-----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, VI3TRc2qmmmMjwdv4wVDReajF/ngDI/W8JToKFTksHpoVUMhwep3xluzun5wNmQ6 CPMjnFXn8oWWlMdFQVHelQ== 0000950129-99-004967.txt : 19991115 0000950129-99-004967.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950129-99-004967 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZONAGEN INC CENTRAL INDEX KEY: 0000897075 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 760233274 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15281 FILM NUMBER: 99750263 BUSINESS ADDRESS: STREET 1: 2408 TIMBERLOCH PL STREET 2: B-4 CITY: WOODLANDS STATE: TX ZIP: 77380 BUSINESS PHONE: 2813675892 MAIL ADDRESS: STREET 1: 2408 TIMBERLOCH PLACE B-4 CITY: THE WOODLANDS STATE: TX ZIP: 77380 10-Q 1 ZONAGEN, INC. - DATED 09/30/99 1 UNITED STATES 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 September 30, 1999 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: 0-21198 ZONAGEN, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 76-0233274 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2408 Timberloch Place, Suite B-4 The Woodlands, Texas 77380 (Address of principal executive offices and zip code) (281) 367-5892 (Registrant's telephone number, including area code) 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 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 --- --- As of November 12, 1999 there were outstanding 11,266,024 shares of Common Stock, par value $.001 per share, of the Registrant. 2 ZONAGEN, INC. (A development stage company) For the Quarter Ended September 30, 1999 INDEX
PAGE ---- FACTORS AFFECTING FORWARD-LOOKING STATEMENTS 3 PART I. FINANCIAL INFORMATION 4 Item 1. Financial Statements Consolidated Balance Sheets: September 30, 1999 (Unaudited) and December 31, 1998 5 Consolidated Statements of Operations: For the three months ended September 30, 1999 and 1998, nine months ended September 30, 1999 and 1998 and from Inception (August 20, 1987) through September 30, 1999 (Unaudited) 6 Consolidated Statements of Cash Flows: For the three months ended September 30, 1999 and 1998, nine months ended September 30, 1999 and 1998 and from Inception (August 20, 1987) through September 30, 1999 (Unaudited) 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 2. Changes in Securities and Use of Proceeds 26 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28
2 3 FACTORS AFFECTING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "anticipate," "believe," "expect," "estimate," "project" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated or projected. These risks and uncertainties include risks associated with the Company's early stage of development, uncertainties related to clinical trial results and FDA approval, the Company's substantial dependence on one product and early stage of development of other products, the Company's history of operating losses and accumulated deficit, the Company's future capital needs and uncertainty of additional funding, uncertainty of protection for the Company's patents and proprietary technology, the effects of government regulation of and lack of assurance of regulatory approval for the Company's products, the Company's limited sales and marketing experience and dependence on collaborators, manufacturing uncertainties and the Company's reliance on third parties for manufacturing, competition and technological change, product liability and availability of insurance, the Company's reliance on contract research organizations, and other risks and uncertainties described in the Company's filings with the Securities and Exchange Commission. For additional discussion of such risks, uncertainties and assumptions, see "Item 1. Description of Business - Business Risks" and "Item 3. Legal Proceedings" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and "Part I. Financial Information - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Part II. Other Information - Item 1. Legal Proceedings" included elsewhere in this Quarterly Report on Form 10-Q. 3 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10 of Regulation S-X. 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 necessary adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 4 5 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) CONSOLIDATED BALANCE SHEETS (in thousands except share amounts)
SEPTEMBER 30, DECEMBER 31, 1999 1998 -------------- -------------- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,949 $ 51,640 Marketable securities - short term 19,737 -- Accounts receivable -- 318 Product inventory 2,502 3,139 Prepaid expenses and other current assets 1,047 1,032 -------------- -------------- Total current assets 26,235 56,129 LAB EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS, net 925 907 MARKETABLE SECURITIES - LONG TERM 18,272 -- GOODWILL, net -- 584 OTHER ASSETS, net 1,444 1,022 -------------- -------------- Total assets $ 46,876 $ 58,642 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,501 $ 3,317 Accrued expenses 1,427 1,935 Current portion of long-term notes payable -- 3 -------------- -------------- Total current liabilities 2,928 5,255 -------------- -------------- STOCKHOLDERS' EQUITY Undesignated Preferred Stock, $.001 par value, 5,000,000 shares authorized, none issued and outstanding -- -- Common Stock, $.001 par value, 20,000,000 shares authorized, 11,681,324 and 11,621,140 shares issued, respectively; 11,266,024 and 11,205,840 shares outstanding, respectively 12 12 Additional paid-in capital 113,564 113,717 Deferred compensation (548) (958) Cost of treasury stock, 415,300 shares (7,484) (7,484) Deficit accumulated during the development stage (61,596) (51,900) -------------- -------------- Total stockholders' equity 43,948 53,387 -------------- -------------- Total liabilities and stockholders' equity $ 46,876 $ 58,642 ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. 5 6 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands except per share amounts)
FROM INCEPTION (AUGUST 20, THREE MONTHS ENDED NINE MONTHS ENDED 1987) SEPTEMBER 30, SEPTEMBER 30, THROUGH -------------------------- -------------------------- SEPTEMBER 30, 1999 1998 1999 1998 1999 ---------- ---------- ---------- ---------- ------------- (unaudited) REVENUES Licensing fees $ -- $ 5,000 $ -- $ 10,000 $ 20,250 Product royalties 182 -- 204 167 367 Interest income 425 748 1,607 2,545 7,665 ---------- ---------- ---------- ---------- ---------- Total revenues 607 5,748 1,811 12,712 28,282 COSTS AND EXPENSES Research and development 2,094 4,646 10,007 16,838 73,512 General and administrative 692 736 2,565 2,190 15,089 Interest expense and amortization of intangibles -- -- 8 3 388 ---------- ---------- ---------- ---------- ---------- Total costs and expenses 2,786 5,382 12,580 19,031 88,989 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations (2,179) 366 (10,769) (6,319) (60,707) Income (loss) from discontinued operations -- (37) 59 (8) (1,828) Gain on disposal -- -- 1,014 -- 939 ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (2,179) $ 329 $ (9,696) $ (6,327) $ (61,596) ========== ========== ========== ========== ========== Income (loss) per share - basic and diluted: Income (loss) from continuing operations $ (0.19) $ 0.03 $ (0.96) $ (0.56) Income from discontinued operations -- -- 0.01 -- Gain on disposal -- -- 0.09 -- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (0.19) $ 0.03 $ (0.86) $ (0.56) ========== ========== ========== ========== Shares used in income (loss) per share calculation: Basic 11,264 11,263 11,236 11,298 Diluted 11,264 11,810 11,236 11,298
The accompanying notes are an integral part of these consolidated financial statements. 6 7 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)
FROM INCEPTION (AUGUST 20, THREE MONTHS ENDED NINE MONTHS ENDED 1987) SEPTEMBER 30, SEPTEMBER 30, THROUGH ------------------------ ------------------------ SEPTEMBER 30, 1999 1998 1999 1998 1999 --------- --------- --------- --------- ------------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,179) $ 329 $ (9,696) $ (6,327) $ (61,596) Gain on disposal of discontinued operations -- -- (1,014) -- (939) Adjustments to reconcile net loss to net cash used in operating activities: Noncash financing costs -- -- -- -- 316 Depreciation and amortization 85 126 337 367 2,292 Noncash expenses related to stock-based transactions 60 89 181 334 1,739 Common stock issued for agreement not to compete -- -- -- -- 200 Series B Preferred Stock issued for consulting services -- -- -- -- 18 Changes in operating assets and liabilities (net effects of purchase of businesses in 1988 and 1994): (Increase) decrease in receivables -- 335 (85) 133 (198) (Increase) decrease in inventory 1 (763) 325 (1,062) (2,532) (Increase) decrease in prepaid expenses and other current assets 65 130 (42) (705) (933) (Decrease) increase in accounts payable and accrued expenses (69) (97) (2,230) (2,206) 2,805 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (2,037) 149 (12,224) (9,466) (58,828) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities (38,009) -- (38,009) -- (38,009) Capital expenditures (71) (111) (328) (325) (2,178) Purchase of technology rights and other assets (42) (83) (455) (383) (1,534) Cash acquired in purchase of FTI -- -- -- -- 3 Proceeds from sale of subsidiary, less $12,345 for operating losses during 1990 phase-out period -- -- -- -- 138 Proceeds from sale of the assets of Fertility Technologies, Inc., subsidiary -- -- 2,250 -- 2,250 Increase in net assets held for disposal -- -- -- -- (213) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities (38,122) (194) (36,542) (708) (39,543) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 3 4 76 383 84,009 Proceeds from issuance of preferred stock -- -- -- -- 23,688 Purchase of treasury stock -- (2,174) -- (6,197) (7,484) Proceeds from issuance of notes payable -- -- -- -- 2,839 Principal payments on notes payable -- (4) (1) (12) (1,732) --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 3 (2,174) 75 (5,826) 101,320 --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,156) (2,219) (48,691) (16,000) 2,949 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,105 59,981 