<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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,
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 0-20023
ALPHA-BETA TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-2997834
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Innovation Drive
Worcester, MA 01605
(Address of principal executive offices)
508-798-6900
(Registrant's telephone number, including area code)
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 registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 7, 1996
----- --------------------------
Common stock, $.01 par value 16,700,685
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ALPHA-BETA TECHNOLOGY, INC.
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
----------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1995, and
March 31, 1996 ..........................................................................3
Condensed Consolidated Statements of Operations for the three month periods
ended March 31, 1995 and 1996, and from the period of inception through
March 31, 1996 ..........................................................................4
Condensed Consolidated Statements of Cash Flows for the three month periods
ended March 31, 1995 and 1996, and from the period of inception through
March 31, 1996 ..........................................................................5
Notes to Condensed Consolidated Financial Statements ....................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..........................................................8
PART II. OTHER INFORMATION:
------------------
Item 1. Legal Proceedings .................................................................11
Item 2. Changes in Securities .............................................................11
Item 3. Defaults Upon Senior Securities ...................................................11
Item 4. Submission of Matters to a Vote of Security Holders ...............................11
Item 5. Other Information .................................................................11
Item 6. Exhibits and Reports on Form 8-K ..................................................11
SIGNATURES ......................................................................................12
- - ----------
</TABLE>
<PAGE> 3
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1995 1996
------------ ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,120,843 $ 52,538,722
Marketable securities 18,343,066 9,036,113
Other current assets 542,361 434,847
------------ ------------
Total current assets 29,006,270 62,009,682
------------ ------------
Property and equipment, net of accumulated depreciation and amortization 30,863,374 30,176,403
------------ ------------
Other assets:
Restricted cash 381,347 381,347
Bond issuance costs, net 1,128,998 1,113,845
Other 184,153 179,591
------------ ------------
1,694,498 1,674,783
------------ ------------
$ 61,564,142 $ 93,860,868
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable and
capital lease obligations $ 1,250,545 $ 1,185,467
Accounts payable 960,876 1,411,222
Accrued expenses 507,719 504,576
------------ ------------
Total current liabilities 2,719,140 3,101,265
------------ ------------
Term notes payable and capital lease obligations, net of current portion 26,726,336 26,490,315
------------ ------------
Stockholders' equity :
Preferred stock, $.01 par value - authorized -- 1,000,000 shares, issued - none -- --
Common stock, $.01 par value - authorized -- 30,000,000 shares, issued and
outstanding -- 13,650,274 shares and 16,692,970 shares at December 31,
1995 and March 31, 1996, respectively 136,502 166,929
Additional paid-in capital 108,090,944 147,365,888
Deficit accumulated during the development stage (75,840,456) (83,144,475)
Deferred compensation (268,324) (119,054)
------------ ------------
Total stockholders' equity 32,118,666 64,269,288
------------ ------------
$ 61,564,142 $ 93,860,868
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
------------------------ March 31,
1995 1996 1996
---- ---- -------------
<S> <C> <C> <C>
Revenues:
Interest $ 519,673 $ 447,396 $ 5,933,681
Other 27,200 1,584 314,545
----------- ----------- ------------
Total revenues 546,873 448,980 6,248,226
----------- ----------- ------------
Expenses:
Research and development 5,020,947 5,744,315 63,837,988
General and administrative 1,196,006 1,119,832 19,100,886
Interest 862,881 841,995 6,468,147
----------- ----------- ------------
Total expenses 7,079,834 7,706,142 89,407,021
----------- ----------- ------------
Net loss $(6,532,961) $(7,257,162) $(83,158,795)
=========== =========== ============
Net loss per common share $ (0.56) $ (0.50)
=========== ===========
Weighted average number of common
shares outstanding 11,676,913 14,438,157
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
--------------------- March 31,
1995 1996 1996
---- ---- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,532,961) $(7,257,162) $(83,158,795)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 1,091,462 864,541 9,416,588
Amortization of investment premium 7,702 40,588 1,730,143
Amortization of deferred financing and bond issuance costs 57,689 57,688 403,923
Noncash compensation related to stock options,
warrants and common stock 112,841 109,668 2,022,909
Changes in assets and liabilities:
Other current assets 30,415 107,514 (434,847)
