<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NO. 0-20948
-------
AUTOIMMUNE INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-348-9062
(State of Incorporation) (I.R.S. Employer Identification No.)
128 SPRING STREET, LEXINGTON, MA 02173
(Address of Principal Executive Offices)
(781) 860-0710
(Registrant's Telephone No., including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No _______________
-------------
Number of shares outstanding of the registrant's
Common Stock as of April 30, 1998:
Common Stock, par value $.01 16,493,986 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1997 and March 31, 1998.................. 2
Statement of Operations
for the three months ended March 31, 1997 and 1998
and for the period from inception (September 9, 1988)
through March 31, 1998................................ 3
Statements of Cash Flows
for the three months ended March 31, 1997 and 1998
and for the period from inception (September 9, 1988)
through March 31, 1998................................ 4
Notes to the Unaudited Financial Statements................... 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 7
PART II - OTHER INFORMATION
Item 6(b) - Reports on Form 8-K........................................ 9
Signatures............................................................. 10
</TABLE>
1
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AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,833,000 $ 5,584,000
Marketable securities 16,192,000 21,922,000
Interest receivable 240,000 140,000
Prepaid expenses and other current assets 143,000 384,000
------------------ ------------------
Total current assets 30,408,000 28,030,000
Fixed assets, net 1,060,000 908,000
Other assets 30,000 54,000
------------------ ------------------
$ 31,498,000 $ 28,992,000
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 476,000 $ 894,000
Accrued expenses 664,000 526,000
Current portion of obligations under capital leases 285,000 286,000
------------------ ------------------
Total current liabilities 1,425,000 1,706,000
------------------ ------------------
Obligations under capital leases 193,000 121,000
------------------ ------------------
Commitments and contingencies
------------------ ------------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,392,896 and 16,493,986 shares issued and
outstanding at December 31, 1997 and March 31, 1998,
respectively 164,000 165,000
Additional paid-in capital 117,330,000 117,465,000
Deficit accumulated during the development stage (87,620,000) (90,468,000)
Valuation allowance for marketable securities 6,000 3,000
------------------ ------------------
29,880,000 27,165,000
------------------ ------------------
$ 31,498,000 $ 28,992,000
================== ==================
</TABLE>
2
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AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (SEPTEMBER 9, 1988)
MARCH 31, MARCH 31, THROUGH
1997 1997 MARCH 31, 1998
------------ ------------ -------------------
Revenue:
<S> <C> <C> <C>
Option fees $ - $ - $ 2,200,000
Research and development
revenue under collaborative
agreements - - 955,000
------------ ------------ -------------------
- - 3,155,000
Total revenue ------------ ------------ -------------------
Costs and expenses:
Research and development:
Related party 505,000 317,000 17,165,000
All other 6,977,000 2,544,000 74,154,000
General and administrative 755,000 441,000 11,968,000
------------ ------------ -------------------
Total costs and expenses 8,237,000 3,302,000 103,287,000
------------ ------------ -------------------
Interest income 637,000 456,000 9,964,000
Interest expense (25,000) (2,000) (296,000)
------------ ------------ -------------------
612,000 454,000 9,668,000
------------ ------------ -------------------
Net loss $ (7,625,000) $ (2,848,000) $ (90,464,000)
============ ============ ===================
Net loss per share - basic $ (0.47) $ (0.17)
============ ============
and diluted
Weighted average shares
outstanding - basic and diluted 16,369,709 16,417,461
============ ============
</TABLE>
3
<PAGE>
AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 9, 1988)
THREE MONTHS ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1998
-------------- -------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,625,000) $ (2,848,000) $ (90,464,000)
Adjustment to reconcile net loss to net cash
used by operating activities:
Interest expense related to demand notes
converted into Series A mandatorily
redeemable covertible preferred stock - - 48,000
Patent costs paid with junior convertible
preferred and common stock - - 3,000
