<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2000
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 No. 0-19153
________________________
NEXELL THERAPEUTICS INC.
(Exact name of Registrant as specified in its Charter)
________________________
Delaware 06-1192468
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
9 Parker, Irvine, CA 92618
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 470-9011
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
------ ------
The aggregate number of Registrant's shares of Common Stock, $.001 par
value, outstanding on April 17,2000 was 74,443,657 shares.
________________________
<PAGE>
NEXELL THERAPEUTICS INC.
INDEX
-----
<TABLE>
PART I - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) as of
March 31, 2000 and December 31, 1999.................................................. 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2000
and 1999.............................................................................. 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2000 and 1999.................................... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)................................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 14
Item 2. Changes in Securities and Use of Proceeds............................................... 14
Item 3. Defaults upon Senior Securities......................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders..................................... 14
Item 5. Other Information....................................................................... 14
Item 6. Exhibits and Reports on Form 8-K........................................................ 15
SIGNATURES ........................................................................................ 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,954,000 $ 28,695,000
Trade receivables net of allowance for doubtful accounts of
$26,000 at March 31, 2000 and December 31, 1999 2,959,000 2,033,000
Receivables from related party 246,000 1,248,000
Inventory - finished goods 3,088,000 4,409,000
Other current assets 2,698,000 2,271,000
--------------- ---------------
Total current assets 32,945,000 38,656,000
Fixed assets, net 10,268,000 10,932,000
Intangible assets, net 42,140,000 43,191,000
Other assets 1,309,000 1,060,000
---------------- ---------------
Total assets $ 86,662,000 $ 93,839,000
================ ===============
LIABILITIES
Current liabilities:
Accounts payable $ 2,010,000 $ 3,194,000
Accounts payable due to related party 3,635,000 4,279,000
Accrued expenses 3,972,000 3,152,000
--------------- ---------------
Total current liabilities 9,617,000 10,625,000
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY
Convertible preferred stock; $.001 par value, 1,150,000 shares
authorized:
Series A; 74,498 issued and outstanding at March 31, 2000 and 100 100
December 31, 1999 (liquidation value $75,784,000 and $74,685,000)
Series B; 63,000 issued and outstanding at March 31, 2000 and
December 31, 1999 (liquidation value $63,664,000 and $63,192,000) 100 100
Common Stock; $.001 par value, 160,000,000 shares authorized,
74,439,473 and 72,714,951 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively. 74,000 73,000
Additional paid-in capital 254,635,800 252,741,800
Unearned compensation (53,000) (198,000)
Accumulated other comprehensive loss (20,000) (5,000)
Accumulated deficit (177,592,000) (169,398,000)
--------------- ---------------
Total shareholders' equity 77,045,000 83,214,000
--------------- ---------------
Total liabilities and shareholders' equity $ 86,662,000 $ 93,839,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------------
2000 1999
---------------- ---------------------
<S> <C> <C>
Revenue $ 4,784,000 $ 5,513,000
Cost of goods sold 2,543,000 3,158,000
---------------- ---------------------
Gross profit 2,241,000 2,355,000
Operating expenses: ---------------- ---------------------
Research and development 4,122,000 3,777,000
General and administrative 2,611,000 2,160,000
Selling and marketing 2,391,000 951,000
Goodwill and intangible assets amortization 1,017,000 825,000
Restructuring costs -- 504,000
-------------------- ---------------------
Total operating expenses 10,141,000 8,217,000
-------------------- ---------------------
Operating loss (7,900,000) (5,862,000)
-------------------- ---------------------
Other (income) expenses:
Royalty, licensing and other related income
(76,000) (1,000)
Royalty expense 100,000 --
Interest income (316,000) (375,000)
Interest expense -- 488,000
Other, net 123,000 145,000
-------------------- --------------------
Total other (income) expenses (169,000) 257,000
-------------------- --------------------
Net loss (7,731,000) (6,119,000)
Preferred stock dividends (1,575,000) (1,039,000)
-------------------- --------------------
Net loss applicable to common stock $ (9,306,000) $ (7,158,000)
==================== =====================
Basic and diluted loss per share $ (0.13) $ (0.10)
-------------------- ---------------------
Weighted average number of shares of common
stock outstanding-basic and diluted 73,045,000 69,627,000
==================== =====================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------
2000 1999
------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (7,731,000) $ (6,119,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization..................................... 1,827,000 1,513,000
Noncash compensation.............................................. 120,000 44,000
