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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT
UNDER SECTION 13 OR
15 (d) OF THE
EXCHANGE ACT OF 1934
For the transition
period from to
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Commission file number: 333-34765
Ixion Biotechnology, Inc..
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Delaware 59-3174033
(State of incorporation) (I.R.S. Employer Identification No.)
13709 Progress Blvd., Box 13
Alachua, FL 32615
(Address of principal executive offices)
Registrant's telephone number: 904-418-1428
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Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of July 31, 1999 was 2,514,414.
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<PAGE>
4
Ixion Biotechnology, Inc
Index to Form 10QSB
<TABLE>
<CAPTION>
Part 1 - Financial Information Page
----
Item 1. Financial Statements (unaudited)
<S> <C> <C>
Condensed Balance Sheet - June 30, 1999..................................................2
Condensed Statements of Operations - Three Months and Six Months
Ended June 30, 1999 and 1998 and for the period March 25, 1993
(Date of Inception) through June 30, 1999................................................3
Condensed Statements of Cash Flows - Six Months Ended June 30, 1999
and 1998 and for the period March 25, 1993
(Date of Inception) through June 30, 1999................................................5
Notes to Condensed Financial Statements..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation.............................................8
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...................................................15
Item 4. Submission of Matters to a Vote of Security Holders........................................15
Item 5. Other Information..........................................................................16
Item 6. Exhibits and Reports on Form 8-K...........................................................16
Signatures..........................................................................................17
Exhibit Index.......................................................................................17
</TABLE>
1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
June 30, 1999
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 81,016
Accounts receivable 6,916
Prepaid expenses 1,359
Other current assets 500
Total current assets --------
89,791
--------
Property and Equipment, net 106,924
Other Assets:
Patents and patents pending, net 327,435
Other... 6,705
--------
Total other assets 334,140
--------
Total Assets $530,855
===========
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 35,923
Bridge loans payable to officers 415,000
Current portion of notes payable 9,716
Convertible note payable 300,000
Accrued expenses 47,164
Interest payable 46,605
--------
Total current liabilities 854,408
--------
Long-Term Liabilities:
Notes payable 674,432
Liability under research agreement 42,317
Deferred rent, including accrued interest 23,213
Deferred fees and salaries, including accrued interest 840,562
--------
Total long-term liabilities 1,580,524
----------
Total liabilities 2,434,932
---------
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued and
outstanding 2,514,014 shares at June 30 25,144
Common stock warrants outstanding 35,494
Additional paid-in capital 1,625,888
Deficit accumulated during the development stage (3,383,653)
Less unearned compensation (206,950)
------------
Total capital deficiency (1,904,077)
------------
Total Liabilities and Capital Deficiency $ 530,855
============
See accompanying notes to condensed financial statements
2
<PAGE>
Statements of Operations
Three Months Ended
June 30,
__1999__ __1998__
Unaudited
Revenues:...
Income under research agreement $ 0 $ 0
Income from SBIR Grant 0 0
Interest income 915 69
Other income 250 1,295
--------- ----------
Total revenues 1,165 1,364
--------- ----------
Expenses:...
Operating, general and administrative 88,085 80,909
Research and development 129,514 101,310
Interest.. 37,559 28,204
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Total expenses 255,158 210,423
--------- ----------
Net Loss.... $(253,993) $(209,059)
========= ==========
Basic and Diluted Net Loss per Share $ (0.10) $ (0.08)
========= ==========
Weighted Average Common Shares 2,514,014 2,475,201
========= ==========
See accompanying notes to condensed financial statements
3
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of inception)
Six Months Ended through
June 30, June 30,
__1999__ __1998__ ____1999____
Unaudited Unaudited
<S> <C> <C> <C>
Revenues:...
Income under research agreement $ 0 $ 0 $ 275,001
Income from SBIR Grant 0 0 91,650
Interest income 963 215 24,395
Other income 695 2, 276 18,500
-------- --------- ------------
Total revenues 1,658 2,491 409,546
-------- --------- ------------
Expenses:...
