UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended March 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from _______________to__________________
Commission File Number: 0-12104
IMMUNOMEDICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1009366
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
(Address of principal executive offices) (Zip code)
(973) 605-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of May 14, 1999, there were 37,888,090 shares of the registrant's common
stock outstanding.
IMMUNOMEDICS, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - 3
March 31, 1999 and June 30, 1998
Condensed Consolidated Statements of Operations
and Comprehensive Loss- 4
three and nine months ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
nine months ended March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements - 6
March 31, 1999
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Page 2 of 19
IMMUNOMEDICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
1999 1998
------------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,448,408 7,568,147
Marketable securities 6,904,604 14,845
Accounts receivable 1,450,276 1,039,477
Inventory 888,086 913,927
Other current assets 621,454 345,491
------------------- ------------------
Total current assets 14,312,828 9,881,887
Property and equipment, net of accumulated
depreciation of $6,580,000 and $5,815,000 at
March 31, 1999 and June 30, 1998, respectively 4,997,825 5,059,935
Other long-term assets 225,000 -
=================== ==================
$ 19,535,653 14,941,822
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of debt $ 140,388 -
Accounts payable 1,973,354 1,831,458
Other current liabilities 1,995,843 2,584,769
------------------- ------------------
Total current liabilities 4,109,585 4,416,227
------------------- ------------------
Long-Term Debt 265,697 -
Minority Interest 182,000 -
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares; Series F
convertible, authorized 2,000 shares; issued and outstanding 1,250 and
0 shares at March 31, 1999 and June 30, 1998, respectively
(Liquidation preference aggregating $12,656,944 and $0
at March 31, 1999 and June 30, 1998, respectively) 13 -
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 37,888,090 and 37,586,087 shares
at March 31, 1999 and June 30, 1998, respectively 378,881 375,861
Capital contributed in excess of par 111,184,495 97,987,728
Accumulated deficit (96,561,618) (87,837,979)
Other comprehensive loss (23,400) (15)
------------------- ------------------
Total stockholders' equity 14,978,371 10,525,595
------------------- ------------------
$ 19,535,653 14,941,822
=================== ==================
See accompanying notes to condensed consolidated financial statements.
Page 3 of 19
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
--------------- ----------------- ---------------- ----------------
REVENUES:
Product sales $ 1,587,298 998,756 $ 4,833,156 2,858,553
Royalties and license fee 2,598 1,347 13,202 14,401
Research and development 46,934 160,638 275,356 1,067,223
Interest and other 174,551 99,129 639,849 2,230,913
--------------- ----------------- ---------------- ----------------
Total revenues 1,811,381 1,259,870 5,761,563 6,171,090
--------------- ----------------- ---------------- ----------------
COSTS AND EXPENSES:
Cost of goods sold 46,100 77,758 184,528 147,180
Research and development 2,591,412 2,806,298 7,727,929 8,939,145
Sales and marketing 1,658,310 1,216,880 4,932,122 3,739,480
General and administrative 642,329 495,029 1,640,623 1,736,814
--------------- ----------------- ---------------- ----------------
Total expenses 4,938,151 4,595,965 14,485,202 14,562,619
--------------- ----------------- ---------------- ----------------
Net loss $ (3,126,770) (3,336,095) (8,723,639) (8,391,529)
--------------- ----------------- ---------------- ----------------
Preferred stock dividends ( including
assumed incremental yield attributable to
a beneficial conversion feature of $79,050
and $0 for the three and nine months ended
March 31, 1999 and 1998, respectively.) 204,050 - 235,994 -
--------------- ----------------- ---------------- ----------------
Net loss to common shareholders $(3,330,820) (3,336,095) $ (8,959,633) (8,391,529)
=============== ================= ================ ================
OTHER COMPREHENSIVE LOSS:
Net loss (3,126,770) (3,336,095) (8,723,639) (8,391,529)
Unrealized gain / (loss) on securities
available for sale - (36) 15 (102)
Unrealized loss on foreign exchange (6,374) - (23,400) -
--------------- ----------------- ---------------- ----------------
Total other comprehensive loss (6,374) (36) (23,385) (102)
--------------- ----------------- ---------------- ----------------
Comprehensive loss $ (3,133,144) (3,336,131) $ (8,747,024) (8,391,631)
=============== ================= ================ ================
Net loss per basic and diluted common share $ (0.09) (0.09) $ (0.24) (0.23)
=============== ==================================== ================
Weighted average number of
shares outstanding 37,888,090 36,448,634 37,747,267 36,378,635
=============== ================= ================ ================
See accompanying notes to condensed consolidated financial statements.
