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 September 30, 2000
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 October 31, 2000 was 6,849,068.
<PAGE>
Ixion Biotechnology, Inc
Index to Form 10QSB
Part 1 - Financial Information Page
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - September 30, 2000..................................2
Condensed Statements of Operations - Three Months and Nine Months Ended
September 30, 2000 and 1999 and for the period March 25, 1993
(Date of Inception) through September 30, 2000................................3
Condensed Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 and for the period March 25, 1993
(Date of Inception) through September 30, 2000................................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...................................9
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds.............................19
Item 6. Exhibits and Reports on Form 8-K.....................................20
Signatures....................................................................21
Exhibit Index.................................................................21
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
September 30, 2000
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 2,571,808
Restricted cash for short-term note 48,000
Accounts receivable 1,455
Prepaid expenses 77,338
Other current assets 500
Total current assets 2,699,101
Property and Equipment, net 231,436
Other Assets:
Patents and patents pending, net 401,355
Other 6,276
Total other assets 407,631
Total Assets $ 3,338,168
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 61,447
Current portion of notes payable 46,820
Accrued expenses 150,384
Deferred rent - current 1,612
Deferred revenue 34,885
Interest payable 1,797
Total current liabilities 296,945
Long-Term Liabilities:
Notes payable 734,768
Liability under research agreement 42,317
Deferred rent, including accrued interest 25,726
Total long-term liabilities 802,811
Total liabilities 1,099,756
Stockholders' Equity:
Common stock, $.01 par value; authorized 20,000,000, issued and
outstanding 6,843,668 shares at September 30 68,437
Additional paid-in capital 10,885,330
Receivable from shareholder (3,353,303)
Deficit accumulated during the development stage (5,095,628)
Less unearned compensation (266,424)
Total stockholders' equity 2,238,412
Total Liabilities and Stockholders' Equity $ 3,338,168
See accompanying notes to condensed financial statements
<PAGE>
Condensed Statements of Operations
<TABLE>
Three Months Ended
September 30,
__2000__ __1999__
Unaudited
<S> <C> <C>
Revenues:
Income from research grants $ 104,494 $ 18,167
Interest income 40,396 758
Other income 0 250
Total revenues 144,890 19,175
Expenses:
Operating, general and administrative 216,428 128,699
Research and development 411,182 132,282
Interest 18,827 37,559
Total expenses 646,437 298,540
Net Loss. $ (501,547) $ (279,365)
Basic and Diluted Net Loss per Share $ (0.08) $ (0.11)
Weighted Average Common Shares 6,270,051 2,653,463
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
<TABLE>
For the Period
......... March 25,
Condensed Statements of Operations 1993 (Date
......... of inception)
......... Nine Months Ended through
......... September, September 30,
2000 1999 2000
......... ______________ _____________ _______________
......... Unaudited Unaudited
<S> <C> <C> <C>
Revenues:
Income under research agreement $ 2,450 $ 0 $ 305,284
Income from research grants 231,632 18,167 394,935
Interest income 44,027 1,721 69,580
Other income 0 945 18,834
______________ ______________ ________________
Total revenues 278,109 20,833 788,633
Expenses:
Operating, general and administrative 457,154 278,179 2,373,061
Research and development 790,892 394,392 2,926,958
Interest 106,304 117,684 584,243
Total expenses 1,354,350 790,255 5,884,262
Net Loss. $ (1,076,241) $ (769,422) $ (5,095,629)
Basic and Diluted Net Loss per Share $ (0.23) $ (0.30)
Weighted Average Common Shares 4,765,754 2,561,053
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
<TABLE>
Condensed Statements of Cash Flows
For the Period
March 25, 1993
Nine Months (Date of inception)
Ended September 30, through
2000 1999 September 30, 2000
___________ __________ ____________________
Unaudited Unaudited
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,076,241) $ (769,421) $ (5,095,628)
Adjustments to reconcile net loss to net cash used in
operating activities:
.........Depreciation 29,853 21,332 98,019
.........Amortization 14,726 4,036 27,596
.........Write-off of abandoned patents 0 0 13,045
.........Amortization of debt discount 42,876 42,876 233,436
Stock warrants issued under license agreement - - 20,465
.........Stock, options/warrants issued for consulting services 4,340 - 36,340
.........Stock compensation 109,839 107,308 626,140
.........Increase in prepaid expenses and
......... other current assets (73,902) (150) (78,572)
.........Decrease in accounts receivable 27,465 (5,150) (546)
.........Increase in deferred revenue 34,885 - 34,885
.........Increase in liability under
......... research agreement - - 42,317
.........Increase in accounts payable and
......... accrued expenses 9,751 87,241 216,501
.........Increase in deferred fees and salaries 726 174,131 918,216
