-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kuh8PhbdbL4EmX1P+HdPdWXRvFcSSx5G+KGV0r6CmyXdBx8d0rQoZd4YPvM6XXRK ZJTWNeTRRWcdKqqhkkC3NQ== 0001047469-98-019982.txt : 19980515 0001047469-98-019982.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-019982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALAGEN INC CENTRAL INDEX KEY: 0000889872 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 411719104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27976 FILM NUMBER: 98619422 BUSINESS ADDRESS: STREET 1: 4001 LEXINGTON AVE N CITY: ARDEN HILLS STATE: MN ZIP: 55440 BUSINESS PHONE: 6124812105 MAIL ADDRESS: STREET 1: 4001 LEXINGTON AVE NORTH CITY: ARDEN HILLS STATE: MN ZIP: 55126 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998. --------------- or [ ] 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 0-27976. GalaGen Inc. ---------------------- (Exact name of registrant as specified in its charter) Delaware 41-1719104 ---------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4001 Lexington Ave. North Arden Hills, Minnesota 55126 -------------------------- -------- (Address of principal executive offices) (Zip Code) (612) 481-2105 ---------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (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 ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value--7,992,795 shares as of May 1, 1998. 1 INDEX GALAGEN INC. (A DEVELOPMENT STAGE COMPANY)
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets - March 31, 1998 and December 31, 1997. . . . . . 3 Statements of Operations - Three months ended March 31, 1998 and March 31, 1997 and for the period November 17, 1987 (inception) through March 31, 1998. . . . . . 4 Statements of Cash Flows - Three months ended March 31, 1998 and March 31, 1997 and for the period November 17, 1987 (inception) through March 31, 1998. . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. . . . . . . . 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 13 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 749,020 $ 155,908 Available-for-sale securities. . . . . . . . . . . . . . . 5,923,556 7,511,619 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 45,519 196,672 ------------ ------------ Total current assets . . . . . . . . . . . . . . . . . . . . 6,718,095 7,864,199 Property, plant and equipment. . . . . . . . . . . . . . . . 1,895,097 1,869,974 Less accumulated depreciation. . . . . . . . . . . . . . . (471,831) (363,355) ------------ ------------ 1,423,266 1,506,619 Deferred expenses. . . . . . . . . . . . . . . . . . . . . . 153,427 158,953 ------------ ------------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 8,294,788 $ 9,529,771 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 364,786 $ 559,498 Note payable . . . . . . . . . . . . . . . . . . . . . . . 248,005 238,250 Accrued expenses . . . . . . . . . . . . . . . . . . . . . 53,510 38,129 ------------ ------------ Total current liabilities. . . . . . . . . . . . . . . . . . 666,301 835,877 Commitments Convertible notes, net of discount . . . . . . . . . . . . . 722,908 1,071,818 Note payable, long term portion. . . . . . . . . . . . . . . 858,218 923,998 Other long-term liabilities. . . . . . . . . . . . . . . . . 45,000 45,000 Stockholders' equity: Preferred Stock, $.01 par value: Authorized shares - 15,000,000 Issued and outstanding shares - none. . . . . . . . . . - - Common stock, $.01 par value: Authorized shares - 40,000,000 Issued and outstanding shares - 7,962,198 at March 31, 1998; 7,234,974 in 1997. . . . . . . . . . . 79,622 72,350 Additional paid-in capital . . . . . . . . . . . . . . . . . 60,182,342 59,669,586 Deficit accumulated during the development stage . . . . . . (54,036,149) (52,819,054) Deferred compensation. . . . . . . . . . . . . . . . . . . . (223,454) (269,804) ------------ ------------ Total stockholders' equity . . . . . . . . . . . . . . . . . 6,002,361 6,653,078 ------------ ------------ Total liabilities and stockholders' equity . . . . . . . . . $ 8,294,788 $ 9,529,771 ------------ ------------ ------------ ------------
See accompanying notes. Note: The balance sheet at December 31, 1997 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 3 GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (UNAUDITED)
PERIOD FROM NOVEMBER 17, 1987 (INCEPTION) TO THREE MONTHS ENDED MARCH 31 MARCH 31, -------------------------------- 1998 1997 1998 -------------------------------------------------------- Revenues: Product sales. . . . . . . . . . . . . . . . . . . . $ 3,050 $ - $ 1,452,643 Product royalties. . . . . . . . . . . . . . . . . . - - 62,747 Research and development revenues. . . . . . . . . . - - 396,350 ------------ ------------ ------------- 3,050 - 1,911,740 Operating costs and expenses: Cost of goods sold . . . . . . . . . . . . . . . . . 1,525 - 3,470,236 Research and development . . . . . . . . . . . . . . 608,368 1,119,214 27,739,721 General and administrative . . . . . . . . . . . . . 514,911 573,996 16,529,507 ------------ ------------ ------------- 1,124,804 1,693,210 47,739,464 ------------ ------------ ------------- Operating loss . . . . . . . . . . . . . . . . . . . . (1,121,754) (1,693,210) (45,827,724) Interest income. . . . . . . . . . . . . . . . . . . . 124,549 116,282 1,330,223 Interest expense . . . . . . . . . . . . . . . . . . . (219,890) - (2,847,225) ------------ ------------ ------------- Net loss before extraordinary gain . . . . . . . . . . (1,217,095) (1,576,928) (47,344,726) Extraordinary gain on extinguishment of debt . . . . . - - 605,421 Net loss for the period and deficit accumulated during the development stage. . . . . . . . . . . . . (1,217,095) (1576,928) (46,739,305) Less preferred stock dividends . . . . . . . . . . . . - - (7,296,844) ------------ ------------ -------------- Net loss applicable to common stockholders . . . . . . $ (1,217,095) $ (1,576,928) $ (54,036,149) ------------ ------------ ------------- ------------ ------------ ------------- Net loss per share applicable to common stockholders Basic and Diluted . . . . . . . . . . . . . . . . $ (0.16) $ (0.22) $ (19.87) Weighted average number of common shares outstanding Basic and Diluted . . . . . . . . . . . . . . . . 7,506,438 7,163,769 2,719,613
See accompanying notes. 4 GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (UNAUDITED)
