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
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[_] 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 0-22025
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AASTROM BIOSCIENCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 94-3096597
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
24 Frank Lloyd Wright Dr.
P.O. Box 376
Ann Arbor, Michigan 48106
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip code)
(313) 930-5555
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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.
[X] - Yes [_] - No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 13,270,834
(Class) Outstanding at May 1, 1997
Page 1
AASTROM BIOSCIENCES, INC.
Quarterly Report on Form 10-Q
March 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
a) Condensed Balance Sheets as of June 30, 1996 and March 31,
1997 3
b) Condensed Statements of Operations for the three and nine
months ended March 31, 1996 and 1997 and for the period
from March 24, 1989 (Inception) to March 31, 1997 4
c) Condensed Statements of Cash Flows for nine months ended
March 31, 1996 and 1997 and for the period from March
24, 1989 (Inception) to March 31, 1997 5
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
* No information is provided due to inapplicability of the item.
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
June 30, March 31,
1996 1997
----------- -----------
(Unaudited)
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 10,967,000 $ 4,694,000
Short-term investments - 16,773,000
Receivables 81,000 249,000
Prepaid expenses 437,000 109,000
------------ ------------
Total current assets 11,485,000 21,825,000
PROPERTY, NET 1,188,000 1,097,000
------------ ------------
Total assets $ 12,673,000 $ 22,922,000
============ ============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,192,000 $ 2,392,000
Accrued employee expenses 97,000 116,000
Current portion of capital lease obligations 223,000 147,000
Deferred revenue 122,000 4,000
------------ ------------
Total current liabilities 1,634,000 2,659,000
CAPITAL LEASE OBLIGATIONS 189,000 84,000
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, shares authorized -
9,951,765 and 5,000,000, respectively, issued
and outstanding - 9,451,766 and 0, respectively 34,218,000 -
Common Stock, no par value; shares authorized -
18,500,000 and 40,000,000 respectively; shares
issued and outstanding - 1,886,479 and 13,268,960,
respectively 324,000 58,043,000
Deficit accumulated during the development stage (27,025,000) (37,653,000)
Shareholder notes receivable (167,000) (167,000)
Stock purchase rights 3,500,000 -
Unrealized losses on investments - (44,000)
------------ ------------
Total shareholders' equity 10,850,000 20,179,000
------------ ------------
Total liabilities and shareholders' equity $ 12,673,000 $ 22,922,000
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended March 24, 1989
March 31, March 31, (Inception) to
---------------------------- ---------------------------- March 31,
1996 1997 1996 1997 1997
----------- ----------- ----------- ------------ ------------
REVENUES:
Research and development agreements $ 593,000 $ 9,000 $ 1,108,000 $ 204,000 $ 1,991,000
Grants 85,000 59,000 216,000 117,000 2,112,000
----------- ----------- ----------- ------------ ------------
Total revenues 678,000 68,000 1,324,000 321,000 4,103,000
----------- ----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Research and development 4,215,000 4,253,000 7,197,000 9,963,000 35,038,000
General and administrative 649,000 465,000 1,513,000 1,356,000 8,445,000
----------- ----------- ----------- ------------ ------------
Total costs and expenses 4,864,000 4,718,000 8,710,000 11,319,000 43,483,000
----------- ----------- ----------- ------------ ------------
LOSS BEFORE OTHER INCOME AND
EXPENSE (4,186,000) (4,650,000) (7,386,000) (10,998,000) (39,380,000)
----------- ----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 204,000 191,000 503,000 396,000 1,972,000
Interest expense (15,000) (7,000) (49,000) (26,000) (245,000)
----------- ----------- ----------- ------------ ------------
Other income 189,000 184,000 454,000 370,000 1,727,000
----------- ----------- ----------- ------------ ------------
NET LOSS $(3,997,000) $(4,466,000) $(6,932,000) $(10,628,000) $(37,653,000)
=========== =========== =========== ============ ============
NET LOSS PER SHARE $ (.40) $ (.38) $ (.69) $ (1.00)
=========== =========== =========== ============
Weighted average number of common and
common equivalent shares outstanding 10,107,000 11,804,000 10,102,000 10,665,000
=========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
Page 4
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended March 24, 1989
March 31, (Inception) to
---------------------------- March 31,
1996 1997 1997
----------- ------------ --------------
OPERATING ACTIVITIES:
Net loss $(6,932,000) $(10,628,000) $(37,653,000)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 301,000 417,000 1,684,000
Loss on property held for resale - - 110,000
Amortization of discounts and
premiums on investments (110,000) (28,000) (147,000)
Expense related to stock and stock
options granted - 97,000 107,000
Changes in assets and liabilities:
Receivables (29,000) (168,000) (249,000)
Prepaid expenses 28,000 328,000 (109,000)
Accounts payable and accrued
