ITEM 1. BUSINESS
The Company was incorporated on November 10, 1989, and commenced business operations on January 17, 1990. Primary business efforts were directed at the design, development and commercialization of cost effective therapeutic and diagnostic products for human and animal use, focusing principally on products for the prevention and treatment of infectious diseases. On May 26, 2000, due to lack of financing, the Company's Board of Directors took action to cease operations as a going concern, reducing the Company's workforce 80% by laying off research, development and operations personnel. Remaining management staff were retained for a reasonable time to wind down clinical trial and manufacturing operations and to continue efforts to actively seek potential commercial partners having strategic interests in markets served by the Company's products. Since mid-August, 2000, the Company has retained only one Board-appointed administrative staff member to execute operations. On August 28, 2000, the Company's Board of Directors adopted resolutions to approve an Asset Purchase Agreement (the "Sale Agreement") with Promega Corporation ("Promega") and to effect the subsequent dissolution of the Company. On September 1, 2000, the Company executed the Sale Agreement with Promega to sell substantially all of its fixed assets for $1,250,000 cash, a $250,000 promissory note, and the assumption of a long-term debt of $2,000,000 (the "Asset Sale"). The promissory note is subject to any post-closing adjustments within 90 days of the closing, as set forth in the Sale Agreement. Stockholders of the Company approved the Sale Agreement on November 9, 2000, and authorized the Board to effect the liquidation and dissolution of the Company pursuant to an approved Plan of Dissolution. The Asset Sale closed on November 16, 2000. The Company has begun the process of liquidation, and intends to distribute to stockholders in the first quarter of calendar year 2001 any cash assets remaining after payment of the Company's operational and accrued costs. In lieu of dissolution, the Company's Board of Directors is also considering proposed business combinations with operating companies by means of a merger, exchange or issuance of securities, or a similar business combination that presumably could add value to the stock held by remaining stockholders. In such an event, any costs associated with such a business combination would be borne by the proposer/operating company.
ITEM 2.
ITEM 2. PROPERTIES
In June 1998, the Company exercised its five-year renewal option on a five-year lease entered into on January 1, 1993, with Promega Corporation for the facility it occupied at 5445 East Cheryl Parkway, Madison, Wisconsin. Mr. Linton was Chairman of the Company's Board of Directors until March 23, 1999. Mr. Linton is also a stockholder of the Company and the Chairman, President and a stockholder of Promega Corporation. This facility provided the Company with approximately 10,000 square feet of laboratory and office space. Following the end of the fiscal year ended September 30, 2000, and in connection with the Asset Sale, this lease was terminated in November 2000. At that time the Company entered into a month-to-month lease for an office suite located at 6320 Monona Drive, Madison, WI 53716, from which all of the Company's remaining operations are conducted.
To accommodate the expansion of the Company's manufacturing operations, the Company also had leased, with an option to buy, facilities at 2617 Progress Road in Madison. For the period from July
1, 1999, to December 31, 1999, the lease provided for monthly rental payments on 24,429 square feet of production and office space of $8,301. For the period from January 1, 2000, to September 30, 2000, the lease provided for monthly rental payments of $12,362.58 on 38,231 square feet of production and office space. The Company's obligations under this lease were assumed by Promega Corporation in connection with the Asset Sale.
The Company also leased approximately 20,000 square feet of animal care facilities located in Jefferson County, Wisconsin. These leases were terminated prior to or in connection with the Asset Sale, and the Company has no further outstanding obligations under these leases.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or any of its property is currently subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the quarter ended September 30, 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Common Stock is quoted on the OTC (Over- the-Counter) Bulletin Board and traded under the symbol, "OPHD"). The Company's Common Stock was previously traded on the NASDAQ SmallCap Market under the same symbol and on the Pacific Exchange under the symbol, "OPD" prior to its delisting from those exchanges. The Company's Common Stock was delisted from the NASDAQ SmallCap Market effective November 7, 2000, because the aggregate value of the public float fell below the NASDAQ requirement of $1,000,000. The Company's Common Stock was delisted from the Pacific Exchange effective November 10, 2000, based on the Company's announcement of stockholder approval of proposals to sell substantially all of the Company's assets and to authorize the Board of Directors to implement a plan to liquidate, wind up, and dissolve the Company.
The following table sets forth the range of high and low bid quotations or high and low sales prices for the Company's Common Stock from May 7, 1998, for each of the quarterly periods indicated as reported by the OTC Bulletin Board or NASDAQ SmallCap Market, as applicable. Bid quotations reflect interdealer prices without retail markup, markdown, or commission and may not represent actual transactions.
Quarter Ended High Low
06/30/98 $ 41.000 $ 26.000 09/30/98 30.500 8.000 12/31/98 24.500 8.000 03/31/99 14.000 7.000 06/30/99 14.000 5.000 09/30/99 9.000 1.000 12/31/99 6.437 2.500 03/31/00 20.000 3.000 06/30/00 8.000 0.250 09/30/00 1.609 0.375
The approximate number of record holders of the Registrant's Common Stock as of September 30, 2000, was 183. The Company estimates that as of such date there were more than 1,000 beneficial holders of the Company's Common Stock. The Company has never declared nor paid dividends on its Common Stock and does not intend to do so for the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Statements of Operations Data
For the Years Ended September 30, 2000 1999 1998 1997 1996
Revenues $1,668,534 $ 26,965 $ 322,565 $ 671,881 $ 321,444 Operating Expenses Cost of Patents Sold 83,481 ----- ----- ----- ------ Research & Development 2,213,385 3,354,818 2,946,814 2,432,102 1,339,048 General & Administrative 1,417,945 1,833,209 1,819,227 1,005,797 1,119,409 Impairment Charge (A) 2,066,907 - - - - ---------- ---------- ---------- ---------- ----------
Total Operating Expenses 5,781,718 5,188,027 4,766,041 3,437,889 2,458,457 ---------- ---------- ---------- ---------- ---------- Operating Loss (4,113,184) (5,161,062) (4,443,476) (2,766,018) (2,137,013)
Investment Income, net 124,511 302,845 292,695 281,483 50,761 Interest Expense (285,714) (1,862) (2,085) (2,800) (3,320) ----------------------------------------------------------------
Net Loss $(4,274,387) $(4,860,079) $(4,152,866) $(2,487,335) $(2,089,572) ================================================================
Net Loss Per Share Basic & Diluted $(3.69) $(4.21) $(4.14) $(2.76) $(2.73)
Note A: See Note 1, page, to attached Financial Statements for explanation of Impairment Charge.
