AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AVANT Immunotherapeutics, Inc. ("AVANT" or "the Company") is a biopharmaceutical company engaged in the discovery, development and commercialization of
products that harness the human immune response to prevent and treat disease. AVANT has actively developed and acquired innovative technologiesespecially novel approaches to vaccine
creationthat harness the human immune system. The Company develops and commercializes products on a proprietary basis and in collaboration with established pharmaceutical partners and
other collaborators, including GlaxoSmithKline plc, Pfizer Inc and Lohmann Animal Health International.
On
October 22, 2007, AVANT and Celldex Therapeutics, Inc. ("Celldex"), a privately-held company, announced the signing of a definitive merger agreement (the
"Merger"). On March 7, 2008, AVANT announced the completed Merger of Callisto Merger Corporation, a wholly owned subsidiary of AVANT, with and into Celldex. The Merger has created a
NASDAQ-listed and diversified biopharmaceutical company with a pipeline of product candidates addressing high-value indications including oncology, infectious and inflammatory diseases.
AVANT's
cash and cash equivalents at December 31, 2007 were $15,657,980. Its working capital at December 31, 2007 was $6,579,548. AVANT incurred a loss of $21,638,761 and
net cash used in operations of $19,302,986 for the year ended December 31, 2007. AVANT believes that cash inflows from existing grants and collaborations, interest income on invested funds and
our current cash and cash equivalents will be sufficient to meet estimated working capital requirements and fund operations beyond December 31, 2008. The working capital requirements of AVANT
are dependent on several factors including, but not limited to, the costs associated with research and development programs, pre-clinical and clinical studies, manufacture of clinical
materials and the scope of collaborative arrangements.
During
2008, AVANT may take steps to raise additional capital including, but not limited to, the licensing of technology programs with existing or new collaborative partners, possible
business combinations, or the issuance of common stock via private placement and public offering. If AVANT does not raise additional funds in 2008, AVANT may take one or more cost reducing measures,
including further delays in some of the preclinical and clinical research and development programs and reduced investment in property and equipment. While we continue to seek capital through a number
of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and AVANT's negotiating position in capital-raising efforts may worsen as existing
resources are used. There is also no assurance that AVANT will be able to enter into further collaborative relationships. Additional equity financing may be dilutive to AVANT's stockholders; debt
financing, if available, may involve significant cash payment obligations and covenants that restrict AVANT's ability to operate as a business; and licensing or strategic collaborations may result in
royalties or other terms which reduce AVANT's economic potential from products under development.
Rotarix®
is now licensed in over 70 countries worldwide in addition to the European Union market. GlaxoSmithkline ("Glaxo") filed a Biologics License Application ("BLA") with
the US Food and Drug Administration ("FDA") for United States market approval in 2007. On February 20, 2008, Rotarix® received a favorable recommendation from the FDA's Vaccines and
Related Biological Products Advisory Committee. The committee's favorable recommendation, although not binding, will be considered by the FDA in its review of the BLA for the candidate vaccine, which
is currently underway. U.S. approval triggers a $1.5 million milestone payment to AVANT from Glaxo, $750,000 of which AVANT will retain under AVANT's agreement with Paul Royalty Fund ("PRF").
The market
64
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
launch
of Rotarix® by Glaxo in the U.S. market would result in a $10 million milestone payment to AVANT from PRF, which AVANT expects in the second half of 2008.
The consolidated financial statements include the accounts of AVANT Immunotherapeutics, Inc. and its wholly-owned subsidiaries, Megan Health, Inc.
("Megan") and Celldex Therapeutics, Inc. (formerly Callisto Merger Corporation ("Celldex")). All intercompany transactions have been eliminated.
Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less. Cash and cash equivalents are
stated at cost, which approximates fair value. At December 31, 2007, all investments were in money market mutual funds.
Investments
in marketable securities are accounted for in accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". There were no outstanding
investments in marketable securities at December 31, 2006. At December 31, 2007, AVANT had an investment with a fair value of $646,989 in the stock of Select Vaccines.
AVANT
may invest its cash in debt instruments of financial institutions, government entities and corporations, and mutual funds. The Company has established guidelines relative to credit
ratings, diversification and maturities to mitigate risk and maintain liquidity.
AVANT enters into various types of financial instruments in the normal course of business. The carrying amounts of AVANT's cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these financial instruments. The estimated fair value of long-term
liabilities is discussed in Note 10.
AVANT has entered into various license and development agreements with pharmaceutical and biotechnology companies. The terms of the agreements typically include
non-refundable license fees, funding of research and development, payments based upon achievement of certain milestones and royalties on net product sales. Non-refundable
license fees are recognized as contract and license fee revenue when AVANT has a contractual right to receive such payments, provided a contractual arrangement exists, the contract price is fixed or
determinable, the collection of the resulting receivable is reasonably assured and AVANT has no further performance obligations under the license agreement. When AVANT has performance obligations
under the terms of a contact, non-refundable fees are recognized as revenue as AVANT completes its obligations. Where AVANT's level of effort is relatively constant over the performance
period, the
revenue is recognized on a straight-line basis. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined
using the straight-line basis, as of the period ending date. The determination of the performance period involves judgment on management's part. Funding of research and development is
recognized over the term of the applicable contract as costs are incurred related to that contract.
65
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenues
from milestone payments related to arrangements under which we have no continuing performance obligations are recognized upon achievement of the related milestone. Revenues from
milestone payments related to arrangements under which we have continuing performance obligations are recognized as revenue upon achievement of the milestone only if all of the following conditions
are met: the milestone payments are non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved in achieving
the milestone; and, the amount of the milestone is reasonable in relation to the effort expended or the risk associated with achievement of the milestone. If any of these conditions are not met, the
milestone payments are deferred and recognized as revenue over the term of the arrangement as AVANT completes its performance obligations.
Revenues
from government contracts and grants are recorded as effort is expended on the contracted work and billed to the government. Product royalty revenue consists of payments
received from licensees for a portion of sales proceeds from products that utilize AVANT's licensed technologies and are recognized when the amount of and basis for such royalty payments are reported
to us in accurate and appropriate form and in accordance with the related license agreement. Payments received in advance of activities being performed are recorded as deferred revenue. Any
significant changes in our estimates or assumptions could impact our revenue recognition.
Product
royalties related to the sale of a royalty interest on the worldwide sales of Rotarix® to PRF is recognized as revenue in accordance with the guidance in
EITF 88-18 "Sale of Future Revenues". Upfront unconditional and contingent payments for which the contingencies have been achieved have been recorded by AVANT as deferred revenue.
Revenues will be recognized and calculated based on the ratio of total royalties received from Glaxo and remitted to PRF over expected total amounts to be received by PRF and then applying this
percentage to the total cumulative consideration received from PRF to date. The expected total of payments to be paid to PRF is an estimate which AVANT will update from time to time to determine that
the estimate continues to be reasonable in the light of then current events and circumstances.
Effective
July 1, 2003, we adopted EITF 00-21,
Accounting For Revenue Arrangements with Multiple Deliverables,
which establishes criteria for whether revenue on a deliverable can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria considers whether the delivered
item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the customer's right of return for the delivered item.
Research and development costs, including internal and contract research costs, are expensed as incurred.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. AVANT has not historically experienced credit losses from its trade
accounts receivable and therefore have not established an allowance for doubtful accounts. The Company does not have any off-balance-sheet credit exposure related to its customers.
66
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts
and other receivables consist of the following:
|
|
December 31, 2007
|
|
December 31, 2006
|
Trade Receivables
|
|
$
|
5,957
|
|
$
|
183,830
|
Other Receivables
|
|
|
325,715
|
|
|
137,111
|
|
|
|
|
|
|
|
$
|
331,672
|
|
$
|
320,941
|
|
|
|
|
|
Other
receivables at December 31, 2007 represent interest receivable from a bank and a receivable of $297,500 from the sale of equipment. Other receivables at December 31,
2006 represent interest receivable from a bank.
In the ordinary course of our business, we incur substantial costs to construct property and equipment. The treatment of costs to construct these assets depends
on the nature of the costs and the stage of construction. Costs incurred in the project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost
of the asset. We stop capitalizing costs when the asset is substantially complete and ready for its intended use.
For
manufacturing property and equipment, we also capitalize the cost of validating these assets for the underlying manufacturing process. We complete the capitalization of validation
costs when the asset is substantially complete and ready for its intended use. Costs capitalized include incremental labor and fringe benefits, and direct consultancy services.
Property
and equipment is stated at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Laboratory equipment and office
furniture and equipment are depreciated over a five year period and computer equipment is depreciated over a three year period. Manufacturing equipment is amortized over a seven to ten year period.
Leasehold improvements are amortized over the shorter of the estimated useful life or the noncancelable term of the related lease, including any renewals that are reasonably assured of occurring.
