UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 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 SeptemberJune 30, 20022003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from__________from ____________ to __________.____________.
Commission file number: 0-29975
ACLARA BioSciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 94-3222727 | |
(State of incorporation) | (IRS Employer Identification Number) |
1288 Pear Avenue
Mountain View, California 94043
(Address of principal executive offices and zip code)
650-210-1200
(Registrant’s telephone number, including area code)
Indicate by check mark whether 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. YESx NO¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x.
The number of shares outstanding of the registrant’s common stock as of October 31, 2002August 4, 2003 was 36,193,512.
TABLE OF CONTENTS
PAGE | ||||
Part I: | Financial Information | |||
Item 1. | Financial Statements (Unaudited) | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
Part II: | Other Information | |||
Item 1. | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
Item 5. | ||||
Item 6. | ||||
23 |
PART I—FINANCIAL INFORMATION
ITEM 1. | ||||
(A Company in the Development Stage)Stage Enterprise)
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
September 30, 2002 | December 31, 2001 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 69,561 | $ | 30,970 | ||||
Restricted cash | 34,125 | 34,125 | ||||||
Short-term marketable investments | 15,626 | 45,883 | ||||||
Accounts receivable | 173 | 1,540 | ||||||
Prepaid expenses and other current assets | 608 | 546 | ||||||
Inventories | 10 | 14 | ||||||
Total current assets | 120,103 | 113,078 | ||||||
Long-term marketable investments | 32,954 | 60,598 | ||||||
Restricted cash | — | 500 | ||||||
Property and equipment, net | 7,094 | 8,887 | ||||||
Other assets, net | 100 | 119 | ||||||
Total assets | $ | 160,251 | $ | 183,182 | ||||
LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 722 | $ | 974 | ||||
Accrued payroll and related expenses | 1,233 | 1,077 | ||||||
Accrued expenses and other current liabilities | 3,294 | 1,987 | ||||||
Deferred revenue | 331 | 596 | ||||||
Litigation settlements accrual | 30,937 | 27,197 | ||||||
Accrued restructuring charges | 839 | — | ||||||
Current portion of loans payable | 198 | 55 | ||||||
Total current liabilities | 37,554 | 31,886 | ||||||
Loans payable, net of current portion | 594 | 507 | ||||||
Deferred rent | 396 | 322 | ||||||
Total liabilities | 38,544 | 32,715 | ||||||
Contingencies (Note 3) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value: | ||||||||
Authorized 150,000,000 shares; Issued and outstanding: 36,193,512 shares at September 30, 2002 and 35,871,066 shares at December 31, 2001 | 36 | 36 | ||||||
Additional paid-in capital | 259,147 | 259,327 | ||||||
Deferred stock-based compensation | (1,344 | ) | (2,785 | ) | ||||
Stockholder notes receivable for common stock | (587 | ) | (571 | ) | ||||
Accumulated other comprehensive income | 414 | 281 | ||||||
Deficit accumulated during development stage | (135,959 | ) | (105,821 | ) | ||||
Total stockholders’ equity | 121,707 | 150,467 | ||||||
Total liabilities and stockholders’ equity | $ | 160,251 | $ | 183,182 |
June 30, 2003 | December 31, 2002 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 65,967 | $ | 38,006 | ||||
Restricted cash | — | 34,125 | ||||||
Short-term marketable investments | 7,665 | 12,842 | ||||||
Accounts receivable | 124 | 469 | ||||||
Prepaid expenses and other current assets | 605 | 422 | ||||||
Inventories | 2,773 | 2,780 | ||||||
Total current assets | 77,134 | 88,644 | ||||||
Long-term marketable investments | 23,139 | 21,612 | ||||||
Property and equipment, net | 6,734 | 7,098 | ||||||
Other assets, net | 1,457 | 1,564 | ||||||
Total assets | $ | 108,464 | $ | 118,918 | ||||
LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 743 | $ | 689 | ||||
Accrued payroll and related expenses | 948 | 1,023 | ||||||
Accrued expenses and other current liabilities | 2,329 | 1,357 | ||||||
Deferred revenue | 149 | 104 | ||||||
Restructuring accrual | 3 | 501 | ||||||
Current portion of loans payable | 211 | 202 | ||||||
Total current liabilities | 4,383 | 3,876 | ||||||
Loans payable, net of current portion | 435 | 542 | ||||||
Deferred rent | 451 | 414 | ||||||
Total liabilities | 5,269 | 4,832 | ||||||
Contingencies (Note 3) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value: | ||||||||
Authorized 150,000,000 shares; Issued and outstanding: 35,664,735 shares at June 30, 2003 and 35,391,018 shares at December 31, 2002 | 36 | 36 | ||||||
Treasury stock at cost (900,000 shares at June 30, 2003 and December 31, 2002) | (1,350 | ) | (1,350 | ) | ||||
Additional paid-in capital | 258,988 | 258,798 | ||||||
Deferred stock-based compensation | (255 | ) | (627 | ) | ||||
Accumulated other comprehensive income | 215 | 297 | ||||||
Deficit accumulated during development stage | (154,439 | ) | (143,068 | ) | ||||
Total stockholders’ equity | 103,195 | 114,086 | ||||||
Total liabilities and stockholders’ equity | $ | 108,464 | $ | 118,918 | ||||
The accompanying notes are an integral part of these condensed financial statements.
(A Company in the Development Stage)Stage Enterprise)
(In Thousands, Except per Share Data)and Per Share Amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Cumulative Period from May 5, 1995 (Inception) to September 30, | ||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | ||||||||||||||||
Revenues | $ | 505 | $ | 507 | $ | 1,768 | $ | 2,290 | $ | 17,136 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Research and development | 5,516 | 6,126 | 18,576 | 17,802 | 81,821 | |||||||||||||||
Selling, general and administrative | 3,318 | 2,365 | 9,229 | 7,781 | 43,439 | |||||||||||||||
Litigation settlement | 396 | 2,839 | 3,740 | 5,227 | 43,787 | |||||||||||||||
Restructuring | 3,327 | — | 3,327 | — | 3,327 | |||||||||||||||
Total costs and operating expenses | 12,557 | 11,330 | 34,872 | 30,810 | 172,374 | |||||||||||||||
Loss from operations | (12,052 | ) | (10,823 | ) | (33,104 | ) | (28,520 | ) | (155,238 | ) | ||||||||||
Interest income | 873 | 1,749 | 3,004 | 6,438 | 22,103 | |||||||||||||||
Interest expense | (13 | ) | (12 | ) | (38 | ) | (38 | ) | (1,238 | ) | ||||||||||
Net loss before extraordinary loss | (11,192 | ) | (9,086 | ) | (30,138 | ) | (22,120 | ) | (134,373 | ) | ||||||||||
Extraordinary loss on early retirement of debt | — | — | — | — | (1,103 | ) | ||||||||||||||
Net loss | $ | (11,192 | ) | $ | (9,086 | ) | $ | (30,138 | ) | $ | (22,120 | ) | $ | (135,476 | ) | |||||
Dividends related to beneficial conversion feature of preferred stock | — | — | — | — | (5,000 | ) | ||||||||||||||
Accretion to redemption value and accrued dividends on mandatory redeemable convertible preferred stock | — | — | — | — | (6,292 | ) | ||||||||||||||
�� | ||||||||||||||||||||
Net loss attributable to common stockholders | $ | (11,192 | ) | $ | (9,086 | ) | $ | (30,138 | ) | $ | (22,120 | ) | $ | (146,768 | ) | |||||
Net loss per common share, basic and diluted | $ | (0.31 | ) | $ | (0.26 | ) | $ | (0.84 | ) | $ | (0.63 | ) | ||||||||
Shares used in net loss per common share calculation, basic and diluted | 36,148 | 35,525 | 36,020 | 35,111 |
| Six Months Ended | Cumulative 2003 | ||||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenues | $ | 405 | $ | 673 | $ | 584 | $ | 1,263 | $ | 18,472 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Research and development | 4,067 | 6,668 | 8,417 | 13,060 | 95,237 | |||||||||||||||
Selling, general and administrative | 1,909 | 3,078 | 4,408 | 5,911 | 52,192 | |||||||||||||||
Litigation settlement | — | 1,810 | — | 3,344 | 44,002 | |||||||||||||||
Restructuring | — | — | — | — | 3,327 | |||||||||||||||
Total costs and operating expenses | 5,976 | 11,556 | 12,825 | 22,315 | 194,758 | |||||||||||||||
Loss from operations | (5,571 | ) | (10,883 | ) | (12,241 | ) | (21,052 | ) | (176,286 | ) | ||||||||||
Interest income | 444 | 1,037 | 900 | 2,130 | 23,612 | |||||||||||||||
Interest expense | (14 | ) | (12 | ) | (30 | ) | (24 | ) | (1,284 | ) | ||||||||||
Net loss | (5,141 | ) | (9,858 | ) | (11,371 | ) | (18,946 | ) | (153,958 | ) | ||||||||||
Dividends related to beneficial conversion feature of preferred stock | — | — | — | — | (5,000 | ) | ||||||||||||||
Accretion to redemption value and accrued dividends on mandatory redeemable convertible preferred stock | — | — | — | — | (6,292 | ) | ||||||||||||||
Net loss attributable to common stockholders | $ | (5,141 | ) | $ | (9,858 | ) | $ | (11,371 | ) | $ | (18,946 | ) | $ | (165,250 | ) | |||||
Net loss per common share, basic and diluted | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.32 | ) | $ | (0.53 | ) | ||||||||
Weighted average shares used in net loss per common share calculation, basic and diluted | 35,566 | 36,051 | 35,506 | 35,955 |
The accompanying notes are an integral part of these condensed financial statements.