PERIOD FROM NOVEMBER 17, 1987 THREE MONTHS ENDED MARCH 31 (INCEPTION) TO ------------------------------- MARCH 31, 1998 1997 1997 -------------------------------------------------------- OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (1,217,095) $ (1,576,928) $ (54,036,149) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization. . . . . . . . . . . . 384,197 87,410 2,774,954 Preferred stock dividend . . . . . . . . . . . . . . - - 7,296,844 Warrants issued, net . . . . . . . . . . . . . . . . - - 907,064 Extraordinary gain on extinguishment of debt . . . . - - (605,421) Equity/debt issued for services. . . . . . . . . . . - - 2,990,615 Changes in operating assets and liabilities. . . . . (67,387) (672,688) 1,283,731 ------------ ------------ ------------- Net cash used in operating activities. . . . . . . . . ( 900,285) (2,162,206) (39,388,362) ------------ ------------ ------------- INVESTING ACTIVITIES: Purchase of property, plant and equipment. . . . . . . (25,122) (283,862) (3,748,011) Change in available-for-sale securities, net . . . . . 1,588,063 1,130,696 (5,923,556) ------------ ------------ ------------- Net cash provided (used) by investing activities . . 1,562,941 846,834 (9,671,567) ------------ ------------ ------------- FINANCING ACTIVITIES: Proceeds from sale of stock, net of offering costs . . 11,867 - 32,353,970 Proceeds/payment from/on note payable. . . . . . . . . (81,411) - 17,454,979 ------------ ------------ ------------- Net cash provided by financing activities. . . . . . . (69,544) - 49,808,949 ------------ ------------ ------------- Increase (decrease) in cash. . . . . . . . . . . . . . 593,112 (1,315,372) 749,020 Cash and cash equivalents at beginning of period . . . 155,908 3,869,549 - ------------ ------------ ------------- Cash and cash equivalents at end of period . . . . . . $ 749,020 $ 2,554,177 $ 749,020 ------------ ------------ ------------- ------------ ------------ ------------- SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Discount valuation for convertible debentures. . . . . $ - $ - $ 500,182 Valuation of issued options and warrants. . . . . . . - 33,333 287,583 Deferred compensation recognized for employee options. - - 1,657,000 Deferred compensation adjustment for canceled options. - - 297,000 Conversion of convertible promissory notes plus related accrued interest, net of financing costs. . . . . . . 508,161 - 9,372,986
See accompanying notes. 5 GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. These financial statements should be read in conjunction with the audited financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 2. CASH AND CASH EQUIVALENTS Cash equivalents include short-term highly liquid investments purchased at cost, which approximate market, with original maturities of three months or less. 3. INVESTMENTS Investments in debt securities with a remaining maturity of more than three months at the date of purchase are classified as marketable securities. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as available-for-sale as of March 31, 1998. The book value of the investments approximates their estimated market value. The estimated market value of investments by security type is as follows:
ESTIMATED MARKET VALUE AS OF MARCH 31, 1998 U.S. Treasury securities $ 4,220,377 Corporate debt securities 1,193,945 U.S. Government agency securities 509,234 ----------- $ 5,923,556 ----------- -----------
All investments have a contractual maturity of one year or less. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation and amortization are provided for on the straight line method. 6 GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 5. NET LOSS PER SHARE Basic and diluted net loss per share is presented in conformance with Financial Accounting Standards Board Statement No. 128. 6. COMPREHENSIVE INCOME As of January 1, 1998 the Company adopted Statement No. 130, REPORTING COMPREHENSIVE INCOME. Statement No. 130 established new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholder's equity. 7. CONVERTIBLE DEBENTURES In November 1997, the Company raised $1,500,000 through the private placement sale of 6% convertible debentures (the "Debentures") to three institutional investors pursuant to Regulation D under the Securities Act of 1933. The principal and interest of the Debentures can be converted into shares of the Company's common stock at 82.5% of the lowest closing bid price of the Company's common stock three days prior to conversion. One-third of the Debentures can convert to common stock upon the effective date of registration, one-third after five months from the closing date and the remaining one third twelve months after the closing date or nine months if the price of the common stock does not average at least $2.00 per share in the eighth month after closing. An aggregate maximum of 1,400,000 discounted shares of common stock (the "Discounted Shares") can be issued upon the conversion of the Debentures, with each investor owning at any given time a maximum of 4.99% of the then issued and outstanding shares of common stock. If there remains any unconverted principal and accrued interest due to all the Discounted Shares being issued, the Company has the obligation to repay the investors, in the aggregate, a maximum principal of $500,000. The Debentures automatically convert into the Discounted Shares eighteen months from the closing date. Five-year warrants were issued to the investors to purchase, in the aggregate, 200,000 shares of common stock at 110% of the market value of the common stock on the closing date. The value of the warrants plus the value of the discount of the Discounted Shares was $500,182, which the Company is amortizing to interest expense over the term of the Debentures. A deferred expense was recorded for $144,467, which represents costs associated with closing the Debentures. These deferred expenses are being amortized until the Debentures are converted into Discounted Shares. For the four months ended April 30, 1998, $559,500 of Debenture principal plus accrued interest was converted into 749,140 shares of common stock. The net carrying value of the Debentures approximates fair market value. In connection with this private placement, the Company has reserved 1,129,062 shares of common stock for issuance. 