensing agreement
with the ADAHF, the holder and/or the applicant for the patents for the
Amorphous Calcium Compounds ("ACC"). The agreement, as modified, grants the
Company the exclusive United States license to manufacture and sell dentifrices,
chewing gum, food and confection formulated according to the patented process in
return for royalty payments to the licensor. In November 1992, the Company
entered into an exclusive international patent licensing agreement which, as
modified, granted the Company patent license rights in Austria, Belgium, Canada,
China, Denmark, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg,
Monaco, the Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein,
Taiwan and the United Kingdom. The grants extend to improvements in patent
compounds and utilities in dentifrices, chewing gum, food and confectionery
products developed by the ADAHF.
The exclusive United States license has been granted for an initial
term from the date of the agreement until three years following the physical and
chemical stabilization of the formula in a commercially viable product and
following the first Food and Drug Administration ("FDA") approval necessary to
market any ACC products in their
F-13
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
commercially viable form to professionals or the general public. The foreign
license expires upon the earlier of the termination of the United States license
or the expiration of the foreign patents license thereunder. The licenses are
renewable in four year increments for the life of the ACC patents subject to
minimum royalty payment terms, and transferable under certain conditions with
the prior written consent of the licensor, which consent may not be unreasonably
withheld. The licenses are subject to cancellation in the event the Company
fails to comply with its terms and conditions, including payment of royalties
and other amounts due thereunder.
The Company was also granted an option and right of first refusal, as
amended, for a limited license under future patents and patent applications for
ACC for all territories not included within the licensed territories under the
foreign patent license, with respect to dentifrices, chewing gum, food and
confection. Before granting such a license to third parties, the ADAHF must
first offer the license to the Company on the terms consistent with the foreign
license agreement. To the extent the ADAHF has not granted the license to a
third party due to the Company's failure to exercise its right of first refusal,
the Company has the option to receive a license in any of such territories with
the terms consistent with the foreign license agreement.
In consideration for the grant of the exclusive United States license,
the Company is required to make royalty payments of four percent of net sales,
subject to minimum royalty payments of $7,000. In consideration for the grant of
foreign patent rights, the Company is required to pay seven percent of net sales
and four percent in a joint venture and bear the costs of prosecution of foreign
patent applications. However, to the extent the ADAHF grants a foreign license
to a third party to use ACC in products other than dentifrices, chewing gum,
food and confection, then such third party must share with the Company the costs
associated with the foreign patent applications. If the Company sublicenses a
foreign patent, it will pay to the ADAHF twenty-five percent of the gross income
resulting from such sublicenses actually received by the Company.
7. Employment and Consulting Agreements
The Company has established a five-year incentive compensation program
(the "Incentive Compensation Program") for certain of its officers and key
employees. The Incentive Compensation Program provides for the establishment of
a yearly pool, equal to 5% of the Company's net income before expenses pursuant
to the Incentive Compensation Program, taxes and extraordinary items ("Plan Net
Income"). Such pool shall only be established in the event that the Company's
Plan Net Income equals or exceeds by at lease 5% the Company's Plan Net Income
for the prior fiscal year.
The Company has entered into a five-year employment agreement for the
services of a Chairman of the Board of Directors and Chief Executive Officer
commencing January 1, 1994. The agreement, as amended, provides for an annual
salary of $175,000 in 1996 and $250,000 per year in January 1997, subject to
adjustment, as well as 50% of all amounts allocated by the Board of Directors to
the Company's Incentive Compensation Program. The Company has granted this
officer an option to purchase 450,000 shares of common stock at an exercise
price of $3.00 per share, which expires five years from the date of grant.
The Company entered into an employment agreement for the services of a
President and Chief Operating Officer which provides for an annual salary of
$150,000 in 1996 and $175,000 in 1997, subject to adjustment, as well as 15% of
all amounts allocated by the Board of Directors to the Company's Incentive
Compensation Program. In addition, in 1996 the Company granted this individual
an option to purchase 99,000 shares of common stock at an exercise price of
$3.00 per share which expires seven years from the date of grant.
F-14
<PAGE>
ENAMELON, INC.
(A development stage company)
Notes to Financial Statements - Continued
In May 1995, the Company entered into a three-year employment agreement
for the services of a Vice President - Product Development and Operations and
Secretary. This agreement, which replaced a prior consulting agreement (the
"Consulting Agreement"), provides for annual compensation of $105,000 in the
first year, $115,000 in the second year and $125,000 in the third year, subject
to adjustment, as well as 12.5% of all amounts allocated by the Board of
Directors to the Company's Incentive Compensation Program. In addition, options
to purchase 108,762 shares of common stock at various exercise prices previously
granted to the individual pursuant to the Consultanting Agreement were cancelled
and regranted to the officer at an exercise price of $1.33 per share.
