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UNITED STATES
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, 1998
[ ] 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
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SUNPHARM CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE F593097048
(State or other jurisdiction of (I.R.S. Employer Identification No.)
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 8,
1998: 5,767,830
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<PAGE>
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This 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 herein and to
those contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 under the caption "Item 1. Description of Business - Risk
Factors."
PART 1. 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.
Certain information and notes disclosures, normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted pursuant to these rules and regulations. However, the Company
believes that the disclosures made herein are adequate and, accordingly, that
the information presented is not misleading. These financial statements should
be read in conjunction with the financial statements and notes for the year
ended December 31, 1997, which are included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997, filed pursuant to the
Securities Exchange Act of 1934.
2
<PAGE>
SunPharm Corporation
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash ............................................................................ $ 241,643 $ 356,969
Short-term investments .......................................................... 3,314,584 4,268,566
Accounts receivable ............................................................. 21,852 --
Other current assets ............................................................ 166,879 206,024
------------ ------------
Total current assets .......................................................... 3,744,958 4,831,559
Receivable from shareholder .......................................................... 105,295 106,611
Property and equipment, net .......................................................... 32,340 30,319
Other assets ......................................................................... 3,250 3,250
------------ ------------
$ 3,885,843 $ 4,971,739
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................................ $ 431,155 $ 399,996
Accrued liabilities ............................................................. 209,199 231,754
Notes payable ................................................................... 89,306 155,271
------------ ------------
Total current liabilities ..................................................... 729,660 787,021
Stockholders' Equity:
Undesignated preferred stock, par value $.0001 per share;
2,500,000 shares authorized; 0 shares issued and
outstanding ................................................................... -- --
Common stock, par value $.0001 per share;
25,000,000 shares authorized; 5,758,901
and 5,737,828 shares issued and
outstanding, respectively ..................................................... 576 574
Additional paid-in capital ...................................................... 19,697,787 19,687,198
Accumulated deficit during development stage .................................... (16,542,180) (15,503,054)
------------ ------------
Total stockholders' equity .................................................... 3,156,183 4,184,718
------------ ------------
$ 3,885,843 $ 4,971,739
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
SunPharm Corporation
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From Inception
(May 3, 1990)
Three Months Ended March 31, Through
1998 1997 March 31, 1998
------------ ------------ --------------
<S> <C> <C> <C>
Revenues:
Sponsored research/sublicensing revenue ........................ $ -- -- $ 2,885,000
Interest income ................................................ 48,939 24,537 564,246
------------ ------------ --------------
Total revenues ............................................. 48,939 24,537 3,449,246
Expenses:
Research and development ....................................... 523,286 550,585 10,509,526
General and administrative ..................................... 564,779 394,495 8,991,900
Royalty expense ................................................ -- -- 490,000
------------ ------------ --------------
Total expenses ............................................. 1,088,065 945,080 19,991,426
------------ ------------ --------------
Net loss ......................................................... $ (1,039,126) $ (920,543) $ (16,542,180)
============ ============ ==============
Net loss per share ............................................... $ (0.18) $ (0.24)
============ ============
Shares used in computing loss per share .......................... 5,747,049 3,769,822
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SunPharm Corporation
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Redeemable Convertible Preferred Stock: Additional Accumulated
Series A Series B Common Stock: Paid-In Deficit Since
Shares Amount Shares Amount Shares Amount Capital Inception
--------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 -- -- -- -- 5,737,828 $ 574 $ 19,687,198 $ (15,503,054)
Issuance of Common Stock .... -- -- -- -- -- -- -- --
Exercise of Options ......... -- -- -- -- 21,073 2 10,589 --
Net Loss .................... -- -- -- -- -- -- -- (1,039,126)
-------------------------------------- --------------------------------------------------------
