-----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, AyAgM7gvopcPEhFSP1Jk6A8I54NW0i6G7DmeF4vZUZyG5YHWOG8S9ZMeZXFHgVTy hPl+ZN58nET7c4qEo158Uw== 0000950134-00-004561.txt : 20000516 0000950134-00-004561.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950134-00-004561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERLEUKIN GENETICS INC CENTRAL INDEX KEY: 0001037649 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 943123681 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23413 FILM NUMBER: 631950 BUSINESS ADDRESS: STREET 1: 100 NE LOOP 410 STREET 2: STE 820 CITY: SAN ANTONIO STATE: TX ZIP: 78216-4749 BUSINESS PHONE: 2103496400 MAIL ADDRESS: STREET 1: 100 NE LOOP 410 STREET 2: STE 820 CITY: SAN ANTONIO STATE: TX ZIP: 78216 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL SCIENCE SYSTEMS INC DATE OF NAME CHANGE: 19971003 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 31, 2000 Commission File Number: 333-37441 INTERLEUKIN GENETICS, INC. (Name of Issuer in its Charter) TEXAS 94-3123681 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 N.E. LOOP 410, SUITE 820 SAN ANTONIO, TX 78216 (Address of principal executive offices) (Zip Code) Issuer's Telephone Number: (210) 349-6400 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( )
Title of Each Class Outstanding at April 30, 2000 ------------------- ----------------------------- Common stock, no par value 18,268,716
2 ================================================================================ INTERLEUKIN GENETICS, INC. Form 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets at March 31, 2000 (Unaudited) and December 31, 1999...................1 Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2000 and March 31, 1999.......2 Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2000 and March 31, 1999...........3 Notes to Condensed Consolidated (Unaudited) Financial Statements...4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................6 Item 3. Quantitative and Qualitative Disclosure about Market Risk.........11 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................12 Item 2. Changes in Securities and Use of Proceeds.........................12 Item 3. Default Upon Senior Securities....................................12 Item 4. Submission of Matters to a Vote of Security Holders...............12 Item 5. Other Information.................................................12 Item 6. Exhibits and Reports on Form 8-K..................................12
i 3 PART I FINANCIAL INFORMATION INTERLEUKIN GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 December 31, 1999 -------------- ----------------- (Unaudited) ASSETS Cash and cash equivalents $ 4,605,710 $ 668,616 Marketable securities 1,987,500 1,987,500 Accounts receivable, net of allowance for doubtful accounts of $54,225 at March 31, 2000 and $55,300 at December 31, 1999 86,563 103,002 Prepaid expenses 121,072 132,560 ------------ ------------ Total current assets 6,800,845 2,891,678 Furniture and equipment, net 241,442 284,481 ------------ ------------ TOTAL ASSETS $ 7,042,287 $ 3,176,159 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 106,827 $ 134,968 Notes payable -0- 1,797 Accrued expenses 401,868 400,281 Deferred revenue 318,674 322,812 Current portion of capitalized lease obligations 61,714 63,877 ------------ ------------ Total current liabilities 889,083 923,735 Capitalized lease obligations, net 81,525 99,246 ------------ ------------ Total liabilities 970,608 1,022,981 Preferred Stock, no par value 5,000,000 shares authorized none issued and outstanding -0- -0- Common stock, no par value 50,000,000 shares authorized and outstanding; 18,307,245 shares at March 31, 2000 and 17,223,302 shares at December 31, 1999 28,342,402 23,177,865 Accumulated deficit (22,258,224) (21,012,188) Other comprehensive income (12,499) (12,499) ------------ ------------ Total shareholders' equity 6,071,679 2,153,178 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,042,287 $ 3,176,159 ============ ============
See accompanying notes to condensed consolidated financial statements. 1 4 INTERLEUKIN GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 March 31, 1999 -------------- -------------- (Unaudited) (Unaudited) Sales $ 85,830 $ 92,738 Cost of sales 64,068 32,911 ------------ ------------ Gross profit 21,762 59,827 Expenses: Research & development 558,496 555,125 Selling, general & administrative 742,907 709,152 ------------ ------------ Total expenses 1,301,403 1,264,277 ------------ ------------ Loss from operations (1,279,641) (1,204,450) Other income (expense): Interest income 40,336 17,592 Interest expense (7,359) (22,582) Other income 628 4,315 ------------ ------------ Total other income (expense) 33,605 (675) ------------ ------------ Loss before provision for income taxes (1,246,036) (1,205,125) Provision for income taxes 0 0 ------------ ------------ NET LOSS $ (1,246,036) $ (1,205,125) ============ ============ Basic and diluted loss per share $ (0.07) $ (0.22) ============ ============ Weighted average common shares outstanding 17,889,045 5,548,583 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 5 INTERLEUKIN GENETICS, INC. AND SUBSIDIARIES CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2000 March 31, 1999 -------------- -------------- (unaudited) (unaudited) CASH FLOW FROM OPERATING