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 June 30, 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 June 30, 1998 is: 12,697,984 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
-------------------------------------------
June 30,
1998 December 31,
(Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,711,050 $ 3,890,621
Short-term investments 3,963,815 7,088,540
Accounts receivable 190,697 728,899
Other current assets 52,104 118,752
------------------- -------------------
Total current assets 11,917,666 11,826,812
Property and equipment, net 1,110,552 1,301,680
Security deposits 39,094 34,894
Research contract prepayment 416,945 416,945
------------------- -------------------
Total assets $ 13,484,257 $ 13,580,331
------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current $ 274,853 $ 274,853
Accounts payable and accrued expenses 896,656 874,350
------------------- -------------------
Total current liabilities 1,171,509 1,149,203
Obligation under capital lease - long term 322,439 472,578
------------------- -------------------
Total Liabilities 1,493,948 1,621,781
Redemable Preferred stock:
5% convertible preferred stock Series 1998, $0.01 par value, authorized:
15,000 shares; issued and outstanding: 5,000 shares 4,738,796 0
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 - 614,761 and
1997 - 757,632 shares
- Liquidation preference $6,148,000 6,148 7,576
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 1998 - 2,932 shares 1997
4,592 shares
- Liquidation preference $3,134,000 29 46
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: 0 shares 0 0
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1998 - 12,697,984 shares 1997 - 9,833,934 shares 126,980 98,339
Additional paid-in-capital 50,301,396 47,661,639
Deferred compensation (54,812) (72,128)
Accumulated deficit (43,128,228) (35,736,922)
------------------- -------------------
7,251,513 11,958,550
------------------- -------------------
Total liabilities and shareholders' equity $ 13,484,257 $ 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 Six Months Ended (Inception) through
June 30, June 30, June 30, June 30, June 30,
-----------------------------------------------------------------------------
1998 1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research grants $ 109,199 $ 8,481 $ 109,199 $ 48,221 $ 209,199
Research support 147,599 0 422,441 0 1,645,353
Technology license revenues 0 0 0 0 4,000,000
-----------------------------------------------------------------------------
Total revenues 256,798 8,481 531,640 48,221 5,854,552
Operating expenses:
Research and development 2,097,510 2,872,857 4,371,032 4,394,636 21,154,807
General and administrative 459,067 491,058 1,090,776 982,592 7,928,658
Nonrecurring collaboration restructuring fee 0 0 0 0 600,000
Purchased research and development 0 0 0 0 4,481,405
Amortization of finance charges 0 0 0 0 345,439
Interest Income (106,191) (78,795) (249,065) (178,029) (1,115,013)
Interest Expense 15,712 10,744 34,417 21,802 133,530
-----------------------------------------------------------------------------
Net Loss $ (2,209,300) $ (3,287,383) $ (4,715,520) $(5,172,780) $ (27,674,274)
-----------------------------------------------------------------------------
Preferred stock dividends and accretion $ (2,045,322) $ (282,306) $ (2,675,786) $ (282,306) $ (15,434,930)
-----------------------------------------------------------------------------
Loss applicable to common shareholders $ (4,254,622) $ (3,569,689) $ (7,391,306) $(5,455,086) $ (43,109,204)
=============================================================================
Basic and diluted loss applicable to
common shareholders $ (0.40) $ (0.42) $ (0.72) $ (0.65)
-----------------------------------------------------------------------------
</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 (1,660) (17) 605,413 6,054
Accretion of dividend payable on Class B convertible
preferred stock
Premium conversion Dividend on Class B Convertible
preferred stock
