<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 September 30,
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 0-20023
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 NOVEMBER 11, 1997
Common stock, $.01 par value 16,834,046
<PAGE> 2
ALPHA-BETA TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1996, and
September 30, 1997 ................................................................. 3
Condensed Consolidated Statements of Operations for the three and nine month periods
ended September 30, 1996 and 1997, and from the period from inception through
September 30, 1997 ................................................................. 4
Condensed Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1996 and 1997, and from the period from inception through
September 30, 1997 ................................................................. 5
Notes to Condensed Consolidated Financial Statements ............................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ............................................................. 13
Item 2. Changes in Securities ......................................................... 13
Item 3. Defaults Upon Senior Securities ............................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ........................... 13
Item 5. Other Information ............................................................. 13
Item 6. Exhibits and Reports on Form 8-K .............................................. 13
SIGNATURES ............................................................................... 14
</TABLE>
2
<PAGE> 3
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,885,111 $ 9,040,491
Marketable securities 18,700,325 7,355,476
Other current assets 646,231 427,587
------------- -------------
Total current assets 41,231,667 16,823,554
------------- -------------
Property and equipment, net of accumulated depreciation and amortization 28,116,222 26,195,209
------------- -------------
Other assets:
Bond issuance costs, net 1,068,383 1,022,921
Other 135,554 211,389
------------- -------------
Total other assets 1,203,937 1,234,310
------------- -------------
$ 70,551,826 $ 44,253,073
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable and
capital lease obligations $ 1,119,226 $ 1,164,226
Accounts payable 2,161,078 2,032,385
Accrued expenses 711,451 1,000,150
------------- -------------
Total current liabilities 3,991,755 4,196,761
------------- -------------
Term notes payable and capital lease obligations, net of current portion 25,777,252 25,024,189
------------- -------------
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 -- 16,723,369 shares and 16,828,249 shares at December 31,
1996 and September 30, 1997, respectively 167,234 168,282
Additional paid-in capital 147,547,833 149,272,802
Deficit accumulated during the development stage (106,842,888) (134,374,983)
Deferred compensation (89,360) (33,978)
------------- -------------
Total stockholders' equity 40,782,819 15,032,123
------------- -------------
$ 70,551,826 $ 44,253,073
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Three months ended Nine months ended (inception)
September 30, September 30, through
------------------------------- ------------------------------- September 30,
1996 1997 1996 1997 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest $ 711,306 $ 292,416 $ 1,929,063 $ 1,206,492 $ 9,238,970
Other 62,176 4,020 66,687 6,553 457,180
------------- ------------- ------------- ------------- -------------
Total revenues 773,482 296,436 1,995,750 1,213,045 9,696,150
------------- ------------- ------------- ------------- -------------
Expenses:
Research and development 6,975,754 6,843,990 18,727,020 20,822,605 104,591,396
General and administrative 986,737 1,225,376 3,283,272 3,512,810 26,193,197
Acquired in-process research and
development (Note 4) -- -- -- 2,014,004 2,014,004
Interest 826,774 801,577 2,475,363 2,392,578 11,289,138
------------- ------------- ------------- ------------- -------------
Total expenses 8,789,265 8,870,943 24,485,655 28,741,997 144,087,735
------------- ------------- ------------- ------------- -------------
Net loss $ (8,015,783) $ (8,574,507) $ (22,489,905) $ (27,528,952) $(134,391,585)
============= ============= ============= ============= =============
Net loss per common share $ (0.48) $ (0.51) $ (1.41) $ (1.64)
============= ============= ============= =============
Weighted average number of common
shares outstanding 16,716,692 16,839,273 15,910,469 16,771,262
============= ============= ============= =============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Nine months ended (inception)
September 30, through
------------------------------ September 30,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,489,905) $ (27,528,952) $(134,391,585)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 2,521,050 1,971,850 13,777,301
Amortization of investment premium 56,126 59,445 1,887,713
Amortization of deferred financing and bond issuance costs 173,066 173,067 750,057
Noncash compensation related to stock options,