Balance Sheet Data At September 30,
2000* 1999 1998 1997 1996 Cash & Equivalents $ 534,097 $ 3,416,490 $ 8,688,162 $ 3,547,036 $ 3,276,339 Working Capital N.A. 3,217,910 8,522,325 3,812,539 3,328,103 Total Assets 4,163,102 6,822,126 11,354,118 5,975,606 5,247,761 Long-Term Obligations 2,009,900 9,687 12,069 17,956 33,914 Accumulated Deficit N.A. (16,312,578) (11,452,499) (7,299,633) (4,812,298) Total Stockholders' Equity N.A. 6,186,634 10,617,713 5,397,956 4,743,260
* Represents Statements of Net Assets in Liquidation prepared on a liquidation basis of accounting. See Note 1 to attached Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was incorporated in November, 1989, and operated as a development stage corporation focused on the research, development and commercialization of cost effective therapeutic products for human and animal use, and principally on products for human disease prevention and treatment. The Company has financed its operations since inception primarily through the sale of equity, debt, and revenues consisting of payments received under collaborative agreements and federal research grants. The
Company's principal sales of equity have occurred through private placement stock offering activities completed in January 1990, December 1992, June 1993, and October 1996, through collaborative agreements with Eli Lilly and Company between June 1996 and September 1998, and from its initial public offering in May 1998. On June 7, 1999, the Company entered into an agreement with Rex J. Bates, then a Director, and Davis U. Merwin, a shareholder, according to which the Company received $2,000,000 on October 14, 1999 in return for 10% promissory notes with warrants. On September 20, 1999, the Company effected a 1 for 8 reverse stock split in an effort to add value to declining stock prices. On March 28, 2000 the Company sold five patents and patent applications for $1.3 million. The patents sold were unrelated to the Company's core research and development programs.
Except for the fiscal year ended September 30, 1993, the Company has been unprofitable every year since inception. As of September 30, 2000, and prior to applying the liquidation basis of accounting, the Company had an accumulated deficit of $20,586,965 and for the year ended September 30, 2000, ("Fiscal 2000"), incurred a net loss of $4,274,387. In an effort to conserve cash, the Company curtailed all other development activity during calendar year 1999 and focused all resources on the ongoing clinical testing of its lead product for the treatment of intestinal disease, OPHD 001. Clinical trial sites were established at well known hospitals and medical centers throughout the United States. Unfortunately, an adequate number of individuals affected with the disease did not meet the selection criteria to be included in the studies and sufficient data to reach any definitive conclusions could not be collected in a reasonable time period. The clinical trials for OPHD 001 were terminated in May, 2000. The Company also invested considerable resources in building a pilot plant manufacturing facility, designed to take over activities previously carried out by expensive contract manufacturers who have since stopped all contract manufacturing activities. An extensive, worldwide search for a contract manufacturer capable of producing bulk drug product for use in clinical trials using Ophidian's technology resulted in the conclusion that no such facilities existed. For this reason, the Company believed that, with the construction of a pilot manufacturing facility, it would be able to secure contract manufacturing agreements to help offset operating costs until commercialization of its products.
Despite extraordinary efforts to attract potential commercial partners having strategic interests in markets served by Ophidian's products or to secure additional investment capital through private equity or debt transactions, the Company was unsuccessful in securing enough additional capital to support its business objectives. On May 26, 2000, due to lack of financing, the Company's Board of Directors took action to cease operations as a going concern, reducing the Company's workforce 80% by laying off research, development and operations personnel. Remaining managment staff were retained for a reasonable time to wind down clinical trial and manufacturing operations and to continue efforts to actively seek potential commercial partners having strategic interests in markets served by the Company's products. Since mid-August, 2000, the Company has retained only one Board-appointed administrative staff member to execute operations. On August 28, 2000, the Company's Board of Directors adopted resolutions to approve an Asset Purchase Agreement (the "Sale Agreement") with Promega Corporation ("Promega") and to effect the subsequent dissolution of the Company. On September 1, 2000, the Company executed the Sale Agreement with Promega to sell substantially all of its fixed assets for $1,250,000 cash, a $250,000 promissory note, and the assumption of a long-term debt of $2,000,000 (the "Asset Sale"). The promissory note is subject to any post-closing adjustments within 90 days of the closing, as set forth in the Sale Agreement. Stockholders of the Company approved the Sale Agreement on November 9, 2000, and authorized the Board to effect the liquidation and dissolution of the Company pursuant to an approved Plan of Dissolution. The Asset Sale closed on November 16, 2000. The Company has begun the process of liquidation, and intends to distribute to stockholders in the first quarter of calendar year 2001 any cash assets remaining after payment of the Company's operational and accrued costs. In lieu of dissolution, the Company's Board of Directors is also considering proposed business combinations with operating companies by means of a merger, exchange or issuance of securities, or a similar business combination that presumably could add value to the stock held by remaining stockholders. In such an event, any costs associated with such a business combination would be borne by the proposer/operating company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
It is the Company's opinion that there is no material interest rate risk as all investments are short term with specific guidelines as to approved securities, maturity restrictions, and credit standards.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and Supplementary Data required by this item are listed in Item 14 and included in this document at pages to.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their ages as of November 30, 2000, are as follows:
Name Age Position(s)
Dr. Douglas Stafford (1) 45 Former President, Chief Executive Officer, & Director Dr. Peter Model (2) 67 Director, Chairman of the Board Dr. Joseph R. Firca (3) 56 Former Vice President, Research and Development Mr. Donald L. Nevins (3) 62 Former Vice President, Finance, Treasurer, Chief Financial Officer Ms. Susan P. Maynard 50 Secretary, Manager Dr. Margaret B. van Boldrik 44 Director, Vice President Dr. W. Leigh Thompson (2) 62 Director
(1) Resigned from all positions with the Company effective August 14, 2000. (2) Member of Audit Committee. (3) Terminated from all positions with the Company effective May 26, 2000.
Dr. Douglas C. Stafford has served as President and Chief Executive Officer of the Company since January 1995. Dr. Stafford served as the Company's President and Chief Operating Officer from August 1990 to January 1995. In May 1997, Dr. Stafford joined the Company's Board of Directors. In connection with the decision of the Board of Directors to terminate most of the Company's employees, sell substantially all of the Company's assets, and dissolve the Company, Dr. Stafford resigned his positions as President, Chief Executive Officer and Director effective August 14, 2000.
Dr. Peter Model has served as a Director of the Company since December 1996 and as Chairman of the Board of Directors since March 1999. Dr. Model is a senior faculty member conducting research in the areas of biochemistry and genetics at the Rockefeller University, where he has been employed since 1967. He served on the editorial boards of the Journal of Virology and Virology and is a member of various scientific advisory committees. Dr. Model received his BS from Stanford University and his Ph.D. in Biochemistry from Columbia University.
Dr. Joseph Firca has served as the Company's Vice President, Research and Development since July 1992. Dr. Firca was terminated effective May 26, 2000, in connection with the Board's decision to terminate most of the Company's employees and suspend all further operations.
Mr. Donald L. Nevins joined the Company as Vice President, Finance, and Chief Financial Officer in November 1997. Mr. Nevins' positions were terminated effective May 26, 2000, in connection with the Board's decision to terminate most of the Company's employees and suspend all further operations.
