-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OiUWFtGT30BgeMT8afqu9c9y2S39EjjFC1P8KNFE2vboYh5prFLanEa2gG0mCXAc ZDT/7fg0Fp27wXBFa7TdDw== 0000950133-99-001874.txt : 19990518 0000950133-99-001874.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950133-99-001874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTREMED INC CENTRAL INDEX KEY: 0000895051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 581959440 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20713 FILM NUMBER: 99626538 BUSINESS ADDRESS: STREET 1: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012179858 MAIL ADDRESS: STREET 2: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20459 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________. Commission file number 0-20713 ------- ENTREMED, INC. -------------- (Exact name of registrant as specified in its charter) Delaware 58-1959440 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Suite 200 9610 Medical Center Drive Rockville, Maryland ------------------- (Address of principal executive offices) 20850 ----- (Zip code) (301) 217-9858 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the 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 NO X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date. Class Outstanding at May 12, 1999 - ---------------------------- --------------------------- Common Stock $.01 Par Value 13,173,205 2 ENTREMED, INC. Table of Contents
PART I. FINANCIAL INFORMATION PAGE ---- Item 1 -- Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 1 -- Legal Proceedings 11 Item 2 -- Changes in Securities 11 Item 3 -- Defaults upon Senior Securities 11 Item 4 -- Submission of Matters to Vote of Security Holders 11 Item 5 -- Other Information 11 Item 6 -- Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 3 ENTREMED, INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 ------------------- -------------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 26,090,813 $ 30,818,689 Short term investments 1,506,815 4,352,371 Interest receivable 70,069 186,927 Accounts receivable 302,779 112,383 Prepaid expenses and other 67,362 170,877 -------------------- -------------------- Total current assets 28,037,838 35,641,247 Furniture and equipment, net 3,586,995 2,979,237 Other assets 954,907 953,519 -------------------- -------------------- Total assets $ 32,579,740 $ 39,574,003 ==================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,325,071 $ 2,093,017 Accrued liabilities 1,130,890 1,332,682 Deferred revenue 1,853,332 2,945,833 -------------------- -------------------- Total current liabilities 6,309,293 6,371,532 Minority interest 23,872 14,407 Stockholders' equity: Convertible preferred stock, $1.00 par and $1.50 Liquidation value: 5,000,000 shares authorized, none issued and outstanding at March 31, 1999 (unaudited) and December 31, 1998 - - Common stock, $.01 par value: 35,000,000 shares authorized, 13,147,422 (unaudited) and 13,123,031 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively 131,474 131,230 Additional paid-in capital 78,571,243 78,364,136 Accumulated deficit (52,456,142) (45,307,302) -------------------- -------------------- Total stockholders' equity 26,246,575 33,188,064 -------------------- -------------------- Total liabilities and stockholders' equity $ 32,579,740 $ 39,574,003 ==================== ====================
The accompanying notes are an integral part of the financial statements. 3 4 ENTREMED, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1999 1998 ---------------------------------------- Revenues: Collaborative research and development $ 1,042,500 $ 1,042,500 Licensing 50,000 50,000 Grant revenues 158,819 62,471 Royalty revenues 191,680 - Other revenues 1,040 - ------------------ ------------------ Total revenues 1,444,039 1,154,971 ------------------ ------------------ Expenses: Research & development 7,107,455 3,499,431 General & administrative 1,895,838 1,305,890 ------------------ ------------------ 9,003,293 4,805,321 Investment income 410,414 538,224 ------------------ ------------------ Net loss $ (7,148,840) $ (3,112,126) ================== ================== Net loss per share (basic and diluted) $ (0.55) $ ( 0.25) ================== ================== Weighted average number of shares outstanding (basic and diluted) 13,057,561 12,300,943 ================== ==================
The accompanying notes are an integral part of the financial statements. 4 5 ENTREMED, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1999 1998 ------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (7,148,840) $(3,112,126) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 259,628 185,525 Loss on disposal of furniture & equipment 65,674 - Minority interest 9,465 14,385 Changes in assets and liabilities: Accounts receivable (190,396) (205,820) Interest receivable 116,858 114,446 Prepaid expenses and other 102,127 51,343 Accounts payable 1,232,054 327,655 Accrued liabilities (201,792) (346,982) Deferred revenue (1,092,501) (1,092,499) ------------------ ----------------- Net cash used by operating activities (6,847,723) (4,064,073) ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Maturities of short-term investments 2,845,556 23,100,974 Purchases of short-term investments - (10,948,950) Purchases of furniture & equipment (933,060) (145,283) ------------------ ----------------- Net cash provided by investing activities 1,912,496 12,006,741 ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from option and warrant exercise 207,351 333,757 ------------------ ----------------- Net cash provided by financing activities 207,351 333,757 ------------------ ----------------- Net increase (decrease) in cash and cash equivalents (4,727,876) 8,276,425 Cash and cash equivalents at beginning of period 30,818,689 18,232,491 ------------------ ----------------- Cash and cash equivalents at end of period $ 26,090,813 $ 26,508,916 ================== =================
