<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 0-28272
------------------------
AVIGEN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3647113
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
</TABLE>
1201 HARBOR BAY PARKWAY, SUITE 1000, ALAMEDA, CALIFORNIA 30375
(Address of principal executive offices and zip code)
(510) 748-7150
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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 _____.
As of October 31, 1996, 7,285,193 shares of the registrant's Common Stock,
$.001 par value, were issued and outstanding.
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AVIGEN, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets
June 30, 1996 and September 30, 1996............................. 3
Condensed Statements of Operations
Three months ended September 30, 1995 and 1996 and for the period
from October 22, 1992 (inception) to September 30, 1996.......... 4
Condensed Statements of Cash Flows
Three months ended September 30, 1995 and 1996 and for the period
from October 22, 1992 (inception) to September 30, 1996.......... 5
Notes to Condensed Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 10
Item 2. Changes in Securities.............................................. 10
Item 3. Defaults upon Senior Securities.................................... 10
Item 4. Submission of Matters to a Vote of Security Holders................ 10
Item 5. Other Information.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
Signatures................................................................... 11
</TABLE>
2
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
JUNE 30, 1996 ------------------
------------- (UNAUDITED)
(NOTE)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 8,091,645 $ 493,408
Investment in marketable securities......................... 8,351,349 16,659,696
----------- ------------
Total current assets..................................... 16,442,994 17,153,104
Property and equipment, net................................... 1,053,438 1,491,789
Deposits and other assets..................................... 35,525 50,215
----------- ------------
Total assets........................................ $ 17,531,957 $ 18,695,108
=========== ============
LIABILTIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable............................................ $ 701,885 $ 948,681
Accrued compensation and related expenses................... 87,994 101,727
Other accrued liabilities................................... 258,265 195,564
Capital lease obligations -- current portion................ 31,061 36,718
----------- ------------
Total current liabilities................................ 1,079,205 1,282,690
Accrued rent................................................ 249,263 246,305
Capital lease obligations................................... 176,266 150,553
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued and outstanding.................. -- --
Common Stock, $.001 par value, 30,000,000 shares authorized,
7,035,193 shares issued and outstanding at June 30, 1996,
7,285,193 shares issued and outstanding at September 30,
1996..................................................... 7,035 7,285
Additional paid-in capital.................................. 28,852,767 30,702,517
Deferred compensation....................................... (127,453) (117,302)
Deficit accumulated during the development stage............ (12,705,126) (13,576,940)
----------- ------------
Total stockholders' equity............................... 16,027,223 17,015,560
----------- ------------
Total liabilities and stockholders' equity.......... $ 17,531,957 $ 18,695,108
=========== ============
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed financial statements.
See accompanying notes.
3
<PAGE> 4
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
THREE MONTHS ENDED 1992 (INCEPTION)
SEPTEMBER 30, THROUGH
----------------------- SEPTEMBER 30,
1995 1996 1996
--------- --------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Grant revenue........................................ $ 43,699 -- $ 265,206
Expenses:
Research and development........................... 581,253 631,584 8,961,683
General and administrative......................... 280,990 345,634 4,602,764
--------- --------- ------------
Total expenses..................................... 862,243 977,218 13,564,447
--------- --------- ------------
Loss from operations................................. (818,544) (977,218) (13,299,241)
Interest expense..................................... (7,138) (34,033) (694,174)
Interest income...................................... 1,922 139,437 228,686
Other income......................................... -- -- 187,789
--------- --------- ------------
Net loss................................... $(823,760) $(871,814) $ (13,576,940)
========= ========= ============
Net loss per share................................... $ (0.12)
=========
Shares used in calculation of net loss per share..... 7,252,584
=========
Pro forma net loss per share......................... $ (0.15)
=========
Shares used in calculation of pro forma net loss per
share.............................................. 5,409,716
=========
</TABLE>
4
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM OCTOBER 22,
SEPTEMBER 30, 1992 (INCEPTION)
--------------------------- THROUGH
1995 1996 SEPTEMBER 30, 1996
----------- ----------- -----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $ (823,760) $ (871,814) $ (13,576,940)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 106,579 114,947 1,231,498
Amortization of deferred compensation.... -- 10,151 45,302
Write-off of organization costs.......... -- -- 145,741
Noncash interest expense................. -- -- 509,652
Common stock issued for services......... -- -- 11,250
Changes in operating assets and
liabilities:
Deposits and other assets.............. 46,731 (14,690) (50,215)
Accounts payable, accrued liabilities
and accrued compensation and related
expenses............................ 29,380 197,828 1,543,418
Accrued rent........................... 12,615 (2,958) 246,305
----------- ----------- ------------
Net cash used in operating activities....... (628,455) (566,536) (9,893,989)
INVESTING ACTIVITIES
Purchases of property and equipment......... (8,871) (553,298) (2,471,179)
Disposal of property and equipment.......... 47,033 -- 47,033
Organization costs.......................... -- -- (218,601)
Purchase of marketable securities........... -- (9,768,892) (18,120,241)