Property and equipment under construction is classified as construction in progress and is depreciated or amortized only after the asset is placed in service. Expenditures for maintenance and repairs
are charged to expense whereas the costs of significant improvements which extend the life of the underlying asset are capitalized. Upon retirement or sale, the cost of assets disposed of and the
related accumulated depreciation are eliminated and the related gains or losses are reflected in net income.
We periodically evaluate our long-lived assets for potential impairment under SFAS No. 144. We perform these evaluations whenever events or
changes in circumstances suggest that the
carrying amount of an asset or group of assets is not recoverable. Indicators of potential impairment include:
-
-
a
significant change in the manner in which an asset is used;
-
-
a
significant decrease in the market value of an asset;
-
-
a
significant adverse change in its business or the industry in which it is sold; and
-
-
a
current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated
with the asset.
67
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
If
we believe an indicator of potential impairment exists, we test to determine whether impairment recognition criteria in SFAS No. 144 have been met. We charge impairments of the
long-lived assets to operations if our evaluations indicate that the carrying value of these assets is not recoverable.
Patent costs are expensed as incurred. Certain patent costs are reimbursed by our product development and licensing partners. Any reimbursed patent costs are
recorded as product development and licensing agreement revenues in our financial statements.
AVANT capitalizes interest cost as part of the historical cost of acquiring certain assets during the period of time required to get the asset ready for its
intended use. The amount of capitalized interest is limited to the amount of interest incurred by AVANT. In 2007 and 2006, AVANT capitalized interest costs of $54,396 and $92,240, respectively,
incurred in financing leasehold improvements and laboratory and manufacturing equipment at its Needham and Fall River facilities. The total amount of interest costs incurred by AVANT in 2007 and 2006
were $90,362 and $102,720, respectively.
The Company presently has two facilities which are located at Needham and Fall River, Massachusetts under non-cancellable operating lease agreements
for office, laboratory and manufacturing space. Effective September 30, 2007, AVANT closed its operations in Overland, Missouri. The rent payments for the two locations escalate over the lease
term. The Company expenses its obligations under these lease agreements on a straight-line basis over the term of each lease, including any renewals that are reasonably assured of
occurring.
AVANT has acquired intangible assets, which include core technology, developed technology and a strategic partner agreement, through the acquisition of Megan and
UPT. These acquired intangible assets are being amortized on a straight-line basis over their estimated lives which range from 5 to 17 years. The determination of the amortization
period involves estimates and judgments on management's part. Any significant changes in our estimates or assumptions could impact the carrying value of acquired intangible assets. The Company
evaluates the recoverability of these assets when facts and circumstances suggest the asset could be impaired in accordance with Statement of Accounting Standards No. 144 ("SFAS 144"),
"Accounting for the Impairment of Long-Lived Assets".
AVANT computes and reports earnings per share in accordance with the provisions of SFAS No. 128, "Earnings Per Share". The computations of basic and
diluted loss per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. Potentially dilutive securities include stock options,
restricted stock units and warrants. Options and warrants to purchase 356,264, 310,665 and 284,950 shares of common stock and Restricted Stock Units totaling 0, 0, and 83,333 shares were not included
in the 2007, 2006 and 2005 computation of diluted net loss per share, respectively, because inclusion of such shares would have an anti-dilutive effect on net loss per share. In 2007 and
2006, restricted stock units totaling 83,333 shares were
68
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
included
in the computation of diluted net loss per share as they were deemed contingently issuable shares. Share amounts shown on the consolidated balance sheets and share amounts and basic and
diluted net loss per share amounts shown on the consolidated statements of operations and comprehensive loss have been adjusted to reflect a reverse stock split of 1-for-12
effective March 7, 2008.
Comprehensive loss is comprised of two components, net loss and other comprehensive income. During the year ended December 31, 2007, AVANT recorded other
comprehensive income of $70,084 related to unrealized gains in its investment in Select Vaccines Limited. For the years ended December 31, 2006 and 2005, AVANT had no other comprehensive
income.
Expenses incurred in foreign currencies are translated at exchange rates in effect during each period. Gains and losses from foreign currency translations are
included in investment and other income, net in the statements of operations. In 2007, 2006 and 2005, AVANT recorded foreign currency transaction losses of $7,743, $49,956 and $2,223, respectively.
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment,"
("SFAS 123(R)") which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and
employee stock purchases related to the Employee Stock Purchase Plan ("employee stock purchases") based on estimated fair values. The Company adopted SFAS 123(R) using the modified prospective
transition method. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has also applied
the provisions of SAB 107 in its adoption of SFAS 123(R).
SFAS 123(R)
requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the
Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company's Consolidated
Statement of Operations because the exercise price of the Company's stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.
Stock-based
compensation expense recognized in the Company's Consolidated Statement of Operations for the years ended December 31, 2007 and 2006 included compensation expense for
share-based payment awards granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123 and
compensation expense for the share-based payment awards granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of
SFAS 123(R). In conjunction with the adoption of
69
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS 123(R),
compensation expense for all share-based payment awards granted prior to January 1, 2006 will continue to be recognized using the straight-line method and
compensation expense for all share-based payment awards granted subsequent to January 1, 2006 will also be recognized using the straight-line method. As stock-based compensation
expense recognized in the Consolidated Statement of Operations for fiscal years 2007 and 2006 are based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company's pro
forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
Upon
adoption of SFAS 123(R), the Company retained its method of valuation for share-based awards granted using the Black-Scholes option-pricing model ("Black-Scholes model")
which was previously
used for the Company's pro forma information required under SFAS 123. The Company's determination of fair value of share-based payment awards on the date of grant using an option-pricing model
is affected by the Company's stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company's expected
stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
See
Note 5 for additional information.
In accordance with SFAS No. 146, the Company recognizes a liability for a cost associated with an exit or disposal activity and measures the amount of
liability at its fair value in the period in which the liability is incurred.
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those estimates.
Management uses consolidated financial information in determining how to allocate resources and assess performance. For this reason, AVANT has determined that it
is engaged in one industry segment. Substantially all of AVANT's revenue since inception has been generated in the United States and all of our assets are in the United States.
SFAS 157: In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements
that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. However, for some entities, the application of SFAS 157
will change current practice. SFAS 157 was effective for financial statements issued for fiscal years beginning after November 15,
70
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2007,
and interim periods within those fiscal years. In February 2008, the FASB deferred the effective date of SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. We have not yet determined the effect if any that adopting SFAS 157 will have on the Company's
financial statements.
SFAS 159:
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilitiesincluding
an Amendment of FASB Statement No. 155
("SFAS 159"), which permits entities to choose to measure many financial instruments and certain other items on an
instrument-by-instrument basis under a fair value option. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. We do not expect the adoption of SFAS 159 to have a material impact on AVANT's financial position and results of operations.
SFAS 141(R)
and SFAS 160: In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
("SFAS 141(R)") and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
("SFAS 160"), which introduce significant changes in the accounting for and reporting of business acquisitions and noncontrolling interests in a subsidiary. SFAS 141(R) is to be applied
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 160
is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption of both Statements is prohibited. We have not yet
determined the effect if any that adopting SFAS 141(R) and SFAS 160 will have on the Company's financial statements.
EITF 07-3:
In June 2007, the EITF reached consensus on EITF Issue No. 07-3,
Accounting for Advance Payments for Goods and
Services to Be Used in Future Research and Development Activities
("EITF 07-3"). EITF 07-3 states that non-refundable advance
payments for future research and development activities should be capitalized until the goods have been delivered or the related services have been performed. EITF is effective for fiscal years
beginning after December 15, 2007. Entities are to recognize the effects of EITF 07-3 prospectively for new contracts entered into after the effective date. The
adoption of EITF 07-3 is not expected to have a material impact on AVANT's financial position and results of operations.
EITF 07-1:
In December 2007, the EITF of the FASB reached a consensus on Issue No. 07-1,
Accounting for Collaborative
Arrangements
("EITF 07-1"). The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in
connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19 and other accounting literature. Based on the nature of the
arrangement, payments to or from collaborators would be evaluated and its terms, the nature of the entity's business, and whether those payments are within the scope of other accounting literature
would be presented. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant
financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however required
disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective for annual periods beginning after December 15, 2007 and
is to be applied retrospectively to all periods presented for all existing collaborative arrangements. We do not expect the adoption of EITF 07-1 to have a material impact on our
consolidated financial statements.
