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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2001 or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number 0-29975
ACLARA BioSciences, Inc.
Delaware | 94-3222727 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
1288 Pear Avenue
Mountain View, California 94043
(Address of principal executive offices including zip code)
650-210-1200
(Registrant’s telephone number, including area code)
Check whether the issuer (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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ].
The number of shares outstanding of the registrant’s common stock as of October 31, 2001 was 35,781,452.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
(A Company in the Development Stage)
September 30, | December 31, | |||||||||
2001 | 2000 | |||||||||
(unaudited) | ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 25,423 | $ | 108,886 | ||||||
Restricted cash | 34,125 | 1,250 | ||||||||
Short-term marketable investments | 41,777 | 83,726 | ||||||||
Accounts receivable | 1,830 | 1,063 | ||||||||
Prepaid expenses and other current assets | 794 | 893 | ||||||||
Inventories | 15 | — | ||||||||
Total current assets | 103,964 | 195,818 | ||||||||
Long-term marketable investments | 75,464 | — | ||||||||
Restricted cash | 500 | 500 | ||||||||
Property and equipment, net | 8,029 | 6,521 | ||||||||
Other assets, net | 131 | 169 | ||||||||
Total assets | $ | 188,088 | $ | 203,008 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 119 | $ | 41 | ||||||
Accrued payroll and related expenses | 1,231 | 809 | ||||||||
Accrued expenses and other current liabilities | 2,335 | 3,048 | ||||||||
Litigation settlement accrual, current | 26,627 | 1,250 | ||||||||
Current portion of loans payable | 54 | 51 | ||||||||
Total current liabilities | 30,366 | 5,199 | ||||||||
Loans payable, less current portion | 521 | 562 | ||||||||
Deferred rent | 294 | 192 | ||||||||
Litigation settlement | — | 32,500 | ||||||||
Total liabilities | 31,181 | 38,453 | ||||||||
Contingencies (note 4) | ||||||||||
Stockholders’ equity: | ||||||||||
Common stock, $0.001 par value: | ||||||||||
Authorized 150,000,000 shares; Issued and outstanding: 35,780,797 shares at September 30, 2001 and 34,547,784 shares at December 31, 2000 | 36 | 35 | ||||||||
Additional paid-in capital | 259,515 | 248,175 | ||||||||
Deferred stock-based compensation | (3,718 | ) | (6,345 | ) | ||||||
Notes receivable for common stock | (563 | ) | (542 | ) | ||||||
Accumulated other comprehensive income | 538 | 13 | ||||||||
Deficit accumulated during the development stage | (98,901 | ) | (76,781 | ) | ||||||
Total stockholders’ equity | 156,907 | 164,555 | ||||||||
Total liabilities and stockholders’ equity | $ | 188,088 | $ | 203,008 | ||||||
The accompanying notes are an integral part of these condensed financial statements.
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ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
(Unaudited)
Cumulative | ||||||||||||||||||||||
Period | ||||||||||||||||||||||
From | ||||||||||||||||||||||
May 5, | ||||||||||||||||||||||
1995 | ||||||||||||||||||||||
(Inception) | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | to | ||||||||||||||||||||
September 30, | September 30, | September | ||||||||||||||||||||
30, | ||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | 2001 | ||||||||||||||||||
Revenues | $ | 507 | $ | 946 | $ | 2,290 | $ | 2,736 | $ | 14,413 | ||||||||||||
Costs and operating expenses: | ||||||||||||||||||||||
Research and development | 6,126 | 6,029 | 17,802 | 15,757 | 57,502 | |||||||||||||||||
Selling, general and administrative | 2,365 | 4,995 | 7,781 | 11,169 | 31,237 | |||||||||||||||||
Litigation settlement | 2,839 | 1,750 | 5,227 | 1,750 | 39,477 | |||||||||||||||||
Total operating expenses | 11,330 | 12,774 | 30,810 | 28,676 | 128,216 | |||||||||||||||||
Loss from operations | (10,823 | ) | (11,828 | ) | (28,520 | ) | (25,940 | ) | (113,803 | ) | ||||||||||||
Interest income | 1,749 | 3,450 | 6,438 | 7,173 | 17,677 | |||||||||||||||||
Interest expense | (12 | ) | (93 | ) | (38 | ) | (487 | ) | (1,189 | ) | ||||||||||||
Net loss before extraordinary loss | (9,086 | ) | (8,471 | ) | (22,120 | ) | (19,254 | ) | (97,315 | ) | ||||||||||||
Extraordinary loss on early retirement of debt | — | (1,103 | ) | — | (1,103 | ) | (1,103 | ) | ||||||||||||||
Net loss | $ | (9,086 | ) | $ | (9,574 | ) | $ | (22,120 | ) | $ | (20,357 | ) | $ | (98,418 | ) | |||||||
Net loss per common share before extraordinary loss — basic and diluted | $ | (0 26 | ) | $ | (0 25 | ) | $ | (0.63 | ) | $ | (0.58 | ) | ||||||||||
Extraordinary loss per share on retirement of debt | $ | — | $ | (0.03 | ) | $ | — | $ | (0.03 | ) | ||||||||||||
Net loss per common share — basic and diluted | $ | (0.26 | ) | $ | (0.28 | ) | $ | (0.63 | ) | $ | (0.61 | ) | ||||||||||
Shares used in net loss per common share calculation — basic and diluted | 35,525 | 33,783 | 35,111 | 33,554 |
The accompanying notes are an integral part of these condensed financial statements.