(A Company in the Development Stage)Stage Enterprise)
(Unaudited)
Nine Months Ended September 30, | Cumulative Period from May 5, 1995 (Inception) to September 30, | |||||||||||
2002 | 2001 | 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (30,138 | ) | $ | (22,120 | ) | $ | (135,476 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 1,413 | 1,154 | 5,294 | |||||||||
Amortization of discount on marketable investments | (309 | ) | (488 | ) | (3,146 | ) | ||||||
Amortization of note and long-term debt discount | — | — | 597 | |||||||||
Amortization of deferred stock based compensation | 959 | 1,866 | 12,180 | |||||||||
Write down of fixed assets | 2,488 | — | 2,488 | |||||||||
Loss on sale of fixed assets | 24 | — | 24 | |||||||||
Amortization of other assets | — | 38 | 81 | |||||||||
Preferred stock issued for interest expense | — | — | 128 | |||||||||
Interest income from notes receivable from stockholders | (25 | ) | (24 | ) | (86 | ) | ||||||
Revaluation of litigation settlement | 3,740 | 5,827 | 10,137 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 1,367 | (767 | ) | (173 | ) | |||||||
Prepaid expenses and other assets | (39 | ) | 84 | (573 | ) | |||||||
Accounts payable | (252 | ) | 78 | 723 | ||||||||
Accrued payroll and related expenses | 156 | 422 | 1,233 | |||||||||
Accrued expenses and other liabilities | 1,307 | (713 | ) | 3,293 | ||||||||
Restructuring | 839 | — | 839 | |||||||||
Litigation settlement accrual | — | (1,250 | ) | 32,500 | ||||||||
Deferred revenue | (265 | ) | — | 331 | ||||||||
Deferred rent | 74 | 102 | 395 | |||||||||
Net cash used in operating activities | (18,661 | ) | (15,791 | ) | (69,211 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Acquisition of property and equipment | (1,874 | ) | (2,673 | ) | (13,047 | ) | ||||||
Sale of property and equipment | 38 | 11 | 54 | |||||||||
Change in restricted cash | 500 | (32,875 | ) | (34,250 | ) | |||||||
Purchase and maturities of investments, net | 58,344 | (32,502 | ) | (45,019 | ) | |||||||
Change in other assets | — | — | (97 | ) | ||||||||
Net cash provided by (used in) investing activities | 57,008 | (68,039 | ) | (92,359 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Principal payments under capital lease obligations | (24 | ) | (38 | ) | (1,527 | ) | ||||||
Proceeds from issuance of notes payable to related parties | — | — | 2,487 | |||||||||
Proceeds from issuance of loans payable | — | — | 4,365 | |||||||||
Repayments of loans payable | (41 | ) | — | (3,984 | ) | |||||||
Proceeds from issuance of preferred stock, net of issuance costs | — | — | 29,889 | |||||||||
Principal payments for notes payable to related parties | — | — | (119 | ) | ||||||||
Repurchase of Series A preferred stock and one share of common stock | — | — | (2,713 | ) | ||||||||
Proceeds from initial public offering, net of issuance costs | — | — | 201,003 | |||||||||
Proceeds from notes receivable from stockholders | 7 | 4 | 120 | |||||||||
Proceeds from issuance of common stock | 302 | 401 | 1,610 | |||||||||
Net cash provided by financing activities | 244 | 367 | 231,131 | |||||||||
Net increase in cash and cash equivalents | 38,591 | (83,463 | ) | 69,561 | ||||||||
Cash and cash equivalents, beginning of period | 30,970 | 108,886 | — | |||||||||
Cash and cash equivalents, end of period | $ | 69,561 | $ | 25,423 | $ | 69,561 | ||||||
Six Months Ended June 30, | Cumulative 2003 | |||||||||||
2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (11,371 | ) | $ | (18,946 | ) | $ | (153,958 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 779 | 1,004 | 6,540 | |||||||||
Amortization of discount on marketable investments | 69 | (276 | ) | (3,067 | ) | |||||||
Amortization of note and long-term debt discount | — | — | 597 | |||||||||
Amortization of deferred stock based compensation | 305 | 705 | 12,699 | |||||||||
Loss on sale of fixed assets | — | — | 45 | |||||||||
Amortization of other assets | 107 | — | 243 | |||||||||
Preferred stock issued for interest expense | — | — | 128 | |||||||||
Non-cash restructuring charge | — | — | 2,467 | |||||||||
Interest income from notes receivable from stockholders | — | (16 | ) | (86 | ) | |||||||
Revaluation of litigation settlement | — | 3,344 | 10,350 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 345 | 1,388 | (124 | ) | ||||||||
Prepaid expenses and other current assets | (183 | ) | (64 | ) | (605 | ) | ||||||
Inventories | 7 | (28 | ) | (2,773 | ) | |||||||
Accounts payable | 54 | (35 | ) | 743 | ||||||||
Accrued payroll and related expenses | (75 | ) | (20 | ) | 948 | |||||||
Accrued expenses and other liabilities | 972 | 921 | 2,329 | |||||||||
Restructuring accrual | (498 | ) | — | 3 | ||||||||
Litigation settlement | — | — | 1,350 | |||||||||
Deferred revenue | 45 | (77 | ) | 149 | ||||||||
Deferred rent | 37 | 56 | 451 | |||||||||
Net cash used in operating activities | (9,407 | ) | (12,044 | ) | (121,571 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Acquisition of property and equipment | (452 | ) | (1,474 | ) | (14,079 | ) | ||||||
Sales of property and equipment | 42 | 1 | 111 | |||||||||
Change in restricted cash | 34,125 | 500 | — | |||||||||
Purchase of investments | (32,000 | ) | (69,833 | ) | (482,034 | ) | ||||||
Sales and maturities of investments | 35,500 | 97,386 | 454,513 | |||||||||
Change in other assets | — | — | (1,597 | ) | ||||||||
Net cash provided by (used in) investing activities | 37,215 | 26,580 | (43,086 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Principal payments for leasehold obligations | (29 | ) | (27 | ) | (1,586 | ) | ||||||
Principal payments under capital lease obligations | (75 | ) | — | (140 | ) | |||||||
Proceeds from issuance of notes payable to related parties | — | — | 2,487 | |||||||||
Proceeds from issuance of loans payable | — | — | 4,365 | |||||||||
Repayments of loans payable | — | — | (3,943 | ) | ||||||||
Proceeds from issuance of preferred stock, net of issuance costs | — | — | 29,889 | |||||||||
Principal payments for notes payable to related parties | — | — | (119 | ) | ||||||||
Repurchase of Series A preferred stock and one share of common stock | — | — | (2,713 | ) | ||||||||
Proceeds from initial public offering, net of issuance costs | — | — | 201,003 | |||||||||
Proceeds from notes receivable from stockholders | — | 6 | 709 | |||||||||
Proceeds from issuance of common stock | 257 | 295 | 2,022 | |||||||||
Repurchase of common stock | — | — | (1,350 | ) | ||||||||
Net cash provided by financing activities | 153 | 274 | 230,624 | |||||||||
Net increases in cash and cash equivalents | 27,961 | 14,810 | 65,967 | |||||||||
Cash and cash equivalents, beginning of period | 38,006 | 30,970 | — | |||||||||
Cash and cash equivalents, end of period | $ | 65,967 | $ | 45,780 | $ | 65,967 | ||||||
The accompanying notes are an integral part of these condensed financial statements.
(A Company in the Development Stage)Stage Enterprise)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the interim financial information for ACLARA BioSciences, Inc. (“ACLARA”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for the presentation of complete financial statements. The preparation of interim financial statements in conformity with generally accepted accounting principals 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 expenses during the reporting period. Actual results could differ from these estimates.
This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in ACLARA’s Form 10-K for the year ended December 31, 2001,2002, as filed with the Securities and Exchange Commission. Furthermore, interim results of operations are not necessarily indicative of the results that may be expected for the entire year or for other interim periods.
