-----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, FgzZq7sP/TtSnHCzyYmesykIhaxsjzyWKTDFiTtUWrBxy+7KotTdxRyYtFWt/gJZ P2bJXrsINeSfLS+4XW/M5g== 0000950131-02-002015.txt : 20020515 0000950131-02-002015.hdr.sgml : 20020515 20020515105955 ACCESSION NUMBER: 0000950131-02-002015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AKSYS LTD CENTRAL INDEX KEY: 0000902600 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 363890205 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28290 FILM NUMBER: 02648992 BUSINESS ADDRESS: STREET 1: TWO MARRIOTT DR STREET 2: STE 300 CITY: LIBERTYVILLE STATE: IL ZIP: 60069 BUSINESS PHONE: 8472476051 MAIL ADDRESS: STREET 1: 1113 S MILWAUKEE AVE STREET 2: SUITE 300 CITY: LIBERTYVILLE STATE: IL ZIP: 60048 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 OR ( ) 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 0-28290 AKSYS, LTD. (Exact name of registrant as specified in its charter) Delaware 36-3890205 (State of Incorporation) (I. R. S. Employer Identification No.) Two Marriott Drive, Lincolnshire, Illinois 60069 (Address of principal executive offices) (Zip Code) Registrant's telephone number: 847-229-2020 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 twelve months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO The number of shares of Common Stock, $.01 Par Value, outstanding as of May 13, 2002 was 25,463,865. AKSYS, LTD. FORM 10-Q For the Quarterly Period Ended March 31, 2002 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PART 1 - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001........................................... 3 Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2002 and 2001 (Unaudited)............... 4 Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2002 and 2001 (Unaudited)....................... 5 Notes to Consolidated Financial Statements (Unaudited).......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 7-9 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 10 PART II - OTHER INFORMATION Item 2. Changes in Securities........................................... 11 Item 6. Exhibits and Reports on Form 8-K................................ 11 SIGNATURES............................................................... 11 2 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements AKSYS, LTD. AND SUBSIDIARY (a development stage enterprise) Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------------------------------ March 31, December 31, Assets 2002 2001 - ------------------------------------------------------------------------------------------------------------------------ (Unaudited) Current assets: Cash and cash equivalents 6,837,301 10,240,414 Short-term investments 1,005,339 1,009,521 Other receivables 123,390 231,888 Prepaid expenses 179,576 58,387 Deposits with vendors 700,000 700,000 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 8,845,606 12,240,210 Long-term investments 780,000 780,000 Property and equipment, net 1,225,596 1,365,774 Other assets 54,798 68,519 - ------------------------------------------------------------------------------------------------------------------------ $ 10,906,000 $ 14,454,503 - ------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------------------------------ Current liabilities: Accounts payable 1,276,556 1,057,909 Accrued liabilities 205,192 633,904 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 1,481,748 1,691,813 Other long-term liabilities 157,210 159,061 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 1,638,958 1,850,874 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity: Preferred stock, par value $.01 per share, 1,000,000 shares authorized, no shares issued and outstanding in 2002 and 2001 - - Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,135,842 and 22,097,524 shares issued and outstanding in 2002 and 2001, respectively 221,358 220,975 Additional paid-in capital 103,373,634 103,313,209 Accumulated other comprehensive income 9,858 11,423 Deficit accumulated during development stage (94,337,808) (90,941,978) - ------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 9,267,042 12,603,629 - ------------------------------------------------------------------------------------------------------------------------ Commitments - ------------------------------------------------------------------------------------------------------------------------ $ 10,906,000 $ 14,454,503 - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 3 AKSYS, LTD. AND SUBSIDIARY (a development stage enterprise) Consolidated Statements of Operations For the three-month periods ended March 31, 2002 and 2001 (Unaudited) - ------------------------------------------------------------------------------------------------------------------