Sale of marketable securities............... -- 1,460,545 1,460,545
----------- ----------- ------------
Net cash provided by (used in) investing
activities............................... 38,162 (8,861,645) (19,302,443)
FINANCING ACTIVITIES
Proceeds from notes payable................. 120,000.... -- 2,132,800
Repayment of notes payable.................. -- -- (1,709,800)
Proceeds from 1996 bridge financing......... -- -- 1,937,500
Payment of bridge financing costs........... -- -- (193,750)
Repayment of 1996 bridge financing.......... (1,937,500)
Payments on capital lease obligations....... (2,622) (20,056) (39,010)
Proceeds from issuance of preferred stock,
net of issuance costs.................... 309,081 -- 9,884,477
Proceeds from issuance of common stock, net
of issuance costs and repurchases........ (81) 1,850,000 19,615,123
----------- ----------- ------------
Net cash provided by financing activities... 426,378 1,829,944 29,689,840
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents.............................. (163,915) (7,598,237) 493,408
Cash and cash equivalents, beginning of
period................................... 203,400 8,091,645 --
----------- ----------- ------------
Cash and cash equivalents, end of period.... $ 39,485 $ 493,408 $ 493,408
=========== =========== ============
</TABLE>
5
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AVIGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, Avigen, Inc. (the "Company") considers necessary for a
fair presentation of the Company's financial position as of September 30, 1996
and the results of operations and cash flows for the three months ended
September 30, 1995 and 1996. These unaudited interim financial statements should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the Company's annual report on form 10-K for the
year ended June 30, 1996, filed with the Securities and Exchange Commission.
Operating results for these months ended September 30, 1996, are not
necessarily indicative of the results to be achieved for the full fiscal year
ending June 30, 1997.
2. GRANT REVENUE
Revenue consists of revenue from grants which are recognized in accordance
with the terms of the related agreements.
3. NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants and
preferred stock) issued during the period commencing 12 months prior to the
initial filing of the Company's initial public offering at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods prior to March 31, 1996 (using the treasury stock
method for stock options and warrants and the if-converted method for preferred
stock). Net loss per share calculated on this basis was ($0.23) for the three
months ended September 30, 1996.
Pro forma net loss per share, as presented in the accompanying statement of
operations, has been computed as described above and also gives effect, pursuant
to SEC policy, to common equivalent shares from convertible preferred stock
issued more than twelve months from the proposed initial public offering that
automatically converted upon completion of the Company's initial public offering
(using the if-converted method) from the original date of issuance.
4. STOCKHOLDERS' EQUITY
In July 1996, the Company issued 250,000 shares of Common Stock in
connection with the exercise of the underwriters' over-allotment option from the
initial public offering. Net proceeds from such sale were approximately
$1,850,000.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended June 30, 1996, filed with the Securities and Exchange
Commission.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
herein and under the caption "Risk Factors" in the Company's Annual Report on
Form 10-K.
OVERVIEW
Since its inception, the Company has devoted substantially all of its
resources to research and development activities. The Company is a development
stage company and has not received any revenue from the sale of products. The
Company does not anticipate generating revenue from the sale of products in the
foreseeable future. The Company expects its source of revenue, if any, for the
next several years to consist of government grants and payments under
collaborative arrangements. The Company has incurred losses since its inception
and expects to incur substantial losses over the next several years due to
ongoing and planned research and development efforts, including preclinical
studies and clinical trials. At September 30, 1996, the Company had an
accumulated deficit of $13.6 million.
RESULTS OF OPERATIONS
Periods Ended September 30, 1995 and 1996
Grant revenue decreased from $44,000 for the period ended September 30,
1995 to zero for the period ended September 30, 1996. Grant revenue consisted of
reimbursements under a NIH grant. Revenues earned under research grants are
determined by the timing of the award from the issuing agency. As a result,
research grant revenue earned in one period is not predictive of research grant
revenue to be earned in future periods.
The Company's research and development expenses increased from $581,000 for
the period ended September 30, 1995 to $632,000 for the period ended September
30, 1996. The increase from 1995 to 1996 was due primarily to the increased
number of personnel. The Company expects research and development spending to
increase significantly over the next several years as the Company expands
research and product development efforts.
General and administrative expenses increased from $281,000 for the period
ended September 30, 1995 to $346,000 for the period ended September 30, 1996.
The increase from 1995 to 1996 was primarily due to increased personnel and
support costs. General and administrative expenses are expected to increase as
the level of the Company's activities increases but to decrease as a percentage
of total expenses, with the expansion of the research and development efforts.
Interest income (expense), net increased from ($5,200) for the period ended
September 30, 1995 to $105,000 for the period ended September 30, 1996 primarily
as a result of the Company's investment of the proceeds from its initial public
offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the Company consummated an initial public offering (the
"Offering") of 2,500,000 shares of Common Stock which raised approximately $17.7
million, net of expenses. In July 1996, the Company issued 250,000 additional
shares of Common Stock in connection with the exercise of the underwriters'
over-allotment option. Net proceeds from such sale were approximately
$1,850,000.
