SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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 March 31, 2004.
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the Transition Period from to .
Commission File No. 0-19651
GENAERA CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 13-3445668 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) | |
| 5110 Campus Drive Plymouth Meeting, Pennsylvania |
19462 | |
| (Address of principal executive offices) | (Zip Code) | |
610-941-4020
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 ¨
The number of outstanding shares of the Registrant’s Common Stock, par value $.002 per share, on May 7, 2004 was 52,420,102.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 2004
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 10,242 | $ | 6,625 | ||||
| Short-term investments |
18,952 | 6,510 | ||||||
| Prepaid expenses and other current assets |
723 | 264 | ||||||
| Total current assets |
29,917 | 13,399 | ||||||
| Fixed assets, net |
1,003 | 1,095 | ||||||
| Other assets |
59 | 59 | ||||||
| Total assets |
$ | 30,979 | $ | 14,553 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ | 2,571 | $ | 1,917 | ||||
| Accrued development expense – short-term (NOTE 8) |
563 | 966 | ||||||
| Total current liabilities |
3,134 | 2,883 | ||||||
| Accrued development expense - long-term (NOTE 8) |
— | 563 | ||||||
| Other liabilities |
578 | 485 | ||||||
| Total liabilities |
3,712 | 3,931 | ||||||
| Commitments, contingencies and other matters (NOTE 8) |
||||||||
| Stockholders’ equity (NOTE 3): |
||||||||
| Preferred stock - $.001 par value per share; 9,211 shares authorized; none issued and outstanding at March 31, 2004 and December 31, 2003 (NOTE 4) |
— | — | ||||||
| Common stock - $.002 par value per share; 75,000 shares authorized; 52,232 and 47,024 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
104 | 94 | ||||||
| Additional paid-in capital |
226,820 | 205,826 | ||||||
| Accumulated other comprehensive income - unrealized gain on investments |
4 | — | ||||||
| Accumulated deficit |
(199,661 | ) | (195,298 | ) | ||||
| Total stockholders’ equity |
27,267 | 10,622 | ||||||
| Total liabilities and stockholders’ equity |
$ | 30,979 | $ | 14,553 | ||||
See accompanying notes to financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Collaborative research agreement and grant revenues |
$ | 136 | $ | 487 | ||||
| Costs and expenses: |
||||||||
| Research and development |
3,137 | 1,734 | ||||||
| General and administrative |
1,426 | 457 | ||||||
| 4,563 | 2,191 | |||||||
| Loss from operations |
(4,427 | ) | (1,704 | ) | ||||
| Interest income |
65 | 24 | ||||||
| Interest expense |
(1 | ) | (34 | ) | ||||
| Gain on sale of equipment |
— | 130 | ||||||
| Net loss |
(4,363 | ) | (1,584 | ) | ||||
| Dividends on preferred stock |
— | 18 | ||||||
| Net loss applicable to common stockholders |
$ | (4,363 | ) | $ | (1,602 | ) | ||
| Net loss applicable to common stockholders per share — basic and diluted |
$ | (0.09 | ) | $ | (0.04 | ) | ||
| Weighted average shares outstanding — basic and diluted |
51,027 | 35,666 | ||||||
See accompanying notes to financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows From Operating Activities: |
||||||||
| Net loss |
$ | (4,363 | ) | $ | (1,584 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
103 | 112 | ||||||
| Amortization of investment discounts/premiums |
(24 | ) | (21 | ) | ||||
| Compensation expense on option grants and equity awards |
272 | 21 | ||||||
| Gain on sale of fixed assets |
— | (130 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Prepaid expenses and other assets |
(459 | ) | (178 | ) | ||||
| Accounts payable and accrued expenses |
654 | 28 | ||||||
| Accrued development expenses |
(966 | ) | — | |||||
| Other liabilities |
93 | 8 | ||||||
| Net cash used in operating activities |
(4,690 | ) | (1,744 | ) | ||||
| Cash Flows From Investing Activities: |
||||||||
| Purchase of investments |
(19,914 | ) | (5,785 | ) | ||||
| Proceeds from maturities of investments |
7,500 | 6,550 | ||||||
| Proceeds from sale of fixed assets |
— | 130 | ||||||
| Capital expenditures |
(11 | ) | (21 | ) | ||||
| Net cash provided by (used in) investing activities |
(12,425 | ) | 874 | |||||
| Cash Flows From Financing Activities: |
||||||||
| Net proceeds from issuance of common stock |
19,925 | — | ||||||
| Proceeds from exercise of stock options and warrants |
807 | — | ||||||
| Net cash provided by financing activities |
20,732 | — | ||||||
| Net increase (decrease) in cash and cash equivalents |
3,617 | (870 | ) | |||||
| Cash and cash equivalents at beginning of period |
6,625 | 1,368 | ||||||
| Cash and cash equivalents at end of period |
$ | 10,242 | $ | 498 | ||||
| Supplemental Cash Flow Information: |
||||||||
| Cash paid during the period for interest |
$ | 1 | $ | 34 | ||||
See accompanying notes to financial statements.