Ms. Susan P. Maynard joined the Company in 1993 and has served as Secretary since March 1999. Since the termination of most of the Company's employees in late May 2000, and the resignation of the Company's Chief Executive Officer in August 2000, Ms. Maynard has served as the only full-time employee of the Company, responsible for all remaining administrative and management functions. Prior to assuming those responsibilities, Ms. Maynard served the functions of human resources administration, business management, shareholder relations and facilities management. Ms. Maynard was previously employed at the University of Wisconsin-Madison as the Administrative Program Manager for the Laboratory of Molecular Biology. There, she managed broad-based programs to support research operations, including federal grant administration, budget development and administration, human resources management, and information systems management. She was also responsible for managing Ph.D. and undergraduate degree programs in Cell and Molecular Biology, which included coordinating activities for 120 students and 160 faculty members located in 40 different departments and 6 different colleges on campus. In recognition for her excellence of service, the University conferred indefinite appointment status (administrative tenure) for her position. Numerous courses and seminars complement Ms. Maynard's experience in Human Resources Law, Business Administration, Effective Leadership, Total Quality Management and Business Writing.
Dr. Margaret B. van Boldrik is a Co-Founder of the Company and has served as a Director since its inception in November 1989. Dr. van Boldrik has also served as Vice President of the Company since January 1990 and as Secretary of the Company from November 1989 to March 1999. Prior to joining the Company, Dr. van Boldrik was Director of the University of Wisconsin Biotechnology Center's Technology Transfer Office where she managed broad-based programs for the commercial development of University-affiliated technologies from 1987 to 1990. Dr. van Boldrik holds a BS in Biochemistry from the University of California at Davis and a Ph.D. in Biochemistry from Tufts University.
Dr. W. Leigh Thompson has served as a Director of the Company since December 1995. Dr. Thompson founded Profound Quality Resources, Inc., a private healthcare consulting firm, in 1995 to provide consulting services to health institutions and manufacturers worldwide. Dr. Thompson served as an Assistant Professor of Medicine and of Pharmacology and Experimental Therapeutics at Johns Hopkins University from 1970 to 1974 where he founded and led the Medical Critical Care Unit. He was a Professor of Medicine at Case Western Reserve from 1974 to 1982, where he founded programs in clinical pharmacology and critical care medicine. He worked at Eli Lilly and Company, holding several executive positions including Executive Vice President of Lilly Research Laboratories and Chief Scientific Officer from 1982 through 1994. He holds a Ph.D. and ScD (hc) from the Medical University of South Carolina and a M.D. from Johns Hopkins University. He is a past President of the Society of Critical Care Medicine and Co-Editor of the first two textbooks in this field. He also serves on the Board of Directors of DepoMed, Guilford Pharmaceuticals, Inspire, LaJolla Pharmaceuticals, Maret, Medarex, Ontogeny, Orphan Medical, and Tanabe Research Laboratories.
BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION
The Company's directors serve staggered three year terms and hold office until the third annual meeting of stockholders of the Company following their election to the Board and until their respective successors have been qualified and elected. Officers are elected by, and serve at the discretion of, the Board of Directors.
In July 1997, the Board of Directors appointed an Audit Committee that reviews the scope and results of the Company's financial statements conducted by the Company's independent accountants. The Committee also reviews the scope of other services provided by the Company's independent accountants, proposed changes in the Company's financial and accounting standards and principles, and the Company's policies and procedures with respect to its internal accounting, and auditing and financial controls. The Committee makes recommendations to the Board of Directors on the engagement of the independent accountants, as well as other matters which may come before it or as directed by the Board of Directors.
DIRECTOR COMPENSATION
Non-employee Directors of the Company are paid $1,000 per regularly scheduled meetings and $500 per significant telephonic meetings of the Board of Directors, which amounts are payable in cash or in shares of common stock of the Company. Dr. Thompson does not receive compensation as Director of the Company but receives compensation as a consultant. See "Consultant Compensation;" under Item 11, below.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into agreements with all of its current and former employees, including Drs. Stafford, Firca, Ms. Maynard, and Mr. Nevins, concerning ownership of intellectual property. These agreements prohibit competition with the Company during and for a term of one year after termination of, employment with the Company. They obligate each employee to keep confidential the trade secrets and other proprietary information of the Company, and employees are required to disclose and assign to the Company all of their discoveries and inventions and any and all patent rights therein.
Effective June 1, 1997, the Company entered into an employment agreement with Dr. Douglas Stafford, President and Chief Executive Officer of the Company, for a three-year term. Pursuant to such agreement,
Dr. Stafford received an annual base salary of $180,000 subject to annual review and increase by mutual agreement. Dr. Stafford resigned from the Company effective August 14, 2000.
Effective June 1, 1997, the Company entered into an employment agreement with Dr. Joseph Firca, Vice President, Research and Development of the Company, for a three-year term. Pursuant to such agreement, Dr. Firca receives an annual base salary of $154,000. Dr. Firca's position was terminated by the Company effective May 26, 2000.
Effective November 6, 1997, the Company entered into an employment agreement with Donald L. Nevins, Vice President, Treasurer, Finance, and Chief Financial Officer. Mr. Nevins assumed his duties with the Company December 1, 1997. Mr. Nevins received an annual base salary of $110,000. Mr. Nevins' positions were terminated by the Company effective May 26, 2000.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or paid for services rendered to the Company in all capacities during Fiscal 2000, 1999, and 1998 by the Company's President and Chief Executive Officer and all other corporate officers earning in excess of $100,000 annually.
Summary Compensation Table
Annual Compensation Long Term Compensation
Name & Principal Position Year Salary Bonus Common Stock Options
Dr. Douglas Stafford (1) 2000 $131,950 - ------ President & C.E.O. 1999 $179,517 - ------ 1998 $179,517 $25,000 ------
Dr. Joseph Firca (2) 2000 $ 80,035 - ------ VP, Research & Development 1999 $156,272 $20,000 ------ 1998 $139,624 - ------
Donald L. Nevins (3) 2000 $ 68,414 - ------ VP, Finance, Treasurer & CFO 1999 $109,705 - ------ 1998 $115,781 - ------
(1) Dr. Stafford resigned as President and Chief Executive Officer of the Company as of August 14, 2000. (2) Dr. Firca's position was terminated by the Company effective May 26, 2000. (3) Mr. Nevins's positions were terminated by the Company effective May 26, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the value of exercised and unexercised stock options held by each of the named Executive Officers as of September 30, 2000. None of the named Executive Officers exercised options to purchase Common Stock during the fiscal year ended September 30, 2000.
Common Stock Value of Unexercised Underlying Unexercised In-the-Money Options Options at 9/30/2000 at 9/30/2000 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
Dr. Douglas Stafford 10,000 0 24,735 $0
(1) The value of the options is based upon ;the difference between the exercise price and the closing price of the stock on September 30, 2000.
CONSULTANT COMPENSATION
Dr. Thompson receives $2,400 per day plus expenses for his services as a consultant payable in cash or in common stock of the Company, in any event not to exceed 10,000 shares in aggregate. For Fiscal 2000, Dr. Thompson received $12,700.
