SECURITIES AND EXCHANGE COMMISSION
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 DECEMBER 31, 2003, OR | |
| o | 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
AASTROM BIOSCIENCES, INC.
| 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) |
(734) 930-5555
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 o - No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o 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, NO PAR VALUE (Class) |
71,916,141 Outstanding at February 13, 2004 |
1
AASTROM BIOSCIENCES, INC.
Quarterly Report on Form 10-Q
December 31, 2003
TABLE OF CONTENTS
| Page | |||||
PART I - FINANCIAL INFORMATION |
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Item 1. Financial Statements - Unaudited |
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a) Consolidated Condensed Balance Sheets as of June 30, 2003 and
December 31, 2003 |
3 | ||||
b) Consolidated Condensed Statements of Operations for the three and
six months ended December 31, 2002 and 2003 and for
the period from March 24, 1989 (Inception) to December 31, 2003 |
4 | ||||
c) Consolidated Condensed Statements of Cash Flows for the six months ended December 31, 2002
and 2003 and for the period from March 24, 1989 (Inception) to December, 2003 |
5 | ||||
d) Notes to Consolidated Condensed Financial Statements |
6 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
10 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
28 | ||||
Item 4. Controls and Procedures |
28 | ||||
PART II - OTHER INFORMATION |
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Item 1. Legal Proceedings |
29 | ||||
Item 2. Changes in Securities and Use of Proceeds |
29 | ||||
Item 3. Defaults Upon Senior Securities |
29 | ||||
Item 4. Submission of Matters to a Vote of Security Holders |
29 | ||||
Item 5. Other Information |
30 | ||||
Item 6. Exhibits and Reports on Form 8-K |
30 | ||||
SIGNATURES |
31 | ||||
EXHIBIT INDEX |
32 | ||||
CERTIFICATIONS |
33 | ||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||||
| 2003 | 2003 | |||||||||
Assets |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 10,512,000 | $ | 10,784,000 | ||||||
Receivables, net |
350,000 | 310,000 | ||||||||
Inventory, net |
806,000 | 628,000 | ||||||||
Other current assets |
185,000 | 489,000 | ||||||||
Total current assets |
11,853,000 | 12,211,000 | ||||||||
PROPERTY and EQUIPMENT, NET |
302,000 | 291,000 | ||||||||
Total assets |
$ | 12,155,000 | $ | 12,502,000 | ||||||
Liabilities and Shareholders’ Equity |
||||||||||
CURRENT LIABILITIES: |
||||||||||
Accounts payable and accrued expenses |
$ | 406,000 | $ | 367,000 | ||||||
Accrued employee benefits |
174,000 | 190,000 | ||||||||
Total current liabilities |
580,000 | 557,000 | ||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||
Common stock, no par value; shares authorized – 150,000,000;
shares issued and
outstanding – 64,812,422 and 71,355,849, respectively |
114,951,000 | 120,562,000 | ||||||||
Deficit accumulated during the development stage |
(103,376,000 | ) | (108,617,000 | ) | ||||||
Total shareholders’ equity |
11,575,000 | 11,945,000 | ||||||||
Total liabilities and shareholders’ equity |
$ | 12,155,000 | $ | 12,502,000 | ||||||
The accompanying notes are an integral part of these financial statements.