Page 4 of 19
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
1999 1998
---------------- ----------------
Cash flows from operating activities:
Net loss $(8,723,639) (8,391,529)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest 182,000 -
Depreciation and amortization 770,117 716,864
Changes in operating assets and liabilities (1,107,951) (1,028,129)
Unrealized loss on foreign exchange (23,400) -
---------------- ----------------
Net cash used in operating activities (8,902,873) (8,702,794)
---------------- ----------------
Cash flows from investing activities:
Purchase of marketable securities (9,864,477) (10,345,629)
Proceeds from maturities of marketable securities 2,974,733 17,776,816
Additions to property and equipment (708,007) (208,040)
---------------- ----------------
Net cash provided by / (used in) investing activities (7,597,751) 7,223,147
---------------- ----------------
Cash flows from financing activities:
Issuance of preferred stock, net 12,349,800 -
Issuance of common stock, net 850,000 1,482,500
Deposits - cash collateral (225,000) -
Proceeds from debt 450,000 -
Payments of debt (43,915) -
Exercise of stock options - 164,813
---------------- ----------------
Net cash provided by investing activities 13,380,885 1,647,313
---------------- ----------------
Increase / (decrease) in cash and cash equivalents (3,119,739) 167,666
Cash and cash equivalents at beginning of period 7,568,147 6,013,355
---------------- ----------------
Cash and cash equivalents at end of period $ 4,448,408 6,181,021
================ ================
See accompanying notes to condensed consolidated financial statements.
Page 5 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Immunomedics, Inc. and subsidiaries (the "Company"), have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, the statements 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. The balance sheet at June 30, 1998 has been derived from
the audited financial statements at that date. Operating results for
the nine-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 1999.
For further information, refer to the annual financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal
year ended June 30, 1998.
(2) Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents. Included in other current assets at March 31, 1999 and
June 30, 1998 is accrued interest earned on cash equivalents and
marketable securities of $57,000 and $24,000, respectively.
(3) Income Taxes
The Company has never made payments of Federal or State income taxes
and does not anticipate generating book income in fiscal 1999;
therefore, no income taxes have been reflected for the nine-month
period ended March 31, 1999.
(4) Net Loss Per Share
Basic loss per share is based on net loss for the relevant period
adjusted for cumulative Series F Preferred Stock dividends, divided by
the weighted average number of common shares outstanding during the
period. The accretion of the 4% annual increase in stated value of the
Series F Preferred Stock plus the incremental yield of the conversion
discount in the amount of $204,050 and $235,994 for the three and nine
months ended March 31, 1999, respectively, increased the net loss
attributable to common shareholders to $3,330,820 and $8,959,633,
respectively.
Page 6 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Diluted loss per share is based on net loss for the relevant period
adjusted for cumulative Series F Preferred Stock dividends, divided by
the weighted average number of common shares outstanding during the
period. Common share equivalents, such as outstanding stock options,
and common stock issuable upon conversion of the Series F Preferred
Stock are not included in the computations since the effect would be
antidilutive.
(5) Comprehensive Income
On July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income
and its components. In accordance with SFAS 130, the Company has
displayed the components of "Other comprehensive income" and
"Comprehensive loss" in the accompanying Financial Statements. All
prior-period data include the requirements of SFAS No. 130.
(6) Inventory
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and
manufacturing overhead.
(7) Stockholders' Equity
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S under the Securities Act of 1933 pursuant to which several
foreign investors purchased 200,000 shares of 5% Series D Convertible
Preferred Stock (the "Series D Preferred") for $10,000,000. The terms
of the transaction allowed the investors, at their discretion, to
convert the Series D Preferred into shares of the Company's common
stock during a 24-month period which began in June 1996, at a price
equal to 89% of the average market price per share over a 20-day
trading period surrounding the date of conversion. As of June 30, 1998,
all 200,000 shares of Series D Preferred had been converted into
1,795,771 shares of the Company's common stock.
