<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No.
June 30, 1996 0-18231
ATRIX LABORATORIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1043826
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
2579 Midpoint Drive
Fort Collins, Colorado 80525
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(970) 482-5868
---------------------------------------------------
(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
----- -----
As of July 17, 1996, there were 11,080,284 issued and outstanding
shares of the Registrant's $.001 par value common stock.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 925,487 $ 27,583,501
Marketable securities, available-for-sale, at fair value 10,996,847 6,822,990
Accounts receivable 190,665 348,092
Interest receivable 112,303 65,970
Prepaid expenses and deposits 572,751 448,289
Inventory 202,264 310,297
-------------------------------------
Total current assets 13,000,317 35,579,139
-------------------------------------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures 1,847,164 2,220,341
Leasehold improvements 506,190 543,904
-------------------------------------
Total 2,353,354 2,764,245
Accumulated depreciation and amortization (1,133,864) (1,361,109)
Property and equipment, net 1,219,490 1,403,136
-------------------------------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $52,240 and 674,116 743,075
$62,294 -------------------------------------
TOTAL $ 14,893,923 $ 37,725,350
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,862,850 $ 2,126,001
Accrued salaries and payroll taxes 72,199 75,001
Other accrued liabilities 152,108 126,049
Deferred revenue --- 32,000
-------------------------------------
Total current liabilities 2,087,157 2,359,051
-------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized 5,000,000 shares, none
issued or outstanding
Common stock, $.001 par value; authorized 25,000,000 shares; 8,433,296 8,433 11,080
and 11,080,284 shares issued and outstanding
Additional paid-in capital 43,889,473 72,083,128
Unrealized holding loss on marketable securities, available-for-sale (35,176) (262,556)
Accumulated deficit (31,055,964) (36,465,353)
-------------------------------------
Total shareholders' equity 12,806,766 35,366,299
-------------------------------------
TOTAL $ 14,893,923 $ 37,725,350
=====================================
</TABLE>
See notes to financial statements
2
<PAGE> 3
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
REVENUE: 1995 1996
----------------------------------
<S> <C> <C>
Sales $ --- $ 60,921
Contract revenue 185,416 281,563
Interest income 281,883 287,627
Gain on sale of marketable securities --- 12,466
----------------------------------
Total revenue 467,299 642,577
----------------------------------
EXPENSES:
Cost of goods sold --- 46,944
Research and development
o ATRIDOX(TM) product 1,438,555 1,416,032
o Other 886,304 1,266,346
Administrative and marketing 287,260 572,553
----------------------------------
Total expenses 2,612,119 3,301,875
----------------------------------
NET LOSS $ (2,144,820) $ (2,659,298)
==================================
NET LOSS PER COMMON SHARE $ (0.27) $ (0.27)
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,875,741 9,923,803
==================================
</TABLE>
See notes to financial statements
3
<PAGE> 4
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
REVENUE: 1995 1996
----------------------------------
<S> <C> <C>
Sales $ --- $ 119,961
Contract revenue 244,666 401,571
Interest income 544,691 437,549
Gain on sale of marketable securities --- 36,419
----------------------------------
Total revenue 789,357 995,500
----------------------------------
EXPENSES:
Cost of goods sold --- 87,614
Research and development
o ATRIDOX(TM) product 2,556,104 2,785,510
o Other 1,749,220 2,370,250
Administrative and marketing 562,797 1,161,515
----------------------------------
Total expenses 4,868,121 6,404,889
----------------------------------
NET LOSS $ (4,078,764) $ (5,409,389)
==================================
NET LOSS PER COMMON SHARE $ (0.52) $ (0.59)
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,844,260 9,193,118
==================================
</TABLE>
See notes to financial statements
4
<PAGE> 5
ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Stock Paid-in Holding Accumulated Shareholders'
Shares Amount Capital Loss Deficit Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 8,433,296 $ 8,433 $43,889,473 $ (35,176) $ (31,055,964) $12,806,766
Exercise of stock options 59,488 59 352,266 --- --- 352,325
Issuance of common stock 2,587,500 2,588 27,841,389 --- --- 27,843,977
Unrealized holding loss --- --- --- (227,380) --- (227,380)
Net loss for the period --- --- --- --- (5,409,389) (5,409,389)
-----------------------------------------------------------------------------------
BALANCE, June 30, 1996 11,080,284 $11,080 $72,083,128 $(262,556) $ (36,465,353) $35,366,299
===================================================================================
