UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[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
Commission file number: 0-15006
T CELL SCIENCES, INC.
(Exact name of registrant as specified in charter)
Delaware No. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 Fourth Avenue, Needham, Massachusetts 02194-2725
(Address of principal executive offices) (Zip code)
(617) 433-0771
(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 .
--- ---
Outstanding as of
Class May 6, 1997
----- -----------
Common Stock, par value $.001 24,948,383
1
T CELL SCIENCES, INC
Table of Contents
March 31, 1997
Page
Part I -- Financial Information
- -------------------------------
Condensed Consolidated Balance Sheet at March 31, 1997 and December 31, 1996.........................3
Condensed Consolidated Statement of Operations for the Quarters Ended
March 31,1997 and 1996......................................................................4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1997 and 1996.....................................................................5
Notes to Condensed Consolidated Financial Statements.................................................6
Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................................8
Part II -- Other Information
- ----------------------------
Item 1. Legal Proceedings..........................................................................10
Item 5. Other Information..........................................................................10
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits...............................................................................10
B. Reports on Form 8-K....................................................................10
Signatures..........................................................................................11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997 and December 31, 1996
March 31, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 12,242,300 $ 12,591,800
Accounts Receivable 19,200 19,500
Inventories 22,400 24,000
Current Portion Note Receivable -- 400,600
Prepaid Expenses and Other 286,400 241,500
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 12,570,300 13,277,400
- ----------------------------------------------------------------------------------------------------------
Property and Equipment, Net 501,000 511,600
Restricted Cash 685,000 685,000
Long-Term Note Receivable -- 1,402,100
Other Noncurrent Assets 1,288,600 1,347,600
- ----------------------------------------------------------------------------------------------------------
Total Assets $ 15,044,900 $ 17,223,700
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 311,700 $ 326,000
Accrued Expenses 947,100 1,278,500
Deferred Revenue 100,000 --
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,358,800 1,604,500
- ----------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common Stock, $.001 Par Value 25,000 25,000
Additional Paid-in Capital 72,787,800 72,791,800
Less: Common Treasury Shares at Cost (62,400) (68,900)
Accumulated Deficit (59,064,300) (57,128,700)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 13,686,100 15,619,200
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 15,044,900 $ 17,223,700
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
3
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarters Ended March 31, 1997 and 1996
March 31, March 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
OPERATING REVENUE:
Product Development and Licensing Agreements $ 62,100 $ 91,200
Product Sales 1,300 497,600
- ----------------------------------------------------------------------------------------------------------
Total Operating Revenue 63,400 588,800
- ----------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 400 348,300
Research and Development 1,335,900 1,491,000
General and Administrative 774,100 863,800
Marketing and Sales 40,800 185,000
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,151,200 2,888,100
- ----------------------------------------------------------------------------------------------------------
Operating Loss (2,087,800) (2,299,300)
Non-Operating Income, Net 152,200 447,700
- ----------------------------------------------------------------------------------------------------------
Net Loss $ (1,935,600) $ (1,851,600)
- ----------------------------------------------------------------------------------------------------------
Net Loss Per Common Share $ (0.08) $ (0.09)
- ----------------------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 24,948,400 19,909,100
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
4
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
March 31, March 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Loss $(1,935,600) $(1,851,600)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 88,400 143,600
Gain on Sale of Research Products and Operations of
T Cell Diagnostics, Inc. -- (315,700)
Write-off of Capitalized Patent Costs 51,100 --
Net Change in Current Assets and Current Liabilities (288,700) (719,000)
- ----------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (2,084,800) (2,742,700)
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of Property and Equipment (47,100) (1,300)
Other Noncurrent Assets (22,800) (166,500)
Sale of Investment in Common Stock of Endogen, Inc. 1,802,700 --
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 1,732,800 (167,800)
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from Sale of Stock 2,500 --
Proceeds from Exercise of Stock Options -- 34,100
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 2,500 34,100
- ----------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (349,500) (2,876,400)
Cash and Cash Equivalents at Beginning of Period 12,591,800 12,275,200
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $12,242,300 $ 9,398,800
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
5
T CELL SCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(1) Nature of Business
------------------
T Cell Sciences, Inc. (the "Company"), is a biopharmaceutical company
engaged in the discovery and development of innovative drugs targeting diseases
of the immune, inflammatory and vascular systems. The Company develops and
commercializes products on a proprietary basis and in collaboration with
established pharmaceutical partners, including Astra AB and Yamanouchi
Pharmaceutical Co., Ltd. In March 1996, the Company sold substantially all of
the assets of its wholly-owned subsidiary, T Cell Diagnostics, Inc. ("TCD"),
while retaining all the rights to the TRAx(R) diagnostic franchise.
