SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ x ] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: September 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to _______________
Commission file number: 0-22865
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AMERIMMUNE PHARMACEUTICALS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Colorado 84-1044910
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
21550 Oxnard Street, Suite 830 * Woodland Hills, California 91367
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(Address of Principal Executive Offices)
(818)676-0404
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: AS OF OCTOBER 31,
2000, 43,042,856 SHARES OF THE ISSUER'S COMMON STOCK, $0.05 PAR VALUE PER
SHARE, WERE OUTSTANDING.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 2000 and
September 30, 2000 (unaudited) . . . . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Operations - for the Three Months
Ended September 30, 1999 and 2000 (unaudited). . . . . . . . . . . . . .3
Consolidated Statements of Operations - for the Six Months Ended
September 30, 1999 and 2000 and cumulative amounts from inception
through September 30, 2000 (unaudited) . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows - for the Six Months Ended
September 30, 1999 and 2000 and cumulative amounts from inception
through September 30, 2000 (unaudited) . . . . . . . . . . . . . . . . .5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . .7
Item 2. Management's Discussion and Analysis or Plan of Operation. . . 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 2000
CURRENT ASSETS (AUDITED) (UNAUDITED)
-------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 522,649 $ 667,529
Marketable securities 618,360 -
Other current assets 37,926 18,138
------------ ------------
TOTAL CURRENT ASSETS 1,178,935 685,667
------------ ------------
PROPERTY AND EQUIPMENT, NET 23,475 17,585
------------ ------------
OTHER ASSETS
Deposits 3,040 3,040
------------ ------------
TOTAL ASSETS $ 1,205,450 $ 706,292
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 83,242 $ 38,230
Accrued liabilities 141,897 199,900
------------ ------------
TOTAL CURRENT LIABILITIES 225,139 238,130
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Preferred stock $0.10 par value, 50,000,000
shares authorized, no shares issued or
outstanding - -
Common stock $0.05 par value, 100,000,000
shares authorized, 43,042,856 shares issued
and outstanding 2,152,143 2,152,143
Additional paid-in-capital 3,090,266 3,090,266
Note receivable from affiliate (156,989) (163,089)
Deficit accumulated during the development stage (4,105,109) (4,611,158)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 980,311 468,162
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,205,450 $ 706,292
============ ============
</TABLE>
See accompanying notes
2
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------ ------------------
<S> <C> <C>
COSTS AND EXPENSES
Research and development $ 273,907 $ 73,123
General and administrative 157,615 168,352
------------ ------------
OPERATING LOSS (431,522) (241,475)
OTHER INCOME (EXPENSE)
Interest income 17,568 12,717
Interest expense (2,198) (928)
------------ ------------
15,370 11,789
------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES (416,152) (229,686)
PROVISION FOR INCOME TAXES - -
------------ ------------
NET LOSS $ (416,152) $ (229,686)
============ ============
NET LOSS PER COMMON SHARE - BASIC
AND DILUTED $ (0.01) $ (0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 43,042,856 43,042,856
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception)
THROUGH SEPTEMBER 30, 2000
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS CUMULATIVE
ENDED ENDED AMOUNTS FROM
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 INCEPTION
------------------ ------------------ ---------
<S> <C> <C> <C>
COSTS AND EXPENSES
Research and development $ 533,440 $ 192,199 1,447,009
General and administrative 366,149 338,118 3,276,078
------------ ------------ ------------
OPERATING LOSS (899,589) (530,317) (4,723,087)
OTHER INCOME (EXPENSE)
Interest income 42,950 27,685 126,779
Interest expense (2,781) (1,817) (10,850)
------------ ------------ ------------
40,169 25,868 115,929
------------ ------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES (859,420) (504,449) (4,607,158)
PROVISION FOR INCOME TAXES 800 1,600 4,000
------------ ------------ ------------
NET LOSS $ (860,220) $ (506,049) $ (4,611,158)
============ ============ ============
NET LOSS PER COMMON SHARE - BASIC
AND DILUTED $ (0.02) $ (0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 43,042,856 43,042,856
============ ============
</TABLE>
See accompanying notes
4
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception)
THROUGH SEPTEMBER 30, 2000
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS CUMULATIVE
ENDED ENDED AMOUNTS FROM
