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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 March 31, 1996
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 April 30, 1996, there were 18,890,243 shares of common stock outstanding.
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RIBI IMMUNOCHEM RESEARCH, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 3
- ---------------------------------
Item 1. Financial Statements:
Condensed Balance Sheets
March 31, 1996 (Unaudited)
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Operations
Three months ended March 31,
1996 and 1995 (Unaudited). . . . . . . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows
Three months ended March 31,
1996 and 1995 (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 . . . . . . . . . . . . . . . . . . . . . . . .10
- -----------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
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2
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RIBI IMMUNOCHEM RESEARCH, INC.
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements
The condensed balance sheet as of March 31, 1996, the condensed statements
of operations and the condensed statements of cash flows for the three-month
periods ended March 31, 1995 and 1996, 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 changes in cash
flows as of and for the periods indicated have been made. Certain
reclassifications have been made to the prior year financial statements to
conform to the 1996 presentation.
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 1995 Annual Report to Stockholders and Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
The results of operations for the three month period ending March 31, 1996,
are not necessarily indicative of results expected for the full year 1996.
3
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RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
Assets
- ------
Current assets:
Cash and short-term deposits $ 904 284
Held-to-maturity investment securities 6,814 6,574
Trade accounts receivable 140 725
Inventories 1,064 983
Other current assets 218 250
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Total current assets 9,140 8,816
Available-for-sale investment securities 4,650 5,079
Held-to-maturity investment securities 6,209 7,887
Property, plant and equipment, net 11,502 11,580
Other assets, net 558 549
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$ 32,059 33,911
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Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 254 253
Accrued liabilities 551 601
Deferred revenue 295 630
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Total current liabilities 1,100 1,484
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Stockholders' equity:
Preferred stock - -
Common stock 19 19
Additional paid-in capital 62,466 62,460
Unrealized investment losses (80) (5)
Accumulated deficit (31,446) (30,047)
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Total stockholders' equity 30,959 32,427
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$ 32,059 33,911
======= =======
See accompanying notes.
4
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RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except per Share Data)
(UNAUDITED)
Three Months Ended
March 31,
-------------------
1996 1995
---- ----
Revenues:
Sales $ 300 238
Contracts and licenses 485 415
Investment income 274 270
Other, net 2 1
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Total revenues 1,061 924
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Costs and expenses:
Purchases and production costs 185 274
Research and development 1,508 1,279
Selling, general and administrative 767 801
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Total costs and expenses 2,460 2,354
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Net loss $ (1,399) (1,430)
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Net loss per common share $ (.07) (.08)
======= =======
Average number of shares outstanding 18,889 18,871
======= =======
See accompanying notes.
5
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RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (1,399) (1,430)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 227 155
Common stock issued in payment
of expenses 1 2
Compensation relating to stock options - 5
Asset sales and abandoned patents (1) 10
Changes in operating assets and
liabilities 162 66
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Net cash used by operating activities (1,010) (1,192)
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Cash flows from investing activities:
Capital expenditures (136) (814)
Payments for other assets (20) (8)
Proceeds from maturities of held-to-
maturity investment securities 1,428 1,654
Proceeds from sale of available-for
sale investment securities 425 3,663
Purchases of available-for-sale
investment securities (72) (97)
Purchases of held-to-maturity
investment securities - (3,481)
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Net cash provided by
investing activities 1,625 917
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Cash flows from financing activities:
Proceeds from exercise of options 5 -
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Net cash provided by financing
activities 5 -
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Net change in cash and short-term
deposits 620 (275)
Cash and short-term deposits at beginning
of period 284 714
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Cash and short-term deposits at end
of period $ 904 439
======= =======
See accompanying notes.
6
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RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Inventories
-----------
Inventories are as follows:
March 31, December 31,
1996 1995
----------- -----------
(In Thousands)
Raw materials $ 110 99
Work in process 882 780
Finished goods 72 104
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$1,064 983
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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 (now known as the Department of Environmental
Quality ["DEQ"]) in March of 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 that the Landfill had
permits to receive. The NIH voluntarily initiated and completed work pursuant to
an interim remediation plan approved by the DEQ to remove and decontaminate the
believed source of the contamination and treat the aquifers which tests have
shown contain contaminants. Although decontamination of the soil at and around
the Landfill 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 1996 and possibly longer.
The DEQ conducted a "Risk Assessment" and issued a "Draft Final Feasibility
Study" in October 1994 that discussed possible final remediation alternatives.
In August 1995, the DEQ announced that it had approved a second interim action
in the vicinity of the Landfill being voluntarily conducted by the NIH and which
involves installing individual replacement wells to provide both an alternate
water supply for the affected residents and to develop additional information on
the site hydrogeology. Information collected from these wells through a multi-
year monitoring program will be used by the DEQ to evaluate the effectiveness of
the remediation efforts to date. The current plan calls for the wells to be
installed in three phases: Phase I includes occupied properties with the highest
remaining contamination levels; Phase II includes occupied properties with
lesser degrees of contamination; and Phase III consists largely of vacant
properties. Preliminary studies completed in 1994 estimated the cost of the
wells to be approximately $1,400,000. Completion of the first Phase is expected
by the spring of 1996. The DEQ could require the PRPs to implement further
remediation should these wells not provide sufficient quality or quantity of
water. The NIH, which has taken the lead and incurred substantially all of the
remediation costs,
7
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has represented publicly that it would continue to work with the DEQ toward an
acceptable final remediation plan. 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 of more. The DEQ has filed an action against the
Landfill, the operator of the Landfill and the Company seeking reimbursement of
costs in the amount of $199,000 associated with its oversight activities. The
Company has filed a response to the action. Because of these uncertainties,
including the uncertainty of the cost of further remediation and whether the NIH
will seek and obtain 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 suit names the PRPs and
the DEQ, as well as unknown individuals and corporations which may be discovered
to have contributed to the injuries alleged. The Company has filed answers to
these suits. The Company has denied any liability and in a motion for summary
judgement, denied the injuries alleged. It is not possible at this time,
however, to predict whether additional civil suits will be filed, the outcome of
the pending suits or the potential financial impact on the Company or the
probability of adverse decisions.
