<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the quarterly period ended DECEMBER 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 #0-14732
ADVANCED MAGNETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2742593
(State or other jurisdiction (I.R.S. Employer Identification No.)
of organization)
61 MOONEY STREET
CAMBRIDGE, MA 02138
(Address of principal executive offices)
Registrant's telephone number, including area code: 617/497-2070
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
------------- -------------
At February 12, 1998, 6,697,401 shares of registrant's common stock (par value,
$.01) were outstanding.
<PAGE> 2
ADVANCED MAGNETICS, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1997
PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Page 2 of 15
<PAGE> 3
ADVANCED MAGNETICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
------ ------------ -------------
1997 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 13,724,695 $ 10,724,740
Marketable securities (Note B)................................... 22,025,892 27,365,765
Accounts receivable ............................................. 464,597 546,807
Inventories ..................................................... 174,330 113,178
Prepaid expenses ................................................ 581,776 224,868
--------------------- -----------------
Total current assets .......................................... 36,971,290 38,975,358
--------------------- -----------------
Property, plant and equipment:
Land ............................................................ 360,000 360,000
Buildings ....................................................... 4,392,660 4,356,295
Laboratory equipment ............................................ 7,849,750 7,722,445
Furniture and fixtures .......................................... 675,728 645,299
--------------------- -----------------
13,278,138 13,084,039
Less--accumulated depreciation and amortization ................. (7,581,434) (7,332,118)
--------------------- -----------------
Net property, plant and equipment ............................... 5,696,704 5,751,921
--------------------- -----------------
Other assets .................................................... 248,902 248,902
--------------------- -----------------
Total assets ................................................. $ 42,916,896 $ 44,976,181
===================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 708,668 $ 443,925
Accrued expenses ................................................ 458,053 1,059,070
Income taxes payable ............................................ 50,128 50,128
--------------------- -----------------
Total current liabilities ..................................... 1,216,849 1,553,123
Minority interest in subsidiary ................................. 120,879 ---
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized
2,000,000 shares; none issued ................................ --- ---
Common stock, par value $.01 per share,
authorized 15,000,000 shares; issued and
outstanding 6,726,876 shares at December 31, 1997
and 6,740,626 shares at September 30, 1997 ................... 67,269 67,406
Additional paid-in capital ...................................... 44,107,846 44,244,558
Retained deficit ................................................ (7,775,736) (6,095,302)
Net unrealized gains on marketable securities ................... 5,179,789 5,206,396
--------------------- -----------------
Total stockholders' equity .................................... 41,579,168 43,423,058
--------------------- -----------------
Total liabilities and stockholders' equity ...................... $ 42,916,896 $ 44,976,181
===================== =================
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 3 of 15
<PAGE> 4
ADVANCED MAGNETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED
DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED DECEMBER 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
License fees......................................................... $ --- $ 5,500,000
Royalties............................................................ 370,000 125,000
Product sales........................................................ 4,560 666,462
Interest, dividends and net gains
and losses on sales of securities.................................. 992,013 746,446
------------------------------------------------
Total revenues.................................................. 1,366,573 7,037,908
------------------------------------------------
Cost and expenses:
Cost of product sales................................................ 5,805 143,196
Research and development expenses.................................... 2,251,626 2,296,576
Selling, general and administrative
expenses........................................................... 862,874 321,183
------------------------------------------------
Total costs and expenses........................................ 3,120,305 2,760,955
------------------------------------------------
Income (loss) before provision for income
taxes and minority interest in subsidiary.......................... (1,753,732) 4,276,953
Provision for income taxes........................................... --- ---
------------------------------------------------
Income (loss) before minority interest in
subsidiary......................................................... (1,753,732) 4,276,953
Minority interest in subsidiary......................................... 73,298 ---
------------------------------------------------
Net income (loss)....................................................... $ (1,680,434) $ 4,276,953
================================================
------------------------------------------------
Basic and diluted income (loss) per share............................... $ (0.25) $ 0.63
------------------------------------------------