Prior to May 1996, the Company financed its operations primarily through
private placements of Common Stock and Preferred Stock and a bridge financing
which was completed on March 29, 1996 (the
7
<PAGE> 8
"1996 Bridge Financing"). Through March 31, 1996, the Company had raised
approximately $11.0 million, net of financing costs, from the sale of Common
Stock and Preferred Stock and $1.9 million from the 1996 Bridge Financing.
In March 1996, the Company completed the 1996 Bridge Financing in which the
Company issued $1,937,500 principal amount of promissory notes (the "Notes") and
warrants to purchase 193,750 shares of Common Stock at an exercise price equal
to $6.40 per share. The Notes accrued interest at the rate of 12% per year and
were paid in June 1996 with a portion of the proceeds from the Company's initial
public offering. The warrants expire in March 2001. The warrants were assigned a
value of $300,000. This amount was reflected as a discount on the Notes and was
accreted as additional financing (interest) expense over the term of the Notes.
In connection with the 1996 Bridge Financing, the Company paid the placement
agent a commission equal to 10% of the gross proceeds and warrants to purchase
19,375 shares of Common Stock at an exercise price equal to $7.04 per share. The
placement agent warrants expire in May, 2001.
At September 30, 1996, the Company had cash, cash equivalents and
investments in marketable securities of approximately $17.2 million. The Company
expects its cash requirements to increase significantly in future periods. The
Company will require substantial funds to conduct the research and development
activities and preclinical studies and clinical testing of its potential
products and to market any products that are developed. The Company's facility
is an approximately 23,000 square foot facility leased through May 2003. The
Company presently anticipates that it will either be able to renew the lease of
this facility or find suitable alternate facilities in the same general area
without a material disruption of its operations. Within the 23,000 square foot
facility, the Company proceeded in August 1996 with the commencement of a 7,000
square foot expansion of its research and development facilities and
administration offices. The construction is expected to cost approximately
$450,000. To the extent the Company decides to develop its own manufacturing
facilities, the Company would require substantial additional capital. During the
month of July an equipment leaseline was negotiated with the Republic Group, LLC
for approximately $300,000 over a 60-month term with an annual interest rate of
9.4%. No amounts had been drawn on the line through September 30, 1996.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements and the purchase or lease of additional capital
equipment.
The Company believes that the available cash and cash equivalents and
short-term investments will be sufficient to meet the Company's operating
expenses and capital requirements for at least the next 12 months. The Company
will be required to seek additional funds through public or private financings
or collaborative arrangements with corporate partners. Issuances of additional
equity securities could result in substantial dilution to stockholders. There
can be no assurances that additional funding will be available on terms
acceptable to the Company, if at all. The failure to fund its capital
requirements would have a material adverse effect on the Company's business.
8
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
11.1 Statement re: computation of net loss per share
27 Financial Data Schedule
The Company hereby incorporates by reference all exhibits filed in
connection with the Form 10-K for the year ended June 30, 1996 filed with the
Securities and Exchange Commission.
(b) The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
9
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIGEN, INC.
(Registrant)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- -------------------------- --------------------------
<S> <C> <C>
Chief Executive Officer
- -----------------------------------
John Monahan
Vice President, Finance
- ----------------------------------- and
Thomas J. Paulson Chief Financial Officer
</TABLE>
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -------------------------------------------------------------------
<S> <C>
11.1 Statement re: Computation of Net Loss Per Share
27 Financial Data Schedule
</TABLE>
11
<PAGE> 1
EXHIBIT 11.1
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net Loss............................................................ $ (823,760) $ (871,814)
========== ==========
Weighted average common shares outstanding.......................... 2,020,635 7,252,584
Shares related to Staff Accounting Bulletin Topic 4D:
Common Stock...................................................... 158,641
Common Stock Options.............................................. 663,135
Preferred Stock................................................... 502,493
Common & Preferred Stock Warrants................................. 211,552
---------- ----------
Total shares outstanding for primary and fully diluted net loss per
share............................................................. 3,556,456 7,252,584
========== ==========
Net loss per share.................................................. $ (0.23) $ (0.12)
========== ==========
Calculation of shares outstanding for computing pro forma net loss
per share:
Shares used in computing net loss per share......................... 3,556,456
Adjustment to reflect the effect of the assumed conversion of
convertible preferred stock from the date of issuance............. 1,853,260
----------
Total shares outstanding for pro forma net loss per share........... 5,409,716
==========
Pro forma net loss per share........................................ $(0.15)
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 493,408
<SECURITIES> 16,659,696
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,153,104
<PP&E> 2,646,152
<DEPRECIATION> 1,154,363
<TOTAL-ASSETS> 18,695,108
<CURRENT-LIABILITIES> 1,282,690
<BONDS> 150,553
0
0
<COMMON> 7,285
<OTHER-SE> 17,008,275
<TOTAL-LIABILITY-AND-EQUITY> 18,695,108
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (977,218)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34,033)
<INCOME-PRETAX> (871,814)
<INCOME-TAX> 0
<INCOME-CONTINUING> (871,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (871,814)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