Conversion of Class A convertible preferred stock (161,824) (1,618) 449,515 4,495
Class A convertible preferred stock dividend 18,953 190
Discount on Series 1998 convertible preferred stock
1,792,952 17,930
Issuance of common stock
Exercise of stock options 13,500 135
Exercise of warrants 2,670 27
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
---------------------------------------------------------------------------
Balance at June 30, 1998 614,761 $6,148 2,932 $29 12,697,984 $126,980
---------------------------------------------------------------------------
</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 (52,934) $0 (46,897)
Accretion of dividend payable on Class B convertible
preferred stock 263,548 (263,548) 0
Premium conversion Dividend on Class B Convertible
preferred stock 611,009 (611,009) 0
Conversion of Class A convertible preferred stock (2,877) 0
Class A convertible preferred stock dividend 203,821 (204,011) (0)
Discount on Series 1998 convertible preferred stock 1,597,218 (1,597,218) 0
8,442,115
Issuance of common stock (8,502,737) (42,692)
Exercise of stock options 50,265 50,400
Exercise of warrants 4,703 4,730
Compensation associated with stock option grants 25,626 25,626
Amortization of deferred compensation 17,316 17,316
Net loss (4,715,520) (4,715,520)
-----------------------------------------------------------------
Balance at June 30, 1998 $50,301,396 ($54,812) ($43,128,228) $7,251,513
-----------------------------------------------------------------
</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 Six Months (inception) through
Ended June 30, June 30,
---------------------------------------------------------------
1998 1997 1998
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (4,715,520) $ (5,172,780) $ (27,674,274)
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 245,936 132,297 701,142
(Increase) in other current assets 604,850 15,890 (241,815)
(Increase) in other assets (4,200) 192,670 (454,324)
Increase in accounts payable and
accrued expense 22,306 1,228,027 862,124
Extension/reissuance of placement agent warrants 0 0 168,249
Stock issued for services 0 0 600,417
Stock options issued for compensation 42,942 47,333 756,864
------------------------------------------------------------
Net cash (used in) operating activities (3,803,686) (3,556,563) (20,454,773)
------------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities 0 (1,139,610) (22,209,166)
Maturities of marketable securities 3,124,725 5,438,856 18,245,351
Cash portion of MelaRx acquisition 0 0 4,061
Acquisition of fixed assets (54,808) (119,747) (867,261)
------------------------------------------------------------
Net cash provided by (used in) investing activities 3,069,917 4,179,499 (4,827,015)
------------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering 0 0 9,696,210
Net proceeds from issuance of common stock (39,189) 20,000 3,166,888
Net proceeds from issuance of preferred stock 4,738,796 0 20,751,698
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 4,730 (3) 4,727
Receipts from sale of unit purchase option 0 0 250
Repayment of equipment capital lease (150,139) (78,425) (330,484)
------------------------------------------------------------
Net cash provided by (used in) financing activities 4,554,198 (58,428) 32,992,838
------------------------------------------------------------
Net increase in cash 3,820,429 564,508 7,711,050
Cash and cash equivalents at beginning of period 3,890,621 3,788,369 0
------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,711,050 $ 4,352,877 $ 7,711,050
============================================================
</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. 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, which was renamed OncoRx, Inc. after the merger,
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 resulting in net proceeds to the Company of approximately $9,696,000.
In April 1996, the name of the Company was changed from OncoRx, Inc. to Vion
Pharmaceuticals, Inc.