3
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Six months ended | March 24, 1989 | ||||||||||||||||||||
| December 31, | December 31, | (Inception) to | ||||||||||||||||||||
| December 31, | ||||||||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | 2003 | ||||||||||||||||||
REVENUES: |
||||||||||||||||||||||
Product sales and rentals |
$ | 161,000 | $ | 10,000 | $ | 168,000 | $ | 35,000 | $ | 717,000 | ||||||||||||
Grants |
125,000 | 366,000 | 211,000 | 641,000 | 6,989,000 | |||||||||||||||||
Research and development agreements |
10,000 | — | 10,000 | — | 2,030,000 | |||||||||||||||||
Total revenues |
296,000 | 376,000 | 389,000 | 676,000 | 9,736,000 | |||||||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||||||||
Cost of product sales and rentals |
111,000 | 5,000 | 111,000 | 17,000 | 405,000 | |||||||||||||||||
Cost of product sales and rentals -
provision for obsolete and excess inventory |
171,000 | — | 259,000 | 253,000 | 2,230,000 | |||||||||||||||||
Research and development |
1,432,000 | 1,455,000 | 2,817,000 | 2,811,000 | 89,959,000 | |||||||||||||||||
Selling, general and administrative |
902,000 | 1,356,000 | 2,015,000 | 2,921,000 | 31,048,000 | |||||||||||||||||
Total costs and expenses |
2,616,000 | 2,816,000 | 5,202,000 | 6,002,000 | 123,642,000 | |||||||||||||||||
LOSS FROM OPERATIONS |
(2,320,000 | ) | (2,440,000 | ) | (4,813,000 | ) | (5,326,000 | ) | (113,906,000 | ) | ||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||||||||
Other income |
— | — | — | — | 1,237,000 | |||||||||||||||||
Interest income |
33,000 | 37,000 | 74,000 | 85,000 | 5,287,000 | |||||||||||||||||
Interest expense |
— | — | — | — | (267,000 | ) | ||||||||||||||||
Other income |
33,000 | 37,000 | 74,000 | 85,000 | 6,257,000 | |||||||||||||||||
NET LOSS |
$ | (2,287,000 | ) | $ | (2,403,000 | ) | $ | (4,739,000 | ) | $ | (5,241,000 | ) | $ | (107,649,000 | ) | |||||||
NET LOSS PER SHARE
(Basic and Diluted) |
$ | (.05 | ) | $ | (.03 | ) | $ | (.10 | ) | $ | (.07 | ) | ||||||||||
Weighted average number of
shares outstanding (Basic and Diluted) |
48,550,000 | 71,294,000 | 46,718,000 | 70,978,000 | ||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | March 24, 1989 | ||||||||||||||
| December 31, | (Inception) to | ||||||||||||||
| December 31, | |||||||||||||||
| 2002 | 2003 | 2003 | |||||||||||||
OPERATING ACTIVITIES: |
|||||||||||||||
Net loss |
$ | (4,739,000 | ) | $ | (5,241,000 | ) | $ | (107,649,000 | ) | ||||||
Adjustments to reconcile net loss to net cash
used for operating activities: |
|||||||||||||||
Depreciation and amortization |
58,000 | 59,000 | 3,505,000 | ||||||||||||
Loss on property held for resale |
— | — | 110,000 | ||||||||||||
Amortization of discounts and premiums on investments |
— | — | (543,000 | ) | |||||||||||
Stock compensation expense |
159,000 | 425,000 | 1,424,000 | ||||||||||||
Inventory write downs and reserves |
259,000 | 253,000 | 2,230,000 | ||||||||||||
Stock issued pursuant to license agreement |
— | — | 3,300,000 | ||||||||||||
Changes in assets and liabilities: |
|||||||||||||||
Receivables |
(75,000 | ) | 40,000 | (334,000 | ) | ||||||||||
Inventory |
(177,000 | ) | (75,000 | ) | (2,954,000 | ) | |||||||||
Other current assets |
(182,000 | ) | (304,000 | ) | (489,000 | ) | |||||||||
Accounts payable and accrued expenses |
(104,000 | ) | (39,000 | ) | 367,000 | ||||||||||
Accrued employee benefits |
(5,000 | ) | 16,000 | 190,000 | |||||||||||
Net cash used for operating activities |
(4,806,000 | ) | (4,866,000 | ) | (100,843,000 | ) | |||||||||
INVESTING ACTIVITIES: |
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Organizational costs |
— | — | (73,000 | ) | |||||||||||
Purchase of short-term investments |
— | — | (62,124,000 | ) | |||||||||||
Maturities of short-term investments |
1,000,000 | — | 62,667,000 | ||||||||||||
Capital expenditures |
(31,000 | ) | (48,000 | ) | (2,963,000 | ) | |||||||||
Proceeds from sale of property held for resale |
— | — | 400,000 | ||||||||||||
Net cash provided by (used for) investing activities |
969,000 | (48,000 | ) | (2,093,000 | ) | ||||||||||
FINANCING ACTIVITIES: |
|||||||||||||||
Issuance of preferred stock |
— | — | 51,647,000 | ||||||||||||
Issuance of common stock |
1,992,000 | 5,186,000 | 59,765,000 | ||||||||||||
Repurchase of common stock |
— | — | (49,000 | ) | |||||||||||
Payments received for stock purchase rights |
— | — | 3,500,000 | ||||||||||||
Payments received under shareholder notes |
— | — | 31,000 | ||||||||||||
Principal payments under capital lease obligations |
— | — | (1,174,000 | ) | |||||||||||
Net cash provided by financing activities |
1,992,000 | 5,186,000 | 113,720,000 | ||||||||||||
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |
(1,845,000 | ) | 272,000 | 10,784,000 | |||||||||||
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD |
8,605,000 | 10,512,000 | — | ||||||||||||
CASH AND CASH EQUIVALENTS AT
END OF PERIOD |
$ | 6,760,000 | $ | 10,784,000 | $ | 10,784,000 | |||||||||
The accompanying notes are an integral part of these financial statements
5
AASTROM BIOSCIENCES, INC.
