<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, 1999 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 02421
(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 filed 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,
1999:
Common Stock, par value $.01 16,555,949 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1998 and March 31, 1999........................................... 2
Statement of Operations
for the three months ended March 31, 1998 and 1999 and for the period
from inception (September 9, 1988) through March 31, 1999...................... 3
Statement of Cash Flows
for the three months ended March 31, 1998 and 1999
and for the period from inception (September 9, 1988)
through March 31, 1999......................................................... 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
<PAGE>
AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,801,000 $ 5,734,000
Marketable securities 12,727,000 8,537,000
Interest receivable 77,000 70,000
Prepaid expenses and other current assets 129,000 160,000
-------------- --------------
Total current assets 17,734,000 14,501,000
Fixed assets, net 538,000 457,000
Other assets 54,000 54,000
-------------- --------------
$ 18,326,000 $ 15,012,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 677,000 $ 975,000
Accrued expenses 539,000 448,000
Current portion of obligations under capital leases 193,000 121,000
-------------- --------------
Total current liabilities 1,409,000 1,544,000
-------------- --------------
Obligations under capital leases - -
-------------- --------------
Commitments and contingencies
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,548,995 and 16,555,949 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively 166,000 166,000
Additional paid-in capital 117,551,000 117,564,000
Deficit accumulated during the development stage (100,805,000) (104,262,000)
Valuation allowance for marketable securities 5,000 -
-------------- --------------
Total stockholders' equity 16,917,000 13,468,000
-------------- --------------
$ 18,326,000 $ 15,012,000
============== ==============
</TABLE>
2
<PAGE>
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
1998 1999 MARCH 31, 1999
------------- ------------- --------------
<S> <C> <C> <C>
Revenue:
Option fees $ - $ - $ 2,200,000
Research and development
revenue under collaborative
agreements - - 955,000
------------- ------------- --------------
Total revenue - - 3,155,000
------------- ------------- --------------
Costs and expenses:
Research and development:
Related party 317,000 384,000 18,546,000
All other 2,544,000 2,790,000 85,896,000
General and administrative 441,000 491,000 13,730,000
------------- ------------- --------------
Total costs and expenses 3,302,000 3,665,000 118,172,000
------------- ------------- --------------
Interest income 456,000 209,000 11,061,000
Interest expense (2,000) (1,000) (302,000)
------------- ------------- --------------
454,000 208,000 10,759,000
------------- ------------- --------------
Net Loss $ (2,848,000) $ (3,457,000) $(104,258,000)
============= ============= ==============
Net loss per share - basic
and diluted $ (0.17) $ (0.21)
============= =============
Weighted average shares
outstanding - basic and diluted 16,417,461 16,555,640
============= =============
</TABLE>
3
<PAGE>
AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 9, 1988)
THREE MONTHS ENDED THROUGH
MARCH 31, 1998 MARCH 31, 1999 MARCH 31, 1999
---------------- -------------- -------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,848,000) $ (3,457,000) $ (104,258,000)
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 152,000 132,000 4,285,000
(Gain)/loss and sale/disposal of fixed assets - (5,000) 601,000
Decrease in capitalized patent costs - - 563,000
(Increase) decrease in interest receivable 100,000 7,000 (70,000)
(Increase) decrease in prepaid expenses and other
current expenses (241,000) (31,000) (160,000)
Increase in accounts payable 418,000 298,000 975,000
Increase (decrease) in accrued expenses (138,000) (91,000) 448,000
-------------- ------------- ---------------
Net cash used by operating activities (2,557,000) (3,147,000) (97,565,000)
-------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable securities (11,342,000) (3,303,000) (260,707,000)
Proceeds from sale/maturity of available-for-sale
marketable securities 5,609,000 7,488,000 241,159,000
Proceeds from maturity of held-to-maturity
marketable securities - - 11,011,000
Proceeds from sale of equipment - 5,000 70,000
Purchase of fixed assets - (51,000) (5,288,000)
Increase in patent costs - - (563,000)
Increase in other assets (24,000) - (179,000)
-------------- ------------- ---------------
Net cash provided (used) by investing activities (5,757,000) 4,139,000 (14,497,000)