expenses 2,339,000 1,200,000 2,392,000
Accrued employee expenses 25,000 19,000 116,000
Deferred revenue (60,000) (118,000) 4,000
----------- ------------ ------------
Net cash used for operating activities (4,438,000) (8,881,000) (33,745,000)
INVESTING ACTIVITIES:
Organizational costs - - (73,000)
Purchase of short-term investments - (17,989,000) (29,937,000)
Maturities of short-term investments 7,000,000 1,200,000 13,267,000
Capital purchases (238,000) (326,000) (2,044,000)
Proceeds from sale of property held for resale - - 400,000
----------- ------------ ------------
Net cash provided by (used for)
investing activities 6,762,000 (17,115,000) (18,387,000)
FINANCING ACTIVITIES:
Issuance of Preferred Stock 5,965,000 - 34,218,000
Issuance of Common Stock 77,000 19,904,000 20,020,000
Payments received for stock purchase rights 3,500,000 - 3,500,000
Payments received under shareholder notes 31,000 - 31,000
Principal payments under capital lease obligations (201,000) (181,000) (943,000)
----------- ------------ ------------
Net cash provided by financing activities 9,372,000 19,723,000 56,826,000
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,696,000 (6,273,000) 4,694,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,680,000 10,967,000 -
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $14,376,000 $ 4,694,000 $ 4,694,000
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 49,000 $ 26,000 $ 245,000
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations $ - $ - $ 1,174,000
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
Page 5
AASTROM BIOSCIENCES, INC.
(A development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Aastrom Biosciences, Inc. (the "Company") was incorporated in March 1989
("Inception") under the name Ann Arbor Stromal, Inc. The Company changed its
name in 1991 concurrent with the commencement of employee-based operations.
The Company is in the development stage with its principal business
activities being research and product development, conducted both on its own
behalf and in connection with various collaborative research and development
agreements with other companies, involving the development of processes and
instrumentation for the ex-vivo production of human stem cells and their
progeny, and hematopoietic and other tissues. Successful future operations
are subject to several technical and business risks, including satisfactory
product development and obtaining regulatory approval and market acceptance
of its products.
2. Basis of Presentation
The condensed financial statements included herein have been prepared by the
Company without audit, according to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The financial statements reflect, in the opinion
of management, all adjustments (which consist solely of normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods indicated. The results of operations
for the three and nine months ended March 31, 1997, are not necessarily
indicative of the results to be expected for the full year or for any other
period.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's
prospectus dated February 4, 1997, ("Prospectus") as filed with the
Securities and Exchange Commission.
3. Initial Public Offering
On February 7, 1997, the Company completed an underwritten initial public
offering of 3,000,000 shares of its Common Stock at an offering price of
$7.00 per share. On March 5, 1997, the underwriters elected to purchase an
additional 250,000 shares of Common Stock pursuant to the underwriters' over-
allotment option (the "Option") at a price of $7.00 per share. The Option,
which has now expired, granted the underwriters the right to purchase up to
450,000 shares of Common Stock at the
Page 6
initial public offering price. Proceeds from the offering, net of
underwriters' commissions and expenses were $19,885,000.
In connection with the IPO, the Company effected a two-for-three reverse
stock split. Accordingly, all references in the accompanying financial
statements to common share or per common share information has been restated
to reflect the reverse stock split. Additionally, as a result of the IPO,
all 9,657,648 shares of the Company's outstanding Preferred Stock
automatically converted into an aggregate of 8,098,422 shares of Common Stock
upon the completion of the IPO. On February 6, 1997, the Company filed an
amendment to its Articles of Incorporation to authorize 40,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
4. Net Loss Per Share
Net loss per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are not included in the per share calculation where the effect of
their inclusion would be anti-dilutive. However, common and common
equivalent shares issued during the 12 month period preceding the filing of
the registration statement for the IPO at a price below the offering price
are considered to be cheap stock and are included in the calculation for
periods prior to the IPO, as if they were outstanding for all periods using
the treasury stock method, as applicable, even though their inclusion is
anti-dilutive. Due to the automatic conversion of Preferred Stock into Common
Stock upon the completion of the IPO, all outstanding shares of Preferred
Stock are assumed to have been converted into Common Stock at the time of
issuance, except for those shares considered to be cheap stock which are
treated as outstanding for all periods presented.
