--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] 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: 00-26078
EXEGENICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2402409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2110 RESEARCH ROW 75235
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(214) 358-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
N/A N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on March 19, 2002 was
$26,673,050, based on the last sale price as reported by The Nasdaq Stock
Market.
As of March 19, 2002, the registrant had 16,180,935 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in Part III of this Annual Report on Form 10-K
is incorporated from the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 2002.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Such statements are valid
only as of today, and we disclaim any obligation to update this information.
These statements, which include, but are not limited to, those related to our
drug creation methodology, are subject to known and unknown risks and
uncertainties that may cause actual future experience and results to differ
materially from the statements made. These statements are based on our current
beliefs and expectations as to such future outcomes. Drug development involves a
high degree of risk. Success in early stage clinical trials does not ensure that
later stage or larger scale clinical trials will be successful. Factors that
might limit our future success include, among others, uncertainties related to
the ability to attract and retain partners for our technologies, the
identification of lead compounds, the successful pre-clinical development
thereof, the completion of clinical trials, the FDA review process and other
governmental regulation, pharmaceutical collaborator's ability to successfully
develop and commercialize drug candidates, competition from other pharmaceutical
companies, product pricing and third party reimbursement.
1
PART I
ITEM 1. BUSINESS
GENERAL
We are a post-genomics drug creation enterprise concentrating on developing
therapeutic products for human diseases with an emphasis on the treatment of
cancer and infectious diseases. To date, we have been involved solely in early
stage research and development activities. Our lead proprietary pharmaceutical
platform programs, QCT(TM) (Quantum Core Technology(TM)) and OASIS(TM)
(Optimized Anti-Sense Inhibitory Sequence(TM)), are focused on the creation of
new pharmaceutical products. QCT is a computer-assisted drug design technology
platform, primarily targeted to the inhibition of proteins involved in disease
processes. OASIS(TM) is a patented technology platform that uses computers to
design "anti-sense sequences" -- molecules capable of blocking the expression of
specific genes. By targeting both proteins and genes, we believe we have the
capability to produce chemical molecules that can be developed into drugs
effective against a variety of cancers and infectious diseases. If such
compounds are successfully synthesized, they must undergo additional testing. If
they are successfully tested and optimized in vitro, they will then be tested in
animals and ultimately in humans. Successful development of such drugs could
provide a broad range of business opportunities between us and other
pharmaceutical and biotechnology companies.
We are also engaged in a program with Bristol-Myers Squibb, Inc., or BMS,
(NYSE: BMY) to optimize the production of paclitaxel, the active ingredient in
Taxol(R). As part of this program, our scientists are developing a process by
which we hope to produce baccatin, an important precursor of paclitaxel, in a
cost-efficient manner. We have obtained the rights to patents covering this
process. BMS is contractually obligated to financially support our research
through June, 2002. Continuation of BMS' support beyond June, 2002 is not
assured at this time.
We are seeking to outlicense our other proprietary technologies, including
a production system for manufacturing a recombinant form of glucocerebrosidase
that is intended for use as an enzyme replacement therapy for Type 1 Gaucher's
Disease. Our production system for the enzyme could result in a more cost-
effective means of producing the enzyme as compared to those production systems
currently in commercial use.
Our overall business strategy comprises:
- Creation, using QCT, of novel small-molecule inhibitors of specific,
targeted proteins;
- Developing novel chemical molecules to the level of clinical drug lead
candidates;
- Partnering with pharmaceutical or biotechnology companies who can benefit
from using our drug lead creation engine, QCT;
- Creating gene-regulating antisense reagents using our OASIS platform
technology;
- Partnering with functional genomics companies who would be interested in
using OASIS as a tool;
- Partnering with companies having expertise in development of antisense
drugs to further develop EXEGENICS' gene inhibitors into useful drugs;
- Fulfilling our collaboration obligations with Bristol-Myers Squibb; and
- Establishing partnerships, strategic alliances and technology licenses
for the development, manufacturing, marketing and sales of
pharmaceuticals for treatment of cancer, infectious diseases and other
diseases.
QUANTUM CORE TECHNOLOGY(TM) (QCT (TM))
QCT is a proprietary, drug creation methodology that is based on a
combination of quantum chemistry, proprietary computational software and
molecular modeling. Unlike the traditional and more common structural-based drug
design techniques, QCT is a QUANTUM MECHANISM-BASED drug creation technique that
2
combines quantum mechanical calculations and physical organic chemistry to
understand essential biochemical reactions at the level of the atom. The
insights we gain into "core mechanisms" in this way may produce a wide range of
drug leads.
This novel approach to drug creation rises from fundamental concepts in the
quantum mechanics of enzyme reactions pioneered by Dr. John Pople, a Nobel Prize
winner and Chairman of our Scientific Advisory Board. Dr. Dorit Arad, our
Vice-President of Drug Design, developed QCT and currently leads a team of
scientists who systematically apply these principles to drug creation.
By gaining a deep understanding of how enzymes work at the level of the
atom, we believe that we can "custom-design" novel, small molecules that can be
used as therapeutic drugs. Because the approach is computational in nature, our
scientists can use computers to predict how to "fine-tune" the molecular
"design" of a new drug molecule to optimize its therapeutic effect. We can also
use computers to make "virtual" searches of large chemical libraries to find
core and lead molecules that will work well with the core quantum mechanism. In
addition, our synthetic and medicinal chemistry capabilities allow us to produce
appropriate quantities of the lead drug compounds for testing and development.
Because our approach is systematic, supports "virtual" design and screening, and
provides insight into the core mechanisms of important biochemical reactions,
discovery programs based on QCT should produce results more rapidly than
programs based on traditional structure-based design. There can be no assurance,
however, that we will be successful in our endeavors to produce clinical drug
candidates using QCT.
Progress with QCT
Over the past year we have increased our ability to use QCT to create drug
leads by increasing our in-house capabilities in crystallography and chemistry.
Additionally, we have utilized outside experts to evaluate and guide our
research efforts. Included among those experts is Dr. Andrew Kende, C.F.
Houghton Professor of Chemistry, Emeritus, at the University of Rochester,
Associate Editor of the Journal of Organic Chemistry, and a member of the
Editorial Advisory Board of the Journal of the American Chemical Society. Dr.
Kende has been a scientific advisor to us since 1999 and currently serves as a
member of the team comprising our Office of the Chief Scientific Officer.
We have developed several novel chemical molecules intended to inhibit
rhinoviruses, the most frequent cause of the common cold. The compounds act by
inhibiting 3C protease. The molecules have been shown to provide protection of
human cells in culture against several types of rhinoviruses. Unlike other viral
protein targets, such as viral coat proteins, the 3C protease is common to all
the rhinoviruses and also to some other viruses such as hepatitis A, poliovirus
and certain viruses that cause meningitis.
Our work on 3C protease provided a foundation for exploring an important,
related enzyme family -- the caspases. Because of the quantum mechanistic
similarity between these two enzyme families, and because of the inherent
advantages of our QCT design approach that uniquely focuses on quantum
mechanistic design, we have succeeded in finding a number of active caspase
inhibitors significantly faster than would have been possible with traditional,
structure-based approaches. The caspase enzymes are involved in regulated cell
death, also known as apoptosis, and are implicated in Parkinson's Disease,
Alzheimer's, Huntington's Disease, acute brain trauma, and congestive heart
failure.
We obtained the worldwide, exclusive license for technology that may help
overcome drug resistance in Mycobacteria, one of the major challenges in
medicine today. Researchers at the University of British Columbia and the
University of California, San Diego, from whom we obtained the license, have
identified an enzyme called amidase, which is believed to be responsible for
drug resistance in Mycobacterium tuberculosis by allowing infectious organisms
to modify and inactivate antibiotics, rendering the drugs ineffective. Amidase
inhibitors ultimately may be prescribed along with existing antibiotics to
overcome the mechanism by which the organisms achieve resistance and thereby
render other antibiotics effective and useful against these otherwise resistant
and dangerous organisms. We are using both the QCT and OASIS technologies to
develop inhibitors of the amidase enzyme.
3
OASIS(TM) (OPTIMIZED ANTI-SENSE INHIBITORY SEQUENCE(TM))
OASIS (Optimized Anti-Sense Inhibitory Sequence(TM)) is a patented
technology platform that uses computers to design "anti-sense
sequences" -- molecules capable of blocking the expression of specific genes.
OASIS eliminates the trial and error work traditionally involved in finding
anti-sense sequences and efficiently predicts the most potent anti-sense
molecules in a gene sequence. Thus, anti-sense sequences predicted by OASIS
should be "optimal" in location and size in that they are designed to block gene
expression at the site that will have the highest impact and are the minimum
size required to achieve an effective blocking.
Progress with OASIS
Thus far, our scientists have used OASIS to create a "library" of 'optimal'
inhibitors (for which we have a filed patent application) to 100% of the genes
of Mycobacterium tuberculosis -- the infectious organism that causes
tuberculosis. Another library, consisting of optimal inhibitors of all human
genes, is approximately 25% complete, and patent applications are in process. To
take advantage of these libraries, we are seeking corporate partners who have
identified novel gene targets for which they want inhibitors to 'knockout' gene
function. If the novel gene targets are included in a library we have created,
turnaround time for identifying inhibitor leads can be as rapid as 24 hours. If
the novel gene targets are not in our proprietary libraries, OASIS can create
inhibitors, ab initio, in approximately 1 week.
When genes are implicated in disease processes, "anti-sense" molecules have
the potential of being used as drugs that, by blocking the expression of the
disease-producing genes, positively alter the outcome of the disease process.
We have used OASIS to successfully predict 'optimum' antisense sequences
for three cancer genes, have directed the synthesis of antisense molecules
corresponding to these sequences, and have shown that these antisense molecules
do in fact inhibit the target genes in the manner predicted. To date, we have
created antisense molecules for the following genes:
- PKC-a (The gene that codes for production of alpha protein kinase C, an
enzyme, involved in the regulation of cellular responses by external
stimuli, that is implicated in invasive pituitary tumors and melanoma.)
- BCL-2 (The gene that, when over-expressed, blocks the apoptotic death of
pro-B-lymphocytes and is implicated in many non-Hodgkin's lymphomas.)
- c-RAF (A viral oncogene homologue that is implicated in small cell lung
cancer, familial renal carcinoma and parotid gland tumors.)
To complete the development of these gene inhibitors into useful drugs, we
are seeking corporate partners with expertise in development of antisense drugs.
TAXANES PROGRAM
We have obtained from Montana State University an exclusive, worldwide
license to use patented fungal technology to synthesize paclitaxel, the active
ingredient in Bristol-Myers Squibb's cancer drug, Taxol(R). Taxol(R) is a
commercially successful product used for the treatment of various cancers
including those of the breast, ovaries and lung. In addition, we also obtained a
separate exclusive worldwide license from Washington State University to use
gene-based technology to synthesize taxanes (the chemical class to which
Taxol(R) belongs). Taxol(R) is quite expensive to manufacture since it is
derived from hard-to-obtain natural products: the bark and needles of the
Pacific Yew tree. The licenses from both Montana State University and Washington
State University cover families of patents giving broad protection to our
technology.
We have assigned rights to these patent estates to BMS and BMS has
contracted with us to develop the technology to the "pre-commercial stage." The
primary goal of our research and development agreement with BMS is the
establishment of a microbial production system for baccatin, an important
precursor of paclitaxel and other taxanes. A genetically engineered production
system for baccatin could potentially be used to manufacture an improved
second-generation paclitaxel, a current research goal of BMS.
4
OTHER PROGRAMS
We have pursued other programs in the past that could potentially yield
products for future development. While some research to date shows promise,
achieving further progress involves substantial risk and requires substantial
additional funding. We are seeking to outlicense these technologies. Examples of
potential out-licensing opportunities include our program to produce
glucocerebrosidase for use in Gaucher's Disease, our lung cancer marker program,
and our intellectual property related to treating PKD. However, there is no
assurance that we will be successful in these endeavors.
Certain programs that we have previously pursued, such as vaccine
engineering, telomerase, estrogen peptide, and monoclonal antibodies, have not
achieved sufficient progress to merit continuation.
COLLABORATIVE AND LICENSE AGREEMENTS
QCT
In June 2000, we entered into an exclusive worldwide license agreement with
the University of California, San Diego and the University of British Columbia
to use or sublicense patent rights disclosed in a pending U.S. patent titled "A
New Anti-tuberculosis Drug Target." Pursuant to the agreement, we paid a license
issue fee and we are obligated to pay license maintenance fees, milestone and
royalties payments. In June 2000 we agreed to a three-year collaborative
research agreement with the University of British Columbia and Vancouver
Hospital to fund research under the direction of Dr. Yossef Av-Gay of the
Department of Medicine at the University of British Columbia. In August 2000, we
entered into a three-year collaborative research agreement with The Regents of
the University of California to fund research performed under the direction of
Dr. Robert Fahey of the Department of Chemistry and Biochemistry at the
University of California, San Diego.
OASIS
In June 1992, we entered into an agreement with the University of Texas at
Dallas, pursuant to which the University is to perform certain research and
development activities relating to antisense compounds and related technology
for use in humans. The agreement has been extended through August 31, 2002 in
consideration for our agreement to increase the original funding commitment.
In June 1996, we entered into a patent license agreement with the board of
regents of the University of Texas whereby we obtained an exclusive
royalty-bearing license to manufacture, have manufactured, use, sell and
sublicense products related to a U.S. patent application entitled, "A Method for
Ranking Sequences to Select Target Sequence Zones of Nucleus Acids." The OASIS
technology has identified optimum regions within genes to bind antisense
products. Antisense products are under development to control genes involved in
human diseases such as cancer, diabetes, or AIDS. This discovery potentially has
broad applications to many human and viral genes involved in human disease. We
are required to pay royalty and sublicensing fees. The agreement expires on the
later of 20 years or the expiration of patent rights, unless we fail to make all
required payments or to timely cure any default, in which case the agreement
automatically terminates.
