SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27578
------------------------------------
SUNPHARM CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware F593097048
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4651 Salisbury Road, Suite 205
Jacksonville, Florida 32256
(Address of principal executive offices)
Issuer's telephone number: (904) 296-3320
------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 of the issuer's Common Stock
outstanding as of May 1, 1996: 2,884,535
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the financial
statements for the year ended December 31, 1995 included in the Company's 1995
Form 10-KSB filed pursuant to Section 15(d) of the Securities Exchange Act of
1934.
2
<PAGE>
<TABLE>
<CAPTION>
SUNPHARM CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, March 31, 1996
1995 (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 331,069 $1,084,137
Investments.................................................. 1,290,464 --
Prepaid expenses............................................. 159,857 112,121
------------- ----------
Total current assets................................... 1,781,390 1,196,258
------------- ----------
Receivable from stockholder..................................... 13,114 10,000
Other assets.................................................... 14,237 13,337
------------- ----------
$ 1,808,741 $1,219,595
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable............................................. $ 360,722 $ 501,342
Accrued liabilities.......................................... 177,483 198,365
Accrued legal fees........................................... 300,000 231,498
Notes payable................................................ 87,834 59,152
------------- ----------
Total current liabilities 926,039 990,357
------------- ----------
Commitments and contingencies
Stockholders' equity:
Undesignated series preferred stock,
$.001 par value, 2,500,000 shares authorized,
none issued and outstanding.................................. -- --
Common stock, $.0001 par value 25,000,000 shares
authorized, 2,884,535 and 2,884,535 (unaudited)
issued and outstanding, respectively...................... 288 288
Additional paid-in capital...................................... 9,642,434 9,642,434
Deficit accumulated during development stage.................... (8,760,020) (9,413,484)
-------------- -----------
Total stockholders' equity ............................ 882,702 229,238
------------- -----------
$ 1,808,741 $1,219,595
============= ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
from Inception
For the Three Months Ended (May 3, 1990)
--------------------------
March 31, Through March
1995 1996 31, 1996
---- ---- --------
<S> <C> <C> <C>
Sponsored research/sublicensing revenues............ $ __ $ __ $1,885,000
Interest income..................................... 38,835 17,084 179,741
-------------- ---------------- -----------
Total revenues......................... 38,835 17,084 2,064,741
-------------- ---------------- ----------
Expenses:
Research and development........................ 365,889 337,655 6,005,887
General and administrative...................... 1,187,249 332,893 5,262,338
Royalty......................................... -- -- 210,000
-------------- ---------------- ----------
Total expenses.......................... 1,553,138 670,548 11,478,225
-------------- ---------------- ----------
Net loss............................................ $ (1,514,303) $ (653,464) $(9,413,484)
============== ================ ===========
Net loss per share.................................. $ (0.57) $ (.023)
============== =================
Shares used in computing loss per share............. 2,673,210 2,884,535
============== ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
from Inception
(May 3, 1990)
For the Three Months Ended Through
March 31, March 31 ,
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (1,514,303) $ (653,464) $(9,413,484)
------------ ---------- ----------
Adjustments to reconcile net loss to net
cash used by operating activities -
Depreciation and amortization................... 860 900 70,806
Expenses related to issuance
of stock for services......................... -- -- 43,750
Compensation expense related to options
and warrants issued........................ -- -- 865,246
Offering costs incurred in connection with
10% Convertible Secured Notes................. 775,000 -- 775,000
Write-off of patents............................. -- -- 70,120
(Increase) decrease in receivable from
stockholder................................ (7,236) 3,114 (10,000)
(Increase) decrease in prepaid expenses
and other assets............................. 19,370 47,736 (113,762)
Increase (decrease) in accounts payable......... (715,801) 140,620 501,342
Increase (decrease) in accrued liabilities..... (287,397) 20,882 179,615
Increase (decrease) in accrued legal fees...... -- (68,502) 231,498
------------ ----------- -----------
Total adjustments............................. (215,204) 144,750 2,613,615
------------ ----------- ----------
Net cash used in operating activities.................. (1,729,507) (508,714) (6,799,869)
------------ ----------- ----------
Cash flows from investing activities:
Purchase of short-term investments................ (3,324,062) -- (3,324,062)
Sale of short-term investments................... -- 1,290,464 3,324,062
Purchases of office equipment..................... (2,876) -- (17,198)
Payment of patent costs........................... -- -- (67,424)
------------ ----------- ----------
Net cash (used) in provided by investing
activities.......................... (3,326,938) 1,290,464 (84,622)
