SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
Form 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended March 31, 1997
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________to_________________________
Commission file number 0-21595
Enamelon, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3669775
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(State of Incorporation) (I.R.S. Employer Identification No.)
15 Kimball Avenue, Yonkers, New York 10704
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (914) 237-1308
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Check whether the issuer (1) filed all required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 6,935,753 shares of common stock
$.001 par value, as of May 6, 1997.
Transmittal Small Business Disclosure Format (check one):
Yes No
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<PAGE>
Part I Financial Information
Item 1. Financial Statements
Enamelon, Inc.
(A development stage company)
Balance Sheet
March 31, 1997
-----------------
Assets (unaudited)
Current:
Cash and cash equivalents................................ $ 9,324,317
Prepaid expenses and other assets........................ 110,149
Inventory................................................ 200,126
-----------
Total currents assets.................................. 9,634,592
Equipment, less accumulated depreciation of
$62,079.................................................. 981,889
Deferred costs, less accumulated amortization of
$43,277.................................................. 325,603
Other assets - security deposits............................ 9,023
-----------
Total assets................................................ $10,951,107
===========
Liabilities and Stockholders' Equity
Current liabilities:
Account Payable.......................................... $ 871,018
Accrued expenses......................................... 731,046
-----------
Total current liabilities.............................. 1,602,064
-----------
Commitments
Stockholders' equity (note 2)
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 and 6,900,378.............................. 6,900
Additional paid-in capital............................... 16,409,926
Accumulated deficit during the development stage......... (7,067,783)
-----------
Total stockholders' equity............................. 9,349,043
-----------
Total liabilities and stockholders' equity $10,951,107
===========
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 9, 1992
Three months ended (Inception) to
March 31 March 31,
1997 1996 1997
---- ---- ----
<S> <C>
Expenses:
Marketing and selling.......................... $ 853,018 $ 4,000 $ 1,215,389
Research and development....................... 746,056 473,182 3,376,702
Administrative and other....................... 481,252 75,025 2,572,911
----------- ---------- -----------
Total expenses............................... 2,080,326 552,207 7,165,002
Other charges (income):
Interest and dividends......................... (130,956) (35,435) (367,188)
Write-off of deferred offering costs........... -- -- 269,969
----------- ---------- -----------
Net loss.......................................... $(1,949,370) $ (516,772) $(7,067,783)
=========== ========== ===========
Pro forma net loss per common share (note 2)...... $ (0.28) $ (0.09)
=========== ==========
Weighted average common shares outstanding 6,900,378 5,563,389
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional deficit during the Total
------------ paid-in development stockholders'
Shares Par value capital stage equity
------ --------- ------- ----- ------
<S> <C>
Balance, December 31, 1996 6,900,378 $ 6,900 $ 16,409,926 $ (5,118,413) $11,298,413
Net loss (unaudited) -- -- -- (1,949,370) (1,949,370)
--------- -------- ------------ ------------ -----------
Balance, March 31, 1997 6,900,378 $ 6,900 $ 16,409,926 $ (7,067,783) $ 9,349,043
========= ======== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
June 9, 1992
Three Months ended (Inception) to
March 31 March 31,
1997 1996 1997
---- ---- ----
<S> <C>
Cash flows from operating activities:
Net loss.............................................................. $(1,949,370) $ (516,772) $ (7,067,783)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Write-off of deferred offering costs............................. -- -- 269,969
Stock issued for services........................................ -- 26,824 174,519
Depreciation and amortization.................................... 16,097 8,863 105,354
Change in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other assets......... 83,057 (832) (119,171)
Increase in inventory............................................ (146,943) (200,126)
Increase in accrued expenses and account payable................. 631,216 95,491 1,418,100
----------- ----------- ------------
Net cash used in operating activities............................ (1,365,943) (386,426) (5,419,138)
----------- ----------- ------------
Cash flows from investing activities:
Purchases of equipment................................................ (554,290) (71,378) (1,043,968)
Patents, trademarks and licenses...................................... (22,921) (31,772) (321,102)
----------- ----------- ------------
Net cash used in investing activities............................ (577,211) (103,150) (1,365,070)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock.................................... -- -- 15,744,317
Proceeds from sale of preferred stock................................. -- 1,979,000 2,025,000
Offering costs........................................................ (122,423) (265,000) (1,660,792)
----------- ----------- ------------
Net cash provided by financing activities........................ (122,423) 1,714,000 16,108,525
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents...................... (2,065,577) 1,224,424 9,324,317
Cash and cash equivalents, beginning of period............................ 11,389,894 1,790,666 --
----------- ----------- ------------
Cash and cash equivalents, end of period.................................. $ 9,324,317 $ 3,015,090 $ 9,324,317
=========== =========== ============
Supplemental disclosures of noncash financing activities:
The Company issued common stock for professional services
performed by unrelated parties...................................... $ -- $ 26,824 $ 331,854
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Enamelon, Inc.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
1. Statement of information furnished
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included.
