U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(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, 1998
--------------
[ ] 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, 1998 is: 10,275,588 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
<TABLE>
<CAPTION>
Vion Pharmaceuticals, Inc.
(A Development Stage Company) Restated
------------------------------
March 31,
1998 December 31,
(Unaudited) 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,015,191 $ 3,890,621
Short-term investments 6,045,950 7,088,540
Accounts receivable 363,019 728,899
Other current assets 95,069 118,752
------------- -------------
Total current assets 9,519,229 11,826,812
Property and equipment, net 1,201,479 1,301,680
Security deposits 34,894 34,894
Research contract prepayment 416,945 416,945
------------- -------------
Total assets $ 11,172,547 $ 13,580,331
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current $ 274,853 $ 274,853
Accounts payable and accrued expenses 1,031,372 874,350
------------- -------------
Total current liabilities 1,306,225 1,149,203
Obligation under capital lease - long term 392,521 472,578
------------- -------------
Total Liabilities 1,698,746 1,621,781
------------- -------------
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: 1998 and 1997 - 757,632 shares
- Liquidation preference $7,576,000 7,576 7,576
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 1998 - 3,477 shares 1997
4,592 shares
- Liquidation preference $3,647,000 35 46
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: 1998 - 10,275,588 shares 1997 - 9,833,934 shares 102,756 98,339
Additional paid-in-capital 48,300,509 47,661,639
Deferred compensation (63,470) (72,128)
Accumulated deficit (38,873,605) (35,736,922)
------------- -------------
9,473,801 11,958,550
------------- -------------
Total liabilities and shareholders' equity $ 11,172,547 $ 13,580,331
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Restated
----------------------------------------------------------------
For The Period
From May 1, 1994
Three Months Ended (Inception) through
March 31, March 31, March 31,
----------------------------------------------------------------
1998 1997 1998
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract research grants $ 0 $ 39,740 $ 100,000
Research support 274,842 0 1,497,754
Technology license revenues 0 0 4,000,000
----------------------------------------------------------------
Total revenues 274,842 39,740 5,597,754
Operating expenses:
Research and development 2,273,522 1,521,779 19,057,297
General and administrative 631,709 491,534 7,469,591
Nonrecurring collaboration restructuring fee 0 0 600,000
Purchased research and development 0 0 4,481,405
Amortization of finance charges 0 0 345,439
Interest Income (142,874) (99,234) (1,008,822)
Interest Expense 18,705 11,058 117,818
----------------------------------------------------------------
Net Loss $ (2,506,220) $ (1,885,397) $ (25,464,974)
================================================================
Preferred dividends and accretion (630,464) $ (13,389,608)
----------------------------------------------------------------
Loss applicable to common shareholders $ (3,136,684) $ (1,885,397) $ (38,854,582)
================================================================
Basic and diluted loss per common share $ (0.32) $ (0.23)
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
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>
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
Class A convertible preferred stock dividend 21,998 220
Issuance of common stock 29,418 294
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 (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B convertible
preferred stock
Extension/reissuance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at December 31, 1997 757,632 $7,576 4,592 $46 9,833,934 $98,339
-------------------------------------------------------------------------
Conversion of Class B convertible preferred stock (1,115) (11) 441,654 4,417
Accretion of dividend payable on Class B convertible
preferred stock
Issuance of Common Stock
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at March 31, 1998 757,632 $7,576 3,477 $35 10,275,588 $102,756
-------------------------------------------------------------------------
</TABLE>
Consolidated Statement of Changes in Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
Restated
----------------------------------------------------------------
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
----------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
Class A convertible preferred stock dividend 255,661 (255,881) 0
Issuance of common stock 102,426 102,720
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 (7,058) (0)
Class A convertible preferred stock dividend 623,038 (623,514) 0
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Conversion of Class B convertible preferred stock (644) 0
Accretion of dividend payable on Class B convertible
preferred stock 138,365 (138,365) 0
Extension/reissuance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
----------------------------------------------------------------
Balance at December 31, 1997 $47,661,639 ($72,128) ($35,736,922) $11,958,550
----------------------------------------------------------------
Conversion of Class B convertible preferred stock (4,406) $0 (0)
Accretion of dividend payable on Class B convertible
preferred stock 121,162 (121,162) 0
Issuance of Common Stock 509,301 (509,301) 0
Compensation associated with stock option grants 12,813 12,813
Amortization of deferred compensation 8,658 8,658
Net loss (2,506,220) (2,506,220)
----------------------------------------------------------------
Balance at March 31, 1998 $48,300,509 ($63,470) ($38,873,605) $9,473,801
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Vion Pharmaceuticals, Inc.
