<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 June 30, 2000 Commission File No. 0-20948
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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 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 July 31,
2000:
Common Stock, par value $.01 16,759,623 shares outstanding
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AUTOIMMUNE INC.
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1999 and June 30, 2000.......................................................... 2
Statement of Operations
for the three and six months ended June 30, 1999 and 2000
and for the period from inception (September 9, 1988)
through June 30, 2000........................................................................ 3
Statement of Cash Flows
for the six months ended June 30, 1999 and 2000
and for the period from inception (September 9, 1988)
through June 30, 2000........................................................................ 4
Notes to the Unaudited Financial Statements.......................................................... 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................................ 7
Item 3 - Quantitative and Qualitative Disclosures about Market Risk .......................................... 8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.................................................. 9
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, June 30,
1999 2000
------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,973,000 $ 3,230,000
Marketable securities - 6,892,000
Interest receivable - -
Prepaid expenses and other current assets 109,000 4,000
------------------- -------------------
Total current assets 7,082,000 10,126,000
Fixed assets, net - -
------------------- -------------------
$ 7,082,000 $ 10,126,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,000 $ 80,000
Accrued expenses 607,000 90,000
------------------- -------------------
Total current liabilities 671,000 170,000
------------------- -------------------
Commitments and contingencies ------------------- -------------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,657,872 and 16,759,623 shares issued and
outstanding at December 31, 1999 and June 30, 2000,
respectively 167,000 167,000
Additional paid-in capital 117,714,000 117,907,000
Deficit accumulated during the development stage (111,470,000) (108,118,000)
Valuation allowance for marketable securities - -
------------------- -------------------
Total stockholders' equity 6,411,000 9,956,000
------------------- -------------------
$ 7,082,000 $ 10,126,000
=================== ===================
</TABLE>
2
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AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Six months ended (September 9, 1988)
June 30, June 30, June 30, June 30, through
1999 2000 1999 2000 June 30, 2000
-------------- -------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue:
License rights $ - $ - $ - $ 4,000,000 $ 4,000,000
Option fees - - - - 2,200,000
Research and development
revenue under collaborative
agreements - - - - 955,000
-------------- -------------- -------------- ------------- -------------------
Total revenues - - - 4,000,000 7,155,000
-------------- -------------- -------------- ------------- -------------------
Costs and expenses:
Research and development:
Related party 297,000 10,000 681,000 230,000 19,562,000
All other 2,366,000 148,000 5,156,000 273,000 91,028,000
General and administrative 444,000 176,000 935,000 432,000 16,087,000
-------------- -------------- -------------- ------------- -------------------
Total costs and expenses 3,107,000 334,000 6,772,000 935,000 126,677,000
-------------- -------------- -------------- ------------- -------------------
Interest income 132,000 154,000 341,000 287,000 11,711,000
Interest expense - - (1,000) - (303,000)
-------------- -------------- -------------- ------------- -------------------
132,000 154,000 340,000 287,000 11,408,000
-------------- -------------- -------------- ------------- -------------------
Net income (loss) $ (2,975,000) $ (180,000) $ (6,432,000) 3,352,000 $ (108,114,000)
============== ============== ============== ============= ===================
Net income (loss) per share-basic and diluted $ (0.18) $ (0.01) $ (0.39) 0.20
============== ============== ============== =============
Weighted average common
shares outstanding-basic and diluted 16,557,268 16,759,623 16,556,458 16,726,895
============== ============== ============== =============
</TABLE>
3
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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)
Six months ended through
June 30, June 30, June 30,
1999 2000 2000
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,432,000) $ 3,352,000 $ (108,114,000)
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 238,000 - 4,464,000
Loss on sale/disposal of fixed assets (5,000) - 642,000
Decrease in capitalized patent costs - - 563,000
Decrease in interest receivable 77,000 - -
(Increase) decrease in prepaid expenses 46,000 105,000 (4,000)
Increase (decrease) in accounts payable 566,000 16,000 80,000
Increase (decrease) in accrued expenses (47,000) (517,000) 90,000
------------------ ------------------ ---------------------
Net cash provided (used) by operating activities (5,557,000) 2,956,000 (102,228,000)
------------------ ------------------ ---------------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (4,343,000) (6,892,000) (268,612,000)
Proceeds from sale/maturity of available-for-sale marketable