ACTIVITIES Net loss $(1,246,036) $(1,205,125) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 43,039 50,586 Issuance of stock options for services rendered 241,566 -0- (Increase) decrease in: Accounts receivable 16,439 11,301 Prepaid expenses 11,488 (17,859) Increase (decrease) in: Accounts payable (28,141) (46,206) Accrued expenses 1,587 16,691 Notes payable (1,797) (21,702) Deferred income (4,138) (882) ----------- ----------- Net cash used in operating activities (965,993) (1,213,196) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of furniture and equipment -0- (5,175) ----------- ----------- Net cash provided by investing activities -0- (5,175) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of common stock 4,922,971 10,463 Principal payments of long-term debt -0- (20,358) Principal payments of capitalized lease obligations (19,884) (20,218) ----------- ----------- Net cash provided by financing activities 4,903,087 (30,113) ----------- ----------- Net increase (decrease) in cash and equivalents 3,937,094 (1,248,484) Cash and equivalents, beginning of period 668,616 2,432,271 ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 4,605,710 $ 1,183,787 =========== =========== Interest paid $ 7,359 $ 22,582 Income taxes paid $ -0- $ -0-
See accompanying notes to condensed consolidated financial statements. 3 6 NOTE 1 - PRESENTATION OF INTERIM INFORMATION The accompanying unaudited consolidated financial statements have been prepared by Interleukin Genetics, Inc., the Company, in accordance with generally accepted accounting standards for interim financial reporting and with Securities Exchange Commission rules and regulations for form 10-Q. It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The interim financial data are unaudited; however, in the opinion of the management of Interleukin Genetics, Inc. and subsidiaries (the "Company"), the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to make the interim financial information not misleading. All significant intercompany transactions and accounts have been eliminated in consolidation. Results for interim periods are not necessarily indicative of those to be expected for the full year. The accompanying financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern. Since its inception, the Company has incurred cumulative net losses of approximately $22.3 million, including losses of approximately $1.2 milling during the three months ended March 31, 2000. For the three months ended March 31, 2000, the Company reported negative cash flows from operating activities of approximately $1.0 million. During the three months ended March 31, 2000, the Company raised approximately $4.9 million from a common stock private placement and shareholder stock option exercises. During 1999, the Company raised approximately $5.1 million from a preferred stock offering and shareholder stock option exercises. The Company believes that their current cash resources are more than adequate to fund operations throughout the year 2000, however, absent additional equity or debt financings, it also believes that those resources will be depleted in September 2001. To address these future capital resources requirements, management of the Company is currently in discussions with several potential strategic partners regarding the up-front funding of certain of the Company's research and development programs. While the Company continues to pursue sources of capital and strategic partnerships, there can be no assurance that they will be successful in these efforts. Commercial success of genetic susceptibility tests will depend upon their acceptance as medically useful and cost-effective by patients, physicians, dentists, other members of the medical and dental community, and third-party payers. It is uncertain whether current genetic susceptibility tests or others that the Company may develop will gain commercial acceptance on a timely basis. Research in the field of disease predisposing genes and genetic markers is intense and highly competitive. The Company has many competitors in the United States and abroad which have considerably greater financial, technical, marketing, and other resources available. If the Company does not discover disease predisposing genes or genetic markers and develop susceptibility tests and launch such services or products before their competitors, then revenues may be reduced or eliminated. The Company's ability to successfully commercialize genetic susceptibility tests depends on obtaining adequate reimbursement for such products and related treatment from government and private health care insurers and other third-party payers. Doctors' decisions to recommend genetic susceptibility tests will be influenced by the scope and reimbursement for such tests by third-party payers. If both third-party payers and 4 7 individuals are unwilling to pay for the test, then the number of tests performed will significantly decrease, therefore resulting in a reduction of revenues. In July 1999, the Company entered into an agreement with Sheffield University, whereby the Company will undertake the development and commercialization of certain discoveries resulting from Sheffield University's research. The agreement is non-cancelable for discoveries on which the parties have reached a specific agreement, but may be terminated