UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
___________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission File No. 0-31261
ATHEROGENICS, INC.
(Exact name of registrant as specified in its
charter)
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Georgia |
58-2108232 |
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(State of incorporation) |
(I.R.S. Employer Identification Number) |
8995 Westside Parkway,
Alpharetta,
Georgia30004
(Address of registrant's principal
executive offices, including zip code)
_______________________
(Registrant's telephone number, including area code):
(678) 336-2500
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 Act). Yes [ X ] No [ ]
As of May 7, 2004 there were 37,010,252 shares of the registrant's common stock outstanding.
_________________________
ATHEROGENICS, INC.
FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION |
Page No. |
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Item 1. Financial Statements (unaudited) |
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Condensed Balance Sheets |
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March 31, 2004 and December 31, 2003 |
3 |
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Condensed Statements of Operations |
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Three months ended March 31, 2004 and 2003 |
4 |
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Condensed Statements of Cash Flows |
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Three months ended March 31, 2004 and 2003 |
5 |
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Notes to Condensed Financial Statements |
6 |
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Item 2. Management's Discussion and Analysis of Financial Condition |
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and Results of Operations |
8 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
13 |
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Item 4. Controls and Procedures |
13 |
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PART II. OTHER INFORMATION |
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Item 6. Exhibits and Reports on Form 8-K |
14 |
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SIGNATURES |
15 |
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2
PART I - FINANCIAL INFORMATION
ATHEROGENICS, INC.
CONDENSED BALANCE SHEETS
The accompanying notes are an integral part of these
condensed financial statements.
3
ATHEROGENICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three months ended |
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March 31, |
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2004 |
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2003 |
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Revenues |
$ -- |
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$ -- |
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Operating expenses: |
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Research and development |
13,999,531 |
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10,338,278 |
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General and administrative |
1,681,316 |
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1,334,085 |
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Total operating expenses |
15,680,847 |
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11,672,363 |
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Operating loss |
(15,680,847 |
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(11,672,363 |
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Interest income |
370,988 |
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196,293 |
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Interest expense |
(1,292,841 |
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(18,631 |
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Net loss |
$(16,602,700 |
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$(11,494,701 |
) |
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Net loss per share - |
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basic and diluted |
$ (0.45 |
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$ (0.35 |
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Weighted average shares |
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outstanding - basic and diluted |
36,866,673 |
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33,293,017 |
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The accompanying notes are an integral part of these
condensed financial statements.
4
ATHEROGENICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three months ended |
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March 31, |
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2004 |
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2003 |
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Operating activities: |
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Net loss |
$(16,602,700 |
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$(11,494,701 |
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Adjustments to reconcile net loss to net cash used in |
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operating activities: |
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Depreciation and amortization |
223,669 |
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198,484 |
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Amortization of debt issuance costs |
163,245 |
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-- |
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Amortization of deferred stock compensation |
121,364 |
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320,670 |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
(768,140 |
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(210,696 |
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Notes receivable and other current assets |
(37,547 |
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(18,344 |
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Accounts payable |
1,986,761 |
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692,471 |
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Accrued research and development |
(779,212 |
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1,138,668 |
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Accrued liabilities and compensation |
(1,596,890 |
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(486,953 |
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Net cash used in operating activities |
(17,289,450 |
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(9,860,401 |
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Investing activities: |
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Purchases of short-term investments |
(336,934 |
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(15,597,969 |
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Purchases of equipment and leasehold improvements |
(76,149 |
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(74,824 |
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Net cash used in investing activities |
(413,083 |
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(15,672,793 |
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Financing activities: |
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Proceeds from the issuance of common stock |
-- |
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48,395,000 |
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Proceeds from the exercise of common stock options |
1,406,856 |
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26,074 |
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Payments on equipment loan facility |
(116,437 |
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(107,847 |
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Net cash provided by financing activities |
1,290,419 |
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48,313,227 |
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(Decrease) increase in cash and cash equivalents |
(16,412,114 |
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22,780,033 |
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Cash and cash equivalents at beginning of period |
72,058,249 |
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32,132,329 |
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Cash and cash equivalents at end of period |
$ 55,646,135 |
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$ 54,912,362 |
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Supplemental disclosures of cash flow information: |
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Interest paid |
$ 2,410,051 |
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$ 18,631 |
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Re-measurement adjustment for variable options and warrants issued |
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for technology license agreements and consulting agreements |
$ 252,580 |
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$ 223,570 |
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The accompanying notes are an integral part of these condensed financial statements.
5
ATHEROGENICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Nature of Operations
AtheroGenics, Inc. (“AtheroGenics”) was
incorporated on November 23, 1993 (date of inception) in
the State of Georgia to focus on the discovery, development
and commercialization of novel therapeutics for the
treatment of chronic inflammatory diseases, such as heart
disease (atherosclerosis), rheumatoid arthritis and
asthma.
2. Basis of Presentation
The accompanying unaudited condensed financial statements
reflect all adjustments (consisting solely of normal
recurring adjustments) which management considers necessary
for a fair presentation of the financial position, results
of operations and cash flows of AtheroGenics for the
interim periods presented. Certain footnote
disclosures normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States have been condensed or
omitted from the interim financial statements as permitted
by the rules and regulations of the Securities and Exchange
Commission. Interim results are not necessarily
indicative of results for the full year.
The interim results should be read in conjunction with the
financial statements and notes thereto included in
AtheroGenics' Annual Report on Form 10-K for the year
ended December 31, 2003. Shareholders are encouraged
to review the Form 10-K for a broader discussion of
AtheroGenics' opportunities and risks inherent in the
business. Copies of the Form 10-K are available on
request.
3. Net Loss per Share
The Financial Accounting Standards Board’s SFAS No.
128, Earnings per Share, requires presentation of
both basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income
(loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings
per share is computed in the same manner as basic earnings
per share except that diluted earnings per share reflects
the potential dilution that would occur if outstanding
options, warrants and convertible notes were
exercised. Because AtheroGenics reported a net loss
for all periods presented, shares associated with stock
options, warrants and convertible note are not included
because they are antidilutive. Basic and diluted net
loss per share amounts are the same for the periods
presented.
4. Stock‑Based Compensation
AtheroGenics has elected to follow Accounting Principles
Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), in
accounting for its stock‑based employee compensation
plans, rather than the alternative fair value accounting
method provided for under SFAS No. 123, Accounting for
Stock-Based Compensation (“SFAS 123”), as
SFAS 123 requires the use of option valuation models that
were not developed for use in valuing employee stock
options. AtheroGenics accounts for transactions in
which services are received in exchange for equity
instruments based on the fair value of such services
received from non‑employees, in accordance with SFAS
123 and Emerging Issues Task Force (“EITF”)
Issue No. 96‑18, Accounting for Equity
Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services. SFAS No. 148, Accounting for
Stock-Based Compensation – Transition and
Disclosure (“SFAS 148”), an amendment to
SFAS 123, requires disclosure in the summary of significant
accounting policies of the effects of the fair value
of stock-based employee compensation on reported net income
and earnings per share in annual and interim financial
statements.
6
The following table illustrates the effect on net loss and net loss per share if the fair value based method had been applied to all outstanding and unvested options in each period, based on the provisions of SFAS 123 and SFAS 148.
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Three months ended |
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March 31, |
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2004 |
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2003 |
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Net loss, as reported &nb | ||||