STOCK OPTION PLANS
The Company had a 1990 Incentive Stock Option Plan, which expired in 2000, the Company currently has a 1992 Employee Stock Option Plan, and a 1998 Incentive Stock Option Plan (collectively, the "Stock Option Plans") in force for its employees, advisors and directors. The 1998 Incentive Stock Option Plan was adopted by stockholders on March 23, 1999, to supplement the 1990 Incentive Stock Option Plan. The Stock Option Plans provide for the grant of options to purchase shares, in the case of the 1992 Employee Stock Option Plan, at a value determined by the Stock Option Committee, and in the case of the 1990 and 1998 Incentive Stock Option Plans, at not less than fair market value as of the date options are granted. The Stock Option Plans are administered by a committee ("Stock Option Committee") made up of at least two members of the Company's Board of Directors who are not officers, employees, or consultants of the Company. On December 1, 1992, by a vote of stockholders, the number of shares available for employee stock options was increased by 25,000 shares, for a total of 82,145. On March 23, 1999, the stockholders voted to adopt the 1998 Incentive Stock Option Plan and to increase the number of shares available for stock options by 39,730 shares, for a total of 121,875.
As of November 30, 2000, the Company has entered into stock option agreements granting Mr. Model the option to purchase 669 shares at an exercise price of $44.00 per share. The option vested upon one year of service following January 10, 1997, and may be exercised only prior to January 10, 2007. A second agreement with Dr. Model granted him the option to purchase 1,250 shares at an exercise price of $3.50 per share, which option vested upon award and may only be exercised prior to November 4, 2009. The Company has entered into a third agreement with Dr. Model granting him the option to purchase an additional 625 shares at an exercise price of $8.44 per share. The option will vest upon one year of service following March 21, 2000, and may only be exercised prior to March 21, 2010. The Company has entered into an agreement granting Dr. Thompson the option to purchase 665 shares at an exercise price of $36.00 per share. The option vested upon one year of service following January 12, 1996, and may only be exercised prior to January 12, 2006. A second agreement with Dr. Thompson granted him the option to purchase 625 shares at an exercise price of $44.00 per share, which vested upon one year of service from January 10, 1997, and may be exercised by January 10, 2007. The Company entered into a third Stock Option Agreement with Dr. Thompson granting him the option to purchase 1,250 shares at an exercise price of $3.50, which option vested upon award and may only be exercised prior to November 4, 2009. Finally, the Company has entered into a fourth agreement with Dr. Thompson granting him the option to purchase an additinal 625 shares at an exercise price of $8.44 per share. The option will vest upon one year of service following March 21, 2000, and may only be exercised prior to March 21, 2010. The Company has also entered into an agreement granting Ms. Maynard the option to purchase 2,224 shares at an exercise price of $3.50 per share, which vested upon award and may only be exercised prior to November 4, 2009.
401(K) RETIREMENT PLAN
The Ophidian Pharmaceuticals, Inc. 401(k) Retirement Plan (the Plan) covered all employees of the Company. Employees become eligible to participate in the Plan after six months of service or 1,000 hours of continuous service and may contribute up to 15% of their compensation to a ceiling of $10,500 in calendar year 2000. The Company may make matching contributions at a discretionary percentage. No matching contributions were made for the fiscal years ended September 30, 2000, 1999, or 1998. The Plan was terminated on October 6, 2000.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's securities as of December 15, 2000, by (a) each person known by the Company to be the beneficial owner of more than 5% of any class of the Company's securities, (b) the directors of the Company, (c) the executive officers of the Company, and (d) all directors and executive officers as a group. As of December 15, 2000, a total of 1,158,249 shares of the Company's Common Stock, 241,636 of the Company's Common Stock ($7.32) Purchase Warrants, and 125,000 of the Company's Common Stock ($2.00) Purchase Warrants were issued and outstanding.
*Less than 1%.
(1) Includes ownership of shares of Common Stock plus options exercisable within 60 days of December 15, 2000. Shares of Common Stock subject to outstanding options are deemed outstanding for purposes of computing the percentage of ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership for any other persons.
(2) The exercise prices listed reflect the original exercise prices for these warrants prior to the eight- for-one reverse split of the Company's Common Stock effective September 20, 1999 (the "Reverse Split"). Following the Reverse Split, and pursuant to the underlying warrant agreements governing the exercise and other terms of the Company's warrants, the per share exercise prices are now $55.615 and $16.00, respectively, for the $7.32 and $2.00 Common Stock purchase warrants.
(3) Dr. van Boldrik's beneficial ownership includes 156,100 shares owned by Dr. van Boldrik, 5,625 shares held by the Willem Erin Samburu Carroll van Boldrik Trust A and 5,625 shares held by the Jan Patrick Jabiru van Boldrik Carroll Trust A. Dr. van Boldrik is the sole trustee for both trusts.
(4) Includes 157,352 shares held by Catalyst Financial LLC, of which Mr. Bronson is the president and sole member and may be deemed to have voting and investment power over the shares.
(5) Includes 56,875 shares held by the Model Charitable Lead Trust and Peter Model Trust II, for which Dr. Model is one of two co-trustees, and options to purchase 668 shares currently vested in the 1992 Stock Option Plan, which options expire in January 2007, and options to purchase 1,250 shares currently vested in the 1992 Stock Option Plan, which options expire in November 2009.
(6) Includes 32,813 shares owned by Promega Corporation of which Mr. Linton is Chairman, President, and Chief Executive Officer and may be deemed to have voting and investment power over the shares.
(7) Includes (a) options to purchase 3,125 shares currently vested in the 1992 Stock Option Plan, which options expire in July 2006; (b) options to purchase 625 shares currently vested in the 1992 Stock Option Plan, which options expire in January 2006; (c) options to purchase 625 shares currently vested in the 1992 Stock Option Plan, which options expire in January 2007; and (d) options to purchase 1,250 shares currently vested in the 1992 Stock Option Plan, which options expire in November 2009.
(8) Includes (a) options to purchase 665 shares currently vested in the 1992 Stock Option Plan, which options expire in January 2006; (b) options to purchase 625 shares currently vested in the 1992 Stock Option Plan, which options expire in January 2007; and (c) options to purchase 1,250 shares currently vested in the 1992 Stock Option Plan, which options expire in November 2009.
(9) Includes options to purchase 2,224 shares currently vested in the 1998 Incentive Stock Option Plan, which options expire in November 2009.
(10) Address is 6320 Monona Drive, Madison, Wisconsin 53716.
(11) Includes options to purchase a total of 6,682 shares, which options have vested, or will vest, within 60 days of December 15, 2000.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Under the terms of a Stock Warrant granted to Fitchburg Research Park Associates Limited Partnership ("FRPA") (the "FRPA Warrant") by the Company on January 17, 1990, designed to protect FRPA against dilution of its holdings in the Company due to the issuance of shares to employees of the Company pursuant to the Company's Stock Option Plans, FRPA is entitled to purchase one share for every four shares issued to employees pursuant to the Plans. Under the terms of the FRPA Warrant, FRPA could purchase a maximum of 14,286 shares, however, at September 30, 2000, FRPA was entitled to purchase only 131 shares. The exercise price under the FRPA Warrant is $.02 per share.
