<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
------------------------------------------------------
Commission File Number 0-28290
AKSYS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-3890205
(State of incorporation) (I. R. S. Employer
Identification No.)
1113 S. Milwaukee Avenue, Suite 300, Libertyville, Illinois 60048
(address of principal executive offices) (Zip Code)
Registrant's telephone number 847-247-6051
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
The number of shares of Common Stock, $.01 Par Value, outstanding as of
August 14, 1996 was 13,685,229.
Page 1 of 12 pages
1
<PAGE>
AKSYS, LTD
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C>
PART 1 - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995................................... 3
Consolidated Statements of Operations for the three and
six months ended June 30, 1996 and 1995................. 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995............................ 5
Notes to Consolidated Financial Statements.............. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 11
SIGNATURES......................................................... 11
INDEX TO EXHIBITS.................................................. 12
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
AKSYS, LTD. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
================================================================================
June 30, December 31,
Assets 1996 1995
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,713,628 $ 570,621
Short-term investments 20,020,412 3,386,484
Interest receivable 418,793 8,502
Prepaid expenses 173,821 6,213
Other current assets 30,945 46,319
- --------------------------------------------------------------------------------
Total current assets 34,357,599 4,018,139
- --------------------------------------------------------------------------------
Long-term investments 18,992,095 -
Property and equipment, net 673,511 603,382
Other noncurrent assets 154,263 71,929
- --------------------------------------------------------------------------------
$ 54,177,468 $ 4,693,450
================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 921,392 $ 316,400
Accrued liabilities 92,147 89,745
Current maturities of notes payable 4,585 15,206
Current maturities of lease obligation 32,276 31,525
- --------------------------------------------------------------------------------
Total current liabilities 1,050,400 452,876
- --------------------------------------------------------------------------------
Notes payable, less current maturities 30 909
Lease obligation, less current maturities 22,870 34,852
- --------------------------------------------------------------------------------
Total liabilities 1,073,300 488,637
- --------------------------------------------------------------------------------
Redeemable preferred stock - 12,406,761
- --------------------------------------------------------------------------------
Stockholders' equity (deficit):
Common stock, par value $.01 per share,
50,000,000 shares authorized,
13,685,229 and 861,457 shares issued
and outstanding in 1996 and 1995,
respectively 136,852 8,614
Additional paid-in capital 64,570,384 -
Deficit accumulated during development
stage (11,603,068) (8,210,562)
- --------------------------------------------------------------------------------
Total stockholders' equity (deficit) 53,104,168 (8,201,948)
- --------------------------------------------------------------------------------
$ 54,177,468 $ 4,693,450
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AKSYS LTD. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================================
Cumulative
from
Jan. 18, 1991
Three months ended Six months ended (inception)
------------------------------- ------------------------------- through
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 Jun. 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research and development expenses $ 1,278,733 $ 1,099,055 $ 2,691,239 $ 1,950,373 $ 9,359,855
General and administrative expenses 571,232 359,889 1,066,432 613,403 2,892,974
- ---------------------------------------------------------------------------------------------------------------------------------
Operating loss (1,849,965) (1,458,944) (3,751,661) (2,563,776) (12,252,829)
- ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 325,733 46,956 361,559 67,201 602,976
Interest expense (951) (3,047) (2,404) (5,616) (18,066)
Other income - - - - 67,884
- ---------------------------------------------------------------------------------------------------------------------------------
324,782 43,909 359,155 61,585 652,794
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss $(1,525,183) $(1,415,035) $(3,392,506) $(2,502,191) $(11,600,035)
=================================================================================================================================
Net loss per share $ (.14) $ (.14) $ (.30) $ (.24)
=================================================================================================================================
Weighted average number of common shares 11,215,754 10,327,586 11,215,754 10,327,586
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AKSYS, LTD. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
(Unaudited)
=======================================================================================================
Cumulative
from
Jan. 18, 1991
(inception)
through
