UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
ISOLAGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-12666 87-0458888
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 Wilcrest, 5th Floor
Houston, Texas 77042
(Address of principal executive offices, including zip code)
(713) 780-4754
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 any shorter period that the registrant was required to file the
reports), and (2) has been subject to those filing requirements for the past 90
days. [X] Yes [ ] No
As of July 25, 2002, issuer had 15,189,563 shares of issued and outstanding
common stock, par value $0.001.
1
Documents Incorporated by Reference: NONE
Transitional Small Business Issuer Format: Yes [X] No [ ]
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 (unaudited) and December 31, 2001.............3
Consolidated Statements of Operations
Six Months ended June 30, 2002 (unaudited)
and June 30, 2001 (unaudited)...............................4
Three Months ended June 30, 2002 (unaudited)
and June 30, 2001 (unaudited)...............................5
Consolidated Statements of Cash Flows
Six Months ended June 30, 2002 (unaudited)
and June 30, 2001 (unaudited)...............................6
Notes to Unaudited Consolidated Financial Statements.............7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................11
Part II. Other Information
Item 1. Legal Proceedings...............................................14
Item 2. Changes in Securities...........................................14
Item 3. Defaults Upon Senior Securities.................................14
Item 4. Submission of Matters to a Vote of Security Holders.............14
Item 5. Other Information...............................................14
Item 6. Exhibits and Reports on Form 8-K................................14
The Consolidated Financial Statements of the Company required to be filed with
this 10-QSB Quarterly Report were prepared by management and commence on the
following page, together with related Notes. In the opinion of management, the
Consolidated Financial Statements fairly present the financial condition of the
Company.
2
Isolagen, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
June 30, December 31,
2002 2001
----------------- --------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 8,437,492 $ 1,380,824
Accounts receivable 33,459 1,067
------------- --------------
Total current assets 8,470,951 1,381,891
-------------- --------------
Property and equipment, net 84,766 7,357
Other assets 149,536 174,666
-------------- --------------
Total assets $ 8,705,253 $ 1,563,914
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 302,877 $ 208,196
Accrued expenses 252,704 23,318
Deferred revenue 240,000 280,000
-------------- --------------
Total current liabilities 795,581 511,514
-------------- --------------
Total liabilities 795,581 511,514
-------------- --------------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.001 par value; 5,000,000
shares authorized; 2,819,892 issued and outstanding 2,820 -
Common stock, $.001 par value; 50,000,000
shares authorized; 15,189,563 issued and outstanding 15,190 15,190
Additional paid-in capital 13,942,147 5,166,205
Other comprehensive gain 477 -
Accumulated deficit during development stage (6,050,962) (4,128,995)
-------------- --------------
Total shareholders' equity 7,909,672 1,052,400
-------------- --------------
Total liabilities and shareholders' equity $ 8,705,253 $ 1,563,914
-------------- --------------
The accompanying notes are an integral part of these statements.
3
Isolagen, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(unaudited)
Cumulative
Period from
December 28,
1995 (date of
Six Months Ended inception) to
June 30, June 30,
----------------------------------
2002 2001 2002
--------------- --------------- ------------------
Revenues
Sales $ 2,518 $ 7,743 $ 1,392,632
License fees 40,000 40,000 260,000
------------- ------------- --------------
Total revenues 42,518 47,743 1,652,632
Cost of sales - 4,330 402,459
------------- ------------- --------------
Gross profit 42,518 43,413 1,250,173
Selling, general and administrative expenses 1,921,463 264,299 6,966,660
------------- ------------- --------------
Operating loss (1,878,945) (220,886) (5,716,487)
Other income (expense)
Interest income 19,063 8 47,460
Unrealized gain on foreign currency deposits 32,421 - 32,421
Loss on disposal of asset - - (8,222)
Interest expense - (68,909) (311,628)
------------- ------------- --------------
Net loss $ (1,827,461) $ (289,787) $ (5,956,456)
------------- ------------ ------------
Per share information
Net loss per common share - basic and diluted $ (0.12) $ (0.11) $ (1.39)
------------- ------------ ------------
Weighted average number of basic and diluted
common shares outstanding 15,189,563 2,692,993 4,288,047
------------- ------------- --------------
The accompanying notes are an integral part of these statements.