warrants and common stock 159,837 167,510 2,266,460
Charges related with acquired in-process research and development (Note 4) -- 2,014,004 2,014,004
Changes in operating assets and liabilities:
Other current assets (495,014) 221,364 (424,867)
Accounts payable 858,444 (164,860) 1,996,218
Accrued expenses (38,570) 245,842 957,293
------------- ------------- -------------
Net cash used for operating activities (19,254,966) (22,840,730) (111,167,406)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in marketable securities (11,392,429) 11,282,261 (9,226,594)
Net cash used in the purchase of MycoTox -- (580,900) (580,900)
Increase in property and equipment (639,780) (292,002) (39,693,286)
Decrease (increase) in restricted cash 381,347 -- (32,425,737)
Payments from restricted cash -- -- 32,425,737
Decrease (increase) in other assets 41,652 17,498 (195,124)
Increase in bond issuance costs -- -- (1,303,237)
------------- ------------- -------------
Net cash provided by (used for) investing activities (11,609,210) 10,426,857 (50,999,141)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes payable to stockholders -- -- 2,300,000
Proceeds from equipment line of credit -- -- 3,261,600
Proceeds from equipment lease -- 291,032 291,032
Payments on capital lease obligations (9,627) -- (180,867)
Proceeds from notes payable -- -- 27,835,947
Payments on notes payable (970,155) (835,668) (4,716,969)
Proceeds from sale of convertible redeemable preferred
stock, net of issuance costs -- -- 24,560,465
Proceeds from sale of common stock, net of issuance costs 39,469,762 113,889 117,855,830
------------- ------------- -------------
Net cash provided by (used for) financing activities 38,489,980 (430,747) 171,207,038
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 7,625,804 (12,844,620) 9,040,491
Cash and cash equivalents, beginning of period 10,120,843 21,885,111 --
------------- ------------- -------------
Cash and cash equivalents, end of period $ 17,746,647 $ 9,040,491 $ 9,040,491
============= ============= =============
Interest paid (net of capitalized interest) $ 2,475,363 $ 2,334,888 $ 10,801,024
============= ============= =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Nine months ended (inception)
September 30, through
----------------------------- September 30,
1996 1997 1997
------------ ------------ -------------
<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 ................................................ 44,320 156,572 359,151
Compensation related to common stock grant ........................... (44,320) (156,572) (359,151)
Cancellation of stock options ........................................ (54,333) -- (166,170)
Grant of stock options and restricted stock .......................... -- -- 1,996,153
Deferred compensation on stock options and restricted stock .......... 54,333 -- (1,829,983)
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 (gains) on marketable securities ................... 48,946 3,143 (16,602)
Accumulated deficit .................................................. (48,946) (3,143) 16,602
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. & SUBSIDIARIES
(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, 1996, included in the Company's Annual Report on Form
10-K.
2. NET LOSS PER COMMON SHARE
For the three and nine month periods ended September 30, 1996 and 1997, net
loss per common share was computed using the weighted average number of common
shares outstanding during the period.
3. MARKETABLE SECURITIES
The amortized cost and estimated fair market values of the Company's
securities at September 30, 1997 are presented below. The Company did not
realize any gains or losses from securities sold in the nine months ended
September 30, 1997 and 1996.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ----------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Agency
obligations
(average maturity of
less than 1 month) $1,005,263 $ 1,137 $ -- $1,006,400
Corporate debt securities
(average maturity of 7 months) 6,333,611 15,465 -- 6,349,076
---------- ------- --------- ----------
$7,338,874 $16,602 $ -- $7,355,476
========== ======= ========= ==========
</TABLE>
4. ACQUISITION OF MYCOTOX, INC.
On June 9, 1997 the Company acquired all the outstanding shares of MycoTox,
Inc., a privately owned biotechnology company located in Denver, Colorado. Under
the agreement, MycoTox shareholders received an up-front payment valued at $1.0
million consisting of $500,000 in cash and 56,813 shares of Alpha-Beta common
stock. On June 9, 1998, an additional 113,636 shares of common stock will be
issued to MycoTox shareholders. The 56,813 and 113,636 common shares granted on
June 9, 1997 and June 9, 1998, respectively, were valued at $8.80 per share (the
10 day average price of the Company's common stock
7
<PAGE> 8
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
preceding June 9, 1997). An additional $1.0 million of common stock will be
issued subject to the attainment of performance milestones. On November 7,
1997, the first milestone was met and will result in the issuance of $500,000
of the Company's common stock.
