-----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, UL+7ZVWhFGwGfHyNHQSLP7mJWBylnWEGZSDzECtSujo7A40yNpf9qpYJb2DkDHkO n9B9S6Qr/+7OTI49Quto2w== 0000950135-00-002673.txt : 20000512 0000950135-00-002673.hdr.sgml : 20000512 ACCESSION NUMBER: 0000950135-00-002673 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARQULE INC CENTRAL INDEX KEY: 0001019695 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043221586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21429 FILM NUMBER: 625407 BUSINESS ADDRESS: STREET 1: 200 BOSTON AVE CITY: MEDFORD STATE: MA ZIP: 02155 BUSINESS PHONE: 6173954100 MAIL ADDRESS: STREET 1: 200 BOSTON AVE CITY: MEDFORD STATE: MA ZIP: 02155 10-Q 1 ARQULE INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 000-21429 ARQULE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-3221586 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 19 PRESIDENTIAL WAY, WOBURN, MASSACHUSETTS 01801 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(781) 994-0300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Number of shares outstanding of the registrant's Common Stock as of May 3, 2000: Common Stock, par value $.01 13,536,921 shares outstanding
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ARQULE, INC. QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS
PAGE ---- PART I -- FINANCIAL INFORMATION Item 1 -- Unaudited Consolidated Financial Statements Consolidated Balance Sheet (Unaudited) March 31, 2000 and December 31, 1999............ 2 Consolidated Statement of Operations (Unaudited) Three months ended March 31, 2000 and 1999...... 3 Consolidated Statement of Cash Flows (Unaudited) Three months ended March 31, 2000 and 1999...... 4 Notes to Unaudited Consolidated Financial Statements...................................... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 6 PART II -- OTHER INFORMATION................................ 8 Signatures.................................................. 9
1 3 ARQULE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ ASSETS Current Assets: Cash and cash equivalents................................. $12,775 $ 4,208 Marketable securities..................................... 23,949 32,213 Accounts receivable....................................... 1,538 2,529 Accounts receivable related party......................... 1,424 1,424 Inventory................................................. 397 486 Prepaid expenses and other current assets................. 1,201 579 ------- ------- Total current assets.............................. 41,284 41,439 Property and equipment, net............................... 32,519 34,093 Other assets.............................................. 1,786 1,814 ------- ------- $75,589 $77,346 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 2,854 $ 5,719 Current portion of capital lease obligations.............. 179 316 Current portion of long-term debt......................... 3,013 2,525 Deferred revenue.......................................... 13,493 14,375 Deferred revenue related party............................ 1,082 1,133 ------- ------- Total current liabilities......................... 20,621 24,068 ------- ------- Long term debt.............................................. 9,825 10,700 Deferred revenue............................................ 2,711 3,825 ------- ------- Total liabilities................................. 33,157 38,593 ------- ------- Shareholders' Equity: Common stock, $0.01 par value; 30,000,000 shares authorized; 13,473,256 and 12,864,225 shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively........................................... 135 129 Additional paid-in capital................................ 78,552 73,167 Accumulated deficit....................................... (35,880) (34,538) ------- ------- 42,807 38,758 Deferred compensation....................................... (375) (5) ------- ------- Total stockholders' equity........................ 42,432 38,753 ------- ------- $75,589 $77,346 ======= =======
The accompanying notes are an integral part of these unaudited financial statements. 2 4 ARQULE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------ 2000 1999 ------- ------- Revenue: Compound development revenue.............................. $ 7,690 $ 1,804 Compound development revenue -- related party............. 2,698 2,208 ------- ------- Total revenue..................................... 10,388 4,012 ------- ------- Costs and expenses: Cost of revenue........................................... 4,002 1,652 Cost of revenue -- related party.......................... 1,404 2,022 Research and development.................................. 4,188 3,347 Marketing, general and administrative..................... 2,361 1,243 ------- ------- Total costs and expenses.......................... 11,955 8,264 ------- ------- Loss from operations...................................... (1,567) (4,252) Interest income............................................. 502 424 Interest expense............................................ (277) (138) ------- ------- Net loss.................................................. $(1,342) $(3,966) ======= ======= Basic net loss per share.................................... $ (0.10) $ (0.32) ======= ======= Weighted average common shares outstanding.................. 13,205 12,317 ======= ======= Diluted net loss per share.................................. $ (0.10) $ (0.32) ======= ======= Weighted average common shares and equivalents outstanding............................................... 13,205 12,317 ======= =======