Comprehensive Income
Comprehensive income generally represents all changes in stockholders’ equity (deficit) except those resulting from investments or contributions by stockholders. ACLARA’s unrealized gains on available-for-sale securities represent the only component of comprehensive income that is excluded from ACLARA’s net loss for the three and ninesix months ended SeptemberJune 30, 20012003 and 2002 and for the cumulative period from May 5, 1995 (date of inception) to SeptemberJune 30, 2002.2003. As this component of comprehensive income is not significant, individually or in the aggregate, no separate statements of comprehensive income have been presented.
Net Loss Per Share
Basic earnings per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share would give effect to the dilutive effect of common stock equivalents consisting of stock options and warrants (calculated using the treasury stock method) and common stock subject to repurchase. Potentially dilutive securities have been excluded from the diluted earnings per share computations as they have an antidilutive effect due to ACLARA’s net loss.
A reconciliation of shares used in the calculations is as follows (in thousands, except per share data):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
Basic and diluted: | ||||||||||||||||
Net loss | $ | (11,192 | ) | $ | (9,086 | ) | $ | (30,138 | ) | $ | (22,120 | ) | ||||
Weighted average shares of common stock outstanding | 36,170 | 35,738 | 36,064 | 35,396 | ||||||||||||
Less: weighted average shares subject to repurchase | (22 | ) | (213 | ) | (44 | ) | (285 | ) | ||||||||
Weighted-average shares of common stock used in basic and diluted net loss per share calculations | 36,148 | 35,525 | 36,020 | 35,111 | ||||||||||||
Net loss per common share—basic and diluted | $ | (0.31 | ) | $ | (0.26 | ) | $ | (0.84 | ) | $ | (0.63 | ) | ||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Basic and diluted: | ||||||||||||||||
Net loss | $ | (5,141 | ) | $ | (9,858 | ) | $ | (11,371 | ) | $ | (18,946 | ) | ||||
Weighted-average shares of common stock outstanding | 35,566 | 36,086 | 35,506 | 36,010 | ||||||||||||
Less: weighted-average shares subject to repurchase | — | (35 | ) | — | (55 | ) | ||||||||||
Weighted-average shares of common stock used in basic and diluted net loss per share calculations | 35,566 | 36,051 | 35,506 | 35,955 | ||||||||||||
Net loss per common share—basic and diluted | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.32 | ) | $ | (0.53 | ) | ||||
The following outstanding options warrants and common stock subject to repurchasewarrants (prior to the application of the treasury stock method), were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Options and Warrants | 3,407 | 3,737 | 3,407 | 3,109 | ||||
Common stock subject to repurchase | 17 | 178 | 17 | 178 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2003 | 2002 | 2003 | 2002 | |||||
Options | 4,646 | 3,407 | 4,646 | 3,407 | ||||
Warrants | 186 | 27 | 186 | 27 |
Accounting for Stock-Based Compensation
ACLARA accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and its related interpretations and has elected to follow the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under APB No. 25, compensation expense is based on the difference, if any, on the date of the stock option grant between the fair value of ACLARA’s stock and the exercise price of the stock option.
The Company has adopted SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” Had compensation cost for stock-based employee compensation arrangements been determined based on the fair value at the date of the awards consistent with the provisions of SFAS No. 123, the impact on ACLARA’s net loss would be as follows (in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Net loss attributable to common stockholders: | ||||||||||||||||
As reported | $ | (5,141 | ) | $ | (9,858 | ) | $ | (11,371 | ) | $ | (18,946 | ) | ||||
Add: Stock-based compensation expense included in reported net loss | 148 | 344 | 305 | 705 | ||||||||||||
Deduct: Total stock-based compensation expense determined under fair value based method for all awards | (534 | ) | (722 | ) | (1,074 | ) | (1,525 | ) | ||||||||
Pro forma net loss | $ | (5,527 | ) | $ | (10,236 | ) | $ | (12,140 | ) | $ | (19,766 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic—as reported | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.32 | ) | $ | (0.53 | ) | ||||
Basic—pro forma | $ | (0.16 | ) | $ | (0.28 | ) | $ | (0.34 | ) | $ | (0.55 | ) | ||||
Diluted—as reported | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.32 | ) | $ | (0.53 | ) | ||||
Diluted—pro forma | $ | (0.16 | ) | $ | (0.28 | ) | $ | (0.34 | ) | $ | (0.55 | ) |
ACLARA accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”
Recent Accounting Developments
In April ofMay 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting StandardsSFAS No. 145, (““Rescission of SFAS 145”), “Rescission of FASB Statements No.Nos. 4, 44, and 64, Amendment of FASB Statement No.SFAS 13, and Technical Corrections as of April 2002.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145,required that gains and losses from extinguishment of debt that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Under SFAS No. 145, gains or losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria ofin Accounting PrinciplesPrincipal’s Board Opinion No. 30. SFAS 145 also addresses financial accounting30 (“APB 30”), “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and reporting for capital leasesExtraordinary, Unusual and Infrequently Occurring Events and Transactions”. Applying the criteria in APB 30 will distinguish transactions that are modified in such a waypart of an entity’s recurring operations from those that are unusual or infrequent or that meet the criteria for classification as to give rise to a new agreementan extraordinary item. The Company adopted
SFAS No. 145 on January 1, 2003. The losses on early extinguishment of debt obligations that were classified as an operating lease. The Company believesextraordinary items in prior periods that did not meet the adoptioncriteria of SFAS 145 will not have a material impact on the financial position or results of operations of the Company.
2. | RESTRICTED CASH |
Current restricted cash at September 30, 2002 and December 31, 20012002 comprised $34.1 million held in escrow as part of ourits settlement of litigation with Caliper Technologies Corporation (“Caliper”). Pursuant to the Caliper settlement agreement, ACLARA has provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of ACLARA’s performance. The banking institution whichthat had issued the letter of credit required ACLARA to maintain a balance of 105% of the letter of credit amount in a segregated account. This amountOn February 15, 2003 the letter of $34.1 million is invested in short-term US government agency debtcredit was terminated and money market funds.
3. | LITIGATION SETTLEMENT AND CONTINGENCIES |
As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sellssold the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8 million. The put obligation is classified as a liability as ACLARA had posted collateral in the form of a letter of credit to Caliper in the amount of $32.5 million, as a guarantee of ACLARA’s performance under the terms of the litigation settlement.
In August 2000, ACLARA entered into a settlement and release with Rodenstock N.A.North America (“Rodenstock”) of alleged claims(formerly 2C Optics) relating to a dispute arising out of ACLARA’s repurchase of its Series A Preferred Stock from Rodenstock in 1999. The settlement agreement was approved by the board of directors of Rodenstock and a majority of Rodenstock’s outstanding shares entitled to vote on the matter. On April 27, 2001, S&A Biotech Investments, LLC (“S&A”), a stockholder of Rodenstock, filed a shareholder derivative suit in the Superior Court of California for the County of Santa Clara, naming the directors of Rodenstock as individual defendants, Rodenstock as a nominal defendant, and ACLARA as a defendant. The purported claims by S&A are (1)alleges breach of fiduciary duties and corporate waste by Rodenstock Instruments Corporation and the individual defendants, including Thomas Baruch, who was the chairman of the boards of ACLARA and Rodenstock, in connection with the August 2000 settlement between ACLARA and (2)Rodenstock. S&A also asserts a claim against ACLARA for allegedly aiding and abetting the purported breach of fiduciary dutiesduty by ACLARA.Rodenstock and Rodenstock’s directors. Among other remedies, S&A seeks rescission of the settlement agreement and repurchase of the Series A Preferred Stock and injunctive relief.above-referenced stock repurchase. ACLARA filed its demurrer, and Rodenstock and Mr. Baruch filed their demurrers and motions fornotices of summary judgment, which were heard in April 2002. The Court denied all demurrers, but granted Rodenstock and Mr. Baruch’s motionnotice for summary judgment. Plaintiff has dismissed without prejudice its claimsclaim against ACLARA, while it considers appealingappeals the judgment for the other defendants.
