-----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, IHdJTciLg4+CLPmZw/8aMAag+DzC4JiE1+k9RhDFI79y/xfyW2VVaEN8T/CICXGt 2svvMwF63qmWBlkLhnNArg== 0001021408-99-001353.txt : 19990809 0001021408-99-001353.hdr.sgml : 19990809 ACCESSION NUMBER: 0001021408-99-001353 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLIS EDEN PHARMACEUTICALS INC /DE/ CENTRAL INDEX KEY: 0000899394 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133697002 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24672 FILM NUMBER: 99679958 BUSINESS ADDRESS: STREET 1: 9333 GENESEE AVENUE STREET 2: SUITE 110 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195879333 MAIL ADDRESS: STREET 1: 9333 GENESEE AVENUE STREET 2: SUITE 110 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: INITIAL ACQUISITION CORP DATE OF NAME CHANGE: 19930329 10-Q 1 FORM 10-Q DATED JUNE 30, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) Quarterly Report Under Section 13 or 15 (d) X - ------ Of the Securities Exchange Act of 1934 For Quarterly Period Ended June 30, 1999 Transition Report Pursuant to Section 13 or 15(d) ______ of the Securities Exchange Act 1934 for the period from ___ to ___. HOLLIS-EDEN PHARMACEUTICALS, INC (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 000-24672 13-3697002 (Commission File No.) (I.R.S. Employer Identification No.) 9333 Genesee Ave., Suite 200 SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (858) 587-9333 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 As of July 30, 1999 there were 11,058,344 shares of registrant's Common Stock, $.01 par value, outstanding. HOLLIS-EDEN PHARMACEUTICALS, INC. Form 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 INDEX
PART I Financial Information Page ---- Item 1 Financial Statements.......................................................... 3 Balance Sheet - December 31, 1998 and June 30, 1999........................... 3 Statements Of Operations for the Three-Month and Six-Month Periods Ended June 30, 1998 and 1999 and Period from August 15, 1994 to June 30, 1999....... 4 Statements Of Cash Flows for the Six-Month Periods Ended June 30, 1998 and 1999 and Period from August 15, 1994 to June 30, 1999..................... 5 Notes To Financial Statements................................................. 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition........................................................... 7 PART II Other Information Item 1 Legal Proceedings............................................................. 10 Item 2 Changes in Securities......................................................... 10 Item 3 Defaults Upon Senior Securities............................................... 10 Item 4 Submission of Matters to a Vote of Security Holders........................... 10 Item 5 Other Information............................................................. 10 Item 6 Exhibits and Reports on Form 8-K.............................................. 10
2 Part I. Financial Information Item I. Financial Statements Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company) Balance Sheets (Unaudited)
Dec. 31, June 30, 1998 1999 ---- ---- ASSETS: Current assets: Cash and cash equivalents........................................ $ 24,189,806 $ 50,591,936 Prepaid expenses.................................................. 26,250 122,062 Deposits.......................................................... 9,163 27,185 Other receivable from related party............................... 206,663 248,165 ------------- ------------- Total current assets............................................ 24,431,882 50,989,348 Property and equipment, net of accumulated depreciation of $28,201 and $51,567............................. 92,343 331,294 ------------- ------------- Total assets.................................................... $ 24,524,225 $ 51,320,642 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued expenses............................. $ 221,670 $ 502,913 ------------- ------------- Total liabilities............................................... 221,670 502,913 Commitments and contingencies Stockholders' equity: Preferred stock, no par value, 10,000,000 shares authorized; 4,000 and 0 shares outstanding 40 - Common stock, $.01 par value, 30,000,000 shares authorized;8,592,202 and 11,058,344 shares issued and outstanding....................... 85,922 110,583 Paid-in capital................................................. 38,795,887 74,698,780 Deferred compensation-stock options, net of accumulated amortization of $590,000 and $641,333.............. (1,258,000) - Deficit accumulated during development stage.................... (13,321,294) (23,991,634) ------------- ------------- Total stockholders' equity..................................... 24,302,555 50,817,729 ------------- ------------- Total liabilities and stockholders' equity..................... $ 24,524,225 $ 51,320,642 ============= =============