On December 23, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement (the "Equity Line") with an investor (the
"Investor"), pursuant to which, subject to the satisfaction of certain
conditions, the Company could have received up to an aggregate of
$30,000,000 over a 36-month period. The Company terminated the Equity
Line as of December 9, 1998. As of the termination date, the Company
had received a total of $5,350,000 for which the Company issued
1,358,838 shares of common stock. In connection with the Equity Line,
the Company issued to the Investor
Page 7 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(a) a four-year warrant to purchase 50,000 shares of the common stock
at an exercise price of $7.5375 per share (180% of closing sales price
of common stock at the time of issuance) and (b) an additional
four-year warrant to purchase 54,000 shares of common stock
(representing 5,000 shares for each $500,000 of common stock purchased
by the Investor under the Equity Line during calendar 1998) at an
exercise price of $7.087 per share (180% of the weighted average
purchase price of the common stock purchased by the Investor during the
year). The Company terminated the Equity Line, effective as of December
9, 1998.
On December 9, 1998, the Company completed a private placement of 1,250
shares of 4% Series F Convertible Preferred Stock (the "Series F
Stock") to several institutional investors and received net proceeds of
approximately $12,330,000, after payment or accrual of approximately
$170,000 of expenses. The Series F Stock is convertible at the option
of the investors, in whole or in part, beginning on June 8, 1999,
subject to acceleration in certain instances. The number of shares of
common stock issuable upon conversion of each share of Series F Stock
will be determined by dividing the stated value of $10,000 plus an
accretion of 4% per annum, by the conversion price then in effect. The
conversion price for the Series F Stock generally will be the lesser of
(a) 125% of the average market price on June 6, 1999 and (b) the
average closing bid price of the Company's common stock during a
specified period prior to conversion. The Series F Stock is redeemable
under certain circumstances and, under certain other circumstances, the
Company may be required to pay penalties and/or adjust the conversion
price of the Series F Stock. If the Company were required to redeem the
Series F Stock or make the penalty payments, such payments could
significantly and adversely affect it's financial condition and deplete
its cash resources. In accordance with the terms of the Series F
Preferred Stock, the Company is required to recognize a assumed
incremental yield of $127,500 (calculated at the date of issuance and
based on a beneficial conversion feature). Such amount is being.
amortized as a preferred stock dividend over a six month period
beginning with the date of issuance. Accrued dividends payable were
$156,944 at March 31, 1999. Additionally, the Company has recognized an
incremental yield attributable to a beneficial conversion feature of
$79,050 at March 31, 1999.
(8) License and Distribution Agreements
On November 24, 1997, the Company entered into a Distribution Agreement
with Eli Lilly Deutschland GmbH ("Lilly") pursuant to which Lilly will
package and distribute LeukoScan within the countries comprising the
European Union and certain other countries subject to receipt of
regulatory approvals. Also, effective April 6, 1998, Lilly
Page 8 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
began packaging and distributing CEA-Scan within the countries
comprising the European Union. The Company pays Lilly a service fee
based primarily on the number of units of product packaged and shipped.
The parties contemplate that other future Company products may be
handled under this arrangement when appropriate.
On November 28, 1997, the Company was awarded $1,800,000, including
interest, from its arbitration claim against Pharmacia Inc. for breach
of contract and fiduciary duty arising out of the license agreement
with a predecessor of Pharmacia Inc.
that had been terminated in 1995.
Effective as of April 6, 1998, the Company appointed a subsidiary of
Bergen Brunswig Specialty Corporation as a non-exclusive distributor of
CEA-Scan in the U.S. Such subsidiary (currently Integrated
Commercialization Solutions, Inc.) serves as an agent of the Company in
providing product support services, including customer service, order
management, distribution, invoicing and collection.
On December 21, 1998, the Company received $300,000 in final settlement
of all claims between the Company and Mallinckrodt, Inc. and its
affiliate under the prior distribution agreements, which were
terminated in April 1998.
