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 September 30, 1999
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 October 31, 1999 was 2,850,544.
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4
Ixion Biotechnology, Inc.
Index to Form 10QSB
Part I - Financial Information Page
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Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - September 30, 1999..........................................................................2
Condensed Statements of Operations - Three Months and Nine Months
Ended September 30, 1999 and 1998 and for the period March 25, 1993
(Date of Inception) through September 30, 1999........................................................................3
Condensed Statements of Cash Flows - Nine Months Ended September 30,
1999 and 1998 and for the period March 25, 1993
(Date of Inception) through September 30, 1999........................................................................5
Notes to Condensed Financial Statements...............................................................................6
Item 2. Management's Discussion and Analysis or Plan of Operations...............................................................8
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds................................................................................15
Item 6. Exhibits and Reports on Form 8-K.........................................................................................15
Signatures.......................................................................................................................16
Exhibit Index....................................................................................................................16
1
Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
September 30, 1999
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 36,737
Accounts receivable 7,066
Prepaid expenses 1,226
Other current assets 500
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Total current assets 45,529
Property and Equipment, net 111,191
Other Assets:
Patents and patents pending, net 380,228
Other 4,236
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Total other assets 384,464
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Total Assets $ 541,184
==========
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 86,938
Bridge loans payable to officers 415,000
Current portion of notes payable 8,818
Accrued expenses 60,898
Interest payable 32,229
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Total current liabilities 603,883
==========
Long-Term Liabilities:
Notes payable 686,520
Liability under research agreement 42,317
Deferred rent, including accrued interest 22,082
Deferred fees and salaries, including accrued interest 893,409
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Total long-term liabilities 1,644,328
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Total liabilities 2,248,211
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Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued and
outstanding 2,813,044 shares at September 30 28,130
Common stock warrants outstanding 35,494
Additional paid-in capital 2,161,703
Deficit accumulated during the development stage (3,663,019)
Less unearned compensation (269,335)
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Total capital deficiency (1,707,027)
Total Liabilities and Capital Deficiency $ 541,184
==========
See accompanying notes to condensed financial statements
2
Statements of Operations
Three Months Ended
September 30,
__1999__ __1998__
Unaudited
Revenues:
Income under research agreement $ 0 $ 0
Income from research grants 18,167 0
Interest income 758 152
Other income 250 981
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Total revenues 19,175 1,133
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Expenses:
Operating, general and administrative 128,699 107,135
Research and development 132,282 80,771
Interest 37,559 40,723
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Total expenses 298,540 228,629
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Net Loss $(279,365) $ (227,496)
========= ===========
Net Loss per Share (Basic) $ (0.11) $ (0.09)
========= ===========
Weighted Average Common Shares 2,653,463 2,475,201
========= ===========
See accompanying notes to condensed financial statements
3
Statements of Operations
For the Period
March 25,
1993 (Date
of inception)
Nine Month Ended through
September 30, September 30,
1999 1998 1999
---- ---- --------------
Revenues:
Income under research agreement $ 0 $ 0 $ 275,001
Income from research grants 18,167 0 109,817
Interest income 1,721 367 25,153
Other income 945 3, 257 18,750
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Total revenues 20,833 3,624 428,721
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Expenses:
Operating, general and administrative 278,179 307,097 1,746,685
Research and development 394,392 269,474 1,905,129
Interest 117,684 97,317 439,926
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Total expenses 790,254 673,888 4,091,740
--------- --------- -------------
Net Loss $(769,421) $(670,264) $ (3,669,019)
========== ========= =============
Net Loss per Share (Basic) $ (0.30) $ (0.27)
========= =========
Weighted Average Common Shares 2,561,053 2,482,687
========= =========
See accompanying notes to condensed financial statements
