U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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 September 30, 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 October 31, 1997 is: 9,302,374 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>
Restated
----------------------------------------
September 30,
1997 December 31,
(Unaudited) 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,409,081 $ 3,788,369
Short-term investments 1,065,234 4,628,446
Other current assets 67,718 106,635
------------------ ------------------
Total current assets 5,542,033 8,523,450
Property and equipment, net 1,323,683 712,806
Security deposits 34,894 41,301
Research contract prepayment 312,710 603,208
------------------ ------------------
Total assets $ 7,213,320 $ 9,880,765
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current 164,417 91,476
Accounts payable and accrued expenses 409,438 494,127
------------------ ------------------
Total current liabilities 573,855 585,603
Obligation under capital leases - long term 264,320 223,190
------------------ ------------------
Total liabilities 838,175 808,793
------------------ ------------------
Shareholders' equity
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 946,389 shares 9,463 11,070
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 4,850 shares 49 -
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: 0 shares - -
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1997- 8,730,853 shares 1996 - 8,017,961shares 87,308 80,178
Additional paid-in-capital 44,193,952 38,349,072
Deferred compensation (80,786) (106,760)
Accumulated deficit (37,834,841) (29,261,588)
------------------ ------------------
6,375,145 9,071,972
------------------ ------------------
Total liabilities and shareholders' equity $ 7,213,320 $ 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>
Restated
--------------------------------------------------------------------------------
For The Period
From May 1, 1994
Three Months Ended Nine Months Ended (Inception) through
September 30, September 30, September 30,
--------------------------------- ---------------------------------------------
1997 1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research grants $ - $ - $ 48,221 $ - $ 100,000
----------------------------- -------------------------------------------------
Operating expenses:
Research and development 1,591,310 974,569 5,985,947 4,020,516 15,094,236
General and administrative 553,844 441,834 1,536,436 1,327,973 5,734,832
Nonrecurring collaboration restructuring fee 600,000 - 600,000 - 600,000
Purchased research and development - - - - 4,481,405
Amortization of finance charges - - - - 345,439
Interest Income (60,153) (165,272) (238,182) (307,467) (760,219)
Interest Expense 9,696 2,538 31,498 7,423 86,945
----------------------------- -------------------------------------------------
Net Loss $(2,694,697) $(1,253,669) $(7,867,478) $(5,048,445) $ (25,482,638)
----------------------------- -------------------------------------------------
Preferred stock dividends and accretion $ (423,469) $ - $ (705,775) $(11,371,523) $ (12,333,179)
----------------------------- -------------------------------------------------
Loss applicable to common shareholders $(3,118,166) $(1,253,669) $(8,573,253) $(16,419,968) $ (37,815,817)
============================= =================================================
Basic and diluted loss applicable to common
shareholders per share $ (0.35) $ (0.16) $ (0.98) $ (2.09)
----------------------------- -------------------------------------------------
Weighted average common stock and
common stock equivalents outstanding 8,905,594 7,857,354 8,721,398 7,841,460
----------------------------- -------------------------------------------------
</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>
Restated
-----------------------------------------------------------------------
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
-----------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 0 $ 0 0 $ 0 2,693,244 $26,932
Common stock issued for services -
August 1994 159,304 1,593
Net loss
-----------------------------------------------------------------------
Balance - December 31, 1994 0 0 0 0 2,852,548 28,525
-----------------------------------------------------------------------
Stock options issued for compensation -
February 1995
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock -
April 1995 76,349 763
Warrants issued with bridge notes -
April 1995
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 2,875,000 28,750
Issuance of common stock 1,250 13
Receipts from sale of unit purchase option
Net loss
-----------------------------------------------------------------------
Balance at December 31, 1995 0 0 0 0 7,530,288 75,302
-----------------------------------------------------------------------
