UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| þ | Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the quarterly period ended March 31, 2005 | |
| OR | ||
| o | 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: 0-23317
GENE
LOGIC INC.
(Exact name of registrant as specified in its charter)
| Delaware | 06-1411336 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
610
Professional Drive
Gaithersburg, Maryland 20879
(Address of principal executive offices)
(301) 987-1700
(Registrant’s phone 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 þ
NO o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). YES
þ
NO o
The number of
shares outstanding of the Registrant’s Common Stock, $.01 par value, was
31,739,454 as of April 30, 2005.
GENE LOGIC INC.
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 3 | |||
| Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 | 3 | ||||
| Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 | 4 | ||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 | 5 | ||||
| Notes to Consolidated Financial Statements | 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Results of Operations and Financial Condition | 10 | |||
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 15 | |||
| Item 4. | Controls and Procedures | 16 | |||
| PART II | OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 16 | |||
| Item 2. | Changes in Securities and Use of Proceeds | 16 | |||
| Item 3. | Defaults Upon Senior Securities | 16 | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | 16 | |||
| Item 5. | Other Information | 16 | |||
| Item 6. | Exhibits and Reports on Form 8-K | 17 | |||
| Signatures | 18 | ||||
2.
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
GENE LOGIC INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands, except share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 64,695 | $ | 53,237 | ||||
| Marketable securities available-for-sale | 33,062 | 49,678 | ||||||
| Accounts receivable, net of allowance of $200 and $436 as of March 31, 2005 and | ||||||||
| December 31, 2004, respectively | 3,598 | 4,953 | ||||||
| Unbilled services | 6,614 | 6,406 | ||||||
| Inventory, net | 3,346 | 1,683 | ||||||
| Prepaid expenses | 2,505 | 2,210 | ||||||
| Other current assets | 1,575 | 2,185 | ||||||
| Total current assets | 115,395 | 120,352 | ||||||
| Property and equipment, net | 27,141 | 23,034 | ||||||
| Long-term investments | 4,239 | 4,239 | ||||||
| Goodwill | 45,707 | 45,707 | ||||||
| Intangibles, net | 12,039 | 13,695 | ||||||
| Other assets | 62 | 54 | ||||||
| Total assets | $ | 204,583 | $ | 207,081 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,404 | $ | 5,256 | ||||
| Accrued compensation and employee benefits | 5,193 | 3,990 | ||||||
| Other accrued expenses | 3,770 | 4,629 | ||||||
| Current portion of capital lease obligations | 139 | 136 | ||||||
| Current portion of long-term debt | 495 | 494 | ||||||
| Current potion of acquired technologies payable | 3,382 | -- | ||||||
| Deferred revenue | 11,410 | 9,788 | ||||||
| Total current liabilities | 29,793 | 24,293 | ||||||
| Deferred revenue | 2,964 | 3,595 | ||||||
| Capital lease obligations, net of current portion | 169 | 204 | ||||||
| Long-term debt, net of current portion | 162 | 174 | ||||||
| Acquired technologies payable | -- | 3,347 | ||||||
| Other noncurrent liabilities | 2,566 | 2,640 | ||||||
| Total liabilities | 35,654 | 34,253 | ||||||
| Commitments and contingencies | -- | -- | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $.01 par value; 10,000,000 shares authorized; and no shares issued and | ||||||||
| outstanding as of March 31, 2005 and December 31, 2004 | -- | -- | ||||||
| Common stock, $.01 par value; 60,000,000 shares authorized; 31,739,454 and 31,654,413 shares | ||||||||
| issued and outstanding as of March 31, 2005 and December 31, 2004, respectively | 318 | 317 | ||||||
| Additional paid-in-capital | 385,498 | 385,313 | ||||||
| Accumulated other comprehensive loss | (120 | ) | (136 | ) | ||||
| Accumulated deficit | (216,767 | ) | (212,666 | ) | ||||
| Total stockholders' equity | 168,929 | 172,828 | ||||||
| Total liabilities and stockholders' equity | $ | 204,583 | $ | 207,081 | ||||
See accompanying notes.
3.
GENE LOGIC INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 | 2004 | |||||||
| Revenue: | ||||||||
| Genomics and toxicogenomics services | $ | 13,239 | $ | 13,810 | ||||
| Preclinical contract research services | 6,434 | 6,411 | ||||||
| Drug repositioning and selection services | 67 | -- | ||||||
| Total revenue | 19,740 | 20,221 | ||||||
| Expenses: | ||||||||
| Cost of preclinical contract research services | 7,190 | 6,490 | ||||||
| Database production | 8,182 | 12,231 | ||||||
| Research and development | 1,461 | 362 | ||||||
| Selling, general and administrative | 7,533 | 6,347 | ||||||
| Total expenses | 24,366 | 25,430 | ||||||
| Loss from operations | (4,626 | ) | (5,209 | ) | ||||
| Interest (income), net | (500 | ) | (311 | ) | ||||
| Other (income) expense | (25 | ) | -- | |||||
| Net loss before income tax expense | (4,101 | ) | (4,898 | ) | ||||
| Income tax expense | -- | 612 | ||||||
| Net loss | $ | (4,101 | ) | $ | (5,510 | ) | ||
| Basic and diluted net loss per share | $ | (0.13 | ) | $ | (0.18 | ) | ||
| Shares used in computing basic and diluted | ||||||||
| net loss per share | 31,708 | 31,268 | ||||||
See accompanying notes.
4.