PACLITAXEL PROGRAM
In June 1993, we entered a license agreement with the Research &
Development Institute or RDI, a non-profit entity that manages the intellectual
property of Montana State University. Pursuant to this agreement, we were
granted worldwide exclusive rights to microbial technology to produce
paclitaxel. We are obligated to pay the Research & Development Institute
royalties on sales of products using the technology and a percentage of
royalties paid to us by sublicensees of the technology.
In July 1996, we entered into an agreement with the Washington State
University Research Foundation whereby we received an exclusive, worldwide
license to use or sublicense the foundation's technology for gene-based
synthesis of paclitaxel.
5
In June 1998, we entered into a license agreement and a research and
development agreement with BMS in which we granted them exclusive worldwide
sublicenses under our agreements with the Research & Development Institute at
Montana State University and the Washington State University Research
Foundation. BMS has the right to terminate the license agreement, effective upon
90 days notice, in which event BMS' sublicenses would also terminate.
The research and development agreement between BMS and us was renewed for
an additional 24 months, which commenced on June 13, 2000 and which ends on June
12, 2002. It is renewable by BMS for successive one-year periods provided that
the license agreement remains in effect at the time. There is no assurance that
it will be extended.
OTHER PROGRAMS
In February 1996, we entered into two license agreements with UCLA. One of
these license agreements gives us exclusive rights to a pending patent entitled,
"Inhibition of Cyst Formation By Cytoskeletal Specific Drugs," that makes use of
various drugs, one of which is paclitaxel. The other license agreement gives us
exclusive rights to technology in the field of pharmacological treatment for
Polycystic Kidney Disease.
In December 1998, we obtained an exclusive license to technology for the
fungal production of telomerase, the so-called "immortality enzyme," from the
Research & Development Institute at Montana State University for a term based on
the useful life of the pending patent or related patents. In September 2000, we
obtained an exclusive license for gene technology for telomerase reverse
transcriptase from RDI.
PATENT, LICENSES AND PROPRIETARY RIGHTS
We own or have rights to 16 U.S. patents and several U.S. patent
applications and 6 foreign patents and several foreign patent applications.
Our policy is to protect our technology by, among other things, filing
patent applications for technology we consider important in the development of
our business. In addition to filing patent applications in the United States, we
have filed and intend to file, patent applications in foreign countries on a
selective basis. Although a patent has a statutory presumption of validity in
the United States, the issuance of a patent is not conclusive as to such
validity or as to the enforceable scope of the claims of the patent. There can
be no assurance that our issued patents or any patents subsequently issued to
us, or licensed by us, will not be successfully challenged in the future. The
validity or enforceability of a patent after its issuance by the Patent and
Trademark Office can be challenged in litigation. If the outcome of the
litigation is adverse to the owner of the patent, third parties may then be able
to use the invention covered by the patent, in some cases without payment. There
can be no assurance that patents in which we have rights will not be infringed
or successfully avoided through design innovation.
There can be no assurance that patent applications owned by us or licensed
to us will result in patents being issued or that the patents will afford
protection against competitors with similar technology. It is also possible that
third parties may obtain patent or other proprietary rights that may be needed
by us. In cases where third parties are the first to invent a particular product
or technology, it is possible that those parties will obtain patents that will
be sufficiently broad so as to prevent us from using certain technology or from
further developing or commercializing certain products. If licenses from third
parties are necessary but cannot be obtained, commercialization of the related
products would be delayed or prevented. We are aware of patent applications and
issued patents belonging to competitors but we are uncertain whether any of
these, or patent applications filed of which we may not have any knowledge, will
require us to alter our potential products or processes, pay licensing fees or
cease certain activities.
We also rely on unpatented technology as well as trade secrets and
information. No assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain
access to our technology or disclose such technology, or that we can effectively
protect our rights in such unpatented technology, trade secrets and information.
We require each of our employees to execute a confidentiality agreement at the
commencement of their employment with us. The agreements
6
generally provide that all inventions conceived by the individual in the course
of employment or in the providing of services to us and all confidential
information developed by, or made known to, the individual during the term of
the relationship shall be our exclusive property and shall be kept confidential
and not disclosed to third parties except in limited specified circumstances.
There can be no assurance, however, that these agreements will provide us with
meaningful protection in the event of unauthorized use or disclosure of such
confidential information.
COMPETITION
All of our proposed products will face competition from existing therapies.
The development by others of novel treatment methods for those indications for
which we are developing compounds could render our compounds non-competitive or
obsolete. This competition potentially includes all of the pharmaceutical
concerns in the world that are developing pharmaceuticals for the diagnosis and
treatment of cancer. Competition in pharmaceuticals is generally based on
performance characteristics as well as price and timing of market introduction
of competitive products. Acceptance by hospitals, physicians and patients is
crucial to the success of a product. Price competition may become increasingly
important as a result of an increased focus by insurers and regulators on the
containment of health care costs. In addition, the various federal and state
agencies have enacted regulations requiring rebates of a portion of the purchase
price of many pharmaceutical products.
Most of our existing or potential competitors have substantially greater
financial, technical and human resources than us and may be better equipped to
develop, manufacture and market products. In addition, many of these companies
have extensive experience in pre-clinical testing, human clinical trials and the
regulatory approval process. These companies may develop and introduce products
and processes competitive with, or superior to, ours.
Our competition also will be determined in part by the potential
indications for which our compounds are developed. For certain potential
products, an important factor in their success may be the lack of competitive
products at the time of their market introductions. For example, a generic
version of Taxol(R) was recently approved for sale in the United States. If this
generic version of Taxol(R) is able to achieve market acceptance, it may erode
the sales of Taxol(R), which could, in turn, decrease the value of our
paclitaxel program. Accordingly, the relative speed with which we can develop
products, complete the clinical trials and regulatory approval processes, and
supply commercial quantities of the products to the market are expected to be
important competitive factors. We expect that competition among products
approved for sale will be based on, among other things, product efficacy,
safety, reliability, availability, price and patent position.
Our competitive position also depends upon our ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often lengthy period between technological conception and commercial sales.
HISTORY
We were organized under the laws of the state of Delaware as
BioPharmaceuticals, Inc. and changed our name to Cytoclonal Pharmaceutics Inc.
in 1992. During October 2001, we changed our name to EXEGENICS INC.
GOVERNMENT REGULATION
At the current time, the FDA does not regulate us. However, our partners
and licensees may be subject to regulation depending on the type of products or
services they provide. The FDA and comparable regulatory agencies in foreign
countries impose substantial requirements on the clinical development,
manufacture and marketing of pharmaceuticals and in vitro diagnostic products.
These agencies regulate research and development activities and the testing,
manufacture, quality control, safety, effectiveness, labeling, storage, record
keeping, advertising and promotion of these products and services. Different
centers within the FDA are responsible for regulating these products, depending
on whether the product is considered a pharmaceutical, biologic, medical device
or combination product.
7
The process required by the FDA before a new product may be marketed in the
US generally requires substantial time, effort and financial resources.
Satisfaction of FDA requirements or similar requirements of foreign regulatory
agencies typically takes several years and the actual time required may vary
substantially based upon the type, complexity and novelty of the product or
disease. Even if a product receives regulatory approval, later discovery of
previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market.
We are also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on our business and results of operations.
MANUFACTURING AND MARKETING
We have no marketed pharmaceutical products. In addition, we have never
commercially manufactured any products, and we do not have the resources to
manufacture any products on a commercial scale. For the foreseeable future, we
will be required to rely upon corporate partners or others to manufacture and
market products developed by us, if any. No assurance can be given that we will
be able to enter into any such arrangements on acceptable terms, if at all.
MANUFACTURING
While we intend to select manufacturers that comply with regulatory
standards, there can be no assurance that these manufacturers will comply with
such standards, that they will give our orders the highest priority or that we
will be able to find substitute manufacturers, if our selected manufacturers
prove to be unsatisfactory. In order for us to establish a manufacturing
facility, we would require substantial additional funds, would be required to
hire and retain significant additional personnel and comply with the extensive
regulations of the FDA applicable to such a facility. No assurance can be given
that we will be able to make the transition successfully to commercial
production, should we choose to do so.
MARKETING
Despite our strategy to develop products for sale to concentrated markets,
significant additional expenditures and management resources would be required
to develop an internal sales force, and there can be no assurance that we will
be successful in penetrating the markets for any products developed. For certain
products under development, we may seek to enter into development and marketing
agreements that grant exclusive marketing rights to our corporate partners in
return for royalties to be received on sales, if any. Under certain agreements,
our marketing partner may have the responsibility for all or a significant
portion of the development and regulatory approval. In the event that our
marketing and development partners fail to develop a marketable product or to
successfully market a product, our business may be materially adversely
affected. The sale of certain products outside the United States will also be
dependent on the successful completion of arrangements with future partners,
licensees or distributors in each territory. There can be no assurance that we
will be successful in establishing any additional collaborative arrangements, or
that, if established, such future partners will be successful in commercializing
products.
INSURANCE
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no assurance
that product liability claims will not be asserted against us. We intend to
obtain clinical trial liability insurance prior to conducting any clinical
trials. Such coverage may not be adequate as and when we develop our products.
There can be no assurance that we will be able to obtain, maintain or increase
our insurance coverage in the future on acceptable terms or that any claims
against us will not exceed the amount of such coverage.
8
EMPLOYEES
As of March 19, 2002 we had 29 full-time employees, 22 (including 13
Ph.D.'s) of whom were engaged directly in research and development activities,
and seven of whom were in executive and administrative positions. Although we
believe that we have been successful to date in attracting skilled scientific
personnel, competition for personnel is intense and we cannot assure that we
will continue to be able to attract and retain personnel of high scientific
caliber. Our employees are not governed by any collective bargaining agreement,
and we believe that our relationship with them is good.
FACTORS THAT MAY AFFECT FINANCIAL CONDITION AND FUTURE RESULTS
We participate in a continually changing industry that utilizes rapidly
evolving technologies. The following cautionary statements discuss important
factors that could cause actual results to differ materially from the projected
results contained in the forward-looking statements in this report.
RESEARCH AND DEVELOPMENT
The theoretical bases of our platform technologies have yet to be reduced
to the successful creation of potential drug candidates that can be tested in
humans. The drug creation methods we employ are relatively new and may not lead
to drug candidates that can be successfully developed into pharmaceutical
products. The expectation that drugs designed by quantum mechanism-based drug
design techniques will have improved efficacy, bioavailability and less
resistance build-up has not yet been verified by testing any drug candidate in
human clinical trials. Likewise, antisense compounds designed by our techniques
have not led to testing in human clinical trials. Furthermore, our anti-sense
drug discovery efforts are focused on a number of target genes for which the
functions have not yet been fully identified. As a result, the potential for
creating drugs that inhibit these enzymes or their translation has not yet been
established.
We expect to continue to in-license or acquire additional product
candidates to augment the results of our internal research activities. There can
be no assurance that we will be successful in these efforts. In-licensed
candidates may not result in commercially viable products.
Any potential drug candidate must undergo extensive pre-clinical and
clinical testing prior to submission to any of the regulatory agencies for
approval for commercial use. Such testing will likely require significant
additional funding.
If these methods are successful in creating pharmaceutical products, we
cannot be sure that the pharmaceutical products we create will be commercially
successful. Therefore, we cannot assure you that our research and development
activities will result in any commercially viable products.
COMMERCIALIZATION OF OUR TECHNOLOGIES
We have to rely on partners to help develop products and programs. Our
business model identifies fees, royalties and milestone payments from
pharmaceutical and biotechnology companies as a major source of revenue. If we
cannot maintain our current corporate collaboration or enter into additional
corporate collaborations, our efforts to develop products could be slowed. We
cannot control the amount and timing of resources our corporate collaborators
devote to our programs or potential products. In addition, we expect to rely on
corporate collaborators for commercialization of our potential products.
There have been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced number of
potential future corporate collaborators. If a business combination involving
our current corporate collaborator was to occur, the effect could be to
diminish, terminate or cause delays in this corporate collaboration. We may not
be able to negotiate future corporate collaborations on acceptable terms, if at
all, and these collaborations may not be successful. Our quarterly operating
results may fluctuate significantly depending on the initiation of new corporate
collaboration agreements or the termination of our existing corporate
collaboration agreement.
9
We rely, to a significant extent, on our academic and institutional
collaborators to jointly conduct some research and pre-clinical testing
functions. If any of our institutional collaborators were to breach or terminate
their agreement with us or otherwise fail to conduct the collaborative
activities successfully and in a timely manner, the pre-clinical or clinical
development of the affected product candidates or research programs could be
delayed or terminated
PERSONNEL
We depend on our key personnel and may have difficulty attracting and
retaining the skilled employees we need to execute our growth plans. As of March
19, 2002, we had 29 employees. Our success depends on our continued ability to
attract, retain and motivate highly qualified management and scientific
personnel. Competition for personnel is intense. In particular, our product
development programs depend on our ability to attract and retain highly skilled
chemists and development personnel. The loss of the services of any of these
personnel, in particular, Ronald L. Goode, Ph.D., our President and Chief
Executive Officer or Dorit Arad, Ph.D., our Vice-President of Drug Design, could
impede significantly the achievement of our research and development objectives.
In addition, we will need to hire additional personnel as we continue to expand
our research and development activities. We do not know if we will be able to
attract, retain or motivate such personnel.