4
Statements of Cash Flows
For the Period
March 25, 1993
Nine Months (Date of inception)
Ended September 30, through
1999 1998 September 30, 1999
---- ---- -------------------
Unaudited Unaudited
Cash Flows from Operating Activities:
Net loss $(769,421) $(670,264) $(3,669,019)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 21,332 8,412 59,188
Amortization 4,036 2,367 11,036
Amortization of debt discount 42,876 42,876 176,268
Stock warrants issued under license agreement - - 20,465
Stock options/warrants issued for consulting services - - 30,000
Stock compensation 107,308 68,274 491,511
Decrease (increase) in prepaid expenses and
other current assets (150) 1,262 (1,551)
Decrease (increase) in accounts receivable (5,150) (41) (7,066)
Increase (decrease) in liability under
research agreement - - 42,317
Increase (decrease) in accounts payable and
accrued expenses 87,241 15,700 215,806
Increase in deferred fees and salaries 174,131 189,969 866,857
Increase in deferred rent (13) 10,445 22,082
--------- ------- -----------
Net cash used in operating activities (337,810) (331,000) (1,736,106)
--------- -------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (71,328) (2,302) (115,625)
Organization Costs - - (436)
Payments for patents and patents pending (92,793) (2,154) (376,908)
-------- ------- ---------
Net cash used in investing activities (164,121) (64,456) (492,969)
--------- -------- ---------
Cash Flows from Financing Activities:
Loans from officers 90,000 175,000 445,307
Proceeds from issuance of convertible notes payable 300,000 - 1,087,270
Proceeds from issuance of common stock 151,000 275,500 906,900
Principal reductions in notes payable (12,895) (6,482) (36,840)
Payment of deferred offering costs (8,070) (53,932) (124,631)
Payment of loan costs - - (12,194)
-------- -------- ---------
Net cash provided by (used in)
financing activities 520,035 390,086 2,265,812
------- -------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents 18,104 (5,370) (36,737)
Cash and Cash Equivalents at Beginning of Period 18,633 44,443 -
------- -------- --------
Cash and Cash Equivalents at End of Period $36,737 $39,073 $(36,737)
======= ======= =========
See accompanying notes to condensed financial statements
5
Notes to Condensed Financial Statements
Nine Month Period Ended September 30, 1999
1. Basis Of Presentation:
The accompanying unaudited condensed financial statements for the three
and nine months ended September 30, 1998 and 1999, and for the period
March 25, 1993 (date of inception) through September 30, 1999, 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, 1998
financial statements and related notes included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998. 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 September 30, 1999 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 September 30, 1999:
Deferred compensation $ 353,000
Net operating loss carryforward 1,096,000
Deferred tax asset 1,449,000
Valuation allowance $(1,449,000)
Net deferred tax asset $ 0
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3. Stock Options:
On July 12, 1999, the Company granted ten-year options under the 1994
Stock Option Plan to purchase 73,000 shares of Common Stock at an exercise
price of $4.00 per share. Stock options are exercisable only if vested.
15,000 of such options, granted to members of the Scientific Advisory
Board, vest over one year, the remainder vest over five years.
4. Stockholder's Equity:
In December, 1997, the Company commenced the public offering of up to
400,000 Units of newly-issued securities for an aggregate of $4,000,000.
Each Unit consisted of one share of common stock, $0.01 par value, and .25
Charitable Benefit Warrants. Each whole Charitable Benefit Warrant
entitled the holder to purchase one share of common stock at a price of
$20.00 per share. As a result of the transaction with Q-Med, A.B., the
offering was temporarily suspended and the Board of Directors approved
changes in the offering including a withdrawal from registration of all
unsold Charitable Benefit Warrants, a reduction in the number of shares
offered from 400,000 to 150,000, a retroactive reduction in the offering
price to $4.00 per share of common stock, a concomitant adjustment in the
exercise price for outstanding Charitable Benefit Warrants (from $20/share
to $8/share), and an increase in the number of shares purchasable upon
exercise of those warrants from 8,605 shares to 21,513 shares. This action
by the Board resulted in an additional issuance of 51,630 shares to
purchasers in the public offering for no additional consideration, and a
reduction in the maximum potential aggregate offering amount from
$4,000,000 to $600,000.
The Company has received proceeds of $344,200 through September 30, 1999.
The offering will remain suspended until a post effective amendment is
filed and will be continued until all securities have been sold or until
December 10, 1999, unless sooner terminated or extended. Offering costs of
$124,631 have been offset against the proceeds of the offering through
September 30, 1999.
6
Through September 30, 1999, Q-Med, A.B. has been issued a total of
225,000 shares of common stock for $450,000 as part of the transaction
with Q-Med.
If the proceeds from the offering and other sources, prove to be
insufficient, then the Company would be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners, or through other sources.