71
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
2. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
|
|
December 31, 2007
|
|
December 31, 2006
|
|
Laboratory Equipment
|
|
$
|
4,345,049
|
|
$
|
3,631,247
|
|
Manufacturing Equipment
|
|
|
1,978,346
|
|
|
1,842,017
|
|
Office Furniture and Equipment
|
|
|
1,282,698
|
|
|
992,076
|
|
Leasehold Improvements
|
|
|
13,562,370
|
|
|
5,202,366
|
|
Construction in Progress
|
|
|
388,842
|
|
|
7,668,904
|
|
|
|
|
|
|
|
Total Property and Equipment
|
|
|
21,557,305
|
|
|
19,336,610
|
|
Less Accumulated Depreciation
|
|
|
(5,116,628
|
)
|
|
(5,368,810
|
)
|
|
|
|
|
|
|
|
|
$
|
16,440,677
|
|
$
|
13,967,800
|
|
|
|
|
|
|
|
During 2007 and 2006, AVANT wrote off approximately $1,966,097 and $1,373,222, respectively, of fully depreciated property and equipment no longer used in its operations. AVANT
recorded a loss of $478,286 on disposal of fixed assets during 2007. AVANT recorded a gain on disposal of other fixed
assets of $14,854 in 2006. Depreciation expense related to equipment and leasehold improvements was approximately $1,727,153, $1,100,349 and $596,547 for the years ended December 31, 2007, 2006
and 2005, respectively.
3. GOODWILL, INTANGIBLE AND OTHER ASSETS
Goodwill:
AVANT has concluded that it currently has one reporting unit and has assigned the entire balance of goodwill to
this reporting unit for purposes of performing its annual impairment test in accordance with SFAS 142. The fair value of the reporting unit was determined using AVANT's market capitalization as
of July 1, 2007 and 2006, adjusted for a control premium. The fair value on July 1, 2007 and 2006 exceeded the net assets of the reporting unit, including goodwill. Accordingly, AVANT
concluded that no impairment existed as of these dates.
Intangible and Other Assets:
Intangible and other assets include the following:
|
|
December 31, 2007
|
|
December 31, 2006
|
|
|
Estimated
Lives
|
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Net
Intangible
Assets
|
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Net
Intangible
Assets
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative Relationships
|
|
5 years
|
|
|
1,090,000
|
|
|
(1,090,000
|
)
|
|
|
|
|
1,090,000
|
|
|
(1,090,000
|
)
|
|
|
|
Core Technology
|
|
10 years
|
|
|
3,786,900
|
|
|
(2,265,740
|
)
|
|
1,521,160
|
|
|
3,786,900
|
|
|
(1,887,046
|
)
|
|
1,899,854
|
|
Developed Technology
|
|
7 years
|
|
|
3,263,100
|
|
|
(3,263,100
|
)
|
|
|
|
|
3,263,100
|
|
|
(2,832,400
|
)
|
|
430,700
|
|
Strategic Partner Agreement
|
|
17 years
|
|
|
2,563,900
|
|
|
(1,068,290
|
)
|
|
1,495,610
|
|
|
2,563,900
|
|
|
(917,472
|
)
|
|
1,646,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
|
|
|
10,703,900
|
|
|
(7,687,130
|
)
|
|
3,016,770
|
|
|
10,703,900
|
|
|
(6,726,918
|
)
|
|
3,976,982
|
Other Non Current Assets
|
|
|
|
|
94,981
|
|
|
|
|
|
94,981
|
|
|
94,981
|
|
|
|
|
|
94,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,798,881
|
|
$
|
(7,687,130
|
)
|
$
|
3,111,751
|
|
$
|
10,798,881
|
|
$
|
(6,726,918
|
)
|
$
|
4,071,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
3. GOODWILL, INTANGIBLE AND OTHER ASSETS (Continued)
All of AVANT's intangible assets are amortized over their useful lives. Total amortization expense for intangible assets for the years ended
December 31, 2007, 2006 and 2005 was $960,212, $995,110 and $995,112, respectively.
The
estimated future amortization expense of intangible assets as of December 31, 2007 and for the five succeeding years is as follows:
Year ending December 31,
|
|
Estimated
Amortization
Expense
|
2008
|
|
$
|
529,512
|
2009
|
|
|
529,512
|
2010
|
|
|
514,622
|
2011
|
|
|
350,822
|
2012
|
|
|
350,782
|
4. ACCRUED EXPENSES
Accrued expenses are comprised of amounts owed to employees, vendors, and suppliers for work performed on behalf of us. At each period end the Company evaluates
the accrued expense balance related to these activities based upon information received from the supplier and estimated progress toward completion of objectives to ensure that the balance is
appropriately stated. Such estimates are subject to changes as additional information becomes available. Accrued expenses include the following:
|
|
December 31,
2007
|
|
December 31,
2006
|
Accrued License Fees
|
|
$
|
368,804
|
|
$
|
416,122
|
Accrued Payroll and Employee Benefits
|
|
|
657,408
|
|
|
678,459
|
Accrued Clinical Trials
|
|
|
270,765
|
|
|
263,220
|
Accrued Manufacturing Expenses
|
|
|
|
|
|
281,035
|
Accrued Professional Fees
|
|
|
320,322
|
|
|
131,413
|
Accrued Restructuring Expenses
|
|
|
153,726
|
|
|
|
Accrued Facility Renovation Expenses
|
|
|
547,246
|
|
|
667,124
|
Other Accrued Expenses
|
|
|
827,381
|
|
|
237,171
|
|
|
|
|
|
|
|
$
|
3,145,652
|
|
$
|
2,674,544
|
|
|
|
|
|
5. EMPLOYEE STOCK BENEFIT PLANS
Except as otherwise noted, references to the number of shares of common stock, stock options and warrants, exercise prices of stock options and warrants, common
stock prices, and other share and per share data or amounts have not been adjusted to reflect the one-for-twelve reverse stock split effected on March 7, 2008. In addition, all references to
each outstanding option to purchase shares of AVANT common stock under the 1999 Stock Option and Incentive Plan, whether vested or unvested, terminated under their terms on March 7, 2008
in connection with the consummation of the Merger and such options are of no further force and effect.
73
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
Restricted Stock Unit Awards
In September 2005, November 2004 and September 2003, the Company awarded restricted stock units to Dr. Una Ryan, its President and CEO, and determined the
value of the restricted stock unit awards to be $270,000, $832,000 and $1,104,000, respectively, based on the closing price of AVANT's common stock on the award date. The value of the restricted stock
units was amortized over the remaining months until Dr. Ryan attained age 65 in December 2006, and was recorded as compensation expense. In connection with the award, the Company has recognized
$0, $1,225,000 and $538,000 as stock-based compensation expense in the Consolidated Statements of Operations for the year ended December 31, 2007, 2006 and 2005, respectively.
Employee Stock Purchase Plan
The 2004 Employee Stock Purchase Plan (the "2004 Plan") was adopted on May 13, 2004. All full time employees of AVANT are eligible to participate in the
2004 Plan. A total of 150,000 shares of common stock are reserved for issuance under the 2004 Plan. Under the 2004 Plan, each participating employee may contribute up to 15% of his or her compensation
to purchase up to 500 shares of common stock per year in any six-month offering period and may withdraw from the offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of common stock in an offering is 85% of the lower of its fair market value at either the beginning of the offering period or
the applicable exercise date. During the years ended December 31, 2007 and 2006, the Company issued 5,518 and 11,592 shares, respectively, under the 2004 Plan. Shares purchased under the plan
are issued in the month following the end of each offering period. At December 31, 2007, 121,239 shares were available for issuance under the 2004 Plan.
The
2004 Plan is a compensatory plan under SFAS 123R. The requisite service period for compensation cost resulting from the 2004 Plan is the period over which the employee
participates in the plan and pays for the shares. AVANT has historically established two purchase periods during each yearJanuary 1 to June 30 and July 1 to
December 31. The requisite service period begins on the enrollment date (the start of the offering period) and ends on the purchase date and is determined to be six months.
Employee Stock Option Plans
Stock Option Plan Description
On May 6, 1999, AVANT's 1999 Stock Option and Incentive Plan (the "1999 Plan") was adopted. The 1999 Plan replaced the Amended and Restated 1991 Stock
Compensation Plan, which was an amendment and restatement of AVANT's 1985 Incentive Option Plan. The 1999 Plan permits the granting of incentive stock options (intended to qualify as such under
Section 422A of the Internal Revenue Code of 1986, as amended), non-qualified stock options, stock appreciation rights, performance share units, restricted stock and other awards of
restricted stock in lieu of cash bonuses to employees, consultants and outside directors.
The
1999 Plan, as amended in 2002, allows for a maximum of 3,500,000 shares of common stock to be issued prior to May 6, 2009. The Board of Directors determines the term of each
option, option price, and number of shares for which each option is granted and the rate at which each option vests.