The accompanying notes are an integral part of the financial statements. 5 6 ENTREMED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999(UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial information of EntreMed, Inc. (the "Company") includes the accounts of its 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine Sciences was formed in June 1996 and was capitalized with $250,000 by EntreMed for the purpose of acquiring the assets of Innovative Therapeutics, Inc., which acquisition was completed in July 1996 in exchange for 15% of the common stock of Cytokine Sciences, Inc. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the Company's audited financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 1998. 2. COMPREHENSIVE INCOME In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" ("Statement 130"), which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. The Company adopted Statement 130 in 1998 and has not presented a statement of comprehensive income because the effect of the components of comprehensive income is not material to its consolidated financial statements. 6 7 3. CONTINGENCIES The Company is a defendant in a lawsuit initiated in August 1995 in the United States District Court for the Eastern District of Tennessee by Bolling, McCool & Twist ("BMT"), a consulting firm. In the suit, BMT asserts that the Company breached an agreement between BMT and the Company by failing to pay BMT certain fees it asserts are owed under the agreement. More specifically, BMT has asserted a claim for the payment of services rendered in the approximate amount of $50,000 and seeks a success fee in an unspecified amount in connection with the BMS Collaboration. The judge in the case bifurcated the proceeding into two phases: an adjudication of whether the Company breached its agreement with BMT and then a damage phase. After a trial on the merits the jury found in favor of BMT on the breach of contract claim. A trial to determine damages had been scheduled for April 14, 1998. However, on April 6, 1998, the court issued an Order pursuant to which damages were limited to those arising during the term of the Agreement, which terminated on November 1, 1995. On May 6, 1999, the court confirmed its decision by granting the Company's motion for summary judgement and limiting the Company's damages to approximately $50,000 plus interest. Thus, this litigation at the trial level has been concluded. The parties have 30 days to file an appeal. In the event this matter is appealed, the Company can not predict the outcome of such appeal. However, the Company intends to continue to contest any further action vigorously and believes that this proceeding will not have a material adverse effect on the Company or on its financial condition, although there can be no assurance that this will be the case. 7 8 ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Since its inception in September 1991, the Company has devoted substantially all of its efforts and resources to sponsoring and conducting research and development on its own behalf and through collaborations with corporate partners and academic research and clinical institutions, and establishing its facilities and hiring personnel. In December 1995, the Company entered into a collaboration agreement with Bristol-Myers Squibb Company ("BMS") in which BMS made an equity investment in the Company and agreed to pay certain research and development fees and expenses, license fees, milestone payments, and royalties on net sales, if any. In August 1997, the Company reacquired the commercial rights to thalidomide from BMS. In December 1998, the Company sublicensed, on a worldwide basis, its intellectual property covering thalidomide to Celgene Corporation. On February 9, 1999, the Company and BMS agreed to modify the research agreement whereby the Company assumed all responsibility for preclinical and clinical work on the Angiostatin(R) protein. Through March 31, 1999, with the exception of license fees and research and development funding from BMS and royalty payments from Celgene's sales of thalidomide as well as certain research grants, the Company has not generated any revenue from operations. The Company anticipates its revenue sources for the next several years to include royalty payments from Celgene's sales of thalidomide, research grants and future collaboration payments from collaborators under arrangements that may be entered into in the future. The timing and amounts of such revenues, if any, will likely fluctuate and depend upon the achievement of specified milestones, and results of operations for any period may be unrelated to the results of operations for any other period. RESULTS OF OPERATIONS Three Months Ended March 31, 1999 and March 31, 1998 Revenues increased approximately 25% from approximately $1,155,000 for the three months ended March 31, 1998 ("1998 Three Months") to approximately $1,444,000 for the three months ended March 31, 1999 ("1999 Three Months"). This increase is due to an increase in grant revenue earned under a Small Business Innovative Research program from the National Institutes of Health awarded to the Company in May 1997 and royalty income from Celgene Corporation on the sale of thalidomide. The collaborative research and development fees relate to the amortization over five years of a one-time payment from BMS, of $2,500,000 received in December 1995 and the amortization of semi-annual payments of $1,835,000 under the BMS collaboration agreement. The license fee represents the amortization over five years of a one-time $1,000,000 license fee received in December 1995 under the BMS collaboration agreement. Research and development expenses increased by approximately 103% from approximately $3,500,000 in the 1998 Three Months to approximately $7,107,000 in the 1999 Three Months. Research and development expenditures include sponsored research payments to academic collaborators, including a $1,000,000 payment to Children's Hospital in both 1999 and 1998 Three Months and expenses related to the Company's internal research