(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 six month periods ended June 30, 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 amended 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 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 immediately convertible into shares of common stock
including an accretion of 8% per annum. Shares of the Class B Preferred Stock
are eligible, under certain circumstances, to receive dividends paid in Class C
Preferred Stock. The Class C Preferred Stock is immediately 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 private placement
closing date and is not entitled to dividends. Conversions of Class B preferred
Stock in the quarter ended June 30, 1998 resulted in additional dividends of
Class C preferred stock representing 21,836 shares of common stock valued at
$101,707. 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 D) - Private Placement of 5% Convertible Preferred Stock Series 1998
---------------------------------------------------------------
On June 30, 1998, the Company completed a private placement of 5,000
shares of non-voting 5% Convertible Preferred Stock Series 1998 ("Series 1998
Preferred Stock") at $1,000 per share, resulting in net proceeds to the Company
of $4,738,796. Each share of Series 1998 Preferred Stock is convertible into
277.777 shares of the Company's common stock. The shares of Series 1998
Preferred Stock accrue quarterly dividends of 5% per annum. The Series 1998
Preferred Stock is manditorily redeemable at $1,000 per share plus dividends on
June 30, 2003. In connection with the sale of the Series 1998 Preferred Stock,
the Company imputed a one-time non-cash dividend of approximately $1.6 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
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 Series 1998 Preferred Stock as a charge against accumulated
deficit with a corresponding increase to additional paid-in capital. The imputed
non-cash dividend has been included in the dividend requirement on preferred
stock and loss applicable to common shareholders. The issuance of the Series
1998 Preferred Stock at closing also triggered certain antidilution adjustment
provisions of the Company's outstanding warrants, resulting in the issuance of
additional warrants. (See Note E)
(Note E) - Antidilution Adjustment
-----------------------
As a result of the sale on June 30, 1998 of 5,000 shares of Series 1998
Preferred Stock, and pursuant the Warrant Agreement governing the rights of the
Company's Class A Warrants and the Class B Warrants, an adjustment will be made
to the exercise price of the Class A Warrants and the Class B Warrants and there
will be a corresponding distribution of additional Class A Warrants
Page 7
<PAGE>
and Class B Warrants. Specifically, on September 8, 1998 (the "Payment Date")
each holder of a Class A Warrant at the close of business on August 26,1998 (the
"Record Date") will receive an additional 0.02 (2 per 100 outstanding) Class A
Warrants and the exercise price of the Class A Warrants shall be reduced from
$4.73 to $4.63. In addition, on the Payment Date each holder of a Class B
Warrant on the close of business on the Record Date will receive an additional
0.02 (2 per 100 outstanding) Class B Warrants and the exercise price of the
Class B Warrants shall be reduced from $6.37 to $6.23.
(Note F) - Warrant Exchange Offer
----------------------
On May 19, 1998, the Company commenced an offer to exchange each
outstanding Class A Warrant, at the option of the holder, for either (A) 0.438
shares of the Company's Common Stock or (B) 0.254 shares of Common Stock and
$0.66 in cash. The Company simultaneously offered to exchange each outstanding
Class B Warrant, at the holder's option, for either (A) 0.212 shares of Common
Stock or (B) 0.123 shares of Common Stock and $0.32 in cash. The Exchange Offer
was not conditioned upon the exchange of a minimum number of Class A Warrants or
Class B Warrants. As a result of the Exchange Offer 3,209,806 Class A Warrants
and 1,881,835 Class B Warrants were exchanged for 1,395,027 and 397,925 shares
of the Company's Common Stock and $39,007 and $3,686 in cash, respectively. The
market values on the exchange date, June 29, 1998, of the Common Stock exchanged
for the Class A and Class B Warrants were $ 6,582,435 and $ 1,877,609,
respectively.
(Note G) - 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
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
$11,674,865 at June 30, 1998. This balance includes $2,451,278 of restricted
investments for future Promycin development expenses from the original
$4,000,000 received in 1997 from BI. The Company recorded $422,441 of reimbursed
Promycin development expenses as revenue during the first six months of 1998.
Page 8
<PAGE>
(Note H) - 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 six months ended June 30, 1998, the Company has incurred
$802,489 under this agreement which has been expensed as incurred.
