<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ________
Commission file number 0-26534
VION PHARMACEUTICALS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3671221
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 Science Park, New Haven, CT 06511
(Address of Principal Executive Offices)
(203) 498-4210
(Issuer's Telephone Number, Including Area Code)
__________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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 outstanding of the issuer's sole class of common
equity, as of March 31, 1997 is: 8,438,203 shares of common stock, $.01 par
value.
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,631,726 $ 3,788,369
Short-term investments 4,045,056 4,628,446
Other current assets 132,651 106,635
------------ ------------
Total current assets 6,809,433 8,523,450
Property and equipment, net 790,993 712,806
Security deposits 34,894 41,301
Research contract prepayment 416,945 603,208
------------ ------------
Total assets $ 8,052,265 $ 9,880,765
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current 125,845 91,476
Accounts payable and accrued expenses 453,124 494,127
------------ ------------
Total current liabilities 578,969 585,603
Obligation under capital lease - long term 260,862 223,190
------------ ------------
Total Liabilities 839,831 808,793
------------ ------------
Shareholders' equity
Convertible preferred stock, $0.01 par value, authorized: 5,000,000 shares;
issued and outstanding: 1997- 955,829 shares 1996 - 1,107,028 shares 9,558 11,070
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1997- 8,438,203 shares 1996 - 8,017,961 shares 84,381 80,178
Additional paid-in-capital 26,736,398 26,721,888
Deferred compensation (98,102) (106,760)
Accumulated deficit (19,519,801) (17,634,404)
------------ ------------
7,212,434 9,071,972
------------ ------------
Total liabilities and shareholders' equity $ 8,052,265 $ 9,880,765
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
Consolidated Statement of Operations
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For The Period
From May 1, 1994
Three Months Ended (Inception) through
March 31, March 31, March 31,
1997 1996 1997
(Unaudited) (Unaudited)
--------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract research grants $ 39,740 $ -- $ 91,519
Operating expenses:
Research and development 1,521,779 1,622,211 10,630,068
General and administrative 491,534 427,731 4,689,930
Purchased research and development -- -- 4,481,405
Amortization of finance charges -- -- 345,439
Interest Income (99,234) (47,690) (621,271)
Interest Expense 11,058 2,428 66,505
Net Loss $ (1,885,397) $ (2,004,680) $(19,500,557)
Net loss per share $ (0.23) $ (0.26)
Weighted average common stock and
common stock equivalents outstanding 8,098,969 7,824,915
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
-------------------------------------------------- Additional
Shares Amount Shares Amount Paid-in Capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 0 $0 2,693,244 $26,932 $0
Common stock issued for services -
August 1994 0 0 159,304 1,593
Net loss
Balance - December 31, 1994 0 0 2,852,548 28,525 0
Stock options issued for compensation -
February 1995 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000 4,300,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock -
April 1995 76,349 763 205,237
Warrants issued with bridge notes -
April 1995 200,000
Initial public offering of units of one
common share, one A warrant and one
B warrant at $4.00 per unit - August
1995 and September 1995 2,875,000 28,750 9,667,460
Issuance of common stock 1,250 13 488
Receipts from sale of unit purchase option 250
Net loss
Balance at December 31, 1995 0 0 7,530,288 75,302 14,913,435
Issuance of convertible preferred stocks 1,250,000 12,500 11,518,552
Conversion of convertible preferred (164,970) (1,650) 458,255 4,582 (2,932)
Issuance of common stock 29,418 294 102,426
Convertible preferred stock, class A
preferred dividend 21,998 220
Compensation associated with stock
option grants 190,407
Amortization of deferred compensation
Net loss
Balance at December 31, 1996 1,107,028 $11,070 8,017,961 $80,178 $26,721,888
Conversion of convertible preferred (151,199) (1,512) 420,004 4,200 (2,688)
Compensation associated with stock
options grants 17,204
Exercise of warrants 238 3 (6)
Amortization of deferred compensation
Net loss
Balance at March 31, 1997 (Unaudited) 955,829 $ 9,558 8,438,203 $84,381 $26,736,398
<CAPTION>
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
------------ ----------- -------------
<S> <C> <C> <C>
Common stock issued for cash - July 1994 $0 $ (19,877) $7,055
