10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 2001 Commission File No. 0-20948 ------- AUTOIMMUNE INC. (Exact Name of Registrant as Specified in its Charter) Delaware 13-348-9062 (State of Incorporation) (I.R.S. Employer Identification No.) 1199 Madia Street, Pasadena, CA 91103 (Address of Principal Executive Offices) (626) 792-1235 (Registrant's Telephone No., including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _______X________ No _______________ - Number of shares outstanding of the registrant's Common Stock as of July 31, 2001: Common Stock, par value $.01 16,919,623 shares outstanding AUTOIMMUNE INC. QUARTER ENDED JUNE 30, 2001 TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page Number Item 1 - Financial Statements Balance Sheet December 31, 2000 and June 30, 2001................................................................ 2 Statement of Operations for the three and six months ended June 30, 2000 and 2001 and for the period from inception (September 9, 1988) through June 30, 2001 ............................................................................. 3 Statement of Cash Flows for the six months ended June 30, 2000 and 2001 and for the period from inception (September 9, 1988) through June 30, 2001.............................................................................. 4 Notes to the Unaudited Financial Statements.............................................................. 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................ 7 Item 3 - Quantitative and Qualitative Disclosures about Market Risk .............................................. 8 PART II - OTHER INFORMATION Item 6(b) - Reports on Form 8-K................................................................................... 9 Signatures........................................................................................................ 10
1 AUTOIMMUNE INC. (A development stage company) BALANCE SHEET (Unaudited)
December 31, June 30, 2000 2001 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 4,719,000 $ 1,362,000 Marketable securities 5,164,000 8,240,000 Prepaid expenses and other current assets 72,000 48,000 ------------- ------------- Total current assets 9,955,000 9,650,000 Fixed assets, net - - Other assets - 100,000 ------------- ------------- $ 9,955,000 $ 9,750,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 112,000 $ 52,000 Accrued expenses 90,000 128,000 Deferred revenue - 5,000 ------------- ------------- Total current liabilities 202,000 185,000 ------------- ------------- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 25,000,000 shares authorized; 16,759,623 and 16,919,623 shares issued and outstanding at December 31, 2000 and June 30, 2001, respectively 168,000 169,000 Additional paid-in capital 117,907,000 117,910,000 Deficit accumulated during the development stage (108,322,000) (108,514,000) ------------- ------------- Total stockholders' equity 9,753,000 9,565,000 ------------- ------------- $ 9,955,000 $ 9,750,000 ============= =============
The accompanying notes are an integral part of these financial statements. 2 AUTOIMMUNE INC. (A development stage company) STATEMENT OF OPERATIONS (Unaudited)
Period from inception Three months ended Six months ended (September 9, 1988) June 30, June 30, June 30, June 30, through 2000 2001 2000 2001 June 30, 2001 --------------- -------------- --------------- ------------------ ------------------- Revenue: License rights $ - $ 8,000 $ 4,000,000 $ 15,000 $ 4,025,000 Option fees - - - - 2,200,000 Research and development revenue under collaborative agreements - - - - 955,000 --------------- -------------- --------------- ------------------ ------------------- Total revenues - 8,000 4,000,000 15,000 7,180,000 --------------- -------------- --------------- ------------------ ------------------- Costs and expenses: Research and development: Related party 10,000 15,000 230,000 30,000 19,622,000 All other 148,000 16,000 273,000 115,000 91,392,000 General and administrative 176,000 166,000 432,000 346,000 16,680,000 --------------- -------------- --------------- ------------------ ------------------- Total costs and expenses 334,000 197,000 935,000 491,000 127,694,000 --------------- -------------- --------------- ------------------ ------------------- Interest income 154,000 119,000 287,000 284,000 12,307,000 Interest expense - - - - (303,000) --------------- -------------- --------------- ------------------ ------------------- 154,000 119,000 287,000 284,000 12,004,000 --------------- -------------- --------------- ------------------ ------------------- Net income (loss) $ (180,000) $ (70,000) $ 3,352,000 $ (192,000) $ (108,510,000) =============== =============== =============== ================== =================== Net income (loss) per share-basic $ (0.01) $ (0.00) $ 0.20 $ (0.01) =============== =============== =============== ================== Net income (loss) per share-diluted $ (0.01) $ (0.00) $ 0.19 $ (0.01) =============== =============== =============== ================== Weighted average common shares outstanding-basic 16,759,623 16,919,623 16,726,895 16,899,292 =============== ============== =============== ================== Weighted average common shares outstanding-diluted 16,759,623 16,919,623 17,326,070 16,899,292 =============== ============== =============== ==================
The accompanying notes are an integral part of these financial statements. 3 AUTOIMMUNE INC. (A development stage company) STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
Period from inception (September 9, 1988) Six months ended through June 30, June 30, June 30, 2000 2001 2001 ---------------- -------------------- ------------------- Cash flows from operating activities: Net income (loss) $ 3,352,000 $ (192,000) $ (108,510,000) Adjustment to reconcile net loss to net cash used by operating activities: Interest expense related to demand notes converted into Series A mandatorily redeemable covertible preferred stock - - 48,000 Patent costs paid with junior convertible preferred and common stock - - 3,000 Depreciation and amortization - - 4,464,000 Loss on sale/disposal of fixed assets - - 642,000 Decrease in capitalized patent costs - - 563,000 (Increase) decrease in prepaid expenses and other current assets 105,000 24,000 (48,000) Increase (decrease) in accounts payable 16,000 (60,000) 52,000 Increase (decrease) in accrued expenses (517,000) 38,000 128,000 Increase (decrease) in deferred revenue - 5,000 5,000 ----------- ----------- -------------- Net cash provided (used) by operating activities 2,956,000 (185,000) (102,653,000) ----------- ----------- -------------- Cash flows from investing activities: Purchase of available-for-sale marketable securities (6,892,000) (9,664,000) (283,331,000) Proceeds from sale/maturity of available-for-sale marketable - 6,588,000 264,080,000 securities Proceeds from maturity of held-to-maturity marketable - - 11,011,000 securities Proceeds from sale of equipment - - 306,000 Purchase of fixed assets - - (5,288,000) Investment in Oragen - (100,000) (100,000) Increase in patent costs - - (563,000) Increase in other assets - - (125,000) ----------- ----------- -------------- Net cash provided (used) by investing activities (6,892,000) (3,176,000) (14,010,000) ----------- ----------- -------------- Cash flows from financing activities: Proceeds from sale-leaseback of fixed assets - - 2,872,000 Payments on obligations under capital leases - - (2,872,000) Net proceeds from issuance of mandatorily redeemable convertible preferred stock - - 10,011,000 Proceeds from bridge notes - - 300,000 Proceeds from issuance of common stock 193,000 4,000 105,514,000 Proceeds from issuance of convertible notes payable - - 2,200,000 ----------- ----------- -------------- Net cash provided (used) by financing activities 193,000 4,000 118,025,000 ----------- ----------- -------------- Net increase (decrease) in cash and cash equivalents (3,743,000) (3,357,000) 1,362,000 Cash and cash equivalents, beginning of period 6,973,000 4,719,000 - ----------- ----------- -------------- Cash and cash equivalents, end of period $ 3,230,000 $ 1,362,000 $ 1,362,000 =========== =========== ===============
The accompanying notes are an integral part of these financial statements. 4 AUTOIMMUNE INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Interim Financial Data The interim financial data as of June 30, 2001, for the three and six month periods ended June 30, 2000 and 2001 and for the period from inception (September 9, 1988) through June 30, 2001 are unaudited, however, in the opinion of AutoImmune Inc. (the "Company"), these interim data include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the results for these interim periods. These financial statements should be read in conjunction with the financial statements and the notes thereto for the period ended December 31, 2000 included in the Company's Form 10-K. Results for interim periods are not necessarily indicative of results for the entire year. 2. Net Income (Loss) Per Share - Basic and Diluted Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares and dilutive common equivalent shares assumed outstanding during the period. Shares used to compute diluted earnings per share in loss periods exclude common share equivalents, as their inclusion would be anti- dilutive. For the six months ended June 30, 2000, the difference between weighted average shares outstanding basic and diluted is due to the effect of stock options. 3. Cash Equivalents and Marketable Securities The following is a summary of cash equivalents held by the Company. Cash equivalents are carried at fair market value, which approximated amortized cost at December 31, 2000 and June 30, 2001:
December 31, June 30, 2000 2001 ------------ ---------- Money market $ 292,000 $1,328,000 U.S. Government debt securities 4,366,000 - ------------ ---------- $ 4,658,000 $1,328,000 ============ ==========
The following is a summary of available-for-sale marketable securities held by the Company at December 31, 2000 and June 30, 2001:
Maturity Fair Unrealized Unrealized Amortized term value gains losses cost ------------- ---------- ---------- ---------- ---------- December 31, 2000 U.S. Government debt securities within 1 year $5,164,000 $ - $ - $5,164,000 June 30, 2001 U.S. Government debt securities within 1 year $8,240,000 $ - $ - $8,240,000
All of the Company's marketable securities are classified as current at June 30, 2001 as these funds are highly liquid and are available to meet working capital needs and to fund current operations. Gross realized gains and losses on sales of marketable securities for the three and six month periods ended June 30, 2000 and 2001 were not significant. Marketable securities which were purchased and sold in periods prior to adoption of Statement of Financial Accounting Standards (SFAS) No. 115 on January 1, 1994, other than held-to-maturity marketable securities, are included in the category available-for-sale marketable securities in the "period from inception" column of the statement of cash flows. 5 AUTOIMMUNE INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 4. Fixed Assets Fixed assets consist of the following:
Estimated useful life December 31, June 30, (years) 2000 2001 ------------- ------------ ------------ Laboratory equipment 2 - 5 $ 160,000 $ 160,000 ------------ ------------ 160,000 160,000 Less - accumulated depreciation and amortization 160,000 160,000 ------------ ------------ $ - $ - ============ ============
5. Other Assets Other assets is comprised of an investment in OraGen Corporation, a private company, in which AutoImmune's interest is less than 20%. This investment is carried at cost. 6. Accrued Expenses Accrued expenses consist of accrued professional expenses as of December 31, 2000 and June 30, 2001. 7. Comprehensive Income Comprehensive loss for the three month periods ended June 30, 2000 and 2001 was $180,000 and $70,000, respectively. Comprehensive income for the six month period ended June 30, 2000 was $3,352,000. Comprehensive loss for the six month period ended June 30, 2001 was $192,000. There was no net unrealized gain (loss) on marketable securities for the three and six month periods ended June 30, 2000 and 2001. 6 AUTOIMMUNE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Overview Since its inception through June 30, 2001, the Company has incurred ongoing losses from operations and has cumulative losses as of June 30, 2001 totaling $108,510,000. To date, the Company has not recorded any revenues from the sale of products. Revenues recorded through June 30, 2001 were earned in connection with the sale of certain patent rights, granting of certain short-term rights and contract research. The Company expects to remain in the development stage for the foreseeable future and accordingly, may continue to incur losses. The sections of "Management's Discussion and Analysis of Financial Condition and Results of Operations" captioned "Overview" and "Liquidity and Capital Resources" contain forward-looking statements which involve risks and uncertainties. What may occur in the future could differ significantly from what is discussed in the forward-looking statements due to a number of important factors, including, but not limited to, the developmental stage of the Company's products and uncertainties of clinical trial results and regulatory approval; the Company's capital requirements, history of operating losses and lack of product revenue and its limited manufacturing and marketing experience; and the risks of technological change and competition. These factors are more fully discussed in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission in the section captioned "Business - Factors to be Considered". The discussion in the Annual Report on Form 10-K is hereby incorporated by reference into this Quarterly Report. Three and