AMENDMENT NO. 1 TO FORM 10-Q

10-Q/A 1 d10qa.htm AMENDMENT NO. 1 TO FORM 10-Q AMENDMENT NO. 1 TO FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1 to Form 10-Q)

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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: 0-21990

OXiGENE, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-3679168
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

321 ARSENAL STREET

WATERTOWN, MA 02472

(Address of principal executive offices, including zip code)

(617) 673-7800

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ¨ No x

As of August 11, 2003, there were 14,216,164 shares of the Registrant’s Common Stock issued and outstanding.

OXiGENE, INC.

Amendment No. 1 to the Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2003

This Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q is being filed solely to include additional disclosure in the “Comprehensive Income (Loss)” paragraph of Note 1 to the Condensed Consolidated Financial Statements.

P ART I—FINANCIAL INFORMATION

Item 1.

Financial Stat ements—Unaudited

OXiGENE, Inc.

Condensed Consolidated Balance Sheets

(All amounts in thousands, except share and per share data)

(unaudited)

	June 30, 2003			December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	11,643		$	3,752
Available-for-sale securities		11,219			8,078
Prepaid expenses and other current assets		176			40

Total current assets		23,038			11,870
Net property and equipment		219			487
License agreements, net of accumulated amortization		1,118			1,167
Deposits		75			74

Total assets	$	24,450		$	13,598

Liabilities and stockholders’ equity
Current liabilities:
License agreement payable—current portion	$	312		$	290
Accrued expenses for research and development		1,280			1,167
Other accrued expenses		436			550
Other payables		978			1,417

Total current liabilities		3,006			3,424
License agreement payable—non-current portion		—			154
Stockholders’ equity:
Common Stock, $.01 par value, 60,000,000 shares authorized: 13,928,557 shares at June 30, 2003 and 12,676,644 shares at December 31, 2002 issued and outstanding		140			127
Additional paid-in capital		97,604			83,465
Accumulated deficit		(74,976	)		(71,654	)
Accumulated other comprehensive income		659			637
Notes receivable		(1,589	)		(2,187	)
Deferred compensation		(394	)		(368	)

Total stockholders’ equity		21,444			10,020

Total liabilities and stockholders’ equity	$	24,450		$	13,598

See accompanying notes.

OXi GENE, Inc.

Condensed Consolidated Statements of Operations

(All amounts in thousands, except per share data)

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Revenues:
License revenue	$	—		$	—		$	20		$	—

Total revenues		—			—			20			—
Expenses:
Amortization of license agreement		25			22			45			42
Research and development		397			1,196			1,123			3,106
General and administrative		1,454			1,585			2,242			5,215

Total costs and expenses		1,876			2,803			3,410			8,363

Net loss from operations		(1,876	)		(2,803	)		(3,390	)		(8,363	)
Gain on sale of joint venture		—			—			—			1,325
Interest income expense		45			71			94			151
Interest expense		(18	)		(4	)		(25	)		(17	)
Other expense, net		—			(4	)		(1	)		(7	)

Net loss	$	(1,849	)	$	(2,740	)	$	(3,322	)	$	(6,911	)

Basic and diluted net loss per common share	$	(0.15	)	$	(0.23	)	$	(0.26	)	$	(0.58	)

Weighted average number of common shares outstanding		12,758			11,973			12,603			11,984

See accompanying notes.

OXiGENE, Inc.

Condensed Consolidated Statements of Cash Flows

(All amounts in thousands)

(Unaudited)

	Six months ended June 30,
	2003			2002
Operating activities:
Net loss	$	(3,322	)	$	(6,911	)
Adjustment to reconcile net loss to net cash used in operating activities:
Gain on sale of joint venture		—			(1,325	)
Stock compensation expense		224			2,371
Notes receivable – promissory notes		—			(604	)
Depreciation		276			68
Disposal of property and equipment		—			11
Amortization of licensing agreement		45			49

Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(136	)		2,362
Accounts payable and accrued expenses		(439	)		123

Net cash (used in) operating activities		(3,348	)		(5,856	)

Investing activities:
Purchase of available-for-sale securities		(3,410	)		(4,441	)
Maturities of available-for-sale securities		291			—
Proceeds from sale of investment		—			2,000
Amount paid for license agreement		(133	)		—
Purchase of property and equipment		(8	)		(8	)
Change in other assets		(1	)		(1	)

Net cash (used in) investing activities		(3,261	)		(2,448	)

Financing activities: Proceeds from the issuance of common stock		13,898			—
Proceeds from exercises of stock options		83			—
Proceeds from payment of shareholder notes		517			—

Net cash provided by investing activities		14,498			—

Effect of exchange rate on changes in cash		2			76
Net increase (decrease) in cash and cash equivalents		7,891			(8,228	)
Cash and cash equivalents at beginning of period		3,752			19,030

Cash and cash equivalents at end of period	$	11,643		$	10,802

See accompanying notes.