Common stock issued for services -
August 1994 (1,176) 417
Net loss (475,946) (475,946)
Balance - December 31, 1994 0 (496,999) (468,474)
Stock options issued for compensation -
February 1995 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock -
April 1995 206,000
Warrants issued with bridge notes -
April 1995 200,000
Initial public offering of units of one common share,
one A warrant and one B warrant at $4.00 per
unit - August 1995 and September 1995 9,696,210
Issuance of common stock 501
Receipts from sale of unit purchase option 250
Net loss (9,530,535) (9,530,535)
Balance at December 31, 1995 0 (10,025,505) 4,963,232
Issuance of convertible preferred stocks 11,531,052
Conversion of convertible preferred 0
Issuance of common stock 102,720
Convertible preferred stock, class A preferred dividend (220) 0
Compensation associated with stock option grants (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
Balance at December 31, 1996 $(106,760) $(17,634,404) $9,071,972
Conversion of convertible preferred 0
Compensation associated with stock options grants 17,204
Exercise of warrants (3)
Amortization of deferred compensation 8,658 8,658
Net loss (1,885,397) (1,885,397)
Balance at March 31, 1997 (Unaudited) $(98,102) $(19,519,801) $7,212,434
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
Consolidated Statement of Cash Flows
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For the period
from May 1, 1994
For The Three Months (inception) through
Ended March 31, March 31,
-----------------------------------------------
1997 1996 1997
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (1,885,397) $ (2,004,680) $(19,500,557)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development -- -- 4,481,405
Amortization of financing costs -- -- 345,439
Depreciation and amortization 57,276 20,880 208,736
(Increase) in other current assets (26,016) 8,337 (131,665)
(Increase) in other assets 192,669 (4,701) (450,125)
Increase in accounts payable and
accrued expense (41,003) 276,162 418,592
Stock issued for services -- -- 417
Stock options issued for compensation 25,862 -- 649,509
------------ ------------ ------------
Net cash (used in) operating activities (1,676,609) (1,704,002) (13,978,249)
------------ ------------ ------------
Cash flows used for investing activities:
Purchase of marketable securities (1,139,610) (555,547) (15,227,056)
Maturities of marketable securities 1,723,000 -- 11,182,000
Cash portion of MelaRx acquisition -- -- 4,061
Acquisition of fixed assets (25,924) (29,449) (539,246)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 557,466 (584,996) (4,580,241)
------------ ------------ ------------
Cash flows provided by financing activities:
Initial public offering -- -- 9,696,210
Net proceeds from issuance of common stock -- -- 316,276
Net proceeds from issuance of preferred stock -- -- 11,531,052
Repurchase of common stock -- -- (720)
Net proceeds from bridge financing -- -- 1,704,269
Repayments of bridge financing -- -- (2,000,000)
Advances from stockholders -- -- 250,000
Repayments to stockholders -- -- (250,000)
Exercise of warrants (3) -- (3)
Receipts from sale of unit purchase option -- -- 250
Repayment of equipment capital lease (37,497) (6,163) (57,118)
------------ ------------ ------------
Net cash provided by (used in) financing
activities (37,500) (6,163) 21,190,216
------------ ------------ ------------
Net increase <decrease> in cash (1,156,643) (2,295,161) 2,631,726
Cash and cash equivalents at beginning of period 3,788,369 2,350,933 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,631,726 $ 55,772 $ 2,631,726
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
Page 5
<PAGE>
VION PHARMACEUTICALS, INC
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Note A) - The Company:
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
On April 20, 1995, the Company merged into OncoRx Research Corp., a
wholly-owned subsidiary of MelaRx Pharmaceuticals Inc. (MelaRx), which was
renamed OncoRx, Inc. after the merger (the "Merger"). The stockholders of the
Company were issued 2,654,038 common and 23,859 preferred shares of MelaRx in
exchange for 2,000,000 shares of common stock of the Company valued at $2.16 per
share (fair value). In August 1995, the Company completed an initial public
offering ("IPO") resulting in net proceeds to the Company of approximately
$9,696,000. In April 1996 the Company changed its name to Vion Pharmaceuticals,
Inc.
As the shareholders of the Company obtained a majority interest in the
merged company for accounting purposes, the Company is treated as the acquirer.
