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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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
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 0-22373
VAXCEL, INC.
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(Exact name of Registrant as specified in its charter)
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Delaware 58-2027283
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
154 Technology Parkway, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
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(770) 453-0195
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(Registrant's telephone number)
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 of Vaxcel, Inc. Common Stock, $.001 par value, issued and
outstanding as of May 13, 1999: 10,994,656.
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VAXCEL, INC.
Form 10-Q
March 31, 1999
Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998 3
Condensed Statements of Operations (unaudited) for the Three Month
Periods Ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows (unaudited)
for the Three Month Periods Ended March 31, 1999 and 1998 5
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 10
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
VAXCEL, INC.
CONDENSED BALANCE SHEETS
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March 31, December 31,
1999 1998
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 102,943 $ 2,900
Accounts receivable -- 5,808
Note receivable 300,000 300,000
Other -- 5,308
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Total current assets 802,943 314,016
Property and equipment:
Equipment and furnishings 145,264 145,264
Accumulated depreciation (142,926) (138,667)
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Net property and equipment 2,338 6,597
Other assets:
Acquired developed technology and other intangibles, net 600,000 600,000
Other -- 55,674
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Total other assets 600,000 655,674
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Total assets $ 1,005,281 $ 976,287
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 211,382 $ 221,885
Accrued liabilities 120,330 214,483
Amounts due to affiliate 211,000 181,758
Deferred assets sales proceeds 200,000 --
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Total current liabilities 742,712 618,126
Commitments
Stockholders' equity:
Preferred stock ($.001 par value, 2,000,000 shares -- --
authorized; no shares issued and outstanding)
Common stock ($.001 par value, 30,000,000 shares
authorized; 10,994,656 shares issued and outstanding at
March 31, 1999 and December 31, 1998 respectively) 10,995 10,995
Additional paid-in capital 12,485,767 12,485,767
Accumulated deficit (12,234,193) (12,138,601)
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Total stockholders' equity 262,569 358,161
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Total liabilities and stockholders' equity $ 1,005,281 $ 976,287
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See accompanying notes.
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VAXCEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Month Period Ended March 31,
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1999 1998
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Revenues:
License fees $ 20,000 $ --
Collaborative and grant income -- 16,483
Interest income 915 7,050
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20,915 23,533
Expenses:
Research and development
Transactions with affiliates -- 21,015
Other -- 250,409
Selling, general and administrative
Transactions with affiliates 21,500 12,708
Other 91,305 245,449
Interest expense 3,702 --
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116,507 529,581
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Net loss $ (95,592) $ (506,048)
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Basic and diluted loss per common share $ (0.01) $ (0.05)
============ ============
Basic and diluted weighted average shares outstanding 10,994,656 11,005,333
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See accompanying notes.
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VAXCEL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Month Period Ended March 31,
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1999 1998
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Cash flows from operating activities:
Net loss $ (95,592) $(506,048)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 4,259 82,900
Net change in assets and liabilities 191,376 22,440
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Total adjustments 195,635 105,340
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Net cash provided (used) by operating activities 100,043 (400,708)
Net increase (decrease) in cash and cash equivalents 100,043 (400,708)
Cash and cash equivalents at beginning of period 2,900 690,636
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Cash and cash equivalents at end of period $ 102,943 $ 289,928
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,702 $ --
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See accompanying notes.
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VAXCEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT UNCERTAINTIES
Vaxcel, Inc. ("Vaxcel" or the "Company") was formed on January 6, 1993
as a wholly-owned subsidiary of CytRx Corporation ("CytRx"). In May 1997, Vaxcel
completed a merger with Zynaxis, Inc. ("Zynaxis"), resulting in the issuance of
an aggregate of 12.5% of its outstanding (post-merger) shares of common stock to
the former shareholders of Zynaxis. Vaxcel has historically engaged in the
development and commercialization of vaccine adjuvants and delivery systems and
a novel vaccine for the treatment of cancer. However, as discussed below, there
is substantial doubt about the Company's ability to survive as a going concern.
At March 31, 1999, the Company had cash and cash equivalents of
$103,000 and a working capital deficit of $340,000. The Company's current cash
resources, together with the proceeds of the transaction discussed in Note 2 are
not sufficient to fund its operations beyond the second quarter of 1999. The
Company continues to hold rights under license agreements granting others to use
its technologic but no longer has any employees or other ability to develop its
technologies further without the assistance of CytRx. CytRx has no obligation to
provide any assistance, and has indicated that it will not provide any
assistance. Should the Company determine that it is no longer in the best
interest of its stockholders to continue operations, the ability of the Company
to fund an orderly disposition of assets, pay off its then outstanding
liabilities and return any remaining cash to its stockholders will be limited by
the amount of working capital on hand.
During 1998, the Company's Board of Directors retained an investment
banking firm to introduce Vaxcel and its technology licenses to the trade with
the purpose of concluding strategic transactions for the benefit of the Vaxcel
stockholders. To date, the Company has not identified any potential buyers for
its technologies that appear to have the ability and willingness to complete
any of the contemplated transactions.
The accompanying financial statements at March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998 are unaudited, but include all
adjustments, consisting of normal recurring entries, which the Company's
management believes to be necessary for a fair presentation of the periods
presented. Interim results are not necessarily indicative of results for a full
year. The financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1998 contained in
its Annual Report on Form 10-K/A.