Pursuant to the terms of a previously announced letter of intent, IMG
Technology, LLC ("IMG"), an 80% owned subsidiary of the Company, formed
a joint venture with Coulter Corporation ("Coulter") for the purpose of
developing targeted cancer therapeutics. The joint venture, known as
IBC Pharmaceuticals, LLC ("IBC"), was organized as a Delaware limited
liability company. On March 5, 1999, the Company contributed to IBC, on
behalf of IMG, certain rights to its proprietary humanized antibodies
against the cancer marker carcinoembryonic antigen (which had a
carrying value of zero), which is used in its CEA-Cide(tm) therapeutic,
and Coulter contributed to IBC certain rights to its bispecific
targeting technology called the "Affinity Enhancement System" or AES.
The Company assigned its rights pursuant to the terms of a license
agreement with IBC dated March 5, 1999 in exchange for the grant to IMG
of its interest in IBC ("Immunomedics License Agreement"). Coulter
received its interest in IBC in exchange for its contribution. The
license granted to IBC is a worldwide, royalty free, exclusive license
which is limited to the "IBC Field" with respect to the "Immunomedics
Patent Property" and the "Immunomedics Biotechnology Assets," as those
terms are defined in Section 1 of the Immunomedics License Agreement.
Additionally on March 5, 1999, several investors contributed $3,000,000
to IBC in exchange for a 7% interest in the venture, resulting in a
corresponding reduction of IMG's and Coulter's interests in IBC to
49.55% and 43.45% respectively. Coulter, IMG and the investors entered
into an operating agreement (the "IBC Operating Agreement") which
establishes the rights and obligations of the respective members. Under
the terms of the IBC Operating Agreement, neither
Page 9 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
IMG nor Coulter may sell any portion of its interest in IBC without
first providing the other with a right of first refusal with respect to
such sale, provided that after a public offering of IBC securities, IMG
and Coulter will be permitted to sell up to 20% of their respective
interests in IBC free of such right of first refusal. IMG is a Delaware
limited liability company owned 80% by the Company and 20% by Dr. David
Goldenberg. Dr. Goldenberg, who is the Chairman of the Board of the
Company, received his interest pursuant to the terms of his employment
agreement with the Company. IMG is intended to be a single purpose
entity, its sole asset being its interest in IBC. Dr. Goldenberg and
IMG have entered into an operating agreement (the "IMG Operating
Agreement") which establishes their relative rights and obligations. In
connection with Dr. Goldenberg's receipt of an interest in IMG, the
Company recognized $182,000 of compensation expense, based on fair
value of technology transferred, and has reflected his interest as a
minority interest on the financial statements.
(9) Commitments and Contingencies
In February 1994, the Company entered into a master lease agreement
pursuant to which the Company leased equipment for research,
development and manufacturing purposes having an aggregate acquisition
cost of up to $2,200,000. The basic lease payments under the master
lease agreement were determined based on current market rates of
interest at the inception of each equipment schedule take-down, and
were payable in monthly installments over a four-year period. The lease
agreement contained an early purchase option, at an amount which was
deemed to be fair value. As of December 31, 1998, the Company has
exercised early purchase options on all equipment leased under the
master lease agreement. The Company has recorded lease expense for the
three and nine months ended March 31, 1999 of $0 and $109,273,
respectively. The lease was terminated as of December 31, 1998.
(10) Debt
On October 28, 1998, the Company entered into an Equipment Financing
Agreement with the New England Capital Corporation, pursuant to which
the Company has received $450,000, at the interest rate of 10.12% per
annum, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for the
equipment leased through the master lease agreement detailed above. The
financing is secured by various equipment and an irrevocable letter of
credit in the amount of $225,000. The letter of credit is
collateralized by a cash deposit of an equivalent amount which is
included in "Other Long Term Assets" on the accompanying balance sheet.
At March 31, 1999, the Company's indebtedness under the Agreement was
$406,085.
Page 10 of 19
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(11) Reclassification
Certain amounts previously reported have been reclassified to conform
to current year presentation.