On June 7, 1999, the Company entered into separate Promissory Note and Loan Agreements with Rex J. Bates, a director and stockholder, and Davis U. Merwin, a stockholder, whereby the Company borrowed $2.0 million on October 14, 1999, pursuant to ten-year, 10%, promissory notes with warrants. The assets of the Company secure the notes. Interest on the notes for the first three years is payable in Common Stock of the Company at the then market value and thereafter in cash. The warrants for the purchase of 125,000 shares of Common Stock are excercisable for five years at $16.00 per share.
The Company believes that each of the transactions set forth above as well as those currently in effect were entered into on (i) terms as fair as those that could be obtained from independent third parties, and (ii) were ratified by a majority (but no less than two) of the Company's independent directors who did not have an interest in the transaction and who had access to the Company's counsel at Company expense. All future transactions with the Company in which a director, officer or 5% shareholder of the Company has a direct or indirect interest must (i) be on terms no less favorable to the Company than could be obtained from unaffiliated third parties, and (ii) be approved by a majority of directors who have no direct or indirect interest in the transaction and who have access at Company expense to the Company's counsel or independent counsel.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Company's Bylaws and the Delaware General Corporation Law, directors and officers of the Company are entitled to mandatory indemnification from the Company against certain liabilities and expenses to the extent such officers or directors are successful in the defense of a proceeding. In all other circumstances, the Delaware General Corporation Law permits indemnification for expenses incurred in the defense or settlement of a derivative or third-party action if there is a determination by a majority vote of the directors who are not parties to such action, even though less than a quorum, or, if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion, or by the stockholders, that the person seeking indemnification acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action, had no reasonable cause to believe his or her conduct was unlawful. Without court approval, however, no indemnification may be made in respect of any derivative action in which such person is adjudged liable for negligence or misconduct in the performance of his or her duty to the Company. The Company's Certificate of Incorporation permits indemnification to the fullest extent permitted by the Delaware General Corporation Law, except that in an action initiated by an officer or director, the Company is only required to provide indemnification if the action was first authorized by the Board of Directors. The Certificate of Incorporation further provides that expenses incurred by an individual in his or her capacity as a director of the Company or in certain other capacities in defending a civil or criminal action shall be paid by the Company in advance of the final disposition of the matter upon receipt of an undertaking from the director to repay the sum advanced if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company pursuant to the terms of the Delaware General Corporation Law.
The Delaware General Corporation Law further states that the indemnification provided by statute is not exclusive of any other rights or remedies that directors, officers, employees, or agents may have under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. Accordingly, under the
Delaware General Corporation Law and the Company's Bylaws, the Company is authorized to enter into separate indemnification agreements with its directors, officers, employees, or agents. The Company's Bylaws further provide that the Company may purchase and maintain insurance on behalf of an individual who is a director or officer of the Company against liability asserted against or incurred by such individual in his or her capacity as a director or officer regardless of whether the Company would have the capacity to indemnify or allow expenses to the individual against the same liability under the provisions of the Delaware General Corporation Law.
The Delaware General Corporation Law permits a corporation to include a provision in its Certificate of Incorporation which eliminates the personal liability of a director for monetary damages arising from breaches of his or her fiduciary duties to the Company or its stockholders, subject to the following exceptions: (i) a breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or a knowing violation of the law; (iii) willful or negligent conduct in paying dividends or repurchasing stock out of other than lawfully available funds (a violation of Section 174 of the Delaware General Corporation Law); and (iv) any transaction from which the director derives an improper personal benefit. The Company's Certificate of Incorporation includes such a limitation of liability provision, including the foregoing exceptions. In addition, under the Delaware General Corporation Law, a limitation of liability provision may not relieve directors from the obligation to comply with any law, including federal and state securities laws, or from the availability of non-monetary remedies such as injunctive relief or rescission. Finally, the liability limitation provision in the Company's Certificate of Incorporation does not extend to acts or omissions of a director which occurred before the date on which the Certificate of Incorporation became effective. In general, under the Delaware General Corporation Law and the Company's Certificate of Incorporation, a director may not be held liable to the Company or its stockholders for monetary damages arising out of the director's negligence, gross negligence, or lack of due care in carrying out his or her fiduciary duties as a director. These provisions pertain only to breaches of duty by directors as directors and not in any other corporate capacity, such as officers. As a result of such provisions, stockholders may be unable to recover monetary damages against directors for actions taken by such directors which constitute negligence or gross negligence or which are in violation of such directors' fiduciary duties, although it may be possible to obtain injunctive or other equitable relief with respect to such actions. If equitable remedies are found not to be available to stockholders in any particular case, stockholders may not have any effective remedy against the challenged conduct.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of this report.
1. List of Financial Statements.
The following financial statements of Ophidian Pharmaceuticals, Inc. and Report of Ernst & Young LLP, Independent Auditors, are included in this report:
Report of Ernst & Young LLP, Independent Auditors. Statement of Net Assets in Liquidation at September 30, 2000. Balance Sheet - September 30, 1999. Statements of Operations - Fiscal Years ended September 30 2000, 1999, and 1998. Statements of Shareholders' Equity - Fiscal Years ended September 30 2000, 1999, and 1998. Statements of Cash Flows - Fiscal Years ended September 2000, 1999, and 1998. Notes to Financial Statements.
2. List of all Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. List of Exhibits Required by Item 601 of Regulation S-K.
See item 14(c) below.
(b) No Reports on Form 8-K were filed by the Company during the last fiscal quarter covered by this Report.
(c) Exhibits required by Item 601 of Regulation S-K. The following exhibits are filed as a part of, or incorporated by reference into, this Report:
Number Description
3.1 Certificate of Incorporation, filed as Exhibit C to the Company Proxy Statement, filed on February 23, 1999 (the "Proxy Statement"), and hereby incorporated by reference.
3.2 Company Bylaws, filed as Exhibit D to the Proxy Statement and hereby incorporated by reference.
3.3 Certificate of Amendment of Certificate of Incorporation, filed as Exhibit A to the Company's Proxy Statement, filed on June 29, 1999, and hereby incorporated by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1, as amended, effective May 7, 1998, Registration Number 333- 33219 (the "Registration Statement"), and hereby incorporated by reference.
4.2 Specimen Warrant Certificate, filed as Exhibit 4.2 to the Registration Statement, and hereby incorporated by reference.
4.3 Form of Representatives' Warrant Agreement, including Specimen Representatives' Warrant, filed as Exhibit 4.3, to the Registration Statement, and hereby incorporated by reference.
4.4 Form of Warrant Agreement, filed as Exhibit 4.4, to the Registration Statement and hereby incorporated by reference.
4.5 Specimen Unit Certificate, filed as Exhibit 4.5 to the Registration Statement, and hereby incorporated by reference.
10.1 Lease dated February 12, 1994, between the Company and Promega Corporation, filed as Exhibit 10.1 to the Registration Statement, and hereby incorporated by reference.
10.2 1998 Incentive Stock Option Plan, filed as Exhibit A to the Proxy Statement, and hereby incorporated by reference.
10.3 1990 Incentive Stock Option Plan, filed as Exhibit 10.3 to the Registration Statement, and hereby incorporated by reference.
10.4 1992 Employee Stock Option Plan, filed as Exhibit 10.4 to the Registration Statement, and hereby incorporated by reference.