51,640 73,762 -- --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,949 $ 57,762 $ 2,949 $ 57,762 $ 2,949 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 7 8 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) NOTE 1 -- ORGANIZATION AND OPERATIONS Zonagen, Inc., a Delaware corporation, ("Zonagen" or the "Company"), was organized on August 20, 1987 ("Inception"), and is a biopharmaceutical company engaged in the development of pharmaceutical products for the reproductive system, including sexual dysfunction, urology and contraception. Until the sale of substantially all the assets of Fertility Technologies, Inc. ("FTI"), its wholly owned subsidiary, in March 1999, Zonagen also sold devices, instruments and supplies to fertility specialists, obstetricians and gynecologists. From inception through September 30, 1999, the Company has been primarily engaged in pharmaceutical research and development and clinical development and is still in a development stage. In 1997, Zonagen entered into a worldwide sales and marketing agreement with Schering-Plough Corporation for Vasomax(R), the Company's rapidly disintegrating oral formulation of phentolamine mesylate for Male Erectile Dysfunction ("MED"). In March 1998, Schering-Plough submitted a Product Registration Application in Mexico for Vasomax(R) and subsequently began product sales in May 1998, following approval by the Mexican regulatory authorities. On July 14, 1998, Zonagen submitted its first New Drug Application ("NDA") to the U.S. Food and Drug Administration ("FDA") for Vasomax(R) for the treatment of MED. In August 1998, Schering-Plough submitted a Marketing Approval Application for Vasomax(R) to the Medicines Control Agency in the United Kingdom. In February 1999, Schering-Plough notified the Company that it had exercised its right to begin manufacturing finished product for Vasomax(R). In May 1999, Schering-Plough began sales of Vasomax(R) in Brazil. Zonagen's lead product candidate is Vasomax(R), a proprietary oral treatment for male erectile dysfunction. Zonagen completed two pivotal clinical trials that demonstrated a therapeutic effect that is a statistically significant improvement over placebo. These pivotal trials formed the basis of the NDA for Vasomax(R) that was submitted to the FDA in July 1998. On May 10, 1999, Zonagen, Inc. and Schering-Plough jointly announced that the companies had decided to forego a June FDA Advisory Panel review of the New Drug Application ("NDA") for Vasomax(R) until the results of an additional 12-week human clinical study being conducted by Schering-Plough could be submitted to the Food and Drug Administration ("FDA"), as it was not possible to delay the review by the Advisory Panel until a later date when the data from that study would be available. As a result of this decision, Zonagen received a non-approvable letter for the NDA from the FDA. Zonagen expects to submit the new data from the ongoing human clinical study currently being conducted by Schering-Plough to the FDA as an amendment to the NDA. On August 10, 1999, Zonagen, Inc. announced that the FDA had advised the Company that further U.S. clinical trials of Zonagen's phentolamine-based drugs, Vasomax(R) and Vasofem(TM), had been placed on clinical hold until certain issues surrounding the Company's two- 8 9 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) year rat study were satisfactorily resolved. The FDA is however, allowing Schering-Plough to complete the fully enrolled ongoing 12-week study in humans of Vasomax(R) for erectile dysfunction. The FDA's decision was based on preliminary findings from an ongoing two-year, rat carcinogenicity study being conducted by Zonagen. The study, which is scheduled to be completed in the fourth quarter of 1999, yielded preliminary results that suggest that male rats receiving long term daily doses of phentolamine mesylate develop a higher incidence of proliferation of brown fat tissue than control rats. The implications of these findings need to be further evaluated with regard to their potential for adverse effects on humans. To date, such abnormalities have not been observed in female rats in the study. Prior to these latest findings, Zonagen had completed and submitted to the FDA a complete genotoxicity profile as well as results from a six month mouse p53 assay and six month daily usage studies in dogs and rats. None of these studies showed any abnormal effects, including brown fat tissue proliferation. There can be no assurance, that the FDA will consider such studies satisfactory for approval of the NDA submission or whether additional studies will be required; nor can there be any assurance that the FDA will ultimately approve Vasomax(R). Certain risks and uncertainties associated with the filing and the FDA review of the NDA are described or referenced in "Factors Affecting Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. On September 13, 1999, in response to the August 10, 1999 announcement of the FDA clinical hold on Vasomax(R) and Vasofem(TM), the Company announced that it had dismissed 15 of its employees, representing about one-third of its work force. This action was taken to reduce cash expenditures and concentrate the Company's talent and assets on programs that have the greatest potential to impact shareholder value, including Vasomax(R), Vasofem(TM) and the Company's adjuvant systems. In addition, work on several projects was slowed down. These actions have the effect of substantially reducing Zonagen's projected cash expenditures. The majority of the employees that were dismissed were involved in the internal pre-clinical toxicology and analytical functions for the Company. With the advent of the U.S. clinical hold on the Company's phentolamine-based products, management felt that this reduction in staff would conserve cash and have a minimal effect on the future development of the Company's technologies. Management felt that it could outsource these requirements upon the lifting of the Vasomax(R) and Vasofem(TM) U.S. clinical hold. The Company took a one-time charge during the quarter ended September 30, 1999 of approximately $116,000 relating to the September 13, 1999 staff reduction. The Company will also focus its efforts on out-licensing its existing technologies as a means of 9 10 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) enhancing its cash reserves and reducing internal development costs by securing external funding for certain research programs. Notwithstanding the cash conservation plan, Zonagen will continue to seek opportunities to in-license technologies that it believes will enhance future shareholder value. The Company has experienced negative cash flows from operations since its inception and has funded its activities to date primarily from equity financings and corporate collaborations. The Company will continue to require substantial funds to continue research and development, including pre-clinical studies and clinical trials of its existing and future product candidates, and to commence sales and marketing efforts, if the FDA or other regulatory approvals are obtained. Despite the delays regarding the Company's Vasomax(R) clinical development program, the Company believes that its existing capital resources will still be sufficient to fund its operations through at least mid-year 2001. The Company's capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of the Company's clinical and preclinical activities; the progress of the Company's collaborative agreements with affiliates of Schering-Plough Corporation ("Schering-Plough") and costs associated with any future collaborative research, manufacturing, marketing or other funding arrangements; the costs and timing of seeking regulatory approvals for Vasomax(R), the Company's oral treatment for male erectile dysfunction; the costs and timing of seeking regulatory approvals for Vasofem(TM), the Company's treatment for female sexual dysfunction, and the Company's other future product candidates; the Company's ability to obtain regulatory approvals; the success of the Company's potential sales and marketing programs; the cost of filing, prosecuting and defending and enforcing any patent claims and other intellectual property rights; and changes in economic, regulatory or competitive conditions of the Company's planned business. Estimates about the adequacy of funding for the Company's activities are based on certain assumptions, including the assumption that the development and regulatory approval of the Company's products can be completed at projected costs and that product approvals and introductions will be timely and successful. There can be no assurance that changes in the Company's research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures. To satisfy its capital requirements, the Company may seek to raise additional funds in the public or private capital markets or through additional corporate collaborations. The Company's ability to raise additional funds will be adversely affected if Vasomax(R) is not successfully commercialized, if necessary regulatory approvals are not obtained when expected and if the results of current or future clinical trials are not favorable. The Company may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to the Company on 10 11 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) favorable terms, or at all. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs, or it may be required to obtain funds through arrangements with future collaborative partners or others that may require the Company to relinquish rights to some or all of its technologies or products. If the Company is successful in obtaining additional financing, the terms of such financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of the Company's Common Stock. NOTE 2 -- MARKETABLE SECURITIES-SHORT AND -LONG TERM Short term investments have a remaining maturity of less than twelve months and long term investments have a remaining maturity of greater than twelve months. All investments are stated at cost as it is the intent of the Company to hold these securities until maturity. Marketable securities-short term were $19.7 million and marketable securities-long term were $18.3 million as of September 30, 1999 totaling $38.0 million. In the past, the Company invested only in 30 day commercial paper. The Company now invests excess funds in longer maturities to secure a higher yield. These investments include a range of investments that have minimum credit ratings of A2/A and A1/P1 with maturities of up to three years. The average life of the investment portfolio may not exceed 24 months. NOTE 3 -- SALE OF FERTILITY TECHNOLOGIES, INC. On March 11, 1999, the Company sold substantially all of the assets related to its wholly-owned subsidiary, FTI. These assets included the company name, accounts receivable, inventory, property and equipment, and certain Zonagen assets relating to the operation of FTI, for $2.25 million cash and the assumption of certain specified liabilities. The sales agreement provided for a purchase price adjustment relating to the fluctuation in working capital, excluding cash, from December 31, 1998 as compared to February 28, 1999. During the quarter ended March 31, 1999, the Company recorded a gain on the sale of FTI of $1.0 million. The results of FTI have been reported separately as discontinued operations in the accompanying consolidated financial statements. Prior period consolidated financial statements have been restated to present FTI as discontinued. Revenues for FTI were approximately $558,000 for the two months ended February 28, 1999 as compared to $929,000 for the three month period ended March 31, 1998. 11 12 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) The components of assets and liabilities of discontinued operations included in the consolidated balance sheet for the year ended December 31, 1998 are as follows (in thousands):
DECEMBER 31, 1998 --------------- Current assets : Accounts receivable ........... $ 318 Inventory ..................... 350 Other current assets .......... 23 --------------- Total current assets .......... 691 Furniture and equipment, net .......... 70 Goodwill, net ......................... 584 --------------- Total Assets .......................... 1,345 --------------- Accounts payable and other ............ 275 --------------- Net assets ............................ $ 1,070 ===============
NOTE 4 -- PRODUCT INVENTORY The Company maintains an inventory of bulk raw material phentolamine which is the active ingredient in Vasomax(R), the Company's oral treatment for male erectile dysfunction. Currently, Schering-Plough is manufacturing and marketing this product primarily in Mexico and Brazil. Schering-Plough purchases bulk raw material phentolamine from the Company. Prior to the sale of FTI, the Company's inventory also consisted of products manufactured by others for resale to obstetrics/gynecologists, urologists and fertility clinics. There was no finished goods inventory at September 30, 1999. As of September 30, 1999, the fair market value of the bulk raw material phentolamine inventory was approximately $2.5 million. In addition, the Company entered into a purchase order with the contract manufacturer of phentolamine and has an obligation to purchase $1.5 million of bulk raw material phentolamine during 1999. The Company has already paid a deposit of $375,000 against that purchase and expects to pay the remaining $1.125 million in the quarter ending December 31, 1999. The Company expects to have approximately $4 million in bulk raw material phentolamine at year-end. Under the terms of the agreement, the Company has already met minimum purchase requirements for the year ended December 31, 1999. See "Part I. Financial Information - Item 1. Financial Statements - Note 8 - Agreements of Notes to Consolidated Financial Statements (Unaudited)" included elsewhere in this Quarterly Report on Form 10-Q. 12 13 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) NOTE 5 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS During the three months ended September 30, 1999, prepaid expenses and other current assets decreased to approximately $1.0 million. As of September 30, 1999, prepayments held by the phentolamine contract manufacturer were $375,000. Other prepaid expenses and other current assets, substantially all of which related to prepaid insurance, interest receivable and other expenses for which the Company expects reimbursement totaled $625,000 as of September 30, 1999. NOTE 6 -- STOCKHOLDERS' EQUITY Preferred Stock Purchase Rights Agreement On September 1, 1999, the Board of Directors of the Company adopted a stockholder rights plan (the "Rights Plan") pursuant to which a dividend consisting of one preferred stock purchase right (a "Right") was distributed for each share of Common Stock held as of the close of business on September 13, 1999, and is to be distributed to each share of Common Stock issued thereafter until the earlier of (i) the Distribution Date (as defined in the Rights Plan), (ii) the Redemption Date (as defined in the Rights Plan), or (iii) September 13, 2002. The Rights Plan is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering fair value to the Company's stockholders. The Rights will expire on September 13, 2002, subject to the sooner redemption or exchange as provided in the Rights Plan. Each Right entitles the holder thereof to purchase from the Company one one-hundredth of a share of a new series of Series One Junior Participating Preferred Stock of the Company at a price of $20.00 per one one-hundredth of a share, subject to adjustment. The Rights are generally exercisable only if a person acquires beneficial ownership of 20% or more of the Company's outstanding Common Stock. Warrants As of September 30, 1999, there were a total of 99,137 warrants outstanding, convertible into 153,620 shares of common stock. All warrants outstanding contain a cashless exercise provision. The Company would receive cash proceeds up to approximately $969,000 if the cashless exercise provision was not utilized. During the six month period ended June 30, 1999, the Company issued an aggregate of 27,782 shares of Common Stock upon the cashless exercise of 15,982 stock warrants. Additionally, warrants to purchase an aggregate 536 shares of Common Stock were exercised for total proceeds of $3,850. There were no warrant exercises during the quarter ended September 30, 1999. Treasury Stock On December 12, 1997, the Company announced a stock buyback of the Company's Common Stock. The purchases were to be made from time to time in the open market at prevailing market prices. As of December 31, 1998 the Company had purchased an aggregate of 415,300 shares of Common Stock under the stock buyback program at an aggregate purchase price of $7.5 million, representing an average purchase price of $18.021 per share. The Company 13 14 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) did not purchase any shares of Common Stock during the current fiscal year through November 12, 1999. NOTE 7 -- STOCK OPTIONS The Company records and amortizes over the related vesting periods deferred non-cash compensation representing the difference between the exercise price of options granted and the deemed fair market value of the Common Stock at the time of grant. The Company recorded compensation expense of approximately $156,000 for the nine month period ended September 30, 1999 related to the amortization of deferred compensation recorded in connection with options granted under the 1996 Non-Employee Director Stock Option Plan (the "Director Plan"). Amortization of deferred compensation recorded in connection with other option grants totaled approximately $23,700 during the same period ended September 30, 1999. During the six month period ended June 30, 1999, the Company granted options to directors, at the time of their re-election to the Board, of 12,500 shares of Common Stock at an exercise price of $13.44 which equaled the fair market value on the date of grant. In addition, during the nine month period ended September 30, 1999, the Company issued an aggregate of 31,866 shares of Common Stock upon the exercise of stock options, at prices ranging from $.04 to $8.375. NOTE 8 -- AGREEMENTS Schering-Plough Corporation In November 1997, the Company entered into exclusive license agreements with affiliates of Schering-Plough Corporation, a major U.S.-based pharmaceutical company (including such affiliates, "Schering-Plough"), with respect to the Company's Vasomax(R) product for the treatment of male erectile dysfunction. Upon completion of the agreement, Schering-Plough paid Zonagen an up-front payment of $10.0 million and agreed to make subsequent aggregate milestone payments up to $47.5 million upon the successful achievement of specified regulatory goals. The Schering-Plough agreements provide for Zonagen to receive escalating royalty payments based on increasing product sales levels. There can be no assurance that Vasomax(R) will be approved by the FDA or that Schering-Plough will achieve sales levels that result in escalating royalty payments. As provided for in the Schering-Plough Agreements, royalty rates payable are substantially reduced on Vasomax(R) sales in a territory where the Company has not met a certain business criterion called for in the Agreements. Currently, the Company has not met that business criterion in Mexico and Brazil, the two jurisdictions where the product is currently being sold. Until this business criterion is met in these countries, the Company will 14 15 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) continue to receive royalties at the reduced rate. In addition, until this business criterion is met, royalties may be reduced substantially further, if during any Calendar Quarter, unit sales of orally administered phentolamine-based products for male erectile dysfunction by competitors in this territory exceed certain specified market shares. On June 30, 1998, the Company received an accelerated milestone payment of $5.0 million from Schering-Plough that was paid at the completion of the clinical program that was used in support of the NDA for Vasomax(R). The payment was due upon the submission of a NDA for