<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------------------------
Form 10-QSB/A
( X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended June 30, 1998
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________to_________________________
Commission file number 0-21595
Enamelon, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
15 Kimball Avenue
Yonkers, New York 10704
(Address of principal executive offices)
13-3669775
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (914) 237-1308
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date 10,236,904 shares of common
stock, $.001 par value as of July 24, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
Part I Financial Information
Item 1. Financial Statements
Enamelon, Inc.
Balance Sheet
June 30, 1998
(unaudited)
Assets
Current:
Cash and cash equivalents................................... $ 7,782,157
Short-term investments...................................... 21,828,033
Inventory................................................... 4,300,551
Accounts receivable......................................... 1,650,712
Prepaid expenses and other assets........................... 353,760
-------------
Total current assets...................................... 35,915,213
Equipment, less accumulated depreciation of $392,407.......... 2,876,769
Intangible assets, less accumulated amortization of $83,797... 737,478
Other assets.................................................. 158,670
Total assets $ 39,688,130
============
Liabilities and Stockholders' Equity
Current liabilities:
Account payable............................................. $ 6,037,715
Accrued marketing........................................... 4,799,213
Accrued expenses............................................ 1,488,893
------------
Total current liabilities................................. 12,325,821
------------
Commitments
Stockholders' equity
Preferred stock, $0.01 par value-shares
authorized 5,000,000; none issued or
outstanding............................................... --
Common stock, $0.001 par value-shares
authorized 30,000,000; issued and outstanding;
10,202,027................................................ 10,202
Additional paid-in capital.................................. 56,843,022
Accumulated deficit......................................... (29,490,915)
------------
Total stockholders' equity................................ 27,362,309
------------
Total liabilities and stockholders' equity $ 39,688,130
============
See accompanying notes to financial statements.
2
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Enamelon, Inc.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.................................. $ 2,337,546 $ -- $ 4,050,956 $ --
Cost of sales.............................. 1,251,160 -- 2,260,192 --
------------ ----------- ------------ -----------
Gross profit............................... 1,086,386 -- 1,790,764 --
------------ ----------- ------------ -----------
Operating expenses:
Marketing and selling.................... 9,715,334 1,520,205 13,279,581 2,373,223
Research and testing..................... 834,945 593,344 1,519,090 1,339,400
Administrative and other................. 1,078,006 615,975 1,993,407 1,097,227
------------ ----------- ------------ -----------
11,628,285 2,729,524 16,792,078 4,809,850
------------ ----------- ------------ -----------
Operating loss............................. 10,541,899 2,729,524 15,001,314 4,809,850
Interest and dividend income............... (462,011) (109,641) (973,084) (240,597)
------------ ----------- ------------ -----------
Net loss................................... $(10,079,888) $(2,619,883) $(14,028,230) $(4,569,253)
============ =========== ============ ===========
Net loss per common share, basic........... $ (0.99) $ (0.38) $ (1.39) $ (0.66)
============ =========== ============ ===========
Weighted average common shares
outstanding, basic....................... 10,151,121 6,982,712 10,093,093 6,941,772
============ =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Enamelon, Inc.
Statements of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Accumulated Total stockholders'
Shares Par Value paid-in capital deficit equity
------ --------- --------------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997................. 9,965,996 $ 9,966 $56,259,052 $(15,462,685) $ 40,806,333
Warrants exercised......................... 76,014 76 124,523 -- 124,599
Options exercised.......................... 160,017 160 459,447 -- 459,607
Net loss................................... -- -- -- (14,028,230) (14,028,230)
----------- --------- ----------- ------------ -------------
Balance, June 30, 1998..................... 10,202,027 $ 10,202 $56,843,022 $(29,490,915) $ 27,362,309
=========== ========= =========== ============ =============
</TABLE>
See accompanying notes to financial statements.