securities 14,947,000 - 250,709,000
Proceeds from maturity of held-to-maturity marketable
securities - - 11,011,000
Proceeds from sale of equipment 5,000 - 306,000
Purchase of fixed assets (51,000) - (5,288,000)
Increase in patent costs - - (563,000)
Increase in other assets - - (125,000)
------------------ ------------------ ---------------------
Net cash provided (used) by investing activities 10,558,000 (6,892,000) (12,562,000)
------------------ ------------------ ---------------------
Cash flows from financing activities:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (145,000) - (2,872,000)
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 14,000 193,000 105,509,000
Proceeds from issuance of convertible notes payable - - 2,200,000
------------------ ------------------ ---------------------
Net cash provided (used) by financing activities (131,000) 193,000 118,020,000
------------------ ------------------ ---------------------
Net increase (decrease) in cash and cash equivalents 4,870,000 (3,743,000) 3,230,000
Cash and cash equivalents, beginning of period 4,801,000 6,973,000 -
------------------ ------------------ ---------------------
Cash and cash equivalents, end of period $ 9,671,000 $ 3,230,000 $ 3,230,000
================== ================== =====================
</TABLE>
4
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AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Interim Financial Data
The interim financial data as of June 30, 2000, for the three and six month
periods ended June 30, 1999 and 2000 and for the period from inception
(September 9, 1988) through June 30, 2000 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, 1999 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, 1999 and June 30, 2000:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------------- ------------
<S> <C> <C>
Money market $ 659,000 $ 484,000
U.S. Government debt securities 6,270,000 2,682,000
-------------- ------------
$6,929,000 $ 3,166,000
============== ============
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at June 30, 2000 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>
June 30, 2000
U.S. Government
debt securities within 1 year $6,892,000 $ _ $ _ $ 6,892,000
=========== =============== =========== ============
</TABLE>
There were no marketable securities at December 31, 1999. All of the
Company's marketable securities are classified as current at June 30, 2000
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 and six month periods ended
June 30, 1999 and 2000 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, June 30,
(years) 1999 2000
----------------- ----------------- ---------------
<S> <C> <C> <C>
Laboratory equipment 2 - 5 $ 160,000 $ 160,000
----------- ----------
160,000 160,000
Less - accumulated depreciation and
amortization 160,000 160,000
----------- ----------
$ - $ -
=========== ==========
</TABLE>
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
---------- ---------
<S> <C> <C>
Accrued employee costs $ 37,000 $ -
Accrued professional fees 92,000 90,000
Accrued severance 478,000 -
---------- ---------
$ 607,000 $ 90,000
========== =========
</TABLE>
5. Comprehensive Income
Comprehensive loss for the three month periods ended June 30, 1999 and 2000
was $2,975,000 and $180,000, respectively. Comprehensive loss for the six
month period ended June 30, 1999 was $6,437,000 and comprehensive income
for the six month period ended June 30, 2000 was $3,352,000.
Net unrealized gain (loss) on marketable securities is comprised of the
following:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Unrealized holding gain (loss) arising during
the period $ 2,000 $ - $ - $ -
Reclassification adjustment for (gain) loss
included in net income (2,000) - (5,000) -
----------- ------------ -------- ----------
Net unrealized gain (loss) on marketable $ - $ - $ (5,000) $ -
securities
=========== ============ ======== ==========
</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 June 30, 2000, the Company has incurred ongoing
losses from operations and has cumulative losses as of June 30, 2000 totaling
$108,114,000. To date, the Company has not recorded any revenues from the sale
of products. Revenues recorded through June 30, 2000 were earned in connection
with the sale of certain patent rights, granting of certain short-term rights
and contract research.
The Company expects to remain in the development stage for the foreseeable
future and accordingly, may continue to incur losses.
The sections of "Management's Discussion and Analysis of Financial Condition and
Results of Operations" captioned "Overview" and "Liquidity and Capital
Resources" contain forward-looking statements which involve risks and
uncertainties. What may occur in the future could differ significantly from what
is discussed in the forward-looking statements due to a number of important
factors, including, but not limited to, the developmental stage of the Company's
products and uncertainties of clinical trial results and regulatory approval;
the Company's capital requirements, history of operating losses and lack of
product revenue and its limited manufacturing and marketing experience; and the
risks of technological change and competition. These factors are more fully
discussed in the Company's most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission in the section captioned "Business - Factors
to be Considered". The discussion in the Annual Report on Form 10-K is hereby
incorporated by reference into this Quarterly Report.
