SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________________ TO ________________
COMMISSION FILE NUMBER 0-26918
EXEGENICS INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2402409
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2110 RESEARCH ROW, SUITE 621, DALLAS, TEXAS 75235
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(214)-358-2000 358-2000
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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: 16,184,486 SHARES OF COMMON
STOCK, $.01 PAR VALUE, OUTSTANDING AS OF MAY 7,AUGUST 6, 2002.
TABLE OF CONTENTS
Page(s)
-------
PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Balance Sheets as of March 31,June 30, 2002 (unaudited)
and December 31, 2001 3
Statements of Operations for the Three Months
And Six Months Ended March 31,June 30, 2002 and 2001 (unaudited) 4
Statements of Cash Flows for the ThreeSix Months
Ended March 31,June 30, 2002 and 2001 (unaudited) 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. -- Quantitative and Qualitative Disclosures About
Market Risk 1112
PART II. OTHER INFORMATION
Item 1. -- Legal Proceedings 1112
Item 2. -- Changes in Securities and Use of Proceeds 1112
Item 3. -- Defaults upon Senior Securities 1112
Item 4. -- Submission of Matters to a Vote of Security Holders 1112
Item 5. -- Other Information 1113
Item 6. -- Exhibits and Reports on Form 8-K 1113
EXEGENICS INC.
BALANCE SHEETS
MARCH 31,JUNE 30, DECEMBER 31,
2002 2001
------------ -------------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 13,750,00011,620,000 $ 14,995,000
Restricted cash 550,000 550,000
Investments 10,038,00010,027,000 10,050,000
Prepaid expenses and other current assets 345,000421,000 656,000
------------ ------------
Total current assets 24,683,00022,618,000 26,251,000
Equipment, net 806,000708,000 1,009,000
Patent rights, less accumulated amortization of $120,000$129,000 and $111,000 64,00055,000 74,000
Notes receivable - officer/employee/stockholder 278,000 278,000
Other assets 8,000 13,000
------------ ------------
Total $ 25,839,00023,667,000 $ 27,625,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 922,000827,000 $ 1,163,000
Deferred revenue 222,000- 56,000
Current portion of capital lease obligations 59,00091,000 83,000
------------ ------------
Total current liabilities 1,203,000918,000 1,302,000
Capital lease obligations, less current portion 202,000148,000 202,000
------------ ------------
Total liabilities 1,405,0001,066,000 1,504,000
------------ ------------
Commitments and contingencies - -
Stockholders' Equity:
Preferred stock - $.01 par value, 10,000,000 shares authorized; 831,574828,023
and 755,590 shares of Series A convertible preferred issued
and outstanding (liquidation value $2,078,935$2,070,000 and $1,890,000) 8,000 8,000
Common stock - $.01 par value, 30,000,000 shares authorized; 16,184,486
and 16,180,935 shares issued 162,000 162,000
Additional paid-in capital 67,106,00067,145,000 67,025,000
Subscriptions receivable (363,000)(352,000) (360,000)
Unearned compensation (1,000)- (5,000)
Accumulated deficit (39,908,000)(41,792,000) (38,139,000)
Treasury stock, 511,200 shares of common stock, at cost (2,570,000) (2,570,000)
------------ ------------
Total Stockholders'stockholders' equity 24,434,00022,601,000 26,121,000
------------ ------------
Total $ 25,839,00023,667,000 $ 27,625,000
============ ============
See notes to financial statements
3
EXEGENICS INC.
