AVI BIOPHARMA INC
10QSB, 1999-05-13
PHARMACEUTICAL PREPARATIONS
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                     ---------------------------------------

                                   FORM 10-QSB

                     ---------------------------------------

         (Mark One)

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1999

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                               OF THE EXCHANGE ACT
                 For the transition period from       to
                                                -----    -----

                         Commission file number 0-22613

                            ------------------------

                               AVI BIOPHARMA, INC.
             (Exact name of registrant as specified in its charter)

                  Oregon                                  93-0797222
     (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                             13,351,206
           (Class)                                (Outstanding at May 3, 1999)

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):  Yes       No   X
                                                                -----    -----
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<PAGE>

                               AVI BIOPHARMA, INC.
                                   FORM 10-QSB
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>           <C>                                                                               <C>
PART I - FINANCIAL INFORMATION

Item 1.       Financial Statements

              Balance Sheets - March 31, 1999 and December 31, 1998                                2

              Statements of Operations - Three Months Ended March 31, 1999 and
              1998 and from July 22, 1980 (Inception) to March 31, 1999
                                                                                                   3

              Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998 and
              from July 22, 1980 (Inception) to March 31, 1999                                     4

              Notes to Financial Statements                                                        5

Item 2.       Management's Discussion and Analysis                                                 6


PART II - OTHER INFORMATION

Item 6.       Exhibits and Reports on Form 8-K                                                     8

Signatures                                                                                         9
</TABLE>




                                       1
<PAGE>

                               AVI BIOPHARMA, INC.
                         (A Development Stage Company)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  March 31,             December 31,
                                                                     1999                   1998
                                                               -----------------     -------------------
<S>                                                            <C>                   <C>
ASSETS
Current Assets:
    Cash and cash equivalents                                  $      6,691,194      $        8,510,020
    Other current assets                                                 43,313                 509,428
                                                               -----------------     -------------------
        Total Current Assets                                          6,734,507               9,019,448

Property and Equipment, net of accumulated
       depreciation and amortization of $ 2,420,122
       and $2,386,310                                                   479,723                 411,828
Patent Costs, net of accumulated amortization of
       $341,310 and $305,310                                            745,479                 730,960
Other Assets                                                             29,847                  29,847
                                                               -----------------     -------------------
        Total Assets                                           $      7,989,556      $       10,192,083
                                                               -----------------     -------------------
                                                               -----------------     -------------------


LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable                                           $        462,415      $          891,928
    Accrued liabilities                                                 245,916                 294,471
                                                               -----------------     -------------------
        Total Current Liabilities                                       708,331               1,186,399

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; 13,351,206 and 13,346,166
      issued and outstanding                                              1,335                   1,335
    Additional paid-in capital                                       51,794,785              51,779,785
    Deficit accumulated during the development stage                (44,514,895)            (42,775,436)
                                                               -----------------     -------------------
       Total Shareholders' Equity                                     7,281,225               9,005,684
                                                               -----------------     -------------------
       Total Liabilities and Shareholders' Equity              $      7,989,556      $       10,192,083
                                                               -----------------     -------------------
                                                               -----------------     -------------------
</TABLE>

     The accompanying notes are an integral part of these balance sheets.

                                       2
<PAGE>

                               AVI BIOPHARMA, INC.
                         (A Development Stage Company)
                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                     July 22, 1980
                                                              Three months ended March 31,          (Inception) to
                                                               1999                1998             March 31, 1999
                                                          ----------------    ----------------    --------------------
<S>                                                       <C>                 <C>                 <C>
Revenues, from grants and research contracts              $         4,115     $         5,650     $           828,308

Operating expenses:
    Research and development                                    1,342,650           1,294,264              19,398,256
    General and administrative                                    417,624             306,965               7,870,801
    Acquired in-process research and
      development                                                  59,839                   -              19,532,993
                                                          ----------------    ----------------    --------------------
                                                                1,820,113           1,601,229              46,802,050