Results for the interim period ended March 31, 1997 are not necessarily
indicative of results for the entire year.
For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report filed on Form 10-KSB.
2. Amounts per share
Net loss per share is presented for the three months ended March 31,
1996 on a pro forma basis to give effect to the conversion of the redeemable
preferred stock as a result of the public offering consummated in October 1996.
The calculation of net loss per share reflects the conversion of the preferred
stock as if it occurred on January 1, 1996.
The weighted average number of common shares outstanding used in
computing the pro forma net loss per common share was adjusted for the effects
of the application of Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No.83. Pursuant to SAB No. 83, common stock issued by the Company
at a price less than the initial public offering price during the twelve months
immediately preceding the initial public offering, together with common stock
purchase warrants and options issued during such period with an exercise price
less than the initial public offering price, are treated as outstanding for all
periods presented. Earnings (loss) per share are computed using the treasury
stock method, under which the number of shares outstanding reflects an assumed
use of the proceeds from the issuance of such shares and from the assumed
exercise of such warrants and options, to repurchase shares of the Company's
common stock at the initial public offering price.
3. Inventory is summarized as follows:
March 31, 1997
--------------
Raw materials $ 89,842
Work in process 10,350
Finished goods 99,934
--------
$200,126
=========
Inventories are valued at the cost of materials and contract manufacturing
by the first-in, first-out method.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing in the Company's
Annual Report on Form 10-KSB, for the year ended December 31, 1996.
General
The Company (a development stage company) was founded in June 1992 to
develop and market over-the-counter oral care products that prevent tooth decay
at its earliest stage and are based on proprietary formulations and
technologies.
The Company began to test market Enamelon toothpaste in several
representative markets in March 1997. Test marketing and additional clinical
human studies to substantiate expected marketing claims including comparative
advertising claims are expected to continue throughout 1997. Assuming the
successful completion of test marketing, a national roll-out of EnamelonTM
toothpaste is expected to occur in the first quarter of 1998, at which time
management anticipates the Company emerging from the development stage. The
Company expects to continue to incur operating losses throughout this
period and may require additional financing to continue its operations
thereafter.
Results of Operations
Three Months ended March 31, 1997 Compared to Three Months ended March 31, 1996
Total expenses were approximately $2,080,000 for the three months ended
March 31, 1997, compared with total expenses of approximately $552,000 for the
same period in the prior-year, an increase of $1,528,000. This increase was
primarily the result of higher marketing and selling expenses of $849,000,
higher research and development expenses of $273,000, higher administrative
and other expenses of $406,000.
Marketing and selling expenses increased from $4,000 to $853,000 as a
result of the efforts to support the launch of the Company's toothpaste product
into test market. The Company has begun to ship into test market on March 26,
1997. For financial reporting purposes the Company is still being treated as
being in the development stage. Revenue of approximately $15,000 from the
sales of toothpaste has been treated as a reduction in marketing expenses.
Research and development expenses increased from $473,000 to $746,000
primarily as a result of studies performed at universities and research
facilities and development activities necessary to bring the toothpaste into
test market.
