UNITED STATES
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 Quarterly Period Ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Transition Period from to
Commission File No. 0-14710
XOMA CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 94-2756657
(State or other jurisdiction of (I.R.S. Employed Identification No.)
incorporation or organization)
2910 Seventh Street, Berkeley, CA 94710
(Address of principal executive offices) (Zip Code)
(510) 644-1170
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 $.0005 par value 40,806,448
Class Outstanding at March 31, 1998
<PAGE>
XOMA CORPORATION
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
March 31, 1998 and December 31, 1997.................. 1
Condensed Statements of Operations
for the Three Months Ended
March 31, 1998 and 1997............................... 2
Condensed Statements of
Cash Flows for the Three Months Ended
March 31, 1998 and 1997............................... 3
Notes to Condensed
Financial Statements ................................. 4
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................ 5
PART II OTHER INFORMATION
Items 1 through 5 are either inapplicable or nonexistent and
therefore are omitted from this report.
Item 6 Exhibits and Reports on Form 8-K .................... 7
Signatures............................................................ 8
<PAGE>
<TABLE>
<CAPTION>
XOMA CORPORATION,
CONDENSED BALANCE SHEETS
(In thousands)
March 31 December 31
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Assets:
Cash and Cash Equivalents $ 23,267 $ 37,225
Short-term Investments 22,430 17,921
Other Receivables 338 351
Other Current Assets 242 142
----------- -------------
Total Current Assets 46,277 55,639
----------- -------------
Property and Equipment 30,756 30,478
Accumulated Depreciation (26,338) (25,914)
Assets Held for Sale 4,442 4,442
Other Assets 131 131
----------- -------------
$ 55,268 $ 64,776
=========== =============
Liabilities and Stockholders' Equity:
Accounts Payable $ 1,289 $ 1,644
Other Current Liabilities 5,893 7,119
----------- -------------
Total Current Liabilities 7,182 8,763
----------- -------------
Convertible Notes 25,198 24,773
----------- -------------
Total Non-current Liabilities 25,198 24,773
----------- -------------
Stockholders' Equity 22,888 31,240
----------- -------------
$ 55,268 $ 64,776
=========== =============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
XOMA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
Three Months Ended
March 31
1998 1997
---- ----
<S> <C> <C>
Revenues:
License Fees $ 25 $ 657
Product Sales and Royalties 21 17
------------- -----------
46 674
------------- -----------
Expenses:
Research and Development 9,172 7,470
General and Administrative 1,442 1,578
------------- -----------
$ 10,614 9,048
------------- -----------
Loss from Operations $ (10,568) (8,374)
Other Income (Expense):
Investment Income 693 592
Interest Expense and Other (432) (232)
------------- ------------
Net Loss $ (10,307) $ (8,014)
============= ============
Basic and Diluted Net Loss per Share $ (0.27) $ (0.20)
Weighted Average Common
Shares Outstanding 40,531 39,619
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
XOMA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ (9,045) $ (7,140)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Short-term Investments 95,969 46,699
Payments for purchase of Short-term Investments (100,478) (35,434)
Capital expenditures (279) (160)
---------- -----------
Net cash provided by (used in) investing activities (4,788) 11,105
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Common Stock, net 12 126
Capital lease principal payments (137) (116)
---------- -----------
Net cash provided by (used in) financing activities (125) 10
---------- -----------
Net increase (decrease) in Cash and Cash Equivalents (13,958) 3,975
Cash and Cash Equivalents at beginning of period 37,225 1,213
---------- -----------
Cash and Cash Equivalents at end of period $ 23,267 $ 5,188
========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
XOMA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The interim information contained herein is unaudited but, in management's
opinion, includes all normal recurring adjustments which are necessary for a
fair presentation of results for the periods presented. Interim results are not
necessarily indicative of results to be expected for the full year. The
financial statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1997.
2. Supplemental Cash Flow Information
In the first quarter of 1998, the Company satisfied a $1.9 million
obligation under the terms of a litigation settlement by issuing 344,168 shares
of common stock, contributed $0.1 million to the Company's management incentive
compensation program by issuing 26,710 shares of common stock, and paid
dividends of $0.1 million on convertible preferred stock by issuing 12,567
shares of common stock upon conversion. Tax payments were $0.3 million.
3. New Accounting Standards
In 1998, the Company must report its results of operations and financial
position based upon the recently issued Statements of Financial Accounting
Standards (SFAS) No. 130 "Reporting Comprehensive Income," SFAS No. 131
"Disclosures about Segments of an Enterprise", and SFAS No. 132 "Employers'
Disclosures about Pension and Other Postretirement Benefits." None of these
statements has had a material effect on the Company's financial statements for
the periods ended March 31, 1998 and March and December 31, 1997.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
First quarter revenues were not significant in 1998 and were $0.7 million in
1997, primarily related to licensing income.