4
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Enamelon, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------------
Cash flows from operating activities: 1998 1997
---- ----
<S> <C> <C>
Net loss...................................................... $(14,028,230) $(4,569,253)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization............................ 223,617 60,910
Change in operating assets and liabilities:
Short-term investments.................................... (3,932,926) --
Accounts receivable....................................... (1,406,107) (232,447)
Prepaid expenses and other assets......................... (254,450) (45,840)
Inventory................................................. (3,048,344) (531,962)
Accrued expenses and accounts payable..................... 8,961,913 1,493,175
------------- -----------
Net cash used in operating activities................... (13,484,527) (3,825,417)
------------- -----------
Cash flows from investing activities:
Purchases of equipment...................................... (603,368) (686,934)
Patents, trademarks and licenses............................ (293,760) (69,016)
------------- -----------
Net cash used in investing activities..................... (897,128) (755,950)
------------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock.......................... 584,208 14,248,533
Offering costs.............................................. (45,350) (999,460)
------------- -----------
Net cash provided by (used in) financing activities....... 538,858 13,249,073
------------- -----------
Net increase (decrease) in cash and cash equivalents.......... 13,842,797) 8,667,706
Cash and cash equivalents, beginning of period................ 21,624,954 11,389,894
------------- -----------
Cash and cash equivalents, end of period...................... $ 7,782,157 $20,057,600
============= ===========
Supplemental disclosures of noncash financing activities:
Accrued offering costs...................................... $ -- $ 86,040
============= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Enamelon, Inc.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
1. Statement of information furnished
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. Results for the interim period ended June 30, 1998 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
Form10-KSB for the year ended December 31, 1997.
2. Inventory
Inventory is summarized as follows: June 30,
1998
------------
Raw materials $ 957,237
Work in progress 531,031
Finished goods 2,812,283
-----------
$ 4,300,551
3. Earnings per share
Effective December 15, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128. "Earnings Per Share,"
which provides for the calculation of "Basic" and "Diluted" earnings
(loss) per share. In accordance with this statement, basic loss per
share for the quarters and six months ended June 30, 1998 and 1997
was calculated by dividing net loss by the weighted average number of
common shares outstanding, which amounted to 10,151,121 and
10,093,093 for the three and six months ended June 30, 1998,
respectively, and 6,982,712 and 6,941,772 for the three and six
months ended June 30, 1997. Diluted loss per share has not been
presented since the effect of dilutive shares is antidilutive in both
periods.
4. Recent Accounting Standards
In June 1997, the FASB issued SFAS 130 "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 130 addresses
standards for reporting and display of comprehensive income and its
components and SFAS 131 requires disclosure of reportable operating
segments. Both statements are effective for years beginning after
December 15, 1997. In February 1998, the FASB issued SFAS 132
"Employers Disclosures about Pensions and other Post-Retirement
Plans". This statement is effective in 1998. The Company will be
reviewing these statements to determine the applicability to the
Company, if any.
6
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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, 1997.
General
The 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(Registered) anticavity
fluoride toothpaste in several representative markets in March 1997. Test
marketing and additional clinical human studies to establish additional
marketing claims for consumers and dentists continued throughout 1997 and the
national distribution of Enamelon(Registered) anticavity fluoride toothpaste
began in the first quarter of 1998. As a result, the Company emerged from the
development stage. The Company expects to continue to incur operating losses
through 1999 and may require additional financing to continue its operations
thereafter.
Results of Operations
Three Months ended June 30, 1998 Compared to Three Months ended June
30, 1997
Net sales for the three months ended June 30, 1998 were approximately
$2,338,000 resulting in a gross profit of approximately $1,086,000. The
Company did not report net sales for the three months ended June 30, 1997 as
the Company was in the development stage. Accordingly, net sales for the three
months ended June 30, 1997 of approximately $331,000 were offset against
marketing expenses. The gross profit for the quarter was affected by
manufacturing inefficiencies resulting from increased production for the
national distribution of Enamelon(Registered) anticavity fluoride toothpaste.
The Company believes that gross profit will improve as sales and manufacturing
volume increase.
Total operating expenses were approximately $11,628,000 for the three
months ended June 30, 1998, compared with total expenses of approximately
$2,730,000 for the same period in the prior year, an increase of $8,898,000.
This increase was primarily the result of higher marketing and selling
expenses of $8,195,00, higher research and development expenses of $241,000,
and higher administrative and other expenses of $462,000.
