<PAGE>
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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, 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
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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, 1996, there were 18,890,743 shares of common stock outstanding.
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<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements: . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Balance Sheets
June 30, 1996 (Unaudited)
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Operations
Three months and six months ended
June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows
Six months ended June 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . 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
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
The condensed balance sheet as of June 30, 1996, the condensed statements
of operations for the three month and six month periods ended June 30, 1995 and
1996, and the condensed statements of cash flows for the six months ended June
30, 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 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 and six month periods ended
June 30, 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)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,332 284
Available-for-sale investment
securities 16,474 11,653
Accounts receivable 147 725
Inventories 1,251 983
Other current assets 163 250
------- -------
Total current assets 19,367 13,895
Held-to-maturity investment securities - 7,887
Property, plant and equipment, net 11,515 11,580
Other assets, net 565 549
------- -------
$ 31,447 33,911
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 113 253
Accrued expenses 473 601
Deferred revenue 773 630
------- -------
Total current liabilities 1,359 1,484
------- -------
Stockholders' equity:
Preferred stock - -
Common stock 19 19
Additional paid-in capital 62,483 62,460
Unrealized investment holding
(losses) (70) (5)
Accumulated deficit (32,344) (30,047)
------- -------
Total stockholders' equity 30,088 32,427
------- -------
$ 31,447 33,911
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months End
June 30, June 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Sales $ 518 301 818 539
Contracts and licenses 548 439 1,033 854
Investment income 264 340 538 610
Other, net - 2 2 4
------- ------- ------- -------
Total revenues 1,330 1,082 2,391 2,007
------- ------- ------- -------
Costs and expenses:
Purchases and production costs 289 220 474 494
Proprietary research
and development 1,261 1,336 2,769 2,615
Selling, general and
administrative 678 796 1,445 1,598
------- ------- ------- -------
Total costs and expenses 2,228 2,352 4,688 4,707
------- ------- ------- -------
Net loss $ (898) (1,270) (2,297) (2,700)
======= ======= ======= =======
Net loss per common share $ (.05) (.07) (.12) (.14)
======= ======= ======= =======
Average number of shares
outstanding 18,890 18,873 18,890 18,872
======= ======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
<S> <C> <C>
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (2,297) (2,700)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 458 370
Common stock issued in payment of
expenses 3 10
Compensation relating to stock options 15 22
Investment discount accretion (305) (506)
Asset sales and abandoned patents 3 8
Changes in operating assets and
liabilities 271 736
------- -------
Net cash used by operating
activities (1,852) (2,060)
------- -------
Cash flows from investing activities:
Capital expenditures (372) (1,194)
Payments for other assets (39) (20)
Proceeds from sale of assets - 3
Proceeds from maturities of held-to-
maturity investment securities 3,121 3,882
Proceeds from sale of available-for-
sale investment securities 425 3,663
Purchases of available-for-sale
investment securities (143) (176)
Purchases of held-to-maturity
investment securities (97) (4,468)
------- -------
Net cash provided by investing
activities 2,895 1,690
------- -------
Cash flows from financing activities:
Proceeds from exercise of options 5 -
------- -------
Net cash provided by financing
activities 5 -
------- -------
Net change in cash and short-term
deposits 1,048 (370)
Cash and cash equivalents at
beginning of period 284 714
------- -------
Cash and cash equivalents at
end of period $ 1,332 344
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Inventories
-----------
Inventories are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ----------
(In Thousands)
<S> <C> <C>
Raw materials $ 121 99
Work in process 1,075 780
Finished goods 55 104
------ ------
$ 1,251 983
====== ======
</TABLE>
2. Reclassification of Investments
-------------------------------
On June 30, 1996, the Company reclassified all of its held-to-maturity
investment securities as available-for-sale and reported them as current assets.
The change resulted in a reduction of $49,000 to the unrealized investment
losses reported in the stockholders' equity section of the balance sheet on June
30, 1996. Previously, the Company's investment securities, which it had both
the intent and ability to hold until maturity, were classified as held-to-
maturity. Additionally, both held-to-maturity investment securities maturing
after twelve months and available-for-sale investment securities were previously
classified as noncurrent assets. The change was made to reflect the Company's
belief that all investments are available to support current operations and to
report on a more consistent basis with other companies in the industry.
3. 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 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 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
7
<PAGE>
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. The first Phase was completed in 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, 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 or 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 the 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 suits name 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 June 30, 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 suits.
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 earnings
during the first six month periods of 1996 and 1995 were $8,000 and $30,000,
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
8
<PAGE>
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 June 30, 1996, the Company's accumulated
deficit was approximately $32,344,000.
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 had a smaller net loss during both the second quarter and the
first half of 1996 compared to the same periods in 1995. The reduced net loss
can be attributed primarily to increased sales and revenues from contracts and
licenses along with slightly lower total expenses.