There can be no assurance that the Company will be successful in obtaining
the required financing. Under current circumstances, the Company's ability
to continue as a going concern depends upon either completing the Q-Med
transaction or obtaining additional funds through other sources.
5. Board Retainer Plan:
In 1994, the Board of Directors adopted the 1994 Board Retainer Plan
(amended March 1999) to grant shares of restricted common stock to
directors, members of the Scientific Advisory Board, employees, and
consultants. The Board Retainer Plan is administered by the Audit and
Benefits Committee of the Board.
Unvested shares granted are subject to reacquisition by the Company at no
cost if the grantee ceases to be a director, member of the Scientific
Advisory Board, employee, or consultant. With respect to directors,
employees, or consultants, the reacquisition option will typically lapse
as to 20% of the shares granted after the grantee's first full year of
continuous service and as to 1/12 of 20% of the granted shares at the end
of each additional full month of continuous service thereafter. Scientific
Advisors' shares vest 25% per quarter.
New outside members of the Board or the Scientific Advisory Board receive
5,000 shares upon joining, and each receives 1,000 shares annually
thereafter. The Audit and Benefits Committee of the Board determines the
amount granted each eligible person (except themselves) at any time in its
complete discretion. Under the March 1999 amendments to the Board Retainer
Plan, up to 250,000 shares may be issued and outstanding pursuant to the
Plan, of which 121,450 have been issued and are outstanding at September
30, 1999. The Audit and Benefits Committee determines the specific number
of shares to be granted to key employees and consultants.
Total stock awards granted in the first three quarters of 1999 were 22,400
at $4.00 per share. Compensation expense recognized under the Board
Retainer Plan for the nine months ended September 30, 1999 was $107,308.
Total unearned compensation related to Board Retainer Plan awards was
$263,335 at September 30,1999 and will be recognized as expense over
future periods of service.
6. Related Party Transactions:
The Chairman and Chief Executive Officer and the President of the Company
have extended the Company financing in the form of bridge loans. Interest
on the bridge loans from officers is at 8% but can be reset annually, at
the election of either party, to the prime rate in effect on January 1 of
any given year, plus 3%. The Company has borrowed a total of $415,000,
which was still outstanding at September 30, 1999 and is due on demand.
These officers have no commitment to lend additional funds in the future.
7. Subsequent Events:
Through November 15, 1999, the Company received an additional $150,000
from Q-Med, A.B. for which it issued 75,000 shares of common stock.
7
Item 2. Management's Discussion and Analysis or Plan 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 forms 10-KSB and in other SEC filings.
Overview
Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.
Since we were founded in March of 1993, we have principally been
doing research and development, securing patent protection, and raising capital.
We have not received any revenues from the sale of products. In June 1998, we
reached an agreement with the University of Florida Diagnostic Referral
Laboratories for them to provide a service to physicians using our molecular
diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We have received
no revenue to date under this agreement. We do not expect any of our drug or
device product candidates (that are subject to regulatory approval) to be
commercially available for at least several years; however our nutritional
supplement product, OX-Control(TM), is scheduled for launch in 2000. From
inception through September 30, 1999, we incurred cumulative losses of
$3,669,019. These losses were due primarily to expenditures on general and
administrative activities, research and development, patent preparation and
prosecution, and interest charges.
We expect to continue to incur substantial research and development costs
resulting from
o ongoing research and development programs,
o manufacturing of products for use in clinical trials and preclinical
and clinical testing of our products.
We also expect that general and administrative costs, including
o amortization of patents,
o additional administrative personnel,
o legal and regulatory costs necessary to support preclinical development
and clinical trials, and
o the creation of a marketing and sales organization, if warranted,
will increase in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable future.
We have only a limited operating history upon which you can base an
evaluation of our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other things,
o successfully develop and commercialize our products,
o secure all necessary proprietary rights,
o respond to competitive developments, and
o continue to attract, retain and motivate qualified persons.
There can be no assurance that we will be successful in addressing
these risks.
8
Our operating expenses will depend on several factors, including the
level of research and development expenses and our success in raising capital.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. We may sometimes be able
to control the timing of development expenses in part by accelerating or
decelerating preclinical testing and clinical trial activities. As a result of
these factors, we believe that period-to-period comparisons in the future are
not necessarily meaningful and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.