Cumulative from Three-month periods Jan. 18, 1991 ended March 31, (inception) ----------------------------------------- through 2002 2001 March 31, 2002 - ------------------------------------------------------------------------------------------------------------------ Revenues: Joint development income $ - $ - $ 14,044,122 - ------------------------------------------------------------------------------------------------------------------ Operating expenses: Research and development 1,686,744 2,585,239 82,434,843 Business development 607,501 526,533 8,259,802 General and administrative 1,168,096 1,176,699 26,472,129 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 3,462,341 4,288,471 117,166,774 - ------------------------------------------------------------------------------------------------------------------ Operating loss (3,462,341) (4,288,471) (103,122,652) - ------------------------------------------------------------------------------------------------------------------ Other income (expense): Interest income 66,511 254,626 8,743,584 Interest expense - - (23,591) Other income - - 67,884 - ------------------------------------------------------------------------------------------------------------------ 66,511 254,626 8,787,877 - ------------------------------------------------------------------------------------------------------------------ Net loss $ (3,395,830) $ (4,033,845) $ (94,334,775) - ------------------------------------------------------------------------------------------------------------------ Net loss per share, basic and diluted $ (0.15) $ (0.22) $ (11.04) - ------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding 22,117,005 18,387,415 8,547,719 - ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 AKSYS, LTD. AND SUBSIDIARY (a development stage enterprise) Consolidated Statements of Cash Flows For the three-month periods ended March 31, 2002 and 2001 (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------
Cumulative from Three-month periods January 18, 1991 ended March 31, (inception) --------------------------------------------- through 2002 2001 March 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net loss $ (3,395,830) $ (4,033,845) $ (94,334,775) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 159,640 206,123 5,356,113 Adjustment of carrying value of fixed assets - - 980,912 Compensation expense related to stock options - - 426,580 Issuance of stock in exchange for services received - - 408,930 Changes in assets and liabilities: Other receivables 108,498 (93,121) (123,390) Prepaid expenses (121,189) (132,195) (179,846) Deposits with vendors - (700,000) (700,068) Accounts payable 218,647 345,138 1,276,556 Accrued and other liabilities (430,563) (1,240,362) 371,430 Other assets - 1,157 (542,231) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in operating activities (3,460,797) (5,647,105) (87,059,789) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of investments - (7,048,592) (122,159,786) Proceeds from maturities of investments 4,182 - 120,366,904 Purchases of property and equipment (5,741) (13,586) (6,941,796) Organizational costs incurred - - (19,595) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (1,559) (7,062,178) (8,754,273) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from issuance of common stock 59,243 315,778 90,418,788 Proceeds from issuance of preferred stock - - 12,336,096 Proceeds from issuance of note payable - - 41,792 Repayment of notes payable - - (41,792) Repayment of lease obligation - - (103,521) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 59,243 315,778 102,651,363 - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (3,403,113) (12,393,505) 6,837,301 Cash and cash equivalents at beginning of period 10,240,414 19,121,697 - - ------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 6,837,301 $ 6,728,192 $ 6,837,301 - ------------------------------------------------------------------------------------------------------------------------------ Supplemental disclosures of cash flow information: Conversion of redeemable preferred stock $ - $ - $ 12,406,761 Capital lease obligation incurred to acquire equipment - - 103,521 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 5 AKSYS, LTD. AND SUBSIDIARY (a development stage enterprise) Notes to Consolidated Financial Statements-Unaudited (1) Basis for Presentation The consolidated financial statements of Aksys, Ltd. and subsidiary (the "Company") presented herein are unaudited, other than the consolidated balance sheet at December 31, 2001, which is derived from audited financial statements. The interim financial statements and notes thereto have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the interim financial statements reflect all adjustments consisting of normal, recurring adjustments necessary for a fair statement of the results for interim periods. The operations for the three-month period ended March 31, 2002 are not necessarily indicative of results that ultimately may be achieved for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2001, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002. (2) Co-Development Costs On June 21, 1999, the Company entered into a co-development and license agreement (the "Agreement") with Teijin Limited of Osaka, Japan. The Agreement was amended effective November 21, 2000. As part of the amendment, Teijin has direct control over the product development efforts for the PHD System that will be tested in Japan. Aksys continues to have rights to the jointly developed technology. The Company has recorded a receivable from Teijin of $85,820 as of March 31, 2002, representing funds spent by the Company on Teijin's behalf for consumables and parts for clinical machines for use in Japan. (3) Subsequent Event On May 13, 2002, the Company completed a private placement to institutional investors of 3,319,396 shares of its common stock, at a per share price of $5.29, resulting in gross proceeds of $17,559,605. After offering costs, net proceeds to the Company were approximately $16.5 million. The shares were sold with the assistance of U.S. Bancorp Piper Jaffray ("Piper Jaffray"). As the placement agent, Piper Jaffray received fees of approximately $1.05 million. The Company has agreed to prepare and file a registration statement with the Securities and Exchange Commission covering the resale of the shares sold in the private placement by June 10, 2002. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Aksys, Ltd. (the "Company") was founded in 1991 to provide hemodialysis products and services for patients suffering from end-stage renal disease ("ESRD"), commonly known as chronic kidney failure. The Company has developed an automated personal hemodialysis system, known as the Aksys PHD(TM) Personal Hemodialysis System (the "PHD System"), which is designed to enable patients to perform frequent hemodialysis at alternate sites, such as the patient's home, and to thereby improve clinical outcomes, reduce total ESRD treatment costs and enhance the patients' quality of life. All these characteristics have been associated with frequent hemodialysis. On March 27, 2002, the Company announced that it received the Food and Drug Administration's ("FDA") clearance to market the PHD System in the United States. The FDA clearance had no restrictions and included authorization to use the product in the home. The Company had been working toward satisfying the regulatory requirements of the FDA since submitting a 510(k) pre-market notification for clearance to market the PHD System in January 2001. 510(k) clearance by the FDA was required prior to the commercialization of the PHD System in the United States. Comparison of Results of Operations For the three month period ended March 31, 2002, the Company reported net losses of $3.4 million ($0.15 per share), compared with $4.0 million ($0.22 per share) for the comparable period in 2001. The factors contributing to the decrease in net loss are explained in detail below. Operating expenses. Operating expenses for the three-month period ended March 31, 2002 decreased to $3.5 million, compared with $4.3 million for the comparable period in 2001. The primary reduction in expenses was due to research and development expenses decreasing to $1.7 million from $2.6 million, as costs related to the clinical trial of the PHD System were completed in the first quarter of 2001. For the three-month period ended March 31, 2002, business development expenses increased to $0.6 million from $0.5 million for the comparable period in 2001, while general and administrative expenses remained flat at $1.2 million. Interest income. Interest income for the three-month period ended March 31, 2002 decreased to $67,000 from $255,000 for the comparable period in 2001, due to decreases in cash and invested balances as well as a reduction in interest rates, as funds continue to be spent to support the Company's operations. 7 Liquidity and Capital Resources The Company has financed its operations to date primarily through public and private sales of its equity securities. Through March 31, 2002, the Company received net offering proceeds from public and private sales of equity securities of approximately $102.8 million. In addition, on May 13, 2002, the Company completed a private placement to institutional investors of shares of its common stock, with net proceeds to the Company of approximately $16.5 million. Since its inception in 1991 through March 31, 2002, the Company made $6.9 million of capital expenditures and used $87.1 million in cash to support its operations. At March 31, 2002, the Company had funds available to support operations of $8.6 million, including cash and cash equivalents of $6.8 million, short-term investments of $1.0 million and long-term investments of $0.8 million. The Company estimates that during fiscal 2002 it will spend a minimum of $11.5 million for operations and commercialization activities of the PHD System (including funds spent during the three-month period ended March 31, 2002). The Company expects that substantially all of this amount will be used to launch the commercial PHD System in the United States. The Company expects to incur substantial cash outlays related to manufacturing scale-up and commercialization of the PHD System and the protection of patent and other proprietary rights. Additional capital will be required to fund ongoing operations through the second year of commercialization. It is the Company's plan to raise additional capital to fund commercial operations through public or private equity or debt financings. The additional capital required for commercialization may not be available with terms agreeable to the Company. In the event the Company cannot raise sufficient capital for a full-scale commercial launch, the Company believes that cash and short-term investments as of March 31, 2002, together with net proceeds of approximately $16.5 million from the private placement of its common stock on May 13, 2002, are sufficient to finance the Company's current commercial and operating plans through December 31, 2002. Generally, the Company expects U.S. customers to lease or purchase PHD Systems and enter into contracts whereby the Company will provide all products and services related to the PHD Systems for a single monthly price, which would include all