As filed with the Securities and Exchange Commission on May 17, 1999
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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
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For transition period from _________________.
Commission File Number 0-27352
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HYBRIDON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3072298
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
155 Fortune Blvd.
Milford, Massachusetts 07157
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(Address of principal executive offices)
(508) 482-7500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 15,606,825
- --------------------------------------- ---------------------------------
Class Outstanding as of May 14, 1999
<PAGE>
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL STATEMENTS
- -----------------------------
Item 1- Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 1999 and
December 31, 1998.
Consolidated Condensed Statements of Operations for the Three Months
ended March 31, 1999 and 1998.
Consolidated Condensed Statements of Cash Flows for the Three Months
ended March 31, 1999 and 1998.
Notes to Consolidated Condensed Financial Statements.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk.
PART II - OTHER INFORMATION
- ---------------------------
Items 1-5 - None
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 2,461,184 $ 5,607,882
Accounts receivable 1,278,492 1,175,441
Prepaid expenses and other current assets 105,421 110,827
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Total current assets 3,845,097 6,894,150
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PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 11,127,035 11,127,035
Laboratory and other equipment 11,430,255 11,432,435
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22,557,290 22,559,470
Less--Accumulated depreciation and amortization 14,479,810 13,788,979
-------------- --------------
8,077,480 8,770,491
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OTHER ASSETS:
Deferred financing costs and other assets 585,390 612,374
Notes receivable from officers 261,500 258,650
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846,890 871,024
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$ 12,769,467 $ 16,535,665
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,073,283 $ 6,070,951
Accounts payable 1,838,983 2,368,163
Accrued expenses 3,753,129 4,068,679
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Total current liabilities 11,665,395 12,507,793
LONG-TERM DEBT, NET OF CURRENT PORTION 453,875 473,094
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9% CONVERTIBLE SUBORDINATED NOTES PAYABLE 1,306,000 1,306,000
-------------- --------------
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--None - -
Series A convertible preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--641,259 shares 6,413 6,413
(Liquidation preference of $65,168,048 at
March 31, 1999)
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--15,304,825 15,305 15,305
Additional paid-in capital 242,674,076 241,632,024
Accumulated deficit (242,456,081) (238,447,837)
Deferred compensation (895,516) (957,127)
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Total stockholders' (deficit) equity (655,803) 2,248,778
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$ 12,769,467 $16,535,665
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-1
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
REVENUES:
Product and service revenue $ 1,529,854 $ 825,069
Research and development 150,000 150,000
Interest 52,801 17,845
Royalty and other income 40,225 -
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1,772,880 992,914
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OPERATING EXPENSES:
Research and development 3,447,278 6,402,537
General and administrative 1,121,468 1,665,112
Interest 170,326 1,607,437
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Total operating expenses 4,739,072 9,675,086
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Net loss (2,966,192) (8,682,172)
ACCRETION OF PREFERRED STOCK DIVIDENDS 1,042,052 -
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Net loss applicable to common stockholders $ (4,008,244) $ (8,682,172)
============= ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE
(Note 3)
Net loss per share $ (0.19) $ (1.72)
Accretion of preferred stock dividends (0.07) -
------------- ------------
Net loss per share applicable to common stockholders $ (0.26) $ (1.72)
============= ============
SHARES USED IN COMPUTING BASIC AND DILUTED NET 15,304,825 5,059,650
LOSS PER COMMON SHARE (Note 3) ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
F-2
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,966,192) $ (8,682,172)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 690,831 1,130,540
Loss on disposal of fixed assets - 359,424
Amortization of deferred compensation 61,611 54,348
Amortization of deferred financing costs 26,984 217,021
Changes in operating assets and liabilities-
Accounts receivable (103,051) 7,815
Prepaid and other current assets 5,406 298,956
Notes receivable from officers (2,850) (2,850)
Accounts payable (529,180) (479,432)
Accrued expenses (315,550) 745,990
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Net cash used in operating activities (3,131,991) (6,350,360)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 2,180 400,000
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Net cash provided by investing activities 2,180 400,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible promissory notes
payable - 4,233,833
Payments on long-term debt and capital leases (16,887) (2,204,315)
Decrease in restricted cash and other assets - 2,157,854
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Net cash (used in) provided by financing
activities (16,887) 4,187,372
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NET DECREASE IN CASH AND CASH EQUIVALENTS (3,146,698) (1,762,988)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,607,882 2,207,702
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,461,184 $ 439,214
============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 186,695 $ 358,680
============== ============
Accretion of Series A convertible preferred
stock dividend $ 1,042,052 $ -
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-3
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the" Company" or "Hybridon") was incorporated in the
State of Delaware on May 25, 1989. The Company is engaged in the
discovery and development of novel genetic medicines based primarily on
antisense technology.