Operating, general and administrative 178,819 199,793 1,647,326
Research and development 238,166 188,872 1,748,903
Interest.. 74,729 56,594 396,971
Total expenses 491,714 445,259 3,793,199
-------- -------- -----------
Net Loss.... $ (490,056) $(442,768) $(3,383,653)
========== ========= ============
Net Loss per Share (Basic) $ (0.19) $ (0.18)
=========== =========
Weighted Average Common Shares 2,514,001 2,471,228
=========== =========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
March 25, 1993
Six Months (Date of inception)
Ended June 30, through
1999 1998 June 30, 1999
-------- -------- -------------
Unaudited Unaudited
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(490,056) $(442,768) $ (3,383,653)
Adjustments to reconcile net loss to net cash used in
operating activities:
............Depreciation 12,711 5,928 50,566
............Amortization 2,234 1,578 8,234
............Amortization of debt discount 28,584 28,584 161,976
............Stock warrants issued under license agreement - - 20,465
............Stock options/warrants issued for consulting services - - 30,000
............Stock compensation 81,650 50,181 465,853
............Decrease (increase) in prepaid expenses and
............ other current assets (283) 841 (1,684)
............Decrease (increase) in accounts receivable (5,000) (291) (6,916)
............Increase (decrease) in liability under
............ research agreement - - 42,317
............Increase (decrease) in accounts payable and
............ accrued expenses (34,998) 6,921 163,561
............Increase in deferred fees and salaries 121,286 119,747 814,012
............Increase in deferred rent 1,118 7,557 23,213
------- -------- -----------
............ Net cash used in operating activities (212,757) (211,722) (1,611,055)
-------- -------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (58,553) - (102,850)
Organization Costs - - (436)
Payments for patents and patents pending (39,443) (29,156) (323,558)
-------- -------- -----------
............ Net cash used in investing activities (97,996) (29,156) (426,844)
-------- -------- -----------
Cash Flows from Financing Activities:
Loans from officers 90,000 - 445,307
Proceeds from issuance of convertible notes payable 300,000 - 1,087,270
Proceeds from issuance of common stock 1,000 195,500 756,900
Proceeds from issuance of subordinated notes
payable to related parties - 70,000 0
Principal reductions in notes payable (9,793) (6,282) (33,738)
Payment of deferred offering costs (8,070) (43,822) (124,631)
Payment of loan costs - - (12,194)
-------- ------- ----------
............ Net cash provided by (used in)
............ financing activities 373,137 215,396 2,118,915
-------- ------- ----------
Net Increase (Decrease) In Cash and Cash Equivalents 62,383 (25,482) 81,016
Cash and Cash Equivalents at Beginning of Period 18,633 44,443 -
-------- ------- ----------
Cash and Cash Equivalents at End of Period $ 81,016 $18,961 $ 81,016
======== ======= ==========
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
Notes to Condensed Financial Statements
Six Month Period Ended June 30, 1999
1. Basis Of Presentation:
The accompanying unaudited condensed financial statements for the three
and six months ended June 30, 1998 and 1999, and for the period March 25,
1993 (date of inception) through June 30, 1999, have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These interim financial
statements should be read in conjunction with the December 31, 1998
financial statements and related notes included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998. In the opinion
of the Company, the accompanying unaudited condensed financial statements
contain all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the Company's financial position, results of
operations, and cash flows for the periods presented. The results of
operations for the interim period ended June 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
2. Notes Payable:
On April 16, 1999, in connection with an agreement in principle between
the Company and Q-Med AB, described below in Note 6, Q-Med advanced
$300,000 to the Company. The loan, which is convertible at the Company's
election, will be converted into 150,000 restricted shares of the
Company's common stock.
3. Income Taxes:
The components of the Company's net deferred tax asset and the tax effects
of the primary temporary differences giving rise to the Company's deferred
tax asset are as follows as of June 30, 1999:
Deferred compensation $ 332,000
Net operating loss carryforward 1,004,000
Deferred tax asset 1,336,000
Valuation allowance $(1,336,000)
Net deferred tax asset $ __0_ _
============
4. Stockholder's Equity
In December, 1997, the Company commenced the public offering of up to
400,000 Units of newly-issued securities for an aggregate of $4,000,000.
Each Unit consists of one share of common stock, $0.01 par value, and .25
Charitable Benefit Warrants. Each whole Charitable Benefit Warrant
entitles the holder to purchase one share of the Common Stock at a price
of $20.00 per share. The Company has received proceeds of $344,200 through
June 30, 1999. The offering, which is currently suspended, will be
continued until all securities have been sold or until December 10, 1999,
unless sooner terminated or extended. If the proceeds from the offering
and the Q-Med AB investment, described below in Note 6, prove to be
insufficient, then the Company would be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners, or through other sources.
There can be no assurance that the Company will be successful in obtaining
the required financing. Under current circumstances, the Company's ability
to continue as a going concern depends upon either completing the Q-Med
transaction or obtaining additional funds through other sources.
Offering costs of $124,631 have been offset against the proceeds of the
offering through June 30, 1999.
6
<PAGE>
5. Related Party Transactions
The Chairman and Chief Executive Officer and the President of the Company
have agreed to extend the Company financing in the form of bridge loans.
Interest on the bridge loans from officers is at 8% but can be reset
annually, at the election of either party, to the prime rate in effect on
January 1 of any given year, plus 3%. Under these agreements, the Company
borrowed a total of $415,000, which was still outstanding at June 30, 1999
and is due on demand. These officers have no commitment to lend additional
funds in the future.
6. Subsequent Events
Under the agreement in principle executed on April 16, 1999, Q-Med AB, a
Swedish company whose headquarters are in Uppsala, Sweden, agreed to
purchase not less than three million shares of the Company's common stock,
in exchange for
o $6,000,000 in cash,
o a royalty-free license to Q-Med's non-animal, stabilized hyaluronic
acid technology for use as an encapsulation material for
transplantable islets, and
o the redemption of up to $571,670 of the Company's Convertible
Unsecured Notes which note holders elect not to convert in August2001.