ACLARA and certain of its current or former officers and directors (the “ACLARA defendants”) are named as defendants in a securities class action lawsuit filed in the United States District Court for the Southern District of New York. This action, which was filed on November 13, 2001 and is now captionedACLARA Biosciences, Inc. Initial Public Offering Securities Litigation, also names several of the underwriters involved in ACLARA’s initial public offering (“IPO”) as defendants. This class action is brought on behalf of a purported class of purchasers of ACLARA common stock from the time of ACLARA’s IPO (March 20, 2000) through December 6, 2000. The central allegation in this action is that the underwriters in the ACLARA IPO solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased ACLARA stock in the IPO and the after-market. The complaint also alleges that the ACLARA defendants violated the federal securities laws by failing to disclose in the IPO prospectus that the underwriters had engaged in these allegedly
undisclosed arrangements. (MoreMore than 300 issuers who went public between 1998 and 2000 have been named in similar lawsuits.) In July 2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated with issuers (including ACLARA defendants) was filed by the entire group of issuer defendants in these similar actions. Plaintiffs opposedOn February 19, 2003, the Court in this action issued its decision on Defendant’s omnibus motion to dismiss. This decision dismissed the Section 10(b) claim as to ACLARA but denied the motion to dismiss Section 11 claim as to ACLARA and virtually all of the other defendants. On June 26, 2003, the plaintiffs in the consolidated class action lawsuits announced a proposed settlement with us and the other issuer defendants. The proposed settlement, which has been approved by our board of directors, provides that motion, whichthe insurers of all settling issuers will guarantee that the plaintiffs recover $1 billion from non-settling defendants, including the investment banks who acted as underwriters in those offerings. In the event that the plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the difference. Under the proposed settlement, the maximum amount that could be charged to our insurance policy in the event that the plaintiffs recovered nothing from the investment banks would be approximately $3.9 million. We believe that we have sufficient insurance coverage to cover the maximum amount that we may be responsible for under the proposed settlement. It is now fully submitted andpossible that the parties may not reach agreement on the final settlement documents or that the Federal District Court may not approve the settlement in whole or part. If a final settlement is pending beforenot reached or is not approved by the court.court, ACLARA believes it has meritorious defenses and intends, in that event, to vigorously defend itself against thisthe suit. As a result of this belief, no liability for this suit has been recorded in the accompanying financial statements. However, we could be forced to incur significant expenses in the litigation, and in the event there is an adverse outcome, our business could be harmed.
4. | RESTRUCTURING |
4. RESTRUCTURING
The following table sets forth an analysis of the components of the third quarter restructuring charges (in thousands):
Severance and Benefits | Fixed Assets | Other Charges | Total | |||||||||||||
Restructuring provision: | ||||||||||||||||
Severance and benefits | $ | 753 | $ | — | $ | — | $ | 753 | ||||||||
Property and equipment write off | — | 2,469 | — | 2,469 | ||||||||||||
Other charges | — | — | 114 | 114 | ||||||||||||
Total | $ | 753 | $ | 2,469 | $ | 114 | $ | 3,336 | ||||||||
Non-cash charges | — | (2,469 | ) | — | (2,469 | ) | ||||||||||
Cash paid | (11 | ) | — | (17 | ) | (28 | ) | |||||||||
Reserve balance at September 30, 2002 | $ | 742 | $ | — | $ | 97 | $ | 839 | ||||||||
Severance and Benefits | Fixed Assets | Other Charges | Total | |||||||||||||
Restructuring provision: | ||||||||||||||||
Severance and benefits | $ | 753 | $ | — | $ | — | $ | 753 | ||||||||
Property and equipment write off | — | 2,467 | — | 2,467 | ||||||||||||
Other charges | — | — | 107 | 107 | ||||||||||||
Total | $ | 753 | $ | 2,467 | $ | 107 | $ | 3,327 | ||||||||
Non-cash charges | — | (2,467 | ) | — | (2,467 | ) | ||||||||||
Cash paid | (280 | ) | — | (79 | ) | (359 | ) | |||||||||
Reserve balance at December 31, 2002 | $ | 473 | $ | — | $ | 28 | $ | 501 | ||||||||
Cash paid | (470 | ) | — | (28 | ) | (498 | ) | |||||||||
Reserve balance at June 30, 2003 | $ | 3 | $ | — | $ | — | $ | 3 | ||||||||
ITEM 2. |
The following discussion of the Financial Condition and Results of Operations should be read in conjunction with our condensed financial statements and the notes to those and the Form 10-Q for the quarters ended March 31, 2002 andthrough June 30, 2003 and 2002 statements included elsewhere in this Form 10-Q, and in conjunction with the Form 10-K for the year ended December 31, 2001.2002. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations that express that ACLARA “believes”, “anticipates”, “expects” or “plans to” as well as other statements that are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Actual events or results may differ materially as a result of the risks and uncertainties described herein and elsewhere, including, but not limited to, those factors discussed in “Factors Affecting Operating Results” set forth below.
OVERVIEW
We were formed by a spin-off transaction from Soane Technologies, Inc. which was incorporated in 1991 and subsequently changed its name to 2C Optics, Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed our name in 1998 to ACLARA BioSciences, Inc. ACLARA is a leading developer of assay chemistry and microfluidic productssystems for life science research. Since our inception, we have engaged primarily in research and development activities related to the application of our proprietary microfluidicstechnologies to genomic and assay chemistry technologies forproteomic applications in the field of drug discovery. Prospectively, our focus is expected to be primarily on our assay chemistry technologies since we believe that these present the most significant opportunity. Our business strategy is to commercialize our eTag assay chemistries to pharmaceuticaldiscovery and biotechnology customers for applications in gene expression, protein expression and protein function analysis. The eTag Expert Assay Program has been introduced in October 2002 to facilitate commercialization of the eTag Assay System.
We have invested substantial amounts in establishing oureTag assay chemistries and microfluidic devicestechnology for life science research. From our inception to SeptemberJune 30, 2002,2003, we have incurred over $81.8$95.2 million in research and development expenses. Total costs and operating expenses were $12.8 million and $22.3 million for the six months ended June 30, 2003 and 2002, respectively. Over 80%60% of our 13767 employees at October 31, 2002June 30, 2003 were engaged in research and development activities.
We have incurred significant losses since our inception. As of SeptemberJune 30, 2002,2003, our accumulated deficit was $136.0$154.4 million and total stockholders’ equity was $121.7$103.2 million. Total costs and operating expenses were $12.6 million (includes a $0.4 million charge related to a litigation settlement and a $3.3 million charge related to restructuring) and $11.3 million (includes a $2.8 million revaluation credit related to a litigation settlement) for the quarters ended September 30, 2002 and 2001, respectively. We expect to incur additional operating losses over at least the next two years as we continue to invest significant resourcesheavily in research and development activities, build our sales and marketing organizationsorganization and commercialize our initialeTag products.
Essentially all our revenues through 2002 were generated from commercial research collaborations and from government grants related to discontinued microfluidics programs that are not active in 2003. Our sources of potential revenue in 2003 and for the next several years are likely to be primarily from product revenue derived fromcommercialization of our proprietary eTag assay chemistries, receiptssystem. In late 2002, we introduced commercial access programs under possible future collaborative arrangements, and government research grants.
In July 2002, we took steps to increase our focus on oureTag assay chemistry opportunities and to reduce costs, particularly those costs associated with the microfluidics aspect of our business. While we are reducing the resources allocated to microfluidic activities, we expect that microfluidic technologies will continue to play a role in our operations prospectively but primarily in ways that enhance the market for our eTag assay chemistries. Related to these actions, we have takentook a charge in the third quarter of 2002 of $3.3 million. Our Additional cost reduction steps were taken in April 2003. All of our resources are currently directed at developing theeTag Assay System was introduced commercially in October 2002 and we expect this to be the primary source of our revenues in 2003 and beyond.
RESULTS OF OPERATIONS
PERIODS ENDED SEPTEMBERJUNE 30, 20022003 AND 20012002
Revenues. Revenues for the three and six months ended Septemberending June 30, 20022003 were $405,000 and 2001$584,000, respectively, and were $505,000 and $507,000, respectively.derived primarily from collaborations related to oureTag access programs. Revenues for the ninethree and six months ended SeptemberJune 30, 2002 were $673,000 and 2001$1.3 million, respectively, and were $1.8 million and $2.3 million, respectively. Our revenues to date have been derived primarily from commercial collaboration agreements and government grants and, in the second and third quarters of 2002, from initial sales of Arteas Microfluidic Devices under an agreementrelated to microfluidics-related programs that has subsequently been terminated in October 2002. We do not expectare no longer active. While revenue from this agreement or from the Arteas product after the fourth quarter of 2002. In addition as a result of the refocusing of resources on our eTag Assay System we dothese sources have been significant in prior years, they are not anticipate future revenue from our Plurex product.expected to be significant in 2003. The timing and amount of government grant awards and completion of milestones under these grants and in our commercial collaborations havehas caused quarterly variations in these revenues. WhileOur sources of potential revenue from all of these sources have been significant in 2003 and for the past, theynext several years are not expectedlikely to be significant in 2003 when the primary sourceprimarily from commercialization of revenue is expected to be the oureTag Assay System. Revenue relatedIn late 2002, we introduced commercial access programs under which customers can gain access to the oureTagAssay System has been a minor component of revenueSystem. Under theeTag Expert Access Program, customers can gain access to date but is expectedeTag assays for gene expression profiling, protein expression analysis, and cell-surface antigen assays. Under this program, customers can buyeTag reagent kits, software, custom assay services, and consulting support. For more unique applications,
customers can gain access to increase as additional evaluations are conducted by customersapplications that may allow them to discover and as customers are enrolled in our recently introduced access programs.