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Issuance of common stock 29,418 294
Class A convertible preferred stock dividend 21,998 220
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-----------------------------------------------------------------------
Balance at December 31, 1996 1,107,028 $11,070 0 $ 0 8,017,961 $80,178
-----------------------------------------------------------------------
Conversion of Class A convertible preferred stock (184,552) (1,846) 512,654 5,127
Compensation associated with stock options grants
Exercise of warrants 238 3
Issuance of common stock 150,000 1,500
Exercise of stock options 50,000 500
Class A convertible preferred stock dividend 23,913 239
Issuance of Class B convertible preferred stock 0 0 4,850 49
Accretion of dividend payable on Class B convertible
preferred stock
Amortization of deferred compensation
Net loss
-----------------------------------------------------------------------
Balance at September 30, 1997 (Unaudited) 946,389 $ 9,463 4,850 $49 8,730,853 $87,308
-----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (continued)
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
Restated
-------------------------------------------------------------------
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued for cash - July 1994 $ 0 $ 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 0 (496,999) (468,474)
-------------------------------------------------------------------
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock -
April 1995 205,237 206,000
Warrants issued with bridge notes -
April 1995 200,000 200,000
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 9,667,460 9,696,210
Issuance of common stock 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
-------------------------------------------------------------------
Balance at December 31, 1995 14,913,435 0 (10,025,505) 4,963,232
-------------------------------------------------------------------
Issuance of Class A convertible preferred stock 22,890,075 (11,371,523) 11,531,052
Conversion of Class A convertible preferred stock (2,932) 0
Issuance of common stock 102,426 102,720
Class A convertible preferred stock dividend 255,661 (255,881) 0
Compensation associated with stock option grants 190,407 (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
-------------------------------------------------------------------
Balance at December 31, 1996 $38,349,072 ($106,760) ($29,261,588) $9,071,972
-------------------------------------------------------------------
Conversion of Class A convertible preferred stock (3,281) 0
Compensation associated with stock options grants 42,830 42,830
Exercise of warrants (6) (3)
Issuance of common stock 598,500 600,000
Exercise of stock options 19,500 20,000
Class A convertible preferred stock dividend 282,067 (282,306) 0
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Accretion of dividend payable on Class B convertible
preferred stock 53,608 (53,608) 0
Amortization of deferred compensation 25,974 25,974
Net loss (7,867,478) (7,867,478)
-------------------------------------------------------------------
Balance at September 30, 1997 (Unaudited) $44,193,952 ($ 80,786) ($37,834,841) $6,375,145
-------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
Restated
----------------------------------------------------
For the period
from May 1, 1994
For the Nine Months (inception) through
Ended September 30, September 30,
----------------------------------------------------
1997 1996 1997
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,867,478) $ (5,048,445) $ (25,482,638)
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 223,149 75,758 374,609
(Increase) in other current assets 38,917 (65,602) (66,732)
(Increase) in other assets 296,905 (167,456) (345,889)
Increase in accounts payable and
accrued expenses (84,689) 133,165 374,906
Stock issued for services 600,000 - 600,417
Stock options issued for compensation 68,804 - 692,451
----------------------------------------------------------
Net cash used in operating activities (6,724,392) (5,072,580) (19,026,032)
----------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities (2,194,725) (6,070,445) (16,282,171)
Maturities of marketable securities 5,757,937 - 15,216,937
Cash portion of MelaRx acquisition - - 4,061
Acquisition of fixed assets (600,821) (349,729) (1,114,143)
----------------------------------------------------------
Net cash provided by (used in) investing activities 2,962,391 (6,420,174) (2,175,316)
----------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering - - 9,696,210
Net proceeds from issuance of common stock 20,000 2,721 336,276
Net proceeds from issuance of preferred stock 4,481,850 11,556,285 16,012,902
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 leases (119,134) (11,297) (138,755)