Three and Six Month Periods Ended June 30, 1999 and 2000
There was no revenue for the three month periods ended June 30, 1999 and 2000 or
the six month period ended June 30, 1999. Revenue was $4,000,000 for the six
month period ended June 30, 2000. This amount represents the initial payment by
a subsidiary of Elan Plc for the purchase of certain patent rights related to
Alzheimer's disease.
Research and development expenses were $2,663,000 and $158,000 for the three
month periods ended June 30, 1999 and 2000, respectively. Research and
development expenses were $5,837,000 and $503,000 for the six month periods
ended June 30, 1999 and 2000, respectively. The decrease is due to the
cessation of Colloral(R) clinical trials and the elimination of research and
development expenses except contract research support for The Brigham and
Women's Hospital and costs associated with maintaining the Company's patent
portfolio.
General and administrative expenses were $444,000 and $176,000 for the three
month periods ended June 30, 1999 and 2000, respectively. General and
administrative expenses were $935,000 and $432,000 for the six month periods
ended June 30, 1999 and 2000, respectively. The decrease in general and
administrative expenses is due to the reduction of personnel costs.
Net interest income was $132,000 and $154,000 for the three month periods ended
June 30, 1999 and 2000, respectively. The increase is due to a higher interest
rate earned during the current period. Net interest income was $340,000 and
$287,000 for the six month periods ended June 30, 1999 and 2000, respectively.
The decrease is due to a lower balance of cash available for investment.
The net loss was $2,975,000 and $180,000 for the three month periods ended June
30, 1999 and 2000, respectively. The change reflects the cessation of
Colloral(R) clinical trials and the elimination of operating expenses except
contract research support for The Brigham and Women's Hospital and costs
associated with maintaining the Company's patent portfolio and corporate
structure. The net loss was $6,432,000 for
7
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AUTOIMMUNE INC.
the six month period ended June 30, 1999 and net income was $3,352,000 for the
six month period ended June 30, 2000. The change reflects the revenue generated
in 2000 and the reduction of operating expenses. The net loss per share was
$0.18 and $0.01 for the three months ended June 30, 1999 and 2000, respectively.
The net loss per share was $0.39 for the six months ended June 30, 1999 and net
income per share was $0.20 for the six months ended June 30, 2000.
In September 1999, the Company announced disappointing results from the phase
III trial of Colloral, its product for rheumatoid arthritis. Very soon
thereafter, the Company began a corporate downsizing which was completed by year
end and resulted in the elimination of all full time employees. Two former
employees, the President and Director of Finance, signed consulting agreements
with the Company to provide corporate business development and reporting
services on an as needed basis in the future.
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 strategic direction that the Company and its shareholders
choose, the level of resources that the Company devotes to the development of
its products, the extent to which it proceeds by means of collaborative
relationships 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 for at least five years. At the appropriate time, the Company may
intend to seek additional funding through public or private equity or debt
financing, collaborative arrangements or from other sources. If additional funds
are necessary but not available, the Company will have to modify its business
strategy, and its business will be materially adversely affected.
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
June 30, 2000, the Company's cash and cash equivalents and marketable securities
totaled $10,122,000. Current liabilities at June 30, 2000 were $170,000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests all of its cash in U.S. Treasury obligations and money
market instruments. These investments are denominated in U.S. dollars. Due to
the conservative nature of these instruments, the Company does not believe that
it has material exposure to interest rate or market risk.
8
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AUTOIMMUNE INC.
PART II - OTHER INFORMATION
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 25, 2000.
(b) The following directors were elected to serve until the next
Annual Meeting or until their successors are elected and
qualified, by the following votes:
<TABLE>
<CAPTION>
Name Number of Votes For Number of Votes Withheld
--------------------- ------------------- ------------------------
<S> <C> <C>
Hugh A. D'Andrade 12,004,519 68,486
Robert C. Bishop 12,017,511 55,494
Allan R. Ferguson 11,984,879 88,126
R. John Fletcher 11,984,489 88,516
Henri A. Termeer 11,999,729 73,276
</TABLE>
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
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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: August 14, 2000 /s/ Robert C. Bishop
---------------------------------------------
Robert C. Bishop
Chairman and Chief Executive Officer
/s/ Heather A. Ellerkamp
---------------------------------------------
Heather A. Ellerkamp
Director of Finance and Treasurer
10
