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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-22613
ANTIVIRALS INC.
(Exact name of registrant as specified in its charter)
Oregon 93-07972223
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One SW Columbia Street, Suite 1105, Portland, Oregon 97258
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 503-227-0554
Check whether the issuer (1) 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 without par value 11,189,841
(Class) (Outstanding at August 3, 1998)
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Transitional Small Business Disclosure Format (check one): Yes___ No X_
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ANTIVIRALS INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Balance Sheets - June 30, 1998 and December 31, 1997 2
Statements of Operations - Three and Six Months Ended
June 30, 1998 and 1997 and from July 22, 1980 (Inception)
to June 30, 1998 3
Statements of Cash Flows - Six Months Ended June 30, 1998
and 1997 and from July 22, 1980 (Inception) to June 30, 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
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<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,195,011 $ 17,638,936
Other current assets 1,256,654 19,042
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Total Current Assets 14,451,665 17,657,978
Property and Equipment, net of accumulated
depreciation and amortization of $2,324,746
and $2,262,755 395,048 438,820
Patent Costs, net of accumulated amortization of
$251,773 and $218,773 612,162 553,063
Deferred Acquisition Costs 345,760 102,506
Other Assets 29,847 29,847
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Total Assets $ 15,834,482 $ 18,782,214
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 366,475 $ 219,083
Accrued liabilities 67,617 245,369
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Total Current Liabilities 434,092 464,452
Shareholders' Equity:
Preferred Stock, $.0001 par value, 2,000,000
shares authorized; none issued and outstanding - -
Common stock, $.0001 par value, 50,000,000
shares authorized; 11,168,841 and 11,125,617
issued and outstanding 1,117 1,113
Additional paid-in capital 34,525,068 34,358,122
Deficit accumulated during the development stage (19,125,795) (16,041,473)
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Total Shareholders' Equity 15,400,390 18,317,762
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Total Liabilities and Shareholders' Equity $ 15,834,482 $ 18,782,214
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</TABLE>
2
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<TABLE>
<CAPTION>
July 22, 1980
Three months ended June 30, Six months ended June 30, (Inception) to
1998 1997 1998 1997 June 30, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues, from grants and research contracts $ 6,153 $ 3,754 $ 11,803 $ 3,754 $ 715,645
Operating expenses:
Research and development 1,304,174 921,930 2,598,439 1,373,653 14,347,185
General and administrative 504,985 410,112 811,950 580,140 6,643,746
1,809,159 1,332,042 3,410,389 1,953,793 20,990,931
Other Income:
Interest income, net 143,543 62,893 314,264 91,948 1,052,741
Realized gain on sale of short-term investments - - - - 96,750
143,543 62,893 314,264 91,948 1,149,491
Net loss $(1,659,463) $(1,265,395) $(3,084,322) $(1,858,091) $(19,125,795)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss per share - basic and diluted $ (0.15) $ (0.13) $ (0.28) $ (0.20)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding for computing basic and diluted
earnings per share 11,166,536 9,387,998 11,157,240 9,085,566
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
3
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<TABLE>
<CAPTION>
For the Period
July 22, 1980
Six months ended June 30, (Inception) to
1998 1997 June 30, 1998
------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,084,322) $ (1,858,091) $ (19,125,795)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 107,040 265,032 2,624,147
Realized gain on sale of short-term investments -
available for sale - - (96,750)
Compensation expense on issuance of common
stock and partnership units - - 182,392
Compensation expense on issuance of options and
warrants to purchase common stock or partnership units - 98,802 562,353
Conversion of interest accrued to common stock - - 7,860
(Increase) decrease in:
Other current assets (1,237,612) (763) (1,256,654)
Other assets - - (29,847)
Net increase (decrease) in accounts payable and
accrued liabilities (30,360) 562,544 434,092
Net cash used in operating activities (4,245,254) (932,476) (16,698,202)
Cash flows from investing activities:
Proceeds from sale or redemption of short-term investments - 30,000 247,750
Purchase of property and equipment (30,268) (75,489) (2,767,422)
Patent costs (92,099) (105,840) (863,935)
Deferred acquisition costs (243,254) - (345,760)
Net cash used in investing activities (365,621) (151,329) (3,729,367)
Cash flows from financing activities:
Proceeds from sale of common stock, warrants, and
partnership units, net of offering costs, and exercise of