programs. The increase in research and development costs reflects increased efforts in the Company's internal and sponsored research and product development programs related to its antiangiogenesis technologies. Overall, research personnel increased from 40 as of March 31, 1998 to 45 as of March 31, 1999. Research and development 8 9 expenses are expected to continue to increase as the Company continues to expand its research and development efforts. General and administrative expenses increased from approximately $1,306,000 in the 1998 Three Months to approximately $1,896,000 in the 1999 Three Months, a 45% increase. The 1999 Three Months increase resulted primarily from the increase in administrative costs associated with adding administrative staff to support the research scientists and collaborative efforts the Company is conducting, investigating potential strategic relationships, and obtaining professional services. Investment income decreased approximately 24% from approximately $538,000 in the 1998 Three Months to approximately $410,000 in the 1999 Three Months. This decrease in investment income is due to the reduction of the Company's cash and short term investments as such working capital components are used to fund the Company's operations. Liquidity and Capital Resources At March 31, 1999, the Company had cash and cash equivalents of approximately $26,091,000 and short-term investments of approximately $1,507,000 with working capital of approximately $21,729,000, primarily representing the net proceeds of the Company's private placements of equity securities and its initial public offering, payments from BMS, including equity investments and various grants. The Company's cash resources have been used to finance research and development, including sponsored research, capital expenditures, including leasehold improvements to the Company's new facility, and general and administrative expenses. Over the next several years, the Company expects to incur substantial additional research and development costs, including costs related to early-stage research, preclinical and clinical trials, increased administrative expenses to support its research and development operations and increased capital expenditures for expanded research capacity, various equipment needs and facility improvements. The Company is a party to sponsored research agreements and clinical trials requiring the Company to fund an aggregate of approximately $851,000 through 2000 and license agreements requiring future milestone payments of up to $3,735,000 and additional payments upon attainment of regulatory milestones. On February 9, 1999, the original Bristol-Myers Squibb Collaboration was modified such that the final payment of $611,667 under the agreement is due on June 5, 1999. As amended, Bristol-Myers Squibb has no further funding obligation to the Company after August 9, 1999. YEAR 2000 COMPLIANCE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, those computer programs having time-sensitive software would recognize a date using "00" as the year 1900 rather than the year 2000. Based on a recent assessment, the Company determined that its accounting software will need to be updated or modified. This should be accomplished through updates from the software manufacturer. The Company does not expect any material costs associated with this modification or any disruptions to its primary operations. 9 10 The Company has queried its significant supplier that does not share information systems with the Company (external agent). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete the Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. The Company anticipates no other Year 2000 problems which are reasonably likely to have a material adverse effect on the Company's operations. There can be no assurance, however, that such problems will not arise. To date, the Company has not incurred significant costs in connection with the implementation of its Year 2000 Plan. The Company does not expect future costs to be significant. - ------------------------- Statements herein that are not descriptions of historical facts are forward-looking and subject to risk and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Company's Securities and Exchange Commission filings under "Risk Factors", including risks relating to the early stage of products under development; uncertainties relating to clinical trials' dependence on third parties' future capital needs; and risks relating to the commercialization, if any, of the Company's proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). 10 11 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS This information as set forth in Note 4 of "Notes to Consolidated Financial Statements" appearing in Item 1 of Part I of this report is incorporated herein by reference. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULT UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not applicable Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: 27.1 Financial Data Schedule (b) A report on Form 8-K was filed on February 9, 1999 under Item 5 thereto reporting that the Company and Bristol-Myers Squibb Company agreed to modify the research agreement between the two companies whereby the Company assumed all responsibility for preclinical and clinical work on Angiostatin(R) protein. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENTREMED, INC. (Registrant) Date: May 17, 1999 /s/ John W. Holaday ------------------------------------- John W. Holaday, Ph.D. President and Chief Executive Officer Date: May 17, 1999 /s/ R. Nelson Campbell ------------------------------------ R. Nelson Campbell Chief Financial Officer 12 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS DEC-31-1999 MAR-31-1998 26,090,813 1,506,815 302,779 0 0 28,037,838 5,266,603 1,679,608 32,579,740 6,309,293 0 0 0 131,474 26,246,575 32,579,740 0 1,444,039 0 0 9,003,293 0 0 (7,148,840) 0 9,464 0 0 0 (7,148,840) (0.55) (0.55)
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