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 SEPTEMBER 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 October 31, 2001: Common Stock, par value $.01 16,919,623 shares outstanding AUTOIMMUNE INC. QUARTER ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Number Item 1 - Financial Statements Balance Sheet December 31, 2000 and September 30, 2001.................. 2 Statement of Operations for the three and nine months ended September 30, 2000 and 2001 and for the period from inception (September 9, 1988) through September 30, 2001............ 3 Statement of Cash Flows for the nine months ended September 30, 2000 and 2001 and for the period from inception (September 9, 1988) through September 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 2(c) - Changes in Securities....................................... 9 Item 6(b)-Reports on Form 8-K........................................... 9 Signatures.............................................................. 10 1 AUTOIMMUNE INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET (UNAUDITED)
DECEMBER 31, SEPTEMBER 30, 2000 2001 ------------------- ------------------- ASSETS Current assets: Cash and cash equivalents $ 4,719,000 $ 2,663,000 Marketable securities 5,164,000 8,323,000 Prepaid expenses and other current assets 72,000 48,000 ------------- ------------- Total current assets 9,955,000 11,034,000 Fixed assets, net - - Other assets - 100,000 ------------- ------------- $ 9,955,000 $ 11,134,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 112,000 $ 95,000 Accrued expenses 90,000 141,000 Deferred revenue - - ------------- ------------- Total current liabilities 202,000 236,000 ------------- ------------- 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 September 30, 2001, respectively 168,000 169,000 Additional paid-in capital 117,907,000 118,102,000 Deficit accumulated during the development stage (108,322,000) (107,373,000) ------------- ------------- Total stockholders' equity 9,753,000 10,898,000 ------------- ------------- $ 9,955,000 $ 11,134,000 ============= =============
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 NINE MONTHS ENDED (SEPTEMBER 9, 1988) SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, THROUGH 2000 2001 2000 2001 SEPTEMBER 30, 2001 ------------ ------------ ------------ ------------ ------------------ Revenue: License rights $ 3,000 $ 1,318,000 $ 4,003,000 $ 1,333,000 $ 5,343,000 Option fees - - - - 2,200,000 Research and development revenue under collaborative agreements - - - - 955,000 ------------ ------------ ------------ ------------ ------------- Total revenues 3,000 1,318,000 4,003,000 1,333,000 8,498,000 ------------ ------------ ------------ ------------ ------------- Costs and expenses: Research and development: Related party 15,000 90,000 245,000 120,000 19,637,000 All other 126,000 65,000 400,000 180,000 91,457,000 General and administrative 118,000 119,000 550,000 465,000 16,799,000 ------------ ------------ ------------ ------------ ------------- Total costs and expenses 259,000 274,000 1,195,000 765,000 127,893,000 ------------ ------------ ------------ ------------ ------------- Total operating income (loss) (256,000) 1,044,000 2,808,000 568,000 (119,395,000) ------------ ------------ ------------ ------------ ------------- Interest income 157,000 97,000 444,000 381,000 12,404,000 Interest expense - - - - (303,000) ------------ ------------ ------------ ------------ ------------- Net income (loss) $ (99,000) $ 1,141,000 $ 3,252,000 $ 949,000 $(107,294,000) ============ ============ ============ ============ ============= Net income (loss) per share-basic $ (0.01) $ 0.07 $ 0.19 $ 0.06 ============ ============ ============ ============ Net income (loss) per share-diluted $ (0.01) $ 0.07 $ 0.19 $ 0.05 ============ ============ ============ ============ Weighted average common shares outstanding-basic 16,759,623 16,919,623 16,737,884 16,906,143 ============ ============ ============ ============ Weighted average common shares outstanding-diluted 16,759,623 17,364,746 17,303,059 17,354,411 ============ ============ ============ ============
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) NINE MONTHS ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 2001 2001 ------------ ------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,252,000 $ 949,000 $(107,369,000) 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 Valuation of warrants issued in conjunction with license revenue - 192,000 192,000 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 74,000 24,000 (48,000) Increase (decrease) in accounts payable 81,000 (17,000) 95,000 Increase (decrease) in accrued expenses (527,000) 51,000 141,000 Increase (decrease) in deferred revenue 2,000 - - ------------ ------------ ------------- Net cash provided (used) by operating activities 2,882,000 1,199,000 (101,269,000) ------------ ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of available-for-sale marketable securities (6,783,000) (14,894,000) (288,561,000) Proceeds from sale/maturity of available-for-sale marketable 6,783,000 11,735,000 269,227,000 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 - (3,259,000) (14,093,000) ------------ ------------ ------------- 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 194,000 4,000 105,514,000 Proceeds from issuance of convertible notes payable - - 2,200,000 ------------ ------------ ------------- Net cash provided (used) by financing activities 194,000 4,000 118,025,000 ------------ ------------ ------------- Net increase (decrease) in cash and cash equivalents 3,076,000 (2,056,000) 2,663,000 Cash and cash equivalents, beginning of period 6,973,000 4,719,000 - ------------ ------------ ------------- Cash and cash equivalents, end of period $ 10,049,000 $ 2,663,000 $ 2,663,000 ============ ============ =============