------------ ----------- ----------
Cash flows from financing activities:
Payments of notes payable......................... (1,542,089) (28,682) (40,848)
Decrease in deferred offering costs............... -- -- (597,348)
Issuance of Series A redeemable
convertible preferred stock................... -- -- 513,525
Issuance of Series B redeemable
convertible preferred stock................... -- -- 450,000
Issuance of common stock.......................... 7,661,748 -- 7,643,299
Proceeds from payable to stockholders............. 25,000 -- 542,500
Repayment of payable to stockholders.............. (200,000) -- (542,500)
------------ ----------- ----------
Net cash provided by (used) in
financing activities.................... 5,944,659 (28,682) 7,968,628
------------ ----------- ------------
Net change in cash..................................... 888,214 753,068 1,084,137
Cash at beginning of period............................ -- 331,069 --
------------ ----------- -----------
Cash at end of period.................................. $ 888,214 $ 1,084,137 $ 1,084,137
============ =========== ===========
Supplemental information:
Cash paid for interest............................ $ 12,291 $ 1,606 $ 163,516
The accompanying notes are an integral part of these
financial statements.
</TABLE>
5
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The balance sheet at March 31, 1996 and the related statements of
operations for the three month periods ended March 31, 1996 and 1995 and the
period from inception (May 3, 1990) through March 31, 1996 and statements of
cash flows for the three month periods ended March 31, 1996 and 1995 and the
period from inception (May 3, 1990) through March 31, 1996 are unaudited. These
interim financial statements should be read in conjunction with the December 31,
1995 financial statements and related notes. The unaudited interim financial
statements reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim periods presented and
all such adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results for a full year.
Net Loss Per Share
Net loss per share is computed based on the weighted average shares of
common stock outstanding for the period.
Patent Costs
The Company reimburses the University of Florida Research Foundation, Inc.
(UFRI), for direct expenses relating to the Company's patents. Patent costs
consist of legal fees and other direct costs incurred in obtaining patents.
These costs are charged to research and development expense or general and
administrative expense when incurred.
Research and Development
Sponsored research revenue is recognized as revenue when the payments
are received and the research has been performed. Research and development
expenses are charged to operations when incurred. Research and development
expenses include, among other things, consulting fees and cost reimbursements to
UFRI.
2. STATUS OF FINANCINGS
In April 1996, the Company received notice from The Nasdaq Stock Market
(Nasdaq) that the Company's total assets and capital and surplus as of December
31, 1995, did not meet the minimum requirements for continued listing on the
Small Cap Market and that the Company's Common Stock, Warrants and Units were
subject to delisting. Nasdaq requested that the Company provide a specific plan
demonstrating how the Company will achieve ongoing compliance with Nasdaq's
minimum requirements of $2,000,000 of total assets and $1,000,000 of capital and
surplus. The Company provided a plan to Nasdaq which contemplates cash inflows
to the Company through the private placement of equity and other sources in an
amount sufficient to bring the Company into compliance by June 15, 1996, the
date established by Nasdaq for final determination. The expected cash inflows
include the $1,000,000 milestone payment due from Warner-Lambert at the
successful completion of the Phase 1 cancer trials. The Company is in the
process of commencing the private placement and expects to close on a sufficient
amount by the June 15, 1996 date established by Nasdaq for compliance. There can
be no assurance that the Company will be successful in raising sufficient funds
through the sale of equity or that the Warner-Lambert payment will be received
by such date. In the event that the Company's securities are delisted, the
market value of such securities may be adversely affected.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. The Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of important factors. For a discussion of important factors that could
affect the Company's results, please refer to the discussions below. Readers are
also encouraged to refer to the Company's 1995 Annual Report on Form 10- KSB for
further discussion of the Company's business and the risks and opportunities
attendant thereto.
Overview
Since its inception in May 1990, SunPharm has devoted substantially all of
its efforts and resources to research and development conducted on its own
behalf and through collaborations with clinical institutions. The Company's drug
development strategy emphasizes conducting most of its research and clinical
activities at the University of Florida. Consequently, the Company believes that
its research and development expenditures have been lower than other comparable
development stage pharmaceutical companies. The Company has incurred cumulative
net losses of $9,413,484 from its inception through March 31, 1996. The Company
expects to incur additional significant operating losses for at least the next
several years principally as a result of its continuing anticipated research and
development and clinical trials expenditures.
