10QSB 1 0001.txt FORM 10-QSB DATED JUNE 30, 2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [ x ] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2000 [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _____________ to _______________ Commission file number: 0-22865 ------- AMERIMMUNE PHARMACEUTICALS, INC. -------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Colorado 84-1044910 -------------------------------------- -------------------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 21550 Oxnard Street, Suite 830 * Woodland Hills, California 91367 -------------------------------------------------------------------------- (Address of Principal Executive Offices) (818)676-0404 -------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) -------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 ------- ------- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: AS OF JULY 31, 2000, 43,042,856 SHARES OF THE ISSUER'S COMMON STOCK, $0.05 PAR VALUE PER SHARE, WERE OUTSTANDING. Transitional Small Business Disclosure Format (check one): Yes No X ------- ------- AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PART I FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements: Consolidated Balance Sheets - March 31, 2000 and June 30, 2000 (unaudited). . . . . . . . . . . . . . . . . . . . . . . .2 Consolidated Statements of Operations - for the Three Months Ended June 30, 1999 and 2000 and cumulative amounts from inception through June 30, 2000 (unaudited). . . . . . . . . . . . . . . . . . . .3 Consolidated Statements of Cash Flows - for the Three Months Ended June 30, 1999 and 2000 and cumulative amounts from inception through June 30, 2000 (unaudited). . . . . . . . . . . . . . .4 Notes to Unaudited Consolidated Financial Statements . . . . . . . . . .6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 AMERIMMUNE PHARMACEUTICALS, INC. PART I (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS ITEM 1. FINANCIAL STATEMENTS ASSETS
MARCH 31, 2000 JUNE 30, 2000 CURRENT ASSETS (AUDITED) (UNAUDITED) -------------- -------------- Cash and cash equivalents $ 522,649 $ 842,716 Marketable securities 618,360 - Other current assets 37,926 28,032 ------------ ------------ TOTAL CURRENT ASSETS 1,178,935 870,748 ------------ ------------ PROPERTY AND EQUIPMENT, NET 23,475 20,530 ------------ ------------ OTHER ASSETS Deposits 3,040 3,040 ------------ ------------ TOTAL ASSETS $ 1,205,450 $ 894,318 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 83,242 $ 36,931 Accrued liabilities 141,897 156,472 ------------ ------------ TOTAL CURRENT LIABILITIES 225,139 193,403 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 3) SHAREHOLDERS' EQUITY Preferred stock $0.10 par value, 50,000,000 shares authorized, no shares issued or outstanding - - Common stock $0.05 par value, 100,000,000 shares authorized, 43,042,856 shares issued and outstanding 2,152,143 2,152,143 Additional paid-in-capital 3,090,266 3,090,266 Note receivable from affiliate (156,989) (160,022) Deficit accumulated during the development stage (4,105,109) (4,381,472) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 980,311 700,915 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,205,450 $ 894,318 ============ ============
See accompanying notes 2 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000 AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception) THROUGH JUNE 30, 2000 (unaudited)
THREE MONTHS THREE MONTHS CUMULATIVE ENDED ENDED AMOUNTS FROM JUNE 30, 1999 JUNE 30, 2000 INCEPTION ------------- ------------- --------- COSTS AND EXPENSES Research and development $ 259,533 $ 119,075 1,373,886 General and administrative 208,534 169,766 3,107,726 ------------ ------------ ------------ OPERATING LOSS (468,067) (288,841) (4,481,612) OTHER INCOME (EXPENSE) Interest income 25,382 14,967 114,062 Interest expense (583) (889) (9,922) ------------ ------------ ------------ 24,799 14,078 104,140 ------------ ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (443,268) (274,763) (4,377,472) PROVISION FOR INCOME TAXES 800 (1,600) 4,000 ------------ ------------ ------------ NET LOSS $ (444,068) $ (276,363) $ (4,381,472) ============ ============ ============ NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.01) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 43,042,856 43,042,856 ============ ============
See accompanying notes 3 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000 AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception) THROUGH JUNE 30, 2000 (unaudited)