The accompanying notes are an integral part of these financial statements. 4 AUTOIMMUNE INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. INTERIM FINANCIAL DATA The interim financial data as of September 30, 2001, for the three and nine month periods ended September 30, 2000 and 2001 and for the period from inception (September 9, 1988) through September 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 year 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 for the three months ended September 30, 2000 exclude the effect of 1,428,286 stock options outstanding at September 30, 2000, as their inclusion would be anti-dilutive. In net income periods, 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 September 30, 2001: DECEMBER 31, SEPTEMBER 30, 2000 2001 ----------- ------------ Money market $ 292,000 $2,543,000 U.S. Government debt securities 4,366,000 - ---------- ---------- $4,658,000 $2,543,000 ========== ========== The following is a summary of available-for-sale marketable securities held by the Company at December 31, 2000 and September 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 SEPTEMBER 30, 2001 U.S. Government debt securities within 1 year $8,323,000 $ - $ - $8,323,000
All of the Company's marketable securities are classified as current at September 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 nine month periods ended September 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. (a development stage company) NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 4. FIXED ASSETS Fixed assets consist of the following:
ESTIMATED USEFUL LIFE DECEMBER 31, SEPTEMBER 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 fees as of December 31, 2000 and September 30, 2001. 7. WARRANT In September 2001, the Company issued a warrant to purchase 375,000 shares of the Company's common stock at $3.13 per share. The warrant expires five years from the date of issuance. This warrant was issued in conjunction with the second payment of $1,500,000 by a subsidiary of Elan Plc to the Company for the purchase of certain patent rights related to Alzheimer's disease. Therefore, the valuation of these warrants, as determined by the Black-Scholes method, of $192,000 was recorded as an offset to revenue during the third quarter of 2001. 8. COMPREHENSIVE INCOME Comprehensive loss for the three month period ended September 30, 2000 was $99,000. Comprehensive income for the three month period ended September 30, 2001 was $1,141,000. Comprehensive income for the nine month periods ended September 30, 2000 and 2001, was $3,252,000 and $949,000, respectively. There was no net unrealized gain (loss) on marketable securities for the three and nine month periods ended September 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 September 30, 2001, the Company has incurred ongoing losses from operations and has cumulative losses as of September 30, 2001 totaling $107,294,000. To date, the Company has not recorded any revenues from the sale of products. Revenues recorded through September 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. The Company's actual results may differ significantly from results discussed in the forward-looking statements due to a number of important factors, including, but not limited to the uncertainties of clinical trial results, the Company's dependence on third parties for licensing revenue 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 "Business-Factors to be Considered." The discussion in the Annual Report on Form 10-K is hereby referenced into this Quarterly Report. THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 2001 Revenue was $3,000 and $1,318,000 for the three month periods ended September 30, 2000 and 2001, respectively. In 2001, $1,308,000 results from the second payment by a subsidiary of Elan Plc for the purchase of certain patent rights related to Alzheimer's disease. The remaining amounts represent monthly license payments from Rycor Technology Investments Corporation ("Rycor"). Revenue was $4,003,000 and $1,333,000 for the nine month periods ended September 30, 2000 and 2001, respectively. In 2000 and 2001, $4,000,000 and $1,308,000, respectively, represents payments by a subsidiary of Elan Plc for the purchase of certain patent rights related to Alzheimer's disease and the remaining amounts represent monthly license payments from Rycor. Research and development expenses were $141,000 and $155,000 for the three month periods ended September 30, 2000 and 2001, respectively. Research and development expenses were $645,000 and $300,000 for the nine month periods ended September 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 $118,000 and $119,000 for the three month periods ended September 30, 2000 and 2001, respectively. General and administrative expenses were $550,000 and $465,000 for the nine month periods ended September 30, 2000 and 2001, respectively. The decrease for the nine month periods is due to the reduction of corporate activity during the first half of 2001. Interest income was $157,000 and $97,000 for the three month periods ended September 30, 2000 and 2001, respectively. Interest income was $444,000 and $381,000 for the nine month periods ended September 30, 2000 and 2001, respectively. The decrease is due to a lower average balance of cash available for investment and a lower average return on investment. 7 AUTOIMMUNE INC. 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 primarily through sales of its equity securities and to a lessor extent, from license and option fee revenue. 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 September 30, 2001, the Company's cash and cash equivalents and marketable securities totaled $10,986,000. Current liabilities at September 30, 2001 were $236,000. 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 2(c) - CHANGES IN SECURITIES On September 16, 2001, the Company issued a warrant to purchase 375,000 shares of the Company's common stock at an exercise price of $3.13 per share to a subsidiary of Elan Plc. The warrant became exercisable on September 16, 2001 and expires five years from that date. The warrant was issued in conjunction with the second payment of $1,500,000 by the subsidiary of Elan Plc to the Company for the purchase of certain patent rights related to Alzheimer's disease. The transaction was exempt from registration by virtue of Section 4(2) of the Securities Act of 1933, as amended. 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: November 13, 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