1996 1995 Jun. 30, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,392,506) $(2,502,191) $(11,600,035)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 118,920 52,892 353,962
Stock option expense _ _ 3,240
Issuance of stock in exchange for services rendered 66,003 _ 66,003
Changes in assets and liabilities:
Interest receivable (410,291) 1,817 (418,793)
Prepaid expenses (167,608) 9,860 (173,821)
Other current assets 15,920 11,302 (30,399)
Accounts payable 604,992 201,287 921,392
Accrued liabilities 2,402 (15,571) 92,147
Other assets (96,927) (82,261) (178,060)
- -------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,259,095) (2,322,865) (10,964,364)
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of investments 3,386,484 1,862,359 12,064,014
Purchases of investments (39,013,934) (3,513,019) (51,077,948)
Purchases of property and equipment (173,030) (121,397) 879,134
Organizational costs incurred _ _ (19,585)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (35,800,480) (1,772,057) (38,154,385)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of issuance costs 52,225,313 _ 52,298,319
Proceeds from issuance of preferred stock _ 4,000,000 12,336,096
Proceeds from issuance of note payable _ _ 41,792
Repayment of notes payable (11,500) (8,042) (37,177)
Repayment of lease obligation (11,231) (10,990) (48,375)
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 52,202,582 3,980,968 64,590,655
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 13,143,007 (113,954) 13,713,628
Cash and cash equivalents at beginning of period 570,621 609,655 _
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $13,713,628 $ 495,701 $ 13,713,628
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AKSYS, LTD. AND SUBSIDIARY
(a development stage enterprise)
Notes to Consolidated Financial Statements - Unaudited
(1) BASIS FOR PRESENTATION
The consolidated financial statements of Aksys, Ltd. and Subsidiary (the
"Company") presented herein are unaudited, other than the consolidated
balance sheet at December 31, 1995, which is derived from audited financial
statements. The interim financial statements and notes thereto have been
prepared pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. In the opinion of management, the interim financial statements
reflect all adjustments consisting of normal, recurring adjustments
necessary for a fair statement of the results for interim periods. The
operations for the three and six months ended June 30, 1996 are not
necessarily indicative of results that ultimately may be achieved for the
entire year ended December 31, 1996. These financial statements should be
read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1995, included in the Company's registration
statement on Form S-1 filed with the Securities and Exchange Commission on
May 16, 1996.
(2) PRINCIPLES OF CONSOLIDATION
On April 18, 1996 the Company established a subsidiary in Tokyo, Japan. The
consolidated financial statements include the accounts of the Company and
the wholly-owned subsidiary. All material intercompany transactions and
balances have been eliminated in consolidation.
(3) COMPUTATION OF NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of unexercised stock options
using the treasury stock method. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, options for common stock
granted by the Company during the twelve months immediately preceding the
offering date (using the treasury stock method and the public offering
price) have been included in the calculation of common and common
equivalent shares as if they were outstanding for all periods presented.
(4) CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in debt securities that are classified as short-
term (mature in more than 91 days but no more than one year) or long-term
(maturities beyond one year but no more than 18 months). Such investments
are classified as held-to-maturity, as the Company has the ability and
intent to hold such until maturity. Investments held-to-maturity are
carried at amortized cost, adjusted for the amortization or accretion of
premiums or discounts without recognition of gains or losses that are
deemed to be temporary. Premiums and discounts are amortized or accreted
over the life of the related instrument as an adjustment to yield using the
straight-line method, which approximates the effective interest method.
Interest income is recognized when earned. Fair value approximates carrying
value for all investments.
(Continued)
6
<PAGE>
AKSYS, LTD. AND SUBSIDIARY
(a development stage enterprise)
Notes to Consolidated Financial Statements - Unaudited
(5) STOCKHOLDERS' EQUITY (DEFICIT)
On April 23, 1996, the Company effected a 3-for-2 stock split of its common
stock. Additionally, on April 23, 1996, the Company filed a Restated
Certificate of Incorporation authorizing an increase in the number of
authorized shares of common stock to 50,000,000 shares and authorizing
1,000,000 shares of preferred stock, par value $.01 per share, for future
issuance. All references in the financial statements to share and per share
data have been adjusted to reflect this split.
On May 16 1996, the Company completed an initial public offering of its
common stock in which 3,565,000 shares were sold by the Company resulting
in net proceeds of approximately $52.2 million. Upon the closing of the
offering, 6,165,424 shares of redeemable preferred stock (representing all
issued and outstanding shares of preferred stock) were automatically
converted into 9,248,136 shares of common stock. All shares of redeemable
preferred stock were canceled upon the conversion to common stock.
