<PAGE>
===============================================================================
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 September 30, 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 with $.0001 par value 13,351,206
(Class) (Outstanding at November 1, 1999)
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Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
================================================================================
<PAGE>
AVI BIOPHARMA, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1999 and December 31, 1998 2
Statements of Operations - Three and Nine Months Ended September 30, 1999 and
1998 and from July 22, 1980 (Inception) to September 30, 1999 3
Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 and
from July 22, 1980 (Inception) to September 30, 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>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,444,140 $ 8,510,020
Other current assets 31,242 509,428
---------------- ----------------
Total Current Assets 2,475,382 9,019,448
Property and Equipment, net of accumulated
depreciation and amortization of $2,483,737
and $2,386,310 438,212 411,828
Patent Costs, net of accumulated amortization of
$420,810 and $305,310 813,111 730,960
Other Assets 29,847 29,847
---------------- ----------------
Total Assets $ 3,756,552 $ 10,192,083
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 433,929 $ 891,928
Accrued liabilities 243,664 294,471
---------------- ----------------
Total Current Liabilities 677,593 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 (48,717,161) (42,775,436)
---------------- ----------------
Total Shareholders' Equity 3,078,959 9,005,684
---------------- ----------------
Total Liabilities and Shareholders' Equity $ 3,756,552 $ 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 September 30, Nine months ended September 30, (Inception) to
1999 1998 1999 1998 September 30, 1999
-------------------------------- ------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues, from grants and research contracts $ 3,558 $ 4,977 $ 7,783 $ 16,780 $ 831,976
Operating expenses:
Research and development 1,739,728 1,549,133 4,709,856 4,147,572 22,765,462
General and administrative 504,607 366,637 1,341,099 1,178,587 8,794,276
Acquired in-process research and
development - 19,476,091 61,337 19,476,091 19,534,491
--------------- -------------- ------------- -------------- --------------
2,244,335 21,391,861 6,112,292 24,802,250 51,094,229
Other Income:
Interest income, net 35,696 128,927 162,784 443,191 1,448,342
Realized gain on sale of short-term
investments - - - - 96,750
--------------- -------------- ------------- -------------- --------------
35,696 128,927 162,784 443,191 1,545,092
--------------- -------------- ------------- -------------- --------------
Net loss $ (2,205,081) $ (21,257,957) $ (5,941,725) $ (24,342,279) $ (48,717,161)
--------------- -------------- ------------- -------------- --------------
--------------- -------------- ------------- -------------- --------------
Net loss per share - basic and diluted $ (0.17) $ (1.84) $ (0.45) $ (2.16)
--------------- -------------- ------------- --------------
--------------- -------------- ------------- --------------
Weighted average number of common shares
outstanding for computing basic and diluted
earnings per share 13,351,206 11,539,885 13,350,597 11,286,190
--------------- -------------- ------------- --------------
--------------- -------------- ------------- --------------
</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
Nine months ended September 30, July 22, 1980
------------------------------- (Inception) to
1999 1998 September 30, 1999
-------------- --------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,941,725) $ (24,342,279) $ (48,717,161)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 222,802 157,140 2,963,095
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 61,337 19,476,091 19,534,491
(Increase) decrease in:
Other current assets 478,186 (506,105) (31,242)
Other assets - - (29,847)
Net increase (decrease) in accounts payable and
accrued liabilities (508,806) 704,408 677,593
-------------- --------------- ------------------
Net cash used in operating activities (5,688,206) (4,510,745) (24,877,616)
Cash flows from investing activities:
Proceeds from sale or redemption of short-term investments - - 247,750
Purchase of property and equipment (133,686) (56,318) (2,980,497)
Patent costs (197,651) (201,540) (1,233,921)
Acquisition costs (61,337) (2,126,535) (2,367,079)
-------------- --------------- ------------------
Net cash used in investing activities (392,674) (2,384,393) (6,333,747)
Cash flows from financing activities:
Proceeds from sale of common stock, warrants, and
partnership units, net of offering costs, and exercise of
options 15,000 184,873 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 15,000 184,873 33,655,503
Increase (decrease) in cash and cash equivalents (6,065,880) (6,710,265) 2,444,140
Cash and cash equivalents:
Beginning of period 8,510,020 17,638,936 -
-------------- --------------- ------------------
End of period $ 2,444,140 $ 10,928,671 $ 2,444,140
-------------- --------------- ------------------
-------------- --------------- ------------------
</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 and nine-month periods
ended September 30, 1999 and 1998 and the financial information as of September
30, 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 September 30, 1999 1998
--------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Net loss $(2,205,081) $(21,257,957)
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 13,351,206 11,539,885
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 13,351,206 11,539,885
----------- -------------
----------- -------------
Net loss per share - basic and diluted $(0.17) $(1.84)
----------- -------------
----------- -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
--------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Net loss $(5,941,725) $(24,342,279)
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 13,350,597 11,286,190
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 13,350,597 11,286,190
----------- -------------
----------- -------------
Net loss per share - basic and diluted $(0.45) $(2.16)
----------- -------------
----------- -------------
</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 September 30, 1999 1998
--------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Warrants and stock options 7,077,082 7,024,233
<CAPTION>
Nine Months Ended September 30, 1999 1998
--------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Warrants and stock options 7,077,082 7,024,233
</TABLE>
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 September 30, 1999, the Company's accumulated
deficit was $48,717,161.
RESULTS OF OPERATIONS
6
<PAGE>
Operating expenses decreased to $2,244,335 in the third quarter of 1999 from
$21,391,861 in the third quarter of 1998 and to $6,112,292 for the nine months
ended September 30, 1999 from $24,802,250 for the comparable period of 1998
principally due in each case to a one-time charge of $19,476,091 for acquired
in-process research and development reflecting the acquisition of ImmunoTherapy
Corporation in September 1998 and increases in research and development staffing
and increased expenses associated with outside collaborations and pre-clinical
testing of the Company's technologies. Net interest income decreased to $35,696
in the third quarter of 1999 from $128,927 in the third quarter of 1998 and to
$162,784 for the nine months ended September 30, 1999 from $443,191 for the
comparable period in 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 $2,444,140 at September 30, 1999,
compared with $8,510,020 at December 31, 1998. The decrease of $6,065,880 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.
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 several months will
be satisfied by existing cash resources. The Company is continuing its efforts
to raise capital to fund future operations.
SUBSEQUENT EVENT
In November 1999, the Company received a commitment for $5,000,000 in funding.
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
7
<PAGE>
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.
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.
Exhibit No.
- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
September 30, 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: November 1, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,444,140
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,475,382
<PP&E> 2,921,949
<DEPRECIATION> 2,483,737
<TOTAL-ASSETS> 3,756,552
<CURRENT-LIABILITIES> 677,593
<BONDS> 0
0
0
<COMMON> 1,335
<OTHER-SE> 3,077,624
<TOTAL-LIABILITY-AND-EQUITY> 3,756,552
<SALES> 0
<TOTAL-REVENUES> 7,783
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,112,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,941,725)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,941,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,941,725)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
