UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number 0-20945
A Delaware Corporation IRS Employer ID No. 41-1350192
707 Eagleview
Boulevard, Suite 414
Exton, Pennsylvania
19341
(610) 458-6200
_________________
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
The number of shares outstanding of the Registrant’s Common Stock, $.01 par value, as of May 10, 2005, was 40,493,606.
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| PAGE | ||
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| PART I. ITEM 1 ITEM 2 ITEM 3 ITEM 4 PART II. |
FINANCIAL INFORMATION Financial Statements (Unaudited) Consolidated Balance Sheets, as of March 31, 2005 and December 31, 2004 Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures OTHER INFORMATION SIGNATURES |
3 4 5 6 11 15 15 17 18 |
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| March 31, 2005 |
December 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 2,020,498 | $ | 1,652,408 | ||||
| Short-term investments | 4,984,917 | 7,971,625 | ||||||
| Accounts receivable, net of allowances of $21,900 and $22,500, respectively | 132,955 | 277,606 | ||||||
| Other receivables | 172,508 | 64,359 | ||||||
| Inventories | 119,685 | 92,344 | ||||||
| Prepaid expenses and other assets | 327,126 | 81,009 | ||||||
| Total current assets | 7,757,689 | 10,139,351 | ||||||
| Equipment, furniture and fixtures, net | 589,642 | 611,920 | ||||||
| Patent rights, net | 902,595 | 947,459 | ||||||
| Goodwill | 1,095,355 | 1,095,355 | ||||||
| Other assets | 370,746 | 383,518 | ||||||
| Total Assets | $ | 10,716,027 | $ | 13,177,603 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 435,100 | $ | 476,509 | ||||
| Accrued expenses and other liabilities | 476,389 | 626,583 | ||||||
| Deferred revenue | 541,070 | 547,006 | ||||||
| Total current liabilities | 1,452,559 | 1,650,098 | ||||||
| Deferred revenue - long term | 3,163,503 | 3,338,666 | ||||||
| Total liabilities | 4,616,062 | 4,988,764 | ||||||
| Shareholders' Equity: | ||||||||
| Series A Convertible Preferred Stock: $0.01 par; authorized 10,000 shares; | ||||||||
| 1,500 issued and outstanding at March 31, 2005 and December 31, 2004 | 15 | 15 | ||||||
| Series D Convertible Preferred Stock: $0.01 par; authorized 245,000 shares; | ||||||||
| 63,588 issued and outstanding at March 31, 2005 and December 31, 2004 | 636 | 636 | ||||||
| Common Stock: $0.01 par; authorized 100,000,000 shares; 40,493,606 | ||||||||
| and 40,418,406 issued and outstanding at March 31, 2005 and | ||||||||
| December 31, 2004, respectively | 404,936 | 404,184 | ||||||
| Additional paid-in capital | 94,386,335 | 94,479,402 | ||||||
| Prepaid license discount | (2,649,365 | ) | (2,698,427 | ) | ||||
| Accumulated deficit | (84,848,023 | ) | (82,575,151 | ) | ||||
| Deferred compensation | (557,495 | ) | (759,342 | ) | ||||
| Accumulated other comprehensive loss | (637,074 | ) | (662,478 | ) | ||||
| 6,099,965 | 8,188,839 | |||||||
| Total Liabilities and Shareholders' Equity | $ | 10,716,027 | $ | 13,177,603 | ||||
See
accompanying notes to consolidated financial statements.
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| For the Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 |
2004 | |||||||
| Revenues: | ||||||||
| Product sales | $ | 406,253 | $ | 471,446 | ||||
| Development revenue | 47,906 | 75,308 | ||||||
| Licensing fees | 80,586 | 160,362 | ||||||
| Royalties | 19,640 | 18,705 | ||||||
| Total revenue | 554,385 | 725,821 | ||||||
| Cost of revenues: | ||||||||
| Cost of product sales | 282,628 | 344,808 | ||||||
| Cost of development revenue | 24,860 | 675 | ||||||
| Total cost of revenues | 307,488 | 345,483 | ||||||
| Gross profit | 246,897 | 380,338 | ||||||
| Operating expenses: | ||||||||
| Research and development | 966,121 | 663,973 | ||||||
| Sales, marketing and business development | 286,744 | 110,052 | ||||||
| General and administrative | 1,295,325 | 1,429,175 | ||||||
| 2,548,190 | 2,203,200 | |||||||
| Operating loss | (2,301,293 | ) | (1,822,862 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 42,568 | 12,669 | ||||||
| Interest expense | — | (78,119 | ) | |||||
| Foreign exchange losses | (12,785 | ) | (1,467 | ) | ||||
| Other, net | (1,362 | ) | (4,648 | ) | ||||
| 28,421 | (71,565 | ) | ||||||
| Net loss | $ | (2,272,872 | ) | $ | (1,894,427 | ) | ||
| Basic and diluted net loss per common share | $ | (0.06 | ) | $ | (0.07 | ) | ||
| Basic and diluted weighted average common shares outstanding | 40,457,850 | 28,627,275 | ||||||
See
accompanying notes to consolidated financial statements.