Vasomax(R) with the FDA. The Company submitted the NDA on July 14, 1998. On September 30, 1998, the Company received an additional milestone payment of $5.0 million from Schering-Plough that was paid upon FDA acceptance of the NDA filing for Vasomax(R). Zonagen has received a total of $20.0 million from Schering-Plough from inception of the collaboration through September 30, 1999. The balance of the $37.5 million in milestone payments is tied to the receipt of regulatory approvals for Vasomax(R) in major developed country jurisdictions. In February 1999, Schering-Plough notified the Company that it had exercised its right to begin manufacturing finished product for Vasomax(R). Schering-Plough manufactures and markets the product in Mexico and Brazil. Outside Contract Research Organizations During 1996, the Company entered into agreements with two contract research organizations for the clinical development of Vasomax(R). The Company made cash payments aggregating approximately $424,000 and $1.7 million during the quarters ended September 30, 1999 and 1998, respectively, and recorded payables and accrued expenses of $354,000 as of September 30, 1999. Outside Contract Manufacturer On June 12, 1997, the Company entered into an exclusive supply agreement with a contract manufacturer under which the Company has agreed to purchase all of its bulk phentolamine requirements from the contract manufacturer for a period of five years. The agreement will continue after the initial five-year term for consecutive one-year periods until terminated by either party. The agreement obligates the Company to purchase specified minimum quantities of phentolamine and the manufacturer to manufacture phentolamine exclusively for the Company, including a current unpaid purchase commitment of $1.125 million, which is payable in the quarter ending December 31, 1999. The Company has met the minimum purchase requirements through the year ending December 31, 1999. The value of the specified 15 16 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) minimum purchase commitments of phentolamine for the years ending December 31, 2000 and 2001 are $540,000 in each year. NOTE 9 -- COMMITMENTS AND CONTINGENCIES On May 16, 1994, Dr. Bonita Sue Dunbar ("Dunbar") filed suit in the 270th District Court of Harris County, Texas naming Baylor College of Medicine, BCM Technologies, Inc., Fulbright & Jaworski, L.L.P., The Woodlands Venture Capital Company and the Company as defendants. The lawsuit was dismissed on June 11, 1999, without the right of Dunbar to re-file and with no monetary consideration paid by the Company. Certain purported class action complaints alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder have been filed against the Company and certain of its officers and directors. These complaints were filed in the United States District Court for the Southern District of Texas in Houston, Texas and were consolidated on May 29, 1998. The plaintiffs purport to bring the suit on behalf of all purchasers of Zonagen common stock between February 7, 1996 and January 9, 1998. The plaintiffs assert that the defendants made materially false and misleading statements and failed to disclose material facts about the patents and patent applications of the Company relating to Vasomax(R) and ImmuMax, and about the Company's clinical trials of Vasomax(R). The plaintiffs seek to have the action declared to be a class action, and to have rescissionary or compensatory damages in an unstated amount awarded, along with interest and attorney's fees. On March 30, 1999, the Court granted the defendants' motion to dismiss, and dismissed the case with prejudice. The plaintiffs have filed an appeal. The Company and the individual defendants believe that these actions are without merit and intend to defend against them vigorously. No estimate of loss or range of estimate of loss, if any, can be made at this time. NOTE 10 -- SUBSEQUENT EVENTS In August 1999, Zonagen reported preliminary findings from a required two-year rat study that indicated that a limited number of male rats receiving daily doses of phentolamine mesylate on a long-term basis developed brown fat proliferations. In November 1999, Zonagen concluded the in-life portion of this study. Gross necropsies have been performed on all the rats. Based on those gross necropsies, a total of nine male rats, three in each dosage group, have been found to have brown fat proliferations. None were found in female rats. A histopathological review of over 25,000 tissue sample slides from these rats is currently being performed. The Company expects to have this data, which was requested by the FDA, ready for submission by mid-to-late second quarter 2000. 16 17 ZONAGEN, INC. AND SUBSIDIARY (A development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) Separately, Schering-Plough has completed the clinical study of Vasomax(R) that the FDA allowed to continue to conclusion at the time that the FDA informed Zonagen that further clinical studies for its phentolamine-based drugs were being placed on clinical hold. Analysis of the Schering-Plough study is underway. Once that analysis is fully complete, Zonagen expects to incorporate that data into an Amendment to its New Drug Application for Vasomax(R). On October 18, 1999, the Company's Compensation Committee of the Board of Directors approved and the Company granted stock options to all employees as an incentive to remain with the Company, 285,500 shares of Common Stock at an exercise price of $2.938 which equaled the fair market value on the date of grant. Additionally, on the same date, stay bonuses aggregating $480,000 were approved by the Compensation Committee and granted for all employees. These bonuses will be payable on the first working day of January, 2001, for employees who received the grants and who are still employed by the Company on December 31, 2000, subject to acceleration upon the occurrence of certain defined circumstances. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements reflect the Company's current views with respect to future events and financial performance and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated in such forward-looking statements. See "Factors Affecting Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. OVERVIEW Zonagen, Inc., a Delaware corporation, ("Zonagen" or the "Company"), was organized on August 20, 1987 ("Inception"), and is a biopharmaceutical company engaged in the development of pharmaceutical products for the reproductive system, including sexual dysfunction, urology and contraception. Until the sale of substantially all the assets of Fertility Technologies, Inc. ("FTI"), its wholly owned subsidiary, in March 1999, Zonagen also sold devices, instruments and supplies to fertility specialists, obstetricians and gynecologists. From inception through September 30, 1999, the Company has been primarily engaged in pharmaceutical research and development and clinical development and is still in a development stage. In 1997, Zonagen entered into a worldwide sales and marketing agreement with Schering-Plough Corporation for Vasomax(R), the Company's rapidly disintegrating oral formulation of phentolamine mesylate for Male Erectile Dysfunction ("MED"). In March 1998, Schering-Plough submitted a Product Registration Application in Mexico for Vasomax(R) and subsequently began product sales in May 1998, following approval by the Mexican regulatory authorities. On July 14, 1998, Zonagen submitted its first New Drug Application ("NDA") to the U.S. Food and Drug Administration ("FDA") for Vasomax(R) for the treatment of MED. In August 1998, Schering-Plough submitted a Marketing Approval Application for Vasomax(R) to the Medicines Control Agency in the United Kingdom. In February 1999, Schering-Plough notified the Company that it had exercised its right to begin manufacturing finished product for Vasomax(R). In May 1999, Schering-Plough began sales of Vasomax(R) in Brazil. Zonagen's lead product candidate is Vasomax(R), a proprietary oral treatment for male erectile dysfunction. Zonagen completed two pivotal clinical trials that demonstrated a therapeutic effect that is a statistically significant improvement over placebo. These pivotal trials formed the basis of the NDA for Vasomax(R) that was submitted to the FDA in July 1998. 18 19 On May 10, 1999, Zonagen, Inc. and Schering-Plough jointly announced that the companies had decided to forego a June FDA Advisory Panel review of the New Drug Application ("NDA") for Vasomax(R) until the results of an additional 12-week human clinical study being conducted by Schering-Plough could be submitted to the Food and Drug Administration ("FDA"), as it was not possible to extend the Advisory Panel review date. As a result of this decision, Zonagen received a non-approvable letter for the NDA from the FDA. Zonagen expects to submit the new data from the ongoing human clinical study currently being conducted by Schering-Plough to the FDA as an amendment to the NDA. On August 10, 1999, Zonagen, Inc. announced that the FDA had advised the Company that further U.S. clinical trials of Zonagen's phentolamine-based drugs, Vasomax(R) and Vasofem(TM), had been placed on clinical hold until certain issues surrounding the Company's two-year rat study were satisfactorily resolved. The FDA is however, allowing Schering-Plough to complete the fully enrolled ongoing 12-week study in humans of Vasomax(R) for erectile dysfunction. See "Part I. Financial Information - Item 1. Financial Statements - Note 1 - Organization and Operations of Notes to Consolidated Financial Statements (Unaudited)" included elsewhere in this Quarterly Report on Form 10-Q. The FDA's decision was based on preliminary findings from an ongoing two-year, rat carcinogenicity study being conducted by Zonagen. The study, which is scheduled to be completed in the fourth quarter of 1999, yielded preliminary results that suggest that male rats receiving long term daily doses of phentolamine mesylate develop a higher incidence of proliferation of brown fat tissue than control rats. The implications of these findings need to be further