================================================================================
FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
|X| EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004.
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to __________
Commission File Number: 000-50614
ORAGENICS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3410522
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
12085 Research Drive
Alachua, Florida 32615
(Address of principal executive offices)
(386) 418-4018
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 3, 2004, there were 14,323,380 shares of Common Stock, $.001 par
value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
================================================================================
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2004 (unaudited) and
December 31, 2003 3
Statements of Operations for the Three and Nine Months ended
September 30, 2004 and 2003 (unaudited) 4
Statements of Cash Flows for the Nine Months ended
September 30, 2004 and 2003 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operations 9
Item 3. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities 27
Item 6. Exhibits and Reports on Form 8-K 27
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Oragenics, Inc.
Balance Sheets
(In US Dollars)
September 30, December 31,
2004 2003
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,314,355 $ 3,583,757
Prepaid expenses and other current assets 187,293 24,637
----------- -----------
Total current assets 4,501,648 3,608,394
Property and equipment, net 306,623 42,371
----------- -----------
Total assets $ 4,808,271 $ 3,650,765
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 326,817 $ 140,614
Accrued interest -- 25,582
Deferred compensation -- 44,672
----------- -----------
Total current liabilities 326,817 210,868
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized; none issued and
outstanding at September 30, 2004 and
December 31, 2003 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized; 14,323,380 and
13,296,204 shares issued and outstanding at
September 30, 2004 and December 31, 2003, respectively 14,323 13,296
Additional paid in capital 8,680,099 5,820,697
Accumulated deficit (4,212,968) (2,394,096)
----------- -----------
Total stockholders' equity 4,481,454 3,439,897
----------- -----------
Total liabilities and stockholders' equity $ 4,808,271 $ 3,650,765
=========== ===========
See accompanying notes.
3
Oragenics, Inc.
Statements of Operations
(Unaudited)
(In US Dollars)
Three months ended Nine months ended
September 30 September 30
---------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenue $ 118,642 $ -- $ 162,877 $ --
Operating expenses:
Research and development 567,743 205,615 1,248,423 596,205
General and administration 177,818 192,811 764,801 442,560
------------ ------------ ------------ ------------
Total operating expenses 745,561 398,426 2,013,224 1,038,765
------------ ------------ ------------ ------------
Loss from operations (626,919) (398,426) (1,850,347) (1,038,765)
Other income (expense):
Interest income 13,149 3,799 31,475 4,275
Interest expense -- (2,095) -- (10,993)
------------ ------------ ------------ ------------
Total other income (expense), net 13,149 1,704 31,475 (6,718)
------------ ------------ ------------ ------------
Net loss $ (613,770) $ (396,722) $ (1,818,872) $ (1,045,483)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.04) $ (0.03) $ (0.13) $ (0.10)
============ ============ ============ ============
Shares used to compute basic and diluted
net loss per share 14,323,380 11,958,701 14,019,561 10,334,260
============ ============ ============ ============
See accompanying notes.
4
Oragenics, Inc.
Statements of Cash Flows
(Unaudited)
(In US Dollars)
Nine months ended September 30
------------------------------
2004 2003
----------- -----------
Operating activities
Net loss $(1,818,872) $(1,045,483)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 16,728 8,601
Noncash issuance of common stock and common stock options -- 54,000
Stock-based compensation expense (credit) (90,977) 170,291
Changes in operating assets and liabilities:
Costs associated with initial public offering -- 271,937
Prepaid expenses (162,656) (81,800)
Accounts payable and accrued expenses 186,203 (150,201)
Accrued interest (25,582) 6,236
Deferred compensation (44,672) (13,999)
----------- -----------
Net cash used in operating activities (1,939,828) (780,418)
Investing activity
Purchases of property and equipment (280,980) (40,877)
----------- -----------
Net cash used in investing activity (280,980) (40,877)
Financing activities
Net proceeds from issuance of common stock 2,951,406 2,488,862
Proceeds from notes payable to stockholder -- 175,000
Payments of notes payable to stockholder -- (175,000)
----------- -----------
Net cash provided by financing activities 2,951,406 2,488,862
----------- -----------
Net increase in cash and cash equivalents 730,598 1,667,567
Cash and cash equivalents at beginning of period 3,583,757 25,580
----------- -----------
Cash and cash equivalents at end of period $ 4,314,355 $ 1,693,147
=========== ===========
See accompanying notes.
5
Oragenics, Inc.
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
Oragenics, Inc. (formerly known as Oragen, Inc.) (the Company) was
incorporated in November 1996; however, operating activity did not commence
until 1999. We are dedicated to developing technologies associated with oral
health, broad spectrum antibiotics and general health benefits.
The accompanying unaudited condensed financial statements as of and for
the three and nine month periods ended September 30, 2004 and 2003 have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. The results of operations
for the interim period September 30, 2004 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004 or any future
period.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 2003
which are included in our Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission on March 17, 2004.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure (FAS 148). FAS 148 amends an earlier standard on accounting for
stock-based compensation, Accounting for Stock-Based Compensation (FAS 123), to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, FAS 148 amends the disclosure requirements of FAS 123 to require more
prominent disclosure about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
continues to follow the intrinsic value method of accounting as prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, to account for employee stock options issued.
6
Oragenics, Inc.
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation (continued)
The following table illustrates the effects on net loss and net loss per
share as if the Company had applied the fair value recognition provisions of FAS
123 to stock-based employee compensation.
Three months ended Nine months ended
September 30 September 30
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss, as reported $ (613,770) $ (396,722) $(1,818,872) $(1,045,483)
Effect of stock-based employee
compensation expense (credit)
included in reported net income (63,700) 114,228 (90,977) 170,291
Total stock-based employee
compensation expense determined under
fair value based method for all awards (34,255) (1,950) (98,026) (5,850)
----------- ----------- ----------- -----------
$ (711,725) $ (284,444) $(2,007,875) $ (881,042)
Pro forma net loss
=========== =========== =========== ===========
Net loss per share:
Basic and diluted --as reported $ (0.04) $ (0.03) $ (0.13) $ (0.10)
=========== =========== =========== ===========
Basic and diluted --pro forma $ (0.05) $ (0.02) $ (0.14) $ (0.09)
=========== =========== =========== ===========
2. Initial Public Offering
On June 24, 2003, we completed an initial public offering (IPO) of our
common stock. The managing underwriter for our initial public offering was
Haywood Securities, Inc. The shares of common stock sold in the offering were
registered under the Securities Act of 1933 on a registration statement (File
No. 333-100568) that was declared effective by the Securities and Exchange
Commission on June 11, 2003. Under the registration statement, we registered
2,400,000 units at a price of $1.25 per unit. All 2,400,000 units were sold in
the offering that provided gross proceeds of $3,000,000 and net proceeds to us
of $2,282,612 after deducting $717,388 in commissions paid to the underwriter
and other expenses incurred in connection with the offering.