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 INCEPTION
------------------ ------------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (860,220) $ (506,049) $ (4,611,158)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED BY OPERATING ACTIVITIES
Noncash transactions:
Depreciation and amortization 5,710 5,890 17,490
Fair value of stock and an option
issued in exchange for services
and trademark rights - - 814,000
Fair value of stock issued to
prospective officers - - 142,500
Fair value of stock transferred to
a prospective officer by a
principal shareholder - - 90,000
Fair value of stock and an option
transferred by a principal
shareholder in exchange for services - - 452,000
Fair value of stock options issued
in exchange for Services - - 6,163
Modification of stock options - - 383,794
Changes in assets and liabilities:
Advances from/to affiliates 46,581 - -
Other current assets (19,846) 19,788 (18,138)
Prepaid management fees 36,562 - -
Deposits - - (3,040)
Accounts payable and accrued expenses (28,098) 12,991 238,130
------------ ------------ ------------
Total adjustments 40,909 38,669 2,122,899
------------ ------------ ------------
NET CASH USED BY OPERATING
ACTIVITIES (819,311) (467,380) (2,488,259)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales (Purchases) of marketable
securities (1,002,977) 618,360 -
Purchases of property and equipment (4,442) - (35,075)
Loan to an affiliate (100,000) (6,100) (163,089)
------------ ------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (1,107,419) 612,260 (198,164)
------------ ------------ ------------
</TABLE>
Continued on next page
5
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception)
THROUGH SEPTEMBER 30, 2000
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock - - 3,353,952
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,926,730) 144,880 667,529
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
Beginning of Period 2,614,523 522,649 -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
Ending of Period $ 687,793 $ 667,529 $ 667,529
============ ============ ============
</TABLE>
See accompanying notes
6
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. BUSINESS AND BASIS OF PRESENTATION
BUSINESS AND ORGANIZATION
Amerimmune Pharmaceuticals, Inc. (the "Company"), formerly named Versailles
Capital Corporation, is a Colorado Corporation incorporated on December 31,
1986. From 1991 through February 22, 1999, the Company was inactive aside
from seeking a business combination candidate.
British Lion Medical, Inc. ("British Lion") was incorporated in California
in August 1997 and commenced operations on April 10, 1998. British Lion
was engaged in the pharmaceutical research business with the primary
purpose of developing Cytolin(R), a drug designed to protect the immune
system, especially in patients suffering from Human Immunodeficiency Virus
("HIV").
On February 17, 1999, the Company, British Lion and Amerimmune, Inc.
("AI"), a newly organized, wholly owned subsidiary of the Company, entered
into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to
the Merger Agreement on February 23, 1999, each share of British Lion's
issued and outstanding no par value common stock (5,853,500 shares) was
exchanged for 7.133978 newly issued shares (41,758,740 shares) of the
Company's $0.05 par value per share common stock. After the exchange,
former British Lion shareholders acquired approximately 97% of the issued
and outstanding voting shares of the Company and the Company acquired all
of the issued and outstanding shares of British Lion through a merger of
British Lion with and into AI, with AI as the surviving legal entity (the
"Transaction"). Prior to the Transaction, the Company had nominal assets
and liabilities. Unless otherwise noted, all references to the number of
shares of common stock in these financial statements are based upon the
equivalent post-exchange number of shares of the Company's common stock.
For financial reporting purposes, the Transaction has been accounted for as
a reverse acquisition whereby British Lion is deemed to have acquired the
Company. Since this was a reverse acquisition, the legal acquiror, the
Company, continued in existence as the legal entity whose shares represent
the outstanding common stock of the combined entities. The acquisition has
been accounted for as a recapitalization of British Lion based upon
historical cost. The recapitalization was given retroactive effect. In
connection with the Transaction, the Company succeeded to the business of
British Lion and became engaged in the pharmaceutical research business
with the primary purpose of developing Cytolin(R). The Company has assumed
the obligations of British Lion including all outstanding stock options and
warrants to purchase shares of British Lion's common stock and has issued
equivalent shares of the Company common stock under the same terms and
conditions.