-------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (71,000) (72,000) (2,751,000)
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 136,000 13,000 105,164,000
Proceeds from issuance of convertible notes payable - - 2,200,000
-------------- ------------- ---------------
Net cash provided (used) by financing activities 65,000 (59,000) 117,796,000
-------------- ------------- ---------------
Net increase (decrease) in cash and cash equivalents (8,249,000) 933,000 5,734,000
Cash and cash equivalents, beginning of period 13,833,000 4,801,000 -
-------------- ------------- ---------------
Cash and cash equivalents, end of period $ 5,584,000 $ 5,734,000 $ 5,734,000
============== ============= ===============
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1999 and for the three month
periods ended March 31, 1998 and 1999, and for the period from inception
(September 9, 1988) through March 31, 1999 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, 1998 including 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, 1998 and March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Money market $ 924,000 $ 795,000
U.S. Government debt securities 2,441,000 4,651,000
----------- -----------
$ 3,365,000 $ 5,446,000
=========== ===========
</TABLE>
The following is a summary of available-for-sale marketable securities held by
the Company at December 31, 1998 and March 31, 1999 which are carried at fair
market value:
<TABLE>
<CAPTION>
MATURITY FAIR UNREALIZED UNREALIZED AMORTIZED
TERM VALUE GAINS LOSSES COST
------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Government
debt securities within 1 year $ 12,727,000 $ 6,000 $ (1,000) $ 12,722,000
============ ========== ========== ============
MARCH 31, 1999
U.S. Government
debt securities within 1 year $ 8,537,000 $ - $ - $ 8,537,000
============ ========== ========== ============
</TABLE>
All of the Company's marketable securities are classified as current at December
31, 1998 and March 31, 1999 as these funds are highly liquid and are available
to meet working capital needs and to fund current operations. Gross realized
gains and losses on sales of marketable securities for the three month periods
ended March 31, 1998 and March 31, 1999 were not significant.
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>
AUTOIMMUNE INC
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) 1998 1999
-------------- --------------- --------------
<S> <C> <C> <C>
Laboratory equipment 2 - 5 $ 1,394,000 $ 1,376,000
Office and computer equipment 4 - 5 434,000 434,000
Leasehold improvements 2 - 7 461,000 461,000
--------------- --------------
2,289,000 2,271,000
Less - accumulated depreciation and
amortization 1,751,000 1,814,000
--------------- --------------
$ 538,000 $ 457,000
=============== ==============
</TABLE>
In the first quarter of 1999, a fixed asset with a cost of $70,000 and
accumulated depreciation of $70,000 was sold for $5,000.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Accrued employee costs $ 322,000 $ 282,000
Accrued professional fees 217,000 166,000
------------ ---------
$ 539,000 $ 448,000
============ =========
</TABLE>
5. COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires disclosure of comprehensive
income and its components in interim and annual reports. Comprehensive
income includes all changes in stockholders' equity during a period except
those resulting from investments by stockholders and distributions to
stockholders. Accordingly, the components of comprehensive income include
net income and unrealized gains and losses on available-for-sale
securities. Comprehensive loss for the three month periods ended March 31,
1998 and 1999 was $2,851,000 and $3,462,000, respectively.
Net unrealized loss on marketable securities is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
-------- --------
<S> <C> <C>
Unrealized holding gain (loss) arising during
the period $ (1,000) $ (2,000)
Reclassification adjustment for (gain) loss
included in net income (2,000) (3,000)
-------- --------
Net unrealized gain (loss) on marketable securities $ (3,000) $ (5,000)
======== ========
</TABLE>
6
<PAGE>
AUTOIMMUNE INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception through March 31, 1999, the Company has incurred ongoing
losses from operations and has cumulative losses as of March 31, 1999 totaling
$104,258,000. To date, the Company has not recorded any revenues from the sale
of products. Revenues recorded through March 31, 1999 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, 1998 AND 1999
Research and development expenses were $2,861,000 and $3,174,000 for the three
month periods ended March 31, 1998 and 1999, respectively. The increase is due
to increased research and clinical trial activity levels.
