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: February 25, 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. employer of
incorporation or organization) identification no.)
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 12,628,946
$.10 PAR VALUE Outstanding March 23, 1995
SERIES B RESTRICTED STOCK 57,512
$.10 PAR VALUE Outstanding March 23, 1995
PAGE 1
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
February 25, 1995 and August 31, 1994
Consolidated Condensed Statements of Operations 4
for the 13-week periods ended February 25, 1995
and February 26, 1994
Consolidated Statements of Cash Flows for the 5
13-week periods ended February 25, 1995
and February 26, 1994
Notes to Consolidated Condensed Financial 6
Statements
Management's Discussion and Analysis of Financial 7-9
Conditions and Results of Operations
Part II
Other Information:
Other Information 10
Signature 11
PAGE 2
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
February 25, 1995 August 31, 1994
Assets:
Current Assets:
Cash and Cash Equivalents $2,389,908 $1,208,836
Short-term Investments 800,179 3,008,344
Receivables:
Trade and Other (net of allowances
for doubtful accounts) 474,063 391,151
Unbilled Costs 269,849 229,045
Prepaid Expenses 149,107 17,836
Other Current Assets 3,800 4,550
____________ ___________
Total Current Assets 4,086,906 4,859,762
Equipment and Leasehold Improvements, at cost:
Laboratory and Scientific Equipment 1,045,127 752,482
Leasehold Improvements 1,570,930 1,446,236
Office Equipment and Furniture 728,149 532,656
Unfinished Plant and Equipment 115,246 173,186
____________ ___________
3,459,452 2,904,560
Less Accumulated Depreciation 2,253,184 2,120,146
____________ ___________
1,206,268 784,414
Other Assets 268,883 266,506
____________ ___________
Total Assets $5,562,057 $5,910,682
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable $405,078 $450,854
Accrued Expenses 905,029 838,595
Deferred Contract Revenue 56,325 37,991
Current Maturities of Capital
Lease Obligations 212,649 193,388
_____________ ___________
Total Current Liabilities 1,579,081 1,520,828
Deferred Compensation 166,485 153,507
Capital Lease Obligations, net of
Current Maturities 651,670 165,299
Shareholders' Equity 3,164,821 4,071,048
_____________ ___________
Total Liabilities and
Shareholders' Equity $5,562,057 $5,910,682
See notes to Consolidated Condensed Financial Statements.
PAGE 3
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
________________________________________________________________________________
13 Weeks Ended 26 Weeks Ended
2/25/95 2/26/94 2/25/95 2/26/94
________________________________________________________________________________
Revenues:
Operating Revenues $1,888,668 $1,524,540 $3,426,568 $3,137,514
Interest Income 44,673 24,804 85,755 60,274
Royalties 35,559 47,584 71,120 78,834
___________ ___________ ___________ __________
Total Revenues 1,968,900 1,596,928 3,583,443 3,276,622
Costs and Expenses:
Cost of Revenues 1,661,910 1,308,153 2,988,760 2,594,864
Research and Development 282,272 64,717 537,903 92,529
General and Administrative 480,943 524,401 963,007 1,092,258
___________ ___________ __________ __________
Total Costs and Expenses 1,425,125 1,897,271 4,489,670 3,779,651
___________ ___________ __________ __________
Net Loss ($456,226) ($300,343) ($906,227) ($503,029)
___________ ___________ __________ _________)
Net Loss per Common Share ($0.04) ($0.03) ($0.08) (0.05)
___________ ___________ __________ __________
Weighted Average Number of
Common Shares Outstanding 11,778,946 10,737,435 11,778,946 10,718,463
___________ ___________ ___________ __________
See notes to Consolidated Condensed Financial Statements
PAGE 4
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
_____________________________________________________________________________
Twenty-six Weeks Ended
February 25, February 26,
1995 1994
_____________________________________________________________________________
Cash Flows from Operating Activities:
Net Loss ($906,227) ($503,029)
Adjustments to Reconcile Net Loss to Net
Cash Used by Operating Activities:
Depreciation and Amortization 144,380 101,012
Deferred Compensation 12,978 13,172