Depreciation and amortization 295,000 152,000 3,738,000
Loss on sale/disposal of fixed assets - - 604,000
Decrease in capitalized patent costs - - 563,000
(Increase) decrease in interest receivable (50,000) 100,000 (140,000)
(Increase) decrease in prepaid expenses 79,000 (241,000) (384,000)
Increase in accounts payable 1,516,000 418,000 894,000
Increase (decrease) in accrued expenses 30,000 (138,000) 526,000
------------- ------------ ---------------
Net cash used by operating activities (5,755,000) (2,557,000) (84,612,000)
------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable securities (8,928,000) (11,342,000) (244,868,000)
Proceeds from sale/maturity of available-for-sale marketable 17,846,000 5,609,000 211,938,000
securities
Proceeds from maturity of held-to-maturity marketable - - 11,011,000
securities
Proceeds from sale of equipment - - 64,000
Purchase of fixed assets (23,000) - (5,189,000)
Increase in patent costs - - (563,000)
Increase in other assets - (24,000) (179,000)
------------- ------------ ---------------
Net cash provided (used) by investing activities 8,895,000 (5,757,000) (27,786,000)
------------- ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (186,000) (71,000) (2,465,000)
Net proceeds from issuance of mandatorily redeemable
convertible preferred stock - - 10,011,000
Proceeds from bridge notes - - 300,000
Proceeds from issuance of common stock 84,000 136,000 105,064,000
Proceeds from issuance of convertible notes payable - - 2,200,000
------------- ------------ ---------------
Net cash provided (used) by financing activities (102,000) 65,000 117,982,000
------------- ------------ ---------------
Net increase (decrease) in cash and cash equivalents 3,038,000 (8,249,000) 5,584,000
Cash and cash equivalents, beginning of period 6,432,000 13,833,000 -
------------- ------------ ---------------
Cash and cash equivalents, end of period $ 9,470,000 $ 5,584,000 $ 5,584,000
============= ============ ===============
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1998 and for the three month
periods ended March 31, 1997 and 1998, and for the period from inception
(September 9, 1988) through March 31, 1998 are unaudited; however, in the
opinion of the Company, these interim data include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results for these interim periods. These financial
statements should be read in conjunction with the financial statements and
the notes thereto for the period ended December 31, 1997 included in the
Company's Form 10-K. Results for interim periods are not necessarily
indicative of results for the entire year.
2. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of cash equivalents held by the Company. Cash
equivalents are carried at fair market value, which approximated amortized
cost at December 31, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- --------------
<S> <C> <C>
Money market $ 71,000 $ 271,000
U.S. Government debt securities 12,391,000 3,959,000
-------------- --------------
$12,462,000 $ 4,230,000
============== ==============
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1997 and March 31, 1998 which are carried at
fair market value:
<TABLE>
<CAPTION>
MATURITY FAIR UNREALIZED UNREALIZED AMORTIZED
TERM VALUE GAINS LOSSES COST
-------------- -------------- -------------- -------------- --------------
DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C>
U.S. Government
debt securities within 1 year $ 10,935,000 $ 5,000 $ (1,000) $ 10,931,000
U.S. Government
debt securities between 1-5 years 5,257,000 2,000 - 5,255,000
-------------- -------------- -------------- --------------
$ 16,192,000 $ 7,000 $ (1,000) $ 16,186,000
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
MATURITY FAIR UNREALIZED UNREALIZED AMORTIZED
TERM VALUE GAINS LOSSES COST
-------------- -------------- -------------- -------------- -------------
MARCH 31, 1998
<S> <C> <C> <C> <C> <C>
U.S. Government
debt securities within 1 year $ 18,665,000 $ 4,000 $ (2,000) $ 18,663,000
U.S. Government
debt securities between 1-5 years 3,257,000 2,000 - 3,255,000
-------------- -------------- -------------- --------------
$ 21,922,000 $ 6,000 $ (2,000) $ 21,918,000
============== ============== ============== ==============
</TABLE>
Marketable securities which were purchased and sold in periods prior to
adoption of Statement of Financial Accounting Standards (SFAS) No. 115 on
January 1, 1994 other than held-to-maturity marketable securities, are
included in the category available-for-sale marketable securities in the
"period from inception" column of the statement of cash flows.