Research and& Development. Research and development expenses for the three months ended SeptemberJune 30, 2003 and 2002 and 2001 were $5.5$4.1 million and $6.1$6.7 million, respectively. Research and development expenses for the ninesix months ended SeptemberJune 30, 2003 and 2002 and 2001 were $18.6$8.4 million and $17.8$13.1 million, respectively. The increase in spendingdecrease from 20012002 to 2002 for the nine months ending September 30 was primarily due to increased license fees and increased personnel-related expenses as a result of an increased level of staffing related to our proprietary eTag assay chemistries. These increases were partially offset by a reduction of $260,000 and $908,000 in stock-based compensation expense for the three and nine month periods, respectively. The decrease in spending from 2001 to 2002 for the three-month periods ended September 302003 was primarily due to decreased personnel-relatedpersonnel related expenses, offsetwhich were lower by increased license fees.The headcount$1.3 million and $2.9 million for the three and six months ended June 30, 2003, respectively. This reduction described earlier is expectedwas due to reducethe restructuring plan implemented in July 2002, in which essentially all micro-fluidics-related programs were eliminated and the related staffing level correspondingly reduced over the second half of 2002. Included in research and development expenses for the second quarter of 2003 was severance costs of $318,000 related to an additional staff reduction implemented in April, 2003. At June 30, 2002, we had 124 employees engaged in research and development activities, whereas by June 30, 2003, this had been reduced to 49 employees. Essentially all of our research and development expenditures particularlyare now focused on microfluidic products. However, becausedeveloping the reduction in headcount is occurring overeTag Assay System and on expanding the third and fourth quarters of 2002, the full impact of the cost reduction will notapplications for which it can be felt earlier than the first quarter of 2003, and may be partially offset by increased spending in our eTag assay chemistry activities. Notwithstanding these cost reductions, we expect to continue to devote substantial resources to research and development.used.
Selling, General and Administrative.Administrative. Selling, general and administrative expenses for the three months ended SeptemberJune 30, 2003 and 2002 and 2001 were $3.3$1.9 million and $2.4$3.1 million, respectively. Selling, general and administrative expenses for the ninesix months ended SeptemberJune 30, 2003 and 2002 and 2001 were $9.2$4.4 million and $7.8$5.9 million, respectively. The increasedecrease from 20012002 to 20022003 was primarily due to an increasedecreased legal expenses, which were lower by $800,000 and $1.6 million for the three and six months ended June 30, 2003, respectively. Included in compensation related expenseselling, general and an increase in sales and marketing expenseadministrative expenses for the second quarter of 2003 was severance costs of $122,000 related to the initiation of commercialization activities for our proprietary eTag assay chemistries.an additional staff reduction implemented in April 2003. We expect that our selling, general and administrative expenses will increase in absolute dollar amountscontinue to be substantial as we increase our sales, marketing and marketingbusiness development activities related to the commercialization of our products, and as we increasea result of the administrative and support infrastructure required to support our customers.operations.
Litigation Settlements. As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sellssold the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8 million. Based on the change in ACLARA’s stock price, theusing a Black-Scholes pricing model. The put obligation was subsequently revalued on a quarterly basis and at December 31, 2001, March 31, 2002, June 30, 2002, and September 30, 2002with changes in valuation being recorded in the put obligation had a valuestatement of $27.2 million, $28.7 million, $30.5 million and $30.9 million, respectively.operations. As a result of these revaluations, revaluation expensesexpense of $0.4$1.8 million and a revaluation credit of $2.8$3.3 million werewas recorded in the accompanying Statements of Operations for the three and six months ended SeptemberJune 30, 2002, respectively. As a result of the final settlement payment to Caliper and 2001, respectively. For the nine months ended September 30,repurchase of the stock from Caliper in October 2002, revaluation adjustments are no longer necessary and 2001, revaluation expenses of $3.7 million and $5.2 million wereno expense has been recorded in 2003. (See Note 3 in the accompanying StatementsNotes to Condensed Financial Statements.)
Restructuring. During the third quarter of Operations, respectively. The put obligation has been classified as2002 ACLARA initiated a current liability at September 30, 2002. The put obligation will continuerestructuring plan to be revalued on a quarterly basis until settlement using a Black-Scholes pricing model with changes in valuation being recorded in the Statements of Operations. Final settlement of this obligation occurred in October 2002.
Net Interest Income (Expense) Net. Net interest Interest income (expense) net represents income earned on our cash and cash equivalents, short-term investments, long-term investments and restricted cash, and interest paid on bridge loans, capital leases and equipment loans. Net interest income was $0.9$0.4 million and $1.7$0.9 million for the three and six months ended SeptemberJune 30, 2002 and 2001, respectively, and $3.02003 respectively. Net interest income was $1.0 million and $6.4$2.1 million for the ninethree and six months ended SeptemberJune 30, 2002 and 2001, respectively. The decrease in net interest income from 20012002 to 20022003 was primarily due to lower average balances ofin cash, and cash equivalents, short-term and long-term investments and lower market interest rates. Interest income will be reduced commencing in the fourth quarter of 2002 as a result of the reduction in cash investments due to the payment in October 2002 of $32.5 million related to a litigation settlement.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through our initial public offering in March 2000 that raised net proceeds of $201.0 million, private placements of preferred stock totaling $32.3 million, loans from the landlord of our Mountain View facility and equipment financing lines of credit totaling $4.4 million, capital leases totaling $1.8 million, and research and development funding from collaborators and government grants. As of SeptemberJune 30, 2002,2003, we had total unrestricted cash resources of $118.1$96.8 million, comprising $69.6$66.0 million in cash and cash equivalents, $15.6$7.7 million in short-term marketable investments and $33.0$23.1 million in long-term marketable investments. In addition, we had $34.1 million in restricted cash.
A loan agreement with the landlord of the Mountain View facility allowed us to borrow $663,000 for leasehold improvements at an annual interest rate of 8.5%. The principal balance of this loan at SeptemberJune 30, 20022003 was $521,000.$478,000. The note matures on July 1, 2009.
In March 1999, ACLARA entered into a ten year operating lease agreement for our Mountain View facility. The future annual minimum loan payments including accrued interest and lease payments under the loan and lease agreements at June 30, 2003 are as follows (in thousands):
Years Ending December 31, | Capital Lease Commitments | Loan Payments | Operating Lease Commitments | ||||||||
2003 | $ | 78 | $ | 51 | $ | 557 | |||||
2004 | 98 | 101 | 1,208 | ||||||||
2005 | — | 101 | 1,250 | ||||||||
2006 | — | 101 | 1,294 | ||||||||
2007 | — | 101 | 1,339 | ||||||||
2008 and thereafter | — | 126 | 2,091 | ||||||||
Total minimum loan and lease payments | 176 | 581 | $ | 7,739 | |||||||
Amount representing interest | (8 | ) | (103 | ) | |||||||
Present value of minimum lease payments | $ | 168 | $ | 478 | |||||||
Operating activities used cash of $18.7$9.4 million and $15.8$12.0 million for the ninesix months ended SeptemberJune 30, 20022003 and 2001,2002, respectively. Uses of cash in operating activities primarily resulted from operating losses adjusted for non-cash expenses and changes in working capital and other liabilities.
Cash provided by investing activities was $57.0$37.2 million for the ninesix months ended SeptemberJune 30, 2002,2003, including the release of restricted cash from the Caliper settlement of $34.1 million and net maturities of investments of $58.3$3.5 million, compared to cash used in investing activities of $68.0$26.6 million for the ninesix months ended SeptemberJune 30, 20012002. As part of our litigation settlement with Caliper, we provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that includedissued the letter of credit required us to maintain a $32.9balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million transfer tois recorded as restricted cash relatingin our financial statements at December 31, 2002. In October 2002, we paid Caliper $32.5 million related to a litigationthis settlement. Of this amount approximately $1.4 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. On February 15, 2003 the letter of credit was terminated and the net purchases of investments of $32.5 million.restricted cash was released. Cash provided by financing activities remained essentially flatunchanged for the ninesix months ended SeptemberJune 30, 20022003 and 2001.2002. Financing activity primarily reflects cash proceeds received through the employee exercise of stock options and employee participation in the employee stock purchase program
We believe that our current cash and cash equivalents, short-term and long-term marketable investment balances and funding received from collaborators and government grants will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 24 months. After that time, we cannot be certain that additional funding, if required, will be available on acceptable terms, or at all. DespiteWe expect that our expectations,costs will continue to exceed our revenues on an annual basis for at least the next two years. From time to time, we may need to raise additionalconsider possible strategic transactions, including the potential acquisitions of products, technologies and companies, with the goal of further developing our business and maximizing stockholder value. Such transactions, if any, could materially affect our future liquidity and capital before the end of the next 24 months.resources. We may raise additional funds through public or private financing, collaborative relationships or other arrangements. Further, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed may harm our business and operating results.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our litigation settlement with Caliper, we have provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that issued the letter of credit required us to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million is recorded as restricted cashcritical accounting policies and estimates from those disclosed in our financial statements at September 30,report on Form 10-K for our fiscal year ended December 31, 2002. In October 2002, we paid Caliper $32.5 million related to this settlement. Of this amount approximately $1.3 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. The restricted cash will be released to us in early 2003 upon cancellation of the letter of credit issued to Caliper at the time of the original settlement.
