U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-34765
Ixion Biotechnology, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Delaware 59-3174033
(State of incorporation) (I.R.S. Employer Identification No.)
13709 Progress Blvd., Box 13
Alachua, FL 32615
(Address of principal executive offices)
Registrant's telephone number: 904-418-1428
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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 of the registrant's common stock, par value $0.01 per
share, outstanding as of April 30, 2001 was 6,861,791.
Ixion Biotechnology, Inc
Index to Form 10QSB
Part 1 Financial Information Page
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Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - March 31, 2001..............................2
Condensed Statements of Operations - Three Months Ended
March 31, 2001 and 2000...............................................3
Condensed Statements of Cash Flows - Three Months Ended
March 31, 2001 and 2000...............................................4
Notes to Condensed Financial Statements...............................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................6
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds............................11
Item 6. Exhibits and Reports on Form 8-K.....................................11
Signatures....................................................................12
Exhibit Index.................................................................12
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
March 31, 2001
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 1,692,355
Accounts receivable 29,621
Prepaid expenses 35,649
Other current assets 500
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Total current assets 1,758,125
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Property and Equipment, net 310,203
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Other Assets:
Patents and patents pending, net 411,398
Other 8,637
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Total other assets 420,035
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Total Assets $ 2,488,363
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 92,787
Notes payable 768,906
Accrued expenses 223,213
Interest payable 1,797
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Total current liabilities 1,086,703
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Long-Term Liabilities:
Liability under research agreement 42,317
Deferred rent, including accrued interest 26,610
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Total long-term liabilities 68,927
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Total liabilities 1,155,630
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Stockholders' Equity:
Common stock, $.01 par value; authorized 20,000,000, issued and
Outstanding 6,861,791 shares at March 31 68,618
Additional paid-in capital 10,957,641
Receivable from shareholder (3,353,303)
Accumulated deficit (6,074,155)
Less unearned compensation (266,068)
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Total stockholders' equity (deficit) (1,332,733)
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Total Liabilities and Stockholders' Equity $ 2,488,363
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See accompanying notes to condensed financial statements
2
Condensed Statements of Operations
Three Months Ended
March 31, 2001
Unaudited
2001 2000
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Revenues:
Income under research agreement $ 3,913 $ 2,450
Income from research grants 136,793 43,924
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Total revenues 140,706 46,374
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Expenses:
Operating, general and administrative 207,915 114,088
Research and development 547,233 174,383
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Total operating expenses 755,148 288,471
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Other Income (Expense):
Interest expense (19,968) (41,443)
Interest income 26,988 869
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Total other income (expense) 7,020 (40,574)
Net Loss. $ (607,422) $ (282,671)
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Net Loss per Share (Basic) $ (0.09) $ (0.09)
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Weighted Average Common Shares 6,861,791 2,990,272
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See accompanying notes to condensed financial statements
3
Condensed Statements of Cash Flows
Three Months Ended
March 31, 2001
2001 2000
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Unaudited
Cash Flows from Operating Activities:
Net loss $ (607,422) $ (282,671)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 21,510 8,368
Amortization 3,807 2,410
Amortization of debt discount 14,290 14,292
Stock, options or warrants issued
for consulting services 1,260 1,880
Stock compensation 37,245 25,005
Decrease (increase) in prepaid
expenses and other current assets 11,928 (1,852)
Decrease (increase) in accounts
receivable and other assets 27,346 27,834
Increase (decrease) in deferred
revenue 1,281 -
Increase (decrease) in accounts
payable and accrued expenses 109,445 (32,381)
Increase in deferred fees and
salaries - 49,600
Increase in deferred rent 703 1,409
Increase in interest payable (7,731) 2,399
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Net cash used in operating activities (443,592) (183,707)
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Cash Flows from Investing Activities:
Purchase of property and equipment (23,551) (18,214)
Payments for patents and patents
pending - (13,429)
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Net cash used in investing activities (23,551) (31,643)
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Cash Flows from Financing Activities:
Proceeds from issuance of common
stock - 376,200
Principal reductions in notes payable (780) (2,204)
Payment of deferred offering costs - (1,051)
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Net cash provided by (used in)
financing activities (780) 372,945
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Net Increase (Decrease) In Cash and
Cash Equivalents (467,923) 157,595
Cash and Cash Equivalents at Beginning
of Period 2,160,278 22,361
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Cash and Cash Equivalents at End
of Period $ 1,692,355 $ 179,956
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See accompanying notes to condensed financial statements
4
Notes to Condensed Financial Statements
Three Month Period Ended March 31, 2001 and 2000
1. Basis of Presentation:
The accompanying unaudited condensed financial statements for the three
months ended March 31, 2001 and 2000, respectively have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements. These interim financial statements should be
read in conjunction with the December 31, 2000 financial statements and
related notes included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2000. In the opinion of the Company, the
accompanying unaudited condensed financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary to
present fairly the Company's financial position, results of operations, and
cash flows for the periods presented. The results of operations for the
interim period ended March 31, 2001 are not necessarily indicative of the
results to be expected for the full year.
