SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1997, 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 0-12081
AQUILA BIOPHARMACEUTICALS, INC.
Exact Name of Registrant as Specified in Its Charter)
Delaware 04-3307818
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
365 Plantation Street, Worcester, MA 01605
(Address of Principal Executive Offices) (Zip Code)
(508) 797-5777
(Registrant's Telephone Number, Including Area Code)
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(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 Acto 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 ____.
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes _X__ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
As of May 13, 1997
Common Stock Outstanding 4,996,418
AQUILA BIOPHARMACEUTICALS, INC.
Form 10-Q, March 31, 1997
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements Page Number
Balance Sheets as of March 31, 1997
and December 31,1996..............................2
Statements of Operations for three month
periods ended March 31, 1997 and 1996.............3
Statements of Cash Flows for three month
periods ended March 31, 1997 and 1996.............4
Notes to Interim Financial Statements ............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Item 1 - Financial Statements
Aquila Biopharmaceuticals, Inc.
Balance Sheet
(in thousands)
(unaudited)
Assets 3/31/97 12/31/96
------- --------
Current Assets:
Cash and cash equivalents $ 8,029 $ 9,112
Marketable securities 11,498 8,563
Accounts receivable - trade (less
allowance for doubtful accounts) 940 1,546
Other receivables 337 820
Inventories 274 451
Prepaid expenses & other current assets 709 779
------- -------
Total current assets 21,787 21,271
------- -------
Investments 394 394
Property, Plant, and Equipment,Net 4,222 4,308
Patents and Purchased Technology,Net 271 296
Other Assets 43 43
------- -------
Total Assets $ 26,717 $ 26,312
------- -------
Liabilities & Shareholders' Equity
Current Liabilities:
Accounts payable $ 316 $ 944
Accrued royalties 521 643
Accrued professional fees 247 383
Other accrued expenses 1,423 2,097
Deferred revenue - current 3,368 918
Current maturities of long-term debt 127 129
------- -------
Total Current Liabilities 6,002 5,114
------- -------
Deferred Revenue 225 225
Long Term Debt 4,023 4,056
------- -------
Total Liabilities 10,250 9,395
------- -------
Shareholders' Equity:
Preferred stock, authorized:
5,000,000 shares, none issued 0 0
Common stock, par value: $.01 per
share, authorized:30,500,000
shares, issued: 5,000,000 shares 50 50
Treasury Stock (47) (47)
Additional paid in capital 127,514 127,514
Accumulated Deficit (111,050) (110,600)
------- -------
Total Shareholders' Equity 16,467 16,917
------- -------
Total Liabilities and Shareholders' Equity $ 26,717 $ 26,312
The accompanying notes are an integral part of these unaudited
statements.
2
Aquila Biopharmaceuticals, Inc.
Statement of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended March 31,
1997 1996
Revenue: ---- ----
Product sales $ 307 $ 347
Research and development 1,222 1,410
------ -----
1,529 1,757
Cost and expenses:
Cost of sales 252 373
Research and development 1,343 1,275
General & administrative 1,121 1,182
------ ------
2,716 2,830
Other income, net 546 474
Loss from Operations before
reorganization items ------ ------
(641) (599)
Reorganization items:
Professional fees 0 (256)
Interest earned on accumulated
cash resulting from Chapter 11
proceedings 0 114
------ ------
Total reorganization items 0 (142)
------ ------
Loss from continuing operations (641) (741)
Discontinued operations:
Income from operations 0 882
Gain on disposal 191 0
------ ------
Net Income/(Loss) $ (450) $ 141
====== ======
Net income/(Loss) per weighted average
number of common shares: $ (0.09) $ 0.04
Weighted average number of
common shares outstanding 4,989,474 3,551,000
Financial results for the first quarter of 1996 have been restated
to reflect the disposal of Aquila's diagnostics businesses as
discontinued operations, and Weighted Average Shares Outstanding
has been adjusted to reflect a 7.6 to 1 stock exchange on
October 21, 1996.
The accompanying notes are an integral part of these unaudited
financial statements.
3
Aquila Biopharmaceuticals, Inc.