Marketing and selling expenses increased from $1,520,000 to
$9,715,000 primarily as a result of advertising and promotion expenses to
launch the Company's toothpaste product into the national market. In the
second quarter of 1998, the Company began introductory television advertising
in selected markets throughout the United States. Marketing expenses for the
three months ended June 30, 1997 have been offset by approximately $331,000 of
revenues from Enamelon(Registered) anticavity fluoride toothpaste sold in test
markets.
Research and testing expenses increased from $593,000 to $835,000
primarily as a result of increased cost of studies from $232,000 in 1997 to
$413,00 in 1998.
Administrative and other expenses increased from $616,000 to
$1,078,000 primarily attributable to increased payroll, benefits, consulting
and other administrative office expenses, which resulted from the Company's
expanded operations.
Interest and dividend income increased from $110,000 in 1997 to
$462,000 in 1998 primarily due to the increase in cash and cash equivalents
from a private placement and a second public offering of the Company's common
stock in 1997.
7
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(continued)
Six months ended June 30, 1998 compared to six months ended June 30,
1997.
Net sales for the six months ended June 30, 1998 were approximately
$4,051,000 resulting in a gross profit of approximately $1,791,000. The Company
did not report net sales for the six months ended June 30, 1997 as the Company
was in the development stage. Accordingly, net sales for the six months ended
June 30, 1997 of approximately $346,000 were offset against marketing expenses.
Gross profit for the six months was affected by manufacturing inefficiencies
resulting from increased production for the national distribution of
Enamelon(Registered) anticavity fluoride toothpaste. The Company believes that
gross profit will improve as sales and manufacturing volume increase.
Total operating expenses were approximately $16,792,000 for the six
months ended June 30, 1998, compared with total expenses of approximately
$4,810,000 for the same period in the prior year, an increase of $11,982,000.
This increase was primarily the result of higher marketing and selling
expenses of $10,906,000, higher research and development expenses of $180,000,
and higher administrative and other expenses of $896,000.
Marketing and selling expenses increased from $2,373,000 to
$13,280,000 primarily as a result of advertising and promotion expenses to
launch the Company's toothpaste product into the national markets. Marketing
expenses for the six months ended June 30, 1997 were offset by approximately
$346,000 of revenues from Enamelon(Registered) anticavity fluoride toothpaste
sold in test markets.
Research and development expenses increased from $1,339,000 to
$1,519,000 primarily as a result of studies performed at universities and
research facilities and development activities to broaden the additional
marketing claims for consumers and dentists. The Company is continuing to
expand its clinical testing.
Administrative and other expenses increased from $1,097,000 to
$1,993,000 primarily attributable to increased payroll and benefits,
consulting and other administrative office expenses, which resulted from the
Company expanded operations.
Interest and dividend income increased from $241,000 in 1997 to
$973,000 in 1998 primarily due to the increase in cash and cash equivalents
from a private placement and a second public offering of the Company's common
stock in 1997.
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, its initial public offering of Common Stock totaling
approximately $16.1 million, net of expenses, and a second public offering
totaling approximately $26.3 million, net of expenses. At June 30, 1998, the
Company had cash and cash equivalents and short-term investments of
approximately $29.6 million and working capital of $23.6 million. The Company
had no outstanding debt (other than accounts payable and accrued expenses) or
available lines of credit as of June 30, 1998.
Since its inception and through June 30, 1998, the Company had
incurred losses aggregating approximately $29.5 million and had available net
operating loss carryforwards as of June 30, 1998 of approximately $29.0
million. The net operating loss carryforwards will expire if not used by the
period from 2007 through 2012 and may be limited by United States federal tax
law as a result of future changes in ownership. The Company expects to
continue to incur operating losses at least through 1999 while it continues
clinical testing and initial toothpaste marketing efforts. In March 1997, the
Company began to test market Enamelon(Registered) anticavity fluoride
8
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(continued)
toothpaste in selected United States markets. The Company believes test
marketing was successful and began a national roll-out of this product in the
first quarter of 1998.
Since its inception and through June 30, 1998, the Company had paid
approximately $3,269,000 for the purchase of equipment and approximately
$821,000 for costs associated with obtaining patents, trademarks and licensing
rights.