Therefore, the Merger is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
(Note B) - Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report for the fiscal year ended December 31, 1996 on Form
10-KSB (File No. 0-26534).
Page 6
<PAGE>
(Note C) - Stock Option Plan:
Through December 31, 1996, options to purchase an aggregate of 896,750
shares had been granted under the Company's Amended and Restated 1993 Stock
Option Plan (the "Plan"). On January 29, 1997, the Board of Directors adopted,
subject to stockholder approval, an amendment to the Plan increasing the number
of shares which may be issued under the Plan from 1,000,000 to 1,500,000. The
amendment to the Plan was adopted by the stockholders at the Company's annual
meeting on April 16, 1997.
(Note D) - Private Placement of Class A Convertible Preferred Stock
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A convertible preferred stock, at $10.00 per share, resulting in
net proceeds to the Company of $11,531,052. Each share of Class A preferred
stock is initially convertible into 2.777777 shares of the Company's common
stock. The shares of Class A preferred stock pay semi-annual dividends of 5% per
annum, payable in additional shares of Class A preferred stock, and a 15% one
time dividend if the Company redeems the issue within 3 years. The issue also
contains a provision for a special dividend after 2 years under certain
conditions if the Company's common stock price falls below the conversion price
of the Class A preferred stock. The issuance of the Class A preferred stock at
closing also triggered certain adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
(Note E) - Antidilution Adjustment
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
convertible preferred stock, and pursuant the Warrant Agreement governing the
rights of the Class A Warrants and the Class B Warrants, an adjustment was made
to the exercise price of the Class A Warrants and the Class B Warrants and there
was a corresponding distribution of additional Class A Warrants and Class B
Warrants. Specifically, on July 12, 1996 (the "Payment Date") each holder of a
Class A Warrant at the close of business on July 3, 1996 (the "Record Date") was
issued an additional 0.1 Class A Warrants and the exercise price of the Class A
Warrants was reduced from $5.20 to $4.73. In addition, on the Payment Date each
holder of a Class B Warrant on the close of business on the Record Date was
issued an additional 0.1 Class B Warrants and the exercise price of the Class B
Warrants was reduced from $7.00 to $6.37.
(Note F) - Continuation of Research and Licensing Agreement
The Company has agreed to an extension of a research agreement with The
Regents of the University of California on behalf of the Berkeley Campus
("Berkeley"). The extension continues from March 1, 1997 through July 15, 1997
at a total level of funding of $97,000.
Pursuant to an agreement with Berkeley providing for an option to obtain
licenses for certain inventions resulting from the research, the Company has
entered into negotiations to license some of these inventions, and is
negotiating to obtain options to license others.
Page 7
<PAGE>
Item 2. Plan of Operations.
General
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company has not generated any material revenues and has
incurred substantial operating losses from its activities.
The Company intends to use a substantial portion of the net proceeds of its
May, 1996 private financing to fund its plan of operations, which includes the
following elements for the next 12 months:
o Continue to develop internal research and development capabilities and
conduct research and development with respect to the Company's core
technologies and other product candidates which may be identified by the
Company. The Company expects to incur substantial expenditures for
expansion of its scientific staff and related research and development
expenses. In addition, the Company expects to purchase or lease
laboratory and office equipment worth approximately $385,000. During the
next twelve months, the Company plans to hire approximately two
additional employees.
o Continue to support research and development being performed at Yale
University and by other collaborators and seek additional collaborative
agreements.
o Seek to acquire, generally through in-licensing, oncology-related
products that can be marketed without significant additional development
activities.
o Conduct Phase III clinical studies in the U.S. and Europe of
porfiromycin for treatment of cancer of the head and neck.
The Company currently estimates that the remaining net proceeds of its
private placement in May, 1996 and its existing cash and equivalents will be
sufficient to fund its planned operations for approximately the next 7 months.
In the event of delays or unexpected problems in product development, cost
overruns, or other unanticipated expenses commonly associated with a company in
an early stage of development, the Company will require additional funds. In
addition, the Company will need substantial additional financing, beyond this
period to fund further research and development and the Company's working
capital requirements.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $6,230,464. The
Company's principal sources of funds through March 31, 1997 have been
$11,531,052 net proceeds from private financing through issuance of 1,250,000
Class A convertible preferred stock; $9,696,210 from its initial public
Page 8
<PAGE>
offering, and $5,478,280 in net proceeds from private placements of common stock
in 1992 and 1993 by its predecessor, MelaRx Pharmaceuticals Inc.