Loss from disposal of equipment................................... 18,000 --
Accrued interest on long term debt................................ -- 487,000
Asset impairment charge 96,000 112,000
Changes in operating assets and liabilities:
Increase in trade receivables.................................... (926,000) --
Decrease in other current assets and other assets................ 645,000 460,000
Decrease in receivable from related party........................ 1,002,000 28,000
Decrease in accounts payable and accrued expenses................ (835,000) (389,000)
Increase (decrease) in accounts payable to related party......... (644,000) 354,000
------------------- ---------------
Net cash used in operating activities ........................... (6,428,000) (3,510,000)
------------------- ---------------
Cash flows from investing activities:
Purchases of equipment............................................... (305,000) (393,000)
Proceeds from sales of equipment..................................... 76,000 147,000
------------------- ---------------
Net cash used in investing activities............................. (229,000) (246,000)
Cash flows from financing activities:
Proceeds from issuance of common stock in connection with the
exercise of warrants/options...................................... 1,918,000 921,000
Repurchase/retirement of common stock................................ -- (627,000)
Repayment of capital leases.......................................... -- (34,000)
------------------- --------------
Net cash provided by financing activities......................... 1,918,000 260,000
Effect of exchange rate changes on cash................................ (2,000) (9,000)
------------------- ---------------
Net decrease in cash and cash equivalents.............................. (4,741,000) (3,505,000)
Cash and cash equivalents at beginning of period....................... 28,695,000 33,091,000
------------------- ---------------
Cash and cash equivalents at end of period............................. $ 23,954,000 $ 29,586,000
=================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest -- --
Cash paid for income taxes $23,000 --
</TABLE>
Non-cash investing and financing activities:
. In January 1999, the Company issued 1,882,215 shares of common stock valued
at $3,000,000 in exchange for certain intangible assets.
. In the first quarter of 2000, the company accrued $472,500 in preferred stock
dividends.
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
<PAGE>
NEXELL THERAPEUTICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(unaudited)
(1) Financial Statement Presentation
The unaudited condensed consolidated financial statements and notes thereto
of Nexell Therapeutics Inc. ("Nexell") and subsidiaries (collectively, the
"Company") herein have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"), and in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results of operations for the
interim periods presented. 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. However, management believes that
the disclosures are adequate to make the information presented not
misleading. These condensed consolidated unaudited financial statements and
notes thereto have been prepared in conformity with the accounting
principles applied in our 1999 Annual Report on Form 10-K for the year ended
December 31, 1999 and should be read in conjunction with such Report. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) Principles of Consolidation
These condensed consolidated financial statements include the accounts of
Nexell, Nexell of California, Inc. ("NCI") and its subsidiary, VIMRX
Genomics, Inc. ("VGI"), Innovir Laboratories, Inc. ("Innovir") and its
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
(3) Comprehensive Loss
Comprehensive loss consists of net loss and foreign currency translation
adjustments and is presented in the table below. Accumulated other
comprehensive loss is included as a component of shareholders' equity.
Three Months Ended March 31,
----------------------------------
2000 1999
----------------------------------
Net loss $7,731,000 $6,119,000
Translation adjustment 15,000 21,000
----------------------------------
Total comprehensive loss $7,746,000 $6,140,000
==================================
The cumulative foreign currency translation adjustment included as a
component of accumulated other comprehensive loss was $20,000 and $5,000 at
March 31, 2000 and December 31, 1999, respectively.
6
<PAGE>
No income tax expense or benefit was allocated to the foreign currency
translation adjustments recorded in 2000 and 1999, respectively, due to the
Company's significant net operating loss tax carryforwards.
(4) Per Share Information
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per
share is computed using the weighted average number of shares of common
stock outstanding and potentially dilutive common shares outstanding during
the period. Potentially dilutive common shares consist of stock options and
warrants using the treasury stock method but are excluded if their effect is
antidilutive.
Stock options and warrants, excluding Class A performance warrants, to
purchase 18,539,018, and 10,205,101 shares of Nexell Common Stock ("Common
Stock") were outstanding at March 31, 2000 and 1999, respectively. Stock
options and warrants outstanding were not included in the computation of
diluted earnings per share as the Company incurred losses in all periods
presented.