Six Month Periods Ended June 30, 2000 and 2001 Revenue was $8,000 for the three month period ended June 30, 2001, which represents monthly license payments from Rycor Technology Investments Corporation ("Rycor"). There was no revenue for the three month period ended June 30, 2000. Revenue was $4,000,000 and $15,000 for the six month period ended June 30, 2000 and 2001, respectively. The $4,000,000 represents the initial payment by a subsidiary of Elan Plc for the purchase of certain patent rights related to Alzheimer's disease and the $15,000 represents monthly license payments from Rycor. Research and development expenses were $158,000 and $31,000 for the three month periods ended June 30, 2000 and 2001, respectively. Research and development expenses were $503,000 and $145,000 for the six month periods ended June 30, 2000 and 2001, respectively. The decrease is due to the reduction of contractual payments to The Brigham and Women's Hospital and lower patent legal costs. General and administrative expenses were $176,000 and $166,000 for the three month periods ended June 30, 2000 and 2001, respectively. General and administrative expenses were $432,000 and $346,000 for the six month periods ended June 30, 2000 and 2001, respectively. The decrease is due to the reduction of corporate activity. Interest income was $154,000 and $119,000 for the three month periods ended June 30, 2000 and 2001, respectively. Interest income was $287,000 and $284,000 for the six month periods ended June 30, 2000 and 2001, respectively. The decrease is due to a lower average balance of cash available for investment. The net loss was $180,000 and $70,000 for the three month periods ended June 30, 2000 and 2001, respectively. Net income was $3,352,000 for the six months ended June 30, 2000. The net loss was $192,000 for the six months ended June 30, 2001. The net loss per share basic and diluted was $0.01 and $0.00 for the three months ended June 30, 2000 and 2001, respectively. Net income per share basic and 7 AUTOIMMUNE INC. diluted was $0.20 and $0.19, respectively, for the six months ended June 30, 2000. The net loss per share basic and diluted was $0.01 for the six months ended June 30, 2001. The change reflects the reduction in revenue and the decrease in expenses. Liquidity and Capital Resources The Company's needs for funds have historically fluctuated from period to period as it has increased or decreased the scope of its research and development activities. Since inception, the Company has funded these needs almost entirely through sales of its equity securities. The Company's working capital and capital requirements will depend on numerous factors, including the strategic direction that the Company and its shareholders choose, the level of resources that the Company devotes to the development of its products, the extent to which it proceeds by means of collaborative relationships and its competitive environment. The Company believes that current cash and marketable securities, and the interest earned from the investment thereof, will be sufficient to meet the Company's operating expenses and capital requirements for at least five years. At the appropriate time, the Company may intend to seek additional funding through public or private equity or debt financing, collaborative arrangements or from other sources. If additional funds are necessary but not available, the Company will have to modify its business strategy, and its business will be materially adversely affected. In order to preserve principal and maintain liquidity, the Company's funds are invested in U.S. Treasury obligations and other short-term instruments. As of June 30, 2001, the Company's cash and cash equivalents and marketable securities totaled $9,602,000. Current liabilities at June 30, 2001 were $185,000. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests all of its cash in U.S. Treasury obligations and money market instruments. These investments are denominated in U.S. dollars. Due to the conservative nature of these instruments, the Company does not believe that it has material exposure to interest rate or market risk. 8 AUTOIMMUNE INC. PART II - OTHER INFORMATION Item 6(b) - REPORTS ON FORM 8-K No Form 8-K has been filed during the quarter for which this report is filed. 9 AUTOIMMUNE INC. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUTOIMMUNE INC. Date: August 10, 2001 /s/ Robert C. Bishop -------------------------------------- Robert C. Bishop Chairman and Chief Executive Officer /s/ Heather A. Ellerkamp -------------------------------------- Heather A. Ellerkamp Director of Finance and Treasurer 10