5
<PAGE>
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
3. FIXED ASSETS
Fixed Assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31, MARCH 31,
(YEARS) 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Laboratory equipment 2 - 5 $ 1,359,000 $ 1,359,000
Office and computer equipment 4 - 5 425,000 425,000
Leasehold improvements 5 - 7 461,000 461,000
------------ ------------
2,245,000 2,245,000
Less-accumulated depreciation and
amortization 1,185,000 1,337,000
------------ ------------
$ 1,060,000 $ 908,000
============ ============
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Accrued employee costs $ 289,000 $ 205,000
Accrued professional fees 204,000 173,000
Accrued restructuring costs 146,000 123,000
Other 25,000 25,000
------------ ------------
$ 664,000 $ 526,000
============ ============
</TABLE>
5. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130 (SFAS 130), "Reporting Comprehensive Income." This Statement
establishes the standards for reporting and the display of comprehensive
income and its components. SFAS 130 will be effective for the year ended
December 31, 1998. SFAS 130 will require disclosure only and will have no
impact on the Company's financial position or its results of operations.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception through March 31, 1998, the Company has incurred ongoing
losses from operations and has cumulative losses as of March 31, 1998, totaling
$90,464,000. To date, the Company has not recorded any revenues from the sale of
products. Revenues recorded through March 31, 1998 were earned in connection
with contract research and the granting of certain short-term rights.
The Company expects to remain in the development stage for the foreseeable
future and accordingly, expects to continue to incur substantial losses.
THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
Research and development expenses were $7,482,000 and $2,861,000 for the three
month periods ended March 31, 1997 and 1998, respectively. The decrease is due
to reduced research and clinical trial activity levels.
General and administrative expenses were $755,000 and $441,000 for the three
month periods ended March 31, 1997 and 1998, respectively. The decrease in
general and administrative expenses is due primarily to decreased personnel
costs and corporate activity.
Net interest income was $612,000 and $454,000 for the three month periods ended
March 31, 1997 and 1998 respectively. The decrease is due to a lower balance of
cash available for investment.
The net loss was $7,625,000 and $2,848,000 for the three month periods ended
March 31, 1997 and 1998, respectively. The change reflects a decrease in
personnel costs, research and clinical trial activity levels. The net loss per
share decreased from $0.47 for the three months ended March 31, 1997 to $0.17
for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for funds have historically increased from period to period
as it has increased the scope of its research and development activities,
although its needs have been reduced as a result of the restructuring which
occurred in the first half of 1997. Since inception, the Company has funded
these needs almost entirely through sales of its equity securities.
The Company's working capital and capital requirements will depend on numerous
factors, including the progress of the Company's research and development
activities, the level of resources that the Company devotes to the development,
clinical, regulatory and marketing aspects of its products, the extent to which
it proceeds, if at all, by means of collaborative relationships with
pharmaceutical companies and its competitive environment. Based upon its current
plans, the Company believes that current cash and marketable securities, and the
interest earned from the investment thereof, will be sufficient to meet the
Company's operating expenses and capital requirements through the Phase III
clinical program of Colloral. At the appropriate time, the Company intends to
seek additional funding through public or private equity or debt financings,
collaborative arrangements with pharmaceutical companies or from other sources.
If adequate funds are necessary but not available, the Company will have to
reduce certain areas of research, product development, manufacturing or
marketing activity, or otherwise modify its business strategy, and its business
will be materially adversely affected.
7
<PAGE>
In order to preserve principal and maintain liquidity, the Company's funds are
invested in U.S. Treasury obligations and other short-term instruments. As of
March 31, 1998, the Company's cash and cash equivalents and marketable
securities totaled $27,506,000. Current liabilities at March 31, 1998 were
$1,706,000.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." This
Statement establishes the standards for reporting and the display of
comprehensive income and its components. SFAS 130 will be effective for the year
ended December 31, 1998. SFAS 130 will require disclosure only and will have no
impact on the Company's financial position or its results of operations.
8
<PAGE>
AUTOIMMUNE INC.
PART II - OTHER INFORMATION
Item 6(b) - REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed
9
<PAGE>
AUTOIMMUNE INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
AUTOIMMUNE INC.
Date: May 11, 1998 /s/ Robert C. Bishop
-------------------------------------
Robert C. Bishop
President and Chief Executive Officer
/s/ Heather A. Ellerkamp
-------------------------------------
Heather A. Ellerkamp
Director of Finance and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,584,000
<SECURITIES> 21,922,000
<RECEIVABLES> 140,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,030,000
<PP&E> 2,245,000
<DEPRECIATION> (1,337,000)
<TOTAL-ASSETS> 28,992,000
<CURRENT-LIABILITIES> 1,706,000
<BONDS> 0
0
0
<COMMON> 117,630,000
<OTHER-SE> (90,465,000)
<TOTAL-LIABILITY-AND-EQUITY> 28,992,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,302,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,848,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.17)
</TABLE>
