-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3AK2c0pLZEgAzLwdirQxSCjvblRZPrFuKXDcuul84COMkKQNqum6A8LswYFETd+ py9igI2pJomNJENc4G5rYw== 0001095811-01-504292.txt : 20010815 0001095811-01-504292.hdr.sgml : 20010815 ACCESSION NUMBER: 0001095811-01-504292 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARADIGM CORP CENTRAL INDEX KEY: 0001013238 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 943133088 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-72037 FILM NUMBER: 1712855 BUSINESS ADDRESS: STREET 1: 3929 POINT EDEN WAY CITY: HAYWARD STATE: CA ZIP: 94545 BUSINESS PHONE: 5102659000 MAIL ADDRESS: STREET 1: 3929 POINT EDEN WAY CITY: HAYWARD STATE: CA ZIP: 94545 10-Q 1 f75098e10-q.txt FORM 10-Q PERIOD ENDED JUNE 30, 2001 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-Q ---------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________. COMMISSION FILE NUMBER 0-28402 ARADIGM CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-3133088 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3929 POINT EDEN WAY HAYWARD, CA 94545 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) (510) 265-9000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value 20,026,252 (Class) (Outstanding at August 1, 2001) ================================================================================ 2 ARADIGM CORPORATION INDEX
PAGE NO. --- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Statements of Operations (Unaudited) Three months ended June 30, 2001 and 2000 ........................... 1 Six months ended June 30, 2001 and 2000 ............................. 2 Balance Sheets June 30, 2001 (Unaudited) and December 31, 2000 ..................... 3 Statements of Cash Flows (Unaudited) Six months ended June 30, 2001 and 2000 ............................. 4 Notes to Unaudited Financial Statements .................................. 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 7 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk ................ 10 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds ................................ 11 ITEM 4. Submission of Matters to a Vote of Security Holders ...................... 11 ITEM 6. Exhibits and Reports on Form 8-K ......................................... 12 Signature ........................................................................ 13 Exhibits ......................................................................... 14
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARADIGM CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, ------------------------ 2001 2000 -------- -------- (UNAUDITED) Contract revenues .......................................... $ 8,520 $ 4,804 -------- -------- Expenses: Research and development ................................. 15,298 11,509 General and administrative ............................... 2,322 2,453 -------- -------- Total expenses ................................... 17,620 13,962 -------- -------- Loss from operations ....................................... (9,100) (9,158) Interest income ............................................ 299 969 Interest expense and other ................................. (364) (367) -------- -------- Net loss ................................................... $ (9,165) $ (8,556) ======== ======== Basic and diluted net loss per share ....................... $ (0.47) $ (0.48) -------- -------- Shares used in computing basic and diluted net loss per share ................................................ 19,338 17,810 ======== ========
See accompanying notes. 1 4 ARADIGM CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, ------------------------ 2001 2000 -------- -------- (UNAUDITED) Contract revenues .......................................... $ 15,207 $ 10,504 -------- -------- Expenses: Research and development ................................. 29,458 22,405 General and administrative ............................... 4,650 4,526 -------- -------- Total expenses ................................... 34,108 26,931 -------- -------- Loss from operations ....................................... (18,901) (16,427) Interest income ............................................ 967 1,364 Interest expense and other ................................. (626) (688) -------- -------- Loss before extraordinary gain ............................. (18,560) (15,751) Extraordinary gain ......................................... 6,675 -- -------- -------- Net loss ................................................... $(11,885) $(15,751) ======== ======== Basic and diluted net loss per share: Loss before extraordinary gain ............................. $ (0.97) $ (0.96) Extraordinary gain ......................................... 0.35 -- -------- -------- Net loss per share ......................................... $ (0.62) $ (0.96) -------- -------- Shares used in computing basic and diluted net loss per share ................................................ 19,090 16,328 ======== ========
See accompanying notes. 2 5 ARADIGM CORPORATION BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES DATA) ASSETS