7 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The information presented in this Item contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties, including those discussed under "Risk Factors" below, that could cause actual results to differ materially from those projected. Because actual results may differ, readers are cautioned not to place undue reliance on these forward-looking statements. Certain forward-looking statements are indicated below by an asterisk. GENERAL GalaGen is focusing its emphasis on nutritional products and is utilizing its expertise in its platform antibody technology to develop a portfolio of proprietary nutritional products, including dietary supplements, which incorporate its Proventra-TM- Brand Natural Immune Components. These products will target needs of both consumers and healthcare professionals. These antibodies used in nutritional products are food proteins that are derived from the milk collected in the first few milkings of a dairy cow after its calf is born. Using its proprietary procedures, the Company has produced antibodies that target specific pathogens infecting the human gastrointestinal tract, including bacteria and their toxins, parasites, fungi and viruses. Because the Company's antibodies are derived from cows' milk, they do not represent new chemical compounds with uncertain toxicity, but rather their components are commonly found in dairy foods that are already widely consumed. RECENT DEVELOPMENTS In December 1997, the Company introduced Basics Plus, a dietary supplement product, in conjunction with its marketing and manufacturing partner, Lifeway Foods. Basics Plus is the first product to emerge from the collaboration with Lifeway Foods, Inc. and contains active beneficial kefir cultures and GalaGen's Proventra-TM- Brand Natural Immune Components ("Proventra"). In March 1998, the Company and Land O'Lakes, Inc. ("LAND O'LAKES"), the large food and agricultural cooperative from which GalaGen was spun-out in 1992, signed an amended and restated license agreement (the "Restated License") in which the Company has significantly broadened its rights to develop and market functional foods, which include nutritional products. Under the Restated License, the Company can use, improve, exploit, license or share existing Procor Technologies, Inc. (the Company's predecessor, "Procor") technology, Procor technology improvements and new technologies, as defined, in all areas of functional foods except under certain "reserved food product" and "first refusal food product" categories, as defined. If the Company intends to engage in manufacturing or marketing any "first refusal food product", the Company must give Land O'Lakes notice of its intent, in which case Land O'Lakes can negotiate with the Company, in good faith and within a defined period of time, to undertake any part of the manufacturing or marketing areas. If the Company intends to engage in manufacturing or marketing any "reserved food product", the Company must give Land O'Lakes notice of its intent and must only work with Land O'Lakes to undertake the manufacturing or marketing of such products. In May 1998, the Company announced that it is entering into a consumer product development agreement with Land O'Lakes. Under terms of the agreement, the two companies will collaborate on the development of yogurt products containing GalaGen's Proventra-TM-. This collaboration will initially focus on developing a yogurt product with unique benefits for women. GalaGen will supply its Proventra-TM- and possibly other active components, for this product.* The Company expects to be in regional test 8 markets with this yogurt in late 1998 or early 1999, with Land O'Lakes providing the product development, manufacturing, sales, distribution and marketing of the product.* From this collaboration with Land O'Lakes, the Company expects to incur increased marketing research expenses and increased marketing consulting expenses.* The Company also expects to incur further product development and marketing research expenses and outside legal expenses in 1998 associated with the further development of certain consumer nutritional and clinical nutritional beverage products.* The Company anticipates that two products, including its yogurt product in conjunction with Land O'Lakes, will be introduced in regional test markets in late 1998 or early 1999.* In August 1997, the Company announced that it was placing its Sporidin-G pharmaceutical clinical trial on hold due to continuing decline in the patient population for the product's initial indication, AIDS-related CRYPTOSPORIDIUM PARVUM infection. The decline was brought about by the effectiveness and increased use of new AIDS therapies, including protease inhibitors and earlier administration of combination therapy. In May 1998, the Company also announced that it would limit further spending on development of pharmaceutical products this year, believing that applying its technology and resources toward nutritional product development will provide superior shareholder value.* The Phase II dose ranging study for Diffistat-G, a pharmaceutical treatment for antibiotic-associated diarrhea, has now provided sufficient data for the design of future studies necessary for approval by the U.S. Food and Drug Administration. As previously announced, subsequent studies will only be implemented in collaboration with a corporate partner.* The Company remains positive about the long-term value of its pharmaceutical program and products, but believes that pharmaceutical development can be best supported from corporate alliances.* The Company will continue to seek partners for all of its pharmaceutical development products. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 GENERAL. The net loss applicable to common stockholders decreased by $359,833, or 22.8%, for the three months ended March 31, 1998, to $1,217,095 from $1,576,928 for the same period in 1997. The decrease was due primarily to decreased spending on research and development associated with the Sporidin-G clinical trial offset by increased interest expense from a line-of-credit and outstanding convertible debentures, as discussed below. Historical spending levels may not be indicative of future spending levels because the Company is continuing its nutritional product development activity, which is planned to include costs relating to product development activity, small-scale manufacturing, clinical trial activity and market research.* For these reasons, the Company believes its expenses and losses will increase before any material product revenues are generated.* As discussed above, the Company will focus its resources primarily on nutritional product development.* REVENUES. For the three months ended March 31, 1998 revenues consisted of $3,050 from sales of the Company's Proventra-TM- for use in Basics Plus. The Company expects sales of Proventra-TM- to increase over the next three quarters.* RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and development decreased $510,846, or 45.6%, for the three months ended March 31, 1998 to $608,368 from $1,119,214 for the three months ended March 31, 1997. Expenses associated with research, development and clinical expenses for Sporidin-G, Diffistat-G and other pharmaceutical products decreased approximately $450,000, associated personnel expense decreased approximately $190,000 and quality validation and procurement expenses decreased approximately $50,000 for the three months ended March 31, 1998. These decreases were offset by increased pilot plant depreciation expenses from the completion of the Company's pilot plant facility in July 1997 of approximately $91,000 and increased nutritional product development expense of approximately $88,000. 