Furthermore, the Company has granted this individual an option to purchase an
additional 90,000 shares of common stock at an exercise price of $1.33 per share
which expires seven years from the date of grant.
The Company has entered into a an employment agreement for a term of
three years expiring January 2000, for the services of a Vice President of
Technology and Clinical Research. The agreement as amended provides for an
annual salary of $143,000 in 1997, $151,000 in 1998 and $160,00 in 1999, as well
as 10% of all amounts allocated by the Board of Directors to the Company's
Incentive Compensation Program. In addition, the Company has granted this
individual an option to purchase 150,000 shares of common stock at an exercise
price of $1.33 per share, which expires ten years from the date of grant.
The Company has entered into an employment agreement commencing August
1996 for the services of a Vice President and Chief Financial Officer. The
agreement provides for an annual salary of $89,000, subject to adjustment, as
well as not less than 5% of all amounts allocated by the Board of Directors to
the Company's Incentive Compensation Program. In addition, the Company has
granted this individual an option to purchase 25,000 shares of the Company's
common stock subject to certain vesting provisions at an exercise price of $7.00
per share.
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 28, 1997
ENAMELON, INC.
By: /s/ DR. STEVEN R. FOX
---------------------------------
Dr. Steven R. Fox,
Chairman of the Board of Directors
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ DR. STEVEN R. FOX Chairman of the Board of March 28, 1997
--------------------- Directors and Chief Executive
Dr. Steven R. Fox Officer (Principal Executive
Officer)
/s/ EDWIN DIAZ Treasurer, Vice President - March 28, 1997
---------------------- Finance and Chief Financial
Edwin Diaz Officer (Principal Financial
Officer)
/s/ RICHARD A. GOTTERER Director March 28, 1997
-----------------------
Richard A. Gotterer
/s/ ERIC D. HORODAS Director March 28, 1997
-----------------------
Eric D. Horodas
/s/ DR. S.N. BHASKAR Director March 28, 1997
-----------------------
Dr. S.N. Bhaskar
/s/ DR. BERT GASTER Director March 28, 1997
------------------------
Dr. Bert Gaster
<PAGE>
Exhibit Index
Exhibit No. Description
10.14 Amendment dated January 17, 1997 to Mr. D.
Brooks Cole Employment Agreement
10.15 Amendment dated January 17, 1997 to Mr. Anthony
Winston Employment Agreement
27.1 Financial Data Schedule
<PAGE>
Exhibit 10.14
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of January 1, 1997, by and between
ENAMELON, INC., a Delaware corporation, having Its principal place of business
at 15 Kimball Avenue, Yonkers New York 10704 (the "Company"), and D. BROOKS
COLE, residing at 36 Cherry Tree Lane, Orchard Park, New York 14127 (the
"Employee").
The Company and the Employee are parties to an Amended and Restated
Employment Agreement, dated June 1, 1995 (the "Employment Agreement") and have
agreed to amend the Employment Agreement as herein provided. Capitalized terms
used herein shall have the meanings set forth in the Employment Agreement unless
otherwise defined herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
I . Section 4(f) of the Employment Agreement is hereby deleted in its
entirely and the following new Section 4(f) is hereby inserted in lieu thereof
(f) Until the earlier of (i) the termination of this
Agreement, (ii) the Employee's relocation to a permanent
residence
that is located within 100 miles of the Company's principal
office facility (presently located at 758 Route 18, East
Brunswick, New Jersey), or (iii) June 1, 1997, the Company
shall reimburse the Employee for rent on any temporary
residence maintained by the Employee within 100 miles of the
Company's principal office facility. In addition, the Company
shall pay the Employee $10,000 to cover relocation expenses
upon his permanent relocation within 100 miles of the
Company's principal office facility.
2. The terms "this Agreement," "hereof," "hereunder" and words of like
meaning appearing in the Employment Agreement shall mean and refer to the
Employment Agreement as amended hereby.
3. Except as otherwise amended by this Amendment Agreement, the
Employment Agreement shall remain in full force and effect and the Company and
the Employee each hereby reaffirm each of their respective agreements, covenants
and obligations set forth therein.
IN WITNESS WHEREOF, the panics hereto have executed this Amendment
Agreement as of the date above written.
ENAMELON, INC.
By: /s/ Steven R. Fox
-----------------------
Steven R. Fox, Chairman
/s/ D. Brooks Cole
------------------------
D. Brooks Cole
<PAGE>
Exhibit 10.15
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of January 17, 1997, by and between
ENAMELON, INC., a Delaware corporation, having its principal place of business
at 15 Kimball Avenue, Yonkers, New York 10704 (the "Company"), and ANTHONY E.
WINSTON, residing at 42 Tall Oak Drive, East Brunswick, New Jersey 08816 (the
"Employee").