Statement of Cash Flows
(unaudited)
(in thousands)
For the three months ended March 31,
1997 1996
---- ----
Cash Flows From Operating Activities:
Net Income/(Loss) $(450) $ 141
Adjustments to reconcile Net Income/(Loss)
to net cash provided by operating
activities:
Depreciation and amortization 136 1,043
Provision for doubtful accounts 0 15
Loss on disposition and write down of
investments 0 11
Minority Interest 0 1
Changes in assets and liabilities:
Accounts and other receivables 1,089 (1,037)
Inventories 177 (124)
Deferred revenue 2,451 2,292
Prepaid and other current assets 70 22
Accounts payable and other accrued expenses (1,561) (440)
Accrued restructuring charges 0 (40)
Net cash provided by ------ ------
operating activities 1,912 1,884
------ ------
Cash Flows From Investing Activities:
Purchases of marketable securities (6,963) 0
Proceeds from sale of marketable securities 4,028 205
Purchases of property, plant, and equipment (25) (62)
Patents & purchased technology 0 (85)
Net cash provided/(used) by ------ ------
investing activities (2,960) 58
------ ------
Cash Flows From Financing Activities:
Payment of long-term obligations (35) (1)
------ ------
Net cash used by financing activities (35) (1)
Net increase/(decrease)in cash and
cash equivalents (1,083) 1,941
Cash and cash equivalents at the beginning
of the year 9,112 6,856
Cash and cash equivalents at the end ------ ------
of the period $8,029 $8,797
====== ======
Supplemental disclosures:
Income taxes paid 0 7
Interest paid 104 0
The accompanying notes are an integral part of these unaudited
financial statements.
4
AQUILA BIOPHARMACEUTICALS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying interim financial statements are unaudited and
have been prepared on a basis substantially consistent with the
audited financial statements. Certain information and footnote
disclosures normally included in the Company's annual financial
statements have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The interim
financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a
fair presentation of the results for the interim periods.
The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected
for the fiscal year. These interim financial statements should
be read in conjunction with the audited financial statements for
the year ended December 31, 1996, which are contained in the
Company's Annual Report on Form 10-K for the year ended December
31, 1996, filed with the Securities and Exchange Commission.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by
generally accepted accounting principles.
2. Inventories:
Inventories consist of the following: (000'S)
3/31/97 12/31/96
------- --------
Finished goods 35,256 260,124
Work in process 186,275 149,839
Raw materials & supplies 52,830 41,111
------- --------
274,361 451,074
------- --------
3. Discontinued Operations:
In June, 1996, the Company sold the assets of its enterics diagnostic
business to Meridian Diagnostics, Inc. Income from discontinued
enterics operations for the three months ended March 31, 1996,
was $357,000.
In October, 1996, the Company sold all of the issued and outstanding
common stock of Cambridge Biotech Corporation ("CBC"), which was
principally involved in retroviral diagnostic operations, to
bioMerieux Vitek, Inc. Gain from discontinued retroviral operations
for the three months ended March 31, 1997 was $191,000, and income
from discontinued retroviral operations was $525,000 in the same
period of 1996.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenue
Total revenues were $1,529,000 in the three months ended March
31, 1997 compared to $1,757,000 in the same period in 1996, a
decrease of 13%. Product sales decreased to $307,000 in the first
quarter of 1997 from $347,000 for the same period in 1996, or
12%, due to lower unit sales of certain animal health products,
offset partially by higher prices.
Research and development revenue also decreased in the first
quarter of 1997, to $1,222,000 from $1,410,000 in the same period
of 1996. This 13% decrease is due primarily to the completion
of two government grants during 1996 and reduced activity
on research projects funded by various third parties, including
other non-profit and commercial entities.
Costs and Expenses
Cost of product sales for the three months ended March 31, 1997
was $252,000, or 82% of product sales, compared to $373,000, or
107% of product sales, for the three months ended March 31, 1996.
The change in cost as a percent of product sales is due primarily
to revised pricing on certain animal health products that took
effect in 1997.
Research and development expenses increased in the first quarter
of 1997 to $1,343,000 from $1,275,000 in the first quarter of
1996, an increase of 5%. This increase is due primarily to higher
costs associated with providing clinical trial materials to
corporate partners and to higher personnel-related costs.
General and administrative expenses decreased to $1,121,000 in
the three months ended March 31, 1997 from $1,182,000 in the same
period of 1996, a decrease of 5%. This decrease is primarily due
to lower personnel-related costs associated with reduced staff.
Other Income, Net
Other income net of expenses was $546,000 for the three months
ended March 31, 1997, compared to $474,000 for the same period in
1996, an increase of 15%. This increase is attributable to
greater interest income due to the Company's larger balance of
cash, cash equivalents and marketable securities, and to greater
rental income resulting from the lease of certain of the
Company's real estate in Rockville, Maryland to CBC.
Reorganization Items
Chapter 11 related professional fees and interest earned on
accumulated cash were $256,000 and $114,000, respectively, for
the three months ended March 31, 1996. There were no material
reorganization items during the three months ended March 31, 1997.
6
Net Income/(Loss)
The Company incurred a net loss for the quarter ended March 31,
1997 of $450,000, or $0.09 per share, compared to net income of
$141,000, or $0.04 per share, for the same period of 1996.
Liquidity and Capital Resources
The Company's ability to fund its long term operations is
dependent on several factors, including the Company's ability to
attract funding through additional public and private financing
or by establishing corporate partnerships and collaborative
agreements. There can be no assurance that such additional
funding can be obtained on acceptable terms.
