-----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, Ek8Z3MS5CLC8oZ2/du0AH+uxJCrpA2cCPUZ8Irxh7uvqEheXnG4q4VdKUDF/9bFU EcWaO9yuR8rRl70ndjDJNg== 0000950133-96-002563.txt : 19961118 0000950133-96-002563.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950133-96-002563 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTREMED INC CENTRAL INDEX KEY: 0000895051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 581959440 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20713 FILM NUMBER: 96665207 BUSINESS ADDRESS: STREET 1: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012179858 MAIL ADDRESS: STREET 2: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 ENTREMED FORM 10-Q. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20459 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________. Commission file number 0-20713 ------- ENTREMED, INC. -------------- (Exact name of registrant as specified in its charter) Delaware 58-1959440 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)
Suite 200 9610 Medical Center Drive Rockville, Maryland ------------------- (Address of principal executive offices) 20850 ----- (Zip code) (301) 217-9858 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date. Class Outstanding at November 12, 1996 - ---------------------------------- -------------------------------- Common Stock $.01 Par Value 11,993,912
2 ENTREMED, INC. Table of Contents
PART I. FINANCIAL INFORMATION PAGE ---- Item 1 -- Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 1 -- Legal Proceedings 11 Item 2 -- Changes in Securities 11 Item 3 -- Defaults upon Senior Securities 11 Item 4 -- Submission of Matters to Vote of Security Holders 11 Item 5 -- Other Information 11 Item 6 -- Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 3 ENTREMED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------------- ----------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 53,445,893 $ 6,885,099 Accounts receivable 100,289 2,500,000 Interest receivable 47,764 4,016 Prepaid expenses 156,800 - ------------------- ----------------- Total current assets 53,750,746 9,389,115 ------------------- ----------------- Furniture and equipment, net 812,807 754,399 ------------------- ----------------- Other assets 101,661 2,869 ------------------- ----------------- Total assets $ 54,665,214 $ 10,146,383 =================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,411,128 $ 367,250 Accrued liabilities 342,276 341,776 Capital lease obligations 206,217 396,113 Deferred revenues 1,676,667 2,594,166 ------------------- ----------------- Total current liabilities 3,636,288 3,699,305 ------------------- ----------------- Capital lease obligations, less current portion - 104,152 ------------------- ----------------- Deferred revenues, less current portion 2,216,666 2,741,666 ------------------- ----------------- Minority interest 63,668 - ------------------- ----------------- Stockholders' equity: Preferred stock, $1.00 par value 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 1996 (unaudited); 5,000,000 shares authorized, 3,000,000 shares of Series A issued and outstanding as of December 31, 1995; - 3,000,000 Common stock, $.01 par value: 27,000,000 shares authorized, 11,993,912 and 6,376,588 shares issued and outstanding as of September 30, 1996 and December 31, 1995, respectively 119,939 63,766 Additional paid-in capital 72,635,057 21,024,465 Accumulated deficit (24,006,404) (20,486,971) ------------------- ----------------- Total stockholders' equity 48,748,592 3,601,260 ------------------- ----------------- Total liabilities and stockholders' equity $ 54,665,214 $ 10,146,383 =================== =================
The accompanying notes are an integral part of the financial statements. 3 4 ENTREMED, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ------------------------------ ---------------------------- Revenues: Collaborative research & development $ 1,042,500 $ - $ 3,127,500 $ - License fee 50,000 - 150,000 - Grant revenues - 45,814 - 133,912 ------------- ------------ ------------- ------------- Total revenues 1,092,500 45,814 3,277,500 133,912 ------------- ------------ ------------- ------------- Expenses: Research & development 2,429,696 1,161,948 5,739,011 3,874,463 General & administrative 721,022 457,272 1,964,657 1,379,338 ------------- ------------ ------------- ------------- Total operating expenses 3,150,718 1,619,220 7,703,668 5,253,801 Interest expense (5,565) (14,779) (23,755) (30,013) Interest income 704,247 5,640 950,042 16,976 ------------- ------------ ------------- ------------- Net loss before minority interest (1,359,536) (1,582,545) (3,499,881) (5,132,926) Minority interest (19,551) - (19,551) - ------------- ------------ ------------- ------------- Net loss $(1,379,087) $(1,582,545) $ (3,519,432) $(5,132,926) ============= ============ ============= ============= Pro forma net loss per share $ (0.11) $ (0.17) $ (0.35) $ (0.56) ============= ============ ============= ============= Pro forma weighted average number of shares outstanding 11,993,912 9,396,811 10,181,028 9,128,924 ============= ============ ============= =============