(A development stage company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Aastrom Biosciences, Inc. (Aastrom) was incorporated in March 1989 (Inception), began employee-based operations in 1991, and is in late-stage development. The Company operates its business in one reportable segment – research and product development, conducted both on its own behalf and in connection with various collaborative research and development agreements with others, involving the development and sale of processes and products for the ex vivo production of human cells for use in cell therapy.
Successful future operations are subject to several technical and business risks, including satisfactory product development, obtaining regulatory approval and market acceptance for developed products and the Company’s ability to obtain future funding.
The Company is subject to certain risks related to the operation of its business and development of its products and product candidates. While available cash and investments are expected to finance currently planned activities at least through the end of fiscal year 2004, the Company will need to raise additional funds in order to complete its product development programs and commercialize its first product candidates. The Company cannot be certain that such funding will be available on favorable terms, if at all. Some of the factors that will impact the Company’s ability to raise additional capital include, but are not limited to, the rate and degree of progress demonstrated in its product development programs, the liquidity and volatility of its equity securities, regulatory and manufacturing requirements and uncertainties, technological developments by competitors, and the general availability of capital in the private and public debt and equity market. If the Company cannot raise additional funds, it may not be able to develop or enhance products, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements, which would negatively impact its business, financial condition and results of operations.
6
2. Basis of Presentation
The condensed consolidated 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 in the United States have been omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (consisting only 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 six months ended December 31, 2003, 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 our 2003 Annual Report on Form 10-K for the year ended June 30, 2003, as filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of Aastrom and its wholly-owned subsidiary, Zellera AG (“Zellera”), which is located in Berlin, Germany (collectively, the “Company”). All significant inter-company transactions and accounts have been eliminated in consolidation.
Certain previously reported statement of operations amounts have been reclassified to conform to the current period presentation. In March 2003, the Company began segregating cost of product sales relating to the obsolescence of inventory. These costs previously were included in the “Cost of product sales and rentals”. These reclassifications had no impact on previously reported net loss, shareholders’ equity or cash flows.
3. Stock-Based Employee Compensation
The Company has a stock incentive plan that is described more fully in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2003. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”:
7
| Three Months Ended December 31, | Six Months Ended December 31, | ||||||||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | ||||||||||||||||||||
Reported net loss |
$ | (2,287,000 | ) | $ | (2,403,000 | ) | $ | (4,739,000 | ) | $ | (5,241,000 | ) | |||||||||||
| Add: | Stock-based employee compensation expenses included in reported net loss, net of related tax effects | — | — | — | 372,000 | ||||||||||||||||||
| Deduct: | Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (193,000 | ) | (227,000 | ) | (425,000 | ) | (457,000 | ) | ||||||||||||||
Pro forma net loss |
$ | (2,480,000 | ) | $ | (2,630,000 | ) | # | $ | (5,164,000 | ) | $ | (5,326,000 | ) | ||||||||||
Net loss per common share: |
|||||||||||||||||||||||
As reported |
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.07 | ) | |||||||||||
Pro forma |
$ | (0.05 | ) | $ | (0.04 | ) | $ | (0.11 | ) | $ | (0.08 | ) | |||||||||||
4. Shareholders’ Equity
During the six months ended December 31, 2003, the Company issued 6,405,840 shares of common stock to multiple investors: 26,053 shares of common stock to employees as part of the Employee Stock Purchase Plan and 111,534