</TABLE>
See notes to financial statements
5
<PAGE> 6
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
-----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,078,764) $ (5,409,389)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 166,319 228,540
Amortization of patents 6,790 10,054
Amortization of bond premiums 125,788 28,675
Gain on sale of marketable securities --- (36,419)
Write-off of obsolete patents 5,507 4,942
Net changes in current assets and liabilities:
Accounts receivable 73,839 (157,427)
Prepaid expenses and deposits (314,815) 124,463
Inventory (64,170) (108,033)
Interest receivable 21,743 46,333
Accounts payable - trade 91,600 263,151
Accrued salaries and payroll taxes 3,375 2,802
Other accrued liabilities (19,437) (26,059)
Deferred revenue 87,501 32,000
-----------------------------------------
Net cash used in operating activities (3,894,724) (4,996,367)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, furniture and fixtures (190,476) (374,475)
Acquisition of leasehold improvements (29,257) (37,714)
Investments in intangible assets (55,266) (83,955)
Proceeds from sale of marketable securities --- 4,070,501
Proceeds from maturities of marketable securities 3,140,800 ---
Investment in marketable securities (110,620) (116,278)
-----------------------------------------
Net cash provided by investing activities 2,755,181 3,458,079
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of stock 363,975 28,196,302
-----------------------------------------
Net cash provided by financing activities 363,975 28,196,302
-----------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (775,568) 26,658,014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,880,275 925,487
-----------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,104,707 $ 27,583,501
=========================================
</TABLE>
See notes to financial statements
6
<PAGE> 7
ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of Atrix Laboratories,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, all adjustments considered necessary (which consist only of normal
recurring accruals) for a fair presentation have been included. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1995, filed with
the Securities and Exchange Commission in the Company's Annual Report Form
10-K.
NOTE 2. SUBSEQUENT EVENT
On July 17, 1996, the Company completed the purchase of a 25,000
square foot, fully-operational pharmaceutical and biotechnology manufacturing
facility and its associated equipment for approximately $3,400,000. The
Company intends to use the facility to manufacture products based on the
ATRIGEL(R) drug delivery technology, including its ATRISORB(R) Barrier product.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1995
Sales recorded during the three months ended June 30, 1996,primarily
represents revenue from sales of the ATRISORB(R) GTR Barrier in certain
European Countries. The Company had no product sales during 1995.
Contract revenue represents revenue the Company received from grants
and from unaffiliated third parties for performing contract research and
development activities utilizing the ATRIGEL(R) system, and was approximately
$282,000 for the three months ended June 30, 1996, compared to approximately
$185,000 for the three months ended June 30, 1995, representing a 52% increase.
The increased revenues are partially due to the Company being awarded two
federal research grants during the current quarter.
Interest income for the three months ended June 30, 1996, was
approximately $288,000 compared to approximately $282,000 for the three months
ended June 30, 1995. Interest income for the current quarter increased over
the comparable period in the prior year due to a substantial increase in
principal investments as a result of the common stock offering completed in May
1996.
A gain on sale of marketable securities of approximately $12,000 was
realized for the three months ended June 30, 1996, whereas no gain was realized
for the comparable period in 1995. The proceeds from the sale of marketable
securities were used to fund operations.
Cost of goods sold recorded for the three months ended June 30, 1996
was primarily associated with the launch of the Company's first dental
product, the ATRISORB(R) GTR Barrier.
Research and development expenses - ATRIDOX(TM) product for the three
months ended June 30, 1996, were approximately $1,416,000 compared to
approximately $1,439,000 for the three months ended June 30, 1995. Expenses
for the ATRIDOX(TM) product were lower than in the previous year due to the
completion of Phase III clinical trials of the product in May 1996.
Other research and development expenses, which included activities for
the ATRISORB(R) Barrier and other research activities for the three months
ended June 30, 1996, were approximately $1,266,000 compared to approximately
$886,000 for the three months ended June 30, 1995, representing a 43% increase.
