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 September 30, 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 (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 x No ¨
The number of outstanding shares of the Registrant’s Common Stock, par value $.002 per share, on November 5, 2004 was 56,860,899.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
| Page | ||||
| PART I - FINANCIAL INFORMATION |
||||
| Item 1. |
Consolidated Financial Statements (unaudited): | |||
| Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2004 and 2003 |
5 | |||
| 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 | 25 | ||
| Item 4. |
Controls and Procedures | 25 | ||
| PART II - OTHER INFORMATION |
||||
| Item 1. |
Legal Proceedings | 26 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 26 | ||
| Item 3. |
Defaults Upon Senior Securities | 26 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 26 | ||
| Item 5. |
Other Information | 26 | ||
| Item 6. |
Exhibits | 26 | ||
| SIGNATURES | 27 | |||
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
| |||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 9,644 | $ | 6,625 | ||||
| Short-term investments |
11,935 | 6,510 | ||||||
| Prepaid expenses and other current assets |
841 | 264 | ||||||
| Total current assets |
22,420 | 13,399 | ||||||
| Fixed assets, net |
806 | 1,095 | ||||||
| Other assets |
59 | 59 | ||||||
| Total assets |
$ | 23,285 | $ | 14,553 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ | 2,109 | $ | 1,917 | ||||
| Accrued development expense – short-term (NOTE 8) |
563 | 966 | ||||||
| Total current liabilities |
2,672 | 2,883 | ||||||
| Accrued development expense - long-term (NOTE 8) |
— | 563 | ||||||
| Other liabilities |
580 | 485 | ||||||
| Total liabilities |
3,252 | 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 September 30, 2004 and December 31, 2003 (NOTE 4) |
— | — | ||||||
| Common stock - $.002 par value per share; 75,000 shares authorized; 52,663 and 47,024 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
105 | 94 | ||||||
| Additional paid-in capital |
228,247 | 205,826 | ||||||
| Accumulated other comprehensive income - unrealized loss on investments |
(10 | ) | — | |||||
| Accumulated deficit |
(208,309 | ) | (195,298 | ) | ||||
| Total stockholders’ equity |
20,033 | 10,622 | ||||||
| Total liabilities and stockholders’ equity |
$ | 23,285 | $ | 14,553 | ||||
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Collaborative research agreement and grant revenues (NOTE 7) |
$ | 672 | $ | 124 | $ | 844 | $ | 1,000 | ||||||||
| Costs and expenses: |
||||||||||||||||
| Research and development |
4,241 | 1,554 | 10,392 | 4,371 | ||||||||||||
| General and administrative |
1,194 | 710 | 3,548 | 1,941 | ||||||||||||
| 5,435 | 2,264 | 13,940 | 6,312 | |||||||||||||
| Loss from operations |
(4,763 | ) | (2,140 | ) | (13,096 | ) | (5,312 | ) | ||||||||
| Interest income |
74 | 17 | 206 | 63 | ||||||||||||
| Interest expense |
(1 | ) | (1 | ) | (3 | ) | (65 | ) | ||||||||
| Gain (loss) on sale of equipment |
— | 53 | (118 | ) | 257 | |||||||||||
| Net loss |
(4,690 | ) | (2,071 | ) | (13,011 | ) | (5,057 | ) | ||||||||
| Dividends on preferred stock, including amount attributable to a beneficial conversion feature of $2,945 and $3,050 for the three and nine months ended September 30, 2003, respectively |
— | (2,945 | ) | — | (3,084 | ) | ||||||||||
| Net loss applicable to common stockholders |
$ | (4,690 | ) | $ | (5,016 | ) | $ | (13,011 | ) | $ | (8,141 | ) | ||||
| Net loss applicable to common stockholders per share — basic and diluted |
$ | (0.09 | ) | $ | (0.13 | ) | $ | (0.25 | ) | $ | (0.22 | ) | ||||
| Weighted average shares outstanding — basic and diluted |
52,607 | 37,453 | 52,012 | 36,277 | ||||||||||||
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows From Operating Activities: |
||||||||
| Net loss |
$ | (13,011 | ) | $ | (5,057 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
267 | 384 | ||||||
| Amortization of investment discounts/premiums |
(78 | ) | (56 | ) | ||||
| Compensation expense on option grants and equity awards |
709 | 194 | ||||||
| (Gain) loss on sale of fixed assets |
118 | (257 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Prepaid expenses and other assets |
(577 | ) | (223 | ) | ||||
| Accounts payable and accrued expenses |
192 | (223 | ) | |||||
| Accrued development expenses |
(966 | ) | — | |||||
| Other liabilities |
95 | 232 | ||||||
| Net cash used in operating activities |
(13,251 | ) | (5,006 | ) | ||||
| Cash Flows From Investing Activities: |
||||||||
| Purchase of investments |
(27,857 | ) | (15,750 | ) | ||||
| Proceeds from maturities of investments |
22,500 | 16,850 | ||||||
| Proceeds from sale of fixed assets |
— | 257 | ||||||
| Capital expenditures |
(96 | ) | (21 | ) | ||||
| Net cash provided by (used in) investing activities |
(5,453 | ) | 1,336 | |||||
| Cash Flows From Financing Activities: |
||||||||
| Payment on note payable |
— | (2,500 | ) | |||||
| Net proceeds from issuance of common stock |
19,930 | — | ||||||
| Proceeds from exercise of stock options and warrants |
1,793 | 1,136 | ||||||
| Proceeds from issuance of Series C-1 and C-2 convertible preferred stock |
— | 4,922 | ||||||
| Net cash provided by financing activities |
21,723 | 3,558 | ||||||
| Net increase (decrease) in cash and cash equivalents |
3,019 | (112 | ) | |||||
| Cash and cash equivalents at beginning of period |
6,625 | 1,368 | ||||||
| Cash and cash equivalents at end of period |
$ | 9,644 | $ | 1,256 | ||||
| Supplemental Cash Flow Information: |
||||||||
| Cash paid during the period for interest |
$ | 2 | $ | 76 | ||||
| Supplemental Schedule of Non-Cash Investing & Financing Activities |
||||||||
| Conversion of Series A redeemable convertible preferred stock into common stock |
$ | — | $ | 1,151 | ||||
| Issuance of warrants in connection with issuance of Series C-1 and C-2 convertible preferred stock |
$ | — | $ | 1,200 | ||||
| Conversion of Series C-1 convertible preferred stock into common stock |
$ | — | $ | 2,500 | ||||
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED 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 U.S. generally accepted accounting principles 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 to the current year presentation.
The Company’s stock-based compensation awards include restricted stock granted to employees, stock options granted to non-employee service providers and stock options granted to employees. 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. With regard to stock option grants to employees, the Company 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- and nine-month periods ended September 30, 2004 and 2003 (in thousands, except per share amounts).
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net loss applicable to common stockholders, as reported |
$ | (4,690 | ) | $ | (5,016 | ) | $ | (13,011 | ) | $ | (8,141 | ) | ||||
| Add: Stock-based employee compensation expense included in reported net loss applicable to common stockholders, net of related tax effects, if any |
90 | — | 194 | — | ||||||||||||
| 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 |
(589 | ) | (312 | ) | (1,408 | ) | (915 | ) | ||||||||
| Pro forma net loss applicable to common stockholders |
$ | (5,189 | ) | $ | (5,328 | ) | $ | (14,225 | ) | < | ||||||