10.5 Agreement dated June 3, 1996, between the Company and Eli Lilly and Company, filed as Exhibit 10.5 to the Registration Statement and hereby incorporated by reference.
10.6 Employment Agreement dated June 1, 1997, between the Company and Douglas C. Stafford, filed as Exhibit 10.6 to the Registration Statement, and hereby incorporated by reference.
10.7 Employment Agreement dated June 1, 1997, between the Company and Joseph Firca, filed as Exhibit 10.7 to the Registration Statement, and hereby incorporated by reference.
10.8 Employment Agreement dated November 6, 1997, between the Company and Donald L. Nevins, filed as Exhibit 10.9 to the Registration Statement, and hereby incorporated by reference.
10.9 Lease for 2617 Progress Road, Madison, WI, dated June 9, 1999, between the Company and Progress Holdings, LLC, filed as Exhibit 10.11 to the Company's Form 10-Q for the period ended June 30,
1999, and hereby incorporated by reference.
10.10 Asset Purchase Agreement dated as of September 1, 2000, by and between the Company and Promega Corporation, filed as Exhibit A to the Company's Definitive Proxy Statement filed on October 10, 2000, and hereby incorporated by reference.
10.11 Form of Promissory Note and Loan Agreement, dated June 7, 1999, among the Company, Rex J. Bates, and Davis U. Merwin, filed as Exhibit 10.12 to the Company's Form 10- Q for the period ended June 30, 1999, and hereby incorporated by reference.
27.0 Financial Data Schedule.
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 29th day of December 2000.
Ophidian Pharmaceuticals, Inc.
December 29, 2000 By: /s/ Susan P. Maynard -------------------------------- Secretary and Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons in the capacities and on the dates indicated.
December 29, 2000 By: /s/ Peter Model -------------------------------- Peter Model Director & Chairman of the Board
December 29, 2000 By: /s/ Margaret van Boldrik -------------------------------- Director & Vice President
December 29, 2000 By: /s/ Susan P. Maynard -------------------------------- (acting Principal Financial Officer and Principal Accounting Officer)
Ophidian Pharmaceuticals, Inc.
Financial Statements
Years ended September 30, 2000 and 1999
Contents
Report of Independent Auditors
Financial Statements
Statement of Net Assets in Liquidation Balance Sheet Statements of Operations Statements of Shareholders' Equity Statements of Cash Flows Notes to Financial Statements
Report of Independent Auditors
Board of Directors Ophidian Pharmaceuticals, Inc.
We have audited the statement of net assets in liquidation of Ophidian Pharmaceuticals, Inc. (the Company) as of September 30, 2000. In addition, we have audited the accompanying balance sheet of the Company as of September 30, 1999, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 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. 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.
As described in Note 1 to the financial statements, on August 28, 2000 the Company's Board of Directors adopted a resolution to approve dissolution of the Company. Subsequently, on November 9, 2000, the stockholders of the Company approved such plan of liquidation, and the Company commenced liquidation shortly thereafter. As a result, the Company has changed its basis of accounting for periods subsequent to September 30, 2000, from the going-concern basis to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets in liquidation of the Company as of September 30, 2000, the financial position of the Company at September 30, 1999, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States applied on the bases described in the preceding paragraph.
Milwaukee, Wisconsin Ernst & Young LLP December 1, 2000
Ophidian Pharmaceuticals, Inc.
Statement of Net Assets in Liquidation
September 30, 2000
Assets Cash and cash equivalents $ 534,097 Prepaid expenses and other 9,005 Equipment and leasehold improvements, net 2,641,250 Patents, net 978,750 --------------- Total assets 4,163,102
Liabilities Accounts payable 133,481 Accrued expenses and other obligations 455,971 Long-term debt (Note 2) 2,000,000 Capital lease obligations (Note 3) 9,900 --------------- Total liabilities 2,599,352 --------------- Net assets in liquidation $1,563,750 ===============
Ophidian Pharmaceuticals, Inc.
Balance Sheet
September 30, 1999
Assets Current assets: Cash and cash equivalents $ 3,416,490 Accounts receivable 4,112 Prepaid expenses and other 68,803 --------------- Total current assets 3,489,405
Other assets 224,543 Deferred financing fee (Note 2) 400,000
Equipment and leasehold improvements (Note 3): Manufacturing equipment 1,086,070 Laboratory equipment 663,047 Furniture and fixtures 115,225 Office equipment 50,071 Leasehold improvements 65,095 Construction in progress 70,607 --------------- 2,050,115 Accumulated depreciation 860,732 --------------- Net equipment and leasehold improvements 1,189,383
Patents, net of accumulated amortization of $67,977 1,518,795 --------------- Total assets $ 6,822,126 ===============
Liabilities and shareholders' equity Current liabilities: Accounts payable $ 175,871 Accrued expenses and other obligations 93,063 Current portion of capital lease obligations (Note 3) 2,561 --------------- Total current liabilities 271,495
Capital lease obligations (Note 3) 9,687 Deferred revenue (Note 7) 354,310 Shareholders' equity (Notes 4, 5 and 6): Common stock, $0.0025 par value, 22,400,000 shares authorized, 1,155,047 shares issued and outstanding 2,888 Additional paid-in capital 22,496,324 Accumulated deficit (16,312,578) --------------- Total shareholders' equity 6,186,634 --------------- Total liabilities and shareholders' equity $ 6,822,126 ===============
Ophidian Pharmaceuticals, Inc.
Statements of Operations
Year ended September 30 2000 1999 1998 Revenues: Sale of patents $ 1,300,000 $ - $ - Other revenues 368,534 26,965 322,565 ------------------------------------------ Total revenues 1,668,534 26,965 322,565
Operating expenses: Cost of patents sold 83,481 - - Research and development 2,213,385 3,354,818 2,946,814 General and administrative 1,417,945 1,833,209 1,819,227 Impairment charge (Note 1) 2,066,907 - - ------------------------------------------ Total operating expenses 5,781,718 5,188,027 4,766,041 ------------------------------------------ Operating loss (4,113,184) (5,161,062) (4,443,476)
Other income (expense): Investment income, net 124,511 302,845 292,695 Interest expense (285,714) (1,862) (2,085) ------------------------------------------ (161,203) 300,983 290,610 ------------------------------------------ Net loss $(4,274,387) $(4,860,079) $(4,152,866) ==========================================
Basic and diluted net loss per share $(3.69) $(4.21) $(4.14)
Ophidian Pharmaceuticals, Inc.
Statements of Shareholders' Equity
Ophidian Pharmaceuticals, Inc.