Provision for Accounts Receivable 0 45,161
Changes in Assets and Liabilities:
(Increase) Decrease in Current Assets:
Receivables (123,716) (105,296)
Prepaid Expenses (131,271) (72,399)
Other Current Assets 750 (39)
Increase (Decrease) in Current Liabilities:
Accounts Payable (45,776) (33,319)
Accrued Expenses 232,674 (35,550)
Deferred Contract Revenue 18,334 (84,053)
____________ ____________
Total Adjustments 108,253 (171,311)
Net Cash Used for Operating
Activities (797,974) (674,340)
Cash Flows from Investing Activities:
Purchases of Equipment and Leasehold
Improvements (68,844) (17,329)
Decrease in Short-Term Investments 2,208,165 (22,590)
Increase in Other Assets (9,778) (114,716)
Purchase of Long-term Investment 0 (50,000)
____________ _____________
Net Cash Provided by (Used for)
Investing Activities 2,129,543 (204,635)
Cash Flows from Financing Activities:
Proceeds from Exercise of
Stock Options 0 135,182
Principal Payments under Capital Lease
Obligations (150,497) (87,622)
___________ _____________
Net Cash Provided by (Used for)
Financing Activities (150,497) 47,560
___________ _____________
Net Increase (Decrease) in Cash
and Cash Equivalents 1,181,072 (831,415)
Cash and Cash Equivalents at
Beginning of Period 1,208,836 1,892,932
___________ ____________
Cash and Cash Equivalents
at End of Period $2,389,908 $1,061,517
_______________ ________________
Supplemental Disclosure of Cash
Flow Information:
Interest Paid during Period $28,354 $10,622
___________ ____________
Supplemental Schedule of Noncash
Investing Activities:
Property and Equipment Acquired
under Capital Leases $656,129 $23,665
See notes to Consolidated Condensed Financial Statements.
PAGE 5
Notes to Consolidated Condensed Financial Statements
(Unaudited)
- -------------------------------------------------------------------------------
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 twenty-six (26) week periods ended
February 25, 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. On March 20, 1995, the Company sold 850,000 shares of common stock for
net proceeds of $2,038,500. The following selected financial statement
information reflects the private placement described above.
February February
25, 1995 25, 1995
(Unaudited) (Pro-forma)
Cash and Cash Equivalents $2,389,908 $4,428,408
Total Current Assets $4,086,906 $6,125,406
Total Assets $5,562,057 $7,600,557
Shareholders' Equity $3,164,821 $5,203,321
Total Liabilities and $5,562,057 $7,600,557
Shareholders' Equity
PAGE 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
As of February 25 1995, the Company's cash and short-term investments
were approximately $3,190,000. In addition, on March 20, 1995, the Company sold
850,000 shares of common stock for net proceeds of $2,038,500. 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 thirteen (13) and twenty-six (26) week periods ended February
25, 1995, the Company used cash resources of approximately $409,000 and
$1,027,000, respectively, the majority of which was used to support
operations. During the same periods last year, the Company used cash
resources of approximately $422,000 and $809,000, respectively, to
primarily support operations.
RESULTS OF OPERATIONS
For the thirteen week period ended February 25, 1995, total revenues
increased approximately $372,000 or 23% when compared to the same period last
year from $1,597,000 in fiscal 1994 to $1,969,000 in fiscal 1995 and increased
$354,000 or 22% from $1,615,000 when compared to the prior quarter.
For the twenty-six (26) week period ended February 25, 1995, total revenues
increased $307,000 or 9% when compared to the same period last year from
$3,277,000 in fiscal 1994 to $3,583,000 in fiscal 1995.
For the thirteen (13) week period ended February 25, 1995, operating revenues
increased substantially by approximately 23% when compared to both the same
period last year and prior quarter of this year reflecting primarily an
increase in newly funded government research programs.
Operating revenue for the twenty-six (26) week period ended February 25, 1995
increased $289,000 or 9% when compared to the same period last year also
reflecting an increase in newly funded government research programs.
