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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-11094
RIBI IMMUNOCHEM RESEARCH, INC.
Exact name of registrant as specified in its charter)
Delaware 81-0394349
(State of Incorporation) (I.R.S. Employer Identification No.)
553 Old Corvallis Road, Hamilton, MT 59840
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (406) 363-6214
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 1995, there were 18,876,993 shares of common stock outstanding.
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RIBI IMMUNOCHEM RESEARCH, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements:. . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Balance Sheets
June 30, 1995 (Unaudited)
and December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Operations
Three months and six months ended
June 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows
Six months ended June 30, 1995 and
1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . .11
---------------------------
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2
RIBI IMMUNOCHEM RESEARCH, INC.
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
The condensed balance sheet as of June 30, 1995, the condensed statements
of operations for the three month and six month periods ended June 30, 1994 and
1995, and the condensed statements of cash flows for the six months ended June
30, 1994 and 1995, have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows as of and for the periods
indicated have been made.
It is suggested that the accompanying condensed financial statements be
read in conjunction with the audited financial statements and the notes thereto
included in the Company's 1994 Annual Report to Stockholders and Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
The results of operations for the three month and six month periods ended
June 30, 1995, are not necessarily indicative of results expected for the full
year 1995.
3
RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED BALANCE SHEETS
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 343,994 713,637
Held-to-maturity investment
securities 6,908,980 6,659,930
Accounts receivable 67,471 140,660
Inventories 498,140 678,294
Other current assets 118,830 290,329
---------- ----------
Total current assets 7,937,415 8,482,850
Available-for-sale investment securities 4,884,268 8,092,159
Held-to-maturity investment securities 11,344,681 10,500,819
Property, plant and equipment, net 11,724,775 11,225,938
Other assets, net 512,548 522,114
---------- ----------
$ 36,403,687 38,823,880
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 194,308 459,600
Accrued expenses 525,621 838,399
Deferred revenue 733,651 187,500
---------- ----------
Total current liabilities 1,453,580 1,485,499
---------- ----------
Stockholders' equity:
Preferred stock - -
Common stock 18,874 18,872
Additional paid-in capital 62,409,299 62,376,989
Unrealized investment holding gains
(losses) (48,688) (327,791)
Accumulated deficit (27,429,378) (24,729,689)
---------- ----------
Total stockholders' equity 34,950,107 37,338,381
---------- ----------
$ 36,403,687 38,823,880
========== ==========
See accompanying notes.
4
RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Sales $ 300,788 209,653 538,738 382,888
Contracts and licenses 439,210 418,970 853,848 1,214,530
Investment income 340,065 387,632 610,093 745,754
Other, net 2,578 8,570 4,158 9,295
---------- ---------- ---------- ----------
Total revenues 1,082,641 1,024,825 2,006,837 2,352,467
---------- ---------- ---------- ----------
Costs and expenses:
Purchases and production costs 220,051 120,774 494,252 188,760
Proprietary research
and development 1,336,090 1,193,296 2,614,857 2,444,805
Selling, general and
administrative 581,118 591,400 1,227,552 1,084,472
Depreciation and amortization 214,894 113,210 369,866 222,493
---------- ---------- ---------- ----------
Total costs and expenses 2,352,153 2,018,680 4,706,527 3,940,530
---------- ---------- ---------- ----------
Net loss $(1,269,512) (993,855) (2,699,690) (1,588,063)
========== ========== ========== =========
Net loss per common share $ (.07) (.05) (.14) (.09)
========== ========== ========== ==========
Average number of shares
outstanding 18,873,044 18,868,346 18,872,163 18,438,974
========== ========== ========== ==========
See accompanying notes.