(6) STOCK OPTIONS
The following table summarizes the transactions pursuant to the Company's
Stock Option Plan:
<TABLE>
<CAPTION>
================================================================================
Shares Price Range
<S> <C> <C>
- --------------------------------------------------------------------------------
Outstanding on December 31, 1995 1,447,250 0.1067-0.3935
Granted 114,661 0.1067-16.00
Exercised 4,350 0.1067-0.1670
- --------------------------------------------------------------------------------
Outstanding on June 30, 1996 1,557,561 0.1067-16.00
================================================================================
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
AKSYS, LTD. AND SUBSIDIARY
(a development stage enterprise)
OVERVIEW
The Company is in a development stage and was formed to provide hemodialysis
products and services for patients suffering from end stage renal disease,
commonly known as chronic kidney failure. The Company has developed an automated
personal hemodialysis system which is designed to enable patients to perform
hemodialysis in an alternate site setting, such as the patient's home or a self-
care clinic, on a daily basis. The Company believes that its products and
services will provide a superior alternative to currently available kidney
dialysis treatment modalities by providing better clinical outcomes, lower
overall costs and improved quality of life for dialysis patients. The Company
has submitted a 510(k) premarket notification, currently under formal review, to
the FDA to market the Aksys PHD(TM) Personal Hemodialysis System and, if
clearance is granted, the Company plans commercial launch of its products and
services during 1997. There can be no assurance, however, that the Company will
be able to obtain regulatory clearance in a timely manner or at all.
On May 16, 1996, the Company completed an initial public offering of its common
stock resulting in net proceeds of approximately $52.2 million.
COMPARISON OF RESULTS OF OPERATIONS
Net loss for the three months ended June 30, 1996 was $1.5 million or $.14 per
share, as compared to $1.4 million, or $.14 per share, for the three months
ended June 30, 1995. Net loss for the six months ended June 30, 1996 was $3.4
million, or $.30 per share, as compared to $2.5 million, or $.24 per share for
the year earlier period. The increase in net loss in the three and six months
ended June 30, 1996 compared to the year earlier periods is due to increases in
spending in research and development and general and administrative expenses
related to activities by the Company in the development of the Aksys PHD(TM)
Personal Hemodialysis System offset by increases in interest income earned from
the investment of the net proceeds raised by the Company in the initial public
offering in May 1996.
Operating loss. Operating loss for the three months ended June 30, 1996 was
$1.9 million, as compared to $1.5 million for the comparable period in 1995, an
increase of $.4 million or 26.7%. Operating loss for the six months ended June
30, 1996 was $3.8 million, as compared to $2.6 million for the comparable period
in 1995, an increase of $1.2 million or 46.2%. The increase in the operating
loss in the three and six months ended June 30, 1996 compared to the year
earlier periods is due to the scale-up in product development and overhead to
achieve the Company's development plan.
Other income (expense). Interest income for the three months ended June 30,
1996 was $.3 million, as compared to less than $.1 million for the comparable
period in 1995. Interest income for the six months ended June 30, 1996 was $.4
million, as compared to $.1 million for the comparable period in 1995. The
increase in interest income in the three and six months ended June 30, 1996,
compared to the year earlier periods is due to interest earned on the investment
of the net proceeds from the Company's initial public offering in May 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities. Net cash used in operating activities for
the six months ended June 30, 1996 and the six months ended June 30, 1995 was
$3.3 million and $2.3 million, respectively. The increase in net cash used in
operating activities is related to the scale-up in the Company's product
development. Future cash needs for operating activities will be higher than
historical levels because of the manufacturing scale-up and commercialization of
the Aksys PHD(TM) Personal Hemodialysis System.
Net cash used in investing activities. Net cash used in investing activities was
$35.8 million for the six months ended June 30, 1996, as compared to $1.8
million for the comparable six-month period in 1995. The use of cash for
investing activities was primarily due to the purchase of investments using the
net proceeds raised by the Company in its initial public offering.
The Company's primary source of liquidity is from the net proceeds of
approximately $52.2 million from the sale of common stock in May 1996. At June
30, 1996, the Company had cash, cash equivalents and short-term investments of
$33.7 million and working capital of $33.3 million. The Company also had long-
term investments of $19.0 million with maturity dates ranging between 12 months
and 18 months.
