<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 SEPTEMBER 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
October 31, 2000:
Common Stock, par value $.01 16,759,623 shares outstanding
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AUTOIMMUNE INC.
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
Balance Sheet
December 31, 1999 and September 30, 2000............. 2
Statement of Operations
for the three and nine months ended September 30,
1999 and 2000 and for the period from inception
(September 9, 1988) through September 30, 2000....... 3
Statement of Cash Flows
for the nine months ended September 30, 1999 and 2000
and for the period from inception (September 9, 1988)
through September 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 6(b) - Reports on Form 8-K............................... 9
Signatures.................................................... 10
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AUTOIMMUNE INC.
(A development stage company)
BALANCE SHEET
(Unaudited)
December 31, September 30,
1999 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,973,000 $ 10,049,000
Marketable securities - -
Interest receivable - -
Prepaid expenses and other current assets 109,000 35,000
------------ ------------
Total current assets 7,082,000 10,084,000
Fixed assets, net - -
------------ ------------
$ 7,082,000 $ 10,084,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,000 $ 145,000
Accrued expenses 607,000 80,000
Deferred revenue - 2,000
------------ ------------
Total current liabilities 671,000 227,000
------------ ------------
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 September 30, 2000,
respectively 167,000 168,000
Additional paid-in capital 117,714,000 117,907,000
Deficit accumulated during the development
stage (111,470,000) (108,218,000)
Valuation allowance for marketable
securities - -
------------- ------------
Total stockholders' equity 6,411,000 9,857,000
------------- ------------
$ 7,082,000 $ 10,084,000
============= ============
2
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AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Nine months ended (September 9, 1988)
September 30, September 30, September 30, September 30, through
1999 2000 1999 2000 September 30, 2000
------------- ------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenue:
License rights $ - $ 3,000 $ - $ 4,003,000 $ 4,003,000
Option fees - - - - 2,200,000
Research and development
revenue under collaborative
agreements - - - - 955,000
------------- ------------- --------------- ------------- --------------
Total revenues - 3,000 - 4,003,000 7,158,000
------------- ------------- --------------- ------------- --------------
Costs and expenses:
Research and development:
Related party 260,000 15,000 941,000 245,000 19,577,000
All other 2,420,000 126,000 7,576,000 400,000 91,155,000
General and administrative 332,000 118,000 1,267,000 550,000 16,205,000
------------- ------------- --------------- ------------- --------------
Total costs and expenses 3,012,000 259,000 9,784,000 1,195,000 126,937,000
------------- ------------- --------------- ------------- --------------
Interest income 151,000 157,000 492,000 444,000 11,868,000
Interest expense (1,000) - (2,000) - (303,000)
------------- ------------- --------------- ------------- ---------------
150,000 157,000 490,000 444,000 11,565,000
------------- ------------- --------------- ------------- ---------------
Net income (loss) $ (2,862,000) $ (99,000) $ (9,294,000) $ 3,252,000 $ (108,214,000)
============= ============= =============== ============= ==============
Net income (loss) per share-basic $ (0.17) $ (0.01) $ (0.56) $ 0.19
============= ============= =============== =============
Net income (loss) per share-diluted $ (0.17) $ (0.01) $ (0.56) $ 0.19
============= ============= =============== =============
Weighted average common
shares outstanding-basic 16,639,338 16,759,623 16,584,389 16,737,884
============= ============= =============== =============
Weighted average common
shares outstanding-basic 16,639,338 16,759,623 16,584,389 17,303,059
============= ============= =============== =============
</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)
Nine months ended through
September 30, September 30, September 30,
1999 2000 2000
------------- ------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,294,000) $ 3,252,000 $ (108,214,000)
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 311,000 - 4,464,000
Loss on sale/disposal of fixed assets 36,000 - 642,000
Decrease in capitalized patent costs - - 563,000
Decrease in interest receivable 77,000 - -
(Increase) decrease in prepaid expenses 45,000 74,000 (35,000)
Increase (decrease) in accounts payable (208,000) 81,000 145,000
Increase (decrease) in accrued expenses (379,000) (527,000) 80,000
Increase (decrease) in deferred revenue 0 2,000 2,000
------------- ------------ -----------------
Net cash provided (used) by operating activities (9,412,000) 2,882,000 (102,302,000)
------------- ------------ -----------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (4,316,000) (6,783,000) (268,503,000)
Proceeds from sale/maturity of available-for-sale marketable 17,038,000 6,783,000 257,492,000
securities
Proceeds from maturity of held-to-maturity marketable - - 11,011,000
securities
Proceeds from sale of equipment 241,000 - 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 12,912,000 0 (5,670,000)
------------- ------------ --------------
Cash flows from financing activities:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (193,000) - (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 165,000 194,000 105,510,000
Proceeds from issuance of convertible notes payable - - 2,200,000
------------- ------------ --------------
Net cash provided (used) by financing activities (28,000) 194,000 118,021,000
------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents 3,472,000 3,076,000 10,049,000
Cash and cash equivalents, beginning of period 4,801,000 6,973,000 -
------------- ------------ --------------
Cash and cash equivalents, end of period $ 8,273,000 $ 10,049,000 $ 10,049,000
============= ============ ==============
</TABLE>
4
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AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL DATA
The interim financial data as of September 30, 2000, for the three and nine
month periods ended September 30, 1999 and 2000 and for the period from
inception (September 9, 1988) through September 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 September 30, 2000:
December 31, September 30,
1999 2000
----------- ------------
Money market $ 659,000 $ 7,144,000
U.S. Government debt securities 6,270,000 2,773,000
----------- -----------
$ 6,929,000 $ 9,917,000
=========== ===========
There were no marketable securities at December 31, 1999 or at
September 30, 2000. Gross realized gains and losses on sales of
marketable securities for the three and nine month periods ended
September 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.