2. Income Taxes:
The components of the Company's net deferred tax asset and the tax effects
of the primary temporary differences giving rise to the Company's deferred
tax asset are as follows as of March 31, 2001:
Net operating loss carryforward $ 2,400,000
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Deferred tax asset 2,400,000
Valuation Allowance (2,400,000)
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Net deferred tax asset $ -
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3. Stock Options:
On January 3, 2001, the Company granted ten-year incentive stock options
under the 1994 Stock Option Plan to purchase 40,000 shares of Common Stock
at an exercise price of $4.00 per share to an officer of the company, in
connection with hiring package. The options vest at a rate of 20% per year.
5
Special Note Regarding Forward-Looking Statements
We intend that the forward-looking statements contained in this report
be covered by the safe-harbor provisions of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Act of 1934. To the extent that such
statements are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under Part I, Item 2, Management's
Discussion and Analysis or Plan of Operations, contain forward-looking
statements. Where, in any forward-looking statement, Ixion expresses an
expectation or belief as to future results or events, our expectation or belief
is expressed in good faith and believed to have reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished.
Statements regarding our research and development plans also constitute
forward-looking statements. Actual research and development activities may vary
significantly from the current plans depending on numerous factors including:
- changes in the costs of such activities from current estimates;
- the results of the programs;
- the results of clinical studies;
- the timing of regulatory submissions, technological advances;
- determinations as to commercial potential; and
- the status of competitive products.
The estimates in our research and development plan are based on the
current expectations of our management team. Expectations may change due to a
large number of potential events, including unanticipated future developments.
The following factors, which could cause actual results or events to
differ materially from those anticipated, include, but are not limited to:
general economic, financial and business conditions; competition for customers
in the biotechnology and pharmaceutical industries; the costs of research and
development of chemical compounds and products; and changes in and compliance
with governmental regulations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with the Condensed Financial Statements and the related Notes thereto included
elsewhere in this report. This report contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. These and
additional risk factors are identified in our annual report to the Securities
and Exchange Commission filed on Form 10-KSB and in other SEC filings.
Results of Operations
Three Months Ended March 31, 2001 and 2000
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Summary of Operations - Three Months Ended March 31,
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2000 Percent
2001 Change
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Revenues: $140,706 $46,374 203.41%
Operating Expenses: ($755,148) ($288,471) 161.78%
Other Income (Expense): $7,020 ($40,574) -117.30%
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6
Net Loss: ($607,422) ($282,671) 114.89%
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Total revenues increased from $46,374in the first quarter of 2000 to
$140,706 in the first quarter of 2001 mainly as a result of the following four
active NIH research contracts:
- "Islets from Islet Progenitor/Stem Cells for Implantation"
- "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome"
- "Oxalobacter Formigenes Diagnostic Kit Development"
- "Coating of Urinary Protheses to Prevent Encrustation"
We expect revenue to continue at it's current rate in 2001 because of
o The continuation of the "Islets from Islet Progenitor/Stem
Cells for Implantation" NIH grant for an additional $100,000
which began on September 1, 2000;
o NIH grant entitled "Oxalobacter Formigenes Diagnostic Kit
Development" with payments which began on September 1, 2000,
for $99,958;
o NIH grant entitled "Coating of Urinary Protheses to Prevent
Encrustation" with payments which began on September 1, 2000,
for $99,958;
increasing slightly in the last half of the year due to other grants we expect
will be awarded during 2001.