STATEMENTS OF CASH FLOWSOPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------SIX MONTHS ENDED
June 30, June 30,
-------------------------------- -------------------------------
2002 2001 ------------ ------------2002 2001
----------- ----------- ----------- ----------
(unaudited) (unaudited)
Revenue:
Licensing & research fees $ 333,000222,000 $ 333,000
------------ ------------334,000 $ 556,000 $ 667,000
----------- ----------- ----------- -----------
Operating Expenses:
Research and development 1,241,000 1,177,0001,254,000 1,858,000 2,476,000 3,006,000
General and administrative 1,061,000 937,000
------------ ------------
2,302,000 2,114,000
------------ ------------1,030,000 1,741,000 2,109,000 2,708,000
----------- ----------- ----------- -----------
2,284,000 3,599,000 4,585,000 5,714,000
----------- ----------- ----------- -----------
Operating (loss) (1,969,000) (1,781,000)
------------ ------------(2,062,000) (3,265,000) (4,029,000) (5,047,000)
----------- ----------- ----------- -----------
Other (income) expense:
Gain (3,000) --(Gain) or loss on disposition (2,000) - (4,000) -
Interest (income) (189,000) (461,000)(182,000) (367,000) (371,000) (828,000)
Interest expense 6,000 2,000
------------ ------------
(186,000) (459,000)
------------ ------------1,000 11,000 1,000
----------- ----------- ----------- -----------
(178,000) (366,000) (364,000) (827,000)
----------- ----------- ----------- -----------
Loss before provision (benefit)
for taxes (1,783,000) (1,322,000)items shown below (1,884,000) (2,899,000) (3,665,000) (4,220,000)
Provision (benefit) for taxes (14,000) 18,000
------------ ------------
NET LOSS (1,769,000) (1,340,000)1,000 50,000 (12,000) 68,000
----------- ----------- ----------- -----------
Net Loss (1,885,000) (2,949,000) (3,653,000) (4,288,000)
Preferred stock dividend - - (169,000) (180,000)
------------ ------------
NET LOSS ATTRIBUTABLE TO
TO COMMON SHAREHOLDERS $ (1,938,000) $ (1,520,000)
============ ============
NET LOSS PER SHARE-BASIC AND DILUTED----------- ----------- ----------- -----------
Net loss attributable to
to common shareholders $(1,885,000) $(2,949,000) $(3,822,000) $(4,468,000)
=========== =========== =========== ===========
Net loss per share-basic and diluted $ (0.12) $ (0.09)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING(0.18) $ (0.24) $ (0.28)
=========== =========== =========== ===========
Weighted average number of
shares outstanding - BASIC AND
DILUTED 16,180,935 16,148,937
============ ============basic and
diluted 15,672,857 16,154,427 15,671,305 16,160,388
=========== =========== =========== ===========
See notes to financial statements
4
EXEGENICS INC.
STATEMENTS OF CASH FLOWS
THREESIX MONTHS ENDED
MARCH 31,
----------------------------JUNE 30,
--------------------------------
2002 2001
------------ ------------------------- --------------
(unaudited)
Cash flows from operating activities:
Net (loss) $ (1,769,000)(3,653,000) $ (1,340,000)(4,288,000)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 101,000 84,000210,000 136,000
Value assigned to common shares and options 85,000 117,000for services 125,000 234,000
Changes in:
Prepaids and other assets 366,000 109,000248,000 47,000
Deferred revenue 167,000 555,000(56,000) 222,000
Accounts payable and accrued expenses (295,000) 16,000(336,000) 340,000
------------ ------------
Net cash used in operating activities (1,345,000) (459,000)(3,462,000) (3,309,000)
------------ ------------
Cash flows from investing activities:
(Purchase) salePurchase of securities 23,000 (20,070,000)
Sale (purchase) of equipment 123,000 (185,000)110,000 (461,000)
------------ ------------
Net cash provided by (used in) investing activities 123,000 (185,000)133,000 (20,531,000)
------------ ------------
Cash flows from financing activities:
Payment of royalties (23,000) --capital lease (46,000) -
Purchase of treasury stock -- (935,000)- (936,000)
------------ ------------
Net cash used in financing activities (23,000) (935,000)(46,000) (936,000)
------------ ------------
NET DECREASE IN CASH (1,245,000) (1,579,000)(3,375,000) (24,776,000)
Cash and cash equivalents at beginning of period 15,545,000 35,408,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,300,00012,170,000 $ 33,829,00010,632,000
============ ============
Supplemental disclosures of cash flow information: Noncash investing activities:
Equipment acquired included in accounts
payable and accrued expenses: -- $ 15,000- -
See notes to financial statements
5
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31,eXegenics Inc.
Notes to Financial Statements
June 30, 2002
(unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of EXEGENICS INC.eXegenics Inc., a Delaware
corporation (the "Company"), included herein have been prepared in
accordance with the rules and regulations promulgated by the Securities
and Exchange Commission and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods
presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. However, management believes that the
disclosures are adequate to make the information presented not
misleading. These financial statements and the notes thereto should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001. The results for the interim periods are
not necessarily indicative of the results for the full fiscal year.
