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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File No. 0-24972
INKINE PHARMACEUTICAL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
New York 13-3754005
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1787 Sentry Parkway West
Building 18, Suite 440
Blue Bell, PA 19422
(Address of principal executive offices)
215-283-6850
(Registrant's telephone number)
Sentry Park East
1720 Walton Road, Suite 200
Blue Bell, PA 19422
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At November 10, 2000, the registrant had outstanding 33,668,302 shares of
common stock, par value $.0001 per share.
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INKINE PHARMACEUTICAL COMPANY, INC.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
BALANCE SHEETS - as of September 30, 2000 (unaudited)
and June 30, 2000.................................................................3
STATEMENTS OF OPERATIONS (unaudited) -- For the Three Months Ended September
30, 2000 and 1999.................................................................4
STATEMENTS OF CASH FLOWS (unaudited) -- For the Three Months
Ended September 30, 2000 and 1999.................................................5
NOTES TO UNAUDITED FINANCIAL STATEMENTS...........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................7
PART II - OTHER INFORMATION.........................................................................9
SIGNATURES..........................................................................................10
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2
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
INKINE PHARMACEUTICAL COMPANY, INC.
BALANCE SHEETS
(In thousands, except share amounts)
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<CAPTION>
September 30, 2000 June 30, 2000
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ASSETS (Unaudited)
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Current assets:
Cash and cash equivalents ....................................... $ 5,587 $ 5,629
Short term investments .......................................... 9,385 10,396
Prepaid expenses and other current assets ....................... 56 78
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Total current assets ........................................ 15,028 16,103
Deposits ............................................................. 33 --
Fixed assets, net .................................................... 311 332
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Total assets ................................................ $ 15,372 $ 16,435
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses ..................... $ 618 $ 540
Line of credit .................................................. 1,001 1,021
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Total current liabilities ................................... 1,619 1,561
Commitments, contingencies and other matters
Shareholders' equity:
Preferred stock, $.0001 par value; authorized 5,000,000
shares; none issued and outstanding ............................. -- --
Common stock, $.0001 par value; authorized 50,000,000
shares; issued 33,393,027 and 32,694,777 shares, respectively ... 3 3
Less common stock held in treasury (16,515 shares) ................... (37) (37)
Additional paid-in capital ........................................... 55,245 48,218
Deferred compensation ................................................ (404) (473)
Unrealized (loss) on investments ..................................... (2) (10)
Accumulated deficit .................................................. (41,052) (32,827)
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Total shareholders' equity .................................. 13,753 14,874
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Total liabilities and shareholders' equity .................. $ 15,372 $ 16,435
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See accompanying notes to unaudited financial statements.
3
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INKINE PHARMACEUTICAL COMPANY, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
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Three Months Ended
September 30
2000 1999
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Costs and Expenses:
Research and development ....................................... $ 924 $ 1,411
Sales and marketing ............................................ 275 --
General and administrative ..................................... 1,231 915
Performance based stock expense ................................ 6,055 --
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Loss from operations ................................................. (8,485) (2,326)
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Interest income ...................................................... 266 63
Interest expense ..................................................... (6) --
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Net loss ............................................................. $ (8,225) $ (2,263)
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Net loss per share - basic and diluted ............................... $ (0.25) $ (0.10)
Weighted average shares outstanding - basic and diluted .............. 32,883 23,546
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See accompanying notes to unaudited financial statements.
4
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INKINE PHARMACEUTICAL COMPANY, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
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Three Months Ended
September 30,
2000 1999
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Cash flows from operating activities:
Net loss ........................................ $(8,225) $(2,263)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ............... 29 17
Amortization of deferred compensation ....... 410 423
Performance based stock expense ............. 6,055 --
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses
and other assets ......................... (11) 61
Increase (decrease) in accounts payable
and accrued expenses ..................... 78 (593)
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Net cash used in operating activities ......... (1,664) (2,355)
Cash flows from investing activities:
Purchases of investments ........................ (2,259) --
Proceeds from maturities and sales of investments 3,278 3,804
Capital expenditures ............................ (8) (1)
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Net cash provided by investing activities .... 1,011 3,803
Cash flows from financing activities:
Proceeds from sale of stock and exercise
of options and warrants - net of expenses ...... 631 3,048
Net repayment of line of credit ................ (20) --
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Net cash provided by financing activities ..... 611 3,048
Net increase (decrease) in cash and cash equivalents (42) 4,496
Cash and cash equivalents - beginning of period .... 5,629 1,968
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Cash and cash equivalents - end of period .......... $ 5,587 $ 6,464
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See accompanying notes to unaudited financial statements.
