-----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, MyLQ0JCkWammfN7SKONc7KBiRSY72zd8m4pxUuDaPBBT3azpug9U9vmoeHlVff9i gfADNR6927dPksYmHLHDvA== /in/edgar/work/0000950135-00-004660/0000950135-00-004660.txt : 20001023 0000950135-00-004660.hdr.sgml : 20001023 ACCESSION NUMBER: 0000950135-00-004660 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARQULE INC CENTRAL INDEX KEY: 0001019695 STANDARD INDUSTRIAL CLASSIFICATION: [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: 743540 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 b37094aie10-q.txt ARQULE INC 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 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) (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. YES X NO __ Number of shares outstanding of the registrant's Common Stock as of October 18, 2000: 13,619,152 Common Stock, par value $.01. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ARQULE, INC. QUARTER ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS PAGE ---- PART I -- FINANCIAL INFORMATION Item 1 -- Unaudited Consolidated Financial Statements Consolidated Balance Sheet (Unaudited) September 30, 2000 and December 31, 1999............................................. 3 Consolidated Statement of Operations (Unaudited) Three months ended September 30, 2000 and 1999 and nine months ended September 30, 2000 and 1999.......................... 4 Consolidated Statement of Cash Flows (Unaudited) Nine months ended September 30, 2000 and 1999.......................... 5 Notes to Unaudited Consolidated Financial Statements................. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 8 PART II -- OTHER INFORMATION.............................................. 11 Signatures................................................................ 12 2 3 ARQULE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 12,168 $ 4,208 Marketable securities..................................... 31,455 32,213 Accounts receivable....................................... 300 2,529 Accounts receivable related party......................... 1,499 1,424 Inventory................................................. 320 486 Prepaid expenses and other current assets................. 543 579 -------- -------- Total current assets.............................. 46,285 41,439 Property and equipment, net............................... 31,558 34,093 Non-current marketable securities......................... 3,073 -- Other assets.............................................. 1,786 1,814 -------- -------- $ 82,702 $ 77,346 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 4,028 $ 5,719 Current portion of capital lease obligations.............. 21 316 Current portion of long-term debt......................... 4,375 2,525 Deferred revenue.......................................... 15,863 14,375 Deferred revenue related party............................ 535 1,133 -------- -------- Total current liabilities......................... 24,822 24,068 Long-term debt.............................................. 8,075 10,700 Deferred revenue............................................ 2,932 3,825 -------- -------- Total liabilities................................. 35,829 38,593 Stockholders' Equity: Common stock, $0.01 par value; 30,000,000 shares authorized; 13,614,277 and 12,864,225 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively..................................... 136 129 Additional paid-in capital................................ 79,329 73,167 Deferred compensation..................................... (262) (5) Unrealized loss on marketable securities.................. (37) -- Accumulated deficit....................................... (32,293) (34,538) -------- -------- Total stockholders' equity........................ 46,873 38,753 -------- -------- $ 82,702 $ 77,346 ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 4 ARQULE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------ 2000 1999 2000 1999 -------- -------- ------- -------- Revenue: Compound development revenue........................... $11,471 $ 2,457 $28,704 $ 6,630 Compound development revenue -- related parties........ 2,314 2,403 7,553 6,833 ------- ------- ------- -------- Total revenue.................................. 13,785 4,860 36,257 13,463 ------- ------- ------- -------- Costs and expenses: Cost of revenue........................................ 4,195 2,071 12,396 5,754 Cost of revenue -- related parties..................... 846 2,021 3,368 5,931 Research and development............................... 4,179 3,248 12,772 9,751 Marketing, general and administrative.................. 1,943 1,643 6,395 4,380 ------- ------- ------- -------- Total costs and expenses....................... 11,163 8,983 34,931 25,816 ------- ------- ------- -------- Income (loss) from operations.................. 2,622 (4,123) 1,326 (12,353) Interest income.......................................... 649 482 1,743 1,310 Interest expense......................................... (293) (16) (824) (174) ------- ------- ------- -------- Net income (loss)...................................... $ 2,978 $(3,657) $ 2,245 $(11,217) ======= ======= ======= ======== Basic net income (loss) per share........................ $ 0.22 $ (0.29) $ 0.17 $ (0.90) ======= ======= ======= ======== Weighted average common shares outstanding -- Basic...... 13,586 12,715 13,437 12,522 ======= ======= ======= ======== Diluted net income (loss) per share...................... $ 0.20 $ (0.29) $ 0.15 $ (0.90) ======= ======= ======= ======== Weighted average common shares outstanding -- Diluted.... 14,891 12,715 14,710 12,522 ======= ======= ======= ======== Comprehensive income (loss) Net income (loss)...................................... $ 2,978 $(3,657) $ 2,245 $(11,217) Unrealized gain (loss) on investment securities........ 