================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001
Commission File Number 0-20945
ANTARES PHARMA, INC.
161 Cheshire Lane North, Suite 100
Minneapolis, Minnesota 55441
(763) 475-7700
A Minnesota Corporation IRS Employer ID No. 41-1350192
---------------------------------------
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. Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 11, 2001, was 8,789,039.
================================================================================
ANTARES PHARMA, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets, as of December 31, 2000
and March 31, 2001........................................3
Consolidated Statements of Operations for the three
months ended March 31, 2000 and 2001......................4
Consolidated Statements of Shareholders' Equity
(Deficit) and Comprehensive Loss for the three months
ended March 31, 2001......................................5
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 2001......................6
Notes to Consolidated Financial Statements................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................12
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk..............................................14
PART II. OTHER INFORMATION .......................................15
SIGNATURES...............................................16
2
ANTARES PHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, 2000 March 31, 2001
----------------- --------------
(as restated, see note 2)
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 243,222 $ 8,380,167
Accounts receivable, less allowance for doubtful accounts of
$18,000 in 2001............................................... -- 390,372
Other receivables ................................................ 408,534 398,019
Inventories....................................................... -- 487,947
Prepaid expenses and other assets................................. 13,165 238,682
------------- --------------
664,921 9,895,187
Equipment, furniture and fixtures, net................................. 831,541 2,445,839
Patent rights, net..................................................... 253,434 1,724,398
Goodwill, net ......................................................... 88,982 1,298,838
Other intangible assets, net........................................... -- 2,147,016
Notes receivable and due from Medi-Ject Corporation ................... 5,133,296 --
Other assets .......................................................... 2,374 4,726
------------- --------------
$ 6,974,548 $ 17,516,004
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.................................................. $ 369,177 $ 855,020
Accrued expenses and other liabilities............................ 646,254 1,295,961
Liabilities to related parties.................................... 321,640 --
Long-term obligations - current maturities........................ 107,815 73,569
Deferred revenue.................................................. 1,659,612 1,459,614
------------- --------------
3,104,498 3,684,164
Subordinated loans from shareholders .................................. 17,664,020 --
Long-term obligations, less current maturities......................... 67,635 58,168
------------- --------------
Total liabilities...................................................... 20,836,153 3,742,332
------------- --------------
Mandatorily Redeemable Convertible Preferred Stock:
Series A, $0.01 par; authorized 10,000 shares; 1,150 issued and
outstanding at March 31, 2001, aggregate liquidation preference
$1,150,000.................................................... -- 1,150,000
Series B, $0.01 par; authorized 250 shares; 250 issued and
outstanding at March 31, 2001, aggregate liquidation preference
$262,500...................................................... -- 250,000
------------- --------------
-- 1,400,000
Shareholders' Equity (Deficit):
Common Stock: $0.01 par; authorized 15,000,000 shares:
10,000 and 8,788,839 issued and outstanding at
December 31, 2000 and March 31, 2001, respectively ........... 689,655 87,888
Additional paid-in capital ....................................... 1,174,680 35,106,068
Accumulated deficit............................................... (17,264,463) (22,511,879)
Accumulated other comprehensive income (loss) .................... 1,538,523 (308,405)
------------- --------------
(13,861,605) 12,373,672
------------- --------------
$ 6,974,548 $ 17,516,004
============= ==============
See accompanying notes to financial statements.