74
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
The
Board of Directors has granted employee stock option awards with four-year vesting periods. The term of each option cannot exceed ten years (five years for options granted to holders
of more than 10% of the voting stock of AVANT) and the exercise price of stock options cannot be less than the fair market value of the common stock at the date of grant (110% of fair market value for
incentive stock options granted to holders of more than 10% of the voting stock of AVANT). Vesting of all employee stock option awards is accelerated upon a change in control as defined in the 1999
Plan.
The
1999 Plan also provides for the automatic grant of non-qualified stock options to non-employee directors. Each non-employee director who is
serving as a director of the Company on the fifth business day after each annual meeting of stockholders will automatically be granted on such day a non-qualified stock option to acquire
10,000 shares of common stock. The exercise price of each such non-qualified stock option is the fair market value of common stock on the date of grant. Each such non-qualified
stock option is exercisable on the first anniversary of the grant date. Such non-qualified stock options will expire ten years from the date of grant. The 1999 Plan also provides for
discretionary grants of non-qualified stock options to non-employee directors. Vesting of all non-employee director stock option awards is accelerated upon a change
in control as defined in the 1999 Plan.
On
November 17, 2005, pursuant to and in accordance with the recommendation of the Compensation Committee, the Board of Directors of AVANT approved full acceleration of the
vesting of otherwise unvested stock options that had an exercise price of $2.00 or greater granted under the 1999 Plan that were held by employees, officers and non-employee directors. As
a result of the Board of Directors' action, a total of 265,935 of such "out-of-the-money" unvested stock options, having a weighted average exercise price of $2.37
per share, became exercisable effective November 17, 2005, rather than the later dates when such options would have vested in the normal course. The Company determined the value of the
"out-of-the-money" unvested stock options to be $360,100. This action was taken in accordance with the applicable provisions of the 1999 Plan. The Board's decision
to accelerate the vesting of these "out-of-the-money" stock options was made primarily to reduce compensation expense that otherwise would be recorded in future
periods following AVANT's adoption in the first quarter of 2006 of SFAS 123R.
75
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
General Option Information
A summary of stock option activity for the year ended December 31, 2007 is as follows:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
(in Years)
|
Outstanding at January 1,
|
|
3,281,154
|
|
$
|
2.40
|
|
3.79
|
Granted
|
|
465,450
|
|
|
1.26
|
|
|
Exercised
|
|
|
|
|
|
|
|
Canceled/Forfeited
|
|
(388,920
|
)
|
|
1.68
|
|
|
Expired
|
|
(526,956
|
)
|
|
2.54
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
2,830,728
|
|
$
|
2.29
|
|
4.33
|
|
|
|
|
|
|
|
Ending Vested and Expected to Vest at December 31, 2007
|
|
2,705,935
|
|
$
|
2.32
|
|
4.14
|
|
|
2007
|
|
2006
|
|
2005
|
At December 31,
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
2,238,133
|
|
|
2,458,772
|
|
|
2,584,971
|
Available for grant
|
|
|
863,675
|
|
|
1,425,453
|
|
|
1,861,215
|
Weighted average fair value of options granted during year
|
|
$
|
0.89
|
|
$
|
1.45
|
|
$
|
1.22
|
The
following tables summarize information about the stock options outstanding at December 31, 2007:
|
|
Options Outstanding
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life
|
|
Weighted Average
Exercise Price
per Share
|
$
|
0.55 - 1.31
|
|
503,600
|
|
3.49
|
|
$
|
1.19
|
|
1.33 - 1.41
|
|
286,100
|
|
8.11
|
|
|
1.36
|
|
1.41 - 1.88
|
|
347,427
|
|
2.73
|
|
|
1.73
|
|
1.90 - 1.97
|
|
356,625
|
|
3.76
|
|
|
1.95
|
|
2.04 - 2.08
|
|
365,526
|
|
7.74
|
|
|
2.05
|
|
2.10 - 2.41
|
|
431,250
|
|
2.11
|
|
|
2.34
|
|
2.59 - 2.99
|
|
344,950
|
|
4.82
|
|
|
2.84
|
|
3.80 - 6.63
|
|
68,250
|
|
2.02
|
|
|
5.52
|
|
8.19 - 8.19
|
|
2,500
|
|
2.24
|
|
|
8.19
|
|
8.53 - 8.53
|
|
124,500
|
|
2.88
|
|
|
8.53
|
|
|
|
|
|
|
|
$
|
0.55 - 8.53
|
|
2,830,728
|
|
4.33
|
|
$
|
2.29
|
|
|
|
|
|
|
|
76
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number Exercisable
|
|
Weighted Average
Exercise Price
per Share
|
$
|
0.55 - 1.31
|
|
435,700
|
|
$
|
1.24
|
|
|
1.33 - 1.41
|
|
31,950
|
|
|
1.40
|
|
|
1.41 - 1.88
|
|
332,716
|
|
|
1.74
|
|
|
1.90 - 1.97
|
|
306,438
|
|
|
1.95
|
|
|
2.04 - 2.08
|
|
160,441
|
|
|
2.06
|
|
|
2.10 - 2.41
|
|
430,688
|
|
|
2.34
|
|
|
2.59 - 2.99
|
|
344,950
|
|
|
2.84
|
|
|
3.80 - 6.63
|
|
68,250
|
|
|
5.52
|
|
|
8.19 - 8.19
|
|
2,500
|
|
|
8.19
|
|
|
8.53 - 8.53
|
|
124,500
|
|
|
8.53
|
|
|
|
|
|
$
|
0.55 - 8.53
|
|
2,238,133
|
|
$
|
2.48
|
|
|
|
|
|
The
aggregate intrinsic value of options outstanding at December 31, 2007 was insignificant. The weighted average remaining contractual life of options exercisable at
December 31, 2007 was 3.28 years.
Valuation and Expense Information under SFAS 123(R)
The following table summarizes stock-based compensation expense related to employee and non-employee director stock options, employee stock purchases
and restricted stock unit awards under SFAS 123(R) for the year ended December 31, 2007 and 2006 which was allocated as follows:
|
|
Year Ended
December 31,
2007
|
|
Year Ended
December 31,
2006
|
Research and development
|
|
$
|
160,496
|
|
$
|
154,088
|
General and administrative
|
|
|
199,047
|
|
|
1,472,668
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
359,543
|
|
$
|
1,626,756
|
|
|
|
|
|
Stock-based
compensation expense recognized for the years ended December 31, 2007, 2006, and 2005 included $0, $1,225,000 and $538,000, respectively, related to restricted stock
unit awards, all of which were allocated to general and administrative expenses.
Based
on basic and diluted weighted average common shares outstanding of 6,265,504 for 2007 and 6,184,704 for 2006 after adjustment for a reverse stock split of 1-for-12. The effect of
stock-based compensation expense recorded under SFAS 123R for fiscal 2007 and 2006 on earnings per share was $0.06 and $0.26, respectively.
77
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
The
table below reflects the pro forma information for the years ended December 31, 2005 as follows:
|
|
2005
|
|
Net Loss:
|
|
|
|
|
|
As reported
|
|
$
|
18,096,569
|
|
|
Less: Stock-based employee compensation expense as reported
|
|
|
(538,000
|
)
|
|
Add: Total stock-based employee compensation expense determined under fair value based method for all awards
|
|
|
1,329,300
|
|
|
|
|
|
|
Pro forma
|
|
$
|
18,887,869
|
|
|
|
|
|
Basic and Diluted Net Loss Per Share(1):
|
|
|
|
|
|
As reported
|
|
$
|
2.93
|
|
|
Pro forma
|
|
$
|
3.06
|
|
-
(1)
-
Adjusted
to reflect a reverse stock split of 1-for-12 effective March 7, 2008.
The
total fair value of stock options vested during the year ended December 31, 2007 was $408,827.
As
of December 31, 2007, total compensation cost related to non-vested stock options not yet recognized was $641,540, net of estimated forfeitures, which is expected
to be recognized as expense over a weighted average period of 1.73 years.
The
fair values of employee stock options granted were valued using the Black-Scholes model with the following assumptions:
|
|
Year Ended
December 31, 2007
|
|
Year Ended
December 31, 2006
|
|
Year Ended
December 31, 2005
|
|
Expected stock price volatility (employees)
|
|
7374
|
%
|
7685
|
%
|
8085
|
%
|
Expected stock price volatility (non-employee directors)
|
|
6173
|
%
|
7680
|
%
|
8085
|
%
|
Expected option term (employees)
|
|
6.25 Years
|
|
6.25 Years
|
|
4.55 Years
|
|
Expected option term (non-employee directors)
|
|
5.5 Years
|
|
5.5 Years
|
|
4.55 Years
|
|
Risk-free interest rate
|
|
3.25.2
|
%
|
4.35.2
|
%
|
3.64.6
|
%
|
Expected dividend yield
|
|
None
|
|
None
|
|
None
|
|
The
Company used its daily historical stock price volatility consistent with the expected term of grant as the basis for its expected volatility assumption in accordance with
SFAS 123(R) and SAB 107 for its employee and non-employee director stock options and employee stock purchases. Prior to fiscal 2006, the Company had also used its daily
historical stock price volatility in accordance with SFAS 123 for purposes of its pro forma information. The Company has assessed that its historical volatility is representative of expected
future stock price trends.