The aggregate purchase price of $2,164,024 consisted of the following:
Common stock $ 1,500,000
Liabilities assumed 79,024
Cash paid for acquisition
and acquisition costs 585,000
-----------
$ 2,164,024
===========
In conjunction with the acquisition, the Company recorded approximately
$2,014,000 as in-process research and development expense. The $1.0 million of
common stock which is subject to future performance milestones will be recorded
if those milestones are achieved. For financial statement purposes, this
acquisition was accounted for as a purchase, and accordingly, the results of
operations of MycoTox subsequent to June 9, 1997, are included in the Company's
consolidated statements of operations.
The purchase price was allocated based upon the fair value of the assets
and intangible assets acquired. The purchase price has preliminary been
allocated as follows:
Current assets $ 6,820
Equipment 43,200
Goodwill 100,000
In-process research and development 2,014,004
-----------
$ 2,164,024
===========
The in-process research and development has been expensed as a charge
against operations as of the closing of the transaction, and is included in the
accompanying consolidated statement of operations. The amount allocated to
acquired in-process research and development relates to projects that had not
yet reached technological feasibility and that, until completion of development,
have no alternative future use. These projects will require substantial high
risk development and testing prior to the reaching of technological feasibility.
5. LICENSE AGREEMENT
In May 1997, the Company entered into a license and sublicense agreement
with a third party for patent rights and know how relating to whole glucan
particles. In connection with this agreement, the Company received 200,000
shares of Series C convertible preferred stock of this entity, which represents
an ownership interest of approximately 9% on a fully-diluted basis. The Company
is also entitled to receive license fees based on the net sales, if any, of
products incorporating the licensed technology. The Company has not recorded any
value relating to this transaction as there is significant uncertainty
surrounding the realizibility of any value from the shares received.
8
<PAGE> 9
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. RESTRUCTURING COSTS
In the third quarter of 1997, the Company recorded $688,910 of
restructuring costs as a result of a corporate downsizing. Research and
development expenses, and general and administrative expenses relating to the
downsizing were $519,329 and $169,581, respectively. These charges consist
primarily of severance charges of $639,411 for 61 employees. As of September 30,
1997 approximately $125,000 of the restructuring costs have been paid.
Substantially all of the restructuring payments are expected to be paid by the
end of the fourth quarter of 1997.
7. TERM NOTE PAYABLE
At September 30, 1997, approximately $675,000 was outstanding under a term
note with a bank. This note is payable in monthly installments of $40,352 and
bears interest at the lesser of 8-3/4% or the Prime Rate (8.0% at September 30,
1997) plus 1/2%. In the event that the Company's cash balances and marketable
securities fall below $18 million in the aggregate, the Company will be
required to maintain, as restricted cash, a Repurchase Agreement Investment
Account ("Investment Account") with the bank in an amount equal to the then
outstanding balance of the loan. If the Company's cash balances and marketable
securities subsequently fall below $10 million in the aggregate, the Company
will be required, on demand by the bank, to pledge the Investment Account to
the bank as security for the loan.
8. PRIVATE PLACEMENT
On November 3, 1997, the Company signed a commitment letter with a single
institution for the purchase by the institution of 3.37 million unregistered
shares of the Company's common stock at $2.875 per share. This private
placement, which is subject to execution of definitive documentation, is
expected to close in November 1997. The net proceeds to the Company will be
approximately $9.7 million.
9. NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", ("SFAS 128"). SFAS 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This statement is
effective for fiscal years ending after December 15, 1997 and early adoption is
not permitted. When adopted, this statement will require restatement of prior
years earnings per share. The Company will adopt this statement for its fiscal
year ending December 31, 1997. In addition, the Company believes that the
adoption of SFAS 128 will not have a material effect on its financial
statements.