7
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
On August 6, 1999, the shareholders of the Company adopted an amendment to
the Company's articles of incorporation to change the name of the Company
to Amerimmune Pharmaceuticals, Inc. from Versailles Capital Corporation.
BASIS OF PRESENTATION AND MANAGEMENT PLAN
The accompanying consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-QSB on
the basis of a going concern. Certain notes and other information have
been condensed or omitted from the interim financial statements presented
in this report. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair
presentation. The results of operations for the six months ended September
30, 2000 are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB
for the period ended March 31, 2000 as filed with the Securities and
Exchange Commission. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company is a development stage pharmaceutical research company and has
not generated any revenues from operations for the period from April 10,
1998 (the date that British Lion commenced operations) through September 30,
2000. The Company has devoted substantially all of its resources to the
acquisition of a license, research and development of Cytolin(R), and
expenses related to the startup of its business. The Company has been
unprofitable since inception and expects to incur substantial additional
operating losses for the next twelve months, as well as for the next few
years, as it increases expenditures on its research and development
activities and allocates significant and increasing resources to clinical
testing, marketing and other activities.
The Company commenced a tolerability study for Cytolin(R) after a clinical
protocol was sanctioned by the Food and Drug Administration ("FDA") and the
bulk drug has been manufactured, tested, packaged, and released for
clinical use. The Company has completed the submission of related
manufacturing records to the FDA.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company estimates that it
will require significant additional funding over the next three years to
continue operations and to successfully complete the FDA approval process
for Cytolin(R). The Company believes that additional funds will be needed
to fund operations after December 31, 2000. The Company has established
plans designed to increase the capitalization of the Company and is
actively seeking additional capital that will provide funds needed to
increase the internal growth of the Company in order to fully implement its
business plans. There can be no assurances that such additional capital
will be available to the Company on favorable terms, if at all. The
failure of the Company to obtain additional funding if and when required
would have a material adverse effect on the Company's ability to fulfill
its business plan, continue its operations and meet its financial commitments.
8
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities are classified as held-to-maturity and consist of
investments in United States Government Bonds that have maturities over
three months but less than one year from date of purchase.
NET LOSS PER SHARE
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), and the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 ("SAB 98"). Basic earnings per share excludes dilution for
common stock equivalents and is computed by dividing income or loss
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted and resulted in the issuance
of common stock.
Pursuant to SAB 98, common stock issued for nominal consideration is
required to be included in the calculation of basic and diluted earnings
per share, as if they were outstanding for all periods presented. In
accordance with the SAB 98 requirements, 21,936,981 of the founder's shares
are considered to be nominal issuances and have been considered outstanding
for all of the period ended March 31, 1999.
All outstanding stock options and warrants have been excluded from the
calculation of diluted loss per share, because the assumed conversion of
such instruments is antidilutive.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. To date, the Company has not had any transactions
that are required to be reported in comprehensive income.
9
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
SEGMENT INFORMATION
The Company has determined that it does not have separately reportable
operating segments in accordance with Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates.
3. COMMITMENTS AND CONTINGENCIES
TERMINATION, SALE AND SHAREHOLDER AGREEMENT
Allen D. Allen ("Allen") is the present owner of all United States patent
and foreign patent rights to the technology and know-how under the product
Cytolin(R) ("the "Technology"). In 1994, Allen granted CytoDyn of New
Mexico, Inc. ("CytoDyn"), of which Allen owns 100% of the voting stock, an
exclusive, worldwide license to use the patent rights and technology. In
addition, CytoDyn obtained a trademark name for Cytolin(R).
In August 1998, Allen and CytoDyn entered into a Termination, Sale and
Shareholder Agreement ("the Purchase Agreement") with Three R Associates,
Inc. ("Three R"), a corporation affiliated with the Company through its
ownership by three of the Company's former directors and/or officers.
Pursuant to the terms of the Purchase Agreement, CytoDyn agreed to
relinquish the exclusive license to use the technology and patents
previously granted to it by Allen in exchange for 4,280,387 shares of the
Company's common stock. In addition, Allen agreed to sell all United
States Patent rights, foreign patent rights, and all technological know-how
underlying the product, Cytolin(R), to Three R in exchange for $1,350,000,
payable monthly over a fifteen year period. Payments to Allen commenced
and the Company assumed the obligation to Allen, as part of the Patent and
Trademark License Agreement discussed below, upon completion of the Transaction.
