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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 1996.
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to .
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Commission File Number 0-20023
ALPHA-BETA TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2997834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
One Innovation Drive
Worcester, MA 01605
(Address of principal executive offices)
508-798-6900
(Registrant's telephone number, including area code)
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
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 1996
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Common stock, $.01 par value 16,715,778
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1
ALPHA-BETA TECHNOLOGY, INC.
INDEX
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Page
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PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1995,
and June 30, 1996..................................................... 3
Condensed Consolidated Statements of Operations for the three and
six month periods ended June 30, 1995 and 1996, and from the
period of inception through June 30, 1996............................. 4
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1995 and 1996, and from the
period of inception through June 30, 1996............................. 5
Notes to Condensed Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8
PART II. OTHER INFORMATION:
------------------
Item 1. Legal Proceedings.............................................. 11
Item 2. Changes in Securities.......................................... 11
Item 3. Defaults Upon Senior Securities................................ 11
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 5. Other Information.............................................. 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
SIGNATURES................................................................ 12
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2
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1996
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,120,843 $ 19,707,450
Marketable securities 18,343,066 34,429,696
Other current assets 542,361 1,005,204
------------- -------------
Total current assets 29,006,270 55,142,350
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Property and equipment, net of accumulated depreciation and amortization 30,863,374 29,516,774
------------- -------------
Other assets:
Restricted cash 381,347 381,347
Bond issuance costs, net 1,128,998 1,098,690
Other 184,153 177,572
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Total other assets $ 1,694,498 $ 1,657,609
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$ 61,564,142 $ 86,316,733
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable and capital lease obligations $ 1,250,545 $ 1,120,335
Accounts payable 960,876 1,295,455
Accrued expenses 507,719 474,394
------------- -------------
Total current liabilities 2,719,140 2,890,184
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Term notes payable and capital lease obligations, net of current portion 26,726,336 26,254,294
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value - authorized -- 1,000,000 shares, issued - none - -
Common stock, $.01 par value - authorized -- 30,000,000 shares, issued and
outstanding -- 13,650,274 shares and 16,715,464 shares at December 31,
1995 and June 30, 1996, respectively 136,502 167,154
Additional paid-in capital 108,090,944 147,487,437
Deficit accumulated during the development stage (75,840,456) (90,373,608)
Deferred compensation (268,324) (108,728)
------------- -------------
Total stockholders' equity 32,118,666 57,172,255
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$ 61,564,142 $ 86,316,733
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See accompanying notes.
3
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
March 2, 1988
(inception)
Three months ended Six months ended through
June 30, June 30, June 30,
-------------------------------- ------------------------------
1995 1996 1995 1996 1996
-------------- -------------- -------------- -------------- ------------------
Revenues:
Interest $ 474,843 $ 770,361 $ 994,516 $ 1,217,757 $ 6,704,042
Other 3,154 2,927 30,354 4,511 317,472
-------------- -------------- -------------- -------------- ------------------
Total revenues 477,997 773,288 1,024,870 1,222,268 7,021,514
-------------- -------------- -------------- -------------- ------------------
Expenses:
Research and development 4,829,031 6,006,951 9,849,978 11,751,266 69,844,939
General and administrative 1,126,729 1,176,703 2,322,735 2,296,535 20,277,589
Interest 852,016 806,594 1,714,897 1,648,589 7,274,741
-------------- -------------- -------------- -------------- ------------------
Total expenses 6,807,776 7,990,248 13,887,610 15,696,390 97,397,269
-------------- -------------- -------------- -------------- ------------------
Net loss $ (6,329,779) $ (7,216,960) $(12,862,740) $(14,474,122) $ (90,375,755)
============== ============== ============== ============== ==================
Net loss per common share $(0.54) $(0.43) $(1.10) $(0.93)
============== ============== ============== ==============
Weighted average number of common
shares outstanding 11,686,633 16,701,940 11,681,794 15,536,612
============== ============== ============== ==============
See accompanying notes.