INTELLECTUAL PROPERTY
Our commercial success will depend, in part, on obtaining patent protection
on our future products, if any, and successfully defending these patents against
third party challenges. The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and factual
questions. No consistent policy regarding the breadth of claims allowed in
biotechnology patents has emerged to date. Accordingly, we cannot predict with
certainty the breadth of claims allowed in our patents and other companies'
patents.
The degree of future protection for our proprietary rights is uncertain and
we cannot ensure that:
- we were the first to make the inventions covered by each of our pending
patent applications and issued patents;
- we were the first to file patent applications for these inventions;
- others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
- we will develop additional proprietary technologies that are patentable;
or
- the patents of others will not have an adverse effect on our ability to
do business.
In addition, we could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties or if we
initiate these suits.
Others may have filed and in the future are likely to file patent
applications covering products that are similar or identical to ours. We cannot
assure you that any patent applications or issued patents of others will not
have priority over our patent applications or issued patents. Any legal action
against our collaborators or us claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in
addition to subjecting us to potential liability for damages, require our
collaborators or us to obtain a license to continue to manufacture or market the
affected products and processes. We cannot predict whether our collaborators or
we would prevail in any of these actions or that any license required under any
of these patents would be made available on commercially acceptable terms, if at
all. We believe that there may be
10
significant litigation in the industry regarding patent and other intellectual
property rights. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, collaborators and consultants
to enter into confidentiality agreements, we may not be able to adequately
protect our trade secrets or other proprietary information.
We are a party to various license agreements that give us rights to use
specified technologies in our research and development processes. If we are not
able to continue to license this technology on commercially reasonable terms,
our product development and research may be delayed. In addition, we generally
do not control the patent prosecution of in-licensed technology, and accordingly
are unable to exercise the same degree of control over this intellectual
property as we exercise over our internally developed technology.
Our research collaborators and scientific advisors have rights to publish
data and information in which we have rights. If we do not apply for patent
protection prior to such publication or if we cannot maintain the
confidentiality of our technology and other confidential information in
connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information will be imperiled.
LIQUIDITY AND CAPITAL RESOURCES
We expect that additional financing will be required in the future to fund
operations. We do not know whether additional financing will be available when
needed, or that, if available, we will obtain financing on terms favorable to
our stockholders or us. We have consumed substantial amounts of cash to date and
expect capital outlays and operating expenditures to increase over the next
several years as we expand our infrastructure and research and development
activities.
We believe that existing cash and investment securities and anticipated
cash flow from existing collaborations will be sufficient to support our current
operating plan through December 31, 2002. We have based this estimate on
assumptions that may prove to be wrong. Our future capital requirements depend
on many factors that affect our research, development, collaboration and sales
and marketing activities.
We may raise additional financing through public or private equity
offerings, debt financings or additional corporate collaboration and licensing
arrangements. To the extent we raise additional capital by issuing equity
securities, our stockholders may experience dilution. To the extent that we
raise additional funds through collaboration and licensing arrangements, it may
be necessary to relinquish some rights to our technologies or product
candidates, or grant licenses on terms that are not favorable to us. If adequate
funds are not available, we will not be able to continue developing our programs
and products.
COMPETITION
If our competitors develop and market products that are more effective than
our product candidates, our commercial opportunity will be reduced or
eliminated.
Our commercial opportunity will be reduced or eliminated if our competitors
develop products that are more effective, have fewer side effects or are less
expensive than our product candidates. With respect to our drug discovery
programs, other companies have product candidates in clinical trials to treat
each of the diseases for which we are seeking to discover and develop product
candidates. These competing potential drugs may be further advanced in
development than are any of our potential products and may result in effective,
commercially successful products. Even if our collaborators or we are successful
in developing effective drugs, our products may not compete effectively with
these products or other successful products. Our competitors may succeed in
developing and marketing products that either are more effective than those that
we may develop, alone or with our collaborators.
Our competitors include fully integrated pharmaceutical companies and
biotechnology companies that currently have drug and target discovery efforts
and universities and public and private research institutions. In addition,
companies pursuing different but related fields represent substantial
competition. Many of the
11
organizations competing with us have substantially greater capital resources,
larger research and development staffs and facilities, greater experience in
drug development and in obtaining regulatory approvals and greater marketing
capabilities than we do.
These organizations also compete with us to:
- attract qualified personnel;
- attract parties for acquisitions, joint ventures or other collaborations;
and
- license proprietary technology that is competitive with the technology we
are practicing.
If our competitors successfully enter into partnering arrangements or
license agreements with academic research institutions, we will then be
precluded from pursuing those specific opportunities. Since each of these
opportunities is unique, we may not be able to find an acceptable substitute.
Because it is difficult and costly to protect our proprietary rights, we cannot
ensure their protection.
OUR STOCK
The market price of our stock may be negatively affected by market
volatility. The market prices for securities of biotechnology companies,
including our stock price, have been highly volatile and may continue to be
highly volatile in the future. The following factors, in addition to other risk
factors described in this section, may have a significant impact on the market
price of our securities:
- market conditions for pharmaceutical and biotechnology stocks generally;
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights, including patents;
- developments concerning our collaborations;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
- regulatory developments in the United States and foreign countries;
- litigation;
- economic and other external factors or other disasters or crises; or
- period-to-period fluctuations in financial results.
ITEM 2. PROPERTIES
We occupy approximately 19,300 square feet of office and laboratory space,
at 2110 Research Row, Dallas, Texas, pursuant to a lease assigned to us by the
Wadley/Phillips Partnership and which lease term has been extended until
December 2003. Our lease payments for the fiscal year ended December 31, 2001 of
approximately $294,000, included $30,000 in payments related to an
office/laboratory space lease agreement that was terminated in December 2001,
effective March 31, 2002. We believe that our current facilities are suitable
for our present needs and for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation in any court, and management
is not aware of any contemplated proceeding by any governmental authority
against the Company.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On October 24, 2001, our common stock began trading on the Nasdaq National
Market System under the symbol "EXEG". Prior to that time, beginning on May 22,
2000, our common stock traded on the Nasdaq National Market System under the
symbol "CYPH". Before May 22, 2000, our common stock was quoted in the
over-the-counter market on the Nasdaq SmallCap Market System under the same
ticker symbol. The following table sets forth the high and low bid prices for
the common stock as reported by the National Association of Securities Dealers,
Inc. for the periods indicated.
COMMON STOCK
--------------
HIGH LOW
------ -----
2000:
First Quarter............................................. $19.00 $7.06
Second Quarter............................................ 12.50 4.13
Third Quarter............................................. 12.69 7.69
Fourth Quarter............................................ 9.63 6.25
2001:
First Quarter............................................. 8.25 2.66
Second Quarter............................................ 4.85 3.00
Third Quarter............................................. 4.50 2.22
Fourth Quarter............................................ 4.09 2.00
On March 19, 2002, the last sale price of our common stock was $1.85.
STOCKHOLDERS
As of March 19, 2002, there were approximately 143 holders of record of our
common stock and, according to our estimates, approximately 5,600 beneficial
owners of our common stock.
DIVIDENDS
We have not paid dividends to our stockholders since our inception and do
not plan to pay cash dividends in the foreseeable future. We currently intend to
retain earnings, if any, to finance our growth.
RECENT SALES OF UNREGISTERED SECURITIES
In May 2001, we sold 100,000 shares of treasury stock to our President and
Chief Executive Officer, Ronald L. Goode, for a purchase price of $3.25 per
share of common stock, the fair market value at the time of the transaction. In
November 2001, we granted warrants to purchase 125,000 shares of our common
stock at an exercise price of $7.00 per share, expiring two years from the date
of issuance, to Roan Meyers, one of our affiliates. In addition, during the year
ended December 31, 2001, we granted options to purchase an aggregate of 812,155
shares of common stock to employees, directors and consultants with exercise
prices ranging from $2.33 to $7.63 and at a weighted average exercise price of
$4.87 per share.
The securities issued in the foregoing transactions were offered and sold
in reliance upon exemptions from the Securities Act of 1933 registration
requirements set forth in Sections 3(b) and 4(2) of the Securities Act and any
regulations promulgated thereunder, relating to sales by an issuer not involving
any public offering. No underwriters were involved in the foregoing sales of
securities.
13
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below is derived from our audited
financial statements. Such information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and with such financial statements and the notes thereto contained
elsewhere in this report.
EXEGENICS INC.
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Revenue.................... $ 1,333,000 $ 865,000 $ 1,375,000 $ 1,183,000 $ --
------------ ----------- ----------- ----------- -----------
Research and development... 5,321,000 3,681,000 2,332,000 1,692,000 1,469,000
General and administrative
expenses................. 6,530,000 5,788,000 3,194,000 2,500,000 1,888,000
------------ ----------- ----------- ----------- -----------
Operating loss............. (10,518,000) (9,469,000) (4,151,000) (3,009,000) (3,357,000)
Gain on Disposition........ 274,000 -- -- -- --
Interest expense........... (6,000) (9,000) (6,000) (5,000) (2,000)
Interest income............ 1,383,000 1,543,000 222,000 286,000 107,000
------------ ----------- ----------- ----------- -----------
Net loss before cumulative
effect of a change in
accounting principle..... (8,785,000) (7,165,000) (3,935,000) (2,728,000) (3,252,000)
Cumulative effect on prior
years of change in method
of revenue recognition... -- -- (422,000) -- --
------------ ----------- ----------- ----------- -----------
Net loss................... $ (8,785,000) $(7,165,000) $(4,357,000) $(2,728,000) $(3,252,000)
============ =========== =========== =========== ===========
Basic and diluted loss per
common share............. $ (0.57) $ (0.51) $ (0.44) $ (0.30) $ (0.42)
============ =========== =========== =========== ===========
DECEMBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ---------- ---------- ----------
BALANCE SHEET DATA
Total assets................... $27,625,000 $37,378,000 $4,491,000 $7,746,000 $2,802,000
Working capital................ 24,949,000 35,050,000 2,324,000 6,227,000 1,330,000
Royalties payable-less current
portion...................... -- 750,000 875,000 1,000,000 1,125,000
Shareholders' equity........... 26,121,000 35,775,000 2,592,000 6,062,000 1,123,000
ITEM 7. 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 our management or us are intended to identify such
forward-looking statements. Our 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 future period.
14
OVERVIEW
We are a post-genomics drug creation enterprise specializing in creating
and developing therapeutic products for human diseases with an emphasis on the
treatment of cancer and infectious diseases. Since our inception in 1991, we
have been involved solely in research and development activities relating to
technologies that are at various stages of development. As we work toward
becoming a fully operational and profitable drug creation company, we will
continue to review and refine our strategic plan. We believe that we have
promising technology, a capable, focused Board and management team, and strong
financial resources.
During the next twelve months we plan on concentrating our efforts on the
following activities:
- Creation, using QCT, of novel small-molecule inhibitors of specific,
targeted proteins;
- Developing novel chemical molecules to the level of clinical drug lead
candidates;
- Partnering with pharmaceutical or biotechnology companies who can benefit
from using our drug lead creation engine, QCT;
- Creating gene-regulating antisense reagents using our OASIS platform
technology;
- Partnering with functional genomics companies who would be interested in
using OASIS as a tool;
- Partnering with companies having expertise in development of antisense
drugs to further develop EXEGENICS' gene inhibitors into useful drugs;
- Fulfilling our collaboration obligations with Bristol-Myers Squibb; and
- Establishing partnerships, strategic alliances and technology licenses
for the development, manufacturing, marketing and sales pharmaceuticals
for treatment of cancer, infectious diseases and other diseases.
We have a capable, experienced management team in place to meet the
increasing demands we face as we continue to implement our aggressive business
plan. Our President and Chief Executive Officer, Ronald L. Goode, Ph.D. is an
accomplished pharmaceutical executive who has held key management positions at
G. D. Searle & Co. and Pfizer Pharmaceuticals. He has an extensive record of
success in business development, having been responsible for many of Searle's
acquisitions and has supervised clinical development programs that led to the
filing of over a dozen New Drug Approval applications. Our founder and previous
President and Chief Executive Officer, Dr. Arthur P. Bollon, has become a member
of the team comprising our office of the Chief Scientist. In addition, Dr.
Robert Rousseau, our Vice-President of Licensing, and Joan Gillett, our
Vice-President and Controller, both bring invaluable knowledge to our management
team.
The members of our Board of Directors provide us with the necessary
expertise to analyze the opportunities presented to us. Of particular note, our
non-executive Chairman of the Board of Directors, Gary E. Frashier, has
twenty-four years of successful experience as a CEO in scientific, life science
and pharmaceutical research companies. Robert J. Easton, a director since 2000,
is the chairman and founder of Easton Associates L.L.C. a leading healthcare
consulting practice. Dr. Ira Gelb, a distinguished physician, is on the faculty
of Mt. Sinai Medical School in New York and Florida Atlantic University in Boca
Raton. Irwin Gerson, former CEO of the largest pharmaceutical advertising
agency, McAdams, provides us with excellent entre to both the large and small
pharmaceutical companies. Walter Lovenberg, Ph.D., retired from both the NIH and
as President of Marion Merrell Dow Research Institute is broadly active in the
biotechnology industry.
We expect our Board to help us to strengthen and expand our affiliations
with universities and other research institutions, ensuring that we obtain the
most advanced scientific knowledge available. In addition, they will help us to
identify and evaluate possible collaborations, strategic alliances and joint
ventures with pharmaceutical and biotechnology companies for the commercial
development of our products.