3
ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
------------------------------------
March 31, 2000 March 31, 2001
-------------- --------------
(as restated, (as restated,
see note 5) see note 2)
Revenues:
Product sales............................................................... $ -- $ 471,377
Licensing and product development........................................... 69,301 115,792
------------- --------------
69,301 587,169
Cost of product sales ............................................................ -- 293,872
------------- --------------
Gross margin ..................................................................... 69,301 293,297
------------- --------------
Operating expenses:
Research and development.................................................... 227,574 570,951
In-process research and development (Note 2)................................ -- 948,000
Marketing and sales ........................................................ 171,235 260,298
General and administrative.................................................. 774,002 1,184,175
------------- --------------
1,172,811 2,963,424
------------- --------------
Net operating loss................................................................ (1,103,510) (2,670,127)
------------- --------------
Other income (expense):
Interest and other income................................................... 1,126 129,387
Interest and other expense.................................................. (81,730) (86,112)
Foreign exchange losses .................................................... (71,947) (27,095)
------------- --------------
(152,551) 16,180
------------- --------------
Loss before cumulative effect of change in accounting principle................... (1,256,061) (2,653,947)
Cumulative effect of change in accounting principle............................... (1,059,622) --
------------- --------------
Net loss.......................................................................... (2,315,683) (2,653,947)
In-the-money conversion feature-preferred stock dividend (Note 6)................. -- (5,314,125)
------------- --------------
Net loss applicable to common shares.............................................. $ (2,315,683) $ (7,968,072)
============= ==============
Basic and diluted net loss per common share before
cumulative effect of change in accounting principle....................... $ (.29) $ (1.14)
Cumulative effect of change in accounting principle............................... (.25) --
------------- --------------
Basic and diluted net loss per common share....................................... $ (.54) $ (1.14)
============= ==============
Basic and diluted weighted average common shares outstanding...................... 4,324,729 7,012,134
============= ==============
See accompanying notes to financial statements.
4
ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
Preferred Stock Common Stock
----------------- ----------------------------------------
Series C Permatec Medi-Ject
----------------- ------------------ --------------------
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
------ ------- ------- --------- --------- -------
Balance
December 31, 2000 -- $ -- 10,000 $ 689,655 -- $ --
Net liabilities of
subsidiaries assumed by
shareholders -- -- -- -- -- --
Medi-Ject stock
outstanding at date of
share transaction -- -- -- -- 1,430,336 14,303
Exchange of Permatec
shares for Medi-Ject stock -- -- (10,000) (689,655) 2,900,000 29,000
Conversion of shareholder
loans to equity -- -- -- -- -- --
Conversion of notes to
preferred Series C 27,500 275 -- -- -- --
Conversion of preferred
Series C to common stock (27,500) (275) -- -- 2,750,000 27,500
Exercise of stock options -- -- -- -- 2,021 20
Stock-based compensation
expense -- -- -- -- -- --
Issuance of common stock
in private placement -- -- -- -- 1,706,482 17,065
Net loss (as restated,
see note 2) -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
------- ------- ------ --------- --------- ---------
Balance March 31, 2001 -- $ -- -- $ -- 8,788,839 $ 87,888
======= ======= ====== ========= ========= =========
[Table continues below]
Accumulated
Additional Other Total
Paid-In Accumulated Comprehensive Shareholders'
Capital Deficit Income (Loss) Equity (Deficit)
----------- ------------ ------------- ----------------
Balance
December 31, 2000 $ 1,174,680 $(17,264,463) $ 1,538,523 $(13,861,605)
Net liabilities of
subsidiaries assumed by
shareholders (644,725) 2,720,931 (1,538,523) 537,683
Medi-Ject stock
outstanding at date of
share transaction 5,475,671 -- -- 5,489,974
Exchange of Permatec
shares for Medi-Ject stock 660,655 -- -- --
Conversion of shareholder
loans to equity 13,173,497 -- -- 13,173,497
Conversion of notes to
preferred Series C -- (275) -- --
Conversion of preferred
Series C to common stock 5,286,900 (5,314,125) -- --
Exercise of stock options 3,138 -- -- 3,138
Stock-based compensation
expense 1,926 -- -- 1,926
Issuance of common stock
in private placement 9,974,326 -- -- 9,991,391
Net loss (as restated,
see note 2) -- (2,653,947) -- (2,653,947)
Translation adjustment -- -- (308,405) (308,405)
------------
Comprehensive loss -- -- -- (2,962,362)
----------- ------------ ----------- ------------
Balance March 31, 2001 $35,106,068 $(22,511,879) $ (308,405) $ 12,373,672
=========== ============ =========== ============
See accompanying notes to financial statements.