Balance at March 31, 1998 ... -- -- -- -- 5,758,901 $ 576 $ 19,697,787 $ (16,542,180)
====================================== ========================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SunPharm Corporation
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited) From Inception
(May 3, 1990)
Three months ended March 31, Through
1998 1997 March 31, 1998
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ........................................................................ $ (1,039,126) $ (920,543) $ (16,542,180)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ................................................................ 1,962 900 79,360
Expense related to issuance of
stock for services ........................................................ -- -- 133,770
Compensation expense related to
operations, warrants and stock
appreciation rights ....................................................... -- -- 865,246
Amortization of deferred offering costs
incurred in connection with
issuance of Bridge Notes .................................................. -- -- 775,000
Write-off of patents ........................................................ -- -- 70,120
Decrease (Increase) in receivable
from shareholder .......................................................... 1,316 (86,500) (105,295)
Decrease (increase) in accounts
receivable and other current assets ....................................... (3,410) 493,417 (211,887)
Increase (decrease) in accounts payable ..................................... 31,159 31,821 431,155
Increase (decrease) in accrued liabilities .................................. (22,555) 141,655 216,261
Increase (decrease) in accrued legal fees ................................... -- -- 300,000
------------ ------------ -------------
Total adjustments ......................................................... 8,472 581,293 2,553,730
------------ ------------ -------------
Net cash used in operating activities .............................................. (1,030,654) (339,250) (13,988,450)
------------ ------------ -------------
Cash flows from investing activities
Purchases of short-term investments .............................................. (3,575,313) -- (21,510,365)
Sales and maturities of short-term investments ................................... 4,550,000 597,969 18,216,486
Capital expenditures ............................................................. (3,984) (2,328) (48,006)
Payment of patent costs .......................................................... -- -- (67,424)
------------ ------------ -------------
Net cash provided by (used in) investing activities ................................ 970,703 595,641 (3,409,309)
------------ ------------ -------------
Cash flows from financing activities
Repayments of notes payable ...................................................... (65,965) (36,903) (10,694)
Increase in deferred offering costs .............................................. -- -- (597,348)
Issuance of Series A preferred stock ............................................. -- -- 513,525
Issuance of Series B preferred stock ............................................. -- -- 450,000
Net proceeds from issuance of common stock ....................................... 10,590 6,116,500 17,283,919
Proceeds from payable to shareholders ............................................ -- -- 542,500
Repayment of payable to shareholders ............................................. -- -- (542,500)
------------ ------------ -------------
Net cash provided by (used in)financing activities ................................. (55,375) 6,079,597 17,639,402
------------ ------------ -------------
Net change in cash ................................................................. (115,326) 6,335,988 241,643
Cash at beginning of period ........................................................ 356,969 341,145 --
------------ ------------ -------------
Cash at end of period .............................................................. $ 241,643 $ 6,677,133 $ 241,643
============ ============ =============
Supplemental information:
Cash paid for interest ........................................................... $ 2,276 $ 1,335 $ 169,728
============ ============ =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
6
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet at March 31, 1998, the related statements of
operations for the three- month periods ended March 31, 1998 and 1997 and the
period from inception (May 3, 1990) through March 31, 1998, the statement of
stockholders' equity at March 31, 1998, and the statements of cash flows for the
three-month periods ended March 31, 1998 and 1997 and the period from inception
through March 31, 1998 are unaudited. These interim financial statements should
be read in conjunction with the December 31, 1997 financial statements and
related footnotes included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997. 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 number of
shares of common stock outstanding for the period.
PATENT COSTS
The Company reimburses the University of Florida Research Foundation,
Inc. (UFRFI) 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 when incurred.
RESEARCH AND DEVELOPMENT
Sponsored research revenue is recognized as revenue when the payments
are earned or received and the research has been performed. Research and
development expenses are charged to operations when incurred. Research and
development expenses include, among other expenses, consulting fees and cost of
reimbursements to UFRFI.