The Company used the proceeds of its initial public offering to repay a
previous bridge financing and used the remaining funds and the proceeds of its
sale of convertible preferred stock to implement its business plan, which
includes hiring of additional personnel; capital expenditures for the purchase
of equipment, principally for laboratory facilities; costs of research and
development; payment of license fees due under sponsored research agreements;
and grants to Yale University to fund certain research, including research in
Dr. Yung-Chi Cheng's laboratory. During the twelve months ending December 31,
1997, the Company will be required to make payments of an aggregate of
$1,205,000 to Yale University and the University of California, Berkeley, under
sponsored research and license agreements.
The Company requires substantial new revenues and other sources of capital
in order to meet such budgeted expenditures and to continue its operations
throughout the year. The Company is seeking to enter into one or more
significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing. The Company has
entered into discussions with several major pharmaceutical companies concerning
such a strategic alliance, but there can be no assurance that the Company will
be successful in achieving such an alliance, nor can the Company predict what
funds might be available to it if it can achieve such an alliance. The Company
is also seeking to raise funds through additional means, including (1) private
placements and recapitalization of its securities; (2) spin-off, refinancing, or
partial sale or disposition of its rights to certain of its non-core
technologies; and (3) equipment lease financing. No assurance can be given that
the Company will be successful in arranging financing through any of these
alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of basic and dilutive earnings per share for the quarters ended
March 31, 1997 and March 31, 1996 is not expected to be material.
Page 9
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on April 16,
1997, three proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and the number of abstentions to each proposal are set
forth below.
A vote was taken at the Annual Meeting for the election of ten Directors of
the Company to hold office until the next annual Meeting of Stockholders of the
Company and until their respective successors shall have been duly elected. The
aggregate number of votes cast by holders of Common Stock and Class A
Convertible Preferred Stock voted in person or by proxy for each nominee were as
follows:
For Withheld
--------- --------
William R. Miller 5,589,203 305,364
John A. Spears 5,589,203 305,364
Alan C. Sartorelli Ph.D. 5,589,203 305,364
Michel C. Bergerac 5,589,203 305,364
Frank T. Cary 5,589,203 305,364
A. E. Cohen 5,589,203 305,364
James L. Ferguson 5,589,203 305,364
Michael C. Kent 5,589,203 305,364
E. Donald Shapiro 5,589,203 305,364
Walter Wriston 5,589,203 305,364
A vote was taken at the Annual Meeting on the proposal to amend the Amended
and Restated 1993 Stock Option Plan to increase the number of shares which may
be issued thereunder. The aggregate number of votes cast by holders of Common
Stock and Class A Convertible Preferred Stock in person or by proxy which: (a)
voted for, (b) voted against or (c) abstained on such proposal were as follows:
For Withheld Abstained
--------- -------- ---------
4,163,685 471,366 9,865
A vote was taken at the Annual Meeting on the proposal to ratify the
appointment of Ernst & Young LLP as auditors for the Company for the fiscal year
ending December 31, 1997. The aggregate number of votes cast by holders of
Common Stock and Class A Convertible Preferred Stock in person or by proxy
which: (a) voted for, (b) voted against or (c) abstained on such proposal were
as follows:
For Withheld Abstained
--------- -------- ---------
5,878,927 2,900 12,740
Page 10
<PAGE>
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 7, 1997, filed with the Securities and
Exchange Commission pursuant to Section 14(a) of the Securities Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Page 11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Article 5 Financial Data Schedule for first quarter 1997.
(b) Reports on Form 8-K.
None
Page 12
<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.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: May 15, 1997
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,631,726
<SECURITIES> 4,045,056
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,809,433
<PP&E> 790,993
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,052,265
<CURRENT-LIABILITIES> 578,969
<BONDS> 0
0
9,558
<COMMON> 84,381
<OTHER-SE> 7,118,495
<TOTAL-LIABILITY-AND-EQUITY> 8,052,265
<SALES> 0
<TOTAL-REVENUES> 39,740
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,013,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,058
<INCOME-PRETAX> (1,885,397)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,885,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,885,397)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