Results of Operations
Three Months Ended March 31, 1995 and 1996
The Company did not receive any licensing or milestone payments during the
three months ended March 31, 1995 and 1996.
The Company's research and development expenses decreased $28,000 from
$366,000 in the three months ended March 31, 1995 to $338,000 in the comparable
1996 period. These expenses consisted of expenditures for research and
development conducted by Dr. Bergeron at the University of Florida and for the
cost of human clinical trials. The Company expects its research and development
expenses to increase during 1996 and 1997, reflecting anticipated increased
expenses related to ongoing research, preclinical studies and Phase I and Phase
II human clinical trials.
General and administrative expenses decreased from $1,187,000 in the three
months ended March 31, 1995 to $333,000 in the comparable 1996 period. The
decrease is primarily attributable to issuance costs of $775,000 ($600,000 of
which were non-cash costs) incurred in connection with the issuance in 1994 of
the 10% Convertible Secured Notes, which were expensed in 1995 upon the
repayment of such notes and other costs incurred in the 1995 period which
related to the Company's initial public offering.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily
through collaborative research and sublicense agreements with its strategic
alliance partners and the issuance of debt and equity securities. Through
December 31, 1995 the Company had received $1,885,000 of cumulative sponsored
research and sublicensing revenues, approximately $1,000,000 in consideration of
the private placement of equity securities, and $1,697,500 in consideration of
the placement of debt securities. On January 12, 1995, the Company completed an
initial public offering (the "Offering") of 1,100,000 units ("Unit") at $7.00
per Unit. Each Unit consists of one share of the Company's Common Stock and one
Redeemable Common Stock Purchase Warrant ("Warrant"), which entitles the holder
to purchase one share of Common Stock at $8.75 per share. Additionally, on
February 16, 1995, the Representative exercised an option to purchase an
additional 165,000 Units at $7.00 per Unit. Proceeds from the Offering were
approximately $7,200,000 of cash, net of underwriting costs and
7
<PAGE>
other Offering costs of $1,655,000. Of such net proceeds, approximately
$1,793,000 was used to repay the outstanding indebtedness (including accrued
interest and certain fees) of the Company.
During the period ended March 31, 1996, the net cash used in operating
activities was $509,000. During the comparable 1995 period, cash used by
operating activities was $1,730,000. The decrease in cash used in operations is
primarily attributable to the payment in the 1995 period of $700,000 of accounts
payable and $210,000 of royalties both of which were delayed until the
completion of the Company's initial public offering. At March 31, 1996, the
Company had cash and cash equivalents of $1,084,000. The Company had net working
capital of approximately $206,000 at March 31, 1996. The Company will require
substantial funds for research and development performed by the University of
Florida and to perform preclinical testing and clinical trials of its potential
products.
In April 1996, the Company received notice from The Nasdaq Stock Market
(Nasdaq) that the Company's total assets and capital and surplus as of December
31, 1995, did not meet the minimum requirements for continued listing on the
Small Cap Market and that the Company's Common Stock, Warrants and Units were
subject to delisting. Nasdaq requested that the Company provide a specific plan
demonstrating how the Company will achieve ongoing compliance with Nasdaq's
minimum requirements of $2,000,000 of total assets and $1,000,000 of capital and
surplus. The Company provided a plan to Nasdaq which contemplates cash inflows
to the Company through the private placement of equity and other sources in an
amount sufficient to bring the Company into compliance by June 15, 1996, the
date established by Nasdaq for final determination. The expected cash inflows
include the $1,000,000 milestone payment due from Warner-Lambert at the
successful completion of the Phase 1 cancer trials. The Company is in the
process of commencing the private placement and expects to close on a sufficient
amount by the June 15, 1996 date established by Nasdaq for compliance. There can
be no assurance that the Company will be successful in raising sufficient funds
through the sale of equity or that the Warner-Lambert payment will be received
by such date. In the event that the Company's securities are delisted, the
market value of such securities may be adversely affected.
