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, 2005
Commission file number 000-28401
MAXYGEN, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0449487 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
515 Galveston Drive
Redwood City, California 94063
(Address of principal executive offices, including zip code)
(650) 298-5300
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of May 1, 2005, there were 35,693,486 shares of the registrant’s common stock, $0.0001 par value per share, outstanding, which is the only class of common or voting stock of the registrant issued.
FORM 10-Q
QUARTER ENDED MARCH 31, 2005
This report and the disclosures herein include, on a consolidated basis, the business and operations of Maxygen, Inc. and its wholly-owned subsidiaries, Maxygen ApS and Maxygen Holdings Ltd. For the three months ended March 31, 2004 and for the two months ended February 28, 2005, the operations of Codexis, Inc. are also included. On February 28, 2005 Maxygen’s voting interests in Codexis fell below 50% and from such date the financial position and results of operations of Codexis were no longer consolidated with the financial position and results of operations of Maxygen. The operations of Verdia, Inc. prior to its sale on July 1, 2004 are reflected as discontinued operations.
We make available on our website all reports filed with the Securities and Exchange Commission, including our reports on Form 10-K, 10-Q and 8-K, as soon as reasonably practicable after they have been filed. Our website is located at www.maxygen.com. Information contained on our website is not a part of this report.
Maxygen is a registered trademark of Maxygen, Inc. Codexis is a trademark of Codexis, Inc. The use of the word “partner” and “partnership” does not mean a legal partner or legal partnership.
2
PART I – FINANCIAL INFORMATION
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| December 31, 2004 |
March 31, 2005 |
|||||||
| (Note 1) | (unaudited) | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 40,415 | $ | 19,363 | ||||
| Short-term investments |
178,883 | 161,553 | ||||||
| Accounts receivable and other receivables |
1,735 | 3,697 | ||||||
| Prepaid expenses and other current assets |
7,046 | 4,905 | ||||||
| Total current assets |
228,079 | 189,518 | ||||||
| Property and equipment, net |
7,677 | 4,299 | ||||||
| Goodwill |
12,192 | 12,192 | ||||||
| Long-term investments |
13,595 | 23,439 | ||||||
| Deposits and other long-term assets |
1,562 | 390 | ||||||
| Total assets |
$ | 263,105 | $ | 229,838 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,712 | $ | 1,808 | ||||
| Accrued compensation |
5,324 | 2,778 | ||||||
| Accrued program termination costs |
2,209 | 273 | ||||||
| Other accrued liabilities |
2,144 | 1,267 | ||||||
| Deferred revenue |
3,215 | 1,627 | ||||||
| Taxes payable |
921 | — | ||||||
| Current portion of equipment financing obligations |
555 | — | ||||||
| Total current liabilities |
16,080 | 7,753 | ||||||
| Non-current deferred revenue |
1,718 | — | ||||||
| Non-current equipment financing obligations |
1,751 | — | ||||||
| Other long-term liabilities |
35 | — | ||||||
| Minority interest |
32,180 | — | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2004 and March 31, 2005 |
— | — | ||||||
| Common stock, $0.0001 par value: 100,000,000 shares authorized, 35,636,333, and 35,693,486 shares issued and outstanding at December 31, 2004 and March 31, 2005, respectively |
3 | 3 | ||||||
| Additional paid-in capital |
399,314 | 402,030 | ||||||
| Accumulated other comprehensive loss |
(2,190 | ) | (2,040 | ) | ||||
| Accumulated deficit |
(185,786 | ) | (177,908 | ) | ||||
| Total stockholders’ equity |
211,341 | 222,085 | ||||||
| Total liabilities and stockholders’ equity |
$ | 263,105 | $ | 229,838 | ||||
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| Three months ended March 31, |
||||||||
| 2004 |
2005 |
|||||||
| Collaborative research and development revenue |
$ | 4,416 | $ | 4,957 | ||||
| Grant revenue |
452 | 592 | ||||||
| Total revenues |
4,868 | 5,549 | ||||||
| Operating expenses: |
||||||||
| Research and development |
10,819 | 11,082 | ||||||
| General and administrative |
2,777 | 3,769 | ||||||
| Stock compensation expense(1) |
151 | 108 | ||||||
| Total operating expenses |
13,747 | 14,959 | ||||||
| Loss from operations |
(8,879 | ) | (9,410 | ) | ||||
| Interest income and other (expense), net |
574 | 672 | ||||||
| Loss from continuing operations |
(8,305 | ) | (8,738 | ) | ||||
| Loss from discontinued operations |
(1,543 | ) | — | |||||
| Cumulative effect adjustment |
— | 16,616 | ||||||
| Net income (loss) |
(9,848 | ) | 7,878 | |||||
| Subsidiary preferred stock accretion |
(250 | ) | (167 | ) | ||||
| Income (loss) applicable to common stockholders |
$ | (10,098 | ) | $ | 7,711 | |||
| Basic and diluted income (loss) per share: |
||||||||
| Continuing operations |
$ | (0.24 | ) | $ | (0.25 | ) | ||
| Discontinued operations |
$ | (0.04 | ) | $ | — | |||
| Cumulative effect adjustment |
$ | — | $ | 0.47 | ||||
| Applicable to common stockholders |
$ | (0.29 | ) | $ | 0.22 | |||
| Shares used in basic and diluted per share calculations |
34,941 | 35,658 | ||||||
| (1) Stock compensation expense related to the following: |
||||||||
| Research and development |
$ | 129 | $ | 102 | ||||
| General and administrative |
22 | 6 | ||||||
| $ | 151 | $ | 108 | |||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| Three months ended March 31, |
||||||||
| 2004 |
2005 |
|||||||
| Operating activities |
||||||||
| Net income (loss) |
$ | (9,848 | ) | $ | 7,878 | |||
| Loss from discontinued operations |
1,543 | — | ||||||
| Cumulative effect adjustment |
— | (16,616 | ) | |||||
| Loss from continuing operations |
