UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2003 |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-28006
ESSENTIAL THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
94-3186021 | |
| (State or other jurisdiction of incorporation of organization) |
(I.R.S. Employer Identification Number) | |
| 78 Fourth Avenue, Waltham, Massachusetts (Address of principal executive offices) |
02451 (ZIP Code) |
781-647-5554
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 Exchange Act Rule 12b-2). Yes ¨ No x
Number of shares of Common Stock, $0.001 par value per share, outstanding as of April 30, 2003: 18,939,941
INDEX FOR FORM 10-Q
For the Quarter Ended March 31, 2003
| Page Number | ||||
| PART I FINANCIAL INFORMATION |
||||
| Item 1. |
||||
| Unaudited Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| 16 | ||||
| Item 3. |
24 | |||
| Item 4. |
25 | |||
| PART II OTHER INFORMATION |
||||
| Item 1. |
25 | |||
| Item 3. |
26 | |||
| Item 4. |
26 | |||
| Item 6. |
26 | |||
| 27 | ||||
| Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
28 | |||
2
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
| March 31, |
December 31, |
|||||||
| 2003 |
2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
2,898 |
|
$ |
3,541 |
| ||
| Marketable securities |
|
21,702 |
|
|
29,957 |
| ||
| Trade and other receivables |
|
1,010 |
|
|
1,624 |
| ||
| Prepaid expenses and other current assets |
|
407 |
|
|
641 |
| ||
| Assets held for sale |
|
761 |
|
|
272 |
| ||
| Total current assets |
|
26,778 |
|
|
36,035 |
| ||
| Restricted cash |
|
3,447 |
|
|
2,230 |
| ||
| Property and equipment, net |
|
3,800 |
|
|
5,384 |
| ||
| Goodwill |
|
1,526 |
|
|
1,526 |
| ||
| Other assets |
|
1,210 |
|
|
1,142 |
| ||
| Total assets |
$ |
36,761 |
|
$ |
46,317 |
| ||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
1,401 |
|
$ |
2,561 |
| ||
| Accrued compensation |
|
432 |
|
|
739 |
| ||
| Current portion of notes payable |
|
724 |
|
|
677 |
| ||
| Accrued merger and financing costs |
|
2 |
|
|
6 |
| ||
| Deferred revenue |
|
333 |
|
|
1,084 |
| ||
| Accrued restructuring |
|
3,168 |
|
|
1,400 |
| ||
| Accrued legal services |
|
312 |
|
|
1,086 |
| ||
| Other accrued liabilities |
|
837 |
|
|
787 |
| ||
| Total current liabilities |
|
7,209 |
|
|
8,340 |
| ||
| Long-term portion of notes payable |
|
1,957 |
|
|
1,961 |
| ||
| Long-term portion of accrued restructuring |
|
563 |
|
|
664 |
| ||
| Accrued rent |
|
646 |
|
|
631 |
| ||
| Series B convertible redeemable preferred stock, par value $0.001; 60,000 shares authorized, issued and outstanding: liquidation value $60,000 (net of deemed dividend and issuance costs) at March 31, 2003 and December 31, 2002 |
|
53,902 |
|
|
53,477 |
| ||
| Commitments and contingencies |
|
— |
|
|
— |
| ||
| Stockholders’ deficit: |
||||||||
| Preferred stock, par value $0.001; 5,000,000 shares authorized; 60,000 Series B shares issued and outstanding at March 31, 2003 and December 31, 2002 |
|
— |
|
|
— |
| ||
| Common stock, par value $0.001; 50,000,000 shares authorized; 18,939,941 shares issued and outstanding at March 31, 2003 and December 31, 2002 |
|
19 |
|
|
19 |
| ||
| Additional paid-in capital |
|
104,286 |
|
|
104,725 |
| ||
| Deferred compensation |
|
(1,209 |
) |
|
(1,388 |
) | ||
| Notes receivable from officers |
|
(160 |
) |
|
(175 |
) | ||
| Accumulated deficit |
|
(130,817 |
) |
|
(122,315 |
) | ||
| Accumulated other comprehensive income |
|
365 |
|
|
378 |
| ||
| Total stockholders’ deficit |
|
(27,516 |
) |
|
(18,756 |
) | ||
| Total liabilities and stockholders’ deficit |
$ |
36,761 |
|
$ |
46,317 |
| ||
See Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues: |
||||||||
| Research revenues |
$ |
1,503 |
|
$ |
2,038 |
| ||
| Milestone, licensing and other revenues |
|
1,151 |
|
|
1,067 |
| ||
| Total revenues |
|
2,654 |
|
|
3,105 |
| ||
| Operating expenses: |
||||||||
| Research and development |
|
4,260 |
|
|
5,560 |
| ||
| General and administrative |
|
2,774 |
|
|
2,183 |
| ||
| Purchased in-process research and development |
|
— |
|
|
7,702 |
| ||
| Restructuring charges |
|
4,368 |
|
|
— |
| ||
| Total operating expenses |
|
11,402 |
|
|
15,445 |
| ||
| Loss from operations |
|
(8,748 |
) |
|
(12,340 |
) | ||
| Interest and other income, net |
|
246 |
|
|
254 |
| ||
| Net loss |
|
(8,502 |
) |
|
(12,086 |
) | ||
| Accretion of deemed dividend to Series B preferred stockholders |
|
(425 |
) |
|
(425 |
) | ||
| Net loss allocable to common stockholders |
$ |
(8,927 |
) |
$ |
(12,511 |
) | ||
| Basic and diluted net loss per common share |
$ |
(0.48 |
) |
$ |
(0.75 |
) | ||
| Weighted-average shares used in computing basic and diluted net loss per common share |
|
18,638 |
|
|
16,573 |
| ||
See Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(8,502 |
) |
$ |
(12,086 |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
|
362 |
|
|
554 |
| ||
| Stock compensation expense |
|
165 |
|
|
234 |
| ||
| Forgiveness of notes receivable from officers |
|
15 |
|
|
— |
| ||
| Purchased in-process research and development |
|
— |
|
|
7,702 |
| ||
| Accrued rent |
|
35 |
|
|
(70 |
) | ||
| Gain on fixed assets disposal |
|
(31 |
) |
|
— |
| ||
| Charges for impairment of assets |
|
1,437 |
|
|
— |
| ||
| Changes in assets and liabilities: |
||||||||
| Trade and other receivables |
|
614 |
|
|
3,607 |
| ||
| Prepaid expenses and other current assets |
|
234 |
|
|
(687 |
) | ||
| Other assets |
|
(68 |
) |
|
(371 |
) | ||
| Accounts payable |
|
(1,160 |
) |
|
(691 |
) | ||
| Accrued compensation |
|
(307 |
) |
|
(800 |
) | ||
| Accrued restructuring |
|
1,371 |
|
|
— |
| ||
| Other accrued liabilities |
|
|||||||