7
Oragenics, Inc.
Notes to Financial Statements
(Unaudited)
2. Initial Public Offering (continued)
Each unit consisted of one share of common stock, one half of one
non-transferable Series A Common Stock Purchase Warrant and one half of one
non-transferable Series B Common Stock Purchase Warrant. One whole Series A
warrant was exercisable on or before December 24, 2003 to acquire one share of
common stock at a price of $2.00 per share. All Series A warrants were exercised
on or prior to December 24, 2003 providing proceeds of $2,400,000. One whole
Series B warrant was exercisable on or before March 24, 2004 to acquire one
share of common stock at a price of $3.00 per share. A total of 995,400 Series B
warrants were exercised on or before March 24, 2004 providing proceeds of
$2,986,200 and the remaining 204,600 Series B warrants expired unexercised on
March 24, 2004. In addition to receiving a cash commission for each share sold,
the underwriting agent for the IPO received 100,000 shares of common stock of
the Company and warrants to purchase 500,000 shares of common stock of the
Company at $1.25 per share until June 24, 2005. As of September 30, 2004,
202,276 underwriter warrants were exercised providing proceeds to the Company of
$252,845. With respect to the remaining 297,724 unexercised underwriter
warrants, the Company is required to maintain an effective registration
statement for the shares of common stock underlying the warrants and filed a
post effective amendment on Form S-3 with the Securities and Exchange Commission
on October 15, 2004. A portion of the estimated costs incurred to date of
$57,437 associated with this filing through September 30, 2004 are netted
against proceeds and recorded as a component of stockholders' equity.
Through September 30, 2004 we have applied a total of $3,671,151 of the
$7,864,220 in net proceeds from our initial public offering as follows:
Reduction of notes payable and accrued interest thereon to directors
and officers:
Brian McAlister (Cornet Capital Corp.) $ 179,757
Robert Zahradnik 88,477
Jeffrey Hillman 15,429
Deferred compensation payable to officers 189,302
Patent expenses paid to University of Florida 100,000
Regulatory consulting fees 164,073
Mutacin 1140 production research 357,325
Pre-clinical research 1,158,304
General and administration costs 1,113,004
Purchase of computer and laboratory equipment 305,480
------------
$ 3,671,151
============
Other than normal and recurring compensation and payment on notes payable, there
were no other payments, directly or indirectly, to any of our officers or
directors or any of their associates, or to any persons owning ten percent or
more of our outstanding common stock from the proceeds of this offering.
Unexpended proceeds are held in one financial institution and invested overnight
in obligations of the U. S. Government or its agencies. Management believes that
the Company has used, and continues to use, the net proceeds from the offering
consistent with its business strategy described in the Form SB-2 registration
statement.
8
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options
and warrants are excluded as their effect is anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the Financial
Statements, including the notes thereto, included elsewhere in this Form 10-QSB,
and the Management's Discussion and Analysis of Financial Condition and Results
of Operations included in our 2003 Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 17, 2004.
Overview
We are an emerging biotechnology company focused on the development and
licensure of innovative products and technologies for improving human health. We
aim to add value to novel technologies and products sourced from innovative
research at the University of Florida and other academic centers. Our lead
product is a novel oral rinse for the prevention of tooth decay. On October 22,
2004 we received a letter from the U. S. Food and Drug Administration (FDA)
stating the Investigational New Drug (IND) application for our replacement
therapy technology remains on clinical hold pending specific changes to the
clinical protocol submitted by us. The requested changes are predominantly
clarifications in the conduct of the proposed clinical trial and do not require
any further testing. We resubmitted our protocol to the FDA on October 30, 2004.
We expect clinical trials are now likely to commence in the first quarter of
2005. Our goals are to in-license and develop products through human
proof-of-concept (Phase I or II), after which we will consider partnering with
major pharmaceutical, biotechnology or healthcare product firms for advanced
clinical development and commercialization. We have generated limited,
non-recurring revenues from operations during the last two years. Revenues
totaling $162,877 during the nine months ended September 30, 2004 have been from
two Small Business Innovation Research (SBIR) grants. We currently generate no
revenue from any of the products we are seeking to develop.
Our principal executive offices are located at 12085 Research Drive,
Alachua, Florida 32615 and our internet address is www.oragenics.com. Our annual
report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form
8-K, amendments to such reports and our other Securities and Exchange Commission
filings are available through our website free of charge as soon as reasonably
practicable after such reports are electronically filed with the Securities and
Exchange Commission. The information contained on our website is not intended to
be part of this report. Our common stock is listed exclusively on the American
Stock Exchange ("AMEX") and traded under the symbol "ONI". Prior to October 13,
2004 our common stock was also listed on the TSX Venture Exchange in Canada and
we have since voluntarily ceased trading on such Canadian Exchange because we
believe that being listed solely on AMEX is in the best interests of our Company
and our shareholders.
9
Our strategy continues to be to develop and sublicense our current
technologies and license new technologies in our fields of expertise. We are
continuing with our efforts to begin clinical trials on our replacement therapy
product and are working to develop a methodology for large scale production of
Mutacin 1140. Consistent with our strategy, in August 2003 our researchers
developed an oral probiotic technology stemming from our research on our
replacement therapy technology. We believe our oral probiotic technology appears
to present a significant opportunity for near-term revenues and we have decided
to patent this technology and move forward with a strategy for product
development. Our current development plans for our oral probiotic technology
during the next year include incurring costs of approximately $1.75 million for
contract manufacturing and clinical research. We expect this will position us to
be able to sublicense our oral probiotic technology for commercial development
in Asia and Europe that will generate sublicense fees and product royalties.
To help achieve the goals we have set forth, we hired two executive
level R&D specialists during the nine months ended September 30, 2004. In
February 2004, we hired Eric Chojnicki as Vice President of Product Development.
In September 2004, we hired Edmund Mickunas as Vice President of Regulatory and
Clinical Affairs. Eric and Ed have brought expertise to Oragenics that will help
us develop the technologies we currently own, work to streamline our regulatory
submissions and clinical study programs and identify new technologies for
potential acquisition. We also retain various entities to assist with FDA and
other regulatory submissions and clinical trial design and administration for
our replacement therapy technology, and dossier documentation for our oral
probiotic technology.