OXiGENE, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2003

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The condensed consolidated balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain amounts have been reclassified for the period ended June 30, 2002 to conform to the current year presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for OXiGENE, Inc. (the “Company”) for the year ended December 31, 2002, which can be found at www.oxigene.com.

Revenue Recognition

Revenue is deemed earned when all of the following have occurred: all obligations of the Company relating to the revenue have been met and the earnings process is complete; the amounts received or receivable are not refundable irrespective of the research results; and there are neither future obligations nor future milestones to be met by the Company with respect to such revenue.

Collaboration revenues are earned based upon research expenses incurred and milestones achieved. Reserve from non-refundable payments received upon initiation of contracts are deferred and amortized over the period in which the Company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in each contract. Amounts received in advance of reimbursable expenses are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period in which the parties agree that the milestone has been achieved and no further obligation is deemed to exist.

Available-for-Sale Securities

In accordance with the Company’s investment policy, surplus cash is invested in corporate and U.S. Government debt securities. In accordance with statement of Financial Accounting Standard No. 115 (“FAS 115”), Accounting for certain Investments in Debt and Equity Securities, the Company separately discloses cash and cash equivalents from investments in marketable securities. The Company designates its marketable securities as available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, if any, reported as accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other expense, net. Interest and dividends on securities classified as available-for-sale are included in interest income.

As of June 30, 2003, of its $11,218,621 of available-for-sale securities, the Company had invested $1,953,839 in corporate bonds, and $9,264,782 in money market mutual funds. In accordance with OXiGENE’s current investment policy, these investments are rated at a minimum ranking of AAA by at least one Nationally Recognized Statistical Rating Organization (NRSRO). The Company assesses the market risk of its investments on an ongoing basis so as to avert risk of loss. The Company assesses the market risk of its investments by continuously monitoring the market prices of its investments and related rates of return, continuously looking for the safest, most risk-averse investments that will yield the highest rates of return in their category.

Accrued Research and Development

The Company charges all research and development expenses, both internal and external costs, to operations as incurred. External costs consist of fees paid to consultants and other outside providers under service contracts. Costs incurred under fixed fee contracts are accrued ratably over the contract period absent any knowledge that the services will be performed other than ratably. Costs incurred under contracts to perform clinical trials are accrued on a patients-treated basis consistent with the typical terms of reimbursement. Upon termination of such contracts, the Company is normally only liable for costs incurred to date. As a result, accrued research and development expenses represent the Company’s estimated contractual liability to outside service providers at any point in time.

Net Loss Per Share

Basic and diluted net loss per share were calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, by dividing the net loss per share by the weighted-average number of shares outstanding. Diluted net loss per share includes the effect of all dilutive, potentially issuable common equivalent shares as defined using the treasury stock method. All of the Company’s common stock equivalents are antidilutive and due to the Company’s net loss position for all periods presented, stock equivalents of 1,185,350 at June 30, 2003 and 611,600 at June 30, 2002 were excluded from the calculation of weighted-average shares for diluted loss per share.

Stock-based Compensation

The Company accounts for stock-based compensation for employees under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and has elected the disclosure-only alternative under SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, when options granted to employees have an exercise price equal to the market value of the stock on the date of grant no compensation expense is recognized. In accordance with SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure,” the following tables present the effect on net loss and net loss per share as if compensation cost for the Company’s stock had been determined consistent with SFAS No. 123:

If compensation for employee options had been determined based on SFAS 123, the Company’s pro forma net loss, and pro forma loss per share for the three and six months ending June 30, 2003 and 2002, would have been as follows:

	Three months ended June 30,						Six months ended June 30,
(in thousands, except per share data)	2003			2002			2003			2002
Reported net loss	$	(1,849	)	$	(2,740	)	$	(3,322	)	$	(6,911	)
Less stock-based compensation expense determined under the fair value method for all stock options, net of related income tax benefit		(72	)		(138	)		(167	)		(217	)

