x
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
|
56-1953785
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
23811
Inverness Place
|
|
|
Laguna
Niguel, California
|
|
92677
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Class
|
|
Outstanding
as of May 10, 2006
|
Common
Stock, par value $.01 per share
|
|
14,144,333
shares
|
PAGE
|
||
PART I. FINANCIAL INFORMATION | ||
Item
1. Financial
Statements
|
||
Statement
Regarding Financial Information.
|
3
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2006
|
||
(unaudited)
and September 30, 2005 ..
|
4
|
|
Condensed
Consolidated Statements of Operations for the Three
|
||
Months
and Six Months ended March 31, 2006 and 2005 (unaudited)
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
||
Six
Months ended March 31, 2006 and 2005 (unaudited)
|
6
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2 Management’s
Discussion and Analysis of Financial
|
||
Condition and Results of Operations |
4
|
|
Item
3. Quantitative
and Qualitative Disclosures
|
||
About
Market Risk
|
20
|
|
Item
4. Controls
and Procedures.
|
21
|
|
PART
II.
OTHER
INFORMATION
|
||
Item
1. Legal
Proceedings
|
21
|
|
Item
1A. Risk
Factors
|
21
|
|
Item
2. Unregistered
Sales of Equity Securities and
|
||
Use of Proceeds |
21
|
|
Item
3. Defaults
Upon Senior Securities
|
21
|
|
Item
4. Submission
of Matters to a Vote of Security Holders
|
22
|
|
Item
5. Other
Information
|
22
|
|
Item
6. Exhibits
|
23
|
|
SIGNATURES
|
24
|
AEOLUS
PHARMACEUTICALS, INC.
|
|||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||
(In
thousands, except shares and per share data)
|
|||||||
March
31,
|
September
30,
|
||||||
|
2006
|
2005
|
|||||
|
(Unaudited)
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
304
|
$
|
626
|
|||
Accounts
receivable
|
5
|
14
|
|||||
Prepaids
and other current assets
|
360
|
289
|
|||||
Total
current assets
|
669
|
929
|
|||||
Investment
in CPEC LLC
|
442
|
8
|
|||||
Total
assets
|
$
|
1,111
|
$
|
937
|
|||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
1,195
|
$
|
712
|
|||
Accrued
expenses
|
128
|
290
|
|||||
Current
maturity of long-term note payable
|
911
|
-
|
|||||
Total
current liabilities
|
2,234
|
1,002
|
|||||
Long-term
note payable
|
-
|
867
|
|||||
Total
liabilities
|
2,234
|
1,869
|
|||||
Series
A cumulative convertible preferred stock, $.01 par value per share,
|
|||||||
liquidation
value $3.00 per share, 1,250,000 shares authorized, issued and
|
|||||||
outstanding
at March 31, 2006 and no shares authorized, issued,
|
|||||||
outstanding
at September 30, 2005
|
354
|
-
|
|||||
Stockholders'
deficit:
|
|||||||
Preferred
stock, $.01 par value per share, 10,000,000 shares authorized at
|
|||||||
March
31, 2006 and 3,000,000 shares authorized at September 30,
2005:
|
|||||||
Series
B nonredeemable convertible preferred stock, 600,000 shares
authorized;
|
|||||||
475,087
shares issued and outstanding at March 31, 2006 and
|
|||||||
September
30, 2005
|
5
|
5
|
|||||
Common
stock, $.01 par value per share, 50,000,000 shares
authorized;
|
|||||||
14,098,096
and 14,038,259 shares issued and outstanding at March 31,
2006
|
|||||||
and
September 30, 2005, respectively
|
141
|
140
|
|||||
Additional
paid-in capital
|
147,887
|
146,016
|
|||||
Accumulated
deficit
|
(149,510
|
)
|
(147,093
|
)
|
|||
Total
stockholders' deficit
|
(1,477
|
)
|
(932
|
)
|
|||
Total
liabilities and stockholders' deficit
|
$
|
1,111
|
$
|
937
|
|||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
AEOLUS
PHARMACEUTICALS, INC.