The Company expects to incur additional losses in the foreseeable future and
estimates that during 1996 it will spend approximately $11.5 million, including
capital expenditures and working capital, for manufacturing scale-up and
commercialization of the Aksys PHD(TM) Personal Hemodialysis System. The Company
anticipates, based on its current plans and assumptions, relating to its
operations (including assumptions regarding the timing and costs associated with
obtaining FDA approval for, and the production and marketing of, the Aksys
PHD(TM) Personal Hemodialysis System), that the net proceeds of the initial
public offering will be sufficient to satisfy the Company's contemplated capital
expenditure and working capital requirements through 1997, assuming it is able
to obtain equipment financing in the second half of 1997 to finance the
commercial scale production and market launch of the Aksys PHD(TM) Personal
Hemodialysis System.
Generally, the Company intends to enter into contracts with its customers to
provide all products and services relating to the Aksys PHD(TM) Personal
Hemodialysis System for a single monthly price, which would include a lease
payment for the Aksys PHD(TM) Personal Hemodialysis System. Financing production
of the Aksys PHD(TM) Personal Hemodialysis System in quantities necessary for
commercialization, as well as supplying the Aksys PHD(TM) Personal Hemodialysis
Systems on a contracted lease basis, will require a significant investment in
working capital. This need for working capital is likely to increase to the
extent that demand for the Aksys PHD(TM) Personal Hemodialysis System increases
and the Company leases additional units. The Company would, therefore, have to
rely on sources of capital beyond cash generated from operations to finance
production of the Aksys PHD(TM) Personal Hemodialysis System even if the Company
is successful in marketing its products and services. The Company currently
intends to finance the working capital requirements associated with these
arrangements through equipment financing with a commercial lender. If the
Company is unable to obtain such equipment financing, it would need to seek
other forms of financing, through the sale of equity securities or otherwise, to
achieve its business objectives. The Company has not yet obtained a commitment
for such equipment financing, and there can be no assurance that the Company
will be able to obtain equipment financing or alternative financing on
acceptable terms or at all.
9
<PAGE>
NOTE ON FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q and in the future filings made by the
Company with the Securities and Exchange Commission and in the Company's written
and oral statements made by or with the approval of an officer of the Company
constitute "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,
and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. The words "believes," "expects," "estimates,"
"anticipates," and "will be," and similar words or expressions, identify
forward-looking statements made by or on behalf of the Company. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many uncertainties and factors which may cause the actual results of the Company
to be materially different from any future results expressed or implied by such
forward-looking statements. Examples of such uncertainties and factors include,
but are not limited to, (i) whether and when the Company will obtain clearance
from the FDA of its 501(k) premarket notification and what additional clinical
and other data the Company might have to obtain in connection with seeking such
clearance; (ii) the Company's need to achieve manufacturing scale-up in a timely
manner with its primary manufacturing contractor, SeaMED Corporation, and its
need to provide for the efficient manufacturing of sufficient quantities of its
products; (iii) the Company's need to develop the marketing, distribution,
customer service and technical support and other functions critical to the
success of the Company's business plan; (iv) the uncertainty regarding the
effectiveness and ultimate market acceptance of the Aksys PHD(TM) Personal
Hemodialysis System, the Company's primary product in development; (v) the need
to further establish the clinical benefits of daily hemodialysis; and (vi) the
capital requirements necessary to fund the development and commercialization of
the Company's products and services. The Company does not undertake any
obligation to update or revise any forward-looking statement made by it or on
its behalf, whether as a result of new information, future events, or otherwise.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
(99.1) Press Release of the Company, issued August 2, 1996
(99.2) Aksys, Ltd. 1996 Stock Awards Plan
(b) Reports on Form 8-K
none
Signatures
Pursuant to 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.
Aksys, Ltd.
