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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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: 000-30267

ORCHID BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 22-3392819
(State or other jurisdiction
(I.R.S. Employer Identification No.)
of incorporation or organization)
  
   
4390 US ROUTE ONE, PRINCETON, NJ
 08540
   (Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (609) 750-2200

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       No 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes       No 

The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of August 1, 2003 was 63,637,071.

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

    PAGE
PART I  FINANCIAL INFORMATION
     
Item 1. Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 1
     
  Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 (unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) 3
     
  Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2003 (unaudited) 4
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 5
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
     
Item 4. Controls and Procedures 32
     
 PART II  OTHER INFORMATION
     
Item 1. Legal Proceedings 32
     
Item 2. Changes in Securities and Use of Proceeds 34
     
Item 3. Defaults upon Senior Securities 34
     
Item 4. Submission of Matters to a Vote of Security Holders 34
     
Item 5. Other Information 35
     
Item 6. Exhibits and Reports on Form 8-K 35

 

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PART I.   FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)

  June 30, 2003     December 31, 2002  
 
   
  (unaudited)        
Assets              
Current assets:
              
Cash and cash equivalents
 $ 15,686     $ 9,985  
Restricted cash
   1,900       1,522  
Accounts receivable, net
   10,655       10,716  
Inventory
   1,560       944  
Prepaids and other current assets
   1,837       1,623  
Assets of a business component held for sale
   7,061       10,497  
 
   
 
Total current assets
   38,699       35,287  
Fixed assets, net
   11,088       13,244  
Goodwill, net
   2,584       3,072  
Other intangibles, net
   15,723       16,585  
Restricted cash
   1,485       1,863  
Other assets
   628       383  
  
   
 
Total assets
 $ 70,207     $ 70,434  
 
   
 
Liabilities and Stockholders’ Equity              
Current liabilities:
              
Current portion of long-term debt
 $ 2,667     $ 8,510  
Accounts payable
   3,320       3,405  
Accrued expenses
   12,075       9,758  
Deferred revenue
   2,923       1,642  
Liabilities of a business component held for sale
   2,380       2,497  
 
   
 
Total current liabilities
   23,365       25,812  
Long-term debt, less current portion
   1,096       2,299  
Accrued restructuring, less current portion
   1,027       1,919  
Other liabilities
   1,636       1,711  
                
Redeemable Convertible Series A preferred stock;
              
Designated 1,680 shares; $.001 per share par value; 1,675 shares issued; 1,466 and 0 shares outstanding as of June 30, 2003 and December 31, 2002, respectively; stated, minimum redemption and liquidation value of $14,660
   11,358        —  
               
               
                
Commitments and contingencies
              
               
Stockholders’ equity:
              
Preferred stock, $.001 par value. Authorized 5,000,000 shares;
1,675 shares issued and 1,466 shares outstanding as of June 30, 2003 and 0 shares issued and oustanding at December 31, 2002 (reported above)
   —       —  
Series A junior participating preferred stock, $.001 par value.
Designated 1,000,000 shares; no shares issued or outstanding
              
Common stock, $.001 par value. Authorized 150,000,000 shares;
issued and outstanding 61,412,937 and 55,738,781 at June 30, 2003 and December 31, 2002, respectively
    61        56  
Common Stock to be issued
   209       —  
Additional paid-in capital
   308,741       303,953  
Deferred compensation
   (812 )     (2,305 )
Accumulated other comprehensive income
   918       389  
Accumulated deficit
   (277,392 )     (263,400 )
 
   
 
Total stockholders’ equity
   31,725       38,693  
 
   
 
Total liabilities and stockholders’ equity
 $ 70,207     $ 70,434  
 
   
 

See accompanying notes to condensed consolidated financial statements.

1

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ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
Three and six months ended June 30, 2003 and 2002
(in thousands, except share and per share data)
(unaudited)

    Three months ended June, 30   Six months ended June 30,  
   
 
 
    2003   2002   2003   2002  
   
 
 
 
 
Revenues:                          
Product revenues
   $ —   $ 201   $ —   $ 924  
Service revenues
     12,244     11,709     24,785     21,898  
Other revenues
     120     474     317     1,263  
   
 
 
 
 
Total revenues
     12,364     12,384     25,102     24,085  
   
 
 
 
 
Operating expenses:
                          
Cost of product revenues
     —     97     —     345  
Cost of service revenues
     6,653     6,494     13,650     12,984  
Research and development
     1,159     5,141     2,364     10,765  
Marketing and sales
     1,701     2,433     3,569     4,597  
General and administrative
     6,456     8,128     12,416     16,485  
Impairment of assets
     837     —     837     —  
Restructuring
     (83 )   1,930     (83 )   1,930  
Amortization of intangible assets
     453     770     908     1,516  
   
 
 
 
 
Total operating expenses
     17,176     24,993     33,661     48,622  
   
 
 