----------------------------------------------------------
Net cash provided by financing activities 4,382,713 11,547,709 25,610,429
----------------------------------------------------------
Net increase in cash 620,712 54,955 4,409,081
Cash and cash equivalents at beginning of period 3,788,369 2,350,933 -
----------------------------------------------------------
Cash and cash equivalents at end of period $ 4,409,081 $ 2,405,888 $ 4,409,081
==========================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 and nine month periods ended September 30, 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 approved 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
circumstances 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 Company's 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) - Private Placement of Class B Convertible Preferred Stock:
--------------------------------------------------------
On August 20, 1997, the Company completed a private placement of 4,850
shares of Class B convertible preferred stock, at $1,000 per share, resulting in
net proceeds to the Company of $4,481,450. Shares of Class B preferred stock are
immediately convertible into shares of common stock including an accretion of 8%
per annum. The difference between the conversion price and the quoted market
price of the Company's common stock at the date of issuance, $369,861, was
recognized upon issuance of the preferred securities as a charge against
accumulated deficit, with a corresponding increase in additional paid-
Page 7
<PAGE>
in capital. The 8% accretion on shares of Class B preferred stock at September
30, 1997 was valued at $53,608. The accretion and imputed non-cash dividend has
been included in the dividend requirement on Preferred Stock and the loss
applicable to common shareholders. Shares of the Class B preferred stock may
also be eligible, under certain circumstances, to receive dividends paid in
Class C preferred stock. The Class C preferred stock is convertible into shares
of common stock at the average closing bid price of the Company's common stock
for thirty consecutive business days ending on the closing date and is not
entitled to dividends. With 30 days notice, one year after issuance, the Company
may redeem the Class B Convertible Preferred Stock at 130% of the issue price
plus an 8% accrued premium. On August 11, 1998, the Company reached agreement
with each of the holders of its Class B Preferred Stock that the holders would
convert all of the outstanding shares of Class B Preferred Stock into an
aggregate of 867,806 shares of common stock.
(Note G) - Issuance of Common Stock to Yale University:
-------------------------------------------
Effective July 24,1997, the Company and Yale University (Yale) amended two
license agreements between the parties pursuant to which, Yale agreed to reduce
certain amounts payable by the Company under such agreements. As a result, the
Company issued 150,000 shares of common stock to Yale valued at $600,000 which
was charged to expense in the quarter.
(Note H) - Termination of Research Agreement:
---------------------------------
In October 1997, the Company terminated a research agreement with The Regents of
the University of California on behalf of the Berkeley Campus ("Berkeley") with
regard to certain microfiltration technology and decided not to pursue
negotiations to obtain licenses or options to obtain licenses for certain
inventions resulting from this research. There are no continuing liabilities to
the Company stemming from prior funding of this research.
(Note I) - Covance Agreement:
-----------------
During the quarter ended June 30, 1997, the Company entered into a Clinical
Development Agreement (the "Agreement") with Covance Clinical Research Unit Ltd.
and Covance Inc. ("Covance"). Pursuant to the Agreement the Company is
contracting to Covance the selection and management of clinical sites and the
preparation of clinical trial reports arising from clinical trials performed by
Covance regarding the Company's product candidate Promycin(R) (porfiromycin) for
the inclusion in a regulatory submission. During the twelve months ending
December 31, 1997, the Company estimates it will make payments of $2,800,000 to
Covance under the Agreement. Through September 30, 1997, the Company has
incurred $1,523,000 under this agreement which has been expensed as incurred.
Page 8
<PAGE>
(Note J) - Restatement of Financial Information:
------------------------------------
While preparing financial statements for the quarter ended September
30, 1998, the Company determined that its previously issued financial statements
were not in full compliance with applicable FASB initiatives and accounting
rules. The Company is amending this Form 10-QSB for the quarter ended June 30,
1998 to reflect adjustments recorded for the following transactions.