|
|||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||||||||||||
(Unaudited)
|
|||||||||||||
(In
thousands, except per share data)
|
|||||||||||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenue
|
|||||||||||||
Grant
income
|
$
|
91
|
$
|
6
|
$
|
92
|
$
|
115
|
|||||
Costs
and expenses:
|
|||||||||||||
Research
and development
|
965
|
1,152
|
2,258
|
2,772
|
|||||||||
General
and administrative
|
556
|
516
|
1,047
|
966
|
|||||||||
Total
costs and expenses
|
1,521
|
1,668
|
3,305
|
3,738
|
|||||||||
Loss
from operations
|
(1,430
|
)
|
(1,662
|
)
|
(3,213
|
)
|
(3,623
|
)
|
|||||
Interest
expense, net
|
(8
|
)
|
(5
|
)
|
(19
|
)
|
(7
|
)
|
|||||
Equity
in income of CPEC LLC
|
433
|
-
|
433
|
-
|
|||||||||
Other
income
|
19
|
8
|
36
|
14
|
|||||||||
Decrease
in fair value of common stock warrants
|
147
|
-
|
401
|
-
|
|||||||||
Net
loss
|
(839
|
)
|
(1,659
|
)
|
(2,362
|
)
|
(3,616
|
)
|
|||||
Preferred
stock dividend accreted
|
(55
|
)
|
-
|
(55
|
)
|
-
|
|||||||
Net
loss attributable to common stockholders
|
$
|
(894
|
)
|
$
|
(1,659
|
)
|
$
|
(2,417
|
)
|
$
|
(3,616
|
)
|
|
Net
loss per weighted share attributable to common
stockholders:
|
|||||||||||||
(basic
and diluted)
|
$
|
(0.06
|
)
|
$
|
(0.12
|
)
|
$
|
(0.17
|
)
|
$
|
(0.26
|
)
|
|
Weighted
average common shares outstanding:
|
|||||||||||||
Basic
and diluted
|
14,077
|
13,974
|
14,058
|
13,961
|
|||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
AEOLUS
PHARMACEUTICALS, INC.
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||
(Unaudited)
|
|||||||
(In
thousands)
|
|||||||
Six
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(2,362
|
)
|
$
|
(3,616
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
-
|
5
|
|||||
Noncash
compensation
|
156
|
45
|
|||||
Noncash
interest expense
|
41
|
39
|
|||||
Equity
in income of CPEC LLC
|
(433
|
)
|
-
|
||||
Decrease
in fair value of common stock warrants
|
(401
|
)
|
-
|
||||
Change
in assets and liabilities:
|
|||||||
Accounts
receivable
|
9
|
125
|
|||||
Prepaids
and other assets
|
(71
|
)
|
(87
|
)
|
|||
Accounts
payable and accrued expenses
|
284
|
(625
|
)
|
||||
Net
cash used in operating activities
|
(2,777
|
)
|
(4,114
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from issuance of Series A Preferred Stock
|
2,413
|
-
|
|||||
Proceeds
from exercise of stock options
|
42
|
-
|
|||||
Net
cash provided by financing activities
|
2,455
|
-
|
|||||
Net
decrease in cash and cash equivalents
|
(322
|
)
|
(4,114
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
626
|
7,381
|
|||||
Cash
and cash equivalents at end of period
|
$
|
304
|
$
|
3,267
|
|||
The
accompanying notes are integral part of these unaudited condensed
consolidated financial statements.
|
|||||||
·
|
amend
any of the provisions of the Certificate of Incorporation or Bylaws
of the
Company or the Certificate of
Designations;
|
·
|
authorize,
create, designate, issue or sell any class or series of capital stock
which is senior to or pari
passu
with the Series A Preferred Stock;
|
·
|
increase
the number of authorized shares of Series A Preferred Stock or authorize
the issuance of or issue any shares of Series A Preferred
Stock;
|
·
|
increase
or decrease the number of authorized shares of any class of capital
stock
of the Company;
|
·
|
declare
or pay any dividend, except with respect to the Series A Preferred
Stock
as set forth above;
|
·
|
materially
change the nature or scope of the business of the
Company;
|
·
|
consummate
or agree to make any sale, transfer, assignment, pledge, lease, license
or
similar transaction by which the Company grants on an exclusive basis
any
rights to any of the Company’s intellectual property;
|
·
|
approve
the annual budget of the Company or any changes
thereto;
|
·
|
incur
any indebtedness for borrowed money in excess of $50,000.00;
|
·
|
create,
incur, assume or suffer to exist, any material lien, charge or other
encumbrance on any of the Company’s properties or assets; or
|
·
|
increase
the compensation or benefits payable or to become payable to the
Company’s
directors or executives, subject to certain
exceptions.