RECENT ACCOUNTING DEVELOPMENTS
In April ofMay 2002, the FASB issued Statement of Financial Accounting Standards Board issued SFAS No. 145, (““Rescission of SFAS 145”), “Rescission of FASB Statements No.Nos. 4, 44, and 64, Amendment of FASB Statement No.SFAS 13, and Technical Corrections as of April 2002.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145,required that gains and losses from extinguishment of debt that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Under SFAS No. 145, gains or losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria ofin Accounting PrinciplesPrincipal’s Board Opinion No. 30. SFAS 145 also addresses financial accounting30 (“APB 30”), “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and reporting for capital leasesExtraordinary, Unusual and Infrequently Occurring Events and Transactions”. Applying the criteria in APB 30 will distinguish transactions that are modified in such a waypart of an entity’s recurring operations from those that are unusual or infrequent or that meet the criteria for classification as to give rise to a new agreementan extraordinary item. The Company adopted SFAS No. 145 on January 1, 2003. The losses on early extinguishment of debt obligations that were classified as an operating lease. The Company believesextraordinary items in prior periods that did not meet the adoptioncriteria of SFAS 145 will not have a material impact on the financial position or results of operations of the Company.
FACTORS AFFECTING OPERATING RESULTS
The following risk factors outline certain risks and uncertainties concerning future results and should be read in conjunction with the other information contained in ourthis Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Report on Form 10-Q for the periods ended March 31, 2002 and June 30, 2002. Any of these risk factors could materially and adversely affect our business, results of operations, financial condition and future growth prospects. Additional risks and uncertainties that we do not currently know about or that we currently deem immaterial may also impair our business, financial condition, results of operations and future growth prospects.
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
Since we were founded in May 1995, we have engaged primarily in research and development efforts. We have incurred operating losses every year since inception, and we may never achieve profitability. Net losses for the nine months ended September 30, 2002 and the years ended December 31, 2002, 2001 and 2000 and 1999 were $30.1$37.2 million, $29.0 million and $59.2 million, respectively. Net losses for the three and $8.2six months ended June 30, 2003 were $5.1 million and $11.4 million respectively. Net losses for the three and six months ended June 30, 2002 were $9.9 million and $18.9 million respectively. As of SeptemberJune 30, 2002,2003, we had an accumulated deficit of $136.0$154.4 million. Our losses have resulted principally from costs incurred in connection with our research and development activities, from litigation settlement charges and from selling, general and administration costs associated with our operations.
To date, we have not generated any significant revenue from the sale of products. Our ability to generate revenues from product sales or to achieve profitability is dependent on our ability, alone or with collaborative partners, to successfully design, develop, manufacture and commercialize our proprietary assay chemistry systems in a timely manner.manner and on adoption of our technological approach by customers. Our revenue to datethrough 2002 has been generated principally from collaborative research and development agreements, government grants and initial sales of Arteas Microfluidic Devicescommercial collaborations related to Roche.our former microfluidics activities. None of these revenue sources are expected to be significant in 2003, when oureTag Assay System is anticipated to be the primary source of revenue. We expect that our costs will continue to exceed our revenues on an annual basis for at least the next two years. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include:
If revenue declines in a quarter, whether due to a delay in recognizing expected revenue or otherwise, our earnings will decline because many of our expenses are relatively fixed in the short-term. In particular, research and development and selling, general and administrative expenses are not affected directly by variations in revenue.
Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons to results of historical operations are not a good indication of our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors, or will be below the level of prior periods. In these cases, our stock price could fluctuate significantly or decline.
NONE OF OUR PRODUCTS HAS YET BEEN SUCCESSFULLY COMMERCIALIZED.
We are in the process of commercially launching oureTag assay chemistries, Assay System, through technologyour access programs. However, we have limited experience with developing, manufacturing, distributing or selling commercial products. We may not be able to perfect the design of our products due to the complexity of the technologies on which they are based and/or the demands of the scientific processes that they address. Additionally, we may not be able to adequately provide the desired level of services required under our access programs. For instance, we have limited experience establishing the high degrees of accuracy, reliability and ease of use required for commercial introduction of our products and services. Even though we have designed products that function in a prototype system or on a limited volume basis, we cannot assure you that we will be able to adapt the design or develop our organization to allow for large-scale manufacturing. Although we have projected launch periods for certain of our products, we cannot assure you that we will complete development of the systemsproducts by those launch dates, or at all. If we are unable to design commercially viable assay chemistry products, or other products or systems, either independently or with our collaborative partners, we may be unable to remain in business.
COMMERCIALIZATION OF OUR PRODUCTS DEPENDS ON MARKET ACCEPTANCE OF OUR ASSAY CHEMISTRY TECHNOLOGY. IF THISIT DOES NOT ACHIEVE ACCEPTANCE, OUR ABILITY TO GENERATE SALES WOULD BE LIMITED AND OUR LOSSES WOULD INCREASE.
Demand for our products is substantially dependent upon widespread market acceptance of our assay chemistry productssystem for applications in drug discovery and development and for applications in genomics, proteomics and pharmaceutical drug screening. Our assay chemistry products representsystem represents a new technological approach, and our ability to sell this assay chemistry productssystem will depend on the willingness of customers to adopt such new technological approaches. We cannot assure you that our assay chemistry productssystem will achieve substantial acceptance in our target markets. Market acceptance will depend on many factors, including:
Further, failure of our initial assay chemistry products to be favorably received by the market could undermine our ability to successfully introduce subsequent assay chemistry products. If our assay chemistry products do not gain market acceptance, our losses would increase and we may be unable to remain in business.
OUR DIRECT AND THIRD PARTY SALES AND MARKETING CHANNELS NEED TO BE DEVELOPED. IF WE ARE UNABLE TO DO SO SUCCESSFULLY, WE MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUES.
We do not have not fully developed sales and distribution channels for our products. We have recentlyIn 2002, we restructured our relationship with Third Wave Technologies, Inc. and have assumed direct responsibility for the commercialization ofeTag assay chemistry productssystem for the gene expression market that incorporate Third Wave’s technology. In addition, for applications in proteomics, we will
continue to be dependent on our own sales and marketingbusiness development organization, which has yet to be fully developed. We may not be able to successfully recruit executive management and sales and marketing personnel to market and sell our products.
Our ability to generate revenues will be dependent on the development of the appropriate partnerships, on the resources devoted by our partners to commercialization activities and on the success of those activities. Our ability to generate revenue will also be dependent on our success in recruiting management and salesbusiness development personnel and in building a sales and marketing organization. We cannot assure you that we will be able to successfully build and manage effective sales and distribution channels, or that our partners will devote sufficient resources to our commercialization efforts to be effective.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD BE UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN THE MARKET. THE COST OF ENFORCING OUR PROPRIETARY RIGHTS MAY BE EXPENSIVE AND RESULT IN INCREASED LOSSES.
Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United States and in other countries, and our inability to do so could harm our competitive position. We rely on our portfolio of over 270250 issued and pending patent applications in the United States and in other countries to protect a large part of our intellectual property and our competitive position. We cannot assure you that any of the currently pending or future patent applications will be issued as patents, or that any patents issued to us will not be challenged, invalidated, held unenforceable or circumvented. Further, we cannot assure you that our intellectual property rights will be sufficiently broad to prevent third parties from producing competing products similar in design to our products.
In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, we cannot assure you that these agreements will provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information or that adequate remedies would exist if unauthorized use or disclosure were to occur. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. Further, we cannot assure you that others have not or will not independently develop substantially equivalent know-how and technology.