5
RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
---------------------
1995 1994
---- ----
Cash flows from operating activities:
Net loss $ (2,699,690) (1,588,063)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 369,866 222,493
Common stock issued in payment of
expenses 9,763 6,295
Compensation relating to stock options 22,250 12,250
Asset sales and abandoned patents 8,340 (903)
Changes in operating assets and
liabilities 709,956 338,999
---------- ----------
Net cash used by operating
activities (1,579,515) (1,008,929)
---------- ----------
Cash flows from investing activities:
Capital expenditures (1,193,517) (1,770,417)
Payments for other assets (19,769) (38,038)
Proceeds from sale of assets 2,545 2,977
Proceeds from maturities of held-to-
maturity investment securities 3,401,220 5,893,027
Proceeds from sale of available-for-
sale investment securities 3,663,207 -
Purchases of available-for-sale
investment securities (176,214) (191,349)
Purchases of held-to-maturity
investment securities (4,467,900) (9,394,774)
---------- ----------
Net cash provided (used) by
investing activities 1,209,572 (5,498,574)
---------- ----------
Cash flows from financing activities:
Collections and interest on notes
receivable - common stock, net - 577,900
Proceeds from exercise of warrants - 5,819,002
Proceeds from exercise of options 300 483,266
Other - 1,238
---------- ----------
Net cash provided by financing
activities 300 6,881,406
---------- ----------
Net change in cash and short-term
deposits (369,643) 373,903
Cash and cash equivalents at
beginning of period 713,637 1,721,490
---------- ----------
Cash and cash equivalents at
end of period $ 343,994 2,095,393
========== ==========
See accompanying notes.
6
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Inventories
-----------
Inventories are as follows:
June 30, December 31,
1995 1994
--------- --------
(Unaudited)
Raw materials $ 58,850 58,231
Work in process 333,941 468,711
Finished goods 105,349 151,352
--------- --------
$ 498,140 678,294
========= ========
2. Commitments and Contingencies
-----------------------------
The Company, the National Institutes of Health ("NIH") and the
Bitterroot Valley Sanitary Landfill ("Landfill") were notified by the
Montana Department of Health and Environmental Sciences ("MDHES") in
March 1991 that they had been identified as potentially responsible
parties ("PRPs") and as such are jointly and severally liable for
groundwater contamination located at and near the site of the Landfill
in Ravalli County, Montana. The Company's involvement arises out of
waste materials which it deposited at the Landfill from 1982 to 1985
which the Landfill had permits to receive. The Company may be required
to reimburse the State of Montana and/or the other PRPs for remedial
action costs and may be subject to penalties, the extent of which are
not known at this time. Tests were conducted pursuant to a sample and
analysis plan agreed to by the MDHES and PRPs to define further the area
of possible contamination and whether and how the contamination is
moving through the ground. The tests completed in March 1993 showed the
continued presence of certain contaminants in the groundwater and
defined the area affected. A plan was submitted in May 1993 which was
later approved by the MDHES that outlined the additional studies that
will be required to identify and remove the main source of contamination
and proposed a groundwater monitoring program. The NIH voluntarily
initiated an interim remediation plan approved by the MDHES to remove
and decontaminate the believed source of contamination and, if
necessary, treat the aquifers which tests have shown contain
contaminants. Removal and decontamination of the contaminated soil at
and around the disposal site has been completed. Treatment of the
groundwater in the proximity of the disposal site continues utilizing
carbon filtering and air sparging, and it is anticipated such treatment
will continue through 1995 and possibly longer. The MDHES has also
conducted
7
a "Risk Assessment" and issued a "Draft Final Feasibility Study" in
October 1994 that discussed possible final remediation alternatives.
The possible alternatives range in projected costs from zero for no
further action, to $20 million for very conservative remediation
measures. Some possible remedies were estimated to cost $1.4 million,
$4.1 million and $4.8 million, respectively. The NIH, which has taken
the lead and incurred substantially all of the remediation costs, has
represented publicly that it would continue to work with the MDHES
towards an acceptable final remediation plan. It is anticipated that
the MDHES will render a decision regarding which alternative it will
require later in 1995. In 1993, the NIH stated that as of that time, it
had incurred costs and anticipated future interim remediation costs
which could total $2 million or more. Because of the uncertainties in
the cost of further remediation and whether the NIH will seek partial
reimbursement from the other PRPs, it is not possible at this time to
determine the potential liability of the Company as a PRP.