As of March 31, 1996, the Company has accrued a reserve of approximately
$190,000 primarily to cover billed and potential legal, consulting and DEQ
reimbursement costs associated with the Company as a PRP and the civil suites.
Some of the costs incurred in the defense of the civil suits, including the
action by the DEQ seeking reimbursement of costs, have been paid by insurance
and at least some of the future defense costs are expected to be paid by
insurance, none of which have been accrued. Net costs charged against operations
during the first quarters of 1996 and 1995 were $7,000 and $21,000,
respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
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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 losses
for at least the next few years. At March 31, 1996, the Company's accumulated
deficit was approximately $31,446,000.
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
8
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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
- ---------------------
During the first quarter of 1996 the Company incurred a net loss of
$1,399,000 compared to a net loss of $1,430,000 in the first quarter of 1995.
The slightly smaller net loss reflects greater total revenues and lower
purchases and production costs, which were mostly offset by increased research
and development expenses.
Revenues were higher in the first quarter of 1996 compared to the same
period in 1995 because of improved sales and greater revenues from contracts and
licenses. Sales were up 26% in the first quarter of 1996 compared to the same
quarter in 1995 primarily from sales of custom adjuvants. Revenues from
contracts and licenses increased 17% resulting from new agreements signed late
in the fourth quarter of 1995. In December of 1995 the Company entered into a
third license agreement with SmithKline Beecham ("SB") which covers the
nonexclusive use of the Company's adjuvants in cancer vaccines under development
by SB. In the same month the Company entered into an option agreement covering
the use of its MPL immunostimulant as an adjuvant in a therapeutic vaccine for
genital warts that Cantab Pharmaceuticals Research, Ltd. is developing.
Even though sales increased in the first quarter of 1996 over the first
quarter of 1995, purchases and production costs decreased during the same
respective periods in 1996 and 1995. In 1995 the Company was starting and
testing its new manufacturing plant which contributed added production costs.
Additionally, plant throughput was low during 1995 which caused per unit
manufacturing costs to be unusually high. While much of the testing and scale-
up work has been completed, additional optimization and validation work is
planned for 1996.
Research and development expenses increased 18% during the first quarter of
1996 over the same quarter in 1995. The increase was primarily caused by
charges in 1996 for non-GMP (Good Manufacturing Practices) material manufactured
in process scale-up work in late 1995 and early 1996. Other research and
development expenses remained fairly flat in the first quarter of 1996 compared
to the first quarter in 1995. Phase III clinical trials using Melacine
melanoma theraccine to treat Stage IV melanoma patients or to prevent the
recurrence of disease in Stage II melanoma patients are progressing well and on
schedule. The Company announced in April 1996 that it intends to file
commercial product license applications for Melacine in the United States,
Canada and the European Community in 1997. A Phase II dose escalation trial
using MPL -C to prevent or ameliorate the effects of reperfusion injury in
cardiac bypass patients is also moving forward as planned. These projects,
along with other preclinical projects, should cause research and development
expenses in 1996 to exceed those expenses reported in 1995.
9
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Selling, general and administrative expenses decreased approximately
$34,000 in the first quarter of 1996 compared with the same period in 1995. The
decrease is mainly a result of an increase in the amount of administrative costs
allocated to manufacturing costs, partially offset by greater depreciation
expenses. Both variances were caused by the new manufacturing plant, which
began operation near the end of the first quarter of 1995.
Financial Condition
- -------------------
During the first quarter of 1996 the Company used $1,010,000 in operations,
which was $182,000 less than was used in the first quarter of 1995. The
decreased cash burn in the first quarter of 1996 results from a slightly smaller
net loss, which includes increased non-cash depreciation charges, and license
fees collected in the first quarter of 1996, which were accrued in the fourth
quarter of 1995. These reductions in cash burn were offset by an increase in
cash used for increased inventories. The Company expects cash flows used in
operations for the year 1996 to continue to exceed those in the year 1995 as
research expenditures are expected to increase over the remainder of the year.
As of March 31, 1996, the Company had cash, short-term deposits, short-term
investments and long-term investments totalling $18,577,000 which it believes is
enough to meet its current 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 Financial Statements for a discussion of
the Company's involvement as a PRP and a defendant in civil suits
relating to the Bitterroot Valley Sanitary Landfill.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (Filed only electronically)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
10
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SIGNATURES
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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)
May 14, 1996 By /s/ Vern D. Child
-------------------------------------------
Vern D. Child, Vice President-Finance
and Treasurer (duly authorized officer
and principal financial and accounting
officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's condensed balance sheet at March 31, 1996, and the condensed
statements of operations for the three months ended March 31, 1996 and 1995 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 904
<SECURITIES> 6,814
<RECEIVABLES> 140
<ALLOWANCES> 0
<INVENTORY> 1,064
<CURRENT-ASSETS> 9,140
<PP&E> 15,550
<DEPRECIATION> 4,048
<TOTAL-ASSETS> 32,059
<CURRENT-LIABILITIES> 1,100
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 30,940
<TOTAL-LIABILITY-AND-EQUITY> 32,059
<SALES> 300
<TOTAL-REVENUES> 1,061
<CGS> 185
<TOTAL-COSTS> 185
<OTHER-EXPENSES> 1,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,399)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,399)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
