UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ending 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: 000-29101
SEQUENOM, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 77-0365889 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 3595 John Hopkins Court San Diego, California |
92121 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (858) 202-9000
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. x Yes ¨ 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 of the Registrant’s Common Stock outstanding as of April 30, 2004 was 39,644,205.
SEQUENOM, INC.
| Page No. | ||||
| 3 | ||||
| Item 1. |
Financial Statements |
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| Condensed Consolidated Balance Sheets—as of March 31, 2004 (unaudited) and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to the unaudited Condensed Consolidated Financial Statements |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 | ||
| Item 3. |
30 | |||
| Item 4. |
31 | |||
| 32 | ||||
| Item 1. |
32 | |||
| Item 6. |
33 | |||
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value and share information)
| March 31 2004 |
December 31, 2003 |
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| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 18,183 | $ | 17,940 | ||||
| Short-term investments, available-for-sale |
32,053 | 39,792 | ||||||
| Restricted cash and investments |
3,374 | 5,469 | ||||||
| Accounts receivable, net |
2,048 | 4,076 | ||||||
| Inventories, net |
8,975 | 10,569 | ||||||
| Other current assets and prepaid expenses |
954 | 1,142 | ||||||
| Total current assets |
65,587 | 78,988 | ||||||
| Equipment and leasehold improvements, net |
8,730 | 9,838 | ||||||
| Intangible assets, net |
10,400 | 11,338 | ||||||
| Restricted cash and investments |
5,845 | 4,253 | ||||||
| Other assets |
495 | 519 | ||||||
| Total assets |
$ | 91,057 | $ | 104,936 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,683 | $ | 5,256 | ||||
| Accrued expenses |
7,636 | 8,223 | ||||||
| Accrued acquisition and integration costs |
593 | 551 | ||||||
| Deferred revenue |
2,089 | 2,542 | ||||||
| Current portion of long-term bank debt |
3,555 | 5,621 | ||||||
| Current portion of capital lease obligations |
320 | 451 | ||||||
| Total current liabilities |
17,876 | 22,644 | ||||||
| Deferred revenue, less current portion |
26 | 34 | ||||||
| Capital lease obligations, less current portion |
26 | 57 | ||||||
| Long-term debt, less current portion |
6,879 | 5,624 | ||||||
| Long-term accrued acquisition and integration costs, less current portion |
788 | 888 | ||||||
| Long-term deferred tax liability |
3,382 | 3,674 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||
| Convertible preferred stock, par value $0.001; authorized shares—5,000,000 |
— | — | ||||||
| Common stock, par value $0.001; 75,000,000 shares authorized, 39,644,243 and 39,565,342 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
40 | 39 | ||||||
| Additional paid-in capital |
453,216 | 453,096 | ||||||
| Accumulated other comprehensive income |
109 | 278 | ||||||
| Accumulated deficit |
(391,285 | ) | (381,398 | ) | ||||
| Total stockholders’ equity |
62,080 | 72,015 | ||||||
| Total liabilities and stockholders’ equity |
$ | 91,057 | $ | 104,936 | ||||
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share information)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
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| (Unaudited) | ||||||||
| Revenues: |
||||||||
| Product related |
$ | 4,821 | $ | 6,595 | ||||
| Services |
121 | 583 | ||||||
| Research |
192 | 265 | ||||||
| Total revenues |
5,134 | 7,443 | ||||||
| Costs and expenses: |
||||||||
| Cost of product revenue |
2,790 | 3,428 | ||||||
| Cost of service revenue |
175 | 538 | ||||||
| Research and development |
6,014 | 5,882 | ||||||
| Selling, general and administrative |
5,625 | 5,949 | ||||||
| Amortization of acquired intangibles |
857 | 859 | ||||||
| Amortization of deferred stock compensation |
— | 58 | ||||||
| Total costs and expenses |
15,461 | 16,714 | ||||||
| Loss from operations |
(10,327 | ) | (9,271 | ) | ||||
| Net interest income |
104 | 407 | ||||||
| Other income (expense), net |
48 | (8 | ) | |||||
| Net loss before income taxes |
(10,175 | ) | (8,872 | ) | ||||
| Deferred income tax benefit |
290 | 327 | ||||||
| Net loss |
$ | (9,885 | ) | $ | (8,545 | ) | ||
| Net loss per share, basic and diluted |
$ | (0.25 | ) | $ | (0.22 | ) | ||
| Weighted average shares outstanding, basic and diluted |
39,615 | 39,431 | ||||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| Operating activities |
||||||||
| Net loss |
$ | (9,885 | ) | $ | (8,545 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Other non-cash items |
2,655 | 2,907 | ||||||
| Deferred income tax benefit |
(290 | ) | (327 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Inventories |
1,554 | (4,045 | ) | |||||
| Accounts receivable |
2,020 | 701 | ||||||
| Other current assets |
185 | (397 | ) | |||||
| Other assets |
23 | 1 | ||||||
| Accounts payable and accrued expenses |
(2,659 | ) | (1,115 | ) | ||||
| Deferred revenue |
(441 | ) | (294 | ) | ||||
| Other liabilities |
366 | 640 | ||||||
| Net cash used in operating activities |
(6,472 | ) | (10,474 | ) | ||||
| Investing activities |
||||||||
| Purchase of equipment, leasehold improvements and intangibles |
(622 | ) | (904 | ) | ||||
| Net change in restricted cash |
496 | (1,495 | ) | |||||
| Net change in marketable investment securities |
7,762 | 5,760 | ||||||
| Net cash provided in investing activities |
7,636 | 3,361 | ||||||
| Financing activities |
||||||||
| Net payments on capital lease obligations |
(161 | ) | (307 | ) | ||||
| Net (payments)/proceeds of long-term debt |
(811 | ) | 1,214 | |||||
| Proceeds from exercise of stock options and ESPP purchases |
120 | 72 | ||||||
| Net cash (used)/provided by financing activities |
(852 | ) | 979 | |||||
| Net increase/(decrease) in cash and cash equivalents |
312 | (6,134 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(69 | ) | (310 | ) | ||||
| Cash and cash equivalents at beginning of period |
17,940 | 26,348 | ||||||
| Cash and cash equivalents at end of period |
$ | 18,183 | $ | 19,904 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest paid |
$ | 104 | $ | 181 | ||||
See accompanying notes.
5
SEQUENOM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of SEQUENOM, Inc. (“SEQUENOM” or the “Company”) have been prepared in accordance with generally accepted accounting principles 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 disclosures required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.
The condensed balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Certain amounts in the December 31, 2003 balance sheet have been reclassified to conform with current year presentation.
These financial statements should be read in conjunction with the audited financial statements and disclosures thereto included in SEQUENOM’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission (“SEC”).
(2) Segment information
We report our financial results in two business segments, SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals.
Segment information for the three months ended March 31, 2004 and 2003 is as follows (dollars in thousands):
| Three months ended March 31, 2004 |
Three months ended March 31, 2003 |
|||||||||||||||||||||||
| SEQUENOM Genetic Systems |
SEQUENOM ceuticals |
Total |
SEQUENOM Genetic Systems |
SEQUENOM Ceuticals |
Total |
|||||||||||||||||||
| Revenues from external customers |
$ | 4,798 | $ | 336 | $ | 5,134 | $ | 6,530 | $ | 913 | $ | 7,443 | ||||||||||||
| Loss from operations |
$ | (4,569 | ) | $ | (5,758 | ) | $ | (10,327 | ) | $ | (3,424 | ) | $ | (5,847 | ) | $ | (9,271 | ) | ||||||
We have no intersegment revenues. Corporate costs are allocated to segments based on each segment’s estimated portion of total operational expenses. We do not currently segregate assets by segment because a significant portion of our total assets are cash, cash equivalents, and marketable securities which we do not assign to our two operating segments.
(3) Comprehensive Income (Loss)
Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income, requires reporting and displaying comprehensive income (loss) and its components, which, for us, includes net loss and unrealized gains and losses on investments and foreign currency translation gains and losses. In
6
SEQUENOM, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accordance with SFAS No. 130, the accumulated balance of other comprehensive income (loss) is disclosed as a separate component of stockholders’ equity. A summary of our comprehensive loss is as follows (dollars in thousands):
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Comprehensive loss: |
||||||||
| Net loss applicable to common stock |
$ | (9,885 | ) | $ | (8,545 | ) | ||
| Change in unrealized gains (losses) |
(169 | ) | (36 | ) | ||||
| Comprehensive loss |
$ | (10,054 | ) | $ | (8,581 | ) | ||
(4) Net Loss Per Share
In accordance with SFAS No. 128, Earnings Per Share, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period, including shares held in escrow relating to the acquisition of Axiom Biotechnologies, Inc. in 2002, during the three months ended March 31, 2003. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are comprised of incremental common shares issuable upon the exercise of stock options and warrants, and were excluded from historical diluted loss per share because of their anti-dilutive effect.
(5) Stock-Based Compensation
We account for our stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and the related Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—An Interpretation of APB Opinion No. 25. We have adopted the disclosure-only alternative of SFAS 123, Accounting for Stock-Based Compensation (“SFAS 123”).
If compensation cost for stock-based awards had been determined consistent with the fair value method prescribed in SFAS No. 123, our net loss would have been the following pro forma amounts:
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