The accompaning notes are an integral part of these financial statements. 3 Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company) Statements of Operations (Unaudited) - --------------------------------------------------------------------------------
Period from Inception (Aug.15,1994) to 3 months ended June 30, 6 months ended June 30, June 30, 1998 1999 1998 1999 1999 ---- ---- ---- ---- ---- Operating expenses: Research and development.............. $ 628,486 $ 1,601,292 $ 1,184,533 $ 2,360,272 $ 10,440,128 General and administrative............ 762,690 1,274,435 1,475,085 9,406,258 15,812,607 ----------- -------------------------- ---------------------------- Total operating expenses............... 1,391,176 2,875,727 2,659,618 11,766,530 26,252,735 Other income (expense): Interest income....................... 209,676 598,690 294,811 1,096,190 2,310,650 Interest expense...................... (1,726) - (1,726) - (49,549) ----------- -------------------------- ---------------------------- Total other income..................... 207,950 598,690 293,085 1,096,190 2,261,101 ----------- -------------------------- ---------------------------- Net loss............................... $(1,183,226) $(2,277,037) $(2,366,533) $(10,670,340) $(23,991,634) =========== ========================== ============================ Net loss per share..................... $ (0.15) $ (0.21) $ (0.33) $ (1.00) Weighted average number of common shares outstanding............. 7,716,671 11,058,344 7,256,578 10,661,021
The accompanying notes are an integral part of these financial statements. 4 Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company) Statements of Cash Flows (Unaudited) - --------------------------------------------------------------------------------
Period from Inception (Aug. 15, 1994) to 6 months ended June 30, June 30, 1998 1999 1999 ------------- ------------- --------------- Cash flows from operating activities: Net loss..................................... $ (2,366,533) $(10,670,340) $(23,991,634) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation............................. 9,760 23,366 51,567 Common stock issued as consideration for amendments to license agreements.... - - 32,540 Common stock issued as consideration for termination of a finance agreement.. - - 33,962 Common stock issued as consideration for license fees and services........... 564,000 - 595,000 Expense related to warrants issued as consideration to consultants............ - 2,140,000 2,140,000 Expense related to options issued as consideration to consultants............ 208,012 10,029 432,070 Expense related to warrants issued to a director for successful closure of merger................................. - - 570,000 Expense related to stock options issued.................................. - 4,900,000 5,140,000 Deferred compensation expense related to options issued....................... 154,000 274,430 864,430 Changes in assets and liabilities: Prepaid expenses............................. (119,350) (95,813) (122,063) Deposits..................................... - (18,022) (27,185) Other receivable - tax refund................ 105,436 - - Receivable from related party................ (212,688) (41,502) (248,165) Accounts payable and accrued expenses........ (48,343) 271,215 502,913 Disposal of assets........................... - 6,834 6,834 R & D fees payable to related party.......... (338,000) - - ------------ ------------ ------------- Net cash used in operating activities.... (2,043,706) (3,199,803) (14,019,731) Cash flows provided by investing activities: Purchase of property and equipment........... (9,143) (269,152) (389,696) ------------ ------------ ------------ Net cash used in investing activities.... (9,143) (269,152) (389,696) Cash flows from financing activities: Borrowings from related party................ - - 342,000 Payments on note payable to related party.... - - (342,000) Contributions from stockholder............... - - 103,564 Net proceeds from sale of preferred stock.... 4,000,000 - 4,000,000 Net proceeds from sale of common stock....... 15,889,829 24,772,506 42,171,834 Proceeds from issuance of debt............... - - 371,164 Net proceeds from recapitalization........... - - 6,270,782 Net proceeds from warrants exercised......... 555,641 5,098,578 12,084,018 ------------ ------------ ------------ Net cash from financing activities....... 20,445,470 29,871,084 65,001,362 Net increase in cash........................... 18,392,621 26,402,129 50,591,935 Cash at beginning of period.................... 7,102,620 24,189,806 - ------------ ------------ ------------- Cash at end of period.......................... $ 25,495,241 $ 50,591,935 $ 50,591,935 ------------ ------------ -------------