.........Increase in deferred rent 1,264 (13) 25,006
.........Increase in interest payable (35,314) - 24,506
......... Net cash used in operating activities (909,734) (337,810) (2,858,273)
Cash Flows from Investing Activities:
Purchase of property and equipment (149,336) (71,328) (274,807)
Organization Costs - - (436)
Transfer to restricted cash (48,000) - (48,000)
Payments for patents and patents pending (36,705) (92,793) (424,571)
......... Net cash used in investing activities (234,041) (164,121) (747,814)
Cash Flows from Financing Activities:
Proceeds from repayments of loans from officers (312,399) 90,000 132,908
Proceeds from issuance of note payable 48,000 - 48,000
Proceeds from issuance of convertible notes payable - 300,000 1,087,270
Proceeds from issuance of common stock 3,966,337 151,000 5,098,237
Principal reductions in notes payable (1,180) (12,895) (40,223)
Payment of deferred offering costs (820) (8,070) (130,500)
Payment of loan costs (6,716) - (17,796)
Net cash provided by (used in)
financing activities 3,693,222 520,035 6,177,896
___________ _________ _________
Net Increase (Decrease) In Cash and Cash Equivalents 2,549,447 18,104 2,571,808
Cash and Cash Equivalents at Beginning of Period 22,361 18,633 -
Cash, Equivalents and Restricted Cash at End of Period $ 2,571,808 $ 36,737 $ 2,571,808
_____________ ___________ _____________
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
Notes to Condensed Financial Statements
Nine Month Period Ended September 30, 2000
1. Basis Of Presentation:
The accompanying unaudited condensed financial statements for the nine
months ended September 30, 2000 and 1999, respectively, and for the period March
25, 1993 (date of inception) through September 30, 2000, have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. 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, 1999 financial statements and related notes included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
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, 2000 are not necessarily
indicative of the results to be expected for the full year.
2. Significant Accounting Policies
Revenue Recognition In December 1999, the SEC staff issued a Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). Among other things, SAB 101 discusses the SEC staff's
view on accounting for non-refundable up-front fees received in connection with
collaboration agreements. SAB 101 is effective for fiscal years beginning after
December 15, 1999. The Company has evaluated SAB 101 and the effect it may have
on the financial statements. At this time, the Company believes that SAB 101
will not have a material impact on its financial position or results of
operations.
Financial Instruments - Amendment of Statement 133
In June 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities"). Among other things, FAS 138 "establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments...". The Company has evaluated FAS 138 and the effect it may have on
the financial statements. At this time, the Company believes that FAS 138 will
not have a material impact on its financial position or results of operations.
2. Notes Payable:
On June 23, 2000, the company borrowed $48,000 on a commercial fixed rate
promissory Note at 7.83% and collateralized by a $48,000 CD earning 5.83%. The
note requires five interest-only payments, and a final payment of the unpaid
principal balance plus accrued interest on December 23, 2000. There is no
prepayment penalty. Although not required by the terms of the loan agreement,
$1,180 has been paid on the principal amount and $46,820 remains at September
30, 2000 to be paid on the principal.
<PAGE>
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 September 30, 2000:
Net operating loss carryforward $ 2,013,000
Deferred tax asset 2,013,000
Valuation allowance $ (2,013,000)
Net deferred tax asset $ __0__
4. Stock Options:
On January 1, 2000, the Company granted ten-year options under the 1994
Stock Option Plan to purchase 8,000 shares of Common Stock at an exercise price
of $4.00 per share. Stock options are exercisable only when vested. Options vest
at the rate of 20% per year and are exercisable generally within ten years after
date of grant.
On April 1, 2000, the Company granted options to purchase 86,900 shares of
Common Stock at an exercise price of $4.00 per share. This transaction is
discussed further under note 5.
On July 14, 2000, 2000, the Company granted options to purchase 12,500
shares of common stock at an exercise price of $4.00 to new employees under the
1994 Stock Option Plan.
On August 16, 2000, the Company granted options to purchase 500 shares of
common stock at an exercise price of $4.00 to a new employee under the 1994
Stock Option Plan.
On October 2, 2000, the Company granted options to purchase 500 shares of
common stock at an exercise price of $4.00 to a new employee under the 1994
Stock Option Plan.
5. Stockholder's Equity
The Company sold 150,000 shares and received gross proceeds of $600,000
through September 30, 2000 in the public offering that commenced December 10,
1997 and terminated on March 31, 2000. Offering costs of $135,870 have been
offset against the proceeds of the offering through the termination date of the
offering, March 31, 2000.