[Graphics Omitted]
Comparison of G&A Expenses 1st quarter 2001 vs. 1st quarter 2000
2001 2000
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Personnel-related 144,367 58,062
Professional Fees 16,297 5,978
Office & Supplies 9,391 5,693
Rent & Utilities 6,707 3,895
Other G&A 31,153 40,460
Operating, general, and administrative expenses increased 82% from
$114,088 in the first quarter of 2000 to $207,915 in the first quarter of 2001.
These increased expenses reflect:
- an increase in personnel and related payroll expenses;
- increased professional fees, including audit and legal fees;
- increased supplies related to increased personnel;
- increased rental space and associated utilities usage; and
- support of increased research activities.
The increases were offset, somewhat, by a reduction in other miscellaneous
administrative fees.
We expect our operating, general and administrative expenses to continue to
increase in 2001 as a result of
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increased pace of research activities which also results in increased
administrative personnel requirements.
[Graphics Omitted]
Comparison of R&D Expenses 1st quarter 2001 vs. 1st quarter 2000
2001 2000
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Personnel-related 158,443 57,260
Lab supplies 141,084 16,221
Consultants & Subcontracts 136,520 51,219
Other R&D 40,989 11,430
Rent & Utilities 30,890 20,263
Deprec & Amort. 21,929 16,106
Scientific Advisors 12,833 6,000
Travel 4,545 1,883
Research and development expenditures consist primarily of:
- personnel-related expenses, including employee health plan adopted
September 1, 2000;
- laboratory and animal supplies;
- laboratory rent and associated utilities;
- depreciation on laboratory equipment;
- development activities;
- payments for sponsored research;
- scientific advisors fees;
- regulatory consultants fees;
- interest on the purchase of laboratory equipment; and
- amortization of capitalized patent costs.
Research and development expenses increased over 213% from $174,383 in
the first quarter of 2000 to $547,233 in the first quarter of 2001. These
increased expenses reflect:
o increased laboratory personnel and related payroll expenses;
o increased laboratory-related supplies and expenses;
o increased consultants and subcontractors fees;
o increased research and development activities;
o increased laboratory rental space and associated utilities;
o increased number of issued patents resulting in increased amortization;
o increase in capitalized equipment resulting in increased depreciation;
o increase in R&D-related travel.
Our research and development expenses will continue to increase in 2001
due to an increase in the scale of operations.
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[Graphics Omiitted]
Comparison of Interest Income and Expenses - 1st Qtr 2001 vs. 1st Qtr 2000
2001 2000
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Interest Income 26,988 869
Interest Expense 19,968 41,443
Interest expense decreased almost 52% from $41,443 in the first quarter
of 2000 to $19,968 in the first quarter of 2001 due primarily to the re-payment
of the officers' bridge loans and the conversion of deferred administrative fees
and salaries in mid 2000. Interest expense in 2001 should decline further as a
result of the maturity of the unsecured subordinated notes in August 2001.
Interest income increased from $869 in the first quarter of 2000, to
$26,988 in the first quarter of 2001, due to the investment of an increased cash
inflow, in excess of operating needs. Interest income should continue to
increase in 2001 primarily due to the payment by Q-Med in July 2001, described
below.
Liquidity and Capital Resources
Operations during the first quarter of 2001 have been funded primarily
from funds provided from equity investments by Q-Med, AB ("Q-Med"), our majority
shareholder, funds from NIH grants, and research agreements with other
companies. We do not have any material bank financing arrangements.
Our agreement with Q-Med requires Q-Med to pay $3,353,303 in cash on or
before July 14, 2001. It also gives Q-Med the right of first refusal to offer to
redeem, at the maturity date on August 31, 2001, from all holders electing not
to convert, up to $787,270 in face amount of our unsecured subordinated notes.
A summarization of the grant funds received from the National
Institutes of Health under which we received payments during the first quarter
of 2001 follows:
o In September 1999 we received an award of $200,000 (covering a
23-month period) from the NIH to support our diabetes research
entitled "Islets from Islet Progenitor/Stem Cells for Implantation".