Results of Operations
Three Months Ended September 30, 1999 and 1998
Total revenues increased by 1,592% from $1,133 for the third quarter
of 1998 to $19,175 for the third quarter of 1999 as a result of the new research
contract awarded on June 15, 1999 under the Small Business Technology Transfer
(STTR) Program, along with an increase in interest income due to increased cash
inflows. We expect income to continue to increase in 1999 as a result of the
STTR award which will provide approximately $40,000 of income in 1999, and as a
result of another National Institute of Health (NIH) grant awarded on September
30, 1999 for $100,000.
Operating, general, and administrative expenses increased 20% from
$107,135 for the third quarter of 1998 to $128,699 for the equivalent period of
1999. These increased expenses reflect increased directors fees resulting from
an increased number of directors, increased salary expenses due to the hiring of
a full-time controller, increased travel expenses, increased rent, increased
interest expenses due to increases in the deferred accounts, and increases in
various other administrative categories, offset, to some degree, by a decline in
total salaries and advertising expense for the third quarter of 1999 compared to
the third quarter of 1998. We expect our general and administrative expense to
increase during the remainder of 1999 as a result of an increase in the scale of
operations and an increase in amortization of capitalized patent costs as new
patents are issued.
Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory
supplies, animal supplies, laboratory rent and associated utilities,
depreciation on laboratory equipment, development activities, payments for
sponsored research, and scientific advisors and regulatory consultants fees.
Research and development expenses increased 64% from $80,771 for the third
quarter of 1998 to $132,282 for the third quarter of 1999, mainly due to an
increase in laboratory personnel, increased rent, utilities, interest charges on
the purchase of lab equipment, and on deferred fees and salaries. Our research
and development expenses will increase during the remainder of 1999 as a result
of an increase in the scale of operations and as a result of the receipt of the
research grants referred to above.
Interest expense decreased 8% from $40,723 for the third quarter of
1998 to $37,559 for the third quarter of 1999. Interest expense consists of
interest on bridge loans from officers, and the compounding of interest on
deferred fees and salaries, including deferred interest, payable to related
parties.
Nine Months Ended September 30, 1999 and 1998
Total revenues increased by 474% from $3,624 for the nine months
ended September 30 1998 to $20,833 for that period in 1999 mainly as a result of
the new research contract award under the STTR Program, and as a result of an
increase in interest income generated from increased cash flows. We expect
income to continue to increase in 1999 as a result of the award which will
provide approximately $40,000 of income in 1999, and as a result of another NIH
grant awarded on September 30, 1999 for $100,000.
Operating, general, and administrative expenses decreased 9% from
$307,097 for the first nine months of 1998 to $278,179 for the equivalent period
of 1999. These decreased expenses reflect decreased personnel during
9
the first quarter of 1999, decreased legal fees, and decreased advertising
expenses in the first nine months of 1999 compared to the first nine months
of 1998. Our general and administrative expense should increase during the
remainder of 1999 as a result of an increase in personnel and an increase in
the scale of operations and an increase in amortization of capitalized patent
costs as new patents are issued.
Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory and
animal supplies, laboratory rent and associated utilities, depreciation on
laboratory equipment, development activities, payments for sponsored research,
and scientific advisors and regulatory consultants fees. Research and
development expenses increased 46% from $269,474 for the first nine months of
1998 to $394,392 for the first nine months of 1999, mainly due to an increase in
laboratory personnel, rent, utilities, R&D-related travel expenses, interest
charges on the purchase of lab equipment and on deferred fees and salaries, and
scientific advisors fees; offset somewhat by a reduction in preclinical expenses
and lab supplies. Our research and development expenses will increase during the
remainder of 1999 as a result of an increase in the scale of operations as a
result of the receipt of the research grants referred to above.
Interest expense increased 21% from $97,317 for the first nine
months of 1998 to $117,684 for the first nine months of 1999 due primarily to
interest on bridge loans from officers, and the compounding of interest on
deferred fees and salaries, including deferred interest, payable to related
parties.
Liquidity and Capital Resources
In December, 1997, we commenced the public offering of 400,000 Units
of newly issued securities, for an aggregate of $4,000,000. Each Unit consisted
of one share of common stock, $0.01 par value, and 0.25 of Charitable Benefit
Warrants. Each whole Charitable Benefit Warrant entitled the holder to purchase
one share of common stock at a price of $20.00 per share. Ixion is directly
making the offering (except in Florida where sales must be made through a
broker) in selected states, primarily over the Internet. There is no minimum
number of shares to be sold in the offering, and all funds received have gone
and will go immediately to us. On December 10, 1998, we extended the offering
through the earliest of:
o the sale of all securities,
o December 10, 1999, or
o the date we decide to close the offering.