On July 14, 2000 Qvestor, LLC ("Qvestor"), a Delaware subsidiary of Q-Med
AB (publ) exercised the option granted in September 1999 to acquire 3,337,500
shares of the Company's common stock for cash of $6,675,000 and certain other
consideration pursuant to a stock purchase agreement. At closing, Qvestor paid
cash of $3,321,697 and Q-Med agreed to a world-wide, non-exclusive, royalty free
license of its hyaluronic acid technology for use with the Company's islet
technology. The balance of the $6,675,000 cash portion of the purchase price
will be paid not later than July 14, 2001. Prior to July 14, 2000, Q-Med owned
562,500 shares of the Company's common stock, which, together with the Qvestor
purchase, brings the Q-Med group's total common stock ownership to 3,900,000, or
approximately 57% of the Company's outstanding shares at September 30, 2000.
<PAGE>
At the closing as a condition of the stock purchase agreement, $1,028,763
in deferred fees and salaries due to officers and employees were satisfied
through the issuance of 236,192 shares of restricted common stock and the
payment of $84,000 in cash. 62,289 shares vested immediately; 50% of the balance
vest on July 13, 2001, and 1/12 of the remaining balance vest monthly
thereafter.
On April 1, 2000, options to purchase 86,900 shares at $4.00 per share were
issued to then holders of options with exercise prices greater than $4.00 per
share. Acceptance of the new options was conditioned on an agreement that the
old options would expire on December 31, 2000. On March 31, 2000, the Financial
Accounting Standards Board (FASB) issued Interpretation No. 44 (FIN 44), an
interpretation of APB Opinion No. 25, which included a provision under which the
curtailment of the old options triggered a requirement for "variable award"
accounting for these 86,900 options. In light of this new interpretation, the
Audit and Benefits Committee elected to cancel the April 1, 2000 options, and
issue, in their place, 8,690 shares of common stock to the option holders. The
Company issued 8,640 of the shares on September 14, 2000 and will recognize a
stock compensation charge for the intrinsic value of the shares of common stock
as they vest over three years
On July 14, 2000, under the Board Retainer Plan, the Audit and Benefits
Committee awarded 17,000 shares of restricted common stock to members of the
board of directors and members of the Scientific Advisory Board and 7,800 shares
to officers and employees.
On August 31, 2000, 18,672 shares of Common Stock were issued for warrants
exercised by the University of Florida (issued in partial payment of rent for
the Company's facilities pursuant to the License Agreement between the
University of Florida Research Foundation, Inc. and the Company).
On August 31, 2000, 2,000 shares of Common Stock were issued for warrants
exercised by an individual.
On September 21, 2000, 100 shares were issued to a new employee.
6. Related Party Transactions
The Chairman/Chief Executive Officer and President of the Company each
entered into a revolving agreement to extend the Company bridge loans. Interest
on bridge loans was at 8%, but could be reset annually, at the election of
either party, to prime rate in effect on January 1 of any given year, plus 3%.
In March, 2000, the officers purchased 25,650 shares of common stock in the
public offering at the public offering price of $4.00 per share. In payment, the
officers cancelled $102,600 in principal amount of the bridge loans. At the
Q-Med closing, $358,957 in bridge loans and accrued interest were re-paid to the
officers. Following this repayment, no bridge loans remain outstanding.
7. Commitments
On August 8, 2000, the Company signed an amendment to its current lease,
which increased total laboratory and office space by 2,661 square feet;
increased the annual lease by approximately $32,500; and exercised the first
option to extend the lease term for one additional year. Total improvements
required for the new laboratory space will total approximately $10,000.
Dr. Ross P. Holmes was appointed to the Scientific Advisory Board on
September 27, 2000 . Under the Company's Board Retainer Plan, upon appointment
to the Scientific Advisory Board, Dr. Holmes will be issued 5,000 shares of
Ixion common stock to vest at the rate of 1,250 shares per quarter.
8. Subsequent Events
On November 6, 2000, the company issued 1,000 shares of common stock and
options to purchase 5,000 shares of common stock at an exercise price of $4.00
to a new employee under the 1994 Stock Option Plan.
<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. We do not expect any
of our drug or device product candidates, which require regulatory approval, to
be commercially available for at least several years; however our nutritional
supplement product, OX-Control(TM) is scheduled for launch in late 2001. From
inception through September 30, 2000, we incurred cumulative losses of
$5,095,628. These losses were due primarily to expenditures on research and
development, patent preparation and prosecution, general and administrative
activities, 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 costs of additional administrative personnel;
o legal and regulatory costs necessary to support preclinical
development and clinical trials, and
o costs associated with the creation of a marketing and sales
organization, if warranted,
will increase in the future. Accordingly, we expect to incur operating
losses for the foreseeable future.