The accompanying notes are an integral part of these unaudited financial statements. 3 5 ARQULE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 1999 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities: Net loss.................................................. $ (1,342) $ (3,966) Adjustment to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization............................. 1,777 1,395 Amortization of deferred compensation..................... 237 78 Decrease in accounts receivable........................... 991 3,072 Decrease in inventory..................................... 89 13 (Increase) decrease in prepaid expenses and other current assets................................................. (622) 172 Decrease in other assets.................................. 28 12 (Decrease) increase in accounts payable and accrued expenses............................................... (2,865) 2,331 Decrease in deferred revenue.............................. (2,047) (653) -------- -------- Net cash (used in) provided by operating activities.... (3,754) 2,454 -------- -------- Cash flows from investing activities: Purchases of available-for-sale securities................ (20,260) (13,942) Proceeds from sale or maturity of marketable securities... 28,524 11,908 Proceeds from tenant improvement allowance................ 2,212 -- Additions to property and equipment....................... (2,415) (3,110) -------- -------- Net cash provided by (used in) investing activities.... 8,061 (5,144) -------- -------- Cash flows from financing activities: Principal payments of capital lease obligation............ (137) (256) Principal payments of long-term debt...................... (387) -- Proceeds from issuance of common stock.................... 4,784 483 -------- -------- Net cash provided by financing activities.............. 4,260 227 -------- -------- Net increase (decrease) in cash and cash equivalents...... 8,567 (2,463) Cash and cash equivalents, beginning of period............ 4,208 5,780 -------- -------- Cash and cash equivalents, end of period.................. $ 12,775 $ 3,317 ======== ========
The accompanying notes are an integral part of these unaudited financial statements. 4 6 ARQULE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION We have prepared the accompanying consolidated financial statements without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. These consolidated financial statements should be read in conjunction with our audited financial statements and related footnotes for the year ended December 31, 1999 thereto included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2000. The unaudited consolidated financial statements include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of March 31, 2000, and the results of our operations for the three month periods ended March 31, 2000 and 1999. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year. 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ Machinery and equipment.............................. $14,890 $12,423 Leasehold improvements............................... 26,470 28,050 Furniture and fixtures............................... 1,652 1,651 Computer equipment................................... 7,830 6,747 Construction-in-progress............................. 212 1,980 ------- ------- 51,054 50,851 Less -- accumulated depreciation and amortization.... 18,535 16,758 ------- ------- $32,519 $34,093 ======= =======
3. RECENT ACCOUNTING PRONOUNCEMENTS SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," issued in December 1999, summarizes certain of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The statements in the staff accounting bulletins represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws. We do not expect this Staff Accounting Bulletin to have a material effect on our financial statements. 4. MONSANTO COLLABORATION AMENDMENT On January 12, 2000, we announced we had extended and expanded our 1996 agreement with Monsanto. The terms of the amended agreement extend the relationship for an additional year through 2002 and provide Searle, the pharmaceutical division of Monsanto, with access to our Mapping Array and new Compass Array libraries in addition to access for the rest of Monsanto for screening in their pharmaceutical, nutritional, and animal health programs. 5. SUBSEQUENT EVENT On April 28, 2000, we withdrew our registration statement for our follow-on offering to sell 2.875 million shares of common stock that we had previously filed on March 27, 2000. 