The original transaction was contingent on the execution of a mutually
satisfactory stock purchase agreement and the successful completion of
additional financing by Q-Med, on or before July 15, 1999. Q-Med was
unable to complete its additional financing by July 15, 1999, and,
accordingly, the Company and Q-Med are discussing an amendment to the
agreement in principle.
Q-Med advanced $300,000 on April 16, 1999, upon execution of the original
agreement in principle, which was converted into 150,000 newly-issued
shares of Ixion common stock on August 2, 1999. Q-Med has agreed to
advance at least an additional $75,000 to the Company on August 15, 1999.
On July 12, 1999, as a result of the pending Q-Med transaction, the Board
of Directors of the Company approved a retroactive reduction in the
offering price of the Company's suspended public offering (see Note 4)
from $10.00 per Unit to $4.00 per Unit. The Board also approved a
concomitant adjustment in the exercise price for outstanding Charitable
Benefit Warrants (from $20/share to $8/share) and an increase in the
number of shares purchasable upon exercise of those warrants from 8,605
shares to 21,513 shares. This action by the board will result in the
issuance of a total of 51,630 shares (approximately 2% of the current
outstanding) to purchasers in the public offering for no additional
consideration, and a reduction in the maximum potential aggregate offering
amount from $4,000,000 to $1,600,000. In order to change the terms of the
public offering, the Company will be required to file a post-effective
amendment to the current registration statement.
On July 12, 1999, the Company granted ten-year options under the 1994
Stock Option Plan to purchase 73,000 shares of Common Stock at an exercise
price of $4.00 per share. Stock options are exercisable only if vested.
15,000 of such options, granted to members of the Scientific Advisory
Board, vest over one year, the remainder vest over five years. In
addition, the Company has determined that it will cancel and reissue
82,400 options previously granted at exercise prices ranging from $6.00
per share to $10.00 per share. There will be no change in the vesting
period for reissued options.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations or Plan of Operations.
The following discussion and analysis should be read in conjunction
with the Condensed Financial Statements and the related Notes thereto included
elsewhere in this report. This report contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. These and
additional risk factors are identified in our annual report to the Securities
and Exchange Commission filed on forms 10-KSB and in other SEC filings.
Overview
Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.
Since we were founded in March of 1993, we have principally been
doing research and development, securing patent protection, and raising capital.
We have not received any revenues from the sale of products. In June 1998, we
reached an agreement in principle with the University of Florida Diagnostic
Referral Laboratories for them to provide a service to physicians using our
molecular diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We
have received no revenue to date under this agreement. Provided the Diagnostic
Referral Laboratories markets the service and provided doctors accept the test
as useful, we may receive revenue from this test during 1999. However we do not
expect any of our other product candidates to be commercially available for at
least several years. From inception through June 30, 1999, we incurred
cumulative losses of $3,383,653. These losses were due primarily to expenditures
on general and administrative activities, research and development, patent
preparation and prosecution, and interest charges.
We expect to continue to incur substantial research and development
costs resulting from
o ongoing research and development programs,
o manufacturing of products for use in clinical trials and preclinical
and clinical testing of our products.
We also expect that general and administrative costs, including
o amortization of patents,
o additional administrative personnel;
o legal and regulatory costs necessary to support preclinical
development and clinical trials,
o SEC reporting costs, and
o the creation of a marketing and sales organization, if warranted,
will increase in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable future.
We have only a limited operating history upon which you can base an
evaluation of our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other things,
o successfully develop and commercialize our products,
o secure all necessary proprietary rights,
o respond to competitive developments, and
o continue to attract, retain and motivate qualified persons.
8
<PAGE>
There can be no assurance that we will be successful in addressing
these risks.
Our operating expenses will depend on several factors, including the
level of research and development expenses and our success in raising capital.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. We may sometimes be able
to control the timing of development expenses in part by accelerating or
decelerating preclinical testing and clinical trial activities. As a result of
these factors, we believe that period-to-period comparisons in the future are
not necessarily meaningful and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.
Results of Operations
Three Months Ended June 30, 1999 and 1998
Total revenues decreased by 15% from $1,364 for the second quarter
of 1998 to $1,165 for the second quarter of 1999 mainly as a result of the
decline in other income resulting from a reduction in consulting provided by us.
We expect income to increase in 1999 as a result of the award of a research
contract under the Small Business Technology Transfer ("STTR") Program which
will provide approximately $40,000 of income in 1999.
Operating, general and administrative expenses increased 9% from
$80,909 for the second quarter of 1998 to $88,085 for the equivalent period of
1999. These increased expenses reflect increased directors fees resulting from
an increased number of directors, increased travel expenses, and increases in
various other administrative categories, offset, to some degree, by a decline in
salaries and advertising expense for the second quarter of 1999 compared to the
second quarter of 1998. The Company expects its general and administrative
expense to increase during the remainder of 1999 as a result of an increase in
the scale of operations which may result from the pending Q-Med transaction, an
increase in amortization of capitalized patent costs as new patents are issued,
and continued amortization of capitalized debt issue costs.
Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory
supplies, animal supplies, laboratory rent and associated utilities,
depreciation on laboratory equipment, development activities, payments for
sponsored research, and payments to scientific and regulatory consultants.
