SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003.
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 00-26078
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eXEGENICS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-2402409
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2110 Research Row
Dallas, Texas 75235
(Address of Principal Executive Offices)
(214) 358-2000
(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 Exchange Act Rule 12b-2): Yes [ ] No [X]
As of May 13, 2003, the registrant had 16,184,486 shares of common stock
outstanding.
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 2003 (unaudited)
and December 31, 2002 3
Statements of Operations for the Three Months
Ended March 31, 2003 and 2002 (unaudited) 4
Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
Certification of Chief Executive Officer 16
Certification of Chief Financial Officer 17
Certification Pursuant to Section 906 18
eXegenics INC.
BALANCE SHEETS
(in thousands)
MARCH 31, December 31,
2003 2002
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 14,926 $ 6,188
Restricted cash 550 550
Investments -- 10,004
Prepaid expenses and other current assets 245 515
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Total current assets 15,721 17,257
Other assets 226 258
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Total assets $ 15,947 $ 17,515
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 681 $ 1,239
Current portion of capital lease obligations 95 94
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Total current liabilities 776 1,333
Capital lease obligations, less current portion 84 108
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Total liabilities 860 1,441
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Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares
authorized; 910,822 and 828,023 shares of Series A
convertible preferred issued and outstanding (liquidation
value $2,227,000 and $2,070,000) 9 8
Common stock - $.01 par value, 30,000,000 shares authorized;
16,184,486 shares issued 162 162
Additional paid-in capital 67,275 67,272
Subscriptions receivable (305) (301)
Accumulated deficit (49,484) (48,497)
Treasury stock, 511,200 shares of common stock, at cost (2,570) (2,570)
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Total stockholders' equity 15,087 16,074
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Total liabilities and stockholders' equity $ 15,947 $ 17,515
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See Notes to Financial Statements.
3
eXegenics INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
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2003 2002
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(unaudited)
Revenue:
Licensing & research fees $ 13 $ 333
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Operating Expenses:
Research and development 122 1,241
General and administrative 805 1,061
Expenses related to strategic redirection 148 --
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1,075 2,302
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Operating (loss) (1,062) (1,969)
Other (income) expense, primarily interest (75) (186)
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Loss before provision (benefit) for taxes (987) (1,783)
Provision (benefit) for taxes -- (14)
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NET LOSS (987) (1,769)
Preferred stock dividend (31) (169)
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NET LOSS ATTRIBUTABLE TO
TO COMMON SHAREHOLDERS $ (1,018) $ (1,938)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.07) $ (0.12)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC AND
DILUTED 15,673,286 15,672,303
============ ============
See Notes to Financial Statements.
4
eXegenics INC.
STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED
MARCH 31,
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2003 2002
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(unaudited)
Cash flows from operating activities:
Net loss $ (987) $ (1,769)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 36 101
Value assigned to common shares and options 3 85
Changes in:
Prepaids and other assets 270 366
Deferred revenue -- 167
Accounts payable and accrued expenses (558) (295)
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Net cash used in operating activities (1,236) (1,345)
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Cash flows from investing activities:
Maturity of investment 10,000 --
Sale of equipment -- 123
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Net cash provided by investing activities 10,000 123
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Cash flows from financing activities:
Payment of royalties, capital lease, other (26) (23)
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Net cash used in financing activities (26) (23)
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NET INCREASE (DECREASE) IN CASH 8,738 (1,245)
Cash and cash equivalents at beginning of period 6,188 15,545
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,926 $ 14,300
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See Notes to Financial Statements.
5
eXegenics INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003
(unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of eXegenics Inc., a Delaware
corporation (the "Company"), included herein have been prepared in
accordance with the rules and regulations promulgated by the Securities
and Exchange Commission and, in the opinion of management, reflect all
adjustments necessary to present fairly the results of operations for
the interim periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These financial statements and
the notes thereto should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K and in the Amendment to the Annual Report on Form
10-K/A for the fiscal year ended December 31, 2002. The results for the
interim periods are not necessarily indicative of the results for the
full fiscal year.