The increase was primarily a result of hiring
8
<PAGE> 9
additional personnel in the Manufacturing and Quality Assurance/Quality Control
departments; and increased quality assurance and quality control efforts.
Administrative expenses increased to approximately $573,000 for the
three months ended June 30, 1996, from approximately $287,000 for the three
months ended June 30, 1995, representing a 100% increase. The primary reasons
for this increase were expenses related to the initiation in the current year
of marketing and sales efforts related to the ATRISORB(R) GTR Barrier Product
and increased general operating costs.
The Company recorded a net loss of approximately $2,659,000 for the
three months ended June 30, 1996, compared to a net loss of approximately
$2,145,000 for the three months ended June 30, 1995, representing a 24%
increase. The increase in net loss was primarily the result of the initiation
of marketing and sales efforts for the Company's ATRISORB(R) Barrier product,
the hiring of appropriate staff, and increased quality assurance and quality
control efforts.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1995
Sales recorded during the six months ended June 30, 1996, primarily
represents revenue from sales of the ATRISORB(R) GTR Barrier. The Company had
no product sales during 1995.
Contract revenue represents revenue the Company received from grants
and from unaffiliated third parties for performing contract research and
development activities utilizing the ATRIGEL(R) system, and was approximately
$402,000 for the six months ended June 30, 1996, compared to approximately
$245,000 for the six months ended June 30, 1995, representing a 64% increase.
The increased revenues are partially due to the Company being awarded two
federal research grants during the second quarter.
Interest income for the six months ended June 30, 1996, was
approximately $438,000 compared to approximately $545,000 for the six months
ended June 30, 1995, representing a 24% decrease. Interest income was less
than that of the comparable period in the prior year due to a reduction in
principal investments to fund general operations, offset by a substantial
increase in principal investments during the second quarter as a result of the
common stock offering completed in May 1996.
A gain on sale of marketable securities of approximately $36,000 was
realized for the six months ended June 30, 1996, whereas no gain was realized
for the comparable period in 1995. The proceeds from the sale of marketable
securities were used to fund operations.
Cost of goods sold recorded for the six months ended June 30, 1996 was
primarily associated with the launch of the Company's first dental product,
the ATRISORB(R) GTR Barrier in certain European Countries.
9
<PAGE> 10
Research and development expenses - ATRIDOX(TM) product for the six
months ended June 30, 1996, were approximately $2,786,000 compared to
approximately $2,556,000 for the six months ended June 30, 1995, representing a
9% increase due to conducting the Phase III clinical trials. Expenses for the
ATRIDOX(TM) product for the remainder of the year are anticipated to be lower
overall than in the previous year due to the completion of Phase III clinical
trials in May 1996.
Other research and development expenses, which included activities for
the ATRISORB(R) Barrier and other research activities for the six months ended
June 30, 1996, were approximately $2,370,000 compared to approximately
$1,749,000 for the six months ended June 30, 1995, representing a 36% increase.
The increase was primarily a result of hiring additional personnel in the
Manufacturing and Quality Assurance/Quality Control departments; and increased
quality assurance and quality control efforts.
Administrative expenses increased to approximately $1,162,000 for the
six months ended June 30, 1996, from approximately $563,000 for the six months
ended June 30, 1995, representing a 106% increase. The primary reasons for
this increase were expenses related to the initiation of marketing and sales
efforts related to the ATRISORB(R) GTR Barrier Product and increased general
operating costs.
The Company recorded a net loss of approximately $5,409,000 for the
six months ended June 30, 1996, compared to a net loss of approximately
$4,079,000 for the six months ended June 30, 1995, representing a 33% increase.
The increase in net loss was primarily the result of the initiation of
marketing and sales efforts for the Company's ATRISORB(R) Barrier product, the
hiring of appropriate staff, and greater quality assurance and quality control
efforts.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1996, the Company completed the sale of
2,587,500 shares of common stock for $11 5/8 per share, which provided the
Company with net proceeds of approximately $27,844,000. The majority of the
proceeds were invested in commercial paper with A1P1 ratings, and the remaining
cash and cash equivalents were invested in interest bearing accounts to fund the
Company's short-term operations. The existing securities available for sale had
been invested by the Company in U.S. government bond funds, long-term U.S.
government and government agency investments. The Company intends to use the
net proceeds of the offering to fund further research of its products,
commercialize its dental products in the United States and Europe, expand its
manufacturing capability, and for working capital purposes.