3. FIXED ASSETS
Fixed assets consist of the following:
ESTIMATED
USEFUL LIFE DECEMBER 31, SEPTEMBER 30,
(YEARS) 1999 2000
----------- ----------- --------
Laboratory equipment 2 - 5 $160,000 $160,000
----------- --------
160,000 160,000
Less - accumulated depreciation
and amortization 160,000 160,000
----------- --------
$ - $ -
=========== ========
5
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AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ ------------
Accrued employee costs $ 37,000 $ -
Accrued professional fees 92,000 80,000
Accrued severance 478,000 -
--------- --------
$ 607,000 $ 80,000
========= ========
5. Comprehensive Income
Comprehensive loss for the three month periods ended September 30, 1999 and
2000 was $2,862,000 and $99,000, respectively. Comprehensive loss for the
nine month period ended September 30, 1999 was $9,299,000 and comprehensive
income for the nine month period ended September 30, 2000 was $3,252,000.
Net unrealized gain (loss) on marketable securities is comprised of the
following:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
-------- -------- -------- -------
Unrealized holding gain
(loss) arising during
the period $ - $ - $ - $ -
Reclassification adjustment
for (gain) loss included
in net income - - (5,000) -
-------- -------- --------- -------
Net unrealized gain (loss) on
marketable securities $ - $ - $ (5,000) $ -
======== ======== ========= =======
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception through September 30, 2000, the Company has incurred ongoing
losses from operations and has cumulative losses as of September 30, 2000
totaling $108,214,000. To date, the Company has not recorded any revenues from
the sale of products. Revenues recorded through September 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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 2000
There was no revenue for the three and nine month periods ended September 30,
1999. Revenue was $3,000 for the three month period ended September 30, 2000
and $4,003,000 for the nine month period ended September 30, 2000. The
$4,000,000 represents the initial payment by a subsidiary of Elan Plc for the
purchase of certain patent rights related to Alzheimer's disease and the
remainder represents the first of monthly license payments from Rycor Technology
Investments Corporation which began in September 2000.
Research and development expenses were $2,680,000 and $141,000 for the three
month periods ended September 30, 1999 and 2000, respectively. Research and
development expenses were $8,517,000 and $645,000 for the nine month periods
ended September 30, 1999 and 2000, respectively. The decrease is due to the
cessation of Colloral 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 $332,000 and $118,000 for the three
month periods ended September 30, 1999 and 2000, respectively. General and
administrative expenses were $1,267,000 and $550,000 for the nine month periods
September 30, 1999 and 2000, respectively. The decrease in general and
administrative expenses is due to the reduction of personnel costs.
Net interest income was $150,000 and $157,000 for the three month periods ended
September 30, 1999 and 2000, respectively. The increase is due to a higher
interest rate earned during the current period. Net interest income was
$490,000 and $444,000 for the nine month periods ended September 30, 1999 and
2000, respectively. The decrease is due to an average lower balance of cash
available for investment.
7
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AUTOIMMUNE INC.
The net loss was $2,862,000 and $99,000 for the three month periods ended
September 30, 1999 and 2000, respectively. The change reflects the cessation of
Colloral 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 $9,294,000 for the nine month period ended
September 30, 1999 and net income was $3,252,000 for the nine month period ended
September 30, 2000. The change reflects the revenue generated in 2000 and the
reduction of operating expenses. The net loss per share was $0.17 and $0.01 for
the three months ended September 30, 1999 and 2000, respectively. The net loss
per share was $0.56 for the nine months ended September 30, 1999 and net income
per share was $0.19 for the nine months ended September 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
September 30, 2000, the Company's cash and cash equivalents and marketable
securities totaled $10,049,000. Current liabilities at September 30, 2000 were
$227,000.
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 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: November 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