5. Recent Pronouncements
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation," which
establishes a fair value based method of accounting for stock-based
compensation and incentive plans and requires additional disclosures for
those companies that elect not to adopt the new method of accounting.
Adoption of this pronouncement is required for the Company beginning July 1,
1996, and the Company intends to adopt the reporting requirements of the
pronouncement in its financial statements for the year ended June 30, 1997.
The Company will continue to record compensation expense related to stock
options issued as prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 ("SFAS 121O), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to
review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. Adoption of this pronouncement is
Page 7
required for the Company beginning July 1, 1996. Management has studied the
effect of implementing SFAS 121 and, based upon its evaluation, has
determined that the impact on the Company's financial condition and results
of operations is not significant for the periods ended March 31, 1997.
During March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which amends the standards for computing earnings per share previously set
forth in Accounting Principles Board Opinion No. 15 "Earnings per Share"
("APB 15"). SFAS 128 is required to be adopted by the Company for the year
ended June 30, 1997. The pro forma adoption of SFAS 128 would not have
effected the computation of net loss per share for the periods presented in
the accompanying financial statements.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Since Inception, the Company has been in the development stage and engaged in
research and product development, conducted both on its own behalf and in
connection with various collaborative research and development agreements with
other entities. The Company expects that its revenue sources for at least the
next several years will continue to be limited to grant revenues and research
funding, milestone payments and licensing fees from potential future corporate
collaborators. The timing and amount of such future cash payments and revenues,
if any, will be subject to significant fluctuations, based in part on the
success of the Company's research activities, the timing of the achievement of
certain milestones and the extent to which associated costs are reimbursed under
grant or other arrangements. Research and development expenses may fluctuate
due to the timing of expenditures for the varying stages of the Company's
research and clinical development programs. Research and development expenses
are expected to increase as product development programs and applications of the
Company's products progress through research and development stages. Under the
Company's License Agreement with Immunex Corporation ("Immunex"), annual renewal
fees of $1,000,000 are payable in each of the next three fiscal years. Under the
Company's Distribution Agreement with Cobe BCT, Inc. ("Cobe"), regulatory
approval activities for the Company's products for stem cell therapies outside
of the United States will be conducted, and paid for, by Cobe. As a result of
these and others factors, the Company's results of operations have fluctuated
and are expected to continue to fluctuate significantly from year to year and
from quarter to quarter and therefore may not be comparable to or indicative of
the results of operations for other periods.
Over the past several years, the Company's net loss has primarily increased,
consistent with the growth in the Company's scope and size of operations. In the
near term, the Company plans additional moderate growth in employee headcount
necessary to address increasing requirements in the areas of product
development, research, clinical and regulatory affairs and administration.
Assuming capital is available to finance such growth, the Company's operating
expenses will continue to increase as a result. At least until such time as the
Company enters into arrangements providing research and development funding, the
net loss will continue to increase as well. The Company has been unprofitable
since its inception and does not anticipate having net income for at least the
next several years. Through March 31, 1997, the Company has an accumulated
deficit of $37,653,000. There can be no assurance that the Company will be able
to achieve profitability on a sustained basis, if at all.
This report contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under this caption, as well as those discussed under the caption
"Certain Business Considerations" and in the Company's Prospectus.
Page 9
Results of operations
Three and nine months ended March 31, 1997 and 1996
Total revenues were $68,000 for the three months ended March 31, 1997, compared
to $678,000 for the same period in 1996, and were $321,000 for the nine months
ended March 31, 1997, compared to $1,324,000 in 1996. These revenues for the
nine-month periods consist primarily of research and development revenue under
the Company's research collaboration with Rhone-Poulenc Rorer, Inc., which
was terminated in September 1996. As such, the Company did not recognize any
revenues under that research collaboration for the three months ended March 31,
1997. Grant revenues decreased in 1997 reflecting the timing of grant awards
and related research activities, to the extent that such associated costs are
reimbursed under the grants.