JUNE 30, DECEMBER 31, 2001 2000 --------- --------- (UNAUDITED) Current assets: Cash and cash equivalents ..................................... $ 12,593 $ 20,732 Short-term investments ........................................ 8,244 23,649 Receivables ................................................... 341 70 Prepaid expenses and other current assets ..................... 1,314 735 --------- --------- Total current assets .................................. 22,492 45,186 Property and equipment, net ..................................... 47,982 25,323 Notes receivable from officers and employees .................... 105 119 Other assets .................................................... 615 743 --------- --------- Total assets .......................................... $ 71,194 $ 71,371 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .............................................. $ 4,521 $ 4,894 Accrued clinical and cost of other studies .................... 1,005 517 Accrued compensation .......................................... 2,598 1,246 Deferred revenue .............................................. 8,740 6,622 Other accrued liabilities ..................................... 1,051 2,234 Notes payable ................................................. 773 6,712 Current portion of capital lease obligations .................. 3,453 3,099 --------- --------- Total current liabilities .............................. 22,141 25,324 Noncurrent portion of deferred revenue .......................... 2,618 2,032 Capital lease obligations, less current portion ................. 4,407 6,230 Commitments and contingencies Shareholders' equity: Preferred stock, no par value; 5,000,000 shares authorized; no shares issued or outstanding .................... -- -- Common stock, no par value; 40,000,000 shares authorized; issued and outstanding shares: June 30, 2001 -- 19,930,095; December 31, 2000 -- 18,266,955 ........... 164,496 148,573 Shareholder notes receivable .................................... (21) (131) Deferred compensation ........................................... (135) (216) Accumulated deficit ............................................. (122,312) (110,441) --------- --------- Total shareholders' equity ............................ 42,028 37,785 --------- --------- Total liabilities and shareholders' equity ............ $ 71,194 $ 71,371 ========= =========
See accompanying notes. 3 6 ARADIGM CORPORATION STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------ 2001 2000 -------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ........................................................... $(11,885) $(15,751) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization ................................... 2,100 1,379 Extraordinary gain related to Genentech note .................... (6,675) -- Issuance of common stock for services ..................... ..... 48 -- Amortization of deferred compensation ........................... 81 81 Changes in operating assets and liabilities: Receivables ................................................... (271) 2,001 Prepaid expenses and other current assets ..................... (579) 505 Other assets .................................................. 128 -- Accounts payable .............................................. (373) (213) Accrued compensation .......................................... 1,352 771 Other accrued liabilities ..................................... 40 1,152 Deferred revenue .............................................. 2,704 (2,423) -------- -------- Net cash used in operating activities ................................ (13,330) (12,498) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................... (24,758) (3,108) Purchase of available-for-sale investments ......................... (5,733) (4,822) Proceeds from maturities of available-for-sale investments ......... 21,152 20,825 -------- -------- Net cash provided by (used in) investing activities .................. (9,339) 12,895 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net ........................ 15,875 45,151 Proceeds from notes payable ........................................ -- 2,224 Proceeds from repayments of shareholder notes ...................... 110 22 Proceeds from notes receivable from officers ....................... 14 34 Proceeds from equipment loans ........................................ -- 1,275 Payments on lease obligations and equipment loans .................... (1,469) (979) -------- -------- Net cash provided by financing activities ............................ 14,530 47,727 -------- -------- Net (decrease) increase in cash and cash equivalents ................. (8,139) 48,124 Cash and cash equivalents at beginning of period ..................... 20,732 9,347 -------- -------- Cash and cash equivalents at end of period ........................... $ 12,593 $ 57,471 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest .............................................. $ 502 $ 435 ======== ========
See accompanying notes. 4 7 ARADIGM CORPORATION NOTES TO THE UNAUDITED FINANCIAL STATEMENTS JUNE 30, 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation Aradigm Corporation (the "Company") is a California corporation. Since inception, Aradigm has been engaged in the development and commercialization of non-invasive pulmonary drug delivery systems. Through June 1997, the Company was in the development stage. The Company does not anticipate receiving significant revenue from the sale of products in the upcoming year. Principal activities to date have included obtaining financing, recruiting management and technical personnel, securing operating facilities, conducting research and development, and expanding commercial production capabilities. These factors indicate that the Company's ability to continue its research, development and commercialization activities is dependent upon the ability of management to obtain additional financing as required. 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. In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company's Annual Report on Form 10-K, as amended. The results of the Company's operations for the interim periods presented are not necessarily indicative of operating results for the full fiscal year or any future interim period. The Balance Sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Net Loss Per Share Historical net loss per share has been calculated under Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic net loss per share has been computed using the weighted average number of shares of common stock outstanding less the weighted average number of shares subject to repurchase during the period. No diluted loss per share information has been presented in the accompanying statements of operations since potential common shares from stock options and warrants are antidilutive. 