Weighted average number of common
and common equivalent shares....................................... 6,734,589 6,833,175
================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 15
<PAGE> 5
ADVANCED MAGNETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE QUARTERS ENDED
DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended December 31,
--------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers........................................ $ 493,205 $ 5,750,755
Cash paid to suppliers and employees................................ (3,474,377) (1,939,082)
Dividends and interest received..................................... 225,279 251,229
--------------------------------------------
Net cash provided by (used in) operating activities................. (2,755,893) 4,062,902
--------------------- -------------------
Cash flows from investing activities:
Purchase of securities.............................................. (3,114,620) (4,329,087)
Proceeds from sales of marketable securities........................ 4,201,416 2,676,288
Proceeds from notes and bonds maturing.............................. 5,000,000 ---
Capital expenditures................................................ (194,099) (64,281)
--------------------- -------------------
Net cash provided by (used in) investing activities................. 5,892,697 (1,717,080)
--------------------- -------------------
Cash flows from financing activities:
Proceeds from issuances of common stock............................. 19,500 (12)
Purchase of Treasury Stock.......................................... (156,349) (311,203)
--------------------- -------------------
Net cash provided by (used in) financing activities................. (136,849) (311,215)
--------------------- -------------------
Net increase (decrease) in cash and cash equivalents................ 2,999,955 2,034,607
Cash and cash equivalents at beginning of the quarter............... 10,724,740 10,805,842
--------------------- -------------------
Cash and cash equivalents at end of the quarter..................... $ 13,724,695 $ 12,840,449
===================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 15
<PAGE> 6
ADVANCED MAGNETICS, INC.
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES
FOR THE QUARTERS ENDED
DECEMBER 31, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended December 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Net income (loss)................................................................... $ (1,680,434) $ 4,276,953
------------ -------------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Non-cash reduction in value of investment in subsidiary............................. 194,177 ---
Minority interest in subsidiary..................................................... (73.298) ---
Depreciation and amortization....................................................... 249,316 271,365
(Increase) decrease in accounts receivable.......................................... 82,210 (681,026)
(Increase) decrease in prepaid expenses............................................. (356,908) (136,912)
(Increase) decrease in inventories.................................................. (61,152) 132,649
Increase (decrease) in accounts payable and accrued expenses....................... (336,274) 554,770
Net realized (gains) losses on sales of marketable securities....................... (767,030) (346,001)
Accretion of U.S. Treasury Notes discount........................................... (6,500) (8,896)
------------ -------------
Total adjustments................................................................... (1,075,459) (214,051)
------------ -------------
Net cash provided by (used in) operating activities................................. $ (2,755,893) $ 4,062,902
============ =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 6 of 15
<PAGE> 7
ADVANCED MAGNETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
A. Summary of Accounting Policies.
Founded in November 1981, Advanced Magnetics, Inc., a Delaware
corporation (the "Company"), is a biopharmaceutical company engaged in the
development and manufacture of compounds utilizing the Company's core
proprietary colloidal superparamagnetic particle technology for magnetic
resonance imaging ("MRI") and for polysaccharide directed drug delivery systems.
The initial products developed by the Company are diagnostic imaging agents for
use in conjunction with MRI to aid in the diagnosis of cancer and other diseases
In October 1997, the Company acquired approximately 80.7% of the issued
and outstanding capital stock of Kalisto Biologicals, Inc. ("Kalisto"). The
consolidated balance sheet of the Company as of December 31, 1997 and the
consolidated statement of operations and cash flows for the quarter then ended
include the accounts of Kalisto. All significant intercompany balances and
transactions have been eliminated. These financial statements are unaudited and
in the opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been recorded. Such adjustments consisted only
of normal recurring items. Certain amounts in the fiscal 1997 financial
statement have been reclassified to conform with the fiscal 1998 presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The fiscal year-end balance sheet data was derived from audited
financial statements, but does not include disclosures required by generally
accepted accounting principles. It is suggested that these interim financial
statements be read in conjunction with the Company's most recent Form 10-K and
Annual Report as of September 30, 1997.
In October 1997, the Company acquired approximately 80.7% of the issued
and outstanding capital stock of Kalisto Biologicals, Inc. ("Kalisto"), an
early-stage company that intends to develop, manufacture and market veterinary
and food testing systems and products.