9 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $59,085, or 10.3%, for the three months ended March 31, 1998 to $514,911 from $573,996 for the first quarter of 1997. Approximately $50,000 of the decrease was from decreased legal counsel services. INTEREST INCOME. Interest income was $124,549 for the three months ended March 31, 1998 and $116,282 for the same period in 1997. The $8,267 increase in interest income was from increased investment returns. INTEREST EXPENSE. Interest expense was $219,890 for the three months ended March 31, 1998 and zero for the same period in 1997. Interest expense for the first quarter of 1998 consisted of approximately $151,000 of amortization expense associated with Company's convertible debentures (see Note 7 in Notes to Financial Statements), approximately $19,000 of accrued interest expense on the outstanding convertible debentures and approximately $50,000 of interest expense associated with the Company's line-of-credit which was established in June 1997. LIQUIDITY AND CAPITAL RESOURCES The Company was incorporated in March 1992. On July 24, 1992, Procor was merged with and into the Company (the "Procor-GalaGen Merger"). At the time of the Procor-GalaGen Merger, Procor was a wholly-owned subsidiary of Land O'Lakes. Since the Company's inception through March 31, 1998 investments in the Company have totaled approximately $53.1 million, including approximately $7.1 million of inter-company obligations payable to Land O'Lakes which were forgiven and recorded as contributed capital at the time of the Procor-GalaGen Merger, $17.9 million from the Company's initial public offering (the "Offering") after deducting underwriting discounts and offering expenses and approximately $28.1 million from private placements of equity and convertible debt and from conversion of accrued interest on such debt and the exercise of stock options and warrants. The Company has invested funds received in the Offering and these private placements in investment-grade, interest-bearing obligations. Cash used in operating activities decreased by $1,261,921 or 58.4%, for the three months ended March 31, 1998 to $900,285 from $2,162,206 for the same period in 1997. Cash used in operations for the three month period ended March 31, 1998 went primarily to fund operating losses. For the three month period ended March 31, 1997 cash used in operations went primarily to fund operating losses and for repayment of certain current liabilities. For the three months ended March 31, 1998 the Company redeemed $1,588,063 of its available-for-sale securities and invested $25,122 in equipment related to the Company's pilot plant manufacturing facility. For the same period in 1997 the Company invested $249,797 in the pilot plant manufacturing facility and $34,065 in lab equipment, computer equipment and software and furniture used to support the Company's operations. The Company anticipates that its existing resources and interest thereon will be sufficient to satisfy its anticipated cash requirements through approximately the first quarter of 1999.* The Company's working capital and capital requirements will depend upon numerous factors, including the progress of the Company's market research, product development and ability to obtain partners with the appropriate manufacturing, sales, distribution and marketing capabilities.* The Company's capital requirements also will depend on the levels of resources devoted to the development of manufacturing capabilities, technological advances, the status of competitive products and the ability of the Company to establish partners or strategic alliances to provide funding to the Company for certain manufacturing, sales, product development and marketing activities.* 10 The Company expects to incur substantial additional product development and other costs, including costs related to clinical studies and marketing activities.* Capital expenditures may be necessary to obtain licensure of the existing pilot plant facility and to establish additional commercial scale manufacturing facilities. The Company will need to raise substantial additional funds for longer-term product development, manufacturing and marketing activities that may be required in the future. The Company's ability to continue funding its planned operations beyond the first quarter of 1999 is dependent upon its ability to generate product revenues or to obtain additional funds through equity or debt financing, strategic alliances, license agreements or from other financing sources.* A lack of adequate revenues or funding could eventually result in the insolvency or bankruptcy of the Company.* At a minimum, if adequate funds are not available, the Company may be required to delay or to eliminate expenditures for certain of its product development efforts or to license to third parties the rights to commercialize products or technologies that the Company would otherwise seek to develop itself. Because of the Company's significant long-term capital requirements, it may seek to raise funds when conditions are favorable, even if it does not have an immediate need for such additional capital at such time. If the Company has not raised funds prior to such time as the Company's needs for funding become immediate, the Company may be forced to raise funds when conditions are unfavorable which could result in substantial dilution to the Company's current stockholders.* DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q for the first quarter ended March 31, 1998 contains certain forward looking statements within the meaning of Section 21E of the Exchange Act. Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made. When used in this Form 10-Q, the words "anticipate", "believe", "estimate", "expect", "intend" and similar expressions, as they relate to the Company, are intended to identify such forward-looking statements. Although the Company believes these statements are reasonable, readers of this Form 10-Q should be aware that actual results could differ materially from those projected by such forward-looking statements as a result of the risk factors listed below and set forth in the Company's Annual Report on Form 10-K for 1997 ("Form 10-K") under the caption "Risk Factors." Readers of this Form 10-Q should consider carefully the factors listed below and under the caption "Risk Factors" in the Company's Form 10-K, as well as the other information and data contained in this Form 10-Q. The Company cautions the reader, however, that such list of factors under the caption "Risk Factors" in the Company's Form 10-K may not be exhaustive and that those or other factors, many of which are outside of the Company's control, could have a material adverse effect on the Company and its results of operations. Factors that could cause actual results to differ include, without limitation, the Company's ability to generate sufficient working capital and obtain necessary financing, the Company's ability to form strategic alliances with marketing and distribution partners, the Company's exposure to product liability claims, consumers' perception of product safety and quality, the Company's reliance on flawed market research, potential competitors that are larger and financially stronger, the Company's ability to receive regulatory approval for its products and the Company's ability to manufacture an acceptable product on a commercial scale. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth hereunder and under the caption "Risk Factors" in the Company's Form 10-K. RISK FACTORS Certain statements made above, including those indicated by an asterisk (some of which are summarized below), are forward-looking statements that involve risks and uncertainties, and actual results may differ. Factors that could cause actual results to differ include those identified below. EXPECTATION THAT TWO ADDITIONAL PRODUCTS WILL BE IN REGIONAL TEST MARKETS IN LATE 1998 OR EARLY 1999. The timing of product introduction into test markets is dependent upon the Company's ability to successfully finalize market research and product development, with or without a partner or strategic alliance, and to obtain a partner that has the ability to either provide final product manufacturing, 11 marketing, sales and distribution activities or the ability to provide the funding necessary to obtain those activities. The inability of the Company to bring these two additional products to regional test markets in late 1998 or early 1999 could have a material adverse effect on the Company. THE COMPANY ALSO EXPECTS TO INCUR FURTHER PRODUCT DEVELOPMENT AND MARKETING RESEARCH EXPENSES AND OUTSIDE LEGAL EXPENSES IN 1998 ASSOCIATED WITH THE FURTHER DEVELOPMENT OF CERTAIN CONSUMER NUTRITIONAL AND CLINICAL NUTRITIONAL BEVERAGE PRODUCTS. The Company's product development length and cost is dependent upon, to a certain degree, results of the Company's market research which may give the Company certain indications of whom the Company's target customers may be and what types of products they may desire. ABILITY OF THE COMPANY TO SATISFY ITS ANTICIPATED CASH REQUIREMENTS THROUGH APPROXIMATELY THE END OF THE FIRST QUARTER OF 1999. The Company's working capital and capital requirements will depend upon numerous factors, including the progress of the Company's product development programs and the timing and cost of market research. The Company's capital requirements also will depend on the levels of resources devoted to the development of manufacturing and marketing capabilities, technological advances, the status of competitive products and the ability of the Company to establish strategic alliances to provide funding to the Company for certain manufacturing, sales, product development and marketing activities. The inability of the Company to satisfy its cash requirements could have a material adverse effect on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a.) EXHIBITS
EXHIBIT NO. DESCRIPTION METHOD OF FILING ----------- ----------- ---------------- 3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By Reference 3.4 Restated Bylaws of the Company.(1) Incorporated By Reference 4.1 Specimen Common Stock Certificate.(1) ncorporated By Reference 4.2 Warrant to purchase 13,541 shares of Common Stock of the Company issued to Incorporated By Piper Jaffray Inc., dated January 26, 1993.(1) Reference 4.3 Warrant to purchase 20,312 shares of Common Stock of the Company issued to Gus Incorporated By A. Chafoulias, dated October 12, 1993.(1) Reference 4.4 Warrant to purchase 20,312 shares of Common Stock of the Company issued to Incorporated By John Pappajohn, dated October 12, 1993.(1) eference 4.5 Warrant to purchase 9,479 shares of Common Stock of the Company issued to Cato Incorporated By Holding Company, dated June 21, 1994.(1) Reference 4.6 Form of Common Stock Warrant to purchase shares of Common Stock of the Incorporated By Company, issued in connection with the sale of Convertible Promissory Reference Notes.(1) 4.7 Warrant to purchase 17,144 shares of Series F-1 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.8 Warrant to purchase 42,856 shares of Series F-2 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.9 Warrant to purchase 60,000 shares of Series F-3 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.10 Warrant to purchase 80,000 shares of Series F-3 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.11 Warrant to purchase 18,250 shares of Common Stock of the Company issued to IAI Incorporated By Investment Funds VI, Inc. (IAI Emerging Growth Fund), dated January 30, Reference 1996.(1) 13 4.12 Warrant to purchase 6,250 shares of Common Stock of the Company issued to IAI Incorporated By Investment Funds IV, Inc. (IAI Regional Fund), dated January 30, 1996.(1) Reference 4.13 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By John Pappajohn, dated February 2, 1996.(1) Reference 4.14 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Edgewater Private Equity Fund, L.P., dated February 2, 1996.(1) Reference 4.15 Warrant to purchase 10,000 shares of Common Stock of the Company issued to Incorporated By Joseph Giamenco, dated February 2, 1996.(1) Reference 4.16 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Gus A. Chafoulias, dated February 2, 1996.(1) Reference 4.17 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By JIBS Equities, dated February 2, 1996.(1) Reference 4.18 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Land O'Lakes, Inc., dated February 2, 1996.(1) Reference 4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 among the Incorporated By Company and the Purchasers named therein.(8) Reference 4.20 Registration Rights Agreement dated November 18, 1997 among the Company and the Incorporated By Holders named therein.(9) Reference 4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. dated Incorporated By November 18, 1997.(10) Reference 4.22 6% Convertible Debenture due May 18, 1999 issued to Libertyview Plus Fund dated Incorporated By November 18, 1997.(11) Reference 4.23 6% Convertible Debenture due May 18, 1999 issued to Libertyview Fund, LLC dated Incorporated By November 18, 1997.(12) Reference 4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, 1997.(13) Incorporated By Reference 4.25 Stock Purchase Warrant issued to Libertyview Plus Fund dated November 18, Incorporated By 1997.(14) Reference 4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC dated November 18, Incorporated By 1997.(15) Reference 4.27 Warrant issued to CLARCO Holdings dated as of December 1,1997.