(5) Restructuring Costs
In January 1999, the Company announced that it intended to acquire 100% of
its 80.5% held subsidiary, NCI, and to restructure the Company by changing
its name from VIMRX Pharmaceuticals Inc. to Nexell Therapeutics Inc. and
relocating its corporate headquarters to Irvine, California. This
transaction was completed in May 1999. In conjunction with the closure of
the former headquarters in Wilmington, Delaware, the Company recorded a
restructuring charge in the first quarter of 1999 of $504,000 comprised of
$392,000 in severance related costs and a fixed asset impairment charge of
$112,000. Due to the office closure, the Company decided to dispose of
substantially all of the existing office furniture and fixtures. Based upon
an independent third-party appraisal of the furniture and fixtures, the
Company recorded a charge of approximately $112,000 at the time such assets
were removed from service to reduce the assets' carrying amount to the
estimated fair value of $25,000. All such assets were sold in 1999.
In addition, eight employees were terminated as a result of the
restructuring and move of the Company's headquarters. The employees were
notified in January 1999 of their pending termination and the termination
benefits they were to receive. All severance related payments of $392,000
were made prior to December 31, 1999.
(6) Restructuring of Sales, Marketing and Distribution Arrangement with Baxter
As more fully described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, the Company is party to numerous contracts
with Baxter Healthcare Corporation. Certain of these agreements were
terminated and/or restructured in 1999. This
7
<PAGE>
allowed the Company to assume direct control for all sales and distribution
of the Company's products.
(7) Acquisition of CellPro Assets
On January 29, 1999, the Company completed the purchase of certain assets of
CellPro Incorporated ("CellPro"). Assets purchased included substantially
all of CellPro's intellectual property rights, patents, antibodies and
related cell banks, and license rights. These assets were acquired in
exchange for 1,882,215 shares of Common Stock with a fair market value of
$3,000,000. The fair market value was determined based upon the average
closing price of the Common Stock for the 15 business days which ended prior
to the closing, or $1.59 per share. The transaction was accounted for as an
asset purchase and the purchase price was allocated to patents and licenses.
In March 1999, the Company repurchased from CellPro and retired 627,405
shares of Common Stock.
(8) Acquisition of Minority Interest in NCI
As more fully described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, in May 1999, Nexell changed its name from
VIMRX Pharmaceuticals Inc. to Nexell Therapeutics Inc. and acquired the
minority interest of Baxter in the Company's principal business unit and
then 80.5% subsidiary, NCI. NCI is now a wholly-owned subsidiary of Nexell.
Baxter retained its right to certain milestone payments from NCI.
(9) Equity
In January 1999, DH Blair exercised 481,140 underwriter options to purchase
Common Stock at an exercise price of $1.91.
In January 1999, the Company issued 1,882,215 shares of Common Stock valued
at $3,000,000 in exchange for certain intangible assets. In March 1999, the
Company repurchased from CellPro and retired 627,405 shares of Common Stock.
During the three months ended March 31, 2000, 527,440 shares of the
Company's common stock were issued as a result of stock option exercises for
cash consideration of $667,000. Additionally, 1,197,132 shares of common
stock were issued as a result of stock warrant exercises for cash
consideration of $1,288,000.
(10)Geographic Information
The Company operates in one industry segment; the development, manufacture,
marketing and distribution of specialized instruments, biologicals,
reagents, sterile plastic sets and related products used in ex vivo cell
research and therapies.
