GERON CORPORATION - 10-Q Quarterly Report

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 PERIOD ENDED JUNE 30, 2004

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: 0-20859

________________

GERON CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE

75-2287752

(STATE OR OTHER JURISDICTION

(I.R.S. EMPLOYER IDENTIFICATION

OF INCORPORATION OR

ORGANIZATION)

NO.)

230 CONSTITUTION DRIVE, MENLO PARK, CA 94025

(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK $0.001 PAR VALUE

(TITLE OF CLASS)

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

No o

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

Yes

No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class:	Common Stock $0.001 par value	Outstanding at July 27, 2004:
		45,417,480 shares

GERON CORPORATION

INDEX


		Page
	PART I. FINANCIAL INFORMATION
Item 1:	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4:	Controls and Procedures	30
	PART II. OTHER INFORMATION
Item 1:	Legal Proceedings	31
Item 2:	Changes In Securities, Use of Proceeds and Issuer Purchases of Equity Securities	31
Item 3:	Defaults upon Senior Securities	31
Item 4:	Submission of Matters to a Vote of Security Holders	31
Item 5:	Other Information	31
Item 6:	Exhibits and Reports on Form 8-K	32
SIGNATURE		33

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GERON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	JUNE 30, 2004			DECEMBER 31, 2003
	(UNAUDITED)			(SEE NOTE 1)

ASSETS
Current assets:
Cash and cash equivalents	$	8,026		$	12,823
Restricted cash		530			530
Marketable securities		85,920			96,427
Interest and other receivables		5,122			1,146
Notes receivable from related parties		67			67
Prepaid assets		4,169			815

Total current assets		103,834			111,808
Equity investments in licensees		343			401
Notes receivable from related parties		139			172
Property and equipment, net		2,035			1,684
Deposits and other assets		231			231
Intangible assets		2,387			3,819

	$	108,969		$	118,115


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,433		$	1,297
Accrued compensation		1,037			2,499
Accrued liabilities		813			762
Current portion of deferred revenue		193			227
Current portion of equipment loans		173			176
Current portion of research funding obligation		4,432			4,864

Total current liabilities		9,081			9,825
Noncurrent portion of deferred revenue		789			815
Noncurrent portion of equipment loans		113			201
Noncurrent portion of research funding obligation		—			950
Commitments
Stockholders’ equity:
Common stock		45			39
Additional paid-in capital		416,255			362,695
Deferred compensation		(172	)		(231	)
Accumulated deficit		(316,294	)		(255,666	)
Accumulated other comprehensive loss		(848	)		(513	)

Total stockholders’ equity		98,986			106,324

	$	108,969		$	118,115

See accompanying notes.

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

See accompanying notes.

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CHANGE IN CASH AND CASH EQUIVALENTS

(IN THOUSANDS)

(UNAUDITED)

See accompanying notes.

GERON CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The terms “Geron”, the “Company”, “we” and “us” as used in this report refer to Geron Corporation. The accompanying condensed consolidated unaudited balance sheet as of June 30, 2004 and condensed consolidated statements of operations for the three and six months ended June 30, 2004 and 2003 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 generally accepted accounting principles for complete financial statements. In the opinion of the management of Geron Corporation, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 2003 has been derived from audited financial statements at that date.

Principles of Consolidation

The consolidated financial statements include the accounts of Geron Corporation and its wholly-owned subsidiary, Geron Bio-Med Ltd., a United Kingdom company. Intercompany accounts and transactions have been eliminated. The financial statements of the Company’s subsidiary outside the United States are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated at rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,

	2004			2003			2004			2003
Revenues from collaborative agreements	$	—		$	36		$	—		$	72
License fees and royalties		366			249			614			475

Total revenues		366			285			614			547
Operating expenses:
Research and development		7,481			7,673			13,199			14,523
Acquired in-process research technology		—			—			45,150			—
General and administrative		2,053			1,265			3,444			2,721

Total operating expenses		9,534			8,938			61,793			17,244

Loss from operations		(9,168	)		(8,653	)		(61,179	)		(16,697	)
Interest and other income		385			394			883			670
Debenture conversion expense		—			(779	)		—			(779	)
Interest and other expense		(162	)		(250	)		(332	)		(414	)

Net loss	$	(8,945	)	$	(9,288	)	$	(60,628	)	$	(17,220	)

Basic and diluted net loss per share	$	(0.20	)	$	(0.32	)	$	(1.41	)	$	(0.63	)

Weighted average shares used in computing basic
and diluted net loss per share		45,264,590			29,452,031			42,857,203			27,193,803

	SIX MONTHS ENDED JUNE 30,

	2004			2003

Cash flows from operating activities:
Net loss	$	(60,628	)	$	(17,220	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		570			602
Accretion and amortization on investments		1,763			520
Loss on sale of fixed asset		15			—
Interest for convertible debentures		—			(1	)
Conversion expense related to modification of Series D convertible
debentures and warrants		—			779
Issuance of common stock in exchange for acquired research technology		45,150			—
Stock-based compensation		899			47
Accretion of interest on research funding obligation		245			245
Deferred compensation		59			58
Realized gain on equity investments in licensees		(24	)		(1	)
Amortization of intangible assets, principally research related		1,432			1,432
Changes in assets and liabilities:
Other current and noncurrent assets		(2,129	)		1,474
Other current and noncurrent liabilities		688			597
Accrued research funding obligation		(1,627	)		(2,289	)
Translation adjustment		(6	)		(21	)

Net cash used in operating activities		(13,593	)		(13,778	)
Cash flows from investing activities:
Proceeds from sale of fixed asset		36			—
Capital expenditures		(972	)		(157	)
Purchases of marketable securities		(35,701	)		(29,195	)
Proceeds from maturities of marketable securities		44,116			—
Proceeds from sale of equity investment in licensee		201			28,704

Net cash provided by (used in) investing activities		7,680			(648	)
Cash flows from financing activities:
Payments of obligations under equipment loans		(91	)		(239	)
Proceeds from issuances of common stock, net of issuance costs		1,207			21,017

Net cash provided by financing activities		1,116			20,778

Net (decrease) increase in cash and cash equivalents		(4,797	)		6,352
Cash and cash equivalents at the beginning of the period		12,823			4,604

Cash and cash equivalents at the end of the period	$	8,026		$	10,956