(A Development Stage Company) Restated
--------------------------------------------------------
For the period
from May 1, 1994
For The Three Months (inception) through
Ended March 31, March 31,
--------------------------------------------------------
1998 1997 1998
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (2,506,220) $ (1,885,397) $ (25,464,974)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development 0 0 4,481,405
Amortization of financing costs 0 0 345,439
Depreciation and amortization 122,438 57,276 577,644
(Increase) in other current assets 389,563 (26,016) (457,102)
(Increase) in other assets 0 192,669 (450,124)
Increase in accounts payable and
accrued expense 157,022 (41,003) 996,840
Extension/reissuance of placement agent warrants 0 0 168,249
Stock issued for services 0 0 600,417
Stock options issued for compensation 21,471 25,862 735,393
--------------------------------------------------------
Net cash (used in) operating activities (1,815,726) (1,676,609) (18,466,813)
--------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities 0 (1,139,610) (22,209,166)
Maturities of marketable securities 1,042,590 1,723,000 16,163,216
Cash portion of MelaRx acquisition 0 0 4,061
Acquisition of fixed assets (22,238) (25,924) (834,691)
--------------------------------------------------------
Net cash provided by (used in) investing activities 1,020,352 557,466 (6,876,580)
--------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering 0 0 9,696,210
Net proceeds from issuance of common stock 0 0 3,206,077
Net proceeds from issuance of preferred stock 0 0 16,012,902
Repurchase of common stock 0 0 (720)
Net proceeds from bridge financing 0 0 1,704,269
Repayments of bridge financing 0 0 (2,000,000)
Advances from stockholders 0 0 250,000
Repayments to stockholders 0 0 (250,000)
Exercise of warrants 0 (3) (3)
Receipts from sale of unit purchase option 0 0 250
Repayment of equipment capital lease (80,056) (37,497) (260,401)
--------------------------------------------------------
Net cash provided by (used in) financing activities (80,056) (37,500) 28,358,584
--------------------------------------------------------
Net increase (decrease) in cash (875,430) (1,156,643) 3,015,191
Cash and cash equivalents at beginning of period 3,890,621 3,788,369 0
--------------------------------------------------------
Cash and cash equivalents at end of period $ 3,015,191 $ 2,631,726 $ 3,015,191
========================================================
</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.
In April 1995, the Company merged into OncoRx Research Corp., a
previously unaffiliated company ("Research"). The stockholders of the Company
were issued shares of common and preferred stock of MelaRx Pharmaceuticals Inc.
("MelaRx"), the 100% owner of Research, in exchange for all of the outstanding
shares of the Company. On April 20, 1995, the Company merged into OncoRx
Research Corp., a wholly-owned subsidiary of MelaRx, which was renamed OncoRx,
Inc. after 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).
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 transaction 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. In August 1995, the Company completed
an initial public offering ("IPO") resulting in net proceeds to the Company of
approximately $9,696,000.
(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, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. 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, 1997 on Form
10-KSB/A Amendment No. 1 (File No. 0-26534).
Page 6
<PAGE>
(Note C) - 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 and is entitled to vote on all matters on an "as if converted" basis. In
connection with the sale of the Preferred Stock, the Company imputed a one-time
non-cash dividend of approximately $11.4 million as a result of the difference
between the conversion price and the quoted market price of the Company's common
stock at the date of issuance, as required by Financial Accounting Standards
Board Emerging Issues Task Force D-60 "Accounting for the Issuance of
Convertible Preferred Stock and Debt Securities with a Nondetachable Conversion
Feature" (EITF D-60). Such amount was recognized upon issuance of the preferred
securities as a charge against accumulated deficit, with a corresponding
increase in 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. The Company also issued to the placement agent warrants to
purchase an aggregate of 546,875 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 payable in additional Class A Preferred Stock 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
antidilution adjustment provisions of the Company's outstanding warrants,
resulting in the issuance of additional warrants.
(Note D) - 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 E) - Private Placement of Class B Convertible Preferred Stock:
--------------------------------------------------------
On August 20, 1997, the Company completed a private placement of 4,850
shares of non-voting 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 convertible into shares of common stock including an
accretion of 8% per annum. 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
Page 7
<PAGE>
closing bid price of the Company's common stock for thirty consecutive business
days ending on the private placement closing date and is not entitled to
dividends. Conversions of Class B preferred Stock in the quarter ended March 31,
1998 resulted in additional dividends of Class C preferred stock representing
155,200 shares of common stock valued at $509,300. These dividends were recorded
as a charge against accumulated deficit, with a corresponding increase to
additional paid-in capital. These dividends have been included in the dividend
requirement on Preferred Stock and the loss applicable to common shareholders.