8
<PAGE>
Prior to the termination of the Company's distribution agreement with Baxter on
November 30, 1999, all of the Company's sales were made to a domestic entity of
Baxter. Substantially all of Baxter's end user sales of the Company's products
were made internationally until regulatory approval for United States
distribution was received in July 1999. Assets assigned to geographic segments
have not changed materially since December 31, 1999. Summary comparative
operating results for the United States and the rest of the world follows:
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
Revenues by Geographic Area: March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
United States $3,057,000 $5,513,000
Rest of World 1,727,000 --
---------- ----------
$4,784,000 $5,513,000
========== ==========
Quarter Ended
-------------------------------
Operating loss by Geographic Area: March 31, 2000 March 31, 1999
-------------- --------------
$7,831,000 $5,455,000
United States 69,000 407,000
---------- ----------
Rest of World $7,900,000 $5,862,000
========== ==========
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
Three Months Ended March 31, 2000 and 1999
Sales were $4,784,000 for the quarter ended March 31, 2000, a decline of
$729,000 or 13% from $5,513,000 for the quarter ended March 31, 1999. In the
prior year, revenues reflected product sales by NCI to its former exclusive
worldwide distributor, Baxter Healthcare Corporation ("Baxter"), and were
impacted by the timing of the distributor's orders. In the current year, as a
result of the November 30, 1999 restructuring of the distribution agreement with
Baxter, the Company sells product directly to multiple end users. Accordingly,
timing of orders less significantly impacts revenues since product sales are
distributed over more than 200 customers. The transition from distribution
through Baxter to direct end user sales by the Company has required the
recruitment and training of domestic and international sales forces and the
creation of a sales infrastructure. The development of an internal sales
function, which management believes is now substantially complete, has
negatively impacted sales since the Company could initially support only a
limited base of customers. Following the termination of the distribution
agreement with Baxter in the fourth quarter of 1999, few of the former Baxter
direct sales force in Europe transferred to the Company. Currently, recruitment
of a new European sales force is almost complete in all key market areas.
Following regulatory approval of the Isolex 300i system in July 1999, end user
sales began in the United States market; the newly formed sales force has
completed training as of the end of the first quarter of 2000. This has
resulted in an increase in domestic end user sales from the previous quarter.
Gross profit was $2,241,000 for the quarter ended March 31, 2000, a decrease of
$114,000 from the $2,355,000 for the quarter ended March 31, 1999. However, the
gross profit percentage increased from 43% for the quarter ended March 31, 1999
to 47% for the comparable period of the current year. This increase was
primarily the result of a change in the sales mix as despite the overall
decrease in sales, there was a $752,000 sales increase in kits and disposables,
which are the Company's largest and most profitable product line. This sales
volume increase was more than offset by sales decreases in lower margin product
lines.
Total operating expenses were $10,141,000 for the three months ended March 31,
2000, an increase of $1,924,000 or 23% over the quarter ended March 31, 1999.
This increase was the result of several factors. Research and development
expenses increased by $345,000 or 9% from $3,777,000 in the first quarter of
1999 to $4,122,000 in the first quarter of 2000. It is anticipated that
significant expenditures for research and development will continue throughout
the year. General and administrative expenses increased by $451,000 or 21% from
$2,160,000 in 1999 to $2,611,000 in 2000. This was largely due to increased
headcount and related recruitment and relocation costs as a result of the
anticipated growth in revenue following regulatory approval of the Isolex system
in July 1999 and the need for increased infrastructure as a result of the
10
<PAGE>
revisions to the distribution agreements with Baxter.
Selling and marketing expenses increased by $1,440,000 or 151% from $951,000 in
the first quarter of 1999 to $2,391,000 in the first quarter of 2000 as a result
of the restructuring of the distribution agreements with Baxter. This increase
resulted from the Company's assumption of responsibility for marketing, selling
and distribution activities related to its cell therapy products. Baxter had
previously performed these activities. Goodwill and intangible amortization
increased by $192,000 or 23% to $1,017,000 for the quarter ended March 31, 2000
from $825,000 for the quarter ended March 31, 1999 as a result of acquisitions
completed during 1999. The expense increases discussed above were partially
offset by a $504,000 decrease in restructuring costs related to the relocation
of the Company's corporate headquarters in the previous year while no such costs
were incurred in the current period.
Other income was $169,000 for the quarter ended March 31, 2000, while other
expense of $257,000 was incurred in the quarter ended March 31, 1999, a change
of $426,000. This was primarily the result of a decrease in interest expense
from $488,000 in the three months ended March 31, 1999 to zero for the
comparable period in 2000. This decrease arose from the repayment of
approximately $34 million in convertible debentures from the proceeds of the
Company's private placement financing that was completed in November 1999.
The foregoing resulted in a net loss of $7,731,000 and a net loss applicable to
common stock of $9,306,000 for the quarter ended March 31, 2000. This
represented an increase in net loss of $1,612,000 or 26% and in increase in the
net loss applicable to common stock of $2,148,000 or 30% from the quarter ended
March 31, 1999.
Liquidity and Capital Resources
The Company had $23,954,000 in cash and cash equivalents as of March 31, 2000 as
compared to $28,695,000 as of December 31, 1999, and working capital of
$23,328,000 at March 31, 2000 as compared to $28,031,000 at December 31, 1999.