Statements of Cash Flows
Year ended September 30 2000 1999 1998 Operating activities Net loss $(4,274,387) $(4,860,079) $(4,152,866) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 352,699 354,514 147,264 Loss on sale of investments - - 588 Common stock issued for consulting services 13,009 29,000 14,375 Impairment charge 2,066,907 - - Amortization of debt discount 38,494 - - Changes in operating assets and liabilities: Accounts receivable, prepaid expenses and other 63,910 (73,583) 62,351 Accounts payable (42,390) (65,271) (4,954) Accrued expenses and other obligations 362,908 (37,405) 24,966 Deferred revenue (354,310) 7,423 155,241 --------------------------------------- Net cash used in operating activities (1,773,160) (4,645,401) (3,753,035)
Investing activities Proceeds from sale of available-for- sale securities - - 360,023 Purchases of equipment and leasehold improvements (3,062,569) (464,295) (591,547) Expenditures for patents and other assets (44,316) (156,316) (215,042) --------------------------------------- Net cash used in investing activities (3,106,885) (620,611) (446,566)
Financing activities Proceeds from issuance of common stock - - 9,357,225 Proceeds from long-term debt 2,000,000 - - Payments on capital lease obligations (2,348) (5,660) (16,498) --------------------------------------- Net cash provided by (used in) financing activities 1,997,652 (5,660) 9,340,727 ---------------------------------------
Net increase (decrease) in cash and cash equivalents (2,882,393) (5,271,672) 5,141,126 Cash and cash equivalents at beginning of period 3,416,490 8,688,162 3,547,036 --------------------------------------- Cash and cash equivalents at end of period $ 534,097 $ 3,416,490 $ 8,688,162 =======================================
Supplemental disclosure of cash flows information - Cash paid for interest $ 47,381 $ 1,862 $ 2,085
Supplemental disclosure of noncash financing transactions: Common stock issued for consulting services $ 13,009 $ 29,000 $ 14,375 Issuance of warrants in connection with a loan agreement $ - $ 400,000 $ -
Ophidian Pharmaceuticals, Inc.
Notes to Financial Statements
September 30, 2000
1. Description of Business and Significant Accounting Policies
Description of Business
Ophidian Pharmaceuticals, Inc. (the Company) was incorporated on November 10, 1989, and began operations on January 17, 1990. The Company has been dedicated to the research, development and commercialization of therapeutic and diagnostic products for human and animal use. The Company's business has been directed to numerous areas of disease but has focused principally on products for infectious disease prevention and treatment. The Company has not received any revenues from the sale of FDA licensed products to date.
On May 26, 2000, the Company terminated its research and development activities due to a lack of financing. On September 1, 2000, the Company executed an agreement (Sales Agreement) to sell substantially all equipment, leasehold improvements and intellectual property to Promega Corporation (Promega) for $1,250,000 cash, a $250,000 promissory note due within 90 days of the sale and assumption of long-term debt of $2,000,000. Shareholders of the Company approved the Sales Agreement on November 9, 2000, and the sale was consummated on November 16, 2000. The $250,000 promissory note is subject to adjustment for any post- closing adjustments, as defined. Through December 1, 2000, the Company and Promega have agreed to an adjustment reducing the promissory note by $80,000. The Company recorded an impairment charge of $2,066,907 at September 30, 2000, for the difference between the consideration to be received and the net book value of the equipment, leasehold improvements and intellectual property to be sold.
On August 28, 2000, the Company's Board of Directors adopted a resolution to approve the dissolution of the Company. After approval of the dissolution by the shareholders of the Company on November 9, 2000, the Company has begun the process of liquidation. Accordingly, because the liquidation was imminent, the Company changed its basis of accounting to the liquidation basis of accounting effective as of September 30, 2000. Prior period financial statements were not restated.
1. Description of Business and Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash equivalents, consisting of commercial paper, treasury and commercial notes, repurchase agreements and money market funds, totaled $509,880 and $3,354,972 at September 30, 2000 and 1999, respectively.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost in 1999 and fair value in 2000 based on the amount to be received from Promega. Depreciation of equipment and leasehold improvements was provided over the estimated useful lives of the assets, generally five years, using the straight-line method.
Patents
Patents, which are stated at cost in 1999 and fair value in 2000 based on the amount to be received from Promega, were amortized on a straight-line basis over the estimated useful life of the patents.
Revenue Recognition
Revenues on cost-reimbursement contracts under awarded research grants was recognized as revenue as the associated costs were incurred by the Company.
Research and Development
Research and development costs were expensed as incurred.
1. Description of Business and Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes were recognized for the tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances were established when necessary to reduce deferred tax assets to the amount expected to be realized. No current or deferred income taxes have been provided because of the current and prior year net operating losses incurred by the Company.
Net Loss Per Share
The basic and diluted weighted-average shares used in the calculation of net loss per share were 1,157,591, 1,154,277 and 1,004,234, respectively, in 2000, 1999 and 1998. Basic and diluted net loss per share is the same for all periods as the impact of all dilutive securities is antidilutive.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because the Company does not use derivatives, management does not anticipate that the adoption of the new Statement will have any effect on the results of operations or on the financial position of the Company.
2. Long-Term Debt
On June 7, 1999, the Company executed an agreement securing $2.0 million in financing from certain shareholders. The funds were received on October 14, 1999, under ten-year, 10% promissory notes with detachable warrants. All assets of the Company secure payment on the promissory notes. Interest on the promissory notes during the first three years was payable annually in common stock of the Company at the then current market value and thereafter, interest was payable in cash. Interest payable under the promissory notes was assumed by Promega pursuant to the Sales Agreement. The Company did not distribute common stock in payment of interest on October 14, 2000, due to the pending sale.
2. Long-Term Debt (continued)
Warrants to purchase 125,000 shares of common stock, exercisable for five years at $16.00 per share, were issued in connection with this financing. In valuing the warrants using the Black-Scholes Model, $400,000 was recorded as a discount to be amortized over the life of the promissory notes.
3. Commitments and Lease Obligations
The Company entered into certain capital leases for equipment and furniture and fixtures, which have insignificant net book value at September 30, 2000 and 1999.
The Company leases its primary facility under an operating lease with an original expiration date of December 31, 2003, from a corporation whose principal shareholder is a shareholder of the Company. Rent expense under this operating lease of $248,238, $242,189 and $240,456 was charged to operations during the years ended September 30, 2000, 1999 and 1998, respectively.
Effective July 1, 1999, the Company entered into a five- year operating lease for a facility to house its manufacturing plant. The minimum lease obligation provides for rent increases as other occupants vacate the premises and the Company utilizes the vacated space. Rent expense under this operating lease of $141,048 and $24,903 was charged to operations during the years ended September 30, 2000 and 1999, respectively.
In connection with the Sales Agreement, on November 16, 2000, Promega assumed both facility leases. Accordingly, the Company has no obligations for future lease payments after November 16, 2000. The Company moved to another office on November 15, 2000, which requires a monthly payment of $400. The lease for the new office space can be discontinued at any time.
4. Common Stock
In September 1999, the Company's Board of Directors authorized a one-for-eight reverse stock split. All common shares and amounts per share in the accompanying financial statements have been adjusted to reflect the stock split.
5. Stock Option Plans and Warrants
In fiscal 1998, the Company adopted an incentive stock option plan for employees and directors, which superseded the previous incentive stock option plan and amended the provisions of the employee stock option plan (collectively the Plans) to increase to 121,875 the maximum number of shares of common stock which may be granted under the Plans. The option price per share will be no less than fair market value at the date the options are granted and all options expire within ten years from the date of grant. Options for 657 shares have been exercised through September 30, 2000.