As a result of the transaction with Q-Med, A.B. , the offering was
temporarily suspended and the Board of directors approved changes in the
offering including a withdrawal from registration of all unsold Charitable
Benefit Warrants, a reduction in the number of shares offered from 400,000 to
150,000, a retroactive reduction in the offering price to $4.00 per share of
common stock, a concomitant adjustment in the exercise price for outstanding
Charitable Benefit Warrants (from $20/share to $8/share) and an increase in the
number of shares purchasable upon exercise of those warrants from 8,605 shares
to 21,513 shares. This action by the Board resulted in the additional issuance
of 51,630 shares to purchasers in the public offering for no additional
consideration, and a reduction in the maximum potential aggregate offering
amount from $4,000,000 to $600,000. As a result, in September, a total of 51,630
additional shares were issued to purchasers in the public offering for no
additional consideration and are included in the shares outstanding on September
30, 1999.
In February, 1999, we received notice that the NIH had awarded us a
$100,000 Phase I grant under the Small Business Technology Transfer Program for
research in our oxalate technology. The effective date of the grant was June 15,
1999. We began drawing on these funds in July. We have subcontracted
approximately $60,000 to the University of California, Irvine, but the remaining
$40,000 will be available during 1999 to support oxalate research at Ixion. In
September we also received notice of the award of a $200,000 grant (covering a
23-month period) from the NIH to support our diabetes research. These funds
became available starting September 30, 1999. We have subcontracted $25,000
under this grant. We have other grant applications pending.
11
During 1998 and the first quarter of 1999, our development
activities were funded primarily by the proceeds from the offering and bridge
loans from the Chairman and Chief Executive Officer and the President.
Operations during the second and third quarters of 1999 were funded primarily
from $450,000 advanced by Q-Med through September in connection with the Q-Med
transaction described below. The bridge loans total $415,000 at September 30,
1999, not including accrued but unpaid interest. Interest on the bridge loans
from officers is currently at 8% but can be reset annually, at the election of
either party, to the prime rate in effect on January 1 of any given year, plus
3%. We have no agreement with the officers to advance further funds, however,
the officers have continued to fund operating requirements voluntarily to meet
working capital needs. Although additional bridge loans are not likely to be
necessary during the remainder of 1999 because of the Q-Med transaction, we can
not assure you that, should such loans be necessary in the future, the officers
will continue to voluntarily fund them. We do not have any bank financing
arrangements. Our long-term indebtedness consists primarily of deferred fees and
salaries payable to related individuals and our unsecured convertible notes.
At September 30, 1999, we had $36,737 in cash and cash equivalents.
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.
In connection with a sponsored research agreement with Genetics
Institute, Inc. which was concluded during 1997, some patent-related expenses
were reimbursed by Genetics Institute. We may be contractually obligated to
repay these reimbursed expenses in installments over a 36 month period upon a
notice to or by Genetics Institute to the effect that its option to negotiate
for a license to our technology, contained in the sponsored research agreement
has expired. We have not given nor received such notice, and, accordingly,
reimbursement has not commenced. We have accrued $42,317 as a long term
liability pending final notice under the agreement.
Through September 30, 1999, we have paid offering-related expenses
of $124,631 which have been applied against the proceeds of the public offering.
We expect further offering-related expenses to be modest.
Annual expenses for the first year of our current three-year term
(with two one-year renewal options) lease, including repayment of funds provided
by lessor for tenant improvements and an emergency generator, were approximately
$121,000. We expect that annual lease expenses will continue to be approximately
the same for 2000. We will continue to have a need to purchase additional
laboratory equipment. We estimate that we will need to purchase at least $50,000
of capital laboratory equipment in the coming year.
We have incurred negative cash flows from operations since our
inception. 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 the completion of the Q-Med transaction described below
o the success of the continuing public offering of our securities,
o the successful commercialization of OX-Control(TM) (our nutritional
supplement) the XEntrIx (TM) Oxalobacter formigenes Monitor (our
diagnostic test), and IxC1-62/47 (our lead therapeutic compound),
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.