(2) CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company considers all non-restrictive, highly liquid short-term
investments purchased with an original maturity of three months or less
to be cash equivalents. Cash and cash equivalents, which amount to
$14,926,000 and $6,188,000 at March 31, 2003 and December 31, 2002,
respectively, consist principally of interest-bearing cash deposits
placed with a single financial institution. Restricted cash, which
amounts to $550,000 and $550,000 at March 31, 2003 and December 31,
2002, respectively, consists of certificates of deposits that are used
as collateral for equipment leases.
Investments at December 31, 2002, consisting of a $10,000,000
government agency debt security, matured in February 2003.
(3) LOSS PER COMMON SHARE
Basic and diluted loss per common share is based on the net loss
increased by dividends on preferred stock divided by the weighted
average number of common shares outstanding during the period. No
effect has been given to outstanding options, warrants or convertible
preferred stock in the diluted computation, as their effect would be
antidilutive.
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eXegenics INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(4) STOCKHOLDERS' EQUITY
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which establishes a fair value-based
method of accounting for stock-based compensation plans. The Company
has adopted the disclosure-only alternative under SFAS No. 123. The
Company accounts for stock based compensation to nonemployees using the
fair value method in accordance with SFAS No. 123 and Emerging Issues
Task Force (EITF) Issue No. 96-18. The Company has recognized deferred
stock compensation related to certain stock option and warrants grants.
No options to purchase shares of common stock were granted in return
for consulting services for the three months ended March 31, 2003.
During the three months ended March 31, 2002, the Company granted
10,000, 25,000, 10,000 and 25,000 options to purchase shares of common
stock at $7.13, $3.28, $3.20 and $1.67 per share, respectively, in
return for consulting services. The Company valued these options based
on the Black-Scholes option pricing model. As a result, the Company
recorded a charge of $39,100 during the three months ended March 31,
2002 respectively, related to these grants. In connection with other
option grants to consultants in previous years, the Company recorded a
charge of $4,000 and $46,000 during the three months ended March 31,
2003 and 2002, respectively.
(5) STRATEGIC REDIRECTION
During the first quarter of 2003, the Company recognized additional
expenses of $148,000 for severance benefits and legal expenses related
to terminated scientific programs. Cash payments of $393,000 were
charged against previously accrued restructuring expenses during the
quarter ended March 31, 2003.
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eXegenics INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(6) STOCK OPTIONS
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of SFAS Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based compensation.
THREE MONTHS ENDED MARCH 31,
2003 2002
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Net loss attributable to common stockholders
as reported $ (1,018) $ (1,938)
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Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (57) (247)
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Pro forma net loss $ (1,075) $ (2,376)
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Earnings per share:
Basic and diluted-as reported $ (0.07) $ (0.12)
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Basic and diluted-pro forma $ (0.07) $ (0.14)
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The Company has adopted the provisions of SFAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure which requires disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reporting
results. The Black-Scholes option valuation model was developed for use in
estimating the fair market value of traded options share have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because our stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair market value estimates, in
management's option, the existing modes do not necessarily provide a reliable
single measure of the fair market value of our stock options.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
In this section, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," references to "we," "us," "our," and
"ours" refer to eXegenics Inc.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
included in this report. This report contains certain forward-looking statements
as that term is defined in the Private Securities Litigation Reform of 1995.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements.. When
used in this report the words "anticipate," "believe," "estimate," "expect" and
similar expressions as they relate to our management or us are intended to
identify such forward-looking statements. Our actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements. Historical operating results are not
necessarily indicative of the trends in operating results for any future period.
We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of drug therapies for use by physician
specialists. Rather than committing significant resources to discovery research,
we seek to reduce the time, expense and technical risk associated with drug
development and commercialization by identifying and acquiring late stage
pre-clinical or early stage clinical compounds.
Our strategy is to:
o License or buy rights to lead compounds rather than engage in
pure discovery research.
o Use our clinical development experience to maximize the value
of in-licensed or acquired compounds.
o Identify and acquire technologies to develop products by
improving existing compounds.
We are focused on acquiring drug candidates that can be successfully
developed and marketed as pharmaceutical products to fight human diseases. We
will, however, be opportunistic in the exploration of other means of increasing
shareholder value.