Total costs and expenses were $4,718,000 for the three months ended March 31,
1997, compared to $4,864,000 for the same period in 1996. The decrease in costs
and expenses in 1997 is primarily the result of a decrease in general and
administrative expenses, which decreased to $465,000 for the three months ended
March 31, 1997 from $649,000 for the same period in 1996. Research and
development expenses remained relatively consistent for the quarters ended March
31, increasing to $4,253,000 in 1997 from $4,215,000 in 1996. Research and
development expense includes a charge of $1,000,000 and $1,500,000 for the three
months ended March 31, 1997 and 1996, respectively, representing license fees
pursuant to the Company's supply agreement with Immunex. Total costs and
expenses were $11,319,000 for the nine months ended March 31, 1997, compared to
$8,710,000 for the same period in 1996. The increase in costs and expenses in
1996 is primarily the result of an increase in research and development expenses
to $9,963,000 in 1997 from $7,197,000 in 1996 which is partially offset by
general and administrative expenses, which decreased to $1,356,000 for the nine
months ended March 31, 1997 from $1,513,000 for the same period in 1996. The
increases in 1997 research and development expense reflect an increase in
research, clinical development and product development activities over 1996
levels.
Interest income was $191,000 for the three months ended March 31, 1997, compared
to $204,000 for the same period in 1996, and was $396,000 for the nine months
ended March 31, 1997, compared to $503,000 for the same period in 1996. These
decreases primarily reflect lower levels of cash, cash equivalents and short-
term investments throughout the periods in 1997.
The Company's net loss increased to $4,466,000 for the three months ended March
31, 1997, from $3,997,000 for the same period in 1996 and increased to
$10,628,000 for the nine months ended March 31, 1997, compared to $6,932,000 for
the same period in 1996. These increases are primarily the result of increased
costs and expenses and lower revenues in 1997 as described above.
Page 10
Liquidity and capital resources
The Company has financed its operations since Inception primarily through public
and private sales of its equity securities, which from Inception through March
31, 1997, have totaled approximately $57,769,000, and, to a lesser degree,
through grant funding, payments received under research agreements and
collaborations, interest earned on cash, cash equivalents, and short-term
investments, and funding under equipment leasing agreements. These financing
sources have historically allowed the Company to maintain adequate levels of
cash and other liquid investments.
The Company's combined cash, cash equivalents and short-term investments totaled
$21,467,000 at March 31, 1997, an increase of $10,500,000 from June 30, 1996.
The primary uses of cash, cash equivalents and short-term investments during the
nine months ended March 31, 1997, included $8,853,000 to finance the Company's
operations and working capital requirements, $326,000 in capital equipment
additions and $181,000 in scheduled debt payments. On February 7, 1997, the
Company completed an underwritten initial public offering of 3,000,000 shares of
its Common Stock at an offering price of $7.00 per share. On March 5, 1997, the
underwriters elected to purchase an additional 250,000 shares of Common Stock
pursuant to the underwriters' over-allotment option (the "Option") at a price of
$7.00 per share. The Option, which has expired, granted the underwriters the
right to purchase up to 450,000 shares of Common Stock at the initial public
offering price. Proceeds from the offering, net of underwriters' commissions
and expenses were $19,885,000. The Company plans to continue its policy of
investing excess funds in short-term, investment-grade, interest-bearing
instruments.
The Company's future cash requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
scope and results of clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patents, competing technological and market developments and the cost of product
commercialization. The Company does not expect to generate a positive cash flow
from operations for several years, if at all, due to the expected increase in
spending for research and development programs and the expected cost of
commercializing its product candidates. The Company intends to seek additional
funding through research and development agreements with suitable corporate
collaborators, grants and through public or private financing transactions. The
Company expects that its primary sources of capital for the foreseeable future
will be through collaborative arrangements and through the public or private
sale of its debt or equity securities. There can be no assurance that such
collaborative arrangements, or any public or private financing, will be
available on acceptable terms, if at all, or can be sustained on a long-term
basis. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research and
development programs, which may have a material adverse effect on the Company's
business.
Page 11
Certain Business Considerations
Commercialization of the Company's technology and product candidates, including
its lead product candidate, the Aastrom Cell Production System ("Aastrom CPS"),
will require substantial additional research and development by the Company as
well as substantial clinical trials. There can be no assurance that the Company
will successfully complete development of the Aastrom CPS or its other product
candidates, or successfully market its technologies or product candidates, which
lack of success would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company or its collaborators
may encounter problems or delays relating to research and development, clinical
trials, regulatory approval and intellectual property rights of the Company's
technologies and product candidates. The Company's product development efforts
are primarily directed toward obtaining regulatory approval to market the
Aastrom CPS as an alternative to currently used stem cell collection methods.
These existing stem cell collection methods have been widely practiced for a
number of years, and there can be no assurance that any of the Company's
technologies or product candidates will facilitate the ex vivo production of
cells with the expected biological activities in humans or will be accepted by
the marketplace as readily as these or other competing processes and
methodologies, or at all.