(12) Subsequent Events
In April 1999, a cost reduction program was implemented by the Company,
the workforce was reduced by twelve employees, for which the Company
incurred severance expense of approximately $20,000.
Page 11 of 19
Part I - Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Statements made in this Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those identified in
"Business" and elsewhere in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.
Since its inception, the Company has been engaged primarily in the research and
development and, more recently, the commercialization of proprietary products
relating to the detection, diagnosis and treatment of cancer and infectious
diseases. On June 28, 1996, the U.S. Food and Drug Administration ("FDA")
licensed CEA-Scan(R) for use in conjunction with other standard diagnostic
modalities for the detection of recurrent and/or metastatic colorectal cancer.
On October 4, 1996, the European Commission granted marketing authorization for
use of the product in the 15 countries comprising the European Union for the
same indication. On September 16, 1997, the Company received a notice of
compliance from the Health Protection Branch permitting it to market CEA-Scan in
Canada for colorectal cancer for recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by the
European Commission to market LeukoScan(R), an in vivo infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a Biologics License Application for LeukoScan with the
FDA for the same indication approved in Europe, plus an additional indication
for the diagnosis of acute, atypical appendicitis. As part of the review
process, the Company is in discussions with the FDA to address their comments
regarding the adequacy of the Company's data to support final approval for these
indications. The Company is confident that it can bring these discussions with
the FDA to successful closure. In the meantime, the Company is continuing to
implement its plans for market introduction, and is working diligently on
preparation to bring this new product to the U.S. marketplace. However, as with
all filings, there can be no assurance that regulatory approval for such
indications will be received. The Company also has filed applications, in Canada
and several other countries, for approval to market LeukoScan for the same
indications as in the U.S.
The Company is also engaged in developing other biopharmaceutical products,
which are in various stages of development and clinical testing. The Company has
not achieved profitable operations and does not anticipate achieving profitable
operations during fiscal year 1999. The Company will continue to experience
operating losses until such time, if at all, that it is able to
Page 12 of 19
Overview (Continued)
generate sufficient revenues from sales of CEA-Scan, LeukoScan and its other
proposed in vivo products.
Further, the Company's working capital will continue to decrease until such
time, if at all, that the Company is able to generate positive cash flow from
operations or until such time, if at all, that the Company receives an
additional infusion of cash from the sale of the Company's securities, from
other financing or from corporate alliances to finance the Company's operating
expenses and capital expenditures.
Results of Operations
Revenues for the nine-month period ended March 31, 1999 were $5,762,000 as
compared to $6,171,000 for the same period in 1998, representing a decrease of
$409,000. Product sales for the nine-month period ended March 31, 1999 increased
by $1,975,000 as compared to the same period of 1998, mainly due to increased
market acceptance of CEA-Scan and LeukoScan. Research and development revenue
for the nine-month period ended March 31, 1999 decreased by $792,000 as compared
to same period of 1998, primarily due to the recognition of previously deferred
revenue received from Pharmacia Inc. ("Pharmacia") and lower grant revenue of
$212,000. Interest and other income for the nine-month period ended March 31,
1999 decreased by $1,591,000. Interest income decreased by $92,000 due to less
cash available for investments. Other income decreased by $1,499,000 primarily
due to the receipt, in November 1997, of an arbitration award of $1.8 million
including interest from its dispute with Pharmacia. The decrease in other income
was offset in part by the receipt of $300,000 in final settlement of all claims
between the Company and Mallinckrodt, Inc. and its affiliate under the prior
distribution agreements, which were terminated in April 1998.
Revenues for the three-month period ended March 31, 1999 were $1,811,000 as
compared to $1,260,000 for the same period in 1998, representing an increase of
$552,000. Product sales for the three-month period ended March 31, 1999
increased by $589,000 as compared to the same period of 1998, mainly due to
increased market acceptance of CEA-Scan and LeukoScan. Research and development
revenue for the three-month period ended March 31, 1999 decreased by $114,000 as
compared to same period of 1998, primarily due to lower grant revenue of
$106,000. Interest and other income for the three-month period ended March 31,
1999 increased by $75,000, as compared to the same period of 1998, primarily due
to more cash available for investments.