4
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 2, 1988
Six months ended (inception)
June 30, through
---------------------------- June 30,
1995 1996 1996
------------ ------------ ------------
Cash flows from operating activities:
Net loss $(12,862,740) $(14,474,122) $(90,375,755)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 2,204,303 1,717,244 10,269,291
Amortization of investment premium 77,910 46,674 1,736,229
Amortization of deferred financing and bond issuance costs 115,378 115,378 461,613
Noncash compensation related to stock options,
warrants and common stock 160,762 133,405 2,046,646
Changes in operating assets and liabilities:
Other current assets 232,465 (462,843) (1,005,204)
Accounts payable (568,443) 334,579 1,295,455
Accrued expenses (91,131) (33,325) 474,394
------------ ------------ ------------
Net cash used for operating activities (10,731,496) (12,623,010) (75,097,331)
------------ ------------ ------------
Cash flows from investing activities:
Decrease (increase) in marketable securities 4,297,146 (16,192,314) (36,163,765)
Increase in property and equipment (445,549) (370,644) (39,265,676)
Increase in restricted cash - - (32,807,084)
Payments from restricted cash - - 32,425,737
Decrease (increase) in other assets (75,683) 6,581 (254,640)
Increase in bond issuance costs - - (1,303,237)
------------ ------------ ------------
Net cash used for (provided by) investing activities 3,775,914 (16,556,377) (77,368,665)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from convertible subordinated notes payable to stockholders - - 2,300,000
Proceeds from equipment line of credit 297,030 - 3,261,600
Payments on capital lease obligations (17,192) (6,363) (175,399)
Proceeds from notes payable - - 27,835,947
Payments on notes payable (611,578) (680,959) (3,323,548)
Proceeds from sale of convertible redeemable preferred stock, net
of issuance costs - - 24,560,465
Proceeds from sale of common stock, net of issuance costs 18,105 39,453,316 117,714,381
------------ ------------ ------------
Net cash provided by (used for) financing activities (313,635) 38,765,994 172,173,446
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (7,269,217) 9,586,607 19,707,450
Cash and cash equivalents, beginning of period 18,667,550 10,120,843 -
------------ ------------ ------------
Cash and cash equivalents, end of period $ 11,398,333 $ 19,707,450 $ 19,707,450
============ ============ ============
Interest paid (net of capitalized interest) $ 1,714,897 $ 1,648,589 $ 7,280,682
============ ============ ============
See accompanying notes.
5
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
March 2, 1988
Six months ended (inception)
June 30, through
---------------------------- June 30,
1995 1996 1996
------------ ------------ ------------
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equipment under capital lease...................................................... $ - $ - $ (178,886)
Furniture and equipment under capital lease........................................ - - 178,886
Conversion of line of credit to term note payable.................................. - - (2,144,525)
Issuance of term note payable...................................................... - - 2,144,525
Grant of common stock.............................................................. 43,540 28,162 169,662
Compensation related to common stock grant......................................... (43,540) (28,162) (169,662)
Cancellation of stock options...................................................... (257) (54,333) (166,170)
Grant of stock options and restricted stock........................................ - - 1,996,153
Deferred compensation on stock options and restricted stock........................ 257 54,333 (1,829,983)
Grant of warrants.................................................................. - - 132,000
Deferred compensation on warrants.................................................. - - (132,000)
Conversion of subordinated notes payable to redeemable preferred stock............. - - (2,300,000)
Issuance of redeemable preferred stock............................................. - - 2,300,000
Conversion of redeemable preferred stock to common stock........................... - - (20,674,454)
Common stock....................................................................... - - 20,674,454
Other assets....................................................................... - - (50,000)
Issuance costs associated with proceeds on sale of redeemable
preferred stock................................................................. - - 50,000
Note payable....................................................................... - - 2,679,165
Grant of warrants.................................................................. - - 974,627
Note payable discount.............................................................. - - (3,653,792)
Unrealized losses (gains) on marketable securities................................. 103,211 59,010 (2,167)
Accumulated deficit................................................................ (103,211) (59,010) 2,167
Capitalized interest in property and equipment..................................... - - (312,476)
Amortization of bond issuance costs................................................ - - 83,315
Amortization of note payable discount.............................................. - - 229,161
------------ ------------ ------------
$ - $ - $ -
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See accompanying notes.
6
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim unaudited condensed consolidated financial statements contained
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information. They do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In management's opinion, the unaudited
information includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The results of
operations for the interim periods shown in this report are not necessarily
indicative of results expected for the full year. The financial statements
should be read in conjunction with the financial statements and notes for the
year ended December 31, 1995, included in the Company's Annual Report on Form
10-K.
2. Net Loss Per Common Share
For the three and six month periods ended June 30, 1995 and 1996, net loss
per common share was computed using the weighted average number of common shares
outstanding during the period.
3. Marketable Securities
The amortized cost and estimated fair market values of the Company's
securities at June 30, 1996 are presented below. The Company did not realize
any gains or losses from securities sold in the six months ended June 30, 1996
and 1995.