On November 4, 1999, the Company repriced the exercise price of all outstanding employee stock options to $3.50, the market value of the Company's common stock on that date. The Company also accelerated the vesting on all employee stock options, causing them to become fully vested as of November 4, 1999, with a new exercise period of ten years. No change was made to the exercise price or vesting period of director stock options outstanding. Because of the repricing, the modified stock options are being accounted for as variable awards effective November 4, 1999. Because the market value of the common stock was lower than $3.50 through September 30, 2000, no compensation expense has been recorded during the year ended September 30, 2000.
Number of Weighted-Average Shares Exercise Price
Outstanding at September 30, 1997 80,826 $21.95 Granted - - Exercised - - Canceled (799) 36.00 ---------- Outstanding at September 30, 1998 80,027 21.81 Granted - - Exercised - - Canceled (12,795) 44.00 ---------- Outstanding at September 30, 1999 67,232 17.55 Granted 16,451 4.06 Exercised - - Canceled (60,012) 5.80 ---------- Outstanding at September 30, 2000 23,671 13.30 ==========
5. Stock Option Plans and Warrants (continued)
The following table summarizes weighted-average information by range of exercise prices for employees and directors stock options outstanding and exercisable.
Outstanding Options Exercisable Options - --------------------------------------- ------------------------------------- Weighted- Weighted- Weighted- Shares at Average Average Shares at Average Range of September 30 Exercise Exercise September 30 Exercise Exercise Price 2000 Price Life 2000 Price - --------------------------------------- -------------------------------------
$3.50 20,462 $ 3.50 9.1 years 20,462 $ 3.50 8.44 1,250 8.44 9.5 years - - 36.00 - 44.00 1,959 43.07 5.9 years 1,959 41.28 ---------- ----------- 23,671 22,421 ========== ===========
In fiscal 1990, the Company granted a warrant to a shareholder to purchase up to 14,286 shares of common stock at a price of $.0025 per share. The warrant becomes exercisable in a defined manner upon the issuance of shares of common stock under the Plans. The warrant terminates 30 days after exercise of the total number of options covered by the Plans discussed above. At September 30, 2000, 131 shares are exercisable under the warrant.
In fiscal 1996, the Company granted a consultant an option to purchase 12,500 shares of the Company's common stock at a price of $36 per share exercisable until May 2004. The Company recorded $85,000 as compensation expense based upon the estimated fair value of the option using the minimum value option pricing method with an assumption of a risk-free interest rate of 6%, an expected life of three and one- half years and no expected dividend yield.
5. Stock Option Plans and Warrants (continued)
In connection with the Company's initial public offering in fiscal 1998, the Company issued warrants for the purchase of 241,637 shares of common stock. The number of warrants increased to 254,431 in fiscal 1999 because anti-dilution provisions were triggered when the June 7, 1999 warrants (described in Note 2) were issued. Each warrant entitles the registered holder thereof to purchase, at any time commencing May 7, 1999, until May 7, 2003, one share of common stock at a price of $55.62 per share. Commencing May 7, 2000, the warrants are subject to redemption by the Company, in whole, but not in part, at $.10 per warrant, provided that the average closing bid price the common stock as reported on Nasdaq SmallCap equals or exceeds $117.12 per share for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption.
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (FAS No. 123), the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), in accounting for its stock option plan. Had compensation expense for the Company's stock option plan been determined based upon the fair value at the grant date for these options consistent with the methodology described under FAS No. 123, the Company's net loss would have increased by approximately $61,000, $22,200 and $34,900 in fiscal 2000, 1999 and 1998, respectively. The pro forma impact on a per share basis would be $(0.05), $(0.02) and $(0.03) in 2000, 1999 and 1998, respectively.
Pro forma information regarding net loss and net loss per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%, dividend yield of 0%, expected common stock market price volatility factor of 1.0 and an expected life of the options of ten years.
The Company has reserved 573,501 shares of common stock at September 30, 2000, to provide for the exercise of stock options and warrants.
6. Consulting Agreement with Shareholders
The Company has consulting agreements with shareholders that expire at various dates. Consulting expense related to such agreements were $18,000, $36,000 and $48,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
7. Eli Lilly & Company Collaborative Agreement
On June 3, 1996, Eli Lilly & Company (Lilly) and the Company entered into a 20-year collaborative agreement (Agreement) with respect to the further research, development, manufacture and sale of products for the treatment of Clostridium difficile-associated diseases.
In connection with this Agreement, Lilly (1) made equity investments totaling $4.0 million - $1.0 million in fiscal 1996 for 19,231 shares and $3.0 million in fiscal 1997 for 68,182 shares of the Company's stock; (2) made nonrefundable cash payments of $400,000 in fiscal 1996 upon the Company meeting certain contractual requirements; and (3) reimbursed the Company for certain patent costs totaling $354,310 through fiscal 1999, which were to be recognized as revenue by the Company after issuance of the patents. This revenue was recognized during the year ended September 30, 2000 as part of other revenues because the patents are included in the assets to be sold to Promega (See Note 1).
In September 1998, as permitted under the Agreement, Lilly terminated the Agreement. In accordance with the terms of the Agreement, the termination excuses Lilly and the Company from any further obligations under the Agreement and terminates all licenses granted to Lilly under patents and technology of the Company.
8. 401(k) Plan
The Ophidian Pharmaceuticals, Inc. 401(k) Retirement Plan (the Plan) covers all employees of the Company. Employees become eligible to participate in the Plan after six months of service or 1000 hours of continuous service and may contribute up to 15% of their compensation. The Company may make matching contributions at a discretionary percentage. No matching contributions were made for the years ended September 30, 2000, 1999 or 1998. The Plan was terminated on October 6, 2000.
9. Income Taxes
At September 30, 2000, the Company has net operating loss carryforwards for federal and Wisconsin tax purposes of approximately $18,428,000 and $18,960,000 respectively, which expire in varying amounts from 2007 through 2020. In addition, the Company has research and other tax credit carryforwards of approximately $869,000 and $336,000 for federal and Wisconsin tax purposes, respectively. Valuation allowances have been recorded to offset the net deferred tax assets attributable to all of these carryforwards due to uncertainty regarding their realization.
The types of temporary differences between tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax asset (liability) and their approximate tax effects are as follows at September 30:
2000 1999 ------------------------- --------------------------- Temporary Tax Temporary Tax Difference Effect Difference Effect ------------------------- ---------------------------
Depreciation, patents, prepaid insurance and other $(1,026,000) $ (399,000) $(1,098,000) $ (428,000) Impairment charge 2,067,000 811,000 - - Net operating loss carryforwards 18,428,000 7,224,000 16,265,000 6,376,000 Research and AMT credit carryforwards 869,000 869,000 -------------- ------------- Deferred tax assets, net 8,505,000 6,817,000 Valuation allowance (8,505,000) (6,817,000) -------------- ------------- $ - $ - ============== =============
Utilization of the net operating losses and credits may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
10. Quarterly Financial Data (unaudited)
The following tabels sets forth selected quarterly financial information for the years ended September 30, 2000 and 1999. The operating results are not necessarily indicative of results for any future period.