Page 9
<PAGE>
(Note I) - 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 Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Numerator:
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Net loss ($2,209,300) ($3,287,383) ($4,715,520) ($5,172,780)
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Preferred stock dividends and accretion 2,045,322 282,306 2,675,786 282,306
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Numerator for basic and diluted
loss applicable to common
shareholders
($4,254,622) ($3,569,689) ($7,391,306) ($5,455,086)
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator:
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator for basic and diluted
loss applicable to common 10,612,282 8,468,051 10,251,896 8,338,645
shareholders
- ---------------------------------------- -------------------- -------------------- -------------------- --------------------
Basic and diluted loss applicable to ($0.40) ($0.42) ($0.72) ($0.65)
common shareholders per share
- ---------------------------------------- ==================== ==================== ==================== ====================
</TABLE>
For additional disclosures regarding warrants and Class A, B and Series 1998
Convertible Preferred Stock see Note C, D, E and F. 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 J) - Small Business Innovation Research Grants
-----------------------------------------
On February 27, 1998 and April 22, 1998 the Company was awarded a Small
Business Innovation Research ("SBIR") grant from the National Cancer Institute
for the Reduced Toxicity of Tumor-Targeted Salmonella and the Inhibitors of
Ribonucleotide Reductase programs, respectively. The awards were for
reimbursable direct costs of up to $100,000 and $373,565, respectively and
expire on August 31, 1998 and April 30, 1999, respectively. As of June 30, 1998
the Company recognized $72,869 and $36,330 of revenue, respectively, from the
SBIR grants for reimbursement of expenses incurred for the duration of the
grants through June 30, 1998.
Page 10
<PAGE>
(Note K) - Restatement of Financial Statements
-----------------------------------
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.
The Class A Convertible Preferred Stock requires semi-annual dividends
of 5% per annum payable in additional shares of Class A Preferred Stock. Since
this dividend of preferred stock 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 at the date of the
issuance of the preferred dividends of approximately $204,000 in April 1998. 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.
As discussed in Note C, 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 June 30,1998 conversions of Class B
Preferred Stock resulted in Class C stock dividends representing 21,836 shares
of common stock valued at $509,300 and $101,700, 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 Preferred Stock and the loss applicable to common shareholders.
As originally filed, the financial statements for the three and six month
periods ended June 30, 1998 included the non-cash dividends as an issuance of
common stock at par value.
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 $110,500 for the three month period ended June 30,1998.
On June 30, 1998, the company issued 5,000 shares of 5% Convertible
Preferred Stock Series 1998 ("Series 1998 Preferred Stock"). As originally
recorded, the Company reported this Preferred Stock as equity. The Series 1998
Preferred Stock is mandatorily redeemable on June 30, 2003 at the issue price
plus accreted dividends. Accordingly, the Company has reclassified this Series
1998 Preferred Stock out of shareholders' equity and has increased the carrying
value for accretion to redemption value of the Preferred Stock dividends and the
expenses of the offering. The Company has also retroactively recorded an imputed
one-time non-cash dividend of approximately $1.6 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 EITF D-60. The
$1.6 million 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. As originally filed, the financial
statements for the six month period ended
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<PAGE>
June 30,1998 did not include recognition of the non-cash dividend and included
the redeemable preferred stock in shareholders' equity.
Page 12
<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 June, 1998 private financing, along with 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 four 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 Conduct Phase I clinical studies in the U.S. of the Company's
anticancer agent Triapine(TM) for safety and pharmocokinectics.
o 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 June, 1998, 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 10 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,
Page 13
<PAGE>
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 June 30, 1998 the Company estimates that the amount required
to fund operations for the next twelve months will be approximately $19,600,000,
of which approximately $9,400,000 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 has addressed the immediate need for
additional capital by raising funds through a private placement of its
securities, 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 June 30, 1998, the Company had working capital of $10,746,157. The
Company's most recent principal sources of funds through June 30, 1998 have been
$4,738,796 net proceeds from private financing through issuance of 5,000 shares
of Series 1998 Convertible Preferred Stock, $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.
The Company has used and continues to use the proceeds of its financing
activities 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. 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 next 10 months.
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
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<PAGE>
offerings 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.
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.