The accompanying notes are an integral part of the financial statements. 4 5 ENTREMED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (3,519,432) $ (5,132,926) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 151,207 140,041 Deferred revenue (1,442,499) - Changes in assets and liabilities: Accounts receivable 2,399,711 - Prepaid expenses (156,800) - Other assets (422) 14,877 Accounts payable 1,043,878 260,383 Accrued liabilities 500 180,648 Interest receivable (43,748) - ---------------- --------------- Net cash used by operating activities (1,567,605) (4,536,977) ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES Investments (36,332) - Purchases of furniture & equipment (207,985) (119,391) ---------------- ---------------- Net cash used by investing activities (244,317) (119,391) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale lease-back - 654,020 Payment of capital lease obligations (294,048) (182,564) Proceeds from sales of common stock 48,666,765 4,420,132 Repayment of note payable - 510,000 --------------- --------------- Net cash provided by financing activities 48,372,717 5,401,588 --------------- --------------- Net increase in cash and cash equivalents 46,560,795 745,220 Cash and cash equivalents at beginning of period 6,885,099 218,619 --------------- --------------- Cash and cash equivalents at end of period $ 53,445,894 $ 963,839 =============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NONCASH INVESTMENT AND FINANCING ACTIVITIES Interest paid $ 23,755 $ 30,013 =============== =============== Equipment purchased under capital lease $ - $ 122,909 =============== ===============
The accompanying notes are an integral part of the financial statements. 5 6 ENTREMED, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited and condensed consolidated financial information of EntreMed, Inc. (the "Company") includes the accounts of its subsidiary, Cytokine Sciences, Inc. Cytokine Sciences was formed in June 1996 and was capitalized with $250,000 by EntreMed for the purpose of acquiring the assets of Innovative Therapeutics, Inc. which acquisition was completed in July 1996 in exchange for 15% of the common stock of Cytokine Sciences, Inc. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the Company's audited financial statements and footnotes thereto included in the Company's Prospectus dated June 11, 1996. 2. NET LOSS PER SHARE Pro Forma Net Loss Per Share Net loss per common share and weighted average shares outstanding for the periods presented give effect to the automatic conversion of 3,000,000 shares of preferred stock into 2,000,000 shares of common stock as of the date of the Company's initial public offering on June 11, 1996. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Number 83, common and convertible preferred stock issued for consideration below the initial public offering price of $15.00 and stock options and warrants issued with exercise prices below the initial public offering price during the twelve-month period preceding the initial filing of the registration statement have been included in the calculation of common shares, using the treasury stock method, as if they were outstanding for all periods prior to the effective date of the initial public offering. Net loss per common share is computed based on the weighted average number of common shares and, when dilutive, common equivalent shares (stock options and warrants) outstanding during each of the periods. 6 7 2. NET LOSS PER SHARE (Continued) Historical Net Loss Per Share The historical net loss per share amounts as required by generally accepted accounting principles, which do not give effect to the pro forma conversion of the preferred stock described above, are as follows:
Three Month Period Ended Nine Month Period Ended September 30, September 30, ------------------------------ ------------------------- 1996 1995 1996 1995 ------------------------------ ------------------------- (unaudited) (unaudited) Net loss per share $ (0.11) $ (0.21) $ (0.39) $ (0.72) =========== =========== ========= ========= Weighted average common and common equivalent shares outstanding during the period 11,993,912 7,396,811 8,994,214 7,128,124 =========== =========== ========= =========
3. INITIAL PUBLIC OFFERING On June 17, 1996, the Company completed an initial public offering of 3,200,000 shares of the Company's common stock at a price of $15.00 per share. Bristol-Myers Squibb Company, a party to a collaboration with the Company, also purchased from the Company in a private placement on the closing of the offering 333,333 shares of the Company's common stock at $15.00 per share. The initial public offering resulted in net proceeds to the Company of approximately $43,500,000 and the private placement with Bristol-Myers Squibb Company ("BMS") resulted in net proceeds to the Company of an additional $5,000,000. 4. CONTINGENCIES The Company is a party to certain litigation filed in August 1995 in the United States District Court for the Eastern District of Tennessee by Bolling McCool & Twist, a consulting firm. The suit relates to a claim for services rendered in the approximate amount of $50,000 and seeks a finder's fee in an unspecified amount in connection with the Bristol-Myers collaboration. The Company is unable to predict with certainty the eventual outcome of the lawsuit. The Company is contesting the action vigorously and believe that this proceeding will not have a material adverse effect on the Company or its financial statements, although there can no assurance that this will be the case. 7 8 ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Since its inception in September 1991, the Company has devoted substantially all of its efforts and resources to sponsoring and conducting research and development on its own behalf and through collaborations with corporate partners