B. Marketable Securities.
The cost and market value of the marketable securities portfolio are as
follows:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
--------------------------------------------- -------------------------------------------
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
U. S. government securities
Due in one year or less $ --- $ --- $ 5,000,000 $ 4,998,900
Due after one through five years 7,438,569 7,450,800 7,438,569 7,429,650
Preferred stock 6,615,628 10,139,867 2,604,711 3,092,335
Common Stock 2,791,906 4,435,225 7,116,089 11,844,880
---------------- ---------------- ---------------- ----------------
$ 16,846,103 $ 22,025,892 $ 22,159,369 $ 27,365,765
================ ================ ================ ================
</TABLE>
Page 7 of 15
<PAGE> 8
C. Income Taxes.
There was no income tax provision for the first fiscal quarter ended
December 31, 1997 and 1996 due to an operating loss in the quarter ended
December 31, 1997 and the availability of a net loss carry forwards in the
quarter ended December 31, 1996.
D. Earnings (loss) per share.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share" which requires
disclosure of Basic Earnings per Common Share and Diluted Earnings per Common
Share for all periods presented. Adoption of this statement has not affected the
amounts presented in any period. The weighted average common and common
equivalent shares used in the computation of basic and diluted earnings per
share is presented below. As a result of a net loss in the quarter ended
December 31, 1997, common stock equivalents are not included in the calculation
of weighted average shares since their effect would be antidilutive.
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
Weighted average number of shares issued and outstanding 6,743,589 6,742,358
Common stock equivalents --- 90,817
----------------- ------------------
As adjusted 6,743,589 6,833,175
================= ==================
</TABLE>
E. Legal Proceedings.
The Company and certain of its officers were sued in an action in the
United States District Court for the District of Massachusetts on September 3,
1992. The plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on certain of the Company's
patents and on pending applications, and seeks injunctive relief and unspecified
monetary damages. The plaintiff filed a related case in the Superior Court of
the Commonwealth of Massachusetts. The Superior Court has dismissed some of the
claims on summary judgment. While the final outcome of these actions cannot be
determined, the Company believes that the plaintiff's claims are without merit
and intends to defend the actions vigorously.
The Company filed suit on October 7, 1997 against Sanofi Winthrop, Inc.
and Sanofi SA (collectively, "Defendants") in the Superior Court of the
Commonwealth of Massachusetts. The Company claims that the Defendants tortiously
interfered with a license, supply and marketing agreement (the "Agreement"), and
seeks unspecified monetary damages. In addition, the Company seeks a declaration
that the Defendants do not have any rights under the Agreement and that the
Company has not breached the Agreement. Sanofi Winthrop, Inc. filed
counterclaims against the Company on February 4, 1998 seeking compensatory
damages of $11,500,000 and multiple damages as a result of the Company's alleged
breach of the Agreement. While the final outcome of these claims and
counterclaims cannot be determined, the Company will pursue its claims
vigorously, and believes that the Sanofi Winthrop, Inc. counterclaims are
without merit and intends to defend them vigorously.
Page 8 of 15
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This document contains forward looking statements. Any statements
contained herein that do not describe historical facts are forward looking
statements. The forward looking statements contained herein are based on current
expectations, but are subject to a number of risks and uncertainties. The facts
that could cause actual results to differ materially from current expectations
include the following: the ability to successfully market Feridex I.V. and
GastroMARK, the timing and result of FDA action, delays in arrangements with
clinical investigations, uncertainties relating to results of the clinical
trials of Combidex and other product candidates, the Company's dependence on its
corporate partners, the Company's ability to obtain future financing,
uncertainties relating to patents and proprietary rights, the ability of the
Company to compete successfully in the future and the risks identified in the
Company's Securities and Exchange Commission filings, including but not limited
to its Form 10-K for the year ended September 30, 1997.
OVERVIEW
Since its inception in November 1981, Advanced Magnetics, Inc.