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ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
(Unaudited)
Cumulative | |||||||||||||||
Period From | |||||||||||||||
Nine Months Ended | May 5, 1995 | ||||||||||||||
September 30, | (Inception) to | ||||||||||||||
September 30, | |||||||||||||||
2001 | 2000 | 2001 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Net loss | $ | (22,120 | ) | $ | (20,357 | ) | $ | (98,418 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||
Depreciation and amortization | 1,154 | 788 | 3,439 | ||||||||||||
Amortization of discount on marketable investments | (488 | ) | (1,588 | ) | (2,555 | ) | |||||||||
Amortization of note and long-term debt discount | — | 438 | 597 | ||||||||||||
Amortization of deferred stock-based compensation | 1,866 | 6,616 | 10,755 | ||||||||||||
Amortization of other assets | 38 | — | 69 | ||||||||||||
Preferred stock issued for interest expense | — | — | 128 | ||||||||||||
Interest income from notes receivable from stockholders | (24 | ) | — | (53 | ) | ||||||||||
Revaluation of litigation settlement | 5,827 | — | 5,827 | ||||||||||||
Loss on write down of property plant and equipment | — | 213 | — | ||||||||||||
Changes in assets and liabilities: | |||||||||||||||
Accounts receivable | (767 | ) | (202 | ) | (1,830 | ) | |||||||||
Prepaid expenses and other current assets | 99 | (1,509 | ) | (768 | ) | ||||||||||
Inventories | (15 | ) | — | (15 | ) | ||||||||||
Accounts payable | 78 | 1,106 | 119 | ||||||||||||
Accrued payroll and related expenses | 422 | 760 | 1,230 | ||||||||||||
Accrued expenses and other liabilities | (713 | ) | 2,985 | 2,335 | |||||||||||
Litigation settlement accrual | (1,250 | ) | — | 32,500 | |||||||||||
Deferred rent | 102 | — | 294 | ||||||||||||
Net cash used in operating activities | (15,791 | ) | (10,750 | ) | (46,346 | ) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Acquisition of property and equipment | (2,673 | ) | (1,617 | ) | (9,873 | ) | |||||||||
Sale of property and equipment | 11 | — | 16 | ||||||||||||
Investment in restricted cash | (32,875 | ) | (1,250 | ) | (34,750 | ) | |||||||||
Purchases and maturities of investments | (32,502 | ) | (98,460 | ) | (114,148 | ) | |||||||||
Change in other assets | — | (100 | ) | (97 | ) | ||||||||||
Net cash used in investing activities | (68,039 | ) | (101,427 | ) | (158,852 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Principal payments under capital lease obligations | (38 | ) | (570 | ) | (1,541 | ) | |||||||||
Proceeds from issuance of notes payable to related parties | — | — | 2,487 | ||||||||||||
Proceeds from issuance of loans payable | — | — | 4,365 | ||||||||||||
Repayment of loans payable | — | (3,720 | ) | (3,892 | ) | ||||||||||
Proceeds from issuance of preferred stock, net of issuance costs | — | 58 | 29,889 | ||||||||||||
Repayment of 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 | 201,003 | ||||||||||||
Proceeds from notes receivable from stockholders | 4 | 42 | 114 | ||||||||||||
Proceeds from issuance of common stock | 401 | 153 | 1,028 | ||||||||||||
Net cash provided by financing activities | 367 | 196,966 | 230,621 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | (83,463 | ) | 84,789 | 25,423 | |||||||||||
Cash and cash equivalents, beginning of period | 108,886 | 10,250 | — | ||||||||||||
Cash and cash equivalents, end of period | $ | 25,423 | $ | 95,039 | $ | 25,423 | |||||||||
The accompanying notes are an integral part of these condensed financial statements.
