SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended: May 27, 1995
Commission File No: 0-10824
GENOME THERAPEUTICS CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2297484
(State or other jurisdiction (I.R.S. identification no.)
of incorporation or organization)
100 BEAVER STREET; WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (617) 893-5007
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes _X_ No___
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
COMMON STOCK ______12,844,637________
$.10 PAR VALUE Outstanding July 7, 1995
SERIES B RESTRICTED STOCK __________57,512________
$.10 PAR VALUE Outstanding July 7, 1995
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Genome Therapeutics Corp. and Subsidiaries
Index to Financial Information (Unaudited) and Other
Information
Page
Part I
Financial Information (Unaudited) :
Consolidated Condensed Balance Sheets as of 3
May 27, 1995 and August 31, 1994
Consolidated Condensed Statements of Operations 4
for the 13 and 39 week periods ended May 27, 1995
and May 28, 1994
Consolidated Statements of Cash Flows for the 5
39-week periods ended May 27, 1995
and May 28, 1994
Notes to Consolidated Condensed Financial 6
Statements for the 39-week periods ended
May 27, 1995 and May 28, 1994
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-9
Part II
Other Information:
Other Information 10
Signature 11
Page 2
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GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
May 27, August 31,
1995 1994
Assets:
Current Assets:
Cash and Cash Equivalents $1,599,131 $1,208,836
Short-term Investments 2,829,154 3,008,344
Receivables:
Trade and Other (net of allowances
for doubtful accounts) 274,073 391,151
Unbilled Costs 276,435 229,045
Prepaid Expenses 107,656 17,836
Other Current Assets 3,800 4,550
Total Current Assets 5,090,249 4,859,762
Equipment and Leasehold
Improvements, at cost:
Laboratory and Scientific
Equipment 1,230,710 752,482
Leasehold Improvements 1,570,930 1,446,236
Office Equipment and Furniture 791,499 532,656
Unfinished Plant and Equipment 251,763 173,186
3,844,902 2,904,560
Less Accumulated Depreciation 2,344,600 2,120,146
1,500,302 784,414
Restricted Cash 605,540 0
Other Assets 281,507 266,506
Total Assets $7,477,598 $5,910,682
Liabilities and Shareholders'
Equity:
Current Liabilities:
Accounts Payable $381,775 $450,854
Accrued Expenses 809,359 838,595
Deferred Contract Revenue 9,537 37,991
Current Maturities of Capital 331,653 193,388
Lease Obligations
Total Current Liabilities 1,532,324 1,520,828
Deferred Compensation 172,974 153,507
Capital Lease Obligations, net of
Current Maturities 779,613 165,299
Shareholders' Equity 4,992,687 4,071,048
Total Liabilities and
Shareholders' Equity $7,477,598 $5,910,682
See notes to consolidated condensed financial
statements.
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GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Ended Thirty-nine Weeks Ended
May 27, May 28, May 27, May 28,
1995 1994 1995 1994
Revenues:
Operating Revenues $1,935,942 $1,539,064 $5,362,510 $4,676,579
Interest Income 71,863 38,458 157,619 98,732
Royalties 11,853 34,750 82,973 113,584
Total Revenues 2,019,658 1,612,272 5,603,102 4,888,895
Costs and Expenses:
Cost of Revenues 1,696,476 1,266,336 4,685,240 3,861,200
Research and Development 231,506 84,630 769,404 177,159
General and Administrative 559,648 546,035 1,522,657 1,638,293
Total Costs and Expenses 2,487,630 1,897,001 6,977,301 5,676,652
Net Loss ($467,972) ($284,729) ($1,374,199) ($787,757)
Net Loss per Common Share ($0.04) ($0.03) ($0.11) ($0.07)
Weighted Average Number of
Common Shares Outstanding 12,470,154 11,170,694 12,009,349 10,894,207
See notes to consolidated condensed financial
statements.