Date: August 15, 1996 By: /s/ Lawrence H.N. Kinet
--------------- -------------------------
Lawrence H.N. Kinet
Chairman and Chief Executive Officer
and Director
Date: August 15, 1996 By: /s/ Dennis N. Cavender
--------------- -----------------------
Dennis N. Cavender
Vice President and Chief Financial
Officer
11
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
================================================================================
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
99.1 Press Release of the Company, issued August 2, 1996
99.2 Aksys, Ltd. 1996 Stock Awards Plan
<PAGE>
AKSYS LTD. AND SUBSIDIARY Exhibit 11
(a development stage enterprise) ----------
Statement Regarding Computation of Net Loss Per Share
<TABLE>
<CAPTION>
================================================================================================
Three months ended Six months ended
----------------------------- -----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (1,525,183) (1,415,035) (3,392,506) (2,502,191)
================================================================================================
Weighted average shares used
to compute net loss per share:
Weighted average common
shares outstanding 1,746,501 858,333 1,746,501 858,333
Weighted average preferred
shares outstanding -
assuming conversion 9,248,136 6,613,370 9,248,136 6,613,370
Additional shares pursuant
to SAB83 computation 221,117 2,855,883 221,117 2,855,883
- ------------------------------------------------------------------------------------------------
11,215,754 10,327,586 11,215,754 10,327,586
================================================================================================
Net loss per share $ (.14) (.14) (.30) (.24)
================================================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of June 30, 1996 and the statement of earnings for the six months ended
June 30, 1996, and is qualified in its entirety by reference to such financial
statements.</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,714
<SECURITIES> 20,020
<RECEIVABLES> 419
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,358
<PP&E> 983
<DEPRECIATION> 309
<TOTAL-ASSETS> 54,177
<CURRENT-LIABILITIES> 1,050
<BONDS> 0
<COMMON> 137
0
0
<OTHER-SE> 52,967
<TOTAL-LIABILITY-AND-EQUITY> 54,177
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,752)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,393)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CONTACTS:
Lawrence H.N. Kinet Dennis N. Cavender
Chairman and CEO Vice President and CFO
Aksys, Ltd. Aksys, Ltd.
(847) 247-6051 (847) 247-6051
FOR IMMEDIATE RELEASE
- ---------------------
AKSYS, LTD. REPORTS FINANCIAL RESULTS FOR THE SECOND
QUARTER ENDED JUNE 30, 1996
LIBERTYVILLE, IL, AUGUST 2, 1996 -- Aksys, Ltd. (Nasdaq/NNM: AKSY), a leader in
the development of personal hemodialysis products and services, today reported
financial results for the second quarter and six month period ended June 30,
1996.
For the second quarter ended June 30, 1996, the Company reported a net loss of
$1,525,183, or $0.14 per share, compared to a net loss of $1,415,035, or $0.14
per share, for the same quarter last year. Interest income for the second
quarter ended June 30, 1996, was $325,733 compared to interest income of $46,956
for the same quarter last year. The increase in interest income is a result of
interest earned on net proceeds of approximately $52 million from the sale of
shares of Common Stock in May, 1996.
"The Company continues to work diligently and aggressively towards the
regulatory approval and commercialization of the Aksys PHD (TM) Personal
Hemodialysis System," stated Lawrence H.N. Kinet, Chairman and CEO of Aksys,
LTD.
For the six month period ended June 30, 1996, the Company reported a net loss of
$3,392,506, or $0.30 per share, compared to a net loss of $2,502,191, or $0.24
per share, for the same six month period in 1995. Interest income for the six
months ended June 30, 1996 was $361,559 compared to interest income of $67,201
for the same period in 1995.
Aksys, Ltd. is developing hemodialysis products and services for patients
suffering from kidney failure. These products and services include the Company's
lead product in development, the Aksys PHD (TM) Personal Hemodialysis System
designed to improve clinical outcomes of patients, reducing mortality, morbidity
and the associated high cost of patient care. The PHD approach to the treatment
of kidney dialysis patients is simple: more dialysis is better than less; daily
treatment is better than less frequent treatment; and alternate sites, such as
the patient's home or a self-care clinic, are preferable locations to perform
chronic therapy.
- financial table to follow -
[LOGO FOR AKSYS]
Aksys, Ltd. 113 S. Milwaukee Ave., Suite 300, Libertyville, IL USA 60048
Office: 847.247.6051 FAX: 847.247.6060
<PAGE>
AKSYS, LTD. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ -
Expenses:
Research and development 1,278,733 1,099,055 2,691,239 1,950,373
General and administrative 571,232 359,889 1,060,422 613,403
----------- ----------- ----------- -----------
Operating loss (1,849,965) (1,458,944) (3,751,661) (2,563,776)
Other income (expense):
Interest income 325,733 46,956 361,559 67,201
Interest expense (951) (3,047) (2,404) (5,616)
----------- ----------- ----------- -----------
324,782 43,909 359,155 61,585
----------- ----------- ----------- -----------
Net loss $(1,525,183) $(1,415,035) $(3,392,506) $(2,502,191)
=========== =========== =========== ===========
Net loss per share $ (0.14) $ (0.14) $ (0.30) $ (0.24)
=========== =========== =========== ===========
Weighted average number
of common shares outstanding 11,215,754 10,327,586 11,215,754 10,327,586
=========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 99.2
AKSYS, LTD.
