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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 quarterly period ended March 31, 2009
 Commission File No. 0-31261
 ATHEROGENICS, INC.
  Georgia
    
    58-2108232(State of incorporation)
    
    (I.R.S. Employer Identification Number)
 8995 Westside Parkway, Alpharetta, Georgia 30009
 
 (678) 336-2500
 o þ
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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EXPLANATORY NOTE
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ATHEROGENICS, INC.
(Debtor-in-Possession)
FORM 10-Q
INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Condensed Financial Statements (unaudited)Condensed Balance Sheets
March 31, 2009 and December 31, 2008
    
    
    1Condensed Statements of Operations
Three months ended March 31, 2009 and 2008
    
    
    2Condensed Statements of Cash Flows
Three months ended March 31, 2009 and 2008
    
    
    3Notes to Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    12Item 4. Controls and Procedures
    
    
    12PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    13Item 1A. Risk Factors
    
    
    13Item 6. Exhibits
    
    
    14SIGNATURES
    
    
    15EX-31EX-32
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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 ATHEROGENICS, INC.
(Debtor-in-Possession)
CONDENSED BALANCE SHEETS
(Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    46,299,528
    
    
    $
    49,966,104Prepaid expense and other current assets
    
    
    653,538
    
    
    
    536,715Total current assets
    
    
    46,953,066
    
    
    
    50,502,819Equipment and leasehold improvements, net of accumulated depreciation
and amortization
    
    
    
    
    
    
    1,093,326Assets held for sale
    
    
    671,935
    
    
    
    Total assets
    
    $
    47,625,001
    
    
    
    51,596,145Liabilities and Shareholders DeficitCurrent liabilities:Accounts payable
    
    $
    126,895
    
    
    $
    339,013Accrued research and development
    
    
    
    
    
    
    8,150Accrued compensation
    
    
    164,495
    
    
    
    157,257Accrued and other liabilities
    
    
    211,665
    
    
    
    195,626Total current liabilities not subject to compromise
    
    
    503,055
    
    
    
    700,046Liabilities subject to compromise
    
    
    306,891,227
    
    
    
    306,888,386Shareholders deficit:Preferred stock, no par value: Authorized5,000,000 shares
    
    
    
    
    
    
    Common stock, no par value:Authorized100,000,000 shares; issued and outstanding 
39,518,492 shares at March 31, 2009 and December 31, 2008
    
    
    219,855,598
    
    
    
    219,030,853Warrants
    
    
    598,173
    
    
    
    598,173Accumulated deficit
    
    
    (480,223,052
    )
    
    
    (475,621,313
    )Total shareholders deficit
    
    
    (259,769,281
    )
    
    
    (255,992,287
    )Total liabilities and shareholders deficit
    
    $
    47,625,001
    
    
    $
    51,596,145
 The accompanying notes are an integral part of these condensed financial statements.
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ATHEROGENICS, INC.
(Debtor-in-Possession)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months endedMarch 31,2009
    
    
    2008Revenue
    
    $
    
    
    
    $
    Operating expenses:Research and development
    
    
    2,214,287
    
    
    
    9,250,062General and administrative
    
    
    1,868,990
    
    
    
    3,135,159Total operating expenses
    
    
    4,083,277
    
    
    
    12,385,221Operating loss
    
    
    (4,083,277
    )
    
    
    (12,385,221
    )Interest and other income
    
    
    
    
    
    
    893,637Interest expense
    
    
    
    
    
    
    (3,400,310
    )Net loss before reorganization items
    
    
    (4,083,277
    )
    
    
    (14,891,894
    )Reorganization items, net
    
    
    (518,462
    )
    
    
    Net loss
    
    $
    (4,601,739
    )
    
    $
    (14,891,894
    )Net loss per share 
basic and diluted
    
    $
    (0.12
    )
    
    $
    (0.38
    )Weighted average shares
outstanding  basic and diluted
    
    
    39,518,492
    
    
    
    39,518,492
 The accompanying notes are an integral part of these condensed financial statements.
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ATHEROGENICS, INC.
(Debtor-in-Possession)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months endedMarch 31,2009
    
    
    2008Operating activitiesNet loss
    
    $
    (4,601,739
    )
    
    $
    (14,891,894
    )Adjustments to reconcile net loss to net cash
used in operating activities:Stock-based compensation
    
    
    824,745
    
    
    
    1,331,709Depreciation and amortization
    
    
    421,391
    
    
    
    197,309Amortization on 4.5% convertible notes due 2011
    
    
    
    
    
    
    1,167,702Amortization of debt issuance costs
    
    
    
    
    
    
    325,371Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    2,576,357Prepaid expenses and other assets
    
    
    (116,823
    )
    
    
    582,726Accounts payable
    
    
    (209,276
    )
    
    
    723,552Accrued research and development
    
    
    (8,150
    )
    
    
    (792,355
    )Accrued interest
    
    
    
    
    
    
    (1,992,158
    )Accrued compensation
    
    
    7,238
    
    
    
    (529,475
    )Accrued and other liabilities
    
    
    16,038
    
    
    
    (148,000
    )Net cash used in operating activities
    
    
    (3,666,576
    )
    
    
    (11,449,156
    )Investing activitiesSales and maturities of short-term investments
    
    
    
    
    