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GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-nine Weeks Ended
May 27, May 28,
1995 1994
Cash Flows from Operating Activities:
Net Loss ($1,374,199) ($787,757)
Adjustments to Reconcile Net Loss to Net
Cash Used by Operating Activities:
Depreciation and Amortization 239,496 151,060
Deferred Compensation 19,467 19,759
Provision for Accounts Receivable 0 62,680
Changes in Assets and Liabilities:
(Increase) Decrease in Current Assets:
Receivables 69,688 165,208
Prepaid Expenses (89,820) (5,648)
Other Current Assets 750 (1,983)
Increase (Decrease) in Current Liabilities:
Accounts Payable 97,061 (64,901)
Accrued Expenses (29,236) (173,522)
Deferred Contract Revenue (28,454) (85,280)
Total Adjustments 278,952 67,373
Net Cash Used for Operating
Activities (1,095,247) (720,384)
Cash Flows from Investing Activities:
Purchases of Securities Held-to-Maturity (4,820,810) (3,006,341)
Proceeds from Securities Held-to-Maturity 5,000,000 3,000,000
Increase in Restricted Cash (605,540) 0
Purchases of Equipment and Leasehold Improvements (113,309) (17,329)
Increase in Other Assets (26,102) (99,399)
Purchase of Long-term Investment 0 (50,000)
Net Cash Used for Investing Activities (565,761) (173,069)
Cash Flows from Financing Activites:
Proceeds from Issuance of Common Stock
and Warrants 2,030,477 1,453,388
Proceeds from Exercise of Stock Options 265,361 135,182
Principal Payments under Capital Lease Obligations (244,535) (134,597)
Net Cash Provided by Financing Activities 2,051,303 1,453,973
Net Increase in Cash and Cash Equivalents 390,295 560,520
Cash and Cash Equivalents at Beginning of Period 1,208,836 1,892,932
Cash and Cash Equivalents at End of Period $1,599,131 $2,453,452
Supplemental Disclosure of Cash Flow Information:
Interest Paid during Period $39,373 $15,566
Supplemental Schedule of Non-cash Investing Activities:
Property and Equipment Acquired under Capital Leases $830,974 $40,449
See notes to consolidated condensed financial
statements.
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Notes to Consolidated Condensed Financial Statements
(Unaudited)
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1.The unaudited consolidated condensed financial
statements included herein have been prepared by the
Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and
include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments)
necessary for a fair presentation of interim results.
Certain information and footnote disclosures normally
included in the financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its
disclosures are adequate to make the information presented
not misleading. The results of operations for the
thirteen (13) and thirty-nine (39) week periods ended May
27, 1995 are not necessarily indicative of the results to
be expected for the full fiscal year.
2.For all periods presented, net loss per common share
is based upon the weighted average number of shares
outstanding during the period, since inclusion of common
equivalent shares would be anti-dilutive.
3.Cash equivalents are short term highly liquid
investments with original maturities of less than three
(3) months. The Company's cash equivalents primarily
consisted of money market funds at August 31, 1994 and May
27,1995. The Company accounts for its short-term
investments under Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Accordingly, short-term
investments, which consist of commercial paper and medium-
term notes, are classified as held to maturity and
recorded at amortized cost.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
The Company's treasury, including restricted cash, for
the third quarter increased by $1,843,738 from $3,190,087
at the end of the second quarter to $5,033,825 at the end
of the third quarter. The Company raised approximately
$2,295,000 through the private placement of 850,000 shares
of common stock and the issuance of 154,552 shares of
common stock resulting from the exercise of stock options.
The Company believes that these funds are adequate to meet
its short-term operational and capital needs. However, the
Company needs to continue to supplement its capital in
order to pursue its therapeutic strategy.
During the current quarter, the Company pledged both cash
and marketable securities totaling $606,000 as collateral
under capital lease financing arrangements. These funds
were reclassified in the financial statements as restricted
cash.
Results of Operations
For the thirteen week period ended May 27, 1995, total
revenues increased approximately $408,000 or 25% when
compared to the same period last year from $1,612,000 in
fiscal 1994 to $2,020,000 in fiscal 1995 and increased
$51,000 or 3% from $1,969,000 when compared to the prior
quarter.