evaluated with regard to their potential for adverse effects on humans. To date, such abnormalities have not been observed in female rats in the study. Prior to these latest findings, Zonagen had completed and submitted to the FDA a complete genotoxicity profile as well as results from a six month mouse p53 assay and six month daily usage studies in dogs and rats. None of these studies showed any abnormal effects, including brown fat tissue proliferation. There can be no assurance, that the FDA will consider such studies satisfactory for approval of the NDA submission or whether additional studies will be required; nor can there be any assurance that the FDA will ultimately approve Vasomax(R). Certain risks and uncertainties associated with the filing and the FDA review of the NDA are described or referenced in "Factors Affecting Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. On September 13, 1999, in response to the August 10, 1999 announcement of the FDA clinical hold on Vasomax(R) and Vasofem(TM), the Company announced that it had dismissed 15 of its employees, representing about one-third of its work force. This action was taken to reduce cash expenditures and concentrate the Company's talent and assets on programs that have the greatest potential to impact shareholder value, including Vasomax(R), Vasofem(TM) and the Company's adjuvant systems. In addition, work on several projects was slowed down. These actions have the effect of substantially reducing Zonagen's projected cash expenditures. The majority of the 19 20 employees that were dismissed were involved in the internal pre-clinical toxicology and analytical functions for the Company. With the advent of the U.S. clinical hold on the Company's phentolamine based products, management felt that this reduction in staff would conserve cash and have a minimal affect on the future development of the Company's technologies. Management felt that it could outsource these requirements upon the lifting of the Vasomax(R) and Vasofem(TM) U.S. clinical hold. The Company took a one-time charge during the quarter ended September 30, 1999 of approximately $116,000 relating to the September 13, 1999 staff reduction. The Company will also focus its efforts on out-licensing its existing technologies as a means of enhancing its cash reserves and reducing internal development costs by securing external funding for certain research programs. Notwithstanding the cash conservation plan, Zonagen will continue to seek opportunities to in-license technologies that it believes will enhance future shareholder value. In addition to sexual dysfunction, the Company has ongoing research and development programs for its proprietary vaccine adjuvant and other diseases and disorders of the reproductive system, including several new approaches to contraception and new treatments for urological diseases such as benign prostate hyperplasia ("BPH") and prostate cancer. The Company has initiated a program to out-license these technologies to secure external funds to support their ongoing development. On March 11, 1999, the Company sold for cash the assets of its wholly owned subsidiary, Fertility Technologies, Inc. ("FTI") to SAGE BioPharma, Inc., a subsidiary of Counsel Corporation (Nasdaq: CXSN). The sale of FTI allows the Company to focus all of its attention on its core business, the development of pharmaceutical products for conditions associated with the reproductive system. See "Part I. Financial Information - Item 1. Financial Statements - Note 3 - Sale of Fertility Technologies, Inc. of Notes to Consolidated Financial Statements (Unaudited)" included elsewhere in this Quarterly Report on Form 10-Q. In June 1999, the U.S. Patent and Trademark Office issued Patent Number 5,912,000 directed to one of the Company's chitosan-based adjuvant systems and immunogens, collectively know as the ImmuMax System. As of September 30, 1999, the Company had an accumulated deficit of approximately $61.6 million. There can be no assurance that the Company will be able to successfully complete the transition from a development stage company to the successful introduction of commercially viable products. The Company's ability to achieve profitability will depend, among other things, on successfully completing the development of its products, obtaining regulatory approvals, establishing marketing, sales and manufacturing capabilities or collaborative arrangements with others which possess such capabilities, and raising sufficient funds to finance its activities. There can be no assurance that the Company will be able to achieve profitability or that profitability, if achieved, can be sustained. IMPACT OF YEAR 2000 Certain companies may face problems if the computer processors and software upon which they directly or indirectly rely are unable to process date values correctly upon the turn of the millennium ("Year 2000"). Such a system failure and corruption of data of the Company or its customers or suppliers could disrupt the Company's operations, including, among other things, a temporary inability to process transactions or engage in other business activities or to receive information or services from suppliers. The Company has appointed a Year 2000 committee to address the issues and assess the potential impact of the Year 2000 problem. The committee is evaluating the Company's financial systems, computers, software and other equipment and anticipates that the programs and 20 21 systems should be Year 2000 compliant. The Company presently believes that its computer systems, software and other equipment should be Year 2000 compliant by December 1999. The Company estimates that it will spend approximately $100,000 to $150,000 in capital for replacement of computers, equipment and software upgrades. The Company will incur another $50,000 to $100,000 for costs of implementation. The Company has surveyed its third party suppliers and has requested that they represent that their products and services are to be Year 2000 compliant and that they have a program to test for compliance. The Company is currently evaluating its third party suppliers' responses and is assessing those vendors that are not Year 2000 compliant and will find alternative vendors that are compliant. Because the Company currently anticipates that it will achieve Year 2000 compliance, it has not formulated a contingency plan. However, should the Company determine there is significant risk that it may be unable to adhere to its compliance timetable, it will assess reasonably likely scenarios resulting from noncompliance and establish a contingency plan to address such scenarios. The Company's ability to achieve Year 2000 compliance is subject to various uncertainties including the Company's ability to successfully identify systems and programs not Year 2000 compliant, the nature and amount of programming required to correct or replace affected programs, the availability and magnitude of labor and consulting costs and the success of the Company's business partners, vendors and clients in addressing the Year 2000 issue. Therefore, while the financial impact of implementing Year 2000 compliance remediation has not been and is not anticipated to be material to the Company's business, financial position or results of operations, the Company can make no assurances with respect to the costs of remediation efforts not yet incurred. Additionally, the Company cannot be certain that it will achieve adequate Year 2000 compliance in a timely manner or that any impact of a failure to achieve such compliance will not have a material adverse effect on the Company's business, financial condition or results of operation. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Revenues. Total revenues decreased 89% to $607,000 for the quarter ended September 30, 1999 as compared to $5.7 million for the same period in the prior year. The decrease is due primarily to no milestone payments being received in the quarter ended September 30, 1999 as compared to a $5.0 million payment received during the same period in the prior year. In addition, royalties received from Schering-Plough for Vasomax(R) sales were $182,000 for the quarter ended September 30, 1999 as compared to no royalties for the same quarter in the prior year. Interest revenue decreased primarily due to decreased cash balances as a result of the reduction in the Company's cash and investment balances to fund ongoing operating activities. Schering-Plough is manufacturing and marketing Zonagen's erectile dysfunction product in Mexico and Brazil. Schering-Plough commenced sales of Vasomax(R) in Mexico in May 1998 and in Brazil in May 1999. Under the terms 21 22 of the license agreement, the Company receives quarterly royalty payments based on net product sales by Schering-Plough. These quarterly payments lag current quarter sales by up to sixty days. Until Vasomax(R) is approved and launched on a broader basis, the Company expects royalty payments to reflect fluctuations due to inventory stocking and promotional activities. As provided for in the Schering-Plough Agreements, royalty rates payable are substantially reduced on Vasomax(R) sales in a territory where the Company has not met a certain business criterion called for in the Agreements. Currently, the Company has not met that business criterion in Mexico and Brazil, the two jurisdictions where the product is currently being sold. Until this business criterion is met in these countries, the Company will continue to receive royalties at the reduced rate. In addition, until this business criterion is met, royalties may be reduced substantially further, if during any Calendar Quarter, unit sales of orally administered phentolamine-based products for male erectile dysfunction by competitors in this territory exceed certain specified market shares. Research and Development Expenses. Research and development ("R&D") expenses include contracted research, regulatory affairs activities and general research and development expenses. R&D expenses decreased 54% to $2.1 million for the quarter ended September 30, 1999 as compared to $4.6 million for the same period