The condensed consolidated financial statements include the accounts of
T Cell Sciences, Inc. and its wholly owned subsidiary, T Cell Diagnostics, Inc.
All intercompany transactions have been eliminated.
(2) Interim Financial Statements
----------------------------
The accompanying condensed consolidated financial statements for the
three months ended March 31, 1997 and 1996 include the consolidated accounts of
the Company, and have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and article 10 of
Regulation S-X. In the opinion of management, the information contained herein
reflects all adjustments, consisting solely of normal recurring adjustments,
that are necessary to present fairly the financial positions at March 31, 1997
and December 31, 1996, the results of operations for the quarters ended March
31, 1997 and 1996, and the cash flows for the three months ended March 31, 1997
and 1996. The results of operations for the quarter ended March 31, 1997 are not
necessarily indicative of results for any future interim period or for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
condensed consolidated financial statements and the notes included herein should
be read in conjunction with footnotes contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
(3) Litigation
----------
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters, to recover the damages incurred by the Company resulting from the
evacuation of the building, due to air quality problems which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant has filed counterclaims, alleging the Company has breached its lease
obligations. The court ordered a limited trial between the Company and the
landlord on certain factual issues which began on November 20, 1996. Closing
arguments for the limited trial were heard on January 13, 1997. The court has
not yet entered its findings on the limited trial. Until the court enters its
findings, the Company is unable to assess what impact the findings will have on
the trial of the issue of the Company's liability under the lease. In a separate
lawsuit, the landlord's mortgagee has filed claims against the Company for
payment of the same rent alleged to be owed. A motion for summary judgment filed
by the bank was denied by the court. Due to the current stage of the lawsuits, a
range of potential losses, cannot be estimated at this time.
6
Accordingly, no accrual has been made in the financial statements relative to
any potential effects on the Company's future operating results. A significant
adverse settlement could have a negative impact on the future operating results
of the Company.
(4) Disposition of Assets
---------------------
On March 5, 1996 the Company sold to Endogen, Inc. the research
products and operations of TCD for a purchase price of approximately $2,880,000,
while retaining the TRAx diagnostic product franchise. The consideration for
this sale was paid in the form of a convertible subordinated note receivable
(the "Convertible Note") in the principal amount of $2,003,000 and a combination
of cash and a short-term note used to repay approximately $980,000 of
obligations under the Company's operating lease. On February 10, 1997, the
Company converted the remaining outstanding principal balance of the Convertible
Note into shares of Endogen common stock which it subsequently sold. Net
proceeds from the sale were $1,829,000 and included an immaterial gain.
(5) Statement of Financial Accounting Standards No. 128, "Earnings per
------------------------------------------------------------------
Share"
------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS 128 is effective for interim and annual periods ending after
December 15, 1997. The adoption of SFAS 128 is not expected to have a material
impact in the Company's net loss per share computation.
7
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: Statements contained in the following, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations, that
are not historical facts may be forward-looking statements that are subject to a
variety of risks and uncertainties. There are a number of important factors that
could cause the actual results to differ materially from those expressed in any
forward-looking statements made by the Company. These factors include, but are
not limited to: (i) the Company's ability to successfully complete product
research and development, including pre-clinical and clinical studies, and
commercialization; (ii) the Company's ability to obtain substantial additional
funding; (iii) the Company's ability to obtain required governmental approvals;
(iv) the Company's ability to attract manufacturing, sales, distribution and
marketing partners and other strategic alliances; and (v) the Company's ability
to develop and commercialize its products before its competitors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
The Company's lead therapeutic program is focused on developing
compounds that inhibit complement activation which is part of the body's immune
defense system. The Company initiated a Phase IIa clinical trial for the
evaluation of the Company's lead therapeutic compound, TP10, in patients with
adult respiratory distress syndrome in January 1996 and a Phase I/II clinical
trial in August 1996, using TP10, to prevent reperfusion injury in patients
receiving lung transplants. The Company anticipates completing both of these
trials in the second half of 1997. In February 1997, the Company was awarded a
$100,000 Phase I Small Business Innovation Research grant from the National
Institute of Health. Funding from the grant will contribute to the development
of a novel DNA vaccine. The grant will contribute to the Company's program for
the development of a vaccine for the management of atherosclerosis.
Results of Operations
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
- -- The Company reported a consolidated net loss of $1,935,600 or $.08 per share
for the quarter ended March 31, 1997 compared with a net loss of $1,851,600 or
$.09 per share for the quarter ended March 31, 1996. The increase in net loss
for the quarter compared to last year is primarily due to the net gain of
$315,700 recognized in the first quarter of 1996 from the sale of the research
products and operations of TCD in March 1996. Included in the quarter ended
March 31, 1996 are two months of operations of the research products and
operations of TCD, prior to its sale, which partially offset the gain
recognized. The operating loss for the quarter ended March 31, 1997 was
$2,087,800 reflecting a 9.2% decrease from $2,299,300 for the same period last
year. The decrease in operating loss is primarily due to a $736,900 or 25.5%
decrease in operating expense partially offset by a $525,400 or 89.2% decrease
in operating revenue. The decrease in operating revenue and expense is primarily
due to the sale of the research products and operations of TCD in March 1996.
Research and development expenses were $1,335,900 for the quarter ended
March 31, 1997 compared to $1,491,000 for the same period last year. The
decrease is primarily due to the sale of the research products and operations of
TCD in March 1996.
General and administrative expenses decreased $89,700 to $774,100 for
the quarter ended March 31, 1997 from $863,800 for the comparable period last
year. The decrease is mainly attributable to the sale of the research products
and operations of TCD in March 1996.
Marketing and sales expenses decreased 77.9% to $40,800 for the quarter
ended March 31, 1997 compared to $185,000 for the quarter ended March 31, 1996.
The decrease in marketing and sales
8
expenses is primarily due to the sale of the research products and operations of
TCD in March 1996 combined with the December 1995 sales and distribution
contract with Diamedix Corporation for the TRAx CD4 and CD8 microtiter plate
format products.
Non-operating income of $152,200 for the quarter ended March 31, 1997
reflects a 23.5% increase in interest income for the quarter compared with the
same period last year. The increase in interest income is primarily the result
of higher cash balances during the quarter ended March 31, 1997 compared with
the quarter ended March 31, 1996. Included in non-operating income of $447,700
for the quarter ended March 31, 1996 is a net gain of $315,700 recognized from
the sale of the research products and operations of TCD in March 1996.
Liquidity and Capital Resources
The Company's cash and cash equivalents at March 31, 1997 was
$12,242,300 compared to $12,591,800 at December 31, 1996. Cash used in
operations was $2,084,800 for the three months ended March 31, 1997 which was
partially offset by $1,829,000 received from the conversion and subsequent sale
of the convertible subordinated note receivable from Endogen, Inc. The Company
received the convertible subordinated note receivable in connection with the
sale of the research products and operations of TCD in March 1996. On February
10, 1997 the Company converted the remaining outstanding principal balance of
$1,802,700 into shares of common stock of Endogen and subsequently sold the
shares.
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters, to recover the damages incurred by the Company resulting from the
evacuation of the building, due to air quality problems which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant has filed counterclaims, alleging the Company has breached its lease
obligations. In a separate lawsuit, the landlord's mortgagee has filed claims
against the Company for payment of the same rent alleged to be owed. A motion
for summary judgment filed by the bank was denied by the court. Due to the
current stage of the lawsuits, a range of potential losses cannot be estimated
at this time. Accordingly, no accrual has been made in the financial statements
relative to any potential effects on the Company's future operating results. A
significant adverse settlement could have a negative impact on the future
operating results of the Company.
The Company believes its current cash and cash equivalents, combined
with anticipated net cash provided by operations will be sufficient to meet
working capital requirements into 1998. These requirements will depend on
several factors including, but not limited to, the progress and costs associated
with research and development programs; preclinical and clinical studies; time
and costs associated with obtaining regulatory approval; timing and scope of
collaborative arrangements; long term facility costs; and expenses and outcome
of pending litigation on the air quality problem. The Company will consider
alternative sources of funding and capital when available and appropriate.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS 128 is effective for interim and annual periods ending after
December 15, 1997. The adoption of SFAS 128 is not expected to have a material
impact in the Company's net loss per share computation.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
No material changes since the Company's annual report on Form 10-K for
the year ended December 31, 1996.
ITEM 5. OTHER INFORMATION
-----------------
The Company announced in February 1997 that it had been awarded a
$100,000 Phase I Small Business Innovation Research grant from the National
Institute of Health. The grant will contribute to the development of a novel DNA
vaccine which will contribute to the Company's program to develop a vaccine for
the management of atherosclerosis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. Exhibits
None
B. Reports on Form 8-K
None
10
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.
T CELL SCIENCES, INC.
BY: /s/ Norman W. Gorin
--------------------
Norman W. Gorin
Vice President, Finance
and Chief Financial Officer
11
5
U.S. DOLLARS
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
1
12,242,300
0
19,200
0
22,400
12,570,300
3,073,200
(2,572,200)
15,044,900
1,358,800
0
0
0
25,000
13,661,100
15,044,900
1,300
63,400
400
2,150,800
17,900
0
(170,100)
(1,935,600)
0
(1,935,600)
0
0
0
(1,935,600)
(0.08)
(0.08)