5
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INKINE PHARMACEUTICAL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying financial statements are unaudited and have been
prepared by InKine Pharmaceutical Company, Inc. (the "Company") in accordance
with generally accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's audited annual financial statements have been condensed or omitted in
the Company's interim financial statements. In the opinion of management, the
interim financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair representation of the results for
the interim periods presented.
The results of operations for the interim periods may not necessarily
be indicative of the results of operations expected for the full year, although
the Company expects to incur a significant loss for the short year ending
December 31, 2000. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended June 30,
2000, which are contained in the Company's most recent Annual Report on Form
10-K.
2. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
3. Line of Credit
The Company secured a $2,000,000 line of credit with a financial
institution in December 1999. Under the terms of this arrangement, the Company
makes monthly interest-only payments at a variable per annum rate of 2.20%, plus
the 30-day Dealer Commercial Paper Rate, with principal due on January 31, 2001.
The Company maintains investments of approximately 100% of the amount
outstanding at the institution as collateral for the line of credit. At
September 30, 2000, $1,001,000 was outstanding under this line of credit.
4. Shareholders Equity
During the first quarter, the Company received proceeds of
approximately $631,000 from the exercise of stock options and warrants.
In September 2000, the Company incurred approximately $6,055,000 of
performance based stock expense resulting from the attainment of certain
milestones that triggered the vesting of awards granted in connection with the
Company's equity compensation plans.
5. Development Stage
In September 2000, the Company received FDA approval for its lead
compound, Visicol(TM). The Company has begun marketing the product for its
anticipated January 2001 launch and therefore no longer considers itself a
development stage enterprise.
6
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Item 2 Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
This report contains, in addition to historical information, statements
by the Company with regard to its expectations as to financial results and other
aspects of its business that involve risks and uncertainties and may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect management's current
views and are based on certain assumptions. Actual results could differ
materially from those currently anticipated as a result of a number of factors,
including, but not limited to, the risks and uncertainties discussed in this
report as well as those discussed under "Other Factors to be Considered" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2000 as filed with the Securities and Exchange Commission
("SEC").
General
We are a biopharmaceutical company engaged in the research and
development of products that may be used in the diagnosis and treatment of
cancer and autoimmune diseases. We pursue these objectives through a technology
platform consisting of the Fc Receptor Technology (which includes Colirest(TM)
and Hematrol(TM)), the Thrombospondin Technology and Visicol(TM). The Company
acquired these technologies in 1997.
Since commencing operations in 1993, we have not generated any sales
revenue. We have funded operations primarily from the proceeds of public and
private placements of securities. We have incurred net losses in each year since
its inception, and expect to incur additional losses in the foreseeable future.
We expect that losses will fluctuate from quarter to quarter, and that such
fluctuations may be substantial. At September 30, 2000, our accumulated deficit
was approximately $41,052,000.
Results of Operations
We incurred losses of $8,225,000, or $(0.25) per share, and $2,263,000,
or $(0.10) per share, for the three-month periods ended September 30, 2000 and
1999, respectively. Losses are expected to continue for the remainder of the
short year as we continue to develop the Thrombospondin Technology and the Fc
Receptor Technology, and also incur significant commercialization costs of
Visicol(TM).
Research and development expenses decreased approximately $487,000 for
the three-month period ended September 30, 2000, as compared to the same period
a year ago, as a result of decreased clinical development costs associated with
Visicol(TM) partially offset by increases associated with the Phase II trials in
Crohn's disease and ulcerative colitis.