Research and development expenses increased 28% from $101,310 for the second
quarter of 1998 to $129,514 for the second quarter of 1999, mainly due to an
increase in laboratory personnel, increased rent, utilities, and interest
charges on the purchase of lab equipment and on deferred fees and salaries. The
Company's research and development expenses could increase during the remainder
of 1999 as a result of an increase in the scale of operations which may result
from the pending Q-Med transaction and as a result of the receipt of the STTR
grant referred to above.
Interest expense increased 33% from $28,204 for the second quarter
of 1998 to $37,559 for the second quarter of 1999 due primarily to interest on
bridge loans from officers, and the compounding of interest on deferred fees and
salaries, including deferred interest, payable to related parties. Interest
expense will continue to increase during 1999, as a result of the continued
compounding of interest on deferred fees and salaries accounts and loans we have
received and expect to receive.
Six Months Ended June 30, 1999 and 1998
Total revenues decreased by 33% from $2,491 in the first half of
1998 to $1,658 in the first half of 1999 mainly as a result of the decline in
other income resulting from a reduction in consulting provided by us. We expect
income to increase in 1999 as a result of the award of a research contract under
the Small Business Technology Transfer ("STTR") Program which will provide
approximately $40,000 of income in 1999.
9
<PAGE>
Operating, general and administrative expenses decreased 10% from
$199,793 in the first half of 1998 to $178,819 in the equivalent period of 1999.
These decreased expenses reflect decreased personnel during the first quarter,
decreased legal fees, and decreased advertising expenses in the first half of
1999 compared to the first half of 1998. The Company's general and
administrative expense should increase during the remainder of 1999 as a result
of an increase in personnel and an increase in the scale of operations which may
result from the pending Q-Med transaction, an increase in amortization of
capitalized patent costs as new patents are issued, and continued amortization
of capitalized debt issue costs.
Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory and
animal supplies, laboratory rent and associated utilities, depreciation on
laboratory equipment, development activities, payments for sponsored research,
and payments to scientific and regulatory consultants. Research and development
expenses increased 26% from $188,872 in the first half of 1998 to $238,166 in
the first half of 1999, mainly due to an increase in laboratory personnel, rent,
utilities, interest charges on the purchase of lab equipment and on deferred
fees and salaries, and scientific advisors fees; offset somewhat by a reduction
in preclinical expenses and lab supplies. The Company's research and development
expenses could increase during the remainder of 1999 as a result of an increase
in the scale of operations which may result from the pending Q-Med transaction
and as a result of the receipt of the STTR grant referred to above.
Interest expense increased 32% from $56,594 in the first half of
1998 to $74,729 in the first half of 1999 due primarily to interest on bridge
loans from officers, and the compounding of interest on deferred fees and
salaries, including deferred interest, payable to related parties. Interest
expense will continue to increase during 1999, as a result of the continued
compounding of interest on deferred fees and salaries and loans we have received
and expect to receive.
Liquidity and Capital Resources
In December, 1997, we commenced the public offering of 400,000 Units
of newly issued securities, for an aggregate of $4,000,000. Each Unit consists
of one share of common stock and .1/4 of a Charitable Benefit Warrant. Each
whole Charitable Benefit Warrant entitles someone to purchase one share of
common stock at a price of $20.00 per share. Ixion is directly (except in
Florida where sales must be made through a broker) making the offering selected
states, primarily over the Internet. There is no minimum number of Units to be
sold in the offering, and all funds received have gone and will go immediately
to us. On December 10, 1998, we extended the offering through the earliest of:
o the sale of all Units,
o December 10, 1999, or
o the date we decide to close the offering.
In connection with the proposed transaction with Q-Med AB, described
below, we temporarily suspended the offering. On July 12, 1999, in consequence
of the pending Q-Med transaction, the Board of Directors approved a retroactive
reduction in the offering price of the Company's suspended public offering from
$10.00 per Unit to $4.00 per Unit. The Board also approved a concomitant
adjustment in the exercise price for outstanding Charitable Benefit Warrants
(from $20/share to $8/share) and an increase in the number of shares purchasable
upon exercise of those warrants from 8,605 shares to 21,513 shares. This action
will result in the issuance of a total of 51,630 shares (approximately 2% of the
current outstanding) to purchasers in the public offering for no additional
consideration.
In order to change the terms of the public offering, the Company
will be required to file a post-effective amendment to the current registration
statement. The reduction in the offering price will reduce the aggregate maximum
potential amount to be raised from $4,000,000 to $1,600,000.
In February, 1999, we received notice that the NIH had awarded us a
$100,000 Phase I grant under the Small Business Technology Transfer Program for
research in our oxalate technology. The effective date of the grant is June 15,
1999 and as of June 30, 1999 we have accrued $3,212 to be applied toward the
grant. These funds are available and were drawn on beginning in July, 1999. We
10
<PAGE>
will subcontract approximately $60,000 to the University of California, Irvine,
but the remaining $40,000 will be available during 1999 to support oxalate
research at Ixion. We have several other grant applications pending.