The Company has incurred losses since inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1995, the Company had net
operating loss ("NOL") and tax credit carryforwards for income tax purposes of
approximately $6,458,000 and $260,000, respectively, which may be available to
reduce future taxable income and future tax liabilities. These carryforwards
begin to expire in 2008. The Tax Reform Act of 1986 provides for an annual
limitation on the use of NOL and credit carryforwards (following certain
ownership changes) that could significantly limit the Company's ability to
utilize these carryforwards. The Company has made no determination concerning
whether there has been such a cumulative change in ownership. It is possible
that such a change in ownership occurred following the completion of the
Offering and exercise of the Representative's over-allotment option.
Accordingly, the Company's ability to utilize the aforementioned carryforwards
to reduce future taxable income and tax liabilities may be limited.
Additionally, because United States tax laws limit the time during which these
carryforwards may be applied against future taxes, the Company may not be able
to take full advantage of these attributes for federal income tax purposes.
On December 20, 1995, Dean L. Rider, M.D., a stockholder of the Company,
filed suit against the Company and Stefan Borg in Superior Court for the City
and County of San Francisco, California, seeking compensatory damages of over
$41 million and punitive damages based upon an alleged agreement between
SunPharm and Dr. Rider. Dr. Rider's claims include a claim for fraud by false
promise and a claim for breach of express contract, among others, and center on
his allegation that he disclosed the idea to use DEHOP to treat AIDS patients
suffering from chronic diarrhea in exchange for certain alleged promises of
compensation and involvement in the clinical trials. An unsuccessful mediation
was held in February 1996 to attempt to amicably settle the dispute, and the
parties are now engaged in discovery. The case has been moved to the United
States District Court for the Northern District of California. The Company
believes that the claims are without merit and intends to vigorously defend the
lawsuit. The Company has established an accrual for legal fees to be incurred in
connection with this litigation.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On December 20, 1995, Dean L. Rider, M.D., a stockholder of the Company,
filed suit against the Company and Stefan Borg in Superior Court for the City
and County of San Francisco, California, seeking compensatory damages of over
$41 million and punitive damages based upon an alleged agreement between
SunPharm and Dr. Rider. Dr. Rider's claims include a claim for fraud by false
promise and a claim for breach of express contract, among others, and center on
his allegation that he disclosed the idea to use DEHOP to treat AIDS patients
suffering from chronic diarrhea in exchange for certain alleged promises of
compensation and involvement in the clinical trials. An unsuccessful mediation
was held in February 1996 to attempt to amicably settle the dispute, and the
parties are now engaged in discovery. The case has been moved to the United
States District Court for the Northern District of California. The Company
believes that the claims are without merit and intends to vigorously defend the
lawsuit. The Company has established an accrual for legal fees to be incurred in
connection with this litigation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Exhibit
------ -------
11.1 Statement of computation of net loss per share
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
9
<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.
SUNPHARM CORPORATION
Date: May 14, 1996 By: /s/ Stefan Borg
------------------------------
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
10
<PAGE>
<PAGE>
EXHIBIT 11.1
SUNPHARM CORPORATION
CALCULATION OF LOSS PER SHARE
For the Three Months Ended March 31, 1996
Weighted Average Shares Outstanding:
Total Shares # Days Outstanding
2,884,535 x 91 = 262,492,685 / 91 = 2,884,535
Net Loss ( 653,464) = $(0.23) Per Share
----------
Weighted Average Shares 2,884,535
For the Three Months Ended March 31, 1995
Weighted Average Shares Outstanding:
Total Shares # Days Outstanding
------------ ------------------
1,780,847 x 12 = 21,370,164
2,719,535 x 35 = 95,183,725
2,884,535 x 43 = 124,035,005
--------- --- -----------
90 240,588,894 / 90 = 2,673,210
Net Loss (1,514,303) = $(0.57) Per Share
-----------
Weighted Average Shares 2,673,210
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form 10-QSB
for the period ended March 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000884888
<NAME> SUNPHARM CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,084,137
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,196,258
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,219,595
<CURRENT-LIABILITIES> 990,357
<BONDS> 0
0
0
<COMMON> 288
<OTHER-SE> 228,950
<TOTAL-LIABILITY-AND-EQUITY> 1,219,595
<SALES> 0
<TOTAL-REVENUES> 17,084
<CGS> 0
<TOTAL-COSTS> 670,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (653,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,464)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