Research and development expenses increased to $9.2 million in the first three
months of 1998, compared with $7.5 million in the 1997 period. The increase was
due primarily to spending on clinical trials and manufacturing of the Company's
Neuprex(TM) and hu1124 products. General and administrative spending decreased
to $1.4 million in the first three months of 1998, compared with $1.6 million in
the 1997 period.
Investment income was slightly higher in the first three months of 1998 compared
to 1997 due to a higher average investment balance. The increase in interest
expense and other in the first three months of 1998 over 1997 was primarily due
to interest on a $11.0 million higher balance of the convertible note payable to
Genentech on which interest accrues at six-month LIBOR plus 1%.
Liquidity and Capital Resources:
The Company's cash, cash equivalents and short-term investments totaled $45.7
million as of March 31, 1998 compared with $55.1 million as of December 31,
1997. Net cash used in operating activities was $9.0 million in the first three
months of 1998, compared with $7.1 million in the 1997 period. The Company's
cash, cash equivalents and short-term investments are expected to continue to
decrease while the Company pursues U.S. Food and Drug Administration licensure
except to the extent the Company secures additional funding.
The Company has been able to control its operating cash consumption by carefully
monitoring its costs. As a result, its cash position and resulting investment
income are sufficient to finance the Company's currently anticipated levels of
spending for at least one year. The Company continues to evaluate a variety of
arrangements which would further strengthen its competitive position and provide
additional funding, but cannot predict when or whether any such arrangement or
additional funding will be secured.
Forward Looking Statements:
Certain statements contained herein that are not related to historical facts may
constitute "forward looking" information, as that term is defined in the Private
Securities Litigation Re-
5
<PAGE>
form Act of 1995. Such statements are based on the Company's current beliefs as
to the outcome and timing of future events, and actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of future
events which may not prove to be accurate. The forward looking statements
involve risks and uncertainties including, but not limited to, risks and
uncertainties related to regulatory approvals, product efficacy and development,
the Company's financing needs and opportunities, scale-up and marketing
capabilities, intellectual property protection, competition, stock price
volatility and other risk factors referred to herein and in other of the
Company's Securities and Exchange Commission filings.
6
<PAGE>
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. None.
Item 5 Other Information. None.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 First Amendment to Convertible Preferred Stock
Agreement, dated as of January 1, 1998
Exhibit 27.1 Financial Data Schedule
(b) Current Reports on Form 8-K. None.
7
<PAGE>
XOMA CORPORATION
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.
XOMA CORPORATION
Date: May 8, 1998 By: /s/ JOHN L. CASTELLO
--------------------
John L. Castello
Chairman of the Board, President and
Chief Executive Officer
Date: May 8, 1998 By: /s/ PETER B. DAVIS
------------------
Peter B. Davis
Vice President, Finance and
Chief Financial Officer
8
Exhibit 10.1
XOMA CORPORATION
First Amendment
to
Convertible Preferred Stock Purchase Agreement
dated August 13, 1997
This AMENDMENT, dated as of January 1, 1998 (the "Amendment"), to the
Convertible Preferred Stock Purchase Agreement dated August 13, 1997 (the
"Purchase Agreement"), among XOMA Corporation (the "Company") and the entities
who have signed this Amendment, as set forth below (collectively, the
"Purchasers").
W I T N E S S E T H :
WHEREAS, the parties hereto are parties to the Purchase Agreement, pursuant
to which the Purchasers acquired shares of Series G Convertible Preferred Stock
of the Company; and
WHEREAS, the Purchase Agreement provides for an additional closing for the
issue and sale by the Company to the Purchasers of an additional series of
convertible preferred stock of the Company; and
WHEREAS, the parties desire to amend certain provisions of the Purchase
Agreement and to enter into certain other agreements with respect to the Series
G Shares, effective as of the date of this Amendment.
NOW THEREFORE, the parties agree that the Purchase Agreement is amended as
follows:
1. Defined Terms. Capitalized terms used in this Amendment, unless
otherwise defined herein, have the meanings set forth in the Purchase Agreement
or the Series G Designation, as applicable.
2. Limitations on Conversions of Series G Shares. The Purchasers and the
Company agree that each Purchaser shall limit the number of Series G Shares that
it shall convert into Common Stock during any month from the date hereof through
February 28, 1998 as follows:
(a) From the period from the date hereof through January 31, 1998,
each Purchaser may convert into Common Stock a number of Series G Shares
equal to one-third of the number of Series G Shares held by such Purchaser
on the date hereof.
<PAGE>
(b) From the period from February 1, 1998 through February 28, 1998,
each Purchaser may convert into Common Stock a number of Series G Shares
equal to (i) two-thirds of the number of Series G Shares held by such
Purchaser on the date hereof, less (ii) the number of Series G Shares
converted during the period January 1, 1998 through January 31, 1998.