5 7 ARQULE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW We are engaged in the production and development of novel chemical compounds with commercial potential in the pharmaceutical, biotechnology, bioseparations and agrochemical industries. We primarily manufacture arrays of synthesized compounds for delivery to our customers for use in lead compound generation and lead compound optimization activities. We also offer other research and development services to meet the needs of our customers. In addition, we have established a number of joint drug discovery programs with biotechnology companies and academic institutions, and are pursuing a limited number of our own internal drug discovery programs. We primarily generate revenue through our collaborative agreements for production and delivery of compound arrays and other research and development services. Under most of these collaborative agreements, we are also entitled to receive milestone and royalty payments if the customer develops products resulting from the collaboration. To date, we have received two milestone payments and no royalty payments. In addition, we have not yet realized any significant revenue from our joint discovery programs with biotechnology companies and academic institutions, or from our internal drug discovery programs. Quarterly variations in financial performance may be expected because levels of revenue are dependent on expanding or continuing existing collaborations, entering into additional corporate collaborations, receiving future milestones and royalty payments, and realizing value from ongoing drug discovery programs, all of which are difficult to anticipate. We will continue to invest in technologies that enhance and expand our capabilities in drug discovery. These continued investments in technology are intended to enhance the novelty, diversity, and medical relevance of our compound arrays and to augment the power and scope of our chemistry capabilities. In addition to investments in technology, we may invest in internal lead optimization programs with the goal of delivering clinical candidates. In November 1999, we moved our main operations to a new facility in Woburn, Massachusetts, which includes 128,000 square feet of laboratory and office space. Investments of this nature may result in near term earnings fluctuations or impact the magnitude of profitability or loss. We have incurred a cumulative net loss of $35.8 million through March 31, 2000. Losses have resulted principally from costs incurred in research and development activities related to our efforts to develop our technologies and from the associated administrative costs required to support those efforts. Our ability to achieve profitability is dependent on a number of factors, including our ability to perform under our collaborations at the expected cost, expand or continue existing collaborations, and realize value from the development and commercialization of products in which we have an economic interest, all of which are difficult to anticipate. The Management's Discussion and Analysis of Financial Condition and Results of Operation contains forward-looking statements reflecting management's current expectations regarding our future performance. Such expectations are based on certain assumptions regarding the progress of product development efforts under collaborative agreements, the executions of new collaborative agreements and other factors relating to our growth. Such expectations may not materialize if product development efforts are delayed or suspended, if negotiations with potential collaborators are delayed or unsuccessful or if other assumptions prove incorrect. See also "Important Factors Regarding Forward-Looking Statements" described more fully in Exhibit 99.1 to our Annual Report on Form 8-K for the year ended December 31, 1999. RESULTS OF OPERATIONS Three Months Ended March 31, 2000 and 1999 Revenue. Our revenue for the three months ended March 31, 2000 increased $6.4 million to $10.4 million from $4.0 million for the same period in 1999. This increase is primarily due to amortization of upfront 6 8 fees and fees for delivery of Custom Array sets to Pfizer and Bayer, as well as increased compound development revenue from work performed on and the delivery of Mapping Array and Directed Array sets under our other collaborative agreements. Cost of revenue. Our cost of revenue for the three months ended March 31, 2000 increased $1.7 million to $5.4 million from $3.7 million for the same period in 1999. This increase is primarily attributable to the overhead and depreciation related to additional facilities and scientific personnel and the necessary supplies and overhead expenses related to the delivery of the Mapping Array and Directed Array sets pursuant to our collaborative agreements. We anticipate that the aggregate cost of revenue will increase over the next several years as our business expands. Research and development expenses. Our research and