(Note F) Boehringer Ingelheim Agreement
------------------------------
On November 24, 1997, the Company and Boehringer Ingelheim
International GmbH of Germany ("BI") entered into an exclusive worldwide
licensing agreement for the development and marketing of Promycin(R)
(porfiromycin), Vion's most advanced anticancer agent. The agreement provides
the Company with exclusive co-promotion rights to Promycin in the United States
and Canada. BI will have exclusive worldwide rights to market and sell Promycin
outside the United States and Canada. The Company is responsible for the
manufacturing and supply of Promycin for all territories.
In exchange for these rights, the Company received $4,000,000 in
upfront technology access fees and net proceeds of $2,869,801 from the sale of
448,336 shares of common stock at a premium to the then current market price. BI
has also reimbursed the Company for certain initial development costs to date
and will share in future worldwide development costs.
The Company has cash equivalents and short-term investments of
$9,061,141 at March 31, 1998. This balance includes $2,502,827 of restricted
investments for Promycin development expenses. Pursuant to the BI Agreement the
Company must use the BI license fee of $4,000,000 exclusively for Promycin
development expenses. The Company recorded $274,842 of reimbursed Promycin
development expenses as revenue during the first quarter of 1998.
(Note G) - 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 for the inclusion in
a regulatory submission. During the twelve months ending December 31, 1998, the
Company estimates it will make payments of $5,500,000 to Covance under the
Agreement. For the quarter ended March 31, 1998, the Company has incurred
$548,610 under this agreement which has been expensed as incurred.
Page 8
<PAGE>
(Note H) - Per Share Data
--------------
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
----------------------- ------------------------
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
- ---------------------------------------------- ----------------------- ------------------------
Numerator:
- ---------------------------------------------- ----------------------- ------------------------
Net loss ($2,506,220) ($1,885,397)
Preferred stock dividends
and accretion (630,464) 0
- ---------------------------------------------- ----------------------- ------------------------
Numerator for basic and diluted loss
applicable to common shareholders ($3,136,684) ($1,885,397)
- ---------------------------------------------- ----------------------- ------------------------
Denominator:
- ---------------------------------------------- ----------------------- ------------------------
Denominator for basic and diluted loss
applicable to common shareholders 9,891,509 8,209,237
- ---------------------------------------------- ----------------------- ------------------------
Basic and diluted loss applicable to common
shareholders ($0.32) ($0.23)
- ---------------------------------------------- ----------------------- ------------------------
</TABLE>
For additional disclosures regarding warrants and Class A and B Convertible
Preferred Stock see Note C, D and E. These potentially dilutive securities were
not included in diluted loss per share applicable to common shareholders as the
effect would be antidilutive. Under the Financial Accounting Standards Board
Statement No. 128, which the Company has adopted, the dilutive effect of stock
options has been excluded.
(Note I) - Restatement of Financial Information
------------------------------------
The financial statements for the quarters ended March 31, 1998 and 1997 were
restated and reflect the recording of adjustments necessary to comply with
Financial Accounting Standards Board (FASB) initiatives as follows:
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A Convertible Preferred Stock. The Company has retroactively
Page 9
<PAGE>
recorded an imputed one-time non-cash dividend of approximately $11.4 million 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
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature" (EITF D-60). The $11.4 million has been
recognized as a charge against accumulated deficit with a corresponding increase
in additional paid-in capital. As originally filed, the financial statements for
the year ended December 31, 1996 did not include the restatement required by
EITF D-60, which was issued in March, 1997, for the recognition of the non-cash
dividend.
The Class A Preferred Stock requires semi-annual dividends of 5% per
annum payable in additional shares of Class A Preferred Stock. Since this
dividend is immediately convertible into common stock of the Company, the
Company has retroactively recorded non-cash dividends as a charge against the
accumulated deficit and a credit to additional paid-in capital. Based on the
quoted market price of the common stock as of the date of the issuance, the
Company retroactively recorded non-cash preferred dividends of $255,881 in 1996
and $623,514 in 1997. The imputed non-cash dividend has been included in the
dividend requirement on Preferred Stock and the loss applicable to common
shareholders in the appropriate periods. The Company originally recorded these
dividends based on the par value of the preferred stock issued.