with or without cause by either party upon six-months notice with respect to new discoveries on which the parties have not yet reached agreement. If Sheffield University terminated the agreement, such termination could make the discovery and commercial introduction of new products more difficult or unlikely. NOTE 2 - EARNINGS PER SHARE Statement of Financial Accounting Standards (SFAS) No. 128 (SFAS 128), "Earnings per Share," outlines methods for computing and presenting earnings per share. SFAS 128 requires a calculation of basic and diluted earnings per shares for all periods presented. As the Company had losses for the three months ended March 31, 2000 and 1999, options and warrants have been excluded from the calculation of the dilutive weighted average shares outstanding as they are antidilutive in loss periods. NOTE 3 - EQUITY Pursuant to a private placement which occurred in January 2000, the Company issued 832,667 shares of its Common Stock, no par value, for $5 million. After payment of offering costs, net proceeds to the Company amounted to $4.7 million. NOTE 4 - SEGMENT INFORMATION The Company has adopted SFAS No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 establishes standards for reporting information about operating segments in annual and interim financial statements, requiring that public business enterprises report financial and descriptive information about its reportable segments based on a management approach. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. In applying the requirements of this statement, each of the Company's geographic areas described below were determined to be an operating segment as defined by the statement, but have been aggregated as allowed by the statement for reporting purposes. As a result, the Company continues to have one reportable segment, which is the development of genetic susceptibility tests and therapeutic targets for common diseases. The following table presents information about the Company by geographic area.
For the Three Months Ended March 31, 2000 1999 ----------- ----------- (Unaudited) (Unaudited) Total Revenues: United States $ 74,602 $ 74,335 France 4,983 10,784 Other foreign 6,245 7,619 ----------- ----------- Total $ 85,830 $ 92,738 =========== =========== Operating Loss: United States $(1,113,288) $ (963,560) France (76,778) (144,534) Other foreign (89,575) (96,356) ----------- ----------- Total $(1,279,641) $(1,204,450) =========== ===========
5 8
As of March 31, 2000 1999 ----------- ----------- (Unaudited) (Unaudited) Assets: United States $ 7,042,287 $ 2,385,553 France -0- -0- Other foreign -0- -0- ----------- ----------- Total $ 7,042,287 $ 2,385,553 =========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this Form 10-Q are "forward-looking statements" within the meaning of the Section 27A of the Securities Act and Section 21E of the Exchange Act. Specifically, all statements other than statements of historical fact included in this Form 10-Q regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, risks inherent to developing genetic tests once genes have been discovered, the Company's limited sales and marketing experience, risk of market acceptance of the Company's products, risk of technology and products obsolescence, delays in development of products, reliance on partners, risks related to third-party reimbursement, risks regarding government regulation, competitive risks and those risks and uncertainties described in the Company's Registration Statement on Form S-3 filed July 23, 1999 (File No. 333-83631), as amended on July 25, 1999, and in other filings made by the Company with the Securities and Exchange Commission (collectively, "cautionary statements"). Although the Company believes that its expectations are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. The Company does not intend to update these forward-looking statements. The following comments should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. 6 9 GENERAL OVERVIEW Interleukin Genetics, Inc., a Texas corporation ("ILGN" or the "Company"), develops and commercializes genetic diagnostic tests and medical research tools. The Company's efforts are focused on genetic factors that affect the rate of progression of clinical disease through their influence on common host systems. The Company's first genetic test, PST(R), a test predictive of risk for periodontal disease, is currently marketed in the United States, Europe and Israel. Products under development include tests predictive of risk for osteoporosis, coronary artery disease, diabetic retinopathy, asthma, pulmonary fibrosis, and meningitis/sepsis. The Company believes by combining genetic risk assessment with specific therapeutic strategies, improved clinical outcomes and more cost-effective management of these common diseases are achieved. ILGN also develops and licenses its medical research tools, including BioFusion(R), to pharmaceutical companies. BioFusion, a proprietary enabling system for diagnostic and drug discovery and development, is a computer modeling system that integrates genetic and other sub-cellular behavior, system functions, and clinical symptoms to simulate complex diseases. This system allows useful information to be derived from rapidly increasing databases of gene expression being generated in companies and academic centers