development expenses for the three months ended March 31, 2000 increased $0.9 million to $4.2 million from $3.3 million for the same period in 1999. This increase is the result of our ongoing efforts to augment and enhance our chemistry capabilities and related proprietary technologies. Marketing, general and administrative expenses. Our marketing, general and administrative expenses for the three months ended March 31, 2000 increased $1.2 million to $2.4 million from $1.2 million for the same period in 1999. This increase includes a charge of $0.3 million related to the withdrawal of our registration statement for our follow-on stock offering. Net interest income. Our net interest income for the three months ended March 31, 2000 was $0.2 million, compared to $0.3 million for the same period in 1999. Higher interest expense in 2000 resulted primarily from our higher average debt balance on our term loan with Fleet National Bank. Net loss. Our net loss for the three months ended March 31, 2000 was $1.3 million as compared to a net loss of $4.0 million for the same period in 1999. The decrease in our first quarter net loss for 2000 is primarily attributable to increased revenues from our collaborator base. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, we held cash, cash equivalents and marketable securities with a value of $36.7 million. Our working capital at March 31, 2000 was $20.7 million. We have funded operations through March 31, 2000 with sales of common stock, revenue from corporate collaborators and the utilization of capital equipment lease financing. We have maintained a master lease agreement since February 1994. Under the terms of this agreement, we funded certain capital expenditures through leases with terms of 42 months. As of March 31, 2000, we had utilized $4.5 million of the $8.5 million aggregate amount available under this lease financing facility. On March 18, 1999, we consummated a term loan agreement with Fleet National Bank to support our facilities expansion. As of March 31, 2000 we had utilized $14.0 million of the $15.0 million available under our term loan agreement with Fleet. As of March 31, 2000, we have made three principal payments of $0.4 million each. We expect that our available cash and marketable securities, together with operating revenues and investment income, will be sufficient to finance our working capital and capital requirements for the foreseeable future. Our cash requirements may vary materially from those now planned depending upon the results of our drug discovery and development strategies, our ability to enter into any additional corporate collaborations in the future and the terms of such collaborations, the results of research and development, the need for currently unanticipated capital expenditures, competitive and technological advances, acquisitions, and other factors. We can not guarantee that we will be able to obtain additional customers for our products and services, or that our products and services will produce revenues adequate to fund our operating expenses. If we experience increased losses, we may have to seek additional financing from the public or private sale of our securities, including equity securities. There can be no assurance that additional funding will be available when needed or on acceptable terms. 7 9 ARQULE, INC. PART II -- OTHER INFORMATION ITEMS 1-5 -- NONE ITEM 6(a) -- EXHIBITS:
EXHIBITS DESCRIPTION - -------- ----------- 11.1 Statement Re Computation of Unaudited Net Income (Loss) Per Share 27 Financial Data Schedule
ITEM 6(b) -- REPORTS ON FORM 8-K We filed a Current Report on Form 8-K pursuant to Item 5 with the Securities and Exchange Commission on March 15, 2000 in order to file our Amended and Restated Array Delivery and Testing Agreement with Monsanto Company dated January 11, 2000. 8 10 ARQULE, INC. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ArQule, Inc. /s/ DAVID C. HASTINGS -------------------------------------- David C. Hastings (Vice President, Chief Financial Officer and Treasurer) Date: May 11, 2000 9 11 ARQULE, INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 11.1 Statement Re Computation of Unaudited Net Loss Per Share 27 Financial Data Schedule
EX-11.1 2 STATEMENT RE COMPUTATION OF UNAUDITED NET LOSS 1 Exhibit 11.1 ArQule, Inc. Statement Re Computation of Unaudited Net Loss Per Share (In Thousands, Except Per Share Data)
Three Months Ended March 31, (Unaudited) 2000 1999 ----------- ----------- Net loss $ (1,342) $ (3,966) =========== =========== Weighted average shares outstanding: Common Stock 13,205 12,317 Weighted average common shares outstanding 13,205 12,317 =========== =========== Net loss per share - basic and $ (0.10) $ (0.32) diluted =========== ===========
- PAGE 14 - EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 12,775 23,949 2,962 0 397 41,284 51,054 18,535 75,589 20,621 0 0 0 135 42,297 75,589 10,388 10,388 5,406 11,955 0 0 225 (1,342) 0 (1,342) 0 0 0 (1,342) (0.10) (0.10)
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