Pro forma net loss	$	(1,921	)	$	(2,878	)	$	(3,489	)	$	(7,128	)

Reported basic and diluted loss per share	$	(0.15	)	$	(0.23	)	$	(0.26	)	$	(0.58	)

Pro forma basic and diluted loss per share	$	(0.15	)	$	(0.24	)	$	(0.27	)	$	(0.60	)

Fair value was estimated on the grant date using the Black-Scholes option-pricing model with the assumptions below for options issued during 2003 and 2002. During the quarter ended June 30, 2003, the Company issued 70,000 options to company employees and 12,000 to external consultants.

	2003			2002
Risk free interest rate		2.87	%		4.53	%
Expected life		4 years			4 years
Expected volatility		.790	%		.790	%
Dividend yield		0.00	%		0.00	%
Fair value	$	2.80		$	1.59

Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, establishes rules for the reporting and display of comprehensive income (loss) and its components and requires unrealized gains or losses on the Company’s available – for- sale securities and the foreign currency translation adjustments to be included in other comprehensive income (loss).

A reconciliation of comprehensive income (loss) is as follows:

	Three Months Ended						Six Months Ended
	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
Net loss as reported	$	(1,849	)	$	(2,740	)	$	(3,322	)	$	(6,911	)
Unrealized gains (losses)		3			19			21			—
Foreign currency translation adjustment		1			150			1			131
Comprehensive loss	$	(1,845	)	$	(2,571	)	$	(3,300	)	$	(6,780	)

Accumulated other comprehensive income consists of unrealized gains on available-for-sale securities of approximately $58,000 and approximately $37,000 and accumulated foreign currency translation adjustment gain of approximately $601,000 and approximately $600,000 at June 30, 2003 and December 31, 2002, respectively.

2. Stockholders’ Equity

In January 2002, the Company offered to cancel 1,119,071 options outstanding with exercise prices significantly above the then current market value of the Company’s Common Stock. Of these, a total of 1,109,571 options were subsequently cancelled. The Company replaced the cancelled options with new shares of stock issued under two restricted plans. New shares were issued under the Compensation Award Stock Program, where a total of 821,030 shares of Common Stock were issued to directors. In addition, under the Restricted Stock Program, 208,541 shares of restricted Common Stock were issued to employees and consultants. The restricted shares are subject to forfeiture and transfer restrictions until they vest, generally over a three-year period. As a result, the Company recognized non-cash compensation expense of approximately $2.9 million, of which approximately $2.3 million was recognized in the first quarter of 2002 and approximately $0.6 million will be recognized over three years through 2004, of which $48,000 was recognized in the three-month period ending June 30, 2003.

Under the terms of both programs, participants were permitted to request a loan from the Company, the proceeds of which were to be used to satisfy any participant tax obligations that arise from the awards. Each of these loans were evidenced by a promissory note. Principal amounts outstanding under the promissory notes will accrue interest at a rate of 10% per year, compounded annually. The principal amount, together with accrued interest on the principal amount to be repaid, were scheduled to be repaid in three equal installments, on the first three anniversary dates of the stock grant date, unless extended by the Company. In January 2003, the Company extended the first repayment date until the second anniversary of the stock grant date. Shares of Common Stock have been pledged to the Company as security for repayment of the obligations under the notes, and the stock certificates representing those shares shall remain in the possession of the Company until the loans are repaid. In the event a participant fails to pay all amounts due under a promissory note, the number of shares of that participant’s stock, sufficient to satisfy the unpaid amounts, will be forfeited. Approximately $600,000 in loans had been issued as evidenced by interest-bearing promissory notes of which approximately $472,000 in loans were due from directors and officers of the Company and $128,000 from employees and outside consultants. As of June 30, 2003, directors and officers had repaid $428,000 of these notes and $23,000 had been repaid by employees and outside consultants. Approximately $25,000 in notes were cancelled along their with the respective restricted stock issuances upon related employee terminations.

The Company also has outstanding Stock Appreciation Rights (“SARs”). SARs granted to employees pursuant to the Company’s Stock Incentive Plan entitled the holder to receive the number of shares of Common Stock as is equal to the excess of the fair market value of one share of Common Stock on the effective date of exercise over the fair market value of one share of Common Stock on the date of grant, divided by the fair market value on the date of exercise, multiplied by the number of SARs exercised. These SARs vest ratably over three years and are exercisable for ten years. The market value of the Company’s Common Stock at June 30, 2003 was higher than the exercise price of previously issued SARs. Accordingly, $63,000 in compensation expense was reported for the three and six months ended June 30, 2003.