During 1998 and the first quarter of 1999, our development
activities were funded primarily by the proceeds from the offering and bridge
loans from the Chairman and Chief Executive Officer and the President.
Operations during the second quarter of 1999 were funded primarily from funds
advanced by Q-med. The bridge loans total $415,000 at June 30, 1999. Interest on
the bridge loans from officers is currently at 8% but can be reset annually, at
the election of either party, to the prime rate in effect on January 1 of any
given year, plus 3%. We have no agreement with the officers to advance further
funds, however, the officers have continued to fund operating requirements
voluntarily to meet working capital needs. Although additional bridge loans may
not be necessary during the remainder of 1999 because of the pending Q-Med
transaction, we can not assure you that, should such loans be necessary, the
officers will continue to voluntarily fund them. We do not have any bank
financing arrangements. Our long-term indebtedness consists primarily of
deferred fees and salaries payable to related individuals and our unsecured
convertible notes.
At June 30, 1999, we had $81,016 in cash and cash equivalents. Until
required for operations, our policy is to invest any excess cash reserves in
bank deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments. On April 20, 1999, we received $300,000 in the form of a
convertible loan from Q-Med pursuant to the Q-Med transaction described below.
On August 2, 1999, the loan was converted into 150,000 shares of restricted
Ixion common stock.
On January 1, 1996, we purchased laboratory equipment pursuant to a
chattel mortgage agreement in the amount of $32,309. The agreement calls for
monthly payments of $897, commencing August 1, 1996. At June 30, 1999, one
payment of $897 in principal remains outstanding under this agreement.
In connection with a sponsored research agreement with Genetics
Institute, Inc. which was concluded during 1997, some patent-related expenses
were reimbursed by Genetics Institute. We may be contractually obligated to
repay these reimbursed expenses in installments over a 36 month period upon a
notice to or by Genetics Institute to the effect that their option to negotiate
for a license to our technology, contained in the sponsored research agreement
has expired. We have not given nor received such notice, and, accordingly,
reimbursement has not commenced. We have accrued $42,317 as a long term
liability pending final notice under the agreement.
Through June 30, 1999, we have paid offering-related expenses of
$124,631 which have been applied against the proceeds of the public offering. We
expect further offering-related expenses to be modest.
On October 8, 1998, upon the expiration of our lease at the
Biotechnology Development Institute, we moved to comparable rental facilities
across the street from our former location. The new lease is for increased space
and rent and for a three-year term, with two one-year renewal options. We expect
that annual payments under the new lease (including repayment of funds provided
by lessor for tenant improvements and an emergency generator) will be
approximately $92,000 per year. We will continue to have access, as a graduate
affiliate, to the Biotechnology Development Institute's specialized facilities,
centralized equipment, and core laboratories. Relocation has not materially
affected our research and development operations; however, we incurred
relocation expenses and have been obliged to purchase or lease laboratory and
office furnishings and equipment in the amount of approximately $100,000.
We have incurred negative cash flows from operations since our
inception. We have spent and expect to continue to spend, substantial funds to
complete our planned product development efforts, commence clinical trials, and
diversify our technology. Our future capital requirements and the adequacy of
available funds will depend on numerous factors, including
o the completion of a Q-Med transaction described below
o the success of the continuing public offering of our securities (in
the event of a failure of the Q-Med transaction),
11
<PAGE>
o the successful commercialization of our medicinal food product, a
probiotic product, the XEntrIx (TM) Oxalobacter formigenes Monitor (our new
diagnostic test) and IxC1-62/47 (our lead therapeutic compound),
o progress in our product development efforts,
o the magnitude and scope of development efforts,
o progress with preclinical studies and clinical trials,
o the cost of contract manufacturing and research organizations,
o cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights, o competing technological and market
developments, and o the development of strategic alliances for the development
and marketing of our products.
The Q-Med Transaction
On April 16, 1999, we reached an agreement in principle with Q-Med
AB, a biotechnology company based in Uppsala, Sweden. Under the original
agreement, Q-Med agreed to purchase not less than three million shares of Ixion
common stock, in exchange for
o $6,000,000 in cash,
o a royalty-free license to Q-Med's non-animal, stabilized hyaluronic
acid technology for use as an encapsulation material for our transplantable
islets, and
o the redemption of up to $571,670 of our Convertible Unsecured
Notes which note holders elect not to convert in August 2001.
Q-Med, a growing, profitable Swedish company, develops, manufactures
and sells natural, specialized medical implants. All of Q-Med(180)s products are
constructed using a proprietary form of non-animal, stabilized hyaluronic acid.
Hyaluronic acid is a natural polysaccharide, first isolated in 1934. Its main
function in the body is to lubricate moveable parts like joints and muscles and
to transport substances to and within cells. The majority of Q-Med's revenues
are accounted for by Restylane(R) for the filling out of lips, facial wrinkles,
and facial folds.
The original transaction was contingent on the execution of a
mutually satisfactory stock purchase agreement and the successful completion of
additional financing by Q-Med, on or before July 15, 1999. Q-Med was unable to
complete its additional financing by July 15, 1999, and, accordingly, the
Company and Q-Med are discussing an amendment to the agreement in principle.