and academic research and clinical institutions, and establishing its facilities and hiring personnel. In December 1995, the Company entered into a collaboration agreement with Bristol-Myers Squibb ("BMS") in which BMS made an equity investment in the Company and agreed to pay certain research and development fees and expenses, license fees, milestone payments, and royalties on net sales, if any. Through September 30, 1996, with the exception of license fees and research and development funding from BMS and certain research grants, the Company had not generated any revenue from operations. The Company anticipates its revenue sources for the next several years will be limited to research grants and future collaboration payments from BMS and from other collaborators under arrangements that may be entered into in the future. The timing and amounts of such revenues, if any, will likely fluctuate and depend upon the achievement of specified milestones. RESULTS OF OPERATIONS Three Months Ended September 30, 1996 and 1995 Revenues increased to $1,092,500 during the three months ended September 30, 1996 ("1996 Three Months") from approximately $45,800 during the three months ended September 30, 1995 ("1995 Three Months"). This increase primarily reflects revenue received under the BMS collaboration agreement which was executed in December 1995. The collaborative research and development fees relate to the amortization over five years of a one-time payment of $2,500,000 received in December 1995 and the amortization of semi-annual payments of $1,835,000 under the BMS collaboration agreement. The license fee represents the amortization over five years of a one-time $1,000,000 license fee received in December 1995 under the BMS collaboration agreement. Research and development expenses increased by 109% from approximately $1,162,000 in the 1995 Three Months to $2,430,000 in the 1996 Three Months. Research and development expenditures include sponsored research payments to academic collaborators and expenses related to the Company's internal research programs. The increase in research and development costs reflects increased efforts in the Company's sponsored research and product development programs related to its angiogenesis and cell permeation technologies, including a $1,000,000 payment to Children's Hospital in connection with the Company's angiogenesis program. General and administrative expenses increased by 58% to approximately $721,000 during the 1996 Three Months as compared to approximately $457,000 in the 1995 Three Months. The increase represents increased management and administrative expenses related to supporting research and development activities as well as a result of additional costs associated with being a publicly-held company. Interest income increased to $704,000 for the 1996 Three Months from $6,000 for the 1995 Three Months. This increase is a result of the investment of the proceeds received from the BMS collaboration agreement and the capital raised in the Company's initial public offering. 8 9 Minority interest expense relates to the portion of the income recognized by Cytokine Sciences from the sponsored research funding provided by EntreMed that is attributed to the minority shareholders' of Cytokine Sciences. Nine Months Ended September 30, 1996 and 1995 Revenues increased to $3,278,000 during the nine months ended September 30, 1996 ("1996 Nine Months") from approximately $134,000 during the nine months ended September 30, 1995 ("1995 Nine Months"). This increase primarily reflects revenue received under the BMS collaboration agreement, which was executed in December 1995. The collaborative research and development fees relate to the amortization over five years of a one-time payment of $2,500,000 and the amortization of semi-annual payments of $1,835,000 under the BMS collaboration agreement. The license fee represents the amortization over five years of a one-time $1,000,000 license fee under the BMS collaboration agreement. Research and development expenses increased by 48% from approximately $3,875,000 in the 1995 Nine Months to approximately $5,739,000 in the 1996 Nine Months. This increase reflects increased efforts in the Company's sponsored research and product development programs related to its angiogenesis and cell permeation technologies, offset in part by a reduction in expenditures relating to the development of vaccines. General and administrative expenses increased by 42% in the 1996 Nine Months to approximately $1,965,000 from $1,379,000 in the 1995 Nine Months. This increase in general and administrative expenses reflects (i) a one time charge of $233,000 related to future payments to a founder and former director of the Company as compared to $67,500 of consulting fees to this individual during the 1995 Nine Months, (ii) additional general and administrative expenses to support increased research and development activities, and (iii) additional costs associated with being a publicly-held company. Interest income increased to $950,000 in the 1996 Nine Months from $17,000 in the 1995 Nine Months. This increase is a result of the investment of additional working capital generated from the BMS collaboration agreement and the capital raised in the Company's initial public offering. Minority interest expense relates to the portion of the income recognized by Cytokine Sciences from the sponsored research funding provided by EntreMed that is attributed to the minority shareholders' of Cytokine Sciences. 