4
Isolagen, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30,
--------------------------------------
2002 2001
----------------- -----------------
Revenues
Sales $ - $ 4,118
License fees 20,000 20,000
-------------- --------------
Total revenues 20,000 24,118
Cost of sales - 1,970
-------------- --------------
Gross profit 20,000 22,148
Selling, general and administrative expenses 1,247,869 145,731
-------------- --------------
Operating loss (1,227,869) (123,583)
Other income (expense)
Interest income 14,525 -
Unrealized gain on foreign currency deposits 32,421 -
Interest expense - (35,170)
-------------- --------------
Net loss $ (1,180,923) $ (158,753)
------------- ------------
Per share information
Net loss per common share - basic and diluted $ (0.08) $ (0.06)
------------- ------------
Weighted average number of basic and diluted
common shares outstanding 15,189,563 2,692,993
------------- ------------
The accompanying notes are an integral part of these statements.
5
Isolagen, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(unaudited)
Cumulative
Period from
December 28,
Six Months Ended 1995 (date of
June 30, inception) to
---------------------------------- June 30
2002 2001 2002
--------------- --------------- ------------------
Cash flows from operating activities
Net loss $ (1,827,461) $ (289,787) $ (5,956,456)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 43,573 - 1,095,652
Depreciation 8,918 8,138 76,635
Loss on sale of property and equipment - - 8,222
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (32,392) 121 (33,459)
Increase in other assets (18,443) (653) (18,443)
Increase in accounts payable 94,681 36,798 302,877
Increase in accrued expenses 134,880 252,809 158,198
Increase (decrease) in deferred revenue (40,000) (40,000) 240,000
------------- ------------- --------------
Net cash used in operating activities (1,636,244) (32,574) (4,126,774)
------------- ------------- --------------
Cash flows from investing activities
Purchase of property and equipment (86,327) - (170,623)
Proceeds from the sale of property
and equipment - - 1,000
------------- ------------- --------------
Net cash used in
investing activities (86,327) - (169,623)
------------- ------------- --------------
Cash flows from financing activities
Proceeds from the issuance of preferred stock 8,778,762 - 8,778,762
Proceeds from convertible debt - - 1,450,000
Proceeds from notes payable to shareholders - 30,000 135,667
Proceeds from the issuance of common stock - - 2,467,810
Merger and acquisition expenses - - (48,547)
Repurchase of common stock - - (50,280)
------------- ------------- --------------
Net cash provided by financing activities 8,778,762 30,000 12,733,412
------------- ------------- --------------
Effect of exchange rate changes on cash balances 477 - 477
Net increase (decrease) in cash and cash equivalents 7,056,668 (2,574) 8,437,492
Cash and cash equivalents, beginning of period 1,380,824 2,574 -
------------- ------------- -----------
Cash and cash equivalents, end of period $ 8,437,492 $ - $ 8,437,492
------------ ----------- ------------
Supplemental cash flow information:
Cash paid for interest $ - $ - $ 150,283
------------ ----------- ------------
The accompanying notes are an integral part of these statements.
6
Isolagen, Inc.