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, distribution, consumer acceptance, the Company's business
development activities, the availability of alternative financing for the
acquisition of manufacturing equipment, the results of clinical trials, the
regulatory process and competition. The Company currently estimates that cash
and cash equivalents on hand, will be sufficient to finance its operating
losses, working capital and other requirements through the middle of 1999.
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 new product introductions and otherwise reduce current and
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, 1997 and its Quarterly
Report of Form 10-QSB for the three months ended March 31, 1998. 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 Form 10-KSB for the year ended December 31, 1997.
Effect of New Accounting Pronouncement
In June 1997, the FASB issued SFAS 130 "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 addresses standards for reporting and display
of comprehensive income and its components and SFAS 131 requires disclosure of
reportable operating segments. Both statements are effective for years
beginning after December 15, 1997. In February 1998, the FASB issued SFAS 132
"Employers Disclosures about Pensions and other Post-Retirement Plans". These
statements are effective in 1998. The Company will be reviewing these
statements to determine the applicability to the Company, if any.
9
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Part II. - Other Information
Item 2. Changes in Securities and Use of Proceeds.
In April and June 1998, The Company sold 64,634 shares of Common
Stock, $.001 par value, to a director of the Company, a former director of the
Company and an Investment Partnership of a law firm that represents the Company
pursuant to the exercise of options at a price of $3.22 per share. No
underwriters were involved in the sales. Each of the purchasers represented that
he or it was acquiring the shares for investment and not with a view to
distribution. The Company relied on the exemption under Section 4(2) of the
Securities Act with respect to the sale of such shares.
In May 1998, the Company issued 15,752 shares of Common Stock to a
director pursuant to his conversion of warrants to purchase 21,753 shares of
Common Stock at an exercise price of $3.22 per share. No underwriters were
involved in the conversion. The Company relied on the exemption under Section
3(a)(9) of the Securities Act with respect to the issuance of such shares.
Item 4. Submission of Matter to Vote of Security Holders.
The Company held an annual meeting of its stockholders on May 19, 1998
(the "Annual Meeting".) Six matters were voted on at the Annual Meeting, as
follows:
(i) The election of nominees Dr. Steven Fox, Dr. S.N. Bhaskar,
Dr. Bert D. Gaster, Mr. Richard A. Gotterer and Mr. Eric
D. Horodas as Directors of the Registrant until the next
Annual Meeting
FOR WITHHELD/ABSTAIN
--- ----------------
Dr. Steven Fox 9,780,452 61,445
Dr. S.N. Bhaskar 9,786,257 55,640
Dr. Bert Gaster 9,771,242 70,655
Mr. Richard Gotterer 9,780,222 61,675
Mr. Eric Horodas 9,783,577 58,320
(ii) To approve the amendment to the Company's Certificate of
Incorporation authorizing the classification of the Board
of Directors into two classes.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
5,945,564 825,343 30,926 3,040,064
(iii)To approve the amendment to the Company's Certificate of
Incorporation authorizing the Board of Directors to adopt,
amend or repeal By-Laws.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
5,980,150 782,797 38,886 3,040,064
10
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Part II. - Other Information
(continued)
(iv) To approve the amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares
from 20,000,000 to 30,000,000 shares.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
9,573,318 253,560 15,019 0
(v) To approve an amendment to the Company's By-Laws to
provide for notification of Directors' nominations by
stockholders.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
6,071,586 705,998 24,249 3,040,064
(vi) The ratification of the appointment of BDO Seidman, LLP as
the Registrant's independent public auditors for the
fiscal year ending December 31, 1998. The votes were cast
for this matter as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
9,803,695 21,933 16,269 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Amendment to the Certificate of Incorporation
3.2 Certificate of Elimination
3.3 Amended and Restated By-Laws
27.1 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter for which this
report is filed.
11
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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 September 29, 1998 By /s/ Dr. Steven R. Fox
----------------------- ----------------------------------
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Office)
Date September 29, 1998 By /s/ Edwin Diaz
-------------------- ----------------------------------
Vice President-Finance,
Chief Financial Officer and
Treasurer
12