Q-Med advanced $300,000 on April 16, 1999, upon execution of the
original agreement in principle, which was converted into 150,000 newly-issued
shares of Ixion common stock on August 2, 1999. Q-Med has agreed to advance an
additional $75,000 to the Company on August 15, 1999.
We must reach an amended agreement with Q-Med to meet our planned
operating requirements through December 31, 1999. We cannot assure you that we
will be able to reach agreement with Q-Med on satisfactory terms, or at all.
Failing that, we must successfully complete the suspended public offering.
Shortfalls in the proceeds of the public offering to date have forced a
curtailment in our operations to adjust to reduced resources. In the event our
plans change or our assumptions change or prove to be inaccurate or we fail to
close a satisfactory Q-Med transaction or the proceeds of the offering continue
to be insufficient to fund operations at the planned level (due to further
unanticipated expenses, delays, problems or otherwise), we will require
additional financing. We will be required to obtain additional funds in any
event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our products through regulatory approval
to commercialization. The terms and prices of any equity or debt financings or
corporate combination may be significantly more favorable to new investors than
those of the Units sold in the offering, resulting in significant dilution to
current investors. We do not have any material committed sources of additional
financing. We can not assure you that additional funding, consolidation, or
alliance, if necessary, will be available on acceptable terms, if at all. If
12
<PAGE>
adequate funds are not available, we may be required to further delay,
scale-back, or eliminate certain aspects of our operations or attempt to obtain
funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.
Product Research and Development Plan
Our plan of operation for the remainder of 1999 consists primarily of
research and development and related activities, resources permitting,
including:
o further research into the biology of islet and islet stem cell
growth and differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients;
o further research into identifying and characterizing novel growth
factors associated with islets to discover factors important in islet cell
differentiation and possible regulation of diabetes and to identify stem cell
markers to which we hope to produce monoclonal antibodies useful in stem cell
isolation
o research into differential gene expression studies on differentiated
islet cells;
o further research into encapsulation materials for transplantation of
islets;
o development of a medicinal food product not requiring regulatory
approval;
o further preclinical development of a quantitative version of our
molecular diagnostic test, the XEntrIx(TM)Oxalobacter formigenes Monitor,
o further preclinical development of our oxalate therapeutic compound,
IxC1-62/47;
o continuing the prosecution and filing of patent applications; and
o hiring additional employees.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential, the status of competitive products, and, most important,
our success in raising capital. The focus and direction of our operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, and other factors.
We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.
Year 2000 Compliance
Many computer systems and computer chips embedded in equipment are
unable to tell the difference between the year 1900 and the year 2000. This is
known as the Year 2000 issue. Many businesses are at risk for possible
miscalculations or systems failures as a result of their computers, software, or
equipment's not being Year 2000 compliant.
Our assessment of Year 2000 compliance issues is substantially
complete.
Software and Computers. Our computers all run Windows operating
systems which are or will be Year 2000 compliant according to our tests and
information received from Microsoft. We have been assured by the vendors that
our office applications programs are Year 2000 compliant. We have been also been
assured by the vendor that our finance and accounting software, our only
mission-critical software, is Year 2000 compliant.
Equipment. Most of our laboratory equipment does not use a computer
or embedded chip. Our policy is that all new equipment that we purchase must be
Year 2000 compliant. Our assessment of our laboratory equipment is complete, and
all essential equipment is compliant.
13
<PAGE>
With respect to equipment made available to us as a result of our
affiliation with the Biotechnology Development Institute, we have requested a
statement of compliance.
Suppliers. We are contacting key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable equipment
vendors), have developed or are in the process of developing plans to address
Year 2000 issues. We will continue to monitor and evaluate the progress of our
suppliers.
In general our review of the potential consequences of Year 2000
compliance issues on us leads us to believe that those issues will prove to be
immaterial to our business, operations, and financial condition. Accordingly, we
do not have contingency plans and have no plans to develop any unless our
further assessment indicates one is necessary. No material expenses have been
incurred to date, and none are anticipated.
14
<PAGE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
In 1997, the Company registered 400,000 newly-issued Units of its
securities for direct sale on Form SB-2 at a price of $10.00 per Unit. The
registration statement, Commission Registration No. 333-334765, was declared
effective on December 10, 1997 and Post-Effective Amendment No. 1 was declared
effective on March 19, 1998. On December 10, 1998, the Company extended the
offering, and thereafter filed Post-Effective Amendment No. 2 to reduce the
number of Units being registered to 150,000 Units (including the Units already
sold), for an aggregate offering price of $1,500,000. Each Unit consists of one
share of common stock, $0.01 par value, and .25 Charitable Benefit Warrant.
There is no minimum number of Units to be sold in the offering, and all funds
received will go immediately to the Company. The offering has not terminated and
is not scheduled to terminate until the earliest of: the sale of all Units,
December 10, 1999, or the date on which the Company decides to close the
offering; however, the offering is currently suspended pending the completion of
the Q-Med transaction described elsewhere in this report. The securities are
being sold directly by the Company (except when sales are to Florida residents,
in which case sales must be made through Unified Management Corporation, a
Florida-registered broker dealer). See Liquidity and Capital Resources, above,
for proposed changes in the offering.