61 -- (37) -- ------- ------- ------- -------- Comprehensive income (loss).............................. $ 3,039 $(3,657) $ 2,208 $(11,217) ======= ======= ======= ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 5 ARQULE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2000 1999 -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS Cash flows from operating activities: Net income (loss)......................................... $ 2,245 $(11,217) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 5,486 4,209 Amortization of deferred compensation.................. 461 275 Decrease in accounts receivable........................ 2,154 2,707 Decrease (increase) in inventory....................... 166 (36) Decrease in prepaid expenses and other current assets................................................ 36 436 Decrease (increase) in other assets.................... 28 (78) (Decrease) increase in accounts payable and accrued expenses.............................................. (1,691) 2,293 (Decrease) increase in deferred revenue................ (3) 13,784 -------- -------- Net cash provided by operating activities............ 8,882 12,373 -------- -------- Cash flows from investing activities: Purchases of available-for-sale securities............. (47,230) (51,359) Proceeds from sale or maturity of marketable securities............................................ 44,878 45,476 Proceeds from tenant improvement allowance............. 2,212 -- Additions to property and equipment.................... (5,163) (16,838) -------- -------- Net cash used in investing activities................ (5,303) (22,721) -------- -------- Cash flows from financing activities: Principal payments of capital lease obligation......... (295) (723) Principal payments of long-term debt................... (775) -- Borrowings of long-term debt........................... -- 11,413 Proceeds from issuance of common stock................. 5,451 911 -------- -------- Net cash provided by financing activities............ 4,381 11,601 -------- -------- Net increase in cash and cash equivalents.............. 7,960 1,253 Cash and cash equivalents, beginning of period......... 4,208 5,780 -------- -------- Cash and cash equivalents, end of period............... $ 12,168 $ 7,033 ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 6 ARQULE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION We have prepared the accompanying unaudited consolidated financial statements 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 footnotes related thereto for the year ended December 31, 1999 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 September 30, 2000, and the results of our operations for the three and nine month periods ended September 30, 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. NEW ACCOUNTING PRONOUNCEMENTS During April 2000, the Financial Accounting Standards Board issued Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of Accounting Principles Board Opinion No. 25". Among other issues, FIN 44 clarifies (a) the definition of an employee, (b) the criteria for determining whether a stock award plan qualifies as non-compensatory, and (c) the accounting consequence of various award modifications. This interpretation became effective July 1, 2000. We evaluated the effects of FIN 44 on our financial position and results of operations and have determined any such effects to be immaterial. During June 2000, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101B, an amendment to SAB 101, "Revenue Recognition in Financial Statements." SAB 101B defers the required implementation of SAB 101 until the fiscal quarter ended December 31, 2000. We have evaluated SAB 101 and have determined that the effects on our financial position and results of operations are not material. During June 2000, the Financial Accounting Standards Board issued Financial Accounting Standard ("FAS") No. 138, "Accounting for Certain Derivative Instruments -- An amendment of FAS 133 "Accounting for Derivative Instruments and Hedging Activities". FAS 138 shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. We do not expect FAS 138 to have a material impact on our financial position and results of operations. 3. JOHNSON & JOHNSON AMENDMENT On August 14, 2000, we announced an amendment to our 1998 collaboration agreement with The R.W. Johnson Pharmaceutical Research Institute ("PRI"), a Johnson & Johnson Company, to discover new lead compounds for a variety of therapeutic areas. The amended agreement includes a subscription to our Compass Array(TM) libraries in lieu of other deliverables. The financial terms of the agreement were not altered by the amendment. 4. EARNINGS PER SHARE We calculate earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share". Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options. Options to purchase approximately 0.2 million and 0.5 million shares were outstanding for the three and nine 6 7 ARQULE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) months ended at September 30, 2000, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of our common stock during the period. Shares used in calculating basic and diluted earnings per share are as follows:
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, --------------- --------------- 2000 1999 2000 1999 ------ ------ ------ ------ (UNAUDITED) (UNAUDITED) Weighted average number of shares of common stock outstanding............................................... 13,586 12,715 13,437 12,522 Dilutive stock options...................................... 1,305 -- 1,273 -- ------ ------ ------ ------ Weighted average common shares and equivalents outstanding............................................... 14,891 12,715 14,710 12,522 ====== ====== ====== ======