9 10 Liquidity and Capital Resources At September 30, 1996, the Company had cash and cash equivalents of approximately $53,450,000 and working capital of approximately $50,100,000, primarily representing the net proceeds of the Company's initial public offering and concurrent private placement with BMS in June 1996 together with funds received under the BMS agreement entered into in December 1995. Prior to December 1995, the Company funded its operations from proceeds of private placements of equity securities which raised approximately $17,000,000, various grants totaling approximately $437,000, and certain borrowings. The Company's cash resources have been used to finance research and development, including sponsored research, capital expenditures, including leasehold improvements to the Company's laboratory facility, and general and administrative expenses. Over the next several years, the Company expects to incur substantial additional research and development costs, including costs related to early-stage research in areas not reimbursed by BMS, preclinical and clinical trials, increased administrative expenses to support its research and development operations and increased capital expenditures for pilot manufacturing capacity, various equipment needs and facility improvements. As of November 1, 1996, the Company was a party to sponsored research agreements and clinical trials requiring the Company to fund an aggregate of approximately $6,323,000 through 1999 (including $5,000,000 to Children's Hospital) and license agreements requiring milestone payments of up to $2,360,000 and additional payments upon attainment of regulatory milestones. BMS is obligated to make additional semi-annual payments to the Company of $1,835,000 in each of June and December through June 2000 and $365,000 in December 1996 as well as additional payments in the event certain mostly late-stage regulatory milestones are achieved. BMS may terminate the collaboration agreement and return the licensed technology to the Company at any time upon six months notice, in which event it would have no further funding obligation to the Company. ------------------- Statements herein that are not descriptions of historical facts are forward-looking and subject to risk and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Company's Securities and Exchange Commission filings under "Risk Factors", including risks relating to the early stage of products under development; uncertainties relating to clinical trials' dependence on third parties' future capital needs; and risks relating to the commercialization, if any, of the Company's proposed products (such as marketing, safety, regulatory, patent, product liability, supply, completion and other risks). 10 11 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS This information as set forth in Note 4 of "Notes to Condensed Consolidated Financial Statements" appearing in Item 1 of Part I of this report is incorporated herein by reference. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULT UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not applicable. Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: 11 Computation of Earnings Per Share 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed by Registrant during the quarter ended September 30, 1996. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENTREMED, INC. (Registrant) Date: November 13, 1996 /s/ John W. Holaday ------------------------------------- John W. Holaday, Ph.D. President and Chief Executive Officer Date: November 13, 1996 /s/ John C. Thomas, Jr. -------------------------------------- John C. Thomas, Jr. Chief Financial Officer 12 EX-11 2 COMPUTATION. 1 EXHIBIT 11 ENTREMED, INC. COMPUTATION OF EARNINGS PER SHARE (1)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 --------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding during the period 11,993,912 5,463,575 8,710,439 5,315,435 Effect of common stock issued and stock options and warrants granted subsequent to April 12, 1995 computed in accordance with the treasury stock method as required by the SEC (2) - 1,933,236 283,775 1,812,689 --------------------------------------------------------------------------- Total common and common equivalent shares 11,993,912 7,396,811 8,994,214 7,128,124 =========================================================================== Net loss $ (1,379,087) $ (1,582,545) $ (3,519,432) $ (5,132,926) =========================================================================== Net loss per share $ (0.11) $ (0.21) $ (0.39) $ (0.72) ---------------------------------------------------------------------------
(1) All share information has been adjusted to reflect a two-for-three reverse stock split. (2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, Common and Preferred Stock issued and stock options and warrants granted at prices below the initial public offering price of $ 15.00 per share during the 12-month period immediately preceding the initial filing date of the Company's Registration Statement for its initial public offering have been included as outstanding for all periods presented using the treasury stock method. EX-27 3 FINANCIAL DATA SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 53,445,893 0 100,289 0 0 53,750,746 1,149,376 336,569 54,665,214 3,636,288 0 0 0 119,939 48,628,653 54,665,214 0 3,277,500 0 0 7,703,668 0 23,755 (3,519,432) 0 (3,519,432) 0 0 0 (3,519,432) (0.35) 0
-----END PRIVACY-ENHANCED MESSAGE-----