RECITALS
The Company and the Employee are parties to an Employment Agreement,
dated January 17,1995 (the "Employment Agreement"), and have agreed to amend the
Employment Agreement to extend the term of the Employment Agreement, to increase
the Employee's compensation thereunder, and to make certain other changes as
herein provided. Capitalized terms used herein shall have the meanings set forth
in the Employment Agreement unless otherwise defined herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1 . Section 1 of the Employment Agreement is hereby deleted in its
entirety and the following new Section 1is hereby inserted in lieu thereof:
1. Employment.
The Company agrees to employ the Employee and the Employee
accepts employment upon the terms and conditions set forth herein for a
term commencing on the date hereof and ending on January 17, 2000,
unless earlier terminated in accordance with the terms of this
Agreement.
2. Section 3(a) of the Employment Agreement is hereby
deleted in its entirety and the following new Section 3(a) is hereby inserted
in lieu thereof.
(a) The Company shall pay the Employee an annual base
salary ("Base Salary") as follows:
(i) commencing January 18, 1997, and ending January 17,
1998, a Base Salary at the rate of $143,000 per year;
(ii) commencing January 18, 1998, and ending January 17,
1999, a Base Salary at the rate of $151,000 per year; and
(iii) commencing January 18, 1999, and ending January 17,
2000, a Base Salary at the rate of $160,000 per year.
<PAGE>
Exhibit 10.15
The Employee's Base Salary shall be paid at such times and in such
manner as is consistent with the Company's prevailing payroll practices
for other senior executives of the Company.
3. Sections 3(c) and 3(d) of the Employment Agreement are hereby
deleted in their entirety and the following new Sections 3(c) and 3(d) are
inserted in lieu thereof:
(c) The Employee shall participate in an executive
compensation plan to be established by the Board of Directors of the
Company. The Employee shall be entitled to 10% of any amounts allocated
by the Board of Directors each year during the term hereof to such plan
for the purpose of providing an incentive to key employees. In no
event, however, shall the Employee receive more than two times his base
salary. In addition, in the event the term hereof is not commensurate
with the fiscal year of the Company or the Employee is not employed
hereunder for a full fiscal year, any such amounts due to the Employee
hereunder pursuant to the terms of any executive compensation plan
shall be pro-rated for any such fiscal year during which the Employee
was not employed for the full twelve-month period thereof.
(d) The Employee acknowledges that he has been granted as of
the commencement of this Agreement 150,000 ten-year incentive stock
options (after giving effect to a 3 for 1 stock split) in accordance
with the terms of the Company's Stock Option Plan (the "Plan"). The
Employee shall hereafter have the right to receive additional stock
options under the Plan or any other stock option plan adopted by the
Company at such times and on such terms as are consistent with options
granted to other senior executives of the Company.
4. Section 4(a) of the Employment Agreement is hereby
deleted in its entirety and the following new Section 4(a) is inserted in
lieu thereof:
(a) During the term of this Agreement, the Employee shall have
the right to participate in the Company's group health insurance plan
and such other employee benefit plans as are offered to other senior
executives of the Company.
5. Section 4(c) of the Employment Agreement is hereby
deleted in its entirety and the following new Section 4(c) is inserted in
lieu thereof.
(c) The Employee shall be entitled to five (5) weeks of paid
vacation and twelve(12)personal days per calendar year ("Vacation
Allotments"). The Vacation Allotments are non-cumulative and if the
Employee fails to use any or all of his Vacation Allotments during a
particular calendar year, such Vacation Allotments shall be deemed
forfeited forever.
2
<PAGE>
Exhibit 10.15
6. The introductory paragraph of Section 6 and Section 6(a) of the
Employment Agreement are hereby deleted in their entirety and the following new
introductory paragraph and Section 6(a) are hereby inserted in lieu thereof:
6. Covenants and Restrictions.
The Employee covenants that, except in carrying out his duties
hereunder, during the term of his employment and for the period
consisting of the Remainder Term (as defined in section 9(b) hereof),
if any, and two (2) years following the date on which this term of this
Agreement is scheduled to expire under Section 1 hereof (such two-year
period being referred to herein as the "Restricted Period"),
irrespective of the reasons for termination of the Employee's
employment and unless such longer period of time is specifically set
forth herein:
(a) The Employee will not directly or indirectly own any
interest in, participate or engage in, assist, render any services
(including advisory services) to, become associated with, work for,
serve (in any capacity whatsoever, including, without limitation, as an
employee, consultant, advisor, agent, independent contractor, officer
or director) or otherwise become in any way or manner connected with
the ownership, management, operation, or control of, any business,
firm, corporation, partnership or other entity (collectively referred
to herein as a "Person") that (i) during the Remainder Term, if any,
engages in, or assists others in engaging in or conducting any
business, which deals, directly or indirectly, in products or services
competitive with the Company's product line or services, as described
below, anywhere in the world and (ii) during the Restricted Period
engages in, or assists others in engaging in or conducting any
business, which deals, directly or indirectly, in products or services
competitive with the Company's product line or services anywhere in the
world whereby the Employee will make use of the Enamelon Technology, as
defined hereinafter; provided, however, that the above restriction
shall not be deemed to exclude the Employee from acting as a director
of a corporation for the benefit of the Company with the consent of the
Company's Board of Directors; and provided, further, that during the
Restricted Period, the Employee may engage in the above business
activity involving the research and development, manufacture, marketing
or sale of any dentifrice, chewing gum, food, confection, spray,
professional gel, or mouth rinse that uses currently accepted
technology which, for example, makes use of fluoride, in the prevention
of cavities, and may directly result in the remineralization of teeth
so long as the Employee, in such a capacity, does not make use of the
Enamelon Technology, as defined hereinafter. For purposes hereof,
"products or services competitive with the Company's product line or
services" shall mean any products or services which have as their
primary purpose or function or which are marketed, promoted or sold as
having the effect of repairing, remineralizing, rebuilding,
desensitizing teeth or preventing or retarding tooth decay and/or
cavities. For purposes hereof, the
3
<PAGE>
Exhibit 10.15
"Enamelon Technology" shall mean any scientific know-how or methods
developed by the Company or any of its employees with the aim to
further develop the Products. Enamelon Technology includes but is not
limited to its development of Amorphous Calcium Phosphate technology
("ACPT").
7. Section 9(b) of the Employment Agreement is hereby
deleted in its entirety and the Following new Sections 9(b), 9(c) and 9(d)
are inserted in lieu thereof:
(b) Not withstanding any provisions in this Agreement to the
contrary, the Company may terminate the employment of the Employee
hereunder without Cause at anytime. If the Company terminates the
employment of the Employee hereunder without Cause or if either the
Employee or the Company terminate the employment of the Employee for
any reason at any time within six months after a Change of Control (as
hereinafter defined), then the Company shall be obligated to pay the
Employee's Base Salary for a period equal to the longer of (i) the
remainder of the term of this Agreement or (ii) six months after the
date of the Employee's termination (such period being referred to
herein as the "Remainder Term"), and the Company shall also continue
for the Remainder Term to permit the Employee to receive or participate
in all fringe benefits available to him pursuant to Section 4 above;
provided, however, that during the Remainder Term any amounts payable
to the Employee pursuant to this Section 9(b) and any fringe benefits
that he receives or in which he participates pursuant to this Section
9(b) shall be reduced by any payments or fringe benefits the Employee
shall receive during the Remainder Term from any other source of
employment that is unaffiliated with the Company. All amounts payable
during the Remainder Term shall be paid at such times and in such
manner as shall be consistent with the Company's prevailing payroll
practices.
(c) For purposes of this Agreement, a "change of control"
shall be deemed to occur when any Person or group of Persons directly
or indirectly (through a subsidiary or otherwise), (A) acquires or is
granted the right to acquire, directly or through a merger or similar
transaction, a majority of Company's outstanding voting securities, or
(B) acquires all or substantially all of the Company's assets.
(d) The Company shall pay the Employee, as severance pay upon
expiration of this Agreement as provided in Section 1, his Base Salary
for a period of six (6) months after the date of expiration, unless (i)
the term of this Agreement shall have been extended or the Employee
shall otherwise be employed by the Company after the expiration of the
term of this Agreement or (ii) this Agreement shall have been
terminated prior to such expiration date. All such severance payments
shall be paid at such time and in such manner as shall be consistent
with the Company's prevailing payroll practices.
4
<PAGE>
Exhibit 10.15
8. The terms "this Agreement," "hereof," "hereunder" and words of like
meaning appearing in the Employment Agreement shall mean and refer to the
Employment Agreement as amended hereby.
9. Except as otherwise amended by this Amendment Agreement, the
Employment Agreement shall remain in full force and effect, and the Company and
the Employee each hereby reaffirm each of their respective agreements, covenants
and obligations set forth therein.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as of the date above written.
ENAMELON, INC.
By: /s/ Steven R. Fox
-----------------------
Steven R. Fox, Chairman
/s/ Anthony E. Winston
-----------------------
Anthony E. Winston
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ENAMELON, INC. BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONDENSED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IS ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,389,894
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 53,183
<CURRENT-ASSETS> 11,636,367
<PP&E> 489,678
<DEPRECIATION> 51,330
<TOTAL-ASSETS> 12,391,684
<CURRENT-LIABILITIES> 1,093,271
<BONDS> 0
0
0
<COMMON> 6,900
<OTHER-SE> 11,291,513
<TOTAL-LIABILITY-AND-EQUITY> 12,391,684
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,120,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (195,419)
<INCOME-PRETAX> (2,924,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,924,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,924,830)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