The accompanying notes are an integral part of these financial statements. 5 HOLLIS-EDEN PHARMACEUTICALS, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The information at June 30, 1999, and for the three- and six-month periods ended June 30, 1998 and 1999, is unaudited. In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with Hollis-Eden Pharmaceuticals (the "Company") Annual Report on Form 10-K for the year ended December 31, 1998, which was filed with the United States Securities and Exchange Commission on March 30, 1999. 2. Acceleration of Options On March 1, 1999, the Company announced the resignation of its president. Concurrent therewith, the Company accelerated the vesting of 300,000 stock options previously granted to the president. This acceleration is considered to be a new grant of options and as such, the Company expensed a one time non-cash charge of $4.9 million during the first quarter of 1999. 3. Issuance of Warrants During March 1999, the Company entered into a three-year agreement with a financial consulting organization affiliated with a director of the Company. The Company agreed to issue as compensation for services, warrants to purchase 500,000 shares of Common Stock with an exercise price of $20.50 per share and an expiration date of March 2002. The warrants are not subject to any vesting provisions. The warrants were estimated to have a value of approximately $2.1 million, which was expensed as a non-cash charge during the first quarter of 1999. 4. Preferred Stock converted to Common Stock During January 1999, the Company issued 346,217 shares of common stock in connection with the conversion of the Series A convertible preferred stock and additional shares relating to the adjustable common stock. The adjustable common stock was issued during the private placement of May 1998 and was subject to adjustment based on the future average stock price of the Company's Common Stock. 5. Private Placements of Common Stock During January 1999, the company completed two private placements of an aggregate of 1,367,868 shares of Common Stock at prices ranging from $18.00 to $18.50 per share. In connection with the private placements, the Company issued warrants to purchase an aggregate of 90,000 shares of the Company's Common Stock, with an exercise price of $18.25 per share, as a finder's fee. The Company raised approximately $25.0 million. 6. Termination of Additional Merger Share Rights During January 1999, the Company terminated the additional merger share rights as a result of the above mentioned private placement and the Company's average closing stock price. The additional merger 6 share rights were granted to non-affiliated stockholders of Initial Acquisition Corp. at the time of the merger between Hollis-Eden and Initial Acquisition Corp. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The forward-looking comments contained in the following discussion involve risks and uncertainties. The Company's actual results may differ materially from those discussed here. Factors that could cause or contribute to such differences can be found in the following discussion, as well as in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information, management recommends that this discussion and analysis be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, which was filed with the United States Securities and Exchange Commission on March 30, 1999. General Hollis-Eden is a pharmaceutical company in the development stage. We intend to discover, develop and commercialize products for the treatment of a number of targeted disease states caused by viral, bacterial, parasitic or fungal infections, including HIV/AIDS, hepatitis B and C, and malaria. We have three technology platforms, the first based on cellular energy regulation, the second on a unique immune system modulation technology, and the third on the inhibiting of protein RNA and DNA synthesis. We believe that certain of our drug candidates may provide the first long-term treatment of HIV without the development of viral strain resistance to the drugs' effectiveness, significant toxicity or severe side effects. Hollis-Eden has not yet generated any operating revenues. We have experienced significant operating losses due to substantial expenses incurred to acquire and fund development of our drug candidates and, as of June 30, 1999, had an accumulated deficit of $24.0 million. When and if any of Hollis-Eden's drug candidates have been approved for commercial sale, we plan to market them in the United States. For international markets, we intend to develop strategic alliances with major pharmaceutical companies that have foreign regulatory expertise and established distribution channels, and will also consider corporate strategic partnerships and co- marketing agreements. No assurances can be given that any of our drug candidates will be approved for commercial sale or that any of the foregoing proposed arrangements will be implemented or prove to be successful. Hollis-Eden has been unprofitable since inception and expects to incur substantial additional operating losses for at least the next few years as it increases expenditures on research and development and allocates significant and increasing resources to its clinical testing and other activities. In