worldwide. Pursuant to a private placement which occurred in January 2000, the Company issued 832,667 shares of its Common Stock, no par value, for $5 million. After payment of offering costs, net proceeds to the Company amounted to $4.7 million. Additionally, the Company is in discussions with a number of potential strategic partners and, if such discussions are successfully completed, the Company believes this will result in the up-front funding of some of its programs. There can be no assurance that any of these discussions will be completed, or if such discussions are completed, that there will be up-front funding of the Company's programs. The Company has followed a strategy of working with strategic partners at the fundamental discovery stage. This strategy has given the Company access to discoveries while reducing up-front research expenses. Since 1994, the Company has had a strategic alliance with the Department of Molecular and Genetic Medicine at Sheffield University in the United Kingdom (Sheffield). Under this alliance, Sheffield has provided to the Company the fundamental discovery and genetic analysis from Sheffield's research laboratories, and the Company has focused on product development, including clinical trials, and the commercialization of these discoveries. During the third quarter of 1999, the Company entered into a new arrangement with Sheffield. This new arrangement replaced the research and development agreement that had been in place with Sheffield since 1996. Pursuant to the new arrangement, the Company issued an aggregate of 475,000 shares of its common stock to Sheffield and certain of its investigators in exchange for the relinquishment by Sheffield of its net proceeds interests under certain agreements with the Company. In April 1999, the Company entered into an agreement with Dumex, a subsidiary of AlPharma, a pharmaceutical manufacturer, to market and sell PST in nine European countries (Austria, Denmark, Finland, Germany, Ireland, Norway, Sweden, Switzerland and the U.K.). Dumex is well-known in Europe as a manufacturer of oral health care products used by periodontists. 7 10 In March 1999, the Company entered into an agreement with the Straumann Company, a leading supplier of dental implants, to market and sell PST in the United States and Puerto Rico. Straumann launched its PST promotional activities in April 1999. In December 1998, the Company signed an agreement with Washington Dental Service, a member of the Delta Dental Plans Association, for the purchase of 1,200 PST tests. The tests will be used in a study, sponsored by Washington Dental Service, in collaboration with the University of Washington School of Dentistry and Interleukin Genetics. This study is expected to provide scientific and financial data regarding the use of PST as a treatment-planning tool to assess risk before actual damage occurs. The data from the study may be available for analysis in early 2001. In December 1997, the Company entered into an agreement with Medicadent, a French corporation ("Medicadent"), to market and sell PST in France. In August 1998, the Company entered into an agreement with H.A. Systems, Ltd. to market and sell PST in Israel. Medicadent commenced offering PST in France in June 1998, and H.A. Systems commenced offering PST in Israel in April 1999. No assurances can be made regarding the commercial acceptance of PST. The Company has been awarded four U.S. patents, and has sixteen U.S. patent applications pending. The U.S. Patent & Trademark Office awarded patents to the Company for its osteoporosis and periodontal disease susceptibility tests and two patent awards for its biologic modeling technology called BioFusion(R). BioFusion is used by the Company in the discovery, development and commercialization process. The Company's disease susceptibility patents seek to protect the use of its various genetic markers as an indicator of risk for the specific disease covered, as well as protecting various therapeutic applications which these markers may have. The Company has been granted a number of corresponding foreign patents and has filed foreign counterparts of its U.S. applications. Where the Company has originally filed in another country, it has filed and plans to continue to file U.S. and other foreign counterparts. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED MARCH 31, 1999 Gross revenue for the three months ended March 31, 2000 was $85,830 compared to $92,738 for the same period ended March 31, 1999, a decrease of 7%. In the three months ended March 31, 2000, the Company conducted 448 PST tests compared to 510 tests in the same period in 1999. Cost of sales was $64,068 for the three months ended March 31, 2000 compared to $32,911 for 1999. Gross profit margin was 25% in the three months ended March 31, 2000 compared to 65% for the year earlier period. This decrease in gross profit margin reflected fees paid to distributors in the quarter ending March 31, 2000. The Company entered into distributor agreements in the U.S. and Europe during the second quarter of 1999, and there were no fees paid to distributors in the first quarter of 1999. For the three months ended March 31, 2000, the Company had research and development expenses of $558,496 as compared to $555,125 for the first quarter of 1999. The year-earlier expense included $178,072 for