12
The Q-Med Transaction
On April 16, 1999, we reached an agreement in principle with Q-Med
AB, a biotechnology company based in Uppsala, Sweden, which was amended on
September 7, 1999. Under the amended agreement, we agreed to the following:
o we issued an option to Q-Med to acquire shares of newly-issued common
stock under the following terms:
o exercise is at the sole discretion of Q-Med;
o the number of shares to be acquired shall be 2,700,000 or a number
of shares such that, following the exercise of the option, Q-Med
shall own at least 50% of our outstanding shares (on a fully
diluted basis);
o Q-Med must purchase all or none of the option shares;
o the option expires not later than July 1, 2000;
o the cash purchase price for the option shares is $2.00/share; and
o the option price will be paid over a two-year period.
o Q-Med shall purchase 37,500 shares per month (at the $2.00 per share
price) through the expiration of the option or the agreement (Q-Med has
purchased a total of 300,000 shares for $600,000 through November under
this agreement);
o a royalty-free license to Q-Med's non-animal, stabilized hyaluronic
acid technology for use as an encapsulation material for our
transplantable islets; and
o if the option is exercised, the redemption of up to $787,000 of our
convertible unsecured notes which note holders elect not to convert in
August 2001; and
o the agreement is cancelable by Q-Med on not less than 90 days' notice.
Q-Med, a growing, profitable Swedish company, develops,
manufactures, and sells natural, specialized medical implants. All of
Q-Med's products are constructed using a proprietary form of non-animal,
stabilized hyaluronic acid. Hyaluronic acid is a natural polysaccharide, first
isolated in 1934. Its main function in the body is to lubricate moveable parts
like joints and muscles and to transport substances to and within cells. The
majority of Q-Med's revenues are accounted for by Restylane(R) for the filling
out of lips, facial wrinkles, and facial folds.
Through November 15, 1999, we have received $600,000 in payments
from Q-Med, A.B. and issued a total of 300,000 shares of common stock in
accordance with the amended agreement in principle, described below. Included in
this amount is the $300,000 we received on April 20, 1999 in the form of a
convertible note from Q-Med. On August 2, 1999, the note was converted into
150,000 shares of restricted Ixion common stock. Also included in the $600,000
invested by Q-Med is a $75,000 payment in each of the months of August,
September, October and November for which were issued 37,500 restricted shares
of common stock each month.
We cannot assure you that Q-Med will not terminate the agreement,
that it will exercise its option on or before July 1, 2000, or that it will
otherwise complete the contingent elements of the transaction on satisfactory
terms, or at all. In the event our plans change or our assumptions change or
prove to be inaccurate or we fail to complete the Q-Med transaction, we will
require additional financing. We will be required to obtain additional funds in
any event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our drug and device products through
regulatory approval to commercialization. The terms and prices of any equity or
debt financings or corporate combination may be significantly more favorable to
new investors than purchasers of the shares sold in the offering, resulting in
significant dilution to current investors. We do not have any material committed
sources of additional financing. We can not 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 further
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.
12
Product Research and Development Plan
Our plan of operation for the remainder of 1999 and for 2000
consists primarily of research and development and related activities, resources
permitting, including:
o further research into the biology of islet and islet stem cell growth
and differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients;
o further research into identifying and characterizing novel growth
factors associated with islets to discover factors important in islet
cell differentiation and possible regulation of diabetes and to identify
stem cell markers to which we hope to produce monoclonal antibodies
useful in stem cell isolation;
o differential gene expression studies on differentiated islet cells;
o further research into encapsulation materials for transplantation of
islets;
o development of OX-Control(TM), a nutritional supplement product not
requiring regulatory approval;
o further preclinical development of a quantitative and/or Rit version of
our molecular diagnostic test, the XEntrIx(TM)Oxalobacter formigenes
Monitor;
o further preclinical development of our oxalate therapeutic compound,
IxC1-62/47;
o continuing the prosecution and filing of patent applications;
o hiring additional employees.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential, the status of competitive products, and, most important,
our success in raising capital. The focus and direction of our operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, and other factors.
We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.
Year 2000 Compliance
Many computer systems and computer chips embedded in equipment are
unable to tell the difference between the year 1900 and the year 2000. This is
known as the Year 2000 issue. Many businesses are at risk for possible
miscalculations or systems failures as a result of their computers, software, or
equipment's not being Year 2000 compliant.