addition, during the next few years, we will have to meet the substantial new challenge of developing the capability to market products. Accordingly, our activities to date are not as broad in depth or scope as the activities we must undertake in the future, and our historical operations and financial information are not indicative of our future operating results or financial condition or our ability to operate profitably as a commercial enterprise when and if we succeed in bringing any drug candidate to market. Results of Operations Hollis-Eden has not generated any revenues for the period from the founding, on August 15, 1994, through June 30, 1999. We have devoted substantially all of our resources to the payment of licensing fees and research and development fees plus expenses related to the startup of our business. From the founding until June 30, 1999, we have incurred expenses of approximately $10.4 million in research and development fees, 7 $15.8 million in general and administrative expenses, and $2.2 million in net interest income resulting in a loss of $24.0 million for the period. Research and Development expenses increased to $1.6 million from $628,000 and increased to $2.4 million from $1.2 million for the three- and six-month periods ended June 30, 1999, respectively, as compared to the same periods for the previous year. The research and development expenses relate primarily to the ongoing development, preclinical testing, and clinical trials for the Company's first drug candidate, HE2000. The increase in research and development expenses in 1999 as compared to 1998 was due to increased staffing, preclinical work, and the initiation of clinical trials. General and administrative expenses increased to $1.3 million from $763,000 and increased to $9.4 million from $1.5 million for the three- and six- month periods ended June 30, 1999. The 1999 general and administrative expenses included (i) $7.0 million during the first quarter for non-cash charges, due to the acceleration of vesting of stock options for the Company's former president and the issuance of warrants for services (see notes 2 and 3 above), (ii) increased staffing, and (iii) increased operating expenses for salaries, benefits, recruiting, legal, and travel. Net interest income increased to $599,000 from $210,000 and increased to $1.1 million from $294,000 in the three- and six-month periods ended June 30, 1999 compared to 1998. The interest income increases are due to higher balances of cash and cash equivalents as a result of the private placements of May, 1998 and January, 1999. Liquidity and Capital Resources Hollis-Eden has financed its operations since inception through the sale of shares of stock and with loans from the founder, Richard B. Hollis, which were repaid in January 1996. During the year ended December 31, 1995, Hollis-Eden received cash proceeds of $250,000 from the sale of its securities. In May 1996, we completed a private placement of shares of Common Stock, from which we received aggregate gross proceeds of $1.3 million. In March 1997, the Merger of IAC and Hollis-Eden provided us with $6.5 million in cash and other receivables. During May 1998, we closed a private placement of shares of Common and Preferred Stock with gross proceeds totaling $20.6 million. During January 1999, we closed two private placements of shares of Common Stock with aggregate gross proceeds of approximately $25.0 million. In addition, during the past two years, we have received $12.1 million from the exercise of warrants. Under the license agreements with Patrick T. Prendergast, Colthurst and Edenland, Hollis-Eden is obligated to pay certain minimum license fees to maintain its rights to its drug candidates. As of June 30, 1999, we are current on all license fee obligations under these agreements. Under its Research and Development Agreement with Edenland and Patrick T. Prendergast, Hollis-Eden committed to pay $3.0 million for the development costs related to REVERSIONEX. These development costs were accrued as an expense during 1997 and paid in full by April 1998. Hollis-Eden's operations to date have consumed substantial capital without generating any revenues, and we will continue to require substantial and increasing amounts of funds to conduct necessary research and development and preclinical and clinical testing of our drug candidates, and to market any drug candidates that receive regulatory approval. We do not expect to generate revenue from operations for the foreseeable future, and our ability to meet our cash obligations as they become due and payable is expected to depend for at least the next several years on our ability to sell securities, borrow funds or some combination thereof. Based upon our current plans, we believe that our existing capital resources, together with interest thereon, will be sufficient to meet our operating expenses and capital requirements through the end of 2001. There can be no assurance, however, that changes in our