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(A Company in the Development Stage)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 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 the Annual Report on Form 10-K for the year ended December 31, 2000 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001, as filed with the Securities and Exchange Commission on April 2, 2001, May 15, 2001 and August 14, 2001, respectively. 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.
Revenue Recognition
ACLARA recognizes revenue based on services performed pursuant to collaboration agreements and government grants, primarily in the period in which the costs are incurred.
Non-refundable milestone fees are recognized as earned upon completion of specified milestones according to contract terms and in the absence of any on-going performance obligations. Any amounts received in advance of performance are recorded as deferred revenue.
Product revenue is recognized when the product has been shipped, remaining obligations are insignificant and collection of any remaining related account receivable is probable. ACLARA does not offer warranties on its products.
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). 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 the shares used in the calculations is as follows (in thousands, except per share data):
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||
Basic and diluted: | ||||||||||||||||
Net loss | $ | (9,086 | ) | $ | (9,574 | ) | $ | (22,120 | ) | $ | (20,357 | ) | ||||
Weighted average shares of common stock outstanding | 35,738 | 34,489 | 35,396 | 34,217 | ||||||||||||
Less: weighted average shares subject to repurchase | (213 | ) | (706 | ) | (285 | ) | (663 | ) | ||||||||
Weighted-average shares of common stock used in basic and diluted net loss per share calculations | 35,525 | 33,783 | 35,111 | 33,554 | ||||||||||||
Net loss per common share — basic and diluted | $ | (0.26 | ) | $ | (0.28 | ) | $ | (0.63 | ) | $ | (0.61 | ) | ||||
The following weighted outstanding options and warrants were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||
Options and warrants | 3,737 | 2,945 | 3,109 | 2,849 |
2. INVENTORIES
Inventories at September 30, 2001 consisted of raw materials and finished goods, and are stated at the lower of average cost or net realizable value.
3. RESTRICTED CASH
Restricted cash at September 30, 2001 includes $500,000 held in the form of a certificate of deposit as collateral against operating lease payments and $34.125 million held in escrow as part of our 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 which 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 amount of $34.125 million was recorded as restricted cash in our financial statements at September 30, 2001 and is invested in short-term US government debt and money market funds. At June 30, 2001, $1.3 million that had been included in restricted cash, relating to the settlement of the Rodenstock litigation was discharged from escrow in August 2001.
4. LITIGATION SETTLEMENT AND CONTINGENCIES
As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued to Caliper in March 2001, with a guaranteed liquidation price of $36.11 per share if Caliper sells the shares between 18 and 24 months after the date of issuance of the common stock. ACLARA valued the put obligation associated with these shares at $32.5 million at December 31, 2000. The put obligation was 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
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ACLARA’s performance under the terms of the litigation settlement.
Based on the change in ACLARA’s stock price and in accordance with EITF No. 96-13 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 96-13”) and its related interpretations, and Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), the put obligation was subsequently revalued at $25.6 million, $23.2 million and $26.6 million, at March 31, 2001, June 30, 2001, and September 30, 2001, respectively. As a result of these revaluations, revaluation charges of $3.4 million and $5.8 million were recorded in the Statement of Operations for the three and nine months ended September 30, 2001, respectively. The put obligation has been classified as a current liability at September 30, 2001. The put obligation will be revalued on a quarterly basis using a Black-Scholes pricing model with changes in valuation being recorded in the Statement of Operations. The value of the put obligation represents the fair value of ACLARA’s obligation pursuant to EITF No. 96-13 and SFAS 133.
On August 2001, a third party agreed to pay ACLARA $600,000 as a settlement resolving all disputes between the third party and ACLARA. The payment of $600,000 is recorded as an offset to litigation settlement in the accompanying Statement of Operations for the three and nine months ended September 30, 2001.
5. SUBSEQUENT EVENTS
On October 26, 2001, ACLARA entered into an exclusive worldwide distribution agreement (“Agreement”) with Roche Diagnostics Corporation (“Roche”) for ACLARA’s LabCard products. The Agreement also includes a fee payable to ACLARA within 30 days after the effective date of the Agreement which provides Roche with exclusive rights of first refusal and negotiation rights to access certain other products of ACLARA.