Total operating expenses for the nine-month period ended March 31, 1999 were
$14,485,000 as compared to $14,563,000 for the same period in 1998, representing
a decrease of $78,000. Research and development costs for the nine-month period
ended March 31, 1999 decreased by $1,211,000 as compared to the same period in
1998, primarily due to a decrease in the level of expenditures required to
obtain validation of the Company's manufacturing facility. Cost of goods sold
for the nine months ended March 31, 1999 increased as a result of increased
product sales. However, cost of goods sold decreased as a percentage of product
sales reflecting product
Page 13 of 19
Results of Operations (Continued)
sales from inventory which inventory items previously had been expensed by the
Company, as they were produced prior to the Company's receipt of marketing
approval for the products.
Sales and marketing expenses for the nine-month period ended March 31, 1999
increased by $1,193,000, primarily due to an increase in personnel associated
with the Company's full-time oncology sales force in U.S. and increased
operating expenses for Immunomedics Europe as compared to the same period of
1998. General and administrative costs for the nine-month period ended March 31,
1999 decreased by $96,000 as compared to the same period in 1998, primarily due
to reduced legal costs as a result of the conclusion of the Pharmacia
arbitration in November 1997.
Total operating expenses for the three-month period ended March 31, 1999 were
$4,938,000 as compared to $4,596,000 for the same period in 1998, representing
an increase of $342,000. Research and development costs for the three-month
period ended March 31, 1999 decreased by $215,000 as compared to the same period
in 1998, primarily due to a decrease in the level of expenditures required to
obtain validation of the Company's manufacturing facility. Sales and marketing
expenses for the three-month period ended March 31, 1999 increased by $441,000,
primarily due to an increase in personnel associated with the Company's
full-time oncology sales force in U.S. and increased operating expenses for
Immunomedics Europe as compared to the same period of 1998. General and
administrative costs for the three-month period ended March 31, 1999 increased
by $147,000 as compared to the same period in 1998, primarily due to recognition
of $182,000 of compensation expense and corresponding minority interest in IBC
Pharmaceuticals, LLC issued to Dr. David Goldenberg (see Note 8 to Unaudited
Condensed Consolidated Financial Statements). See "Liquidity and Capital
Resources" for information concerning the Company's recently implemented cost
reduction program.
Net loss to common shareholders for the nine-month period ended March 31, 1999
was $8,960,000, or $0.24 per share, as compared to a loss of $8,392,000, or
$0.23 per share, for the same period in 1998. The higher net loss of $568,000 in
1999 as compared to 1998 primarily resulted from lower revenues and increased
preferred stock dividends, partially offset by reduced operating expenses, as
discussed above. In addition, the net loss per share for the nine-month period
ended March 31, 1999 was positively impacted by the higher weighted average
number of common shares outstanding for this period, as compared to the same
period in 1998. The increase in the weighted average number of common shares
outstanding was primarily due to the conversion of the Company's Series D
Preferred Stock (which was fully converted as of June 30, 1998) and the issuance
of common stock pursuant to the Company's Structured Equity Line Flexible
Financing Agreement (see Note 7 to Unaudited Condensed Consolidated Financial
Statements).
Net loss for the three-month period ended March 31, 1999 was $3,331,000, or
$0.09 per share, as compared to a loss of $3,336,000, or $0.09 per share, for
the same period in 1998. The lower net loss of $5,000 in 1999 as compared to
1998 primarily resulted from higher revenues, partially
Page 14 of 19
Results of Operations (Continued)
offset by increased operating expenses and increased preferred stock dividends,
as discussed above. In addition, the net loss per share for the three-month
period ended March 31, 1999 was positively impacted by the higher weighted
average number of common shares outstanding for this period, as compared to the
same period in 1998.
The increase in the weighted average number of common shares outstanding was
primarily due to the conversion of the Company's Series D Preferred Stock (which
was fully converted as of June 30, 1998) and the issuance of common stock
pursuant to the Company's Structured Equity Line Flexible Financing Agreement
(see Note 7 to Unaudited Condensed Consolidated Financial Statements).