In March 2004, we licensed novel technologies for the rapid
identification of potential therapeutic, vaccine or diagnostic targets
implicated in the onset and progression of disease from iviGene Corporation.
iviGene is a company that maintains common ownership with us in that three
officers and directors of Oragenics are shareholders of iviGene. Under this
license, we will receive exclusive worldwide rights to these technologies,
referred to as IVIAT and CMAT, in the areas of cancer and tuberculosis, as well
as agricultural and other non-human applications. We made no initial up
frontpayment for this license, but we are obligated to pay iviGene royalties on
revenues generated from sub-license fees, milestone payments and royalties from
others for products created from the IVIAT or CMAT technologies. In connection
with this license, we received a Phase I SBIR award totaling up to $100,000 that
was granted by the National Institute of Allergy and Infectious Diseases
(NIAID). As of September 30, 2004, the Company incurred costs of $96,210 subject
to the grant, of which $60,000 was reimbursed to us and $36,210 is expected to
be paid in the fourth quarter of 2004. No royalties will be due iviGene on the
receipt of funds from this grant, however, under the terms of the agreement with
iviGene we are committed to expend a minimum of $100,000 in 2004 and $200,000
per year thereafter in order to maintain our license.
We currently have the following technologies in various stages of
development:
o Replacement Therapy is a single, painless topical treatment that has
the potential to offer life-long protection from most tooth decay.
Subject to FDA approval of our amended IND application, we expect to
initiate Phase I clinical safety trials with this product in the
first quarter of 2005.
o Mutacin 1140 is a novel antibiotic with activity against essentially
all Gram-positive bacteria including multidrug resistant
Staphylococcus aureus and Enterococcus faecalis. Mutacin 1140 has a
number of other characteristics that suggest its potential use in
the treatment of a variety of infectious diseases. In particular,
researchers have not succeeded to date in demonstrating bacterial
resistance to this antibiotic. We are currently in the preclinical
stage of development and have not filed an investigational new drug
application for Mutacin 1140.
10
o Oral Probiotic Technology employs naturally occurring beneficial
bacteria to promote dental and periodontal health. Probiotics are
widely employed in Asia and Europe, and acceptance in the United
States is growing. Such products may be marketed as "health
supplements" without the need for extensive regulatory filings,
offering the opportunity for near-term commercialization. We plan to
conduct an extensive safety study and, depending on the results of
such safety study, negotiate arrangements with manufacturing and
marketing partners for our oral probiotic technology within the next
year.
o IVIAT and CMAT are related platform technologies that we have
recently licensed from iviGene Corp. IVIAT, which stands for In Vivo
Induced Antigen Technology, and which we believe provides a simple,
fast and sensitive method for identification of novel and
potentially important new targets for use in the diagnosis and
prevention of infectious diseases. CMAT, which stands for Change
Mediated Antigen Technology, we believe identifies novel and
potentially important targets for diagnosis and treatment of cancers
and other diseases in humans and other living organisms, including
plants. These technologies are in the early stages of research and
development and as such there is no anticipation for making any
regulatory filings with regards to IVIAT or CMAT in the near future.
Business Objectives and Milestones
The specific goal of our business is to successfully develop,
clinically test and obtain US Food and Drug Administration (FDA) approval for
sales of products based on our licensed, patented technologies. Our present
strategy involves undertaking studies necessary for IND regulatory approval for
each technology. If successful, we will then be in a position to undertake, when
necessary, human clinical trials relating to safety. We intend at that point to
consider a sublicense of each of our technologies to one or more pharmaceutical
companies, who will be responsible for funding the completion of additional
clinical studies relating to efficacy for the technologies, the cost of the new
drug application, and for the manufacture and distribution of products based on
our technologies. In order to accomplish these objectives with respect to each
of our product development efforts, we must take the following actions:
Replacement Therapy
1. Obtain FDA approval to begin Phase I human clinical studies.
2. Complete Phase I clinical trials.
Mutacin 1140
1. Develop a suitable method for clinical quantity production of Mutacin
1140.
2. Complete preclinical studies, including animal toxicity and efficacy,
required for an investigational new drug application submission.
3. Engage marketing partners in Europe and Asia.
11
Oral Probiotic Technology
1. Conduct pre-market safety studies in animals.
2. Develop appropriate manufacturing and packaging systems.
3. Complete one human study.
IVIAT and CMAT
1. Establish research program with CMAT on cancer targets.
These actions, both individually and in the aggregate, are expected to be
costly and will require additional capital, beyond what is currently available
to us in order to accomplish them. In addition, current funds available may need
to be allocated among the technologies we are developing toward those that
management believes could provide an opportunity for near term revenue growth.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
and Canada. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States and Canada
requires us to make estimates and assumptions that affect reported amounts and
related disclosures. We consider an accounting estimate to be critical if it
requires assumptions to be made that were uncertain at the time the estimate was
made and changes in the estimate or different estimates that could have been
made could have a material impact on our results of operations or financial
condition. Our financial statements do not include significant estimates that
have a material impact on our results of operations or financial condition.
12
Results of Operations
Three Months Ended September 30, 2004 and 2003
We had revenues of $118,642 associated with two SBIR grants in the three
months ended September 30, 2004 and no revenues during the same period in 2003.
Our operating expenses increased 87% to $745,561 in the three months ended
September 30, 2004 from $398,426 in the same period in 2003. Research and
development expenses increased 176% to $567,743 in the three months ended
September 30, 2004 from $205,615 in the same period in 2003, reflecting the
doubling of our research staff amounting to approximately $46,000, the hiring of
two senior executives amounting to approximately $100,000, regulatory and
pre-clinical manufacturing costs associated with our replacement therapy
technology amounting to approximately $100,000, costs associated with developing
the oral probiotic technology of approximately $95,000, increased patent costs
of approximately $9,000 associated with new technologies, the increased
consumption of laboratory supplies of approximately $50,000 and the increase in
facility and general R&D operating costs amounting to approximately $25,000
associated with the general increase in R&D activity, less a reduction in
expenses in connection with compensation expense for options approximating
$63,000 caused by a significantly lower stock price in 2004. General and
administration expenses decreased 8% to $177,818 in the three months ended
September 30, 2004 from $192,811 in the same period in 2003, reflecting the
reduction in expenses in connection with compensation expense for options
approximating $109,000 caused by a significantly lower stock price in 2004,
offset by increases caused by the full time hiring of our Chief Financial
Officer amounting to approximately $24,000, the hiring of an accounting manager
resulting in increased costs of approximately $18,000, the incurrence of
consulting fees of approximately $37,000 for investor and public relations
consulting and additional premium costs of approximately $15,000 relating to the
increase in coverage for directors' and officers' liability insurance.
Interest income increased 246% to $13,149 in the three months ended
September 30, 2004 from $3,799 during the same period in 2003, reflecting the
higher average cash balances maintained during the quarterly period in 2004 as a
result of the exercise of common stock warrants associated with the IPO. We
incurred no interest expense for the three months ended September 30, 2004 as
compared to $2,095 during the same period in 2003 as a result of the repayment
of all notes to shareholders in December 2003.