We subcontracted $25,000 under this grant, and have utilized
approximately $157,000 through December 31, 2000, leaving $43,000
available to support diabetes research through August 31, 2001, when
the grant period expires.
o In September 2000 we were awarded another NIH SBIR award for research
entitled "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome". We
subcontracted about $45,000 to the University of Florida and drew on
the rest of the funds available through the expiration of the grant in
the first quarter of 2001.
o Also in September, 2000, we received notice that we had been awarded
another NIH SBIR grant,
9
for $99,958 and entitled "Coating of Urinary Protheses to Prevent
Encrustation". We have utilized approximately $59,000 through the end
of the first quarter of 2001, leaving approximately $40,000 to support
research through August of 2001.
o Also in September, 2000, we received notice that we had been awarded
another NIH SBIR grant, for $99,958 and entitled "Oxalobactor
Formigenes Diagnostic Kit Development". We received approximately
$35,000 in grant revenues through the end of the first quarter of
2001, leaving approximately $65,000 to support research through August
of 2001.
o We have other grant applications pending.
At March 31, 2001, we had $1,692,355 in cash and cash equivalents,
compared with $179,956 at March 31, 2000. Until required for operations, our
policy is to invest any excess cash reserves in bank deposits, money market
funds, certificates of deposit, commercial paper, corporate notes, U.S.
government instruments and other investment-grade quality instruments.
We expect that annual lease expenses, which include repayment of funds
provided by lessor for tenant improvements and an emergency generator, to be
approximately $175,000 for 2001. We will continue to have a need to purchase
additional laboratory equipment and estimate that we will need to purchase at
least $500,000 of capital laboratory equipment during the remainder of 2001.
We incurred negative cash flows from operations in the first quarter of
2001 of approximately $444,000 as compared to $184,000 in 2000. Cash decreased,
in total for the first quarter of 2001, approximately $468,000, while we had a
slight increase in cash of approximately 158,000 during the first quarter of
2000, due primarily to equity investments. We expect to have a large cash
increase during the second half of 2001, with the Q-Med payment. We have spent
and expect to continue to spend, substantial funds to complete our planned
product development efforts, commence clinical trials, and diversify our
technology. Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including
o receipt of the balance of the purchase price from the Q-Med
transaction;
o the successful commercialization of oxalate products;
o the successful commercialization of our islet replacement therapy
products;
o progress in our product development efforts;
o the magnitude and scope of development efforts;
o progress with preclinical studies and clinical trials;
o the cost of contract manufacturing and research organizations;
o cost of filing, prosecuting, defending, and enforcing patent
claims and other intellectual property rights;
o competing technological and market developments; and
o the development of strategic alliances for the
development and marketing of our products.
We will continue to be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, mergers or the sale of substantially all of our assets, or through other
sources in order to bring our drug and device products through regulatory
approval to commercialization. We do not have any material committed sources of
additional financing, other than Q-Med. We cannot assure you that additional
funding, consolidation, or alliance, if necessary, will be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, scale-back, or eliminate certain aspects of our operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our technologies,
product candidates, products, or potential markets. If adequate funds are not
available, our business, financial condition, and results of operations will be
materially and adversely affected.
10
We expect that our existing funds, research grants and receipt of the
remaining $3,353,303 purchase price from Q-Med AB will be sufficient to fund our
operations through the middle of 2002. We have the ability to scale-back
operations, as necessary, in order to extend the use of operating cash. There
can be no assurance that any additional financing required in the future will be
available on acceptable terms, if at all.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133"Accounting for Derivative Investments and
Hedging Activities" ("SFAS No. 133")which establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133, as extended by SFAS No. 137 and amended by SFAS No. 138, was effective
for Ixion this fiscal quarter. Historically, Ixion has not entered into
derivatives contracts to hedge existing risks or for speculative purposes.
Accordingly, adoption of SFAS No. 133 had no effect on its financial position or
results of operations.
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles of Incorporation None
(4) Instruments defining the Rights of Security Holders None
(9) Voting Trust Agreement
(11) Statement re: Computation of Per Share Earnings None
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
11
(24) Power of Attorney None
(99) Additional Exhibits None
(b) Reports on Form 8-K None
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.
Ixion Biotechnology, Inc.
Dated: May 1, 2001 By: /s/ Weaver H. Gaines
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Weaver H. Gaines
Chairman and Chief Executive Officer
Dated: May 1, 2001 By: /s/ Kimberly A. Ramsey
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Kimberly A. Ramsey
Vice President and Controller
(Principal Accounting Officer)