7 8 ARQULE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We are engaged in the production and development of novel chemical compounds with commercial potential in the pharmaceutical and biotechnology 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 $32.3 million through September 30, 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. While we were profitable in the second and third quarters of fiscal year 2000, our ability to achieve sustained 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, time additional investments in technology 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 10-K for the year ended December 31, 1999. 8 9 RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 REVENUE. Our revenue for the three months ended September 30, 2000 increased $8.9 million to $13.8 million from $4.9 million for the same period in 1999. Revenue was $36.3 million and $13.5 million for the nine months ended September 30, 2000 and 1999, respectively. These increases are primarily due to the amortization of upfront fees and fees for delivery of Custom Array(TM) sets to Pfizer Inc and Bayer AG and from other delivery fees earned from our collaborations. COST OF REVENUE. Our cost of revenue for the three months ended September 30, 2000 increased $0.9 million to $5.0 million from $4.1 million for the same period in 1999. Cost of revenue was $15.8 million and $11.7 million for the nine months ended September 30, 2000 and 1999, respectively. Our gross margin as a percentage of sales was 63.4% and 56.5% for the three and nine months ended September 30, 2000 as compared to 15.8% and 13.2% for the comparable periods in the prior year. Our gross margin as a percentage of sales was higher in 2000 due to the higher gross margin on the Pfizer collaboration and other economies of scale. RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses for the three months ended September 30, 2000 increased $1.0 million to $4.2 million from $3.2 million for the same period in 1999. Research and development expenses were $12.8 million and $9.8 million for the nine months ended September 30, 2000 and 1999, respectively. This increase is the result of our ongoing efforts to augment and enhance our chemistry capabilities and related proprietary technologies as we expand our lead optimization programs. MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Our marketing, general and administrative expenses for the three months ended September 30, 2000 increased $0.3 million to $1.9 million from $1.6 million for the same period in 1999. Marketing, general and administrative expenses were $6.4 million and $4.4 million for the nine months ended September 30, 2000 and 1999, respectively. These increases have been primarily associated with increased administrative costs to support our growth during 2000. NET INTEREST INCOME. Our net interest income for the three months ended September 30, 2000 decreased $0.1 million to $0.4 million from $0.5 million for the same period in 1999. Net interest income was $0.9 million and $1.1 million for the nine months ended September 30, 2000 and 1999, respectively. Net interest income decreased due to higher interest expense in 2000 resulting primarily from our higher average debt balance on our term loan with Fleet National Bank. NET INCOME (LOSS). Our net income for the three months ended September 30, 2000 was $3.0 million, compared to a net loss of $(3.7) million for the same period in 1999. Our net income (loss) was $2.2 million and $(11.2) million for the nine months ended September 30, 2000 and 1999, respectively. Our net income in 2000 has been primarily attributable to increased revenue from our collaborator base. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, we held cash, cash equivalents and marketable securities with a value of $46.7 million, compared to $36.4 million at December 31, 1999. Our working capital at September 30, 2000 was $21.5 million. We have funded operations through September 30, 2000 with sales of common stock, revenues from corporate collaborators, and the utilization of capital equipment lease financing. On March 18, 1999, we consummated a term loan agreement with Fleet National Bank to support our facilities expansion. Under this agreement, we borrowed $14.0 million of the potential $15.0 million available. As of September 30, 2000, we have made four principal payments of $0.4 million each. Cash flows from operating activities for the nine months ended September 30, 2000 decreased $3.5 million to $8.9 million from $12.4 million for the same period in 1999. This decrease reflects primarily the timing of payments from our corporate collaborations. Cash flows used in investing activities for the nine months ended September 30, 2000 decreased $17.4 million to $5.3 million from $22.7 million for the same period in 1999. During 1999 we completed our facility expansion in Woburn. Cash flows from financing 9 10 activities for the nine months ended September 30, 2000 decreased $7.2 million to $4.4 million from $11.6 million for the same period in 1999. In 1999 we borrowed $11.4 million under our Fleet Term Loan agreement to finance our facilities expansion. 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 cannot guarantee that we will be able to obtain additional customers for our products and services, or that such 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 public or private sales of our securities, including equity securities. There can be no assurance that additional funding will be available when needed or on acceptable terms. 10 11 ARQULE, INC. PART II -- OTHER INFORMATION Items 1-5 -- None Item 6(a) -- Exhibits:
EXHIBITS DESCRIPTION - -------- ----------- 27 Financial Data Schedule.
Item 6(b) -- None 11 12 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: October 20, 2000 12 13 ARQULE, INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedule.
13 EX-27 2 b37094aiex27.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 12,168 31,455 1,799 0 320 46,285 53,802 22,244 82,702 (24,822) 0 0 0 (136) (46,737) (82,702) 36,257 36,257 15,764 34,931 0 0 919 2,245 0 2,245 0 0 0 2,245 0.17 0.15
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