PATENT AND TRADEMARK LICENSE AGREEMENT
In October 1998, the Company entered into a Patent and Trademark License
Agreement ("the License Agreement") with Three R. The Company was granted
an irrevocable, exclusive, worldwide license to use all present and future
patent rights, know-how and background technology of Three R relating to
Cytolin(R), which Three R had previously obtained from Allen and CytoDyn.
In addition, the License Agreement granted the Company a sublicense to the
trademark name, Cytolin(R). The License Agreement was consummated
simultaneously with the Transaction.
10
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
The Company issued 21,936,981 shares of its common stock to Three R upon
execution of the Agreement, and the Company also assumed Three R's
obligations to pay Allen under the agreements discussed above between Three R
and Allen.
Under the terms of the Purchase Agreement discussed above, the Company is
obligated to pay Allen, at a minimum, $180,000 in scheduled monthly
installments through February 23, 2001. The Company has the option to
terminate the payments due Allen after the minimum amounts are paid. If
the Company elects to terminate the payment in excess of the minimum due,
it would abandon the rights acquired through the Purchase agreement.
During fiscal 1999, the Company accrued research and development expenses
of $166,000 in connection with the minimum payments due to Allen through
February 23, 2001. The payments were discounted to their fair value of
$166,000 by applying an imputed interest rate of 8% to future cash outflows
CONDITIONAL LICENSE AGREEMENT
In September 1999, Allen and CytoDyn delivered written notice to the
Company that they believed that the Purchase Agreement is void and is not
enforceable due to fraudulent inducement by Three R and other, unspecified
reasons. Allen and CytoDyn have demanded that Three R and its owners
surrender any and all stock in the Company, which was obtained pursuant to
the Purchase Agreement.
In February 2000, the Company entered into a Conditional License Agreement
with Allen and CytoDyn which preserves the Company's rights to the
Technology in the event Allen is successful in his efforts to rescind the
agreements with Three R and its affiliates discussed above. In
consideration for entering into the Conditional License Agreement, the
Company advanced CytoDyn an additional $50,000 pursuant to the terms of a
Loan Agreement which was previously entered into whereby the Company loaned
CytoDyn $100,000 (See Note 4). At September 30, 2000 and March 31, 2000,
the note receivable of $150,000, which is collateralized by shares of the
Company's stock, plus accrued interest of $13,089 at September 30 and
$6,989 at March 31, was classified as a reduction of shareholders' equity.
In addition, the Company has agreed to continue to pay the obligations due
to Allen under the Purchase Agreement, should Allen prevail in his actions.
11
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
MANAGEMENT AGREEMENT
In October 1998, the Company entered into a three year management agreement
for $585,000 per year with Western Center for Clinical Studies, Inc.
("WCCS"), a corporation that is wholly-owned by three of the Company's
former officers and directors. The agreement was scheduled to expire on
February 23, 2002. The management agreement provided for services by WCCS
to the Company for the purpose of assisting the Company in obtaining FDA
approval to market Cytolin(R) for commercial use. In November 1999, the
Company notified WCCS of its rescission of this agreement based upon the
Company's belief that WCCS made certain fraudulent misrepresentations to
the Company and had breached its performance under the management
agreement. The Company is evaluating remedies to collect all amounts paid
to WCCS in conjunction with this agreement.
In September 2000, five current or former officers and/or directors of the
Company were served with a Complaint ("the Complaint") filed by WCCS, one
of the plaintiffs, in the Superior Court of California ("the Action"). The
Company was not named as a defendant.
The Complaint alleges causes of action against the defendants for libel and
slander, intentional infliction of emotional distress, interference with
contract, and unfair business practices. It seeks compensatory damages in
the amount of $20 million and punitive damages and injunctive relief.