On August 20, 1997 the Company completed a private placement of 4,850
shares of Class B Convertible Preferred Stock (see Note E). The Company has
retroactively recorded upon issuance of the Class B Convertible shares 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 periods from inception
through March 31, 1998. 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. For the year ended December 31, 1997
the Company had included the dividend accretion in accounts payable and accrued
expenses. The Company has retroactively increased additional paid-in capital by
approximately $133,000 for the amount of this dividend accretion.
As discussed in Note E, conversions of Class B Preferred Stock were
entitled, under certain circumstances to receive dividends paid in Class C
Preferred Stock. The Class C Preferred Stock was immediately converted into
common stock. During the quarter ended March 31, 1998 conversions of Class B
Preferred Stock resulted in Class C stock dividends representing 155,200 shares
of common stock valued at $509,300, which has been recognized as a charge
against accumulated deficit with a corresponding increase in additional paid-in
capital. The non-cash dividends have been included in the dividend requirement
on the Preferred Stock and the loss applicable to common shareholders. The
Company has also retroactively adjusted previously recorded dividend accretion
for an increase in the non-cash dividend on the Class B Preferred Stock of
approximately $85,000 for the three months ended March 31,
Page 10
<PAGE>
1998. As originally filed, the financial statements for the three month period
ended March 31, 1998 included the non-cash dividends as an issuance of common
stock at par value.
Page 11
<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's revenues consist of research grants, technology
license fees and reimbursements for research expenses. The Company has not
generated any revenues from product sales 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, the equity investment, initial payments and
reimbursed cost sharing from the November 24, 1997 exclusive worldwide licensing
agreement with BI 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. During the next twelve months, the Company plans to
hire seven 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.
Conduct Phase I clinical studies in the U.S. of the Company's
anticancer agent Triapine(TM) for safety and pharmacokinectics.
File Investigational New Drug application(s) with the FDA and
conduct Phase I clinical studies in the U.S. for the safety,
tumor targeting and pharmacokinectics of several bacterial
constructs using the Company's TAPET(TM) cancer therapy delivery
technology.
o Continue to support research and development being performed at
Yale University and by other collaborators and seek additional
collaborative agreements.
The Company currently estimates that anticipated revenues, the
remaining net proceeds of its private placement in August, 1997, the equity
investment, initial payments and reimbursed cost sharing from the agreement with
BI and its existing cash and equivalents will be sufficient to fund its planned
operations for approximately the next 9 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 sooner 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 March 31, 1998 the Company estimates that the amount required to fund
operations for the next twelve months is at approximately
Page 12
<PAGE>
$18,000,000, of which approximately $8,400,000 is subject to reimbursement under
the terms of the BI collaboration agreement. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results 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 has not made an assessment of its Year 2000 issues,
although the Company believes that there will not be a material impact on its
operations.
The Company received an opinion from its auditors for the fiscal year
ended December 31, 1997, 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 March 31, 1998, the Company had working capital of $8,213,004. The
Company's most recent principal sources of funds through March 31, 1998 have
been $4,000,000 from upfront technology access fees and net proceeds of
$2,869,801 from the sale of 448,336 shares of common stock at a premium to the
then current market price related to the BI agreement and $4,481,850 net
proceeds from private financing through issuance of 4,850 shares of Class B
Convertible Preferred Stock.
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. During the twelve months
ending December 31, 1998, the Company will be required to make payments of an
aggregate of $1,706,776 to Yale University 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 beyond the current 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 strategic alliances, but there can be no assurance that the Company will be
successful in achieving such alliances, nor can the Company predict what funds
might be available to it if it can achieve such an alliance. The Company may be
required to seek to raise funds through additional means, including (1) public
or 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 13
<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.
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 14
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
27. Article 5 Financial Data Schedule (Restated) for first
quarter 1998.
(b) Reports on Form 8-K.
-------------------
None
Page 15
<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: February 5, 1999
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANYS
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,015,191
<SECURITIES> 6,045,950
<RECEIVABLES> 95,069
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,519,229
<PP&E> 1,201,479
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,172,547
<CURRENT-LIABILITIES> 1,306,225
<BONDS> 0
0
7,611
<COMMON> 102,756
<OTHER-SE> 9,363,434
<TOTAL-LIABILITY-AND-EQUITY> 11,172,547
<SALES> 0
<TOTAL-REVENUES> 274,842
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,905,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,705
<INCOME-PRETAX> (2,506,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,506,220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,506,220)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