Since inception, the Company has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruiting of scientific and
management personnel and raising capital. To date, the Company has not
received revenue from the sale of biopharmaceutical products developed
by it based on antisense technology. In order to commercialize its own
products, the Company will need to address a number of technological
challenges and comply with comprehensive regulatory requirements.
Accordingly, it is not possible to predict the amount of funds that will
be required or the length of time that will pass before the Company
receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaboration
agreements, interest on investment funds and revenues from the custom
contract manufacturing of synthetic DNA and reagent products by the
Company's Hybridon Specialty Products Division. As a result, although
the Company has begun to generate revenues from its contract
manufacturing business, the Company is dependent on the proceeds from
possible future sales of equity securities, debt financing and research
and development collaborations in order to fund future operations.
The Company is currently seeking debt or equity financing in an amount
sufficient to support its operations through the end of 1999, and in
connection therewith, is in negotiations with several parties to obtain
such financing. The Company's existing cash resources and proceeds of
accounts receivable from HSP customers are expected to be sufficient to
fund the Company's operations into July 1999. The Company's management
expects such receivables to be collected no later than July 1999, given
such customers' payment histories, although there can be no assurance
thereof. If the Company is unable to obtain additional funding by the
end of July 1999, it will be forced to terminate its operations or seek
relief under applicable bankruptcy law.
On December 3, 1997, the Company was delisted from the Nasdaq Stock
Market, Inc. (NASDAQ) because the Company was not in compliance with the
continued listing requirements of the NASDAQ National Market. The
Company is currently trading on the NASD OTC as a result of the
delisting.
(2) UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited consolidated condensed financial statements included
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and
include, in the opinion of management, all adjustments, consisting of
normal, recurring adjustments necessary for a fair presentation of
interim period results. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal
year. It is suggested that these financial statements be read in
conjunction with the audited consolidated
F-4
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, as filed with
the Securities and Exchange Commission.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. Under SFAS No. 128, basic
net loss per common share is computed using the weighted average number
of shares of common stock outstanding during the period. Diluted net
loss per common share is the same as basic net loss per common share as
the effects of the Company's potential common stock equivalents are
antidilutive.
Comprehensive Loss
The Company follows the provisions of SFAS No. 130, Reporting
Comprehensive Income. Comprehensive loss is defined as the change in
equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The Company's
comprehensive loss is the same as the reported net loss for all periods
presented.
Segment Reporting
The Company follows the provisions of SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected
information for those segments to be presented in interim financial
reports issued to stockholders. SFAS No. 131 also establishes standards
for related disclosures about products and services and geographic
areas. To date, the Company has viewed its operations and manages its
business as principally one operating segment. As a result, the
financial information disclosed herein represents all of the material
financial information related to the Company's principal operating
segment. All of the Company's revenues are generated in the United
States and substantially all assets are located in the United States.