research and development plans or other events affecting our operating expenses will not result in the expenditure of such cash before that time. No assurance can be given that we will be 8 successful in raising necessary funds. Our future capital requirements will depend upon many factors, including progress with preclinical testing and clinical trials, the number and breadth of our programs, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved in obtaining regulatory approvals, competing technological and market developments, and our ability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. In any event, we will continue to incur increasing negative cash flows and net losses for the foreseeable future. Year 2000 Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish the 21st century dates from 20th century dates. As a result, in less than one year, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. We upgraded our accounting software during 1998 with a version that is Year 2000 compliant. In addition, we have upgraded all of our computer operating systems. We recently completed the upgrading of our communications systems and other non-information technology systems. We believe that our computer systems, applications and communications systems are Year 2000 compliant. We do not expect that the costs associated with achieving Year 2000 compliance will have a material adverse effect on its future results of operations, liquidity or capital resources. We have spent less than five thousand dollars in connection with our Year 2000 compliance efforts to date. We have been contacting our material suppliers and third party service providers to identify their Year 2000 problems and provide solutions to prevent the disruption of our business activities. We have completed our review of the compliance efforts with the majority of these parties. We cannot guarantee that the computer systems and applications of other companies on which we rely upon will be timely converted. Any such failure by these other companies to become Year 2000 compliant could materially adversely affect us. Moreover, the following could have a material adverse effect on our business or financial condition: [_] failure of suppliers and third-party service providers equipment to operate or to operate accurately; [_] failure of clinical trial site medical equipment to perform properly; [_] failure of necessary materials or supplies to be available to us when needed, or [_] failure of other equipment, software, or systems as a result of Year 2000 problems. During the balance of this year, we intend to complete our review of the remaining third party service providers, to assess worst case scenarios and to develop one or more contingency plans that may be necessary, such as securing alternative vendors. 9 PART II Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Securities Holders The Annual Meeting of Stockholders of Hollis-Eden Pharmaceuticals was held on May 17, 1999. At this meeting, the Company solicited the vote of the stockholders on the proposals set forth below and received for each proposal the votes indicated below: (1) To elect two Class II directors to hold office until the 2002 Annual Meeting of Stockholders. Elected to serve as Class II directors were Brendan R. McDonnell and Thomas Charles Merigan, Jr., M.D. For each elected director the results of voting were: 8,817,560 for, 368,087 withheld, and 0 abstained. The continuing directors are Richard B. Hollis, J. Paul Bagley, Leonard Makowka, William H. Tilley, and Salvatore J. Zizza. (2) To approve the Company's 1997 Incentive Stock Option Plan, as amended, to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 1,000,000 shares to a total of 2,250,000 shares. The 1997 Incentive Stock Option Plan, as amended, was approved with the following votes: 5,036,005 for, 516,346 against, and 19,222 abstained. (3) To ratify the selection of BDO Seidman, LLP as independent auditors of the Company for its fiscal year ending December 31, 1999. The selection of BDO Seidman, LLP as independent auditors of the Company for its fiscal year ending December 31, 1999 was approved with the following votes: 9,165,352 for, 14,650 against, and 5,645 abstained. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K Exhibits: 27 Financial Data Schedule (filed electronically only) 10 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 hereunto duly authorized. HOLLIS-EDEN PHARMACEUTICALS, INC. Dated: August 5, 1999 By: /s/ Robert W. Weber ------------------------------ Robert W. Weber Vice President-Controller (Principal Financial and Accounting Officer) INDEX TO EXHIBITS 27 Financial Data Schedule (Filed Electronically Only) 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1999 JUN-30-1999 50,591,936 0 0 0 0 50,989,348 382,861 51,567 51,320,642 502,913 0 0 0 110,583 51,210,059 51,320,642 0 0 0 11,766,530 0 0 0 (10,670,340) 0 (10,670,340) 0 0 0 (10,670,340) (1.00) (1.00)
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