in the prior year. The decrease was due primarily to a decline in contracted costs associated with the development of phentolamine-based products. These contracted costs decreased 71% to approximately $1.0 million during the quarter ended September 30, 1999 as compared to approximately $3.5 million during the same period in the prior year. This reduction is primarily due to the completion of Phase III and open label clinical trials for Vasomax(R), which were used in the July 14, 1998 NDA submission to the FDA. The Company will continue to incur costs in connection with the ongoing regulatory review of Vasomax(R) until the regulatory process is complete. General research and development expenses decreased 8% to approximately $1.1 million for the quarter ended September 30, 1999 as compared to $1.2 million during the same period in the prior year. This slight decrease was primarily due to a reduction in pre-clinical studies and purchased research supplies. The Company expects that R&D expenses will decrease during the remainder of 1999 and that they could increase over the next several years as the Company progresses with clinical trial programs for additional product candidates, including Vasofem(TM). General and Administrative Expenses. General and administrative expenses decreased 6% to $692,000 during the quarter ended September 30, 1999 from $736,000 in the third quarter of 1998. The decrease was primarily due to lower legal expenses relating to the Company's shareholder lawsuit which was partially offset by increased expenses associated with hiring and relocating several new members of the management team. NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Revenues. Total revenues decreased 86% to $1.8 million for the nine months ended September 30, 1999 as compared to approximately $12.7 million for the same period in the prior year. The decrease is due primarily to no milestone payments being received during the nine months ended September 30, 1999 as compared to $10.0 million received during the same period in the prior year. Product royalties for the nine months ended September 30, 1999, were $204,000 22 23 as compared to $167,000 for the same period in the prior year. The decrease in interest revenue is primarily due to decreased cash balances as a result of the reduction in the Company's cash and investment balances to fund ongoing operating activities and stock repurchases during the year ended December 31, 1998. Schering-Plough is manufacturing and marketing Zonagen's erectile dysfunction product in Mexico and Brazil. Schering-Plough commenced sales of Vasomax(R) in Mexico in May 1998 and in Brazil in May 1999. Under the terms of the license agreement, the Company receives quarterly royalty payments based on net product sales by Schering-Plough. These quarterly payments lag current quarter sales by up to sixty days. Until Vasomax(R) is approved and launched on a broader basis, the Company expects royalty payments to reflect fluctuations due to inventory stocking and promotional activities. As provided for in the Schering-Plough Agreements, royalty rates payable are substantially reduced on Vasomax(R) sales in a territory where the Company has not met a certain business criterion called for in the Agreements. Currently, the Company has not met that business criterion in Mexico and Brazil, the two jurisdictions where the product is currently being sold. Until this business criterion is met in these countries, the Company will continue to receive royalties at the reduced rate. In addition, until this business criterion is met, royalties may be reduced substantially further, if during any Calendar Quarter, unit sales of orally administered phentolamine-based products for male erectile dysfunction by competitors in this territory exceed certain specified market shares. Research and Development Expenses. R&D expenses include contracted research, regulatory affairs activities and general research and development expenses. R&D expenses decreased 40% to $10.0 million for the nine months ended September 30, 1999 as compared to $16.8 million for the same period in the prior year. The decrease was due primarily to a decline in contracted costs associated with the development of various phentolamine based products. These contracted costs decreased 51% to approximately $6.7 million during the period ended September 30, 1999 as compared to approximately $13.8 million during the same period in the prior year. This reduction is primarily due to the completion of Phase III and open label clinical trials for Vasomax(R), which were used in the July 14, 1998 NDA submission to the FDA. The Company will continue to incur costs in connection with the further development of Vasomax(R) until the regulatory process is complete. General research and development expenses increased 10% to approximately $3.3 million for the nine months ended September 30, 1999 as compared to $3.0 million during the same period in the prior year. This increase was primarily due to expenses associated with hiring additional personnel and expanding the Company's research and drug screening capabilities. The Company expects that R&D expenses will decrease during the remainder of 1999 and that they could increase over the next several years as the Company progresses with clinical trial programs for additional product candidates, including Vasofem(TM). General and Administrative Expenses. General and administrative expenses increased 18% to $2.6 million during the nine months ended September 30, 1999 from $2.2 million during the same period in the prior year. The increase was primarily due to expenses associated with hiring and relocating several new members of the management team. 23 24 LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily with proceeds from the private placement and public offering of equity securities and with funds received under collaborative agreements. In April 1993, the Company received net proceeds of approximately $7.0 million from its initial public offering. In December 1993, the Company received net proceeds of $2.5 million from the sale of Common Stock to an affiliate of Schering AG in connection with the Company's collaboration with Schering AG. In October 1995, the Company received net proceeds of $5.3 million from the private placement of Series A Preferred Stock. In September and October 1996, the Company received aggregate net proceeds of $14.4 million from the private placement of Series B Preferred Stock. In July 1997, the Company received net proceeds of approximately $72.2 million from a public offering of Common Stock. In December 1997, the Company received a $10.0 million up-front license fee from Schering-Plough for the right to market and sell Vasomax(R) for the treatment of male erectile dysfunction. On June 30, 1998, the Company received an accelerated $5.0 million milestone payment from Schering-Plough with respect to Vasomax(R). On September 30, 1998, the Company received an additional $5.0 million milestone payment from Schering-Plough upon the acceptance of the Vasomax(R) NDA by the FDA. The Company used net cash of approximately $12.2 million for operating activities in the nine months ended September 30, 1999 as compared to approximately $9.5 million for the same period in the prior year. The increase in net cash used for operating activities was due primarily to no milestone payments being received in the nine months ended September 30, 1999, as compared to $10.0 million in the prior year, offset by a decline in contracted costs associated with the development of Vasomax(R). The reduction in contracted costs associated with the development of Vasomax(R) is a result of the completion of Phase III and open label clinical trials and a reduction in contracted research and regulatory affairs activities following the July 14, 1998 NDA submission to the FDA for Vasomax(R). The Company had cash and cash equivalents and marketable securities-short term combined of $22.7 million and marketable securities-long term were $18.3 million as of September 30, 1999 totaling $41.0 million. The Company has experienced negative cash flows from operations since its inception and has funded its activities to date primarily from equity financings and corporate collaborative agreements. The Company will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of its products, and to commence sales and marketing efforts if FDA and other regulatory approvals are obtained. Despite the delays regarding the Company's Vasomax(R) clinical development program, the Company believes that its existing capital resources will still be sufficient to fund its operations through approximately mid-year 2001. This is due in large part to the way the Company has historically forecasted its cash resources and the implementation of a cash conservation plan. When forecasting its cash requirements, the Company only takes into account actual cash payments received, not anticipated. On September 13, 1999, in response to the August 10, 1999 announcement of the FDA clinical hold on Vasomax(R) and Vasofem(TM), the Company announced that it had dismissed 15 of its employees, representing about one-third of its work force. In addition, work on several 24 25 projects was slowed down. These actions had the effect on reducing Zonagen's projected cash expenditures substantially. The main purpose of these steps was to concentrate the Company's talents and assets on the programs that have the greatest potential to impact shareholder value, including Vasomax(R), Vasofem(TM) and the Company's adjuvant programs. The Company also announced it will focus its efforts on out-licensing its existing technologies as a means of enhancing its cash reserves and reducing internal development costs by securing external funding for certain research programs. Notwithstanding the cash conservation plan, the Company will continue to seek opportunities to in-license technologies that it believes will enhance future shareholder value. The Company's capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of the Company's clinical and preclinical activities; the progress of the Company's