The approval of the United States Food and Drug Administration ("FDA") will be
required before any commercial sales of the Company's product candidates for
stem cell therapy may commence in the United States, and approvals from foreign
regulatory authorities will be required before international sales may commence.
The Company is currently conducting a pre-pivotal clinical trial to demonstrate
the safety and biological activity of patient-derived cells produced in the
Aastrom CPS in a limited number of patients and if the results from this pre-
pivotal trial are successful, the Company intends to seek clearance from the FDA
to commence a pivotal clinical trial. The Company has experienced delays in
patient accrual in its current pre-pivotal and in previous clinical trials.
Further delays in patient accrual, in the Company's current pre-pivotal clinical
trial or in future clinical trials, could result in increased costs associated
with the clinical trials or delays in receiving regulatory approvals and
commercialization, if any. The results of preclinical studies and early
clinical trials of the Company's product candidates, however, may not
necessarily be indicative of results that will be obtained from subsequent or
more extensive clinical trials. Further, there can be no assurance that pre-
pivotal or pivotal clinical trials of any of the Company's product candidates
will demonstrate the safety, reliability and efficacy of such products, or of
the cells produced in such products, to the extent necessary to obtain required
regulatory approvals or market acceptance. There can be no assurance that, even
after the expenditures of substantial time and financial resources, regulatory
approval will be obtained for any products developed by the Company.
The Company currently arranges for the manufacture of its product candidates and
their components, including certain cytokines, serum and media, with third
parties, and expects to continue to do so in the foreseeable future. There can
be no assurance that the Company's supply of such key cytokines, components and
other materials will not become limited, interrupted or restricted to certain
geographic regions. There can also be no
Page 12
assurance that the Company will be able to obtain alternative components and
materials from other manufacturers of acceptable quality, or on terms or in
quantities acceptable to the Company, if at all. Additionally, there can be no
assurance that the Company will not require additional cytokines, components and
other materials to manufacture, use or market its product candidates, or that
necessary key components will be available for use by the Company in the markets
where the it intends to sell its products. In the event that any of the
Company's key manufacturers or suppliers fail to perform their respective
obligations or the Company's supply of such cytokines, components or other
materials become limited or interrupted, the Company would not be able to market
its product candidates on a timely and cost-competitive basis, if at all, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. Certain of the compounds used by the
Company in its current stem cell expansion process involve the use of animal
derived products. The availability of these compounds for clinical and
commercial use may become limited by suppliers or restricted by regulatory
authorities which may impose a potential competitive disadvantage for the
Company's products compared to competing products and procedures. To date, the
availability of such materials has not caused a significant delay in the
Company's development activities, however, there can be no assurance that such
delays or disadvantages will not be experienced by the Company in the future.
The Company is a development stage company and there can be no assurance that
its product candidates for cell therapy will be successful. The Company has not
yet completed the development and clinical trials of any of its product
candidates and, accordingly, has not yet begun to generate revenues from the
commercialization of any of its product candidates. The Company expects to
incur significant and increasing operating losses for at least the next several
years, primarily owing to the expansion of its research and development
programs, including preclinical studies and clinical trials. The development of
the Company's products will require the Company to raise substantial additional
funds or to seek collaborative partners, or both, to finance related research
and development activities. Because of the Company's potential long-term
funding requirements, it may attempt to access the public or private equity
markets if and whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that any such additional funding will be available to the Company on reasonable
terms, or at all. Several factors will affect the Company's ability to raise
necessary additional funding, including market volatility of the Company's stock
and economic conditions affecting the public markets generally or some portion
or all of the technology sector. If adequate funds are not available, the
Company may be required to delay or terminate research and development programs,
curtail capital expenditures, and reduce business development and other
operating activities.
The Company has established a strategic alliance with Cobe BCT, Inc. for the
worldwide distribution of the Aastrom CPS for stem cell therapy and related
uses. Cobe has the right to terminate its Distribution Agreement with the
Company upon twelve months' notice, upon a change of control of the Company,
other than to Cobe, or at any time after December 31, 1997, if Cobe determines
that commercialization of the Aastrom CPS for stem cell therapy on or prior to
December 31, 1998 is unlikely. There can be no assurance that Cobe will pursue
the marketing and distribution of the Company's products, continue
Page 13
to perform its obligations under its agreements with the Company or that the
Company's strategic alliance with Cobe will result in the successful
commercialization and distribution of the Company's technologies and product
candidates. There can also be no assurance that Cobe will be successful in its
efforts to market and distribute the Company's products for stem cell therapy.