(8,305 | ) | (8,738 | ) | ||||
| Adjustments to reconcile loss from continuing operations to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
1,588 | 1,227 | ||||||
| Non-cash stock compensation |
103 | 7 | ||||||
| Common stock issued and stock options granted to consultants for services rendered and for certain technology rights |
61 | 101 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable and other receivables |
957 | (2,624 | ) | |||||
| Prepaid expenses and other current assets |
456 | (1,057 | ) | |||||
| Deposits and other assets |
(392 | ) | (31 | ) | ||||
| Accounts payable |
(93 | ) | 1,170 | |||||
| Accrued compensation |
319 | (2,128 | ) | |||||
| Accrued program termination costs |
— | (1,936 | ) | |||||
| Other accrued liabilities |
(366 | ) | (136 | ) | ||||
| Taxes payable |
— | (921 | ) | |||||
| Deferred revenue |
(1,139 | ) | 984 | |||||
| Net cash used in operating activities |
(6,811 | ) | (14,082 | ) | ||||
| Investing activities |
||||||||
| Purchases of available-for-sale securities |
(16,925 | ) | (54,977 | ) | ||||
| Maturities of available-for-sale securities |
24,594 | 52,407 | ||||||
| Cash used in acquisition, net of cash acquired |
— | (2,617 | ) | |||||
| Acquisition of property and equipment |
(560 | ) | (1,466 | ) | ||||
| Net cash provided by (used in) investing activities |
7,109 | (6,653 | ) | |||||
| Financing activities |
||||||||
| Repayments under equipment financing obligations |
(86 | ) | (115 | ) | ||||
| Borrowings under equipment financing obligations |
1,167 | 1,229 | ||||||
| Proceeds from issuance of common stock |
542 | 439 | ||||||
| Net cash provided by financing activities |
1,623 | 1,553 | ||||||
| Cash provided from discontinued operations |
164 | — | ||||||
| Codexis related net adjustment |
— | (2,367 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
46 | 497 | ||||||
| Net increase (decrease) in cash and cash equivalents |
2,131 | (21,052 | ) | |||||
| Cash and cash equivalents at beginning of period |
21,353 | 40,415 | ||||||
| Cash and cash equivalents at end of period |
$ | 23,484 | $ | 19,363 | ||||
| Schedule of noncash transactions |
||||||||
| Shares of Codexis common stock issued in acquisition |
— | $ | (188 | ) | ||||
See accompanying notes.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The information as of March 31, 2005, and for the three months ended March 31, 2004 and March 31, 2005 includes all adjustments (consisting only of normal recurring adjustments) that the management of Maxygen, Inc. (“Maxygen” or the “Company”) believes necessary for fair presentation of the results for the periods presented. The condensed consolidated balance sheet as of December 31, 2004 has been derived from the audited financial statements at that date.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
On June 2, 2004, the Company agreed to sell Verdia, Inc. (its wholly-owned subsidiary) to Pioneer Hi-Bred International, Inc., a wholly-owned subsidiary of E.I. du Pont de Nemours and Company. This transaction closed on July 1, 2004 (see Note 6). The Company has reclassified the operating results of Verdia to discontinued operations in the condensed consolidated financial statements for the three months ended March 31, 2004 as a result of the Company’s sale of Verdia. The results of operations of Verdia prior to its sale on July 1, 2004 are reflected as discontinued operations in the Company’s condensed consolidated financial statements.
On February 28, 2005, as a result of the issuance of Codexis common stock in connection with the acquisition by Codexis of Julich Fine Chemicals GmbH and certain other events, the Company’s voting rights in Codexis have been reduced below 50%. As of February 28, 2005, Codexis was no longer a consolidated subsidiary of the Company and the Company’s ownership in Codexis is being accounted for under the equity method of accounting.
Principles of Consolidation
The consolidated financial statements include the amounts of the Company and its wholly-owned subsidiaries, Maxygen ApS (Denmark) and Maxygen Holdings Ltd. (Cayman Islands). For the three months ended March 31, 2004 and for the two months ended February 28, 2005, the results of operations of Codexis, Inc. are also included in the condensed consolidated financial statements. The condensed consolidated balance sheet at December 31, 2004 includes the financial position of Codexis as of that date. Subsequent to February 28, 2005, the Company’s investment in Codexis is reflected using the equity method of accounting.
In accordance with EITF Consensus 96-16, “Investor Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Stockholder or Stockholders Have Certain Approval or Veto Rights” and paragraph 1 of ARB No. 51, “Consolidated Financial Statements”, the Company has included 100% of the net losses of Codexis in the determination of the Company’s consolidated net loss through February 28, 2005. As of February 28, 2005, the Company controlled less than 50% of the voting rights of the issued and outstanding shares of Codexis common and preferred stock. In accordance with APB 18, “The Equity Method of Accounting for Investments in Common Stock”, the Company is accounting for its investment in Codexis under the equity method of accounting after February 28, 2005.
As a result of the Company no longer consolidating the financial position of Codexis after February 28, 2005, the Company no longer reflects amounts as minority interest on the condensed consolidated balance sheet and has recorded a $2.4 million adjustment to additional paid-in capital to restore the negative additional paid-in capital that had resulted from Codexis’ preferred stock accretion prior to February 28, 2005.
Cumulative Effect Adjustment