Other Income:
    Interest income, net                                           76,539             170,721               1,362,097
    Realized gain on sale of short-term investments                     -                   -                  96,750
                                                          ----------------    ----------------    --------------------
                                                                   76,539             170,721               1,458,847
                                                          ----------------    ----------------    --------------------

Net loss                                                  $    (1,739,459)    $    (1,424,858)    $       (44,514,895)
                                                          ----------------    ----------------    --------------------
                                                          ----------------    ----------------    --------------------

Net loss per share - basic and diluted                    $         (0.13)    $         (0.13)
                                                          ----------------    ----------------
                                                          ----------------    ----------------

Weighted average number of common shares
outstanding for computing basic and diluted
loss per share                                                 13,349,358          11,147,840
                                                          ----------------    ----------------
                                                          ----------------    ----------------
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       3
<PAGE>

                               AVI BIOPHARMA, INC.
                         (A Development Stage Company)
                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                  For the Period
                                                                             Three months ended March 31,          July 22, 1980
                                                                        -----------------------------------       (Inception) to
                                                                              1999               1998              March 31, 1999
                                                                        ----------------   ----------------    -------------------
<S>                                                                     <C>                <C>                 <C>
Cash flows from operating activities:
Net loss                                                                $    (1,739,459)   $    (1,424,858)    $      (44,514,895)
   Adjustments to reconcile net loss to net cash flows
      used in operating activities:
         Depreciation and amortization                                           69,812             56,673              2,810,105
         Realized gain on sale of short-term investments -
            available for sale                                                        -                  -                (96,750)
         Compensation expense on issuance of common
            stock and partnership units                                               -                  -                251,992
         Compensation expense on issuance of options and
            warrants to purchase common stock or partnership units                    -                  -                562,353
         Conversion of interest accrued to common stock                               -                  -                  7,860
         Acquired in-process research and development                            59,839                  -             19,532,993
         (Increase) decrease in:
            Other current assets                                                466,115           (530,218)               (43,313)
            Other assets                                                              -                  -                (29,847)
         Net increase (decrease) in accounts payable and
             accrued liabilities                                               (478,068)            16,984                708,331
                                                                        ----------------   ----------------    -------------------
               Net cash used in operating activities                         (1,621,761)        (1,881,419)           (20,811,171)

Cash flows from investing activities:
   Proceeds from sale or redemption of short-term investments                         -                  -                247,750
   Purchase of property and equipment                                          (101,707)            (6,513)            (2,948,518)
   Patent costs                                                                 (50,519)           (22,762)            (1,086,789)
   Acquisition costs                                                            (59,839)           (89,695)            (2,365,581)
                                                                        ----------------   ----------------    -------------------
               Net cash used in investing activities                           (212,065)          (118,970)            (6,153,138)

Cash flows from financing activities:
   Proceeds from sale of common stock, warrants, and
     partnership units, net of offering costs, and exercise of
     options                                                                     15,000            152,003             34,040,940
   Buyback of common stock pursuant to rescission offering                            -                  -               (288,795)
   Withdrawal of partnership net assets                                               -                  -               (176,642)
   Issuance of convertible debt                                                       -                  -                 80,000
                                                                        ----------------   ----------------    -------------------
               Net cash provided by financing activities                         15,000            152,003             33,655,503

Increase (decrease) in cash and cash equivalents                             (1,818,826)        (1,848,386)             6,691,194

Cash and cash equivalents:
   Beginning of period                                                        8,510,020         17,638,936                      -
                                                                        ----------------   ----------------    -------------------
   End of period                                                        $     6,691,194    $    15,790,550     $        6,691,194
                                                                        ----------------   ----------------    -------------------
                                                                        ----------------   ----------------    -------------------
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       4
<PAGE>
                               AVI BIOPHARMA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The financial information included herein for the three-month periods ended 
March 31, 1999 and 1998 and the financial information as of March 31, 1999 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, 1998 is derived from AVI BioPharma, 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

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. 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.