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION, BUSINESS AND ORGANIZATION
Isolagen, Inc., a Delaware corporation ("Isolagen" or the "Company"), is the
parent company of Isolagen Technologies, Inc. ("Isolagen Technologies"), a
Delaware corporation and wholly-owned subsidiary of the Company. Isolagen
Technologies is the parent company of Isolagen Europe Limited ("Isolagen
Europe"), a company organized under the laws of the United Kingdom and
wholly-owned subsidiary of Isolagen Technologies. The common stock, par value
$0.001 per share, of the Company ("Common Stock") is quoted on the
Over-the-Counter Bulletin Board under the ticker symbol "ISLG.OB"
Isolagen was organized to specialize in the development and commercialization of
autologous cellular therapy ("ACT") for hard and soft tissue regeneration and
other therapies. Isolagen currently holds four patents with one additional
patent pending. Representing breakthrough technology in the overall approach to
cosmetic and medical therapy, ACT is a process whereby a patient's own cells are
extracted, reproduced through Isolagen's proprietary process, and then
reintroduced back into the patient for specific cosmetic and medical
applications. Unlike collagen development companies, Isolagen uses only the
patient's unique living cells for the source of its therapeutic effect.
Isolagen's goal is to become the industry leader in the research, development
and commercialization of autologous cellular therapy.
In 1998, the U.S. Food and Drug Administration ("FDA") began regulating the
science of biologics. Biologic products like autologous cells are derived from
living sources (such as humans, animals, and microorganisms). From 1995 to 1999,
management of Isolagen Technologies believed that FDA approvals were not
required for use of the Isolagen Process, based on advice from FDA consultants.
In 1999, the FDA advised Isolagen Technologies that use of the Isolagen Process
would require FDA approval, and Isolagen Technologies filed an investigational
new drug application ("IND") covering the Isolagen Process with the FDA. An IND
is a request for authorization from the FDA to administer an investigational
drug or biological product to humans. Such authorization must be secured prior
to commercialization of any new drug or biological product. After its review of
Isolagen Technologies' IND on December 9, 1999 the FDA placed the IND on
clinical hold until the Company's manufacturing processes and procedures were
changed to meet these new standards, and FDA approval is obtained. The use of
the Isolagen Process was discontinued after the FDA placed the IND on hold, and
Isolagen Technologies did not have sufficient funding to pursue regulatory
approvals.
In the second quarter of 2002, the FDA removed the clinical hold. The Company is
pursuing the FDA approval process in collaboration with FDA consulting firms.
Present interpretation of the published regulations places the Isolagen process
under the Center for Biological Evaluation and Research ("CBER"). The
regulations define manipulation of autologous cell therapies at various levels.
The present understanding is that the Isolagen process falls within the
legislation for minimally regulated products. Isolagen has commenced a
retrospective study of its extensive patient database to answer specific FDA
related issues prior to submission of an amended IND.
Through June 30, 2002, the Company has been primarily engaged in developing its
initial product technology, establishing manufacturing facilities, recruiting
personnel and raising capital. In the course of its development activities, the
Company has sustained losses and expects such losses to continue through at
least 2002. The Company will finance its operations primarily through its
existing cash, future financing and revenues.
7
Acquisition and Merger
On August 10, 2001, the Company, pursuant to an Agreement and Plan of Merger,
dated August 1, 2001, by and among the Company, ISO Acquisition Corp, a Delaware
corporation and wholly-owned subsidiary of the Company ("Merger Sub"), Isolagen
Technologies, a Delaware corporation, Gemini IX, Inc., a Delaware corporation
("Gemini"), and William J Boss, Jr., Olga Marko and Dennis McGill, stockholders
of Isolagen Technologies (the "Merger Agreement"), acquired in a privately
negotiated transaction 100% of the issued and outstanding capital stock of
Isolagen Technologies. Pursuant to the terms of the Merger Agreement, Merger
Sub, together with Gemini, merged with and into Isolagen Technologies (the
"Merger"), and Isolagen Technologies was the surviving corporation of the
Merger. The Company issued an aggregate of 9,756,372 shares of restricted common
stock, par value $0.001 per share, of the Company ("Common Stock") as
consideration for the Merger, to retire certain debts of Isolagen Technologies
and in connection with certain bridge loans of Isolagen Technologies.
Prior to the Merger, Isolagen Technologies had no active business and was
seeking funding to begin U.S. FDA trials of this process.
Simultaneous with the Merger, the Company sold 1,346,669 shares of restricted
common stock to certain accredited investors in a private placement transaction.