In connection with our strategic redirection, during the first quarter
of 2003, we terminated scientific programs relating to our OASIS (or "Optimized
Anti-Sense Inhibitory Sequence") and Quantum Core Technology, (QCT). We
terminated scientific employees related to these programs. Except for the
contractual payout obligations to one terminated employee, we expect to
substantially complete the wind-down of expenses associated with our redirection
away from drug discovery related research activities in the second quarter of
this year.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential and the status of competitive products. The focus and
direction of our operations will also be dependent upon the establishment of
collaborative arrangements with other companies, the availability of financing
and other factors.
There is no assurance that we will be successful in implementing our
strategy.
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
investments, intangible assets, income taxes, contingencies and litigation. We
base our estimates on historical experience and on various other
9
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. Revenue from research support agreements is recognized
ratably over the length of the agreements. Revenue resulting from contracts or
agreements with milestones is recognized when the milestone is achieved. Amounts
received in advance of services to be performed or the achievement of milestones
are recorded as deferred revenue. Payments to third parties in connection with
nonrefundable license fees are being recognized over the period of performance
of related research and development activities. We record a valuation allowance
to reduce our deferred tax assets to the amount that is more likely than not to
be realized. While we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event we were to determine that we would be able to realize
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the net deferred tax asset would increase income in the period
such determination was made. Likewise, should we determine that we would not be
able to realize all or part of our net deferred tax asset in the future, an
adjustment to the net deferred tax asset would be charged to income in the
period such determination was made.
RESULTS OF OPERATIONS
Revenue
Revenues were $13,000 for the three months ended March 31, 2003 and
$333,000 for the three months ended March 31, 2002, a decrease of $320,000.
Revenues in both periods were attributable to license and research and
development agreements, with Aventis in 2003 and Bristol-Myers Squibb in 2002.
Said agreements are not continuing.
Research and Development Expenses
We incurred research and development expenses of $122,000 for the three
months ended March 31, 2003 and $1,241,000 for the three months ended March 31,
2002, a decrease of $1,119,000 or 90 percent. The decrease in research and
development expenses for the three months ended March 31, 2003, as compared to
the same period in 2002, was attributable to the change in our business strategy
and the related realignment and consolidation of business priorities, including
a $105,000 decrease in facility and equipment related costs that were charged to
discontinued operations in 2002, a $191,000 decrease in contract research,
license and royalty agreements, a $343,000 decrease in research services,
supplies and consultants and a $392,000 decrease in salaries and general
personnel expenses.
General and Administrative Expenses
We incurred general and administrative expenses as of $805,000 for the
three months ended March 31, 2003 and $1,061,000 for the three months ended
March 31, 2002, a decrease of $256,000 or 24 percent. The decrease in general
and administrative expenses for the three months ended March 31, 2003 as
compared to the same period in 2002 was attributable to a $30,000 decrease in
facility and equipment related costs that were charged to discontinued
operations in 2002, a $171,000 decrease in legal expenses related to
intellectual property, a $72,000 decrease in general legal expenses, a $25,000
decrease in salaries and general personnel expenses, offset by a $31,000
increase in director and officer insurance and a $11,000 increase in other
operating expenses.
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Expenses Related to Strategic Redirection
We recognized $148,000 in expenses from operations terminated during
the three months ended March 31, 2003, which included $127,000 for terminated
employees and $21,000 for legal expenses related to intellectual property for
terminated scientific programs.
Interest Income
Interest income was $74,000 and $189,000 for the three months ended
March 31, 2003 and March 31, 2002, respectively. The decrease was due primarily
to lower principal balances in 2003, as well as decreased interest rates.
Net Loss
We incurred a net loss attributable to common shareholders of
$1,018,000 and $1,938,000 for the three months ended March 31, 2003 and March
31, 2002, respectively. The decrease in net loss of $920,000 was primarily the
result of the aforementioned changes in our operations. Net loss attributable
to common shareholders per share was $0.07 and $0.12 for the three months ending
March 31, 2003 and March 31, 2002, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had cash and cash equivalents of approximately
$15,476,000. Since our inception, we have financed our operations from debt and
equity financings as well as fees received from licensing and research and
development agreements. During the three months ended March 31, 2003, net cash
used in operating activities was $1,236,000, the largest elements of which were
one-time payments of approximately $541,000 related to the termination of
scientific programs. In addition, during the three months ended March 31, 2003,
we received $10,000,000 from investing activities, from a maturing investment
security. The latter funds were reinvested in short-term money market
instruments.