(2) CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash, cash equivalents, and investments totaled $22,197,000 at June 30,
2002 and consisted of $12,170,000 on deposit with a financial
institution and an investment security issued by the Federal National
Mortgage Agency. The security, purchased in May 2001, matures in March
2003 and has a carrying value of $10,027,000 at June 30, 2002. Interest
at 5% per annum is received semi-annually in February and August.
(3) MASTER LICENSE AGREEMENT WITH BRISTOL-MYERS SQUIBB
In June 1998, the Company executed a "Master License Agreement" with
Bristol-Myers Squibb ("BMS"). This agreement sublicensed to BMS the
Company's rights to two technologies related to production of
paclitaxel, the active ingredient in BMS's largest selling canceranti-cancer product,
Taxol(R). The agreement provides for various fees, milestone payments,
research and development funding ($2,000,000) for a limited
term (two years) and royalties. Subsequently, an additional $2,000,000
in R&D funding was provided by BMS, and the term of a concurrent
"Sponsored Research Agreement" (detailing the specifics of the research
to be conducted by EXEGENICS) was extended through June 12, 2002. The final payment due under an R&D development funding
provision of this BMS R&D support obligationagreement was receivedmade in February 2002. (3)The Company has
thus curtailed its R&D spending on this project. Discussions are
ongoing with BMS as to their intentions to commercialize this
production process.
(4) LOSS PER COMMON SHARE
Basic and diluted loss per common share is based on the net loss
increased by dividends on preferred stock divided by the weighted
average number of common shares outstanding during the period. No
effect has been given to outstanding options, warrants or convertible
preferred stock in the diluted computation, as their effect would be
antidilutive.
(4)(5) STOCKHOLDERS' EQUITY
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which establishes a fair value-based
method of accounting for stock-based compensation plans. The Company
has adopted the disclosure-only alternative under SFAS No. 123. The
Company accounts for stock based
6
compensation to nonemployees using the fair value method in accordance
with SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No.
96-18. The Company has recognized deferred stock compensation related
to certain stock option and warrant grants. During the threesix months ended
March 31,June 30, 2002 the Company granted 10,000, 25,000, 10,000 and 25,000
options to purchase shares of common stock at $7.13, $3.28, $3.20 and
$1.67 per share, respectively, in return for consulting services.
During the threesix months ended March 31,June 30, 2001 the Company granted 5,000
options to purchase shares of common stock at $7.188 per share in
return for consulting services. The Company valued these options based onusing
the Black-Scholes option pricing model. As a result, the Company
recorded a charge of $39,100$60,100 and $1,400$2,800 during the threesix months ended
March 31,June 30, 2002 and 2001, respectively, related to these grants. In
connection with other option grants to consultants in previous years,
the Company recorded a charge of $46,000$65,000 and $115,700$231,400 during the threesix
months ended March 31,June 30, 2002 and 2001, respectively.
6
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2002
(unaudited)
(5)(6) DEFERRED REVENUE
The Company recognizes revenue from development agreements over the
stated life of the agreement. Amounts received in advance of the
services to be performed are recorded as deferred revenue. Accordingly,
funds of $500,000 received during the threesix months ended March 31,June 30, 2002,
net of $333,000$556,000 in revenues recognized cumulatively through March
31,June 30,
2002 and, including $56,000 in deferred revenue outstanding as of
December 31, 2001, resulting ineliminate deferred revenue of $222,000revenues at March
31,June 30, 2002.
(6)(7) RESERVE FOR RESTRUCTURE
The Company generally recognizes operating expenses as incurred. As
part of its reorganization efforts in June 2001, the Company terminated
several employees, remodeled facilities and moved equipment,equipment. During the
second quarter of 2002, due to the Company's decision to concentrate on
its strategic drug discovery and development programs, as well as the
completion of funding related to the "Sponsored Research Agreement"
with BMS, the Company terminated additional employees. The Company
recognized approximately $560,000 related to those activities through
March 31,June 30, 2002. Cash payments of $82,000$166,000 were charged against the
account during the quarter ending March 31,six months ended June 30, 2002. Accrued expenses
relating to restructuring are $128,000$44,000 at March 31,June 30, 2002.
