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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, 2002 Commission File No. 0-20948
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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,
2002:
Common Stock, par value $.01 16,919,623 shares outstanding
AUTOIMMUNE INC.
QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
Balance Sheet
December 31, 2001 and June 30, 2002 ................................ 2
Statement of Operations
for the three and six months ended June 30, 2001 and 2002
and for the period from inception (September 9, 1988)
through June 30, 2002 .............................................. 3
Statement of Cash Flows
for the six months ended June 30, 2001 and 2002
and for the period from inception (September 9, 1988)
through June 30, 2002. ............................................. 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 4 - Submission of Matters To a Vote of Security Holders ......................... 9
Item 6(a) - Exhibits ................................. ............................... 9
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,
2001 2002
--------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,929,000 $ 5,455,000
Marketable securities 6,863,000 4,972,000
Prepaid expenses and other current assets 42,000 61,000
--------------- --------------
Total current assets 10,834,000 10,488,000
Fixed assets, net - -
Other assets 100,000 100,000
--------------- --------------
$ 10,934,000 $ 10,588,000
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,000 $ 108,000
Accrued expenses 90,000 75,000
--------------- --------------
Total current liabilities 137,000 183,000
--------------- --------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,919,623 shares issued and
outstanding at December 31, 2001 and June 30, 2002 169,000 169,000
Additional paid-in capital 118,102,000 118,102,000
Deficit accumulated during the development stage (107,474,000) (107,866,000)
--------------- --------------
Total stockholders' equity 10,797,000 10,405,000
--------------- --------------
$ 10,934,000 $ 10,588,000
=============== ==============
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
2001 2002 2001 2002 June 30, 2002
------------- ------------ -------------- ------------ -----------------
Revenue:
License rights $ 8,000 $ 15,000 $ 15,000 $ 30,000 $ 5,388,000
Option fees - - - - 2,200,000
Research and development
revenue under collaborative
agreements - - - - 955,000
----------- ----------- ------------ ------------ ---------------
Total revenues 8,000 15,000 15,000 30,000 8,543,000
----------- ----------- ------------ ------------ ---------------
Costs and expenses:
Research and development:
Related party 15,000 15,000 30,000 30,000 19,757,000
All other 16,000 40,000 115,000 88,000 91,602,000
General and administrative 166,000 187,000 346,000 405,000 17,328,000
----------- ----------- ------------ ------------ ---------------
Total costs and expenses 197,000 242,000 491,000 523,000 128,687,000
----------- ----------- ------------ ------------ ---------------
Total operating loss (189,000) (227,000) (476,000) (493,000) (120,144,000)
----------- ----------- ------------ ------------ ---------------
Interest income 119,000 50,000 284,000 101,000 12,585,000
Interest expense - - - - (303,000)
----------- ----------- ------------ ------------ ---------------
Net loss $ (70,000) $ (177,000) $ (192,000) $ (392,000) $ (107,862,000)
=========== =========== ============ ============ ===============
Net loss per share-basic and diluted $ (0.00) $ (0.01) $ (0.01) $ (0.02)
=========== =========== ============ ============
Weighted average common
shares outstanding-basic and diluted 16,919,623 16,919,623 16,899,292 16,919,623
=========== =========== ============ ============
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,
2001 2002 2002
------------------- -------------------- ----------------------
Cash flows from operating activities:
Net loss $ (192,000) $ (392,000) $ (107,862,000)
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
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 24,000 (19,000) (61,000)
Increase (decrease) in accounts payable (60,000) 61,000 108,000
Increase (decrease) in accrued expenses 38,000 (15,000) 75,000
Increase (decrease) in deferred revenue 5,000 - -
------------------- -------------------- ----------------------
Net cash provided (used) by operating activities (185,000) (365,000) (101,828,000)
------------------- -------------------- ----------------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (9,664,000) (6,923,000) (300,284,000)
Proceeds from sale/maturity of available-for-sale marketable 6,588,000 8,814,000 284,301,000
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 (3,176,000) 1,891,000 (10,742,000)
------------------- -------------------- ----------------------
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 4,000 - 105,514,000
Proceeds from issuance of convertible notes payable - - 2,200,000
------------------- -------------------- ----------------------
Net cash provided (used) by financing activities 4,000 - 118,025,000
------------------- -------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (3,357,000) 1,526,000 5,455,000
Cash and cash equivalents, beginning of period 4,719,000 3,929,000 -
------------------- -------------------- ----------------------
Cash and cash equivalents, end of period $ 1,362,000 $ 5,455,000 $ 5,455,000
=================== ==================== ======================
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 June 30, 2002, for the three and six
month periods ended June 30, 2001 and 2002 and for the period from
inception (September 9, 1988) through June 30, 2002 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, 2001 included in the Company's Form 10-K.