conducting several large clinical trials, compared to $32,361 in expense for clinical trials in the first quarter of 2000. Offsetting the decreased cost of clinical trials was a non-cash charge of $221,886 in the 8 11 quarter ended March 31, 2000 for the cost of stock issued for services rendered. There was no charge in the quarter ended March 31, 1999 for stock issued. Selling, general and administrative expenses were $742,907 in the first quarter of 2000 compared to $709,152 in the first quarter of 1999, an increase of 4.8%. Interest income in the first quarter of 2000 was $40,336 compared to $17,592 in the first quarter of 1999. This increase reflects higher balances of cash in the first quarter of 2000 compared to the year earlier period. Interest expense of $7,359 was incurred during the period ended March 31, 2000, compared to $22,582 in the same period in 1999. Net loss increased to 1,246,036 for the first quarter of 2000 compared to a net loss of $1,205,125 for the third quarter of 1999, an increase of $40,911, due to the reasons set forth above. The Company anticipates that it will continue to experience losses unless its genetic testing revenues grow substantially from current levels and its efforts to develop revenue from licensing its biologic modeling research tools are successful. In addition, if the Company is successful in reaching agreements with strategic partners on developing additional genetic tests, milestone payments, if any, from these strategic partners will help cover the Company's research and development expense and could also reduce the net loss. No assurances can be made that the Company will be able to increase its revenues, either from genetic tests or licensing revenue, or that it will be able to reach collaborative partnering agreements. LIQUIDITY AND CAPITAL RESOURCES Pursuant to a $5 million private placement in January 2000, the Company issued 832,667 shares of Common Stock, no par value, which generated net proceeds of approximately $4.7 million. Additionally, shareholder stock option exercises generated approximately $0.2 million during the first quarter of 2000. During 1999, the Company raised approximately $5.1 million from preferred stock offering and shareholder stock option exercises. Since its inception, the Company has incurred cumulative net losses of approximately $22.3 million, including losses of approximately $1.2 milling during the three months ended March 31, 2000. Net cash used in operating activities was $985,673 during the three months ended March 31, 2000 and $1,213,196 during the same period of the prior fiscal year. As of March 31, 2000, the Company had cash and cash equivalents and marketable securities of $6,593,210. The Company currently does not have any commitments for material capital expenditures. The Company's obligation at March 31, 2000 for capitalized lease obligations totaled $143,239, of which $81,525 is classified as long-term and $61,714 is classified as current. The Company anticipates that its existing cash and cash equivalents, together with anticipated interest income and revenue, will be sufficient to conduct its operations as planned until September 30, 2001. However, the Company's future capital requirements are anticipated to be substantial, and the Company does not have commitments for additional capital at this time. Such capital requirements are expected to arise from the commercial launch of additional genetic tests, continued marketing and sales efforts for PST, continued research and development efforts, the protection of the Company's 9 12 intellectual property rights (including preparing and filing of patent applications), as well as operational, administrative, legal and accounting expenses. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO RAISE ANY ADDITIONAL NECESSARY CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED, THE COMPANY WOULD SUFFER MATERIAL ADVERSE CONSEQUENCES TO ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND WOULD LIKELY BE REQUIRED TO SEEK PROTECTION UNDER THE UNITED STATES BANKRUPTCY LAWS. SEE Note 1 of the Financial Statements included herein. The Company's Common Stock is currently listed on the NASDAQ SmallCap Market and the Boston Stock Exchange. If the Company fails to maintain the qualification for its Common Stock to trade on the NASDAQ SmallCap Market or the Boston Stock Exchange, its Common Stock could be subject to delisting. During 1999, the Company received several notices from The Nasdaq Stock Market,Inc. ("NASDAQ") stating that the Company was not in compliance with certain of the continued listing requirements of the NASDAQ SmallCap Market and questioning whether the Company had violated certain shareholder approval provisions of NASDAQ's Marketplace Rules in connection with the Company's private placement in June 1999. The Company believes that it currently complies with the continued listing requirements of the NASDAQ SmallCap Market and that it did not violate the shareholder approval provisions of NASDAQ's Marketplace Rules. However, there can be no assurance that the Company has addressed these matters in a manner satisfactory to NASDAQ, or that the Company will maintain the qualifications for continued listing on the NASDAQ SmallCap Market. If the Company's shares are not listed as intended, trading, if any, would be conducted in the