Our operating expenses will depend on several factors, including the level
of research and development expenses and our success in raising additional
capital. Planned levels of research and development may be maintained without
any additional capital infusion through the end of 2001. 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
Because the Company does not yet have revenues from operations, we will be
required to obtain additional funds through equity or debt financing, strategic
alliances with corporate partners, research grants or through other sources.
Product Research and Development Plan
Our plan of operation for the remainder of 2000 consists primarily of
research and development and related activities, 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 differential gene expression studies on differentiated islet cells;
o further research into encapsulation materials for transplantation of
islets;
o development of OX-Control(TM), a nutritional supplement product not
requiring regulatory approval;
o further preclinical development of a kit version of our molecular
diagnostic test, the XENTIXIx(TM) Oxalobacter formigenes Monitor;
o further preclinical development of our oxalate therapeutic compound,
IxC1-62/47;
o research into the M3 Receptor as a diagnostic marker for Sjogren's
Syndrome;
o continuing the prosecution and filing of patent applications;
o and 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.
<PAGE>
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.
Results of Operations
Three Months Ended September 30, 2000 and 1999
===================================================================
Summary of Operations - Three Months Ended September 30,
2000 1999 Percent
change
-------------- ------------- -----------------
Revenues $144,890 $19,175 655%
Expenses $646,436 $298,540 116%
Net Loss $(501,546) $(279,365) 80%
==================== ============== ============= =================
Total revenues increased from $19,175 for the third quarter of 1999 to
$144,890 for the third quarter of 2000 mainly as a result of the following:
o Two active NIH research contracts:
o "Enteric Elimination of Oxalic Acid",
o "Islets from Islet Progenitor/Stem Cells for Implantation", and
o Three new NIH research grants, all beginning on September 1, 2000:
o "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome"
o "Oxalobacter Formigenes Diagnostic Kit Development"
o "Coating of Urinary Protheses to Prevent Encrustation"
o An increase in interest income generated from the investment of
increased cash flows.
We expect revenue to continue to increase in 2000 because of:
o NIH grant awarded in 1999, entitled "Digestion of Food Oxalate"
which will provide approximately $24,500 of income during the
remainder of 2000;
o the renewal of the "Islets from Islet Progenitor/Stem Cells for
Implantation" NIH grant for an additional $100,000 which began
on September 1, 2000;
o NIH grant, entitled "M3 Receptor: Diagnostic Marker for Sjogren's
Syndrome," with payments which began on September 1, 2000,
for $100,000;
o NIH grant entitled "Oxalobacter Formigenes Diagnostic Kit
Development" with payments which began on September 1, 2000,
for $99,958;
o NIH grant entitled "Coating of Urinary Protheses to Prevent
Encrustation" with payments which began on September 1, 2000,
for $99,958;
o increased interest income from investments of excess cash generated
from increased cash flows.
<TABLE>
<CAPTION>
================================================================================
Comparison of G&A Expenses - 3rd Qtr 2000 vs. 3rd Qtr 1999
[GRAPHIC OMITTED - DATA POINTS ARE AS FOLLOWS:]
3rd Qtr 3rd Qtr
1999 2000
as of as of Percent
9/30/99 9/30/00 Change
------- ------- --------
<CAPTION>
<C> <C> <C>
<S>
Personnel-related 45,130 137,444 205%
Accounting & Legal 4,150 23,634 470%
Consultants 14,238 20,017 41%
Supplies, Computer & related 4,106 9,572 133%
Rent & Utilities 4,702 6,268 33%
Director's Fees 7,234 7,640 6%
Other G&A 18,201 11,855 -35%
</TABLE>
================================================================================
[OBJECT OMITTED] Operating, general, and administrative expenses increased
68% from $128,699 in the third quarter of 1999 to $216,428 in the third quarter
of 2000. These increased expenses reflect an increase in the scale of
operations, including:
o increased personnel and related expenses, including institution of
an employee health plan on September 1, 2000;
o increased professional fees, including accounting and legal
expenses;
o slightly increased director's fees;
o increased supplies and computer-related expenses;
o increased rent and utilities usage;
o support of increased research activities
offset somewhat by a reduction in other miscellaneous operating expenses.