The allegations of the Complaint involve acts relating to: (1) the
Company's cancellation in November 1999, of the Management Agreement with
plaintiff WCCS, and (2) the cancellation and rescission of a technology
licensing agreement by co-defendant CytoDyn. The Complaint alleges that
certain Company officers and directors (as well as officers and directors
of CytoDyn) made libelous and slanderous statements about the background
and competency of certain plaintiffs, who are officers and shareholders of
WCCS. It alleges that these statements caused the Company to cancel its
Management Agreement with WCCS and CytoDyn to cancel its technology
licensing agreement with plaintiff Three R.
The Company and the defendants have retained counsel to defend four of the
defendants, and will indemnify them for fees and expenses incurred in their
defense. The Company has also requested coverage for the acts alleged in
the Complaint from two insurance companies under two different policies.
The Company has been informed that the defendants intend to vigorously
contest the allegations of the Complaint. To the extent that the costs of
the defense and any damages resulting from the Action are not covered by
insurance and the Company is required to pay such amounts, the Company's
financial condition could be materially adversely affected.
12
<PAGE>
AMERIMMUNE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (CONTINUED)
OFFICER EMPLOYMENT AGREEMENT
During November 1999, the Company hired a new president and chief executive
officer. As of September 30, 2000, the new president and chief executive
officer's employment agreement had not been finalized. Accordingly, based
on preliminary negotiations regarding the employment agreement, the Company
has accrued $70,000 representing the pro rata portion of the expected
compensation applicable to the year ended March 31, 2000, and $90,000
applicable to the six months ended September 30, 2000. Additionally, the
Company expects to issue stock options to the new officer, the terms of
which have not been finalized.
4. RELATED PARTY TRANSACTIONS
During the period from inception (April 10, 1998) through March 31, 2000,
the Company incurred expenses of $442,575 as a result of services performed
by an affiliate, WCCS, on behalf of the Company. In fiscal 1999, the
Company advanced $219,375 to WCCS to commence certain services in
connection with the development of Cytolin(R) to be performed over a three
year period beginning when the management agreement between the parties
became effective. In November 1999, the Company notified WCCS of its
rescission of this agreement and expensed the remaining prepaid management
fees. The Company is evaluating remedies to collect all amounts paid to
WCCS in conjunction with this agreement. See Note 3 for a discussion of a
Complaint filed against current or former officers and/or directors of the
Company related to the rescission of this agreement.
During the period from inception (April 10, 1998) through September 30,
2000, the Company paid consulting fees of $74,032 to Allen for providing
scientific expertise regarding the development of Cytolin(R), $144,750
pursuant to the Patent and Trademark License Agreement, and $30,000 in
consulting fees in connection with the Phase I Testing of Cytolin(R). As
of September 30, 2000, $3,500 of such fees were included in accounts payable.
During the period from inception (April 10, 1998) through March 31, 2000,
the Company incurred legal expenses of $10,000 for an attorney who is also
a director of the Company.
Since inception through January 31, 1999, the Company used part of an
office facility and administrative services provided by WCCS at no cost.
On February 1, 1999, the Company entered into a long-term non-cancelable
operating lease agreement with an unrelated party.
During June 1999, the Company loaned CytoDyn $100,000 to facilitate payment
by CytoDyn of certain legal and office expenses and to facilitate repayment
to the Company by CytoDyn of previous advances. In February 2000, the
Company loaned CytoDyn an additional $50,000 under the same terms and
conditions as the original loan, as consideration for entering into the
Conditional License Agreement (see Note 3). The loans bear interest at a
rate of 8% per annum and are due, together with accrued interest, on or
before February 23, 2001. The loans are secured by 450,000 shares of
Company common stock which are owned by CytoDyn. The Company believes that
these loans are fully collectible.
13
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Some of the statements made in this Form 10-QSB and the documents
incorporated herein by reference that are not historical facts, such as
anticipated results of clinical trials, may constitute "forward-looking
statements," which forward looking statements are made pursuant to the safe
harbor provisions in the federal securities laws. These statements often
can be identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," "should", "could", "experts", "plans",
"believes", "predicts", "potential", or "continue," or the negative
thereof. Such forward-looking statements speak only as of the date made.