CUMULATIVE THREE MONTHS THREE MONTHS AMOUNTS ENDED ENDED FROM JUNE 30, 1999 JUNE 30, 2000 INCEPTION ------------- ------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (444,068) $ (276,363) $ (4,381,472) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES Noncash transactions: Depreciation and amortization 2,765 2,945 14,545 Fair value of stock and an option issued in exchange for services and trademark rights - - 814,000 Fair value of stock issued to prospective officers - - 142,500 Fair value of stock transferred to a prospective officer by a principal shareholder - - 90,000 Fair value of stock and an option transferred by a principal shareholder in exchange for services - - 452,000 Fair value of stock options issued in exchange for services - - 6,163 Modification of stock options - - 383,794 Changes in assets and liabilities: Advances from/to affiliates 46,581 - - Other current assets (6,057) 9,894 (28,032) Prepaid management fees 18,281 - - Deposits - - (3,040) Accounts payable and accrued expenses (25,615) (31,736) 193,403 ------------ ------------ ------------ Total adjustments 35,955 (18,897) 2,065,333 ------------ ------------ ------------ NET CASH USED BY OPERATING ACTIVITIES (408,113) (295,260) (2,316,139) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Sales (Purchases) of marketable securities - 618,360 - Purchases of property and equipment (2,278) - (35,075) Loan to an affiliate (100,000) (3,033) (160,022) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (102,278) 615,327 (195,097) ------------ ------------ ------------
Continued on next page 4 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000 AND CUMULATIVE AMOUNTS FROM APRIL 10, 1998 (Date of Inception) THROUGH JUNE 30, 2000 (unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from sale of common stock - - 3,353,952 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (510,391) 320,067 842,716 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, Beginning of Period 2,614,523 522,649 - ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, Ending of Period $ 2,104,132 $ 842,716 $ 842,716 ============ ============ ============
See accompanying notes 5 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 1. BUSINESS AND BASIS OF PRESENTATION BUSINESS AND ORGANIZATION Amerimmune Pharmaceuticals, Inc. (the "Company"), formerly named Versailles Capital Corporation, is a Colorado Corporation incorporated on December 31, 1986. From 1991 through February 22, 1999, the Company was inactive aside from seeking a business combination candidate. British Lion Medical, Inc. ("British Lion") was incorporated in California in August 1997 and commenced operations on April 10, 1998. British Lion was engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus ("HIV"). On February 17, 1999, the Company, British Lion and Amerimmune, Inc. ("AI"), a newly organized, wholly owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement on February 23, 1999, each share of British Lion's issued and outstanding no par value common stock (5,853,500 shares) was exchanged for 7.133978 newly issued shares (41,758,740 shares) of the Company's $0.05 par value per share common stock. After the exchange, former British Lion shareholders acquired approximately 97% of the issued and outstanding voting shares of the Company and the Company acquired all of the issued and outstanding shares of British Lion through a merger of British Lion with and into AI, with AI as the surviving legal entity (the "Transaction"). Prior to the Transaction, the Company had nominal assets and liabilities. Unless otherwise noted, all references to the number of shares of common stock in these financial statements are based upon the equivalent post-exchange number of shares of the Company's common stock. For financial reporting purposes, the Transaction has been accounted for as a reverse acquisition whereby British Lion is deemed to have acquired the Company. Since this was a reverse acquisition, the legal acquiror, the Company, continued in existence as the legal entity whose shares represent the outstanding common stock of the combined entities. The acquisition has been accounted for as a recapitalization of British Lion based upon historical cost. The recapitalization was given retroactive effect. In connection with the Transaction, the Company succeeded to the business of British Lion and became engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R). The Company has assumed the obligations of British Lion including all outstanding stock options and warrants to purchase shares of British Lion's common stock and has issued equivalent shares of the Company common stock under the same terms and conditions. On August 6, 1999, the shareholders of the Company adopted an amendment to the Company's articles of incorporation to change the name of the Company to Amerimmune Pharmaceuticals, Inc. from Versailles Capital Corporation. 6 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (CONTINUED) BASIS OF PRESENTATION AND MANAGEMENT PLAN The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-QSB on the basis of a going concern. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this report. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair presentation. The results of operations for the three months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the period ended March 31, 2000 as filed with the Securities and Exchange Commission. All significant intercompany balances and transactions have been eliminated in consolidation. The Company is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through June 30, 2000. The Company has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. The Company has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on its research and development activities and allocates significant and increasing resources to clinical testing, marketing and other activities. The Company commenced a tolerability study for Cytolin(R) after a clinical protocol was sanctioned by the Food and Drug Administration ("FDA") and the bulk drug has been manufactured, tested, packaged, and released for clinical use. The Company has completed the submission of related manufacturing records to the FDA. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company estimates that it will require significant additional funding over the next three years to continue operations and to successfully complete the FDA approval process for Cytolin(R). The Company believes that additional funds will be needed to fund operations after September 30, 2000. The Company has established plans designed to increase the capitalization of the Company and is actively seeking additional capital that will provide funds needed to increase the internal growth of the Company in order to fully implement its business plans. There can be no assurances that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. 7 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES Marketable securities are classified as held-to-maturity and consist of investments in United States Government Bonds that have maturities over three months but less than one year from date of purchase. NET LOSS PER SHARE Loss per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 ("SAB 98"). Basic earnings per share excludes dilution for common stock equivalents and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and resulted in the issuance of common stock. Pursuant to SAB 98, common stock issued for nominal consideration is required to be included in the calculation of basic and diluted earnings per share, as if they were outstanding for all periods presented. In accordance with the SAB 98 requirements, 21,936,981 of the founder's shares are considered to be nominal issuances and have been considered outstanding for all of the period ended March 31, 1999. All outstanding stock options and warrants have been excluded from the calculation of diluted loss per share, because the assumed conversion of such instruments is antidilutive. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. To date, the Company has not had any transactions that are required to be reported in comprehensive income. 8 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (CONTINUED) SEGMENT INFORMATION The Company has determined that it does not have separately reportable operating segments in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 3. COMMITMENTS AND CONTINGENCIES CONDITIONAL LICENSE AGREEMENT In September 1999, Allen and CytoDyn delivered written notice to the Company that they believed that the Purchase Agreement is void and is not enforceable due to fraudulent inducement by Three R and other, unspecified reasons. Allen and CytoDyn have demanded that Three R and its owners surrender any and all stock in the Company, which was obtained pursuant to the Purchase Agreement. In February 2000, the Company entered into a Conditional License Agreement with Allen and CytoDyn which preserves the Company's rights to the Technology in the event Allen is successful in his efforts to rescind the agreements with Three R and its affiliates discussed above. In consideration for entering into the Conditional License Agreement, the Company advanced CytoDyn an additional $50,000 pursuant to the terms of a Loan Agreement which was previously entered into whereby the Company loaned CytoDyn $100,000 (See Note 4). At June 30, 2000 and March 31, 2000, the note receivable of $150,000, which is collateralized by shares of the Company's stock, plus accrued interest of $10,022 at June 30 and $6,989 at March 31, was classified as a reduction of shareholders' equity. In addition, the Company has agreed to continue to pay the obligations due to Allen under the Purchase Agreement, should Allen prevail in his actions. MANAGEMENT AGREEMENT In October 1998, the Company entered into a three year management agreement for $585,000 per year with Western Center for Clinical Studies, Inc. ("WCCS"), a 9 AMERIMMUNE PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (CONTINUED) corporation that is wholly-owned by three of the Company's former officers and directors. The agreement was scheduled to expire on February 23, 2002. The management agreement provided for services by WCCS to the Company for the purpose of assisting the Company in obtaining FDA approval to market Cytolin(R) for commercial use. In November 1999, the Company notified WCCS of its rescission of this agreement based upon the Company's belief that WCCS made certain fraudulent misrepresentations to the Company and had breached its performance under the management agreement. The Company is evaluating remedies to collect all amounts paid to WCCS in conjunction with this agreement. OFFICER EMPLOYMENT AGREEMENT During November 1999, the Company hired a new president and chief executive officer. As of June 30, 2000, the new president and chief executive officer's employment agreement had not been finalized. Accordingly, based on preliminary negotiations regarding the employment agreement, the Company has accrued $70,000 representing the pro rata portion of the expected compensation applicable to the year ended March 31, 2000, and $45,000 applicable to the three months ended June 30, 2000. Additionally, the Company expects to issue stock options to the new officer, the terms of which have not been finalized. 