5
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation, Reclassification and Stock-Based Compensation
The accompanying financial statements of Genaera Corporation (“Genaera” or the “Company”) are unaudited and have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial statements. The December 31, 2003 balance sheet was derived from audited financial statements, however, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules and regulations. The Company believes that the financial statements include all adjustments of a normal and recurring nature necessary to present fairly the results of operations, financial position, changes in stockholders’ equity and cash flows for the periods presented. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. There have been no material changes in accounting policies from those stated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Certain prior year amounts have been reclassified to conform with the current year presentation.
The Company accounts for its fixed-plan stock options under the intrinsic-value-based method set forth by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB No. 25, issued in March 2000. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation. As allowed by SFAS 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS 123. The following table illustrates the effect on net loss applicable to common stockholders if the fair-value-based method had been applied to all outstanding and unvested stock-based awards for the three-month periods ended March 31, 2004 and 2003 (in thousands, except per share amounts).
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss applicable to common stockholders, as reported |
$ | (4,363 | ) | $ | (1,602 | ) | ||
| Add: Stock-based employee compensation expense included in reported net loss applicable to common stockholders, net of related tax effects, if any |
104 | — | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all stock-based awards, net of related tax effects, if any |
(383 | ) | (314 | ) | ||||
| Pro forma net loss applicable to common stockholders |
$ | (4,642 | ) | $ | (1,916 | ) | ||
| Net loss applicable to common stockholders per share – basic and diluted: |
||||||||
| As reported |
$ | (0.09 | ) | $ | (0.04 | ) | ||
| Pro forma |
$ | (0.09 | ) | $ | (0.05 | ) | ||
6
GENAERA CORPORATION
NOTES TO FINANCIAL STATEMENTS
The resulting effect on pro forma net loss applicable to common stockholders and pro forma net loss applicable to common stockholders per share disclosed above may not be representative of the effects on a pro forma basis in future years. There were no grants made during the three month period ended March 31, 2003. The fair value of each option grant for 2004 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| 2004 |
||||
| Range of risk free interest rates |
3.04% - 3.36 | % | ||
| Dividend yield |
0 | % | ||
| Volatility factor |
121 | % | ||
| Weighted average expected life of options (in years) |
6.0 | |||
| Weighted average fair value of options granted during the period |
$ | 3.72 | ||
On April 22, 2003, the FASB determined that stock-based compensation should be recognized as a cost in the financial statements and that such cost be measured according to the fair value of the stock options. In March 2004, the FASB issued a Proposed SFAS, Share-Based Payment, an amendment of FASB Statements Nos. 123 and 25 (“Exposure Draft”). The Exposure Draft would eliminate the ability to account for share-based compensation transactions using APB 25 and generally would require such transactions be accounted for using a fair-value-based method and the resulting cost recognized in the financial statements. The Company will continue to monitor developments related to the Exposure Draft in order to determine the impact on the Company’s financial statements.
NOTE 2. Note Payable
In June 2003, the Company’s note payable matured and was not refinanced. The Company used its collateralized cash to satisfy the outstanding balance of $2,500,000 plus $6,000 of accrued but unpaid interest through maturity.
NOTE 3. Stockholders’ Equity
The changes in stockholders’ equity from December 31, 2003 to March 31, 2004 are summarized as follows (in thousands):
| Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total Stockholders’ Equity |
|||||||||||||||
| Number of shares |
Amount |
||||||||||||||||||
| Balance at December 31, 2003 |
47,024 | $ | 94 | $ | 205,826 | $ | — | $ | (195,298 | ) | $ | 10,622 | |||||||
| Exercise of stock options and compensation expense on option grants and stock awards |
258 | — | 1,079 | — | — | 1,079 | |||||||||||||
| Common stock issued pursuant to private placement |
4,950 | 10 | 19,915 | — | — | 19,925 | |||||||||||||
| Comprehensive loss: |
|||||||||||||||||||
| Net loss |
— | — | — | — | (4,363 | ) | (4,363 | ) | |||||||||||
| Unrealized gain on investments |
— | — | — | 4 | — | 4 | |||||||||||||
| Total comprehensive loss |
— | — | — | ||||||||||||||||