As of June 30, 1999, a total of 34,420 Units at an aggregate price
of $344,200 have been sold. From the effective date of the offering to June 30,
1999, $200 in expenses and $1,854 in commissions have been paid to Unified
Management Company as broker and there have been no finders' fees. Other
offering related expenses through June 30, 1998, amounted to $122,577, all of
which have been offset against proceeds. No payments were made to directors,
officers, general partners of the Company, or to their associates in connection
with the offering.
Net offering proceeds as of June 30, 1999 amounted to $219,569. The
net proceeds were used entirely to fund the operations of the Company as
reflected in the financial statements included elsewhere in this report. The use
of proceeds still to be received from the offering is not expected to vary
materially from the use of proceeds described in the amended registration
statement.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting was held on June 11, 1999. The
shareholders of the Company elected the following directors of the Company to
serve until the next annual meeting.
Weaver H. Gaines
David C. Peck
David M. Margulies
Vincent P. Mihalik
Karl-E. Arfors
The shareholders approved an amendment to the Company's certificate
of incorporation to increase the Company's authorized number of shares of common
stock from 4,000,000 shares to 20,000,000 shares and to authorize up to
1,000,000 shares of a new class of preferred stock. The total number of shares
cast "For," cast "Against," and "Abstentions" are set forth below.
Votes For Votes Against Abstentions
2,043,694 0 10,000
The shareholders approved an amendment to the 1994 Board Retainer
Plan which increased the total number of shares which may be issued and
outstanding to 250,000 (including, 99,050 previously issued). The amended plan
also limited the total number of shares reserved for issuance to 250,000 by
bringing issuances to employees and consultants under the 250,000 cap. The total
number of shares cast "For," cast "Against," and "Abstentions" are set forth
below.
15
<PAGE>
Votes For Votes Against Abstentions
2,043,694 0 10,000
Finally, the shareholders of the Company ratified the selection of
PricewaterhouseCoopers LLP as independent accountants for its fiscal year ended
December 31, 1999, and the total number of shares cast "For," cast "Against" and
"Abstentions" are set forth below:
Votes For Votes Against Abstentions
2,053,694 0 0
Item 5. Other Information
On July 12, 1999, Bengt (W067)gerup, Ph.D., majority stockholder in
Q-Med and its former Managing Director, and Thomas Stagnaro, Chairman of US
Biomaterials, were elected to the Ixion board of directors.
The Q-Med transaction previously reported on Form 8-K has been
modified as described above in Part I, Item 2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
*(3.5) Certificate of Amendment of Certificate of Incorporation, dated June 11, 1999
*(3.6) Certificate of Incorporation, as amended and restated
(4) Instruments defining the Rights of Security Holders None
*(10.39) Agreement in Principle dated April 16, 1999, with Q-Med AB
*(10.40) 1994 Board Retainer Plan, as amended.
(11) Statement re: Computation of Per Share Earnings None
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
16
<PAGE>
*(27) Financial Data Schedule
(99) Additional Exhibits None
</TABLE>
- -----------
*Filed herewith
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 30, 1999 in connection with
the execution of an agreement in principal with Q-Med AB, pursuant to which
Q-Med could acquire up to 50% of the common stock of the Company which could
lead to a change in control of the Company
- - ----------
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Ixion Biotechnology, Inc.
Dated: August 13 1999 By: /s/ Weaver H. Gaines
-----------------------------------------
Weaver H. Gaines
Chairman and Chief Executive Officer
Dated: August 13, 1999 By: /s/ David C. Peck
---------------------------------------
David C. Peck
President and Chief Financial Officer
(Principal Financial Officer
Dated: August 13, 1999 By: /s/ Kimberly A. Ramsey
---------------------------------------
Kimberly A. Ramsey
Vice President and Controller
(Principal Accounting Officer)
Exhibit Index
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
*(3.5) Certificate of Amendment of Certificate of Incorporation,
dated June 11, 1999
*(3.6) Certificate of Incorporation, as amended and restated
(4) Instruments defining the Rights of Security Holders None
*(10.39) Agreement in Principle dated April 16, 1999, with Q-Med AB
*(10.40) 1994 Board Retainer Plan, as amended.
17
<PAGE>
(11) Statement re: Computation of Per Share Earnings None
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(23) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
*(27) Financial Data Schedule
(99) Additional Exhibits None
- --------------
*Filed herewith
</TABLE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXION BIOTECHNOLOGY, INC.