9
<PAGE> 10
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
September 30, 1997, the Company's accumulated deficit was $134,374,983.
RESULTS OF OPERATIONS
Revenues
Revenues to date have consisted primarily of interest earned from the
investment of cash balances. For the three month periods ended September 30,
1997 and 1996, revenues were $296,436 and $773,482 respectively. This decrease
of $477,046 was primarily due to less interest earned as a result of lower
average cash balances in the third quarter of 1997 compared with the third
quarter of 1996. Revenues in the nine month periods ended September 30, 1997 and
1996 were $1,213,045 and $1,995,750, respectively. The decrease of $782,705 in
the 1997 period resulted primarily from less interest earned as a result of
lower average cash balances in the nine months ended September 30, 1997, as
compared to the same period in 1996.
Operating Expenses
For the three month periods ended September 30, 1997 and 1996, research
and development expenses were $6,843,990 and $6,975,754, respectively. For the
nine month periods ended September 30, these expenses increased 11% to
$20,822,605 in 1997 from $18,727,020 in 1996. This increase was primarily due to
costs related to conducting the Phase III clinical trial for Betafectin and
restructuring costs of approximately $519,000 incurred as a result of a
corporate downsizing. The Company does not expect research and development
expenses to continue to increase over 1996 levels for the remainder of 1997;
however, these expenses may increase in future years, reflecting activities
related to further development and commercialization of Betafectin PGG-glucan,
the development of additional products and the operation of the Company's
commercial manufacturing facility for research and development purposes.
For the nine month period ended September 30, 1997, the Company recorded
$2,014,004 of acquired in-process research and development expense related to
the acquisition of MycoTox, Inc. See footnote 4 in notes to consolidated
financial statements for a further discussion of this acquisition.
For the three month periods ended September 30, 1997 and 1996, general and
administrative expenses were $1,225,376 and $986,737, respectively. This
increase of $238,639 was primarily due to approximately $170,000 of costs
associated with the restructuring incurred as a result of a corporate
downsizing. For the nine month periods ended September 30, these expenses
increased to $3,512,810 in 1997 from $3,283,272 in 1996. General and
administrative expenses are not expected to increase over 1996 levels in 1997;
however, these expenses may increase in future years reflecting planned efforts
to commercialize Betafectin.
For the three month periods ended September 30, 1997 and 1996, interest
expense was $801,577 and $826,774, respectively. For the nine month periods
ended September 30, interest
10
<PAGE> 11
expense decreased to $2,392,578 in 1997 from $2,475,363 in 1996. This decrease
of $82,785 was primarily due to lower loan balances in the first nine months of
1997 compared with the first nine months of 1996.
Net Loss
The net loss for the nine months ended September 30, 1997 was $27,528,952
($1.64 per share) compared to $22,489,905 ($1.41 per share) for the same period
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $16,395,967 in cash, cash equivalents and marketable
securities at September 30, 1997, compared to $40,585,436 at December 31, 1996.
This decrease was primarily due to approximately $22,841,000 of cash used for
operating activities and $585,000 of cash used for the June 1997 acquisition of
MycoTox, Inc. (see footnote 4 in notes to consolidated financial statements). On
November 3, 1997 the Company signed a commitment letter with a single
institution for the purchase of 3.37 million shares of the Company's common
stock. This private placement, which is subject to execution of definitive
documentation, will result in proceeds of $9.7 million and is expected to close
in November 1997.
The Company expects to incur substantial additional operating expenses in
1997 and in future years related to research, development, and clinical studies
of Betafectin and other products, as well as the establishment of commercial
manufacturing and sales and marketing capabilities. As of September 30, 1997,
the Company had working capital of approximately $12,627,000. Based on its
current rate of expenditures, the Company projects that its existing capital
resources and the funds from the private placement (see footnote 8) would enable
it to maintain its current and planned operations and capital expenditures
through the end of 1998. The Company's capital requirements will depend upon
numerous 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 in addition to the $9.7 million raised in the private placement
prior to obtaining regulatory approval for Betafectin (and, if required, prior
to the completion of additional Phase III clinical trials of Betafectin) through
collaborative alliances, equity or debt financings or other arrangements. There
can be no assurance that additional funds will be available on favorable terms
or at all or that the Company will enter into collaborative or other
arrangements. The Company's ability to raise additional funds or to enter into
collaborative or other arrangements may depend upon a number of factors
including the results of the Company's clinical development programs, the status
of its discussions with the FDA concerning obtaining regulatory approval of
Betafectin and the overall market for biotechnology stocks.