78
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
5. EMPLOYEE STOCK BENEFIT PLANS (Continued)
The
risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the Company's employee and non-employee director
stock options and employee stock purchases. The dividend yield assumption is based on the Company's history of zero dividend payouts and expectation that no dividends will be paid in the foreseeable
future.
The
Company has elected to follow the guidance of SAB 107 and adopt this simplified method in determining the expected term for its stock option awards. There were 80,000 stock
option grants to non-employee directors during the year ended December 31, 2007.
The
Company has not recognized any tax benefits or deductions related to the tax effects of employee stock-based compensation as the Company carries a full deferred tax asset valuation
allowance and has significant net operating loss carryforwards available.
6. INCOME TAXES
The $40 million milestone payment received from Paul Royalty Fund II, L.P. ("PRF") during the first quarter of 2006 resulted in taxable income for
the Company. The regular taxable income generated by this transaction was fully offset against available federal and state net operating loss carryforwards. The Company recorded a provision of
$372,000 in the first quarter of 2006 for the alternative minimum tax
that was estimated to result from receipt of this milestone. In the fourth quarter of 2006, the estimated provision was adjusted to $120,000. In the third quarter of 2007, AVANT made an adjustment to
its tax provision estimates of $120,000 after determining that no alternative minimum tax will be due on the transaction.
In
June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
109
("FIN 48"). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a
company's financial statements. The Company adopted FIN No. 48 on January 1, 2007. The implementation of FIN No. 48 did not have a material impact on the Company's consolidated
financial statements, results of operations or cash flows. At the adoption date of January 1, 2007, and also at December 31, 2007, the Company had no unrecognized tax benefits. The
Company has not, as yet, conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company's research and development credit carryforwards,
however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under FIN 48. A full valuation allowance has been provided against
the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the
consolidated balance sheet or statement of operations if an adjustment were required.
As
of December 31, 2007, AVANT had federal net operating loss and tax credit carryforwards of approximately $158,897,000 and $8,675,000, respectively, and state net operating loss
and credit carryforwards of approximately $29,989,000 and $5,801,000, respectively, which may be available to offset future federal and state income tax liabilities and that expire at various dates
from 2008 through 2027. Utilization of the net operating loss ("NOL") and research and development ("R&D") credit carryforwards may be subject to a substantial annual limitation due to
ownership change limitations that have occurred previously or that could occur in the future provided by Section 382 of the Internal
79
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
6. INCOME TAXES (Continued)
Revenue
Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable
income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the
stock of a corporation by more than 50 percentage points over a three-year period. Since the Company's formation, the Company has raised capital through the issuance of capital
stock on several occasions (both pre and post initial public offering) which, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of
control, as defined by Section 382, or could result in a change of control in the future upon subsequent disposition. The Company has completed a study to assess whether changes of control have
occurred which would limit the Company's utilization of its NOL or R&D credit carryforwards. Based on this study, management has preliminarily concluded that there are no significant limitations. The
Company does not expect to have taxable income for the foreseeable future. AVANT believes its Merger with Celldex may generate an ownership change that could further affect the limitation in future
years.
Massachusetts
and Missouri are the two states in which the Company has operated and has income tax nexus. Open federal and state return years subject to examination by major tax
jurisdictions include the tax years ended December 31, 2004, 2005 and 2006. Carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by the IRS if they
either have been or will be used in a future period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years.
The
Company's policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. There have been no interest or penalties recognized in the
consolidated statement of operations and on the consolidated balance sheet as a result of FIN 48 calculations. The Company has not recorded any interest and penalties on any unrecognized tax
benefits since its inception.
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Income tax benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
8,255,100
|
|
$
|
7,923,800
|
|
$
|
6,907,000
|
|
|
State
|
|
|
1,956,700
|
|
|
1,761,000
|
|
|
1,436,200
|
|
|
|
|
|
|
|
|
|
|
|
|
10,211,800
|
|
|
9,684,800
|
|
|
8,343,200
|
|
Deferred tax valuation allowance
|
|
|
(10,211,800
|
)
|
|
(9,684,800
|
)
|
|
(8,343,200
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future expected enacted
rates. A valuation
allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.
80
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
6. INCOME TAXES (Continued)
The
principal components of the deferred tax assets and liabilities at December 31, 2007 and 2006, respectively, are as follows:
|
|
December 31,
2007
|
|
December 31,
2006
|
|
Gross Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
$
|
55,618,000
|
|
$
|
40,983,000
|
|
|
Tax Credit Carryforwards
|
|
|
12,503,000
|
|
|
11,007,000
|
|
|
Deferred Expenses
|
|
|
19,022,000
|
|
|
21,701,000
|
|
|
Deferred CompensationRestricted Stock
|
|
|
888,000
|
|
|
888,000
|
|
|
Stock-based Compensation
|
|
|
67,000
|
|
|
45,000
|
|
|
Fixed Assets
|
|
|
40,000
|
|
|
716,000
|
|
|
Accrued Expenses and Other
|
|
|
16,000
|
|
|
4,000
|
|
|
Deferred Revenue
|
|
|
19,586,000
|
|
|
20,299,000
|
|
|
|
|
|
|
|
|
|
|
107,740,000
|
|
|
95,643,000
|
|
Gross Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Acquired Intangibles
|
|
|
(678,000
|
)
|
|
(1,011,000
|
)
|
|
Deferred Tax Assets Valuation Allowance
|
|
|
(107,062,000
|
)
|
|
(94,632,000
|
)
|
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
A
reconciliation between the amount of reported income tax and the amount computed using the U.S. Statutory rate of 34% follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Pre-tax book income (loss)
|
|
$
|
(21,758,762
|
)
|
$
|
(20,253,939
|
)
|
$
|
(18,096,575
|
)
|
|
|
|
|
|
|
|
|
Loss at Statutory Rates
|
|
|
(7,398,000
|
)
|
|
(6,886,300
|
)
|
|
(6,152,800
|
)
|
Research and Development Credits
|
|
|
(984,000
|
)
|
|
(1,074,100
|
)
|
|
(812,000
|
)
|
Alternative minimum Tax Credits
|
|
|
|
|
|
(120,000
|
)
|
|
|
|
State Taxes
|
|
|
(1,956,700
|
)
|
|
(1,761,000
|
)
|
|
(1,436,200
|
)
|
Other
|
|
|
126,900
|
|
|
156,600
|
|
|
57,800
|
|
Expiration of Net Operating Losses and Research & Development Tax Credits
|
|
|
(2,217,000
|
)
|
|
2,575,000
|
|
|
2,441,000
|
|
Increase in Valuation Allowance
|
|
|
12,428,800
|
|
|
7,109,800
|
|
|
5,902,200
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
As
required by Statement of Financial Accounting Standards No. 109, management has evaluated the positive and negative evidence bearing upon the realizability of its net deferred
tax assets, which are comprised principally of net operating loss and tax credit carryforwards. Management has determined that it is more likely than not that AVANT will not recognize the benefits of
federal and state deferred tax assets and, as a result, a valuation allowance of approximately $107,062,000 has been established at December 31, 2007. The future realization, if any, of the
deferred tax assets attributable to disqualifying dispositions of incentive stock options and the exercise of nonqualified stock options
81
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
6. INCOME TAXES (Continued)
will
not be recognized as a tax benefit in the statement of operations, but rather as a component of stockholders' equity.
7. STOCKHOLDERS' EQUITY
AVANT filed a shelf registration statement in May 2007 with the Securities and Exchange Commission to register for sale any combination of securities described in
the filing up to a dollar amount of $40 million. At December 31, 2007, no securities had been sold by the Company from this shelf registration.
At December 31, 2007 and 2006, AVANT had authorized preferred stock comprised of 96,925 shares of convertible Class B and 3,000,000 shares of
convertible Class C of which 350,000 shares has been designated as Class C-1 Junior Participating Cumulative, the terms of which are to be determined by our Board of
Directors. There was no preferred stock outstanding at December 31, 2007 and 2006.
AVANT has issued warrants to purchase common stock in connection with the private placement of approximately 370,370 shares in July 2003. The warrants are
exercisable at $36.00 per share and expire July 1, 2008.