4. RELATED PARTY TRANSACTIONS During the period from inception (April 10, 1998) through March 31, 2000, the Company incurred expenses of $442,575 as a result of services performed by an affiliate, WCCS, on behalf of the Company. In fiscal 1999, the Company advanced $219,375 to WCCS to commence certain services in connection with the development of Cytolin(R) to be performed over a three year period beginning when the management agreement between the parties became effective. In November 1999, the Company notified WCCS of its rescission of this agreement and expensed the remaining prepaid management fees. The Company is evaluating remedies to collect all amounts paid to WCCS in conjunction with this agreement During the period from inception (April 10, 1998) through June 30, 2000, the Company paid consulting fees of $71,319 to Allen for providing scientific expertise regarding the development of Cytolin(R), $136,875 pursuant to the Patent and Trademark License Agreement, and $25,000 in consulting fees in connection with the Phase I Testing of Cytolin(R). As of June 30, 2000, $2,625 of such fees were included in accounts payable. During the period from inception (April 10, 1998) through March 31, 2000, the Company incurred legal expenses of $10,000 for an attorney who is also a director of the Company. Since inception through January 31, 1999, the Company used part of an office facility 10 and administrative services provided by WCCS at no cost. On February 1, 1999, the Company entered into a long-term non-cancellable operating lease agreement with an unrelated party. During June 1999, the Company loaned CytoDyn $100,000 to facilitate payment by CytoDyn of certain legal and office expenses and to facilitate repayment to the Company by CytoDyn of previous advances. In February 2000, the Company loaned CytoDyn an additional $50,000 under the same terms and conditions as the original loan, as consideration for entering into the Conditional License Agreement (see Note 3). The loans bear interest at a rate of 8% per annum and are due, together with accrued interest, on or before February 23, 2001. The loans are secured by 450,000 shares of Company common stock which are owned by CytoDyn. The Company believes that these loans are fully collectible. 11 PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Some of the statements made in this Form 10-QSB and the documents incorporated herein by reference that are not historical facts, such as anticipated results of clinical trials, may constitute "forward-looking statements," which forward looking statements are made pursuant to the safe harbor provisions in the federal securities laws. These statements often can be identified by the use of terms such as "may," "will," "expect," "anticipate," "estimate," "should", "could", "experts", "plans", "believes", "predicts", "potential", or "continue," or the negative thereof. Such forward-looking statements speak only as of the date made. Forward-looking statements are subject to risks, uncertainties and other factors beyond the control of the Company that could cause actual results, levels of activity, performance, achievements, and events to differ materially from historical results of operations, levels of activity, performance, achievements, and events and any future results, levels of activity, performance, achievements and events implied by such forward- looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, achievements, or events. Moreover, neither the Company nor any other person assumes responsibility for the accuracy or completeness of such statements. The Company disclaims any obligation to revise any forward- looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. PLAN OF OPERATION The Company (for purposes of this section, the term the "Company" includes the predecessor entity to its current operations, British Lion) is a development stage pharmaceutical research company and has not generated any revenues from operations for the period from April 10, 1998 (the date that British Lion commenced operations) through June 30, 2000. The Company is engaged in the pharmaceutical research business with the primary purpose of developing Cytolin(R), a drug designed to protect the immune system, especially in patients suffering from Human Immunodeficiency Virus (HIV). The Company believes that Cytolin(R) may be an important drug for the growing number of patients who have not been receiving treatment, for those who are on multi-drug therapy, and for those who have become resistant to drugs currently used to treat the HIV/AIDS virus. The Company intends to seek governmental