UNITED STATES
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, 2003
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 No. 0-23930
TARGETED GENETICS CORPORATION
(Exact name of Registrant as specified in its charter)
| Washington |
91-1549568 | |
| (State of Incorporation) |
(IRS Employer Identification No.) |
1100 Olive Way, Suite 100
Seattle, WA 98101
(Address of principal executive offices, including zip code)
(206) 623-7612
(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Stock, $0.01 par value |
50,566,348 | |
| (Class) |
(Outstanding at May 1, 2003) |
TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
For the quarter ended March 31, 2003
| Page No. | ||||
| PART I |
||||
| Item 1. |
||||
| a) Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 |
1 | |||
| b) Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 |
2 | |||
| c) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 |
3 | |||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
8 | ||
| Item 3. |
21 | |||
| Item 4. |
22 | |||
| PART II |
||||
| Item 1. |
23 | |||
| Item 2. |
23 | |||
| Item 3. |
23 | |||
| Item 4. |
23 | |||
| Item 5. |
23 | |||
| Item 6. |
23 | |||
| 24 | ||||
| 25 | ||||
| 27 | ||||
i
TARGETED GENETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2003 |
December 31, 2002 |
|||||||
| (unaudited) |
||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
12,231,000 |
|
$ |
12,606,000 |
| ||
| Accounts receivable |
|
— |
|
|
1,170,000 |
| ||
| Prepaid expenses and other |
|
692,000 |
|
|
452,000 |
| ||
| Total current assets |
|
12,923,000 |
|
|
14,228,000 |
| ||
| Property and equipment, net |
|
4,779,000 |
|
|
5,520,000 |
| ||
| Goodwill, net |
|
31,649,000 |
|
|
31,649,000 |
| ||
| Other assets |
|
1,272,000 |
|
|
1,316,000 |
| ||
| Total assets |
$ |
50,623,000 |
|
$ |
52,713,000 |
| ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ |
1,936,000 |
|
$ |
2,012,000 |
| ||
| Accrued restructure expenses |
|
980,000 |
|
|
1,202,000 |
| ||
| Accrued employee expenses |
|
333,000 |
|
|
729,000 |
| ||
| Deferred revenue |
|
5,324,000 |
|
|
6,041,000 |
| ||
| Current portion of long-term obligations and short-term debt |
|
1,624,000 |
|
|
1,298,000 |
| ||
| Total current liabilities |
|
10,197,000 |
|
|
11,282,000 |
| ||
| Deferred rent and accrued restructure expenses |
|
2,111,000 |
|
|
2,276,000 |
| ||
| Long-term obligations |
|
20,484,000 |
|
|
20,494,000 |
| ||
| Commitments |
||||||||
| Minority interest in preferred stock of subsidiary |
|
750,000 |
|
|
750,000 |
| ||
| Series B convertible exchangeable preferred stock |
|
12,015,000 |
|
|
12,015,000 |
| ||
| Shareholders’ equity: |
||||||||
| Preferred stock, $0.01 par value, 6,000,000 shares authorized: |
||||||||
| Series A preferred stock, 800,000 shares designated, none issued and outstanding |
|
— |
|
|
— |
| ||
| Series B preferred stock, 12,015 shares designated, issued and outstanding |
|
— |
|
|
— |
| ||
| Common stock, $0.01 par value, 120,000,000 shares authorized, 50,566,348 shares issued and outstanding at March 31, 2003 and December 31, 2002 |
|
506,000 |
|
|
506,000 |
| ||
| Additional paid-in capital |
|
207,139,000 |
|
|
207,139,000 |
| ||
| Accumulated deficit |
|
(202,579,000 |
) |
|
(201,749,000 |
) | ||
| Total shareholders’ equity |
|
5,066,000 |
|
|
5,896,000 |
| ||
| Total liabilities and shareholders’ equity |
$ |
50,623,000 |
|
$ |
52,713,000 |
| ||
See accompanying notes to condensed consolidated financial statements
1
TARGETED GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenue: |
||||||||
| Collaborative agreements |
$ |
5,639,000 |
|
$ |
4,531,000 |
| ||
| Collaborative agreement with unconsolidated, majority-owned research and development joint venture |
|
— |
|
|
839,000 |
| ||
| Total revenue |
|
5,639,000 |
|
|
5,370,000 |
| ||
| Operating expenses: |
||||||||
| Research and development |
|
4,542,000 |
|
|
8,297,000 |
| ||
| General and administrative |
|
1,336,000 |
|
|
2,395,000 |
| ||
| Restructure charges |
|
281,000 |
|
|
— |
| ||
| Equity in net loss of unconsolidated, majority-owned research and development joint venture |
|
— |
|
|
778,000 |
| ||
| Amortization of acquisition-related intangibles |
|
— |
|
|
126,000 |
| ||
| Total operating expenses |
|
6,159,000 |
|
|
11,596,000 |
| ||
| Loss from operations |
|
(520,000 |
) |
|
(6,226,000 |
) | ||
| Investment income |
|
52,000 |
|
|
87,000 |
| ||
| Interest expense |
|
(362,000 |
) |
|
(267,000 |
) | ||
| Net loss |
$ |
(830,000 |
) |
$ |
(6,406,000 |
) | ||
| Computation of basic and diluted net loss per common share: |
||||||||
| Net loss per common share (basic and diluted) |
$ |
(0.02 |
) |
$ |
(0.15 |
) | ||
| Shares used in computation of basic and diluted net loss per common share |
|
50,566,000 |
|
|
44,137,000 |
| ||
See accompanying notes to condensed consolidated financial statements
2
TARGETED GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating activities: |
||||||||
| Net loss |
$ |
(830,000 |
) |
$ |
(6,406,000 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Equity in net loss of unconsolidated, majority-owned research and development joint venture |
|
— |
|
|
778,000 |
| ||
| Depreciation and amortization |
|
773,000 |
|
|
801,000 |
| ||
| Amortization of purchased intangibles |
|
— |
|
|
126,000 |
| ||
| Non-cash interest expense |
|
302,000 |
|
|
174,000 |
| ||
| Changes in assets and liabilities: |
||||||||
| Decrease in deferred revenue |
|
(717,000 |
) |
|
(754,000 |
) | ||
| Decrease (increase) in accounts receivable |
|
1,170,000 |
|
|
(606,000 |
) | ||
| Decrease in accounts receivable from unconsolidated, majority-owned research and development joint venture |
|
— |
|
|
606,000 |
| ||
| Decrease (increase) in prepaid expenses and other current assets |
|
(240,000 |
) |
|
16,000 |
| ||
| Decrease in current liabilities |
|
(172,000 |
) |
|
(875,000 |
) | ||
| Increase (decrease) in accrued restructure expenses and deferred rent |
|
(387,000 |
) |
|
53,000 |
| ||
| Decrease in other non-current assets |
|
44,000 |
|
|
26,000 |
| ||
| Net cash used in operating activities |
|
(57,000 |
) |
|
(6,061,000 |
) | ||
| Investing activities: |
||||||||
| Purchases of property and equipment |
|
(32,000 |
) |
|
(191,000 |
) | ||
| Investment in unconsolidated, majority-owned research and development joint venture |
|
— |
|
|
(1,631,000 |
) | ||
| Net cash used in investing activities |
|
(32,000 |
) |
|
(1,822,000 |
) | ||
| Financing activities: |
||||||||