These business considerations, and others, are discussed in more detail and
should be read in conjunction with the Risk Factors discussed in the Company's
Prospectus.
Page 14
PART II - OTHER INFORMATION
Item 2. - Changes in Securities
(a) In connection with its initial public offering, all 9,657,648 shares of
outstanding preferred stock converted to an aggregate of 8,098,422 shares
of Common Stock upon the completion of the offering. On February 6, 1997,
the Company filed an amendment to its Articles of Incorporation to
authorize 40,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock.
(c) During the three months ended March 31, 1997, the Company granted options
to purchase a total of 743,116 shares of Common Stock at exercise prices
ranging from $3.20 to $7.13 per share to 16 employees and directors. No
consideration was paid to the Company by any recipient of any of the
foregoing options for the grant of any such options. During the three
months ended March 31, 1997, the Company issued a total of 25,623 shares of
Common Stock to three employees upon exercise of stock options at exercise
prices ranging from $.30 to $1.20 per share.
There were no underwriters employed in connection with any of the
transactions set forth in Item 2.
The issuances described in Item 2(c) were exempt from registration under
the Securities Act in reliance on Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans and contracts relating
to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the share certificates and
other instruments issued in such transactions. On April 11, 1997, a
registration statement on Form S-8 was filed with the Securities and
Exchange Commission with respect to the shares of Common Stock issuable
pursuant to the Company's Amended and Restated 1992 Incentive and Non-
Qualified Stock Option Plan, 1996 Outside Directors Stock Option Plan, and
1996 Employee Stock Purchase Plan.
Page 15
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
See Exhibit Index.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the period.
Page 16
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.
AASTROM BIOSCIENCES, INC.
Date: May 13, 1997 /s/ R. Douglas Armstrong
--------------------------------------------
R. Douglas Armstrong, Ph.D.
President, Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1997 /s/ Todd E. Simpson
--------------------------------------------
Todd E. Simpson
Vice President, Finance and Administration,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 17
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
3.1* Restated Articles of Incorporation of the Company.
3.2** Bylaws of the Company.
4.1** Amended and Restated Investors' Rights Agreement, dated April 7,
1992.
11.1 Statement re computation of net loss per share.
27.1 Financial Data Schedule.
- ------------------------
* Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended December 31, 1996 as filed March 7, 1997.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-15415), declared effective on February 3, 1997.
Page 18
Exhibit 11.1
AASTROM BIOSCIENCES, INC.
(a development stage company)
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
Three months ended March 31, Nine months ended March 31,
---------------------------- -----------------------------
1996 1997 1996 1997
----------- ----------- ----------- ------------
Weighted average number of common
shares outstanding (1) 1,753,000 11,804,000 1,748,000 9,769,000
Issuance of Common Stock (2) 135,000 - 135,000 90,000
Assumed exercise of options to
purchase Common Stock (2) 121,000 - 121,000 81,000
Issuance of Series E Preferred
Stock (2) 1,078,000 - 1,078,000 725,000
Weighted average number of common
shares representing assumed
conversion of Series A, Series B,
Series C and Series D Preferred
Stock from the date of issuance 7,020,000 - 7,020,000 -
----------- ----------- ----------- ------------
Weighted average number of common
and common equivalent shares
outstanding 10,107,000 11,804,000 10,102,000 10,665,000
=========== =========== =========== ============
Net loss $(3,997,000) $(4,466,000) $(6,932,000) $(10,628,000)
=========== =========== =========== ============
Net loss per share $ (.40) $ (.38) $ (.69) $ (1.00)
=========== =========== =========== ============
- ----------------------
(1) Includes the number of common equivalent shares issued upon the conversion
of Series A through Series E Preferred Stock on February 7, 1997 in
connection with the initial public offering.
(2) Represents shares of common stock or common stock equivalents issued
subsequent to October 1995 at a price per share less than the estimated
initial public offering price.
5
9-MOS
JUN-30-1996
JUL-01-1996
MAR-31-1997
4,694,000
16,773,000
0
0
0
21,825,000
2,666,000
1,569,000
22,922,000
2,659,000
0
0
0
58,043,000
(37,864,000)
22,922,000
0
321,000
0
11,319,000
0
0
26,000
(10,628,000)
0
(10,628,000)
0
0
0
(10,628,000)
(1.00)
0