approval from the Food and Drug Administration ("FDA") for Cytolin(R). The Company has devoted substantially all of its resources to the acquisition of a license, research and development of Cytolin(R), and expenses related to the startup of its business. The Company has been unprofitable since inception and expects to incur substantial additional operating losses for the next twelve months, as well as for the next few years, as it increases expenditures on research and development and allocates significant and increasing resources to clinical testing, marketing and other activities. In November and December 1998, the Company sold 1,426,790 shares of its common stock (at approximately $0.21 per share), for gross proceeds of $300,000, to certain accredited investors in a private placement. In December 1998, the Company 12 began a second private placement of common stock to accredited investors, which was completed on February 22, 1999. The second private placement was made on a minimum/maximum "best efforts" basis. The Company raised the maximum amount of gross proceeds of $3,210,000 (7,633,364 common shares at approximately $0.42 per share) and paid cash offering expenses of $159,698. Net cash proceeds from the private placement aggregated $3,050,302. The Company believes that the funds received in these private placements will enable it to satisfy its cash requirements without the need to raise additional funds before September 30, 2000. The Company has commenced a tolerability study for Cytolin(R) after a clinical protocol was sanctioned by the FDA and the bulk drug was manufactured, tested, packaged, and released for clinical use. The Company has completed the submission of related manufacturing records to the FDA. The Company estimates that it will require significant additional funding over the next three years in order to continue operations and to successfully complete the FDA approval process for Cytolin(R). The Company believes that additional funds will be needed to fund operations after September 30, 2000. There can be no assurances that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. RESULTS OF OPERATIONS For the three months ended June 30, 2000, the Company incurred $119,075 in research and development expenses, $169,766 in general and administrative expenses and earned $12,478 in interest income net of taxes and other expenses, resulting in a net loss of $276,363. The expenses incurred during this period relate primarily to commencement of research activities, regulatory and administrative expenses. For the three months ended June 30, 1999, the Company has incurred expenses of $259,533 in research and development expenses, $208,534 in general and administrative expenses and earned $23,999 in interest income net of taxes and other expenses, resulting in a net loss of $444,068. The expenses incurred during this period relate primarily to commencement of research activities, regulatory and administrative expenses. For the year ended March 31, 2000, the Company incurred $832,518 in research and development expenses, $1,168,649 in general and administrative expenses and earned $78,715 in interest income net of taxes and other expenses, resulting in a net loss of $1,922,452. The expenses incurred during this period relate primarily to commencement of research activities, regulatory and administrative expenses. From April 10, 1998 to March 31, 1999, the Company incurred $422,293 in research and development expenses, $1,769,311 in general and administrative expenses and earned $8,947 in interest income net of taxes and other expenses, resulting in a net loss of $2,182,657 (which included significant non-cash, general and administrative expenses aggregating $1,498,500 related primarily to issuance of securities in exchange for services) for the period ended March 31, 1999. The expenses incurred during this 13 period relate primarily to the commencement of business operations, the acquisition of a license, fundraising activities and merger expenses. The Company's activities to date are not as broad in depth or scope as the activities it must undertake in the future, and the Company's historical operations and financial information are not indicative of its future operating results or financial condition or its ability to operate profitably as a commercial enterprise if and when it succeeds in bringing any product to market. CAPITAL RESOURCES AND LIQUIDITY From the commencement of operations on April 10, 1998 to June 30, 2000, the Company had no operating revenues and incurred net losses of $4,381,472. At June 30, 2000, the Company had working capital of $677,345. The Company requires significant capital to conduct the research and development and preclinical and clinical testing of Cytolin(R) that is necessary in order to complete the FDA approval process. Management of the Company does not expect to generate revenue from operations within the next year. The Company believes that additional funds will be needed to fund operations after September 30, 2000. There can be no assurance that such additional capital will be available to the Company on favorable