1996 STOCK AWARDS PLAN
SECTION 1. PURPOSE
The purpose of the Aksys, Ltd. 1996 Stock Awards Plan (the "Plan")
is to enable Aksys, Ltd., a Delaware corporation (the "Company"), and its
subsidiaries to attract, retain and motivate its directors and employees by
providing for or increasing the proprietary interests of such persons in the
Company. The Company believes the Plan will further identify the interests of
directors and employees with those of the Company's stockholders.
SECTION 2. PERSONS ELIGIBLE
Any officer or employee of the Company or its subsidiaries,
regardless of whether such person is also a director of the Company or its
subsidiaries (an "Employee"), shall be eligible to be considered for the grant
of Employee Awards (as defined below) under the Plan. In addition, any director
of the Company who is not an officer or employee of the Company or any of its
subsidiaries (a "Non-Employee Director") shall be eligible to receive a Director
Option (as defined below) as set forth in this Plan.
SECTION 3. EMPLOYEE AWARDS
(a) The Committee (as defined below) on behalf of the Company is
authorized under the Plan to enter into any type of arrangement with an Employee
that is consistent with the provisions of the Plan and that by its terms
involves the issuance or potential issuance of (i) shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock") or (ii) a "Derivative
Security" as such term is defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with an exercise or
conversion right at a price related to Common Stock or with a value derived from
the value of the shares of Common Stock. The entering into of any such
arrangement is referred to herein as the grant of an "Employee Award."
(b) Employee Awards are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Employee Award may consist of one or more such security or benefit.
<PAGE>
(c) Subject to the provisions of the Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Employee Award granted under the Plan, which terms and conditions may
include without limitation:
(i) a provision permitting the recipient of such Employee Award to
pay the purchase price of the Common Stock or other property issuable
pursuant to such Employee Award, or the tax withholding obligation of such
Employee with respect to the Employee Award, in whole or in part, by any
one or more of the following:
(A) the delivery of previously owned shares of Common Stock or
other property,
(B) a reduction in the amount of Common Stock or other property
otherwise issuable pursuant to such Employee Award, or
(C) the delivery of a promissory note, the terms and conditions of
which shall be determined by the Committee;
(ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Employee Award either automatically or in the
discretion of the Committee upon the occurrence of specified events,
including a change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company, the dissolution or
liquidation of the Company, a sale of substantially all of the property and
assets of the Company or an event of the type described in Section 7
hereof;
(iii) provisions with respect to vesting and exercisability; or
(iv) provisions required in order for such Employee Award to
qualify as an incentive stock option under Section 422 of the Internal
Revenue Code (an "Incentive Stock Option").
(d) Notwithstanding any other provision of the Plan, no one
Employee shall be granted options or other Employee Awards with respect to more
than 100,000 shares of Common Stock in any one calendar year; provided, however,
that this limitation shall not apply if it is not required in order for the
compensation attributable to Employee Awards hereunder to qualify as
performance-based compensation as described in Section 162(m) of the Internal
Revenue Code ("Performance-Based Compensation"). The limitation set forth in
this Section 3(d) shall be subject to adjustment as provided in Section 7
hereof, but only to the extent such adjustment would not affect the status of
compensation attributable to Employee Awards hereunder as Performance-Based
Compensation.
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<PAGE>
SECTION 4. NON-EMPLOYEE DIRECTOR AWARDS
Options granted pursuant to this Section 4 shall be referred to as
"Director Options."
(a) Any person who first becomes a Non-Employee Director on or
after the Effective Date shall automatically be granted an option entitling such
director to purchase 5,000 shares of Common Stock on the date on which such
person first becomes a Non-Employee Director, which number of shares gives
effect to (and shall not be adjusted for) the 3-for-2 stock split of the Common
Stock that occurred on the Effective Date, but shall be subject to adjustment
pursuant to Section 7 hereof after the Effective Date. The exercise price for
each such share shall be the last reported sale price of the Common Stock on the
principal securities exchange or other trading market on which shares of the
Common Stock are then listed on the date of grant or, if the Common Stock is at
such time not traded on an exchange or market, the fair market value of a share
of Common Stock on such date as determined by the Committee.