(c) On and after March 1, 1998, there shall be no limitations on the
ability of any Purchaser to convert any Series G Shares other than any
limitations set forth in the Purchase Agreement as in effect prior to the
date hereof.
(d) The number of Series G Shares held by a Purchaser as of the date
hereof shall be determined assuming any Series G Shares as to which a
conversion notice was sent to the Company prior to the date hereof had been
converted into Common Stock and are no longer outstanding. The limitations
set forth in the preceding subsections (a) and (b) shall be computed with
reference to conversion notices given, and not with respect to Series G
Shares actually converted of record, during such periods.
3. Additional Share Issuance. As an inducement to the Purchasers to defer
conversion of the Series G Shares into Common Stock for an extended period of
time, the Company agrees that it shall issue additional shares of Common Stock
to the Purchasers on the following terms:
(a) Any Purchaser who converts any Series G Shares more than 210 days
after the Original Issue Date shall, upon such conversion, be issued a
number of shares of Common Stock, in addition to the number of shares
required to be issued on conversion in accordance with the Series G
Designation, equal to (i) the number of shares of Common Stock that would
have been issued to such Purchaser if the Applicable Percentage had been
86%, less (ii) the number of shares of Common Stock otherwise issuable
under the terms of the Series G Designation. In lieu of issuing the Common
Stock on any such conversion, the Company shall have the right to pay cash
to such Purchaser in an amount equal to the Per Share Market Value as at
the date of conversion multiplied by the number of shares of Common Stock
that would otherwise be issuable pursuant to this Section 3(a).
(b) All shares of Common Stock issued to any Purchaser pursuant to the
foregoing Section 3(a) shall be duly authorized, fully paid and
nonassessable.
(c) The Company shall take such steps as may be required to include
any shares of Common Stock issued or issuable under Section 3(a) to be
included in the Underlying Shares Registration Statement that has been
filed and is effective with respect to the Common Stock issuable on
conversion of the Series G Shares.
2
<PAGE>
4. Series H Closing. Notwithstanding the terms of the Purchase Agreement,
in the event the Company has not previously given the Subsequent Financing
Notice, a Majority in Interest of the Purchasers shall have the right to require
the Series H Closing to take place at any time after April 30, 1998 through
September 30, 1998. Such right may be exercised by a Majority in Interest of the
Purchasers by delivering a notice (a "'Required Financing Notice") to the
Company, and to the other Purchasers, in accordance with the notice provisions
of the Purchase Agreement. The Required Financing Notice shall be executed on
behalf of a Majority in Interest of the Purchasers and shall set forth the date
and time of the Series H Closing, which shall be not less than 15 Trading Days
after the date on which the Required Financing Notice is given. The Company
shall use its commercially reasonable best efforts to cause the Series H Closing
to take place, and to cause all conditions for the Series H Closing to have been
met, at the time and date set forth in the Required Financing Notice or as
promptly thereafter as possible. If the Company has the right to deliver, and
delivers, the Subsequent Financing Notice after the giving of a Required
Financing Notice, the Subsequent Financing Notice shall supersede the Required
Financing Notice. For purposes of this Amendment, a "Majority in Interest" of
the Purchasers at any time shall mean Purchasers who acquired a majority of the
Series G Shares issued at the Series G Closing.
5. Except as specifically amended or supplemented hereby, (i) the Purchase
Agreement shall not be amended and no provisions thereof shall be waived by any
party, and (ii) the Purchase Agreement is hereby ratified and confirmed in all
respects. The parties confirm that the provisions of paragraphs 2 and 3 of this
Amendment shall apply only to the Series G Shares, and not to the Series H
Shares.
6. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute a single instrument.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
XOMA CORPORATION SOUTHBROOK INTERNATIONAL
INVESTMENTS LTD.
By: By:
------------------------------- --------------------------------
HBK CAYMAN L.P. HBK OFFSHORE FUND, LTD.
By: By:
------------------------------- --------------------------------
HBK INVESTMENTS LTD. PROPRIETARY CONVERTIBLE
INVESTMENT GROUP, INC.
By: By:
------------------------------- --------------------------------
PINE STREET ASSET BROWN SIMPSON STRATEGIC
MANAGEMENT L.P. GROWTH FUND, L.P.
By: By:
------------------------------- --------------------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 23,267
<SECURITIES> 22,430
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,277
<PP&E> 30,756
<DEPRECIATION> 26,338
<TOTAL-ASSETS> 55,268
<CURRENT-LIABILITIES> 7,182
<BONDS> 0
<COMMON> 20
0
0
<OTHER-SE> 22,888
<TOTAL-LIABILITY-AND-EQUITY> 55,268
<SALES> 0
<TOTAL-REVENUES> 46
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> (10,307)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,307)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