5
ANTARES PHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
-----------------------------------------
March 31, 2000 March 31, 2001
-------------- --------------
(as restated, see note 2)
Cash flows from operating activities:
Net loss...................................................... $ (2,315,683) $ (2,653,947)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization................................. 103,931 312,236
Loss on disposal and abandonment of assets.................... -- 126
In-process research and development........................... -- 948,000
Stock-based compensation...................................... -- 1,926
Changes in operating assets and liabilities, net of
effects of business combination:
Accounts receivable..................................... -- 35,030
Other receivables....................................... 109,674 6,586
Inventories............................................. -- (75,766)
Prepaid expenses and other assets....................... (76,932) (93,614)
Accounts payable........................................ (125,678) (523,781)
Accrued expenses and other liabilities.................. (64,380) (124,350)
Liabilities to related parties.......................... -- 9,302
Deferred revenue........................................ 990,321 (199,998)
Restructuring provisions............................... 111,316 --
Other................................................... 3,554 1,423
------------- -------------
Net cash used in operating activities......................... (1,263,877) (2,356,827)
------------- -------------
Cash flows from investing activities:
Purchases of equipment, furniture and fixtures................ (72,889) (61,239)
Purchases of patent rights.................................... (11,341) (82,866)
Increase in notes receivable and due from Medi-Ject........... -- (602,756)
Proceeds from sales of equipment, furniture and fixtures...... -- 91,699
Acquisition of Medi-Ject, including cash acquired............. -- 355,578
------------- -------------
Net cash used in investing activities.................................. (84,230) (299,584)
------------- -------------
Cash flows from financing activities:
Proceeds from loans from shareholders......................... 1,223,876 1,188,199
Proceeds from sale of common stock............................ -- 9,994,549
Principal payments on capital lease obligations............... (25,582) (99,088)
------------- -------------
Net cash provided by financing activities.............................. 1,198,294 11,083,660
------------- -------------
Effect of exchange rate changes on cash and cash equivalents........... (32,680) (290,304)
------------- -------------
Net increase (decrease) in cash and cash equivalents................... (182,493) 8,136,945
Cash and cash equivalents:
Beginning of period........................................... 674,569 243,222
------------- -------------
End of period................................................. $ 492,076 $ 8,380,167
============= =============
Cash paid during the period for interest .............................. $ 81,730 $ 84,204
- ----------
Schedule of non-cash investing and financing activities: See information
regarding non-cash investing and financing activities related to the Share
Transaction in Notes 1, 2 and 6.
See accompanying notes to financial statements.
6
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000 and 2001
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
accompanying financial statements and notes should be read in
conjunction with our Form 10-K and Form 8-K/A filings. Operating
results for the three-month period ended March 31, 2001, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
In July 2000, Medi-Ject Corporation, now known as Antares Pharma, Inc.
("Antares"), entered into a Purchase Agreement with Permatec Holding AG
("Permatec"), Permatec Pharma AG, Permatec Technology AG (each of the
foregoing, a company organized under the laws of Switzerland), and
Permatec NV (a company organized under the laws of the Netherlands
Antilles). Pursuant to the Purchase Agreement, on January 31, 2001,
Antares purchased all of the outstanding shares of the three Permatec
Subsidiaries (Share Transaction). In exchange, Antares issued 2,900,000
shares of Antares common stock to Permatec. Upon the issuance, Permatec
owned approximately 67% of the outstanding shares of Antares common
stock. For accounting purposes, Permatec is deemed to have acquired
Antares. The acquisition has been accounted for by the purchase method
of accounting. The financial statements and related disclosures that
were previously reported as Medi-Ject are replaced with the Permatec
financial statements and disclosures. The operating financial history
of Antares is that of Permatec.