Our management team will also play an instrumental role in overseeing the
development of our scientific staff. We will continue to ensure that we have the
appropriate staff members and equipment necessary to
15
accommodate the tasks required by our expanding QCT and OASIS technologies. We
have improved our synthetic and medicinal chemistry capabilities; functions we
feel are vital to our drug creation efforts. We are cognizant of the importance
of obtaining new as well as existing patents and intellectual property, and are
developing new programs to ensure successful operations in this area.
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 use of consultants, the
availability of financing and other factors.
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis we evaluate our estimates, including those
related to investments, intangible assets, income taxes, contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We recognize revenue from research support agreements
ratably over the length of the agreements. We recognize revenue resulting from
the achievement of milestones as the milestone is achieved. Amounts received in
advance of services to be performed are recorded as deferred revenue. We record
a valuation allowance to reduce our deferred tax assets to the amount that is
more likely than not to be realized. While we have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event we were to determine that we
would be able to realize deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the net deferred tax asset would increase
income in the period such determination was made. Likewise, should we determine
that we would not be able to realize all or part of our net deferred tax asset
in the future, an adjustment to the net deferred tax asset would be charged to
income in the period such determination was made.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2001 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2000
Revenues
Revenues for 2001 and 2000 were primarily attributable to license and
research and development payments, including those from our agreements with
Bristol-Myers Squibb. We recognized revenues of $1,333,000 during fiscal 2001,
compared to $865,000 for fiscal 2000, an increase of $468,000 or 54.1%. The
increase was a result of the extension of our research and development agreement
with BMS.
Research and Development Expenses
We incurred research and development expenses of $5,321,000 during fiscal
2001 and $3,681,000 during fiscal 2000, an increase of $1,640,000 or 45%. The
increase in research and development expenses in 2001 from 2000 was due to the
hiring of additional scientific staff in 2001, severance payments related to
restructuring of operations, additional expenses for research services including
a non-cash charge related to options granted to consultants, additional
commitments to fund external research, increased depreciation expense, and an
increase in office and laboratory supplies required to support our increased
activities. Expenses
16
in 2001 primarily include $643,000 for research consultants, $1,311,000 for
contract research and $344,000 for lab supplies and other research services and
materials.
General and Administrative Expenses
General and administrative expenses for fiscal 2001 were $6,530,000
compared to $5,788,000 for fiscal 2000, an increase of $742,000 or 13%. General
and administrative expenses increased as a result of higher salary costs,
additional travel and lodging expenses including relocation reimbursements,
increases in legal and professional fees, including a $765,000 charge for a
dispute settlement, and a non-cash expense for the issuance of options. These
expenses were substantially offset by a decrease in public and financial
relations expenses, as well as a decreases in tax expenses. Expenses in 2001
include $836,000 for expense related to our corporate restructuring activities,
$207,000 for audit fees and other accounting related services, $667,000 for
legal fees related to patents and intellectual property, $400,000 for company
and employee insurance and $803,000 for legal services, of which the consulting
and legal services were mainly due to assistance with our restructuring and
reorganization.
Other Income
Other income for fiscal 2001 was $274,000 as compared to $0 during fiscal
2000. The increase was due to recognizing a gain for the relinquishment of
patent rights.
Interest Income
Interest income for fiscal 2001 was $1,383,000 compared to $1,543,000 for
fiscal 2000, a decrease of $160,000 or 10.4%. The decrease in interest income
was due to lower interest rates and declining investable balances as
disbursements were made.
Net Losses
We incurred net losses of $8,785,000 during fiscal 2001 and $7,165,000
during fiscal 2000. The increase in net losses of $1,620,000 or 22.6%, is a
result of the aforementioned changes in our operations. Net loss per common
share for fiscal 2001 was $0.57 and for fiscal 2000 was $0.51.
FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999
Revenue
Revenues for 2000 and 1999 were primarily attributable to license and
research and development payments, including those from our agreements with BMS.
We recognized revenues of $865,000 during fiscal 2000, compared to $1,375,000
during fiscal 1999, a decrease of $510,000 or 37.0%. The decrease was a result
of the schedule of payments under our license and research and development
agreements.
Research and Development Expenses
We incurred research and development expenses of $3,681,000 during fiscal
2000 and $2,332,000 during fiscal 1999, an increase of $1,349,000 or 58%. The
increase was due to the hiring of additional scientific staff in 2000, increased
expenses for research consultants including a non-cash charge related to options
granted to consultants, additional commitments to fund external research, higher
rent, an increase in depreciation expense, an increase in contract labor
expenses, additional fees paid for conference and seminar attendance, and an
increase in office and laboratory supplies required to support our increased
activities.
General and Administrative Expenses
General and administrative expenses for fiscal 2000 were $5,788,000,
compared to $3,194,000 for fiscal 1999, an increase of $2,594,000 or 81%.
General and administrative expenses increased as a result of additional public
and financial relations costs including a non-cash charge related to the value
assigned to warrants granted to our financial advisors and consultants, higher
insurance premiums, relocation reimbursements,
17
increased legal and professional fees including a non-cash expense for the
issuance of options, as well as expenses related to our growth in operations.
These expenses were partially offset by a decrease in expenses associated with
the acquisition of QCT, as well as decreases in consulting and contract labor
expenses.
Interest Income
Interest income for fiscal 2000 was $1,543,000, compared to $222,000 for
fiscal 1999, an increase of $1,321,000 or 595%. The increase in interest income
was due to an increase in available cash balances resulting from the receipt of
proceeds from the exercise of warrants during 2000.
Net Losses
We incurred net losses of $7,165,000 during fiscal 2000 and $4,357,000
during fiscal 1999. The increase in net losses of $2,808,000, or 64.4%, is a
result of the aforementioned changes in our operations. Net loss per common
share for fiscal 2000 was $0.50 and for fiscal 1999 was $0.42.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, we had cash, cash equivalents and investments of
approximately $25,545,000, which, during 2001, included a use of approximately
$8,005,000 to fund our operating activities, principally related to a net loss
of $8,785,000 for the year. We invested approximately $10,548,000 of cash for
the purchase investments of approximately $10,050,000 and for the purchase of
laboratory equipment, software and other equipment for approximately $498,000.
In addition, we used approximately $1,860,000 to fund our financing activities,
including $1,335,000 for the purchase of 251,000 shares of Treasury Stock.
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 2000, we exercised our right of redemption related to
5,519,000 of our Class C, D and other warrants and options and received net
proceeds of approximately $39,925,000.
In January 2000 the Board of Directors approved the 2000 Employee Option
Plan, or the Plan, authorizing up to 1,500,000 shares, subject to approval of
the Plan by a majority of our shareholders. On September 11, 2000 our
shareholders approved the Plan. At the time of shareholder approval, the market
value of our common stock exceeded the exercise price of certain options noted
above, consequently we recorded deferred compensatory charges of $130,000 equal
to the spread between the exercise price of the option and the market price,
times the number of options involved. Of the $130,000 deferred compensation,
$65,000 and $60,000 was expensed in 2001 and 2000 respectively. In the second
quarter of 2001, stockholders amended the Plan, increasing the shares available
under the Plan by 1,250,000. During the year ended December 31, 2001 we granted
812,155 options to purchase shares of common stock under the Plan at exercise
prices ranging from $2.33 to $7.63 per share to our officers, directors,
employees and consultants.
We account for our 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. We
have adopted the disclosure-only alternative under SFAS No. 123. We account for
stock based compensation to non employees using the fair value method in
accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) 96-18. We
have recognized deferred stock compensation related to certain stock option and
warrant grants. During the year ended December 31, 2001 we granted 125,000
warrants to purchase shares of common stock at $7.00 per share, in exchange for
expiring unit purchase options. In connection with other option grants to
consultants, we recorded a charge of $385,000 and $335,000 during the year ended
December 31, 2001 and 2000 respectively.
We have agreed to fund scientific research at academic institutions and to
make minimum royalty payments for licensing and collaborative agreements of
approximately $1,223,000 in 2002. We do not expect these arrangements to have a
significant impact on our near-term liquidity and capital resources. We intend
to
18
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 ended December 31,
2002.
We believe that we have sufficient cash on hand at December 31, 2001 to
finance our operations through at least December 31, 2002. We have enhanced our
cash planning procedures to ensure continual review and revision of the
allocation of financial resources to the programs that have the highest priority
and represent the best long and short term profit potential. However, there can
be no assurance that we will generate sufficient 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.
ITEM 7A. 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 and corporate obligations with contractual
maturities of less than one year. 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 our transactions have been made in U.S. dollars. We do not have any
material exposure to changes in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in our Proxy Statement for the
2002 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in our Proxy
Statement for the 2002 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in our Proxy Statement
for the 2002 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Certain Relationships and Related
Transactions" and "Executive Compensation -- Employment Agreements, Termination
of Employment and Change of Control Arrangements" in our Proxy Statement for the
2002 Annual Meeting of Stockholders.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Report of Ernst & Young LLP, Independent Auditors
Report of Richard A. Eisner & Company, LLP, Independent Auditors
Balance Sheets as of December 31, 2001 and 2000
Statements of Operations for the years ended December 31, 2001, 2000
and 1999
Statements of Changes in Stockholders' Equity for years ended
December 31, 2001, 2000 and 1999
Statements of Cash Flows for the years ended December 31, 2001,
2000, and 1999
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because the required information is
included in the financial statements or notes thereto or because they are not
required.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Incorporation, as amended(1)
3.2 -- By-laws(1)
4.1 -- Specimen certificates representing Class C Warrants, Class D
Warrants and Common Stock(1)
4.3 -- Form of Unit Purchase Option in connection with the
Company's Initial Public Offering(1)
4.4 -- Warrant Certificate issued to the Washington State
University Research Foundation(4)
10.1 -- Employment Agreement dated March 1, 1992 between the Company
and Arthur P. Bollon, Ph.D, as amended(1)
10.2 -- Employment Agreement effective November 7, 1995 between the
Company and Daniel Shusterman, as amended(1)
10.3 -- 1992 Stock Option Plan, as amended(1)
10.4 -- Form of Stock Option Agreement(1)
10.5 -- Lease Agreement dated September 1, 1993 between the Company
and Mutual Benefit Life Insurance Company In
Rehabilitation(1)
10.6 -- Lease Agreement dated October 1, 1991 between the Company
and J.K. and Susie Wadley Research Institute and Blood Bank,
as amended(1)
10.7 -- Purchase Agreement dated October 10, 1991 between the
Company and Wadley Technologies, Inc. ("Wadley")(1)
10.8 -- Security Agreement dated October 10, 1991 between the
Company and Wadley(1)
10.9 -- License Agreement dated March 15, 1989 between the Company
and Phillips Petroleum Company, as amended(1)
10.10 -- License Agreement dated June 10, 1993 between the Company
and Research & Development Institute, Inc. ("RDI"), as
amended, relating to the Paclitaxel Fermentation Production
System(1)
10.11 -- Research and Development Agreement effective June 10, 1993
between the Company and RDI, as amended(1)
10.12 -- License Agreement dated February 22, 1995 between the
Company and RDI, as amended, relating to FTS-2(1)
10.13 -- Research, Development and License Agreement dated March 26,
1992 between the Company and Enzon, Inc. ("Enzon"), As
amended(1)
10.14 -- Research, Development and License Agreement dated July 13,
1992 between the Company and Enzon relating to the Company's
tumor necrosis factor technology(1)
10.15 -- Agreement effective June 30, 1992 between the Company and
University of Texas at Dallas ("UTD"), as amended(1)
20
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.16 -- Research Agreement effective April 8, 1994 between the
Company and Sloan-Kettering Institute for Cancer Research(1)
10.17 -- Joint Venture Agreement dated September 17, 1992 between the
Company and Pestka Biomedical laboratories, Inc.
("Pestka")(1)
10.18 -- Stock Purchase Agreement dated September 17, 1992 between
the Company and Pestka(1)
10.19 -- License Agreement dated September 17, 1992 between Cytomune,
Inc. and Pestka(1)
10.20 -- Research and Development Agreement dated September 17, 1992
between Cytomune, Inc. and Pestka(1)
10.21 -- Marketing Agreement dated as of November 1, 1994 between
Helm AG and the Company(1)
10.22 -- Extension Agreement with RDI dated June 5, 1995(1)
10.23 -- Third Amendment to Lease Agreement dated April 30, 1995(1)
10.24 -- Form of Subordinated Note Extension(1)
10.25 -- Form of Note Extension(1)
10.26 -- September 25, 1995 RDI Extension(1)
10.27 -- October 25, 1995 RDI Extension(1)
10.28 -- Amendment to License Agreement dated June 10, 1993, as
amended, and Research and Development Agreement effective
June 10, 1993, as amended, both agreements between the
Company and RDI(2)
10.29 -- License Agreement No. W960206 effective February 27, 1996
between the Company and The Regents of the University of
California(2)
10.30 -- License Agreement No. W960207 effective February 27, 1996
between the Company and The Regents of the University of
California(2)
10.31 -- License Agreement with the Washington State University,
dated July 2, 1996(3)*
10.32 -- Amendment to Agreement, effective June 30, 1992, as amended,
between the Company and the University of Texas at Dallas(3)
10.33 -- 1996 Stock Option Plan and Amendment No. 1 thereto(7)
10.34 -- Patent License Agreement, dated August 4, 1998, between The
Regents of the University of California and the Company for
Peptide Anti-estrogen for Breast Cancer Therapy(5)*
10.35 -- Master License Agreement, dated as of June 12, 1998, between
the Company and Bristol-Myers Squibb Company(6)*
10.36 -- Sublicense Agreement, dated May 27, 1998, between the
Company and Bristol-Myers Squibb under The Research &
Development Institute, Inc. License Agreement, as amended,
dated June 10, 1998(6)*
10.37 -- Sublicense Agreement, dated May 19, 1998, between the
Company and Bristol-Myers Squibb Company under the
Washington State University Research Foundation License
Agreement, dated June 8, 1996(6)*
10.38 -- Amended and Restated License Agreement, dated June 3, 1998,
between the Washington State University Research Foundation
and the Company(6)*
10.39 -- Amendment, dated May 27, 1998, to the License Agreement,
dated June 10, 1993, between The Research and Development
Institute, Inc. and the Company(6)*
10.40 -- Amended and Restated 2000 Stock Option Plan(7)
10.41 -- Employment Agreement dated March 21, 2001, between the
Company and Ronald Lane Goode, Ph.D.(8)
10.42 -- Employment Agreement dated December 31, 1998, between the
Company and Dorit Arad, Ph.D.