Accounts payable (312,198) 450,346 1,411,222
Accrued expenses 13,336 (3,143) 504,576
----------- ----------- ------------
Net cash used for operating activities (5,531,714) (5,629,960) (68,104,281)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in marketable securities 412,882 9,219,509 (10,751,942)
Increase in property and equipment (263,835) (177,570) (39,072,602)
Increase in restricted cash -- -- (32,807,084)
Payments from restricted cash -- -- 32,425,737
Decrease (increase) in other assets (3,814) 4,562 (256,659)
Increase in bond issuance costs -- -- (1,303,237)
----------- ----------- ------------
Net cash used for (provided by) investing activities 145,233 9,046,501 (51,765,787)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes payable to stockholders -- -- 2,300,000
Proceeds from equipment line of credit 166,344 -- 3,261,600
Payments on capital lease obligations (8,504) (3,155) (172,191)
Proceeds from term notes payable -- -- 27,835,947
Payments on term notes payable (321,275) (340,479) (2,983,068)
Proceeds from sale of convertible redeemable preferred stock, net
of issuance costs -- -- 24,560,465
Proceeds from issuance of common stock, net of issuance costs 14,205 39,344,972 117,606,037
----------- ----------- ------------
Net cash provided by (used for) financing activities (149,230) 39,001,338 172,408,790
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (5,535,711) 42,417,879 52,538,722
Cash and cash equivalents, beginning of period 18,667,550 10,120,843 --
----------- ----------- ------------
Cash and cash equivalents, end of period $13,131,839 $52,538,722 $ 52,538,722
=========== =========== ============
Interest paid (net of capitalized interest) $ 862,881 $ 841,995 $ 6,474,088
=========== =========== ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
------------------- March 31,
1995 1996 1996
---- ---- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment under capital lease ........................................ $ -- $ -- $ (178,886)
Furniture and equipment under capital lease .......................... -- -- 178,886
Conversion of line of credit to term note payable .................... -- -- (2,144,525)
Issuance of term note payable ........................................ -- -- 2,144,525
Grant of common stock ................................................ 12,749 12,143 153,643
Compensation related to common stock grant ........................... (12,749) (12,143) (153,643)
Cancellation of stock options ........................................ (257) (51,744) (163,581)
Grant of stock options and restricted stock .......................... -- -- 1,996,153
Deferred compensation on stock options and restricted stock .......... 257 51,744 (1,832,572)
Grant of warrants .................................................... -- -- 132,000
Deferred compensation on warrants .................................... -- -- (132,000)
Conversion of subordinated notes payable to redeemable preferred stock -- -- (2,300,000)
Issuance of redeemable preferred stock ............................... -- -- 2,300,000
Conversion of redeemable preferred stock to common stock ............. -- -- (20,674,454)
Common stock ......................................................... -- -- 20,674,454
Other assets ......................................................... -- -- (50,000)
Issuance costs associated with proceeds on sale of redeemable
preferred stock ................................................... -- -- 50,000
Note payable ......................................................... -- -- 2,679,165
Grant of warrants .................................................... -- -- 974,627
Note payable discount ................................................ -- -- (3,653,792)
Unrealized losses on marketable securities ........................... 54,455 46,856 (14,321)
Accumulated deficit .................................................. (54,455) (46,856) 14,321
Capitalized interest in property and equipment ....................... -- -- (312,476)
Amortization of bond issuance costs .................................. -- -- 83,315
Amortization of note payable discount ................................ -- -- 229,161
-------- -------- ------------
$ -- $ -- $ --
======== ======== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim unaudited condensed consolidated financial statements contained
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information. They do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In management's opinion, the unaudited
information includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The results of
operations for the interim periods shown in this report are not necessarily
indicative of results expected for the full year. The financial statements
should be read in conjunction with the financial statements and notes for the
year ended December 31, 1995, included in the Company's Annual Report on Form
10-K.
2. NET LOSS PER COMMON SHARE
For the three month periods ended March 31, 1995 and 1996, net loss per
common share was computed using the weighted average number of common shares
outstanding during the period.
<TABLE>
3. MARKETABLE SECURITIES
The amortized cost and estimated fair market values of the Company's
securities at March 31, 1996 are presented below. The Company did not realize
any gains or losses from securities sold in the three months ended March 31,
1996 and 1995.