Gross Gross
Amortized Unrealized Unrealized Market
Securities Held to Maturity Cost Gains Losses Value
- - ----------------------------- ----------- ----------- ----------- ---------
U.S. Government Agency
obligations
(average maturity of 3.3 $ 3,586,023 $165 $ - $3,586,188
months)
Corporate debt securities
(average maturity of 3.1
months) 12,144,324 0 3,079 12,141,245
----------- ------ ------- ----------
$15,730,347 $ 165 $3,079 $15,727,433
========== =========== =========== ==========
Gross Gross
Amortized Unrealized Unrealized Market
Securities Available For Sale Cost Gains Losses Value
- - ------------------------------- ---------- ----------- ---------- -----------
U.S. Government Agency
obligations
(average maturity of 8.2 $ 4,438,958 $3,463 $ - $ 4,442,421
months)
Corporate debt securities
(average maturity of 6.4
months) 14,258,224 0 1,296 14,256,928
-------------- ----------- ---------- -----------
$18,697,182 $3,463 $1,296 $18,699,349
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7
ALPHA-BETA TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in March 1988, Alpha-Beta Technology, Inc. has
been engaged in research and development of new classes of carbohydrate
products. The Company has not received significant revenues from the sale of
its products and expects to incur substantial operating losses for the next
several years. As of June 30, 1996, the Company's accumulated deficit was
$90,373,608.
Results of Operations
Revenues
- - --------
Revenues to date have consisted primarily of interest earned from the
investment of cash balances, and to a lesser extent, product sales to the
research community. For the three month periods ended June 30, 1996 and 1995,
revenues were $773,288 and $477,997 respectively. This increase of $295,291 was
primarily due to additional interest earned as a result of higher average cash
balances in the second quarter of 1996 compared with the second quarter of 1995.
Revenues in the six month periods ended June 30, 1996 and 1995 were $1,222,268
and $1,024,870, respectively. The increase of $197,398 in the 1995 period
resulted primarily from additional interest earned as a result of higher average
cash balances in the six months ended June 30, 1996, as compared to the same
period in 1995. The higher average cash balances for the three and six month
periods ended June 30, 1996 are due to net proceeds of $39,295,000 raised from
the sale of 3,000,000 shares of common stock in March 1996.
Operating Expenses
- - ------------------
For the three month periods ended June 30, 1996 and 1995, research and
development expenses were $6,006,951 and $4,829,031, respectively. For the six
month periods ended June 30, these expenses increased 19% to $11,751,266 in 1996
from $9,849,978 in 1995. These increases were primarily due to costs related to
conducting the Phase III clinical trial for Betafectin. The Company expects
research and development expenses to continue to increase over 1995 levels for
the remainder of 1996 and may increase in future years, reflecting anticipated
activities related to performing clinical trials of Betafectin in surgery and
other indications and the development of additional products.
For the three month periods ended June 30, 1996 and 1995, general and
administrative expenses were $1,176,703 and $1,126,729, respectively. This
increase of $49,974 was primarily due to an increase in consulting fees. For the
six month periods ended June 30, these expenses decreased by approximately 1% to
$2,296,535 in 1996 from $2,322,735 in 1995. The decrease of $26,200 was
primarily due to a decrease in rent expense. General and administrative expenses
are not expected to significantly increase over 1995 levels in 1996; however,
these expenses may increase in future years reflecting planned efforts to
commercialize Betafectin.
For the three month periods ended June 30, 1996 and 1995, interest expense
was $806,594 and $852,016, respectively. For the six month periods ended June
30, interest expense decreased to $1,648,589 in 1996 from $1,714,897 in 1995.
This decrease of $66,308 was primarily due to lower loan balances in the first
half of 1996 compared with the first half of 1995.
8
Net Loss
- - --------
The net loss for the six months ended June 30, 1996 was $14,474,122 ($.93 per
share) compared to $12,862,740 ($1.10 per share) for the same period in 1995.
In March 1996, the Company issued and sold 3,000,000 shares of common stock at
$14 per share.
Liquidity and Capital Resources
The Company had $54,137,146 in cash equivalents and marketable securities at
June 30, 1996, compared to $28,463,909 at December 31, 1995. This increase was
principally due to the net proceeds of approximately $39,295,000 raised from the
Company's issuance and sale of 3,000,000 shares of common stock in March 1996 .