2. SHAREHOLDERS' EQUITY In January 2001, the Company raised $5 million through the sale of 339,961 common shares at an average price of $14.71 per share to GlaxoSmithKline plc ("GlaxoSmithKline"). The sale was made pursuant to the exercise of a put option by the Company under the terms of the collaboration agreement with GlaxoSmithKline. In February 2001, the Company had a sale of common stock to Acqua Wellington North American Equities Fund, Ltd. ("Acqua") under the terms of an equity sales agreement signed with them in November, 2000. The Company raised $5 million through the sale of 436,110 common shares at an average price of $11.46 per share. In June 2001, the Company raised $5 million through the sale of 708,216 common shares at an average price of $7.06 per share to Novo Nordisk A/S ("Novo Nordisk"). The sale was made pursuant to the exercise of a put option by the Company under the terms of the collaboration agreement with Novo Nordisk. 3. CONTINGENCIES In June 1998, Eli Lilly and Company ("Lilly") filed a complaint against the Company in the United States District Court for the Southern District of Indiana. The complaint made various allegations against the Company, arising from the Company's 5 8 decision to enter into an exclusive collaboration with Novo Nordisk with respect to the development and commercialization of a pulmonary delivery system for insulin and insulin analogs. The Company has sponsored various studies of the pulmonary delivery of insulin analogs using materials supplied by Lilly under a series of agreements dating from January 1996. The Company and Lilly had also conducted negotiations concerning a long-term supply agreement under which Lilly would supply bulk insulin to the Company for commercialization in the Company's AERx Diabetes Management System, and a separate agreement under which the Company would license certain intellectual property to Lilly. These negotiations were terminated after the Company proceeded with its agreement with Novo Nordisk. The complaint seeks a declaration that Lilly scientists were co-inventors of a patent application filed by the Company relating to pulmonary delivery of an insulin analog or, in the alternative, enforcement of an alleged agreement to grant Lilly a nonexclusive license under such patent application. The complaint also contains allegations of misappropriation of trade secrets, breach of fiduciary duty, conversion and unjust enrichment and seeks unspecified damages and injunctive relief. The Company filed an answer denying all material allegations of the complaint and a motion for summary judgment directed against all claims in Lilly's complaint. The Court has issued two written rulings on the Company's motion substantially limiting the claims against the Company. Specifically, the Court granted the Company's motion as to Lilly's claim to enforce an alleged license agreement, for misappropriation of trade secrets, breach of fiduciary duty, conversion, estoppel and breach of contract (in part) and dismissed those claims from the case. The Court denied the Company's motion to Lilly's claims for declaratory relief, unjust enrichment and breach of contract (in part), based on factual disputes between the parties, and those issues remain to be resolved. Trial date has been set for November 2001. Management believes that it has meritorious defenses against each of Eli Lilly's claims and that this litigation will not have a material adverse effect on the Company's financial position, results of operations or cash flows. However, there can be no assurance that the Company will prevail in this case. 4. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133", which amended FAS 133 by deferring the effective date to the fiscal year beginning after June 30, 2000. In June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133", which amended FAS 133 with respect to four specific issues. The Company adopted FAS 133, as amended, as of January 1, 2001. The adoption of this statement had no material effect on the financial position, results of operations or cash flows. 6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion below contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to management. Our future results, performance or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements as a result of certain factors, including, but not limited to, those discussed in this section as well as in the section entitled "Risk Factors" and elsewhere in the Company's Form 10-K filed with the Securities and Exchange Commission on March 30, 2001, as amended. The business is subject to significant risks including, but not limited to, the success of research and development efforts, dependence on corporate partners for marketing and distribution resources, obtaining and enforcing patents important to the business, clearing the lengthy and expensive regulatory process and possible competition from other products. Even if the products appear promising at various stages of development, they may not reach the market or may not be commercially successful for a number of reasons. Such reasons include, but are not limited to, the possibilities that the potential products may be found to be ineffective during clinical trials, fail to receive necessary regulatory approvals, are difficult to manufacture on a large scale, are uneconomical to market, are precluded from commercialization by proprietary rights of third parties or may not gain acceptance from health care professionals and patients. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein. We undertake no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. OVERVIEW Since our inception in 1991, we have been engaged in the development of pulmonary drug delivery systems. As of June 30, 2001, we had an accumulated deficit of $122.3 million. We have not been profitable since inception and expect to incur additional operating losses over the next several years as research and development efforts, preclinical and clinical testing activities and manufacturing scale-up efforts expand and as we plan and build our late-stage clinical and early commercial production capabilities. To date, we have not had any material product sales and do not anticipate receiving revenue from product sales during 2001. The sources of working capital have been equity financings, equipment lease financings, contract revenues and interest earned on investments. We have performed initial feasibility work on a number of compounds and have been compensated for expenses incurred while performing this work in several cases pursuant to feasibility study agreements with third parties. Once feasibility is demonstrated with respect to a potential product, we seek to enter into development contracts with pharmaceutical corporate partners. We currently have such agreements pursuant to which we are developing pulmonary delivery systems with Novo Nordisk A/S ("Novo Nordisk"), to manage diabetes using insulin and other blood glucose regulating compounds, and with GlaxoSmithKline plc ("GlaxoSmithKline"), to manage acute and breakthrough pain using opioid analgesics. The collaborative agreement with Novo Nordisk provides for reimbursement of research and development expenses as well as additional payments to us as we achieve certain significant milestones. We also expect to receive royalties from this development partner based on revenues from sales of product and to receive revenue from the manufacturing of unit dose packets and hand-held devices. We recognize revenues under the terms of our collaborative agreement as the research and development expenses are incurred, to the extent they are reimbursable. During December 2000, GlaxoSmithKline and we amended the product development and commercialization agreement whereby we assumed full control and responsibility for conducting and financing the remainder of all development activities. Under the amendment, unless we have terminated the agreement, GlaxoSmithKline can restore its rights to participate in development and commercialization of the product under the amended agreement upon payment of a restoration fee to us. We anticipate that GlaxoSmithKline will review its restoration election upon the delivery of Phase 2b trial results, which are expected to be available before year end, but there can be no assurance that GlaxoSmithKline will elect to restore its rights. If we elect to terminate the agreement and continue or intend to continue any development activities, either alone or in collaboration with a third party, we will be obligated to pay an exit fee to GlaxoSmithKline. In February 2001, we announced that we had mutually agreed with Genentech to discontinue the development of rhDNase using our proprietary AERx system. We also entered into a new agreement allowing Genentech to evaluate the feasibility of using the AERx Pulmonary Drug Delivery System for pulmonary delivery of other Genentech compounds. Under the terms of the agreement, Genentech did not require us to repay the loan of funds required to conduct product development to date under the discontinued program. Forgiveness of the loan and accrued interest resulted in an extraordinary gain during the first quarter of 2001 of approximately $6.7 million. We will be required to reimburse Genentech $773,000 for unspent project prepayments. 7 10 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 AND 2000 Contract Revenues: Contract revenues for the three months ended June 30, 2001 increased to $8.5 million from $4.8 million for the same period in 2000. The revenue increase results primarily from an increase in partner-funded project development revenue from Novo Nordisk. Costs associated with contract revenues are included in research and development expenses. Research and Development Expenses: Research and development expenses for the three months ended June 30, 2001 increased to $15.3 million from $11.5 million for the same period in 2000. The increase resulted primarily from the hiring of additional scientific personnel and the expansion of research and development efforts to support the ongoing program with Novo Nordisk. These expenses represent proprietary research expenses as well as costs related to contract revenues and include salaries and benefits of scientific and development personnel, laboratory supplies, consulting services and expenses associated with the development of manufacturing processes. We expect research and development spending to increase over the next few years as we continue to expand our development activities to support current and potential future collaborations and initiate commercial manufacturing of the AERx systems. The increase in research and development expenditures cannot be predicted accurately as it depends in part upon future success in pursuing existing development collaborations, as well as obtaining new collaborative agreements. General and Administrative Expenses: General and administrative expenses for the three months ended June 30, 2001 decreased to $2.3 million from $2.5 million for the same period in 2000. The decrease resulted