On June 9, 1997 the Company acquired all the outstanding shares of MycoTox,
Inc., a privately owned biotechnology company located in Denver, Colorado. Under
the agreement, MycoTox shareholders received an up-front payment valued at $1.0
million consisting of $500,000 in cash and 56,813 shares of the Company's common
stock. On June 9, 1998, an additional 113,636 shares of common stock will be
issued to MycoTox shareholders. The 56,813 and 113,636 common shares granted on
June 9, 1997 and June 9, 1998, respectively, were valued at $8.80 per share (the
10 day average price of the Company's common stock preceding June 9, 1997). An
additional $1.0 million of common stock will be issued subject to the attainment
of performance milestones. On November 7, 1997, the first milestone was met and
will result in the issuance of $500,000 of the Company's common stock.
On August 4, 1997, the Company announced its preliminary analysis of its
Phase III clinical study of Betafectin for the prevention of serious infections
in patients at high risk for post-operative
11
<PAGE> 12
infections. In the overall study, 21% of placebo patients suffered serious
post-operative infections compared with 17% of Betafectin-treated patients. This
positive trend did not achieve statistical significance in the incidence of
patients who developed serious infections by day 30 post-surgery, the primary
end-point of the trial. However, a significant reduction of infections was
demonstrated in one of the two prospectively defined strata in the trial,
patients undergoing non-colorectal gastrointestinal (GI) surgeries. In this
stratum, 36% of the placebo patients suffered serious post-operative infections
compared with 22% of the Betafectin-treated patients. In the other prospectively
defined stratum, patients undergoing colorectal surgeries, there was no
difference in the incidence of serious infections between the placebo and
Betafectin arms.
In October 1997, the Company met with FDA officials to review the results
of its recently completed Phase III trial of Betafectin and discuss the
development path for the product. As a result of these discussions, the Company
will be conducting a confirmatory Phase III trial of Betafectin in
non-colorectal gastrointestinal surgery patients. This second study, along with
the results of the recently completed study is designed to form the basis for a
PLA filing for Betafectin. The confirmatory Phase III study is designed to
verify the efficacy and safety of 0.5 mg/kg Betafectin in patients undergoing
non-colorectal GI surgeries who are at risk of post-operative infections. The
double blind, placebo controlled study will enroll approximately 600 patients at
30 sites throughout the United States. The study is expected to be completed in
approximately 18 months and will include an interim analysis when 50 percent of
the patients have been enrolled.
Following the unblinding of its first Phase III clinical trial of
Betafectin, the Company suspended patient enrollment in its ongoing Phase II
clinical trial of patients undergoing surgery for inflammatory bowel disease
(IBD). Ninety-eight patients have been enrolled in this double blinded
placebo-controlled study. As specified in the protocol for the IBD trial, the
Company will conduct an interim analysis of safety and efficacy.
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 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 differences include, but are not limited to, the following: the
outcome of the planned second Phase III clinical trial for Betafectin; further
analysis of the data from the Company's Phase III clinical trial; the need for
additional Betafectin clinical trials and the outcome of those trials should
they occur; the outcome of its other clinical development programs; obtaining
the requisite regulatory approvals for Alpha-Beta Technology's products from the
U.S. Food and Drug Administration; the need and ability to obtain additional
financing; the challenges of integrating the operations of a newly acquired
business; the competitive environment and market conditions for the
biotechnology industry; and general economic conditions.
12
<PAGE> 13
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
13
<PAGE> 14
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: November 14, 1997 By /s/ D. Davidson Easson Jr.
----------------------- -----------------------------
D. Davidson Easson Jr.
Treasurer and Executive Vice President
14
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