The $4,741,000 decrease in cash and cash equivalents resulted principally from
cash used in the operations of the Company of $6,428,000 and purchases of
equipment totaling $305,000. These were partially offset by cash proceeds of
$1,918,000 from the exercise of stock options and warrants and $76,000 from the
sale of equipment. The decrease in working capital of $4,703,000 resulted
principally from the decrease in cash and cash equivalents.
Cash used in operating activities in the first three months of 2000 of
$6,428,000 represented an increase of $2,918,000 or 83% from the cash use of
$3,510,000 for the three months ended March 31, 1999. The increase is due
principally to an increase in the net loss of $1,612,000 and a decrease of
$487,000 in accrued interest on long term debt as a result of the retirement of
the underlying debt in November 1999. In addition, payables to related parties
decreased by $998,000 as a result of the Company carrying lower inventory levels
in response to decreased sales. Remaining changes in current assets and
liabilities largely offset.
11
<PAGE>
Cash dividends are payable semi-annually on the Series B Preferred Stock at the
rate of 3% of the liquidation preference and will be approximately $1,900,000
per year.
At this time, the Company does not have any specific plans to acquire any
company. The Company, in the ordinary course of business, routinely explores
possible business transactions that may lead to an acquisition. In general, in
order to conserve cash the Company's preference is to use its stock as
consideration for any potential acquisition.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products.
Based on current projections, which are subject to change, the Company's
management believes that the current balance of cash and cash equivalents is
sufficient to fund its operations through at least fiscal 2000. Thereafter, the
Company will require additional funds, which it may seek to raise through public
or private equity or debt financings, collaborative or other arrangements with
corporate sources, or through other sources of financing. There can be no
assurance that such additional funds will be available to the Company on terms
favorable to the Company, or at all.
Year 2000 Issues
The Company has experienced no material disruption in the operation of its
business as a result of the transition from 1999 to 2000. No future costs are
anticipated with respect to Year 2000 compliance. The Company's product lines
all operate independently of the date or time of day; thus, the transition to
the Year 2000 has not affected their operation. The Company continues to
monitor its IT and non-IT systems, as well as its vendors, suppliers, and
partners to ensure continued Year 2000 compliance. Although the Company will
take all practical measures to prevent future problems related with the Year
2000 issue, such problems and failures may occur which could seriously affect
the Company's operation. Because of the unprecedented nature of such problems,
the extent of the effect on the Company's operations, if any, cannot be
determined.
Disclosure Regarding Forward Looking Statements
This Report on Form 10-Q contains certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements include, among other things, the discussions of the Company's
business strategy and expectations contained in "Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Although the Company believes that the expectations reflected in Forward Looking
Statements are reasonable, management can give no assurance that such
expectations will prove to have been correct. Generally, these statements
relate to business plans or strategies, projected or anticipated benefits or
other consequences of such plans or strategies, or projections involving
anticipated revenues, expenses, earnings, levels of capital expenditures,
liquidity or indebtedness or other aspects of operating results or financial
position. All phases of the operations of the Company are subject to a number
of uncertainties, risks and other influences (including the timely commencement
and success of the Company's clinical trials and other research endeavors,
delays
12
<PAGE>
in receiving FDA or other regulatory approvals, the development of competing
therapies and/or technologies, the terms of any future strategic alliances, the
possible need for additional capital, and the volatility in the market price for
the Company's securities) many of which are outside the control of the Company
and any one of which, or a combination of which, could materially affect the
results of the Company's operations and whether the Forward Looking Statements
made by the Company ultimately prove to be accurate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, operations of the Company are exposed to risks
associated with fluctuations in interest rates and foreign currency exchange
rates.
Interest Rate Risk
The Company maintains excess cash in a mutual fund, the "BlackRock Low Duration
Bond Portfolio" (the "fund"), which invests in asset backed securities, bonds
and various other commercial obligations. The fund may, from time to time, use
certain derivatives in its investment strategy.
Two of the main risks disclosed by the fund are interest rate risk and credit
risk. Typically, when interest rates rise, there is a corresponding decline in
the market value of bonds such as those held by the fund. Credit risk refers to
the possibility that the issuer of the bond will not be able to make principal
and interest payments. The Company addresses these risks by actively monitoring
the fund's performance and investment holdings. The Company does not enter into
financial instruments for trading or speculative purposes.