For the thirty-nine (39) week period ended May 27,1995,
total revenues increased $714,000 or 15% when compared to
the same period last year from $4,889,000 in fiscal 1994 to
$5,603,000 in fiscal 1995.
For the thirteen (13) week period ended May 27, 1995,
operating revenues increased approximately $397,000 or 26%
when compared to the same period last year reflecting
primarily an increase in newly funded government research
programs. Operating revenues remained relatively constant
when compared to the prior quarter.
Operating revenue for the thirty-nine (39) week period
ended May 27,1995 increased $686,000 or 15% when compared
to the same period last year also reflecting an increase in
newly funded government research programs.
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For the thirteen (13) week period ended May 27,1995,
royalty income decreased by approximately $23,000 when
compared to both prior year and prior quarter due to a
downward adjustment to reflect actual sales performance by
Pfizer, Dow Chemical's licensee of recombinant chymosin.
Royalty income from Dow is accrued monthly based on prior
year sales and is adjusted once a year to reflect actual
sales performance by Pfizer.
For the thirty-nine (39) week period ended May 27,1995,
royalty income decreased by approximately $31,000 when
compared to prior year also reflecting the downward
adjustment as noted above.
For the thirteen (13) and thirty-nine (39) week periods
ended May 27,1995, interest income increased approximately
$33,000 and $59,000, respectively, when compared to the
same periods last year. These increases reflect a rise in
the interest rates as well as an increase in the Company's
treasury. Interest income for the thirteen (13) period
ended May 27,1995 increased $27,000 when compared to the
prior quarter also reflecting an increase in the Company's
treasury.
Costs and Expenses
For the thirteen (13) and thirty-nine (39) week periods
ended May 27,1995, cost of revenues, as a percentage of
operating revenues, increased approximately 5% when
compared to the same periods last year reflecting
increased occupancy cost and related depreciation and
amortization expenses associated with the expansion of the
operations into laboratory space at our Beaver Street
facility. Last year, this space was sublet to Dianon
Systems, Inc., the purchaser of our diagnostics testing
business. As of July 1994, Dianon had relocated its
employees out of the sublet space to accommodate growth in
the Company's operations. Cost of revenues, as a
percentage of operating revenues, remained relatively
constant when compared to the prior quarter.
For the thirteen (13) and thirty-nine (39) week periods
ended May 27,1995, cost of revenues, in absolute dollars,
increased approximately 34% and 21%, respectively, when
compared with the same periods last year. These increases
reflect primarily the substantial increase in operating
revenues as well as increased occupancy cost as noted
above. Cost of revenues, in absolute dollars, remained
relatively constant when compared to the prior quarter.
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For the thirteen (13) and thirty-nine (39) week periods
ended May 27,1995, company-funded research and development
expenses increased substantially when compared to the same
periods last year reflecting primarily the period expenses
associated with the Company's project in Helicobacter
pylori, the causative agent of stomach ulcers and believed
to be responsible for some gastrointestinal cancers. The
increase also reflects increased effort on other company-
funded research and development projects. For the
thirteen (13) week period ended May 27, 1995, company-
funded research and development expenses decreased 18% when
compared to the prior quarter.
For the thirteen (13) week period ended May 27, 1995,
general and administrative expenses increased by 3% and
16%, respectively, when compared to both the same period
last year and prior quarter reflecting increased business
development expenses.
For the thirty-nine (39) week period ended May 27,1995,
general and administrative expenses decreased approximately
7% when compared to the prior year reflecting primarily a
personnel reduction in administrative support including the
resignation of Dr. Orrie Friedman as a full-time employee
and Chairman of the Board of the Company. As of June 30,
1994, Dr. Friedman terminated his employment with the
Company.
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Part II
Item 1. Legal Proceedings
None
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None.
b) Reports on Form 8-K
None.
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Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed
on its behalf by the undersigned thereunto duly authorized
who also serves in the capacity of principal financial
officer.
Genome Therapeutics Corporation
______________________
Fenel M. Eloi
(Principal Financial Officer)
Date: July 7, 1995
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