In March 1999, ACLARA entered into an agreement with Applied Biosystems and the R.W. Johnson Pharmaceutical Research Institute (“PRI”), a division of the Johnson and Johnson Development Corporation. Under this agreement, ACLARA and Applied Biosystems agreed to develop and provide to PRI advanced prototype microfluidic systems for pharmaceutical drug screening. Under a side agreement between ACLARA and Applied Biosystems, any royalty received from PRI for the manufacturing or selling of microfluidic electrophoresis devices would be split between Applied Biosystems and ACLARA. In October 2001, ACLARA, PRI and Applied Biosystems agreed to modify the three-way drug screening collaboration agreement which enables a two-way collaboration on this program between ACLARA and PRI, without Applied Biosystems.
In November 2001, ACLARA entered into change of control agreements with certain Officers of ACLARA. The forms of these agreements are filed as an exhibit to this Form 10-Q.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, The Financial Accounting and Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 141 (“SFAS No. 141”), “Business Combinations,” and No. 142 (“SFAS No. 142”),
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“Goodwill and Other Intangible Assets.” SFAS No. 141 required that all business combinations initiated after June 30, 2001 be accounted for under a single method – the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption of the Statement and on an annual basis going forward. The amortization of goodwill will cease upon adoption of SFAS No. 142. The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. ACLARA is required to adopt SFAS 142 in the first quarter of fiscal year 2002. ACLARA believes that the adoption of these standards will have not have a material impact on ACLARA’s financial position and results of operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. This Statement supersedes FASB Statement No. 121 and APB 30, however, this Statement retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. This Statement addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. Management does not expect the adoption of SFAS No. 144 to have a material impact on ACLARA’s financial position and results of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes to those statements included elsewhere in this Form 10-Q, and in conjunction with the Form 10-K for the year ended December 31, 2000 and Forms 10-Q for the three months ended March 31, 2001 and June 30, 2001. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations which express that we “believe”, “anticipate”, “expect” or “plan to” as well as other statements which 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 “Additional Factors That Might Affect Future Results” set forth below.
OVERVIEW
ACLARA BioSciences is a leading developer of assay technologies and lab-on-a-chip systems for life science research. The company is developing advanced tools for drug discovery, genomics and proteomics using its proprietary eTag assay chemistries and microfluidics array technology. These tools enable the rapid, parallel processing of large numbers of samples while requiring only minute volumes of expensive or rare reagents.
ACLARA’s business strategy is to commercialize its assay chemistries and microfluidic LabCard™ devices for use in conjunction with existing instrument platforms, as well as to integrate its assay chemistries and microfluidic technologies to commercialize powerful, new instrument systems.
ACLARA was incorporated in Delaware in 1995. Since our inception, we have engaged primarily in organization and research and development efforts related to the application of proprietary microfluidics technology and assay chemistry technology for genomics and pharmaceutical drug screening.
Our collaborators include Applied Biosystems Group (formerly PE Biosystems), Third Wave Technologies, Inc., Roche Diagnostics and the R.W. Johnson Pharmaceutical Research Institute, a subsidiary of Johnson & Johnson (“PRI”). We have government grants from the Defense Advanced Research Projects Agency (“DARPA”).
We have invested substantial amounts in establishing our microfluidics and assay chemistry technologies. Since our inception we have incurred $57.5 million of expense on our research and development efforts. Over 80% of our 148 employees at
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October 31, 2001 were engaged in research and development activities.
Our sources of potential revenue for the next several years are likely to be from product revenue, receipts under existing and possible future collaborative arrangements, existing government research grants and collaborations, and royalties from our collaborators based on revenue received for the sale of reagents utilizing our technology.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenue. Revenue for the three months ended September 30, 2001 and September 30, 2000 was $507,000 and $946,000, respectively. The decrease in revenue of $439,000 primarily reflects a decrease in collaboration revenue of $521,000 and an increase in grant revenue of $82,000, primarily from DARPA. Revenue for the nine months ended September 30, 2001 and September 30, 2000 was $2.3 million and $2.7 million, respectively. The decrease in revenue of approximately $400,000 reflects a decrease in collaboration revenue of $1.3 million being partially offset by an increase of $900,000 in grant and product revenue.
Research and Development. Research and development expenses for the three months ended September 30, 2001 and September 30, 2000 were $6.1 million and $6.0 million, respectively. This increase was primarily due to $2.5 million of increased expenditure on staffing, project and personnel related costs, being partially offset by $2.4 million of reduced stock-based compensation expense. Research and development expenses for the nine months ended September 30, 2001 and September 30, 2000 were $17.8 million and $15.8 million, respectively. This increase was due to $6.6 million of increased expenditure on staffing, project and personnel related costs, being partially offset by $4.6 million of reduced stock-based compensation expense. We expect to continue to devote substantial resources to research and development, and we expect that these expenses will continue to increase on an absolute dollar basis.
Selling, General and Administrative. Selling, general and administrative expenses for the three months ended September 30, 2001 and September 30, 2000 were $2.4 million and $5.0 million, respectively. This decrease was primarily due to reduced litigation expenses. Selling, general and administrative expenses for the nine months ended September 30, 2001 and 2000 were $7.8 million and $11.2 million, respectively. This decrease was primarily due to reduced litigation expenses, and to reduced stock-based compensation expense. We expect that our selling, general and administrative expenses will increase in absolute dollar amounts as we expand the infrastructure required to support our activities.
Litigation Settlement. On January 4, 2001, ACLARA reached an agreement with Caliper Technologies Corporation to settle all three lawsuits which were pending between the companies. As part of this litigation settlement, 900,000 shares of ACLARA common stock were issued to Caliper and a liability was recorded at December 31, 2000 for the issuance of common stock and the put obligation associated with the common stock. The put obligation was subsequently revalued at $25.6 million, $23.2 million and $26.6 million, at March 31, 2001, June 30, 2001, and September 30, 2001, respectively. As a result of these revaluations, revaluation charges of $3.4 million and $5.8 million were recorded in the Statement of Operations for the three and nine months ended September 30, 2001, respectively. The charge for the three month period ending September 30, 2001 reflects the increase in the valuation of the put option from $23.2 million to $26.6 million, primarily attributed to the decrease in ACLARA’s stock price over the three month period ending September 30, 2001. The charge for the nine month period ending September 30, 2001 reflects the increase in the valuation of the put option from $20.8 million to $26.6 million, primarily attributed to the decrease in ACLARA’s stock price over the nine month period ending September 30, 2001. The put obligation has been classified as a current liability at September 30, 2001. The put obligation represents the fair value of ACLARA’s obligation under the terms of the settlement and in accordance with EITF No. 96-13 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” and its related interpretations, and Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives Instruments and Hedging Activities” (“SFAS 133”).
As mentioned in footnote 4, an agreement to pay ACLARA $600,000 is recorded as an offset to litigation settlement in the accompanying Statement of Operations for the three and nine months ended September 30, 2001.
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Net Interest Income. Net interest income represents income earned on our cash, cash equivalents, short-term marketable investments, long-term marketable investments and restricted cash, offset by interest paid on bridge loans, capital leases and equipment loans. Net interest income was $1.7 million and $3.4 million for the three months ended September 30, 2001 and September 30, 2000, respectively. This change primarily reflects a decline in market interest rates. Net interest income was $6.4 million and $6.7 million for the nine months ended September 30, 2001 and September 30, 2000, respectively. This change primarily reflects a decline in market interest rates, being partially offset by decreases in interest expenses due to the pay-off of loans and lease obligations and higher average balances of cash and marketable investments.
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 that raised $32.3 million, a loan from the landlord of our Mountain View facility for $663,000, and research and development funding from collaborators and government grants. As of September 30, 2001, we had $142.7 million in cash, cash equivalents, short-term marketable investments and long-term marketable investments, and $34.6 million of restricted cash.
Operating activities for the nine months ended September 30, 2001 and 2000 used cash of $15.8 million and $10.8 million, respectively. Uses of cash in operating activities primarily resulted from operating losses adjusted for non-cash expenses and changes in working capital.
Investing activities for the nine months ended September 30, 2001 used cash of $68.0 million, primarily reflecting the net purchase of marketable investments of $32.5 million and an increase in restricted cash of $32.9 million. Investing activities for the nine months ended September 30, 2000 used cash of $101.4 million, primarily reflecting the investment in marketable investments of the net proceeds from ACLARA’s initial public offering. Net cash outflows for additions to property and equipment for the nine months ended September 30, 2001 and September 30, 2000 were $2.7 million and $1.6 million, respectively. We expect to continue to make significant investments in property and equipment to support our expanding operations.
Financing activities for the nine months ended September 30, 2001 and September 30, 2000 provided cash of $367,000 and $197.0 million, respectively. This decrease primarily reflects the initial public offering in March 2000 of 10,350,000 shares of common stock at an offering price of $21.00 per share.