primarily from lower business development expenses. Interest Income: Interest income for the three months ended June 30, 2001 decreased to $299,000 from $969,000 for the same period in 2000. The decrease is due to income being earned on lower cash and investment balances. Interest Expense and Other: Interest expense for the three months ended June 30, 2001 decreased to $364,000 from $367,000 for the same period in 2000. SIX MONTHS ENDED JUNE 30, 2001 AND 2000 Contract Revenues: Contract revenues for the six months ended June 30, 2001 increased to $15.2 million from $10.5 million for the same period in 2000. The revenue increase results primarily from an increase in partner-funded project development revenue from Novo Nordisk offset by the reduction in partner-funded project development revenue from GlaxoSmithKline. Costs associated with contract revenues are included in research and development expenses. Research and Development Expenses: Research and development expenses for the six months ended June 30, 2001 increased to $29.5 million from $22.4 million for the same period in 2000. The increase resulted primarily from the hiring of additional scientific personnel and the expansion of research and development efforts to support the ongoing program with Novo Nordisk. General and Administrative Expenses: General and administrative expenses for the six months ended June 30, 2001 increased to $4.7 million from $4.5 million for the same period in 2000. The increase resulted primarily from the hiring of additional personnel and leased facilities to support our expansion of research, development and manufacturing. Interest Income: Interest income for the six months ended June 30, 2001 decreased to $967,000 from $1.4 million for the same period in 2000. The decrease is due to interest income being earned on lower cash and investment balances. Interest Expense and Other: Interest expense for the six months ended June 30, 2001 decreased to $626,000 from $688,000 for the same period in 2000. Extraordinary Gain: For the six months ended June 30, 2001, we reported an extraordinary gain of approximately $6.7 million. The extraordinary gain results from the cancellation of outstanding loans and accrued interest required to conduct development for the Pulmozyme program that had been funded by Genentech. 8 11 LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily through private placements and public offerings of capital stock, proceeds from equipment lease financing, contract revenues and interest earned on investments. As of June 30, 2001, we have received approximately $164.5 million in net proceeds from sales of capital stock. As of June 30, 2001, we had cash, cash equivalents and short-term investments of approximately $20.8 million. In January 2001, we raised $5 million through the sale of 339,961 common shares at an average price of $14.71 per share to GlaxoSmithKline. The sale was made pursuant to the exercise of a put option by us under the terms of the collaboration agreement with GlaxoSmithKline. In February 2001, we sold common stock to Acqua Wellington North American Equities Fund under the terms of the equity sales agreement signed with them in November, 2000. We raised $5 million through the sale of 436,110 common shares at an average price of $11.46 per share. In June 2001, we raised $5 million through the sale of 708,216 common shares at an average price of $7.06 per share to Novo Nordisk. The sale was made pursuant to the exercise of a put option by us under the terms of the collaboration agreement with Novo Nordisk. Net cash used in operating activities for the six months ended June 30, 2001 increased to $13.3 million from $12.5 million for the same period in 2000. The increase in net cash used resulted primarily from a decrease in accounts payable combined with increases in receivables, prepaid expenses and other current assets and net loss before extraordinary gain partially offset by increases in deferred revenue and accrued compensation. The decrease in the net loss was primarily due to the forgiveness of outstanding notes payable under the cancellation of the development agreement with Genentech. Net cash used by investing activities for the six months ended June 30, 2001 was $9.3 million compared to cash provided by investing activities of $12.9 million for the same period in 2000. The change results primarily from increased capital expenditures relating to construction of the large-scale commercial manufacturing facility. Net cash provided by financing activities for the six months ended June 30, 2001 decreased to $14.5 million from $47.7 million for the same period in 2000. The second quarter of 2000 included the proceeds from the completion of a follow-on public offering of common stock in April 2000, which raised approximately $42.6 million in net proceeds. The development of our technology and proposed products will require a commitment of substantial funds to conduct the costly and time-consuming research, preclinical studies and clinical trial activities necessary to develop and refine the technology and proposed products and bring such products to market. Future capital requirements will depend on many factors, including continued progress and results from research and development for the technology and drug delivery systems, the ability to establish and maintain favorable collaborative arrangements with others, progress with preclinical studies and clinical trials and the results thereof, the time and costs involved in obtaining regulatory approvals, the cost of development and the rate of scale-up for the required production technologies, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and the need to acquire licenses or other rights to new technology. We continue