Permatec had two other subsidiaries that were not part of the Purchase
Agreement and are in the process of being dissolved. All assets and
liabilities relating to those two subsidiaries remain with Permatec and
are not part of the Share Transaction.
Upon consummation of the transaction, the full principal amount of
Permatec's shareholders' loans to the three Permatec subsidiaries
subject to the Share Transaction, of $13,173,497 at January 31, 2001,
was converted to equity.
Also on January 31, 2001, promissory notes issued by Medi-Ject to
Permatec between January 25, 2000 and January 15, 2001, in the
aggregate principal amount of $5,500,000, were converted into Series C
Convertible Preferred Stock ("Series C"). Permatec, the holder of the
Series C stock, immediately exercised its right to convert the Series C
stock, and Antares issued 2,750,000 shares of common stock to Permatec
upon such conversion. Also on that date, the name of the corporation
was changed to Antares Pharma, Inc.
7
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000 and 2001
The total consideration paid for Medi-Ject was approximately
$6,889,974, which represents the fair market value of Medi-Ject and
related transaction costs of $480,095. For accounting purposes, the
fair value of Medi-Ject is based on the 1,424,729 shares of Medi-Ject
common stock outstanding on January 25, 2000, at an average closing
price three days before and after such date of $2.509 per share plus
the estimated fair value of the Series A and B mandatorily redeemable
convertible preferred stock ("Series A and B") plus the fair value of
outstanding stock options and warrants representing shares of Medi-Ject
common stock either vested on January 25, 2000, or that became vested
at the close of the Share Transaction plus the capitalized acquisition
cost of Permatec.
2. RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its financial statements as of and for the
three-month period ended March 31, 2001, to reflect the allocation of
the Medi-Ject purchase price based on a recently completed appraisal by
an independent third-party appraisal firm. The purchase price
allocation was as follows:
Cash acquired $ 394,535
Accounts receivable 425,402
Inventory 412,181
Other current assets 62,560
Equipment, furniture and fixtures 1,784,813
Patents 1,470,000
Other intangible assets 2,194,000
Goodwill 1,276,806
Other assets 3,775
Accounts payable (1,085,373)
Other accruals (941,350)
Debt (55,375)
In-process research and development 948,000
-----------
Purchase price $ 6,889,974
===========
Patents are being amortized over periods ranging from six to ten years.
Other intangible assets include values assigned to workforce, ISO
certification and clinical studies and are being amortized over
estimated useful lives which range from five to ten years. Goodwill is
being amortized over a period of ten years.
8
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000 and 2001
As
Previously As
Reported Restated
---------------- --------------
As of March 31, 2001:
Equipment, furniture and fixtures, net $ 1,978,107 $ 2,445,839
Patent rights, net 582,746 1,724,398
Goodwill, net 6,092,858 1,298,838
Other intangible assets, net -- 2,147,016
Accumulated deficit (21,474,259) (22,511,879)
For the three-months ended March 31, 2001:
Cost of product sales 277,714 293,872
Gross margin 309,455 293,297
Research and development 541,709 570,951
In-process research and development -- 948,000
Marketing and sales 258,666 260,298
General and administrative 1,141,587 1,184,175
Net operating loss (1,632,507) (2,670,127)
Loss before cumulative effect of change
in accounting principle (1,616,327) (2,653,947)
Net loss (1,616,327) (2,653,947)
Net loss applicable to common shares (6,930,452) (7,968,072)
Basic and diluted net loss per common share
before cumulative effect of change in
accounting principle (.99) (1.14)
Basic and diluted net loss per common share (.99) (1.14)
In connection with the Share Transaction on January 31, 2001, the
Company acquired in-process research and development projects having an
estimated fair value of $948,000, that had not yet reached
technological feasibility and had no alternative future use.