(16) Incorporated By Reference 4.28 Warrant issued to CLARCO Holdings dated as of December 1,1997.(17) Incorporated By Reference 4.29 Warrant issued to CLARCO Holdings dated as of December 1,1997.(18) Incorporated By Reference 14 #10.1 License Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference #10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference #10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference 10.4 Master Services Agreement between the Company and Land O'Lakes dated May 7, Incorporated By 1992.(1) Reference *10.5 GalaGen Inc. 1992 Stock Plan, as amended.(5) Incorporated By Reference 10.7 Stock and Warrant Purchase Agreement between the Company and Chiron Incorporated By Corporation dated March 20, 1995.(1) Reference #10.8 License and Collaboration Agreement between the Company and Chiron Corporation Incorporated By dated March 20, 1995.(1) Reference *10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By Reference 10.10 Credit Agreement between the Company and Norwest Bank Minnesota, N.A., dated Incorporated By as of January 24, 1996.(1) Reference 10.11 Commitment Letter between the Company and Cargill Leasing Corporation, dated Incorporated By June 5, 1996.(2) Reference 10.12 Master Equipment Lease between the Company and Cargill Leasing Corporation, Incorporated By dated June 6, 1996.(2) Reference 10.13 Agreement for Progress Payments between the Company and Cargill Leasing Incorporated By Corporation, dated June 6, 1996.(2) Reference 10.14 Agreement for Lease between the Company and Land O'Lakes, dated June 3, 1996.(2) Incorporated By Reference *10.15 Letter agreement with John G. Watson dated September 14, 1996.(3) Incorporated By Reference #10.16 Agreement with Colorado Animal Research Enterprises, Inc. dated November 1, Incorporated By 1996.(4) Reference *10.17 Letter agreement with Francois Lebel, M.D., dated December 27, 1996.(4) Incorporated By Reference *10.18 Consulting agreement with Stanley Falkow, Ph.D., dated January 15, 1997.(4) Incorporated By Reference *10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan.(4) Incorporated By Reference *10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Plan.(4) Incorporated By Reference 15 *10.21 GalaGen Inc. 1997 Incentive Plan.(6) Incorporated By Reference 10.22 Master Loan and Security Agreement with TransAmerica Business Credit Incorporated By Corporation dated June 8, 1997.(7) Reference 10.23 Amended and Restated License Agreement between the Company and Land O'Lakes Incorporated By dated March 11, 1998.(19) Reference 11.1 Statement re: computation of per share earnings (loss). Electronic Transmission 23.1 Consent of Ernst & Young LLP.(19) Incorporated By Reference 27.1 Financial Data Schedule for Quarter ended March 31, 1998. Electronic Transmission 27.2 Restated Financial Data Schedule for Quarter ended March 31, 1996.(19) Incorporated By Reference 99.1 Press release regarding first quarter 1998 results and Diffistat-G, Electronic dated May 13, 1998. Transmission
- -------------------------- (1) Incorporated herein by reference to the same numbered Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-1032). (2) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (File No. 0-27976). (3) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 (File No. 0-27976). (4) Incorporated herein by reference to the same numbered Exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 1996 (File No. 0-27976). (5) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (File No. 0-27976). (6) Incorporated herein by reference to Appendix A to the Company's 1997 Definitive Proxy Statement on Schedule 14A (File No. 0-27976). (7) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-27976). (8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's Registration Statement on 16 Form S-3 (Registration No. 333-41151). (12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's Registration Statement on Form S-3(Registration No. 333-41151). (15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (19) Incorporated herein by reference to the same numbered Exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 1997 (File No. 0-27976). * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. # Contains portions for which confidential treatment has been granted to the Company. (b.) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1998. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GalaGen Inc. ------------- (Registrant) Date: May 14, 1998 By: /s/ Robert A. Hoerr -------------------- Robert A. Hoerr, President and Chief Executive Officer (Principal Executive Officer) Date: May 14, 1998 By: /s/ Gregg A. Waldon ---------------------- Gregg A. Waldon, Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) 18 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION METHOD OF FILING ----------- ----------- ---------------- 3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By Reference 3.4 Restated Bylaws of the Company.(1) Incorporated By Reference 4.1 Specimen Common Stock Certificate.(1) Incorporated By Reference 4.2 Warrant to purchase 13,541 shares of Common Stock of the Company issued to Incorporated By Piper Jaffray Inc., dated January 26, 1993.(1) Reference 4.3 Warrant to purchase 20,312 shares of Common Stock of the Company issued to Gus Incorporated By A. Chafoulias, dated October 12, 1993.(1) Reference 4.4 Warrant to purchase 20,312 shares of Common Stock of the Company issued to Incorporated By John Pappajohn, dated October 12, 1993.(1) Reference 4.5 Warrant to purchase 9,479 shares of Common Stock of the Company issued to Cato Incorporated By Holding Company, dated June 21, 1994.(1) Reference 4.6 Form of Common Stock Warrant to purchase shares of Common Stock of the Incorporated By Company, issued in connection with the sale of Convertible Promissory Reference Notes.(1) 4.7 Warrant to purchase 17,144 shares of Series F-1 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.8 Warrant to purchase 42,856 shares of Series F-2 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.9 Warrant to purchase 60,000 shares of Series F-3 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.10 Warrant to purchase 80,000 shares of Series F-3 Convertible Preferred Stock of Incorporated By the Company issued to Chiron Corporation, dated March 29, 1995.(1) Reference 4.11 Warrant to purchase 18,250 shares of Common Stock of the Company issued to IAI Incorporated By Investment Funds VI, Inc. (IAI Emerging Growth Fund), dated January 30, Reference 1996.(1) 4.12 Warrant to purchase 6,250 shares of Common Stock of the Company issued to IAI Incorporated By Investment Funds IV, Inc. (IAI Regional Fund), dated January 30, 1996.(1) Reference 4.13 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By John Pappajohn, dated February 2, 1996.