Our commercial success also depends in part on avoiding the infringement of other parties’ patents or proprietary rights and the breach of any licenses that may relate to our technologies and products. We are aware of various third-party patents that may relate to our technology. We believe that we do not infringe these patents but cannot assure you that we will not be found in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently developing or with new products that we may seek to develop in the future. If third parties assert infringement claims against us, we may be forced to enter into license arrangements with them. We cannot assure you that we could enter into the required licenses on commercially reasonably terms, if at all. The failure to obtain necessary licenses or to implement alternative approaches may prevent us from commercializing products under development and would impair our ability to be commercially competitive. We may also become subject to interference proceedings conducted in the U.S. Patent and Trademark Office to determine the priority of inventions.
The defense and prosecution, if necessary, of intellectual property suits, U.S. Patent and Trademark Office interference proceedings and related legal and administrative proceedings will result in substantial expense to us, and significant diversion of effort by our technical and management personnel. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Further, there is a risk that some of our confidential information could be compromised during the discovery process of any litigation. During the course of any lawsuit, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our stock.
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND WILL BE SUBJECT TO THE RISK OF FINALIZING CONTRACTUAL ARRANGEMENTS, TRANSFERRING TECHNOLOGY.
We have no experience manufacturing our products in the high volumes that will be necessary for us to achieve significant commercial sales. To date, we have limited our manufacturing activities to low volume manufacturing ofeTag assay chemistry
products for testing purposes and for validation use by our collaborative partners and potential customers. The nature of our assay chemistriesproducts necessitates access to specialized chemicals, reagents and raw materials, such as antibodies used in conjunction with oureTag components. There are only a limited number of vendors who supply these materials and for some of these materials the suppliers are the sole source of supply. We cannot be certain that we will be able to successfully secure supply of all needed materials, nor can we be certain that these vendors will continue to supply these materials consistently or in the quantities necessary for high volume production. We will need to enter into contractual relationships with these or other manufacturers to facilitate commercial scale production of eTag assay chemistry products, and we cannot assure you that we will be able to do so on a timely basis, for sufficient quantities of products or on commercially reasonable terms. We will need to secure supply of antibodies for use in our protein applications and there can be no assurance that we will be able to do so on commercially reasonable terms. We will be dependent on Third Wave for supply of Cleavase enzyme that is a critical component of products that we will commercialize for gene expression applications, and this enzyme is proprietary to Third Wave. Failure of Third Wave to supply enzyme could seriously impair our business. Pursuant to the Supply Agreement with Third Wave, we purchased an initial quantity of Cleavase enzyme from Third Wave. This initial quantity of enzyme represents more than one year’s supply. Accordingly, we cannot assure you that we can establish or maintain reliable, high-volume manufacturing at commercially reasonable costs. In addition, the loss of any of these suppliers may result in a delay or interruption of our supply of assay chemistries. Any significant delay or interruption would have a material adverse effect on our ability to supply adequate quantities of our products and would result in lost revenues.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE.
Our performance is substantially dependent on the performance of our senior management and key scientific and technical personnel. The loss of the services of any member of our senior management, scientific or technical staff may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition. Our future success will also depend on our ability to identify, recruit and retain additional qualified scientific, technical and managerial personnel. There is currently a shortage of skilled executives and intense competition for such personnel in the areas of our activities, and we cannot assure you that we will be able to continue to attract and retain personnel with the advanced qualifications necessary for the development of our business. The inability to attract and retain the necessary scientific, technical and managerial personnel could have a material adverse effect on our research and development activities, sales revenue, operating costs and future growth prospects.
WE EXPECT INTENSE COMPETITION IN OUR TARGET MARKETS.
We compete with companies that design, manufacture and market analytical instruments and reagents for genomics, proteomics and pharmaceutical drug screening using alternate technologies for applications such as gene expression analysis and protein function analysis and other products and systems. In addition, a number of companies are developing new technologies for miniaturizing various laboratory procedures for genomics, proteomics and drug screening markets targeted by us, using such methods as beads, hybridization chips and high-density microwell plates.
We anticipate that we will face increased competition in the future as companies enter the market with new technologies. Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introduction, characterize the markets for our products. One or more of our competitors may render our technology obsolete or uneconomical by advances in existing technological approaches or the development of different approaches. Many of these competitors have greater financial and personnel resources and more experience in research and development than we have. We also cannot assure you that we will be able to compete effectively with the competitors’ greater market presence. Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies which are our potential customers or our strategic partners will not develop competing products.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE, WHICH WOULD INCREASE OUR LOSSES IF SUCH CLAIMS OCCURRED.
As we begin commercialization of our products, we will face exposure to product liability claims. Any product liability claims arising in the future, regardless of their merit or eventual outcome, could increase our losses. We cannot assure you that we will continue to be able to maintain our current coverage or obtain new insurance on acceptable terms with adequate coverage, or at reasonable costs. In addition, potential product liability claims may exceed the amount of our insurance or may be excluded from coverage under the terms of the policy.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN NEEDED OR GENERATE THE CAPITAL NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS, WHICH COULD HURT OUR ABILITY TO COMPETE OR ACHIEVE PROFITABILITY.
It might be necessary for us to raise additional capital over the next few years to continue our research and development efforts and to commercialize our products. We believe that the proceeds from our initial public offering and projected revenue from collaborations should be sufficient to fund our anticipated levels of operations through at least the next 24 months. However, we cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will continue to receive funding under existing collaborative arrangements or that existing or potential future collaborations or sales revenue will be adequate to fund our operations. We may need additional funds sooner than planned to meet operational needs, capital requirements for product development and commercialization and payment of monetary damages in any on-going or future litigation. From time to time, we may consider possible strategic transactions, including the potential acquisitions of products, technologies and companies, with the goal of further developing our business and maximizing stockholder value. Such transactions, if any, could materially affect our capital resources. We cannot assure you that additional funds will be available when needed, or on terms acceptable to us, or that sufficient revenue will be generated from sales. If adequate funds are not available, we may have to reduce substantially or eliminate expenditures for the development and production of certain of our proposed products or obtain funds through arrangements with collaboration partners that require us to relinquish rights to certain of our technologies or products. Either of these alternatives could have a material adverse effect on our business, operating results, financial condition and future growth prospects.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
Our executive officers, directors and their affiliates presently beneficially own or control a significant percentage of the outstanding shares of common stock. Accordingly, our current executive officers, directors and their affiliates, if acting together, would have the ability to influence the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets and any other significant corporate transactions. The concentration of ownership could also delay or prevent a change of control of our company at a premium price if these stockholders oppose it.
THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE.
There has only been a public market for our common stock since March 21, 2000, and since then our common stock has traded in a range between $1.40$1.30 and $60.00 per share.
The trading price of our common stock may continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: quarterly fluctuations in results of operations; our ability to successfully commercialize our products; technological innovations or new commercial products by us or our competitors; developments concerning government regulations or proprietary rights which could affect the potential growth of our customers; the execution of new collaborative agreements and material changes in the relationships with business partners; market reaction to trends in revenues and expenses, especially research and development; changes in earnings estimates by analysts; sales of common stock by existing stockholders; and economic and political conditions.
The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Any failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, the stock market, and the NASDAQ National Market and the market for technology companies in particular, is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, companies that have experienced volatility in the market price of their securities have been the subjects of securities class action litigation, and as noted elsewhere in ourthis Form 10-K for the year ended December 31, 2001,10-Q, we have recently been sued in a securities class action lawsuit. Although we believe that the class action lawsuit and the other lawsuits described elsewhere in ourthis Form 10-K for the year ended December 31, 200110-Q are without merit, an adverse determination in any of the lawsuits could have a very significant effect on our business and results of operations, and could materially affect the price of our stock. Moreover, regardless of the ultimate result, it is likely that the lawsuits will divert management’s attention and resources from other matters, which could also adversely affect our business and the price of our stock.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW LIMIT THE ABILITY OF ANOTHER PARTY TO ACQUIRE US, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Certain provisions of our certificate of incorporation and our bylaws could delay or prevent a third party from acquiring us, even if doing so might be beneficial to our stockholders. For example, we have a classified board of directors whose members serve staggered three-year terms and are removable only for cause. In addition, on March 16, 2001, ACLARA adopted a stockholder rights plan (the “Rights Plan”). Pursuant to the Rights Plan, ACLARA’s Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (a “Right”) on each outstanding share of ACLARA’s common stock. Each
Right will entitle stockholders to buy one-one hundredthone one-hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.50 in the event that the Rights become exercisable. Subject to limited exceptions, the Rights will be exercisable if a person or group acquires 15% or more of the Company’s common stock or announces a tender offer for 15% or more of the common stock. If ACLARA is acquired in a merger or other business combination transaction which has not been approved by the Board of Directors, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring company’s common shares having a market value at the time of twice the Right’s exercise price. These provisions may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of ACLARA. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger or combination with us. These factors could also limit the price that investors might be willing to pay for our common stock in the future.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principle if forced to sell securities that have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than threetwo years. Assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investments as of SeptemberJune 30, 20022003 would have potentially declined by approximately $750,000.
