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, 1998, 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 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 ____.
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, 1998
Common Stock Outstanding 6,980,052
AQUILA BIOPHARMACEUTICALS, INC.
Form 10-Q, March 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements Page Number
Balance Sheets as of March 31, 1998
and December 31, 1997..................................2
Statements of Operations for three month
periods ended March 31, 1998 and 1997..................3
Statements of Cash Flows for three month
periods ended March 31, 1998 and 1997..................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 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Item 1 - Financial Statements
Aquila Biopharmaceuticals, Inc.
Balance Sheet
(in thousands)
(unaudited)
Assets 3/31/98 12/31/97
Current Assets:
Cash and cash equivalents $ 15,705 $ 7,352
Marketable securities 5,522 8,552
Accounts receivable - trade (less
allowance for doubtful accounts) 951 1,253
Other receivables 276 372
Inventories 693 679
Prepaid expenses & other current assets 280 238
Total current assets 23,427 18,446
Marketable Securities 0 993
Investments 395 395
Property, Plant, and Equipment, Net 841 614
Patents and Purchased Technology, Net 177 199
Other Assets 769 21
Total Assets $ 25,609 $20,668
Liabilities & Shareholders' Equity
Current Liabilities:
Accounts payable $ 505 $ 290
Accrued royalties 138 150
Accrued professional fees 149 177
Other accrued expenses 1,247 1,731
Deferred revenue - current 2,250 -
Current maturities of long-term debt 69 69
Total Current Liabilities 4,358 2,417
Deferred Revenue 225 225
Long Term Debt 122 139
Total Liabilities 4,705 2,781
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: 5,834,927 shares 58 50
Treasury stock at cost (47) (47)
Additional paid in capital 131,363 127,558
Accumulated Deficit (110,470) (109,674)
Total Shareholders' Equity 20,904 17,887
Total Liabilities and Shareholders' Equity $ 25,609 $ 20,668
The accompanying notes are an integral part of these unaudited
statements.
Aquila Biopharmaceuticals, Inc.
Statement of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended March 31,
1998 1997
Revenue:
Product sales $ 301 $ 307
Research and development 1,040 1,222
Total revenue 1,341 1,529
Cost and expenses:
Cost of sales 257 252
Research and development 1,428 1,343
General & administrative 1,073 1,121
Total costs and expenses 2,758 2,716
Other income, net 621 546
Loss from continuing operations (796) (641)
Discontinued operations:
Gain on disposal 0 191
Net Loss $ (796) $ (450)
Basic and diluted earnings per
weighted average share:
Loss from continuing operations $ (.14) $ (.13)
Income from discontinued operations $ .00 $ .04
Net loss $ (.14) $ (.09)
Weighted average number of
common shares outstanding:
Basic and diluted 5,505 5,000
The accompanying notes are an integral part of these unaudited
financial statements.
Aquila Biopharmaceuticals, Inc.
Statement of Cash Flows
(unaudited),(in thousands)
Three Months Ended March 31,
1998 1997
Cash Flows From Operating Activities:
Net Loss $ (796) $ (450)
Adjustments to reconcile Net Loss
to net cash provided by operating activities:
Depreciation and amortization 64 136
Changes in assets and liabilities:
Accounts and other receivables 398 1,089
Inventories (14) 177
Deferred revenue 2,250 2,451
Prepaid and other current assets (42) 70
Accounts payable and other accrued expenses (309) (1,561)
Net cash provided by
operating activities 1,551 1,912
Cash Flows From Investing Activities:
Purchases of marketable securities 0 (6,963)
Proceeds from maturities of marketable
securities 4,023 4,028
Purchases of property, plant, and equipment (269) (25)
Other non-current assets (748) 0
Net cash provided/(used) by
investing activities 3,006 (2,960)
Cash Flows From Financing Activities:
Payment of long-term obligations (17) (35)
Issuance of stock 3,813 0
Net cash provided/(used) by
financing activities 3,796 (35)
Net increase/(decrease) in cash and
cash equivalents 8,353 (1,083)
Cash and cash equivalents at the beginning
of the year 7,352 9,112
Cash and cash equivalents at the end
of the period $15,705 $8,029
Supplemental disclosures:
Income taxes paid $ 0 $ 0
Interest paid $ 5 $ 104
The accompanying notes are an integral part of these unaudited
financial statements.
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. Certain items have been reclassified to conform to the
current period's presentation.