GENE LOGIC INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| March 31 | ||||||||
| 2005 | 2004 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (4,101 | ) | $ | (5,510 | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | 3,914 | 4,478 | ||||||
| Loss on abandonment of patents | -- | 101 | ||||||
| Loss on disposal of property and equipment | -- | 7 | ||||||
| Accrued interest relating to acquired technologies payable | 35 | -- | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and unbilled services | 1,147 | 1,751 | ||||||
| Inventory | (1,663 | ) | 693 | |||||
| Prepaids and other assets | 307 | (72 | ) | |||||
| Accounts payable | 148 | (1,935 | ) | |||||
| Accrued expenses and other noncurrent liabilities | 270 | 1,319 | ||||||
| Deferred revenue | 991 | (1,197 | ) | |||||
| Net cash flows from operating activities | 1,048 | (365 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (5,615 | ) | (781 | ) | ||||
| Purchases of licenses and patent costs | (190 | ) | (101 | ) | ||||
| Software development costs | (406 | ) | (951 | ) | ||||
| Database upgrade costs | (154 | ) | -- | |||||
| Purchase of marketable securities available-for-sale | -- | (28,982 | ) | |||||
| Proceeds from sale and maturity of marketable securities available-for-sale | 16,632 | 34,950 | ||||||
| Net cash flows from investing activities | 10,267 | 4,135 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock to employees | 186 | 1,218 | ||||||
| Repayments of capital lease obligations and equipment loans | (43 | ) | (40 | ) | ||||
| Net cash flows from financing activities | 143 | 1,178 | ||||||
| Net increase in cash and cash equivalents | 11,458 | 4,948 | ||||||
| Cash and cash equivalents, beginning of period | 53,237 | 48,718 | ||||||
| Cash and cash equivalents, end of period | $ | 64,695 | $ | 53,666 | ||||
| Supplemental disclosure: | ||||||||
| Taxes paid | $ | -- | $ | 569 | ||||
| Interest paid | $ | 10 | $ | 13 | ||||
See accompanying notes.
5.
Gene Logic Inc.
Notes to
Consolidated Financial Statements
March 31, 2005
(in thousands, except share and per
share data)
(Unaudited)
Note 1 — Organization
and summary of significant accounting policies
Description of
Business
Gene Logic
Inc., including its wholly owned subsidiaries, Gene Logic Laboratories Inc.
(formerly TherImmune Research Corporation), Gene Logic Ltd. (our United Kingdom
subsidiary) and Gene Logic K.K. (our Japan subsidiary), (collectively “Gene
Logic” or the “Company”), provides drug discovery and development
services to pharmaceutical and biotechnology companies worldwide and U.S. Government
entities. From April 1, 2003 to December 31, 2004, the Company’s services
were organized into two business segments: genomics and toxicogenomics services
and preclinical contract research services. Beginning in 2005, the Company added a
third business segment: drug repositioning and selection services. The genomics
and toxicogenomics services business consists of proprietary gene expression and
toxicogenomics databases, software tools, various toxicogenomics reports and data
generation and professional services for use in discovering and prioritizing
drug targets, identifying biomarkers, and predicting toxicity and providing
insights into efficacy of specific compounds for customers. The preclinical contract
research services business consists of in-vivo animal testing research studies
and related laboratory services used to assess the safety and pharmacologic effects
of compounds for customers. The drug repositioning and selection services
business, which resulted from the acquisition of certain technologies in 2004
(the “Horizon technologies”), continues to be developed and consists of
services to assist customers in (i) identifying alternative indications for
failed, stalled or deprioritized compounds; (ii) expanding indications for
currently marketed drugs; and, (iii) prioritizing and identifying indications for
compounds entering preclinical development.
The combination
of the Company’s genomics and toxicogenomics services and preclinical contract
research services may sometimes be referred to as its “historical business”.
Basis of
Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (“GAAP”)
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. The consolidated balance sheet as of March 31,
2005, consolidated statements of operations for the three months ended March 31, 2005
and 2004 and the consolidated statements of cash flows for the three months ended
March 31, 2005 and 2004 are unaudited, but include all adjustments (consisting
of normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows,
respectively, for the periods presented. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information and footnote information normally
included in financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission (“SEC”). All material intercompany
accounts and transactions have been eliminated in consolidation.
Results for
any interim period are not necessarily indicative of results for any future
interim period or for the entire year. The accompanying unaudited consolidated
financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2004.
Use of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain
reclassifications have been made to the prior period’s financial statements
and segment information to conform to the current period presentation.
6.
Inventory
Inventory is
stated at the lower of cost or market. Cost for microarrays and laboratory
reagents is determined using the first-in, first-out method and cost for tissue
samples is determined using the average cost method. All inventory is reviewed
for impairment and appropriate reserves are recorded. All inventory is classified
as raw materials. The following table sets forth information on the composition
of the Company’s inventory as of the indicated periods:
| March 31, 2005 |
December 31, 2004 |
|||||||
| Microarrays | $ | 1,842 | $ | 501 | ||||
| Laboratory reagents | 489 | 306 | ||||||
| Tissue samples | 2,601 | 2,365 | ||||||
| 4,932 | 3,172 | |||||||
| Less: tissue sample reserves | (1,586 | ) | (1,489 | ) | ||||
| Inventory, net | $ | 3,346 | $ | 1,683 | ||||
Foreign
Currency Transactions
Foreign
currency transaction gains and losses are included in the Consolidated Statements
of Operations. During the three months ended March 31, 2005, foreign currency gains
totaled $25.
Comprehensive
Loss
The Company accounts for comprehensive loss as prescribed by Statement of Financial Accounting Standa