(7)(8) SUBSEQUENT EVENTS
As a result of the Company's decision to concentrate on its strategic
drug discovery and development programs, as well as the impending endcompletion of
the term offunding related to the "Sponsored Research Agreement" with BMS, the
Company recently undertook a re-structuringbegan the process of its internalrenegotiating several scientific
projects. Several scientific, administrativecollaborations, including agreements with the Research and support positions were
eliminated, resulting in estimated severance paymentsDevelopment
Institute, or RDI, and Washington State University Research Foundation.
The agreement with RDI was terminated, relieving the Company of $50,000, which
will be recognized in the second quarter of 2002.future
annual minimum royalty payments.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
included in this report. This discussion contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, these forward-looking statements. Historical operating results are
not necessarily indicative of the trends in operating results for any further
period.
OVERVIEW
We were organized and commenced operations in 1991. Prior to 2001, our
efforts were principally devoted to research activities including efforts to
discover therapeutic products for human diseases. Beginning in 2001, we
repositioned ourselves as a post-genomics drug creation enterprise with a goal
of building a development pipeline of commercially viable drug leads and
pharmaceutical products for the treatment of cancers and drug-resistant
bacterial diseases. In the first quartersix months of 2002, we adopted a strategy to
leverage our proprietary research technologies, Quantum Core Technology
(QCT(TM)) and Optimized Anti-Sense Inhibitory Sequence (OASIS(TM)), to create
and/or obtain novel compounds that may be advanced towards clinical drug
candidates and pharmaceutical products. We increased our efforts to obtain and
develop clinical drug candidates and to identify opportunities for financial and
operational synergies. There can be no assurance, however, that we will be
successful in discovering or advancing drug leads that are commercially viable
or that we will otherwise be able to achieve our strategic goals.
In April 2002, we announced the discovery of a series of novel new
chemical entities, ("NCEs"). These NCEs demonstrated excellent in vitro activity
against Gram-positive bacterial pathogens, including Staphylococcus aureus, that
the Company had created a new class of
anti-bacterial agents specificare resistant to certain pathogenic bacteria and that we hadordinary antibiotics. We filed a provisional U.S. patent
application regarding the structure and use of these agents. This new class of agents indicatedWe plan on a preliminary basisusing
our proprietary research technologies to assist us in vitro
anti-bacterial activity against strains of STAPHYLOCOCCUS AUREUS and other
Gram-positive bacteria that show resistance to certain, currently available
therapeutic agents. Our continuing workour effort to create
drugsclinical drug candidates based on these agents, will employ our proprietary research technologies,although we must first overcome
a number of hurdles, such as well as the other
activities described below.toxicity tests, before we are ready to begin
clinical trials. There can be no assurance however, that we will overcome these hurdles
or otherwise be successful in producing clinical drug candidates.
In April 2002, we announced that we are exploring acquisition and
merger opportunities that would provide pharmaceutical compounds that are in or
close to human clinical trials. We plan to identify and acquire and/or merge
with companies having clinical drug candidates and technologies that complement
our own technologies and accelerate our development
of proprietary drugs.technologies. We have engaged a strategic and financial advisory firm with
experience in biotechnology to assist in this endeavor. There can be no
assurance, however, that we will be successful in obtaining clinical drug
candidates or accelerating our development of proprietary drugs.
In April 2002, we announced that Bristol-Myers Squibb ("BMS") advised
us that it would not provide additional funding beyond their previous commitment
for our research related to the development of a new fermentation process for
paclitaxel. The sponsored research program hashad been actively funded by BMS since
1998 and we received their final payment in February of this year. Our Master
License Agreement with BMS remains in effect. As a result of the completion of
funding related to the "Sponsored Research Agreement" with BMS, as well as our
decision to concentrate on our strategic drug discovery and development
programs, we have initiated efforts to renegotiate several scientific
collaborations, including agreements with the Research and Development Institute
("RDI") and Washington State University Research Foundation. The agreement with
RDI was terminated, relieving the Company of future annual minimum royalty
payments. Further, discussions are ongoing with BMS as to their intentions to
commercialize this production process.
8
As a result of our decision to focus on the discovery and creation of
drug leads as well the lack of continued external funding of our paclitaxel
research, we recently restructured our program of internal scientific projects.