General and administrative expenses increased approximately $316,000
for the three-month period ended September 30, 2000, as compared to the same
period a year ago principally due to increased administrative personnel and
costs associated with an expanded scale of operations associated with the launch
of Visicol(TM).
A $6.0 million performance based stock charge was incurred during the
three-month period ended September 30, 2000. This one-time charge is
attributable to the attainment of a previously set milestone of FDA approval of
Visicol(TM), which triggered the vesting of option and restricted stock awards
granted in connection with the Company's equity compensation plans.
Interest income increased approximately $203,000 for the three-month
period ended September 30, 2000 as compared to the same period a year ago. The
increase in interest income reflects the earnings on an increased investment
balance. Fluctuations will continue to occur quarter to quarter due to changes
in the investment balance.
The Company incurred interest expense of approximately $6,000 for the
three-month period ended September 30, 2000, compared to no interest expense for
the same period a year ago. Interest expense is attributable to the Company's
line of credit which was secured in December 1999.
7
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Liquidity and Capital Resources
At September 30, 2000, the Company had cash, cash equivalents and
investments of $14,972,000. The cash and investment balance at September 30,
2000 includes proceeds from warrant and option exercises aggregating
approximately $631,000 during the quarter ended September 30, 2000.
We believe that our financial resources are adequate for our operations
for at least the next 15 months. Our future capital requirements will depend on
numerous factors which cannot be quantified and many of which we cannot control,
including sales of Visicol(TM), continued progress in our research and
development activities, commercialization costs of Visicol(TM), progress with
pre-clinical studies and clinical trials, prosecuting and enforcing patent
claims, technological and market developments, the ability to establish product
development arrangements, the cost of manufacturing scaleup, effective marketing
activities and arrangements, and licensing or acquisition activity. We may seek
to obtain additional funds through equity or debt financing, collaborative or
other arrangements with corporate partners and others, and from other sources.
No assurance can be given that necessary additional financing will be available
on terms acceptable to us, if at all. If adequate additional funds are not
available when required, we may have to delay, scale back or eliminate certain
of our research, drug discovery or development activities or certain other
aspects of our operations and our business will be materially and adversely
affected.
We plan to invest significant resources in new personnel in the next 12
months in connection with the expansion of our commercial activities surrounding
Visicol(TM). We anticipate incurring additional losses in the foreseeable
future, and such losses are expected to increase as we expand our
commercialization activities relating to Visicol(TM) and research and
development activities relating to the Thrombospondin Technology and Fc Receptor
Technology. To achieve profitability, we, alone or with others, must
successfully develop and commercialize our technologies and products, conduct
pre-clinical studies and clinical trials, obtain required regulatory approvals
and successfully manufacture, introduce and market such technologies and
products. The time required to reach profitability is highly uncertain, and
there can be no assurance that we will be able to achieve profitability on a
sustained basis, if at all.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"). Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depend on the intended use
of the derivative and the resulting designation. This Statement, as amended, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The adoption of this standard did not have a material impact on InKine's
earnings or financial position.
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in the financial statements,
including recognition of non-refundable fees received upon entering into
arrangements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of the fiscal year beginning after December 15, 1999.
Accordingly, we are evaluating SAB 101 and the effect it will have on our
consolidated financial statements and current revenue recognition policy.
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
Not applicable.
8
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on August 11,
2000 reporting the change of its fiscal year-end June 30 to a
calendar year-end of December 31.
The Company filed a current report on Form 8-K on September
27, 2000 reporting that the Company received notification from
the FDA that Visicol(TM) tablets (brand of sodium phosphate)
for cleansing of the bowel as a preparation for colonoscopy
was approved for marketing.
9
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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.
INKINE PHARMACEUTICAL
COMPANY, INC.
Date: November 13, 2000 By: /s/ Robert F. Apple
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Robert F. Apple
Chief Financial Officer, (Authorized Officer
and Principal Financial Officer)
10
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EXHIBITS
27 Financial Data Schedule