    
    16,067,134Net cash provided by investing activities
    
    
    
    
    
    
    16,067,134Financing activitiesRetirement of 4.5% convertible notes due 2008
    
    
    
    
    
    
    (5,468,750
    )Net cash used in financing activities
    
    
    
    
    
    
    (5,468,750
    )Decrease in cash and cash equivalents
    
    
    (3,666,576
    )
    
    
    (850,772
    )Cash and cash equivalents at beginning of period
    
    
    49,966,104
    
    
    
    74,795,388Cash and cash equivalents at end of period
    
    $
    46,299,528
    
    
    $
    73,944,616Supplemental disclosuresInterest paid
    
    $
    
    
    
    $
    3,899,396Reorganization items paid
    
    $
    520,817
    
    
    $
    
 The accompanying notes are an integral part of these condensed financial statements.
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ATHEROGENICS, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 1. Organization; Proceedings under Chapter 11 of the Bankruptcy Code
     2. Basis of Presentation
  Financial Reporting by Entities under the Bankruptcy Code.
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3. Assets Held for Sale
 Accounting
for the Disposal or Impairment of Long-Lived Assets
 4. Liabilities Subject to Compromise and Reorganization Items
   Accounts payable
    
    $
    79,627Accrued interest
    
    
    2,870,951Accrued research and development
    
    
    996,591Accrued other
    
    
    546,0582008 Notes
    
    
    30,500,0002011 Notes
    
    
    71,898,0002012 Notes
    
    
    200,000,000Total liabilities subject to compromise
    
    $
    306,891,227
  Professional fees
    
    $
    (581,612
    )Interest income
    
    
    63,150Total reorganization items, net
    
    $
    (518,462
    )
 5. Income Tax
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Accounting for Uncertainty in Income Taxes
 6. Net Loss per Share
 Earnings per Share,
 7. Stock-Based Compensation
 Share-Based Payment.
   Three months endedMarch 31,2009
    
    2008Expected volatility
    
    
    
    
    
    
    84.88
    %Expected term
    
    
    
    
    
    5 yearsRisk free interest rate
    
    
    
    
    
    
    2.82
    %Fair value of grants
    
    
    
    
    
    $
    0.27
 8. Convertible Notes Payable
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Induced Conversion of Convertible Debt
 Debtors Accounting for a Modification or Exchange of Debt Instruments
 Classifications of Obligations That Are Callable by
the Creditor
  9. Commitments and Contingencies
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following contains forward-looking statements which are subject to certain risks and
should be read in conjunction with the information contained herein as well as with the financial
statements and related footnotes and Managements Discussion and Analysis of Financial Condition
and Results of Operations included in AtheroGenics Annual Report on Form 10-K for the fiscal year
ended December 31, 2008. In this report, AtheroGenics, we, us and our refer to
AtheroGenics, Inc.
 Overview
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Critical Accounting Policies and Use of Estimates
  9




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Results of Operations
 Comparison of the Three Months Ended March 31, 2009 and 2008
 Revenues
  Expenses
 Research and Development.
 General and Administrative.
 Interest and Other Income
  Interest Expense
  Reorganization Items, net
  Liquidity and Capital Resources
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FORWARD-LOOKING STATEMENTS
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    
    
    The Chapter 11 Proceeding has required substantial effort from our limited finance,
accounting and management personnel which resulted in our inability to file this Form
10-Q on a timely basis based on reduction of our finance and executive management
resources, which has also impacted our supervision and review, management oversight, as
well as segregation of duties processes; and
    
    The Chapter 11 Proceeding, the cessation of our operations and our substantial
workforce reductions resulted in our inability to maintain an Audit Committee in
compliance with Nasdaq listing standards and SEC regulations.
   Changes in Internal Control over Financial Reporting
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Because the proceeds from the sale of substantially all of our non-cash assets did not exceed the
amounts we owe to our creditors, our shareholders will receive no value for their common stock and
our creditors will receive substantially less than payment in full for their claims.
 Since our cash and cash
equivalents, including the proceeds from the sale of our non-cash assets, are significantly less
than our prepetition liabilities, holders of our unsecured debt will receive substantially less
than payment in full for their claims and our shareholders will receive no value for their shares
of our common stock as part of the Chapter 11 Proceedings.
 Our common stock continues to be quoted on the Pink Sheets even though our shareholders will
not receive any value for their shares of our common stock as part of the Chapter 11 Proceeding and
our corporate existence will be terminated once we have completed the distribution of our cash and
cash equivalents to our creditors.
 Accordingly, even though our
common stock continues to be quoted on the Pink Sheets, our common stock has no value and our
shareholders should not view the trading activity of our common stock on the Pink Sheets or any
other market or trading platform as being indicative of the value our shareholders will receive as
part of the Chapter 11 Proceeding.
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Item 6. Exhibits
  Exhibit 31
    
    
    
    Certifications of Chief Executive Officer and Chief
Financial Officer under Rule 13a-14(a).Exhibit 32
    
    
    
    Certifications of Chief Executive Officer and Chief
Financial Officer under Section 1350.
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SIGNATURES
  ATHEROGENICS, INC.Date:  June 12, 2009
    /s/ Charles A. DeignanCharles A. DeignanPresident, Chief Financial Officer and
Secretary 15