Warrants
outstanding at December 31, 2007, after adjustment for a reverse stock split of 1-for-12 effective March 7, 2008, are as follows:
Security
|
|
Number of
Shares
|
|
Exercise Price
Per Share
|
|
Expiration Date
|
Common stock
|
|
37,037
|
|
$
|
36.00
|
|
July 1, 2008
|
In
connection with the acquisition of VRI in August 1998, AVANT assumed the obligations of VRI with respect to each outstanding warrant to purchase VRI common stock (a "VRI Warrant").
The last of the VRI Warrants expired on December 14, 2005. In 2005, 1,861 warrants were exercised as cashless exercises resulting in the issuance of 536 shares.
On November 5, 2004, AVANT's Board adopted a new Shareholder Rights Plan, as set forth in the Shareholder Rights Agreement, dated November 5, 2004,
between the Company and Computer Investor Services, LLC (formerly EquiServe Trust Company, N.A.), as Rights Agent (the "Rights Agreement"). The Rights Agreement replaces the Company's existing
Shareholder Rights Agreement which expired on November 10, 2004. Pursuant to the terms of the Rights Agreement, the Board declared a dividend distribution of one Preferred Stock Purchase Right
for each outstanding share of AVANT's common stock. These rights, which expire in November 2014, entitle their holders to purchase from AVANT one ten-thousandth of a share (a "Unit") of
Series C-1 Junior Participating
82
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
7. STOCKHOLDERS' EQUITY (Continued)
Cumulative
Preferred Stock, par value $0.01 per share, ("C-1 Preferred Stock") at a cash exercise price of $35.00 per Unit, subject to adjustment. The rights will trade separately from the
common stock and will become exercisable only when a person or group has acquired 15% or more of the outstanding common stock or upon the commencement by a person or group of a tender offer that would
result in such person or group acquiring 15% or more of the outstanding common stock other than as a result of repurchases of stock by AVANT or certain inadvertent actions by a shareholder. In the
event a person or group acquires 15% or more of the outstanding common stock each holder of a right (except for any such person or group) would be entitled to receive upon exercise sufficient Units of
C-1 Preferred Stock to equal a value of two times the exercise price of the purchase right. In the event AVANT is acquired in a merger or other business combination transaction or if 50%
or more of AVANT's assets or earning power is sold, each holder of a right (except for any such person or group described above) would receive upon exercise common stock of the acquiring company with
a value equal to two times the exercise price of the right.
As
of December 31, 2007 and 2006, the Company has authorized the issuance of 350,000 shares of C-1 Preferred Stock for use in connection with the shareholder rights
plan.
On August 16, 2002, AVANT announced that its Board of Directors had authorized the repurchase of up to 2 million shares of its common stock. The
repurchased stock provides AVANT with treasury shares for general corporate purposes, such as stock to be issued under employee stock option and stock purchase plans. The share repurchase plan expired
as of August 31, 2003. AVANT purchased 220,300 shares (18,358 shares after adjustment for a reverse stock split of 1-for-12 effective March 7, 2008) through December 31, 2003 at a
cost of $227,600. No shares were purchased in 2007 or 2006.
At the special meeting of AVANT shareholders held on March 6, 2008 in connection with the Merger (as described in Note 1), stockholders approved
four proposals: (i) the issuance of shares of AVANT common stock pursuant to the Merger Agreement in the amount necessary to result in the Celldex stockholders owning 58% of AVANT common stock
on a fully diluted basis, (ii) an amendment to AVANT's Third Restated Certificate of Incorporation to increase the number of authorized shares to 300,000,000, (iii) an amendment to
AVANT's Third Restated Certificate of Incorporation to effect a reverse stock split in a ratio ranging from one-for-twelve to one-for-twenty of all the
issued and outstanding shares of AVANT common stock, the final ratio to be determined within the discretion of the AVANT board of directors and (iv) adoption of the 2008 Stock Option and
Incentive Plan.
AVANT's
board of directors approved a 1-for-12 reverse stock split of AVANT's common stock, which became effective on, March 7, 2008. As a result of the
reverse stock split, each twelve shares of common stock will be combined and reclassified into one share of common stock and the total number of shares outstanding will be reduced from approximately
180 million shares (including the shares issued to Celldex stockholders in the merger) to approximately 15 million shares.
Also,
pursuant to the terms of the Merger Agreement, Celldex shareholders received 4.96 shares of common stock in exchange for each share of Celldex common stock and Class A
common stock they
83
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
7. STOCKHOLDERS' EQUITY (Continued)
own.
AVANT stockholders retained 42% of, and the former Celldex stockholders now own 58% of, the outstanding shares of AVANT's common stock on a fully-diluted basis. AVANT also assumed all of
Celldex's stock options outstanding at the time of the Merger.
8. RESEARCH AND LICENSING AGREEMENTS
AVANT has entered into licensing agreements with several universities and research organizations. Under the terms of these agreements, we have received licenses
or options to license technology,
specified patents or patent applications. AVANT has expensed nonrefundable license fees of approximately $110,000, $85,000 and $85,000 in the years ended December 31, 2007, 2006 and 2005,
respectively.
9. PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS
Our revenue from product development and licensing agreements was received pursuant to contracts with different organizations. Total revenue recognized by us in
connection with these contracts for the years ended December 31, 2007, 2006 and 2005 were $125,039, $2,855,266 and $242,092, respectively. A summary of these contracts follows:
In 1997, AVANT entered into an agreement with Glaxo to collaborate on the development and commercialization of the Company's oral rotavirus vaccine and Glaxo
assumed responsibility for all subsequent clinical trials and all other development activities. AVANT licensed-in the Rotarix® technology in 1995 and owes a license fee of 30%
to Cincinnati Children's Hospital Medical Center ("CCH") on net royalties received from Glaxo. AVANT is obligated to maintain a license with CCH with respect to the Glaxo agreement. All licensing fees
are included in research and development expense. The term of the Glaxo agreement is through the expiration of the last of the relevant patents covered by the agreement, although Glaxo may terminate
the agreement upon 90 days prior written notice.
In
May 2005, AVANT entered into an agreement whereby an affiliate of Paul Royalty Fund II, L.P. ("PRF") purchased an interest in the net royalties AVANT will receive on worldwide
sales of Rotarix®. Under the PRF agreement, AVANT will retain 50% of future Glaxo milestone payments beginning on the effective date of the agreement with PRF, with 70% of the remaining
balance payable to PRF and 30% of the remaining balance payable to CCH, respectively. The PRF agreement also provides for a $10 million milestone payment to AVANT if Rotarix® is
launched in the United States in 2008. AVANT expects to achieve this milestone in the second half of 2008.
The
PRF transaction qualifies as a sale in accordance with guidance in EITF 88-18, "Sale of Future Revenues." The upfront unconditional payment of $10 million
and the $40 million milestone payment for launch in the European Union were recorded by AVANT as deferred revenue upon receipt. Any future milestone payments received from PRF will also be
recorded as deferred revenue. Revenues are being recognized and calculated based on the ratio of total royalties received from Glaxo and remitted to PRF over expected total amounts to be received by
PRF and then applying this percentage to the total cumulative consideration received from PRF to date. The expected total of payments to PRF is an estimate which will be updated for any changes in
expectations of such payments. The impact of any such changes will be applied prospectively.
84
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
9. PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS (Continued)
In
February 2006, the European Commission granted approval of Rotarix® in the European Union, which triggered a $4 million milestone payment from Glaxo, 50% of which
is creditable against future royalties. Revenue of $2.6 million was recorded in the first quarter of 2006 as AVANT has no continuing obligations to incur any research and development costs in
connection with the Glaxo agreement. Glaxo has agreed to make further payments, which could total up to $1.5 million, upon achievement of a specific milestone.
In
2006, AVANT also recorded $600,000 in royalty expense payable to CCH as a result of the $4 million milestone payment from Glaxo. AVANT remitted the remaining
$1.4 million of the Glaxo milestone payment to PRF in accordance with the PRF agreement. As a result, in 2006, AVANT also recognized $550,803 in product royalty revenue related to PRF's
purchased interests in the net royalties that AVANT receives from Rotarix® worldwide net sales. In 2007, AVANT recognized $4,370,621 in Rotarix®-related product royalty revenue
consisting of $2,334,382 related to PRF's purchased interest in Rotarix® net royalties and $2,036,239 related to AVANT's retained interest in Rotarix® net royalties which were
not sold to PRF, which also corresponds to the amount payable by AVANT to CCH. As such, a corresponding amount is recorded as royalty expense and included in research and development expense. Based on
management's best estimates of the amount and timing of Glaxo royalties, the Company has classified $4,844,384 and $42,270,431 of the deferred revenue balance at December 31, 2007 as
short-term and long-term, respectively.