General and administrative expenses were $441,000 and $491,000 for the three
month periods ended March 31, 1998 and 1999, respectively. The increase in
general and administrative expenses is due primarily to increased personnel
costs and corporate activity.
Net interest income was $454,000 and $208,000 for the three month periods ended
March 31, 1998 and 1999, respectively. The decrease is due to a lower balance of
cash available for investment.
The net loss was $2,848,000 and $3,457,000 for the three month periods ended
March 31, 1998 and 1999, respectively. The change reflects an increase in
personnel costs, research and clinical trial activity levels. The net loss per
share increased from $0.17 for the three months ended March 31, 1998 to $0.21
for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for funds have historically fluctuated from period to period
as it has increased or decreased the scope of its research and development
activities. 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 by means of collaborative relationships with pharmaceutical
companies and its competitive environment. 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 additional 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>
AUTOIMMUNE INC
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, 1999, the Company's cash and cash equivalents and marketable
securities totaled $14,271,000. Current liabilities at March 31, 1999 were
$1,544,000.
YEAR 2000 PREPAREDNESS
The Company's management has completed its review of Year 2000 issues and
believes that Year 2000 issues will not have a material effect on the Company's
business, results of operations or financial condition. The major functions of
the Company that utilize computers and could be susceptible to Year 2000 issues
are manufacturing, clinical data and analysis, financial and general office. The
scope of the Year 2000 issues for each of these functions is described below.
Manufacturing. The Company's internal bulk manufacturing process is a mechanical
process. Neither the process nor the raw materials used in the process are
expected to be affected by Year 2000 issues. The Company maintains data relating
to its manufacturing processes on databases using standard software packages
that are Year 2000 compliant. It also maintains all data in hard copy format.
The Company has been upgrading its hardware systems used to maintain
manufacturing data as system requirements have changed and these upgrades have
included Year 2000 solutions. The Company anticipates that its hardware systems
will be fully upgraded and Year 2000 compliant before December 31, 1999. The
Company uses outside vendors to perform filling, labeling and distribution
services in connection with its manufacturing process. The Company maintains
data relating to such services both in hard copy format and on databases. The
vendor that the Company anticipates using for these services has represented
that it will be Year 2000 compliant before December 31, 1999. In any event, hard
copy records can be used and will meet the Company's requirements.
Clinical Data and Analysis. The firm AutoImmune has contracted with to manage
and analyze clinical data has represented to the Company that it is Year 2000
compliant. In addition, the data that the Company intends to submit to the FDA
will be based on patient activity occurring prior to January 1, 2000 and is in a
format that can be accessed with standard programs.
Financial. The Company has been upgrading its financial systems as its
requirements have changed and these upgrades have included Year 2000 solutions.
The final component is expected to be upgraded in the second quarter of 1999 and
will be Year 2000 compliant. These upgrades would have occurred regardless of
Year 2000 concerns.
General Office. The Company's office computers have been updated as the
Company's requirements have increased. As a result, almost all are Year 2000
compliant. The Company's network and phone systems require Year 2000 software
upgrades that are scheduled for installation in the last quarter of 1999. The
estimated cost of these upgrades is $20,000.
Impact of Year 2000. The Company's exposure to Year 2000 is limited by the
nature of its operations. The Company is not electronically dependent on its
vendors. Its software packages, other than its network and phone systems
packages, are standard and the Company's hardware is already Year 2000 compliant
or is scheduled to be upgraded before December 31, 1999. These upgrades to the
Company's hardware systems would have occurred regardless of the Year 2000. In
the worst case scenario, the Company could easily revert to using hard copies.
This scenario would be more time consuming, but would not be expected to result
in revenue losses or liability to third parties.
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, 1999 /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-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,734,000
<SECURITIES> 8,537,000
<RECEIVABLES> 70,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 160,000
<PP&E> 2,271,000
<DEPRECIATION> (1,814,000)
<TOTAL-ASSETS> 15,012,000
<CURRENT-LIABILITIES> 1,544,000
<BONDS> 0
0
0
<COMMON> 117,730,000
<OTHER-SE> (104,262,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,468,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,665,000
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,457,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.21)
</TABLE>