(4) CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. Cash and
cash equivalents at March 31, 1999 and December 31, 1998 consisted of
the following (at amortized cost, which approximates fair market value):
F-5
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
Cash and cash equivalents --
Cash and money market funds $2,267,758 $3,865,365
Corporate bond 193,426 1,742,517
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$2,461,184 $5,607,882
========== ==========
</TABLE>
(5) 9% CONVERTIBLE SUBORDINATED NOTES
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the "9% Notes"). On May 5, 1998, noteholders holding
$48.7 million of principal value of the 9% Notes and $2.4 million of
accrued interest thereon tendered such notes and accrued interest in
exchange for 510,505 shares of Series A convertible preferred stock and
warrants to purchase 3,002,958 shares of common stock. As of March 31,
1999, there is $1.3 million of 9% Notes outstanding. Under the terms of
the 9% Notes, the Company must make semi-annual interest payments on the
outstanding principal balance through the maturity date of April 1,
2004. If the 9% Notes are converted prior to April 1, 2000, the
Noteholders are entitled to receive accrued interest from the date of
the most recent interest payment through the conversion date. The 9%
Notes are convertible at any time prior to the maturity date at a
conversion price equal to $35.0625, subject to adjustment under certain
circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the 9% Notes at its
option for a 4.5% premium over the original issuance price provided that
from April 1, 2000 to March 31, 2001, the 9% Notes may not be redeemed
unless the closing price of the common stock equals or exceeds 150% of
the conversion price for a period of at least 20 out of 30 consecutive
trading days and the 9% Notes are redeemed within 60 days after such
trading period. The premium decreases by 1.5% each year through March
31, 2003. Upon a change of control of the Company, as defined, the
Company will be required to offer to repurchase the 9% Notes at 150% of
the original issuance price.
(6) NOTE PAYABLE TO LENDERS
In December 1996, the Company entered into a five-year $7,500,000 note
payable to a bank (the "Note"). In November 1998, the outstanding
balance of approximately $2,895,000 was purchased from the bank by Forum
Capital Markets, LLC ("Forum") and certain investors associated with
Pecks Management Partners Ltd. ("Pecks") (collectively, the "Lenders"),
which are affiliates of two members of the Company's Board of Directors.
In connection with the purchase, the Lenders lent an additional
$3,200,000 so as to increase the outstanding principal amount of the
note to $6,000,000. The terms of the Note were amended as follows: (i)
the maturity was extended to November 30, 2003; (ii) the interest rate
was decreased to 8%; (iii) interest is payable monthly in arrears, with
the principal due in full at maturity of the loan; (iv) the Note is
F-6
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
convertible, at the Lenders' option, in whole or in part, into shares of
common stock at a conversion price of $2.40 per share; (v) the Note
includes a minimum liquidity covenant, as defined, of $2,000,000; and
(vi) the Note may not be prepaid, in whole or in part, at any time prior
to December 1, 2000. The Company has received waivers of noncompliance
with the minimum tangible net worth covenant through the quarter ended
March 31, 1999 and for the minimum liquidity covenant for May 30, 1999.
The Company has classified the outstanding balance of $6,000,000 at
March 31, 1999 as a current liability in the accompanying consolidated
balance sheet as it does not expect to remain in compliance with the
financial covenants. In connection with the purchase of the Note, Forum
is entitled to receive $400,000 as a fee, which Forum has agreed to
reinvest by purchasing 160,000 shares of common stock and warrants to
purchase 40,000 shares of common stock at $3.00 per share. The Company
has recorded the $400,000 as a deferred financing cost, which will be
amortized to interest expense over the term of the Note and an accrued
expense for the issuance of common stock and warrants. In addition,
Forum is entitled to receive warrants to purchase 133,333 shares of
common stock of the Company at $3.00 per share. The Company recorded the
value of the warrants to be $85,433, by using the Black-Scholes option
pricing model. The Company has recorded this $85,433 as a deferred
financing cost, which will be amortized to interest expense over the
term of the note.
F-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Hybridon is engaged in the discovery and development of genetic
medicines based on antisense technology. Hybridon commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, developing its manufacturing capabilities, and raising
capital. In order to commercialize its therapeutic products, Hybridon will need
to address a number of technological challenges and comply with comprehensive
regulatory requirements. All revenues received by Hybridon to date have been
derived from collaborative agreements, interest on invested funds and revenues
from the custom contract manufacturing of synthetic DNA and reagent products by
Hybridon Specialty Products ("HSP").