Revenues increased by 23% in the second quarter of 1996 compared to the
second quarter of 1995 as a result of a 72% increase in sales and a 25% increase
in revenues from contracts and licenses, which were partially offset by a 22%
reduction in investment income. All of the increase in sales during the second
quarter of 1996 was due to improved sales of custom adjuvants. Custom adjuvants
made up 77% of total sales for the quarter. Revenues from contracts and
licenses increased because of new agreements signed late in the fourth quarter
of 1995 and in the second quarter of 1996. During the second quarter of 1996 the
Company entered into a fourth agreement with SmithKline Beecham ("SB") which
covers the use of the Company's adjuvants in allergy vaccines under development
by SB. Investment income was down primarily because of a lower total investment
portfolio.
For the first six months of 1996, revenues were up 19% compared to the
first six months of 1995. Sales increased by 52% and revenues from contracts
and licenses were up by 21%, slightly offset by a 12% reduction in investment
income. The trends explained in the preceding paragraph for the second quarter
are also appropriate explanations for the first six months of 1996 compared to
the first six months of 1995.
Purchases and production costs were a smaller percentage of sales during
the second quarter and first half of 1996 than during the same periods in 1995.
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. Start-up and validation caused purchases and
production
9
<PAGE>
costs to be higher in relation to sales 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 decreased 6% in the second
quarter of 1996 compared to the second quarter of 1995 and increased 6% in the
first six months of 1996 compared to the first six months of 1995. The decrease
in the second quarter of 1996 was caused by certain scale-up and validation
expenses in 1995 for the new manufacturing plant. The increase in the first six
months of 1996 resulted primarily from charges in the first quarter of 1996 for
non-GMP (Good Manufacturing Practices) material manufactured in process scale-up
work. Outside contract costs for human clinical trials have increased in 1996
as the Company started a third Phase III human clinical trial in late 1995
testing MELACINE melanoma theraccine. This newest trial treats patients who
have Stage IV melanoma with a combination of MELACINE and interferon alfa-2b.
Patient accrual for a Phase III human clinical trial using MELACINE theraccine
to prevent reoccurrence of melanoma in patients with Stage II disease should be
completed in October of 1996. 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.
Selling, general and administrative ("SG&A") expenses were 15% lower in the
second quarter of 1996 and 10% lower in the first six months of 1996 compared to
those same periods in 1995. The main reason for the lower SG&A expenses in 1996
is because more of those expenses were allocated to the cost of manufacturing
products in 1996 as the plant has been operational throughout the year and has
operated at a higher level of throughput. Without the increased allocation,
SG&A expenses were fairly flat.
Financial Condition
- -------------------
During the first six months of 1996 the Company used $1,852,000 in
operations which was 10% less than the amount used in the first six months of
1995. The decrease is attributable primarily to a smaller net loss with greater
depreciation charges, offset in part by timing differences in the realization or
use of cash reflected in operating assets and liabilities. The Company expects
cash flows used in operations for the year 1996 to exceed the amount used in
1995 as research expenditures are expected to increase over the remainder of the
year.
As of June 30, 1996, the Company had cash, cash equivalents and short and
long term investments totalling $17,806,000 which, based upon current planning,
it believes is enough to meet its objectives through 1998.
See Note 3 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.
10
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
(a) See Note 3 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 24, 1996.
(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:
<TABLE>
<CAPTION>
TOTAL
FOR WITHHELD VOTED
--- -------- ------
<S> <C> <C> <C>
John L. Cantrell 16,834,574 111,397 16,945,971
Philipp Gerhardt 16,845,674 100,297 16,945,971
Mark I. Greene 16,830,824 115,147 16,945,971
Robert E. Ivy 16,703,524 242,447 16,945,971
Thomas N. McGowen, Jr. 16,813,149 132,822 16,945,971
Frederick B. Tossberg 16,816,224 129,747 16,945,971
</TABLE>
(c) A proposal to adopt a new employee stock option plan (1996 Stock
Option Plan) was adopted by a vote of 14,100,967 for and 2,100,902
against, with 236,296 abstaining and 507,806 broker non-votes. The
1996 Stock Option Plan replaces the 1986 Stock Option Plan which
expired in February 1996. The new plan authorizes the grant of
options to purchase up to 900,000 of the Company's common shares. The
options can be granted to employees, directors and consultants. The
new Plan will expire in the year 2006.
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 June
30, 1996.
11
<PAGE>
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 13, 1996 By /s/Vern D. Child
----------------------------------
Vern D. Child, Vice President-Finance
and Treasurer (duly authorized officer
and principal financial and accounting
officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary information extracted from the Company's
condensed balance sheet at June 30, 1996, and the condensed statements of
operations for the six months ended June 30, 1996 and 1995, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,332
<SECURITIES> 16,474
<RECEIVABLES> 147
<ALLOWANCES> 0
<INVENTORY> 1,251
<CURRENT-ASSETS> 19,367
<PP&E> 15,775
<DEPRECIATION> 4,260
<TOTAL-ASSETS> 31,447
<CURRENT-LIABILITIES> 1,359
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 30,069
<TOTAL-LIABILITY-AND-EQUITY> 31,447
<SALES> 818
<TOTAL-REVENUES> 2,391
<CGS> 474
<TOTAL-COSTS> 474
<OTHER-EXPENSES> 2,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,297)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,297)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