We have discontinued support of certain projects that are not consistent with
theour new focus. Consequently, we recently eliminated several scientific, administrative
and support positions that will resultresulting in severance payments of approximately $50,000$56,000
which will have been or will be recognizedpaid in the second quarterand third quarters of 2002.2002
and charged against our Reserve for Restructure.
We planhope to out-license to, or partner
8
with, other companies to advance
our system for producing glucocerebrosidase used in treating Gaucher's Disease.
There can be no assurance that we will be successful in finding partnersa partner for
these programs.this program.
We anticipate that the focus of our efforts for the next twelve months will be
as follows:
o Accelerating discovery and development of candidate drug leads through
increased outsourcing.
o Advancing our research related to enzyme targets that are central to the
development of resistance by Mycobacterium tuberculosis, the causative
agent of tuberculosis. Using QCT we are in the preclinical discovery stage
of creating "core inhibitors" of the specific enzyme targets.
o Developing anti-infective candidate drug leads pursuant to our recently
announced creation of a new classseries of anti-bacterial agents.NCEs.
o Establishing a partner relationship to advance and leverage our QCT(TM)
and OASIS(TM) research platforms.
o Acquiring, via merger or acquisition, later-stage pharmaceutical compounds
that complement our own technologies to accelerate the development of
proprietary drugs.
o Divesting, via out-licensing or partnering, our system for producing
glucocerebrosidase used in treating Gaucher's Disease.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential and the status of competitive products. The focus and
direction of our operations will also be dependent upon the establishment of
collaborative arrangements with other companies, the availability of financing
and other factors.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
Revenue
Revenues were $333,000$222,000 for the three months ended March 31,June 30, 2002 and
$333,000$334,000 for the three months ended March 31,June 30, 2001. Revenues were attributable to
license and research and development payments from our agreements with
Bristol-Myers Squibb.
9
Research and Development Expenses
We incurred research and development expenses of $1,254,000 for the
three months ended June 30, 2002 and $1,858,000 for the three months ended June
30, 2001, a decrease of $604,000 or 32 percent. The decrease in both periodsresearch and
development expenses for the three months ended June 30, 2002 as compared to the
same period in 2001 was due to a $22,000 decrease in research services and
supplies, a $414,000 decrease in salary and wage expenses, a $361,000 decrease
in expenses for contract research, licenses and royalties, offset by a $114,000
increase in research consulting cost, a $13,000 increase in facilities and
equipment related expenses and a $45,000 increase in research operating costs
previously charged to general and administrative expenses.
General and Administrative Expenses
We incurred general and administrative expenses of $1,030,000 for the
three months ended June 30, 2002 and $1,741,000 for the three months ended June
30, 2001, a decrease of $711,000 or 41 percent. The decrease in general and
administrative expenses for the three months ended June 30, 2002 as compared to
the same period in 2001 was attributable to a $230,000 decrease in
administrative salary expense, a decrease of $350,000 in professional fees for
general corporate legal activities, a $25,000 decrease in legal services related
to intellectual property, a $77,000 decrease in travel related expenses, a
$12,000 decrease in corporate governance fees, a $9,000 decrease in professional
consulting and audit services, a $41,000 decrease in research operating costs
now charged to research and development expenses, partially offset by a $32,000
increase in public and financial relations expenses and an $18,000 increase in
other operating expenses.
Interest Income
Interest income was $182,000 and $367,000 for the three months ended
June 30, 3002 and June 30, 2001, respectively. The decrease was due primarily to
lower interest rates in 2002 and also to lower principal balances.
Net Loss
In the three months ended June 30, 2002, we incurred a net loss
attributable to common shareholders of $1,885,000, which was 36% less than the
net loss of $2,949,000 for the three months ended June 30, 2001. The decrease in
net loss of $1,064,000 was primarily the result of the aforementioned changes in
our operations. Likewise, the net loss per common share was improved by 33% at
$0.12 for the three months ended June 30, 2002 as compared to a net loss per
common share of $0.18 for the three months ended June 30, 2001.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
Revenue
Revenues were $556,000 and $667,000 for the six months ended June 30,
2002 and 2001, respectively. Revenues were attributable to license and research
and development payments from our agreements with Bristol-Myers Squibb.