Our assessment of Year 2000 compliance issues is substantially
complete.
Software and Computers. Our computers all run Windows operating
systems which are Year 2000 compliant according to our tests and information
received from Microsoft. We have been assured by the vendors that our office
applications programs are Year 2000 compliant. We have been also been assured by
the vendor that our finance and accounting software, our only mission-critical
software, is Year 2000 compliant.
Equipment. Most of our laboratory equipment does not use a computer
or embedded chip. Our policy is that all new equipment that we purchase must be
Year 2000 compliant. Our assessment of our laboratory equipment is complete, and
all essential equipment is compliant.
Suppliers. We have contacted key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable
13
equipment vendors), have developed or are in the process of developing plans to
address Year 2000 issues. We will continue to monitor and evaluate the progress
of our suppliers.
In general our review of the potential consequences of Year 2000
compliance issues on us leads us to believe that those issues will prove to be
immaterial to our business, operations, and financial condition. Accordingly, we
do not have contingency plans and have no plans to develop any. No material
expenses have been incurred to date, and none are anticipated.
14
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
In December, 1997, the Company commenced the public offering of up
to 400,000 Units of newly-issued securities for an aggregate of $4,000,000. Each
Unit consisted of one share of common stock, $0.01 par value, and .25 Charitable
Benefit Warrants. Each whole Charitable Benefit Warrant entitled the holder to
purchase one share of the common stock at a price of $20.00 per share. The
offering was suspended in February 1999. As a result of the transaction with
Q-Med, A.B, the Board of Directors of the Company approved changes in the
suspended public offering including a withdrawal from registration of all unsold
Charitable Benefit Warrants, a reduction in the number of shares offered from
400,000 to 150,000, a retroactive reduction in the offering price to $4.00 per
share of common stock, and a concomitant adjustment in the exercise price for
outstanding Charitable Benefit Warrants (from $20/share to $8/share) and an
increase in the number of shares purchasable upon exercise of those warrants
from 8,605 shares to 21,513 shares. This action by the Board resulted in the
additional issuance of a total of 51,630 shares to purchasers in the public
offering for no additional consideration, and a reduction in the maximum
potential aggregate offering amount from $4,000,000 to $600,000.
As of October 31, 1999, a total of 86,050 shares of common stock at
an aggregate price of $344,200 have been sold in the public offering. From the
effective date of the offering to October 31, 1999, $200 in expenses and $1,854
in commissions have been paid to Unified Management Company as broker and there
have been no finders' fees. Other offering related expenses through October 31,
1998, amounted to $124,631, all of which have been offset against proceeds. No
payments were made to directors, officers, general partners of the Company, or
to their associates in connection with the offering.
Net offering proceeds as of October 31, 1999 amounted to $219,569.
The net proceeds were used entirely to fund the operations of the Company as
reflected in the financial statements included elsewhere in this report. The use
of proceeds still to be received from the offering is not expected to vary
materially from the use of proceeds described in the amended registration
statement.
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
(4.11)* Amendment to Charitable Benefit Warrant Agreement
dated September 30, 1999.
(10.41)* Consulting Agreement with Thomas P. Stagnaro,
dated September 21, 1998
(10.42)* Amended and Restated Agreement in Principle
dated September 7, 1999, with Q-Med AB
(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
15
(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
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
(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: November 15, 1999 By: /s/ Weaver H. Gaines
------------------------------------
Weaver H. Gaines
Chairman and Chief Executive Officer
Dated: November 15, 1999 By: /s/ David C. Peck
-------------------------------------
David C. Peck
President and Chief Financial Officer
(Principal Financial Officer)
Dated: November 15, 1999 By: /s/ Kimberly A. Ramsey
--------------------------------------
Kimberly A. Ramsey
Vice President and Controller
(Principal Accounting Officer)
Exhibit Index
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles of Incorporation None
(4.11)* Amendment to Charitable Benefit Warrant Agreement
dated September 30, 1999.
(10.41)* Consulting Agreement with Thomas P. Stagnaro,
dated September 21, 1998
16
(10.42)* Amended and Restated Agreement in Principle
dated September 7, 1999, with Q-Med AB
(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
Published Report re: Matters Submitted to Vote of
(22) Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith