<PAGE> 1
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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, 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 MAY 12, 1997
----- ---------------------------
Common stock, $.01 par value 16,743,308
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ALPHA-BETA TECHNOLOGY, INC.
<TABLE>
INDEX
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<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
----------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1996 and
March 31, 1997 ......................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended March 31, 1996 and 1997, and for the period from
inception through March 31, 1997 ....................................... 4
Condensed Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1996 and 1997, and from the period of
inception through March 31, 1997 ....................................... 5
Notes to Condensed Consolidated Financial Statements ................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................ 9
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>
2
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<TABLE>
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,885,111 $ 14,892,920
Marketable securities 18,700,325 18,379,008
Other current assets 646,231 749,734
------------- -------------
Total current assets 41,231,667 34,021,662
------------- -------------
Property and equipment, net of accumulated depreciation and amortization 28,116,222 27,316,734
------------- -------------
Other assets:
Bond issuance costs, net 1,068,383 1,053,229
Other 135,554 129,722
------------- -------------
1,203,937 1,182,951
------------- -------------
$ 70,551,826 $ 62,521,347
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable and
capital lease obligations $ 1,119,226 $ 1,134,226
Accounts payable 2,161,078 3,165,302
Accrued expenses 711,451 676,157
------------- -------------
Total current liabilities 3,991,755 4,975,685
------------- -------------
Term notes payable and capital lease obligations, net of current portion 25,777,252 25,526,231
------------- -------------
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 16,743,308 shares at December 31,
1996 and March 31, 1997, respectively 167,234 167,433
Additional paid-in capital 147,547,833 147,737,171
Deficit accumulated during the development stage (106,842,888) (115,837,279)
Deferred compensation (89,360) (47,894)
------------- -------------
Total stockholders' equity 40,782,819 32,019,431
------------- -------------
$ 70,551,826 $ 62,521,347
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
<TABLE>
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
--------------------------------------- March 31,
1996 1997 1997
------------ ----------- -------------
<S> <C> <C> <C>
Revenues:
Interest $ 447,396 $ 514,316 $ 8,546,794
Other 1,584 340 450,967
----------- ----------- -------------
Total revenues 448,980 514,656 8,997,761
----------- ----------- -------------
Expenses:
Research and development 5,744,315 7,389,210 91,158,001
General and administrative 1,119,832 1,278,078 23,958,465
Interest 841,995 807,155 9,703,715
----------- ----------- -------------
Total expenses 7,706,142 9,474,443 124,820,181
----------- ----------- -------------
Net loss $(7,257,162) $(8,959,787) $(115,822,420)
=========== =========== =============
Net loss per common share $ (0.50) $ (0.54)
=========== ===========
Weighted average number of common
shares outstanding 14,438,157 16,732,386
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
<TABLE>
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
----------------------------- March 31,
1996 1997 1997
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,257,162) $(8,959,787) $(115,822,420)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 864,541 664,179 12,469,630
Amortization of investment premium 40,588 17,453 1,845,721
Amortization of deferred financing and bond issuance costs 57,688 57,688 634,678
Noncash compensation related to stock options,
warrants and common stock 109,668 153,594 2,252,544
Changes in assets and liabilities:
Other current assets 107,514 (103,503) (749,734)
Accounts payable 450,346 1,004,224 3,165,302
Accrued expenses (3,143) (35,294) 676,157
----------- ----------- -------------
Net cash used for operating activities (5,629,960) (7,201,446) (95,528,122)
----------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in marketable securities 9,219,509 269,261 (20,239,594)
Increase in property and equipment (177,570) (67,185) (39,468,469)
Increase in restricted cash -- -- (32,425,737)
Payments from restricted cash -- -- 32,425,737
Decrease (increase) in other assets 4,562 5,832 (206,790)
Increase in bond issuance costs -- -- (1,303,237)
----------- ----------- -------------
Net cash provided by (used for) investing activities 9,046,501 207,908 (61,218,090)
----------- ----------- -------------
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 -- 202,494 202,494
Payments on capital lease obligations (3,155) -- (180,867)
Proceeds from term notes payable -- -- 27,835,947
Payments on term notes payable (340,479) (278,556) (4,159,857)
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 39,344,972 77,409 117,819,350
----------- ----------- -------------
Net cash provided by financing activities 39,001,338 1,347 171,639,132
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents 42,417,879 (6,992,191) 14,892,920
Cash and cash equivalents, beginning of period 10,120,843 21,885,111 --
----------- ----------- -------------
Cash and cash equivalents, end of period $52,538,722 $14,892,920 $ 14,892,920
=========== =========== =============
Interest paid (net of capitalized interest) $ 841,995 $ 749,465 $ 9,215,601
=========== ============ =============
</TABLE>
See accompanying notes.