During the six month period ended June 30, 1996, the Company used approximately
$12,623,000 of cash for operating activities and approximately $681,000 to repay
the Company's debt obligations.
The Company expects to incur substantial additional operating expenses in
1996 and in future years related to research, development, and clinical studies
of Betafectin and other products, as well as the establishment of commercial
manufacturing and sales and marketing capabilities. As of June 30, 1996, the
Company had working capital of approximately $52,252,000. Based on its current
plans, the Company anticipates that its existing capital resources will enable
it to maintain its current and planned operations and capital expenditures into
1998. The Company's capital requirements will depend upon numerous factors,
including the progress of the Company's research and development programs,
preclinical testing and clinical trials, the timing and cost of obtaining
regulatory approvals, and the costs associated with expanding manufacturing and
establishing marketing capabilities. The Company may raise additional funds
prior to the completion of its Phase III clinical trial for Betafectin through
collaborative alliances, equity or debt financings or other arrangements. There
can be no assurance that additional funds will be available on favorable terms
or that the Company will enter into collaborative or other arrangements.
In its Phase III clinical trial of Betafectin for the prevention of post-
surgical infection, the Company plans for approximately three-quarters of
treated patients to receive Betafectin produced at its commercial manufacturing
facility in Smithfield, Rhode Island. Following FDA approval in December 1995 to
use Betafectin produced in the commercial facility, the Company added 24 new
centers to the study, bringing the total number of participating hospitals to
40. The Company continues to enroll patients according to plan in its Phase III
trial of Betafectin for the prevention of post-surgical infection in patients
undergoing gastrointestinal surgery. Patient enrollment is expected to be
complete in the fall. As of August 6, 1996, 763 patients of 1,200 have been
enrolled in the trial.
The Company's first clinical trial under an IND for hematopoietic indications
was completed during the first quarter of 1996. This Phase I study was designed
to evaluate the effect of increasing doses of Betafectin with or without growth
factor support on parameters such as the number of PBPC's (Peripheral Blood
Precursor Cells), total white blood cell count and absolute neutrophil count.
The objectives of the study include the assessment of safety and tolerance of
the combination of Betafectin with multiple doses of growth factor therapy. The
randomized, double-blind study enrolled 25 subjects. Results of the first part
of the study utilizing Betafectin alone showed increases in PBPC count and were
consistent with the preclinical results. The second part of the study
investigating the combination of Betafectin with growth factor therapy indicated
that Betafectin is well tolerated when administered with growth factor therapy,
and showed evidence of up to a 2-to-4- fold augmentation of PBPC mobilization.
The Company is currently evaluating its clinical development plans for
hematopoietic indications in light of these results and currently available
therapies.
9
Certain Factors Affecting Future Events and Results
This Form 10-Q to Stockholders contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual events and results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such difference include but are not limited to the
following: the timing and adequacy of patient accruals for the Company's Phase
III trial for Betafectin; the results of the Company's Phase III trial and for
its other clinical development programs; obtaining the requisite regulatory
approvals for the Company's products from the U.S. Food and Drug Administration;
the competitive environment and market conditions for the biotechnology
industry; and general economic conditions.
10
PART II. OTHER INFORMATION
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.
The Annual Meeting of Stockholders of Alpha-Beta Technology, Inc. was held on
May 30, 1996, for the purpose of: (1) the election of Spiros Jamas, Sc.D. and
Peter H. Levine, M.D. as the two Class I Directors of the Company to serve until
the 1999 Annual Meeting of Stockholders and until their successors are duly
elected and qualified; and (2) the approval of an increase in the number of
shares reserved for issuance under the Company's 1988 Stock Option and Grant
Plan from 1,800,000 to 2,300,000. The following table describes the results of
the shareholder votes.
Votes Votes
in Favor Withheld
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Election of Spiros Jamas, Sc.D. as
a Class I Director 13,810,008 480,964
Election of Peter H. Levine,
M.D. as a Class I Director 13,810,361 480,611
Votes Votes
in Favor Opposed Abstain
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Approval of amendments to the
Company's 1988 Stock
Option and Grant Plan 10,546,673 3,458,595 42,408
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits. None
B. Reports on Form 8-K. None
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.
ALPHA-BETA TECHNOLOGY, INC.
Date: August 12, 1996 By: /s/ AUGUSTINE LAWLOR
----------------------- ---------------------------------------
Augustine Lawlor, Vice President, Finance
and Chief Financial Officer
12