Two landowners in the vicinity of the Landfill have filed civil
suits seeking unspecified damages for alleged diminished value of land,
possible health hazards and loss of domestic water source. The suits
name the PRPs, including the Company, the NIH and the Landfill, as well
as unknown individuals and corporations which may be discovered to have
contributed to the injuries alleged. The Company has been served with
and has filed answers to the suits. The Company has denied any
liability. It is not possible at this time to predict whether any
additional civil suits will be filed, the outcome of the pending suits
or the potential financial impact on the Company of adverse decisions.
As of June 30, 1995, the Company has accrued a reserve of
approximately $175,000 primarily to cover billed and potential legal,
consulting and MDHES reimbursement costs associated with the Company as
a PRP and the civil suits. During 1994 the Company received $125,000 in
insurance proceeds from one insurance company, which is in
rehabilitation, in a one-time settlement of any claims associated with
the Landfill issues. At least some of the future costs included in the
defense of the civil suits are expected to be covered by other insurance
proceeds, none of which have been accrued. Costs charged against
earnings (before any insurance proceeds) during the first six month
periods of 1995 and 1994 were $29,772 and $19,870, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
-------
Since its inception in 1981, the Company has been engaged primarily
in the research and development of immunostimulants for use in
preventing and treating human diseases. To date, the Company has
received limited revenues from commercial sales and sales of clinical
supplies. The Company has incurred net losses in each year since its
inception and expects to incur additional
8
losses for at least the next few years. At June 30, 1995, the Company's
accumulated deficit was approximately $27,429,000.
The Company's results of operations can vary significantly from
quarter to quarter and depend, among other factors, on costs related to
the progress of clinical trials conducted by the Company and, to a
lesser extent, on revenues and costs associated with manufacturing. To
date, research and development expenses, together with manufacturing
costs, have exceeded product and other revenues in all periods.
The Company is not able to estimate with certainty the amount of
cash and working capital which may be needed for operations. Such
requirements typically vary depending upon the results of basic research
and clinical trials, the time and expense required for governmental
approval of products, and competitive and technical developments, most
of which are beyond management's control. There is no assurance that
the Company will be able to obtain the necessary funding in sufficient
amounts or at the appropriate time for its planned activities. In the
event the Company may require additional funding, it might not be able
to proceed as rapidly as it would like, if at all, with the development
and commercialization of its products, which would have a material
adverse effect on its future financial condition and results of
operations.
Results of Operations
---------------------
The Company experienced a greater net loss during both the second
quarter and the first half of 1995 compared to the same periods in 1994.
The greater net loss can be attributed primarily to increased costs
associated with the start-up and testing (validation) of its new
manufacturing plant and moderately greater research and product
development expenditures. Additionally, in the first half of 1995
revenues from contracts and licenses were lower than in the first half
of 1994.
Revenues were slightly higher in the second quarter of 1995
compared to the second quarter of 1994 as a result of a 43% increase in
sales and a 5% increase in revenues from contracts and licenses which
were partially offset by a reduction in investment income. Over 70% of
the increase in sales during the second quarter of 1995 was due to
improved sales of custom adjuvants and the balance resulted from a
temporary increase in the sales of a veterinary anti-tumor agent.
Investment income was down primarily because of a lower total investment
portfolio.
For the first six months of 1995, revenues were down $346,000
compared to the first six months of 1994. A 41% increase in sales was
more than offset by lower revenues from contracts and licenses and lower
investment income. Approximately three-fourths of the increase in sales
resulted from greater sales of custom adjuvants. Lower contracts and
licenses revenues resulted from the signing in the first quarter of 1994
agreements which were retroactive causing the recognition of retroactive
revenue during the first quarter of 1994. Without the retroactive
revenue, income from contracts and
9
licenses would have been at comparable levels during the first half of
1995 and 1994. The reduction in investment income during the first half
of 1995 compared to the first half of 1994 resulted mainly from two
factors. The Company's investment portfolio was smaller during the
first half of 1995, and a loss of approximately $64,000 was realized
during the first quarter of 1995 which resulted from an investment
portfolio restructuring involving the conversion of some of the
Company's "available-for-sale" investments to "held-to-maturity"
investments thereby increasing the future yield and reducing the
interest rate risk on approximately $3,000,000 of investments.