(1) Reference 19 4.14 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Edgewater Private Equity Fund, L.P., dated February 2, 1996.(1) Reference 4.15 Warrant to purchase 10,000 shares of Common Stock of the Company issued to Incorporated By Joseph Giamenco, dated February 2, 1996.(1) Reference 4.16 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Gus A. Chafoulias, dated February 2, 1996.(1) Reference 4.17 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By JIBS Equities, dated February 2, 1996.(1) Reference 4.18 Warrant to purchase 25,000 shares of Common Stock of the Company issued to Incorporated By Land O'Lakes, Inc., dated February 2, 1996.(1) Reference 4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 among the Incorporated By Company and the Purchasers named therein.(8) Reference 4.20 Registration Rights Agreement dated November 18, 1997 among the Company and the Incorporated By Holders named therein.(9) Reference 4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. dated Incorporated By November 18, 1997.(10) Reference 4.22 6% Convertible Debenture due May 18, 1999 issued to Libertyview Plus Fund dated Incorporated By November 18, 1997.(11) Reference 4.23 6% Convertible Debenture due May 18, 1999 issued to Libertyview Fund, LLC dated Incorporated By November 18, 1997.(12) Reference 4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, 1997.(13) Incorporated By Reference 4.25 Stock Purchase Warrant issued to Libertyview Plus Fund dated November 18, Incorporated By 1997.(14) Reference 4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC dated November 18, Incorporated By 1997.(15) Reference 4.27 Warrant issued to CLARCO Holdings dated as of December 1,1997.(16) Incorporated By Reference 4.28 Warrant issued to CLARCO Holdings dated as of December 1,1997.(17) Incorporated By Reference 4.29 Warrant issued to CLARCO Holdings dated as of December 1,1997.(18) Incorporated By Reference #10.1 License Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference #10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference #10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, 1992.(1) Incorporated By Reference 20 10.4 Master Services Agreement between the Company and Land O'Lakes dated May 7, Incorporated By 1992.(1) Reference *10.5 GalaGen Inc. 1992 Stock Plan, as amended.(5) Incorporated By Reference 10.7 Stock and Warrant Purchase Agreement between the Company and Chiron Incorporated By Corporation dated March 20, 1995.(1) Reference #10.8 License and Collaboration Agreement between the Company and Chiron Corporation Incorporated By dated March 20, 1995.(1) Reference *10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By Reference 10.10 Credit Agreement between the Company and Norwest Bank Minnesota, N.A., dated Incorporated By as of January 24, 1996.(1) Reference 10.11 Commitment Letter between the Company and Cargill Leasing Corporation, dated Incorporated By June 5, 1996.(2) Reference 10.12 Master Equipment Lease between the Company and Cargill Leasing Corporation, Incorporated By dated June 6, 1996.(2) Reference 10.13 Agreement for Progress Payments between the Company and Cargill Leasing Incorporated By Corporation, dated June 6, 1996.(2) Reference 10.14 Agreement for Lease between the Company and Land O'Lakes, dated June 3, 1996.(2) Incorporated By Reference *10.15 Letter agreement with John G. Watson dated September 14, 1996.(3) Incorporated By Reference #10.16 Agreement with Colorado Animal Research Enterprises, Inc. dated November 1, Incorporated By 1996.(4) Reference *10.17 Letter agreement with Francois Lebel, M.D., dated December 27, 1996.(4) Incorporated By Reference *10.18 Consulting agreement with Stanley Falkow, Ph.D., dated January 15, 1997.(4) Incorporated By Reference *10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan.(4) Incorporated By Reference *10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Plan.(4) Incorporated By Reference *10.21 GalaGen Inc. 1997 Incentive Plan.(6) Incorporated By Reference 10.22 Master Loan and Security Agreement with TransAmerica Business Credit Incorporated By Corporation dated June 8, 1997.(7) Reference 10.23 Amended and Restated License Agreement between the Company and Land O'Lakes Incorporated By dated March 11, 1998.(19) Reference 21 11.1 Statement re: computation of per share earnings (loss). Electronic Transmission 23.1 Consent of Ernst & Young LLP.(19) Incorporated By Reference 27.1 Financial Data Schedule for Quarter ended March 31, 1998. Electronic Transmission 27.2 Restated Financial Data Schedule for Quarter ended March 31, 1996.(19) Incorporated By Reference 99.1 Press release regarding first quarter 1998 results and Diffistat-G, Electronic dated May 13, 1998. Transmission
- -------------------------- (1) Incorporated herein by reference to the same numbered Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-1032). (2) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (File No. 0-27976). (3) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 (File No. 0-27976). (4) Incorporated herein by reference to the same numbered Exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 1996 (File No. 0-27976). (5) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (File No. 0-27976). (6) Incorporated herein by reference to Appendix A to the Company's 1997 Definitive Proxy Statement on Schedule 14A (File No. 0-27976). (7) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-27976). (8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's Registration Statement on 22 Form S-3(Registration No. 333-41151). (15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Registration No. 333-41151). (19) Incorporated herein by reference to the same numbered Exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 1997 (File No. 0-27976). * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. # Contains portions for which confidential treatment has been granted to the Company. 23 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1---STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) GALAGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31 --------------------------- 1998 1997 --------------------------- BASIC LOSS PER SHARE: Weighted average shares outstanding 7,560,438 7,163,769 ----------- ------------ ----------- ------------ Net loss applicable to common stockholders $(1,217,095) $(1,576,928) ----------- ------------ ----------- ------------ Basic net loss per share applicable to common stockholders $(.16) $(.22) ----------- ------------ ----------- ------------ DILUTED LOSS PER SHARE: Weighted average shares outstanding 7,560,438 7,163,769 Dilutive potential common shares - - ----------- ------------ Total 7,560,438 7,163,769 ----------- ------------ ----------- ------------ Net loss applicable to common stockholders $(1,217,095) $(1,576,928) ----------- ------------ ----------- ------------ Diluted net loss per share applicable to common stockholders $(.16) $(.22) ----------- ------------ ----------- ------------