We believe that our current cash and 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. 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.
As part of our litigation settlement with Caliper, we have agreed to provide 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 which 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 $34.125 million is recorded as restricted cash in our financial statements at September 30, 2001.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, The Financial Accounting and Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 141 (“SFAS No. 141”), “Business Combinations,” and No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets.” SFAS No. 141 required that all business combinations initiated after June 30, 2001 be accounted for under a single method – the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption of the Statement and on an annual basis going forward. The amortization of goodwill will cease upon adoption of SFAS No. 142. The provisions of SFAS No. 142 will be
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effective for fiscal years beginning after December 15, 2001. ACLARA is required to adopt SFAS 142 in the first quarter of fiscal year 2002. ACLARA believes that the adoption of these standards will have not have a material impact on ACLARA’s financial position and results of operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. This Statement supersedes FASB Statement No. 121 and APB 30, however, this Statement retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. This Statement addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. Management does not expect the adoption of SFAS No. 144 to have a material impact on ACLARA’s financial position and results of operations.
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS
The following risk factors outline certain risks and uncertainties concerning future results and should be read in conjunction with the information contained elsewhere in this Form 10-Q and in conjunction with, Form 10-K for the year ended December 31, 2000 and Forms 10-Q for the quarters ended March 31, 2001 and June 30, 2001. Any of these risk factors could materially and adversely affect our business, financial condition, results of operations 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 organizational, research and development efforts. We have incurred operating losses every year, and we may never achieve profitability. Net loss for the nine months ended September 30, 2001 was $22.1 million. Net losses for the years ended December 31, 2000, 1999 and 1998 were $59.2 million, $8.2 million, and $5.5 million, respectively. As of September 30, 2001 we had an accumulated deficit of $98.9 million. Our losses have resulted principally from costs incurred in connection with our research and development activities, general and administration costs associated with our operations, and settlement of litigation expenses.
We commercially launched our first microfluidics product, the Arteas LabCard device, in the fourth quarter of 2000. Our ability to generate revenues from product sales or to achieve profitability is dependent on our ability, alone or with our collaborative partners, to successfully design, develop, manufacture and commercialize our microfluidic systems in a timely manner. Our revenue to date has been generated principally from collaborative research and development agreements, technology access fees, interest on cash and investment balances, and government grants. 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, but are not limited to:
• | expiration or termination of contracts with collaborators or government research grants, which may not be renewed or replaced; | ||
• | the timing and willingness of collaborators to commercialize our products; |
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• | general and industry-specific economic conditions, which may affect our customers’ research and development expenditures and use of our products; and | ||
• | a quarterly revaluation of a put obligation which is dependant, among other things, on the volatility and level of ACLARA’s stock price. |
If there are 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 general and administrative expenses are not affected directly by variations in revenue.
Due to fluctuations in our revenue and net income, we believe that period-to-period comparisons of 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. In those cases, our stock price could fluctuate significantly or decline.
MOST OF OUR PRODUCTS ARE IN THE DEVELOPMENT STAGE AND MAY NOT SUCCESSFULLY BE BROUGHT TO COMMERCIALIZATION.
Most of our products are not commercially available. We have limited experience developing, manufacturing, distributing or selling commercial systems using our microfluidics technology and assay chemistries. We are developing products that in many cases are part of complex systems that also have not been fully developed, tested, manufactured or commercially introduced by our major collaborative partners. We may not be able to perfect the design of our products due to the complexity of the systems they are part of and the demands of the scientific processes that they address. Even though we have designed products, we cannot assure you that we will be able to adapt the design to allow for large-scale manufacturing and commercialization. Although we have projected launch periods for certain of our products, we cannot assure you that we will complete development of the systems by those launch dates, or at all. If we are unable to design a sufficient number of commercially viable 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 MICROFLUIDIC CHIPS, ASSAY CHEMISTRIES AND RELATED SYSTEMS. IF THEY DO NOT ACHIEVE ACCEPTANCE, OUR ABILITY TO GENERATE SALES WILL BE LIMITED AND OUR LOSSES WOULD INCREASE.