We incurred net losses of $613,770 and $396,722 during the three months
ended September 30, 2004 and 2003, respectively. The increase in our net loss
amounting to $217,048 was principally caused by our hiring of additional
personnel and increase in costs associated with supporting those employees, as
well as the regulatory and pre-clinical manufacturing undertaken for our
replacement therapy and oral probiotic technologies and the increase in
consulting fees to support our research efforts and our public company status.
Nine Months Ended September 30, 2004 and 2003
We had revenues of $162,877 associated with two SBIR grants in the nine
months ended September 30, 2004 and no revenues during the same period in 2003.
Our operating expenses increased 94% to $2,013,224 in the nine months ended
September 30, 2004 from $1,038,765 in the same period in 2003. Research and
development expenses increased 109% to $1,248,423 in the nine months ended
September 30, 2004 from $596,205 in the same period in 2003, reflecting the
13
doubling of our research staff amounting to approximately $165,000, the hiring
of two senior executives amounting to approximately $250,000, regulatory and
pre-clinical manufacturing costs associated with our replacement therapy
technology amounting to approximately $128,000, costs associated with developing
the oral probiotic technology of approximately $125,000, the increased
consumption of laboratory supplies of approximately $77,000 and the increase in
facility and general R&D operating costs amounting to approximately $41,000
associated with the general increase in R&D activity, less a reduction in patent
costs of $34,000 whereby a one-time charge of $100,000 was required in 2003 and
a reduction in compensation expense for options approximating $100,000 caused by
a significantly lower stock price in 2004. General and administration expenses
increased 73% to $764,801 in the nine months ended September 30, 2004 from
$442,560 in the same period in 2003, reflecting the full time hiring of our
Chief Financial Officer and the hiring of our accounting manager which increased
costs by approximately $108,000, a one-time charge of $65,000 for listing on the
American Stock Exchange, incurrence of consulting fees of approximately $120,000
for investor, public relations and financial consulting, increased costs for
travel of approximately $34,000 associated with business trips to Europe and
Asia, additional premium costs of approximately $21,000 relating to the increase
in coverage for directors' and officers' liability insurance, the incurrence of
professional fees and related costs predominantly associated with public entity
filings of approximately $122,000 and the increase in facility and general
administrative costs amounting to approximately $13,000, less a reduction in
expenses in connection with the compensation expense for options approximating
$161,000 caused by a significantly lower stock price in 2004.
Interest income increased by $27,200 to $31,475 in the nine months ended
September 30, 2004 from $4,275 during the same period in 2003, reflecting the
higher average cash balances maintained during the nine month period ended
September 30, 2004 as a result of the funds available from the exercise of
common stock warrants associated with the IPO. We incurred no interest expense
for the nine months ended September 30, 2004 as compared to $10,993 during the
same period in 2003 as a result of repaying all notes to shareholders in
December 2003.
We incurred net losses of $1,818,872 and $1,045,483 during the nine months
ended September 30, 2004 and 2003, respectively. The increase in our net loss
was principally caused by our hiring of additional personnel and increase in
costs associated with supporting those employees, as well as the regulatory and
pre-clinical manufacturing undertaken for our replacement therapy and oral
probiotic technologies and the increase in consulting fees to support our
research efforts and our public company status.
Liquidity and Capital Resources
From inception through early June 2003, we financed our operations
primarily through the issuance of common stock for $508,616, the issuance of
notes payable to shareholders totaling $260,454 and a sponsored research
agreement totaling $357,787. On June 24, 2003, we completed an initial public
offering of our common stock that provided net proceeds to us of $2,282,612
after deducting $717,388 in commissions paid to the underwriter and other
expenses incurred in connection with the offering. In addition, common stock
warrants issued in connection with our initial public offering have provided
additional proceeds of approximately $5,600,000 through September 30, 2004, of
which approximately $3,009,000 was received in 2004. Through September 30, 2004
we have used $3,671,151 of the $7,864,220 in net proceeds from our initial
public offering to repay certain indebtedness and pay expenses for research,
development and general corporate purposes.
14
We have invested the remainder of the proceeds in overnight obligations of
the U. S. Government or its agencies that are held in one financial institution
and at September 30, 2004 we had cash and cash equivalents of $4,314,355. We
anticipate that this cash will be adequate to satisfy our anticipated operating
expenses and capital requirements as currently planned through 2005.
We lease our laboratory and office facilities, as well as certain
equipment, under a 12-month cancelable operating lease with annual renewal
options. We have also entered into an agreement to lease a newly constructed
facility in Alachua, Florida for five years with occupancy expected to begin in
the fourth quarter of 2004. To date we have paid $13,193 as a security deposit
and initial rent payment, as well as $150,469 for specialized building design
costs. We estimate that our additional capital outlay for leasehold improvements
and equipment will be approximately $160,000 that will be paid during the fourth
quarter of 2004. The lease agreement requires monthly payments of $6,400,
exclusive of utilities, insurance and real estate taxes.
We expect to continue to incur substantial research and development
expenses including continued increases in personnel and costs related to
research, preclinical testing and clinical studies, as well as significant
administrative costs associated with public filings. We are currently
interviewing candidates for the executive level position of business development
and expect this hiring to be complete before the end of 2004. We will require
substantial funds to conduct research and development and preclinical and Phase
I clinical testing of our licensed, patented technologies and to develop
sublicensing relationships for the Phase II and III clinical testing and
manufacture and marketing of any products that are approved for commercial sale.
Our future capital requirements will depend on many factors, including continued
scientific progress in our research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, our ability to
establish development, manufacturing and marketing arrangements and our ability
to generate revenue. We intend to seek additional funding through sublicensing
arrangements, government grants and through public or private financings. In
October 2004, we entered into an agreement with an investment advisory firm to
assist us in raising capital by acting as a financial advisor and placement
agent for a proposed private placement of our common stock. There can be no
assurance that additional financing will be available to us on acceptable terms,
or at all. Any such financings may be dilutive in ownership, preferences,
rights, or privileges to our shareholders. If we are unable to obtain funds when
needed or on acceptable terms, we may be required to curtail our current
development programs and forego future development opportunities.
Risk Factors Affecting Our Business
Investors should carefully consider the following risk factors, in
addition to the other information concerning the factors affecting
forward-looking statements. Each of the risk factors could adversely affect our
business, operating results and financial condition as well as adversely affect
the value of an investment in us.
We have experienced a history of losses and expect to incur future losses. We
have generated extremely limited revenue from our operations, and no revenue
from sales. Therefore, we must continue to raise money from investors and seek
partners with whom to collaborate in our research and development efforts so as
to fund our operations. If we are unable to fund our operations, we may cease
doing business.