21 -- List of Subsidiaries -- None
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Richard A. Eisner & Company, LLP
21
---------------
* Confidential portions omitted and filed separately with the U.S. Securities
and Exchange Commission pursuant to Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 and are incorporated by reference
herein.
(3) Previously filed as an exhibit to the Company's Post-Effective Amendment No.
1 to Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(4) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 333-13409) and is incorporated by reference herein.
(5) Previously filed as an exhibit to the Post-Effective Amendment to the
Company's Registration Statement on Form SB-2 on Form S-3 (File No.
333-13409) and is incorporated by reference herein.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
(File No. 000-26078) and is incorporated by reference herein.
(7) Previously filed as an appendix to the Company's Schedule 14-A (File No.
000-26078) and is incorporated by reference herein.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
(File No. 000-26078) for the year ended December 31, 2000 and is
incorporated by reference herein.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EXEGENICS INC.
By: /s/ RONALD L. GOODE
------------------------------------
Name: Ronald L. Goode
Title: President and Chief
Executive Officer
Date: March 26, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
By: /s/ RONALD L. GOODE Director, President and Chief March 26, 2002
----------------------------------------- Executive Officer (Principal
Ronald L. Goode Executive Officer)
By: /s/ JOAN H. GILLETT Vice President, Controller March 26, 2002
----------------------------------------- (Principal Financial Officer)
Joan H. Gillett, CPA
By: /s/ GARY E. FRASHIER Director, Chairman of the Board March 26, 2002
-----------------------------------------
Gary E. Frashier
By: /s/ ROBERT J. EASTON Director March 26, 2002
-----------------------------------------
Robert J. Easton
By: /s/ IRA J. GELB Director March 26, 2002
-----------------------------------------
Ira J. Gelb
By: /s/ IRWIN C. GERSON Director March 26, 2002
-----------------------------------------
Irwin C. Gerson
By: /s/ WALTER M. LOVENBERG Director March 26, 2002
-----------------------------------------
Walter M. Lovenberg
By: /s/ ARTHUR P. BOLLON Director, Executive VP March 26, 2002
-----------------------------------------
Arthur P. Bollon
23
EXEGENICS INC.
CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors........... F-2
Report of Richard A. Eisner & Company, LLP, Independent
Auditors.................................................. F-3
Balance sheets as of December 31, 2001 and 2000............. F-4
Statements of operations for the years ended December 31,
2001, 2000 and 1999....................................... F-5
Statements of changes in stockholders' equity for the years
ended December 31, 2001, 2000 and 1999.................... F-6
Statements of cash flows for the years ended December 31,
2001, 2000 and 1999....................................... F-7
Notes to financial statements............................... F-8
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
EXEGENICS INC.
We have audited the accompanying balance sheet of EXEGENICS INC. (the
Company), formerly known as Cytoclonal Pharmaceutics Inc., as of December 31,
2001, and the related statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EXEGENICS INC. as of
December 31, 2001, and the results of its operations and its cash flows for the
year ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
/S/ ERNST & YOUNG LLP
Dallas, Texas
March 4, 2002
F-2
REPORT OF RICHARD A. EISNER & COMPANY, LLP INDEPENDENT AUDITORS
Board of Directors and Stockholders
EXEGENICS INC.
Dallas, Texas
We have audited the accompanying balance sheets of EXEGENICS INC. (formerly
known as Cytoclonal Pharmaceutics Inc.), as of December 31, 2000, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the years in the two-year period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of EXEGENICS INC. as of
December 31, 2000 and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note B to the financial statements, the Company changed its
method of revenue recognition in 1999.
/S/ RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 2, 2001
F-3
EXEGENICS INC.
BALANCE SHEETS
DECEMBER 31,
---------------------------
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,995,000 $ 35,408,000
Restricted cash........................................... 550,000 --
Investments............................................... 10,050,000 --
Prepaid expenses and other current assets................. 656,000 495,000
------------ ------------
Total current assets................................. 26,251,000 35,903,000
Equipment, net.............................................. 1,009,000 512,000
Patent rights, less accumulated amortization of $111,000 and
$764,000.................................................. 74,000 670,000
Notes receivable -- officer/stockholder..................... 278,000 278,000
Other assets................................................ 13,000 15,000
------------ ------------
$ 27,625,000 $ 37,378,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,163,000 $ 633,000
Taxes payable............................................. -- 95,000
Deferred revenue.......................................... 56,000 --
Current portion of capital lease obligations.............. 83,000 --
Current portion of royalties payable........................ -- 125,000
------------ ------------
Total current liabilities............................ 1,302,000 853,000
Capital lease obligations, less current portion............. 202,000 --
Royalties payable, less current portion..................... -- 750,000
------------ ------------
1,504,000 1,603,000
------------ ------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock -- $.01 par value, 10,000,000 shares
authorized; 755,950 and 718,353 shares of Series A
convertible preferred issued and outstanding
(liquidation value $1,890,000 and $1,796,000).......... 8,000 7,000
Common stock -- $.01 par value, 30,000,000 shares
authorized; 16,180,935 and 16,146,730 shares issued.... 162,000 162,000
Additional paid-in capital................................ 67,025,000 67,083,000
Subscriptions receivable.................................. (360,000) (51,000)
Unearned compensation..................................... (5,000) (70,000)
Accumulated deficit....................................... (38,139,000) (29,354,000)
Treasury stock, 511,200 and 260,600 shares of common
stock, at cost......................................... (2,570,000) (2,002,000)
------------ ------------
26,121,000 35,775,000
------------ ------------
$ 27,625,000 $ 37,378,000
============ ============
See notes to financial statements
F-4
EXEGENICS INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenue:
License and research fees............................. $ 1,333,000 $ 865,000 $ 1,375,000
----------- ----------- -----------
Operating expenses:
Research and development............................ 5,321,000 3,681,000 2,332,000
General and administrative.......................... 6,530,000 5,788,000 3,194,000
----------- ----------- -----------
11,851,000 9,469,000 5,526,000
Other (income) expenses:
Gain on disposition................................. (274,000) -- --
Interest income..................................... (1,383,000) (1,543,000) (222,000)
Interest expense.................................... 6,000 9,000 6,000
----------- ----------- -----------
(1,651,000) (1,534,000) (216,000)
----------- ----------- -----------
Loss before items shown below......................... (8,867,000) (7,070,000) (3,935,000)
Provision (benefit) for taxes......................... (82,000) 95,000
----------- ----------- -----------
Loss before cumulative effect of a change in
accounting principle................................ (8,785,000) (7,165,000) (3,935,000)
Cumulative effect on prior years of changing method of
revenue recognition................................. -- -- (422,000)
----------- ----------- -----------
NET LOSS.............................................. (8,785,000) (7,165,000) (4,357,000)
Preferred stock dividend.............................. (180,000) (180,000) (182,000)
----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.......... $(8,965,000) $(7,345,000) $(4,539,000)
=========== =========== ===========
Basic and diluted loss per common share:
Loss before cumulative effect of a change in
accounting principle............................. $ (0.57) $ (0.51) $ (0.40)
Cumulative effect on prior years of changing method
of revenue recognition........................... -- -- (0.04)
----------- ----------- -----------
NET LOSS.............................................. $ (0.57) $ (0.51) $ (0.44)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- BASIC
AND DILUTED......................................... 15,749,000 14,452,000 10,333,000
=========== =========== ===========
See notes to financial statements
F-5
EXEGENICS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- --------------------- PAID IN SUBSCRIPTIONS UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
------- ------- ---------- -------- ----------- ------------- ------------
BALANCE -- DECEMBER 31, 1998........ 746,864 7,000 10,209,844 102,000 23,785,000 -- --
Preferred dividend (stock).......... 74,648 1,000 -- -- (1,000) -- --
Preferred stock converted to
common............................ --
stock............................. (92,609) (1,000) 92,609 1,000 -- -- --
Exercise of warrants................ -- -- 15,000 -- 59,000 -- --
Exercise of options................. -- -- 7,000 -- 25,000 -- --
Value assigned to options issued for
professional services............. -- -- -- -- 412,000 -- --
Shares exchanged for technology..... -- -- 25,000 -- 184,000 -- --
Issuance of compensatory stock...... -- -- 28,000 1,000 206,000 -- --
Net loss for the year............... -- -- -- -- -- -- --
------- ------- ---------- -------- ----------- --------- --------
BALANCE -- DECEMBER 31, 1999........ 728,903 7,000 10,377,453 104,000 24,670,000 -- --
Preferred dividend (stock).......... 72,856 1,000 -- -- (1,000) -- --
Preferred stock converted to common
stock............................. (83,406) (1,000) 83,406 1,000 -- -- --
Exercise of warrants, net of related
expenses of $1,999,000............ -- -- 5,519,111 55,000 39,313,000 (51,000) --
Exercise of options and units....... -- -- 166,760 2,000 605,000 -- --
Value assigned to warrants and
options issued for professional
services.......................... -- -- -- -- 2,360,000 -- --
Compensation related to grant of
options to employees.............. -- -- -- -- 130,000 -- (70,000)
Purchase of Treasury stock.......... -- -- -- -- -- -- --
Sale of Treasury stock.............. -- -- -- -- 6,000 -- --
Net loss for the year............... -- -- -- -- -- -- --
------- ------- ---------- -------- ----------- --------- --------
BALANCE -- DECEMBER 31, 2000........ 718,353 7,000 16,146,730 162,000 67,083,000 (51,000) (70,000)
Preferred stock converted to common
stock............................. (34,205) -- 34,205 -- -- -- --
Preferred dividend (stock).......... 71,802 1,000 -- -- (1,000) -- --
Proceeds from sale of Treasury
stock............................. -- -- -- -- (442,000) (300,000) --
Interest accrual on Subscription
Receivable........................ -- -- -- -- -- (9,000) --
Purchase of Treasury stock.......... -- -- -- -- -- -- --
Compensation related to grant of
options to employees.............. -- -- -- -- 385,000 -- 65,000
Net loss for the year............... -- -- -- -- -- -- --
------- ------- ---------- -------- ----------- --------- --------
BALANCE -- DECEMBER 31, 2001........ 755,950 $8,000 16,180,935 $162,000 $67,025,000 $(360,000) $ (5,000)
======= ======= ========== ======== =========== ========= ========
TREASURY STOCK
ACCUMULATED ----------------------
DEFICIT SHARES AMOUNT TOTAL
------------ -------- ----------- -----------
BALANCE -- DECEMBER 31, 1998........ (17,832,000) -- -- 6,062,000
Preferred dividend (stock).......... -- -- -- --
Preferred stock converted to
common............................
stock............................. -- -- -- --
Exercise of warrants................ -- -- -- 59,000
Exercise of options................. -- -- -- 25,000
Value assigned to options issued for
professional services............. -- -- -- 412,000
Shares exchanged for technology..... -- -- -- 184,000
Issuance of compensatory stock...... -- -- -- 207,000
Net loss for the year............... (4,357,000) -- -- (4,357,000)
------------ -------- ----------- -----------
BALANCE -- DECEMBER 31, 1999........ (22,189,000) -- -- 2,592,000
Preferred dividend (stock).......... -- -- -- --
Preferred stock converted to common
stock............................. -- -- -- --
Exercise of warrants, net of related
expenses of $1,999,000............ -- -- -- 39,317,000
Exercise of options and units....... -- -- -- 607,000
Value assigned to warrants and
options issued for professional
services.......................... -- -- -- 2,360,000
Compensation related to grant of
options to employees.............. -- -- -- 60,000
Purchase of Treasury stock.......... -- 263,600 (2,023,000) (2,023,000)
Sale of Treasury stock.............. -- (3,000) 21,000 27,000
Net loss for the year............... (7,165,000) -- -- (7,165,000)
------------ -------- ----------- -----------
BALANCE -- DECEMBER 31, 2000........ (29,354,000) 260,600 (2,002,000) 35,775,000
Preferred stock converted to common
stock............................. -- -- -- --
Preferred dividend (stock).......... -- -- -- --
Proceeds from sale of Treasury
stock............................. -- (100,000) 767,000 25,000
Interest accrual on Subscription
Receivable........................ -- -- -- (9,000)
Purchase of Treasury stock.......... -- 350,600 (1,335,000) (1,335,000)
Compensation related to grant of
options to employees.............. -- -- -- 450,000
Net loss for the year............... (8,785,000) -- -- (8,785,000)
------------ -------- ----------- -----------
BALANCE -- DECEMBER 31, 2001........ $(38,139,000) 511,200 $(2,570,000) $26,121,000
============ ======== =========== ===========
See notes to financial statements
F-6
EXEGENICS INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (8,785,000) $(7,165,000) $(4,357,000)
------------ ----------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 286,000 290,000 200,000
Value assigned to warrants, options and
compensatory stock............................ 450,000 2,420,000 619,000
Gain on disposition of patent rights............ (274,000) -- --
Interest accrual on subscriptions receivable.... (9,000) -- --
Payment of royalty liability.................... (5,000) (135,000) (146,000)
Changes in:
Prepaid expenses and other current assets....... (159,000) (371,000) (50,000)
Accounts payable and accrued expenses........... 530,000 (49,000) 221,000
Tax payable..................................... (95,000) 95,000 --
Deferred revenue................................ 56,000 (207,000) 140,000
------------ ----------- -----------
Net cash used in operating activities...... (8,005,000) (5,122,000) (3,373,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable -- officer/shareholder............ -- (204,000) (74,000)
Purchases of equipment............................. (498,000) (407,000) (250,000)
Purchases of investment securities................. (10,050,000) -- --
------------ ----------- -----------
Net cash used in investing activities...... (10,548,000) (611,000) (324,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock through exercise
of options and warrants......................... -- 39,924,000 84,000
Increase in restricted cash........................ (550,000) -- --
Purchase of treasury stock......................... (1,335,000) (2,023,000) --
Proceeds from sale of treasury stock............... 25,000 27,000 --
------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... (1,860,000) 37,928,000 84,000
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (20,413,000) 32,195,000 (3,613,000)
Cash and cash equivalents at beginning of year....... 35,408,000 3,213,000 6,826,000
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 14,995,000 $35,408,000 $ 3,213,000
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................. $ 6,000 $ 8,000 $ 6,000
Noncash investing activities:
Common stock issued for technology.............. -- -- 184,000
Taxes paid...................................... 95,000
Property acquired through capital lease
arrangements.................................. 285,000 -- --
See notes to financial statements
F-7
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A -- THE COMPANY
EXEGENICS INC., formerly known as Cytoclonal Pharmaceutics Inc. (the
"Company"), is involved in the research, creation, and development of drugs for
the treatment and/or prevention of cancer and infectious diseases. To date, the
Company's efforts have been principally devoted to R&D, capital formation and
organizational development.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EQUIPMENT
Equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 5 years. Leasehold improvements are amortized over the lesser of the
economic useful life of the improvement or term of the lease.