Forward-looking statements are subject to risks, uncertainties and other
factors beyond the control of the Company that could cause actual results,
levels of activity, performance, achievements, and events to differ
materially from historical results of operations, levels of activity,
performance, achievements, and events and any future results, levels of
activity, performance, achievements and events implied by such forward-
looking statements. Although the Company believes that the expectations
reflected in the forward-looking statements are reasonable, the Company
cannot guarantee future results, levels of activity, performance,
achievements, or events. Moreover, neither the Company nor any other
person assumes responsibility for the accuracy or completeness of such
statements. The Company disclaims any obligation to revise any forward-
looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or unanticipated
events.
PLAN OF OPERATION
The Company (for purposes of this section, the term the "Company"
includes the predecessor entity to its current operations, British Lion) is
a development stage pharmaceutical research company and has not generated
any revenues from operations for the period from April 10, 1998 (the date
that British Lion commenced operations) through September 30, 2000. The
Company is engaged in the pharmaceutical research business with the primary
purpose of developing Cytolin(R), a drug designed to protect the immune
system, especially in patients suffering from Human Immunodeficiency Virus
(HIV). The Company believes that Cytolin(R) may be an important drug for
the growing number of patients who have not been receiving treatment, for
those who are on multi-drug therapy, and for those who have become
resistant to drugs currently used to treat the HIV/AIDS virus. The Company
intends to seek governmental approval from the Food and Drug Administration
("FDA") for Cytolin(R). The Company has devoted substantially all of its
resources to the acquisition of a license, research and development of
Cytolin(R), and expenses related to the startup of its business. The
Company has been unprofitable since inception and expects to incur
substantial additional operating losses for the next twelve months, as well
as for the next few years, as it increases expenditures on research and
development and allocates significant and increasing resources to clinical
testing, marketing and other activities.
In November and December 1998, the Company sold 1,426,790 shares of
its common stock (at approximately $0.21 per share), for gross proceeds of
$300,000, to certain accredited investors in a private placement. In
December 1998, the Company
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began a second private placement of common stock to accredited investors,
which was completed on February 22, 1999. The second private placement was
made on a minimum/maximum "best efforts" basis. The Company raised the
maximum amount of gross proceeds of $3,210,000 (7,633,364 common shares at
approximately $0.42 per share) and paid cash offering expenses of $159,698.
Net cash proceeds from the private placement aggregated $3,050,302. The
Company believes that the funds received in these private placements will
enable it to satisfy its cash requirements without the need to raise
additional funds before December 31, 2000. The Company has commenced a
tolerability study for Cytolin(R) after a clinical protocol was sanctioned
by the FDA and the bulk drug was manufactured, tested, packaged, and
released for clinical use. The Company has completed the submission of
related manufacturing records to the FDA.
The Company estimates that it will require significant additional
funding over the next three years in order to continue operations and to
successfully complete the FDA approval process for Cytolin(R). The Company
believes that additional funds will be needed to fund operations after
December 31, 2000. There can be no assurances that such additional capital
will be available to the Company on favorable terms, if at all. The
failure of the Company to obtain additional funding if and when required
would have a material adverse effect on the Company's ability to fulfill
its business plan, continue its operations and meet its financial commitments.
RESULTS OF OPERATIONS
For the three months ended September 30, 2000, the Company incurred
$73,123 in research and development expenses, $168,352 in general and
administrative expenses and earned $11,789 in interest income net of taxes
and other expenses, resulting in a net loss of $229,686. The expenses
incurred during this period relate primarily to commencement of research
activities, regulatory and administrative expenses.
For the three months ended September 30, 1999, the Company incurred
$273,907 in research and development expenses, $157,615 in general and
administrative expenses and earned $15,370 in interest income net of taxes
and other expenses, resulting in a net loss of $416,152. The expenses
incurred during this period relate primarily to commencement of research
activities, regulatory and administrative expenses.
For the six months ended September 30, 2000, the Company incurred
$192,199 in research and development expenses, $338,118 in general and
administrative expenses and earned $24,268 in interest income net of taxes
and other expenses, resulting in a net loss of $506,049. The expenses
incurred during this period relate primarily to commencement of research
activities, regulatory and administrative expenses.