The consideration paid by such investors for the shares of Common Stock
aggregated $2,020,000 in transactions exempt from the registration requirements
of the Securities Act. The net cash proceeds of this private placement were used
to fund the Company's research and development projects and the initial FDA
trials of the Isolagen process, to explore the viability of entering foreign
markets, to provide working capital and for general corporate purposes.
Basis of Presentation
The financial statements presented include the consolidated balance sheet of
Isolagen, Inc. and its wholly-owned subsidiary, Isolagen Technologies, Inc. and
Isolagen Europe Limited, at June 30, 2002 and December 31, 2001. The
consolidated statements of operations and cash flows for the six-month and
three-month periods ended June 30, 2002 include Isolagen, Inc. and its
wholly-owned subsidiaries, Isolagen Technologies, Inc. and Isolagen Europe
Limited. The consolidated statements of operations and cash flows for the
six-month and three-month periods ended June 30, 2001 include Isolagen
Technologies, Inc. only.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The financial statements included herein, which have not been audited pursuant
to the rules and regulations of the Securities and Exchange Commission, reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods on a basis consistent with the annual audited statements. All
such adjustments are of a normal recurring nature. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for any other interim period of a full year. Certain information,
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to such rules and
regulation, although the Company believes that the disclosures are adequate to
make the information presented not misleading, These financial statements should
be read in conjunction with the Company's audited financial statements included
in the Company's current report on Form 10K-SB filed with the Securities and
Exchange Commission on March 21, 2002.
8
Statement of cash flows
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Concentration of credit risk
The Company maintains its cash with a major U.S. domestic bank. The amounts held
in this bank exceed the insured limit of $100,000 from time to time. The terms
of these deposits are on demand to minimize risk. The Company has not incurred
losses related to these deposits.
The Company is subject to risks common to companies in the development stage
including, but not limited to, development of new products, development of
markets and distribution channels, dependence on key personnel, and the ability
to obtain additional capital as needed to fund its product plans. The Company
has a limited operating history and has yet to generate any significant revenues
from customers. To date, the Company has been funded by private debt and equity
financings. The Company's ultimate success is dependent upon its ability to
raise additional capital and to successfully develop and market its products.
The products developed by the Company require approvals from the United States
FDA or other international regulatory agencies prior to commercial sales. There
can be no assurance that all of the Company's products will receive the
necessary approvals. If the Company was denied such approvals or such approvals
were delayed, it may have a materially adverse impact on the Company.
Property and equipment
Property and equipment, consisting primarily of lab equipment, computer
equipment, office furniture and fixtures is carried at cost less accumulated
depreciation. Depreciation for financial reporting purposes is provided by the
straight-line method over the estimated useful lives of three to five years
subject to half year convention. The cost of repairs and maintenance is charged
against income as incurred.
Earnings per share data
Basic earnings (loss) per share is calculated based on the weighted average
common shares outstanding during the period. Diluted earnings per share also
gives effect to the dilutive effect of stock options, warrants and convertible
preferred stock (calculated based on the treasury stock method). The Company
does not present diluted earnings per share for periods in which it incurred net
losses as the effect of potentially dilutive shares from convertible preferred
stock is antidilutive.
Shares of Isolagen Technologies common stock outstanding prior to the Merger
were deemed converted to its equivalent shares of the Company's common stock
using a conversion factor as defined in the Merger Agreement.
Stock-based compensation
The Company accounts for its stock-based compensation under the provisions of
SFAS No. 123 - "Accounting for Stock Based Compensation." Under SFAS No. 123,
the Company is permitted to either record expenses for stock options and other
employee compensation plans based on their fair value at the date of grant or to
continue to apply its current accounting policy under Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees," ("APB No. 25"),
and recognize compensation expense, if any, based on the intrinsic value of the
equity instrument at the measurement date. The Company elected to continue
following the provisions of APB No. 25.