We expect our operating, general and administrative expenses to continue to
increase in 2000 as a result of increased research activities resulting in a
need for increased administrative personnel. [OBJECT OMITTED]
<TABLE>
<CAPTION>
================================================================================
Comparison of R&D Expenses - 3rd Qtr 2000 vs. 3rd Qtr 1999
{GRAHPIC OMITTED - DATA POINTS ARE AS FOLLOWS:]
3rd Qtr 3rd Qtr
ended ended Percent
9/30/00 9/30/99 Change
------- ------- --------
<CAPTION>
<C> <C> <C>
<S>
Personnel-related 55,479 139,794 152%
Consultants 37,190 113,497 205%
Scientific Advisors 6,000 40,350 573%
Supplies and animal costs 16,234 46,559 187%
Rent & Utilities 25,619 32,057 25%
Deprec & Amort 8,757 23,148 164%
Travel 2,334 6,289 170%
Other misc R&D 6,212 9,487 53%
</TABLE>
================================================================================
Research and development expenditures consist primarily of:
o personnel and related expenses, including institution of an
employee health plan on September 1, 2000;
o laboratory and animal supplies;
o laboratory rent and associated utilities;
o depreciation on laboratory equipment;
o development activities;
o payments for sponsored research;
o scientific advisors fees;
o regulatory consultants fees;
o interest on the purchase of laboratory equipment;
o amortization of capitalized patent costs.
Research and development expenses increased 211% from $132,282 for the
third quarter of 1999 to $411,182 for the third quarter of 2000. These increased
expenses reflect an increase in the scale of operations, including:
o increased laboratory personnel and related payroll expenses;
o increased fees to regulatory consultants;
o increased number of scientific advisors;
o increased laboratory-related supplies and expenses;
o increased laboratory rent and associated utilities;
o interest charges on the purchase of lab equipment;
o increased amortization of allowed patents;
o increased depreciation on laboratory equipment.
Our research and development expenses will continue to increase in 2000 due
to an increase in the scale of operations as a result of the receipt of the
research grants referred to above, and as a result of the completion of the
Q-Med Transaction, described below.
Interest expense is comprised only of non-R&D-related interest. R&D-related
interest is accounted for as an expense under research and development. Interest
expense decreased 50% from $37,559 for the third quarter of 1999 to $18,827 for
the third quarter of 2000 due primarily to the payment of the officers' bridge
loans and of the satisfaction of deferred administrative fees and salaries,
including deferred interest, payable to related parties.
Nine Months Ended September 30, 2000 and 1999
====================================================================
Summary of Operations - Nine Months Ended September 30,
2000 1999 Percent Change
Revenues 278,109 20,833 1,235%
Expenses 1,354,350 790,255 71%
Net Loss (1,076,241) (769,422) 40%
====================== ============== ============ =================
Total revenues increased from $20,833 for the first nine months of 1999 to
$278,109 for the first nine months of 2000 mainly as a result of the following:
o Three active NIH research contracts:
o "Enteric Elimination of Oxalic Acid",
o "Islets from Islet Progenitor/Stem Cells for Implantation", and
o "Digestion of Food Oxalate"
o Three new NIH research grants, all beginning on September 1, 2000:
o "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome"
o "Oxalobacter Formigenes Diagnostic Kit Development"
o "Coating of Unrinary Protheses to Prevent Encrustation"
o An increase in interest income generated from the investment of
increased cash flows.
We expect revenue to continue to increase in 2000 as a result of
o NIH grant awarded in 1999, entitled "Digestion of Food Oxalate" and
which will provide approximately $24,500 of income during the
remainder of 2000;
o renewal of the "Islets from Islet Progenitor/Stem Cells for
Implantation" NIH grant for an additional $100,000 which began
on September 1, 2000;
o NIH grant, entitled "M3 Receptor: Diagnostic Marker for Sjogren's
Syndrome," with payments which began on September 1, 2000,
for $100,000;
o NIH grant entitled "Oxalobacter Formigenes Diagnostic Kit
Development" with payments which began on September 1, 2000, for
$99,958;
o NIH grant entitled "Coating of Unrinary Protheses to Prevent
Encrustation" with payments which began on September 1, 2000,
for $99,958;
o increased interest income from investments of excess cash generated
from increased cash flows.
<TABLE>
<CAPTION>
================================================================================
Comparison of G&A Expenses Six Months Ended 09/30/00 vs. 09/30/99
[GRAPHIC OMITTED - DATA POINTS ARE AS FOLLOWS:]
Six Months Six Months
Ended Ended Percent
9/30/00 9/30/99 Change
------- ------- --------
<CAPTION>
<C> <C> <C>
<S>
Personnel-related 106,398 243,244 129%
Accounting & Legal 33,709 47,094 40%
Consultants 46,253 50,017 8%
Supplies, Computer & related 9,831 22,728 131%
Rent & Utilities 10,691 13,937 30%
Director's Fees 19,234 24,840 29%
Advertising & Promo 5,149 12,260 138%
Travel, meals & ent. 15,698 11,034 -30%
Other G&A 25,742 32,002 24%
</TABLE>
================================================================================
Operating, general, and administrative expenses increased 64% from $278,179
for the nine months ended September 30, 1999 to $457,154 for the nine months
ended September 30, 2000. These increased expenses reflect an increase in the
scale of operations, including:
o increased personnel and related payroll expenses,
o increased directors fees as a result of the addition of Board
members and increased responsibilities of members of the Audit and
Benefits Committee,
o increased professional fees as a result of the Q-Med transaction
described below,
o increased advertising and trade show expenses,
o increased supplies and computer-related expenses,
o increased rent and utilities usage as a result of additional office
space,
o support of increased research activities,
offset somewhat by a decrease in travel, meals and entertainment expenses.