(b) On the later of (i) June 30 of each year and (ii) the day next
following each annual meeting of stockholders of the Company (such date, the
"Determination Date"), commencing in 1996, each person who is a Non-Employee
Director on such Determination Date shall automatically be granted an option
entitling such director to purchase a number of shares of Common Stock equal to
(x) 1,250 multiplied by (y) the number of calendar quarters in the preceding
twelve months (rounded up to the nearest whole number of calendar quarters) in
which such person served as a Non-Employee Director, up to a maximum of four
quarters (as such number of shares may be adjusted pursuant to Section 7 hereof
after the Effective Date). The exercise price for each such share shall be the
last reported sale price of the Common Stock on the principal securities
exchange or other trading market on which shares of the Common Stock are then
listed on such Determination Date (or, if the Determination Date is not a
trading day on such exchange or other trading market, the last trading day
immediately preceding such date) or, if the Common Stock is not listed or quoted
on a securities exchange or other trading market, the fair market value of a
share of Common Stock on such date as determined by the Committee.
(c) Each Director Option shall vest and become exercisable
immediately upon grant.
(d) Each Director Option shall expire and not be exercisable after
the first to occur of (i) the tenth anniversary of the date of grant of such
option and (ii) three months after the optionee ceases to be a director of the
Company (12 months if the optionee ceases to be a director of the Company due to
death or to total and permanent disability as determined by the Board of
Directors of the Company (the "Board") in good faith).
(e) The provisions of this Section 4 that relate to the amount,
price and timing of Director Options shall not be amended more than once every
six months, except as permitted by Rule 16b-3(c)(2)(ii)(B) under the Exchange
Act.
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<PAGE>
SECTION 5. STOCK SUBJECT TO PLAN
(a) At any time, the aggregate number of shares of Common Stock
issued and issuable pursuant to all Employee Awards granted under the Plan shall
not exceed 800,000, subject to adjustment as provided in Section 7 hereof. For
purposes of this Section 5(a), the aggregate number of shares of Common Stock
issued and issuable pursuant to Employee Awards granted under the Plan shall at
any time be deemed to be equal to the sum of the number of shares of Common
Stock which have been issued pursuant to Employee Awards and which have not been
repurchased by the Company and the number of shares which are or may be issuable
at or after such time pursuant to Employee Awards.
(b) At any time, the aggregate number of shares of Common Stock
issued and issuable pursuant to all Director Options granted under the Plan
shall not exceed 100,000, subject to adjustment as provided in Section 7 hereof.
For purposes of this Section 5(b), the aggregate number of shares of Common
Stock issued and issuable pursuant to Director Options granted under the Plan
shall at any time be deemed to be equal to the sum of the number of shares of
Common Stock which have been issued pursuant to Director Options and which have
not been repurchased by the Company and the number of shares which are or may be
issuable at or after such time pursuant to Director Options.
(c) Shares of Common Stock issued pursuant to the Plan may be
authorized but unissued shares, treasury shares, reacquired shares or any
combination thereof.
SECTION 6. ADMINISTRATION
(a) The Plan shall be administered by a committee (the
"Committee") of the Board consisting of two or more directors, each of whom is a
"disinterested person" (as such term is defined in Rule 16b-3 under the Exchange
Act); provided that to the extent permitted at any time under Rule 16b-3 or any
successor rule and under Section 162(m) of the Internal Revenue Code or any
successor statutory provision, and any implementing regulations, without
adversely affecting the ability of the Plan to comply with the conditions for
exemption from Section 16 of the Exchange Act provided by Rule 16b-3 and the
exemption from the limitations on the deductibility of certain executive
compensation provided by Section 162(m), the Committee may delegate the
administration of the Plan in whole or in part, on such terms and conditions, to
such other person or persons as it may determine in its discretion, which
persons may be officers or employees of the Company or third parties (each such
person, an "Authorized Delegate").
(b) Subject to the provisions of the Plan, the Committee (or its
Authorized Delegate) shall be authorized and empowered to do all things
necessary or desirable in connection with the administration of the Plan,
including the following:
(i) adopt, amend and rescind rules and regulations relating to
the Plan;
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<PAGE>
(ii) determine which persons meet the requirements of Section 2
hereof for eligibility under the Plan (and, with respect to employees, which of
such persons, if any, shall be granted Employee Awards);
(iii) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof;
(iv) interpret and construe the Plan and the terms and conditions
of any Employee Award or Director Option granted hereunder; and
(v) correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Employee Award or Director Option in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect.