In
September 2006, AVANT received notice from Glaxo that Glaxo would begin paying royalties on sales of Rotarix® vaccine at the lower of two royalty rates under their 1997
license agreement. Glaxo's decision to pay the lower royalty rate (which is 70% of the full rate) is based upon Glaxo's assertion that Rotarix ® is not covered by the patents Glaxo
licensed from AVANT in Australia and certain European countries. AVANT is determined to take all available steps to enforce its rights under its license agreement with Glaxo. AVANT has recognized
royalty revenue at the lower rates and will continue to do so until the dispute with Glaxo is resolved.
In connection with the Company's acquisition of Megan in 2000, it entered into a licensing agreement with Pfizer's Animal Health Division whereby Pfizer has
licensed Megan's technology for the development of animal health and food safety vaccines. Under the agreement, AVANT may receive additional milestone payments of up to $3 million based upon
attainment of specified milestones. AVANT may receive royalty payments on eventual product sales. The term of this agreement is through the expiration of the last of the patents covered by the
agreement. AVANT has no obligation to incur any research and development costs in connection with this agreement.
As
of June 1, 2006, AVANT entered into a Collaborative Research and Development Agreement with Pfizer aimed at the discovery and development of vaccines to protect animals. In
2007, further funded work at AVANT on the joint research program was terminated by Pfizer after AVANT provided two of four deliverables to Pfizer. AVANT recognized $62,500 and $137,500 in product
development revenue from Pfizer, Inc for years ended December 31, 2007 and 2006, respectively.
85
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
9. PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS (Continued)
(C) DVC LLC ("DVC", formerly DynPort Vaccine Company LLC)
In October 2001, the Company granted DVC a license for exclusive rights to use certain components of its anthrax vaccine technology. Under the agreement, AVANT
was entitled to annual $50,000 license maintenance payments, with respect to which AVANT had received $200,000 in the aggregate, including $50,000 received in the first quarter of 2005, and milestone
payments of up to $700,000 in the aggregate, $100,000 of which AVANT recognized as revenue in 2002. The annual license fee was recognized as revenue on a straight line basis over the year. On
August 5, 2005, AVANT received notice from DVC of termination of the license agreement, effective November 5, 2005.
In
January 2003, AVANT was awarded a subcontract by DVC in the amount of $2.5 million to develop for the U.S. Department of Defense an oral combination vaccine against anthrax and
plague using AVANT's proprietary vaccine technologies. As of December 31, 2007, AVANT had received a number of additional subcontract modifications from DVC to support further development and
pre-clinical animal testing of vaccine constructs of anthrax and plague vaccine candidates. Total contract funding awarded by DVC totaled approximately $12 million. Payments under
the subcontract agreement were made on a time and materials basis and receipt of the full amount was conditioned upon the project being fully funded through completion and AVANT performing and
continuing to demonstrate that it has the capability to perform the funded work. As a result of AVANT's restructuring in April 2007, the Company discontinued investing its resources in biodefense
research and development activities. For the years ended December 31, 2007, 2006 and 2005, AVANT recognized $250,491, $1,157,381 and $2,408,936, respectively, in government contract revenue
from DVC. Through December 31, 2007, AVANT had received approximately $9.7 million in payments under the various subcontract agreements, all of which related to approved subcontract
awards. These agreements expired in 2007.
(D) Inflazyme Pharmaceuticals Ltd. ("Inflazyme", formerly AdProTech, Ltd ("AdProTech"))
In March 2004, AVANT granted a license to AdProTech for non-exclusive rights to use certain components of its intellectual property surrounding
complement inhibition. In April 2004, AVANT received an initial license payment of $1 million from AdProTech and AdProTech was acquired by Inflazyme, which assumed the license. AVANT has no
continuing involvement or obligation under this license agreement, thus it recognized the $1 million as revenue during the first quarter of 2004. Under the agreement, AVANT is entitled to
annual license fees, milestone payments of up to $13.5 million in the aggregate and royalties on eventual product sales. AVANT has no obligations to incur any research and development costs in
connection with this agreement.
In February 2007, AVANT entered into a research and development partnership with Select Vaccines, a public Australian biotechnology company, focused on the use of
Select Vaccines' virus-like particles ("VLPs") as a platform technology for the development of viral vaccines. Research and development efforts initially targeted the development of
vaccines against influenza, including both epidemic and pandemic forms of vaccine. Under the terms of the agreement, AVANT made an upfront equity investment of $735,000 in Select Vaccines and would
fund influenza vaccine research and development for two years, as well as provide payments to Select Vaccines for the achievement of
86
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
9. PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS (Continued)
specific
preclinical and clinical development milestones. On November 1, 2007, AVANT notified Select Vaccines that, effective December 31, 2007, AVANT for strategic reasons was
exercising its rights to terminate its Collaboration and License Agreement with Select Vaccines.
AVANT
has classified its equity investment in Select Vaccines shares as available for sale securities under FAS 115,
Accounting for Certain Investments in
Debt and Equity Securities
, ("FAS 115"). In accordance with FAS115, all available-for-sale securities are recorded at fair market value and,
to the extent deemed temporary, unrealized gains and losses are included in accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses and declines in value, if
any, judged to be other than temporary on available-for-sale securities are reported in other income (expense).
During
the quarter ended September 30, 2007, AVANT recognized $158,095 for the impairment of its investment in Select Vaccines that was determined to be
other-than-temporary. In assessing whether the decline in fair value of the investment was other-than-temporary, AVANT has determined that it did not
have sufficient positive evidence to conclude that the decline was temporary. During the quarter ended December 31, 2007, AVANT recorded other comprehensive income of $70,084 related to
unrealized gains in its investment in Select Vaccines.
10. OTHER LONG-TERM LIABILITIES
This account includes the following:
|
|
December 31, 2007
|
|
December 31, 2006
|
Gross
|
|
|
|
|
|
|
Deferred RentTenant Allowance
|
|
$
|
3,403,018
|
|
$
|
2,716,617
|
Deferred RentStraight-line
|
|
|
267,068
|
|
|
183,842
|
Loan Payable
|
|
|
982,240
|
|
|
1,070,914
|
Note Payable
|
|
|
515,733
|
|
|
671,359
|
|
|
|
|
|
|
|
$
|
5,168,059
|
|
$
|
4,642,732
|
|
|
|
|
|
Current Portion
|
|
|
|
|
|
|
Deferred RentTenant Allowance
|
|
$
|
365,377
|
|
$
|
245,377
|
Deferred RentStraight-line
|
|
|
|
|
|
7,014
|
Loan Payable
|
|
|
75,032
|
|
|
81,853
|
Note Payable
|
|
|
139,220
|
|
|
143,362
|
|
|
|
|
|
|
|
$
|
579,629
|
|
$
|
477,606
|
|
|
|
|
|
Long-Term Portion
|
|
$
|
4,588,430
|
|
$
|
4,165,126
|
|
|
|
|
|
In
December 2003, AVANT entered into a Lease Agreement, and a Secured Promissory Note for an Equipment Loan with the Massachusetts Development Finance Agency
("MassDevelopment"), an economic development entity for the Commonwealth of Massachusetts, for AVANT to occupy and build-out a manufacturing facility in Fall River, Massachusetts.
Under the Lease Agreement, AVANT received a Specialized Tenant Improvement Allowance of $1,227,800 in 2004 to finance the build-out of the Fall River
facility. Principal and interest payments of
87
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
10. OTHER LONG-TERM LIABILITIES (Continued)
the
aggregate disbursement increments are due monthly using an amortization period of 15 years and an interest rate of 5.5% per annum.
At
December 31, 2007, AVANT has recorded leasehold improvement assets of $1,227,800 in 2004 and currently has a loan payable of $982,240 to MassDevelopment, of which $75,032 is
classified as current and $907,208 as long-term. Based on current market interest rates available to AVANT
for long-term liabilities with similar terms and maturities, the fair value of the loan payable is approximately $727,500 at December 31, 2007.
Under the Secured Promissory Note for an Equipment Loan, AVANT received $903,657 in 2004 from MassDevelopment to finance the purchases of equipment to be placed
in the Fall River facility (the "Loan"). The Loan has a term of 84 months at an interest rate of 5.5% per annum. The Loan is collateralized by all of the equipment purchased with the principal
amount. The net book value of these collateralized assets at December 31, 2007 and 2006 was $655,810 and $769,855, respectively.