5
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<TABLE>
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<CAPTION>
March 2, 1988
Three months ended (inception)
March 31, through
------------------------ March 31,
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 ........................................................ 12,143 120,474 323,053
Compensation related to common stock grant ................................... (12,143) (120,474) (323,053)
Cancellation of stock options ................................................ (51,744) -- (166,170)
Grant of stock options and restricted stock .................................. -- -- 1,996,153
Deferred compensation on stock options and restricted stock .................. 51,744 -- (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 on marketable securities ................................... 46,856 34,604 14,859
Accumulated deficit .......................................................... (46,856) (34,604) (14,859)
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 month periods ended March 31, 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
<TABLE>
The amortized cost and estimated fair market values of the Company's
securities at March 31, 1997 are presented below. The Company did not realize
any gains or losses from securities sold in the three months ended March 31,
1997 and 1996.
<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 6 months) $ 2,498,612 $2,328 $ 0 $ 2,500,940
Corporate debt securities (average
maturity of 5 months) 15,895,255 0 17,187 15,878,068
----------- ------ ------- -----------
$18,393,867 $2,328 $17,187 $18,379,008
=========== ====== ======= ===========
</TABLE>
4. 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 ended
7
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ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997. In addition, the Company believes that the adoption of SFAS
128 will not have a material effect on its financical statements.
5. SUBSEQUENT EVENT
On May 8, 1997, the Company announced that it signed a term sheet to
acquire all of the outstanding shares of MycoTox, Inc., a privately owned
biotechnology company located in Denver, Colorado. Under the terms of the
term sheet, which is based on a value of $3.0 million, MycoTox shareholders will
receive a $1.0 million up-front payment consisting of cash and common stock.
An additional $2.0 million of common stock will be issued subject to future
performance and time-based milestones.
8
<PAGE> 9
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
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, 1997, the Company's accumulated deficit was $115,837,279.
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 March 31, 1997
and 1996, revenues were $514,656 and $448,980, respectively. This increase of
$65,676 was due to additional interest earned as a result of higher average cash
balances in the first quarter of 1997 compared with the first quarter of 1996.
Operating Expenses
- ------------------
For the three month periods ended March 31, 1997 and 1996, research and
development expenses were $7,389,210 and $5,744,315, respectively. This increase
of $1,644,895 was primarily due to costs related to the clinical trials for
Betafectin. The Company does not expect research and development expenses to
continue to increase over 1996 levels for the remainder of 1997; however, these
expenses are expected to increase in future years, reflecting activities related
to performing clinical trials of Betafectin in surgery and other indications,
the development of additional products and the operation of the commercial
manufacturing facility for research and development purposes.
For the three month periods ended March 31, 1997 and 1996, general and
administrative expenses were $1,278,078 and $1,119,832, respectively. The
increase of $158,246 was primarily due to increases in non-cash equity
compensation expense and corporate development activities. General and
administrative expenses are expected to increase over 1996 levels in 1997 and in
future years reflecting the planned efforts to commercialize Betafectin.
For the three month periods ended March 31, 1997 and 1996, interest expense
was $807,155 and $841,995, respectively. This decrease of $34,840 was primarily
due to lower loan balances in the first quarter of 1997 compared with the first
quarter of 1996.