PATENT RIGHTS AND COSTS
Certain patents acquired in October 1991 were stated at cost and amortized
to research and development expense using the straight-line method over the
17-year life of the patents. During August 2001, the Company decided to
terminate the subject agreement and, after the required three months notice,
wrote off the related patents and the accumulated amortization. (see Note C)
Patents and technology acquired during 1999 are being amortized over an
estimated useful life of 5 years (see Note J).
The Company reviews its patents for impairment whenever events or changes
in circumstances indicate that the carrying amount of the patents may not be
recoverable. In performing the review, the Company estimates undiscounted cash
flows from products under development that are covered by these patents.
Impairment based on the estimated fair value of the patents would be recognized
if those estimated cash flows were less than the unamortized costs. Related
patents are grouped in estimating future cash flows to determine whether patents
are impaired and in measuring the amount of the impairment. There were no
impairment indicators relating to patent rights and costs at December 31, 2001.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
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 year. No effect has been given to outstanding
options, warrants or convertible preferred stock in the diluted computation as
their effects would be antidilutive. The number of potentially dilutive
securities excluded from the computation of diluted loss per share was
approximately 5,125,000, 4,697,000 and 10,069,000 for the years ended December
31, 2001, 2000 and 1999, respectively.
CASH EQUIVALENTS, RESTRICTED CASH, INVESTMENTS AND CONCENTRATION OF CREDIT
RISK
The Company considers all non-restrictive, highly liquid short-term
investments purchased with an original maturity of three months or less to be
cash equivalents. Cash equivalents, which amount to $14,995,000 and $35,408,000
at December 31, 2001 and 2000, respectively, consist principally of interest
bearing cash deposits placed with a single financial institution. Restricted
cash, which amounts to $550,000 and $0 at December 31, 2001 and 2000,
respectively, consists of certificates of deposits that are used as
F-8
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
collateral for equipment leases. Investments, which amount to $10,050,000 and $0
at December 31, 2001 and 2000, respectively, consists of investments with a
maturity greater than three months net of unamortized premiums paid on
investments.
STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock-based
compensation plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value based method
defined in SFAS No. 123 had been applied.
Under the provisions of APB No. 25, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of the grant over the amount an employee must pay to
acquire the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash equivalents, accounts payable and accrued
expenses approximates their fair value due to the short period to maturity of
these instruments. It is not practicable to estimate the fair value of royalties
payable due to payment terms varying based on sales of products by the Company
and the lack of such sales during the years ended December 31, 2001, 2000 and
1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION AND CHANGE IN ACCOUNTING PRINCIPLE
Revenue from research support agreements is recognized ratably over the
length of the agreements. Revenue resulting from the achievement of milestones
is recognized when the milestone is achieved. Amounts received in advance of
services to be performed are recorded as deferred revenue. In December 1999, the
staff of the Securities and Exchange Commission issued an accounting bulletin on
revenue recognition that provides, among other matters, that nonrefundable
license fees should be recognized over the period of performance of related
research and development activities. Accordingly, the Company changed its
accounting policy from recognizing revenue from nonrefundable license fees at
signing of the agreement to deferring and recognizing such fees over the period
of performance of related research and development activities. Effective January
1, 1999, the Company reflected this change in accounting principle as a
cumulative effect on prior years of $422,000, which is shown in the statement of
operations. Payments to third parties in connection with nonrefundable license
fees are being recognized over the period of performance of related research and
development activities.
Pro forma amounts assuming the change in accounting for revenue recognition
had been applied retroactively is as follows:
DECEMBER 31,
1999
------------
Net loss.................................................... $(3,935,000)
Net loss per common share -- basic and dilutive............. $ (0.40)
F-9
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain items have been reclassified in the prior years' financial
statements to conform to current year presentation.
NOTE C -- ROYALTIES PAYABLE
On October 10, 1991, the Company entered into an agreement to acquire
certain patent rights, technology and know-how (the "Technology") from Wadley
Technologies, Inc. ("Wadtech") for the fixed sum of $1,250,000 and ongoing
royalties.
The agreement provided for the payment of royalties of up to 6.25% of gross
selling price of products incorporating the Technology and up to 50% of all
compensation received by the Company for sales by sublicensees of any products
covered by the Technology, which will be applied to reducing the fixed sum of
$1,250,000, until the fixed sum is paid. Thereafter, the agreement provided for
the payment of royalties of up to 3.75% of gross selling price of products
incorporating the Technology and up to 50% of all compensation received by the
Company for sales by sublicensees of any products covered by the Technology. The
agreement also provided for minimum annual royalty payments of $31,250, $62,500
and $125,000 payable quarterly during each twelve-month period beginning October
1, 1996, 1997 and 1998, respectively. Thereafter, during each twelve-month
period beginning October 1, 1999, the agreement provided for minimum annual
royalty payments of $125,000 payable yearly. Through October 31, 2001, the
Company has made payments of approximately $480,000.
The Company granted Wadtech a security interest in the Technology until
payment of the fixed sum. The agreement was to continue for 99 years from
October 10, 1991 and the Company had the option to terminate the agreement
without cause on three months notice to Wadtech. The Company decided to
terminate the agreement in August of 2001 and notified Wadtech of its intent.
The agreement was terminated at the end of October 2001, resulting in a
recognized gain on disposition of $274,000, the excess of prior amortized
royalty expense over the actual royalty payments made. No additional payments
were required under this agreement.
NOTE D -- LICENSE AND RESEARCH AGREEMENT
In June 1998, the Company entered into an agreement with Bristol Myers
Squibb ("BMS") whereby the Company agreed to sublicense to BMS two technologies,
related to production of paclitaxel, the active ingredient in BMS's largest
selling cancer product, Taxol(R). The agreement, which is for a term of ten
years, subject to earlier termination at the option of BMS, provides for fees,
milestone payments and minimum and sales-based royalties to be paid to the
Company. Subsequently, the Company and BMS entered into a separate 2-year term
research and development support agreement that provided for BMS to pay the
company $2,000,000 in support of the Company's research efforts related to
development of a production system for paclitaxel. Subsequently, the term of the
research and development agreement was extended for an additional two years for
an additional payment of $2,000,000.
For the year ended December 31, 2001, revenues of $0 and $1,333,000 for the
license fee and research support, respectively, were recognized under the
agreements. For the year ended December 31, 2000, revenues of $187,000 and
$678,000 for the license fee and research support, respectively, were recognized
under the agreements. For the year ended December 31, 1999, revenues of $375,000
and $1,000,000 for the license fee and research support, respectively, were
recognized under the agreements (see Note B).
F-10
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- EQUIPMENT
Equipment is summarized as follows:
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Office equipment............................................ $ 151,000 $ 85,000
Furniture and fixtures...................................... 99,000 65,000
Computers and laboratory equipment.......................... 1,298,000 820,000
Laboratory software......................................... 209,000 72,000
Leasehold improvements...................................... 76,000 8,000
---------- ----------
Total................................................ 1,833,000 1,050,000
Less accumulated depreciation............................... 824,000 538,000
---------- ----------
Net......................................................... $1,009,000 $ 512,000
========== ==========
NOTE F -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
---------------------
2001 2000
---------- --------
Professional fees........................................... $ 275,000 $174,000
Accrued Restructure expense................................. 210,000 --
Payroll and related expenses................................ 182,000 254,000
Licensors and contractors................................... 377,000 139,000
Occupancy costs............................................. 44,000 --
Real estate taxes........................................... 28,000 --
Other....................................................... 47,000 66,000
---------- --------
$1,163,000 $633,000
========== ========
NOTE G -- CAPITAL LEASE OBLIGATIONS
Included in equipment at December 31, 2001, is lab equipment and software
totaling $285,000 under capital lease obligations. The related annual interest
rates range from 6.0% to 6.2% throughout the lease terms, which expire in 2005.
The leased equipment collateralizes these leases and is amortized over the
useful life. The commencement date of these leases was December 28, 2001.
The Company has a lease line of credit of $1,000,000, of which
approximately $500,000 remains unused.
F-11
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following represents future minimum rental payments due under the
noncancellable capital leases:
2002........................................................ $ 97,000
2003........................................................ 103,000
2004........................................................ 103,000
2005........................................................ 9,000
--------
$312,000
Less amounts representing interest.......................... 27,000
--------
Present value of minimum lease payments..................... 285,000
Less current portion of capital lease obligations........... 83,000
--------
Capital lease obligations, less current portion............. $202,000
========
NOTE H -- STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
In April and May 1998, the Company completed a private placement for an
aggregate of 671,026 shares of common stock and 335,538 Class E warrants and
received net proceeds of approximately $4,837,000.
PREFERRED STOCK
On January 6, 1992, the Board of Directors designated 4,000,000 shares of
preferred stock as Series A convertible preferred stock. The holders of Series A
preferred stock are entitled to (i) convert on a one-for-one basis to common
stock subject to adjustment, as defined, (ii) voting rights equivalent to voting
rights of common stockholders, (iii) receive dividends equal to $.25 per share
payable on or about January 15 each year in cash or newly-issued shares of
Series A preferred or a combination thereof (iv) liquidation preferences of
$2.50 per preferred share and (v) certain demand and piggyback registration
rights with respect to the common shares issuable upon conversion.
The Company, at its option, has the right to redeem all or any portion of
the Series A convertible preferred stock at $2.50 per share plus accrued and
unpaid dividends.
During January 2001, the Company elected to pay the required yearly
dividend by issuing additional shares of Series A convertible preferred. The
Company issued 71,802 shares to satisfy the 10% dividend. In addition, during
2001, 34,205 shares of Series A convertible preferred were converted into 34,205
shares of common stock.
COMMON STOCK
During 1999 the Company acquired certain technology for 25,000 shares of
common stock.
In addition, during 1999, in conjunction with the employment of the Vice
President for Drug Design and the acquisition of technology, the Company paid a
fee of $75,000 and issued to third parties an aggregate of 28,000 shares of
common stock, which were valued at market value at date of grant.
In February and March 2000, the Company gave notice to the holders of its
Class C and D Warrants that it was exercising its right of redemption at $.05
per warrant effective March 9 and April 12, 2000. Subsequent to the notice, the
Company received approximately $13,001,000 from the exercise of 2,000,135 Class
C warrants and approximately $25,742,000 from the exercise of 2,941,905 Class D
warrants. In connection therewith the Company incurred expenses of $1,999,000.
In addition, during 2000, certain Class A, B, E and
F-12
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other warrants were exercised for 577,071 common share and the Company received
proceeds of $2,573,000. Further, during 2000, warrants to acquire 14,268 common
shares expired.
In addition, during 2000, outstanding options to purchase 506,250 warrants
at $.10 per warrant were exercised and the acquired warrants were then exercised
for 202,500 shares of common stock at a price of $3.75 per share.
In April 2000, the Company announced a stock buy-back program under which
the Board of Directors authorized the purchase of up to $2,000,000 of its common
stock. During the year ended December 31, 2000, the Company had purchased
263,600 shares of common stock at a cost of approximately $2,023,000.
In February 2001, the Company extended its stock buy-back program under
which the Board of Directors authorized the purchase of up to an additional
$1,000,000 of its common stock. During the year ended December 31, 2001 the
Company had purchased 250,600 shares of common stock at a cost of approximately
$935,000.
In May of 2001, the Company sold 100,000 shares of its Treasury Stock to
its CEO for $325,000 or $3.25 per share, the then current market value. The
Company received $25,000 cash and a note receivable of $300,000, bearing
interest at a rate of 5% per annum. The weighted average method was used to
determine the cost basis of $7.67 per share of the Treasury Stock.