2. SALE OF TECHNOLOGY TO INNOVAX
In January 1999, the Company entered into an agreement with Innovax
Corporation ("Innovax") giving Innovax the option to purchase the rights to
Vaxcel's PLG microencapsulation technology for an aggregate purchase price of
$600,000. Innovax paid a
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nonrefundable option fee of $200,000, with an additional $400,000 due upon the
exercise of the option. Innovax also paid a total of $20,000 for extensions of
the option period. On April 1, 1999 Innovax exercised its option and the rights
to such technology were assigned by Vaxcel to Innovax.
The Company will record this transaction in the second quarter of 1999
as a sale of its Acquired Developed Technology and Other Intangibles, valued at
$600,000 and therefore will not record a gain or loss on the transaction. The
$20,000 in option extension fees paid by Innovax is reflected as license fee
income in the accompanying Statement of Operations. The $400,000 due upon
exercise of the option was paid on April 1, 1999.
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Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At March 31, 1999, the Company had cash and cash equivalents of
$103,000 and net assets of $263,000, as compared to $2,900 and $358,000,
respectively, at December 31, 1998. At March 31, 1999 the Company had a working
capital deficit of $340,000.
The Company is critically short of cash to fund its operations. The
Company has incurred losses from operations since its inception, and there is
substantial doubt about the Company's ability to survive as a going concern. The
Company's current cash resources, together with the proceeds of the sale of
certain technologies (see Note 2 to Financial Statements) are not sufficient to
fund its operations beyond the second quarter of 1999.
During 1998, the Company's Board of Directors retained an investment
banking firm to introduce Vaxcel and its technology licenses to the trade with
the purpose of concluding strategic transactions for the benefit of the Vaxcel
stockholders. To date, the Company has not identified any potential buyers for
its technologies that appear to have the ability and willingness to complete any
of the contemplated transactions.
The Company does not have any employees and is not conducting any
operations other than holding rights under its technology licenses. Should the
Company determine that it is no longer in the best interest of its stockholders
to continue operations, the ability of the Company to fund an orderly
disposition of assets, pay off its then outstanding liabilities and return any
remaining cash to its shareholders will be limited by the amount of working
capital on hand.
In April 1998, December 1998 and January 1999, Vaxcel borrowed a
cumulative total of $181,000 from CytRx pursuant to three convertible note
agreements, $25,000 of which was repaid in February 1999 and the remainder was
repaid in April 1999. Such notes bore interest at 9% per annum and were
convertible, at CytRx's discretion, into shares of Vaxcel common stock.
Results of Operations
The Company recorded net losses of $96,000 for the three months ended
March 31, 1999 as compared to $506,000 for 1998.
During the first quarter of 1999, Vaxcel recorded license fees of
$20,000 related to payments by Innovax to extend their option period for
evaluating certain of the Company's technologies (see Note 2 to Financial
Statements). During the first quarter of 1998, Vaxcel recorded collaborative and
grant revenues of $16,000. This amount relates to certain research funding
arrangements with a third party and Small Business Innovative Research (SBIR)
grants to Vaxcel from the National Institutes of Health, which ended during
1998.
Research and development expenditures for the first quarter of 1999
were $0, as compared to $271,000 for 1998. As part of its cost containment
efforts, the Company is not currently actively developing any of its
technologies.
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General and administrative expenses for the first quarter of 1999 were
$113,000, as compared to $258,000 during 1998. The decrease from 1998 is due to
an overall reduction in the Company's operations. General and administrative
expenses for the first quarter of 1999 primarily relate to patent costs, accrual
of minimum annual royalties pursuant to a technology license agreement and fees
paid to CytRx for administrative services. Management believes that inflation
had no material impact on the Company's operations during the three months ended
March 31, 1999.
Year 2000 Issue
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from dates in the "1900's." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
There have been no material changes in the Company's state of readiness
from that disclosed in its Annual Report on Form 10-K/A for the year ended
December 31, 1998. As substantially all of the Company's business systems and
services are provided by CytRx Corporation, the Company is dependent upon
CytRx's efforts to become Year 2000 compliant. CytRx has provided no assurances
to the Company of its Year 2000 compliance. As discussed above, the Company has
severely curtailed its business operations and, as such, there are currently no
significant vendor relationships which could negatively impact the Company's
business operations if such vendors experienced Year 2000 compliance problems.
The Company's current estimate of its most reasonably likely worst case scenario
is a temporary disruption in its ability to process accounting transactions,
including payment of vendor invoices. The Company's contingency plans primarily
consist of a temporary switch to manual accounting systems. No costs have been
incurred related to the Year 2000 Issue for the three months ended March 31,
1999.
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
There have been no changes in the Company's assessment of its market
risk from that disclosed in its Form 10-K for the year ended December 31, 1998.
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Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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Exhibit
Number Description
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27.1 Financial Data Schedule (for SEC use only)
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(b) Reports on Form 8-K:
On April 16, 1998, the Registrant filed a Current Report on Form 8-K
reporting the sale of certain technology assets.
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.
VAXCEL, INC.
(Registrant)
Date: May 13, 1999 By: /s/ Mark W. Reynolds
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Mark W. Reynolds
Chief Financial Officer
(Chief Accounting Officer and a
duly authorized officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VAXCEL,
INC.'S SEC FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 102,943
<SECURITIES> 0
<RECEIVABLES> 300,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 402,943
<PP&E> 145,264
<DEPRECIATION> (142,926)
<TOTAL-ASSETS> 1,005,281
<CURRENT-LIABILITIES> 742,712
<BONDS> 0
0
0
<COMMON> 10,995
<OTHER-SE> 251,574
<TOTAL-LIABILITY-AND-EQUITY> 1,005,281
<SALES> 0
<TOTAL-REVENUES> 20,915
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 116,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,702
<INCOME-PRETAX> (95,592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,592)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
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