On August 20, 1997 the Company completed a private placement of 4,850
shares of Class B Convertible Preferred Stock (see Note F). The Company has
retroactively recorded an imputed one-time non-cash dividend of approximately
$370,000 as a result of the difference between the conversion price and the
quoted market price of the Company's common stock as of the date of issuance as
required by EITF D-60. The $370,000 has been recognized as a charge against
accumulated deficit with a corresponding increase in additional paid-in capital.
The imputed non-cash dividend has been included in the dividend requirement on
Preferred Stock and the loss applicable to common shareholders for the three and
nine month period ended September 30, 1997 and the period from inception through
September 30, 1997. As originally filed, the financial statements did not
include recognition of the non-cash dividend.
The Class B Preferred Stock, including an accretion of 8% per annum, is
convertible into shares of common stock. The Company has retroactively increased
additional paid-in capital by approximately $53,608 for the amount of the
dividend accretion that was previously recorded at $43,584 and included in
accounts payable and accrued expenses.
The Company has retroactively adjusted previously recorded dividend
accretion for an increase in the non-cash dividend on the Class B Preferred
Stock of approximately $10,024 for the three months ended September 30, 1997.
Page 9
<PAGE>
ITEM 2. PLAN OF OPERATION.
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 August, 1997 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 research and development
expenses. In addition, the Company expects to purchase or lease
laboratory and office equipment worth approximately $100,000 and
enter into a sale and leaseback of approximately $241,000 of
laboratory equipment. During the next twelve months, the Company
does not plan to hire any additional employees.
o Conduct Phase III clinical studies in the U.S. and Europe of
Promycin for treatment of cancer of the head and neck.
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.
The Company currently estimates that the remaining net proceeds of its
private placement in August, 1997 and its existing cash and equivalents will be
sufficient to fund its planned operations for approximately the next 5 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. As of September 30, 1997 the amount required to fund
operations for the next twelve months is estimated at approximately $13,500,000.
However, the Company's cash requirements may vary materially from those now
planned because of results of research and development, results
Page 10
<PAGE>
of product testing, relationships with strategic partners, changes in focus and
direction of the Company's research and development programs, competitive and
technological advances, the regulatory process in the United States and abroad
and other factors.
The Company received an opinion from its auditors for the fiscal year
ended December 31, 1996, expressing substantial doubt as to its ability to
continue as a going concern. The Company intends to address the immediate need
for additional capital by raising funds through a private placement of its
securities and/or sale of stock to and upfront payments from a strategic
partner, although the Company expects to require additional financing to fund
its longer-term activities and may require additional capital to fund its
operations, acquisitions and new development projects.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had working capital of $4,968,178.
The Company's principal sources of funds through September 30, 1997 have been
$4,481,850 net proceeds from private financing through issuance of 4,850 shares
of Class B convertible preferred stock, $11,531,052 net proceeds from private
financing through issuance of 1,250,000 shares of Class A convertible preferred
stock; $9,696,210 from its initial public 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
sales of convertible preferred stock to implement its business plan, which
included 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.
Page 11
<PAGE>
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 quarter
and nine month periods ended September 30, 1997 and September 30, 1996 is not
expected to be material.
Forward-Looking Statements - Cautionary Factors
- -----------------------------------------------
Statements included in this Form 10-QSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Company's future business prospects,
plans, objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the Company's products or procedures are found to
be ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude the Company from marketing its products, and the
possibility that third parties will market a product equivalent or superior to
the Company's product candidates.
Page 12
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
3.1 Amended and Restated Certificate of Incorporation of Vion
Pharmaceuticals, Inc. (1)
10.01 Amendment No.1 to License Agreement between Yale University
and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as
of June 12, 1997 (1)
10.02 Amendment No.2 to License Agreement between Yale University
and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as
of June 12, 1997 (1)
27. Article 5 Financial Data Schedule (Restated) for third
quarter 1997.
(b) Reports on Form 8-K.
-------------------
None
- -----------
(1) Previously filed
Page 13
<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 14, 1999
Page 14
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