Demand for our products is substantially dependent upon widespread market acceptance of systems utilizing our microfluidic chips and assay chemistries as tools for genomics and pharmaceutical drug screening. Because most of our products will be part of larger analytical systems marketed by our collaborative partners, our ability to sell products in these cases depends on the adoption by researchers of new analytical equipment. We cannot assure you that microfluidic chips, eTag™ chemistries and related instrument systems using our technology will achieve substantial acceptance in our target markets. Market acceptance will depend on many factors, including but not limited to:
• | our ability and the ability of our collaborative partners to demonstrate to potential customers the benefits and cost-effectiveness of our microfluidic chips, eTag chemistries, and related systems, relative to products already available at the time these systems are introduced; and | ||
• | the extent and success of our partners’ efforts to market, sell and distribute the microfluidic chips, eTag chemistries, and related systems. |
Further, if our initial microfluidic chips, assay chemistries, and related systems are not favorably received by the market, it could undermine our ability to successfully introduce subsequent microfluidic chips, assay chemistries, or related systems. If our microfluidic chips, assay chemistries, and related systems do not gain market acceptance, our losses would increase and we may be unable to remain in business.
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WE PREDOMINANTLY DEPEND ON COLLABORATIVE PARTNERS TO DEVELOP AND MARKET SYSTEMS THAT UTILIZE OUR PRODUCTS TO END USERS. IF OUR COLLABORATIVE PARTNERS DO NOT PERFORM AS EXPECTED, WE MAY BE UNABLE TO DEVELOP AND MARKET OUR PRODUCTS.
Because the majority of our products are components of larger systems, our success depends on our ability to establish relationships with collaborative partners to create products to address market needs. For example, our collaborative relationship with Third Wave Technologies provides for the joint development of systems for genomics research In this relationship, we provide eTag assay reagents as one component of systems used by researchers for genomics analysis Our ability to expand the applications for our technology will largely depend on our ability to broaden our relationships with existing partners and identify and enter into similar relationships with new collaborative partners to address additional customer needs. If we are unable to broaden our existing collaborative relationships or enter into relationships with additional collaborative partners our business may suffer.
Our ability to sell products will also depend on the ability of our collaborative partners to develop instrument systems that can utilize our microfluidic chips and assay chemistries. If the development efforts of our collaborative partners fail or are significantly delayed, our losses could increase. We cannot assure you that our collaborative partners will be able to develop products as planned.
We also intend to rely upon our current and future collaborative partners to market, sell, distribute and promote our microfluidic chips and assay chemistries. If our collaborative partners do not perform these functions satisfactorily, our ability to market, sell and distribute our products could be severely limited.
We generally do not have control over the resources or degree of effort that any of our existing collaborative partners may devote to our collaborations. If our collaborators breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in accordance with agreed upon schedules, our business would be harmed. In addition, our collaborative partners could cease operations, eliminate relevant product lines, or offer, design, manufacture or promote competing lines of products. Any of these occurrences could increase our losses.
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 190 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 issue 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, 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.
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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 licensing 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 (“USPTO”) to determine the priority of inventions.
The defense and prosecution, if necessary, of intellectual property suits, USPTO 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 non-issuance.
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 AND MAINTAINING RELATIONSHIPS WITH THIRD-PARTY MANUFACTURERS TO MANUFACTURE OUR MICROFLUIDIC CHIPS.
We have limited experience manufacturing our products in the volumes that will be necessary for us to achieve significant commercial sales. The nature of our products requires the use of sophisticated injection molding and other manufacturing processes that are not widely available. For this reason only, a limited number of vendors currently have the expertise to manufacture our products. We have relationships with outside suppliers who are currently manufacturing limited quantities of our microfluidic chips. We will need to enter into contractual relationships with these or other manufacturers for commercial scale production of microfluidic chips and we cannot assure you that we will be able to do so on a timely basis, for sufficient quantities of chips or on commercially reasonable terms. In addition, the loss of any of these suppliers may result in a delay or interruption of our supply of microfluidic chips. Any significant delay or interruption could 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. We carry key person life insurance on only two of our senior management 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 upon our research and development activities, sales revenue, operating costs and future growth prospects.
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WE EXPECT INTENSE COMPETITION IN OUR TARGET MARKETS.
We compete with companies that design, manufacture and market analytical instruments for genomics and pharmaceutical drug screening using technologies such as gel electrophoresis, capillary electrophoresis, microwell plates and robotic liquid handling systems. In addition, a number of companies are developing new technologies for miniaturizing various laboratory procedures, for genomics and drug screening markets targeted by us, using methods such as beads, hybridization chips and high density microwell plates. Furthermore, we are aware of other companies that are developing microfluidics technology, including, but not limited to, Orchid BioSciences, Inc. and Caliper Technologies Corp. for potential use in certain of the markets that we are targeting. We anticipate that we will face increased competition in the future as new companies enter the market with new technologies. Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introductions 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. 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 AND OTHER CLAIMS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE, WHICH WOULD INCREASE OUR LOSSES IF SUCH CLAIMS OCCURRED.