As described in Notes D and F to the Company's financial statements
contained herein, the Company consummated an exchange offer for its Class A and
Class B Warrants and a private placement of 5% Convertible Preferred Stock
Series 1998 in June 1998. The effect of these transactions on the Company's
capital structure is summarized below:
<TABLE>
<CAPTION>
VION PHARMACEUTICALS, INC. CAPITALIZATION PRE POST
EXCHANGE EXCHANGE
(Expressed in Fully-Diluted Common Shares) OFFER OFFER
5/18/98 6/30/98
------------------- ---------------------
<S> <C> <C>
Issued and outstanding Common Stock
Common stock (excluding exchange offer) 10,720,740 10,905,032
Common Issued in Exchange for Class A Warrants 1,395,027
Common Issued in Exchange for Class B Warrants 397,925
------------------- ---------------------
Total issued and outstanding common stock 10,720,740 12,697,984
Additional shares of common stock if all warrants, convertible preferred stock
and options were exercised:
Class A convertible preferred stock 1,817,300 1,707,669
Class B convertible preferred stock 826,937 893,356
Class A Warrants 4,262,383 1,052,577
Class B Warrants 3,162,605 1,280,770
Class B Warrants Underlying Class A Warrants 4,262,383 1,052,577
Underwriter Unit Purchase Option 1,075,000 1,075,000
Private Placement Warrants 748,213 748,213
Qualified and Non-qualified options 1,480,274 1,468,274
------------------- ---------------------
Subtotal Fully Diluted Shares 28,355,835 21,976,420
5% Convertible Preferred Stock Series 1998 (Note F) 1,388,889
------------------- ---------------------
</TABLE>
Page 15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total Fully Diluted Shares 28,355,835 23,365,309
</TABLE>
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 16
<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 May 19,
1998, two 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 nine
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 8,332,387 14,289
John A. Spears 8,359,937 14,289
Alan C. Sartorelli Ph.D. 8,359,937 14,289
Michel C. Bergerac 8,366,437 7,789
Frank T. Cary 8,366,437 7,789
James L. Ferguson 8,366,437 7,789
Michael C. Kent 8,366,437 7,789
E. Donald Shapiro 8,366,437 7,789
Walter Wriston 8,366,437 7,789
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, 1998. 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 Against Abstained
--- ------- ---------
8,295,429 59,310 25,200
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated April 9, 1998, 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.
At the Special Meeting of Stockholders of the Company held on June 26,
1998, two proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Special Meeting and the number
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<PAGE>
of votes cast for, against and the number of abstentions to each proposal are
set forth below.
A vote was taken at the Special Meeting for the approval of the
issuance of up to an aggregate of 2,717,274 shares of common stock in connection
with an exchange offer from the Company to the holders of its Class A Warrants
and Class B Warrants. 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 Against Abstained
--- ------- ---------
6,021,306 81,490 636,974
A vote was taken at the Special Meeting for the approval of the
issuance of up to an aggregate of 2,200,000 shares of common stock in connection
with a contemplated exchange offer to the holders of the Company's Class A
Convertible Preferred Stock. 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 Against Abstained
--- ------- ---------
5,987,096 105,950 646,724
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated May 29, 1998, 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.
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 Employment Agreement dated January 16, 1998 between Vion
Pharmaceuticals, Inc. and John A. Spears (1).
27. Article 5 Financial Data Schedule (Restated) for second
quarter 1998.
(b) Reports on Form 8-K.
-------------------
` None
- -------------
(1) Previously filed.
Page 18
<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: January 8, 1999
Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,711,050
<SECURITIES> 3,963,815
<RECEIVABLES> 190,697
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,917,666
<PP&E> 1,110,552
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,484,257
<CURRENT-LIABILITIES> 1,373,295
<BONDS> 0
4,738,796
6,177
<COMMON> 126,980
<OTHER-SE> 11,655,316
<TOTAL-LIABILITY-AND-EQUITY> 13,484,257
<SALES> 0
<TOTAL-REVENUES> 531,640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,461,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,417
<INCOME-PRETAX> (4,715,520)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,715,520)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,715,520)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