Hybridon has incurred cumulative losses from inception through March 31,
1999 of approximately $242.5 million. Hybridon implemented a restructuring plan
in the second half of 1997, which continues to significantly reduce Hybridon's
operating expenses. However, Hybridon expects that its research and development
expenses will be significant in 1999 and future years as it pursues its core
drug development programs and expects to continue to incur operating losses and
have significant capital requirements that it will not be able to satisfy with
internally generated funds. As of May 14, 1999, the Company had 50 full-time
employees.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Hybridon had total revenues of $1.8 million for the three months ended
March 31, 1999, compared with $1.0 million for the same period in 1998. Product
and service revenue increased to $1.5 million for the three months ended March
31, 1999, compared with $0.8 million for the same period in 1998. The increase
was primarily the result of an expansion of the HSP customer base, increased
sales to certain existing customers, and the receipt of $0.1 million in service
revenue from MethylGene pursuant to an agreement entered into in May 1998.
Revenues from interest income increased to $0.1 million for the three
months ended March 31, 1999, from a nominal amount for the same period in 1998.
The change was primarily the result of higher cash balances available for
investment during the quarter.
Hybridon's research and development expenses decreased to $3.4 million
for the three months ended March 31, 1999, from $6.4 million for the same period
in 1998. The decrease reflects Hybridon's restructuring that commenced during
the second half of 1997 and continued into 1998. The restructuring included the
discontinuation of operations at Hybridon's facilities in Europe, termination of
the clinical development of GEM(R)91 and the reduction or suspension of selected
programs unrelated to Hybridon's core advanced chemistry antisense drug
development program. The restructuring resulted in significant reductions in
employee-related expenses, clinical and outside testing, consulting, materials
and lab expenses. Accordingly, research and development salaries and related
costs decreased in 1999 due to the reduction in the number of employees engaged
in research and development.
1
<PAGE>
The facilities expense included in research and development expenses
decreased significantly in 1999 as a result of the relocation of the Company's
corporate offices in July 1998 from Cambridge to Milford, Massachusetts.
Hybridon's facility costs in 1999 related to research and development were also
reduced by the income received from subleasing its underutilized Cambridge
facilities before the relocation.
Hybridon's general and administrative expenses decreased to $1.1 million
for the three months ended March 31, 1999, from $1.7 million for the same period
in 1998. The decrease reflects Hybridon's restructuring program initiated during
the second half of 1997 and its effect on employee-related and consulting
expenses and net facilities costs and increased legal and accounting fees
resulting from Hybridon's financing activities in 1998.
The facilities expense included in general and administrative expenses
also decreased significantly in 1999 as a result of the relocation of the
Company's corporate offices to Milford, Massachusetts. Facility costs in 1999
were also reduced by the income received from subleasing underutilized Cambridge
facilities before the relocation. General and administrative expenses related to
business development, public relations and legal expenses all decreased in 1999.
Hybridon's patent expenses remained at approximately the same level in
1999, as Hybridon continued to limit the scope of patent protection that it
sought as part of its effort to conserve its cash resources while prosecuting
and maintaining key patents and patent applications.
Hybridon's interest expense decreased to $0.2 million for the three
months ended March 31, 1999, from $1.6 million for the same period in 1998. The
decrease is attributable to the exchange of approximately $48.7 million of the
9% convertible subordinated notes (the " 9% Notes"), issued in the second
quarter of 1997, for Series A Preferred Stock on May 5, 1998. In addition, the
outstanding balance of borrowings to finance the purchase of property and
equipment was reduced in May 1998, resulting in a reduction in interest expense.
As a result of the above factors, Hybridon incurred a net loss of $3.0
million for the three months ended March 31, 1999, compared with a net loss of
$8.7 million for the three months ended March 31, 1998. Hybridon had accretion
of preferred stock dividends of $1.0 million at March 31, 1999 to reflect the
1999 portion of dividends payable to the holders of Series A Preferred
Convertible Stock, resulting in a net loss to common stockholders of $4.0
million for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, Hybridon used
approximately $3.1 million to fund operating activities. The primary use of cash
for operating activities was to fund Hybridon's loss before accretion of
preferred stock dividends of $3.0 million. Hybridon did not engage in any
significant investing and financing activities during the three months ended
March 31, 1999.