9
Income taxes
An asset and liability approach is used for financial accounting and reporting
for income taxes. Deferred income taxes arise from temporary differences between
income tax and financial reporting and principally relate to recognition of
revenue and expenses in different periods for financial and tax accounting
purposes and are measured using currently enacted tax rates and laws. In
addition, a deferred tax asset can be generated by net operating loss
carryforwards. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
Foreign currency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statements of earnings items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses from foreign currency transactions, such
as those resulting from the settlement of foreign receivables or payables, are
included in the consolidated statements of earnings.
From time to time, the Company enters into forward exchange contracts in
anticipation of future movements in certain foreign exchange rates. Realized and
unrealized gains and losses on these contracts are included in net income.
NOTE 3 - SERIES A CONVERTIBLE PREFERRED STOCK
The Company has entered into a placement agent agreement with an investment bank
with respect to the sale of up to 2,295,000 shares of Series A Convertible
Preferred Stock at an offering price of $3.50 per share. Each share of preferred
stock will be convertible into two shares of common stock at any time after
issuance and accrues interest at 8% per annum. Subsequently, the agreement was
amended to increase the maximum offering to 2,895,000 shares.
For each 15,000 shares of preferred stock sold, the placement agent will receive
warrants to purchase 6,000 shares of common stock with an exercise price of
$1.93 per share. The warrants are exercisable immediately after grant and expire
five years thereafter.
During the three months ended June 30, 2002, the Company issued 2,819,892 shares
of Series A Convertible Preferred Stock and warrants to purchase 1,127,957
shares of common stock to the placement agent. The Company received cash
proceeds totaling $8,778,762, net of offering costs. The Company accrued
dividends payable of $94,506 during the three months ended June 30, 2002
relating to the Series A Convertible Preferred Stock.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to June 30, 2002, the Company issued the remaining 75,108 shares of
Series A Convertible Preferred Stock in the offering. The Company received cash
proceeds of $233,962, net of offering costs, and issued warrants to purchase
30,043 shares of common stock to the placement agent.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussions of Isolagen, Inc. results of operations and financial
position should be read in conjunction with the financial statements and notes
pertaining to them that appear elsewhere in this Form 10-QSB.
Forward-Looking Information
This report contains certain forward-looking statements and information relating
to Isolagen, Inc. that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in the document, the words "anticipate," "believe," "estimate," "expect,"
"intend," and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such statements
reflect the current view of the Company respecting future events and are subject
to certain risks, uncertainties, and assumptions, including the risks and
uncertainties noted. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected, or intended.
SUMMARY REVIEW AND OUTLOOK
Isolagen, Inc., a Delaware corporation ("Isolagen" or the "Company"), is the
parent company of Isolagen Technologies, Inc. ("Isolagen Technologies"), a
Delaware corporation and wholly-owned subsidiary of the Company. Isolagen
Technologies is the parent company of Isolagen Europe Limited ("Isolagen
Europe"), a company organized under the laws of the United Kingdom and
wholly-owned subsidiary of Isolagen Technologies. The common stock, par value
$0.001 per share, of the Company ("Common Stock") is quoted on the
Over-the-Counter Bulletin Board under the ticker symbol "ISLG.OB"
Isolagen was organized to specialize in the development and commercialization of
autologous cellular therapy ("ACT") for hard and soft tissue regeneration and
other therapies. Isolagen currently holds four patents with one additional
patent pending. Representing breakthrough technology in the overall approach to
cosmetic and medical therapy, ACT is a process whereby a patient's own cells are
extracted, reproduced through Isolagen's proprietary process, and then
reintroduced back into the patient for specific cosmetic and medical
applications. Unlike collagen development companies, Isolagen uses only the
patient's unique living cells for the source of its therapeutic effect.
Isolagen's goal is to become the industry leader in the research, development
and commercialization of autologous cellular therapy.
In 1998, the U.S. Food and Drug Administration ("FDA") began regulating the
science of biologics. Biologic products like autologous cells are derived from
living sources (such as humans, animals, and microorganisms). From 1995 to 1999,
management of Isolagen Technologies believed that FDA approvals were not
required for use of the Isolagen Process, based on advice from FDA consultants.