During the three and six months ended June 30, 2003, the Company recognized stock-based compensation expense of approximately $113,000 in connection with options issued to non-employees in prior years.

On June 9, 2003 the Company completed a private placement with three large institutional investors. The investors purchased 1,500,000 shares of the Company’s Common Stock at $10.00 per share and two-year warrants to purchase up to an aggregate of 375,000 shares of the Company’s Common Stock at $15 per share. The Company received $13,883,259 net of agent concessions and fees. In addition, the placement agent in the offering was issued five-year warrants to purchase up to an aggregate of 150,000 shares at $12 per share. These warrants, along with the warrants sold to the investors in the offering, were valued at $2,103,750 and $1,384,500, respectively, using the Black-Scholes option-pricing model.

3. Subsequent Events

As part of its continuing efforts to minimize operating costs, on July 10, 2003 the Company entered into a sublease agreement to sublet its 9,980 square feet of office space at 321 Arsenal Street in Watertown, Massachusetts. The sublease will commence on September 1, 2003 and has a term of five years. The sublease rental income will be $149,700 in the first year, $164,670 in the second year, $209,580 in the third and fourth years and $214,570 in the fifth year. The Company will continue to be obligated for the original lease for the Watertown office location. Over the next five years the Company will pay $294,410 per year in the first and second years, and $324,350 per year in the third through fifth years. At the commencement of the lease, the Company will record a loss in the amount of $613,770 relating to the difference between the amount owed to the original lessor and the sublease income over the five-year term.

The Company has entered into a new lease agreement to occupy 4,000 square feet of office space in Waltham, Massachusetts that will commence on September 1, 2003 with a term of five years. Lease payments will amount to $90,240 in the first year and $98,000, $102,000, $106,000 and $110,000 for the second, third, fourth and fifth years, respectively.

On a net basis over the five-year term, the Company will reduce its net rent expense by $441,860 as a result of the sublet of the larger 9,980 square foot Watertown office and moving its headquarters to the smaller 4,000 square foot Waltham office. Approximately $203,000 of accelerated depreciation expense on leasehold improvements to be abandoned was taken for the quarter ended June 30, 2003 and an additional depreciation charge of $177,000 will be taken for the quarter ending September 30, 2003.

On April 10, 2003 the Company entered into a settlement agreement with a formerly related party for payment of $193,000 for legal services rendered. In complete satisfaction and settlement of this liability, the formerly related party agreed to receive a cash payment of $50,000 and common stock with an estimated fair value of $50,000 at the time of issuance. Approximately $100,000 related to this liability was accrued and expensed during the year ended December 31, 2002. On July 23, 2003, the formerly related party agreed to accept $50,000 in cash in lieu of the original $50,000 stock issuance in full settlement of the liability.

4. New Accounting Pronouncements

In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The adoption of SFAS 149 is not expected to have a material effect on the Company’s financial statements.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that it is within its scope as a liability (or asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company’s financial statements.

In January 2003, the FASB issued Financial Interpretation Number 46 (“FIN 46”), “Consolidation of Variable Interest Enitites.” This FIN deals with Off-Balance Sheet Assets, Liabilities, and Obligations and gives guidance for determining which entities should consolidate the respective assets and liabilities associated with the obligations. FIN 46 will most significantly impact areas other than real estate, matters such as Collateralized Debt Obligations and Receivable Securitizations. The pronouncement is effective for June 15, 2003 and companies must fully consolidate assets and liabilities covered by FIN 46 in their Financial Statements. Full disclosure, as well as consolidation, if applicable, of any newly created agreements after January 31, 2003 must begin immediately. The adoption of FIN 46 is not expected to have a material effect on the Company’s financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned thereunto duly authorized.

	OXIGENE, INC. (Registrant)

Date: August 19, 2003	By:	/s/ FREDERICK W. DRISCOLL
		Frederick W. Driscoll President and Chief Executive Office

Date: August 19, 2003	By:	/s/ MARC R. HEBERLEY
		Marc R. Heberley Chief Accounting Officer

EXHIBIT INDEX

Exhibit Number		Description

31.1		Certification of Principal Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002