We do not utilize derivative financial instruments, derivative commodity instruments or other market-risk sensitive instruments, positions or transactions in any material fashion.
ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’sour Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizedrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily wasis required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’sour Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures.procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’sour Chief Executive Officer and Chief Financial Officer concluded that the Company’sour disclosure controls and procedures were effective.
There havehas been no significant changeschange in the Company’sour internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or in other factors that could significantlyis reasonably likely to materially affect, theour internal controls subsequent to the date the Company completed its evaluation.
PART II — II—OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Information with respect to this item is incorporated into thethis Part II, Item 1 by reference to Note 3, “Litigation Settlement and Contingencies” contained in Part 1, above found elsewhereItem 1 above.
ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS |
Not applicable.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not Applicable.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
At the annual meeting of stockholders held on Wednesday, June 25, 2003, the following matters were submitted to a vote of the Company’s stockholders:
Proposal 1. Election of two directors to serve until the annual meeting of stockholders in this Form 10-Q.
Nominee | Votes For | Votes Withheld | ||
Kevin C. Tang | 24,312,761 | 71,406 | ||
Herbert H. Hooper | 23,627,490 | 755,677 |
Proposal 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Votes For | Votes Against | Abstained | Broker Non-Votes | |||
24,314,804 | 33,362 | 35,001 | — |
ITEM 5. | OTHER INFORMATION |
Not applicable.
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a) Exhibits. The exhibits listed below are incorporated by reference as part of this report:
Exhibit Number | Description | ||
3.1 | Amended and Restated Certificate of Incorporation of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission, File No. 222-95107 (our “Form S-1”).) | ||
3.2 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.6 to our Form S-1.) | ||
3.3 | Amended and Restated Bylaws of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.4 to our Form S-1.) |
10.1 | * | Form of Indemnification Agreement between ACLARA and each of our directors and officers (Incorporated by reference to Exhibit 10.1 to our Form S-1.) | |
10.2 | * | 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.2 to our Form S-1.) | |
10.3 | * | Amended and Restated ACLARA BioSciences, Inc. 1997 Stock Plan (Incorporated by reference to Exhibit 10.3 to our Form S-1.) | |
10.4 | Amended and Restated Investors’ Rights Agreement, dated as of December 30, 1999 (Incorporated by reference to Exhibit 10.4 to our Form S-1.) |
Number | Description | ||
Lease Agreement between ACLARA BioSciences, Inc. and The Pear | |||
Master Equipment Lease between Phoenix Leasing and Soane BioSciences, Inc., dated as of November 15, 1995 (Incorporated by reference to Exhibit 10.9 to our Form S-1.) | |||
Agreement for an Exclusive Alliance to Develop, Manufacture and Market a Chip-Based Screening System for Cell Analysis between Cellomics, Inc. and ACLARA BioSciences, | |||
Collaboration Agreement between ACLARA BioSciences, Inc., and The Perkin-Elmer Corporation, dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.11 to our Form S-1.) | |||
Side Agreement between ACLARA BioSciences, Inc. and The Perkin-Elmer Corporation, dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.12 to our Form S-1.) | |||
Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Initiative, The Perkin-Elmer Corporation and | |||
Collaboration Agreement between Soane BioSciences, Inc. and The Perkin-Elmer Corporation, dated as of April 25, 1998 (Incorporated by reference to Exhibit 10.14 to our Form S-1.) | |||
Master Loan and Security Agreement by and between ACLARA BioSciences, Inc. and Transamerica Business Credit Corporation, dated as of May 27, 1999 (Incorporated by reference to Exhibit 10.15 to our Form S-1.) | |||
ACLARA BioSciences, Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.16 to our Form S-1.) | |||
Agreement between Packard | |||
Consulting Agreement with Dr. Eric Lander dated as of January 15, 2000 (Incorporated by reference to Exhibit 10.18 to our Form S-1.) | |||
Consulting Agreement with Mr. Andre Marion dated as of January 19, 2000 (Incorporated by reference to Exhibit 10.19 to our Form S-1.) | |||
Settlement Agreement and Mutual General Release between Caliper Technologies Corp. and |
Cross-License Agreement between Caliper Technologies Corp. and ACLARA BioSciences, Inc., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 14, 2001.) | ||||
Common Stock Issuance Agreement between ACLARA BioSciences, Inc. and Caliper Technologies Corp., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on May 15, 2001.) | ||||
+ | ||||
Amended and Partially Restated Collaboration Agreement between ACLARA BioSciences, Inc. and PE Corporation (NY), executed as of March 22, 2002. (Incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K filed on April 1, 2002.) |
Number | Description | ||
10.21 | Second Side Agreement Between ACLARA BioSciences, Inc. and PE Corporation (NY), effective as of September 30, 2000. (Incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K filed on April 1, 2002.) | ||
Supply and Distributorship Agreement between ACLARA BioSciences, Inc. and Roche Diagnostics Corporation, dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed on April 1, 2002.) | |||
First Amendment to the Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., executed as of October 1, 2001. (Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K filed on April 1, 2002.) | |||
Second Amendment to the Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K filed on April 1, 2002.) | |||
Development and Commercialization Agreement between Third Wave Technologies, Inc. and ACLARA BioSciences, Inc., dated as of October 24, 2001. (Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed on April 1, 2002.) | |||
Agreement between Third Wave Technologies, Inc. and ACLARA BioSciences, Inc. dated as of October 24, 2001. (Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K filed on April 1, 2002.) | |||
Amendment to the ACLARA BioSciences, Inc. Employee Stock Purchase Plan, effective April 23, | |||
License Agreement between Third Wave Technologies, Inc. and ACLARA | |||
Supply Agreement between Third Wave Technologies, | |||
InvaderCreator Access Agreement between Third Wave Technologies, | |||
Transition Manufacturing Plan Letter Agreement between Third Wave Technologies, | |||
InvaderCreator Access Letter Agreement between Third Wave Technologies, Inc and ACLARA |
Termination Agreement between Roche Diagnostics Corporation and ACLARA | |||
* | General Release and Separation Agreement between Joseph M. Limber and ACLARA |
Exhibit Number | Description | ||
* | Change in Control Agreement between Joseph M. Limber and ACLARA | ||
10.36 | * | Form of Change of Control Agreement between ACLARA BioSciences, Inc. and each of our executive officers except the chief executive officer. (Incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K filed on March 31, 2003.) | |
10.37 | * | Letter Agreement between Edward M. Hurwitz and ACLARA BioSciences, Inc. dated October 29, 2002. (Incorporated by reference to Exhibit 10.37 to our Annual Report on Form 10-K filed on March 31, 2003.) | |
10.38 | * | Letter Agreement between Edward M. Hurwitz and ACLARA BioSciences, Inc. dated November 27, 2002. (Incorporated by reference to Exhibit 10.38 to our Annual Report on Form 10-K filed on March 31, 2003.) | |
10.39 | * | Employment Letter Agreement between Thomas G. Klopack and ACLARA BioSciences, Inc. dated March 18, 2003. (Incorporated by reference to Exhibit 10.39 to our Annual Report on Form 10-K filed on March 31, 2003.) | |
10.40 | * | Severance Agreement between Thomas G. Klopack and ACLARA BioSciences, Inc. dated March 18, 2003. (Supersedes agreement previously filed as Exhibit 10.40 to our Annual Report on Form 10-K filed on March 31, 2003.) | |
10.41 | * | Employment Letter Agreement between Michael J. Dunn and ACLARA BioSciences, Inc. dated April 11, 2003. | |
10.42 | * | Severance Agreement between Michael J. Dunn and ACLARA BioSciences, Inc. dated April 11, 2003. | |
10.43 | * | Form of Change of Control Agreement between ACLARA BioSciences, Inc. and each of our non-employee directors. | |
10.44 | ++ | Research Agreement between ACLARA BioSciences, Inc. and Genentech, Inc. dated July 17, 2002. | |
10.45 | ++ | Amendment No. 1 to Research Agreement between ACLARA BioSciences, Inc. and Genentech, Inc. dated April 17, 2003. | |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Confidential treatment has been granted as to portions of this exhibit. |
Confidential treatment has been requested as to portions of this exhibit. |
* | Management contract or compensatory plan or arrangement. |
(b) Current Reports on Form 8-K. ACLARA did not file any reports
On April 30, 2003, the Company furnished a current report on Form 8-K duringunder “Item 12. Results of Operations and Financial Condition” with respect to a press release announcing its results of operations for the quarter ended SeptemberMarch 31, 2003.
On July 30, 2002.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ ALFRED G. MERRIWEATHER Alfred G. Merriweather | Vice President, Finance and Chief Financial Officer (duly authorized officer and principal financial officer) |
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