("Advanced Magnetics" or the "Company") has focused its efforts on developing
applications of its core magnetic particle technology. This has led to the
development of magnetic resonance imaging (MRI) contrast agents as well as
polysaccharide technology for targeted delivery of antiviral therapeutics. The
Company has funded its operations with cash from license fees from corporate
partners, royalties, sales of its products, fees from contract research
performed for third parties, the proceeds of financings and income earned on
invested cash. The Company's success in the market for diagnostic and
therapeutic products will depend, in part, on the Company's ability to:
successfully develop, test, produce and market its products; obtain necessary
governmental approvals in a timely manner; attract and maintain key employees;
and successfully respond to technological changes in its marketplace.
The Company's operating results may continue to vary significantly from
quarter to quarter or from year to year depending on a number of factors,
including: the timing of payments from corporate partners and research grants;
the introduction of new products by the Company; the timing and size of orders
from the Company's customers; and the acceptance of the Company's products. The
Company's current planned expense levels are based in part upon expectations as
to future revenue. Consequently, profits may vary significantly from quarter to
quarter or year to year based on the timing of revenue. Revenue or profits in
any period will not necessarily be indicative of results in subsequent periods
and there can be no assurance that the Company will be profitable or that
revenue growth will be achieved in the future.
In October 1997, the Company acquired approximately 80.7% of the issued
and outstanding capital stock of Kalisto Biologicals, Inc. ("Kalisto"), an
early-stage company that intends to develop, manufacture and market veterinary
and food testing systems and products. The Company's results of operations
reflect the operations of Kalisto for the period from the date of acquisiton
until December 31, 1997.
Page 9 of 15
<PAGE> 10
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1997 AS COMPARED TO THE
QUARTER ENDED DECEMBER 31, 1996.
REVENUES
Revenues for the fiscal quarter ended December 31, 1997 were $1,366,573 compared
to $7,037,908 for the fiscal quarter ended December 31, 1996.
There were no license fee revenues for the fiscal quarter ended December 31,
1997. License fee revenues for the fiscal quarter ended December 31, 1996 were
$5,500,000. On September 3, 1996, the Company and Berlex Laboratories, Inc.
("Berlex") announced that the United States Food and Drug Administration ("FDA")
granted marketing approval for Feridex I.V. The Company received a $5,000,000
milestone payment from Berlex on October 15, 1996 as a result of Berlex's market
launch of Feridex I.V. in the United States. The Company also received approval
for GastroMARK(TM) on December 6, 1996. As a result of this action, the Company
received a milestone payment of $500,000 from its U.S. marketing partner,
Mallinckrodt Medical, Inc.
Royalties for the fiscal quarter ended December 31, 1997 of $370,000 were
related primarily to the product launch of Feridex I.V. in Japan. Royalties for
the fiscal quarter ended December 31, 1996 were $125,000 relating mainly to the
product launch of Feridex I.V. in the United States by Berlex.
There were product sales of $4,560 in the fiscal quarter ended December 31,
1997, related primarily to the initial sales by the Company's recently acquired
subsidiary, Kalisto. Product sales for the fiscal quarter ended December 31,
1996 were $666,462, reflecting the sale of product to Berlex for the launch of
Feridex I.V. in the United States.
Interest, dividends and gains and (losses) on sales of securities resulted in
revenues of $992,013 in the fiscal quarter ended December 31, 1997 compared to
$746,446 for the fiscal quarter ended December 31, 1996. Interest, dividends and
net gains (losses) on sales of securities consisted of the following:
<TABLE>
<CAPTION>
First Quarter Ended December 31,
--------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income $ 201,093 $ 312,971
Dividend income 23,890 87,474
Net gains on sales of securities 767,030 346,001
------------------------ -----------------------
Total $ 992,013 $ 746,446
======================== =======================
</TABLE>
Interest income for the fiscal quarter ended December 31, 1997 was $111,878 less
than the fiscal quarter ended December 31, 1996, primarily due to the maturity
of United States Treasury Notes. Dividend income of $23,890 for the quarter
ended December 31, 1997 was $63,584 less than the $87,474 for the fiscal quarter
ended December 31, 1996. The decrease was primarily due to the timing of
dividends during the fiscal quarter ended December 31, 1997. There were net
gains on sales of securities of $767,030 for the fiscal quarter ended December
31, 1997 compared to net gains on sales of securities of $346,001 for the fiscal
quarter ended December 31, 1996. The increase is due to the appreciation in
value of certain securities.