(c) Any decision of the Committee (or any Authorized Delegate) in
the interpretation and administration of the Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. The Committee may act only by a majority of its members in office,
except that the members thereof may authorize any one or more of their members
or any Authorized Delegate to execute and deliver documents or to take any other
ministerial action on behalf of the Committee with respect to Employee Awards
and Director Options made or to be made to Plan participants. No member of the
Committee or any Authorized Delegate shall be liable for anything done or
omitted to be done by such member or Authorized Delegate, by any other member of
the Committee or by any other Authorized Delegate in connection with the
performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute. Determinations to be made by the
Committee under the Plan may be made by Authorized Delegates.
SECTION 7. ADJUSTMENTS
If the outstanding securities of the class then subject to the Plan
(initially, the Common Stock) are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of securities, or if
cash, property or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular quarterly or annual cash dividend) or other distribution,
stock split, reverse stock split or the like, or if substantially all of the
property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (a) the price and number and type of shares or
other securities or cash or other property that may be acquired pursuant to
Employee Awards and Director Options theretofore granted under the Plan, (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Employee Awards and Director Options thereafter granted under the
Plan, (c) to the extent permitted under Section 3(d) hereof, the maximum number
of shares of Common Stock with respect to which Employee Awards may be granted
to any Employee during any calendar year and (d) the number of shares of Common
Stock to be awarded to Non-Employee Directors pursuant to Director Options under
Section 4 hereof; provided, however, that no adjustment shall be made to the
number of shares of Common
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<PAGE>
Stock that may be acquired pursuant to outstanding Incentive Stock Options or
the maximum number of shares of Common Stock with respect to which Incentive
Stock Options may be granted under the Plan to the extent such adjustment would
result in such options being treated as other than Incentive Stock Options; and
provided further that no such adjustment shall be made to the extent the
Committee determines that such adjustment would result in the disallowance of a
federal income tax deduction for compensation attributable to awards hereunder
by causing such compensation to be other than Performance-Based Compensation.
SECTION 8. AMENDMENT AND TERMINATION
The Board may amend (subject to Section 4(d) hereof) or terminate
the Plan at any time and in any manner; provided however, that no such amendment
or termination shall deprive a participant of an Employee Award or Director
Option previously granted under the Plan of any of his or her rights thereunder,
without the consent of such participant.
SECTION 9. EFFECTIVENESS
The Plan shall be submitted to the stockholders of the Company for
their approval and adoption in accordance with applicable law and Rule 16b-3(b)
under the Exchange Act and Section 162(m) under the Internal Revenue Code. The
Plan shall become effective on April 23, 1996 (the "Effective Date"); provided,
that the Plan shall cease to be effective and any Employee Awards and Director
Options granted hereunder shall become null and void if the Plan is not approved
by the Company's stockholders prior to or within 12 months after April 23, 1996.
SECTION 10. MISCELLANEOUS PROVISIONS
(a) Neither the Plan nor any action taken hereunder shall be
construed as giving any Employee or other person any right to continue to be
employed by the Company or any of its subsidiaries or a director the right to
continue in such capacity.
(b) Except as may be approved by the Committee where such approval
shall not adversely affect compliance of the Plan with Rule 16b-3 under the
Exchange Act, no rights and interests under the Plan may be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner, other than by will or the laws of descent and distribution.
(c) It is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act and Section 162(m) of the
Internal Revenue Code, that any ambiguities or inconsistencies in construction
of the Plan be interpreted to give effect to such intention and that if any
provision of the Plan is found not to be in compliance with Rule 16b-3 or
Section 162(m), such provision shall be deemed null and void to the extent
required to permit the Plan to comply with Rule 16b-3 or Section 162(m), as the
case may be.
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<PAGE>
(d) The Company shall have the right to deduct from any payment
made under the Plan any federal, state, local or foreign income or other taxes
required by law to be withheld with respect to such payment. It shall be a
condition to the obligation of the Company to issue shares of Common Stock,
other securities or property or any combination thereof, upon exercise,
settlement or payment of any award under the Plan, that the recipient of an
award (or any beneficiary or person entitled to act) pay to the Company, upon
its demand, such amount as may be required by the Company for the purpose of
satisfying any liability to withhold such taxes.
(e) By accepting any award or other benefit under the Plan, each
recipient of an award and each person claiming under or through him or her shall
be conclusively deemed to have indicated his or her acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the Board or
the Committee or its delegates.
(f) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to the
Plan and to awards granted under the Plan, shall be governed by the substantive
laws, but not the choice of law rules, of the State of Delaware.
* * * * *
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