SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
| ¨ | 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 0-23223
CURAGEN CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 06-1331400 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 555 Long Wharf Drive, 11th Floor, New Haven, Connecticut | 06511 | |
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (203) 401-3330
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 x No ¨
The number of shares outstanding of the Registrant’s common stock as of May 1, 2004 was 50,006,130.
CURAGEN CORPORATION AND SUBSIDIARY
FORM 10-Q
INDEX
| Page | ||||
| PART I. Financial Information |
||||
| Item 1. |
Financial Statements |
|||
| Condensed Consolidated Balance Sheets, March 31, 2004 (unaudited) and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
6 - 8 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 – 28 | ||
| Item 4. |
28 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
29 | ||
| Item 6. |
29 | |||
| 31 | ||||
| 32 | ||||
CURAGEN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 153,328 | $ | 42,843 | ||||
| Short-term investments |
30,196 | 72,402 | ||||||
| Marketable securities |
224,070 | 228,396 | ||||||
| Cash and investments |
407,594 | 343,641 | ||||||
| Income taxes receivable |
523 | 429 | ||||||
| Other current assets |
38 | 26 | ||||||
| Prepaid expenses |
2,371 | 1,757 | ||||||
| Total current assets |
410,526 | 345,853 | ||||||
| Property and equipment, net |
22,661 | 23,540 | ||||||
| Intangible and other assets, net |
10,489 | 7,564 | ||||||
| Total assets |
$ | 443,676 | $ | 376,957 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,573 | $ | 4,661 | ||||
| Accrued expenses |
3,863 | 3,671 | ||||||
| Accrued payroll and related items |
1,435 | 1,864 | ||||||
| Interest payable |
1,849 | 3,750 | ||||||
| Deferred revenue |
2,472 | 3,010 | ||||||
| Current portion of obligations under capital leases |
57 | 204 | ||||||
| Other current liabilities |
2,132 | 2,383 | ||||||
| Total current liabilities |
14,381 | 19,543 | ||||||
| Long-term liabilities: |
||||||||
| Convertible subordinated debt |
240,000 | 150,000 | ||||||
| Accrued long-term liabilities |
1,500 | 1,500 | ||||||
| Total long-term liabilities |
241,500 | 151,500 | ||||||
| Commitments and contingencies |
||||||||
| Minority interest in subsidiary |
6,848 | 8,233 | ||||||
| Stockholders’ equity: |
||||||||
| Common Stock; $.01 par value, issued and outstanding 49,996,355 shares at March 31, 2004, and 49,896,622 shares at December 31, 2003 |
500 | 499 | ||||||
| Additional paid-in capital |
486,011 | 485,531 | ||||||
| Accumulated other comprehensive income |
2,251 | 1,524 | ||||||
| Accumulated deficit |
(307,531 | ) | (289,492 | ) | ||||
| Unamortized stock-based compensation |
(284 | ) | (381 | ) | ||||
| Total stockholders’ equity |
180,947 | 197,681 | ||||||
| Total liabilities and stockholders’ equity |
$ | 443,676 | $ | 376,957 | ||||
See accompanying notes to condensed consolidated financial statements
3
CURAGEN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| Collaboration revenue |
$ | 1,615 | $ | 1,944 | ||||
| Total revenue |
1,615 | 1,944 | ||||||
| Operating expenses: |
||||||||
| Research and development |
15,141 | 14,460 | ||||||
| General and administrative |
4,857 | 4,950 | ||||||
| Total operating expenses |
19,998 | 19,410 | ||||||
| Loss from operations |
(18,383 | ) | (17,466 | ) | ||||
| Interest income |
2,036 | 2,333 | ||||||
| Interest expense |
(2,877 | ) | (2,475 | ) | ||||
| Loss on extinguishment of debt |
(294 | ) | — | |||||
| Loss before income taxes and minority interest in subsidiary loss |
(19,518 | ) | (17,608 | ) | ||||
| Income tax benefit |
94 | 117 | ||||||
| Minority interest in subsidiary loss |
1,385 | 1,349 | ||||||
| Net loss |
$ | (18,039 | ) | $ | (16,142 | ) | ||
| Basic and diluted net loss per share |
$ | (0.36 | ) | $ | (0.33 | ) | ||
| Weighted average number of shares used in computing basic and diluted net loss per share |
49,803 | 49,159 | ||||||
See accompanying notes to condensed consolidated financial statements
4
CURAGEN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (18,039 | ) | $ | (16,142 | ) | ||
| Adjustments to reconcile net loss to net cash |
||||||||
| used in operating activities: |
||||||||
| Depreciation and amortization |
2,583 | 2,020 | ||||||
| Non-monetary compensation |
123 | 240 | ||||||
| Stock-based 401(k) employer plan match |
244 | 244 | ||||||
| Loss on extinguishment of debt |
294 | — | ||||||
| Minority interest |
(1,385 | ) | (1,349 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Income taxes receivable |
(94 | ) | 739 | |||||
| Other current assets |
(12 | ) | 117 | |||||
| Prepaid expenses |
(614 | ) | (610 | ) | ||||
| Intangible and other assets, net |
(22 | ) | (43 | ) | ||||
| Accounts payable |
(2,088 | ) | 978 | |||||
| Accrued expenses |
192 | (691 | ) | |||||
| Accrued payroll and related items |
(429 | ) | (1,508 | ) | ||||
| Interest payable |
(1,901 | ) | (2,250 | ) | ||||
| Deferred revenue |
(538 | ) | 208 | |||||
| Other current liabilities |
(251 | ) | (314 | ) | ||||
| Net cash used in operating activities |
(21,937 | ) | (18,361 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Acquisitions of property and equipment |
(999 | ) | (923 | ) | ||||
| Payments for intangible assets |
(140 | ) | (328 | ) | ||||
| Loans to employees, net of repayments |
(42 | ) | (14 | ) | ||||
| Net inflows from purchases and maturities of short-term investments |
42,206 | 36,300 | ||||||
| Net inflows (outflows) from purchases and maturities of marketable securities |
5,053 | (17,384 | ) | |||||
| Net cash provided by investing activities |
46,078 | 17,651 | ||||||
| Cash flows from financing activities: |
||||||||
| Payments on capital lease obligations |
(147 | ) | (499 | ) | ||||
| Proceeds from exercise of stock options |
210 | 36 | ||||||
| Proceeds from issuance of convertible debt |
110,000 | — | ||||||
| Payment for extinguishment of debt |
(20,000 | ) | — | |||||
| Payments of financing costs |
(3,719 | ) | — | |||||
| Net cash provided by (used in) financing activities |
86,344 | (463 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
110,485 | (1,173 | ) | |||||
| Cash and cash equivalents, beginning of period |
42,843 | 68,401 | ||||||
| Cash and cash equivalents, end of period |
$ | 153,328 | $ | 67,228 | ||||
| Supplemental cash flow information: |
||||||||
| Interest paid |
$ | 4,561 | $ | 4,538 | ||||
| Income tax benefit payments received |
— | $ | 862 | |||||
See accompanying notes to condensed consolidated financial statements
5
CURAGEN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America for complete financial statements. In the opinion of our management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary to present fairly our consolidated financial position, results of operations and cash flows. Interim results are not necessarily indicative of the results that may be expected for the entire year. The condensed consolidated financial statements of CuraGen Corporation and subsidiary (the “Company”) include CuraGen Corporation (“CuraGen”) and its majority-owned subsidiary, 454 Life Sciences Corporation (“454”), and accordingly, all material intercompany balances and transactions have been eliminated.
The March 31, 2003 and December 31, 2003 condensed consolidated financial statements have been reclassified to conform to the classifications used in 2004. All dollar amounts in tabular presentations are shown in thousands, except par value and per share data.
The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.
| 2. | Comprehensive Loss |
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires reporting and displaying of comprehensive income and its components. In accordance with SFAS 130, the accumulated balance of other comprehensive loss is disclosed as a separate component of stockholders’ equity and is composed of unrealized gains and losses on marketable securities.
A summary of total comprehensive loss is as follows:
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss |
$ | (18,039 | ) | $ | (16,142 | ) | ||
| Other comprehensive loss: |
||||||||
| Unrealized gains on securities: |
||||||||
| Unrealized holding gains arising during period |
865 | 280 | ||||||
| Less: reclassification adjustment for gains included in net loss |
138 | — | ||||||
| Net unrealized gains on securities |
727 | 280 | ||||||