15
We have recorded minimal revenue to date and we have incurred a cumulative
operating loss of approximately $4,206,000 through September 30, 2004. Our
losses have resulted principally from costs incurred in research and development
activities related to our efforts to develop our technologies and from the
associated administrative costs. We expect to incur significant operating losses
and negative cash flows over the next several years due to the costs of expanded
research and development efforts and preclinical and clinical trials and hiring
additional personnel. We will need to generate significant revenues in order to
achieve and maintain profitability. We may not be able to generate these
revenues or achieve profitability in the future. Even if we do achieve
profitability, we may not be able to sustain or increase profitability. We have
limited capital resources and it is likely that we will require additional
capital to meet our future capital requirements. There is no assurance that such
capital will be available to us or, if available, be on terms acceptable to us.
To the extent we are unable to raise additional capital and our operating losses
continue, we will need to take actions to reduce our costs of operations, which
may adversely impact future operations, employee morale, business relations and
other aspects of our business. An increase in capital resulting from a capital
raising transaction under adverse business circumstances could result in
substantial dilution to existing holders of our common stock and adversely
impact our stock price.
The FDA has put our investigational new drug application for our replacement
therapy technology on clinical hold. If we are unable to obtain or maintain
regulatory clearance or approval for our technologies, we will be unable to
generate revenues and may have to cease operations.
Our technologies have not been cleared for marketing by the FDA or foreign
regulatory authorities and cannot be commercially distributed in the United
States or any international markets until such clearance is obtained. Before
regulatory approvals can be obtained, our technologies will be subject to
extensive preclinical and clinical testing. These processes are lengthy and
expensive. We cannot assure that such trials will demonstrate the safety or
effectiveness of our technologies. There is a possibility that our technologies
may be found to be unsafe or ineffective or otherwise fail to satisfy regulatory
requirements. The FDA has put our investigational new drug application for our
replacement therapy technology on clinical hold. This means that we may not
begin human clinical trials under our application until the FDA gives us
permission to do so. We have amended our first investigational new drug
application three times to respond to the FDA's concerns. We filed a new
investigational new drug application in March of 2003. This investigational new
drug application has also been placed on hold until we satisfy the FDA's safety
concerns. If we are unable to resolve the FDA's concerns, we will not be able to
proceed further to obtain regulatory approval for that technology. If we fail to
obtain or maintain FDA clearance for one or all of our technologies, we may have
to cease operations.
Our product candidates are in the preliminary development stage, and may not be
effective at a level sufficient to support a profitable business venture. If
they are not, we will be unable to create marketable products, and we may have
to cease operations.
All of our product candidates are in the preliminary development state.
Although we have current data which indicates the promise of the concept of our
technologies, we can offer you no assurance that the technologies will be
effective at a level sufficient to support a profitable business venture. If
they are not, we will be unable to create marketable products, we will not
generate revenues from our operations, and we may have to cease operations. The
science on which our replacement therapy and Mutacin 1140 technologies are based
may also fail due to flaws or inaccuracies on which the data are based, or
because the data are totally or partially incorrect, or not predictive of future
results. If our science proves to be flawed, incorrect or otherwise fails, we
will not be able to create a marketable product or generate revenues and we may
have to cease operations.
16
The success of our research and development activities is uncertain. If they do
not succeed, we will be unable to generate revenues from our operations and we
will have to cease doing business.
We intend to continue with research and development of our technologies
for the purpose of obtaining regulatory approval to manufacture and market them.
Research and development activities, by their nature, preclude definitive
statements as to the time required and costs involved in reaching certain
objectives. Actual costs may exceed the amounts we have budgeted and actual time
may exceed our expectations. If research and development requires more funding
than we anticipate, then we may have to reduce technological development efforts
or seek additional financing. There can be no assurance that we will be able to
secure any necessary additional financing or that such financing would be
available on favorable terms. Additional financings could result in substantial
dilution to existing shareholders. We anticipate we will remain engaged in
research and development for a considerable period of time, and there can be no
assurance that we will be able to generate adequate revenue from operations.
It is possible that our replacement therapy and oral probiotic technology will
be less effective in humans than they have been shown to be in animals. It is
possible our Mutacin 1140 technology will be shown to be ineffective or harmful
in humans. If any of these technologies are shown to be ineffective or harmful
in humans, we will be unable to generate revenues from them, and we may have to
cease operations.
To date the testing of our replacement therapy technology has been
undertaken solely in animals. Those studies have proven our genetically altered
strain of Streptococcus mutans ("S. mutans") to be effective in preventing tooth
decay. It is possible that our strain of S. mutans will be shown to be less
effective in preventing tooth decay in humans in clinical trials. If our
replacement therapy technology is shown to be ineffective in preventing tooth
decay in humans, we will be unable to commercialize and generate revenues from
this technology. To date the testing of our oral probiotic technology has been
undertaken solely in animals. Those studies have shown our technology to be
effective at helping to reduce certain bacteria that are believed to cause
periodontal disease. It is possible that our oral probiotic technology will not
be effective in reducing those bacteria and will not improve periodontal health.
If our oral probiotic technology is shown to be ineffective or harmful to
humans, we will be unable to commercialize it and generate revenues from sales.
To date the testing of the antibiotic substance, Mutacin 1140, has been
undertaken solely in the laboratory. We have not yet conducted animal or human
studies of Mutacin 1140. It is possible that when these studies are conducted,
they will show that Mutacin 1140 is ineffective or harmful. If Mutacin 1140 is
shown to be ineffective or harmful, we will be unable to commercialize it and
generate revenues from sales of Mutacin 1140. If we are unable to generate
revenues from our technologies, we may have to cease operations.
It is possible we will be unable to find a method to produce Mutacin 1140 in
large-scale commercial quantities. If we cannot, we will be unable to undertake
the preclinical and clinical trials that are required in order to obtain FDA
permission to sell it, we will be unable to generate revenues from product
sales, and we may have to cease operations.
Our antibiotic technology, Mutacin 1140, is a substance produced by our
genetically altered strain of S. mutans. To date, it has been produced only in
laboratory cultures. In order for us to conduct the preclinical and Phase I
clinical studies that we must complete in order to find a partner who will
sub-license this technology from us and finance the Phase II and III clinical
studies we must complete in order to obtain FDA approvals necessary to sell
products based on this technology, we must demonstrate a method of producing
commercial quantities of this substance economically. To date we have not found
such a method and it is possible we will be unable to find one. If we are not
able develop a suitable method for clinical quantity production of Mutacin 1140,
we will be unable to generate revenues from this technology and we may have to
cease operations.
17
Beginning in 2004, we must spend at least $1 million annually on development of
our replacement therapy and Mutacin 1140 technologies under our license
agreements with the University of Florida Research Foundation, Inc. We must also
comply with certain other conditions of our licenses. If we do not, our licenses
to these technologies may be terminated, and we may have to cease operations.
