ARQULE INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2003

Commission File No. 000-21429

ArQule, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		04-3221586
(State of Incorporation)		(I.R.S. Employer Identification Number)

19 Presidential Way, Woburn, Massachusetts 01801
(Address of Principal Executive Offices)

(781) 994-0300
(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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES

Number of shares outstanding of the registrant’s Common Stock as of August 8, 2003:

Common Stock, par value $.01

23,442,836 shares outstanding

ArQule, Inc.

Quarter Ended June 30, 2003

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1 — Unaudited Consolidated Financial Statements

	Consolidated Balance Sheet (Unaudited) June 30, 2003 and December 31, 2002	3

	Consolidated Statement of Operations (Unaudited) Three months and six ended June 30, 2003 and 2002	4

	Consolidated Statement of Cash Flows (Unaudited) Six ended June 30, 2003 and 2002	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3 — Qualitative and Quantitative Disclosure about Market Risk		20

Item 4 — Disclosure Controls and Procedures		20


PART II — OTHER INFORMATION		21

Signatures		23

ArQule, Inc.

Consolidated Balance Sheet (Unaudited)

(In thousands, except share data)

	June 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	40,825		$	40,283
Marketable securities	41,843			45,343
Accounts receivable	2,456			126
Prepaid expenses and other current assets	3,080			2,545

Total current assets	88,204			88,297

Property and equipment, net	47,221			51,516
Other assets	5,266			5,266
	$	140,691		$	145,079

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	9,437		$	16,207
Current portion of long-term debt	6,783			7,350
Deferred revenue	7,328			10,564

Total current liabilities	23,548			34,121

Long-term debt	3,458			6,850
Deferred revenue	14,356			10,393

Total liabilities	41,362			51,364

Stockholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 23,442,836 and 21,373,848 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively	234			214
Additional paid-in capital	248,569			243,285
Accumulated other comprehensive income	(174		)	(199		)
Accumulated deficit	(149,300		)	(149,585		)
Total stockholders’ equity	99,329			93,715
	$	140,691		$	145,079

The accompanying notes are an integral part of these unaudited financial statements.

ArQule, Inc.

Consolidated Statement of Operations (Unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,					Six Months Ended June 30,
	2003		2002			2003			2002
Revenue:
Compound development revenue	$	15,482	$	15,981		$	31,135		$	29,233
Compound development revenue — related party	—		250			—			966
Total revenue	15,482		16,231			31,135			30,199

Costs and expenses:
Cost of revenue	8,857		8,599			18,191			16,655
Cost of revenue — related party	—		200			—			420
Research and development	3,567		8,165			8,135			16,371
Marketing, general and administrative	2,169		3,160			4,817			6,824
Stock-based compensation	—		480			—			2,190
Amortization of intangibles	—		843			—			1,687
Total costs and expenses	14,593		21,447			31,143			44,147

Income (loss) from operations	889		(5,216		)	(8		)	(13,948		)

Net investment income	149		288