over-the-counter market in the so-called "pink sheets" or the OTC Bulletin Board, which was established for securities that do not meet the NASDAQ SmallCap Market's 10 13 listing requirements. Consequently, selling the Common Stock of the Company would be more difficult because smaller quantities of shares could be bought and sold, transactions could be delayed, and security analysts' and news media's coverage of the Company may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of Common Stock. Such NASDAQ delisting would also greatly impair the Company's ability to raise additional necessary capital through equity or debt financing. If the Common Stock of the Company is not listed on the NASDAQ SmallCap Market and/or the Boston Stock Exchange, it may become subject to Rule 15g-9 under the Exchange Act. That rule imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell the Common Stock and affect the ability of holders to sell their shares of Common Stock of the Company in the secondary market. The SEC's regulations define a "penny stock" to be any equity security that has a market price less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. The penny stock restrictions will not apply to our shares if they are listed on the NASDAQ SmallCap Market or the Boston Stock Exchange and we provide certain price and volume information on a current and continuing basis, or meet required minimum net tangible assets or average revenue criteria. There can be no assurance that the shares of Common Stock of the Company will qualify for exemption from these restrictions. If such shares were subject to the penny stock rules, the market liquidity for the shares could be adversely affected. Historically, the Common Stock of the Company has experienced low trading volumes. The market price of the Common Stock also has been highly volatile and it may continue to be highly volatile as has been the case with the securities of other public biotechnology companies. Factors such as announcements by the Company or its competitors concerning technological innovations, new commercial products or procedures, proposed government regulations and developments or disputes relating to patents or proprietary rights may substantially affect the market price of the Company's securities. Changes in the market price of the common Stock may bear no relation to the Company's actual operational or financial results. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company maintains an investment portfolio consisting of securities of U.S. Treasury Notes. The securities held in the Company's investment portfolio are subject to interest rate risk. Changes in interest rates affect the fair market value of these securities. After a review of the Company's marketable securities as of March 31, 2000, the Company has determined that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair market value of the Company's marketable investment securities would be insignificant to the financial statements as a whole. 11 14 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to, nor is its property the subject of, any pending legal proceeding. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable (b) Not applicable (c) On January 28, 2000, the Company completed a private placement (the "Private Placement") whereby the Company sold 832,667 shares of Common Stock, no par value ("Common Stock"), at a per share purchase price of $6.00 for a total offering price of $5,000,000. The shares of Common Stock (the "Shares") issued pursuant to the Private Placement were not registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the exemptions of such registration provided under Regulation D ("Regulation D") of the rules and regulations promulgated under the Securities Act by the Securities and Exchange Commission and Section 4(2) of the Securities Act. The Company relied on certain representations and warranties of the Private Placement investors, including, among other things, each of such investors' ability to evaluate the merits and risks of an investment in the Shares, each of such investors' status as an "accredited investor" (as that term is defined in Rule 501(a) of Regulation D) and that the Shares were acquired solely for each of such investors' own account for investment and not with a view to distribution. (d) Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 27 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K None 12 15 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERLEUKIN GENETICS, INC. Date: May 15, 2000 By: /s/ PHILIP R. REILLY ----------------------------------- Philip R. Reilly Chairman of the Board and Chief Executive Officer (Principle Executive Officer) By: /s/ U. SPENCER ALLEN ----------------------------------- U. Spencer Allen Chief Financial Officer, Secretary & Treasurer (Principle Financial and Accounting Officer) 13 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule (filed herewith)
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 2000 BALANCE SHEET AND THE INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 MAR-31-2000 4,605,710 1,987,500 140,788 54,225 0 6,800,845 813,592 572,150 7,042,287 889,083 0 0 0 28,342,402 (22,258,224) 7,042,287 85,830 85,830 64,068 1,301,403 (40,964) 0 7,359 (1,246,036) 0 0 0 0 0 (1,246,036) (0.07) (0.07)
-----END PRIVACY-ENHANCED MESSAGE-----