to review our planned operations through the end of 2001, and beyond, focusing particularly on capital spending requirements to ensure that capital outlays are not expended sooner than is necessary. We now expect our total capital outlays for 2001 will be in the range of $35 to $37 million. We believe that our existing cash balances, together with proceeds from the equity line and other equipment lease financing agreements, should be sufficient to meet our needs through the end of the year. If we continue to make good progress in our development programs, we would expect our cash requirements for capital spending and operations to increase in future periods. We will need to raise additional capital to fund our capital spending and operations before we become profitable. We may seek additional funding through collaborations, borrowing arrangements or through public or private equity financings. There can be no assurance that additional financing can be obtained on acceptable terms, or at all. Dilution to shareholders may result if funds are raised by issuing additional equity securities. If adequate funds are not available, we may be required to delay, to reduce the scope of, or to eliminate one or more of our research and development programs, or to obtain funds through arrangements with collaborative partners or other sources that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish. 9 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Disclosures In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk associated with interest rate movement. We regularly assess these risks and have established policies and business practices to protect against these and other exposures. As a result, we do not anticipate material potential losses in these areas. As of June 30, 2001, we had cash and cash equivalents and short-term investments of $20.8 million consisting of cash and highly liquid short-term investments. Our short-term investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes has been immaterial. Declines of interest rates over time will, however, reduce our interest income from our short-term investments. Our outstanding capital lease obligations are all at fixed interest rates and, therefore, have minimal exposure to changes in interest rates. 10 13 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Pursuant to a Stock Purchase Agreement between the Company and Novo Nordisk, dated June 2, 1998, the Company issued 708,216 shares of common stock of the Company to Novo Nordisk in exchange for an aggregate purchase price of $5 million. The shares were issued in reliance on Rule 506 of Regulation D of the Securities Act of 1933, as amended. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders of Aradigm Corporation was held on May 18, 2001. (b) Frank H. Barker, Wayne I. Roe, Richard P. Thompson, Virgil D. Thompson, Igor Gonda, and Stan Benson were elected to the Board of Directors to hold office until the next Annual Meeting of Shareholders and until their successors are elected and qualified. (c) The matters voted upon at the meeting and the voting of the shareholders with respect thereto were as follows: (1) The election of Frank H. Barker as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 14,796,594 Against: 594,546 (2) The election of Wayne I. Roe as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 14,797,194 Against: 593,946 (3) The election of Richard P. Thompson as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 12,792,792 Against: 2,598,348 (4) The election of Virgil D. Thompson as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 14,796,513 Against: 594,627 (5) The election of Igor Gonda as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 12,793,942 Against: 2,597,198 (6) The election of Stan Benson as Director to hold office until the next Annual Meeting of Shareholders and until his successor is elected and qualified: For: 14,797,394 Against: 593,746 (7) Approval of an amendment to the Employee Stock Purchase Plan increasing the total number of shares of common stock authorized for issuance by 250,000 shares: For: 9,728,558 Against: 555,192 Abstained: 47,977 No Vote: 5,059,413 11 14 (8) Approval of an amendment to the 1996 Equity Incentive Plan to include evergreen provisions which will automatically increase the number of shares reserved under the plan by 6% of the issued and outstanding common stock of the Company: For: 6,940,510 Against: 3,339,194 Abstained: 51,082 No Vote: 5,060,354 (9) Ratification of the selection of Ernst & Young LLP as independent auditors of the company for its fiscal year ended December 31, 2001: For: 15,287,230 Against: 65,358 Abstained: 10,311 ITEM 6. EXHIBITS (a) Exhibits 10.1* Employee Stock Purchase Plan, as amended. 10.2* Equity Incentive Plan, as amended. 10.26a Amendment No. 1 to Standard Office/Warehouse Lease, dated March 1, 2001, by and between the Company and Winton Industrial Center, Inc. - ---------- * Filed as an exhibit to the Company's Proxy Statement filed April 11, 2001 and incorporated herein by reference. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended June 30, 2001. 12 15 SIGNATURE 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. Dated: August 13, 2001 ARADIGM CORPORATION (Registrant) /s/ RICHARD P. THOMPSON ------------------------------------ Richard P. Thompson President and Chief Executive Officer /s/ MICHAEL MOLKENTIN ------------------------------------ Michael Molkentin Acting Chief Financial Officer 13 16 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.1* Employee Stock Purchase Plan, as amended. 10.2* Equity Incentive Plan, as amended. 10.26a Amendment No. 1 to Standard Office/Warehouse Lease, dated March 1, 2001, by and between the Company and Winton Industrial Center, Inc.