We expect our operating, general and administrative expenses to continue to
increase in 2000 as a result of increased research activities resulting in a
need for increased administrative personnel. [OBJECT OMITTED]
<TABLE>
<CAPTION>
================================================================================
Comparison of R&D Expenses 09/30/00 vs. 09/30/99
{GRAPHIC OMITTED - DATA POINTS ARE AS FOLLOWS:}
Percent
9/30/00 9/30/99 Change
------- ------- -------
<CAPTION>
<S> <C> <C> <C>
Personnel-related 146,401 257,550 76%
Consultants 62,190 230,669 271%
Scientific Advisors 56,000 52,350 -7%
Supplies and animal costs 35,998 100,484 179%
Rent & Utilities 60,926 71,958 18%
Deprec & Amort 20,724 43,947 112%
Travel 4,281 10,702 150%
Other misc R&D 13,345 23,232 74%
</TABLE>
================================================================================
Research and development expenditures consist primarily of:
o payroll-related expenses of research and development personnel,
o laboratory and animal supplies,
o laboratory rent and associated utilities,
o depreciation on laboratory equipment,
o development activities,
o payments for sponsored research,
o scientific advisors fees,
o regulatory consultants fees,
o interest on the purchase of laboratory equipment and deferred fees
and salaries for research personnel,
o amortization of capitalized patent costs.
Research and development expenses increased 101% from $394,392 for the nine
months ended September 30, 1999 to $790,892 for the nine months ended September
30, 2000. These increased expenses reflect an increase in the scale of
operations, including
o increased laboratory personnel and related payroll expenses,
o increased laboratory rent and associated utilities due to increased
space,
o increased regulatory consultant's fees due to scale-up of
operations,
o increased laboratory-related supplies and expenses,
o increased amortization of patents,
o increased depreciation on laboratory equipment,
o increased travel by laboratory personnel,
offset somewhat by a reduction in interest related to deferred and
salaries.
Our research and development expenses will continue to increase in 2000 due
to an increase in the scale of operations as a result of the receipt of the
research grants referred to above, and as a result of the Q-Med transaction
described below.
Interest expense is comprised only of non-R&D-related interest. R&D-related
interest is accounted for as an expense under research and development. Interest
expense decreased 10% from $117,684 for the nine months ended September 30, 1999
to $106,304 for the nine months ended September 30, 2000 due primarily to the
payment of officer's bridge loans and of the satisfaction of deferred
administrative fees and salaries, including deferred interest, payable to
related parties.
Liquidity and Capital Resources
Our capital requirements relate primarily to research and development
activities and working capital requirements. The Company's research activities
and working capital requirements have been influenced mainly by cash
availability. Historically, the company has funded its cash requirements
primarily through equity financing and research grants.
For the period ended September 30, 2000, the Company generated
approximately $2,550,000 in cash, an approximate $2,531,000 increase over the
same period in 1999. Approximately $4,772,000 was provided by financing
activities, while approximately $234,000 was used for investing purposes and
approximately $1,989,000 net of $231,000 in grant revenues, was used for
operating activities.
During the first nine months of 2000, our development activities have been
funded primarily by the proceeds from the offering, research grants and
$3,771,697 invested by Q-Med in exchange for common stock, pursuant to the Q-Med
transaction described below. Through September 30, 2000 we have received a total
of $4,446,697 in cash investments and $3,353,303 in the form of a shareholder
receivable from Q-Med, A.B. and issued a total of 3,900,000 shares of common
stock pursuant to the Q-Med Transaction described below.
The Company secured a $48,000 commercial fixed rate promissory note with
SunTrust Bank, at a 7.83% interest rate and collateralized by a six-month CD for
the same amount paying 5.83% interest. The promissory note calls for 5 monthly
interest payments and a final payment of the unpaid principal balance plus
accrued interest on December 23, 2000. There is no prepayment penalty. $46,820
remains at September 30, 2000 to be paid on the principal.
Our long-term indebtedness consists primarily of unsecured convertible
notes. On July 14, 2000 the entire balance of $1,028,763 in deferred fees and
salaries was eliminated by converting into 236,192 shares of restricted common
stock and the payment of $84,000 in cash. The restricted shares vest 50% on July
31, 2001, monthly thereafter, up to 100% after two years.