(As amended July 19, 1999)
----------
FIRST: The name of the corporation (hereinafter called the
"corporation") is IXION BIOTECHNOLOGY, INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover 19901, County of Kent; and the
name of the registered agent of the corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is 1,000,000 shares of Preferred Stock with a par
value of $0.01 per share and 20,000,000 shares of Common Stock, par value $0.01
per share. The Board of Directors, by adoption of an authorizing resolution, may
cause Preferred Stock to be issued from time to time in one or more series. The
Board of Directors, by adoption of an authorizing resolution, may, with regard
to the shares of any series of Preferred Stock:
(1) the distinctive serial designation of the shares;
(2) Fix the dividend rate, if any;
(3) Fix the date from which dividends on shares issued before the
date for payment of the first dividend shall be cumulative,
if any;
(4) Fix the redemption price and terms of redemption, if any;
(5) Fix the amounts payable per share in the event of dissolution
or liquidation of the Company, if any;
(6) Fix the terms and amounts of any sinking fund to be used for
the purchase or redemption of shares, if any;
(7) Fix the terms and conditions under which the shares may be
converted, if any;
(8) Provide whether such shares shall be non-voting, or shall have
full or limited voting rights, and the rights, if any, of such shares to vote
as a class on some or all matters on which such shares may be entitled to vote;
and
(9) Fix such other preferences, qualifications, limitations,
restrictions, and special or relative rights not required by law."
<PAGE>
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
Athena Amaxas 15 Columbus Circle
New York, N.Y. 10023-7773
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of ' 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of ' 279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in,
the Bylaws. The phrase "whole Board" and the phrase "total number of
directors" shall be deemed to have the same meaning, to wit, the
total number of directors which the corporation would have if there
were no vacancies. No election of directors need be by written
ballot.
2. After the original or other Bylaws of the corporation
have been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of ' 109 of the General Corporation
Law of the State of Delaware, and, after the corporation has
received any payment for any of its stock, the power to adopt,
amend, or repeal the Bylaws of the corporation may be exercised by
the Board of Directors of the corporation; provided, however, that
any provision for the classification of directors of the corporation
for staggered terms pursuant to the provisions of subsection (d) of
' 141 of the General Corporation Law of the State of Delaware shall
be set forth in an initial Bylaw or in a Bylaw adopted by the
stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle the
holder thereof to notice of, and the right to vote at, any meeting
of stockholders. Whenever the corporation shall be authorized to
issue more than one class of stock, no outstanding share of any
class of stock which is denied voting power under the provisions of
the certificate of incorporation shall entitle the holder thereof to
the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of ' 242 of the
General Corporation Law of the State of Delaware shall otherwise
require; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to
vote upon the increase or decrease in the number of authorized
shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of ' 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ' 145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
A-1
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
Ixion Biotechnology, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company") through the Chairman of its Board of Directors certifies in
accordance with Section 103 of the General Corporation Law:
1. The name of the Company is Ixion Biotechnology, Inc.
2. The date on which the Certificate of Incorporation of the Company
was originally filed with the Secretary of State of the State of Delaware is
March 25, 1993.
3. That the Board of Directors of the Company, acting in accordance
with the provisions of Section 141 and 242 of the General Corporation Law,
adopted a resolutions amending its Certificate of Incorporation as follows
RESOLVED, that the certificate of incorporation be amended by
deleting the Article numbered FOURTH and replacing in its entirety as follows:
"FOURTH: The total number of shares of stock
which the corporation shall have authority to issue is
1,000,000 shares of Preferred Stock with a par value of
$0.01 per share and 20,000,000 shares of Common Stock,
par value $0.01 per share. The Board of Directors, by
adoption of an authorizing resolution, may cause
Preferred Stock to be issued from time to time in one or
more series. The Board of Directors, by adoption of an
authorizing resolution, may, with regard to the shares
of any series of Preferred Stock:
(1) Fix the distinctive serial designation of the shares;
(2) Fix the dividend rate, if any;
(3) Fix the date from which dividends on shares issued
before the date for payment of the first dividend shall be cumulative, if any;
(4) Fix the redemption price and terms of redemption, if
any;
(5) Fix the amounts payable per share in the event of dissolution
or liquidation of the Company, if any;
(6) Fix the terms and amounts of any sinking fund to be used for
the purchase or redemption of shares, if any;
(7) Fix the terms and conditions under which the shares may be
converted, if any;
(8) Provide whether such shares shall be non-voting, or shall have
full or limited voting rights, and the rights, if any, of such shares to vote
as a class on some or all matters on which such shares may be entitled to vote;
and
(9) Fix such other preferences, qualifications, limitations,
restrictions, and special or relative rights not required by law."
4. Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the Company
for their approval, and was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
5. That the capital of the Company shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, the Company has executed this certificate and caused its
corporate seal to be affixed hereto this 11th day of June, 1999.
Ixion Biotechnology, Inc.
By /s/ Weaver H. Gaines
Weaver H. Gaines, Chairman of the Board
[Corporate Seal]
Attest: /s/ Ted Snow
Ted Snow, Assistant Secretary
STATE OF FLORIDA )
COUNTY OF ALACHUA )
On this 11th day of June, 1999, before me the undersigned, a Notary
Public for the State of Florida, appeared Weaver H. Gaines and Mary Trew (known
to me), the Chairman of the Board and Secretary of the Company that executed the
forgoing certificate of amendment of certificate of incorporation, and
acknowledged to me that the forgoing are their acts and deeds and the act and
deed of the Company and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate above written.
Gwen Thompson
Notary Public for the State of Florida
(Notarial Seal)