The commercial launch of our microfluidic products, assay chemistries and related systems could result in ACLARA being exposed to product liability claims. Any product liability claims arising in the future, regardless of their merit or eventual outcome may exceed the amount of our insurance or may be excluded from coverage under the terms of our insurance policy. Furthermore, we may be exposed to other types of legal claims.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN NEEDED OR TO 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 further commercialize our products. We believe that the proceeds from our initial public offering in March 2000 and projected revenue should be sufficient to fund our anticipated levels of operations for 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 and capital requirements for product development and commercialization. We cannot assure you that additional funds will be a 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 largest stockholders and their affiliates presently beneficially own or control a significant percentage of the outstanding shares of common stock. Accordingly, our current executive officers,
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directors, principal stockholders and their affiliates, if acting together, could 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 MAY BE 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 $4.31 and $66.00 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; ACLARA’s ability to successfully commercialize products; technological innovations or the introduction of 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 the 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, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against the company. If similar litigation were instituted against us, it could result in substantial costs and a diversion of management’s attention and resources, which could have an adverse effect on our business, results of operations and financial condition.
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, bylaws and stockholder rights plan 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 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-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.
Furthermore, 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 provisions could also limit the price that investors might be willing to pay in the future for our common
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stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is currently confined to our cash, cash equivalents, short-term marketable and long-term marketable investments. We maintain an investment portfolio of US government debt, corporate debt and money market funds. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates. 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 principal if forced to sell securities which have declined in market value due to changes in interest rates. To reduce the exposure due to adverse shifts in interest rates, we maintain the investment portfolio at an average maturity of generally less than two years. ACLARA also restricts its exposure to any single corporate issuer by imposing concentration limits. We currently do not hedge interest rate exposure.
The table below presents our investment portfolio by expected maturity and related weighted average interest rates at September 30, 2001:
FAIR | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | TOTAL | VALUE | |||||||||||||||||||
Money market fund | $ | 15,544 | — | — | — | $ | 15,544 | $ | 15,544 | |||||||||||||||
Average interest rate | 3.4 | % | 3.4 | % | ||||||||||||||||||||
Available for sale marketable securities | $ | 18,335 | $ | 46,332 | $ | 37,290 | $ | 24,625 | $ | 126,582 | $ | 127,120 | ||||||||||||
Average interest rate | 3.5 | % | 3.8 | % | 4.4 | % | 4.9 | % | 4.2 | % | ||||||||||||||
Total securities | $ | 33,879 | $ | 46,332 | $ | 37,290 | $ | 24,625 | $ | 142,126 | $ | 142,664 | ||||||||||||
Average interest rate | 3.4 | % | 3.8 | % | 4.4 | % | 4.9 | % | 4.1 | % |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 4 to the condensed financial statements contained in Part I herein.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
A Registration Statement on Form S-1 (No. 333-95107) was declared effective by the SEC on March 20, 2000. We have continued to use the net proceeds of the offering to fund our ongoing research and development activities, working capital needs and other general corporate purposes. As of September 30, 2001, we had applied the estimated aggregated net proceeds of $201 million from our initial public offering as follows:
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Working capital and marketable investments | $157.6 million | |||
Restricted cash, non-current | $ 34.1 million | |||
Capital expenditures | $ 5.0 million | |||
Repayment of indebtedness | $ 4.3 million |
The foregoing amounts represent our best estimate of our use of proceeds for the period indicated.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits listed in the accompanying Exhibit Index are
filed with or incorporated by reference as part of this Report.
(b) Current Reports on Form 8-K. We did not file any reports on Form 8-K
during the quarter ended September 30, 2001.
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SIGNATURES
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.
ACLARA BIOSCIENCES, INC. | ||||
Date: November 14, 2001 | By: | /s/ JOSEPH M. LIMBER | ||
Joseph M. Limber President and Chief Executive Officer (Duly Authorized Officer and Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibit No. | Description | |
10.1+ | Cross-License Agreement between Caliper Technologies Corp. and ACLARA BioSciences, Inc., dated as of March 12, 2001. (1) | |
10.2 | Form of Change of Control Agreement between ACLARA BioSciences, Inc. and each of our executive officers. |
+ Confidential treatment has been granted for portions of this agreement.
(1) Previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001.