New Accounting Standard
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for
7
<PAGE>
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. Additionally, SFAS 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. Adoption of SFAS
130 did not have a material impact on the Company's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in May 1990, SunPharm Corporation ("SunPharm" or
the "Company") 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 preclinical activities at the University of
Florida, with clinical investigations conducted at various sites, including the
University of Florida. Consequently, the Company believes that its cumulative
research and development expenditures have been lower than other comparable
development stage pharmaceutical companies. The Company has incurred cumulative
net losses of $16,542,180 from its inception through March 31, 1998. The Company
expects to incur additional significant operating losses for at least the next
two years, principally as a result of its continuing anticipated research and
development and clinical trial expenditures.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Interest income increased to $49,000 for the three months ended March
31, 1998 from $25,000 for the same period in 1997. This increase is attributable
to a greater cash balance available for investment during the current quarter,
as compared to the year-ago quarter.
The Company's research and development expenses totaled $523,000 for
the three months ended March 31, 1998, as compared with $551,000 for the same
period in 1997. This 5% decrease was principally attributable to lower clinical
monitoring activity and lower expenses of drug compound screening, partially
offset by increased sponsored research payments to the University of Florida,
increased clinical investigator costs, and expenses related to establishment of
a quality control laboratory. The Company expects its research and development
expenses to increase during 1998 and into 1999, reflecting anticipated increased
expenses related to preclinical studies and human clinical trials.
8
<PAGE>
General and administrative expenses were $565,000 for the three months
ended March 31, 1998, as compared to $394,000 for the same period in 1997. The
43% increase resulted from the Company's recording additional accruals for
professional services in the current quarter in several administrative areas,
including investor relations and public company expenses. The higher expenses in
the current quarter, as compared to the same quarter a year earlier, were also
impacted by the addition of a senior management position, which increased
salaries, benefits, payroll taxes, and travel. The Company expects its general
and administrative expenses to increase, although at a slower rate than its
research and development expenses, with the anticipated addition of a marketing
function and associated administrative support.
Net loss for the three months ended March 31, 1998 was $1,039,000, as
compared to $921,000 for the same period in 1997. The greater loss in the
current quarter was due to increased general and administrative expenses as
discussed above, slightly offset by higher interest income. Net loss per share
for the three months ended March 31, 1998 of $0.18, which compares to $0.24 for
the same period in 1997, was impacted by the greater number of weighted-average
shares outstanding, which was due to a private placement financing closed on
March 28, 1997.
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 March
31, 1998, the Company has received $2,885,000 of cumulative sponsored research
and sublicensing revenues and approximately $19,700,000 in consideration of the
issuance of debt and equity securities, including net proceeds of approximately
$7,200,000 related to its initial public offering in January 1995.
During the three months ended March 31, 1998, net cash used in
operating activities was $1,030,000, compared with $339,000 for the comparable
period in 1997. The lower use of cash in the year-ago quarter was due to
collection of a $500,000 milestone payment from a corporate partner in January
1997 and the lower net loss as discussed earlier. At March 31, 1998, the Company
had cash and investments totaling $3,556,000, compared with $4,626,000 at
December 31, 1997. The Company's working capital was $2,980,000 at March 31,
1998, compared to $4,045,000 at December 31, 1997. These decreases are
attributable to the Company's use of cash to fund its operations over the last
three months. At this time, the Company expects currently available resources to
be able to fund its operations through 1998.
The Company intends to obtain additional funds for research and
development through new collaborative arrangements with corporate partners,
additional financing, and from other sources; however, there can be no assurance
that the Company will be able to obtain necessary financing when required or
what the terms of any financing, if obtained, might be. In addition, the
Company's future success is affected by the progress of the Company's research
and development scope and results of preclinical studies and clinical trials,
the cost and timing of regulatory approvals, the Company's ability to obtain
patent protection for its products on a cost-effective and timely basis, the
rate of
9
<PAGE>
technological advances, determinations as to the commercial potential of the
Company's products under development, the status of competitive products, the
establishment of manufacturing capacity or third-party manufacturing
arrangements, its reliance on research institutions and corporate partners, the
uncertainty of health care reform, and the competitive environment in which the
Company operates. At the present time, the Company's existing capital resources
will not be sufficient to fund the Company's operations to the point of
introduction of a commercially successful product, if and when that time should
arrive. No assurance can be given that additional funds will be available on
acceptable terms, if at all.