For the six months ended September 30, 1999, the Company incurred
$533,440 in research and development expenses, $366,149 in general and
administrative expenses and earned $40,169 in interest income net of taxes
and other expenses, resulting in a net loss of $860,220. The expenses
incurred during this period relate primarily to commencement of research
activities, regulatory and administrative expenses.
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For the year ended March 31, 2000, the Company incurred $832,518 in
research and development expenses, $1,168,649 in general and administrative
expenses and earned $78,715 in interest income net of taxes and other
expenses, resulting in a net loss of $1,922,452. The expenses incurred
during this period relate primarily to commencement of research activities,
regulatory and administrative expenses.
From April 10, 1998 to March 31, 1999, the Company incurred $422,293
in research and development expenses, $1,769,311 in general and
administrative expenses and earned $8,947 in interest income net of taxes
and other expenses, resulting in a net loss of $2,182,657 (which included
significant non-cash, general and administrative expenses aggregating
$1,498,500 related primarily to issuance of securities in exchange for
services) for the period ended March 31, 1999. The expenses incurred
during this period relate primarily to the commencement of business
operations, the acquisition of a license, fundraising activities and merger
expenses.
The Company's activities to date are not as broad in depth or scope as
the activities it must undertake in the future, and the Company's
historical operations and financial information are not indicative of its
future operating results or financial condition or its ability to operate
profitably as a commercial enterprise if and when it succeeds in bringing
any product to market.
CAPITAL RESOURCES AND LIQUIDITY
From the commencement of operations on April 10, 1998 to September 30,
2000, the Company had no operating revenues and incurred net losses of
$4,611,158. At September 30, 2000, the Company had working capital of
$447,537. The Company requires significant capital to conduct the research
and development and preclinical and clinical testing of Cytolin(R) that is
necessary in order to complete the FDA approval process. Management of the
Company does not expect to generate revenue from operations within the next
year. The Company believes that additional funds will be needed to fund
operations after December 31, 2000. There can be no assurance that such
additional capital will be available to the Company on favorable terms, if
at all. The failure of the Company to obtain additional funding if and
when required would have a material adverse effect on the Company's ability
to fulfill its business plan, continue its operations and meet its
financial commitments.
In October 1998, the Company entered into a Patent and Trademark
License Agreement (the "Agreement") with Three R. The Company was granted
an irrevocable, exclusive, worldwide license to use all present and future
patent rights, knowledge and background technology owned by Three R
relating to the product, Cytolin(R). In addition, the Agreement granted
the Company a sublicense to the trademark Cytolin(R). The Agreement was
consummated simultaneously with the Company's acquisition of British Lion.
The Company issued 21,936,981 shares of its common stock at $.001 per share
to Three R upon execution of the Agreement, and the Company also agreed to
assume Three R's obligations to pay Allen $1,350,000, payable monthly over
a fifteen year period, and fees of $10,000 per year for consulting services
under the agreements
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discussed above between Three R and Mr. Allen. See Note 3 to Unaudited
Consolidated Financial Statements contained in Item 1. of Part I of this
Form 10-QSB for a description of these Agreements and certain potential
disputes. The Company could abandon its patent rights with no further
obligations after minimum payments aggregating $180,000 to Allen, with one
year's notice.
Effect of Inflation and Foreign Currency Exchange
-------------------------------------------------
The Company has not experienced material unfavorable effects on its
results of operations due to currency exchange fluctuations with any
foreign suppliers or material unfavorable effects upon its results of
operations as a result of domestic inflation.
Plant, Equipment and Employees
------------------------------
As of this time, the Company does not expect to make any
purchases of significant plant, facilities or equipment and does not
foresee a significant change in the number of employees.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which
management believes are not routine and incidental to its business or which
are material. The Company may in the future be a party to legal
proceedings. See Note 3 to Unaudited Consolidated Financial Statements
contained in Item 1. of Part I of this Form 10-QSB for a discussion of
certain potential disputes.
In September 2000, Rex Lewis, O.B. Parrish, Kimberlie Cerrone,
Wellington Ewen and Pamela Kapustay, each a current or former officer
and/or director of the Company, were served with a Complaint filed in
August 2000 in the Superior Court of California for Los Angeles County
(Case No. BC 235312). The Company was not named as a defendant.