We believe that we have sufficient cash and cash equivalents on hand at
March 31, 2003 to finance our plan of operation through December 31, 2003. We
currently have no new material commitments to purchase capital assets through
December 31, 2003. However, we expect to incur new liabilities related to the
in-licensing and clinical development of compounds as outlined in our business
strategy. We anticipate that we may not have sufficient capital resources to
complete new programs prior to product commercialization. There can be no
assurance that any required financings will be available, through bank
borrowings, debt or equity offerings on acceptable terms or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to financial market risk, including changes in interest
rates, relates primarily to our marketable security investments. We generally
place our marketable security investments in high credit quality instruments,
primarily U.S. government obligations. We do not believe that a 100 basis point
increase or decrease in interest rates would significantly impact our business.
We do not have any derivative instruments. We operate only in the United States
and all sales have been made in U.S. dollars. We do not have any material
exposure to changes in foreign currency exchange rates.
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Item 4. Controls and Procedures
Our management, including President and Chief Executive Officer Ronald
L. Goode and Chief Business Officer and Chief Financial Officer David E. Riggs,
has evaluated our disclosure controls and procedures within the 90 days
proceeding the date of this filing. Under rules promulgated by the SEC,
disclosure controls and procedures are defined as those "controls or other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms." Based on the evaluation
of our disclosure controls and procedures, management determined that such
controls and procedures were effective as of May 13, 2003, the date of the
conclusion of the evaluation.
Further, there were no significant changes in the internal controls or
in other factors that could significantly affect these controls after May 13,
2003, the date of the conclusion of the evaluation of disclosure controls and
procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On October 25, 2002, the Company transferred from the Nasdaq National
Market to the Nasdaq SmallCap Market as a result of its failure to comply with
the minimum bid price requirement of $1.00 per share, and was provided with a
grace period to comply with the requirement. On January 21, 2003, the Company
received from Nasdaq a 180-day extension (through July 21, 2003) to comply with
the listing requirement. The Company may now be eligible to receive an
additional 90-day compliance period if, as of July 21, 2003, it continues to
comply with certain initial listing criteria of the Nasdaq National Market.
During this additional extended period, the Company's stock must trade at or
above $1.00 per share for a minimum of ten consecutive trading days or its stock
will be delisted from the Nasdaq SmallCap Market at the end of such extended
period.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 99.1 - Certifications pursuant to Rule 13a-14 of the Securities and
Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for the quarterly period ended March 31, 2003.
Exhibit 99.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly
period ended March 31, 2003.
(b) The following reports were filed on Form 8-K during the quarter ended March
31, 2003:
(1) On March 14, 2003, we filed a current report on Form 8-K announcing
among other things, the election of Joseph M. Davie M.D., Ph.D. to our board of
directors and the appointment of David E. Riggs as Vice President, Chief
Business Officer, Chief Financial Officer and Secretary.
(2) On March 20, 2003, we filed a current report on Form 8-K containing the
certification required by section 906 of the Sarbanes-Oxley Act of 2002 with
respect to our Annual Report on Form 10-K for the year ended December 31, 2002.
(3) On March 21, 2003, we filed a current report on Form 8-K announcing
results for the fiscal year ended December 31, 2002.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
eXEGENICS INC.
Date: May 13, 2003 /s/ Ronald L. Goode
------------------------------------
Chairman, President &
Chief Executive Officer
Date: May 13, 2003
/s/ David E. Riggs
------------------------------------
David E. Riggs
Vice President - Finance,
Chief Business Officer
and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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99.1 Certifications pursuant to Rule 13(a-)14 of the Securities and
Exchange Act of 1934 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for the quarterly period ended
March 31, 2003.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
the quarterly period ended March 31, 2003.
15