These interim financial statements should be read in conjunction
with the audited financial statements for the year ended December
31, 1997, which are contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, 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)
3/31/98 12/31/97
Finished goods $ 488 $ 478
Work in process 143 127
Raw materials & supplies 62 74
$ 693 $ 679
3. Earnings per share:
Earnings per share from discontinued operations were $0.04 in
1997. Common stock equivalents of 238,265 and 248,010 in 1998
and 1997, respectively, were excluded from this calculation due
to their anti-dilutive effect. In April 1998, the Company issued
1.15 million shares of Common Stock in connection with the
acquisition of Vactex, Inc.
4. Commitments and Contingencies
Leases
In April 1998, the new facility lease agreement that the Company
entered into for its new research laboratories, manufacturing
facilities and executive offices became effective. The Company
will pay aggregate lease payments of $10.2 million over the next
twelve years. Pursuant to the facility lease, the Company
maintains a fully collatoralized letter-of-credit for $750,000.
No amounts have been drawn down on the letter-of-credit as of
March 31, 1998.
5. Subsequent Event:
In April 1998, the Company acquired Vactex Inc., a development
stage company, for 1.15 million shares of newly issued Common
Stock valued at $8.3 million and a $1.3 million note payable
after April 13, 1999 bearing interest at 7% per annum. The
transaction was accounted for as a purchase and will result in a
charge of approximately $9.6 million in the second quarter of
1998 for the acquisition of incomplete technology.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenue
Total revenues were $1.3 million in the three months ended March
31, 1998 compared to $1.5 million in the same period in 1997, a
decrease of 12%.
First quarter 1998 product revenue from the Company's animal
health care product was unchanged from the same period one year
ago. Research and development revenue decreased from $1.2
million one year ago to $1.0 million due to a lower level of
activity on a project funded by an animal healthcare partner.
Costs and Expenses
First quarter 1998 product cost as a percentage of product
revenues was 85% compared to 82% one year ago due to a change in
the mix of animal healthcare products sold.
Research and development expenses increased 6% from one year ago
to $1.4 million due to initiation of a clinical trial. General
and administrative expenses were $1.1 million, down from the same
period in 1997 due to lower facility costs.
Other Income, Net
Other income net of expenses was $0.6 million for the three
months ended March 31, 1998, compared to $0.5 million for the
same period in 1997, an increase of 14%. The increase resulted
from interest earned on higher invested cash balances.
Liquidity and Capital Resources
Total cash, cash equivalents and marketable securities were $21.2
million at March 31, 1998 compared to $16.9 million at December
31, 1997.
Operating activities provided cash of $1.6 million and $1.9
million in the first quarters of 1998 and 1997, respectively,
primarily the result of annual license fee payments in the first
quarter of each year.
Investing activities provided cash of $3.0 million in the first
quarter of 1998 primarily due to $4.0 million in maturities from the
Company's marketable securities as the Company modified its investment
portfolio in anticipation of the transfer of its portfolio to a new
investment advisor in April, 1998, less the $0.7 million used to establish
collateral for a letter-of-credit for the new facility lease, which
became effective in April, 1998. Investing activities used
cash of $3.0 million in the first quarter of 1997 primarily due
to the net purchase of marketable securities.
Financing activities provided cash $3.8 million from the sale of
Common Stock in a private placement, and option exercises in the
first quarter of 1998.
Aquila expects that its available cash, investments and cash flow
from research contracts and product sales will be sufficient to
finance its planned operations and capital requirements for at
least the next two years.
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.
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.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On February 4, 1998, the Company completed the private placement
of 769,000 shares of its common stock, $.01 par value (the "Shares") in a
transaction exempt under Rule 506 of Regulation D. The Shares were sold
to institutional investors, all of whom the Company believed to be accredited
investors, for a total consideration of $3,551,210.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K filed in 1998
1. Current report on Form 8-K dated April 13, 1998
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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 15, 1998 /s/ Alison Taunton-Rigby
_____________________________
Alison Taunton-Rigby
President and Chief Executive Officer
/s/ James L. Warren
_____________________________
James L. Warren
Vice President Finance,
Chief Financial Officer and Treasurer
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This schedule contains summary financial information extracted from the
Company's Unaudited Balance Sheet as of March 31, 1998, the Statement of
Operations for the three month period ended March 31, 1998 and the Statement of
Operations for the three month period ended March 31, 1998 and is qualified
inits entirety by reference to such unaudited financial statements.
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<CURRENT-ASSETS> 23,427
<PP&E> 12,581
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