Research and Development Expenses
We incurred research and development expenses of $1,241,000$2,476,000 for the threesix
months ended March 31,June 30, 2002 and $1,177,000$3,006,000 for the threesix months ended March 31,June 30,
2001, an increasea decrease of $64,000$530,000 or 518 percent. The increasedecrease in research and
development expenses for the threesix months ended March 31,June 30, 2002 as compared to the
same period in 2001 was due to a $21,000$420,000
10
decrease for research salaries due to discontinuation of non-strategic research
projects, a $420,000 decrease in expenses for contract research, licenses and
royalties, partially offset by a $174,000 increase in research services
and supplies,consultant costs
related to the creation of drug leads, a $60,000 increase for research consultants, a $41,000$54,000 increase in facilitiesequipment and
equipment relateddepreciations expenses as well as costs associated with the closing of one
location and a $24,000$72,000 increase in research operating costs previously charged
to general and administrative, offset by an
$82,000 decrease in expenses for contract research, licenses and royalties.
9
administrative.
General and Administrative Expenses
We incurred general and administrative expenses of $1,061,000$2,109,000 for the
threesix months ended March 31,June 30, 2002 and $937,000$2,708,000 for the threesix months ended March
31June 30,
2001, an increasea decrease of $124,000$599,000 or 1322 percent. The increasedecrease in general and
administrative expenses for the threesix months ended March 31,June 30, 2002 as compared to
the same period in 2001 was attributable to a $140,000 increase in professional
fees for legal services related to intellectual property and general corporate
legal activities and audit fees, a $31,000 increase$200,000 decrease in
administrative salary expense, a $75,000 increasedecrease of $325,000 in professional consultant fees primarily as a
result of increased business developmentfor
general corporate legal activities, a $7,000 increase$86,000 decrease in other
general and administrativetravel related
expenses, offset by an $80,000a $93,000 decrease in corporate governance fees, a $24,000 decrease in public and financial relations expenses and a
$25,000$95,000 decrease in
research operating costs now charged to research and development expenses.
Stock Based Compensation
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which establishesexpenses offset
by a fair value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-only alternative
under SFAS No. 123. The Company accounts for stock based compensation to
nonemployees using the fair value method$49,000 increase in accordance with SFAS No. 123 and
Emerging Issues Task Force (EITF) Issue No. 96-18. The Company has recognized
deferred stock compensationlegal services related to certain stock optionintellectual property, a
$132,000 increase in professional consulting and warrant grants.
During the three months ended March 31, 2002 the Company granted 10,000, 25,000,
10,000audit services and 25,000 options to purchase shares of common stock at $7.13, $3.28,
$3.20 and $1.67 per share, respectively,a $20,000
increase in return for consulting services.
During the three months ended March 31, 2001 the Company granted 5,000 options
to purchase shares of common stock at $7.188 per share in return for consulting
services. The Company valued these options based on the Black-Scholes option
pricing model. As a result, the Company recorded a charge of $39,100 and $1,400
during the three months ended March 31, 2002 and 2001, respectively, related to
these grants. In connection with other option grants to consultants in previous
years, the Company recorded a charge of $46,000 and $115,700 during the three
months ended March 31, 2002 and 2001, respectively.operating expenses.
Interest Income
Interest income was $189,000$371,000 and $461,000$828,000 for the threesix months ended March 31, 2002June
30, 3002 and March 31,June 30, 2001, respectively. The decrease was due primarily to
lower interest rates in the first quarter of 2002 and also to lower principal balances.
Net Loss
WeIn the six months ending on June 30, 2002, we incurred a net loss
attributable to common shareholders of $1,938,000 and $1,520,000$3,822,000, or 14% less than the
$4,468,000 loss for the threesix months ended March 31, 2002 and March
31, 2001, respectively.June 30, 2001. The increasedecrease in net loss
of $418,000$646,000 was primarily the result of the aforementioned changes in our
operations. Net loss per common share was $0.12 and $0.09$0.24 for the threesix months ending March 31,ended June
30, 2002 and March
31, 2001, respectively.$0.28 for the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
At March 31,June 30, 2002, we had cash, cash equivalents and investments of
approximately $24,300,000.$22,200,000. Since inception we have financed our operations from
debt and equity financings as well as fees received from licensing and research
and development agreements. During the threesix months ended March 31,June 30, 2002, net cash
used in operating activities was $1,345,000,$ 3,462,000, the largest element of which was
the net loss attributable to common shareholders of $1,938,000.$3,654,000. In addition, during the threesix months ended March 31,June 30,
2002 we used $23,000$46,000 in financing activities and received $123,000$133,000 from
investing activities, primarily from the sale of equipment. As a result of the
decision by BMS to discontinue funding of our paclitaxel research efforts, we
have lost our previous sole source of revenue. We cannot make any assurance as
to when, if ever, we will generate significant revenue again.