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| For the Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 |
2004 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,272,872 | ) | $ | (1,894,427 | ) | ||
| Adjustments to reconcile net loss to net | ||||||||
| cash used in operating activities: | ||||||||
| Depreciation and amortization | 104,860 | 175,357 | ||||||
| Noncash interest expense | — | 75,388 | ||||||
| Stock-based compensation expense | 47,834 | 296,623 | ||||||
| Amortization of prepaid license discount | 49,062 | 49,062 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 144,624 | 231,313 | ||||||
| Other receivables | (146,710 | ) | (119,802 | ) | ||||
| Inventories | (27,341 | ) | 74,847 | |||||
| Prepaid expenses and other assets | (246,526 | ) | (291,701 | ) | ||||
| Other assets | 6,673 | (9,240 | ) | |||||
| Accounts payable | (33,855 | ) | 258,140 | |||||
| Accrued expenses and other | (142,696 | ) | (114,689 | ) | ||||
| Deferred revenue | (124,940 | ) | (218,139 | ) | ||||
| Net cash used in operating activities | (2,641,887 | ) | (1,487,268 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment, furniture and fixtures | (63,351 | ) | (8,753 | ) | ||||
| Purchases of short-term investments | (2,976,913 | ) | — | |||||
| Proceeds from maturity of short-term investments | 6,000,000 | — | ||||||
| Additions to patent rights | — | (42,234 | ) | |||||
| Net cash provided by (used in) investing activities | 2,959,736 | (50,987 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sales of common stock, net | — | 13,853,400 | ||||||
| Proceeds from exercise of warrants | 61,700 | 821,100 | ||||||
| Principal payments on capital lease obligations | — | (18,980 | ) | |||||
| Net cash provided by financing activities | 61,700 | 14,655,520 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (11,459 | ) | 33,905 | |||||
| Net increase in cash and cash equivalents | 368,090 | 13,151,170 | ||||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | 1,652,408 | 1,928,815 | ||||||
| End of period | $ | 2,020,498 | $ | 15,079,985 | ||||
| Cash paid during the period for interest | $ | — | $ | 2,731 | ||||
See
accompanying notes to consolidated financial statements.
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| The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004. Operating results for the three-month period ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. |
| Stock Based Compensation |
| The Company applies Accounting Principles Board, Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock plans. Accordingly, compensation expense has been recognized for restricted stock granted to employees, as discussed in Note 4, but has not been recognized for employee stock options other than the intrinsic value of options when the exercise price of the options was below their fair value on the date of grant. In September 2003 the Company issued stock options to employees at $1.77 per share when the fair value of the stock was $2.20 per share. In the first quarters of 2005 and 2004 the Company recognized compensation expense of $41,298 and $42,866, respectively, in connection with the employee stock options granted in September 2003. Had compensation cost been determined based on the fair value at the grant date for stock options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, the net loss applicable to common shares and loss per common share would have increased to the pro-forma amounts shown below: |
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 |
2004 | |||||||
| Net loss: | ||||||||
| As reported | $ | (2,272,872 | ) | $ | (1,894,427 | ) | ||
| Intrinsic value of stock options granted | 41,298 | 42,866 | ||||||
| Fair-value method compensation expense | (324,465 | ) | (266,836 | ) | ||||
| Pro forma | $ | (2,556,039 | ) | $ | (2,118,397 | ) | ||
| Basic and diluted net loss per common share: | ||||||||
| As reported | $ | (0.06 | ) | $ | (0.07 | ) | ||
| Intrinsic value of stock options granted | — | — | ||||||
| Fair-value method compensation expense | — | — | ||||||
| Pro forma | $ | (0.06 | ) | $ | (0.07 | ) | ||
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| Inventories consist of the following: |
| March 31, 2005 |
December 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Raw material | $ | 93,445 | $ | 32,335 | ||||
| Finished goods | 26,240 | 60,009 | ||||||
| $ | 119,685 | $ | 92,344 | |||||
| The Company recognizes the estimated cost of warranty obligations at the time the products are shipped based on historical claims incurred by the Company. Actual warranty claim costs could differ from these estimates. Warranty liability activity is as follows: |
| Balance at Beginning of Year |
Warranty Provisions |
Warranty Claims |
Balance at March 31 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | $ | 30,000 | $ | 4,892 | $ | 4,892 | $ | 30,000 | ||||||