collaborative agreements with affiliates of Schering-Plough and costs associated with any future collaborative research, manufacturing, marketing or other funding arrangements; the costs and timing of seeking regulatory approvals for Vasomax(R) and Vasofem(TM), and the Company's other future product candidates; the Company's ability to obtain regulatory approvals; the success of the Company's sales and marketing programs; the cost of filing, prosecuting and defending and enforcing any patent claims and other intellectual property rights; and changes in economic, regulatory or competitive conditions of the Company's planned business. Estimates about the adequacy of funding for the Company's activities are based on certain assumptions, including the assumption that the development and regulatory approval of the Company's products can be completed at projected costs and that product approvals and introductions will be timely and successful. There can be no assurance that changes in the Company's research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures. To satisfy its capital requirements, the Company may seek to raise additional funds in the public or private capital markets or through additional corporate collaborations. The Company's ability to raise additional funds will be adversely affected if the results of its current or future clinical trials, the regulatory approval process, and the commercialization of Vasomax(R) are not favorable or timely. The Company may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to the Company on favorable terms, or at all. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs, or it may be required to obtain funds through arrangements with future collaborative partners or others that may require the Company to relinquish rights to some or all of its technologies or products. If the Company is successful in obtaining additional financing, the terms of such financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of the Company's Common Stock. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 25 26 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 16, 1994, Dr. Bonita Sue Dunbar ("Dunbar") filed suit in the 270th District Court of Harris County, Texas naming Baylor College of Medicine, BCM Technologies, Inc., Fulbright & Jaworski, L.L.P., The Woodlands Venture Capital Company and the Company as defendants. The lawsuit was dismissed on June 11, 1999, without the right of Dunbar to re-file and with no monetary consideration paid by the Company. Certain purported class action complaints alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder have been filed against the Company and certain of its officers and directors. These complaints were filed in the United States District Court for the Southern District of Texas in Houston, Texas and were consolidated on May 29, 1998. The plaintiffs purport to bring the suit on behalf of all purchasers of Zonagen common stock between February 7, 1996 and January 9, 1998. The plaintiffs assert that the defendants made materially false and misleading statements and failed to disclose material facts about the patents and patent applications of the Company relating to Vasomax(R) and ImmuMax, and about the Company's clinical trials of Vasomax(R). The plaintiffs seek to have the action declared to be a class action, and to have rescissionary or compensatory damages in an unstated amount, along with interest and attorney's fees. On March 30, 1999, the Court granted the defendants' motion to dismiss, and dismissed the case with prejudice. The plaintiffs have filed an appeal. The Company and the individual defendants believe that these actions are without merit and intend to defend against them vigorously. No estimate of loss or range of estimate of loss, if any, can be made at this time. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 1, 1999, the Board of Directors of the Company adopted a stockholder rights plan (the "Rights Plan") pursuant to which a dividend consisting of one preferred stock purchase right (a "Right") was distributed for each share of Common Stock held as of the close of business on September 13, 1999, and is to be distributed to each share of Common Stock issued thereafter until the earlier of (i) the Distribution Date (as defined in the Rights Plan), (ii) the Redemption Date (as defined in the Rights Plan), or (iii) September 13, 2002. The Rights Plan is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering fair value to the Company's stockholders. The Rights will expire on September 13, 2002, subject to the sooner redemption or exchange as provided in the Rights Plan. Each Right entitles the holder thereof to purchase from the Company one one-hundredth of a share of a new series of Series One Junior Participating Preferred Stock of the Company at a price of $20.00 per one one-hundredth of a share, subject to adjustment. The Rights are generally exercisable only if a person acquires beneficial ownership of 20% or more of the Company's outstanding Common Stock. A complete description of the Rights, the Rights Agreement between the Company and Harris Trust and Savings Bank, as rights agent, and the Series One Junior Participating Preferred Stock is hereby incorporated by reference from the information appearing under the captions "Rights Agreement" and "Description of Preferred Stock" contained in the Current Report on Form 8-K of the Company filed on September 3, 1999. 26 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit No. Identification of Exhibit 4.1 Rights Agreement dated as of September 1, 1999 (incorporated by reference to Form 8-A of the Company filed on September 3, 1999). 10.1 Employment Agreement between the Company and David B. Bowman 11.1 Statement Regarding Computation of Net Loss Per Share 27.1 Financial Data Schedule b. Reports on Form 8-K (1) Current Report on Form 8-K dated September 3, 1999 reporting under Item 5. (2) Current Report on Form 8-K dated September 14, 1999 reporting under Item 5. 27 28 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZONAGEN, INC. Date: November 12, 1999 By: /s/ Joseph S. Podolski ------------------------------- Joseph S. Podolski President and Chief Executive Officer (Principal Executive Officer) Date: November 12, 1999 By: /s/ F. Scott Reding ------------------------------- F. Scott Reding Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 28 29 EXHIBIT INDEX
Exhibit No. Identification of Exhibit ----------- ------------------------- 4.1 Rights Agreement dated as of September 1, 1999 (incorporated by reference to Form 8-A of the Company filed on September 3, 1999). 10.1 Employment Agreement between the Company and David B. Bowman 11.1 Statement Regarding Computation of Net Loss Per Share 27.1 Financial Data Schedule
EX-10.1 2 EMPLOYMENT AGREEMENT - DAVID B. BOWMAN 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into this 25th day of October, 1999, by and between ZONAGEN, INC., a Delaware corporation (hereinafter referred to as the "COMPANY," which term shall for all purposes be deemed to include its successors and assigns), and David B. Bowman (the "EXECUTIVE"). WITNESSETH WHEREAS, the Company desires to employ the Executive as its Vice President of Operations on the terms and subject to the conditions set forth herein, and the Executive desires to accept such employment. NOW, THEREFORE, in consideration of the mutual covenants, promises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Executive and the Executive hereby accepts employment as Vice President of Operations of the Company, subject to the direction of the Board of Directors and the Company's officers designated by the Board of Directors, and shall perform and discharge well and faithfully the duties and responsibilities that are assigned to him by the Board of Directors. The Executive agrees to devote such of his time, attention and energy to the business of the Company, and any of its subsidiaries or affiliates, as may be required to perform the duties and responsibilities assigned to him by the Board of Directors to the best of his ability and with requisite diligence. If the Executive is appointed a director or elected to another executive officer position of the Company or any subsidiary thereof during the term of this Agreement, the Executive will serve in such capacity without further compensation. (b) The Executive agrees to comply in all material respects, at all times during the Executive Period (as defined in Section 2 hereof), with all applicable policies, rules and regulations of the Company. 2. TERM. Subject to the terms hereof, this Agreement shall commence on the date hereof (the "EXECUTION DATE") and shall terminate on the second anniversary of the Execution Date; provided, that this Agreement will automatically renew for successive one-year periods unless written notice of termination is given to the Executive by the Company not less than sixty (60) days before the expiration of the term hereof or any renewal period then in effect. The term of this Agreement shall include any such renewal periods and shall be referred to herein as the "EXECUTIVE PERIOD." 2 EMPLOYMENT AGREEMENT DAVID B. BOWMAN PAGE 2 OF 6 3. COMPENSATION. For all services rendered under this Agreement, the Company agrees to pay to Executive during the Executive Period: (i) A base monthly salary of 8,750.00, payable in equal semi-monthly installments or on any other periodic basis consistent with the Company's payroll procedures, subject only to such payroll and withholding deductions as are required by applicable federal and state laws. 4. FRINGE BENEFITS: EXPENSES. (a) So long as the Executive is employed by the Company, the Executive shall participate in all employee benefit plans sponsored by the Company for its executive employees, including, but not limited to, vacation policy, health insurance, dental insurance and pension or profit-sharing plans; provided, however, that the nature, amount and limitations of such plans shall be determined from time to time by the Board of Directors of the Company. (b) The Company agrees to reimburse the Executive for all reasonable out-of-pocket expenses incurred by him in the performance of his duties, subject to the submission of appropriate documentation in accordance with the Company's expense reimbursement policy as in existence from time to time. 5. CONFIDENTIAL INFORMATION AND NON- COMPETITION. The Executive shall execute and comply with the Proprietary Information and Inventions and Non-Competition Agreement in the form attached as Exhibit A hereto and incorporated herein by reference. 