consumables, service and product support. If the U.S. customers enter into lease agreements, the single monthly payment would increase to include the lease payment for the PHD system. The Company's present commercialization plan for markets outside of the United States is to develop a partnership in those markets to distribute the PHD System and related consumables and services. Financing production of the PHD System in quantities necessary for commercialization will require a significant investment in working capital. This need for working capital is likely to increase to the extent that demand for the PHD System increases. The Company would, therefore, have to rely on sources of capital beyond cash generated from operations to finance production of the PHD System even if the Company were successful in marketing its products and services. The Company currently intends to finance the working capital requirements associated with these arrangements through equipment and receivable financing with a commercial lender. If the Company is unable to obtain such equipment 8 financing, or on commercially reasonable terms, it would need to seek other forms of financing, through the sale of equity securities or otherwise, to achieve its business objectives. The Company has not yet obtained a commitment for such equipment financing, and there can be no assurance that the Company will be able to obtain equipment financing or alternative financing on acceptable terms or at all. The Company has not generated taxable income to date. At March 31, 2002, the net operating losses available to offset future taxable income were approximately $100.2 million. Because the Company has experienced ownership changes, future utilization of the carryforwards may be limited in any one fiscal year pursuant to Internal Revenue Code regulations. The carryforwards expire at various dates beginning in 2012. As a result of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce federal income tax liabilities. Note on Forward-Looking Information Certain statements in this Quarterly Report on Form 10-Q and in future filings made by the Company with the Securities and Exchange Commission and in the Company's written and oral statements made by or with the approval of an officer of the Company constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "believes," "expects," "estimates," "anticipates," and "will be," and similar words or expressions, identify forward-looking statements made by or on behalf of the Company. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance, but are subject to many uncertainties and factors which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause such a difference include, but are not limited to, (i) risks related to the failure to meet manufacturing milestones for the PHD System on a timely basis, (ii) market, regulatory and reimbursement conditions, including without limitation, patient/clinic acceptance of the PHD System, (iii) additional capital requirements with respect to among other things the commercialization of the PHD System, (iv) changing assumptions with respect to projected unit pricing, product cost, gross margin and operating profit targets as identified in the business plan, which are as yet untested, (v) risks inherent in relying on a third party to manufacture products, (vi) the impact of products which may be developed, adapted or may otherwise compete with the PHD System, (vii) changes in QSR requirements and (viii) other factors discussed elsewhere in this Quarterly Report on Form 10-Q. Regulatory approval risks include, without limitation, whether and when we will obtain similar clearances from other countries in which we may attempt to distribute the PHD System. Additional clinical trials and/or other data may be needed in order to obtain regulatory clearances. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes 9 make it clear that any projected results or events expressed or implied therein will not be realized. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the Company's market risk during the three-month period ended March 31, 2002. For additional information refer to Item 7A in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 10 PART II - OTHER INFORMATION Item 2. Changes in Securities On May 13, 2002, the Company completed a private placement to institutional investors of 3,319,396 shares of its common stock. The gross proceeds of the offering were approximately $17,560,000. The shares were sold with the assistance of U.S. Bancorp Piper Jaffray ("Piper Jaffray"). As the placement agent, Piper Jaffray received a fee of approximately $1,050,000. The shares of common stock were sold in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. The private placement was made without an general solicitation or advertising and each investor represented to the Company in writing that it was an accredited investor within the meaning of Rule 501(a) of Regulation D. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None Signature Pursuant to 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. Aksys, Ltd. Date: May 14, 2002 By: /s/ William C. Dow ------------ ------------------------------ William C. Dow President, Chief Executive Officer and Director /s/ Lawrence D. Damron ---------------------- Senior Vice President and Chief Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----