Hybridon had cash and cash equivalents of $2.5 million at March 31,
1999. However, since that date, Hybridon has expended the majority of such cash
resources and continues to have substantial obligations to lenders, real estate
landlords, trade creditors and others. On May 14, 1999, Hybridon's obligations
included $1.3 million principal amount of 9% Notes, a $6.0 million loan with
Forum Capital Markets, LLC and others, as described below, $0.5 million of notes
payable and approximately $1.8 million of accounts payable. Because of
Hybridon's financial condition, many
2
<PAGE>
trade creditors are only willing to provide Hybridon with products and services
on a cash on delivery basis.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Since inception, Hybridon has incurred significant losses, which it has
funded through the issuance of equity securities, debt issuances, sales by HSP,
and through research and development collaborations and licensing arrangements.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Hybridon's ability to continue operations in 1999 depends on its success
in obtaining new funds in the immediate future. Hybridon is currently seeking
debt or equity financing in an amount sufficient to support its operations
through the end of 1999, and in connection therewith, is in negotiations with
several parties to obtain such financing. However, there can be no assurance
that Hybridon will obtain any funds or as to the timing thereof. The Company's
existing cash resources and proceeds of accounts receivable from HSP customers
are expected to be sufficient to fund the Company's operations into July 1999.
The Company's management expects such receivables to be collected no later than
July 1999, given such customers' payment histories, although there can be no
assurance thereof. If the Company is unable to obtain substantial additional new
funding by the end of July, 1999, Hybridon may be required to further curtail
significantly one or more of its core drug development programs, obtain funds
through arrangements with collaborative partners or others that may require it
to relinquish rights to certain of its technologies, product candidates or
products which it would otherwise pursue on its own, or terminate operations or
seek relief under applicable bankruptcy laws.
Even if Hybridon obtains sufficient cash to fund its operations in 1999,
it will be required to raise substantial additional funds through external
sources, including through collaborative relationships and public or private
financing, to support its operations beyond 1999. Except for research and
development funding from Searle under its collaborative agreement with Searle
(which is subject to early termination in certain circumstances), Hybridon has
no committed external sources of capital, and, as discussed above, expects no
product revenues for several years from sales of the therapeutic products that
it is developing (as opposed to sales of DNA products and reagents manufactured
and sold by HSP).
No assurance can be given that additional funds will be available to
fund operations for the balance of 1999 or in future years, or, if available,
that such funds will be available on acceptable terms. If additional funds are
raised by issuing equity securities, further dilution to then existing
stockholders will result. Additionally, the terms of any such additional
financing may adversely affect the holdings or rights of then existing
stockholders.
Hybridon's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials, sales of DNA products and reagents to third parties by HSP
and the margins on such sales, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patent claims, competing technological and market developments, Hybridon's
ability to establish and maintain collaborative academic and commercial
research, development and marketing relationships, its ability to obtain
3
<PAGE>
third-party financing for leasehold improvements and other capital expenditures
and the costs of manufacturing scale-up and commercialization activities and
arrangements.
YEAR 2000; CONTINGENCY PLANS
As has been widely publicized, many computer systems and microprocessors
are not programmed to accommodate dates beyond the year 1999. Hybridon's
exposure to this year 2000 ("Y2K") problem comes not only from its own internal
computer systems and microprocessors, but also from the systems and
microprocessors of its key suppliers, including utility companies and payroll
services.
Hybridon believes that all of its internal systems will be Y2K compliant
by the end of the third quarter of 1999. Hybridon is currently evaluating all of
its internal computer systems and microprocessors in light of the Y2K problem.
As part of this process, Hybridon has conducted an inventory of its automated
instruments and other computerized equipment and is contacting applicable
vendors for information regarding Y2K compliance. Hybridon will then upgrade or
otherwise modify its internal computer systems and microprocessors, to the
extent necessary. Testing of all its internal computer systems and
microprocessors was completed in the first quarter of 1999. Hybridon does not
expect the cost of bringing all Hybridon's systems and microprocessors into Y2K
compliance to be material. Approximately 50% of Hybridon's systems either have
been found compliant or have already been brought into compliance.