Accordingly, this amount was immediately expensed in the Consolidated
Statement of Operations. The fair value of in-process research and
development was determined by an independent valuation using discounted
forecasted cash flows directly related to the products expected to
result from the research and development projects. The discount rates
used in the valuation take into account the stage of completion and the
risks surrounding the successful development and commercialization of
each of the purchased in-process technology projects that were valued.
The weighted-average discount rate used in calculating the present
value of the in-process technology was 65%. Projects included in the
valuation were approximately 10% to 40% complete and related to ongoing
injection research, mini-needle technology, pre-filled syringes and
single-shot disposable injection devices. The nature of the efforts to
develop the acquired in-process
9
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000 and 2001
research and development into commercially viable products consists
principally of planning, designing and testing activities necessary to
determine that the products can meet market expectations, including
functionality, technical and performance requirements and
specifications.
3. INVENTORIES
Inventories consist of the following:
December 31, 2000 March 31, 2001
----------------- --------------
Raw Material $ -- $267,535
Work in-process -- 98,258
Finished goods -- 122,154
--------- --------
$ -- $487,947
========= ========
4. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
Upon consummation of the Share Transaction, the Company is primarily
engaged in development of drug delivery transdermal and transmucosal
pharmaceutical products and drug delivery injection devices and
supplies. These operations are considered to be one segment. The
geographic distributions of Permatec's identifiable assets and revenues
are summarized in the following table:
We have operating assets located on two continents as follows:
December 31, 2000 March 31, 2001
----------------- --------------
Basel, Switzerland $6,974,548 $ 1,876,333
Minneapolis, Minnesota -- 15,639,671
---------- -----------
$6,974,548 $17,516,004
========== ===========
Revenues by region of origin are summarized as follows:
For the Three Months Ended
------------------------------------
March 31, 2000 March 31, 2001
-------------- --------------
US $ -- $ 57,768
Europe 69,301 465,935
Other -- 63,466
---------- -----------
$ 69,301 $ 587,169
========== ===========
5. ACCOUNTING FOR LICENSE REVENUES
During the quarter ended December 31, 2000 and effective January 1,
2000, the Company adopted the cumulative deferral method for accounting
for license revenues. The adoption of this accounting principle
resulted in a $1,059,622 cumulative effect adjustment in the first
quarter 2000.
10
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000 and 2001
During the quarters ended March 31, 2000 and March 31, 2001, the
Company recognized $69,301 and $115,792, respectively, of license
revenues that were previously recognized by the Company prior to the
adoption of the cumulative deferral method.
6. IN-THE-MONEY CONVERSION FEATURE-PREFERRED STOCK DIVIDEND
During 2000 and 2001, prior to the closing of the Share Transaction on
January 31, 2001, Medi-Ject borrowed a total of $5,500,000 in
convertible promissory notes from Permatec. At the closing of the Share
Transaction, the principal amount of convertible promissory notes
converted to 27,500 shares of Series C. At the option of the holder,
the Series C was immediately converted into 2,750,000 shares of Antares
common stock. As the conversion feature to common stock was contingent
upon the closing of the Share Transaction, the measurement of the
stated conversion feature as compared to the Company's common stock
price of $4.56 at January 31, 2001, resulted in an in-the-money
conversion feature of $5,314,125, which is a deemed dividend to the
Series C preferred shareholder. This dividend increases the net loss
applicable to common shareholders in the Antares' net loss per share
calculation.
7. EMPLOYMENT AGREEMENT WITH ROGER G. HARRISON, PH.D.
Roger G. Harrison, Ph.D., was appointed to the position of Chief
Executive Officer of Antares Pharma, Inc., effective March 12, 2001.
The terms of the employment agreement with Dr. Harrison include an
annual salary of $275,000 and up to 216,000 restricted shares of common
stock which will be granted after the achievement of certain time-based
and performance-based milestones. In addition, if within twelve months
of the commencement of his employment the Company sells all or
substantially all of the Company's assets to an unaffiliated third
party, or merges with or into an unaffiliated third party in which the
Company is not the surviving entity, then the Company will pay to Dr.