 
 
Operating loss
     (4,812 )   (12,609 )   (8,559 )   (24,537 )
                           
Other income (expense):
                          
Interest income
     49     192     62     472  
Interest expense
     (147 )   (243 )   (300 )   (380 )
Other income (expense), net
     141     73     291     (67 )
   
 
 
 
 
Total other income, net
     43     22     53     25  
   
 
 
 
 
Loss from continuing operations before income taxes
     (4,769 )   (12,587 )   (8,506 )   (24,512 )
Income tax (expense)/benefit
     (716 )   —     (1,060 )   894  
   
 
 
 
 
Loss from continuing operations
     (5,485 )   (12,587 )   (9,566 )   (23,618 )
Discontinued operations:
                          
Income/(loss) from operations of a business held for sale
     (3,983 )   367     (4,182 )   881  
   
 
 
 
 
Net loss
     (9,468 )   (12,220 )   (13,748 )   (22,737 )
Dividends to Series A Preferred Shareholders
     (244 )   —     (244 )   —  
Accretion of Series A Preferred Stock discount resulting from conversions
     (471 )   —     (471 )   —  
Beneficial conversion feature of redeemable preferred stock
     —     —     (744 )   —  
   
 
 
 
 
      Net loss allocable to common stockholders   $ (10,183 ) $ (12,220 ) $ (15,207 ) $ (22,737 )
   
 
 
 
 
Basic and diluted loss from continuing operations per share allocable to common stockholders
   $ (0.11 ) $ (0.23 ) $ (0.20 ) $ (0.45 )
Basic and diluted income/(loss) from discontinued operations per share
   $ (0.07 ) $ 0.01   $ (0.07 ) $ 0.02  
Basic and diluted net loss per share allocable to common stockholders
   $ (0.18 ) $ (0.22 ) $ (0.27 ) $ (0.43 )
Shares used in computing basic and diluted net loss per share allocable to common stockholders
     56,868,123     55,229,738     56,306,572     52,340,131  

See accompanying notes to condensed consolidated financial statements.

2

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ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2003 and 2002
(In thousands)
(unaudited)

    2003   2002  
   
 
 
Cash flows from operating activities:
              
Loss from continuing operations
   $ (9,566 ) $ (23,618 )
Income/(loss) from discontinued operations
     (4,182 )   881  
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
              
Cash used in discontinued operations
     (586 )   (2,256 )
Noncash compensation expense
     981     1,107  
Depreciation and amortization
     3,130     4,464  
Warrants issued to third party as a financing fee
     133     —  
Impairment of discontinued assets
     3,905     —  
Impairment of assets
     837     205  
Changes in assets and liabilities:
              
Accounts receivable
     61     (1,364 )
Inventory
     (616 )   (1,457 )
Prepaids and other current assets
     (214 )   (113 )
Other assets
     19     (279 )
Accounts payable
     (85 )   536  
Accrued expenses, including restructuring
     1,949     278  
Deferred revenue
     1,281     992  
Other liabilities
     (75 )   (162 )
   
 
 
Net cash used in operating activities
     (3,028 )   (20,786 )
   
 
 
Cash flows from investing activities:
              
Capital expenditures
     (804 )   (1,991 )
Increase in restricted cash
     —     (3,385 )
Cash paid for intangible assets
     —     (150 )
Purchases of short-term investments
     —     (9,992 )
Maturities of short-term investments
     —     22,201  
   
 
 
Net cash provided by/(used in) investing activities
     (804 )   6,683  
   
 
 
Cash flows from financing activities:
              
Net proceeds from issuance of common stock
     495     21,204  
Net proceeds from issuance of redeemable convertible preferred stock
     16,000     —  
Repayment of debt from line of credit
     (7,046 )   (1,619 )
Payments of patent obligation
     —     (288 )
   
 
 
Net cash provided by financing activities
     9,449     19,297  
   
 
 
Effect of foreign currency translation on cash and cash equivalents
     84     (55 )
   
 
 
Net increase in cash and cash equivalents
     5,701     5,139  
Cash and cash equivalents at beginning of period
     9,985     10,746  
   
 
 
Cash and cash equivalents at end of period
   $ 15,686   $ 15,885  
   
 
 
Supplemental disclosure of noncash financing and investing activities:
              
               
Reversal of deferred compensation from forfeiture of common stock options
   $ 512   $ —  
Issuance of common stock warrants to investors of the redeemable preferred stock
     2,903     —  
Issuance of units of redeemable preferred stock to placement agent as a financing fee
     750     —  
Issuance of common stock warrants to placement agent of the redeemable preferred stock
     120     —  
Issuance of common stock from conversion of redeemable preferred stock
     2,090     —  
Beneficial settlements of purchase accounting obligations
     524        
Beneficial conversion feature of redeemable preferred stock
     744     —