<TABLE>
<CAPTION>
Three Months Ended March 31,                                         1999                   1998
- ----------------------------------------------------------   ---------------------  --------------------
<S>                                                          <C>                    <C>
Net loss                                                            $(1,739,459)         $(1,424,858)
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                  13,349,358           11,147,840
Dilutive effect of warrants and stock options after
 application of the treasury stock method                               *                     *
                                                             ---------------------  --------------------
Weighted average number of common shares outstanding
 for computing diluted earnings per share                            13,349,358           11,147,840
                                                             ---------------------  --------------------
                                                             ---------------------  --------------------
Net loss per share - basic and diluted                                   $(0.13)              $(0.13)
                                                             ---------------------  --------------------
                                                             ---------------------  --------------------
</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 March 31,                                         1999                   1998
- ----------------------------------------------------------   ---------------------  --------------------
<S>                                                          <C>                    <C>
Warrants and stock options                                          7,078,051             4,593,497
</TABLE>

                                       5
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

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 March 31, 
1999, the Company's accumulated deficit was $44,514,895.

RESULTS OF OPERATIONS

Operating expenses increased to $1,820,113 in the first quarter of 1999 from 
$1,601,229 in the first quarter of 1998 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. Net interest income decreased to $76,539 in the 
first quarter of 1999 from $170,721 in the first quarter of 1998 due to 
earnings on decreased cash balances, which consisted of proceeds from the 
initial public offering.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents were $6,691,194 at March 31, 1999, 
compared with $8,510,020 at December 31, 1998. The decrease of $1,818,826 was 
primarily due to increases in research and development staffing and increased 
expenses associated with clinical programs, outside collaborations, and 
pre-clinical testing of the Company's technologies. Additionally, increased 
general and administrative costs were incurred to support internal research 
expansion in the Company's core technology areas.




                                       6
<PAGE>

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.

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 operating incorrectly when 
the calendar year changes to January 1, 2000. Computer programs that have 
date-sensitive software may recognize a two-digit date using "00" as calendar 
year 1900 rather than the year 2000. This could result in system failure or 
miscalculations and could cause disruptions of operations, including, among 
other things, a temporary inability to engage in normal business activities.

The Company has evaluated its technology and data, including imbedded 
non-informational technology, used in the creation and development of its 
products and services and in its internal operations and has identified no 
significant Year 2000 issues. The core business systems are compliant, or a 
migration path to a compliant version will be in place by the year 2000. The 
Company has not incurred material costs and believes that future costs 
associated with addressing the Year 2000 issue will have an immaterial effect 
on the Company's financial results.

Although the Company has inquired of certain of its significant vendors as to 
the status of their Year 2000 compliance initiatives, no binding assurances 
have been received. The Company believes that parts and services used in 
normal operations can be obtained from multiple sources and therefore is not 
overly reliant on any single vendor. Failure of telephone service providers 
or other monopolistic utilities could have a significant detrimental effect 
on the Company's operations. There can be no assurances that such third 
parties will successfully address their own Year 2000 issues over which the 
Company has no control.



                                       7
<PAGE>

                           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.
- -----------
<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 
March 31, 1999.






                                       8
<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.


Date:   May 3, 1999            AVI BIOPHARMA, INC.


                                    By:    /s/ DENIS R. BURGER, Ph.D.
                                        ----------------------------------------
                                    Denis R. Burger, Ph.D.
                                    President, Chief Executive Officer
                                    and Chairman (of the Board of Directors)
                                    (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>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               MAR-31-1999
<CASH>                                       6,691,194
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                             6,734,507
<PP&E>                                       2,899,845
<DEPRECIATION>                               2,420,122
<TOTAL-ASSETS>                               7,989,556
<CURRENT-LIABILITIES>                          708,331
<BONDS>                                              0
                                0
                                          0
<COMMON>                                         1,335
<OTHER-SE>                                   7,279,890
<TOTAL-LIABILITY-AND-EQUITY>                 7,989,556
<SALES>                                              0
<TOTAL-REVENUES>                                 4,115
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                             1,820,113
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                            (1,739,459)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (1,739,459)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (1,739,459)
<EPS-PRIMARY>                                   (0.13)
<EPS-DILUTED>                                   (0.13)
        

</TABLE>


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