Page 10 of 15
<PAGE> 11
COSTS AND EXPENSES
The cost of product sales for the fiscal quarter ended December 31, 1997 was
$5,805. The cost of product sales for the fiscal quarter ended December 31, 1996
was $143,196. The cost of product sales for the fiscal quarter ended December
31, 1997 relates to Kalisto products as there were no other product sales. The
cost of product sales for the fiscal quarter ended December 31, 1996 relates to
sale of the Company's Feridex I.V. product.
Research and development expenses for the fiscal quarter ended December 31, 1997
were $2,251,626 compared to $2,296,576 for the fiscal quarter ended December 31,
1996. The decrease was primarily the result of a $400,000 one-time milestone
payment to a licensor during the quarter ended December 31, 1996, offset by
research activities related to Kalisto during the fiscal quarter ended December
31, 1997.
Selling, general and administrative expenses for the fiscal quarter ended
December 31, 1997 were $862,874, an increase of $541,691 from $321,183 for the
fiscal year ended December 31, 1996. The increase was primarily due to several
factors, including the inclusion of Kalisto expenses for the first time during
the fiscal quarter ended December 31, 1997. Kalisto had costs of approximately
$320,000 which included a one-time sales and marketing fee of $150,000, while
Advanced Magnetics incurred costs of approximately $100,000 by attending the
Radiological Society of North America convention for the first time.
INCOME TAXES
There was no income tax provision for the fiscal quarter ended December 31, 1997
because of a net operating loss. There was no income tax provision for the
fiscal quarter ended December 31, 1996 due to the estimated net operating loss
carry-forward.
EARNINGS
In the fiscal quarter ended December 31, 1997, the Company recorded a net loss
of ($1,680,434) or ($0.25) per share. In the fiscal quarter ended December 31,
1996, the Company recorded a net income of $4,276,953 or $0.63 per share.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share" which requires
disclosure of Basic Earnings per Common Share and Diluted Earnings per Common
Share for all periods presented.
Adoption of this statement has not affected the amounts presented in any period.
Page 11 of 15
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's cash and cash equivalents totaled
$13,724,695, representing an increase of $2,999,955 from September 30, 1997. In
addition, the Company had marketable securities of $22,025,892 at December 31,
1997 as compared to $27,365,765 on September 30, 1997. Net cash used in
operating activities was $2,755,892 in the fiscal quarter ended December 31,
1997 compared to net cash provided by operating activities of $4,062,902 in the
fiscal quarter ended December 31, 1996. The decrease in cash provided by
operating activities was primarily due to the increase in amounts paid to
vendors and licensors during the quarter ended December 31, 1997, and the
reduction of $5,500,000 in license fees received during the quarter ended
December 31, 1996. Cash generated by investing activities in the fiscal quarter
ended December 31, 1997 was $5,892,696 compared with cash used by investing
activities of $1,717,080 for the fiscal quarter ended December 31, 1996. Cash
provided by investing activities in the fiscal quarter ended December 31, 1997
included $4,201,416 from the sale of marketable securities and the maturity of
$5,000,000 in U.S. Government notes. Offsetting these proceeds was the purchase
of marketable securities of $3,114,620, in the fiscal quarter ended December 31,
1997. Cash used in financing activities during the fiscal quarter ended December
31, 1997 was $136,849. The Company sold $19,500 in common stock, while also
repurchasing 16,800 shares of the Company's common stock on the open market for
$156,349. This compares with cash used in financing activities of $311,215 for
the fiscal quarter ended December 31, 1996, principally as a result of the
purchase of 20,000 shares of the Company's common stock on the open market for
$311,203. In November 1997, the Board of Directors authorized the purchase of
up to an additional 250,000 shares of the Company's common stock on the open
market, from time to time, at prevailing market prices.
Capital expenditures in the fiscal quarter ended December 31, 1997 were $194,099
compared to $64,281 in the fiscal quarter ended December 31, 1996, reflecting
the Company's efforts to upgrade existing equipment and the research activities
of Kalisto.
Management believes that funds for future needs can be generated from existing
cash balances, cash generated from investing activities and cash generated from
operations. In addition, the Company will consider from time to time various
financing alternatives that may seek to raise additional capital through equity
or debt financing or to enter into corporate partnering arrangements. There can
be no assurance, however, that funding will be available on terms acceptable to
the Company, if at all.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB recently issued Statement No 130 ("SFAS 130"), "Reporting
Comprehensive Income". This statement requires changes in comprehensive income
to be shown in a financial statement that is displayed with the same prominence
as other financial statements. While not mandating a specific financial
statement format, SFAS 130 requires that an amount representing total
comprehensive income be reported. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods is required for comparative purposes. The Company believes the
implementation of SFAS 130 may have a material impact on results of operations.
The FASB also issued Statement No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". This Statement, which
supersedes Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise," changes the way public companies report information about segments.
SFAS 131, which is based on the management approach to segment reporting,
includes requirements to report segment information quarterly and entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenues. SFAS 131 is
effective for periods beginning after December 15, 1997. Restatement for earlier
years is required for comparative purposes unless impracticable. In addition,
SFAS 131 need not be applied to interim periods in the initial year, however, in
subsequent years, interim period information must be presented on a comparative
basis. The Company is currently evaluating this Statement and its effect on
financial statement disclosures.
Page 12 of 15
<PAGE> 13
ITEM 3 - LEGAL PROCEEDINGS.
The Company filed suit on October 7, 1997 against Sanofi Winthrop, Inc.
and Sanofi SA (collectively, "Defendants") in the Superior Court of the
Commonwealth of Massachusetts. The Company claims that the Defendants tortiously
interfered with a license, supply and marketing agreement (the "Agreement"), and
seeks unspecified monetary damages. In addition, the Company seeks a declaration
that the Defendants do not have any rights under the Agreement and that the
Company has not breached the Agreement. Sanofi Winthrop, Inc. filed
counterclaims against the Company on February 4, 1998 seeking compensatory
damages of $11,500,000 and multiple damages as a result of the Company's alleged
breach of the Agreement. While the final outcome of these claims and
counterclaims cannot be determined, the Company will pursue its claims
vigorously, and believes that the Sanofi Winthrop, Inc. counterclaims are
without merit and intends to defend them vigorously.
Page 13 of 15
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11 Statement re: Computation of per share earnings
Exhibit 27.1 Financial Data Schedule (EDGAR filing only)
The Company did not file any current reports on Form 8-K during the
quarter ended December 31, 1997.
Page 14 of 15
<PAGE> 15
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.
ADVANCED MAGNETICS, INC.
Date By /s/ Jerome Goldstein
---------------------------- --------------------------------
Jerome Goldstein, President,
Treasurer and Chairman of the
Board of Directors
Date By /s/ James A. Matheson
---------------------------- --------------------------------
James A. Matheson, Vice President
and Principal Accounting Officer
Page 15 of 15
<PAGE> 1
ADVANCED MAGNETICS, INC.
Exhibit 11 - Statement re: Computation of Per Share Earnings
Attached to and made part of Part II of Form 10-Q for the
Three-Month Periods Ended December 31, 1997 and 1996 (unaudited)
<TABLE>
<CAPTION>
December 31
----------------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
Weighted average number of shares issued and outstanding 6,743,589 6,742,358
Common stock equivalents --- 90,817
------------------ ------------------
As adjusted 6,743,589 6,833,175
================== ==================
</TABLE>
As a result of a net loss in the quarter ended December 31, 1997, common stock
equivalents are not included in the calculation of weighted average shares when
their effect would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM
10-Q, DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,724,695
<SECURITIES> 22,025,892
<RECEIVABLES> 464,597
<ALLOWANCES> 0
<INVENTORY> 174,330
<CURRENT-ASSETS> 36,971,138
<PP&E> 13,278,138
<DEPRECIATION> 7,581,434
<TOTAL-ASSETS> 42,916,896
<CURRENT-LIABILITIES> 1,216,849
<BONDS> 0
0
0
<COMMON> 67,269
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,916,896
<SALES> 4,560
<TOTAL-REVENUES> 1,366,573
<CGS> 5,805
<TOTAL-COSTS> 3,120,305
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,753,732)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 73,298
<CHANGES> 0
<NET-INCOME> (1,680,434)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