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $10,203,000, which
represents an increase of $4,737,000 from June 30, 1998. The net increase in
working capital resulted primarily from the Company's December 1998 private
placement offset by funding of operating expenses and capital expenditures.
In February 1994, the Company entered into a master lease agreement pursuant to
which the Company leased equipment for research, development and manufacturing
purposes having an aggregate acquisition cost of up to $2,200,000. The basic
lease payments under the master lease agreement were determined based on current
market rates of interest at the inception of each equipment schedule take-down,
and were payable in monthly installments over a four-year period. The lease
agreement contained an early purchase option, at an amount which was deemed to
be fair value. As of December 31, 1998, the Company has exercised early purchase
options on all equipment leased under the master lease agreement. The Company
has recorded lease expense for the three and nine months ended March 31, 1999 of
$0 and $109,273, respectively. The lease was terminated as of December 31, 1998.
(See Note 9 to Unaudited Condensed Consolidated Financial Statements.)
On October 28, 1998, the Company entered into an Equipment Financing Agreement
with the New England Capital Corporation, pursuant to which the Company has
received $450,000, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for the equipment
leased through the master lease agreement detailed above. The financing is
secured by various used equipment and an irrevocable letter of credit in the
amount of $225,000. The letter of credit is collateralized by a cash deposit of
an equivalent amount.
The Company's liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $11,353,000 at March 31, 1999, representing an
increase of $3,770,000 from June 30, 1998. This increase was primarily
attributable to the Company's December 1998 private placement of the Series F
Convertible Preferred Stock financing which raised net proceeds of approximately
$12,330,000, offset by the funding of operating expenses and capital
expenditures
Page 15 of 19
Liquidity and Capital Resources (Continued)
as discussed above. It is anticipated that working capital and cash, cash
equivalents and marketable securities will decrease during the remainder of
fiscal year 1999 as a result of planned operating and capital expenditures. In
April 1999, the Company implemented a cost reduction program which the Company
anticipates saving approximately $3.5 million during the next 12 months. In
April 1999, a cost reduction program was implemented by the Company, the
workforce was reduced by twelve employees, for which the Company incurred
severance expense of approximately $20,000.
At present, the Company believes that its projected financial resources will be
sufficient to fund anticipated operating expenses and capital expenditures
through calendar year 1999. However, the Company believes that it will require
additional financial resources by the beginning of calendar year 2000 in order
for it to continue its budgeted levels of research and development and clinical
trials of its proposed products and regulatory filings for new indications of
existing products. The Company has commenced the planning process to raise such
funds and anticipates that such funds should be available through a private
placement of securities or other financing alternatives. However, there can be
no assurance that any such additional funds will be available upon terms
acceptable to the Company, or at all. The failure to obtain such terms on a
timely basis would have a material adverse effect on the Company. The Company is
considering other financing structures.
In addition, the Company intends to supplement its financial resources from time
to time as market conditions permit through additional financing and through
collaborative marketing and distribution agreements. Also, the Company continues
to evaluate various programs to raise additional capital and to seek additional
revenues from the licensing of its proprietary technology. At the present time,
the Company is unable to determine whether any of these future activities will
be successful and if so, the terms and timing of any definitive agreements.
On December 9, 1998, the Company completed a private placement of 1,250 shares
of 4% Series F Convertible Preferred Stock (the "Series F Stock") to several
institutional investors and received net proceeds of approximately $12,330,000,
after payment or accrual or approximately $170,000 of expenses. The Series F
Stock is convertible at the option of the investors, in whole or in part,
beginning on June 8, 1999, subject to acceleration in certain instances. The
number of shares of common stock issuable upon conversion of each share of
Series F Stock will be determined by dividing the stated value of $10,000 plus
an accretion of 4% per annum, by the conversion price then in effect. The
conversion price for the Series F Stock generally will be the lesser of (a) 125%
of the average market price on June 6, 1999 and (b) the average closing bid
price of the Company's common stock during a specified period prior to
conversion. The Series F Stock is redeemable under certain circumstances and,
under certain other circumstances, the Company may be required to pay penalties
and/or adjust the conversion price of the Series F Stock. If the Company were
required to redeem the Series F Stock or make the penalty payments, such
payments could significantly and adversely affect its financial condition and
deplete its cash resources.