* Filed as an exhibit to the Company's Proxy Statement filed April 11, 2001 and incorporated herein by reference. 14 EX-10.26A 3 f75098ex10-26a.txt EXHIBIT 10.26A 1 EXHIBIT 10.26a AMENDMENT NO. 1 TO STANDARD OFFICE/WAREHOUSE LEASE THIS IS AMENDMENT NO. 1 TO THE STANDARD INDUSTRIAL OFFICE/WAREHOUSE LEASE ("First Amendment") is dated as of March 1, 2001 by and between Winton Industrial Center, Inc., a Delaware corporation ("Landlord"), and Aradigm Corporation, a California corporation ("Tenant"). RECITALS A. Landlord and Tenant are parties to that certain Standard Industrial Office and Warehouse Lease dated as of September 11, 2000 (the "Lease") for 125,880 square feet. Landlord and Tenant agree to reduce the Premises by 35,640 square feet ("Reduced Space") to a new Premises of 90,240 square feet ("Reduced Premises"). All capitalized terms used but not defined herein will have the meanings given to them in the Lease. Tenant has requested, and Landlord has agreed, to redefine and decrease the existing Premises by the amount of the Reduced Space. Accordingly, Landlord and Tenant hereby amend the Lease as provided in this Amendment. NOW, THEREFORE, in consideration of the foregoing Recitals, and for other good and valuable consideration, the receipt of which is hereby acknowledged Landlord and Tenant hereby agree as follows: 1. TERM. The Commencement Date for the Reduced Premises shall be March 1, 2001 and the Term for the Reduced Premises shall expire December 31, 2005. 2. DESCRIPTION OF THE REDUCED PREMISES. As of March 1, 2001, the leased Premises shall be reduced for the Term by 35,640 square feet of space as further described on the attached Exhibit "A" to the First Amendment for a total of 90,240 square feet. 3. RENTAL. The monthly rental amount of the Term beginning March 1, 2001 on the Reduced Premises, shall be as follows and shall be for the rent due under the original Lease:
MONTHS MONTHLY RENT DUE ------ ---------------- 01 - 07 $42,412.80 08 - 19 $44,217.60 20 - 31 $46,022.40 32 - 43 $47,827.20 44 - 58 $49,632.00
4. TAXES, INSURANCE AND MAINTENANCE RESERVE DEPOSIT. Tenant's share of Property, Taxes, Insurance and Maintenance expenses for the project shall be decreased from 15.2% to 10.9% for the remainder of the Term and any existing options. 5. CONTINGENCY. This First Amendment is contingent upon Landlord executing a Lease Amendment with Menlo Logistics for an expansion into the area defined as the Reduced Space of 35,640 square feet. 6. REAL ESTATE FEE AND COSTS. Tenant is responsible for a real estate commission in the amount of $43,000.00, which shall be paid within thirty (30) days of lease commencement. In addition, Tenant shall be responsible for costs to separately meter electrical service which amount shall 2 net exceed $10,000.00 and the cost to secure the roll-up security doors which amount shall not exceed $1,000.00. Tenant shall reimburse Landlord for actual costs up to $11,000.00 in total within thirty (30) days from the receipt of the request from the Landlord of actual invoices in connection with demising the Reduced Space from the original Premises. 9. NO OTHER AMENDMENTS. Except as modified in this Amendment, the Lease shall continue modified and in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. TENANT ARADIGM CORPORATION, a California Corporation By: /s/ NORMAN HALLEEN ------------------------------------ Print: Norman Halleen --------------------------------- Its: CFO ----------------------------------- Date: 3/14/01 ---------------------------------- LANDLORD WINTON INDUSTRIAL CENTER, INC. a Delaware corporation By: /s/ DAVID K. HUBBS ------------------------------------ Print: David K. Hubbs --------------------------------- Its: President ----------------------------------- Date: 3-20-01 ---------------------------------- By: /s/ CATHERINE FLYNN ------------------------------------ Print: Catherine Flynn --------------------------------- Its: Assistant Secretary ----------------------------------- Date: 3/20/01 ---------------------------------- 3 EXHIBIT A REDUCED PREMISES [DIAGRAM] -----END PRIVACY-ENHANCED MESSAGE-----