Administrative and other expenses increased from $75,000 to $481,000
primarily attributable to increased payroll and benefits, consulting and other
administrative office expenses which resulted from the Company's expanded
operations.
These increases were offset in part by $96,000 of additional interest
and dividend income.
Liquidity and Capital Resources
Since its inception in June 1992, the Company has financed its
operations primarily through private placements of Series A Preferred Stock and
Common Stock and a public offering of Common Stock totaling approximately $16.1
million, net of expenses. At March 31, 1997, the Company had cash and cash
equivalents of approximately $9.3 million and working capital of $8.0 million.
The Company has no outstanding debt (other than accounts payable and accrued
expenses) or available lines of credit as of March 31, 1997.
Since its inception and through March 31, 1997, the Company has
incurred losses aggregating approximately $7.1 million and had available net
operating loss carryforwards as of December 31, 1996 of
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
approximately $5.1 million. The net operating loss carryforwards will expire if
not used by the period from 2007 through 2011 and may be limited by United
States federal tax law as a result of future changes in ownership. The Company
expects to continue to incur operating losses at least through 1999 while it
continues clinical testing and initial toothpaste marketing efforts. In March
1997, the Company began to test market EnamelonTM 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 quarter of 1998.
Since its inception and through March 31, 1997, the Company has paid
$1,044,000 for the purchase of equipment and approximately $321,000 for costs
associated with obtaining patents, trademarks and licenses rights. The Company
intends to use approximately $500,000 of its cash to purchase additional
manufacturing equipment 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.
The Company's cash requirements may vary materially from those now
planned depending on numerous factors, including the status of the Company's
marketing efforts, the Company's business development activities, the
availability of alternative financing for the acquisition of manufacturing
equipment, the results of clinical trials, the regulatory process and
competition. The Company currently estimates that cash 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 12
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.
The foregoing discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this report and in the
Company's Form 10-KSB for the year ended December 31, 1996. Except for the
historical information contained herein, the foregoing discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those projected in the
forward-looking statements discussed herein. Factors that could cause actual
results to differ materially include, but are not limited to, the following:
acceptance of the Company's products by consumers; the Company's ability to
procure additional financing from time to time as necessary to maintain its
operations until it becomes profitable; changes in Food and Drug Administration
and Federal Trade Commission regulations as they apply to the Company's
products; and challenges to patents either licensed to or held directly by the
Company. Those and other risks are described in the Company's Annual Report on
10-KSB for the year ended December 31, 1996.
Effect of New Accounting Pronouncement
In February 1997, the FASB issued SFAS No. 128 "Earning Per Share". In
accordance with this statement, basic earnings per share are based on the
weighted average shares outstanding during the period and diluted earnings per
share are based on the weighted average number of common shares and all dilutive
potential common shares that were outstanding during the period. In addition,
prior period financial statements have to be restated to reflect the change in
accounting principle. Effective December 15, 1997, at which time management
anticipates the Company emerging from the development stage, the Company will
adopt this statement. The effect of the adoption will not have a material impact
on the Company's net loss per share previously reported.
<PAGE>
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Enamelon, Inc.
Date May 12, 1997 By /s/ Dr. Steven R. Fox
___________________ __________________________
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Office)
Date May 12, 1997 By /s/ Edwin Diaz
___________________ __________________________
Vice President-Finance,
Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Enamelon, Inc. Balance Sheet as of March 31, 1997 and the Condensed Statement of
Operations for the three months ended March 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,324,317
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 200,126
<CURRENT-ASSETS> 9,634,592
<PP&E> 1,043,968
<DEPRECIATION> 62,079
<TOTAL-ASSETS> 10,951,107
<CURRENT-LIABILITIES> 1,602,064
<BONDS> 0
0
0
<COMMON> 6,900
<OTHER-SE> 9,342,143
<TOTAL-LIABILITY-AND-EQUITY> 10,951,107
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,080,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (130,956)
<INCOME-PRETAX> (1,949,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,949,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,949,370)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