As of June 30, 1996, the Company had cash and cash equivalents of
approximately $27,584,000, marketable securities, available-for-sale, at fair
value of approximately $6,823,000 and other current assets of approximately
$1,173,000, for total current assets of approximately $35,579,000. Current
liabilities totaled approximately $2,359,000, which resulted in working capital
of approximately $33,220,000.
10
<PAGE> 11
During the six months ended June 30, 1996, the Company used net cash
in operating activities of approximately $4,996,000. This was primarily a
result of the net loss for the period of approximately $5,409,000, adjusted for
certain non-cash expenses, and changes in other operating assets and
liabilities as set forth in the statement of cash flows.
Net cash provided by investing activities was approximately $3,458,000
during the six months ended June 30, 1996, primarily as a result of the
proceeds from sales of marketable securities. This was reduced by cash used
for the acquisition of capital equipment and leasehold improvements,
investments in intangible assets, and investments in marketable securities.
Net cash provided from financing activities was approximately
$28,196,000. The increase was a result of the issuance and sale of 2,587,500
shares of common stock during the second quarter, as well as the exercise of
stock options by certain directors and employees.
The Company's long-term capital requirements will depend on numerous
factors, including the progress of the Company's research and development
programs, the time required to file and process regulatory approval
applications, the development of the Company's commercial manufacturing
facilities, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products, if and when approved.
The Company expended approximately $374,000 for property, equipment and
leasehold improvements, and approximately $84,000 for patent development in the
six month period ending June 30, 1996.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Shareholders Meeting was held on April 28, 1996, in Fort
Collins, Colorado, for the purpose of re-electing Dr. G. Lee Southard, Mr. C.
Rodney O'Connor and Mr. H. Stuart Campbell to the Board of Directors as Class C
directors, and ratifying the appointment of the Company's independent auditors.
The following votes were cast by the Shareholders with respect to the
election of directors named in the Proxy Statement:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted Voted Broker
For Against Abstained Non-Votes
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Dr. G. Lee Southard 7,059,855 23,206 0 0
Mr. C. Rodney O'Connor 7,059,751 23,310 0 0
Mr. H. Stuart Campbell 7,059,769 23,292 0 0
</TABLE>
The following votes were cast by Shareholders with respect to the
resolution to ratify the Board of Directors' selection of Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year ending December 31,
1996:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted Voted Broker
For Against Abstained Non-Votes
--------- --------- --------- ---------
<S> <C> <C> <C>
7,028,770 23,548 30,743 0
</TABLE>
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended
June 30, 1996.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATRIX LABORATORIES, INC.
(Registrant)
July 31, 1996 By: /s/ John E. Urheim
---------------------------------------
John E. Urheim
Vice Chairman of the Board of Directors
and Chief Executive Officer
July 31, 1996 By: /s/ Kimberly A. Marks
---------------------------------------
Kimberly A. Marks
Corporate Controller, Assistant
Secretary, and Assistant Treasurer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,583,501
<SECURITIES> 6,822,990
<RECEIVABLES> 348,092
<ALLOWANCES> 0
<INVENTORY> 310,297
<CURRENT-ASSETS> 35,579,139
<PP&E> 2,764,245
<DEPRECIATION> (1,361,109)
<TOTAL-ASSETS> 37,725,350
<CURRENT-LIABILITIES> 2,359,051
<BONDS> 0
0
0
<COMMON> 11,080
<OTHER-SE> 35,355,219
<TOTAL-LIABILITY-AND-EQUITY> 37,725,350
<SALES> 119,961
<TOTAL-REVENUES> 995,500
<CGS> 87,614
<TOTAL-COSTS> 87,614
<OTHER-EXPENSES> 6,317,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,409,389)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,409,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,409,389)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