Page 16 of 19
Liquidity and Capital Resources (Continued)
In accordance with the terms of the Series F Preferred Stock, the Company is
required to recognize a assumed incremental yield of $127,500 (calculated at the
date of issuance and based on a beneficial conversion feature). Such amount is
being amortized as a preferred stock dividend over a six-month period beginning
with the date of issuance. Accrued dividends payable were $156,944 at March 31,
1999. Additionally, the Company has recognized an incremental yield attributable
to the beneficial conversion feature of the Series F Preferred Stock of $79,050
at March 31, 1999.
On December 23, 1997, the Company entered into a Structured Equity Line Flexible
Financing Agreement (the "Equity Line") with an investor (the "Investor"),
pursuant to which, subject to the satisfaction of certain conditions, the
Company could have received up to an aggregate of $30,000,000 over a 36-month
period. The Company terminated the Equity Line as of December 9, 1998. As of the
termination date, the Company had received a total of $5,350,000 for which the
Company issued 1,358,838 shares of common stock.
Impact of Year 2000
The Company has completed a review of its business systems, including its
computer systems and manufacturing equipment, and has sent written inquiries to
its customers, distributors and vendors as to their progress in identifying and
addressing problems that their systems may face in correctly interpreting and
processing date information as the year 2000 approaches and is reached. Based on
this review, the Company is implementing a plan to achieve year 2000 compliance.
The Company believes that it will achieve year 2000 compliance in a manner which
will be non-disruptive to its operations. In addition, the Company has commenced
work on various types of contingency planning to address potential problem areas
with internal systems, suppliers and other third parties. Year 2000 compliance
should not have a material adverse effect on the Company, including the
Company's financial condition, results of operations or cash flow. The Company
has incurred approximately $120,000 of costs to date related to year 2000. The
Company estimates the cost of its year 2000 efforts to be approximately
$250,000. The total cost estimate is based on management's current assessment
and is subject to change.
However, the Company may encounter problems with supplier and/or revenue sources
which could adversely affect the Company's financial condition, results of
operations or cash flow. The Company cannot accurately predict the occurrence
and/or outcome of any such problems, nor can the dollar amount of such problems
be estimated. In addition, there can be no assurance that the failure to ensure
year 2000 compliance by a third party would not have a material adverse effect
on the Company.
Page 17 of 19
Item 4. Submission of Matters to a Vote of Security Holders
On March 19, 1999, the Company held a Special Meeting of its stockholders, at
which meeting the proposal to approve the issuance of any shares of the
Company's common stock in excess of 7,577,617 shares of common stock issuable
upon conversion of shares of Series F Convertible Preferred Stock issued or
issuable to investors in the Company's December 1998 private placement was
approved as follows:
For Against Abstain
19,563,002 2,309,329 157,953
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Operating Agreement, dated March 5, 1999, by
and among IMG Technology, LLC, Coulter
Corporation and the investors named therein
(incorporated by reference from the exhibits
to the Company's Current Report on Form 8-K
for the event occurring March 5, 1999)
10.2 License Agreement, dated March 5, 1999, by
and between Immunomedics, Inc. and IBC
Pharmaceuticals, LLC. (incorporated by
reference from the exhibits to the Company's
Current Report on Form 8-K for the event
occurring March 5, 1999)
10.3 Operating Agreement, dated March 5, 1999, by
and between IMG Technology, LLC and David M.
Goldenberg (incorporated by reference from
the exhibits to the Company's Current Report
on Form 8-K for the event occurring March 5,
1999)
27 Financial Data Schedule
(b) Reports
The Company filed a Current Report on Form 8-K on
March 24, 1999, which responded to Item 5. - Other
Events.
Page 18 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
(Registrant)
DATE: May 14, 1999 By: /s/ Robert J. DeLuccia
--------------------------
Robert J. DeLuccia,
President and
Chief Executive Officer
(Principal Executive
Officer)
DATE: May 14, 1999 By: /s/ Shailesh R. Asher
--------------------------
Shailesh R. Asher,
Controller
Principal Financial and
Accounting Officer)
Page 19 of 19