options 166,950 15,628,469 34,008,017
Buyback of common stock pursuant to rescission offering - - (288,795)
Withdrawal of partnership net assets - - (176,642)
Issuance of convertible debt - - 80,000
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Net cash provided by financing activities 166,950 15,628,469 33,622,580
Increase (decrease) in cash and cash equivalents (4,443,925) 14,544,664 13,195,011
Cash and cash equivalents:
Beginning of period 17,638,936 3,011,229 -
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End of period $ 13,195,011 $ 17,555,893 $ 13,195,011
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</TABLE>
4
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ANTIVIRALS INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein for the three and six-month periods
ended June 30, 1998 and 1997 and the financial information as of June 30, 1998
is unaudited; however, such information reflects all adjustments consisting only
of normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial information as
of December 31, 1997 is derived from AntiVirals Inc.'s (the Company's) Form
10-KSB. The interim financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Form
10-KSB. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128. Given that
the Company is in a loss position, there is no difference between basic EPS and
diluted EPS since the common stock equivalents would be antidilutive. This
restatement to conform with the presentation requirements of SFAS 128 resulted
in no change to previously reported numbers.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
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<S> <C> <C>
Net loss $(1,659,463) $(1,265,395)
Weighted average number of shares of
common stock and common stock equivalents
outstanding:
Weighted average number of common shares
outstanding for computing basic earnings per
share 11,166,536 9,387,998
Dilutive effect of warrants and stock options
after application of the treasury stock method * *
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Weighted average number of common shares
outstanding for computing diluted earnings
per share 11,166,536 9,387,998
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Net loss per share - basic and diluted $(0.15) $(0.13)
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</TABLE>
5
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<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
--------------------------- ----------- -----------
<S> <C> <C>
Net loss $(3,084,322) $(1,858,091)
Weighted average number of shares of
common stock and common stock equivalents
outstanding:
Weighted average number of common shares
outstanding for computing basic earnings
per share 11,157,240 9,085,566
Dilutive effect of warrants and stock options
after application of the treasury stock method * *
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Weighted average number of common shares
outstanding for computing diluted earnings
per share 11,157,240 9,085,566
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Net loss per share - basic and diluted $(0.28) $(0.20)
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</TABLE>
* The following common stock equivalents are excluded from earnings per share
calculation as their effect would have been antidilutive:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
--------------------------- ----------- -----------
<S> <C> <C>
Warrants and stock options 4,583,607 4,325,028
Six Months Ended June 30, 1998 1997
--------------------------- ----------- -----------
Warrants and stock options 4,583,607 4,325,028
</TABLE>
NOTE 3. OTHER CURRENT ASSETS
The balance in other current assets consists primarily of advances to
ImmunoTherapy Corporation in anticipation of completing the acquisition thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING INFORMATION
The Financial Statements and Notes thereto should be read in conjunction with
the following discussion. The discussion in this Form 10-QSB contains certain
forward-looking statements that involve risks and uncertainties, including, but
not limited to, the results of research and development efforts, the results of
pre-clinical and clinical testing, the effect of regulation by FDA and other
agencies, the impact of competitive products, product development,
commercialization and technological difficulties, and other risks detailed in
the Company's Securities and Exchange Commission filings.
6
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OVERVIEW
From its inception in July 1980, the Company has devoted its resources primarily
to fund its research and development efforts. The Company has been unprofitable
since inception and, other than limited interest and grant revenue, has had no
material revenues from the sale of products or other sources, and does not
expect material revenues for at least the next 12 months. The Company expects
to continue to incur losses for the foreseeable future as it expands its
research and development efforts. As of June 30, 1998, the Company's
accumulated deficit was $19,125,795.