Hybridon's Y2K compliance efforts are in addition to other planned
information technology ("IT") projects. While these efforts have caused and may
continue to cause delays in other IT projects, Hybridon does not expect that any
of these delays will have a significant effect on Hybridon's business or that
any of Hybridon's other IT projects will be canceled or postponed to pay for the
Y2K upgrades.
With regard to potential supplier Y2K problems, Hybridon has compiled a
list of its critical suppliers, and has sent and received back a Y2K
questionnaire from each of them in order to permit Hybridon to ascertain the Y2K
compliance status of each. Hybridon has not yet uncovered any key supplier Y2K
problems that could have a material effect on its business. If through continued
monitoring of these suppliers Hybridon becomes aware of any such problems and is
not satisfied that those problems are being adequately addressed, it will take
appropriate steps to find alternative suppliers.
It has been acknowledged by governmental authorities that Y2K problems
have the potential to disrupt global economies, that no business is immune from
the potentially far-reaching effects of Y2K problems, and that it is difficult
to predict with certainty what will happen after December 31, 1999.
Consequently, it is possible that Y2K problems will have a material effect on
Hybridon's business even if Hybridon takes all appropriate measures to ensure
that it and its key suppliers are Y2K compliant.
It is possible that the conclusions reached by Hybridon from its
analysis to date will change, which could cause Hybridon's Y2K cost estimates
and target completion dates to change.
4
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements contained in this Report on Form 10-Q may 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. For this
purpose, any statements herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, the words "believes,"
"anticipates," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements are based
on management's current expectations and involve known and unknown risks,
uncertainties, and other factors which may cause the actual results, performance
or achievements of Hybridon to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. These forward looking statements are subject to a number of
uncertainties and other factors, many of which are outside Hybridon's control,
that could cause Hybridon's actual results to differ materially from those
indicated by such statements.
For a more complete discussion of the factors that could cause actual
results to differ materially from such forward looking statements, see the
discussion thereof contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors that
May Affect Future Results" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, which information is incorporated herein by
reference. Hybridon disclaims any intention or obligation to update or revise
any forward looking statements, whether as a result of new information, future
events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Historically, Hybridon's primary exposures have been related to
nondollar-denominated operating expenses in Europe. As of March 31, 1999,
Hybridon's assets and liabilities related to nondollar-denominated currencies
were not material.
5
<PAGE>
HYBRIDON, INC.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. None
-----------------
Item 2. Changes in Securities and Use of Proceeds. None
-----------------------------------------
Item 3. Defaults Upon Senior Securities. None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. None
---------------------------------------------------
Item 5. Other Information. None
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.1 Financial Data Schedule (EDGAR)
(b) No current reports on Form 8-K were filed during the three months
ended March 31, 1999.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HYBRIDON, INC.
May 17, 1999 /s/ E. Andrews Grinstead, III
- ------------ ---------------------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
May 17, 1999 /s/ Robert G. Andersen
- ------------ ---------------------------------------------
Date Robert G. Andersen
Treasurer (Principal Financial and Accounting
Officer)
<PAGE>
HYBRIDON, INC.
EXHIBIT INDEX
27.1 Financial Data Schedule (EDGAR)
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,461,184
<SECURITIES> 0
<RECEIVABLES> 1,278,492
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,845,097
<PP&E> 22,557,290
<DEPRECIATION> 14,479,810
<TOTAL-ASSETS> 12,769,467
<CURRENT-LIABILITIES> 11,665,395
<BONDS> 1,759,875
15,305
0
<COMMON> 6,413
<OTHER-SE> (677,521)
<TOTAL-LIABILITY-AND-EQUITY> 12,769,467
<SALES> 1,529,854
<TOTAL-REVENUES> 1,772,880
<CGS> 0
<TOTAL-COSTS> 4,568,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,326
<INCOME-PRETAX> (2,966,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,966,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,966,192)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