We hold our replacement therapy and Mutacin 1140 technologies under
licenses from the University of Florida Research Foundation, Inc. Under the
terms of the licenses, we must spend at least $1 million per year beginning in
2004 and thereafter on development of those technologies before the first
commercial sale of products derived from those technologies. If we do not, our
licenses could be terminated. Until commercial sales of such products take
place, we will not be earning revenues from the sale of products and will,
therefore, have to raise the money we must spend on development of our
technologies by other means, such as the sale of our common stock. There is no
assurance we will be able to raise the financing necessary to meet our
obligations under our licenses. If we cannot, we may lose our licenses to these
technologies and have to cease operations.
The University of Florida Research Foundation, Inc. may terminate our
licenses in respect of our replacement therapy technology and our Mutacin 1140
technology if we breach our obligations to timely pay monies to it, submit
development reports to it or commit any other breach of the covenants contained
in the license agreement. There is no assurance that we will be able to comply
with these conditions. If we cannot, and if our license is terminated, our
investment in development of our replacement therapy and Mutacin 1140
technologies will become valueless and we may have to cease operations.
If clinical trials for our products are unsuccessful or delayed, we will be
unable to meet our anticipated development and commercialization timelines,
which could cause our stock price to decline.
Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our products are safe and effective for use in humans. Conducting clinical
trials is a lengthy, time-consuming and expensive process.
Completion of clinical trials may take several years. Commencement and
rate of completion of clinical trials may be delayed by many factors, including:
o lack of efficacy during the clinical trials;
o unforeseen safety issues;
o slower than expected patient recruitment; and
o government or regulatory delays.
Results from preclinical testing and early clinical trials are often not
predictive of results obtained in later clinical trials. A number of new
products have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
18
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including perceived defects in the
design of the clinical trials and changes in regulatory policy during the period
of product development. Any delays in, or termination of, our clinical trials
will materially and adversely affect our development and commercialization
timelines, which would adversely affect our business and cause our stock price
to decline.
We intend to consider relying on third parties to pay the majority of costs
relating to regulatory approvals necessary to manufacture and sell products
using our technologies. If we are unable to obtain agreements with third parties
to fund such costs, we will have to fund the costs ourselves. We may be unable
to do so, and if we are not, we may have to cease operations.
We intend to consider sublicensing our technologies to strategic partners
prior to commercialization. If we do so, our sublicensees will pay the costs of
any remaining clinical trials, and manufacturing and marketing of our
technologies. If we are unable to sublicense our technologies, we will have to
pay for the costs of Phase II and III trials and new drug applications to the
FDA ourselves. We would also have to set up our own manufacturing facilities and
find our own distribution channels. This would greatly increase our future
capital requirements and we cannot be assured we would be able to obtain the
necessary financing. If we cannot obtain financing, we may have to cease
operations.
If our expected collaborative partnerships do not materialize or fail to perform
as expected, we will be unable to develop our products as anticipated.
We expect to enter into collaborative arrangements with third parties to
develop certain products. We cannot assure you that we will be able to enter
into these collaborations or that, if entered, they will produce successful
products. If we fail to maintain our existing collaborative arrangements or fail
to enter into additional collaborative arrangements, the number of products from
which we could receive future revenues would decline.
Our dependence on collaborative arrangements with third parties subjects
us to a number of risks. These collaborative arrangements may not be on terms
favorable to us. Agreements with collaborative partners typically allow partners
significant discretion in electing whether or not to pursue any of the planned
activities. We cannot control the amount and timing of resources our
collaborative partners may devote to products based on the collaboration, and
our partners may choose to pursue alternative products. Our partners may not
perform their obligations as expected. Business combinations or significant
changes in a collaborative partner's business strategy may adversely affect a
partner's willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our partners,
which could lead to delays or termination of the collaborations and
time-consuming and expensive litigation or arbitration. Even if we fulfill our
obligations under a collaborative agreement, our partner can terminate the
agreement under certain circumstances. If any collaborative partner were to
terminate or breach our agreement with it, or otherwise fail to complete its
obligations in a timely manner, our chances of successfully commercializing
products would be materially and adversely affected.
If our intellectual property rights do not adequately protect our products or
technologies, others could compete against us more directly, which would hurt
our profitability.
19
Our success depends in part on our ability to obtain patents or rights to
patents, protect trade secrets, operate without infringing upon the proprietary
rights of others, and prevent others from infringing on our patents, trademarks
and other intellectual property rights. We will be able to protect our
intellectual property from unauthorized use by third parties only to the extent
that it is covered by valid and enforceable patents, trademarks and licenses.
Patent protection generally involves complex legal and factual questions and,
therefore, enforceability of patent rights cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide adequate protection
against competitors. In addition, any future patent applications may fail to
result in patents being issued. Also, those patents that are issued may not
provide us with adequate proprietary protection or competitive advantages
against competitors with similar technologies. Moreover, the laws of certain
foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States.
In addition to patents and trademarks, we rely on trade secrets and
proprietary know-how. We seek protection of these rights, in part, through
confidentiality and proprietary information agreements. These agreements may not
provide meaningful protection or adequate remedies for violation of our rights
in the event of unauthorized use or disclosure of confidential and proprietary
information. Failure to protect our proprietary rights could seriously impair
our competitive position.
If third parties claim we are infringing their intellectual property rights, we
could suffer significant litigation or licensing expenses or be prevented from
marketing our products. Our commercial success depends significantly on our
ability to operate without infringing the patents and other proprietary rights
of others. However, regardless of our intent, our technologies may infringe the
patents or violate other proprietary rights of third parties. In the event of
such infringement or violation, we may face litigation and may be prevented from
pursuing product development or commercialization. We may receive in the future,
notice of claims of infringement of other parties' proprietary rights.
Infringement or other claims could be asserted or prosecuted against us in the
future and it is possible that past or future assertions or prosecutions could
harm our business. We received notification from B.C. International Corporation
on July 29, 2002 that a gene utilized in our licensed, patented strain of S.
mutans infringes a patent which it holds under a license. Their notification did
not state that they intended to pursue legal remedies. Management of our Company
does not believe the gene in question infringes that patent. We have sent them
correspondence setting out our position and we have not heard anything further
from them. If necessary, we are prepared to assert our rights vigorously with
respect to such matter. If litigation should ensue and we are unsuccessful in
that litigation, we could be enjoined for a period of time from marketing
products which infringe any valid patent rights held or licensed by B.C.