24 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 749,020 5,923,556 0 0 0 6,718,095 1,895,097 471,831 8,294,788 666,301 0 0 0 79,622 5,922,739 8,294,788 3,050 3,050 1,525 1,525 1,123,279 0 219,890 (1,217,095) 0 (1,217,095) 0 0 0 (1,217,095) (.16) (.16)
EX-99.1 4 EXHIBIT 99.1 Exhibit 99.1 CONTACT: GalaGen Inc. Padilla Speer Beardsley Gregg A. Waldon Marian Briggs/Diane Rose Chief Financial Officer (612) 871-8877 Robert A. Hoerr e-mail: mbriggs@psbpr.com President and Chief Executive Officer e-mail: drose@psbpr.com (612) 481-2105 www.galagen.com FOR IMMEDIATE RELEASE GALAGEN INC. ANNOUNCES FIRST QUARTER RESULTS NUTRITIONAL PRODUCTS COMPANY LAUNCHES BASICS PLUS-TM- DIETARY SUPPLEMENT IN TWIN CITIES SUPERMARKETS ARDEN HILLS, MINN., MAY 13, 1998 -- GalaGen Inc. (Nasdaq: GGEN), a development stage nutritional products company, today announced financial results for the first quarter ended March 31, 1998. As anticipated, the Company reported a net loss for the first quarter of 1998. The loss narrowed to $1,217,095, or $0.16 per share, compared to a net loss of $1,576,928, or $0.22 per share, in the first quarter of 1997. GalaGen has begun to sell its Proventra-TM- Brand Natural Immune Components for use in Basics Plus-TM-, the first refrigerated, dairy-based dietary supplement to enter the grocery store market. The Company ended the quarter with $6,672,576 in cash, cash equivalents and available-for-sale securities. GalaGen's president and CEO, Robert A. Hoerr, M.D., Ph.D., said: "We continue to make great progress in our nutritional product development, as the recent collaboration with Land O'Lakes to develop yogurt products containing GalaGen's immune-enhancing Proventra-TM- demonstrates. We are focusing our efforts and resources on launching two additional nutritional products, including a yogurt product with Land O'Lakes, in late 1998 or early 1999." For fiscal year 1997, the dairy foods unit of Land O'Lakes posted $2.2 billion in sales and record profits. THE YOGURT PRODUCT Last week, GalaGen announced that it is entering into a consumer product development agreement with Land O'Lakes, Inc., the large food and agricultural cooperative from which GalaGen was spun-out in 1992. Under terms of the agreement, the two companies will collaborate to develop yogurt products containing GalaGen's Proventra-TM- and potentially other functional components. "Land O'Lakes' recent acquisition of a private label yogurt production company provides capacity and expertise needed to succeed in the $3.7 billion U.S. yogurt market," said Hoerr. This collaboration initially will develop a yogurt product with unique benefits for women, who make the majority of yogurt purchases. The Company plans to be in regional test markets with this yogurt in late 1998 or early 1999, with Land O'Lakes handling the product development, manufacturing, sales, distribution and marketing. -more- GALAGEN INC. PAGE TWO BASICS PLUS EXPANSION INTO THE TWIN CITIES The first nutritional product to be launched from the Chicago-based Lifeway Foods, Inc. (Nasdaq: LWAY) and GalaGen collaboration is Basics Plus-TM-, which is a dairy beverage being manufactured and test marketed in selected cities by Lifeway. Basics Plus containing GalaGen's Proventra-TM- was recently introduced in the Minneapolis and St. Paul area in selected Byerly's and other supermarkets. The product, featured in the February 1998 issue of DAIRY FOODS, targets the rapidly growing healthy beverage market, estimated to exceed $20 billion annually. The Company also announced that it would limit further spending on development of pharmaceutical products this year, believing that applying its technology and resources toward nutritional product development will provide superior shareholder value. The Phase II dose ranging study for Diffistat-G, a pharmaceutical treatment for antibiotic-associated diarrhea, has now provided sufficient data for the design of future studies necessary for approval by the U.S. Food and Drug Administration. As previously announced, subsequent studies will only be implemented in collaboration with a corporate partner. The Company remains positive about the long-term value of its pharmaceutical program and products, but believes that pharmaceutical development can be best supported from corporate alliances. The Company will continue to seek partners for all of its pharmaceutical development products. GalaGen Inc. is utilizing its expertise in its antibody platform technology to develop a portfolio of proprietary nutritional products, including dietary supplements and medical foods, which incorporate its Proventra-TM- Brand Natural Immune Components. These products will target the needs of both consumers and healthcare professionals. The Company currently has its first dietary supplement product, Basics Plus, in test markets in conjunction with its marketing and manufacturing partner, Lifeway Foods, and has several other projects under way in various stages of development. EXCEPT FOR HISTORICAL INFORMATION, MATTERS DISCUSSED IN THIS PRESS RELEASE ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, RISKS ASSOCIATED WITH ENTERING NEW MARKETS, CONSUMER ACCEPTANCE, REGULATION OF DIETARY SUPPLEMENTS, COMPETITIVE PRESSURES AND OTHER IMPORTANT FACTORS DETAILED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL 1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. (see attached tables) GALAGEN INC. (A Development Stage Company) FINANCIAL HIGHLIGHTS CONDENSED STATEMENT OF OPERATIONS (unaudited)
Three Months Ended March 31, 1998 1997 ----------- ----------- Revenues $ 3,050 $ -- Cost of goods sold 1,525 -- Research and development expense 608,368 1,119,214 General and administrative expense 514,911 573,996 ----------- ----------- Loss from operations (1,121,754) (1,693,210) Interest income 124,549 116,282 Interest expense (219,890) -- ----------- ----------- Net loss $(1,217,095) $(1,576,928) Net loss per share, basic and diluted $ (0.16) $ (0.22) Shares used in computing net loss per share, basic and diluted 7,560,438 7,163,769 BALANCE SHEET DATA MARCH 31, 1998 (Unaudited) ASSETS: Cash and cash equivalents and available-for-sale securities $ 6,672,576 Other current assets 45,519 ----------- Total current assets 6,718,095 Property and equipment, net 1,423,266 Other assets 153,427 LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities $ 666,301 Convertible promissory notes, net of discount 722,908 Note payable, long-term portion 858,218 Other long-term obligations 45,000 Stockholders' equity 6,002,361
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