| 2004 | $ | 50,000 | $ | 689 | $ | 689 | $ | 50,000 | ||||||
Common Stock, Options and Warrants
| Warrant exercises during the first quarters of 2005 and 2004 resulted in proceeds of $61,700 and $821,100, respectively, and in the issuance of 75,200 and 2,932,500 shares of common stock, respectively. |
| During the first quarter of 2005 the Company granted options to purchase a total of 225,000 shares of its common stock. Members of the Company’s board of directors received options to purchase 120,000 shares of common stock at an exercise price of $1.40 per share; James Hattersley, hired as Vice-President of Corporate Business Development during the first quarter, received options to purchase 65,000 shares of common stock at an exercise price of $1.32 per share; and Jack Stover, Chief Executive Officer of the Company, received options to purchase 40,000 shares of common stock at an exercise price of $1.21 per share. All options were granted at an exercise price that equaled the fair value of the Company’s common stock on the date of the grant. |
| During the quarter ended March 31, 2004 the Company received net proceeds of $13,853,400 in three private placements of its common stock. A total of 15,120,000 shares of common stock were sold to investors at a price of $1.00 per share. The Company also issued to the investors five-year warrants to purchase an aggregate of 5,039,994 shares of common stock at an exercise price of $1.25 per share. Additionally, warrants for the purchase of 1,512,000 shares of common stock at an exercise price of $1.00 per share were issued to the placement agent as a commission. |
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| During the first quarter of 2004 the Company recognized expense of $17,750 in connection with the issuance of 15,000 shares of common stock to a consultant as compensation for services. |
| During the first quarter of 2004 the Company issued warrants to purchase 250,000 shares of the Company’s common stock at an exercise price of $1.10 per share as compensation to non-employees for professional services. The Company recognized expense of $212,320 in 2004 in connection with these warrants. |
| During the first quarter of 2004 the Company granted to members of the Company’s board of directors options to purchase 101,500 shares of its common stock at exercise prices ranging from $1.06 to $1.45. |
Stock-Based Compensation to Chief Executive Officer
| Jack E. Stover was appointed President and Chief Operating Officer on July 22, 2004, and was appointed Chief Executive Officer on September 1, 2004, upon the resignation of Roger G. Harrison, Ph.D. The terms of the employment agreement with Mr. Stover included the issuance of options to purchase 500,000 shares of common stock at $0.70 per share and an additional issuance of options to purchase 40,000 shares of common stock at $1.21 per share in January of 2005, with all options vesting over four years. The employment agreement also included the issuance of 100,000 shares of common stock, of which 50,000 shares vested immediately and the remaining 50,000 shares will become fully vested on the first anniversary of his employment. The Company recorded compensation expense of $35,000 related to the shares with immediate vesting and deferred compensation expense of $35,000 related to the shares vesting over one year. The amounts recorded were based on the market value of the stock on the measurement date. The deferred compensation expense is being recognized ratably over the one-year vesting period. Compensation expense of $8,750 was recognized in connection with these shares during the quarter ended March 31, 2005. Mr. Stover can earn up to an additional 459,999 shares of common stock upon the occurrence of various triggering events. The Company will begin recognizing expense in connection with these additional shares when it becomes probable that a triggering event will be reached. |
| Roger G. Harrison, Ph.D., was appointed Chief Executive Officer of Antares Pharma, Inc., effective March 12, 2001. Under the terms of the employment agreement with Dr. Harrison, the Company issued 88,000 restricted shares of common stock with a three-year vesting period that became fully vested on March 12, 2004. The Company had recorded deferred compensation expense of $341,000, the aggregate market value of the 88,000 shares at the measurement date. Compensation expense was recognized ratably over the three-year vesting period. Compensation expense of $23,688 was recognized in connection with these shares during the quarter ended March 31, 2004. Dr. Harrison resigned as Chief Executive Officer effective September 1, 2004, and on that date entered into an agreement with the Company under which he has provided consulting services. |
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