6. TERMINATION. (a) At any time during the Executive Period, the Company may, at its sole discretion, discharge the Executive, with or without "cause". Such termination shall be effective on delivery of written notice to the Employee of the Company's election to terminate this Agreement under this Section 6. For purposes of this Agreement, the following events shall constitute "CAUSE": (i) the conviction of the Executive by a court of competent jurisdiction of a crime involving moral turpitude; (ii) the commission, or attempted commission, by the Executive of an act of fraud on the Company; (iii) the misappropriation, or attempted misappropriation, by the Executive of any funds or property of the Company; (iv) the continued and unreasonable failure by the Executive to perform in any material respect his obligations under the terms of this Agreement; (v) the knowing engagement by the Executive, without 3 EMPLOYMENT AGREEMENT DAVID B. BOWMAN PAGE 3 OF 6 the written approval of the Board of Directors, in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy; (vi) the knowing engagement by the Executive, without the written approval of the Board of Directors, in any activity which competes with the business of the Company or which would result in a material injury to the Company; or (vii) the knowing engagement by the Executive in any activity that would constitute a material violation of the provisions of the Company's Insider Trading Policy or Business Ethics Policy, if any, then in effect. If the Company terminates the Executive's employment under this Agreement for reasons other than Cause, then the Company shall, subject to the terms of this Section 6, pay to the Employee (or his estate or representative, as appropriate) an amount equal to six (6) months compensation at his then current salary, payable bi-monthly or in accordance with the Company's payroll procedures, and shall continue to provide benefits in the kind and amounts provided up to the date of termination for the 6-month period, including, without limitation, continuation of any Company-paid benefits as described in Section 5 of this Agreement for the Executive and his family. Under no circumstances shall the Executive be entitled to any compensation or continuation of benefits for any period of time following his termination if his termination is for Cause. If the Company terminates the Executive's employment under this Agreement for reasons other than Cause, the Executive agrees to accept, in full settlement of any and all claims, losses, damages and other demands that the Executive may have arising out of such termination as liquidated damages and not as a penalty, the six-month salary payments and continuation of Company-paid benefits as set forth above. The Executive hereby waives any and all rights that he may have to bring any cause of action or proceeding, as a result of such termination, except to enforce the Company's obligation to pay amounts owing pursuant to this Section 6. (b) This Agreement will terminate automatically on the earliest to occur of: (i) the death or disability of the Executive; (ii) the voluntary retirement of the Executive; or (iii) the expiration of the Executive Period unless otherwise renewed. (c) If at any time during the term of this Agreement, the Executive is unable to perform effectively his duties hereunder because of physical or mental disability, the Company shall continue payment of compensation as provided in Section 3 hereof during the first 4 EMPLOYMENT AGREEMENT DAVID B. BOWMAN PAGE 4 OF 6 six-month period of such disability to the extent not covered by the Company's disability insurance policies. On the expiration of such six-month period, the Company, at its sole discretion, may continue payment of the Executive's salary for such additional periods as the Company elects or may terminate this Agreement without any further obligations thereunder. If the Executive should die during the term of this Agreement, the Executive's employment and the Company's obligations hereunder shall terminate as of the last day of the month in which the Executive's death occurs. (d) Notwithstanding the terms of Section 6(a) above, the Executive shall be obligated to actively pursue employment following termination of his employment to be entitled to be paid the continuation of salary provided in Section 6(a), and the Company's obligation to pay any such continuation of salary shall terminate at such time as the Executive commences employment with another employer; provided, however, that nothing herein shall obligate the Executive to pursue or accept employment for a position that is not commensurate with his current position at the Company or otherwise acceptable to him. (e) At any time during the term of this Agreement, the Executive may terminate this Agreement by giving at least thirty days written notice to the Company of his intent to terminate this Agreement, with the date of termination to be specified in such notice. (f) If this Agreement is terminated by the Executive pursuant to Section 6(e) hereof, then the Company will have no obligation to pay any amount to the Executive other than amounts earned or accrued pursuant to Section 3 hereof, but which have not yet been paid, as of the date of termination. 7. ASSIGNMENT BY EXECUTIVE. Except as otherwise expressly provided herein, the Executive agrees for himself, and on behalf of his executors and administrators, heirs, legatees, distributees and any other person or persons claiming any benefits under him by virtue of this Agreement, that this Agreement and the rights, interests and benefits hereunder shall not be assigned, transferred, pledged or hypothecated in any way by the Executive or any executor, administrator, heir, legatee, distributee or person claiming under the Executive by virtue of this Agreement and shall not be subject to execution, attachment or similar process. Any attempt at assignment, transfer, pledge or hypothecation or other disposition of this Agreement or of such rights, interests and benefits contrary to the foregoing provision, or the levy of any attachment or similar process thereupon, shall be null and void and without effect. 5 EMPLOYMENT AGREEMENT DAVID B. BOWMAN PAGE 5 OF 6 8. SUCCESSORS OF THE COMPANY. This Agreement shall be binding on and inure to the benefit of any Successor (as hereinafter defined) of the Company and any such Successor shall be deemed substituted for the Company under the terms of this Agreement. As used in this Agreement, the term "SUCCESSOR" shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or businesses of the Company; but no such substitution shall relieve such companies of their original obligations hereunder. This Agreement may not otherwise be assigned by the Company without the Executive's consent to any person, firm, corporation, limited liability company, trust or other entity. 9. NOTICES. All notices or other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, transmitted by telecopier or mailed by registered or certified first class mail, postage prepaid, return receipt requested, to the parties hereto at the address set forth below (as the same may be changed from time to time by notice similarly given) or the last known business or residence address of such other person as may be designated by either party hereto in writing. If to the Company: Zonagen, Inc. 2408 Timberloch Place, Suite B-4 The Woodlands, Texas 77380 Attn: Joseph S. Podolski If to the Executive: David B. Bowman 6 Heathstone Place The Woodlands, TX 77381 10. WAIVER OF BREACH. A waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach by the other party. 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. 12. SEVERABILITY. If any provision of this Agreement shall, for any reason, be held to violate any applicable law, and so much of said Agreement is held to be unenforceable, then the invalidity of such specific provision herein 6 EMPLOYMENT AGREEMENT DAVID B. BOWMAN PAGE 6 OF 6 shall not be held to invalidate any other provision herein which shall remain in full force and effect. 13. AMENDMENT. This Agreement constitutes and contains the entire agreement of the parties and supersedes any and all prior negotiations, correspondence, understandings and agreements between the parties respecting the subject matter hereof. This Agreement may be modified only by an agreement in writing executed by all the parties hereto. 14. HEADINGS. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. 16. CUMULATIVE REMEDIES. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY: ZONAGEN, INC. /s/ Joseph S. Podolski -------------------------- Joseph S. Podolski President and Chief Executive Officer EXECUTIVE: /s/ David B. Bowman -------------------------- David B. Bowman EX-11.1 3 STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE 1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE THREE MONTHS ENDED SEPTEMBER 30, 1999
Net Loss Weighted Average Shares Outstanding Loss per Share -------- ----------------------------------- -------------- Basic $2,178,841 + 11,263,514 = $0.19 Diluted $2,178,841 + 11,263,514 = $0.19
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net Loss Weighted Average Shares Outstanding Loss per Share -------- ----------------------------------- -------------- Basic $9,695,535 + 11,236,552 = $0.86 Diluted $9,695,535 + 11,236,552 = $0.86
EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 5 AND 6 OF THE COMPANY'S 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,949 19,737 0 0 2,502 26,235 2,109 (1,184) 46,876 2,928 0 0 0 12 43,936 46,876 0 1,811 0 0 12,572 0 8 (10,769) 0 (10,769) 59 0 0 (9,696) (.86) (.86)
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