The Complaint alleges causes of action against the defendants for
libel and slander, intentional infliction of emotional distress,
interference with contract, and unfair business practices. It seeks
compensatory damages in the amount of $20 million and punitive damages and
injunctive relief.
The allegations of the Complaint involve acts relating to: (1) the
Company's cancellation in November 1999, of a Management Agreement with
plaintiff WCCS, and (2) the cancellation and rescission of a technology
licensing agreement by co-defendant CytoDyn. The Complaint alleges that
certain Company officers and directors (as well as officers and directors
of CytoDyn) made libelous and slanderous statements about the background
and competency of certain plaintiffs, who are officers and shareholders of
WCCS. It alleges that these statements caused the Company to cancel its
Management Agreement with WCCS and CytoDyn to cancel its technology
licensing agreement with plaintiff Three R.
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The Company and the defendants have retained counsel to defend Mr.
Lewis, Mr. Parrish, Ms. Cerrone and Ms. Kapustay, and will indemnify them
for fees and expenses incurred in their defense. The Company has also
requested coverage for the acts alleged in the Complaint from two insurance
companies under two different policies.
The Company has been informed that the defendants intend to vigorously
contest the allegations of the Complaint. To the extent that the costs of
the defense and any damages resulting from the Action are not covered by
insurance and the Company is required to pay such amounts, the Company's
financial condition could be materially adversely affected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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2.1 Agreement and Plan of Merger, dated February 17, 1999, by and
among Versailles Capital Corporation, Amerimmune, Inc. and
British Lion Medical, Inc. (2)
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Amended and Restated By-Laws.(1)
3.3 Articles of Merger, as filed with the Colorado Secretary of State
on February 23, 1999.(2)
3.4 Articles of Amendment to the Articles of Incorporation.(3)
10.1 Patent and Trademark License Agreement between British Lion
Medical, Inc. and Three R Associates, Inc., dated October 24, 1998.(2)
10.2 Termination, Sale and Shareholder Agreement by and among Three R
Associates, Inc., Allen D. Allen and CytoDyn(R) of New Mexico,
Inc., dated August 1, 1998. (2)
10.3 Management Agreement between British Lion Medical, Inc. and WCCS,
Inc., dated October 24, 1998. (2)
10.4 Subscription, Share Restriction and Proxy Agreement between
British Lion Medical, Inc. and Allen D. Allen, dated October 23,
1998. (2)
10.5 Versailles Capital Corporation 1998 Omnibus Stock Incentive Plan
as amended and restated through February 23, 1999.(4)
10.6 Conditional License Agreement between Allen D. Allen, CytoDyn of
New Mexico, Inc. and Amerimmune, Inc., dated February 24, 2000.(5)
16.0 Letter on change in certifying accountant. (6)
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27 Financial Data Schedule.
___________________________________________________________________________
(1) Incorporated by reference to the Registrant's Registration Statement
on Form 10-SB, Registration No. 0-22865, as filed with the Commission
on July 22, 1997, and amended on Form 10-SB/A-1, filed with the
Commission on February 25, 1998.
(2) Incorporated by reference from the like numbered exhibits filed with
the Registrant's Current Report on Form 8-K, as amended, dated March 10,
1999.
(3) Incorporated by reference from the Registrant's September 30, 1999
Form 10-QSB, dated November 12, 1999.
(4) Incorporated by reference from the Registrant's March 31, 1999 Form 10-KSB.
(5) Incorporated by reference from the Registrant's March 31, 2000 Form 10-KSB.
(6) Incorporated by reference from the like numbered exhibit filed with
the Registrant's Current Report on Form 8-K, dated March 29, 1999.
(b) Reports on Form 8-K
-----------------------
During the three months ended September 30, 2000, the Company filed no
Current Reports on Form 8-K.
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SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERIMMUNE PHARMACEUTICALS, INC.
Signatures Title Date
---------- ----- ----
Chairman of the Board
/s/ O.B Parrish and Director November 13, 2000
-------------------------
O.B. Parrish
/s/ Deborah Garrett Kalof Chief Financial Officer November 13, 2000
-------------------------
Deborah Garrett Kalof, M.B.A., C.P.A.
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