In 1999, the FDA advised Isolagen Technologies that use of the Isolagen Process
would require FDA approval, and Isolagen Technologies filed an investigational
new drug application ("IND") covering the Isolagen Process with the FDA. An IND
is a request for authorization from the FDA to administer an investigational
drug or biological product to humans. Such authorization must be secured prior
to commercialization of any new drug or biological product. After its review of
Isolagen Technologies' IND on December 9, 1999 the FDA placed the IND on
clinical hold until the Company's manufacturing processes and procedures were
changed to meet these new standards, and FDA approval is obtained. The use of
the Isolagen Process was discontinued after the FDA placed the IND on hold, and
Isolagen Technologies did not have sufficient funding to pursue regulatory
approvals.
11
In the second quarter of 2002, the FDA removed the clinical hold. The Company is
pursuing the FDA approval process in collaboration with FDA consulting firms.
Present interpretation of the published regulations places the Isolagen process
under the Center for Biological Evaluation and Research ("CBER"). The
regulations define manipulation of autologous cell therapies at various levels.
The present understanding is that the Isolagen process falls within the
legislation for minimally regulated products. Isolagen has commenced a
retrospective study of its extensive patient database to answer specific FDA
related issues prior to submission of an amended IND.
Through June 30, 2002, the Company has been primarily engaged in developing its
initial product technology, establishing manufacturing facilities, recruiting
personnel and raising capital. In the course of its development activities, the
Company has sustained losses and expects such losses to continue through at
least 2002. The Company will finance its operations primarily through its
existing cash, future financing and revenues.
Acquisition and Merger
On August 10, 2001, the Company, pursuant to an Agreement and Plan of Merger,
dated August 1, 2001, by and among the Company, ISO Acquisition Corp, a Delaware
corporation and wholly-owned subsidiary of the Company ("Merger Sub"), Isolagen
Technologies, a Delaware corporation, Gemini IX, Inc., a Delaware corporation
("Gemini"), and William J Boss, Jr., Olga Marko and Dennis McGill, stockholders
of Isolagen Technologies (the "Merger Agreement"), acquired in a privately
negotiated transaction 100% of the issued and outstanding capital stock of
Isolagen Technologies. Pursuant to the terms of the Merger Agreement, Merger
Sub, together with Gemini, merged with and into Isolagen Technologies (the
"Merger"), and Isolagen Technologies was the surviving corporation of the
Merger. The Company issued an aggregate of 9,756,372 shares of restricted common
stock, par value $0.001 per share, of the Company ("Common Stock") as
consideration for the Merger, to retire certain debts of Isolagen Technologies
and in connection with certain bridge loans of Isolagen Technologies.
Prior to the Merger, Isolagen Technologies had no active business and was
seeking funding to begin U.S. FDA trials of this process.
Simultaneous with the Merger, the Company sold 1,346,669 shares of restricted
common stock to certain accredited investors in a private placement transaction.
The consideration paid by such investors for the shares of Common Stock
aggregated $2,020,000 in transactions exempt from the registration requirements
of the Securities Act. The net cash proceeds of this private placement will be
used to fund the Company's research and development projects and the initial FDA
trials of the Isolagen process, to explore the viability of entering foreign
markets, to provide working capital and for general corporate purposes.
With regards to the proposed activities described above, no assurances can be
made that the Company will implement any of these potential actions, and if so,
whether any of them will prove successful or the degree of that success.
RESULTS OF OPERATIONS
Comparison of three-month period ending June 30, 2002 and June 30, 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,102,138 for the three-month period ending
June 30, 2002, as compared to the same period in the prior year. The increase is
attributed primarily to salaries, travel, consulting, legal, promotional
expenses and bonuses paid to key personnel.
12
INTEREST INCOME. Interest income increased $14,525 for the three months ended
June 30, 2002 as compared to the same period last year primarily due to income
earned on the proceeds from the issuance of preferred stock.