In October 2001, the Company purchased 100,000 shares of its common stock
and warrants to purchase 40,605 shares of its common stock for $1,165,000
pursuant to a settlement agreement. Of this amount, $765,000 was recognized as
expense in the third quarter of 2001 and $400,000 as the purchase of treasury
stock.
In addition, during 2001, 34,205 shares of Series A convertible preferred
stock were converted into 34,205 shares of common stock.
WARRANTS AND UNIT PURCHASE OPTIONS
At December 31, 2001, outstanding warrants to acquire shares of the
Company's common stock are as follows:
NUMBER OF
WARRANT SHARES
TYPE EXERCISE PRICE EXPIRATION DATES RESERVED
---------- --------------- --------------------- ---------
Class E... $9.82 to $11.35 April 2003 326,554(a)
Other..... $4.25 to $9.00 July 2002 - July 2004 513,500(a)
-------
840,054
=======
---------------
(a) See Note J
In connection with its initial public offering, the Company sold to the
underwriter, at a nominal amount, a unit purchase option to purchase up to an
aggregate of 200,000 additional units at $8.25 per unit. The units purchasable
upon exercise of the unit purchase option are comprised of one share of common
stock, one Class C warrant and one Class D warrant. Each Class C warrant
entitles the holder to purchase a unit consisting of one share of common stock
and one redeemable Class D detachable warrant. Each Class D warrant entitles the
holder to purchase one share of common stock. The exercise price of Class C and
D warrants is $6.50 and $8.75, respectively. The unit purchase options became
exerciseable in November 1998 for a two-year period. During 2000, the exercise
period was extended to November 2001. Upon expiration in November 2001, it was
determined to be in the best interest of the Company to replace the expiring
unit
F-13
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
purchase options with two year warrants to purchase 125,000 shares of common
stock at $7.00 per share, expiring in November of 2003. The Company evaluated
the transaction using the Black-Scholes model and determined that the cost was
de minimis.
See Note J for unit purchase option issued in connection with private
placement in 1998.
STOCK OPTIONS
During 1992, the Board of Directors and the stockholders of the Company
approved a Stock Option Plan (the "1992 Plan") which provides for the granting
of options to purchase up to 520,000 shares of common stock, pursuant to which
officers, directors, key employees and the Company's Scientific Advisory Board
are eligible to receive incentive and/or nonstatutory stock options. At December
31, 2001, no more options were available for future grant under the 1992 Plan.
During 1996, the Board of Directors and the stockholders of the Company
approved the 1996 Stock Option Plan (the "1996 Plan") which provides for the
granting of incentive and nonstatutory options for up to 750,000 shares of
common stock to officers, employees, directors and consultants of the Company.
During 1998, the Board of Directors and the stockholders of the Company approved
an amendment to the Plan to allow for the granting of an additional 750,000
options. At December 31, 2001, no more options were available for future grant
under the 1996 Plan.
During 2000, the Board of Directors and the stockholders of the Company
approved the 2000 Stock Option Plan (the "2000 Plan"), which provides for the
granting of incentive and nonstatutory options for up to 1,500,000 shares of
common stock to officers, employees, directors, independent contractors,
advisors and consultants of the Company. The Company subsequently amended the
2000 plan to increase the options available by 1,250,000 shares and to change
the vesting period. At December 31, 2001, 1,600,845 options are available under
the 2000 Plan.
Options granted under the Plans are exercisable for a period of up to 10
years from date of grant at an exercise price which is not less than the fair
value of the common stock on date of grant, except that the exercise period of
options granted to a stockholder owning more than 10% of the outstanding capital
stock may not exceed five years and their exercise price may not be less than
110% of the fair value of the common stock at date of grant. For the 1992 Plan
and the 1996 Plan options generally vest 40% after six months of employment and
thereafter 20% annually on the anniversary date of the grant. For the 2000 Plan,
options generally vest 50% annually on the anniversary date of the grant.
An amendment approved by the stockholders in 2001, for the 2000 plan,
changed the vesting period from 50% annually on the anniversary date of the
grant, to 33 1/3% annually on the anniversary date of the grant.
F-14
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the Plans are summarized as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000 1999
-------------------- ---------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
Options outstanding at
beginning of year.... 2,080,600 $5.01 1,635,300 $4.16 1,310,300 $3.50
Granted................ 812,155 4.87 492,000(a) 7.69 335,000 6.62
Exercised.............. -- (46,700) 3.57 (7,000) 3.55
Canceled............... (34,600) 7.32 --_ -- (3,000) 4.31
--------- --------- ---------
Options outstanding at
end of year.......... 2,858,155 4.94 2,080,600 5.01 1,635,300 4.16
========= ========= =========
Options exercisable at
end of year.......... 2,150,320 4.68 1,394,380 3.94 1,141,340 3.53
========= ========= =========
---------------
(a) In January and April 2000, respectively, options to acquire 106,000 and
10,000 shares were granted, subject to stockholder approval, to employees
and directors of the Company at an exercise price equal to the market price
at date of grant. At date of stockholder approval the market price exceeded
the exercise price by $1.06 and $1.75 per share, respectively, such excess
is being charged to operations over the vesting period.
The following table presents information relating to stock options
outstanding under the plans as of December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE LIFE IN EXERCISE
RANGE OF EXERCISE PRICE SHARES PRICE YEARS SHARES PRICE
----------------------- --------- -------- --------- --------- --------
$1.65 - $3.9375.................. 1,012,155 $2.75 6.00 812,155 $2.63
$3.94 - $4.995................... 749,000 4.45 6.26 620,000 4.43
$5.00 - $7.437................... 414,000 6.69 7.44 308,000 6.63
$7.4375 - $9.875................. 683,000 7.67 8.56 410,165 7.64
--------- ---------
2,858,155 4.94 6.89 2,150,320 4.68
========= =========
At December 31, 2001, no more options were available for future grant under
the 1992 Plan and the 1996 Plan and 1,600,845 options are available under the
2000 Plan.
In addition to options granted under the plans, in February 1996, the
Company granted options to purchase 100,000 shares of common stock at $4.25 as
compensation for professional services. These options were exercised during
2000.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if we accounted for our
stock option grants under the fair market value method as
F-15
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
prescribed by such statement. The fair market value of our stock options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions.
2001 2000 1999
------------ ------------ ------------
Risk-free interest rates................... 4.8% to 6.7% 5.0% to 6.7% 4.7% to 6.2%
Expected option life in years.............. 5 5 10
Expected stock price volatility............ 78% to 120% 85% to 94% 34% to 52%
Expected dividend yield.................... 0% 0% 0%
The weighted average fair value at date of grant for options granted during
2001, 2000 and 1999 was $1.21, $6.33 and $4.34 per option, respectively. Had the
Company elected to recognize compensation cost based on the fair value of the
options at the date of grant as prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," net loss in 2001,
2000 and 1999 would have been $9,950,000, $8,007,000 and $5,379,000 or $.62,
$.57 and $.54 per share, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair market value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because our stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair market value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair market value of our stock options.
NOTE I -- INCOME TAXES
At December 31, 2001 and 2000, the Company had approximately $34,747,000
and $26,682,000 of net operating loss carryforwards of $415,000 and $320,000 of
research and development credit carryforwards, respectively, for federal income
tax purposes that expire in years 2006 through 2021.
At December 31, 2001 and 2000, the Company had a deferred tax asset of
approximately $13,453,000 and $10,438,000, respectively, representing the
benefits of its net operating loss and research and development credit
carryforwards and certain expenses not currently deductible for tax purposes,
principally related to the granting of stock options and warrants. The Company's
deferred tax asset has been fully reserved by a valuation allowance since
realization of its benefit is uncertain. The difference between the statutory
tax rate of 34% and the Company's effective tax rate is due to the increase in
the valuation allowance of $3,015,000 (2001), $3,018,000 (2000) and $1,520,000
(1999). The Company's ability to utilize its carryforwards may be subject to an
annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended. For the year ended December 31, 2000 the
Company recognized a provision of $95,000 for state income taxes and in 2001 the
Company recognized a benefit for taxes of $82,000 representing a refund of the
state income taxes previously expensed.
NOTE J -- COMMITMENTS AND OTHER MATTERS
LEASES
The Company occupies office and laboratory space under two leases expiring
through December 31, 2003. Minimum future annual rental payments are $290,000
and $273,000 for the years ended December 31, 2002 and 2003, respectively.
Rent expense was approximately $299,000, $269,000 and $235,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
F-16
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with one of its officers, which
provides for an annual base salary of $200,000 (subject to annual increases of
not less than 5% per year and bonuses at the discretion of the Board of
Directors), for a period of five years, commencing November 1998. In September
2000, the annual base salary was adjusted to $250,000.
On December 31, 1998, the Company entered into an employment agreement with
its Vice President for Drug Design. In connection with the employment agreement,
the employee assigned to the Company certain technology. The agreement is for a
period of three years commencing January 4, 1999 and shall be extended for
successive twelve-month periods unless terminated by either party. The
agreement, as amended provides for an annual base salary of $125,000 (subject to
annual increases of 5% at the beginning of each calendar year, commencing on
January 1, 2000) and the employee received 25,000 shares of the Company's common
stock, which was valued at market value on the date of grant, in full
consideration for the assignment of technology. In September 2000, the base
salary was increased to $145,000. During 1999, the Company granted the employee
options to purchase 75,000 shares of the Company's common stock. The Company
also agreed to grant the employee bonus options to purchase up to 160,000 shares
of the Company's common stock exercisable only upon reaching a certain
milestone. As of December 31, 2000, no such bonus options were granted. The
Company further agreed to pay royalties based on net revenues received from the
sales of products that incorporate the technology and on net sublicense fees
received from sublicensing the technology. The Company also agreed to reimburse
the employee for certain expenses and to assume liability for certain payments
upon the realization of profit from the technology.
On March 21, 2001, the Company entered into an employment agreement with
its President and Chief Executive Officer. The agreement is for a period of
three years commencing March 21, 2001 and shall be extended for successive
twelve-month periods unless terminated by either party. The agreement provides
for an annual base salary of $350,000 per year with an annual bonus of up to 60%
of base pay as determined by the Board's discretion. In addition, the Company
granted the employee an option to purchase 400,000 shares of the Company's
common stock at an exercise price of $3.25 per share. The Company also agreed to
reimburse the employee for certain expenses.
CONSULTING AGREEMENTS
During 1996, the Company entered into an agreement with a consulting firm
whereby the Company agreed to pay a fee of $3,000 per month, until the agreement
was terminated in July 1996 party and to grant warrants to purchase 75,000
shares of common stock at $4.25 per share in return for financial advisory
services. The warrants will be granted and become exercisable in the event a
transaction introduced to the Company by the consulting firm is consummated, at
which time the Company will record a noncash charge representing the fair market
value of the warrants.
In August 1998, the Company entered into an agreement with a consulting
firm whereby the Company agreed to pay a fee of $35,000 in return for financial
advisory services. In connection with the agreement, the Company issued
five-year warrants to purchase 75,000 shares of common stock. Warrants for
50,000 shares vested on December 31, 1998 of which 37,500 have an exercise price
of $7.00 per share and 12,500 have an exercise price of $8.00 per share. The
Company determined the fair value based on the Black-Scholes Option Pricing
Model of these warrants to be approximately $181,000, which was charged to
operations. During 2000, 22,500 warrants at $7.00 per share were exercised. The
remaining 25,000 warrants have an exercise price of $9.00 per share and vest
only if a transaction introduced to the Company by the consulting firm is
consummated, at which time the Company will record a noncash charge representing
the fair value of the warrants.
F-17
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1999, the Company entered into an agreement with a consulting firm
whereby the Company paid an engagement fee of $25,000 and agreed to pay $5,000
per month, until the agreement was terminated in 1999. For a nominal amount, the
Company sold to the consulting firm a warrant to purchase 150,000 common shares
at $7.00 per share expiring on July 15, 2004. Warrants for 50,000 common shares
which vested immediately were granted upon signing the agreement; the Company
determined the fair value based on the Black-Scholes Option Pricing Model of
these warrants to be approximately $169,000, which was charged to operations.
These warrants were exercised during 2000. The remaining 100,000 warrants become
exercisable and a cash fee of less than $200,000 will be paid upon consummation
of a transaction, as defined in the agreement.
In February 2000, the Company entered into an agreement with a consulting
firm whereby the Company issued warrants to purchase 300,000 shares of common
stock at $15 per share expiring on February 7, 2005. These warrants vested
during 2000; the Company determined the fair value based on the Black-Scholes
Option Pricing Model of these warrants to be approximately $1,852,000, which was
charged to operations during 2000.
COLLABORATION AGREEMENTS
(a) Agreements With Research and Development Institute, Inc. ("RDI")
During June 1993, the Company entered into a research and license agreement
with RDI of Montana State University pursuant to which the Company finances, and
RDI conducts, research and development at Montana State University in the field
of Taxol(R)-producing organisms. In connection with the agreement, RDI has
granted the Company an exclusive license and licensing rights to its patents and
know-how throughout the world to develop and market products relating to the
technology.
The Company has agreed to finance research to be conducted under the
agreement and paid RDI an aggregate fixed fee of $250,000 per annum for four
years commencing in 1993. In July 1998, the Company agreed to finance research
for an additional year for $250,000. In addition, the Company has agreed to pay
RDI royalties of up to 6% of net sales of products derived under the agreement
with varying minimum royalty payments through June 1996 and $100,000 annually
thereafter. The agreement was amended during May 1998 to require the Company to
pay a percentage of royalties received with respect to the manufacture, use or
sale of the inventions by sublicensees and a percentage of all up-front,
milestone, and royalty payments which may be received under the agreement with
Bristol-Myers Squibb (see Note D). Under the agreement, the minimum royalties
shall be credited against royalties paid in connection with the amendment.