On June 5, 1999, we were awarded a $100,000 Phase I grant under the Small
Business Technology Transfer Program for research in our oxalate technology
entitled "Enteric Elimination of Oxalic Acid". We began drawing on these funds
in July, 1999. We subcontracted a large portion of the grant to the University
of California, Irvine with $9,046 was available and used during the nine month
period ended September 30, 2000. In September 1999 we also received an award of
$200,000 (covering a 23-month period) from the NIH to support our diabetes
research entitled "Islets from Islet Progenitor/Stem Cells for Implantation". We
have subcontracted $25,000 under this grant, but have utilized approximately
$75,000 through August 31, 2000, leaving $100,000 available to support diabetes
research through August 31, 2001. In February 2000 we received notice that we
had been awarded another $100,000 NIH Phase I grant under the SBIR program for
research in our oxalate technology entitled "Digestion of Food Oxalate". We
began drawing on these funds in February, 2000. We have subcontracted
approximately $30,000 to Wake Forest University, but have approximately $66,000
available to support oxalate research at Ixion through February 28, 2001. In
September 2000 we received notice that we had been awarded another NIH SBIR
award for research entitled "M3 Receptor: Diagnostic Marker for Sjogren's
Syndrome". We have subcontracted about $45,000 to the University of Florida,
leaving approximately $55,000 to support Ixion research through February 2001.
Also in September, 2000, we received notice that we had been awarded two more
NIH SBIR grants, each for $99,958 and entitled "Coating of Urinary Protheses to
Prevent Encrustation" and "Oxalobactor Formigenes Diagnostic Kit Development".
We have subcontracted $25,000 to the University of Florida on one grant, leaving
approximately $175,000 available to support research through February 28, 2001.
We have other grant applications pending.
It has not been necessary to borrow additional funds from officers since
the first quarter of 1999. The bridge loans totaled $358,957 at June 30, 2000,
including accrued interest. As part of the Q-Med transaction, described below,
the full amount was repaid to the officers in cash on July 14, 2000.
At September 30, 2000, we had $2,571,808 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 with ratings of P1/A1 or Aaa/AAA or above by Moody's Investors'
Services ("Moody's") or Standard & Poor's Corporation ("S&P") respectively, in
accordance with the Company's investment policy.
We expect that annual lease expenses, which include repayment of funds
provided by lessor for tenant improvements and an emergency generator, to be
approximately $104,000 for 2000. We will continue to have a need to purchase
additional laboratory equipment and estimate that we will need to purchase at
least $165,000 of capital laboratory equipment during the rest of the year.
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 successful commercialization of Ox-Control(TM) (our
nutritional supplement) the XEntrIx(TM) Oxalobacter formigenes
Monitor (our diagnostic test), and IxC1-62/47 (our lead
therapeutic compound),
o the successful commercialization of our islet replacement therapy
products,
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
In the long-term we will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources in order to bring our drug and device products
through regulatory approval to commercialization. We do not have any material
committed sources of additional financing, other than that described in the
section below, regarding the Q-Med transaction. The available resources should
make it possible to scale-up our research and development activities through
2001. We cannot assure you that additional funding, consolidation, or alliance,
if necessary, will be available on acceptable terms, if at all. If adequate
funds are not available, we may be required to 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.
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, which was amended on September7,
1999 in which we issued an option to Q-Med to acquire shares of newly-issued
common stock
Pursuant to this agreement the Company sold 3,337,500 shares of its common
stock to Qvestor, LLC ("Qvestor"), a Delaware subsidiary of Q-Med AB (publ)
("Q-Med"), a Swedish biotech company whose shares are traded on the Stockholm
stock exchange, on July 14, 2000. (Q-Med AB has no affiliation with Q-Med, Inc.,
a Nasdaq listed company.). At closing, Qvestor paid cash of $3,321,697 and
provided certain other consideration in exchange for 3,337,500 newly-issued
shares of the Company's Common Stock. The balance of the $6,675,000 cash portion
of the purchase price will be paid by Qvestor by July 14, 2001. Prior to this
transaction, Q-Med already owned 562,500 shares. Qvestor and Q-Med purchased
approximately 59% of the issued and outstanding shares of common stock. Q-Med
retains approximately 57% ownership of Ixion's outstanding common stock as of
September 30, 2000.