For the thirteen (13) and twenty-six (26) week periods ended February 25,
1995, royalty income decreased by approximately $12,000 and $8,000,
respectively, when compared to the same periods last year reflecting a $16,000
favorable sales adjustment last year which increased royalty income 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. This year's royalty adjustment is scheduled for next
PAGE 7
quarter. Royalty income remained relatively constant when compared to
the prior quarter.
Interest income for the thirteen (13) and twenty-six (26) week periods ended
February 25, 1995 increased approximately $20,000 and $25,000, respectively,
when compared to the same periods last year reflecting an increase in
interest rates as well as invested funds due to proceeds received from
the sale of common stock during the second and third quarter of fiscal
1994. Interest income remained relatively constant when compared to
the prior quarter.
COSTS AND EXPENSES
For the thirteen (13) week period ended February 25, 1995, cost of
revenues, as a percentage of operating revenues, increased 2% when compared
to both the same period last year and prior quarter of this year. For the
twenty-six (26) week period ended February 25, 1995, cost of revenues, as a
percentage of operating revenues, increased from 83% to 87% when compared
to the same period last year. These increases can be attributed to
increased occupancy cost and related depreciation and amortization expenses
associated with the expansion of the research contract business 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 has relocated its employees out of the
sublet space to accommodate growth in the Company's research contract business.
For the thirteen (13) week period ended February 25, 1995, cost of
revenues, in absolute dollars, increased approximately 26% when compared to both
the same period last year and the prior quarter. For the twenty-six (26)
week period ended February 25, 1995, cost of revenues, in absolute
dollars, increased 15% when compared with the same period last year.
These increases reflect primarily the substantial increase in operating
revenues as well as increased occupancy cost, as noted above.
For the thirteen (13) and twenty-six (26) week periods ended February 25,
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. For the thirteen (13) week period ended February
25, 1995, company-funded research and development expenses increased 10% when
compared to the prior quarter.
PAGE 8
For the thirteen (13) and twenty-six (26) week periods ended February 25,
1995, general and administrative expenses decreased by 8% and 11%,
respectively, when compared to the same periods last year reflecting primarily
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. General and administrative expenses for the thirteen (13)
week period ended February 25, 1995 remained relatively constant when
compared to the prior quarter.
PAGE 9
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
See Insert A
Item 5. Other Information
Subsequent to the quarter ended February 25, 1995, the
Company issued 850,000 shares of Common Stock through a private placement.
Proforma information is included in Note 3 to the Notes to Consolidated
Condensed Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None.
b) Reports on Form 8-K
None.
PAGE 10
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
/S/ Fenel M. Eloi
______________________
Fenel M. Eloi
(Principal Financial Officer)
Date: March 23, 1995
PAGE 11
Insert A
The Company's Special Meeting in lieu of an Annual Meeting was held on
January 23, 1995. At the meeting, shareholders took the following actions.
1) Election of Directors.
Name of Nominee Shares Voting
For Withhold Authority
Robert J. Hennessey 10,550,407 448,490
Orrie M. Friedman 10,534,712 464,185
Philip J. Leder 10,551,807 447,090
Lawrence Levy 10,542,907 455,990
Donald J. McCarren 10,547,107 451,790
Steven M. Rauscher 10,547,307 451,590
2) To approve a grant of stock option to Dr. Philip Leder
For Against Abstain No Voting
10,113,161 670,508 71,554 143,674
3) To approve a grant of stock option to Dr. Paul Zamecnik
For Against Abstain No Voting
10,063,109 713,925 78,189 143,674
4) To consider an amendment to the Company's Restated Articles of
Organization to authorize 3,500,000 shares of preferred stock.
For Against Abstain No Voting
6,487,846 815,512 71,699 3,623,840
5) To ratify the selection of Arthur Andersen LLP as the Company's
auditors for the fiscal year ending August 31, 1995.
For Against Abstain
10,902,892 47,295 48,710
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<OTHER-SE> 1,986,927
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<SALES> 3,426,568
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