The Company expects to incur substantial additional research and
development expenses, including expenses associated with preclinical studies,
clinical trials and drug testing. The Company intends to use a portion of its
cash resources, together with funds from its existing collaborative arrangements
with Warner-Lambert and Nippon Kayaku, for these purposes; however, the
Company's rights to receive payments from Warner-Lambert and Nippon Kayaku are
dependent upon the achievement of certain milestones by Warner-Lambert and
Nippon Kayaku, respectively, and are not within the control of the Company. No
assurance can be made that such milestones will be achieved or that such
payments will be received by the Company
The Company has incurred losses since inception and, therefore, has not
been subject to federal income taxes. As of December 31, 1997, the Company had a
net operating loss ("NOL") and tax credit carry forwards for income tax purposes
of $13,327,000 and $464,000, respectively, which may be available to reduce
future taxable income and future tax liabilities. These carry forwards begin to
expire in 2008. The Tax Reform Act of 1986 provides for an annual limitation the
use of NOL and credit carry forwards (following certain ownership changes) that
could significantly limit the Company's ability to utilize these carry forwards.
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 Company's initial public offering in
1995 and private placements in 1996 and 1997. Accordingly, the Company's ability
to utilize the aforementioned carry forwards to reduce future taxable income and
tax liabilities may be limited. Additionally, because United States tax laws
limit the time during which these carry forwards may be applied against future
taxes, the Company may not be able to take full advantage of these attributes
for federal income tax purposes.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first three months of 1998, the Company sold an aggregate of
18,073 shares of Common Stock upon the exercise of options granted to former
consultants of the Company in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof. The options in question were granted prior to the Company's 1995
initial public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1* Statement of computation of net loss per share
27.1* Financial Data Schedule
- ------------
*Filed herewith.
11
<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, 1998 By: /s/ STEFAN BORG
------------------------------------------------
Stefan Borg
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1998 By: /s/ PAUL M. HERRON
------------------------------------------------
Paul M. Herron
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
12
Exhibit 11.1
SunPharm Corporation
Calculation of Weighted Average Shares Outstanding
and Net Loss Per Share
For three months ended March 31, 1998:
<TABLE>
<CAPTION>
Days
Total Shares Outstanding
------------ -----------
<S> <C> <C> <C> <C>
5,737,828 thru 1/8 8 45,902,624
5,745,618 thru 3/5 56 321,754,608
5,748,618 thru 3/20 15 86,229,270
5,758,901 thru 3/31 11 63,347,911
----------- -----------
90 517,234,413
WEIGHTED AVERAGE SHARES 517,234,413 / 90 = 5,747,049
===========
</TABLE>
NET LOSS $(1,039,126)
PER SHARE $ (0.18)
For three months ended March 31, 1997:
<TABLE>
<CAPTION>
Days
Total Shares Outstanding
------------ -----------
<S> <C> <C> <C> <C>
3,708,879 thru 3/28 87 322,672,473
5,537,165 thru 3/31 3 16,611,495
----------- -----------
90 339,283,968
WEIGHTED AVERAGE SHARES 339,283,968 / 90 = 3,769,822
===========
</TABLE>
NET LOSS $ (920,543)
PER SHARE $ (0.24)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000884888
<NAME> SUNPHARM CORPORATION
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 241,643
<SECURITIES> 3,314,584
<RECEIVABLES> 21,852
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,744,958
<PP&E> 44,635
<DEPRECIATION> 12,295
<TOTAL-ASSETS> 3,885,843
<CURRENT-LIABILITIES> 729,660
<BONDS> 0
0
0
<COMMON> 576
<OTHER-SE> 3,155,607
<TOTAL-LIABILITY-AND-EQUITY> 3,885,843
<SALES> 0
<TOTAL-REVENUES> 48,939
<CGS> 0
<TOTAL-COSTS> 1,088,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,039,126)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,039,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,039,126)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