Special Note Regarding Forward-Looking Statements
This quarterly report on Form 10-QSB of Ixion Biotechnology, Inc. for the
quarter ended September 30, 2000 contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 194, as amended, which are
intended to be covered by the safe harbors created thereby. To the extent that
such statements are not recitations of historical fact, such statements
constitute forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under Part I, Item 2, Management's
Discussion and Analysis or Plan of Operations, contain forward-looking
statements. Where, in any forward-looking statement, Ixion expresses an
expectation or belief as to future results or events, such expectation or belief
is expressed in good faith and believed to have reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished.
Statements in this report regarding the dates on which we anticipate
commencing clinical trials or filing for regulatory approval, constitute
forward-looking statements under the federal securities laws. Such statements
are subject to risks and uncertainties that could cause the actual timing of
such clinical trials or filings to differ materially from those we project. With
respect to such dates, we have made assumptions regarding, among other things,
o the successful and timely completion of preclinical tests,
o the approval of investigational new drug applications for each of
our drug candidates by the FDA,
o the availability of a simplified application way to seek market
clearance from the FDA for our molecular diagnostic test,
o the availability of adequate clinical supplies,
o the absence of delays in patient enrollment, and
o the availability of the capital resources necessary to complete the
preclinical tests and conduct the clinical trials.
Our ability to commence clinical trials or file for regulatory approval on
the dates anticipated is subject to risks. You should not rely on the dates on
which we anticipate filing regulatory approval or commencing clinical trials.
Statements regarding our research and development plans also constitute
forward-looking statements. Actual research and development activities may vary
significantly from the current plans depending on numerous factors including
o changes in the costs of such activities from current estimates,
o the results of the programs,
o the results of clinical studies referred to above,
o the timing of regulatory submissions, technological advances,
o determinations as to commercial potential, and
o the status of competitive products.
All of the above estimates are based on the current expectations of our
management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.
The following factors are factors that could cause actual results or
events to differ materially from those anticipated, and include, but are
not limited to:
o general economic, financial and business conditions
o labor difficulties
o competition for customers in the biotechnology and pharmaceutical
industries
o the costs of research and development of chemical compounds and
products
o and changes in and compliance with governmental regulations
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
Set forth below is information as to securities sold by Ixion during the
quarter ended September 30, 2000 which were not registered under the Securities
Act of 1933 (the "Act"). No underwriters were involved in any of the sales and
were issued in reliance on Section 4(2) of the Securities Act.
Restricted shares of Common Stock have been issued to members of the Board of
Directors, members of the Scientific Advisory Board, and key employees under
the Company's Board Retainer Plan as follows:
On July 14, 2000, 236,192 shares of Common Stock were issued to officers and
employees were issued in satisfaction of $1,028,763 in deferred fees and
salaries, or $4.00 per share.
On August 1, 2000, 24,800 shares of Common Stock (1,000 shares were issued to
each of five directors, 5,000 shares to a newly-elected director, 1,000 shares
each to seven members of the Scientific Advisory Board, 7,800 shares to
employees) for services, in the aggregate, valued at $99,200 ( a portion of
which is unearned compensation) or $4.00 per share.
On September 21, 2000, 100 shares of Common Stock were issued to a new
employee.
On July 14, 2000, the Company issued 3,337,500 shares of Common Stock to
Q-Med, AB, in exchange for cash of $3,321,697, a stockholder note receivable
for $3,353,303, and certain other consideration. The balance of the $6,675,000
cash portion of the purchase price will be paid by July 14, 2001;
On September 14, 2000, the Company issued 8,640 shares to holders of 86,900
canceled options.
On August 31, 2000, 18,672 shares of Common Stock were issued for warrants
exercised by The University of Florida (issued in partial payment of rent for
the Company's facilities pursuant to the License Agreement between the
University of Florida Research Foundation, Inc. and the Company).
On August 31, 2000, 2,000 shares of Common Stock were issued for warrants
exercised by an individual.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits marked by asterisk(s) are included with this Report; other
exhibits have been incorporated by reference to other documents filed by us
with the SEC.
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles of Incorporation None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts
*(10.1) Agreement with the University of Florida-Encrustation grant
*(10.2) Agreement with Dr. Ross P. Holmes
(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
*(27) Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
(b) Reports on Form 8-K
<PAGE>
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: November 13 1999 By: /s/ Weaver H. Gaines
____________________________________
Weaver H. Gaines
Chairman and Chief Executive Officer
Chief Financial Officer
Dated: November 13, 1999 By: /s/ Kimberly A. Ramsey
____________________________________
Kimberly A. Ramsey
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibits marked by asterisk(s) are included with this Report; other exhibits
have been incorporated by reference to other documents filed by us with the SEC.
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession................................ None
**(2.1) Stock Purchase Agreement, dated July 14, 2000,
between the Qvestor and the Company
(3) Articles of Incorporation.................................None
(4) Instruments defining the Rights of Security Holders.......None
(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