(b) Agreements with Washington State University Research Foundation ("WSURF")
In July 1996, the Company entered into an agreement with WSURF whereby the
Company received an exclusive, worldwide license to use and/or sublicense
patented technology or prospective patented technology (the "WSURF Technology").
In June 1998, the agreement was amended to cover additional patents. The Company
was required to pay WSURF license fees of $7,500 per year commencing on July 1,
1997. The agreement was amended during May 1998 to require the Company to pay a
percentage of royalties received with respect to the manufacture, use or sale of
the inventions by sublicensees and a percentage of all up-front, milestone and
royalty payments which may be received under the agreement with Bristol Myers
Squibb (see Note D). In addition, the Company agreed to pay minimum royalties of
$50,000 per year payable on July 1, 1999, $75,000 payable on July 1, 2000, and
$100,000 payable on July 1, 2001 and annually thereafter. This agreement will
remain in effect until the last to expire of the patents licensed under the
WSURF Technology, subject to termination by either party. In conjunction with
this agreement, the Company granted WSURF warrants to purchase 36,000 shares of
common stock at $4.25 per share. An aggregate of 12,000 warrants per annum are
exercisable commencing July 1999 and expire July 2002.
F-18
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1996, the Company entered into a research agreement with WSURF, as
amended, for research to be conducted on behalf of the Company through July 2002
providing for funding of approximately $1,207,000. During 2001, 2000 and 1999,
respectively, the Company incurred approximately $166,000, $269,000 and $288,000
of research costs under the agreement.
(c) Agreements with the Regents of the University of California
In February 1996, the Company entered into two license agreements
("Agreements") with the Regents of the University of California, granting to the
Company exclusive rights to certain technology and patent rights. Pursuant to
the Agreements, the Company paid license fees of $10,000 and $15,000 upon
issuance of the patents. In addition, the Company must pay a yearly license
maintenance fee for these licenses, aggregating $2,000 in the initial year,
increasing by $4,000 in the second year and increasing by $6,000 per year until
it reaches a maximum of $36,000, until the Company is commercially selling a
product based on the technology derived from these license agreements, at which
time a royalty based on net sales will be due.
In August 1998, the Company entered into an additional license agreement
with the Regents of the University of California, granting to the Company
exclusive rights to certain technology and patent rights. Pursuant to the
agreement, the Company paid license fees of $20,000 and has agreed to pay
$25,000 upon issuance of a patent. In addition, the Company must pay a yearly
license maintenance fee of $2,000, increasing by $2,000 per year until it
reaches a maximum of $12,000, until the Company is commercially selling a
product based on the technology derived from these license agreements, at which
time a royalty based on net sales will be due.
In July 2000, the Company entered into a license agreement with the Regents
of the University of California, granting to the Company exclusive rights to
certain technology and patent rights. Pursuant to the agreement, the Company
paid license fees of $15,000 and has agreed to pay all past and future patent
costs plus a 15% patent service fee. In addition, the Company must pay a yearly
license maintenance fee of $10,000 until the Company is commercially selling a
product based on the technology derived from the license agreement, at which
time a royalty based on net sales will be due. Pursuant to this agreement the
Company entered into two sponsored research agreements with third parties
whereby the Company agreed to fund research for the period July 2000 through
June 2003 and August 2000 to July 2003 in the amounts of $99,360 and $109,320,
respectively, per annum.
(d) Agreements with Molecular Simulations Incorporated ("MSI")
In June 2000, the Company entered into two, three year participation
agreements with MSI in which the Company will participate with MSI and others in
a project with the purpose of developing software to be used in the assignment
and understanding of protein function and a project with the purpose to develop
and validate rapid computer-based methods for x-ray structure determination and
model building and provide a scientific forum for research of x-ray
crystallographic methods for structure determination. Pursuant to the
agreements, the Company is to pay $125,000 per year for membership in the
software project and a total of $127,000 during the three years for membership
in the x-ray project. Each participation agreement requires that the Company
appoint at least one staff member to be an active participant in each project,
act as liaison between MSI and the Company, provide non-proprietary input
material in its possession which may be beneficial to the project and throughout
the term of the projects, the Company is to be a valid licensee of the most
recent version of certain commercially released software, as defined in the
agreement. Under such software license agreements the Company is to pay
approximately $174,000 over the three year term.
RELATED PARTY TRANSACTIONS
Effective December 1996, the Company entered into a one-year agreement,
which was extended in January 1998 for an additional year, with a stockholder of
the Company, whereby the Company will receive
F-19
EXEGENICS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial and investment banking services for a consulting fee of $5,000 per
month plus commissions, as defined. The Company paid approximately $10,000,
$339,000 and $96,000 during 2001, 2000 and 1999, respectively, under this
agreement, including reimbursable expenses. The stockholder acted as placement
agent for the Company's 1998 private placement and, in consideration for its
services as such, received a sales commission equal to 10% of the $5,633,675
gross proceeds, or $563,368, plus approximately $229,000 as an expense allowance
together with other costs. The stockholder also received a unit purchase option,
exercisable for a five-year period commencing April 2, 1998, to purchase 134,199
shares of Common Stock at prices ranging from $8.18 to $9.46 and Class E
Warrants to purchase 67,101 shares of Common Stock exercisable at prices ranging
from $9.82 to $11.35. In connection with the redemption of the Company's C and D
warrants during 2000, the Company paid solicitation fees of approximately
$1,921,000 which was charged to additional paid-in capital.
At December 31, 2001 the Company has two notes outstanding from its Vice
President of drug design in the principal amounts of $138,195 plus accrued
interest, due on April 30, 2002, and $140,000 plus accrued interest due on
September 1, 2003. Both notes which arose in connection with loans made to the
officer bear interest at 9.75% per annum and accrued interest at December 31,
2001 and December 31, 2000 was approximately $51,000 and $23,000 (included in
prepaid expenses and other current assets) respectively.
In December 2000, the Company entered into a consulting agreement with a
company owned by one of its Directors. The agreement calls for an annual
retainer of $125,000, paid quarterly in advance, and is automatically renewed
each year unless terminated by either party on 3 months notice.
In May of 2001, the Company received a note receivable from the CEO for
$300,000 from the sale of Treasury Stock. The note bears interest at 5.00% per
annum and accrued interest receivable is approximately $9,000 at December 31,
2001.
NOTE K -- 401(k) PLAN
The Company maintains a defined contribution 401(k) plan available to
eligible employees. Employee contributions are voluntary and are determined on
an individual basis, limited to the maximum amount allowable under federal tax
regulations. The Company made no contributions during 2001, 2000 and 1999.
NOTE L -- QUARTERLY RESULTS (UNAUDITED)
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL YEAR
----------- ----------- ------------ ----------- -----------
2001
Revenues.................... $ 333,000 $ 334,000 $ 333,000 $ 333,000 $ 1,333,000
Net loss.................... (1,520,000) (2,999,000) (2,752,000) (1,514,000) (8,785,000)
Loss per share -- basic and
diluted(a)................ (0.10) (0.19) (0.17) (0.11) (0.55)
2000
Revenues.................... $ 344,000 $ 343,000 $ 67,000 $ 111,000 $ 865,000
Net loss.................... (2,419,000) (1,295,000) (1,958,000) (1,493,000) (7,165,000)
Loss per share -- basic and
diluted(a)................ (0.22) (0.09) (0.13) (0.09) (0.51)
---------------
(a) Per common share amounts for the quarters and full year have been
calculated separately. Accordingly, quarterly amounts do not add to the
annual amount because of differences in the weighted average common shares
outstanding during each period due to the effect of the Company's issuing
shares of its common stock during the year.
F-20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Incorporation, as amended(1)
3.2 -- By-laws(1)
4.1 -- Specimen certificates representing Class C Warrants, Class D
Warrants and Common Stock(1)
4.3 -- Form of Unit Purchase Option in connection with the
Company's Initial Public Offering(1)
4.4 -- Warrant Certificate issued to the Washington State
University Research Foundation(4)
10.1 -- Employment Agreement dated March 1, 1992 between the Company
and Arthur P. Bollon, Ph.D, as amended(1)
10.2 -- Employment Agreement effective November 7, 1995 between the
Company and Daniel Shusterman, as amended(1)
10.3 -- 1992 Stock Option Plan, as amended(1)
10.4 -- Form of Stock Option Agreement(1)
10.5 -- Lease Agreement dated September 1, 1993 between the Company
and Mutual Benefit Life Insurance Company In
Rehabilitation(1)
10.6 -- Lease Agreement dated October 1, 1991 between the Company
and J.K. and Susie Wadley Research Institute and Blood Bank,
as amended(1)
10.7 -- Purchase Agreement dated October 10, 1991 between the
Company and Wadley Technologies, Inc. ("Wadley")(1)
10.8 -- Security Agreement dated October 10, 1991 between the
Company and Wadley(1)
10.9 -- License Agreement dated March 15, 1989 between the Company
and Phillips Petroleum Company, as amended(1)
10.10 -- License Agreement dated June 10, 1993 between the Company
and Research & Development Institute, Inc. ("RDI"), as
amended, relating to the Paclitaxel Fermentation Production
System(1)
10.11 -- Research and Development Agreement effective June 10, 1993
between the Company and RDI, as amended(1)
10.12 -- License Agreement dated February 22, 1995 between the
Company and RDI, as amended, relating to FTS-2(1)
10.13 -- Research, Development and License Agreement dated March 26,
1992 between the Company and Enzon, Inc. ("Enzon"), As
amended(1)
10.14 -- Research, Development and License Agreement dated July 13,
1992 between the Company and Enzon relating to the Company's
tumor necrosis factor technology(1)
10.15 -- Agreement effective June 30, 1992 between the Company and
University of Texas at Dallas ("UTD"), as amended(1)
10.16 -- Research Agreement effective April 8, 1994 between the
Company and Sloan-Kettering Institute for Cancer Research(1)
10.17 -- Joint Venture Agreement dated September 17, 1992 between the
Company and Pestka Biomedical laboratories, Inc.
("Pestka")(1)
10.18 -- Stock Purchase Agreement dated September 17, 1992 between
the Company and Pestka(1)
10.19 -- License Agreement dated September 17, 1992 between Cytomune,
Inc. and Pestka(1)
10.20 -- Research and Development Agreement dated September 17, 1992
between Cytomune, Inc. and Pestka(1)
10.21 -- Marketing Agreement dated as of November 1, 1994 between
Helm AG and the Company(1)
10.22 -- Extension Agreement with RDI dated June 5, 1995(1)
10.23 -- Third Amendment to Lease Agreement dated April 30, 1995(1)
10.24 -- Form of Subordinated Note Extension(1)
10.25 -- Form of Note Extension(1)
10.26 -- September 25, 1995 RDI Extension(1)
10.27 -- October 25, 1995 RDI Extension(1)
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.28 -- Amendment to License Agreement dated June 10, 1993, as
amended, and Research and Development Agreement effective
June 10, 1993, as amended, both agreements between the
Company and RDI(2)
10.29 -- License Agreement No. W960206 effective February 27, 1996
between the Company and The Regents of the University of
California(2)
10.30 -- License Agreement No. W960207 effective February 27, 1996
between the Company and The Regents of the University of
California(2)
10.31 -- License Agreement with the Washington State University,
dated July 2, 1996(3)*
10.32 -- Amendment to Agreement, effective June 30, 1992, as amended,
between the Company and the University of Texas at Dallas(3)
10.33 -- 1996 Stock Option Plan and Amendment No. 1 thereto(7)
10.34 -- Patent License Agreement, dated August 4, 1998, between The
Regents of the University of California and the Company for
Peptide Anti-estrogen for Breast Cancer Therapy(5)*
10.35 -- Master License Agreement, dated as of June 12, 1998, between
the Company and Bristol-Myers Squibb Company(6)*
10.36 -- Sublicense Agreement, dated May 27, 1998, between the
Company and Bristol-Myers Squibb under The Research &
Development Institute, Inc. License Agreement, as amended,
dated June 10, 1998(6)*
10.37 -- Sublicense Agreement, dated May 19, 1998, between the
Company and Bristol-Myers Squibb Company under the
Washington State University Research Foundation License
Agreement, dated June 8, 1996(6)*
10.38 -- Amended and Restated License Agreement, dated June 3, 1998,
between the Washington State University Research Foundation
and the Company(6)*
10.39 -- Amendment, dated May 27, 1998, to the License Agreement,
dated June 10, 1993, between The Research and Development
Institute, Inc. and the Company(6)*
10.40 -- Amended and Restated 2000 Stock Option Plan(7)
10.41 -- Employment Agreement dated March 21, 2001, between the
Company and Ronald Lane Goode, Ph.D.(8)
10.42 -- Employment Agreement dated December 31, 1998, between the
Company and Dorit Arad, Ph.D.
21 -- List of Subsidiaries -- None
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Richard A. Eisner & Company, LLP
---------------
* Confidential portions omitted and filed separately with the U.S. Securities
and Exchange Commission pursuant to Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 and are incorporated by reference
herein.
(3) Previously filed as an exhibit to the Company's Post-Effective Amendment No.
1 to Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(4) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 333-13409) and is incorporated by reference herein.
(5) Previously filed as an exhibit to the Post-Effective Amendment to the
Company's Registration Statement on Form SB-2 on Form S-3 (File No.
333-13409) and is incorporated by reference herein.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
(File No. 000-26078) and is incorporated by reference herein.
(7) Previously filed as an appendix to the Company's Schedule 14-A (File No.
000-26078) and is incorporated by reference herein.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
(File No. 000-26078) for the year ended December 31, 2000 and is
incorporated by reference herein.