International Corporation and/or we could owe substantial damages. If we become
involved in any claims, litigation, interference or other administrative
proceedings, we may incur substantial expense and the efforts of our technical
and management personnel may be significantly diverted. Any future claims or
adverse determinations with respect to our intellectual property rights may
subject us to loss of our proprietary position or to significant liabilities,
may require us to seek licenses from third parties, cause delays in the
development and release of new products or services and/or may restrict or
prevent us from manufacturing and selling certain of our products. If we are
required to seek licenses from third parties, costs associated with these
arrangements may be substantial and may include ongoing royalties. Furthermore,
we may not be able to obtain the necessary licenses on satisfactory terms, if at
all.
20
We are subject to substantial government regulation, which could materially
adversely affect our business.
The production and marketing of products which may be developed from our
technologies and our ongoing research and development, preclinical testing and
clinical trial activities are subject to extensive regulation and review by
numerous governmental authorities. Most of the technologies we are developing
must undergo rigorous preclinical and clinical testing and an extensive
regulatory approval process before they can be marketed. This process makes it
longer, harder and more costly to bring products which may be developed from our
technologies to market, and we cannot guarantee that any of such products will
be approved. The pre-marketing approval process can be particularly expensive,
uncertain and lengthy, and a number of products for which FDA approval has been
sought by other companies have never been approved for marketing. In addition to
testing and approval procedures, extensive regulations also govern marketing,
manufacturing, distribution, labeling, and record-keeping procedures. If we do
not comply with applicable regulatory requirements, such violations could result
in warning letters, non-approval, suspensions of regulatory approvals, civil
penalties and criminal fines, product seizures and recalls, operating
restrictions, injunctions, and criminal prosecution.
Delays in or rejection of FDA or other government entity approval of our
technologies may also adversely affect our business. Such delays or rejection
may be encountered due to, among other reasons, government or regulatory delays,
lack of efficacy during clinical trials, unforeseen safety issues, slower than
expected rate of patient recruitment for clinical trials, inability to follow
patients after treatment in clinical trials, inconsistencies between early
clinical trial results and results obtained in later clinical trials, varying
interpretations of data generated by clinical trials, or changes in regulatory
policy during the period of product development in the U.S. In the U.S. more
stringent FDA oversight in product clearance and enforcement activities could
result in our experiencing longer approval cycles, more uncertainty, greater
risk, and higher expenses. Even if regulatory approval of a product is granted,
this approval may entail limitations on uses for which the product may be
labeled and promoted. It is possible, for example, that we may not receive FDA
approval to market products based on our licensed, patented technologies for
broader or different applications or to market updated products that represent
extensions of our basic technologies. In addition, we may not receive FDA
approval to export our products based on our licensed, patented technologies in
the future, and countries to which products are to be exported may not approve
them for import.
Any manufacturing facilities would also be subject to continual review and
inspection. The FDA has stated publicly that compliance with manufacturing
regulations will be scrutinized more strictly. A governmental authority may
challenge our compliance with applicable federal, state and foreign regulations.
In addition, any discovery of previously unknown problems with one of our
products or facilities may result in restrictions on the product or the
facility, including withdrawal of the product from the market or other
enforcement actions.
From time to time, legislative or regulatory proposals are introduced that
could alter the review and approval process relating to our technologies. It is
possible that the FDA will issue additional regulations further restricting the
sale of our proposed products. Any change in legislation or regulations that
govern the review and approval process relating to our future technologies could
make it more difficult and costly to obtain approval for new products based on
our technologies, or to produce, market, and distribute such products if
approved.
21
We can offer you no assurance the government and the public will accept our
licensed patented technologies. If they do not, we will be unable to generate
sufficient revenues from our technologies, which may cause us to cease
operations.
The commercial success of our replacement therapy, oral probiotics and
Mutacin 1140 technologies will depend in part on government and public
acceptance of their production, distribution and use. Biotechnology has enjoyed
and continues to enjoy substantial support from the scientific community,
regulatory agencies and many governmental officials in the United States and
around the world. Future scientific developments, media coverage and political
events may diminish such support. Public attitudes may be influenced by claims
that health products based on biotechnology are unsafe for consumption or pose
unknown risks to the environment or to traditional social or economic practices.
Securing governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. The market
success of technologies developed through biotechnology such as ours could be
delayed or impaired in certain geographical areas because of such factors.
Products based on our technologies may compete with a number of traditional
dental therapies and drugs manufactured and marketed by major pharmaceutical
companies and other biotechnology companies. Market acceptance of products based
on our technologies will depend on a number of factors including potential
advantage over alternative treatment methods. We can offer you no assurance that
dentists, physicians, patients or the medical and dental communities in general
will accept and utilize products developed from our technologies. If they do
not, we may be unable to generate sufficient revenues from our technologies,
which may cause us to have to cease operations.
We may be exposed to product liability claims if products based on our
technologies are marketed and sold. Because our liability insurance coverage
will have limitations, if a judgment is rendered against us in excess of the
amount of our coverage, we may have to cease operations.
Because we are testing new technologies, and will be involved either
directly or indirectly in the manufacturing and distribution of the
technologies, we are exposed to the financial risk of liability claims in the
event that the use of the technologies results in personal injury or death.
There can be no assurance that we will not experience losses due to product
liability claims in the future, or that adequate insurance will be available in
sufficient amounts, at an acceptable cost, or at all. A product liability claim,
product recall or other claim, or claims for uninsured liabilities or in excess
of insured liabilities, may have a material adverse effect on our business,
financial condition and results of operations. Although we currently carry
$2,000,000 in general liability insurance, such insurance may not be sufficient
to cover any potential liability. We could be sued for a large sum of money and
held liable in excess of our liability coverage. If we cannot pay the judgment,
we may have to cease operations.
There is uncertainty relating to favorable third-party reimbursement in the
United States. If we can't obtain third party reimbursement for products based
on our technologies, we may have to cease operations.
In the United States, success in obtaining payment for a new product from
third parties such as insurers depends greatly on the ability to present data
which demonstrates positive outcomes and reduced utilization of other products
or services as well as cost data which shows that treatment costs using the new
product are equal to or less than what is currently covered for other products.
If we fail to present such clinical data that will adversely affect our ability
to obtain favorable third party reimbursement, we will earn less revenue and we
may have to cease operations.
22
Our stock price historically has been volatile and our stock's trading volume
has been low.
Although our common stock began trading on the American Stock Exchange
under the symbol "ONI" in May, 2004, the trading price of our common stock has
been, and may be, subject to wide fluctuations in response to a number of
factors, many of which are beyond our control. These factors include:
o quarter-to-quarter variations in our operating results;
o the results of testing, technological innovations, or new commercial
products by us or our competitors;
o governmental regulations, rules, and orders;
o general conditions in the healthcare, dentistry, or biotechnology
industries;
o comments and/or earnings estimates by securities analysts;
o developments concerning patents or other intellectual property
rights;
o litigation or public concern about the safety of our products;
o announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
o additions or departures of key personnel;
o release of escrow or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common
stock;
o potential litigation;
o adverse announcements by our competitors; and
o the additional sale of common stock by us in a capital raising
transaction.