The Company's interest income is most sensitive to fluctuations in the general
level of U.S. interest rates. In this regard, changes in the U.S. interest
rates affect the interest earned on the Company's cash as well as the value of
the mutual fund in which excess cash is invested.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment of excess cash in a mutual fund, which
invests in asset backed securities, bonds and various other commercial
obligations. The fund may, from time to time, use certain derivatives in its
investment strategy. The fund's portfolio managers make all investment
decisions and the Company has no control over such investment decisions or the
fund's use of derivatives.
Foreign Currency Risk
Changes in foreign exchange rates, and in particular a strengthening of the U.S.
dollar, may negatively affect the Company's consolidated sales and gross margins
as expressed in U.S. dollars. To date, the Company has not entered into any
foreign exchange contracts to hedge its exposure to foreign exchange rate
fluctuations. However, as its international operations grow, the Company may
enter into foreign exchange contracts to manage its foreign exchange risk.
13
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 2, 2000, the Company filed suit in the U.S. District Court in Delaware
(civil case number 00-141) against Miltenyi Biotec GmbH of Germany and its
related U.S. companies, Miltenyi Biotec, Inc. and AmCell Corporation. The suit
charges Miltenyi with patent infringement, breach of contract and deceptive
trade practices. Becton, Dickinson & Company and The Johns Hopkins University,
both of whom have proprietary rights associated with Company's technology, have
joined with the Company in the suit. The Company intends to ask the court for
damages and injunctive relief. The Company is also involved in various claims
and legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
Item 2. Changes in Securities and Use of Proceeds.
During the quarter ended March 31, 2000, the Company issued an aggregate of
337,177 shares of its Common Stock that were not registered under the Securities
Act of 1933, pursuant to the following transactions: (i) 1,251 shares to two
former employees upon exercise of stock options that had an exercise price of
$1.67 per share; (ii) 243,064 shares to an individual, Dr. Herbert Stadler, upon
his exercise of a warrant that had an exercise price of $.01 per share; and
(iii) 92,862 shares to persons who exercised the Company's Common Stock
Subscription Warrants (NEXLW) at an exercise price of $1.35 per share. All of
the shares of Common Stock issued in these transactions were issued pursuant to
an exemption from the registration requirements under Section 4(2) of the
Securities Act of 1933. These sales were made without general solicitation or
advertising.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Among other items for consideration at the Company's Annual Meeting of
Stockholders scheduled for June 14, 2000, it is proposed by the Board of
Directors to amend the Company's Amended and Restated Certificate of
Incorporation to effect a one for four reverse stock split of the Common Stock.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K:
--------------------
Not applicable.
15
<PAGE>
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.
Dated: May 8, 2000
NEXELL THERAPEUTICS INC.
a Delaware Corporation
(Registrant)
By: /s/ Richard L. Dunning
---------------------------------.
Richard L. Dunning
Chairman of the Board and
Chief Executive Officer
By: /s/ William A. Albright, Jr.
---------------------------------.
William A. Albright, Jr.
Chief Financial Officer
16
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 23,954,000 29,586,000
<SECURITIES> 0 0
<RECEIVABLES> 3,231,000 2,963,000
<ALLOWANCES> 26,000 0
<INVENTORY> 3,088,000 1,242,000
<CURRENT-ASSETS> 2,698,000 948,000
<PP&E> 17,384,000 14,959,000
<DEPRECIATION> 7,116,000 4,585,000
<TOTAL-ASSETS> 86,662,000 85,218,000
<CURRENT-LIABILITIES> 9,617,000 6,686,000
<BONDS> 0 0
0 0
200 100
<COMMON> 74,000 70,000
<OTHER-SE> 76,970,800 45,942,900
<TOTAL-LIABILITY-AND-EQUITY> 86,662,000 85,218,000
<SALES> 4,784,000 5,513,000
<TOTAL-REVENUES> 4,784,000 5,513,000
<CGS> 2,543,000 3,158,000
<TOTAL-COSTS> 10,141,000 7,713,000
<OTHER-EXPENSES> 0 504,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 488,000
<INCOME-PRETAX> (7,731,000) (6,119,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,731,000) (6,119,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,731,000) (6,119,000)
<EPS-BASIC> (0.13) (0.10)
<EPS-DILUTED> (0.13) (0.10)
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