|
Shares
|
|
Weighted
Average Exercise Price
|
|||||
Outstanding
at September 30, 2005
|
2,394,091
|
$
|
4.05
|
||||
Granted
|
109,891
|
$
|
0.94
|
||||
Exercised
|
(41,666
|
)
|
$
|
1.00
|
|||
Forfeited
|
-
|
-
|
|||||
Outstanding
at March 31, 2006
|
2,462,316
|
$
|
3.96
|
||||
Exercisable
at March 31, 2006
|
2,402,235
|
$
|
4.04
|
Research
and development expenses
|
$
|
23
|
||
General
and administrative expenses
|
133
|
|||
Total
stock-based compensation expense
|
$
|
156
|
Dividend
yield
|
0
|
%
|
||
Expected
volatility
|
187
- 189
|
%
|
||
Risk-free
interest rate
|
4.3%
- 4.9
|
%
|
||
Expected
option life
|
10
years
|
Three
Months Ended March 31, 2005
|
|
Six
Months Ended
March
31, 2005
|
|||||
Net
loss attributable to common stockholders as reported
|
$
|
(1,659
|
)
|
$
|
(3,616
|
)
|
|
Pro
forma adjustment for stock-based compensation
|
(87
|
)
|
(289
|
)
|
|||
Pro
forma net loss attributable to common stockholders
|
$
|
(1,746
|
)
|
$
|
(3,905
|
)
|
|
Basic
and diluted net loss per weighted share attributable
|
|||||||
to
common stockholders:
|
|||||||
As
reported
|
$
|
(0.12
|
)
|
$
|
(0.26
|
)
|
|
Pro
forma - adjusted for stock-based compensation
|
$
|
(0.12
|
)
|
$
|
(0.28
|
)
|
Dividend
yield
|
0
|
%
|
||
Expected
volatility
|
195
|
%
|
||
Risk-free
interest rate
|
2.9%
- 4.3
|
%
|
||
Expected
option life (in years from vesting)
|
3
years
|
(a)
|
The
stockholders elected the following persons as directors of Aeolus
Pharmaceuticals: David C. Cavalier, John M. Farah, Jr., Joseph J.
Krivulka, Amit Kumar, Michael E. Lewis, Chris A. Rallis and Peter
D.
Suzdak, The votes for and against (withheld) each nominee were as
follows:
|
Votes
|
Votes
|
Votes
|
|||
Nominee
|
For
|
Withheld
|
Abstained
|
||
David
C. Cavalier
|
14,245,225
|
14,828
|
0
|
||
John
M. Farah, Jr.
|
14,434,105
|
13,148
|
0
|
||
Joseph
J. Krivulka
|
14,245,905
|
14,148
|
0
|
||
Amit
Kumar
|
14,246,905
|
13,148
|
0
|
||
Michael
E. Lewis
|
14,246,905
|
13,148
|
0
|
||
Chris
A. Rallis
|
14,236,905
|
23,148
|
0
|
||
Peter
D. Suzdak
|
14,236,905
|
23,148
|
0
|
(b)
|
The
stockholders approved ratification of the appointment by the Audit
Committee of the Board of Directors of Haskell & White LLP as the
Company’s independent public accountants to audit the Company’s financial
statements for fiscal 2006, with 14,224,951 shares voting for approval,
24,702 shares voting against and 10,400 shares
abstained.
|
(c)
|
The
stockholders approved the amendment of the Company’s Amended and Restated
Certificate of Incorporation to increase the authorized number of
shares
of Preferred Stock of Aeolus from 3,000,000 shares to 10,000,000
shares,
with 12,325,163 shares voting for approval, 120,783 shares voting
against,
7,414 shares abstained and 1,806,693 shares were broker non-votes.
In
addition, preferred stockholders voting as a class approved the amendment
with 2,150,000 shares voting for
approval.
|
Exhibit
#
|
Description
|
|
3.1
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed
dated March 27, 2006).
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a).
|
|
31.2
|
Certification
of the Chief
Accounting Officer
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
|
|
32.1
|
Certification
by the Chief Executive Officer and Chief Accounting Officer pursuant
to 18
U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
AEOLUS PHARMACEUTICALS, INC. | ||
Date: May
12, 2006
|
By:
|
/s/
Richard P. Burgoon, Jr.
|
Richard
P. Burgoon, Jr.
Chief
Executive Officer
(Principal
Executive Officer)
|
||
Date: May
12, 2006
|
By:
|
/s/
Michael P. McManus
|
Michael
P. McManus
Chief
Accounting Officer and Treasurer
(Principal
Financial and Accounting Officer)
|