Operating activities provided cash of $1,912,000 during the three
months ended March 31, 1997, compared to cash provided by
operating activities of $1,884,000 during the same period of
1996. The net loss of $450,000 for the first quarter of 1997
includes non-cash depreciation and amortization of $136,000. In
the first quarter of 1996, the net income of $141,000 included
$1,043,000 of non-cash depreciation and amortization.
In the three months ended March 31,1997, the Company reduced
inventories and accounts receivable by $177,000 and $1,089,000,
respectively, due to the cessation of diagnostic operations and
the receipt of certain royalty payments. By comparison,
inventories and accounts receivable increased by $124,000 and
$1,037,000 in the same period of 1996, as a result of increased
product sales. In the first quarter of 1997, accounts payable
and other accrued expenses decreased by $1,561,000, primarily
due to reductions in trade payables attributable to the
cessation of diagnostic manufacturing operations and to the
payment of severance and bonus amounts accrued at
December 31, 1996.
Investing activities used cash of $2,960,000 in the first quarter
of 1997, due primarily to the net purchase of marketable securities.
In the same period of 1996, $58,000 of cash was provided by
investing activities, due to the sale of the common stock of an
insurance company that the Company received when the insurer was
demutualized.
Cash and cash equivalents were $8,029,000 at March 31, 1997,
compared to $9,112,000 at December 31, 1996 and $8,797,000 at
March 31, 1996. Total cash, cash equivalents and marketable
securities were $19,527,000 at March 31, 1997 compared to
$17,675,000 at December 31, 1996. The increase is due primarily
to the receipt of an annual license payment from a corporate
partner, offset by general cash disbursements during the quarter.
The Company currently occupies an office, research and
manufacturing facility in Worcester, MA under a lease which
expires on December 31, 1997. The Company expects that relocation
to another facility will be necessary. Given the nature of
Aquila's research and manufacturing activities and the
specialized space required to support those activities, it is
7
expected that the Company will be required to make capital
expenditures to improve the new facility and to acquire new
systems and equipment related to the new facility. While an
accurate estimate cannot be made at this time, it is possible
that these expenditures could be substantial.
Aquila's discussions as to management's plans and objectives for
Aquila's business after the date hereof are forward looking
statements which involve a number of risks and uncertainties.
Actual results may differ materially from those projected by
Aquila. The following factors, among others, could effect the
Company's actual results: general economic conditions; risks in
product and technology development; delays and difficulties in
the regulatory approval process; difficulties in obtaining raw
materials and supplies for the Company's products; failure of
corporate partners to commercialize successfully products using
the Company's technology; competition from other companies; the
cost of acquiring additional technology; failure to obtain the
funding necessary for the Company's planned activities; and other
risks identified in this Form 10Q and in Aquila's Securities and
Exchange Commission filings and the exhibits thereto.
8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On April 17, 1997, Institut Pasteur and Pasteur Sanofi Diagnostics
(collevtively, "Pasteur") filed a Petition for a Writ of Certiorari
with the United States Supreme Court asking the Supreme Court to
hear its appeal of the order of the United States District Court
for the District of Massachusetts affirming the confirmation of
of the reorganization plan of Cambridge Biotech Corporation.
Although the Company is not a party to this litigation, if the
Supreme Court were to grant the petition and Pasteur were to be
succesful in its appeal an adverse effect on the Company's
continuing operations could occur if the result of the appeal was
to disrupt transactions which took place pursuant to the
reorganization plan.
The United States District Court for the District of Massachusetts
has allowed the Joint Motion for Dismissal in the case of
Cambridge Biotech Corporation v. Hugh V. Cottingham, Civil
Action No. 96-40219-NMG.
On April 14, 1997, the United States Bankruptcy Court for the
District of Massachusetts, Western Division dismissed the adversary
proceeding (No. 97-4011) filed by the Company on January 14, 1997
against the State of Maryland, Louis Goldstein as Comptroller of
the Treasury of the State of Maryland, Montgomery County, Maryland
and Molly Q. Ruhl, the Clerk of the Circuit Court of Montgomery
County.
9
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule
(b) Reports on Form 8-K - NONE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the duly caused this report to be signed on its behalf by
undersigned thereunto duly authorized.
AQUILA BIOPHARMACEUTICALS, INC
Date: May 14, 1997 /s/ Alison Taunton-Rigby
_____________________________
Alison Taunton-Rigby
President and Chief Executive Officer
/s/ Stephen J. DiPalma
_____________________________
Stephen J. DiPalma
Vice President Finance,
Chief Financial Officer and Treasurer
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This schedule contains summary financial information extracted from Balance
Sheet as of March 31, 1997, Statement of Operations for 3 months ended March 31,
1997, Statement of Cash Flows for 3 months ended March 31, 1997 and Notes to
Unaudited Interim Financial Statements and is qualified in its entirety by
reference to such financial statements.
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