Results for interim periods are not necessarily indicative of results
for the entire year.
2. Net 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 and six months ended June 30, 2001 and 2002
exclude the effect of 1,176,036 and 730,036 stock options outstanding
at June 30, 2001 and 2002, respectively, as their inclusion would be
anti-dilutive.
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, 2001 and June 30, 2002:
December 31, June 30,
2001 2002
----------------- -----------------
Money market $ 3,894,000 $ 5,411,000
----------------- -----------------
$ 3,894,000 $ 5,411,000
================= =================
The following is a summary of available-for-sale marketable securities
held by the Company at December 31, 2001 and June 30, 2002:
Maturity Fair Unrealized Unrealized Amortized
term value gains losses cost
------------------------ ----------------- ----------------- ---------------- ---------------
December 31, 2001
U.S. Government
debt securities within 1 year $ 6,863,000 $ - $ - $ 6,863,000
June 30, 2002
U.S. Government
debt securities within 1 year $ 4,972,000 $ - $ - $ 4,972,000
All of the Company's marketable securities are classified as current at
June 30, 2002 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, 2001 and 2002 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, June 30,
(years) 2001 2002
---------------- --------------------- ------------------
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, 2001 and June 30, 2002.
7. Comprehensive Loss
Comprehensive loss for the three month periods ended June 30, 2001 and
2002 was $70,000 and $177,000, respectively. Comprehensive loss for the
six month periods ended June 30, 2001 and 2002 was $192,000 and
$392,000, respectively. There was no net unrealized gain (loss) on
marketable securities for the three and six month periods ended June
30, 2001 and 2002.
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, 2002, the Company has incurred ongoing
losses from operations and has cumulative losses as of June 30, 2002 totaling
$107,862,000. To date, the Company has not recorded any revenues from the sale
of products. Revenues recorded through June 30, 2002 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 Company's extremely limited
operations, the uncertainties of clinical trial results and product development,
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 incorporated by reference
into this Quarterly Report.
Three and Six Month Periods Ended June 30, 2001 and 2002
Revenue was $8,000 and $15,000 for the three month periods ended June 30, 2001
and 2002, respectively. Revenue was $15,000 and $30,000 for the six month
periods ended June 30, 2001 and 2002, respectively. These amounts represent
monthly license payments from BioMS Medical Corporation (formerly known as Rycor
Technology Investments Corp.)
Research and development expenses were $31,000 and $55,000 for the three month
periods ended June 30, 2001 and 2002, respectively. Research and development
expenses were $145,000 and $118,000 for the six month periods ended June 30,
2001 and 2002, respectively. The change is due to the timing of patent-related
legal costs.
General and administrative expenses were $166,000 and $187,000 for the three
month periods ended June 30, 2001 and 2002, respectively. General and
administrative expenses were $346,000 and $405,000 for the the six month periods
ended June 30, 2001 and 2002, respectively. The increase is primarily due to the
rise in insurance costs.
Interest income was $119,000 and $50,000 for the three month periods ended June
30, 2001 and 2002, respectively. Interest income was $284,000 and $101,000 for
the six month periods ended June 30, 2001 and 2002, respectively. The decrease
is due to a lower average return on investment and a lower average balance of
cash available for investment.
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. Its current needs have been
significantly
7
AUTOIMMUNE INC.
reduced as a result of the termination of research, development and
administrative employees and other operating expenses in 1999.
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 patented products, the extent to which it proceeds by means of collaborative
relationships with pharmaceutical or nutraceutical companies and its competitive
environment. Based upon its budget for the calendar year 2002, 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 seek additional funding through public or private equity
or debt financing, collaborative arrangements with pharmaceutical companies or
from other sources. If additional funds are necessary but not available, the
Company will have to reduce certain activities, which could include areas of
research, product development, manufacturing or marketing activity, or otherwise
modify its business strategy. Such a reduction would have a material adverse
effect on the Company.
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, 2002, the Company's cash and cash equivalents and marketable securities
totaled $10,427,000. Current liabilities at June 30, 2002 were $183,000.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 23, 2002.
(b) The following directors were elected to serve until the next
Annual Meeting or until their successors are elected and
qualified, by the following votes:
Name Number of Votes For Number of Votes Withheld
----------------- ------------------- ------------------------
Robert C. Bishop 14,800,242 183,021
Hugh A. D'Andrade 14,799,042 184,221
Allan R. Ferguson 14,798,942 184,321
R. John Fletcher 14,788,992 194,271
Henri A. Termeer 14,799,242 184,021
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
Item 6(a) -
Exhibit Number Description
- -------------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350
Item 6(b) - 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 9, 2002 /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