Harrison either (i) two percent of the aggregate cash securities or
other consideration received by the Company from the sale, or (ii) an
amount, in cash, equal to two percent of the value of the aggregate
cash, securities or other consideration distributed to the Company's
shareholders in the merger; provided, however, that the Company shall
have no obligation to make any payment to Dr. Harrison if he is
employed as the chief executive or chief operating officer of the
acquiring or surviving entity in the transaction.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
In July 2000, Medi-Ject Corporation, now known as Antares Pharma, Inc.
("Antares") entered into a Purchase Agreement with Permatec to purchase three
subsidiaries from Permatec. Pursuant to the Purchase Agreement, Antares
purchased all of the outstanding shares of each subsidiary. In exchange, Antares
issued 2,900,000 shares of Antares common stock to Permatec. The Share
Transaction was consummated on January 31, 2001, and was accounted for as a
reverse acquisition since Permatec held approximately 67% of the outstanding
common stock of Antares immediately after the Share Transaction. The financial
statements and related disclosures that were previously reported as Medi-Ject's
are replaced with the Permatec financial statements and disclosures. The
operating financial history of Antares will become that of Permatec.
Accordingly, operating results of Permatec are included in the March 31, 2000
and 2001 financial statements as well as the results of Antares since January
31, 2001. In the discussion below, the historical Permatec operations are
referred to as Antares/Switzerland and the Medi-Ject operations will be referred
to as Antares/Minnesota.
Three Months Ended March 31, 2000 and 2001
Total revenues for the three months ended March 31, 2000 and 2001 were $69,301
and $587,169, respectively. The increase in the revenues of $517,868, or 747% is
primarily the result of product sales of $445,090, attributable to the
Antares/Minnesota injection devices. Antares/Switzerland had no product sales in
the first quarter of 2000 and only minimal sales in 2001 due to sales of the
estradiol transdermal patch that started in the fall of 2000.
Licensing and product development fee income increased by $46,491 or 67% in the
three months ended March 31, 2001 as compared to the prior-year period. All of
the licensing and product development revenue is attributable to recognizing
previously deferred revenue on licensing and product development contracts that
were deferred when the Company adopted the cumulative deferral method of
accounting on January 1, 2000. The variation between periods is due to passing
certain development milestones that allow the recognition of licensing and
development fees previously received.
The cost of product sales of $293,872 is primarily attributable to injection
device sales of Antares/Minnesota.
Research and development expenses, excluding the write-off of acquired
in-process research and development in 2001, totaled $227,574 and $570,951 in
the three months ended March 31, 2000 and 2001, respectively. The increase of
$343,377 or 151% is primarily due to research employee additions at
Antares/Switzerland due to increased research activities and the research costs
incurred by Antares/Minnesota since January 31, 2001.
12
In connection with the Share Transaction on January 31, 2001, the Company
acquired in-process research and development projects having an estimated fair
value of $948,000, that had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was immediately expensed in the
Consolidated Statement of Operations. The fair value of in-process research and
development was determined by an independent valuation using discounted
forecasted cash flows directly related to the products expected to result from
the research and development projects. The discount rates used in the valuation
take into account the stage of completion and the risks surrounding the
successful development and commercialization of each of the purchased in-process
technology projects that were valued. The weighted-average discount rate used in
calculating the present value of the in-process technology was 65%. Projects
included in the valuation were approximately 10% to 40% complete and related to
ongoing injection research, mini-needle technology, pre-filled syringes and
single-shot disposable injection devices. The nature of the efforts to develop
the acquired in-process research and development into commercially viable
products consists principally of planning, designing and testing activities
necessary to determine that the products can meet market expectations, including
functionality, technical and performance requirements and specifications. The
Company expects that the products incorporating the acquired technology will
generally be completed and begin to generate cash flows over the 24 to 48 month
period after the acquisition. However, development of these technologies remains
a significant risk due to the remaining effort to achieve technical viability,
evolving customer markets, uncertain standards and performance specifications
for new products, and significant competitive threats from numerous companies.