Net Loss
- --------
The net loss for the three months ended March 31, 1997 was $8,959,787
($0.54 per share) compared to $7,257,162 ($0.50 per share) for the same period
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $33,272,000 in cash equivalents and
marketable securities at March 31, 1997, compared to $40,585,000 at December 31,
1996. This decrease was primarily due to approximately $7,201,000 of cash used
for operating activities.
The increase in Accounts Payable from December 31, 1996, to March 31, 1997,
is due to the timing of scheduled payments for the Company's Phase III clinical
trial of Betafectin.
9
<PAGE> 10
Since inception, the Company has invested approximately $6,233,000 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 $3,862,000 in loans, of which
approximately $1,038,000 was outstanding as of March 31, 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 March 31, 1997, the
Company had working capital of approximately $29,046,000. 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
the second quarter 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 prior to the completion of its Phase III clinical trial for
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 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 and the
overall market for biotechnology stocks.
In February 1997, the Company completed patient enrollment into its Phase
III trial of Betafectin for the prevention of post-surgical infection among
patients undergoing gastrointestinal surgery. The Company is currently in the
process of collecting and verifying the clinical data. The statistical analysis
of the clinical data will begin once all of the data has been collected and
verified. The Company expects to unblind and announce the results of the Phase
III trial at the end of the second quarter of 1997, following the analysis of
the data.
In its Phase II clinical trial of Betafectin for the prevention of serious
infection in patients undergoing surgery for inflammatory bowel disease, the
Company plans to enroll approximately 240 patients. An interim analysis is
planned during the fourth quarter of 1997 and the study is expected to be
completed in the first half of 1998.
On May 8, 1997, the Company announced that it signed a term sheet to
acquire all of the outstanding shares of MycoTox, Inc., a privately owned
biotechnology company located in Denver, Colorado. Under the terms of the term
sheet, which is based on a value of $3.0 million, MycoTox shareholders will
receive an $1.0 million up-front payment consisting of cash and common stock. An
additional $2.0 million of common stock will be issued subject to future
performance and time-based milestones. The two companies have been working
together since early 1997 to screen small-molecule carbohydrate compounds
generated by Alpha-Beta against MycoTox's proprietary agents for anti-fungal
activity. The acquisition, if consummated, is expected to accelerate
Alpha-Beta's anti-fungal research program, provide an operating anti-fungal drug
screening business and complement the technology for the development of a rapid
in vitro diagnostic to detect and monitor systemic fungal infections. The
incremental increase to Alpha-Beta's 1997 expenses is expected to be
approximately $500,000. Consummation of this transaction is subject to the
execution of definitive agreements and the satisfaction of any conditions to
closing which may be contained therein.
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 collection, verification and analysis of the clinical data for
the Company's Phase III clinical trial; the results of the Company's Phase III
trial and for other clinical development programs; the timing and adequacy of
patient accruals for the Company's Phase II trial for Betafectin; the results of
the interim analysis of the Company's Phase II trial for Betafectin; the impact
on the Company's cash burn rate resulting from any additional research and
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; the
uncertainties inherent in negotiating and documenting acquisitions; the
challenges of integrating the operations of a newly acquired business; 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
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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, 1997 By /s/ William D. Romeo
-------------------- ------------------------------------
William D. Romeo, Director, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 14,892,920
<SECURITIES> 18,379,008
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,021,662
<PP&E> 39,754,880
<DEPRECIATION> 12,438,147
<TOTAL-ASSETS> 62,521,347
<CURRENT-LIABILITIES> 4,975,685
<BONDS> 0
0
0
<COMMON> 167,433
<OTHER-SE> 31,851,998
<TOTAL-LIABILITY-AND-EQUITY> 62,521,347
<SALES> 340
<TOTAL-REVENUES> 514,656
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,667,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 807,155
<INCOME-PRETAX> (8,959,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,959,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,959,787)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