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES AVAILABLE FOR SALE COST GAINS LOSSES VALUE
----------------------------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Government obligations
(average maturity of 1 month) $1,993,584 $ 5,816 $0 $1,999,400
Corporate debt securities (average
maturity of 1.3 months) 7,028,209 8,504 0 7,036,713
---------- ------- -- ----------
$9,021,793 $14,320 $0 $9,036,113
========== ======= == ==========
</TABLE>
4. STOCK OFFERING
On March 8, 1996, the Company completed a $42 million public stock offering
by selling 3,000,000 shares of common stock at $14 per share. The net proceeds
from this offering totaled approximately $39,295,000.
7
<PAGE> 8
ALPHA-BETA TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in March 1988, Alpha-Beta Technology, Inc. has been
engaged in research and development of new classes of carbohydrate products. The
Company has not received significant revenues from the sale of its products and
expects to incur substantial operating losses for the next several years. As of
March 31, 1996, the Company's accumulated deficit was $83,144,475.
RESULTS OF OPERATIONS
Revenues
- - --------
Revenues to date have consisted primarily of interest earned from the
investment of cash balances. For the three month period ended March 31, 1996 and
1995, revenues were $448,980 and $546,873, respectively. This decrease of
$97,893 was primarily due to less interest earned as a result of lower effective
yields on cash balances in the first quarter of 1996 compared with the first
quarter of 1995, as well as a one-time research product sale in the first
quarter of 1995.
Operating Expenses
- - ------------------
For the three month period ended March 31, 1996 and 1995, research and
development expenses were $5,020,947 and $5,744,315, respectively. This increase
of $723,368 was primarily due to costs related to conducting the Phase III
clinical trial for Betafectin. The Company expects research and development
expenses to continue to increase over 1995 levels for the remainder of 1996 and
in future years, reflecting activities related to performing clinical trials of
Betafectin in surgery and other indications and the development of additional
products.
For the three month period ended March 31, 1996 and 1995, general and
administrative expenses were $1,119,832 and $1,196,006, respectively. The
decrease of $76,174 was primarily due to a decrease in rent expense as a result
of a refund received in 1996 for 1995 estimated operating expenses and a
decrease in the amortization of certain leasehold improvements. General and
administrative expenses are not expected to significantly increase over 1995
levels in 1996; however, these expenses are expected to increase in future years
reflecting the planned efforts to commercialize Betafectin.
For the three month periods ended March 31, 1996 and 1995, interest expense
was $841,995 and $862,881, respectively. This decrease of $20,886 was primarily
due to lower loan balances in the first quarter of 1996 compared with the first
quarter of 1995.
Net Loss
- - --------
The net loss for the three months ended March 31, 1996 was $7,257,162
($0.50 per share) compared to $6,532,961 ($0.56 per share) for the same period
in 1995.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company had $61,574,835 in cash equivalents and marketable
securities at March 31, 1996, compared to $28,463,909 at December 31, 1995. This
increase was principally due to the approximately $39,295,000 of net proceeds
received from the March 1996 stock offering, offset in part by approximately
$5,630,000 of cash used for operating activities for the three months ended
March 31, 1996.
Since its inception, the Company has invested approximately $5,342,000
in property and equipment, exclusive of costs related to the investment in the
Betafectin commercial manufacturing facility. The property and equipment have
been financed in large part by approximately $3,731,000 in loans, of which
approximately $1,504,000 was outstanding as of March 31, 1996.
The Company expects to incur substantial additional operating expenses
in 1996 and in future years related to research, development, and clinical
studies of Betafectin and other products, as well as expansion of commercial
manufacturing and the establishment of sales and marketing capabilities. As of
March 31, 1996, the Company had working capital of approximately $58,908,000.
On March 8, 1996, the Company completed a $42 million public stock
offering by selling 3,000,000 shares of common stock at $14 per share. The net
proceeds from this offering totaled approximately $39,295,000. Based on its
current plans, the Company anticipates that its existing capital resources will
enable it to maintain its current and planned operations and capital
expenditures into 1998. The Company's capital requirements will depend upon
numerous other factors, including the progress of the Company's research and
development programs, preclinical testing and clinical trials, the timing and
cost of obtaining regulatory approvals, and the costs associated with expanding
manufacturing and establishing marketing capabilities. The Company may raise
additional funds prior to the completion of its Phase III clinical trial for
Betafectin through strategic alliances, equity or debt financings or other
arrangements. There can be no assurance that additional funds will be available
on favorable terms or that the Company will enter into collaborative or other
arrangements.
On March 25, 1996, the Company terminated an option agreement that it
had exercised on February 16, 1996, to acquire eight acres of land adjacent to
its Betafectin manufacturing facility in Smithfield, Rhode Island. In exchange
for teminating this option, the Company acquired an eighteen month option to
purchase for $550,000, approximately 12 acres in a different parcel of land
adjacent to its Betafectin manufacturing facility. This transaction is subject
to the State of Rhode Island's acquisition of the underlying parcel of land.
The Company currently does not anticipate making any substantial expenditures
of incurring any substantial commitments with respect to the development of the
property prior to the receipt of the results from its Phase III trial for
Betafectin.
In its Phase III clinical trial of Betafectin for the prevention of
post-surgical infection, the Company plans for approximately three-quarters of
treated patients to receive Betafectin produced at its commercial manufacturing
facility in Smithfield, Rhode Island. Following FDA approval last December to
use Betafectin produced in the commercial facility, the Company added 24 new
centers to the study, bringing the total number of participating hospitals to
40. For the month of April, study enrollment was 92 patients. Monthly enrollment
is expected to increase as the new clinical sites add patients to the study. As
of May 8, 1996, 485 patients of 1,200 had been enrolled in the trial. The
Company expects to complete patient enrollment in the fall of 1996.
The Company's first clinical trial under an IND for hematopoietic
indications was completed during the first quarter of 1996. This Phase I study
was designed to evaluate the effect of increasing doses of Betafectin with or
without growth factor support on parameters such as the number of PBPC's
(Peripheral Blood Precursor Cells), total white blood cell count and absolute
neutrophil count. The objectives of the study include the assessment of safety
and tolerance of the combination of Betafectin with
9
<PAGE> 10
multiple doses of growth factor therapy. The randomized, double-blind study
enrolled 25 subjects. Results of the first part of the study utilizing
Betafectin alone showed increases in PBPC count and were consistent with the
preclinical results. The second part of the study investigating the combination
of Betafectin with growth factor therapy indicated that Betafectin is well
tolerated when administered with growth factor therapy, and showed evidence of
up to a 2-to-4- fold augmentation of PBPC mobilization. The Company is
currently evaluating its clinical development plans for hematopoietic
indications in light of these results and currently available therapies.
CERTAIN FACTORS AFFECTING FUTURE EVENTS AND RESULTS
This Form 10-Q to Stockholders contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual events and results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such difference include but are not limited to the
following: the timing and adequacy of patient accruals for the Company's Phase
III trial for Betafectin; the results of the Company's Phase III trial and for
its other clinical development programs; obtaining the requisite regulatory
approvals for the Company's products from the U.S. Food and Drug Administration;
the competitive environment and market conditions for the biotechnology
industry; and general economic conditions.
10
<PAGE> 11
PART II. OTHER INFORMATION
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. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits. None
B. Reports on Form 8-K. None
11
<PAGE> 12
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.
ALPHA-BETA TECHNOLOGY, INC.
Date: May 13, 1996 By: /s/ AUGUSTINE LAWLOR
------------ -----------------------------------------
Augustine Lawlor, Vice President, Finance
and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-29-1996
<EXCHANGE-RATE> 1
<CASH> 52,538,722
<SECURITIES> 9,036,113
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,009,682
<PP&E> 39,561,508
<DEPRECIATION> 9,385,105
<TOTAL-ASSETS> 93,860,868
<CURRENT-LIABILITIES> 3,101,265
<BONDS> 26,490,315
<COMMON> 166,929
0
0
<OTHER-SE> 63,935,430
<TOTAL-LIABILITY-AND-EQUITY> 93,860,868
<SALES> 1,584
<TOTAL-REVENUES> 448,980
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,864,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 841,995
<INCOME-PRETAX> (7,257,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,257,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,257,162)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