Marketing and sales expenses totaled $171,235 and $260,298 in the three months
ended March 31, 2000 and 2001, respectively. This increase of $89,063 or 52% is
primarily due to a decrease in outside marketing travel and consulting expenses
in Antares/Switzerland offset by the addition of Antares/Minnesota marketing and
sales expenses since January 31, 2001.
General and administrative expenses totaled $774,002 and $1,184,175 in the three
months ended March 31, 2000 and 2001, respectively. The increase of $410,173 or
53% is primarily due to an increase in Antares/Switzerland administrative
personnel and patent write-off costs, plus the addition of Antares/Minnesota
general and administrative costs since January 31, 2001, of $611,351, offset by
a decrease in Antares/Switzerland restructuring costs.
Net other income (expense) changed $168,731 from a net expense of $152,551 in
first quarter 2000 to a net income of $16,180 in first quarter 2001. First
quarter 2000 was primarily composed of currency losses of Antares/Switzerland
and interest expense. The first quarter 2001 other income (expense) is primarily
composed of interest earnings on funds received in our private placement of
equity offset by currency losses and interest expense.
Cash Flows
Net cash used in operating activities increased by $1,092,950 from $1,263,877 to
$2,356,827 due to the net reduction in current liabilities after private
placement equity funds were received. Net cash used in investing activities
increased $215,354 from $84,230 to $299,584, due primarily to
13
cash loaned to Medi-Ject before consummating the Share Transaction offset by the
cash balance in Medi-Ject when the Share Transaction was consummated. Net cash
provided by financing activities increased $9,885,366 from $1,198,294 to
$11,083,660 due primarily to the private placement of common stock equity during
the period. Total net cash increased $8,319,438 between periods from a net
decrease of $182,493 to a net increase of $8,136,945.
Liquidity
As reflected in the accompanying financial statements, Antares incurred a net
operating loss of $2,653,947 for the quarter ended March 31, 2001. In addition,
Antares has incurred net losses and has had negative cash flows from operating
activities since inception. As further described above, Medi-Ject Corporation
acquired three subsidiaries of Permatec in a transaction accounted for as a
reverse acquisition on January 31, 2001. Upon consummation of this transaction,
subordinated loans of $13,173,497 were converted to equity and the net
liabilities of two subsidiaries, which aggregate $537,683, not purchased by
Medi-Ject, were assumed by Dr. Jacques Gonella. Through March 5, 2001, the
Company has raised $10 million through private placements of common stock.
Management believes the conversion of subordinated debt to equity and the
raising of private placement funds to provide current working capital, as well
as projected product development and license revenues will provide the Company
with sufficient liquidity well into 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosure
Market risk, since December 31, 2000, has been reduced due to the conversion of
subordinated loans from shareholders of $13,173,497 and notes receivable from
Medi-Ject of $5,500,000 into equity plus the infusion of cash from the private
placement of common stock of $10,000,000.
Currency Exposure
The Company is subject to foreign currency exposure, primarily with the Swiss
Franc and the Euro. At March 31, 2001, the Company's exposure to foreign
currency fluctuations is not significant and primarily related to the Company's
translation adjustment to convert its Antares/Switzerland financial information
into U.S. dollars.
14
PART II - OTHER INFORMATION
(b) Reports on Form 8-K
Form 8-K was filed on February 15, 2001 and Form 8-K/A was filed on April
16, 2001, which describe the closing of the Share Transaction and file the
required pro forma financial statements.
15
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.
ANTARES PHARMA, INC.
August 17, 2001 /s/ Roger G. Harrison, Ph.D.
-------------------------------------
Roger G. Harrison, Ph.D.
Chief Executive Officer
August 17, 2001 /s/ Lawrence M. Christian
-------------------------------------
Lawrence M. Christian
Vice President - Finance, Chief
Financial Officer and Secretary
16