-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mp6O3Z4Wo6rdh+J559s25PNx8J7hkAikwgl6mGjCr/BGLmL2PxttR0QBQwxI90Ki kCLFF3xPehix63a8OPesmg== 0000950135-97-004646.txt : 19971117 0000950135-97-004646.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950135-97-004646 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPHA BETA TECHNOLOGY INC CENTRAL INDEX KEY: 0000841168 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 042997834 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20023 FILM NUMBER: 97721084 BUSINESS ADDRESS: STREET 1: ONE INNOVATION DR CITY: WORCESTER STATE: MA ZIP: 01605 BUSINESS PHONE: 5087986900 MAIL ADDRESS: STREET 1: ONE INNOVATION DR CITY: WORCESTER STATE: MA ZIP: 016505 10-Q 1 ALPHA-BETA TECHNOLOGY 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 2 ALPHA-BETA TECHNOLOGY, INC. INDEX
Page ---- 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
2 3 ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1996 1997 ------------- ------------- (Unaudited) 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 ============= =============
See accompanying notes. 3 4 ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
March 2, 1988 Three months ended Nine months ended (inception) September 30, September 30, through ------------------------------- ------------------------------- September 30, 1996 1997 1996 1997 1997 ------------- ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
See accompanying notes. 4 5 ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
March 2, 1988 Nine months ended (inception) September 30, through ------------------------------ September 30, 1996 1997 1997 ------------- ------------- ------------- 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 ============= ============= =============
See accompanying notes. 5 6 ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited)
March 2, 1988 Nine months ended (inception) September 30, through ----------------------------- September 30, 1996 1997 1997 ------------ ------------ ------------- 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 ------------ ------------ ------------ $ -- $ -- $ -- ============ ============ ============
See accompanying notes. 6 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.
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET SECURITIES AVAILABLE FOR SALE COST GAINS LOSSES VALUE - ----------------------------- ----------- ----------- ----------- ----------- 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 ========== ======= ========= ==========
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 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 US DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 9,040,491 7,355,476 0 0 0 16,823,554 39,937,238 13,742,029 44,253,073 4,196,761 0 0 0 168,282 14,863,841 44,253,073 6,553 1,213,045 0 0 26,349,419 0 2,392,578 (27,528,952) 0 (27,528,952) 0 0 0 (27,528,952) (1.64) (1.64)
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