Historically, the daily trading volume of our common stock has been
relatively low. We cannot guarantee that an active public market for our common
stock will be sustained or that the average trading volume will remain at
present levels or increase. In addition, the stock market in general, has
experienced significant price and volume fluctuations. Volatility in the market
price for particular companies has often been unrelated or disproportionate to
the operating performance of those companies. Broad market factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In addition, securities class action litigation has often been
initiated following periods of volatility in the market price of a company's
securities. A securities class action suit against us could result in
substantial costs, potential liabilities, and the diversion of management's
attention and resources. Since our initial public offering and through September
30, 2004 our stock price has fluctuated from $4.50 to $1.69 per share. To the
extent our stock price fluctuates and/or remains low, it could impair our
ability to raise capital through the offering of additional equity securities.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. As of
September 30, 2004, there were 14,323,380 shares of our common stock
outstanding, with another 297,724 shares of common stock issuable upon exercise
of our underwriter warrants, 960,000 shares issuable upon exercise of options
issued and an additional 540,000 shares available for issuance under our stock
option plans. The issuance of our stock underlying these options is covered by
an S-8 registration statement we filed with the SEC. The Company currently has
23
approximately 5,280,422 shares of common stock held in escrow pursuant to
Canadian law and underwriter requirements in connection with its initial public
offering pursuant to escrow agreements. These shares are released from escrow
periodically in three- and six -month increments and are subject to the
limitations of the respective escrow agreements. Of these shares 4,920,458 are
held by principals of the Company and 359,964 are held by the University of
Florida Research Foundation, Inc. On December 24, 2004, approximately 1,230,115
shares held by principals (including a former director) will be released from
escrow as well as 89,991 shares held by the University of Florida Research
Foundation, Inc. The shares held by the principals (excluding the former
director) will be subject to Rule 144 for resales. The shares held by the
University of Florida Research Foundation, Inc. will be eligible for resale
without restriction.
We may be unable to maintain the listing of our common stock on the American
Stock Exchange and that would make it more difficult for shareholders to dispose
of their common stock.
Our common stock is listed on the American Stock Exchange. We cannot
guarantee that it will always be listed. The American Stock Exchange rules for
continual listing include minimum market capitalization and other requirements,
which we may not meet in the future, particularly if the price of our common
stock declines.
If our common stock is delisted from the American Stock Exchange, trading
in our common stock would be conducted, if at all, on the NASD's OTC Bulletin
Board in the United States. This would make it more difficult for stockholders
to dispose of their common stock and more difficult to obtain accurate
quotations on our common stock. This could have an adverse effect on the price
of our common stock.
Forward-Looking Statements
Certain oral statements made by management from time to time and certain
statements contained herein and in documents incorporated herein by reference
that are not historical facts are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and, because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. The terms "Oragenics," "Company,"
"we," "our," and "us" refer to Oragenics, Inc. The words "expect," "believe,"
"goal," "plan," "intend," "anticipate," "estimate," "will" and similar
expressions and variations thereof if used, are intended to specifically
identify forward-looking statements. Forward-looking statements are statements
regarding the intent, belief or current expectations, estimates or projections
of Oragenics, our directors or our officers about Oragenics and the industry in
which we operate, and assumptions made by management, and include among other
items, (i) our strategies regarding growth, including our intention to develop
and market our products; (ii) our financing plans; (iii) trends affecting our
financial condition or results of operations; (iv) our ability to continue to
control costs and to meet our liquidity and other financing needs; (v) our
ability to respond to and meet regulatory demands; and (vi) our expectation with
respect to generating near-term revenue from our oral probiotic technology.
These statements are not guarantees of future performance and are subject to a
number of known and unknown risks, uncertainties, and other factors, including
those discussed above and elsewhere in this report and those set forth under
"Risk Factors Affecting Our Business" in our 2003 Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission, that could cause actual
results to differ materially from future results, performances, or achievements
expressed or implied by such forward-looking statements. Consequently, undue
reliance should not be placed on these forward-looking statements. Although we
believe our expectations are based on reasonable assumptions, we can give no
assurance that the anticipated results will occur. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
24
Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors which
include, among others, (i) general economic conditions, particularly those
affecting our ability to raise additional capital; (ii) conditions in the
capital markets, including the interest rate environment and the availability of
capital, which could affect our internal growth and possibilities for licensing
and/or strategic alliances; (iii) changes in the competitive marketplace that
could affect our expected revenue and/or costs of product development; (iv) our
rights to the use of intellectual property and the potential for others to
challenge and otherwise adversely affect or impair such rights; (v) our
inability to successfully partner with manufacturers and distributors with
respect to our oral probiotic technology; and (vi) other factors including those
identified in our filings from time to time with the SEC.
25
ITEM 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have established and are currently maintaining disclosure controls and
procedures for our company designed to ensure that information required to be
disclosed in our filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the required time periods specified in
the SEC's rules and forms. Our Chief Executive Officer and Chief Financial
Officer conducted an evaluation of the effectiveness of the Company's disclosure
controls and procedures and have concluded that our disclosure controls and
procedures are effective as of the end of the period covered by this report.
Changes in Internal Controls
We have also evaluated our internal controls over financial reporting, and
there have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
26
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
a. None
b. None
c. None
d. Note 2 of the Financial Statements included in Part I of this filing
of Form 10-QSB as to use of proceeds through September 30, 2004 is
hereby incorporated by reference.
e. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Item Description
31.1 Certification of Principal Executive Officer pursuant to Rule
13a-14 and Rule 15d-14(a), promulgated under the Securities
and Exchange Act of 1934, as amended.
31.2 Certification of Principal Financial Officer pursuant to Rule
13a-14 and Rule 15d-14(a), promulgated under the Securities
and Exchange Act of 1934, as amended.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer). 32.2 Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
(b) Reports on Form 8-K filed during the quarter ended September 30, 2004
On September 22, 2004, the Company filed a Form 8-K announcing that it had
been invited to present at the BIO Emerging Company Investor Forum in San
Francisco in October 2004.
On September 29, 2004, the Company filed a Form 8-K announcing the hiring
of Edmund Mickunas for the position of Vice President, Regulatory and Clinical
Affairs.
27
********************************************************************************
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 on this 3rd day of November, 2004.
ORAGENICS, INC.
BY: /s/ Mento A. Soponis
Mento A. Soponis, President and Principal
Executive Officer
BY: /s/ Paul A. Hassie
Paul A. Hassie, Secretary, Treasurer, Principal
Accounting Officer and Principal Financial Officer
28