Purchases and production costs were a greater percentage of sales
during the second quarter and first half of 1995 than during the same
periods in 1994. Construction of a new manufacturing plant was
completed late in 1994 and late in the first half of 1995 it became
operational. The Company also proceeded with validating the facility
which will continue through much of the third quarter. Start-up and
validation have caused an increase in purchases and production costs in
1995. Purchases and production costs are expected to remain fairly high
in relation to sales until plant throughput increases to nearer plant
capacity.
Proprietary research and development expenses increased $143,000 in
the second quarter of 1995 compared to the second quarter of 1994 and
increased $170,000 in the first six months of 1995 compared to the first
six months of 1994. The increases resulted mainly from greater labor
and related costs associated with an expansion and reorganization during
1994 of research and product development staffing to more effectively
pursue product opportunities. The Company expects research and
development expenditures to be higher for the year 1995 than they were
for the year 1994 as steps are being taken to begin accruing patients in
a new human clinical trial late in the third quarter or early in the
fourth quarter of 1995. The trial will test MELACINE melanoma
theraccine in combination with interferon-alpha in the treatment of
patients with late-stage melanoma. The Company also expects to conduct
additional toxicology studies and other preclinical studies with some of
its adjuvants in addition to its ongoing clinical trials.
Selling, general and administrative expenses were fairly level for
the second quarter of 1995 compared to the same quarter in 1994 but
increased $143,000 for the first half of 1995 compared to the first half
of 1994. The increase in 1995 reflects the organization of a corporate
development department in mid-1994 partially offset by reduced
advertising costs in 1995.
Financial Condition
-------------------
During the first six months of 1995 the Company used $1,580,000 in
operations which was 57% more than the amount used in the first six
months of 1994. The increase is attributable primarily to the increased
net loss discussed above which was partially offset by a reduction in
inventories during 1995 resulting from the conversion of manufacturing
operations to the
10
Company's new plant. The Company expects cash flows used in operations
for the year 1995 to exceed the amount used in 1994 as research
expenditures are expected to increase over the remainder of the year.
As of June 30, 1995, the Company had cash, cash equivalents and
short and long term investments totalling $23,482,000 which, based upon
current planning, it believes is enough to meet its objectives through
1998.
See Note 2 of the Notes to Condensed Financial Statements for a
discussion of contingencies related to the Company's identification as
a PRP for groundwater contamination at and near the Bitterroot Valley
Sanitary Landfill and the Company being a named defendant in two civil
suits brought by landowners in the vicinity of the Landfill.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
(a) See Note 2 of the Notes to Condensed Financial Statements for
a discussion of the Company's involvement as a PRP and a
defendant in a civil suit relating to the Bitterroot Valley
Sanitary Landfill.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on April 26, 1995.
(b) Proxies were solicited by the Company pursuant to Regulation
14A of the Securities Exchange Act of 1934 and all of
management's nominees for director were elected as follows:
TOTAL
FOR WITHHELD VOTED
--- -------- -----
John L. Cantrell 14,745,766 308,574 15,054,340
John F. Chappell 14,858,581 195,759 15,054,340
Philipp Gerhardt 14,107,278 947,062 15,054,340
Mark I. Greene 14,856,791 197,549 15,054,340
Robert E. Ivy 14,708,376 345,964 15,054,340
Thomas N. McGowen, Jr. 14,853,161 201,179 15,054,340
Frederick B. Tossberg 14,853,161 201,179 15,054,340
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
RIBI IMMUNOCHEM RESEARCH, INC.
------------------------------
(Registrant)
August 10, 1995 By Vern D. Child
-------------------------------------
Vern D. Child, Vice President-Finance
and Treasurer (duly authorized officer
and principal financial and accounting
officer)
12