terms, if at all. The failure of the Company to obtain additional funding if and when required would have a material adverse effect on the Company's ability to fulfill its business plan, continue its operations and meet its financial commitments. In October 1998, the Company entered into a Patent and Trademark License Agreement (the "Agreement") with Three R. The Company was granted an irrevocable, exclusive, worldwide license to use all present and future patent rights, knowledge and background technology owned by Three R relating to the product, Cytolin(R). In addition, the Agreement granted the Company a sublicense to the trademark Cytolin(R). The Agreement was consummated simultaneously with the Company's acquisition of British Lion. The Company issued 21,936,981 shares of its common stock at $.001 per share to Three R upon execution of the Agreement, and the Company also agreed to assume Three R's obligations to pay Allen $1,350,000, payable monthly over a fifteen year period, and fees of $10,000 per year for consulting services under the agreements discussed above between Three R and Mr. Allen. See Note 3 to Unaudited Consolidated Financial Statements contained in Item 1. of Part I of this Form 10-QSB for a description of these Agreements and certain potential disputes. The Company could abandon its patent rights with no further obligations after minimum payments aggregating $180,000 to Allen, with one year's notice. Effect of Inflation and Foreign Currency Exchange ------------------------------------------------- The Company has not experienced material unfavorable effects on its results of operations due to currency exchange fluctuations with any foreign suppliers or material unfavorable effects upon its results of operations as a result of domestic inflation. Plant, Equipment and Employees ------------------------------ As of this time, the Company does not expect to make any purchases of significant plant, facilities or equipment and does not foresee a significant change in the number of employees. 14 PART II ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings which management believes are not routine and incidental to its business or which are material. The Company may in the future be a party to legal proceedings. See Note 3 to Unaudited Consolidated Financial Statements contained in Item 1. of Part I of this Form 10-QSB for a discussion of certain potential disputes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 2.1 Agreement and Plan of Merger, dated February 17, 1999, by and among Versailles Capital Corporation, Amerimmune, Inc. and British Lion Medical, Inc. (2) 3.1 Amended and Restated Articles of Incorporation.(1) 3.2 Amended and Restated By-Laws.(1) 3.3 Articles of Merger, as filed with the Colorado Secretary of State on February 23, 1999.(2) 3.4 Articles of Amendment to the Articles of Incorporation.(3) 10.1 Patent and Trademark License Agreement between British Lion Medical, Inc. and Three R Associates, Inc., dated October 24, 1998.(2) 10.2 Termination, Sale and Shareholder Agreement by and among Three R Associates, Inc., Allen D. Allen and CytoDyn(R) of New Mexico, Inc., dated August 1, 1998. (2) 10.3 Management Agreement between British Lion Medical, Inc. and WCCS, Inc., dated October 24, 1998. (2) 10.4 Subscription, Share Restriction and Proxy Agreement between British Lion Medical, Inc. and Allen D. Allen, dated October 23, 1998. (2) 10.5 Versailles Capital Corporation 1998 Omnibus Stock Incentive Plan as amended and restated through February 23, 1999.(4) 10.6 Conditional License Agreement between Allen D. Allen, CytoDyn of New Mexico, Inc. and Amerimmune, Inc., dated February 24, 2000.(5) 15 16.0 Letter on change in certifying accountant. (6) 27 Financial Data Schedule. -------------------------------------------------------------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form 10-SB, Registration No. 0-22865, as filed with the Commission on July 22, 1997, and amended on Form 10-SB/A-1, filed with the Commission on February 25, 1998. (2) Incorporated by reference from the like numbered exhibits filed with the Registrant's Current Report on Form 8-K, as amended, dated March 10, 1999. (3) Incorporated by reference from the Registrant's September 30, 1999 Form 10-QSB, dated November 12, 1999. (4) Incorporated by reference from the Registrant's March 31, 1999 Form 10-KSB. (5) Incorporated by reference from the Registrant's March 31, 2000 Form 10-KSB. (6) Incorporated by reference from the like numbered exhibit filed with the Registrant's Current Report on Form 8-K, dated March 29, 1999. (b) Reports on Form 8-K ----------------------- During the three months ended June 30, 2000, the Company filed no Current Reports on Form 8-K. 16 SIGNATURES ---------- In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERIMMUNE PHARMACEUTICALS, INC. Signatures Title Date ---------- ----- ---- Chairman of the Board /s/ O.B Parrish and Director August 11, 2000 ------------------------- O.B. Parrish /s/ Deborah Garrett Kalof Chief Financial Officer August 11, 2000 ------------------------- Deborah Garrett Kalof, M.B.A., C.P.A. 17