RESULTS OF OPERATIONS
Operating expenses increased to $1,809,159 in the second quarter of 1998 from
$1,332,042 in the second quarter of 1997 and to $3,410,389 for the six months
ended June 30, 1998 from $1,953,793 for the comparable period of 1997 due to
increases in research and development staffing and increased expenses associated
with outside collaborations and pre-clinical testing of the Company's
technologies. Additionally, increased general and administrative costs were
incurred to support the research expansion, and to broaden the Company's
investor and public relations efforts due to its change in status to a public
company in mid-1997. Net interest income increased to $143,543 in the second
quarter of 1998 from $62,893 in the second quarter of 1997 and to $314,264 for
the six months ended June 30, 1998 from $91,948 for the comparable period in
1997 due to earnings on increased cash balances, which consisted of proceeds
from the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $13,195,011 at June 30, 1998,
compared with $17,638,936 at December 31, 1997. The decrease of $4,443,925 was
primarily due to increases in research and development staffing and increased
expenses associated with outside collaborations and pre-clinical testing of the
Company's technologies. Additionally, increased general and administrative
costs were incurred to support the research expansion, to broaden the Company's
investor and public relations efforts due to its change in status to a public
company in mid-1997, and to advance funding to ImmunoTherapy Corporation as part
of the Company's acquisition thereof.
The Company's future expenditures and capital requirements will depend on
numerous factors, including without limitation, the progress of its research and
development programs, the progress of its pre-clinical and clinical trials, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, the ability of
the Company to establish collaborative arrangements and the terms of any such
arrangements, and the costs associated with commercialization of its products.
The Company's cash requirements are expected to continue to increase
significantly each year as it expands its activities and operations. There can
be no assurance, however, that the Company will ever be able to generate product
revenues or achieve or sustain profitability.
7
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The Company expects that its cash requirements over the next twelve months will
be satisfied by existing cash resources.
YEAR 2000
The Year 2000 issue results from computer programs that do not differentiate
between the year 1900 and the year 2000 because they were written using two
digits rather than four to define the applicable year; accordingly, computer
systems that have time-sensitive calculations may not properly recognize the
year 2000. The Company has conducted an initial review of its computer systems,
devices, applications and manufacturing equipment (collectively, "Computer
Systems") to identify those areas that could be affected by Year 2000
noncompliance. Additionally, the Company has appointed a program manager for
Year 2000 compliance and is presently assessing in detail the affected Computer
Systems and is reviewing the need to develop plans to address the required
modifications. The Company presently intends to utilize internal and external
resources to identify, correct or reprogram and test its Computer Systems for
Year 2000 compliance. The total cost associated with Year 2000 compliance is
not anticipated to be material to the Company's financial position or results of
operation in any given year. The Company has not communicated with many of its
suppliers, service providers, distributors, wholesalers and other entities with
which it has a business relationship (collectively, "Third Party Businesses")
regarding compliance with Year 2000 requirements, although the Company does
intend to communicate with key Third Party Businesses. In addition, the Company
has not determined the impact, if any, on its operations if Third Party
Businesses fail to comply with Year 2000 requirements. The Company accordingly
cannot predict the extent of any such impact.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as a part of this report is listed below and this list
constitutes the exhibit index.
<TABLE>
<CAPTION>
Exhibit No.
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<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
June 30, 1998.
8
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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.
Date: August 3, 1998 ANTIVIRALS INC.
By: /s/ DENIS R. BURGER, Ph.D.
--------------------------
Denis R. Burger, Ph.D.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ ALAN P. TIMMINS
--------------------------
Alan P. Timmins
Chief Operating Officer,
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,195,011
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,451,665
<PP&E> 2,719,794
<DEPRECIATION> 2,324,746
<TOTAL-ASSETS> 15,834,482
<CURRENT-LIABILITIES> 434,092
<BONDS> 0
0
0
<COMMON> 1,117
<OTHER-SE> 15,399,273
<TOTAL-LIABILITY-AND-EQUITY> 15,834,482
<SALES> 0
<TOTAL-REVENUES> 11,803
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,410,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,084,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,084,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,084,322)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