We have scheduled payments to fund scientific research at academic
institutions and to make minimum royalty payments for licensing and
collaborative agreements of approximately $425,000$300,000 during the remainder of 2002.
We do not expect these arrangements to have a significant impact on our
liquidity and capital resources. We intend to continue to maintain and develop
relationships with academic institutions and to establish licensing and
collaborative agreements.
We have no material capital commitments for the year ending December
31, 2002.
We believe that we have sufficient cash and cash equivalents and
investments on hand at
March 31,June 30, 2002 to finance our plan of operation through
December 31, 2002.for the next twelve months.
However, there can be no assurance that we will generate sufficient
11
revenues, if any, to fund our operations after such period or that any required
financings will be available, through bank borrowings, debt or equity offerings,
or otherwise, on acceptable terms or at all.
10
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to financial market risk, including changes in interest
rates, relates primarily to our marketable security investments. We generally
place our marketable security investments in high credit quality instruments,
primarily U.S. government obligations. We do not believe that a 100 basis point
increase or decrease in interest rates would significantly impact our business.
We do not have any derivative instruments. We operate only in the United States
and all sales have been made in U.S. dollars. We do not have any material
exposure to changes in foreign currency exchange rates.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
NoneWe held our annual meeting of stockholders on May 13, 2002, at which
time the stockholders voted on the following proposals:
(1) Election of eight directors for a one-year term each.
Name of Candidate For Withheld
----------------- --- --------
Arthur P. Bollon 14,331,944 684,326
Robert J. Easton 14,409,489 606,781
Gary E. Frashier 14,353,189 663,081
Ira J. Gelb 14,406,739 609,531
Irwin C. Gerson 14,407,739 608,531
Ronald L. Goode 14,280,785 735,485
Walter M. Lovenberg 14,409,789 606,481
There were no abstentions and no broker non-votes.
(2) Ratification of appointment of Ernst & Young LLP as auditors.
The vote was 14,800,272 for, 169,961 against, and there were 46,037 abstentions.
There were no broker non-votes.
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Item 5. Other Information
NoneOn July 12, 2002, our Board of Directors adopted Amended and Restated
By-Laws to provide, among other things, certain procedures for stockholder
proposals and nominations to be presented at stockholder meetings and for
stockholders taking action by written consent. A copy of the Amended and
Restated By-Laws are attached to this Quarterly Report on Form 10-Q as Exhibit
3.1 hereto.
We received notice from The Nasdaq Stock Market that for 30 trading
days the price of our common stock had closed below the minimum $1.00 per share
bid price required for continued listing on the Nasdaq National Market by
Marketplace Rule 4450(a)(5). Under Marketplace Rule 4450(c)(2), we will be
provided 90 calendar days, or until October 23, 2002, to regain compliance with
the minimum bid price requirement. We can regain compliance with the minimum bid
price requirement if, at anytime before October 23, 2002, the bid price of our
common stock closes at $1.00 per share or more for a minimum of 10 consecutive
trading days. Should we fail to regain compliance, Nasdaq stated that it would
provide us with written notification that our common stock will be delisted from
the Nasdaq National Market. Removal of our common stock from listing on the
Nasdaq National Market would likely have an adverse impact on the trading price
and liquidity of our common stock. During this 90-day period we will consider
our option of transferring our stock listing to Nasdaq's Small Cap Market.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed herewith as part of this form 10-Q:
None3.1 Amended and Restated By-Laws
99.1 Certification Pursuant to 18 U.S.C. Section 1350
The following report was filed on Form 8-K during the quarter ended March 31,June 30,
2002:
None
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SIGNATURES
Pursuant to 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.
EXEGENICS INC.
Date: May 9,August 1, 2002 /s/ Joan H. Gillett
--------------------------------------------- ------------------------------
Joan H. Gillett, CPA
Vice President/Controller
Principal Accounting Officer
1213
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended and Restated By-Laws
99.1 Certification Pursuant to 18 U.S.C. Section 1350