At
December 31, 2007, the balance of the note payable to MassDevelopment was $515,733, of which $139,220 is classified as current and $376,513 as long-term. Based on
current market interest rates available to AVANT for long-term liabilities with similar terms and maturities, the fair value of the note payable is approximately $481,800 at
December 31, 2007.
|
|
Loan Payable
|
|
Note Payable
|
|
|
Principal
|
|
Interest
|
|
Total
|
|
Principal
|
|
Interest
|
|
Total
|
2008
|
|
$
|
75,000
|
|
$
|
48,500
|
|
$
|
123,500
|
|
$
|
139,200
|
|
$
|
23,200
|
|
$
|
162,400
|
2009
|
|
|
81,900
|
|
|
48,500
|
|
|
130,400
|
|
|
160,200
|
|
|
16,900
|
|
|
177,100
|
2010
|
|
|
81,900
|
|
|
43,900
|
|
|
125,800
|
|
|
169,400
|
|
|
7,800
|
|
|
177,200
|
2011
|
|
|
81,900
|
|
|
39,400
|
|
|
121,300
|
|
|
46,900
|
|
|
500
|
|
|
47,400
|
2012
|
|
|
81,900
|
|
|
34,900
|
|
|
116,800
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
579,600
|
|
|
115,900
|
|
|
695,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligation
|
|
$
|
982,200
|
|
$
|
331,100
|
|
$
|
1,313,300
|
|
$
|
515,700
|
|
$
|
48,400
|
|
$
|
564,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current Portion
|
|
|
75,000
|
|
|
|
|
|
|
|
|
139,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Portion
|
|
$
|
907,200
|
|
|
|
|
|
|
|
$
|
376,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. COMMITMENTS AND CONTINGENCIES
In November 2005, AVANT entered into a lease amendment which extended its lease of laboratory and office space in Needham, Massachusetts through April, 2017. The
lease amendment called for the complete renovation of the Needham facility by the landlord and reduced AVANT's leased space to approximately 35,200 square feet. The projected costs for the tenant
improvements portion of the renovations project are approximately $9.4 million. As an incentive for AVANT to enter into the lease amendment, the landlord agreed to contribute
$3.6 million towards tenant improvement costs. The Company will record the full cost of the Needham renovation project as an asset and the amounts of
88
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
11. COMMITMENTS AND CONTINGENCIES (Continued)
landlord
incentive will be recorded as deferred rent (included under "Other Long-Term Liabilities" account in the consolidated balance sheets) in accordance with FASB Technical Bulletin
88-1 "Issues Related to Accounting for Leases." Amortization of the deferred rent will be recorded as a reduction of rent expense over the remaining lease term when the renovation project
is complete and will be classified as an operating activity in the Consolidated Statement of Cash Flows. AVANT has recorded a total of $3,600,000 in deferred rent related to the Needham landlord's
tenant incentive allowance. In May 2007, AVANT began amortizing on a straight-line basis the tenant incentive allowance over the ten-year lease term and recorded a reduction in
rent expense of $240,000 in the year ended December 31, 2007. At December 31, 2007, deferred rent of $3,360,000 related to the Needham landlord's tenant incentive allowance was recorded
on the Consolidated Balance Sheet of which $360,000 is classified as current and $3,000,000 as long-term other liabilities. As of December 31, 2007, AVANT had made payments and
accrued costs totaling approximately $9,411,217 towards the tenant improvements portion of the renovations project of which $547,246 remains unpaid as of December 31, 2007. Under this lease
amendment, AVANT is obligated to pay an escalating base annual rent ranging from $879,700 to $1,161,200 during the extension term. Aggregate rental payments including common area maintenance costs for
the years ended December 31, 2007 and 2006 for this facility were $1,911,088 and $2,274,738, respectively.
In 2003, the Company reached agreement with MassDevelopment, an economic development entity for the Commonwealth of Massachusetts, for AVANT to occupy and
build-out an 11,800 square foot manufacturing facility in Fall River, Massachusetts. The lease has an initial seven-year term which expires in December 2010 and two renewal
options of five years each. Management has determined that it is reasonably assured that AVANT will exercise one five-year renewal option. Therefore, AVANT is amortizing leasehold
improvements made to the Fall River facility over the original lease term plus one five-year renewal term. In November 2005, AVANT amended the MassDevelopment lease to increase the
rentable space to approximately 14,300 square feet at the Fall River facility. The landlord is providing a tenant incentive allowance of $49,740 against the cost of alterations and improvements
required by AVANT to be made to the expanded space. At December 31, 2007, deferred rent of $43,019 related to the Fall River landlord's tenant incentive allowance was recorded on the
Consolidated Balance Sheet of which $5,377 is classified as current and $37,642 as long-term. In December 2006, AVANT further amended the MassDevelopment lease to increase the rentable
space to approximately 16,200 square feet at the Fall River facility. Aggregate rental payments including common area maintenance costs for the year ended December 31, 2007 and 2006 for this
facility were $366,654 and $293,670, respectively.
(C) Commitments for the Overland, Missouri Facility
AVANT ceased operations at its Overland, Missouri facility near St. Louis and vacated the premises upon expiration of the lease at September 30,
2007. Aggregate rental payments including common area maintenance costs for the years ended December 31, 2007 and 2006 for this facility were $127,126 and $161,460, respectively.
89
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
11. COMMITMENTS AND CONTINGENCIES (Continued)
Obligations for base rent under these and other non-cancelable operating leases as of December 31, 2007 are approximately as follows:
Year ending December 31,
|
|
|
2008
|
|
$
|
1,780,891
|
2009
|
|
|
1,855,924
|
2010
|
|
|
1,912,197
|
2011
|
|
|
1,968,023
|
2012
|
|
|
2,019,743
|
2013 and thereafter
|
|
|
8,996,647
|
|
|
|
Total minimum lease payments
|
|
$
|
18,533,425
|
|
|
|
Our
total rent for all operating leases was approximately $2,457,968, $2,781,551, and $2,491,274 for the years ended December 31, 2007, 2006 and 2005,
respectively.
12. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, as amended, the Board of Directors adopted, effective May 1990, a tax-qualified
deferred compensation plan for employees of AVANT. AVANT may, at its discretion, make contributions to the plan each year matching up to 1% of the participant's total annual salary. AVANT
contributions amounted to $46,100, $47,300 and $38,700 for the years ended December 31, 2007, 2006 and 2005, respectively.
13. RESTRUCTURING
On April 16, 2007, AVANT initiated restructuring activities to reduce ongoing operational costs, following an extensive review of its operations and cost
structure. The restructuring aimed to increase the focus of AVANT's resources upon key programs and core operational capabilities and to lower the Company's overall cost structure. The Company will
concentrate its focus on building an enhanced portfolio of viral and bacterial vaccines for global health and travelers around the Company's core technologies, as well as its unique development and
manufacturing capabilities. AVANT will no longer invest in biodefense research and development activities or further invest in clinical trials for its cardiovascular programs.
The
restructuring resulted in a workforce reduction of approximately 30%. AVANT also exited from its St. Louis-based research facility at September 30, 2007 when the lease
term expired and has moved all essential research activities to its Needham, MA headquarters. The restructuring charges consisted of severance, payroll tax and extended benefits costs for terminated
employees, as well as, salary continuation and retention bonus costs for certain St. Louis employees retained during the transition and closing process for the St. Louis facility. During
the twelve-month period ended December 31, 2007, restructuring charges of $765,204 were recorded, of which $754,877 were recorded as research and development and $10,327 were recorded as
general and administrative expense. Of the restructuring charge, $384,116 related to St. Louis benefit arrangements and $381,088 related to Needham and Fall River benefit arrangements. During
the twelve months ended December 31, 2007,
90
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
13. RESTRUCTURING (Continued)
$600,134
of restructuring costs were paid out and a balance of $165,070 of accrued restructuring costs remained at December 31, 2007.
14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
2007
|
|
Q1 2007
|
|
Q2 2007
|
|
Q3 2007
|
|
Q4 2007
|
|
Total revenue
|
|
$
|
1,182,197
|
|
$
|
1,009,396
|
|
$
|
1,191,535
|
|
$
|
1,719,802
|
|
Net loss
|
|
|
(5,626,279
|
)
|
|
(5,505,246
|
)
|
|
(5,253,481
|
)
|
|
(5,253,755
|
)
|
Basic and diluted net loss per common share(1)
|
|
|
(0.90
|
)
|
|
(0.88
|
)
|
|
(0.84
|
)
|
|
(0.84
|
)
|
2006
|
|
Q1 2006
|
|
Q2 2006
|
|
Q3 2006
|
|
Q4 2006
|
|
Total revenue
|
|
$
|
3,706,487
|
|
$
|
505,479
|
|
$
|
338,999
|
|
$
|
380,132
|
|
Net loss
|
|
|
(2,970,991
|
)
|
|
(5,670,299
|
)
|
|
(5,520,567
|
)
|
|
(6,212,075
|
)
|
Basic and diluted net loss per common share(1)
|
|
|
(0.48
|
)
|
|
(0.92
|
)
|
|
(0.89
|
)
|
|
(1.00
|
)
|
-
(1)
-
Adjusted
to reflect a reverse stock split of 1-for-12 effective March 7, 2008.
91