UNREALIZED GAIN. Unrealized gain increased $32,421 for the three months ended
June 30, 2002 as compared to the same period last year primarily due to
movements in foreign exchange rates on short-term time deposits in foreign
currencies.
INTEREST EXPENSE. Interest expense decreased $35,170 for the three months ended
June 30, 2002, as compared to the same period last year due primarily to the
retirement of debt during the Merger.
NET LOSS. Net loss for the three months ended June 30, 2002, was $1,180,923, as
compared to a net loss of $158,753 for the three months ended June 30, 2001.
This increase in net loss is attributed primarily to an increase in salaries,
travel, consulting, legal, promotional expenses and bonuses paid to key
personnel.
Comparison of six month period ending June 30, 2002 and June 30, 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,657,164 for the six-month period ending
June 30, 2002, as compared to the same period in the prior year. The increase is
attributed primarily to salaries, travel, consulting, legal, promotional
expenses and bonuses paid to key personnel.
INTEREST INCOME. Interest income increased $19,055 for the six months ended June
30, 2002 as compared to the same period last year primarily due to income earned
on the proceeds from the issuance of preferred stock.
UNREALIZED GAIN. Unrealized gain increased $32,421 for the six months ended June
30, 2002 as compared to the same period last year primarily due to movements in
foreign exchange rates on short-term time deposits in foreign currencies.
INTEREST EXPENSE. Interest expense decreased $68,909 for the six months ended
June 30, 2002, as compared to the same period last year due primarily to the
retirement of debt during the Merger.
NET LOSS. Net loss for the six months ended June 30, 2002, was $1,827,461, as
compared to a net loss of $289,787 for the six months ended June 30, 2001. This
increase in net loss is attributed primarily to an increase in salaries, travel,
consulting, legal, promotional expenses and bonuses paid to key personnel.
Historical Cash Flows
OPERATING ACTIVITIES. Cash used in operating activities during the six months
ended June 30, 2002, amounted to $1,636,244 as compared to $32,574 used for the
six month-period ending June 30, 2001 attributable primarily to an increase in
salaries, travel, consulting, legal, promotional expenses and bonuses paid to
key personnel.
INVESTING ACTIVITIES. Cash used by investing activities during the six months
ended June 30, 2002, amounted to $86,327, due to the purchase of property and
equipment.
FINANCING ACTIVITIES. The Company has financed its operating and investing
activities primarily from the proceeds of private placements of its common and
preferred stock. During the six
13
months ended June 30, 2002, the Company received $8,778,762 from the issuance of
preferred stock. During the six months ended June 30, 2001, the Company received
$30,000 from the issuance of notes payable to shareholders.
Liquidity and Capital Resources
As of June 30, 2002, the Company had a cash balance of $8,437,492. The Company
believes the existing working capital will be adequate to meet anticipated
capital and liquidity requirements for the next twelve months. The long-term
viability of the Company is dependent upon successful operation of its business
and the ability to raise additional debt and equity within the near future.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings. The Company may
from time to time become a party to various legal proceedings arising in the
ordinary course of its business.
ITEM 2. CHANGES IN SECURITIES
During the three months ended June 30, 2002, the Company issued 2,819,892 shares
of Series A Convertible Preferred Stock to investors and warrants to purchase
1,127,957 shares of common stock to a placement agent. The Company received cash
proceeds totaling $8,778,762, net of offering costs.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Number Document Description
-------------- --------------------
99.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. None
14
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.
ISOLAGEN, INC.
Date: August 5, 2002 By: /s/ Michael Macaluso
------------------------------------
Michael Macaluso, CEO
(Principal Executive Officer)
Date: August 5, 2002 By: /s/ Jeffrey W. Tomz
-----------------------------------
Jeffrey W. Tomz, CFO and Secretary
(Principal Financial Officer)
15
EXHIBIT INDEX
Exhibit Number Document Description
-------------- --------------------
99.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002